Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Fortinet's first quarter 2026 financial results.

Joining me on today's call are Ken Xie, Fortinet's Founder, Chairman, and CEO, Christiane Ohlgart, our CFO, and John Whittle, our COO. Ken will begin our call today by providing a high-level perspective on our business.

Christiane will then review our financial results for the first quarter of 2026 before providing guidance. During the Q&A session, we will ask that you please limit yourself to one question and one follow-up question to allow others to participate.

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 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-K and Form 10-Q for more information.

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. 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 press release and in the presentation that accompanied today's remarks, both of which are posted on our Investor Relations website. As a reminder, this is a live call that will be available for replay via webcast on our Investor Relations website.

The prepared remarks will also be posted on the quarterly earnings section of our Investor Relations website following today's call. Lastly, all references to growth are on a year-over-year basis, unless noted otherwise.

I will now turn the call over to Ken.

Thank you, Anthony, and thank you to everyone for joining our call. We are very pleased with our excellent first quarter result, exceeding our guidance through strong execution and broader based demand.

As a result, billings grew 31%, total revenue increased 20%, and the product revenue grew 41%. Non-GAAP and GAAP operating margin were very strong and 36% and 31%, with GAAP operating margin and revenue growth total together 51%, one of the highest in the industry.

We also generated a record $1 billion free cash flow, highlighting the strength and durability of our business model. GAAP earning per share increased 29%, demonstrating our commitment to strong shareholder return.

The convergence of networking and security, an approach Fortinet has lead for 26 years, is accelerating in the AI era. Customers are adopting Fortinet platform with secure networking, unified SASE, SecOps built on single FortiOS operating system, enabling expanding across many use cases.

By delivering all core SASE capability natively integrated in one operating system, our SASE firewall significantly reduce complexity for customers. Innovations such as FortiOS 8.0 with its rich integrated functionality, our FortiASIC technology, which deliver higher secure computing performance and significantly lower cost, and our direct supply chain management continue to differentiate Fortinet and supporting market share gain, as AI drive strong demand for SASE firewalls.

Secure networking billing grew 32%, outperforming the broad market. Today we announce the FortiGate 3500G and 400G, deliver significant performance improvement over previous generations, further strengthening Fortinet's leadership.

OT security accelerated in the quarter, with OT billing growth over 70%, as customer prioritized protecting critical infrastructure amid heightened threat. Unified SASE billing grew 31%.

Our differentiation is powered by three key advantages: single operating system across next-gen firewall, SD-WAN, and SASE; our owned global cloud infrastructure deliver better security and performance and roughly 1/3 total cost of ownership of peers; and our much larger total addressable market, especially in sovereign and private SASE, which allow customer to deploy SASE in their own environment to meet data sovereignty and regulatory requirements. Beyond secure networking and SASE, AI is rapidly expanding the opportunity in SecOps, as AI-driven SecOps billing grew 23%, supported by more than 20 AI-enabled solutions on our platform, as customer consolidate vendor and simplify operations.

Finally, given our strong results and confidence in the business, we are raising our 2026 guidance. We continue to expect balanced growth, strong cash generation, recurring revenue, and shareholder-focused long-term growth capital allocation strategy, while consistently deliver GAAP profitability since IPO.

As AI increase the demand for security, our platform approach continue to differentiate, supported by a strong direct operational model that enable us to turn supply chain challenges into opportunity to gain market share. 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 Christiane.

Thank you, Ken, and good afternoon, everyone. As Ken noted, we delivered a strong first quarter, exceeding the high end of our guidance across billings, total revenue, operating margin, and earnings per share.

The success reflects broad-based demand and strong execution across customer types, industry verticals, our geos, and all three pillars. Total billings grew 31% to $2.09 billion, driven by broad strength across secure networking, unified SASE.

Our large enterprise segment was particularly strong. Secure networking billings grew 32%, driven by robust FortiGate demand as customers expanded protection across operational technology environments, contributing to OT billings growth of over 70%.

Unified SASE adoption continued to build during the quarter, with billings growing 31%, driven by strength in SD-WAN and FortiSASE. FortiSASE expansion within our customer base also remained strong, with 18% of our large enterprise customers now having purchased FortiSASE, an increase of over 45%.

AI-driven security operations billings grew 23%, highlighting our continued platform expansion within our installed base. Turning to revenue, total revenue grew 20% to $1.85 billion, with product revenue increasing 41% to $645 million, as customers shifted toward higher performance products.

This included a number of AI-related deployments, where customers invested in FortiGates to support increased throughput, segmentation, and security requirements across AI infrastructure. Technology upgrades, upselling, and expansion into new use cases drove strong growth in both hardware and software.

We again benefited from our strong supply chain execution. Recent pricing changes had a low single-digit impact on product revenue growth.

Service revenue grew 11% to $1.21 billion, while service billings growth reaccelerated to 27%, and deferred revenue increased 15%, driven in part by SecOps ARR growth. We view service billings growth, deferred revenue, and SecOps ARR growth, together with accelerating product revenue, as leading indicators of future services revenue.

Stepping back, these results reflect both strong execution in the quarter and durable demand drivers that continue to shape customer priorities, as customers invest in and upgrade their network security solutions to defend against sophisticated attacks that are growing in both speed and complexity due to the availability of AI tools. AI is expanding the attack surface and increasing performance requirements, which is driving higher and more durable security spend across networking, SASE, and security operations.

Our strong product revenue and service billings trends and outlook continue to be driven by key tailwinds, including the ongoing convergence of security and networking, rising customer investments, and demand to secure AI infrastructure as traffic, segmentation, and performance requirements increase, and accelerating IT and OT convergence, as customers recognize growing exposure across critical infrastructure. These drivers translated into strong demand this quarter, particularly in large enterprises, where both the number of deals greater than $1 million and total deal value grew over 60%.

We saw strong growth in both Europe and the US. Looking ahead, we can see these dynamics reinforced by durable tailwinds that support continued platform adoption over time.

Tailwinds include vendor consolidation, ongoing technology upgrade cycles, and the continued expansion of enterprise attack surfaces across cloud, OT, and AI environments. In OT specifically, we are seeing strong demand driven by heightened ransomware and nation-state activity alongside rapid digitalization as organizations seek to deploy AI.

These same dynamics are extending into SASE, where customers increasingly require flexibility to meet data privacy, sovereignty, and regulatory requirements. We support both cloud-based SASE and sovereign SASE, enabling enterprises and service providers to deploy SASE within their own data centers when required.

Demand for our sovereign SASE continues to be strong, and no major SASE competitor currently offers a comparable solution. Rising cyber risk, heightened regulatory scrutiny, growing data sovereignty requirements, while dealing with economic pressures, are further accelerating customers to adopt platform-based approaches.

At the same time, rapid AI adoption and increased geopolitical uncertainty are expanding the cyber security TAM, as organizations prioritize resilience, sovereignty, and consistent protection across increasingly complex and distributed global infrastructures. Importantly, these trends align with the reasons our platform approach continues to resonate.

Fortinet's platform approach is differentiated because secure networking, unified SASE, and AI-driven security operations are all built on the single operating system FortiOS. This unified architecture enables customers to deploy security consistently across private, public, and hybrid multicloud environments, as well as across hardware, software, and SaaS form factors, while supporting seamless expansion across use cases.

As AI rapidly expands the attack surface, customers are prioritizing integrated platforms that share telemetry and reduce operational complexity, accelerating vendor consolidation. Against this backdrop, our strong network security foundation remains a core differentiator, driving adoption of SD-WAN, SASE, and security operations, and supporting continued wallet share expansion as customers simplify architectures and consolidate vendors.

This contributed to growth of 28% in unified SASE and SecOps combined, with momentum continuing across our more services-rich pillars. We are also introducing a new SD-WAN and SASE services bundle designed to broaden adoption and further support services revenue over time.

We also benefit from durable competitive advantages, particularly as performance requirements increase. Our proprietary ASIC technology and integrated operating system delivers superior performance and lower total cost of ownership, which is increasingly important in high-throughput environments as customers scale AI-driven traffic inspection.

Finally, customer demand remained broad-based across segments, demonstrating the durability of our platform strategy, with over 6,600 new organizations selecting our FortiOS platform during the quarter, reinforcing the breadth of demand across SMB, mid-market, and enterprise customers. Overall, these results reflect consistent demand drivers and durable long-term trends.

As the market continues to evolve toward platform-based security architectures, we believe Fortinet remains well positioned to take share and deliver sustained growth and long-term shareholder value. Now, I would like to highlight some key seven-figure deals that demonstrate our market leadership and customer expansion.

First, a cloud infrastructure provider focused on GPU compute for AI workloads selected Fortinet to secure a new AI data center as part of its continued expansion. The customer chose our FortiGates to deliver high-performance perimeter protection, segmentation, and secure connectivity for a new production environment.

The win was driven by Fortinet's ability to provide scalable, high-throughput security aligned with the customer's standardized architecture, enabling rapid deployment of new capacity as demand for accelerated compute continues to grow. In another AI-related deal, Fortinet was selected for the initial phase of an AI data center project in the Middle East for a leading generative AI company.

This win positions Fortinet as a key security partner for next-generation AI data center infrastructure, which demands significant scale, performance, and architectural flexibility. The customer selected Fortinet for the strength of our security architecture to address the complexity of securing high-performance AI environments.

This deployment also reinforces the importance of standardizing Fortinet security solutions to enable consistent, scalable, and efficient protection as AI data center deployments continue to expand. Next, a multinational energy company selected Fortinet to standardize and secure its network through the deployment of our full SD-Branch solutions across more than 3,000 locations, alongside OT security for an additional 300 global sites.

The win reflects strong customer confidence in our ability to support large-scale distributed infrastructure environments with a unified approach to networking and security. By consolidating networking and security onto a single platform, the customer simplified operations while improving resilience, and highlights Fortinet's ability to scale securely within complex, mission-critical infrastructure environments.

The customer is also exploring an expansion into FortiSASE, highlighting the opportunity to further extend secure access capabilities across the enterprise. Lastly, a global manufacturer selected our FortiSASE solution to secure approximately 40,000 users as part of a strategic initiative to modernize its remote access environment.

The win was driven by our lower total cost of ownership and commitment to ongoing feature development, positioning us ahead of the competition. The customer chose FortiSASE for its unified FortiOS platform, which provides a single security policy across FortiSASE and FortiGates, with globally distributed POPs for simpler, consistent protection across on-premises and cloud environments, enabling them to build a scalable security architecture.

Turning to margins and cash flow, non-GAAP gross margin of 81% was better than expected, which is impressive given the strong product revenue growth of 41% and the related mix shift towards product. Our GAAP gross margin was also strong at 80.3%.

Non-GAAP operating margin of 35.8% was a first quarter record, up 160 basis points, and exceeded the high end of the guidance range, mainly due to better than expected revenue growth and continued cost management. Our GAAP operating margin of 31.4% continues to be one of the highest in the industry.

Non-GAAP earnings per share increased 41% to 82 cents, while GAAP earnings per share grew 29% to 72 cents, significantly outpacing our top-line growth, reflecting high-quality earnings supported by disciplined stock-based compensation and continued return of capital over the past year. Free cash flow was a record of $1.01 billion, and adjusted free cash flow was $1.07 billion, up 27% and represented a margin of 58%.

We repurchased 10.6 million shares of common stock for $827 million during the first quarter, and an additional 1.9 million shares for $146 million quarter-to-date. The remaining share repurchase authorization as of today is approximately $766 million.

Now moving on to guidance. As a reminder, our second quarter and full-year outlooks, which are summarized on slides 30 and 31, are subject to the disclaimers regarding forward-looking information that Anthony provided at the beginning of the call.

Consistent with our disciplined and prudent approach to guidance, our strong first quarter execution supports a higher second quarter and full-year outlook. We are raising our full-year guidance across all top-line metrics, including billings, revenue, and service revenue, while managing the second half of the year on a quarter-by-quarter basis.

For the second quarter, we expect: billings in the range of $2.09 billion to $2.19 billion, which at the midpoint represents growth of 20%; revenue in the range of $1.83 billion to $1.93 billion, which at the midpoint represents growth of 15%; non-GAAP gross margin of 79.5% to 80.5%; non-GAAP operating margin of 33% to 35%; non-GAAP earnings per share of 72 to 76 cents, which assumes a share count between 736 and 740 million; infrastructure investments of $50 to $100 million; a non-GAAP tax rate of 18%; and cash taxes of $160 to $180 million. For the full year, we expect: billings in the range of $8.8 billion to $9.1 billion, which at the midpoint represents growth of 18%; revenue in the range of $7.71 billion to $7.87 billion, which at the midpoint represents growth of 15%; service revenue in the range of $5.09 billion to $5.15 billion, which at the midpoint represents growth of 12%.

We continue to expect services revenue growth to pick up in the second half of the year, driven by accelerating product revenue growth, a key leading indicator. Non-GAAP gross margin of 79% to 81%; non-GAAP operating margin of 33% to 36%; non-GAAP earnings per share of $3.10 to $3.16, which assumes a share count of between 743 and 749 million; infrastructure investments of $350 to $550 million; non-GAAP tax rate of 18%; and cash taxes of $400 million to $450 million.

I will now hand the call back over to Anthony to begin the Q&A session.

Thank you, Christiane. 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 line for questions.

Thank you. Good afternoon, guys.

Congrats on quarter and the guidance. Ken or Christiane, what drove the strength this quarter, but probably more so, what provides you with the confidence in this strong guidance?

It would appear that even second quarter could be prudent, to put it very mildly. Just curious as to your thoughts about it.

Shaul, it's great question. Thank you.

A few, first, definitely AI is a tailwind to drive the growth. For us, we kind of also invest in AI for 15 years, with over 500 patent and a lot of internal usage and also building to the product.

That's where kind of we prepare for this growth also from the operation side, whether direct manufacture, operation, inventory, all these things. That's where we see is the opportunity.

Also, keep saying AI accelerate the convergence of networking and security, like I mentioned 2 months ago in the Fortinet Accelerate, which is really a lot of company need to secure their internal network, their server, data center, all these things. That's where we see is this growth probably will be more long term.

The same time, we kind of differentiate ourselves a lot with other competitors. I actually put a slide on the investor presentation slide 10, go back almost 30 years with all these different point solution compared to all these integrated solution.

Fortinet probably the only company in every major new demand for network security, we kind of in-house develop a solution, including right now the SASE. The same time, we kind of also integrate well with all the previous function, and we also keep improving on all this with our ASIC acceleration, with our own infrastructure to better security, lower cost.

I think all these drive the company keeping gaining market share in the last 20-plus years. That's I feel this time is we definitely want to leverage this opportunity, and whether AI, also kind of supply chain, and we just feel we gaining market share very quickly right now.

Thank you.

Great. Hey, guys, thanks for taking my questions here, and great start to the year.

Ken, maybe for you, the security environment feels different after aftermaths. Maybe the question is, cuz I know you spend a lot of time with customers, what are customers saying to you about how they're reacting?

What parts of Fortinet's portfolio do you think could benefit most?

I think I keep telling customer, you need to using AI to secure AI. All the threat there.

It's a kind of a interesting. Definitely AI expose a lot of vulnerability, and also you have to react very quickly, and then leverage AI to react all these operations.

That's where for long term, definitely secure operation, which we have over 20 product using AI, building AI, that's really helping the customer. On the other side, we also feel the AI also building, for to meet all this AI demand, also a lot of infrastructure build out.

That's why we see especially we're the only leader in the OT security area, we see the OT grow like a 70%, it's very very strong growth, because OT really secure pretty much at the bottom few layer of the AI five-layer cake, right? Whether the energy level, infrastructure level, all need leverage OT security.

That's we're probably the only leader in that space, give us a lot of strong growth there. On the other side, we also see kind of customer see the value, starting realize the value, whether it's integrated more function into the single OS, and also the ASIC advantage, and also the supply chain, the operation model we have.

It's all kind of a long-term investment, but starting paying off now.

Makes sense. Christiane, maybe for you for my follow-up.

I'd love to get a little bit of a historical perspective. I think back in the early 2020s, post-COVID, we had the benefit of some early ordering, which then created a bit of an air pocket in later quarters.

Maybe the question is, how do you think about how much early ordering maybe helped this quarter, and what gives you the confidence that this also doesn't create an air pocket at some point in the future?

Saket, I think the situation in 2026 is a little bit different from COVID, because the threat landscape is accelerating significantly. During COVID, I think there were some new requirements by the companies where they needed to secure remote access and digitize their business a little bit more.

Now it's about really a lot of significantly more threat, I think the demand for our products is going to continue as the AI data centers are going to be built out, as customers are deploying AI internally. We see significant tailwinds for our business and for our products specifically.

Saket, also we put a presentation on the slide 25, you can see doing the COVID, we're the one gaining a lot of market share compared to all the other peer, right? We feel this is an opportunity, because we feel our operational model, our kind of a long-term investment, has much more advantage than any other competitors.

We feel this is the same like last time. I don't feel anybody can predict how long this supply chain since will last, but we feel we have a strong direct operational model, which much better than pretty much all the other competitors.

The same time, a lot of long-term investment starting to show the advantage right now. That's you can see the slide 25 showing during the COVID 5, 6 years ago, we're the one gaining a lot of market share.

Even there are some kind of we call the digestion in the '24 early '25, but we're still keeping gaining share. That's we feel this is another opportunity, and we feel it's works better for us than other competitors.

Super helpful. Thanks, guys.

Thank you.

Thank you, guys, for taking my question. Ken, I appreciate the throughput and segmentation arguments relative to AI, but I want to dovetail a little bit more on Saket's question, just around when you mention the 20 or so products that use AI within your portfolio.

Are there a couple of things that customers are honing in on that are driving kind of that sense of urgency for them right now?

Actually, Christiane gave a few cases about supporting some AI data center build out, all these things. I think initially they probably, just like the five-layer cake, right, you need to have the lower layer build out first, from all this energy infrastructure, and then secure the data center.

We see after they build out some kind of AI infrastructure, then the security need to come in, especially when the applications starting deploy. We see one company once starting kind of leverage AI, we feel it's a lot of opportunity for secure company to helping the company or customer to really using AI to secure AI, we say.

Which we feel is we kind of ahead of most of our competitor with all this long-term investment, with all the patent, with all this whether in R&D side, in the G&A, in the customer supporting, and also in the product. We feel like I say, I'm kind of with engineer background.

I love all the new technology, that's why in the last 30 years, like I say, in the slide 10, we're the only one internally develop all this new technology, meet all the challenge, integrate together, and compared to most of our competitor have to go through acquisition to meet all this new demand. That's actually give us the confidence to continue grow faster, gaining market share.

Rob,

and then to add to this—

Go ahead, Christiane.

I think that what we hear from customers that are not building out their own AI infrastructure, that are more on the AI use side, they are most afraid of traffic flows and shadow AI. I think that's where a lot of our products can help them as well, and also with the FortiOS improvements and upgrades.

There's a lot of interest in what can our existing products do and which additional products, like FortiAIGate, can they deploy to have more visibility, more transparency, and monitoring of the traffic flows.

Great. I appreciate the color.

Thank you. Thank you.

Oh, excellent. Thank you so much for taking the question.

I actually wanted to follow up on what Rob had asked and Ken's comments about the AI data center opportunity, and Christiane, what you shared that was very helpful about the win in the Middle East in securing AI infrastructure. What are you seeing specifically in this market for securing AI data centers?

Who are you competing with, who are you partnering with, how long are the cycles, and maybe how much of the pipeline for these opportunities is contributing to the strong guidance that you've given us for the year?

Actually, if you look at the Fortinet technology, we're the only cybersecurity company build our own ASIC chip from day one. That's give us much better performance and lower cost, both on the computing power cost, also energy cost, and also fit all this data center internal segmentation develop quite well.

None of our competitor competing with us whether on the performance or cost, including the two products we just announced today. On average, all the top 10 function, we hold it like a 3 to 5x better performance for the same cost in function and much lower energy consumption.

That's fitting quite well for a lot of bigger infrastructure data center build out, also for a lot of internal segmentation AI, especially the agent, generating traffic, definitely generate a lot of additional traffic, especially we call the east-west traffic, and all the server, even like a different department, you do need additional security to protect that for the internal segmentation. That's why we see a lot of strong demand in not just data center, but also internal segmentation to protect all this or get a better manageability or better visibility for all this agent traffic.

Then,

Brad, maybe with related to your question on what do we see with regards to pipeline building, I think my comments around the customer wins were also about reference architectures and scalability, and most of these providers that are starting to build our data centers, they are creating their kind of reference architecture to build out more as the demand increases for their services. I think we are confident that this creates a tailwind for us, yeah.

Also, especially like a lot of technology like ASIC, like system and hardware, it's more long-term investment compared to some software, some other, which most other secure company kind of more focus on that one, the software side, which I feel definitely now is the time see all this long-term investment benefit, all the hardware, ASIC benefit, that customer starting appreciate more in the hardware ASIC now.

Thanks, Ken. It reminds me very much of the heritage of Fortinet and all the early success that you had in the service provider market segment and why it's so important today in AI data centers.

Maybe if I could just follow up with one quick follow-up for you, Christiane, just to get your latest thoughts on memory pricing and any further price increases that you might be contemplating throughout the year, and maybe specifically what's actually baked into the guidance along those lines. Thanks again.

Great job.

From a guidance perspective, we've baked in a low single-digit amount specifically into product. From what are our plans with regards to pricing, Ken has said it multiple times that we're trying to maintain gross margins, so as our component costs increase, we're contemplating pricing actions, but we will also bring it down again when we don't have the pressures anymore.

The policy we have is not like some other company using this opportunity to increase margin. We're not.

We just want to maintain the healthy margin, and when our cost increase, we also do the monthly adjustment, but when the cost coming down, we also want to adjust lower, just maintain the same margin. That's the policy just like 5 years ago in the last supply change, and also it's the same policy during this time, the supply chain memory shortage.

For us also, because we have a much bigger quantity than any other competitor, like we have almost 60% market share of the unit shipment of the network security system, which we feel, and also with direct manufacture operational model, we feel we prepared better, we kind of operate better, we also negotiate better compared to other competitors. That's we feel it's a chance to gain market share again like we did 5 years ago.

Awesome. Thank you.

Hello. You got me back.

You can't get rid of me.

Hi, Tal. You're the few analysts stuck with the space for [unclear].

It's fun to cover the space. Everyone asks about AI, I'm going to ask about the other thing.

The most surprising part of your result is actually the billing growth of legacy, 32% year-over-year growth in secure networking. Check Point, when they reported, they said that their firewall went down, or the growth decelerated.

That the market is weaker. The question I have for you is, what are the firewall trends?

What drives it? What drives this 32% growth in secure networking billing, and how sustainable is it?

Thanks.

Actually, Tal, I prepared the slide 10 in the presentation for you. Just to go back 30 years.

Actually, the most growth on secure networking is come from FortiGate. You can see for the network security, every year you need to meet a new function demand requirements.

Basically for us, we're probably the only company in-house keeping meet all this new function development, whether from early day UTM, next-gen firewall, to sandbox, to like SD-WAN, SASE, to today's AI, quantum computing, right? Once you kind of come up with all this innovation, you also need to integrate.

Now the FortiOS 8.0 integrate about 30 function there. With all the 30 function, you also need to keep improvement.

That's where the ASIC come in to improving the performance and add additional secure computing, and at the same time, we also invest in infrastructure to make it more secure and also kind of lower the cost. That's where I using the 3I to describe what happened in the network security space in the last 30 years.

I feel some of our competitor, they kind of cannot come up the new function quick enough or kind of cannot integrate, they have to go through acquisition to meet all this demand. End up, they become like a multi-point solution.

That's the blue area you can see. There's a lot of company, including some of our competitor, they have to using multiple solution to meet 1 FortiGate solution, FortiOS solution we have, whether the SD-WAN, the SASE, some other function there.

They're also still a lot of point solution provider, including SASE. They just cannot offer customer the total infrastructure security there.

That's we see the benefit of this single OS with all this integration, with all this kind of the new function and the improvement, ASIC, all these things, get them get more like advantage over other player. This supply chain is the opportunity.

It's a show that the advantage we have, and that's also the operational model we have. That's I come up this slide kind of using 3I to describe the advantage we have.

Ken, is the is there so how like 32% growth is is very, very respectable. How sustainable is it?

Is there a comparison thing that boosted up the the I I don't have the slide in front of me, I don't have the numbers in front of me, but is there an easy comp situation this year that that boosted up this growth to 32%, or is it is it there's something more fundamental that could be sustained over time?

You can look at slides 24 and 25 compared to 5 years ago, it's pretty comparable.

That

that time we also grow like a 40 40 40-some percent, yeah.

Tal, we can really see interest, demand in network security, and the drivers are not only AI. It is consolidation, it is simplicity, it is the security posture across the products that are driving significant interest into that network security portfolio, yeah.

Got it. Great.

Thank you.

Good afternoon. Thank you for taking my questions.

Ken, I wanted to ask you my first question, and then I'll follow up with Christiane. We are at a very, very high level in one of the most consequential CapEx and infrastructure investment cycles across the board.

You are clearly seeing the benefits of that, based on the seven-figure precedent transactions you talked about related to AI infrastructure build out, and some of the responses to earlier questions. I wanted to ask you specifically what the impact is to your secure networking portfolio, and specifically the higher end FortiGate appliances.

Should we expect the product mix of the business to trend towards some of the very, very high-end SKUs as you support the infrastructure build out and the secure infrastructure build out opportunities ahead? Then my follow-up for Christiane is, related to the product growth upswing, and presumably the higher-end mix of product and appliance uptake from your FortiGate portfolio, why aren't we seeing maybe a more visible, bigger catch up on the services side?

I guess to ask it more simply, when I look at your services revenue guidance, you've only really tightened the range, bringing the low end of the services revenue up. I'm just wondering if, to the extent you are seeing a better product mix shift, why we wouldn't see an even better attach on the services revenue?

Thank you so much.

It's a great question. Definitely Fortinet has more advantage in the high end with our own ASIC solution.

It's a much better performance, much lower cost, both on the product and also on the energy cost there. That's we see pretty strong growth in the high end.

At the same time, you can look at the unified SASE also grow like a 31%, and also Q4 last year grew 40%. That's more driven a lot by the SD-WAN, low end.

That's also the reason we kind of launched a new bundled service to accelerate both the current customer and also the new customer adopt SD-WAN and SASE. I also put a slide on there, try to give the number there.

One of the slides also you can see the bundle is very, very attractive for the customer to adopt the new SASE and the SD-WAN service there. It's a slide 14, actually.

That's a list all this different incentive there for both current customer and also the new customer there. That's why I feel the growth like both high end, also low end, but low end more driven by the SD-WAN SASE side, high end definitely more data center.

Data center also I feel, once more AI data center build out, it's still in the very early stage, and also once the applications starting leverage AI, that's what will be very, very long-term growth going forward. It's just starting kind of very early ramp-up stage.

Definitely on the other side, we see also the growth was strong in the SD-WAN SASE area, and we believe this bundled service will also drive additional service revenue after customer have the hardware box.

Fatima, to address your concern, to speak, I'm super enthusiastic about our services billings, yeah, at 27% growth. Deferred revenue grew 15%, I think it all trends in the right direction.

The conversion from the balance sheet into revenue just takes longer, you don't see it immediately, but the trends are all positive. ARR growth was really good, I'm very happy with the quarter results and also with the attach rates of services with hardware.

Thank you.

Hi, good afternoon, thank you. Ken, if I'm hearing you right, it sounds like there has been a little bit of a step-function change in the pipeline related to AI data center.

My question for you, if I'm hearing that right, is why do you think that's happening now? I'm curious if there is a shift maybe happening with sovereign AI projects, or if it has something to do with the mix from training to inference?

Curious to get your thoughts.

Actually, they both connect together. Both the AI data center combined with the sovereign SASE, sovereign AI kind of drive some of the growth together.

That's where because even for this it's interesting, it's the same FortiGate, FortiOS to do both the AI security and also the SASE to protect all this in the zero-trust environment. I think so yeah, they kind of, I feel both connect, driving the growth together.

That's really interesting. The follow-up I have for you is, Fortinet has been transparent on some of the vulnerabilities that you've found in your own technology when you find them.

How is your internal process for hardening your infrastructure changing as you get access to some of these leading-edge LLM models that can perhaps help you upgrade the quality of your own infrastructure?

We working very closely with all these leading AI company, whether handle the vulnerability, or kind of helping on the automate a lot of operation for our customer. The same time, we also build our own infrastructure, and which has better security, more better performance than some other third-party infrastructure.

We feel we do better than the most of our competitor, and at the same time, we kind of keeping develop new technology, like we say, using AI to secure AI, so.

Thank you for the thoughts. Congratulations on the quarter.

Thank you.

Great, thank you for taking the question, and congrats on the results for the quarter. Maybe just a quick one for me, and I think I wanted to follow up on Fatima's question, because I wanted to make sure that I understood some of the dynamics here with regard to the unified SASE billings.

Could you maybe unpack that a little bit and help me understand with regard to the growth, how much is SD-WAN, how much is SASE? In particularly if you can help us reconcile the deceleration in SASE ARR just so we can put the two together to understand what the primary drivers of that in the segments of the business at play are.

Thank you.

The slide 4, we have the three pillar there. Definitely the unified SASE, including SD-WAN, the SSE is more like a FortiSASE, some other things there.

Actually, the FortiSASE also we see very, very strong growth on the ARR, on all these things there. Also we believe the new bundle will also accelerate the SD-WAN, which on the slide 14, both SD-WAN and SASE service going forward.

The unified SASE grow 31%, yeah, it's about 25% of billing right now is come from the unified SASE. It's a pretty big number.

We're the top three player in this space, and also probably one of the fast growing right now.

That's helpful. How much was contribution from sovereign SASE?

Certainly getting a lot of focus right now on both sovereign data centers and sovereign infrastructure. Would love to understand the contribution there.

Sovereign SASE, I feel probably almost the same size as the cloud-based SASE, probably even bigger. Also sometime the sovereign SASE, because we're using the same OS, same FortiGate, sometime they just buy as a firewall, gradually turn on the SASE function, and deploy internally in their data center or infrastructure.

Also we see the service provider starting ramp up sovereign SASE very quickly, especially in Europe, which there a few big telecom service provider starting kind of launch all this sovereign SASE service with our product, so that's also helping drive a lot of product revenue.

Got it. Very helpful color.

Thank you, Ken.

Thank you.

Great, thanks. I just want to make sure you can hear me okay?

Yep, all good.

This is perfect timing. I actually wanted to follow up on Brian's question, and it kind of relates to what we've been hearing in our fieldwork.

Specifically, are you starting to see more of your branch office firewall customers turn on SD-WAN components and then convert their firewall subscriptions to secure service edge? If so, I guess how should we think about the ballpark uplift to a customer's annual spending, or just how should we directionally think about that opportunity, just cuz it does seem like you have an installed advantage in the market that maybe you weren't thinking about 6 or 12 months ago?

It's definitely very good survey, very good feedback. That's also the reason on the slide 14 we launched a new bundle service to helping accelerate the SD-WAN and SASE.

You can see we combine 4, 5 different separate service into one bundle service, including some SASE license, based on the model of our product, from FortiGate 60 up to middle range product, we all come with some kind of a SASE license together with all the SD-WAN, whether the overlay service, or the application monitor, yes, it's a very good observation. Definitely customer starting more turn to the firewall into SD-WAN and also into the SASE, zero-trust environment now.

It's kind of helping accelerate the additional service. Also you can see we also have the slide that's we tracking the big enterprise.

It's the slide 11, you can see adoption of whether the SASE, SD-WAN, with the big enterprise we're tracking, I think last quarter, the SASE about 16%, quarter-over-quarter is now 18%. It's a very strong growth.

Definitely that's the trend.

Gray, let me add to that, as we upgrade our customer base, these features become more interesting, and so it allows us also to sell the next higher-end model, typically for the edge, which is super beneficial for us as well.

That's really helpful data points. I know we're tight on time, I'll leave it there.

Thank you very much.

Thank you.

Hey, guys, thanks for the question. I just want to unpack the current service billing strength in 1Q.

It grew 13%, was a nice acceleration. What was the driver there?

Was that subscription? Was that more support?

Was it just moving further away from prior-year headwinds? Can we expect that line to further accelerate this year?

I would say it's the strength in the quarter, we had good linearity, yeah, that helped us a little bit in the current quarter already. Then with a strong overachievement, it helps for the rest of the year that we are now super confident our growth rates are picking up.

As I said earlier, it takes time, right? This is where we've adjusted the lower end of the range to bring up the midpoint, but it's not that you can get super fast acceleration off the balance sheet, yeah.

That we are confident with not only this year, but also the benefits that the service billings give us for next year.

Thank you. Then just as a quick follow-up, I appreciate the historical context you provided earlier on COVID versus now and the need for more cyber.

Just more explicitly, did you see a change in buying behavior in 1Q related to people pulling forward because of higher memory costs? I'm just curious, if not, what are the metrics that you're tracking that give you confidence internally that you haven't really seen a change in buying behavior yet?

Thank you.

I think during COVID, we do see some pull forward, especially retail, when they have a deployment, they schedule for 12 months, they try to order ahead of time, make sure all the product available for them. This time we don't see much pull forward, but we do see the demand pretty strong, and also we kind of control whether the channel inventory, some other things, we don't see increase there also.

That's what we just try to manage better, and at the same time, we just tell customer we just want to maintain the margin, we don't want to raise the margin, like some other supplier. Once our cost higher, we'll raise the price, but also once come down, we also lower the price in real time.

That's where I think we build some good trust with the partner, the customer. Also the direct model also helping there.

It's difficult to judge how long this will be last, could be longer, could be shorter, but for us, we just operate based on our own kind of a healthy margin, and also a more quick response, and direct operation manufacture model to be supporting better to the customer.

That's really helpful. Thank you.

Really nice quarter. Congrats.

Thank you.

Thank you, and good afternoon. Ken, you've mentioned in the past how the edge is eating the cloud, as customers move latency-sensitive and cost-intensive workloads to the edge.

My question is, how are you adapting your security architecture to support this shift to capture this demand redistribution? Does this shift meaningfully change the value proposition or monetization opportunities at the edge versus traditional data center deployments?

Thank you.

The edge eat the cloud is more because kind of built ASIC for 20, 30 years because we want to increase the computing power and also real-time processing on appliance on edge. That's got a lot of criticized before, which why this kind of big long-term investment and compared to whether the cloud.

Definitely the AI and also kind of the new trend you see the edge, the hardware starting has show better value now. That's I feel we'll continue keeping the same strategy we have, keep investing in the ASIC, keep investing in the hardware appliance, and also kind of because a lot of a new whether you call it physical AI or some other, they do need use the edge computing to do the real-time computing decision there, instead of try to go to the cloud to do some kind of cloud more for the management side.

That's we see the new trend, especially like OT, you see the strong growth in OT over 70%. A lot of have to deploy in the field and manage the traffic in real time on the edge.

That's we see pretty strong growth. I have to say it's kind of hybrid approach, it's never 100% on the cloud, never 100% on edge, but kind of both sides has a value.

I just feel like a few years ago, there's too much emphasis on the cloud, and some competitor even thinking is the cloud only. I don't feel that's the case.

That's where we keep insisting on invest in the ASIC in the system hardware side, and now the customer, the partner, and see the benefit of this hybrid approach.

Great. Thank you.

Thank you.

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

We will be attending investor conferences hosted by J.P. Morgan and Bank of America during the second quarter.

Fireside chat webcasts will be posted on the Events and Presentations sections of our investor website. If you have any follow-up questions, please feel free to contact me, and have a great day.