Have Arrow Electronics here. Representing Arrow, we have Bill Austen, who is with the Board of Directors. He's been on the Board since May of 2020, and he's the current Interim CEO as well. Bill, thanks for joining us today. Prior to joining Arrow, he was with the Bemis Company, and that is a manufacturer of flexible packaging products. Bill, thanks. We are hoping to have a great discussion today. Thanks for joining us today. Thanks for having us, Ruplu. I'm glad to be here. Great. For those of us who are new to the story, can you just talk about overall, what does Arrow Electronics do, what are the different parts of the business, and give us a lay of the land on what are the different types of services that you provide? Sure. For those of you that don't know the story, Arrow Electronics has been in the business for 90 years. We have a very long history. We are an electronic component and enterprise-wide software distributor. We're in 96 countries around the world. We have 23,000 employees, and we have an extremely broad and varied diversified and differentiated business model. We feel that we're positioned extremely well today. We're undervalued, and if you want to play in the AI space, you could look to Arrow as somewhat of a mutual fund. If you think about all that goes into AI today, all that goes into data centers today, both on the hardware side, the component side, and the software side, we are that business that distributes those products around the globe. We have two businesses, Global Components and ECS, Enterprise Computing Solutions, which is the software side of the house. They're both big distributors. Inside the core of that is very large engines that distribute either components or software, enterprise software. We'll- $30 billion-$35 billion of revenue. Last couple of quarters, Q4, we hit it out of the park. Q1, we absolutely, to use my CFO's term, we crushed it in Q1 with 39% year-on-year growth, in both components and in ECS, and we exceeded our EPS by 190%. $5.22. A year ago, we did $1.80. We attribute that to a lot of things that have been going on in the business. A lot over the last few years has been a lot of hard work to take cost out and create leverage in the P&L. If you look at our operating expense as a percent of gross profit, it's 63%. If you look at others in the space, they're in the low 70%s. 70% from some of our competitors, OpEx as a percent of GP dollars would be a good number. We're at 63%. When we drive revenue growth, which the cycle has turned and it's moving up, we create profit because it falls through the P&L. We've had a tremendous run over the last two quarters. We see that we're just getting started. Got it. Long answer to a short question. No, that's a great overview. Thanks for that. As you said, this is a cyclical business, right? Where do you think we are in this cycle, and how do you see the remainder of 2026, and what are some of the things that are giving you confidence that this is maybe a more structural acceleration versus are we at the peak? I think if you look back, let's look back a couple of quarters, three, four, five quarters, and you looked at our leading indicators of book-to-bill ratios across the business. You look at what kind of visibility we had in our backlog, how far our backlog stretched out, what lead times were. They were nowhere near the levels they are today. If you just step forward two, three quarters or back a couple of quarters, we were below one in book-to-bill ratios. We had very little visibility into our backlog. When I say little, I'm talking within the quarter, 90-day visibility is the backlog. As we went through the third quarter last year into fourth quarter, that visibility started to extend a little bit. Book-to-bill ratios, as we exited 2025, were just about at parity, a little over. As we got into the second week, let's call it second, third week of February 2026, our book-to-bill ratios jumped significantly above parity across all three geographic regions, across many of the verticals in our space. All of a sudden, backlog starts filling in. Q1 was full, Q2 was full. We're filling in Q3 and Q4, and in some cases, we now have visibility into Q1 2027. There's always this debate and this conversation around is it real? Their nearest point of memory is COVID and all that happened in COVID with double ordering, triple ordering. We don't see that happening today. Okay? We see very solid backlogs. We see good visibility, and we think that we're in, to answer your question, early stages of this recovery. Got it. I want to touch on both parts of the business, but let's start with Global Components. Can you talk about what you're seeing from a demand standpoint, both from a geography, from a regional standpoint, as well as from a product standpoint? How is demand trending in different verticals and different product categories? Boy, you ask a lot of questions. Yeah. Three or four. Combined three and four into one. Three and four at a time. I'm a sell-side analyst, obviously, that's what I do. I got my memory, and I'm getting old. Let's walk across the regions, right? If you go back a couple of quarters, Asia was significant, right? In Asia, for us and others, that's where you got good growth, but you have low margins. Everybody bets on the West coming back at some point. We started to see that late, mid Q4. Last year, we started to see that Asia was continuing to grow. A lot of that was driven from electric vehicle and the fact that the Chinese government had incentivized consumers to buy more electric vehicles, so there was a spike in EVs toward the end of fourth quarter last year. We started to see the West coming back, and when I say, "Started to see the West coming back," Europe, couple of green shoots. In the Americas market, we saw more than green shoots. We saw many of the verticals across aerospace and defense, both in Europe and in North America. We see industrial and what we call our mass market. Those are our industrial markets. Those are customers that are going to buy anywhere mid-million dollar, $3 million, $4 million, $5 million or less of components coming back strong. To us, that's really positive because that's where you make money. Okay? You make money in the West, in the mid-market, in the mass market, rather, industrial, transportation, aerospace, and defense. We saw those three verticals starting to place more orders as we went through Q4 into Q1, and that's continuing that strength today. Compute has been strong for a while, that's been a driver in Asia. A lot of AI data center builds taking place in Asia. We saw compute in Asia. We see compute in North, South America. We see compute in Europe. The real strength is now that the industrial markets are coming back in both Europe and in North America, and we attribute that to industrial companies that are building their product that are going to attach to AI at the edge. That's going to drive a tremendous amount of component growth as we go through the next many quarters. Okay. Maybe I'll delve a little bit deeper into that in a bit, but one thing I want to touch on is supplier price increases. Yeah. Just explain to us how that impacts your revenues and margins, and it didn't seem like it impacted the first quarter all that much. Is there a timing element here as well? You know, Ruplu, we've gotten this question because our first quarter was driven by volume. That's a very positive thing. I would much rather have a volume-based recovery than a price-based recovery. We see it in units. We had little to no impact from price in our result in Q1. It was virtually all unit volume. The way that pricing impacts us, supplier raises price, we pass it through. Okay. We're going to see it in dollars. We're not going to see it in rate. If you look at our operating income rate in Q1 is 5.5%, which far in excess of what people were anticipating, and that, again, goes to the fact that it's a volume-based recovery. We get units, we get volume, we've created a tremendous amount of leverage in the P&L, and that falls through to operating income. That's the model that we've built, and we're going to continue to push on that. We're not going to get crazy and add this cost, add that cost, just because we can add cost. We're doing a really good job of making the right decisions within the business units. If you think through this, if you go back, well, you've been in this space a lot longer than I have, but if you go back a few years, I've been on the board for five years, the plan was always, "Hey, there's growth coming. We need to hire 80 people. We need to hire 70 people. We need more feet on the street because if we have more feet on the street, we can sell more." We said, "Timeout. What are we doing? Why do we need to add 70 people? Why do you need to add 80 people? Why can't we do this a different way? What tools are out there that we can deploy? What processes can we put in place so we don't need to add those 70 or 80 people? We've created a tremendous amount of momentum in our business. I'm an engineer, and just real quick, momentum is a function of mass times velocity. In a business like ours, mass comes down to the people. Velocity is how quick do you make decisions. We've reduced the mass, we've sped up the decision-making, and the right decision-making around what business do we really want because it has higher margin, versus let's take on this inventory at two and three points of margin because it's a good thing to do because we can go sell that. Well, wait a second. If we can take on inventory that's at 14 points of margin, I want to make sure that we have the right balance, and how are we going to drive the margin? That's what we've done. We've created a tremendous amount of momentum. We're not running the business the way we used to run the business, add heads, you get more sales. It's not necessarily that more sales are good. Are they the right sales? I would argue that we're on that track of making the right decisions, make the right sales, so that we can drive margin. That's what we did in Q1. Got it. One thing that's gone up significantly in price is memory. Can you talk to us, like how big is memory in terms of your product line, and how do you see memory prices trending and impacting your results? We see it as everybody else, on the price side. When memory price is going to go up, it's going to be memory capacity to manufacture is going to be tight. It's going to be managed that way from the manufacturers of that memory, and we're going to always be in that band of mid-single digit memory as a percent of our revenue and Global Components. It's 6% to 8% on any given quarter. It's in that band of 6% to 8%, and when we get the price increase, we pass it through. Got it. Talk to us about value-added services and how that impacts the margins, and is that a margin lever that you can employ? It is absolutely a margin lever. If you look at our two businesses, Global Components and ECS, the core of those businesses are really big distributors. When we talk about value-added services, we talk about using that engine of the core and spinning out value-added services to support those big customers and/or suppliers that create that engine. Supply chain service is a front-and-center portion of our value-added services. If you go back a couple of years, value-added service was about 20% of our operating income. If you looked at last year, value-added services generated 30% of our operating income in the business. We're going to continue to drive it in that direction, but value-added services on supply chain, we manage the supply chains of about, let's call it a dozen and a half large companies that are heavily embedded in Global Components. For instance, hyperscalers. We manage the supply chain for about five of the top hyperscalers, and what that means is that if they want to build a data center in Hungary, we get notice of that. They ask us, "Can you help us?" The answer is usually yes. "What do you need?" "Well, we need to house all of this material. We need to procure, deploy, ship, receive, do all this work around $5 billion plus of material." We'll build them a warehouse. We'll build them a warehouse in Hungary, and we will then step into the center of the relationship between the suppliers and the building of the data center and handle that material and handle the AR and the AP. It's not our inventory. It's the hyperscalers' inventory. It's a very inventory-light model, and we get paid a fee to manage that for them. We also manage the AR AP. They pay us in advance. We might carry that float of a lot of money for some period of time that we use within our business to pay down debt or do other things, and then we pay the receivables when they come in. It is a really cool model. We manage complexity. We've done that for years, and now we've taken it from the core distributions, and we set it up on its own. We stood it up. We reorganized the components business earlier this year into three pieces, semiconductor, IP&E, and value-added services. We've got a leader, we call him a chief growth officer for value-added services, and that includes supply chain, demand creation, engineering services, and Murdoch manages that piece of the business. What we do is we work with the core of the distribution model to pull business out and stick it into value-added services. That creates a whole lot more margin than it would, say, in a semiconductor sale, which is at low single-digit margins. We still get the semiconductor sale at low single digits, but we're working with those suppliers at a much different level to create value for us and create ease of business for them, and it works really well. We're going to continue to push on that. That's helpful. As you look out into the next six months, as demand is improving in various end markets, do you see any parts becoming in shortage? In the past, Avnet, sorry, Arrow has talked about shortage market business where you can help procure some parts. Is that a business that you see happening, or do you see any parts going into short supply? No. Folks want to go back and relate today to COVID. We're nowhere near what was going on in COVID. Don't let anybody kid you. All right. It's not there. During COVID, memory lead times were 54 weeks. Okay. Today, memory's at like 33 weeks. It hasn't extended so far that it's in this huge shortage. It's constrained. We look at it as constrained. We get the memory we need, and we're able to move it to the customer base. We don't see a shortage market happening, and there's nothing in our P&L, or our guide that says there's just going to be this massive shortage market, and prices are going to go through the roof, and it's going to be back to the golden screw mentality that existed during COVID. Got it. Okay. Let's move on to the ECS business. Yeah. Talk to us about that. What is that business, and how does that relate to the components business? First off, part of our business model and any business, any strategy that I believe is successful is when you have diversification and differentiation, okay? If you're a one-stop shop, everybody can replicate a one-stop shop and compete with you. We've got this diversified model and differentiated model between ECS and components. Global Components is the bigger of the two at about $20 billion or so, ECS in the $10 billion range. ECS deals with enterprise-wide software. 25% of what we do in that space is hardware sales, and it's high-end hardware. It's not consumer. It's not mouse pads. It's not laptops. It's storage. It's compute. The other 75% is Enterprise-wide software, and I'm talking technology side of software, not application side of software. I'm talking cyber virtualization, Financial Ops, things like that. That's what we distribute. One of the things that differentiates us from others is a platform called ArrowSphere. ArrowSphere is a platform that suppliers and customers can attach to get access to product. In ArrowSphere, we have ArrowSphere Assistant. It's an Agentic AI model that allows customers to attach to suppliers so that the customer can hold product from that supplier. ArrowSphere Assistant won us 2025's Microsoft Distributor of the Year award because what we do for Microsoft via the ArrowSphere platform, it differentiates us from others. What I'm coming back to here is the balance between ECS and Global Components is such that components in a growth cycle that we're in today, is going to consume working capital, right? You got to have inventory. You bring in more working capital. ECS is a low working capital model, but it generates great cash flow. It helps us balance our balance sheet because we're bringing in cash flow from the ECS side, and we're using it to fund, if you will, some of the things we do in components. It balances out, it levels out, it gives us more financial stability across the cycles. ECS is also perfectly parked dead center of the AI explosion that's taking place on the software side. As more and more companies push their workloads to the cloud, AI workloads to the cloud, we're positioned right there to sell the products that they need to do that. It is a unique model that we have, and we like it that way. We want it to be that way because we want differentiation and diversification versus our competitors. It gives us a leg up. It goes back to this comment I started with earlier, that if you look to Arrow, we are Somebody's going to shoot me in the back, Raj or Michael. We are a, I was going to say extremely cheap at this point, mutual fund that plays in the AI space, both on the component side and the software side. There isn't another company that has that ability. If you look at our line card, we are perfectly matched with all of the electronic components that go into making data center or attaching to the edge of AI, which is what all these guys are doing. On the software side, we're perfectly positioned for these companies to extend their network and communications, cyber, virtualization, FinOps in the cloud through ECS. Nobody else can do that. That's why we like the two business pieces. Got it. That makes sense. No, that makes sense. I want to talk some numbers now. If I look at the guidance for fiscal 2Q, it looks like component revenues are going up, but ECS revenues are actually sequentially down. What is driving that? Where I'm getting to is, as component costs are going up, do you see any demand destruction happening in any of the verticals? Is that a factor in this at all? No, I don't see demand destruction taking place at all, really. I see that the value prop that we have to our supply base, they're extending it further. The value prop that we have with value-added services, whether it's demand creation or engineering services, but more importantly, supply chain. We have got large customers coming to us to talk about supply chain services every week. It's somewhat holding them back from the standpoint of we can only take on so much at a time. That's why we separated it. We stood it up by itself. We're putting more resources into it so we can bring on more of those supply chain customers going forward. Because again, it's working capital light, it doesn't show on the revenue line, but boy, does it add horsepower and to the bottom line. Got it. I want to talk about operating margins, and you mentioned this earlier. I was surprised, and I know a lot of clients were surprised by the operating margin good performance in the first quarter. I think component margins were 5.5%- Yeah. ...or something like that. Talk to us as to what gives you confidence that this is sustainable. What are the levers that you have on the operating margin side? Should investors look for further growth in operating margins, either in the components business or in the ECS business? Yeah, let me just go back to the surprise piece. I know there were two people that weren't that surprised at that operating profit margin, Raj and myself. Oh, that's good. Yeah, we were not. We could see it coming. As soon as we saw the volume tick up and the leverage that we have in the P&L, we're like, "Okay, it's going to happen." We see that that's going to continue. All right? I'd be foolish to say that would we get to a six or we'd get to over a six, but a five handle on the front end, that's Raj's term, using the term five handle. I think that's sustainable. The business is really positioned well and the decisions that the business team is making, or the business teams are making in each of the regions, it's just a reset. It's a reset of how they think. I think at this point, we're being successful with it. Okay. Another thing I want to ask is on working capital and inventory management, how do you see this trending? Do you think Arrow's inventory increases over time or do you see that decreasing, and is that a good thing or a bad thing? Yeah. When I got there, if you talk about inventory, and I told the team what my definition of inventory was, and it was the stuff that doesn't sell. Okay. Inventory is the stuff that doesn't sell. If you're moving it, that's great. Let's bring it in, but let's make the conscious decision to bring in the right stuff at the right spot, put it in the right distribution center so it attacks the market and it turns. I think if you look at our metrics, ROIC, ROWC, have all improved. Our days cash to cash have all improved. We're making the right decisions again around inventory and the inventory that moves versus the stuff that doesn't sell. Got it. Maybe talk to us about capital allocation. I think you just had a big buyback authorization. Given where the stock is trading today, how do you see the trade-off of buybacks versus any M&A versus any more financial leverage? How are you thinking about capital allocation? Our capital allocation strategy is no different than others. Number one, organic growth. Number two would be M&A, strategic M&A. I want to talk about M&A for a moment in the sense of we're not going to buy stuff to get bigger. It just makes no sense. We're going to buy stuff that, again, this unique ability to set us apart from others. That's where you would see us make acquisitions. That would be in some service area. IP&E is an ideal space for us to make an acquisition. If you look at our first quarter results, it's the first time in our history that we exceeded $1 billion in revenue in IP&E, and completely attribute that to the fact that we stood it up on its own, we have a focus on it, we have a team on it, we got the right amount of mass on it, they're making quick decisions, and we exceeded $1 billion in revenue Q1 in IP&E. IP&E carries a whole lot more margin than those semiconductor. It's not as high as value-added services, but it's a lot higher than semiconductor. You would see us pushing in M&A on IP&E. The other would be share buyback, and if you go back the last five years, I think the number is something like we bought back $3.6 billion worth of shares at an average price of about $98 a share. We've created a tremendous amount of shareholder value just through buyback. We had a billion-dollar authorization. It was running out. We're down to maybe $150 million left on that. Our board just reauthorized another $1 billion. We don't put a timeframe on it because we'll do it strategically as we go across the next several years. Share buyback is always going to be a part of it, acquisitions to, number one, organic growth, and lastly, all of that is with an eye toward making sure we maintain our investment-grade rating. Extremely important for us not to be constrained because we don't have an investment-grade rating. Got it. Can you talk to us about the CEO transition? Is there a timeline, and what capabilities matter the most for the next stage of Arrow's strategy, and what needs to be true operationally for the transition to be seamless? Yeah. Well, it's still going on because I'm still here. You're doing a great job. Thank you. We're trying to be extremely thoughtful, and we're trying to thread a needle. This is a huge company. It's got a lot of scale. It's got a lot of people. It's global. It's big. There's a lot of mass to it. There's a tremendous amount of competing priorities within the business, and you just don't find somebody that has that in their background. We're a great commercial engine. We have fantastic. I call them commercial wizards. They know how to deal in the marketplace. What we're really trying to over-rotate onto is operating experience. Somebody that's got some operating chops, somebody that knows how to make money in a low-margin business, somebody that can squeeze pennies out. That's the kind of person we're trying to find, and they're just not coming out of the woodwork just yet. We're still on it. We're going to find somebody, and stay tuned, and when we're ready, we'll make the proper announcement. Got it. We've got about a minute and a half left. Bill, I want you to talk to the clients. What are we missing about the Arrow story? Is there still things that you want to highlight that investors should focus on, and how do you see the next leg of growth for this company? Yeah. I've touched on it throughout our conversation, Ruplu, in that I think you really have to understand the business, okay? Yes, we are a distributor. I get that, okay? That's at the core. What we've built around the core is value-added services, both on the ECS side and on the component side. If you put those two things together and you look at where the cycle sits today, we're the perfect play. We play on the software side. Everything's going to the cloud. We distribute that. All the components. You look at our line card, all these companies you hear about on CNBC and all that are driving growth, you look at our multiple versus theirs, we are a really cheap play to play across that entire spectrum of companies, whether it's in software or whether it's in components. We're a really cheap play. Okay, great. We've covered a lot of details. Bill, thank you for coming today. I really appreciate it. Thank you. Thanks a lot. Thanks for having me on. ...cybersecurity again. It's very easy with Bank of America. Whenever someone leaves, they ask me to cover it. I cover software, and data centers, and cybersecurity, and networking. It's a one-man show research. I'm very pleased. I know this space extremely well. I've been covering it for 15 years, almost 20 years, and I'm very pleased to host Ken Xie, CEO, and John Whittle, Chief Operating Officer. We are going to speak about the fundamentals. I want to talk about the quarter, but very little, because I really want to focus on the fundamentals and what's coming for the next few years. With this introduction, I'll start with the quarter, Ken. The quarter was unique because the numbers were very strong. The billing growth was 31%, secure networking billing was 32% up. Unified SASE was up 31%. The question is, what drives the growth both of the secure networking as well as the new areas? Like I mentioned in the earnings, we see the AI actually accelerate, we call it convergence of network and network security, especially within enterprise, because AI definitely drive a lot of additional traffic, whether AI agent or using some AI for certain application. Most enterprise still today, they only have what they call the perimeter security. Internal, they don't deploy much network security, whether through the internal segmentation or protect some key server or certain departments and data there. That's where we see the strongest growth actually come from the enterprise. For us, really the middle range, FortiGate product. You can see the product revenue grow like 41%. Not much come from this supply chain price increase. It's more come from the new demand. The same time, there's other area where the OT security, we see like a 70%-80% growth year-over-year. Some other AI data center building, because we have a huge advantage on ASIC performance, more function to supporting this high speed network environments, network security. We see that also in the early stage that ramp up right now. Yeah. There was concern after the quarter that maybe it's early ordering. People are concerned, investors were concerned that maybe this is not sustainable. How much of it, and can you know, actually, if it's early ordering of customers? We actually managed the channel inventory, managed pull-forward quite well. We told customer and partner very straight we are maintain the same margin. If our costs go higher, we may adjust monthly. Like this time, we do raise some of the price on the product side. Most of service we did not touch. Usually, service a percentage of the our price. Right now, we feel some kind of memory, some component increase, maybe temporary, maybe, I don't know how long will last, maybe a few quarter or maybe. We also, if you look at last time, five years ago, when there's a supply chain issue there, we raise the price in the beginning and we lower the price when the price come down also. That's where for us, the policy just maintain the same margin, which gross margin around 80%. I feel we build a trust with our partner customer, we also told them no need to pull forward. We also have some policy. Once you bought a product, if you don't deploy within 90 days, we automatically trigger the service revenue, all this content we call the FortiCare. That's why there's no incentive for keeping excess inventory for the partner, for the customer. We've been seeing sustainable growth drivers across all three of our pillars, OT, et cetera, for many quarters. Yeah. Well, before we increased pricing. Yeah. This is even before the AI tailwind. Yeah. which to us feels like a sustainable growth driver as well. We see that momentum well before the price increase. Like Ken said, we manage the inventory. We're not seeing increasing in stocking orders. Right. It feels like the sustainable growth drivers have been really strong before the AI tailwind, and now that's a new sustainable growth driver- Yeah. ...really accelerating that growth. I'm trying to understand the AI tailwind Agentic AI is not a big driver yet in terms of deployment. The numbers are small. When I look at companies, even like Salesforce, who are presenting after you, it is $1 billion of orders out of $50 billion of revenues. It is not a big number. Why do we see AI as a tailwind already now before actually we see Agentic being adopted? I think usually the revenue come after people starting using all these things, right? We see the interest pretty high. If you talk to company inside, pretty much every R&D engineer, they try to leverage AI now. Even a lot of Salesforce, their customer support, they say maybe 80% now handled by the AI. There's a lot of other even G&A. That's where we see a lot of company, they starting try to see how AI can help them, how AI changing things there. Yeah. That's where we see the AI, we see the increase of company traffic within the company, probably like some may say 20%, some 30%, some 40%. They do have increased the company traffic within their own kind of enterprise environment, because this is usually inside the company, especially all this edge AI, Agentic AI. That's where the traffic, the traditional network security. Yeah. They view security perimeter. They don't quite see how internally. We see the biggest growth come from the middle range, which we see the customer more deploy inside the company. We do the internal segmentation. It's kind of internal securities. Yeah. Yeah. I would almost categorize it into three buckets when I think about the growth drivers, and there probably are others from AI, the AI tailwind. You have kind of the elevated threat environment in general with AI tools, and I would put Mythos in that category, even though I think people are worried about Mythos or the equivalent functionality becoming public, and then their entire software surface could be exposed. I talk to CISO a lot, and they're very concerned about that. That's impacting buying patterns in addition to the increased threat level with the AI tools that are out there. You also have the AI sprawl within organizations, and people are very concerned about that. CISO are like, "I don't even know what's out there." A lot of this is shadow AI. You have AI data centers, and we're seeing a lot of investment there. Security is a big portion of that, and you see billions of dollars being invested there. Yeah. A portion of that is going to security, and that'll be a sustainable driver over time. Yeah. Where is this demand? What kind of customer? If I rewind back, I don't know, 20 years, you started from the SMB market, and your product specs, the fact that you are low latency and features brought you into the enterprise space. Where are we seeing this? This time you spoke about Sovereign AI. Where do you see the demand as a result of the AI cycle? What kind of customers, I mean? I think in early Fortinet, we more leverage a channel, right? Yeah. It's doing well. Also when we IPO 17 years ago. It's like over 30% business come from we call the service provider, telecom service provider. We see, not only the enterprise try to get better visibility internally, but also some service providers starting come back, where there's some AI service provider. There are also some kind of a hyperscaler working with us. Also whether the Sovereign AI, Sovereign SASE, also we see huge market opportunity for us. We gave a few example during the earning call, which I feel some are competitor not address our market yet. Especially like a Sovereign AI, Sovereign SASE, they do need to deploy on their own infrastructure, on their own premise, instead of the cloud deployment for a lot of SASE player there. Yeah. That's like a two, three time bigger total addressable market than the cloud, AI or cloud SASE there. That's where we see it's huge growth there. Right. Also, I do believe lot of service provider will be very important, part of ecosystem, like 17, 20 years ago when we IPO. That's where it could be even driving the biggest market segment for whether AI or SASE. Yeah. John, in general, what can you say about the sales cycle, the pricing environment? Where are we in terms of the risks to the business model? Yeah. I think if you look at our business, it's very well diversified across geos, solution sets, our three pillars, and OT, across customer sizes, across verticals. It's a very diversified business, and we see these sustained growth drivers across all of those different sets. We're not seeing risk to the business. If anything, we're seeing a little more urgency in terms of these conversations with Fortinet, and the CISOs are coming to us for help in this new AI environment. We see a lot of demand. We see a lot of momentum. It was reflected in our Q1 results. We saw the demand picking up before that as well. Yeah. We feel that demand right now. We're not seeing risk. Our big opportunity is to address the demand, and we've got to just move really fast to make hay while the sun's shining. It feels like for the next three to five years at least- Yeah. ...with a company like Fortinet where we have this scale of solution set, great solutions for this environment, the momentum is very, very strong across our diversified business. I'm trying to understand. The secure networks, you had very strong growth of orders, and you spoke about traffic, Ken. You spoke about traffic going up. Check Point reports weakness in firewalls. Palo Alto says the firewall market is growing 5%, you're growing 31%, 32%. Where is the disconnect? Why are you more successful than the others? That's a- By the way, sorry, maybe I'm not comparing apples to apples, so if you can expand on what's included in it. Yeah. Actually, the product revenue in Q1 grew 41%. Right, that's the product. 41%. Yeah, compared to Palo Alto, Check Point, whether single digit or- Yeah. ...even negative, like Cisco. If I look in the brochure, also in the investor presentation, using the Three Is to describe this long You're the only few analysts in this space for 20+ years, right? The first I is the innovation, because if you look at Fortinet, probably the only company, or one of few company, we internal develop SASE, SD-WAN, in the past, next-gen firewall, sandbox, and app control, all these things. That's where one company keeping growing, how to keeping catch up the new wave, the new function needed, that's very, very important. Some company, they're starting falling behind. When they're bigger, they cannot internally innovate. That's where the first I. The second I call the integration. When you develop internally, you cannot integrate easily in a single OS. Fortinet has about 30 function now. If you depend on acquisition, the integration more difficult, like how Cisco, Palo Alto, when they compare whether SASE, SD-WAN, or before, they have a separate box, separate solution to cover SD-WAN, cover SASE, cover all this network security, all these things there. They cannot have a single integrated solution. In a network security, single universal is so important because customer don't like to deploy multiple box in mind. That's where, in the network security space, in the last 20, 30 years, most point, single-point solution company all disappear. Only the platform when the multiple function integrate together, that's when that's the second I, integration. The third I call the improvement, which Fortinet also very unique. From day one, we develop ASIC to improving the performance. The additional computing power can enable more function, lower the cost, lower the energy consumption. We are also the only cybersecurity company investing in our own global data center infrastructure. We own the data center. We own all this FortiStack with own software. Yeah. That's making us one third cost compared to other SASE player. That's where the Three Is, innovation, integration, and the improvement, ASIC, all the infrastructure, that give us advantage for the long term. That's why I feel the market itself probably grow around 10% every year. Yeah. Whoever can keeping this, gaining market share, that's where we have our confidence. I say multiple time in the last few years, we have very strong confidence to grow faster than the market and keeping gaining market share, which some of the players starting falling behind now. Yeah. Yeah, I think it's also a competitive advantage that we have been very focused on that network security market for 26 years, there's no competitor that's been focused on that in terms of investing for growth. Check Point was more focused on profitability. Yeah. PAN said they're getting out of it. Cisco sometimes invests in security, sometimes doesn't. We've been very focused on that market, and we're seeing a lot of demand for it. I think some of the market growth rates may have been understated, which may have helped us a little bit because people don't view it as a shiny new object. We've been very loyal to that market more than anybody else, and that investment Ken's talking about and the technology is really putting us in a good position right now. Ken spoke about the Three Is, and you touched at the end about SASE. I want to go back to unified SASE just to ask simple question. Why are you growing so much faster than the others, and who are the customers? Meaning, what is the addressable market you're going after from a profile of customer point of view? I think the differentiation's really we put the SASE, SD-WAN, and all the Next-generation firewall security in the same OS. Yeah. It's very easy, quick for customer to adopt SD-WAN, SASE. That's why in the last few years, we already become a number one SD-WAN player, because SD-WAN is part of FortiOS. Now SASE part of the FortiOS. That's also, 90% business right now come from the customer transition from network firewall to SD-WAN to SASE. Just in a few minutes, they can get a SASE deployed. On the other side, we also the only company invest in the SASE infrastructure globally. It's part of some other service we have, FortiGuard, FortiMail, which also leverage all this data center infrastructure. That make us one third cost, much lower cost compared to after using cloud providers and other colo. That's other huge advantage. The third one, so the first one I call three in one, right? Three function into one OS. The second I call the one third cost. Yeah. The third one, I say the 3x the market size, like a sovereign SASE, on-premise SASE, all these appliance, which the competitor not addressing. They only have a cloud SASE approach. We see the sovereign SASE grow so strong. There's a lot of service provider. We do give an example. Yeah, they just say, hey, SASE will be huge potential for them, just like 17 years ago, the firewall VPN was a big potential business for them. They're starting to quickly adopt the sovereign SASE using our box on-premise in their own infrastructure, deploy a SASE service for their customer, and keep the data within their own infrastructure. That's where the sovereign SASE, I feel, will make our total addressable market two to three times compared this cloud SASE, the other player, and our barbell competitive. Yeah. That's a few SASE. You can see the unified SASE Q4 grow 40%, Q1 like 31%-32%, faster than any other SASE player, and also we're bigger. Yeah. That's a few. Even starting called SASE firewall, right? It's the same operating system, the same box. You can enable SASE and together with firewall. That's why sometimes in Q1 it's a little bit difficult to differentiate because in secure networking, the most growing is the FortiGate, which is maybe 87% business there. For us, the sales have no incentive whether to identify the SASE or firewall. Yeah. Both business grow like 37%. It's both pretty strong. Got it. We do see SASE, we have huge advantage. Even using the SASE firewall as a term, which is a real SASE, just like a few years ago, how the sandbox been integrated into the firewall, then the sandbox firewalls kind of disappear. Also the Next-gen firewall replace the traditional firewall. SASE started replacing some of the non-SASE firewall and part of the whole network solution now. Got it. Is your SASE offering today at par with competitors? Because I stopped covering you about eight months ago, and I started covering you about two months ago, there is a six-month gap in my knowledge. You have to tell me, yes. When I left you were still ramping the feature set of SASE. Where are you today in terms of competitive positioning? Actually, we do see very strong demand for the SASE. Yeah. You see the ramp up pretty quick. What's new in the last two, three months, really, we started launch we call a two bundled service, bundle SASE, SD-WAN, and all these other service together, which for the existing customer, is a 35% for the hardware cost per year. Yeah. That's also if you bundle all these four or five services together, it's less than one third the cost you buy individual. Yeah. In the past, SD-WAN, we do offer SD-WAN part of the FortiOS function, but we don't have much service. They do have underlying already service, but only the world top customer buy it. When we bundle SD with SASE all together, with also a [audio distortion] free license as part of SASE user license, part of it we see the drive of all this bundled service grow very strong. Got it. We are seeing the most discerning enterprise customers buy our SASE in very competitive deals. We're seeing an increase in that, I think we're really distinguishing ourselves versus some of the single solution providers out there who don't have the optionality of Sovereign SASE and cloud SASE. I think you see that in growth rates and stock price performance versus like a Zscaler or a Netskope. Yeah. I think the winners and others, there may be a trend where that's starting to separate a little bit. Yeah. On the last call, you said, if I remember correctly, and if I'm not, correct me, that you're 18% penetrated within customers with SASE. Yes. For the enterprise we're tracking. Right. Probably 70% now already using SD-WAN. 18% now using the SASE now. Also that's probably about 50% growth compared to one years ago. It's a pretty strong growth for the current customer base, quickly adopt from like a firewall to SD-WAN to SASE. Got it. You touched on Sovereign. For those who don't understand the difference, can you explain Sovereign SASE? What is it, and what is the market opportunity? Basically, you can process all the data within where the customer on premise, we call the Private SASE, all in their own kind of infrastructure. Like certain countries, certain service provider, want to have the data being processed with their own infrastructure instead of forward to the cloud. Right. That's the one you do need to provide them the product, the tool to process within their own infrastructure. Basically, selling a product first, and then they kind of using the product offer the SASE service to their customer base processed locally. Got it. Is this a U.S. phenomenon or that's completely outside the U.S.? Would be more EMEA. More EMEA? Yeah. Got it. Okay. U.S., we do have a few bigger enterprise, especially finance service. They do, they call the Private SASE. They use in their own data center infrastructure to process data on their own premise. Yeah. The other parts of the business also grew very well this quarter. Talk about the other parts. OT. Take us through the journey of the newer parts of the portfolio outside of SASE. Yeah. I think OT is the one we say grow like a 70%-80% year-over-year. We kind of focus in that area in the last five to 10 years. We don't see much other player get into this space, because there's a lot of unique protocol. They also sometimes need a special hardware in the ruggedized form, in this outdoor environment. That's where also do need some kind of long-term investment there. On other-