Thank you very much for joining us. I have the joy of covering 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, and we are going to speak about the fundamentals. I want to talk about the core, 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 the convergence of network and network security, especially within enterprise. AI definitely drive a lot of additional traffic, whether AI agent or using some AI for some application. Most enterprise still today, they only have this, they call it perimeter security. Internal, they don't deploy much network security, whether through the internal segmentation or protect some key server or certain department, some 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 added standard building because we have a huge advantage on ASIC performance, more function to supporting this high speed network environment, network security. We see that also in the early season 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. Also we told customer and partner very straight, we are maintaining 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 do 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. 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 and also we told them no need to pull forward. We have some policy. Once you bought a product, if you don't deploy within 90 days, we automatic trigger the service revenue, all this kind of thing we call the FortiGate. 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 stock and orders. It feels like these sustainable growth drivers have been really strong before the AI tailwind, and now that's a new sustainable growth driver that is- 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. I look at companies even like Salesforce, who are presenting after you, it's $1 billion of orders out of $50 billion of revenues. It's 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 companies inside, pretty much every hour the engineer, they try to leverage AI now. Even lot of, like Salesforce, their customer support is saying maybe 80% now handled by the AI. There's a lot of other even G&A. That's why we see a lot of a company, they starting try to see how AI can help them, how AI changes things there. Yeah. That's why 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. This is usually inside the company, especially all this edge AI, agentic AI. That's where the traffic, the traditional network security. Yeah They use security parameters. They don't actually 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 is 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 CSOs 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, then you also have the AI sprawl within organizations, and people are very concerned about that. CSOs 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. Where is this demand? What kind of customer? Is it bigger than it? 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 the channel, right? Yeah, it's doing well. When the IPO 17 years ago, is over 30% business come from, we call the service provider, telecom service provider. Now we see not only the enterprise try to get better visibility internally, but also some service providers starting to come back. Where there's some AI service provider, there are also some kind of a hyperscaler working with us. Whether the sovereign AI, sovereign SASE, also we see huge market opportunity for us. We gave a few examples during the earning call, which I feel some of competitors 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 times bigger total addressable market than the cloud, AI or cloud SASE there. That's why we see huge growth there. Right. Also, I do believe a lot of service provider will be very important part of ecosystem, like 17, 20 years ago when we IPO. That's where could be even driving the biggest market segment for our wider 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. 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 conversations with Fortinet. The CSOs 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 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, 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, if you can expand on what's included in it. Yeah. Actually, the product revenue in Q1 grow 41%. Right. That's the product. 41% compared to Palo Alto, Check Point, whether single digit. Yeah even negative like Cisco. If you look in the brochure, also in the investor presentation, using the three I to describe this long view. You are the only few analysts in this space for like 20+ years, right? The first I is the innovation, because if you look at Fortinet, probably the only company or among few company, we internal develop SASE SD-WAN. In the past, next-gen firewall, sandboxing, app control, all these things. Then that's where one company keeping growing, how to keeping catch up the new wave, the new function needed is very important. Some company, they started 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. FortiOS 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 integrated solution is so important because customer don't like to deploy multiple box in line. That's why 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 last well. 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 also the only cybersecurity company invest in our own global data center infrastructure. We own the data center. We own all this kind of a FortiStack. We own software. Yeah. That's making us one-third cost compared to other SASE player. That's where the three I, innovation, integration, and the improvement, ASIC, all the infrastructure, that gave us advantage for the long term. That's why I feel the market itself probably grow around 10% year-over-year. Yeah. Whoever can keep in this gaining market share, that's why we're very confident. I say multiple times in the last few years, we're very confident to grow faster than the market and keeping gaining market share, which some of the players are 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, and there's no competitor that's been focused on that in terms of investing for growth. Check Point was more focused on profitability. Yeah. Palo Alto, they're getting out of it. Cisco sometimes invest 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. That investment Ken's talking about in the technology is really putting us in a good position right now. Ken spoke about the three I's, 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? Yeah, I think the differentiation is really we put the SASE, SD-WAN, and all the next-gen firewall security in the same OS. Yeah. That is very easy, quick for customer to adopt SD-WAN SASE. That's why in the last few years, we already become the 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 transitioning from network firewall to SD-WAN to SASE. Just in a few minutes, they can get SASE deployed. On the other side, we also the only company invest in the SASE infrastructure globally. With 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 they have to using cloud providers and other colocation. That's other huge advantage. The third one I say 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 appliances, which the competitors not addressing. They only have a cloud SASE approach. We see the sovereign SASE grow so strong. There's a lot of service provider carriers. We do give an example. They just say, "Hey, SASE will be huge potential for them." Just like 17 years ago, they say the firewall VPN is big potential business for them. They're starting quick roll out the sovereign SASE using our box on-premise in their own infrastructure, deploy SASE service for their customers, and keep the data within their own infrastructure. That's where the sovereign SASE, I feel will make our market, total addressable market, like 2 - 3x compared with the cloud SASE, the other players, and all very competitive. Yeah. I feel the SASE, you can see the unified SASE Q4 grow 40%, Q1 31%-32%, faster than any other SASE player, also we're bigger. Yeah. That I feel even starting call SASE firewall. It's the same operating system, 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 like 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. Right. We do see SASE, we have huge advantage. Even using the SASE firewall as a term, which is a new SASE, just like a few years ago. All the sandbox being integrated into the firewall, the sandbox firewall is kind of disappear. Also next-gen firewall replacing traditional firewall. The 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? I stopped covering you about eight months ago, and I started covering you about two months ago, there's a six-month gap in my knowledge. You must have missed so much. 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. Yes. You see the ramp up pretty quick. What's new in the last two, three months, really, we started launch we call the two bundled service. Bundle SASE, SD-WAN, and all these other services together, which for the existing customer is at 35% for the hardware cost per year. Yeah. Also, if you bundle all these kind of four or five services together, it's less than one third cost you by individual. Yeah. In the past, SD-WAN, we do offer SD-WAN part of the FortiGate function, but we don't have much service. They do have underlay overlay service, but only the very top customer buy it. When we bundle SD-WAN, SASE all together with also like a five, 10, 20 free license upon a 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, and I think we're really kind of 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 may be, 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 17% now already using SD-WAN. 18% now using the SASE now, but also that's probably about 50% growth compared to one year ago. It's a pretty strong growth for the current customer base, quick adopt from like a firewall, 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? You can process all the data within, where the customer on-premises, we call the private SASE, all in their own kind of infrastructure. Certain countries, certain service providers, want to have the data being processed with their own infrastructure instead of go through 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, process locally. Got it. Is this a U.S. phenomenon or is that the outside the U.S.? Probably more EMEA. More EMEA? Yeah. Got it. Okay. U.S., we do have a few big enterprise, especially financial services. They do, they call the private SASE. They use in their own data center infrastructure to process data on their own premises. 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 70%-80% year-over-year. We kind of focus in that area in the last 5-10 years. We don't see much other player get into this space, because kind of 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 kind of do need some kind of long-term investment there. On the other side, you can see OT, IoT space, which probably a lot of time now, probably most of the time, network security may be the only way to secure that environment. Because endpoint pretty much impossible to deploy in this OT, IoT device, which has a very limited computing power, very different operating system, which is the traditional endpoint solution not working. The network is actually probably the only way to protect them. We see the huge market potential, especially all this edge computing, all this kind of a connect device, all this sensor. That's where we are probably the last three or four years, if you read a market report, we are probably the only leader in that space. That gave us a huge growth potential advantage there. I agree with that. Probably in the I keep saying in the next 10 years, probably there's more, 10x more device connect online than people. Yeah. Maybe if you add like a agentic AI, maybe even 100 times. Yeah. security operations. Think about how central is security operations to the broader platform. We have about, actually about 40 product in that portfolio there. Over half, more than 20 has all built AI capability inside, like AI making all this decision automatically, so they can react very quickly within seconds. That's also, it's for us more like upsell, cross-sell. If you look in SecureOps, it's a very huge market, almost like $200 billion. I do believe probably no player even have a double-digit market share. They are so fragmented, right? That's where for us, probably around 10% business come from the SecureOps, but more from existing customer upsell, cross-sell. Because we develop most product in-house, they integrate, automate together much better. That's where we feel that's the advantage we have. On the other side, it's a very fragmented market, and we still are focused on network security right now. A lot of customer, once we get in, we suddenly expanding into some operation to help them to quickly automate. We are also seeing a lot of mid-sized customers who buy across the three pillars, secure networking, SASE and security operations. MSSPs who love the full portfolio because they can offer it as kind of an à la carte menu and sell additional amounts. They're also expressing interest in some of our AI visibility for the AI sprawl, so they can help their customers identify the AI sprawl throughout their organization and secure it and have cost control around it as well. Is this a standalone product or is it normally sold with the other parts? It's typically an expand sale, so it can be a standalone product, but more often than not, it's an expand sale, and oftentimes these mid-market customers will buy across the portfolio. We see the bigger customers consolidating vendors as well, whereas they may buy from multiple vendors. I think that kind of broad platform approach and opportunity is pretty significant in mid-market and below. Yeah. When we measure cybersecurity companies, very often we look at how much business is coming from new customers versus how much business is coming from an upsell. Especially now when we talk about platforms, upsell is a big part, but also new customers is a big part. Talk about your situation. Talk about business with new customers versus upsell to existing customers. How do you go to market differently about these two things? I think for us, we definitely want to take care of the existing customer for the new security need. That's how we keeping up all this space changing, whether the now SASE, with quantum computing, without AI. We try to internal develop the same new function, the OS, make it very easy to migrate to the next function they needed. On the other side, we do see competitors starting, whether falling apart or behind, which make us also gaining a lot of new customer, especially like U.S. enterprise. You can see it's pretty strong growth. If you look at the 20 years ago, just top five player had less than 50% market share on network security. Now, probably the top two player already have over 50% market share. They do have some consolidation going on, and I do believe we have more advantage than other competitor keeping gaining market share. That's where we are confident we'll grow faster than the market in the next few years, and the same time, we're keeping gaining market share. Got it. We're almost running out of time. I want to talk about supply chain. Any constraints? How do you handle supply constraints? We managed this multiple times, and just like five years ago, we told our customer partner we just want to maintain the margin, and we don't want to make more money or whatever. We're able to do the real time adjustment. We also have a six-month inventory. At the same time, because we have almost 60% market share on the unit shipment in the space, we're able to operate, manufacture, working with all these memory supply, the CPU supply, the network chip supply directly. We're working with the chip company directly to sourcing all this. I think has a better source capability, more long-term commitment contract, make it more stable. At the same time, the policy of excess inventory help us during this time to gain the market share, which a lot of competitor probably don't even have the product for shipping. We say it is one of five to 10 year opportunity to gain the market share, we view it this way. Got it. Do you envision maintaining this leadership? What is structurally right with you that is wrong with the others? I mean, why are you structurally able to handle supply constraint better than the others? We're trying to be more long-term focused. I don't see any other competitor try to keep in six months inventory for the key component like the home agent will keep even one year inventory. There may be lower some operation cost short-term, but they're missing the opportunity. Yes. which I feel if we don't have this, there's the opportunity cost if we don't do this. That I feel some kind of Maybe we go through this a few times, we do a little bit better than competitor, but I view this as an opportunity to gain market share. Got it. We ran out of time, but I can steal a minute or two from the break. Any questions from the audience? No? Great. I'll let you go. Okay. Thank you. Thank you. Thank you so much.