Fortinet Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brian Essex - JP Morgan - Analyst : Hi, good afternoon. Can you hear me okay?

Question: Brian Essex - JP Morgan - Analyst : Great. Great. Congrats on the results for the quarter. I guess maybe for Keith, maybe or Christiane, could you unpack the dynamics behind the maintenance and services revenue? Just trying to understand, it's a segment that I think we were expecting to kind of accelerate and decline sequentially. So just trying to understand some of the puts and takes behind that and how you expect that to, I guess, grow throughout the rest of the year so you can kind of like level set expectations.

Question: Brian Essex - JP Morgan - Analyst : Is there a dynamic there between FortiGuard and FortiCare that we need to think about?

Question: Tal Liani - Bank of America - Analyst : Can you hear me?

Question: Tal Liani - Bank of America - Analyst : Okay, thank you. We spoke about -- in earlier quarters, we spoke about end of service coming -- bringing demand forward. Even in the last quarter, you said that demand is going to come this next four, five -- four quarters it's going to come this year instead of next year. So the question I have is why is -- why are we seeing some lightness in the guidance for the next quarter? Why don't we see the demand coming forward to the next quarter. Can you just speak about the drivers? I just compare your numbers, your guidance to the consensus, and I'm trying to understand why don't I see already strength, especially ahead of a tariff increase that is going to increase the prices -- likely increase the prices for everyone.

Question: Gabriela Borges - Goldman Sachs - Analyst : Hey, good afternoon. Thank you. Maybe Christiane, I'll pick up right where you left off on sales being hesitant Clearly, we're all seeing similar headlines as you are. Maybe just tell us specifically, what are some of the conversations that sales is having from customers? What are the reasons they're hesitant to commit to purchasing Fortinet? And how are you thinking about maybe some of that hesitancy getting resolved? Is it maybe when we run into the lead time situation for the end of life? Or how do you think about that flowing through over the next few quarters?

Question: Keith Weiss - Morgan Stanley - Analyst : Excellent. Thank you for taking the question. Maybe carrying on with that line of thought, if you will. What gives you guys confidence that you're still going to be able to perform to like the stronger second half pickup? I get there's a product cycle going on and people have to start preparing for end of life. But is there no risk there of potentially people kind of sweating the asset or pushing it out? I guess that's just the question of, like where do you stand confident that the second half will be stronger? And how much of that second half strength is implied in the guide right now?

Question: Shaul Eyal - TD Cowen - Analyst : Thank you. Good afternoon, everybody. And congrats on solid set of results considering the growing macro. The number of 8-digit transactions has been on the rise over the past few quarters. When we unpack those transactions, and I know they could differ from one another, are they representative of the entire Fortinet platform stack? Do they include SD-WAN and SASE? What's driving those large transactions predominantly from a product perspective?

Question: Rob Owens - Piper Sandler - Analyst : Great. Thank you very much. Follow on with Shaul's question there just around these large deals. Were they considered in the pipeline as you looked at the first quarter? I know back in the fourth quarter, on some of the larger transactions, you did talk about some potential pull-forward relative to the end of life. So curious if this was a similar experience with the larger transactions. Or was it more wall-to-wall SD-WAN deployment or global SD-WAN deployment like you spoke to? Just some more color would be great. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 8:30PM, FTNT.OQ - Q1 2025 Fortinet Inc Earnings Call

Question: Saket Kalia - Barclays - Analyst : Hey, guys. Thanks for taking my questions here. Christiane, maybe for you just to stay on that topic but just from a different angle. Can you just talk about whether there was any changing behavior from channel partners quarter ahead of tariffs? I think some industries out there saw just some earlier purchasing ahead of potential price increases. Did Fortinet see any of that this quarter?

Question: Saket Kalia - Barclays - Analyst : Yes, that does help. Super helpful. If I can sneak in a follow-up maybe for Ken just to zoom out a little bit from the tariff discussion. Kind of -- it was great to see the unified SaaS business just continue to scale. Can you just talk about -- and there were some great deals that were called out in the prepared remarks. Can you just talk about what solutions you're typically replacing at these customers? I mean, is it primarily VPN hardware? Or is it secure web gateways? Or is it other solutions that FortiSASE is able to replace?

Question: Shrenik Kothari - Baird - Analyst : Yeah, thanks. Can you guys hear me all right?

Question: Shrenik Kothari - Baird - Analyst : Great. So Keith and Christiane, you mentioned that EMEA was your best-performing geo with mid-teens growth and partner like momentum there, clearly a tailwind. And you also made it clear that tariffs pull-forwards are not really a dynamic. So just curious, what is driving strength out there? I mean I know Ken mentioned about the telco partnerships and tariff shaping demand for sovereign SASE. Just curious if you can elaborate a little bit there. And in APAC, are you also starting to see traction from other modernization initiatives around OT or AI SOC deals as well? And I had a quick follow-up.

Question: Shrenik Kothari - Baird - Analyst : Got it. And just a quick follow-up on the new logos. Was pretty solid, 14% year-on-year. Just curious, like how much of SASE, SecOps growth is now -- are now driven by kind of first-time Fortinet customers versus sort of expansion from your existing installed base? Are these kind of your models landing early in the deals? Or are they still largely dependent on the ring FortiGate deployments?

Question: Brad Zelnick - Deutsche Bank - Analyst : Great. Thanks so much. Can you guys hear me? Awesome. Thank you. Last quarter, I think it was, you talked about investments that you're making in various forms of enablement. So that's a channel and your direct sales would be optimally positioned to capture the refresh opportunity. How is that progressing? And what have you seen over the past few months in terms of your competitors trying to capitalize on this end-of-service event that's coming up?

Question: Brad Zelnick - Deutsche Bank - Analyst : If I could maybe just ask one follow-up. I think this is the first quarter where you now have Linksys consolidated. I assume it's not all that material, but is there anything just to call out that we should consider when we think about the trends going forward in terms of contribution and flow-through to the financials?

Question: Peter Weed - Stifel - Analyst : This is Peter Weed from Stifel. Do you hear me okay?

Question: Peter Weed - Stifel - Analyst : Great. Just maybe, Christiane, on the upcoming refresh cycle. Any way to talk through some of the assumptions, both in terms of, -- Hey, the number of firewalls we expect to be refreshed, will it be the same or fewer than what they had previously? Obviously, I'm assuming the performance of the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 8:30PM, FTNT.OQ - Q1 2025 Fortinet Inc Earnings Call models will be greater given these are old models. And I know you talked about it a few minutes ago, but maybe talk a little bit more about are you expecting any type of shift towards virtual or SASE from physical as part of this refresh.

Question: Peter Weed - Stifel - Analyst : That's great. And maybe just -- oh, go ahead.

Question: Peter Weed - Stifel - Analyst : That's great. I really appreciate the color there. And maybe just for Ken, a bigger-picture question. In our field work, data security just continues to come up as a really important priority. I know late last year, I think it was back in August, you guys acquired Next DLP. Would to talk a little bit more about early feedback on that acquisition and how you're thinking about the broader base security opportunity for Fortinet.

Question: Junaid Siddiqui - Truist Securities - Analyst : Hi, can you hear me?

Question: Junaid Siddiqui - Truist Securities - Analyst : All right. Great. Yes, I just had a question on the CNAPP market and the traction that you're seeing in Lacework. One of your competitors has effectively ceded that space to a partner of yours. Do you see that market shaping up? And who are you seeing from a competitive perspective? And how are you differentiating from some of those competitors?

Question: Keith Bachman Bachman - BMO Capital - Analyst : Thank you very much. I wanted to ask a little bit about sensitivities. And what I mean by that is, Ken, you highlighted the three buckets of spend that Fortinet has: secure networking, SASE and SecOps. As you think about over the next number of quarters, is there any comment when you hear feedback from the channel on deal elongation? Is it more, in fact, on the subscription side than the hardware side with maybe users not wanting to sweat their assets for regulatory reasons or compliance reasons or governance or what have you? And is there thereby a risk of some crowding out, if you will, on hardware refreshes that REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 8:30PM, FTNT.OQ - Q1 2025 Fortinet Inc Earnings Call perhaps are ongoing that make may cause some weakness in the unified SASE and/or SecOps? I think SD-WAN, probably not. But just talk about the buckets of spending in terms of sensitivities as we go out over the next number of quarters, whether it be de elongations or what have you. And Keith, certainly all the best to you.