FTNT

Fortinet, Inc. (FTNT)

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Fortinet, Inc. (FTNT)

Preliminary Q1 2013 Results Conference

April 10, 2013 5:00 pm ET

Executives

Michelle Spolver - Vice President of Corporate Communications & Investor Relations

Nancy Bush - Interim Chief Financial Officer, Principal Accounting Officer, Vice President and Worldwide Corporate Controller

Ken Xie - Co-Founder, Chairman, Chief Executive Officer and President

Analysts

Michael Turits - Raymond James & Associates, Inc., Research Division

Keith Weiss - Morgan Stanley, Research Division

Brent Thill - UBS Investment Bank, Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Daniel T. Cummins - B. Riley Caris, Research Division

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Daniel H. Ives - FBR Capital Markets & Co., Research Division

Rohit N. Chopra - Wedbush Securities Inc., Research Division

Kimberly Evers - Robert W. Baird & Co. Incorporated, Research Division

Robert P. Breza - RBC Capital Markets, LLC, Research Division

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Fatima Boolani - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fortinet Q1 2013 Preliminary Results Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Michelle Spolver. Ma'am, you may begin.

Michelle Spolver

Thank you, operator. Good afternoon, everyone, and thank you for joining our conference call today. As you know from the press release issued about 30 minutes ago, today, Fortinet announced preliminary financial information for the first quarter 2013. The purpose of this call is to provide perspective on these results to the extent that we can at this time. Additional details will be provided during our Q1 '13 earnings call scheduled for April 30 at 4:30 p.m. Eastern time.

Joining me today are Fortinet's Founder, President and CEO, Ken Xie; and Interim CFO, Nancy Bush. Following prepared remarks by Ken and Nancy, we'll open up the call for questions.

Before we begin, let me first read this disclaimer. Please note some of the comments we make today are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Please refer to our SEC filings, in particular the risk factors described in our Forms 10-K and 10-Q, for more information. All forward-looking statements reflect our opinions only as of today, and we undertake no obligation and specifically disclaim any obligation to update forward-looking statements.

Please refer to the Investor Relations section of our website for more information, including our preliminary earnings release issued just a few minutes ago. A replay of this call will also be available on our website.

I will now turn the call over to Nancy Bush, who will review Fortinet's preliminary earnings results for the first quarter 2013.

Nancy Bush

Thanks, Michelle. Let me begin with a quick review of the preliminary first quarter financial results that we announced in our press release after the market close today. Specifically, billings are expected to be in the range of $147 million to $149 million compared to our guidance of $158 million to $162 million. Revenue is expected to be in the range of $134 million to $136 million compared to our guidance range of $138 million to $141 million. And non-GAAP EPS is expected to be approximately $0.10 compared to our guidance range of $0.11 to $0.12.

As Michelle said, we will provide further details on Q1 financial results, along with our guidance outlook for Q2 and the full year 2013, during our planned earnings call on April 30 at 4:30 p.m. Eastern time. I would also add that results we have shared today are preliminary in nature, subject to change based on a completion of our quarterly review and close process.

Now let me turn the call over to Ken, who will provide a bit of perspective on the global security market and factors that have impacted our performance during the quarter.

Ken Xie

Thank you, Nancy, and good afternoon, everyone. We come off of our strong Q4 and feel really good about our momentum going into Q1, so our finance results fell short of our expectation. So from a high-level perspective, we believe the service-provider-specific issue and some macroeconomic and the geopolitical issue were the primary reason for the revenue and billing shortfall. So importantly, we feel worst market has drawn about [ph] the strength of our product. We believe our global competitive position remains strong. And of note, our miss was not specifically relate to the last of significant deal to competitors during the quarter.

So let me address the primary factor that affect our Q1 performance. At first, we had a few large service provider deals in U.S. did not close as expected. In this case, deals were not lost during the quarter. Our total telco service provider vertical is currently expect to have contribute approximately 25% of total Q1 2013 billing compared to approximately 30% in Q1 2012.

So second, additionally, a minority of macroeconomic and the geopolitical issue affect our performance in North America and the EMEA, of which I will discuss -- address further in a minute. And finally, a less extent, the timing of new appliance product releases and inventory shortages also contribute to some of the miss.

Bookings is down from a geographic perspective. So I'm very pleased to say, we have a very strong performance in Asia, especially from Japan, even in light of a currency impact there. So we also did well in Southeast Asia and India.

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