Fortinet, Inc. (FTNT)

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Fortinet (FTNT)

Q1 2013 Earnings Call

April 30, 2013 6:30 pm ET


Michelle Spolver - Vice President of Corporate Communications & Investor Relations

Ahmed Rubaie - Chief Operating Officer and Chief Financial Officer

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


Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

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

Walter H. Pritchard - Citigroup Inc, Research Division

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

Erik Suppiger - JMP Securities LLC, Research Division

Keith Weiss - Morgan Stanley, Research Division

Todd Raker - Deutsche Bank AG, Research Division



Good day, ladies and gentlemen, and welcome to the Fortinet First Quarter 2013 Earnings Financial Analyst Q&A. [Operator Instructions] I would now like to turn the call over to Michelle Spolver.

Michelle Spolver

Hi, everybody. Good afternoon. Thank you for joining us again for those who are on our first call for the earnings announcement earlier today. Joining me are -- is Ken Xie, our Fortinet Founder and CEO; and Ahmed Rubaie, who is our new CFO and COO.

So I think if you guys know, the purpose of this call is really to do follow-up questions now that you've had a chance to dig in deeper a little bit in our numbers. We'll try and keep the call to an hour, and it is all Q&A session.

Before we start, let me just remind you that the forward-looking statements that I read at the start of our earlier call apply to all forward-looking statements that we make during this call.

So let's see. With that, operator, you can take the first question.

Question-and-Answer Session


The first question comes from Jayson Noland from Robert Baird.

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

Ahmed, just a couple clarifying questions. You were talking about your responsibility as COO. Is it purely operational to start? Or do you have a dotted line to sales and marketing?

Ahmed Rubaie

It's actually across the board. There are no lines defined yet. I think the best way to look at it is, I will come in as the steward of the business as CFO, and we'll work towards helping scale the business on both the sales end, as well as the operating end. And then that's probably the best way to answer it.

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

Okay. And a second clarifying question on the guidance. Are you factoring the pipeline any differently than your predecessor that you're aware of?

Ahmed Rubaie

I'm not aware of what my predecessor has done so I apologize. I don't know the comparison. All I can tell you is, from my perspective, I've studied bottoms up, tops down and formulated guidance with the team based on what we know today.

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

Okay. A couple higher-level questions and maybe these are for Ken. But there was the Secure Wireless LAN solution, Ken, and then Coyote Point on the ADC side. And I guess just more broadly, what's the -- where are we headed with these other categories? Then there's companies out there that just do these, obviously. So I understand how these may be confusing to sales within Fortinet, possibly. They're small still, but they are different markets. So maybe if you could talk about the strategy behind the TAM expansion.

Ken Xie

Yes. The Wireless Wi-Fi solution, the request come from our customer base, especially [indiscernible]. Sometime, they do need secure both the wire and the Wi-Fi together. So we'll be helping to manage them more easily, unify all this together. So that's where the request come from, the customer base. And we see market demand in this combined solution. The ADC is also similar because we have some kind of ADC product before. From time to time, some customer using ADC [indiscernible] a few firewall, a few UTM product. And we see -- we were not trying to target the traditional ADC market more in the data center but really among some of our customer base, which they're using to balance among the solutions. So that's where the tool solution keeping come up. And we also feel some technology long-term-wise can be combined into UTM solution. So that's where short term, we try to offer the product, and long-term, also some of that may be also starting integrating to the whole UTM.

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

Okay. And last question for me on the MT6. Do you expect to see any changes to typical seasonality in the second half as MT6 product comes out the door?

Ken Xie

Like I mentioned, both the MT and also the FortiOS -- I mean, the FortiASIC, the FortiOS, we're not selling directly, will be gradually built into the FortiGate product. And the MT6 will be -- improve the performance a lot, but it also will take some time gradually built into the product because the silicon is 3x to 4x larger than the previous version. So that's where we'll be towards the second half of this year. We're starting to see -- if I was in a long schedule will be towards the second half of this year we're starting build into the product.


The next question comes from Michael Turits from Raymond James.

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

A couple of questions. First, I asked a question on the call, but can we go back into the services down 1% this quarter, which again you haven't seen a decline in services before the sequential decline?

Read the rest of this transcript for free on seekingalpha.com