FTNT
#Sure.
Well, just talking about the top line, we have more visibility into Q3 than we have in Q4.
I look at the international business is doing very well, we have a mature model in place, we have added people, as we add people the productivity correlates very nicely to growth and what we would expect.
In North America there was more change and I think it takes a little time.
As we said we've looked more to the second half.
Right now we are extremely focused on productivity in Q3, quite frankly, and driving that.
So, I think we have better line of sight into Q3 than Q4, and hopefully our productivity picks up and that translates into something better longer term.
The compares are tough versus last year; we're getting into a wall of big numbers as well.
But when you look on the op margin side in you're asking about the bridge, again, we have talked that we know the levers.
We've talked before very consistently that we know the levers.
First of all, we have been hiring quite a lot of people, we could taper off at any time we want.
<UNK> and I are very focused on reviewing critical hires right now, for instance, and making sure that anybody we add is accretive to productivity.
The second thing we do is, again, laser focused on productivity, the way you get there, again, first and foremost manage performance.
Be very focused on who is doing what in the pipeline, make sure that you're building pipeline and your lead gen engine is working; again, we're laser focused on that.
We have been seeing pipelines build; I think we mentioned that in the script.
And then AccelOps is opportunity to find synergies, which we're going be very focused on.
And beyond that, gross margin, again, if you look at the product line, it suggests that there's less upfront revenue.
That revenue is now on the balance sheet, and as that comes off the balance sheet, we've seen this tailwind in the gross margin, that can hopefully provide a continuing tailwind to the gross margin line.
As far as G&A and R&D go, again, we can if we need to delay hiring, manage without ---+ not manage without, excuse me; but I mean manage the rate of hiring there.
And those are really the levers.
We're very much about headcount.
There's some other discretionary spending in the Company that we'll simply look at and we'll manage as well.
But when you do look at spending in a Company us, it is very headcount concentrated, so driving productivity is the best thing we can do.
Yes.
Fair enough.
I would start with North America.
I think the realignment, again, <UNK>, we were talking more about the second half of the year.
We did not see much, it was not a strong quarter in North America, obviously.
That's certainly a piece of the overall growth in the Company.
It's easy to see when you see EMEA growing 35% and APAC growing 36%.
A bit out of balance there.
Within the Americas, I would say Canada did not have a good quarter.
I would say it was fairly soft compared to Q1.
Brazil same thing.
Brazil's had continuing struggles I think due to, not only the commodities ---+ low price of commodities, but also the political headwinds down there.
And those continue, I think we called those out continuing.
Is far as the service providers space, I don't have a number for you, but again, we've been in the low 20%s and we were at 19%, I think it could give you some sense of that impact.
I think people in Q1 might have been clearing out their pipeline, there was pipeline there.
I think it was a rebuild, more of the new, look ---+ why I'm trying to contrast internationally, what happened internationally was that really you're adding people to a model that exists.
In Q1 we rebuilt the model, not completely rebuilt, but there was new lead gen engine and I think there was more newness to it than the international piece.
Yet there were deals on the table, and I think those deals closed.
And then also we had a decent service provider quarter in Q1, Canada also had a very good quarter in Q1, by the way.
So, I think those were the things.
I don't think there's much more to it than that.
I think basically the newness ---+ the new pipeline being built and the new model in the Americas really pays off, hopefully more in the second half of the year
This is <UNK>, we (inaudible), we also tried to make the team more efficient, more responsible for their account.
So we reduced overlay and we and also we making (inaudible) account sales compared to more overlay in the past in some vertical, in some (inaudible) account manager.
We try to make in the sales more like own some account, responsible for account, and also reduce overlay.
So that will take some time to make sure they also do the pipeline and also make the change.
LIke <UNK> said, it will probably take about 6 to 12 months to make some of the change.
We feel we have the team in position, we've pretty much done all the change and we are going to be improving the productivity going forward.
Yes, I think, <UNK>, it just goes back to there as more change in the US than internationally and it takes a little bit of time to the newness of it.
The major [strength] with this model and doing well we can see the growth is higher than any other competitor and also it's very efficient.
The (inaudible) we just want to make sure we make the right change and then for the future allow some growth, not just the sort term one to two quarter result.
But you can look and go back to the last few years, in fact to 10 years we constantly compare to our international.
US is the model to be back and forth.
Now we have the global leader proven on the international and also in some other region, and we want to implement the model and also make sure we have long-term benefit from the model.
<UNK>, I really, I'd go back to what I said to, I think it was <UNK>.
I do not have a better answer, we don't really guide on product versus subscriptions.
But I can't predict what people will buy our what the duration will be, how much cloud content will be, metered model type of business; so it is hard to predict that.
I think we just really have to go off of the top level guidance.
But I would say the bias again is more towards subscriptions, more towards the deferred stream for all the reasons I previously mentioned.
I think the [ISOS-E-3] will be more driving into the low end of branch office solution.
The first part that we announced, actually two days ago, is actually the FortiGATE-60E].
We are reshipping, and this model actually is the highest selling model worldwide than other competitor, any other product.
You can see the improvement over the old model and also our competitor is really a factor of 10 x.
That's definitely what's helping drive the gross and also we improved the margin a little bit, because also, this can be bundled some additional service, like (inaudible) bundle with some other Fortica 360 we're going to launch later this year.
That's what has been driving the growth and also the profitability there.
On the CP9, mostly go through high end, this called a [condum] processor like the one we announced before, whether the 2000 or the 7000 series.
So that's the one still takes some time because high end take long time to evaluate and that's probably ---+ we also will gradually, like each quarter when they have [wonderful] product will be refreshed using the new AC chip.
And so where we're keeping driving the better product technology quarter by quarter.
I'm sorry, I did not hear the last part of the question, <UNK>.
Fair question.
First of all, that's about net adds, I think versus hire.
I think gross hire is probably a little higher than less, and people leave for whatever reason.
But think of it as [medac].
Anyway, the balance of headcount is really about, what I am investing in.
When I add people, the way that we think about it is, when <UNK> and I look at it ---+ I'm actually going bring him into this conversation ---+ but the way we look at it is, where can we get in incremental dollar of revenue for whatever cost of spend.
Or where do we get the appropriate productivity return for our investment.
Right now, internationally we continue to see those opportunities, but those aren't forklift investments in the model.
We used to get ---+ we've been asked the question many times, what inning are you in.
Two years ago we would have said early innings, few quarters ago we would have said middle innings, now we would say late innings.
And, the point there is there is some forklift investment early and then you're just adding people to a model that you basically should be able to put people ---+ add people to and they drive higher productivity.
And the bias there would be right now on sales people internationally, we would probably, certainly are trying to let the North America productivity catch up to the investment, so to speak.
So that is how we do it.
<UNK>w far would we bring it down.
You could bring it down substantially.
We are committed, we're very focused on getting the hygiene and discipline in the Company and focus on that margin leverage.
We've talked about the 2020 and we're adding point over the next five years, getting to 15% this year and adding 1 point over the next years.
And we are focused on doing that.
I think if you really want to try to exercise that muscle so that reflex is built, and you are building that hygiene into the system today.
And <UNK> and I are putting a high level of scrutiny right now into all of the headcount and making sure that we just don't ---+ one, just don't replace people because they were here, that's the first thing you do.
Then second thing you do is you make sure that people coming in really are accretive to the top line and the margin as well.
But, what we are trying to do is really exercise our commitment to driving that higher leverage over time.
<UNK>, anything to add there.
Yes, I think all the improving margin is in two way: one is to grow the topline, and the other way is really control the cost.
You can see the model we have on international, that is really the most (inaudible) capacity we had, the more topline growth and also activity efficiency that is keeping at a pretty high level.
US, we gradually added some people early this year.
We also changed some other reorg and also the other part.
Now its more, try to see how we can make the team more productive and also more efficient.
So that is the part we're most focus on, improving the productivity in North America, and at the same time.
International, just keeping at sales capacity because we have the best product.
And if we can build a more efficient self marketing model we can gain a lot of market share and can beat pretty much all competitors.
That is why we are very disciplined to work (inaudible) to the operating margin goals.
We pay like 15% ACM then you improve 1% every year to 2020 reach the 20% operating margin.
Even during the acquisition that brought our sales up] last quarter we still maintain the goal of margin 15% this year.
So that is where we are very disciplined that we make sure we deliver what we model and at the same time keeping, driving both the top lines [off] the bottom line.
It is really the former, <UNK>.
Just go run the growth on sales and marketing spend over the last year, years, and the growth is not ---+ I think that has outpaced the growth in the top line in the regions, certainly in North America.
So there is a capacity to grow there.
We're going to mine that, again, we've planted the seeds, we're going to hope that they bear fruit and we're going to make sure that the model works before you keep adding to it.
There's some adjustment to it in terms of, there's still a few new people coming in, we have a few key hires.
But again there was a lot of hiring going on.
You can still hire.
But, I think you can be very focused on making sure that we are laser focused on productivity as we go forward and we do have the discipline and hygiene in place to ensure that you are investing in things that really do provide the return that we want.
Yes, the model try to make in the people more responsive to the account, whatever, reduce overlay.
So that's really helping, improving the productivity and also making more accountability improving there.
I think you are, again, ---+ definitely the price increases helped.
I will also attribute it to the factors that the caused the damp in the productivity line.
Because ultimately what dampens the productivity line, if you look at overall billings and you are not getting the same product, billing or product revenue yields, and that is following deferred revenue, which then generally falls into the subscription line.
And so it is the elements that I mentioned earlier.
Which is more software, more of the cloud, selling through the cloud and then even some of the duration impact that I mentioned.
The bias on an overall ---+ the way to think about price, the bias on an on overall import now is more towards subscriptions, people are buying that relationship.
And I think as we sell the breadth of our portfolio it becomes more software oriented, more subscription oriented.
Again, kind of reflecting the fabric.
And so again, the bias continues to be on subscription line.
I think it's more the price increase.
From an attach rate standpoint, we've always said this, that most customers buy the bundle anyway, so it's not like we're adding one service to another service to another service.
We've had two things happen: price increases helped across the board.
The other thing, but to a much smaller extent because it's still early, is having us being able to upgrade customers to the enterprise bundle, which is the broader bundle, a more rich bundle and it is also higher priced.
I think that is what we have been talking about, where one, we're driving productivity.
<UNK>pefully, you get the top line benefit from investments that we have made.
Those investments are obviously ---+ reflect on the sales and marketing line.
Then the other piece, again, you just focus on driving productivity, which is making sure that your training is correct, you focus on how to close the deal.
For Fortinet, that you are managing the pricing relationship and the pricing conversation correctly, things like that.
And then, I think finally we talked about managing headcount to make sure that we are not over hiring, that we can manage hiring to the point now where we are ---+ that it's accretive and when we hire someone they're really bringing in revenue.
<UNK>pefully more near term with really certainly trying to make this operating margin.
You can manage that account, you can manage productivity, you can manage performance, and then even with AccelOps there is an opportunity to drive synergies there in the model as well, and those are the things we are very focused on.
This is <UNK>.
The technology we developed also helped a lot.
It's a more competitive compared to other competitors like ISOC 3.
You can look at the price release we made two days ago, it's got a 5 to 10 times faster and more function that other competitors, the same time maintain pretty healthy margin there.
None of our competitors have the technology to be able to develop the chip as a [sussing] single chip, which also helping driving.
We've become a number one unit shipped three years ago.
Now we are more than double the number two, as a lot are driven by the technology we have.
In my script it says leading the competitor 5 to 10 years.
And some other bigger players also like different technology like Google, some other selling to the TPUs, the modern TPU.
You can see the advantage of leveraged ASIC [howers] that play out very well.
I'm just going to go back to what I've been saying.
One, we can manage the rate of hiring.
And we've been hiring quit a few people every quarter, net adds certainly north of 200, close to 250.
That's the first thing.
By the way, that also drives down the recruiting fees, just keep that in mind, there's some element of that.
There is some variable spending that you tamper on, as well as you do that, that we can control internally, so that'd be another piece.
And then we're very focused on managing performance making sure that people are productive and dealing with that as we move forward.
You have synergies along with AccelOps.
On the face of it, it's dilutive, but if you merge the model we're very focused on finding synergies along there as well.
<UNK>pefully going forward, again, going back to the revenue conversation, there's less upfront revenue, more gets deferred.
But that brings more into the services line, which tends to have a ---+ which is a far richer margin.
So hopefully, we'll continue to see a tailwind from the gross margin line as well.
And R&D and G&A seem to be in very good shape.
This is <UNK>, you can see we're IPO for seven years.
In three, four years ago we've proven we can be more profitable, so that's where we reach over 20%, 22%, 24% of the operation margin.
I think that's where we discipline to control the growth and the cost with the [best] model to provision going forward.
So that's where we are pretty confident about the target we set.
I think we have pretty good visibility into the pipeline.
I think I said a short while ago that one of the interesting things throughout the quarter, we were talking about linearity, is the fact the pipeline did not really shift around, it was the deals in there all along that we thought would close that did close, they just took a little longer.
I think the point there is there is not a lot of volatility, wasn't as volatile as one might expect.
There were a couple of deals, we talked about service provider space that slipped.
But other than that, it's pretty good view, and those deals aren't out of the pipeline, so to speak, right.
So, it's good.
In terms of productivity, we do not really share that, but you can impute that it is better internationally than it is in North America.
And again, that is where we are laser-focused on driving productivity
I think, <UNK>, overall, I think there is efficiencies globally, right.
But the model internationally is working really well.
We can add people to that and they are accretive to the model.
So, we're very focused on contribution margins by country, by geo, looking at pipeline by people just to see where we are.
We can see where it make sense to add people, that visibility is very strong.
In North America again, because the growth hasn't taken off, it takes a little more time to see that.
But I do not want to say that we are not going to keep hiring internationally because it does make sense to keep doing that.
But the model is in place.
I think the differences in the Americas the model is just newer, and that's more of an upfront investment that takes some time to mature in real life the pullback.
I think it is probably like ---+ it depends.
It's in a copy of our brochure, also you can (inaudible).
It's probably like ---+
We'll get back to you <UNK>, but I think it might even be online, I think the brochure is online.
I don't want to make you do that, we'll do the work for you.
But there is a three-year tranche and a five-year tranche, and we're ---+
Wireless business is still less than ---+ 10% less than 9% of the business.
I think first, don't recall we mentioned Meru has a good quarter Q1.
The reason we acquired Meru is really we wanted to have an integrated solution, basically bring the security into the Wi-Fi space and like FortiGate as the controller and also manage our wireless together.
So that's the reason we have, and so far we integrated the product well, and that's also helping the long term growth there.
But I don't feel we have much change on the percentage-wise compared to before.
I think they were probably similar overall.
I don't think there's much difference compared over company.
