Fortinet (TICKER: FTNT) Fortinet Inc Ftnt Management Presents Ubs 2021 Global Tmt Conference Transcript

Fortinet, Inc. (NASDAQ:FTNT) UBS 2021 Global TMT Conference December 7, 2021 3:00 PM ET Company Participants John Maddison - CMO & Executive VP of Products Keith Jensen - CFO & CAO Peter Salkowski - VP of IR Conference Call Participants Roger Boyd - UBS Roger Boyd Okay. Well, thank you for joining us here at the 2021 UBS TMT Conference. I'm Roger Boyd, I cover cybersecurity software here at UBS. It's my pleasure to introduce the management team from Fortinet this afternoon. We're very happy to be hosting Keith Jensen, Chief Financial Officer; John Maddison, Chief Marketing Officer; and VP of Investor Relations, Peter Salkowski. Gentlemen, thanks for joining. I think, Peter, we're going to pass it you to do some safe harbor. Peter Salkowski Yes. Thank you, Roger. Very quickly, I'd like to remind everyone that we may make forward-looking statements during today's fireside chat. 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 in our most recent Form 10-K and Forms 10-Q and other reports that we may file from time to time with the SEC for additional information on factors that may cause actual results to differ materially from those current expectations. All forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation and specifically disclaim any obligation to update forward-looking statements. And with that, back to you, Roger. Roger Boyd Sounds good. Well, thank you all for being here. To jump in, 2021 has been quite dear for Fortinet, quarter after quarter of pretty strong and impressive growth. Can we just start with maybe your opinion on the overall strength in the cybersecurity market and what you're seeing in terms of tailwinds across breach activity and architectural shifts, regulation and how those maybe impacted your growth this year? Keith Jensen Yes, maybe I'll just offer a few quick comments, and then I'll come back to it. Look, I think the Q3 results across the board in the industry were very strong and that, obviously, followed a strong Q2 and a strong Q1. And so I think, Roger, your comment is very spot on. It's been a very good year. I think we expected it coming into the year for a lot of reason, whether it was return to office, which sort of happens or it didn't happen, stimulus, a bunch of -- a number of other factors in terms of that. We thought the threat landscape was elevated coming into the year, some conversations around that, but I think we thought that was more around supply chain hacks. And certainly, ransomware has come on to the scene in a very, very dramatic way. I do think that much of that falls into what we call digital transformation. And for us, we've talked about 3 very specific areas: convergence, networking and security; consolidation, which is the platform as opposed to pure point solution; strategy and then the threat environment. And I think that -- I don't think that anything has really changed in that as we've gone through the last 9 months nor as we look forward to what we may see in 2022. John Maddison Yes, yes. So this is, I think, my 20th year in cybersecurity, can't tell, obviously. But I don't think the -- I mean, the drivers of cybersecurity haven't really changed in the last 20 years. So you only have -- you have the threat landscape, then you have the infrastructure changes, then you have regulatory incompliance. And all those -- at different times, maybe one is larger than the other. I think right now, all 3 are going really strong. So we've seen the threat landscape with much more sophisticated threats on the front end. We see infrastructure continue to change, obviously, with work from anywhere. People are investing more in the digital acceleration of networks, applications continue to move. Even OT is opening up to make sure everything is connected. And so I just think everything. So we looked at the TAM, we've just gone to look at the total just in the marketplace based on our pretty broad product portfolio. And it went to about $175 billion in like 2025, up about $20 billion. So there's definitely an increase in spending from our customers as they try and converge networking and security, as they put long-term plans in work from home, as they try to secure their OT environments. And we don't specify the billings and the growth rate of all our products, but just about every category of product from endpoint to SD-WAN, to web application to firewalls or cloud grew in Q3 and so far this year. Roger Boyd Makes perfect sense. That's very helpful. Keith, one topic you brought up last quarter was the latest Gartner acronym, the CSMA or Cybersecurity Mesh Architecture, can you just talk a little bit about what that means and your interpretation there and really how that plays into the Fortinet portfolio? Keith Jensen Yes. I'll talk a bit the plain English version of it and then have somebody who's more privy in English than I am perhaps. Look, we think that's Gartner coming to us in this particular instance with our fabric platform strategy. It's always been a conversation -- for a long time a conversation point from us about the best-of-breed and the cost that's associated with that and the performance challenges and the lack of automation that comes with that. And we felt that a platform, if it was broad enough and it was integrated, meaning typically building yourself as opposed to buying it, solved much of that. And then now Gartner arrived on the scene with a fancier name perhaps for it. John Maddison Yes. It's always funny when the Gartner acronyms and people attach themselves to it and then they kind of redefine them slightly, whatever it may be. I think the Gartner Mesh, they kind of started talking about a year ago. And I think when they speak to customers, especially CISOs, the biggest struggle they have is making everything work together. I don't think the industry is that great at working together, publishing APIs, making sure threat intelligence can be transported and making sure policy, and so the Gartner Mesh specifies the ability to connect products peer-to-peer rather than going through a central location. It says if you've got an endpoint, then you must be able to talk to the network and must be able to talk to the cloud. This is a concept that we've been working on for 10 years-plus, we call it the Fabric. It's very hard to build by acquiring a lot of companies and trying to bolt it together. That's very hard to do. So we build most of it organically. We did smaller acquisitions of IP, but the small companies that we can bring in and integrate more quickly. But the overall goal -- in fact, Gartner did a survey around the Mesh and they asked customers, I think, right now, 25% of customers were thinking about this meshing platform. This will increase to 80% in the next 2, 3 years. And the reasons were, yes, I've saved some money. I've saved -- I don't have to train everyone across 20 platforms. But the real reason they want to do it is to make sure the security cost is better, to make sure they can gain transfer policy but also build that automation. So I think the Gartner Mesh, you never know with these acronyms, sometimes they come and go pretty quickly, sometimes they stay around a long time. I think this one is resonating very well with the C-suite and our customers. Roger Boyd Yes. Perfect. Okay. Another kind of topic around the demand environment. Fortinet typically seize, call it, the top 5 verticals that you sell into most frequently. And over the course of the year, you've noted the nontraditional verticals sort of upticking in demand, verticals like manufacturing and energy. Can you just talk about how that trends played out throughout the year? And what that sort of means from a higher-level demand perspective in terms of the broadening of cybersecurity? Keith Jensen Yes. I think that what you're referring to we've talked about this at some of our Analyst Days. The 5 largest industries for us have been very consistent: financial services, government -- worldwide government, service providers, retail and technology. And it just always seems to be right around 65% of the business. And then everything else, those industries I talked about a little bit with manufacturing, consultation, utilities and so forth is all at about 35%. And we started to see -- earlier in the year, we're looking at some very strong growth numbers. And obviously, we're really pleased with the consistency of the growth, but we're looking for outperformers. And what we saw was that other group, right? And that other group that we talked about, and we -- I think we attribute that to ransomware and a little bit to OT, to be honest with you. And maybe those are industries that did not view themselves at the forefront of the attack surface from the bad guys. The financial services, obviously; health care, obviously, but things like manufacturing and so forth. And maybe they were historically more air gap than they are now. But I think when ransomware arrived on the scene, those other industries realized that they were very much on the radar screen to be attacked. And then it extended not just those verticals when we think about it in the U.S., but we see it worldwide and we see it across all sizes. We've got a business that's 1/3 small, 1/3 mid and 1/3 large, and to really see that all those industries and all those sectors, if you will, geographically or in terms of size, were all ramping up their spending. And I do think that maybe that some of that is because they spent a little bit less historically than maybe some of those high-profile verticals had. As we look forward, I don't know that there's something that we see that's really going to change the growth in those industries. Ransomware is still here. Bitcoin and cyber currencies are still perhaps enabling some of that. Ransomware is becoming run more and more like a business, for lack of a better term. They seemed -- the bad guys seemed well-positioned to continue with their attacks for the foreseeable future. And there's really no particular industry that's eliminated from being a victim. Roger Boyd Yes. Okay. That makes perfect sense, yes. You mentioned the convergence in networking and security. And I think that your company is probably the most evident of that happening. In the latest quarter, you talked about 50% growth in FortiGate and non-FortiGate. Can you just talk about the typical upsell motion, land-and-expand opportunity with the FortiGate platform coming from -- landing with the firewall and expanding to other areas of the platform, specifically around branch? John Maddison Yes. I think the basis of the company for the last 20 years has been this convergence we refer to as security of networking. And the concept is that traditional networking, whether it be routers or switches or WiFi, have no awareness of devices and users and applications and content and location, which is why it's such a big issue. That's why security is such a big issue, and it's so hard to kind of bolt on security onto networking. And so our goal as a company, our mission is to drive security into networking, switching, SD-WAN, Zero Trust, both the devices and users. So that when you're making decisions about providing access to applications, you have the awareness around content and users and location and applications. And so that drives everything we do from a product perspective. And what happens initially is maybe we sell a firewall into a company, but we build it such that you can switch on application awareness through SD-WAN or content awareness through a next-gen firewall or user awareness through Zero Trust or device awareness through NAC. And so our systems are built to run -- they run very fast, but they're also built to run 10 to 12 to 15 different applications as well. And I still don't think most customers, they kind of build -- they put point products in. I think they're just beginning to realize that they need to build these use cases like work-from-anywhere or Zero Trust across the platform. As we see that, they'll start to realize and switch more of these capabilities on in our firewall. I think the biggest one we've seen in the last 2 or 3 years has been SD-WAN. Before that, it obviously was upgrade from firewall to next-gen firewall. I think as we go forward, what you'll see is Zero Trust being another big one for us as we upgrade. The ability to integrate endpoint through XDR and network connectivity, the application journey through WAF. And so there's lots of different applications we feel to be switched on, but I think the important point is, they can be switched on as a use case across multiple products versus just at one thing. Roger Boyd Got it. Maybe jumping into one of those use cases. SD-WAN has been a powerful business driver for you over the course of the year. It's now, call it, 14% of overall billings and growing pretty significantly throughout the year. Where do you think we are in the adoption curve on this technology? How much opportunity is left? And how has that maybe accelerated or changed over the past 2 years as we've adapted to more remote work and pandemics and all that? John Maddison Yes. It's a good point. I think a lot of people thought because of the pandemic and people work from anywhere, work from home, especially, that SD-WAN would slow down. We haven't seen a slowdown. If you look at some of the market stats, it's been growing at 30% still. I still think it's got a long way to go. And I also think of the several generations, the initial SD-WAN Generation 1 was just doing applications routing. We came along and said, "Hey, you can't just do -- you can't just open up the WAN edge and not have security." So we have secured SD-WAN. I think we're also seeing a lot of our retail customers and manufacturing customers now roll out SD-Branch, where you've got 5G connectivity, you've got WiFi controls built in, you've got switching. And then as we go forward, what you'll see is that SD-WAN be the on-ramp to the cloud applications. It already is to some degree, but a lot smaller when run into the cloud applications. And so we think there's multiple markets in SD-WAN which are running forward, which will be -- which will add to the market value. We've also -- the reason we invested a lot in SD-WAN because it's a foundational component. However, when you do it going forward, you want to route the users and devices to the applications in the most efficient way. And so to us, it's not even just a branch technology with new campus, for your data center, for your cloud connectivity. So we see a long runway for SD-WAN, again, not just for branches but across the whole enterprise network. Roger Boyd Yes. Okay. Another use case you're sort of talking more frequently about is operational technology, IT or OT convergence. And I think in the third quarter, that use case saw billings up 77% and 80% in the quarter, representing, call it, mid-single digits of total billings. Can you talk about the demand environment for OT projects, specifically after events like Colonial Pipeline? And then really, what parts of the Fortinet platform are helping meet these use cases? John Maddison Yes. So the Colonial Pipeline was a good example of remote access because people were recovering. So that's why all these OT environments were opening up to give remote access, to give OEM vendors access. And just almost most of them of the air gap is completely gone and it's just become part of the -- it's integrated into the IT network. And so for us -- and that's why for us, we think networks are hybrid for a long time. So let's say you're doing some compute for an OT network. We can't send that back to the cloud to be secure. You've got to do the security there. And so that's why it's really important for us to be in the physical world, to be in the endpoint, to be in the access, to be in the WAN, to be in the cloud because otherwise, you can't protect these OT networks. And I think the OT organizations -- I call it more of a horizontal -- across those 3 or 4 different verticals have realized they need to put some big investments. For us, it's a perfect fit of a platform. I think it provides us endpoint capability, visibility, segmentation, some advanced detection and response. And so some of the SIEM capabilities, for example, analytics. And so for us, the OT world is a perfect fit for our platform, not all the platforms sometimes, but that's how -- where we're seeing, I think, a big uptake is because yes, we do certain versions of our products which are ruggedized but really, what they're trying to build is an integration between the IT world and the OT world, and our platform absolutely does that. Keith Jensen Yes. It's interesting. As early as early 2019, we were talking about OT and IoT as maybe a fourth driver of the business. And we certainly expected it, but we were waiting for it, so to speak. We're waiting for it to arrive. And I think it has definitely arrived in 2021. There's no doubt about that. Roger Boyd Yes. Clearly, clearly. And then there's all this talk of federal cybersecurity modernization. At the same time, we've now passed infrastructure bill. Is that a needle-driver to maybe accelerate that OT business as well? Or how do you think about that? And I guess maybe with federal specifically, how big of an opportunity is that for you? And then also, thinking about that trickling down to state and local, which is also a needle-mover for you as well. Keith Jensen Yes. When we talk about our federal business, we make a point of emphasis that it's a worldwide number. So international governments, U.S. Fed as well as state and local. And inside of that, the U.S. Fed is not a large portion of our business. So from an opportunity viewpoint, that part of it is, I think, very, very large. Roger, you made the point, though, as the funding moves out into a sled, if you will, state and local government's indication, we do, do very, very well in those verticals. And we would expect that, that's been a -- we're certainly seeing that move -- that money, if you will, those funds move through those other parts of the government now even before the new bills came into existence. I think, importantly, it continues to elevate the conversation around cybersecurity. And you start to see the federal government doing things, whether it's maybe funding it or the other side of the conversation, whether it's meeting with foreign leaders or what have you, it continues to put cybersecurity on the front page, if you will, and keep people's focus on the fact that they need to secure themselves. Roger Boyd Got it. Okay. Maybe a broader question. How does Fortinet think about the shift towards more consumption-based models and ratable pricing? And if we're going to nitpick, I mean, the product line is growing very well. Maybe the subscription line is delivering solid 20% growth, but maybe hasn't inflected in the same way you've seen product revenue growth. Just in general, how do you think about as an industry moving towards more ratable OpEx models? Keith Jensen I'll just give a little clarification on the revenue recognition. Of course, the product is recognized first and then you attach the service contracts, give it a 2.5-year contract term, it's going to be amortized over that. So it should -- it's building up a nice backlog. And I think if you look at the backlog growth, you start to get some indications of what may happen on the services part of the business. But beyond the accounting conversation, I think John has more to say about where the market is going. John Maddison Yes. The deferred revenue on the platform. Keith Jensen Sorry, deferred revenue. Thank you. John Maddison Yes. So we have -- obviously, we have the subscription services that we apply to the products. I think what's changing, and it's been changing for a while but kind of slowly, is that customers want more of a subscription model per user or per device. It's interesting because each cybersecurity product area monetizes in different ways. So traditionally, network compliance look is looking for throughput, so they charge performance and throughput. Endpoints has been per device. The cloud has mainly been around per user. And so we see all these things coming together. We announced a thing called FortiTrust, which allows a per user pricing for a specific use case like Zero Trust. Because the other piece of it is, I can't give you a licensing model if I've got 3 different ones that I need to bring together. So for us, FortiTrust, which is starting to roll out in Q1 of this year, will bring together those different licensing model into a per user subscription model. I still think it's going to be kind of a slow ramp across that as customers roll out the use cases which are relevant to that type of model. Peter Salkowski I think it's also important to point out that service revenue is twice as big as product revenue. It's a bigger number to be growing off of. So the fact that it still grew 24% in the quarter is still pretty substantial. Roger Boyd It's good distinction. Yes. Maybe the topic that most of investors want to hear most about, supply chain. You've done a fairly good job of talking through these constraints in the first half of this year and the third quarter, and talking about your relative strength there in terms of your ability to carry inventory and the power you have with contract manufacturers. Can you just talk about that degree of control you have whatever the situation may be relative to your competitors and maybe how that has changed over the last 6 months or so? Keith Jensen Yes. I do think those parts of our business model and maybe 4 or 5 different things that may be a little bit different that give us an advantage in those, not to suggest it's not challenging. I think the operations and manufacturing team has done a fantastic job with the continuing evolutions of challenges throughout COVID. But I think one thing I would point to is that the number of firewall shipments now, I think about 38% of all firewalls have a Fortinet label on them. And I do think that gives us some leverage, if you will, with component suppliers and the chip manufacturers. I mean we're exponentially higher than any of our competitors. I think at the same time, our ASIC approach to life, where it's proprietary, we're building it ourselves, designing it ourselves, we're not in the market competing with as many common CPUs as perhaps some of our competitors might be. We do manage the channel perhaps or the supply chain a little more actively than some of our competitors. So one, I think there are some who are probably much more just-in-time focus as a strategy and have been for probably a couple of decades. We're probably at the other end of the spectrum where, historically, our CEO has made a real point to make sure that we have plenty of inventory on hand. And I think that positioned us fairly well from what we started to see at the beginning of this year in terms of the pandemic than having those inventory stores, if you will, to draw down on them. The -- I think the other opportunities I think within that is that we have multiple contract manufacturers. And they're not also necessarily making the same model, but they are using the same components. And so we do have some ability to move some of the components between contract manufacturers. We also have a comparatively long list of products, particularly the firewall models. And some of them are close enough together that if you're running short of supply on 1 series, maybe you can move them up to the next or down 1 or even an earlier version of the product. So I think that's given us a little more flexibility. And all of that, all those levers are being pulled. I would go back to our operations team and just say, they've just done a great job at this point in managing their way through an extremely dynamic time. Roger Boyd Got it. Okay. And then the other distinction there, as you noted, coming out of 3Q carrying a backlog and there's this debate amongst investors over whether you're seeing demand being pulled ahead or double-ordering or advanced ordering, you've been pretty clear on that hasn't -- that, that hasn't been showing up in the P&L today. Can you just talk a little bit about what the backlog -- the growth of the backlog means to you? That hasn't historically been a number you've tracked. And what that could mean maybe heading into calendar '22 in terms of revenue visibility? Keith Jensen Yes. I do believe that a higher backlog gives more visibility and maybe that's where we end up. But to back up a little bit, on the earnings call, we talked about -- we had a very, very strong quarter, obviously, in the third quarter. And while backlog picked up, internal conversation was, "Well, was it enough of a tick-up to really add value to the conversation and meeting with investors and shareholders and so forth?" And I think we said at that time, probably not. We gave some color that it was largely related to access points and switches, and we've not seen much in the way of firewall backlogs. But we did also say that as we moved into the fourth quarter, we expected that we were going to continue to see challenges with switches and access points, and that certainly has been the case. And then we also expected to see some of the backlog there for the firewall trying to creep in a little bit more. And it's quite possible that we -- well, not possible, we will definitely revisit the conversation internally as part of the fourth quarter results and whether or not we want to talk about backlog externally. And if so, we'll give you some context around that, what do we think about orders being canceled or not canceled, and when they're being fulfilled. I think if you look at customer segments a little bit and what we are seeing currently, I think that's forced a closer collaboration between our sales team and the large enterprises. So the large enterprise customers that have deployment schedules that may extend out well into 2022 and perhaps in some cases, in 2023, I don't know that we really pay close attention to that. Those orders came when those orders came. But now we're seeing that the conversation between our enterprise salespeople and our customers are more around alliance, we will place the order now even though we don't want the product until the second quarter of next year or the third quarter of next year. So it's giving us more collaboration and more visibility on the deployment schedules. In terms of, did we win on business, say, in the third quarter because we had more product available than others? I would offer -- again, if you look at the enterprise customers, particularly those that have a single-firewall-vendor strategy, it's very unlikely they're going to go lift and shift to the architecture on something like that. For those that have a dual firewall strategy, and maybe there's a new use case that's come on the scene, I do think you would have a competitive advantage there, obviously, if you have the product. If you're in a displacement of the enterprise, and you -- I don't think it really helps you if you're still in the POC phase -- or pardon me, in RFP space. But if you're in the POC phase and you're getting towards the end of wrapping that up and you've done well in the POC phase, and they typically do, and you have inventory, then I think it does help you. Now the last group of customers I'd say is the SMB. Maybe this kind of goes back to some of the benefit we saw in these other verticals who all of a sudden felt threatened and they're smaller companies. They probably need a security solution right now, right? There's no waiting around for it. They may have been a little bit light on it. And if you can come in with a performance and price advantage together with availability, I think that does have to give you an advantage. We made -- we offered a metric that we added over 6,000 new logos in the third quarter, which was the second quarter in a row. And before, I probably would say 5,000 new logos is a good number for us in the quarter. So I think there's -- those data points start holding together. That said, lastly on it, new logos, as important as they are because you have the expansion opportunity in the very, very low double digits percentage of our business. Think in low teens, if you will. So even though we added new logos, I don't think it had a big impact on the actual billings in the quarter. Roger Boyd Very helpful color. Maybe jumping back to the bigger picture topics. You've been pretty vocal about how you view the SASE market unfolding across cloud services, service providers and enterprise DIY. Can you remind us of your vision there? And you have been investing in the OPAQ acquisition that you did about a year ago. Can you just talk a little bit about any updates there? Yes. John Maddison Yes. It comes back to our SD-WAN strategy because SD-WAN is the foundation. Once that's in place, then you can add components to it. And so Zero Trust will be a component of that to protect new users, NAC for devices and then to protect the cloud edge, you'd have the SASE component of that. And so to us, it's building that SD-WAN and then building components out. Because SASE has definitely lots of different definitions. There's this joint definition of SASE with 12 products. There's one with 5 products. There's one -- the one that I see the most is just really sort of Gateway-as-a-Service. That's the one that most customers are buying right now. And so to us, we can add that capability to our SD-WAN as we go forward. So again, it's -- I think all the edge need protecting, whether it be cloud edge, data center edge, WAN edge and NAND edge. And you need to be able to implement that at the endpoint of the network and the application of cloud to be successful. Roger Boyd Got it. And then on the service provider side of things, you've expanded some key agreements with providers like Verizon and AT&T over the course of the year to now sell managed SASE solutions. Can you talk about what those relationships look like? And when we might expect them to start showing up in the numbers? John Maddison Yes. Well, we think service providers are absolutely the best vehicle from a cloud edge perspective because they own the network and the transport. This -- you look at a lot of the SASE vendors, there's a lot of money that goes into transport and hosting costs and everything else. And you've got to wonder the long-term profitability of such a model. We think the service providers are the best model. So we're going to partner with them. We did announcements last year -- no, this year. There will be some more announcements. It's not something you kind of just switch on tomorrow. It's something that you have to build together. But we feel like our capabilities along with our big service provider partners is the best way long term to go from a SASE perspective. Roger Boyd Got it. Okay. Maybe one step further out, the managed security service provider market, the talent shortage in security is very, very well-known. We're seeing a ton of demand for shared security models, MSSPs and MDR. How big of a channel is that for Fortinet? And what have you seen in calendar '21 in terms of demand from the MSSP channel? John Maddison Well, it's the same challenge that I think -- we just talked about SASE and service providers. Service providers sold a lot of SASE over the last 5 years. They've suddenly realized, hey, now every SASE vendors compete against me. We have the same concept with MSSPs. If you provide a lot of your own services, then you're competing at the MSSPs. And so what we try and do is -- and we built some of it ourselves, but really, our end goal is to enable our MSSP partners. So yes, we have some of our own MDR services and some other managed services, but we try and build it. It's just that the MSSP can take it and manage it themselves. And you're totally right, all -- every customer I speak to for enterprise is having trouble recruiting cybersecurity skill sets. And even when they recruit them, they're having trouble keeping hold of them. And so that's why I think the MSSP marketplace is going to be a very important marketplace going forward just because of the lack of skill sets. But our goal is to enable that marketplace through our products, so we always build our products so they're multi-tenant, they're scalable, they have APIs, they have consoles so that they're easy for our MSSP partners to take and then market to their own customers. Roger Boyd Got it. Maybe a high-level question to finish things off here and going back to the roots. You have this huge price performance advantage with the NP7 ASIC. Longer term, how do you think about the split between hardware and software virtualized form factors? And where do you think this industry will end up thinking through the needs of multi-cloud environments and hybrid cloud architectures? And just where do you think we end up in terms of the split between hardware and software and virtualized? John Maddison Well, I think it's very dependent on the actual market. So as I go back in my 20 years, a long way back, e-mail needs to be an appliance, it became software and now it's cloud because we want that security next to the application. The same is happening, as I just mentioned, around secure gateway, you maybe want more flexibility in putting it within an application. Other things are very different. Firewall is very different. It has to be at the WAN edge, you have to do a segmentation. It's not something you can just put in the cloud and say, Firewall-as-a-Service. What is happening is there's been a migration, obviously, in the kind of public clouds to a virtual format. We've seen that, and that's a really good business for us. We actually mentioned that business. But I do think that markets like that will still remain 80% appliance, maybe 15% virtual, maybe 5% native and 1% or 2% Firewall-as-a-Service for a long time to come because you can't just place it in one place. It has to sit across your network. And the other thing customers talk to us about is I'm not putting a virtual machine against the Internet. It needs to be protected. And so -- and I can't put a virtual machine, there was this concept around a universal CPE, where I put a white box at some retail store, well, that just -- that marketplace has virtually disappeared because it wasn't relevant. So we still think appliances has got a long way to come. Yes, we talked about our network processor, which is very important for our hyperscale products. We've launched our 7000 series that does gigabits of performance, but not just firewalling but also next-gen firewalling. But it's also our system on a chip architecture using on base systems that allow us to factory-build, especially for SD-WAN, allow us to scale to thousands of deployments at a very low price point for high performance. So I think the marketplace for firewalling is still 80% appliance for some time to come. I know that while the cloud vendors go, it's going away and they disappear, that's not been the case. If you look at the market share numbers, the virtual Firewall-as-a-Service and appliances from Gartner or IDC, you'll see that's not been the case. Roger Boyd Perfect stuff. Maybe a good spot to end it. I just want to thank you, gentlemen, again, for joining us. And I hope everyone has the nice rest of their day. Keith Jensen Thank you. John Maddison Thank you, Roger. Peter Salkowski Thank you. Question-and-Answer Session End of Q&A