Fortinet Reports Third Quarter 2017 Financial Results

Revenue and Billings Growth Continues to Surpass Market Operating Margins Expand

SUNNYVALE, Calif. - Oct 26, 2017


Third Quarter 2017 Highlights

  • Revenue of $374.2 million, up 18% year over year
  • Billings of $431.7 million, up 24% year over year1
  • GAAP diluted net income per share of $0.15
  • Non-GAAP diluted net income per share of $0.281
  • GAAP operating margin of 9%
  • Non-GAAP operating margin of 19%1
  • Cash flow from operations of $162.3 million
  • Free cash flow of $140.6 million1
  • Cash, cash equivalents and investments of $1.52 billion
  • Deferred revenue of $1.22 billion, up 30% year over year
  • $90.8 million in share repurchases

SUNNYVALE, Calif. October 26, 2017—Fortinet® (NASDAQ: FTNT), a global leader in high-performance cyber security solutions, today announced financial results for the third quarter ended September 30, 2017.

“Our large installed base of network security customers offers us a foundation from which to sell our Fortinet Security Fabric, which is the broadest and most integrated security architecture in the industry,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “We expect that the expanding cloud security market, and the future of securing critical infrastructure and IoT technologies, will enable Fortinet to continue to grow at multiples of the market over the coming years.”

Financial Details

  • Revenue: Total revenue was $374.2 million for the third quarter of 2017, an increase of 18% compared to $316.6 million in the same quarter of 2016.

  • Product revenue was $137.1 million, an increase of 7% compared to $128.0 million in the same quarter of 2016. Service revenue was $237.1 million, an increase of 26% compared to $188.7 million in the same quarter of 2016.

  • Billings1: Total billings were $431.7 million for the third quarter of 2017, an increase of 24% compared to $347.5 million in the same quarter of 2016.

  • Deferred Revenue: Total deferred revenue was $1.22 billion as of September 30, 2017, compared to $934.8 million as of September 30, 2016, and $1.16 billion as of June 30, 2017. Short-term deferred revenue was $734.3 million as of September 30, 2017, compared to $582.1 million as of September 30, 2016. Long-term deferred revenue was $484.6 million as of September 30, 2017, compared to $352.6 million as of September 30, 2016.

  • Cash, Cash Flow and Free Cash Flow1: As of September 30, 2017, cash, cash equivalents and investments were $1.52 billion, compared to $1.46 billion as of June 30, 2017. In the third quarter of 2017, cash flow from operations was $162.3 million compared to $76.1 million in the same quarter of 2016. Free cash flow was $140.6 million during the third quarter of 2017 compared to $70.2 million in the same quarter of 2016, an increase of 100%.

  • Share Repurchase: During the third quarter of 2017, Fortinet repurchased 2.4 million shares of its common stock for a total purchase price of $90.8 million. In addition, in October 2017, Fortinet’s Board of Directors approved an increase of $400.0 million in the current share repurchase authorization, bringing the total authorization to $1.0 billion.

  • GAAP Operating Income and Margin: GAAP operating income was $33.7 million for the third quarter of 2017, representing a GAAP operating margin of 9%. GAAP operating income was $5.5 million for the same quarter of 2016, representing a GAAP operating margin of 2%. 
  • Non-GAAP Operating Income1 and Margin1: Non-GAAP operating income was $70.0 million for the third quarter of 2017, representing a non-GAAP operating margin of 19%. Non-GAAP operating income was $45.9 million for the same quarter of 2016, representing a non-GAAP operating margin of 15%. 

  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $26.6 million for the third quarter of 2017, compared to GAAP net income of $6.3 million for the same quarter of 2016. GAAP diluted net income per share was $0.15 for the third quarter of 2017, compared to GAAP diluted net income per share of $0.04 for the same quarter of 2016.

  • Non-GAAP Net Income1 and Diluted Net Income Per Share1: Non-GAAP net income was $50.5 million for the third quarter of 2017, compared to non-GAAP net income of $32.2 million for the same quarter of 2016. Non-GAAP diluted net income per share was $0.28 for the third quarter of 2017, compared to $0.18 for the same quarter of 2016.

Guidance

Fortinet offered the following guidance for the fourth quarter of 2017:

  • Revenue in the range of $404.0 million to $412.0 million
  • Billings in the range of $510.0 million to $525.0 million
  • Non-GAAP gross margin of 75% to 76%
  • Non-GAAP operating margin in the range of 18% to 19%
  • Diluted non-GAAP earnings per share of $0.28 to $0.30

Fortinet also offered the following update to its guidance for the full year 2017:

  • Revenue in the range of $1.482 billion to $1.490 billion
  • Billings in the range of $1.772 billion to $1.787 billion
  • Non-GAAP gross margin of 75%
  • Non-GAAP operating margin of 17%
  • Diluted non-GAAP earnings per share of $1.00 to $1.02

Guidance for non-GAAP financial measures excludes stock-based compensation and amortization of acquired intangible assets. We have not reconciled non-GAAP metrics to GAAP metrics because certain items that impact these measures are uncertain, out of our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.

1 A reconciliation of GAAP to non-GAAP measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Conference Call Details

Fortinet will host a conference call today, October 26, 2017, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its financial results. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID #90458376. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet’s website at http://investor.fortinet.com and a replay will be archived and accessible at http://investor.fortinet.com/events.cfm. A replay of this conference call can also be accessed through November 2, 2017, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID# 90458376.

Following Fortinet’s financial results conference call, the Company will host an additional question-and-answer session at 3:30 p.m. Pacific Time (6:30 p.m. Eastern Time) to provide an opportunity for financial analysts and investors to ask more detailed questions. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 90554546. This follow-up call will be webcast live and accessible at http://investor.fortinet.com. A replay will be archived and available after the call at http://investor.fortinet.com/events.cfm. A replay of this conference call will also be available through November 2, 2017 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID # 90554546.

Read the full press release (includes financial tables)

About Fortinet

Fortinet (NASDAQ: FTNT) secures the largest enterprise, service provider, and government organizations around the world. Fortinet empowers its customers with intelligent, seamless protection across the expanding attack surface and the power to take on ever-increasing performance requirements of the borderless network - today and into the future. Only the Fortinet Security Fabric architecture can deliver security without compromise to address the most critical security challenges, whether in networked, application, cloud, or mobile environments. Fortinet ranks #1 in the most security appliances shipped worldwide and more than 320,000 customers trust Fortinet to protect their businesses. Learn more at https://www.fortinet.com, the Fortinet Blog, or FortiGuard Labs.

Copyright © 2017 Fortinet, Inc. All rights reserved. The symbols ® and ™ denote respectively federally registered trademarks and unregistered trademarks of Fortinet, Inc., its subsidiaries and affiliates. Fortinet's trademarks include, but are not limited to, the following: Fortinet, FortiGate, FortiGuard, FortiManager, FortiMail, FortiClient, FortiCloud, FortiCare, FortiAnalyzer, FortiReporter, FortiOS, FortiASIC, FortiWiFi, FortiSwitch, FortiVoIP, FortiBIOS, FortiLog, FortiResponse, FortiCarrier, FortiScan, FortiAP, FortiDB, FortiVoice and FortiWeb. Other trademarks belong to their respective owners. Fortinet has not independently verified statements or certifications herein attributed to third parties and Fortinet does not independently endorse such statements. Notwithstanding anything to the contrary herein, nothing herein constitutes a warranty, guarantee, binding specification or other binding commitment by Fortinet, and performance and other specification information herein may be unique to certain environments. This news release contains forward-looking statements that involve uncertainties and assumptions, such as statements regarding technology releases. Changes of circumstances, product release delays, or other risks as stated in our filings with the Securities and Exchange Commission, located at www.sec.gov, may cause results to differ materially from those expressed or implied in this press release. If the uncertainties materialize or the assumptions prove incorrect, results may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Fortinet assumes no obligation to update any forward-looking statements, and expressly disclaims any obligation to update these forward-looking statements.