Fortinet Reports First Quarter 2018 Financial Results

Fortinet Reports Revenue Growth of 17% and Billings Growth 15%

Sunnyvale - May 3, 2018


First Quarter 2018 Highlights

  • Revenue of $399.0 million, up 17% year over year
  • Billings of $463.2 million, up 15% year over year1
  • Deferred revenue of $1.40 billion, up 27% year over year
  • GAAP diluted net income per share of $0.24
  • Non-GAAP diluted net income per share of $0.331
  • Cash flow from operations of $139.7 million
  • Free cash flow of $128.1 million1
  • Cash, cash equivalents and investments of $1.39 billion
  • $115.5 million in share repurchases 

Fortinet® (NASDAQ:FTNT), a global leader in broad, integrated and automated cybersecurity solutions, today announced financial results for the first quarter ended March 31, 2018. 

“Our market leadership was once again demonstrated by strong first quarter revenue and billings growth,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “As more organizations move towards consolidation, Fortinet’s Security Fabric architecture and broad end-to end portfolio of security solutions provides the integration and automation required to protect enterprises at every point across their IT infrastructure. Fortinet is in the best position to empower our customers with the latest evolution in network security whether on-premise or in multi-cloud environments.” 

Financial Details for the First Quarter of 2018

  • Revenue: Total revenue was $399.0 million for the first quarter of 2018, an increase of 17% compared to $340.6 million in the same quarter of 2017.
  • Product revenue was $142.8 million for the first quarter of 2018, an increase of 6% compared to $135.3 million in the same quarter of 2017. Service revenue was $256.2 million for the first quarter of 2018, an increase of 25% compared to $205.3 million in the same quarter of 2017. 
  • Billings1: Total billings were $463.2 million for the first quarter of 2018, an increase of 15% compared to $403.3 million in the same quarter of 2017. 
  • Deferred Revenue: Total deferred revenue was $1.40 billion as of March 31, 2018, an increase of 27% compared to $1.10 billion as of March 31, 2017. 
  • GAAP Operating Income and Margin: GAAP operating income was $32.4 million for the first quarter of 2018, representing a GAAP operating margin of 8%. GAAP operating income was $5.4 million for the same quarter of 2017, representing a GAAP operating margin of 2%.
  • Non-GAAP Operating Income1 and Margin1: Non-GAAP operating income was $70.7 million for the first quarter of 2018, representing a non-GAAP operating margin of 18%. Non-GAAP operating income was $43.0 million for the first quarter of 2017, representing a non-GAAP operating margin of 13%.
  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $41.6 million for the first quarter of 2018, compared to GAAP net income of $10.7 million for the same quarter of 2017. GAAP diluted net income per share was $0.24 for the first quarter of 2018, based on 171.8 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.06 for the same quarter of 2017, based on 178.3 million diluted weighted-average shares outstanding.
  • Non-GAAP Net Income1 and Diluted Net Income Per Share1: Non-GAAP net income was $57.0 million for the first quarter of 2018, compared to non-GAAP net income of $31.0 million for the same quarter of 2017. Non-GAAP diluted net income per share was $0.33 for the first quarter of 2018, based on 171.8 million diluted weighted-average shares outstanding, compared to $0.17 for the same quarter of 2017, based on 178.3 million diluted weighted-average shares outstanding. Non-GAAP effective tax rate was 24% in the first quarter of 2018, compared to 32% for the same quarter in 2017. 
  • Cash, Cash Flow and Free Cash Flow1: As of March 31, 2018, cash, cash equivalents and investments were $1.39 billion, compared to $1.35 billion as of December 31, 2017. In the first quarter of 2018, cash flow from operations was $139.7 million compared to $129.7 million in the same quarter of 2017. Free cash flow1 was $128.1 million during the first quarter of 2018 compared to $116.2 million in the same quarter of 2017. 
  • Share Repurchase: During the first quarter of 2018, Fortinet repurchased 2.5 million shares of its common stock for a total purchase price of $115.5 million. There were no shares repurchased during the first quarter of 2017. 

Guidance 

For the second quarter of 2018, Fortinet expects: 

  • Revenue in the range of $420 million to $430 million
  • Billings in the range of $485 million to $495 million
  • Non-GAAP gross margin in the range of 75% to 76%
  • Non-GAAP operating margin in the range of 18.5% to 19.0%, including a benefit associated with the adoption of ASC 606 of approximately 250 basis points
  • Diluted non-GAAP earnings per share in the range of $0.34 to $0.36, assuming a non-GAAP tax rate of 24%, and including an earnings per share benefit associated with the adoption of ASC 606 of approximately $0.05. This assumes a share count of 173 million to 175 million

For the fiscal year of 2018, Fortinet expects:

  • Revenue in the range of $1.715 billion to $1.735 billion
  • Billings in the range of $2.040 billion to $2.065 billion
  • Non-GAAP gross margin in the range of 75% to 76%
  • Non-GAAP operating margin in the range of 20.2% to 20.7%, including a benefit associated with the adoption of ASC 606 of approximately 250 basis points
  • Diluted non-GAAP earnings per share in the range of $1.51 to $1.55, assuming a non-GAAP tax rate of 24%, and including an earnings per share benefit associated with the adoption of ASC 606 of approximately $0.19. This assumes a share count of 175 million to 177 million

The above guidance for the second quarter and full year of 2018 includes the transition impact of ASC 606 adoption, which was effective January 1, 2018. Our guidance with respect to non-GAAP financial measures excludes stock-based compensation and amortization of acquired intangible assets. We have not reconciled our guidance with respect to non-GAAP financial measures to the corresponding GAAP measures because certain items that impact these measures are uncertain or out of our control, or cannot be reasonably predicted. Accordingly, a reconciliation of these non-GAAP financial measures 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.” 

Keith Jensen Named Chief Financial Officer

Keith Jensen, who has served as Fortinet's interim CFO since February 16, 2018, has been appointed CFO by the company’s board of directors. In addition to serving as Fortinet’s interim CFO, Keith served as Fortinet’s chief accounting officer since May 2014. “I want to thank the board of directors for their support and I look forward to working with Ken and the entire Fortinet team to continue to grow the company,” said Keith Jensen. “Keith is a valued member of the executive team, and I look forward to continuing to work closely with him on our mission to provide the best security for our customers,” said Ken Xie. 

Conference Call Details

Fortinet will host a conference call today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss the earnings results. The call can be accessed by dialing (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 4349108. 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 May 10, 2018, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID #4349108. Fortinet will no longer be hosting an additional question-and-answer session following the earnings call. 

Second Quarter 2018 Investor Conference Participation Schedule:

  • 46th Annual J.P. Morgan Global Technology, Media and Communications Conference May 16, 2018 - Boston, MA 
  • Bank of America Merrill Lynch 2018 Global Technology Conference June 5, 2018 - San Francisco, CA 
  • William Blair 38th Annual Growth Stock Conference June 14, 2018 - Chicago, IL 

Members of Fortinet’s management team are expected to present at these events and discuss the latest company strategies and initiatives. To access the most updated information and listen to the webcast of each event, please visit the Investor Relations page of Fortinet’s website at http://investor.fortinet.com. The schedule is subject to change. 

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 features 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 340,000 customers trust Fortinet to protect their businesses. Learn more at https://www.fortinet.com, the Fortinet Blog, or FortiGuard Labs.

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