Fortinet Reports Third Quarter 2020 Financial Results
Third Quarter 2020 Highlights
- Total revenue of $651.1 million, up 19% year over year
- Product revenue of $223.8 million, up 14% year over year
- Service revenue of $427.3 million, up 22% year over year
- Billings of $749.8 million, up 20% year over year1
- Deferred revenue of $2.39 billion, up 24% year over year
- GAAP operating margin of 19.5%, up 110 basis points year over year
- Non-GAAP operating margin of 27.4%, up 90 basis points year over year1
- GAAP diluted net income per share of $0.75
- Non-GAAP diluted net income per share of $0.881
- Cash flow from operations of $220.8 million
- Free cash flow of $185.7 million1
SUNNYVALE, Calif. - October 29, 2020 - Fortinet® (Nasdaq: FTNT), a global leader in broad, integrated and automated cybersecurity solutions, today announced financial results for the third quarter ended September 30, 2020.
“Strong performances by our Secure SD-WAN, cloud, and Security Fabric offerings resulted in solid third-quarter year-over-year total revenue growth. In the quarter, Secure SD-WAN revenue more than doubled from the same period a year ago. At the end of the third quarter, Gartner recognized our differentiated SD-WAN offering as a Leader in the 2020 WAN Edge Infrastructure Magic Quadrant,” said Ken Xie, Founder, Chairman, and Chief Executive Officer. “The pandemic has accelerated digital transformation and cloud migration efforts creating multiple edges that require protection. Fortinet’s security-driven networking approach protects these edges, whether they are at the branch, cloud, data center, home, network or WAN edge.”
Financial Highlights for the Third Quarter of 20202
- Revenue: Total revenue was $651.1 million for the third quarter of 2020, an increase of 18.8% compared to $548.1 million for the same quarter of 2019.
- Product Revenue: Product revenue was $223.8 million for the third quarter of 2020, an increase of 13.5% compared to $197.1 million for the same quarter of 2019.
- Service Revenue: Service revenue was $427.3 million for the third quarter of 2020, an increase of 21.7% compared to $351.0 million for the same quarter of 2019.
- Billings1: Total billings were $749.8 million for the third quarter of 2020, an increase of 19.7% compared to $626.6 million for the same quarter of 2019.
- Deferred Revenue: Total deferred revenue was $2.39 billion as of September 30, 2020, an increase of 24.4% compared to $1.92 billion as of September 30, 2019.
- GAAP Operating Income and Margin: GAAP operating income was $126.9 million for the third quarter of 2020, representing a GAAP operating margin of 19.5%. GAAP operating income was $100.6 million for the same quarter of 2019, representing a GAAP operating margin of 18.4%.
- Non-GAAP Operating Income and Margin1: Non-GAAP operating income was $178.6 million for the third quarter of 2020, representing a non-GAAP operating margin of 27.4%. Non-GAAP operating income was $145.2 million for the third quarter of 2019, representing a non-GAAP operating margin of 26.5%.
- GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $123.4 million for the third quarter of 2020, compared to GAAP net income of $80.2 million for the same quarter of 2019. GAAP diluted net income per share was $0.75 for the third quarter of 2020, based on 165.6 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.46 for the same quarter of 2019, based on 174.8 million diluted weighted-average shares outstanding.
- Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $145.4 million for the third quarter of 2020, compared to non-GAAP net income of $117.3 million for the same quarter of 2019. Non-GAAP diluted net income per share was $0.88 for the third quarter of 2020, based on 165.6 million diluted weighted-average shares outstanding, compared to $0.67 for the same quarter of 2019, based on 174.8 million diluted weighted-average shares outstanding.
- Cash Flow and Free Cash Flow1: In the third quarter of 2020, cash flow from operations was $220.8 million compared to $221.2 million in the same quarter of 2019. Free cash flow was $185.7 million during the third quarter of 2020, compared to $203.7 million for the same quarter of 2019.
For the fourth quarter of 2020, Fortinet currently expects:
- Revenue in the range of $710 million to $730 million
- Billings in the range of $890 million to $920 million
- Non-GAAP gross margin in the range of 78.0% to 80.0%
- Non-GAAP operating margin in the range of 27.0% to 29.0%
- Diluted non-GAAP net income per share in the range of $0.95 to $0.97, assuming a non-GAAP effective tax rate of 21%. This assumes a diluted share count of 167 million to 169 million.
These statements are forward looking and actual results may differ materially. Refer to the Forward-Looking Statements section below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.
Our guidance with respect to non-GAAP financial measures excludes stock-based compensation, amortization of acquired intangible assets and gain on intellectual property matter. 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.”
2 During the third quarter, Fortinet identified and made an immaterial correction to the recognition of revenue related to certain service contracts, increasing previously reported amounts. The financial results presented for 2019 and 2020 reflect the effects of the correction.
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 # 9928897. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet’s website at https://investor.fortinet.com and a replay will be archived and accessible at https://investor.fortinet.com/events-and-presentations. A replay of this conference call can also be accessed through November 5, 2020, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID #9928897.
Fourth Quarter 2020 Virtual Conference Participation Schedule:
- Credit Suisse – Disruptive Security Series
November 13, 2020
- Credit Suisse 24th Annual Technology Conference
December 2, 2020
- Raymond James Technology Conference (IR Only)
December 7, 2020
- UBS Global TMT Virtual Conference
December 8, 2020
- Barclays Technology, Media and Telecommunications Conference
December 9, 2020
Members of Fortinet’s management team are expected to present at these conferences and discuss the latest company strategies and initiatives. Fortinet’s conference presentations are expected to be available via webcast on the company’s web site. 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 https://investor.fortinet.com. The schedule is subject to change.
Read the full press release (includes financial tables)
Fortinet (NASDAQ: FTNT) secures the largest enterprise, service provider, and government organizations around the world. Fortinet empowers our customers with complete visibility and control across the expanding attack surface and the power to take on ever-increasing performance requirements today and into the future. Only the Fortinet Security Fabric platform can address the most critical security challenges and protect data across the entire digital infrastructure, whether in networked, application, multi-cloud or edge environments. Fortinet ranks #1 in the most security appliances shipped worldwide and more than 465,000 customers trust Fortinet to protect their businesses. Both a technology company and a learning organization, the Fortinet Network Security Expert (NSE) Training Institute has one of the largest and broadest cybersecurity training programs in the industry. Learn more at https://www.fortinet.com, the Fortinet Blog, or FortiGuard Labs.
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