Fortinet Reports Second Quarter 2017 Financial Results

Revenue and Billings Growth Continue to Surpass Market While Operating Margins Expand

Second Quarter 2017 Highlights

  • Revenue of $363.5 million, up 17% year over year
  • Billings of $426.9 million, up 14% year over year1
  • GAAP diluted net income per share of $0.13
  • Non-GAAP diluted net income per share of $0.271
  • GAAP operating margin of 8%
  • Non-GAAP operating margin of 18%1
  • Cash flow from operations of $144.8 million
  • Free cash flow of $58.4 million1
  • Cash, cash equivalents and investments of $1.46 billion
  • Deferred revenue of $1.16 billion, up 28% year over year
  • $33.2 million in share repurchases

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

“Fortinet continues to exceed market growth rates, while delivering well against our margin improvement goals,” said Ken Xie, Chairman and Chief Executive Officer. “The strength of the Fortinet Security Fabric positions us well to provide industry-leading protection for our customers against the aggressive threats that they face now and in the future wherever their assets and data are deployed: on premise or in the cloud.”

In other highlights, Fortinet was recognized as a Leader in the July 2017 Gartner Magic Quadrant for Enterprise Networks Firewalls, and retained its status as a Leader in the June 2017 Magic Quadrant for Unified Threat Management (SMB Multifunction Firewalls). IDC again named Fortinet the unit market share leader for security appliances shipped.

[Note: Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. Gartner Peer Insights reviews constitute the subjective opinions of individual end-users based on their own experiences, and do not represent the views of Gartner or its affiliates.]

Financial Details

  • Revenue: Total revenue was $363.5 million for the second quarter of 2017, an increase of 17% compared to $311.4 million in the same quarter of 2016.
  • Product revenue was $142.7 million, an increase of 4% compared to $136.6 million in the same quarter of 2016. Service revenue was $220.8 million, an increase of 26% compared to $174.8 million in the same quarter of 2016.
  • Billings1: Total billings were $426.9 million for the second quarter of 2017, an increase of 14% compared to $373.8 million in the same quarter of 2016.
  • Deferred Revenue: Total deferred revenue was $1.16 billion as of June 30, 2017, compared to $904.0 million as of June 30, 2016, and $1.10 billion as of March 31, 2017. Short-term deferred revenue was $706.7 million as of June 30, 2017, compared to $563.2 million as of June 30, 2016.  Long-term deferred revenue was $454.8 million as of June 30, 2017, compared to $340.8 million as of June 30, 2016.
  • Cash and Cash Flow: As of June 30, 2017, cash, cash equivalents and investments were $1.46 billion, compared to $1.44 billion as of March 31, 2017. In the second quarter of 2017, cash flow from operations was $144.8 million compared to $67.9 million in the same quarter of 2016. Free cash flow1 was $58.4 million during the second quarter of 2017 compared to $53.5 million in the same quarter of 2016, an increase of 9%. There was an $84.8 million impact on free cash flow during the second quarter of 2017 from the purchase of two office buildings in the Vancouver area.
  • Share Repurchase: During the second quarter of 2017, Fortinet repurchased 0.8 million shares of its common stock for a total purchase price of $33.2 million. Additionally, Fortinet’s Board of Directors has authorized a $300.0 million increase to its existing share repurchase program, bringing the amount authorized under the current program to $600.0 million, of which $456.0 million remains for share repurchases through the end of January 2019.
  • GAAP Operating Income or Loss: GAAP operating income was $28.5 million for the second quarter of 2017, representing a GAAP operating margin of 8%. GAAP operating loss was $4.0 million for the same quarter of 2016, representing a GAAP operating margin of -1%. 
  • Non-GAAP Operating Income1: Non-GAAP operating income was $65.7 million for the second quarter of 2017, representing a non-GAAP operating margin of 18%. Non-GAAP operating income was $36.0 million for the same quarter of 2016, representing a non-GAAP operating margin of 12%. 
  • GAAP Net Income or Loss and Diluted Net Income or Loss Per Share: GAAP net income was $23.0 million for the second quarter of 2017, compared to GAAP net loss of $1.4 million for the same quarter of 2016. GAAP diluted net income per share was $0.13 for the second quarter of 2017, compared to GAAP diluted net loss per share of $0.01 for the same quarter of 2016.
  • Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $47.7 million for the second quarter of 2017, compared to non-GAAP net income of $24.0 million for the same quarter of 2016. Non-GAAP diluted net income per share was $0.27 for the second quarter of 2017, compared to $0.14 for the same quarter of 2016.

Guidance

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

  • Billings in the range of $417.0 million to $427.0 million
  • Revenue in the range of $367.0 million to $373.0 million
  • Non-GAAP gross margin in the range of 75%
  • Non-GAAP operating margin in the range of 16% to 17%
  • Non-GAAP earnings per share of $0.22 to $0.23

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

  • Billings in the range of $1.775 billion to $1.795 billion
  • Revenue in the range of $1.487 billion to $1.495 billion
  • Non-GAAP gross margin of 74.5% to 75%
  • Non-GAAP operating margin of 16.2%
  • Non-GAAP earnings per share of $0.94-$0.96

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, July 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 #47812648. 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 August 2, 2017, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID# 47812648.

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 # 47812844. 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 August 2, 2017 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID # 47812844.

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 310,000 customers trust Fortinet to protect their businesses. Learn more at https://www.fortinet.com, the Fortinet Blog, or FortiGuard Labs.

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