Fortinet Reports Second Quarter 2018 Financial Results

Fortinet Reports Revenue Growth of 21%, Billings Growth of 20% and Deferred Revenue Growth of 27% Year over Year

SUNNYVALE, Calif. - Aug 1, 2018


Recent Highlights
  • Revenue of $441.3 million, up 21% year over year
  • Product revenue of $166.3 million, up 17% year over year
  • Service revenue of $275.0 million, up 25% year over year
  • Billings of $513.4 million, up 20% year over year1
  • Deferred revenue of $1.47 billion, up 27% year over year
  • GAAP diluted net income per share of $0.28
  • Non-GAAP diluted net income per share of $0.411
  • Cash flow from operations of $142.2 million
  • Free cash flow of $130.6 million1
  • Cash, cash equivalents and investments of $1.5 billion
  • In July 2018, the Board increased share repurchase authorization by $500.0 million

Fortinet® (NASDAQ: FTNT), a global leader in broad, integrated and automated cybersecurity solutions, today announced financial results for the second quarter ended June 30, 2018.

“We delivered strong second quarter revenue and billings growth. Our market share gains are being driven by the competitive advantages of our Security Fabric architecture,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “We remain focused on solving customers’ pressing security needs and helping them drive their digital transformation. We are very excited about the sizable opportunities that lie ahead. Fortinet is in a position to empower our customers with the latest evolution in network security.”

Recent Highlights
  • Revenue: Total revenue was $441.3 million for the second quarter of 2018, an increase of 21% compared to $363.5 million in the same quarter of 2017.
  • Product revenue was $166.3 million for the second quarter of 2018, an increase of 17% compared to $142.7 million in the same quarter of 2017. Service revenue was $275.0 million for the second quarter of 2018, an increase of 25% compared to $220.8 million in the same quarter of 2017.
  • Billings1: Total billings were $513.4 million for the second quarter of 2018, an increase of 20% compared to $426.9 million in the same quarter of 2017.
  • Deferred Revenue: Total deferred revenue was $1.47 billion as of June 30, 2018, an increase of 27% compared to $1.16 billion as of June 30, 2017.
  • GAAP Operating Income and Margin: GAAP operating income was $50.7 million for the second quarter of 2018, representing a GAAP operating margin of 11%. GAAP operating income was $28.5 million for the same quarter of 2017, representing a GAAP operating margin of 8%.
  • Non-GAAP Operating Income1 and Margin1: Non-GAAP operating income was $93.1 million for the second quarter of 2018, representing a non-GAAP operating margin of 21%. Non-GAAP operating income was $65.7 million for the second quarter of 2017, representing a non-GAAP operating margin of 18%.
  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $49.3 million for the second quarter of 2018, compared to GAAP net income of $23.0 million for the same quarter of 2017. GAAP diluted net income per share was $0.28 for the second quarter of 2018, based on 173.5 million diluted weighted-average shares outstanding, compared to $0.13 for the same quarter of 2017, based on 179.7 million diluted weighted-average shares outstanding. GAAP effective tax rate was 4% in the second quarter of 2018, compared to an effective tax rate of 30% for the same quarter in 2017.
  • Non-GAAP Net Income1 and Diluted Net Income Per Share1: Non-GAAP net income was $71.4 million for the second quarter of 2018, compared to non-GAAP net income of $47.7 million for the same quarter of 2017. Non-GAAP diluted net income per share was $0.41 for the second quarter of 2018, based on 173.5 million diluted weighted-average shares outstanding, compared to $0.27 for the same quarter of 2017, based on 179.7 million diluted weighted-average shares outstanding. Non-GAAP effective tax rate was 24% in the second quarter of 2018, compared to 32% for the same quarter in 2017.
  • Cash, Cash Flow and Free Cash Flow1: As of June 30, 2018, cash, cash equivalents and investments were $1.50 billion, compared to $1.39 billion as of March 31, 2018. In the second quarter of 2018, cash flow from operations was $142.2 million, compared to $144.8 million in the same quarter of 2017. Free cash flow1 was $130.6 million during the second quarter of 2018, compared to $58.4 million in the same quarter of 2017.
  • Bradford Networks Acquisition:  During the quarter, we acquired Bradford Networks, further enhancing the Fortinet Security Fabric by converging access control and IoT security solutions to provide large enterprises with broader visibility and security for their complex networks.
  • Share Repurchase: In July 2018, Fortinet’s Board of Directors approved an increase of $500.0 million in the current share repurchase program, bringing the total amount authorized for repurchase to $1.5 billion, and extended the term of the repurchase program to December 31, 2019. As of June 30, 2018, $325.8 million remained available for future share repurchases under the repurchase program.
Guidance

For the third quarter of 2018, Fortinet currently expects:

  • Revenue in the range of $445.0 million to $455.0 million
  • Billings in the range of $500.0 million to $515.0 million
  • Non-GAAP gross margin in the range of 75% to 76%
  • Non-GAAP operating margin in the range of 21.5% to 22.0%, including a benefit associated with the adoption of ASC 606 of approximately 350 basis points
  • Diluted non-GAAP earnings per share in the range of $0.41 to $0.43, assuming a non-GAAP effective tax rate of 24%. This assumes a diluted share count of 175 million to 177 million

For the fiscal year of 2018, Fortinet currently expects:

  • Revenue in the range of $1.770 billion to $1.790 billion
  • Billings in the range of $2.085 billion to $2.110 billion
  • Non-GAAP gross margin in the range of 75% to 76%
  • Non-GAAP operating margin in the range of 21.2% to 21.7%, including a benefit associated with the adoption of ASC 606 of approximately 350 basis points
  • Diluted non-GAAP earnings per share in the range of $1.63 to $1.67, assuming a non-GAAP effective tax rate of 24%. This assumes a diluted share count of 174 million to 176 million

The above guidance for the third 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 historic 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 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 # 9499689. 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 8, 2018, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID #9499689.

Third Quarter 2018 Investor Conference Participation Schedule:

  • Oppenheimer’s 21st Annual Technology, Internet & Communications Conference
    August 7, 2018 - Boston, MA
  • KeyBanc’s 20th Annual Global Technology Leadership Forum (Meetings Only)
    August 13, 2018 - Vail, CO
  • Raymond James’ 2nd Annual SMID Cap Growth Conference (Meetings Only)
    August 21, 2018 - Chicago, IL
  • Citibank’s 2018 Global Technology Conference
    September 5, 2018 - New York, NY
  • Deutsche Bank’s Technology Conference
    September 12, 2018 - Las Vegas, NV

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 listen to these presentations and 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.

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 350,000 customers trust Fortinet to protect their businesses. Learn more at https://www.fortinet.com, the Fortinet Blog, or FortiGuard Labs.

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