Fortinet Reports Second Quarter 2020 Financial Results

SUNNYVALE, Calif. - Aug 6, 2020


Second Quarter 2020 Highlights

  • Total revenue of $615.5 million, up 18% year over year
  • Product revenue of $211.9 million, up 12% year over year
  • Billings of $711.5 million, up 14% year over year1
  • Deferred revenue of $2.32 billion, up 24% year over year
  • GAAP operating margin of 19.0%, up 460 basis points year over year
  • Non-GAAP operating margin of 27.3%, up 370 basis points year over year1
  • GAAP diluted net income per share of $0.68
  • Non-GAAP diluted net income per share of $0.821
  • Cash flow from operations of $247.0 million
  • Free cash flow of $216.1 million, up $38.3 million year over year1
  • Cash paid for share repurchases of $156.1 million

SUNNYVALE, Calif. - August 6, 2020 - Fortinet® (Nasdaq: FTNT), a global leader in broad, integrated and automated cybersecurity solutions, today announced financial results for the second quarter ended June 30, 2020.

“Strong demand for secure SD-WAN and work-from-home capabilities helped power 18% second quarter revenue growth. Secure SD-WAN billings were approximately 12% of second quarter billings, making this the first time in which SD-WAN represented over 10% of quarterly billings,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “With the network edge stretched across the entire digital infrastructure, we believe networking and security will continue to converge. Recent Secure Access Service Edge, or SASE, market momentum further validates our security-driven networking approach. Our OPAQ Networks acquisition means Fortinet will have one of the most comprehensive SASE platforms.”

Financial Highlights for the Second Quarter of 2020

  • Revenue: Total revenue was $615.5 million for the second quarter of 2020, an increase of 18.0% compared to $521.7 million for the same quarter of 2019.

  • Product Revenue: Product revenue was $211.9 million for the second quarter of 2020, an increase of 11.6% compared to $189.9 million for the same quarter of 2019.
  • Service Revenue: Service revenue was $403.6 million for the second quarter of 2020, an increase of 21.6% compared to $331.8 million for the same quarter of 2019.

  • Billings1: Total billings were $711.5 million for the second quarter of 2020, an increase of 14.3% compared to $622.4 million for the same quarter of 2019.

  • Deferred Revenue: Total deferred revenue was $2.32 billion as of June 30, 2020, an increase of 24.4% compared to $1.87 billion as of June 30, 2019.

  • GAAP Operating Income and Margin: GAAP operating income was $116.7 million for the second quarter of 2020, representing a GAAP operating margin of 19.0%. GAAP operating income was $75.2 million for the same quarter of 2019, representing a GAAP operating margin of 14.4%.

  • Non-GAAP Operating Income and Margin1: Non-GAAP operating income was $168.2 million for the second quarter of 2020, representing a non-GAAP operating margin of 27.3%. Non-GAAP operating income was $123.1 million for the second quarter of 2019, representing a non-GAAP operating margin of 23.6%.

  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $112.1 million for the second quarter of 2020, compared to GAAP net income of $72.7 million for the same quarter of 2019. GAAP diluted net income per share was $0.68 for the second quarter of 2020, based on 165.4 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.42 for the same quarter of 2019, based on 175.1 million diluted weighted-average shares outstanding.

  • Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $135.1 million for the second quarter of 2020, compared to non-GAAP net income of $101.6 million for the same quarter of 2019. Non-GAAP diluted net income per share was $0.82 for the second quarter of 2020, based on 165.4 million diluted weighted-average shares outstanding, compared to $0.58 for the same quarter of 2019, based on 175.1 million diluted weighted-average shares outstanding.

  • Cash Flow and Free Cash Flow1: In the second quarter of 2020, cash flow from operations was $247.0 million compared to $195.1 million in the same quarter of 2019. Free cash flow was $216.1 million during the second quarter of 2020, compared to $177.8 million for the same quarter of 2019.

  • Share Repurchase: In the second quarter of 2020, cash paid for share repurchases was $156.1 million compared to $33.8 million in the same quarter of 2019. In July 2020, Fortinet’s Board of Directors has authorized the increase of $500.0 million to $3.0 billion of our outstanding common stock and extended the share repurchase program through February 28, 2022. As of August 6, 2020, $1.05 billion remained available for future share repurchase.

Guidance

For the third quarter of 2020, Fortinet currently expects:

  • Revenue in the range of $630 million to $645 million
  • Billings in the range of $705 million to $730 million
  • Non-GAAP gross margin in the range of 78.0% to 79.0%
  • Non-GAAP operating margin in the range of 25.5% to 26.5%
  • Diluted non-GAAP net income per share in the range of $0.76 to $0.78, assuming a non-GAAP effective tax rate of 22%. This assumes a diluted share count of 168 million to 170 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.”

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 # 2588048. 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 August 13, 2020, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID #2588048.

Third Quarter 2020 Virtual Conference Participation Schedule:

  • Oppenheimer 23rd Annual Virtual Technology, Internet & Communications Conference
    August 11, 2020

  • BMO 2020 Virtual Technology Summit
    August 25, 2020

  • Citibank 2020 Global Technology Virtual Conference
    September 9, 2020

  • 2020 Colliers Institutional Investor Conference (IR Only)
    September 10, 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.

About Fortinet

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 455,000 customers trust Fortinet to protect their businesses. Both a technology company and a learning company, the Fortinet Network Security 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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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, contract, binding specification or other binding commitment by Fortinet or any indication of intent related to a binding commitment, and performance and other specification information herein may be unique to certain environments. This news release may contain forward-looking statements that involve uncertainties and assumptions, such as statements regarding technology releases among others. 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.