Fortinet Reports Fourth Quarter and Full Year 2017 Financial Results

Fortinet Reports Full Year Revenue Up 17% and Billings Up 19% over 2016

SUNNYVALE, Calif. - Feb 5, 2018


Fourth Quarter 2017 Highlights

  • Revenue of $416.7 million, up 15% year over year
  • Billings of $534.0 million, up 15% year over year1
  • Deferred revenue of $1.34 billion, up 29% year over year
  • GAAP diluted net loss per share of $0.17, including the impact of a one-time tax expense of $63.0 million, or $0.36 per share, related to new tax legislation
  • Non-GAAP diluted net income per share of $0.321
  • Cash flow from operations of $157.5 million
  • Free cash flow of $143.9 million1
  • Cash, cash equivalents and investments of $1.35 billion
  • $322.4 million in share repurchases

Full Year 2017 Highlights

  • Revenue of $1.49 billion, up 17% year over prior year
  • Billings of $1.80 billion, up 19% year over prior year1
  • GAAP diluted net income per share of $0.18, including the impact of a one-time tax expense of $63.0 million, or $0.35 per share, related to new tax legislation
  • Non-GAAP diluted net income per share grew 42% year over year to $1.041
  • Cash flow from operations of $594.4 million
  • Free cash flow grew 65% year over year to $459.1 million1
  • $446.3 million in share repurchases

SUNNYVALE, Calif. - February 5, 2018 - Fortinet® (NASDAQ: FTNT), a global leader in high-performance cyber security solutions, today announced financial results for the fourth quarter and full year ended December 31, 2017.

“We are pleased with our strong fourth quarter and full year results, which demonstrate our clear technology advantage and market leadership,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “Our ability to provide our customers with broad, integrated and automated security across the entire network infrastructure sets us apart from our competition. Led by the innovation of the Fortinet Security Fabric, Fortinet has strong market momentum and is well positioned for robust future growth.”

Financial Highlights for the Fourth Quarter of 2017

  • Revenue: Total revenue was $416.7 million for the fourth quarter of 2017, an increase of 15% compared to $362.8 million in the same quarter of 2016.

  • Product revenue was $162.1 million for the fourth quarter of 2017, an increase of 2% compared to $158.9 million in the same quarter of 2016. Service revenue was $254.6 million for the fourth quarter of 2017, an increase of 25% compared to $203.9 million in the same quarter of 2016.
  • Billings1: Total billings were $534.0 million for the fourth quarter of 2017, an increase of 15% compared to $463.4 million in the same quarter of 2016.

  • Deferred Revenue: Total deferred revenue was $1.34 billion as of December 31, 2017, an increase of 29% compared to $1.04 billion as of December 31, 2016.

  • GAAP Operating Income and Margin: GAAP operating income was $42.2 million for the fourth quarter of 2017, representing a GAAP operating margin of 10%. GAAP operating income was $45.2 million for the same quarter of 2016, representing a GAAP operating margin of 12%. 

  • Non-GAAP Operating Income1 and Margin1: Non-GAAP operating income was $78.7 million for the fourth quarter of 2017, representing a non-GAAP operating margin of 19%. Non-GAAP operating income was $81.1 million for the fourth quarter of 2016, representing a non-GAAP operating margin of 22%.

  • GAAP Net Income or Loss and Diluted Net Income or Loss Per Share: GAAP net loss was $29.0 million for the fourth quarter of 2017, compared to GAAP net income of $25.2 million for the same quarter of 2016. GAAP diluted net loss per share was $0.17 for the fourth quarter of 2017, based on 171.5 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.14 for the same quarter of 2016, based on 176.7 million diluted weighted-average shares outstanding.

  • Impact of New Tax Legislation: Net loss in the fourth quarter of 2017 was impacted by a one-time tax expense of $63.0 million, or $0.36 per share, resulting from the Tax Cuts and Jobs Act (the “Act”) signed into law in December 2017.

  • Non-GAAP Net Income1 and Diluted Net Income Per Share1: Non-GAAP net income was $55.5 million for the fourth quarter of 2017, compared to non-GAAP net income of $53.2 million for the same quarter of 2016.  Non-GAAP diluted net income per share was $0.32 for the fourth quarter of 2017, based on 175.4 million diluted weighted-average shares outstanding, compared to $0.30 for the same quarter of 2016, based on 176.7 million diluted weighted-average shares outstanding. Non-GAAP effective tax rate remained at 32% in 2017 and was not impacted by the Act.

  • Cash, Cash Flow and Free Cash Flow1: As of December 31, 2017, cash, cash equivalents and investments were $1.35 billion, compared to $1.52 billion as of September 30, 2017. In the fourth quarter of 2017, cash flow from operations was $157.5 million compared to $101.0 million in the same quarter of 2016. Free cash flow1 was $143.9 million during the fourth quarter of 2017 compared to $84.2 million in the same quarter of 2016.

  • Share Repurchase: During the fourth quarter of 2017, Fortinet repurchased 7.9 million shares of its common stock for a total purchase price of $322.4 million. During the fourth quarter of 2016, Fortinet repurchased 1.2 million shares of its common stock for a total purchase price of $35.8 million.

Financial Highlights for the Full Year 2017

  • Revenue: Total revenue was $1.49 billion for 2017, an increase of 17% compared to $1.28 billion in 2016.

  • Product revenue was $577.2 million for 2017, an increase of 5% compared to $548.1 million in 2016. Service revenue was $917.8 million for 2017, an increase of 26% compared to $727.3 million in 2016.

  • Billings1: Total billings were $1.80 billion for 2017, an increase of 19% compared to $1.52 billion in 2016.

  • GAAP Operating Income and Margin: GAAP operating income was $109.8 million for 2017, representing a GAAP operating margin of 7%. GAAP operating income was $42.9 million for 2016, representing a GAAP operating margin of 3%. 

  • Non-GAAP Operating Income1 and Margin1: Non-GAAP operating income was $257.4 million for 2017, representing a non-GAAP operating margin of 17%. Non-GAAP operating income was $193.1 million for 2016, representing a non-GAAP operating margin of 15%. 

  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $31.4 million for 2017, compared to GAAP net income of $32.2 million for 2016. GAAP diluted net income per share was $0.18 for 2017, based on 178.1 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.18 for 2016, based on 176.3 million diluted weighted-average shares outstanding.

  • Impact of New Tax Legislation: Net income for 2017 was impacted by a one-time tax expense of $63.0 million, or $0.35 per share, resulting from the Act. The effective GAAP tax rate was 75% in 2017, up from the 25% rate in 2016, reflecting the impact of the Act. Excluding the impact of the Act, the effective income tax rate for 2017 was 24%.

  • Non-GAAP Net Income1 and Diluted Net Income Per Share1: Non-GAAP net income was $184.7 million for 2017, compared to non-GAAP net income of $129.5 million for 2016.  Non-GAAP diluted net income per share was $1.04 for 2017, based on 178.1 million diluted weighted-average shares outstanding, compared to $0.73, based on 176.3 million diluted weighted-average shares outstanding, for 2016. Non-GAAP effective tax rate remained at 32% in 2017 and was not impacted by the Act.

  • Cash Flow and Free Cash Flow1: In 2017, cash flow from operations was $594.4 million compared to $345.7 million in 2016. Free cash flow1 was $459.1 million in 2017 compared to $278.5 million in 2016. In 2017, Fortinet used $107.2 million for real estate purchases for its Canada and Sunnyvale offices.

  • Share Repurchase: During 2017, Fortinet repurchased 11.2 million shares of its common stock for a total purchase price of $446.3 million. During 2016, Fortinet repurchased 3.9 million shares of its common stock for a total purchase price of $110.8 million.

Guidance

For the first quarter of 2018, Fortinet expects:

  • Revenue in the range of $387.0 million to $393.0 million
  • Billings in the range of $449.0 million to $457.0 million
  • Non-GAAP gross margin in the range of 75% to 76%
  • Non-GAAP operating margin in the range of 12% to 13%
  • Diluted non-GAAP earnings per share in the range of $0.21 to $0.22, assuming a non-GAAP tax rate of 24%

For the fiscal year of 2018, Fortinet expects:

  • Revenue in the range of $1.695 billion to $1.715 billion
  • Billings in the range of $2.030 billion to $2.050 billion
  • Non-GAAP gross margin in the range of 75% to 76%
  • Non-GAAP operating margin in the range of 17.7% to 18%
  • Diluted non-GAAP earnings per share in the range of $1.30 to $1.32, assuming a non-GAAP tax rate of 24%

The above guidance for the first quarter and full year of 2018 excludes the transition impact of ASC 606 adoption, which is 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.

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 Interim Chief Financial Officer - Effective February 16, 2018
Keith Jensen, a 35-year finance veteran and Fortinet’s chief accounting officer since May 2014, will succeed CFO Drew Del Matto as interim CFO effective February 16, 2018. Keith served as chief administrative officer and chief accounting officer (CAO) at DataDirect Networks and CAO at Sybase. Before Sybase, Keith was chief financial officer of Dorado Network Systems. “The past four years have been incredibly rewarding and I am honored to have worked with Ken, Michael and the rest of the Fortinet team. I will miss them all and I am excited that Keith is taking over the interim CFO role," said Drew Del Matto, who is leaving for another opportunity.  “Over the last four years, Drew has made a strong impact on the business and significantly contributed to the company’s growth and profitability. During that time Drew has developed a deep bench of seasoned leaders and has built a strong financial organization to support and grow the business. We wish Drew the very best in his next opportunity and we thank him for his significant contributions," 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 # 1373759. 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 February 12, 2018, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID #1373759.

Following Fortinet’s financial results conference call, Fortinet 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 product and financial questions. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID #6075549. This call will be webcast live and accessible at http://investor.fortinet.com, and will be archived and accessible at http://investor.fortinet.com/events.cfm. A replay of this conference call will also be available through February 12, 2018, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID #6075549.

First Quarter 2018 Analyst Day and Investor Conference Participation Schedule:

  • Goldman Sachs Technology & Internet Conference 2018
    February 13, 2018 - San Francisco, CA

  • Fortinet Analyst Day
    February 27, 2018 - Las Vegas, NV

  • Morgan Stanley Technology, Media & Telecom Conference
    March 1, 2018 - San Francisco, CA

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 330,000 customers trust Fortinet to protect their businesses. Learn more at https://www.fortinet.com, the Fortinet Blog, or FortiGuard Labs.

Copyright © 2018 Fortinet, Inc. All rights reserved. The symbols ® and ™ denote respectively federally registered trademarks and common law trademarks of Fortinet, Inc., its subsidiaries and affiliates. Fortinet's trademarks include, but are not limited to, the following: Fortinet, FortiGate, FortiGuard, FortiCare, FortiManager, FortiAnalyzer, FortiOS, FortiASIC, FortiMail, FortiClient, FortiSIEM, FortiSandbox, FortiWiFi, FortiAP, FortiSwitch, FortiWeb, FortiADC, FortiWAN, and FortiCloud. 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.