Fortinet Reports Fourth Quarter and Full Year 2016 Financial Results

Revenue and Billings Up 22% in Fourth Quarter, Company Improves Profitability on GAAP and non-GAAP Basis

Fourth Quarter 2016 Highlights

  • Revenue of $362.8 million, up 22% year over year
  • Billings of $463.4 million, up 22% year over year1
  • GAAP diluted net income per share $0.14
  • Non-GAAP diluted net income per share grew 67% year over year to $0.301
  • Cash flow from operations of $101.0 million
  • Free cash flow of $84.2 million1
  • Cash, cash equivalents and investments of $1.31 billion2
  • Deferred revenue of $1.04 billion, up 31% year over year

Full Year 2016 Highlights

  • Revenue of $1.28 billion, up 26% year over year
  • Billings of $1.52 billion, up 23% year over year1
  • GAAP diluted net income per share $0.18
  • Non-GAAP diluted net income per share grew 43% year over year to $0.731
  • Cash flow from operations of $345.7 million
  • Free cash flow of $278.5 million1

SUNNYVALE, Calif. - February 2, 2017 - 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, 2016.

“We are pleased with our strong finish to 2016, demonstrating our strong technology advantage and revenue growth,” said Ken Xie, founder, chairman and chief executive officer. “Our ability to provide a broad, powerful, and automated Security Fabric that protects all points in the network, from IoT to cloud, sets Fortinet apart. This technology advantage, combined with improvements in sales execution delivered strong results in the mid to large enterprise segments of the market and positions us well for future growth.”

Financial Highlights for the Fourth Quarter of 2016

  • Revenue: Total revenue was $362.8 million for the fourth quarter of 2016, an increase of 22% compared to $296.5 million in the same quarter of 2015. Within total revenue, product revenue was $158.9 million, an increase of 10% compared to $144.8 million in the same quarter of 2015. Service revenue was $203.9 million, an increase of 34% compared to $151.8 million in the same quarter of 2015.

  • Billings1: Total billings were $463.4 million for the fourth quarter of 2016, an increase of 22% compared to $380.9 million in the same quarter of 2015.

  • Deferred Revenue: Total deferred revenue was $1.04 billion as of December 31, 2016, an increase of 31% compared to $791.3 million as of December 31, 2015. Total deferred revenue increased by $100.6 million compared to $934.8 million as of September 30, 2016.

  • Cash2 and Cash Flow: As of December 31, 2016, cash, cash equivalents and investments were $1.31 billion, compared to $1.27 billion as of September 30, 2016. In the fourth quarter of 2016, cash flow from operations was $101.0 million compared to $68.6 million in the same quarter of 2015. Free cash flow1 was $84.2 million during the fourth quarter of 2016 compared to $60.2 million in the same quarter of 2015.

  • GAAP Operating Income: GAAP operating income was $45.2 million for the fourth quarter of 2016, representing a GAAP operating margin of 12%. GAAP operating income was $12.9 million for the same quarter of 2015, representing a GAAP operating margin of 4%.
     
  • Non-GAAP Operating Income1: Non-GAAP operating income was $81.1 million for the fourth quarter of 2016, representing a non-GAAP operating margin of 22%. Non-GAAP operating income was $47.6 million for the same quarter of 2015, representing a non-GAAP operating margin of 16%.
     
  • GAAP Net Income or Loss and Diluted Net Income or Loss Per Share: GAAP net income was $25.2 million for the fourth quarter of 2016, compared to GAAP net loss of $2.5 million for the same quarter of 2015. GAAP diluted net income per share was $0.14 for the fourth quarter of 2016, compared to GAAP diluted net loss per share of $0.01 for the same quarter of 2015.

  • Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $53.2 million for the fourth quarter of 2016, compared to non-GAAP net income of $32.4 million for the same quarter of 2015.  Non-GAAP diluted net income per share was $0.30 for the fourth quarter of 2016, compared to $0.18 for the same quarter of 2015.

Financial Highlights for the Full Year 2016

  • Revenue: Total revenue was $1.28 billion for 2016, an increase of 26% compared to $1.01 billion in 2015. Within total revenue, product revenue was $548.1 million, an increase of 15% compared to $476.8 million in 2015. Service revenue was $727.3 million, an increase of 37% compared to $532.5 million in 2015.

  • Billings1: Total billings were $1.52 billion for 2016, an increase of 23% compared to $1.23 billion in 2015.

  • Cash Flow: In 2016, cash flow from operations was $345.7 million compared to $282.5 million in 2015. Free cash flow1 was $278.5 million in 2016 compared to $245.2 million in 2015.

  • GAAP Operating Income: GAAP operating income was $42.9 million for 2016, representing a GAAP operating margin of 3%. GAAP operating income was $14.9 million for 2015, representing a GAAP operating margin of 1%. 

  • Non-GAAP Operating Income1: Non-GAAP operating income was $193.1 million for 2016, representing a non-GAAP operating margin of 15%. Non-GAAP operating income was $133.3 million for 2015, representing a non-GAAP operating margin of 13%.
     
  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $32.2 million for 2016, compared to GAAP net income of $8.0 million for 2015. GAAP diluted net income per share was $0.18 for 2016, compared to $0.05 for 2015.
     
  • Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $129.5 million for 2016, compared to non-GAAP net income of $89.4 million for 2015.  Non-GAAP diluted net income per share was $0.73 for 2016, compared to $0.51 for 2015.

1 A reconciliation of GAAP to non-GAAP financial and liquidity 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 fourth quarter and year ended December 31, 2016, we repurchased $35.8 million and $110.8 million, respectively, of our common stock under our share repurchase program. During the fourth quarter and year ended December 31, 2015, we repurchased $60.0 million of our common stock under our share repurchase program.

Conference Call Details
Fortinet will host a conference call today, February 2, 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 # 40971273. 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 9, 2017, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID# 40971273.

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 # 40987500. This follow-up call will be webcast live and accessible at http://investor.fortinet.com, and 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 February 9, 2017 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID # 40987500.

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 290,000 customers trust Fortinet to protect their businesses. Learn more at https://www.fortinet.com, the Fortinet Blog, or FortiGuard Labs.

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