Fortinet Reports First Quarter 2020 Financial Results

SUNNYVALE, Calif. - 06/05/2020


First Quarter 2020 Highlights

  • Total revenue of $576.9 million, up 22% year over year
  • Product revenue of $192.3 million, up 18% year over year
  • Billings of $667.8 million, up 21% year over year1
  • Deferred revenue of $2.23 billion, up 26% year over year
  • GAAP operating margin of 20.1%, up 940 basis points year over year
  • Non-GAAP operating margin of 22.3%, up 190 basis points year over year1
  • GAAP diluted net income per share of $0.60
  • Non-GAAP diluted net income per share of $0.601
  • Cash flow from operations of $319.4 million
  • Free cash flow of $241.8 million, up $50.7 million year over year1
  • $889.9 million in cash paid for share repurchases

SUNNYVALE, Calif. - May 6, 2020 - Fortinet® (Nasdaq: FTNT), a global leader in broad, integrated and automated cybersecurity solutions, today announced financial results for the first quarter ended March 31, 2020.

“Our strong first quarter performance is the result of strategic internal investments we made to deliver industry-leading products and services, expand into adjacent addressable markets, grow our global sales force and invest in the channel,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “Fortinet is an important strategic partner to our customers. Our proprietary FortiASIC security processing unit (SPU) can deliver 10 times the VPN throughput capacity of comparable competitor solutions to support teleworkers. This significant competitive advantage is one reason we believe we will continue to gain market share during a period of tougher economic conditions. We believe our industry-validated teleworker and secure SD-WAN offerings, along with our SPU-driven FortiGates, Security Fabric platform and hybrid- and multi-cloud offerings, provide companies with more cost-effective solutions across their entire digital infrastructure.”

Financial Highlights for the First Quarter of 2020

  • Revenue: Total revenue was $576.9 million for the first quarter of 2020, an increase of 22.1% compared to $472.6 million for the same quarter of 2019.

  • Product Revenue: Product revenue was $192.3 million for the first quarter of 2020, an increase of 18.2% compared to $162.7 million for the same quarter of 2019.

  •  Service Revenue: Service revenue was $384.6 million for the first quarter of 2020, an increase of 24.1% compared to $309.9 million for the same quarter of 2019.

  • Billings1: Total billings were $667.8 million for the first quarter of 2020, an increase of 21.1% compared to $551.6 million for the same quarter of 2019.

  • Deferred Revenue: Total deferred revenue was $2.23 billion as of March 31, 2020, an increase of 26.1% compared to $1.77 billion as of March 31, 2019.

  • GAAP Operating Income and Margin: GAAP operating income was $115.9 million for the first quarter of 2020, representing a GAAP operating margin of 20.1%. Gain on intellectual property matter contributed 640 basis points to the GAAP operating margin for the first quarter of 2020. GAAP operating income was $50.6 million for the same quarter of 2019, representing a GAAP operating margin of 10.7%.

  • Non-GAAP Operating Income and Margin1: Non-GAAP operating income was $128.4 million for the first quarter of 2020, representing a non-GAAP operating margin of 22.3%. Non-GAAP operating income was $96.6 million for the first quarter of 2019, representing a non-GAAP operating margin of 20.4%.

  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $104.0 million for the first quarter of 2020, including $28.3 million from gain on intellectual property matter, net of tax, compared to GAAP net income of $58.8 million for the same quarter of 2019. GAAP diluted net income per share was $0.60 for the first quarter of 2020, based on 174.2 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.34 for the same quarter of 2019, based on 174.8 million diluted weighted-average shares outstanding. Gain on intellectual property matter contributed $0.16 to net income per share for the first quarter of 2020.

  • Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $104.4 million for the first quarter of 2020, compared to non-GAAP net income of $80.8 million for the same quarter of 2019. Non-GAAP diluted net income per share was $0.60 for the first quarter of 2020, based on 174.2 million diluted weighted-average shares outstanding, compared to $0.46 for the same quarter of 2019, based on 174.8 million diluted weighted-average shares outstanding.

  • Cash Flow and Free Cash Flow1: In the first quarter of 2020, cash flow from operations was $319.4 million compared to $201.3 million in the same quarter of 2019. Cash flow from operations for the first quarter of 2020 includes $50.0 million proceeds from intellectual property matter. Free cash flow was $241.8 million during the first quarter of 2020, compared to $191.1 million for the same quarter of 2019.

  • Share Repurchase: During the first quarter of 2020, Fortinet repurchased 10.0 million shares of its common stock at an average price of $90.36 per share and for an aggregate purchase price of $899.9 million, of which $889.9 million was settled in cash during the quarter. During the first quarter of 2019, Fortinet repurchased 0.8 million shares of its common stock at an average price of $72.19 per share and for an aggregate purchase price of $56.2 million, paying $60.4 million in cash to settle those transactions as well as unsettled stock repurchases from the previous quarter. As of March 31, 2020, $692.9 million remained available for future share repurchases under Fortinet’s share repurchase program.

Guidance
For the second quarter of 2020, Fortinet currently expects:

  • Revenue in the range of $590 million to $605 million
  • Billings in the range of $700 million to $725 million
  • Non-GAAP gross margin in the range of 77.5% to 78.5%
  • Non-GAAP operating margin in the range of 23% to 24%
  • Diluted non-GAAP net income per share in the range of $0.64 to $0.66, assuming a non-GAAP effective tax rate of 22%. This assumes a diluted share count of 165 million to  167 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 # 9248956. 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 May 13, 2020, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID #9248956.

Second Quarter 2020 Virtual Conference Participation Schedule:

  • J.P. Morgan 48th Annual Global Technology, Media and Communications Conference
    May 12, 2020

  • Bank of America 2020 Global Technology Conference
    June 4, 2020

  • William Blair 40th Annual Growth Stock Conference
    June 9, 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.

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 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 440,000 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.