Fortinet Reports Third Quarter 2016 Financial Results

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TAGUIG, Philippines, November 3, 2016 – Fortinet® (NASDAQ: FTNT), a global leader in high performance cyber security solutions, today announced financial results for the third quarter ended September 30, 2016.

* Revenue of $316.6 million, up 22% year over year

*Billings of $347.5 million, up 16% year over year1

*GAAP diluted net income per share $0.04

*Non-GAAP diluted net income per share of $0.181

*Cash flow from operations of $76.1 million

*Free cash flow of $70.2 million1

*Cash, cash equivalents and investments of $1.27 billion2

*Deferred revenue of $934.8 million, up 32% year over year

“While our third quarter results were impacted by a moderated spending environment, extended sales cycles and sales execution challenges, we continued to outgrow the market, as well as add 9,000 new customers,” stated Ken Xie, founder, chairman and chief executive officer. “Fortinet remains in a position to benefit from key secular trends such as security vendor consolidation and next generation cloud architectures. We have a strong technology advantage and visionary roadmap in place to help us continue to grow our market position, address our large opportunity, and make progress towards achieving our long term margin targets.”

Financial Highlights for the Third Quarter of 2016
Revenue: Total revenue was $316.6 million for the third quarter of 2016, an increase of 22% compared to $260.1 million in the same quarter of 2015. Within total revenue, product revenue was $128.0 million, an increase of 7% compared to $119.7 million in the same quarter of 2015. Service revenue was $188.7 million, an increase of 34% compared to $140.3 million in the same quarter of 2015.

Billings1: Total billings were $347.5 million for the third quarter of 2016, an increase of 16% compared to $299.6 million in the same quarter of 2015.

Deferred Revenue: Total deferred revenue was $934.8 million as of September 30, 2016, an increase of 32% compared to $706.9 million in the same quarter of 2015. Total deferred revenue increased by $30.8 million compared to $904.0 million as of June 30, 2016.

Cash2 and Cash Flow: As of September 30, 2016, cash, cash equivalents and investments were $1.27 billion, compared to $1.22 billion as of June 30, 2016. In the third quarter of 2016, cash flow from operations was $76.1 million compared to $65.1 million in the same quarter of 2015. Free cash flow1 was $70.2 million during the third quarter of 2016 compared to $51.7 million in the same quarter of 2015.

GAAP Operating Income or Loss: GAAP operating income was $5.5 million for the third quarter of 2016, representing a GAAP operating margin of 2%. GAAP operating loss was $1.8 million in the same quarter of 2015, representing a GAAP operating margin of -1%.

Non-GAAP Operating Income1: Non-GAAP operating income was $45.9 million for the third quarter of 2016, representing a non-GAAP operating margin of 15%. Non-GAAP operating income was $36.4 million in the same quarter of 2015, representing a non-GAAP operating margin of 14%.

GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $6.3 million for the third quarter of 2016, compared to GAAP net income of $8.2 million for the same quarter of 2015. GAAP diluted net income per share was $0.04 for the third quarter of 2016. GAAP diluted net income per share was $0.05 in the third quarter of 2015.

Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $32.2 million for the third quarter of 2016, compared to non-GAAP net income of $24.1 million for the same quarter of 2015. Non-GAAP diluted net income per share was $0.18 for the third quarter of 2016, compared to $0.14 in the same quarter of 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 third quarter of 2016, we repurchased $25.0 million of our common stock under our share repurchase program. During the third quarter of 2015, there were no shares repurchased under our share repurchase program.

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