Fortinet Reports Third Quarter 2017 Financial Results

Fortinet Q3 earnings

Revenue of $374.2 million, up 18% year over year

  • Billings of $431.7 million, up 24% year over year 1
  • diluted per share of $0.15
  • Non-GAAP diluted net income per share of $0.281
  • GAAP of 9%
  • Non-GAAP operating margin of 19%1
  • Cash flow from operations of $162.3 million
  • Free cash flow of $140.6 million1
  • Cash, cash equivalents and investments of $1.52 billion
  • of $1.22 billion, up 30% year over year
  • $90.8 million in share repurchases

, a global leader in high-performance cyber security solutions, today announced financial results for the third quarter ended September 30, 2017.

“Our large installed base of network security customers offers us a foundation from which to sell our Fortinet Security Fabric, which is the broadest and most integrated security architecture in the industry,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “We expect that the expanding cloud security market, and the future of securing critical infrastructure and IoT technologies, will enable Fortinet to continue to grow at multiples of the market over the coming years.”

Financial Details

  • Revenue: Total revenue was $374.2 million for the third quarter of 2017, an increase of 18% compared to $316.6 million in the same quarter of 2016.
  • Product revenue was $137.1 million, an increase of 7% compared to $128.0 million in the same quarter of 2016. Service revenue was $237.1 million, an increase of 26% compared to $188.7 million in the same quarter of 2016.
  • Billings1: Total billings were $431.7 million for the third quarter of 2017, an increase of 24% compared to $347.5 million in the same quarter of 2016.
  • Deferred Revenue: Total deferred revenue was $1.22 billion as of September 30, 2017, compared to $934.8 million as of September 30, 2016, and $1.16 billion as of June 30, 2017. Short-term deferred revenue was $734.3 million as of September 30, 2017, compared to $582.1 million as of September 30, 2016. Long-term deferred revenue was $484.6 million as of September 30, 2017, compared to $352.6 million as of September 30, 2016.
  • Cash, Cash Flow and Free Cash Flow1: As of September 30, 2017, cash, cash equivalents and investments were $1.52 billion, compared to $1.46 billion as of June 30, 2017. In the third quarter of 2017, cash flow from operations was $162.3 million compared to $76.1 million in the same quarter of 2016. Free cash flow was $140.6 million during the third quarter of 2017 compared to $70.2 million in the same quarter of 2016, an increase of 100%.
  • Share Repurchase: During the third quarter of 2017, Fortinet repurchased 2.4 million shares of its common stock for a total purchase price of $90.8 million. In addition, in October 2017, Fortinet’s Board of Directors approved an increase of $400.0 million in the current share repurchase authorization, bringing the total authorization to $1.0 billion.
  • GAAP and Margin: GAAP was $33.7 million for the third quarter of 2017, representing a GAAP operating margin of 9%. GAAP was $5.5 million for the same quarter of 2016, representing a GAAP operating margin of 2%.
  • Non-GAAP Operating Income1 and Margin1: Non-GAAP operating income was $70.0 million for the third quarter of 2017, representing a non-GAAP operating margin of 19%. Non-GAAP operating income was $45.9 million for the same quarter of 2016, representing a non-GAAP operating margin of 15%.
  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $26.6 million for the third quarter of 2017, compared to GAAP net income of $6.3 million for the same quarter of 2016. GAAP diluted net income per share was $0.15 for the third quarter of 2017, compared to GAAP diluted net income per share of $0.04 for the same quarter of 2016.
  • Non-GAAP Net Income1 and Diluted Net Income Per Share1: Non-GAAP net income was $50.5 million for the third quarter of 2017, compared to non-GAAP net income of $32.2 million for the same quarter of 2016. Non-GAAP diluted net income per share was $0.28 for the third quarter of 2017, compared to $0.18 for the same quarter of 2016.

Guidance

Fortinet offered the following guidance for the fourth quarter of 2017:

  • Revenue in the range of $404.0 million to $412.0 million
  • Billings in the range of $510.0 million to $525.0 million
  • Non-GAAP gross margin of 75% to 76%
  • Non-GAAP operating margin in the range of 18% to 19%
  • Diluted non-GAAP earnings per share of $0.28 to $0.30

Fortinet also offered the following update to its guidance for the full year 2017:

  • Revenue in the range of $1.482 billion to $1.490 billion
  • Billings in the range of $1.772 billion to $1.787 billion
  • Non-GAAP gross margin of 75%
  • Non-GAAP operating margin of 17%
  • Diluted non-GAAP earnings per share of $1.00 to $1.02

Guidance for non-GAAP financial measures excludes stock-based compensation and amortization of acquired intangible assets. We have not reconciled non-GAAP metrics to GAAP metrics because certain items that impact these measures are uncertain, out of our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.