01—Abstract
Summary
Summary of the 10-K filed March 1, 2017. Cited figures are marked; the original filing is the authoritative source.
Fortinet, Inc. reported strong growth for the fiscal year ended December 31, 2016, with total revenue reaching $1.28 billiona, a 26% increase year-over-year.
This growth was driven by robust sales in its Security Fabric solutions, a shift towards higher-margin recurring service revenues (up 37%), and continued investments in sales and marketing. The company's focus on enterprise and service provider markets appears to be paying off, with a notable increase in mid-range FortiGate product billings. Financially, Fortinet maintained a healthy balance sheet with cash, cash equivalents, and investments totaling $1.31 billionb, and a substantial deferred revenue balance of $1.04 billion, indicating strong future revenue potential.
The company also actively managed its capital through a share repurchase program. While investing heavily in R&D and sales, Fortinet demonstrated effective operational leverage, with total operating expenses growing at a similar rate to revenue, maintaining a flat operating margin of 3%c year-over-year. The company's strong service revenue growth and expanding deferred revenue balance are positive indicators for future recurring revenue streams.
02—Key points
Key Highlights
- Total revenue increased by 26% to $1.28 billion in 2016.
- Service revenue grew by 37% year-over-year, indicating a positive shift towards recurring, higher-margin revenue streams.
- Fortinet maintained a strong financial position with $1.31 billion in cash, cash equivalents, and investments.
- Deferred revenue increased by 31% to $1.04 billion, signaling future revenue growth.
- Investments in sales and marketing increased by 33% to drive market share gains, particularly in the enterprise segment.
- Operating expenses grew by 26%, largely in line with revenue growth, demonstrating operational leverage.
- The company repurchased approximately $110.8 million of its common stock in 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Fortinet, Inc. kept $0.03.
- Revenue$1.28B100.0%
- Cost of revenue−$337.8M26.5%
- Gross profit$937.6M73.5%
- Operating costs−$894.7M70.2%
- Operating income$42.9M3.4%
- Interest, other & tax−$10.7M0.8%
- Net income$32.2M2.5%
Where FY2016 revenue went
$1.28B- Other operating costs: $711.6M, 56% of revenue
- Cost of revenue: $337.8M, 26% of revenue
- R&D: $183.1M, 14% of revenue
- Net income: $32.2M, 2.5% of revenue
- Interest, other & tax: $10.7M, 0.8% of revenue
Kept 2.5% as net incomeNet income $32.2M · 2.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed March 1, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.28B$1.01B | +26.4% |
| Cost of Revenue | $337.80M$286.78M | +17.8% |
| Gross Profit | $937.60M$722.49M | +29.8% |
| R&D Expenses | $183.10M$158.13M | +15.8% |
| Operating Expenses | $894.70M$707.61M | +26.4% |
| Operating Income | $42.90M$14.88M | +188.4% |
| Net Income | $32.20M$7.99M | +303.2% |
| EPS (Basic) | $0.04$0.01 | +280.0% |
| EPS (Diluted) | $0.04$0.01 | +260.0% |
| Shares Outstanding (Basic) | 863.00M851.92M | +1.3% |
| Shares Outstanding (Diluted) | 881.50M880.71M | +0.1% |
05—Questions
Frequently Asked Questions
What was Fortinet's revenue growth in 2016?
Fortinet reported total revenue of $1.28 billion for the fiscal year ended December 31, 2016, representing a 26% increase compared to the prior year. Product revenue grew by 15%, while service revenue saw a significant increase of 37%.
How is Fortinet's deferred revenue trending?
Deferred revenue increased by 31% to $1.04 billion as of December 31, 2016. This growth is primarily driven by the recognition of revenue from FortiGuard security subscription and FortiCare technical support service contracts, which are recognized over time, indicating a strong pipeline for future revenue.
What is Fortinet's strategy for growth and how is it reflected in their expenses?
Fortinet's growth strategy involves continued investment in sales and marketing to capture market share, especially in the enterprise sector. In 2016, sales and marketing expenses increased by 33%. Research and development also saw a 16% increase to support product innovation. While these investments led to a 26% increase in total operating expenses, this was largely in line with revenue growth, demonstrating effective management of operating leverage.
What is Fortinet's financial position regarding cash and liquidity?
Fortinet maintained a strong liquidity position, with cash, cash equivalents, and investments totaling $1.31 billion as of December 31, 2016. The company generated $345.7 million in cash from operating activities in 2016, a 22% increase year-over-year. This strong cash flow, combined with existing reserves, provides ample resources for ongoing operations and strategic initiatives.
06—Continue