10-KPeriod: FY2016

Fortinet, Inc. Annual Report, Year Ended Dec 31, 2016

Filed March 1, 2017For Securities:FTNT

Summary

Fortinet, Inc. reported strong growth for the fiscal year ended December 31, 2016, with total revenue reaching $1.28 billion, 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 billion, 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% year-over-year. The company's strong service revenue growth and expanding deferred revenue balance are positive indicators for future recurring revenue streams.

Financial Highlights

51 data points
Beta

Revenue

$1.28B

73.5% Gross Margin

Net Income

$32.20M

2.5% Net Margin

EPS (Diluted)

$0.04

Total Assets

$2.14B

Cash & Equivalents

$709.00M

Free Cash Flow

$345.70M

Financial Statements
Beta
Revenue$1.28B
Cost of Revenue$337.80M
Gross Profit$937.60M
R&D Expenses$183.10M
Operating Expenses$894.70M
Operating Income$42.90M
Net Income$32.20M
EPS (Basic)$0.04
EPS (Diluted)$0.04
Shares Outstanding (Basic)863.00M
Shares Outstanding (Diluted)881.50M

Key Highlights

  • 1Total revenue increased by 26% to $1.28 billion in 2016.
  • 2Service revenue grew by 37% year-over-year, indicating a positive shift towards recurring, higher-margin revenue streams.
  • 3Fortinet maintained a strong financial position with $1.31 billion in cash, cash equivalents, and investments.
  • 4Deferred revenue increased by 31% to $1.04 billion, signaling future revenue growth.
  • 5Investments in sales and marketing increased by 33% to drive market share gains, particularly in the enterprise segment.
  • 6Operating expenses grew by 26%, largely in line with revenue growth, demonstrating operational leverage.
  • 7The company repurchased approximately $110.8 million of its common stock in 2016.

Frequently Asked Questions

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%.

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.

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.

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.