01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Fortinet, Inc. reported strong revenue growth of 17% to $1.49 billiona for the year ended December 31, 2017.
This growth was driven by a 26%b increase in service revenue, indicating a successful shift towards higher-margin recurring revenue streams. The company's focus on its Fortinet Security Fabric and cloud security solutions is showing positive traction, evidenced by significant growth in non-FortiGate product and service billings. Profitability also saw a substantial improvement, with operating income increasing by 156% year-over-year.
The company ended the year with a robust cash position of $1.35 billionc, demonstrating financial stability and capacity for future investment. Fortinet's strategic initiatives, including expanding sales and marketing efforts, particularly in the enterprise market, are contributing to market share gains.
The company's proprietary SPU hardware architecture and FortiOS operating system continue to be key differentiators, enabling integrated and high-performance cybersecurity solutions. While facing a competitive landscape, Fortinet's commitment to innovation and its broad product portfolio position it well for continued growth.
02—Key points
Key Highlights
- Total revenue increased by 17% to $1.49 billion in 2017, driven by strong service revenue growth.
- Service revenue grew by 26% to $917.8 million, indicating a successful shift towards higher-margin recurring revenue.
- Operating income saw a significant increase of 156% to $109.8 million, demonstrating improved profitability.
- Cash, cash equivalents, and investments stood at a healthy $1.35 billion as of December 31, 2017.
- Deferred revenue increased by 29% to $1.34 billion, reflecting strong future revenue potential from service contracts.
- Investments in sales and marketing contributed to market share gains, particularly in the enterprise segment.
- The company continues to leverage its proprietary SPU hardware and FortiOS for integrated cybersecurity solutions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Fortinet, Inc. kept $0.02.
- Revenue$1.49B100.0%
- Cost of revenue−$385.3M25.8%
- Gross profit$1.11B74.2%
- Operating costs−$999.8M66.9%
- Operating income$109.8M7.3%
- Interest, other & tax−$78.4M5.2%
- Net income$31.4M2.1%
Where FY2017 revenue went
$1.49B- Other operating costs: $789.2M, 53% of revenue
- Cost of revenue: $385.3M, 26% of revenue
- R&D: $210.6M, 14% of revenue
- Net income: $31.4M, 2.1% of revenue
- Interest, other & tax: $78.4M, 5.2% of revenue
Kept 2.1% as net incomeNet income $31.4M · 2.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $1.49B$1.28B | +17.2% |
| Cost of Revenue | $385.30M$337.80M | +14.1% |
| Gross Profit | $1.11B$937.60M | +18.3% |
| R&D Expenses | $210.60M$183.10M | +15.0% |
| Operating Expenses | $999.80M$894.70M | +11.7% |
| Operating Income | $109.80M$42.90M | +155.9% |
| Net Income | $31.40M$32.20M | −2.5% |
| EPS (Basic) | $0.04$0.04 | −5.3% |
| EPS (Diluted) | $0.04$0.04 | 0.0% |
| Shares Outstanding (Basic) | 871.50M863.00M | +1.0% |
| Shares Outstanding (Diluted) | 890.50M881.50M | +1.0% |
05—Questions
Frequently Asked Questions
What was Fortinet's primary driver of revenue growth in 2017?
Fortinet's primary driver of revenue growth in 2017 was the significant increase in service revenue, which grew by 26% year-over-year. This growth reflects the company's strategic shift towards higher-margin, recurring service revenues, such as FortiGuard security subscriptions and FortiCare technical support contracts.
How did Fortinet's profitability change in 2017?
Fortinet demonstrated a substantial improvement in profitability in 2017. Operating income increased by 156% to $109.8 million, compared to $42.9 million in 2016. This was driven by increased revenue and a decrease in operating expenses as a percentage of total revenue, particularly in sales and marketing.
What is Fortinet's approach to innovation and product development?
Fortinet's innovation is centered around its 'Fortinet Security Fabric,' an integrated cybersecurity platform designed to provide unified security across the entire digital attack surface. Key to this is their proprietary SPU (Security Processing Unit) hardware architecture and FortiOS operating system, which enable high-performance, automated, and integrated security solutions, including advancements in cloud security and IoT/OT security.
What is the significance of Fortinet's deferred revenue balance?
Fortinet's deferred revenue balance grew by 29% to $1.34 billion as of December 31, 2017. This substantial balance primarily represents the unrecognized portion of service revenue from multi-year contracts, indicating strong future revenue visibility and the success of their subscription-based business model.
06—Continue