10-QPeriod: Q1 FY2010

Fortinet, Inc. Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 13, 2010For Securities:FTNT

Summary

Fortinet, Inc. (FTNT) reported its first quarter 2010 results, demonstrating robust year-over-year growth across key financial metrics. Total revenue increased by 28.8% to $69.8 million, driven by a significant 40.3% surge in product revenue and a solid 22.3% growth in services revenue. This top-line expansion translated into improved profitability, with operating income growing substantially to $6.7 million from $3.2 million in the prior year's quarter. The company's strong operational performance is further evidenced by a healthy increase in cash flow from operations to $21.8 million, up from $15.6 million, and a growing deferred revenue balance of $211.5 million, indicating strong future revenue potential from subscription and support services. Financially, Fortinet maintained a strong liquidity position with $280.9 million in cash, cash equivalents, and investments as of March 31, 2010. The company also showed improvement in its earnings per share, moving from a loss of $(0.07) per diluted share in the first quarter of 2009 to a profit of $0.06 per diluted share in the current quarter. Despite a slight decrease in gross margin to 72.2% from 73.0%, primarily due to a higher product revenue mix, the overall financial health appears positive, supported by strategic investments in research and development and sales and marketing to fuel future growth.

Key Highlights

  • 1Total revenue grew 28.8% year-over-year to $69.8 million.
  • 2Product revenue saw a significant increase of 40.3% to $27.1 million.
  • 3Services revenue grew 22.3% year-over-year to $38.6 million, representing 55.3% of total revenue.
  • 4Operating income more than doubled to $6.7 million, with operating margin improving to 9.6% from 6.0%.
  • 5Net income increased to $4.2 million, resulting in diluted EPS of $0.06, a significant improvement from a loss of $(0.07) in the prior year.
  • 6Cash flow from operations increased by 39.8% to $21.8 million.
  • 7Deferred revenue balance grew to $211.5 million, indicating strong future recurring revenue.

Frequently Asked Questions

Fortinet is a leading provider of network security appliances and Unified Threat Management (UTM) solutions. Their core product line is the FortiGate appliance, which integrates multiple security functions like firewall, VPN, antivirus, intrusion prevention, web filtering, and antispam. They also offer subscription services (FortiGuard) for security updates and support services (FortiCare) for technical assistance.

Fortinet experienced strong revenue growth, with total revenue increasing by 28.8% to $69.8 million in the first quarter of 2010 compared to $54.2 million in the first quarter of 2009. This growth was driven by a substantial 40.3% increase in product revenue and a 22.3% increase in services revenue.

Fortinet's deferred revenue balance increased to $211.5 million as of March 31, 2010. This balance primarily represents unearned revenue from subscription and support services. An increasing deferred revenue balance indicates strong future revenue potential and provides visibility into future earnings, as this revenue will be recognized over the service period.

Fortinet maintained a healthy financial position with $280.9 million in cash, cash equivalents, and investments as of March 31, 2010. The company demonstrated strong operational cash generation, with cash flow from operations increasing by nearly 40% to $21.8 million in the quarter, underscoring its ability to fund its operations and growth initiatives.