Summary
Fortinet, Inc. (FTNT) reported solid growth in its third quarter and the first nine months of 2011, demonstrating continued expansion in the network security market. Total revenue for the third quarter of 2011 increased by 37.0% year-over-year to $116.4 million, driven by a substantial 47.8% rise in product revenue and a 29.9% increase in services revenue. This top-line growth, coupled with controlled operating expense increases (30.3%), led to a notable improvement in operating margin to 22.0% from 21.0% in the prior year's quarter. The company also reported strong operating cash flow generation and a healthy balance of cash, cash equivalents, and investments, indicating a robust financial position. The company benefited from the adoption of new revenue recognition rules and a one-time gain from the sale of patents. While gross margins saw a slight decline due to a higher mix of product revenue, the overall operational leverage and efficiency gains were evident. Management highlighted continued investment in R&D and sales & marketing to drive future growth, with expansion efforts noted across all geographic regions, particularly the Americas and EMEA. The company also addressed ongoing litigation with Trend Micro, stating no material loss is expected beyond amounts already recognized.
Financial Highlights
47 data points| Revenue | $116.43M |
| Cost of Revenue | $31.14M |
| Gross Profit | $85.29M |
| R&D Expenses | $16.83M |
| Operating Expenses | $59.13M |
| Operating Income | $26.16M |
| Net Income | $17.92M |
| EPS (Basic) | $0.02 |
| EPS (Diluted) | $0.02 |
| Shares Outstanding (Basic) | 766.33M |
| Shares Outstanding (Diluted) | 819.35M |
Key Highlights
- 1Total revenue grew 37.0% year-over-year to $116.4 million in Q3 2011.
- 2Product revenue increased significantly by 47.8%, while services revenue grew 29.9% in Q3 2011.
- 3Operating income increased to $26.2 million, resulting in an improved operating margin of 22.0%.
- 4The company generated $110.3 million in cash from operating activities for the nine months ended September 30, 2011.
- 5Total cash, cash equivalents, and investments stood at $503.0 million as of September 30, 2011.
- 6Deferred revenue increased to $275.1 million, indicating strong future revenue visibility.
- 7The company's effective tax rate for the nine months ended September 30, 2011 was 28.9%.