10-QPeriod: Q1 FY2013

Fortinet, Inc. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 8, 2013For Securities:FTNT

Summary

Fortinet, Inc. reported total revenue of $135.8 million for the first quarter of 2013, a 16% increase year-over-year. This growth was primarily driven by a 22% increase in services revenue, reaching $75.9 million, while product revenue grew by 9% to $58.0 million. Despite revenue growth, net income decreased to $12.2 million from $14.2 million in the prior year's quarter, resulting in diluted EPS of $0.07 compared to $0.09. This decline in profitability can be attributed to increased operating expenses, particularly in sales and marketing and research and development, as the company continued to invest in headcount and product innovation. The company also reported a decrease in cash flow from operations to $38.1 million from $48.5 million in the prior year's quarter, primarily due to changes in working capital. However, Fortinet ended the quarter with a strong cash position of $97.4 million and total cash, cash equivalents, and investments of $782.5 million. The company experienced a slowdown in sales to the U.S. service provider sector and faced macroeconomic challenges in Latin America and EMEA. Despite these headwinds, Fortinet completed the acquisition of Coyote Point Systems, Inc. in March 2013 to expand its product portfolio. The company continues to focus on expanding its sales force and product development to drive future growth.

Financial Highlights

51 data points
Beta

Revenue

$135.82M

71.2% Gross Margin

Net Income

$12.25M

9.0% Net Margin

EPS (Diluted)

$0.01

Total Assets

$1.03B

Cash & Equivalents

$97.38M

Free Cash Flow

$38.11M

Financial Statements
Beta
Revenue$135.82M
Cost of Revenue$39.13M
Gross Profit$96.69M
R&D Expenses$23.33M
Operating Expenses$81.30M
Operating Income$15.39M
Net Income$12.25M
EPS (Basic)$0.02
EPS (Diluted)$0.01
Shares Outstanding (Basic)806.41M
Shares Outstanding (Diluted)839.12M

Key Highlights

  • 1Total revenue increased by 16% to $135.8 million in Q1 2013 compared to Q1 2012.
  • 2Services revenue showed strong growth, up 22% year-over-year to $75.9 million, while product revenue increased by 9% to $58.0 million.
  • 3Net income decreased by approximately 14% to $12.2 million, with diluted EPS falling to $0.07 from $0.09 in the prior year.
  • 4Operating expenses increased by 20% to $81.3 million, driven by investments in sales and marketing and R&D headcount.
  • 5Cash flow from operating activities decreased by 21% to $38.1 million.
  • 6Total cash, cash equivalents, and investments remained strong at $782.5 million.
  • 7Acquired Coyote Point Systems, Inc. in March 2013 to expand its application delivery solutions.

Frequently Asked Questions

Fortinet's total revenue grew by 16% to $135.8 million in the first quarter of 2013 compared to the same period in 2012. This growth was primarily driven by a significant increase in services revenue, which rose 22% year-over-year, complemented by a 9% increase in product revenue.

Net income decreased from $14.2 million to $12.2 million year-over-year, primarily due to a substantial increase in operating expenses. The company increased its investments in research and development and sales and marketing, including hiring additional personnel, which outpaced revenue growth in the quarter.

Fortinet maintained a strong liquidity position, ending the quarter with $97.4 million in cash and cash equivalents and $782.5 million in total cash, cash equivalents, and investments. However, cash flow from operating activities saw a decrease of 21% to $38.1 million compared to the prior year's quarter, influenced by changes in working capital.

During the first quarter of 2013, Fortinet acquired Coyote Point Systems, Inc., a provider of application delivery controllers, as part of its strategy to expand its product portfolio. The company also noted that sales to the U.S. service provider sector were lower than expected and faced macroeconomic challenges in Latin America and EMEA.