10-QPeriod: Q2 FY2014

Fortinet, Inc. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 5, 2014For Securities:FTNT

Summary

Fortinet, Inc. (FTNT) reported strong year-over-year revenue growth for the second quarter of 2014, with total revenue increasing by 25% to $184.1 million. This growth was driven by both product revenue, which rose 28% to $85.4 million, and services and other revenue, which increased 22% to $98.7 million. The company demonstrated robust operational cash flow generation, with $104.7 million for the first six months of the year, a 39% increase compared to the prior year. The balance sheet shows a healthy cash position with $203.9 million in cash and cash equivalents and $706.6 million in short-term and long-term investments as of June 30, 2014. Deferred revenue also saw a significant increase, up $47.6 million to $480.2 million, indicating strong future revenue potential from subscriptions and support services. The company also continued its share repurchase program, repurchasing $22.5 million of common stock in the first six months of 2014.

Financial Highlights

50 data points
Beta

Revenue

$184.10M

68.6% Gross Margin

Net Income

$6.08M

3.3% Net Margin

EPS (Diluted)

$0.01

Total Assets

$1.27B

Cash & Equivalents

$203.95M

Free Cash Flow

$43.80M

Financial Statements
Beta
Revenue$184.10M
Cost of Revenue$57.76M
Gross Profit$126.34M
R&D Expenses$29.94M
Operating Expenses$115.20M
Operating Income$11.14M
Net Income$6.08M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)815.80M
Shares Outstanding (Diluted)841.73M

Key Highlights

  • 1Total revenue for the second quarter of 2014 increased by 25% year-over-year to $184.1 million.
  • 2Product revenue grew 28% year-over-year to $85.4 million, while Services and other revenue increased 22% to $98.7 million.
  • 3Operating cash flow for the first six months of 2014 increased by 39% to $104.7 million.
  • 4The company's cash, cash equivalents, and investments totaled $910.6 million as of June 30, 2014.
  • 5Deferred revenue increased by $47.6 million to $480.2 million, signaling strong future revenue recognition.
  • 6Fortinet repurchased $22.5 million of its common stock under its share repurchase program during the first six months of 2014.
  • 7The company experienced increased demand for its high-end FortiGate products, which represented 40% of billings in the second quarter.

Frequently Asked Questions

Fortinet reported a 25% year-over-year increase in total revenue for the second quarter of 2014, reaching $184.1 million. Product revenue grew 28% to $85.4 million, and Services and other revenue increased 22% to $98.7 million.

As of June 30, 2014, Fortinet maintained a strong liquidity position with $910.6 million in total cash, cash equivalents, and investments. The company also generated $104.7 million in cash flow from operating activities for the first six months of 2014, a 39% increase from the prior year, indicating healthy cash generation.

The increase in deferred revenue by $47.6 million to $480.2 million is a positive indicator for future revenue. Deferred revenue primarily consists of amounts related to FortiGuard subscription and support services, which are recognized over the term of the service contracts. This growth suggests a strengthening recurring revenue base and strong sales of these services.

Yes, Fortinet continued its share repurchase program. During the first six months of 2014, the company repurchased approximately 1.0 million shares of common stock for an aggregate purchase price of $22.5 million. As of June 30, 2014, $138.6 million remained authorized for future repurchases.