10-QPeriod: Q1 FY2016

Fortinet, Inc. Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 6, 2016For Securities:FTNT

Summary

Fortinet, Inc. reported solid top-line growth in its first quarter of 2016, with total revenue increasing by 34% year-over-year to $284.6 million. This growth was driven by a strong 39% increase in service revenue, reaching $160.0 million, and a 28% rise in product revenue to $124.6 million. The company's strategic investments in sales and marketing are proving effective in attracting enterprise customers, which bodes well for future cross-selling and upselling opportunities. The company also demonstrated strong operational execution, generating $100.6 million in cash flow from operating activities, a 56% increase year-over-year. While the company experienced a net loss of $3.4 million ($0.02 per diluted share) for the quarter, this was primarily due to increased operating expenses, particularly in sales and marketing and R&D, as Fortinet continues to invest in expanding its global reach and developing new products. The company also initiated a share repurchase program, buying back $50 million of its stock in the quarter, indicating confidence in its long-term value and a commitment to returning capital to shareholders. The growing deferred revenue balance of $837.2 million highlights the recurring nature of its service revenue and provides visibility into future revenue streams.

Financial Highlights

49 data points
Beta

Revenue

$284.58M

72.7% Gross Margin

Net Income

$2.12M

0.7% Net Margin

EPS (Diluted)

$0.00

Total Assets

$1.81B

Cash & Equivalents

$568.01M

Free Cash Flow

$100.59M

Financial Statements
Beta
Revenue$284.58M
Cost of Revenue$77.64M
Gross Profit$206.93M
R&D Expenses$44.75M
Operating Expenses$210.62M
Operating Income-$3.69M
Net Income$2.12M
EPS (Basic)$0.00
EPS (Diluted)$0.00
Shares Outstanding (Basic)858.73M
Shares Outstanding (Diluted)872.11M

Key Highlights

  • 1Total revenue grew 34% year-over-year to $284.6 million.
  • 2Service revenue increased by a strong 39% to $160.0 million, indicating a growing recurring revenue base.
  • 3Product revenue saw a healthy 28% increase to $124.6 million.
  • 4Operating expenses increased by 43% due to continued investments in sales, marketing, and R&D, impacting profitability.
  • 5Generated $100.6 million in cash flow from operating activities, a 56% increase year-over-year.
  • 6Repurchased $50 million of common stock under a new share repurchase program.
  • 7Deferred revenue grew 6% sequentially to $837.2 million, providing future revenue visibility.

Frequently Asked Questions

Fortinet reported total revenue of $284.6 million for the first quarter of 2016, representing a 34% increase compared to the same period last year. Product revenue was $124.6 million (up 28%), and service revenue was $160.0 million (up 39%).

Yes, Fortinet generated $100.6 million in cash flow from operating activities during the first quarter of 2016, a significant 56% increase compared to the same period last year, demonstrating strong operational efficiency.

Deferred revenue increased by 6% sequentially to $837.2 million. This balance primarily represents unrecognized revenue from service contracts (FortiGuard subscriptions and FortiCare support). Growth in deferred revenue indicates strong future revenue potential and the recurring nature of Fortinet's service offerings.

Fortinet is investing in growth, with increased operating expenses in R&D and sales & marketing. Additionally, the company initiated a share repurchase program, repurchasing $50 million of its common stock in the first quarter of 2016, indicating confidence in its valuation and a commitment to shareholder returns.