10-QPeriod: Q2 FY2016

Fortinet, Inc. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 5, 2016For Securities:FTNT

Summary

Fortinet, Inc. reported solid revenue growth for the second quarter and first half of 2016, driven by both product and service segments. Total revenue increased by 30% year-over-year for the quarter and 32% for the half, demonstrating continued market demand for their cybersecurity solutions. The company also saw a significant increase in service revenue, up 40% year-over-year for the quarter, indicating strong performance in their subscription and support offerings. Financially, Fortinet maintains a strong liquidity position with over $1.2 billion in cash, cash equivalents, and investments as of June 30, 2016. Operating cash flow remains robust, providing ample funds for operations and strategic investments. The company also completed the acquisition of AccelOps in June 2016 to enhance its network security monitoring and analytics capabilities. While operating expenses increased due to investments in sales, marketing, and R&D, this is viewed as strategic for future growth and market share expansion.

Financial Highlights

51 data points
Beta

Revenue

$311.39M

72.9% Gross Margin

Net Income

-$1.39M

-0.4% Net Margin

EPS (Diluted)

$-0.00

Total Assets

$1.96B

Cash & Equivalents

$596.38M

Free Cash Flow

$67.94M

Financial Statements
Beta
Revenue$311.39M
Cost of Revenue$84.50M
Gross Profit$226.89M
R&D Expenses$45.50M
Operating Expenses$230.93M
Operating Income-$4.04M
Net Income-$1.39M
EPS (Basic)$-0.00
EPS (Diluted)$-0.00
Shares Outstanding (Basic)860.38M
Shares Outstanding (Diluted)860.38M

Key Highlights

  • 1Total revenue increased by 30% to $311.4 million for the three months ended June 30, 2016, compared to the prior year.
  • 2Service revenue grew significantly by 40% to $174.8 million for the three months ended June 30, 2016.
  • 3Total cash, cash equivalents, and investments stood at a strong $1.22 billion as of June 30, 2016.
  • 4Operating activities generated $168.5 million in cash for the six months ended June 30, 2016, an increase of 13% year-over-year.
  • 5Acquired AccelOps, Inc. in June 2016 to enhance network security monitoring and analytics capabilities.
  • 6Operating expenses increased by 38% year-over-year for the quarter, driven by investments in sales, marketing, and R&D personnel.
  • 7Repurchased $50.0 million of common stock during the six months ended June 30, 2016, under a new $200 million share repurchase program.

Frequently Asked Questions

Fortinet reported total revenue of $311.4 million for the three months ended June 30, 2016, representing a 30% increase compared to $239.8 million in the same period last year. Product revenue grew 19% to $136.6 million, and service revenue surged 40% to $174.8 million.

Fortinet maintained a strong liquidity position, with total cash, cash equivalents, and investments reaching $1.22 billion as of June 30, 2016, an increase from $1.16 billion at the end of 2015. The company also generated $168.5 million in cash from operating activities for the first six months of 2016.

In June 2016, Fortinet completed the acquisition of AccelOps, Inc., a provider of network security monitoring and analytics solutions, for $22.3 million in cash. Additionally, the company initiated a new share repurchase program in January 2016, authorizing up to $200 million in stock repurchases, and repurchased $50 million of its common stock in the first half of 2016.

Operating expenses increased by 38% year-over-year for the quarter, primarily due to accelerated hiring and investments to expand sales coverage, enhance marketing capabilities, develop new products, and scale customer support. Research and development (R&D) and sales and marketing expenses saw significant increases to support growth initiatives and technology development.