10-QPeriod: Q1 FY2017

Fortinet, Inc. Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 3, 2017For Securities:FTNT

Summary

Fortinet, Inc. reported solid financial performance for the first quarter of 2017, demonstrating robust top-line growth and improved profitability. Total revenue reached $340.6 million, a 20% increase year-over-year, driven by a strong 28% surge in service revenue, which now constitutes 60% of total revenue. Product revenue also saw a healthy 9% increase. This shift towards higher-margin, recurring service revenue is a positive sign for future predictable income and operating leverage. Operationally, the company generated $129.7 million in cash flow from operating activities, a 29% increase from the prior year, showcasing effective working capital management and strong billings growth. Fortinet maintained a healthy cash position of $1.44 billion, further strengthening its balance sheet. The company's strategic investments in R&D and sales and marketing appear to be contributing to market share gains and continued revenue expansion, supported by a growing headcount. Despite increased operating expenses related to these investments, the overall financial health and growth trajectory indicate a positive outlook for the period.

Financial Highlights

49 data points
Beta

Revenue

$340.60M

73.4% Gross Margin

Net Income

$10.70M

3.1% Net Margin

EPS (Diluted)

$0.01

Total Assets

$2.27B

Cash & Equivalents

$823.20M

Free Cash Flow

$129.70M

Financial Statements
Beta
Revenue$340.60M
Cost of Revenue$90.60M
Gross Profit$250.00M
R&D Expenses$51.20M
Operating Expenses$244.60M
Operating Income$5.40M
Net Income$10.70M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)872.50M
Shares Outstanding (Diluted)891.50M

Key Highlights

  • 1Total revenue increased by 20% year-over-year to $340.6 million.
  • 2Service revenue grew significantly by 28% year-over-year, now representing 60% of total revenue.
  • 3Product revenue saw a 9% increase year-over-year.
  • 4Operating cash flow increased by 29% year-over-year to $129.7 million.
  • 5The company maintained a strong liquidity position with $1.44 billion in cash, cash equivalents, and investments.
  • 6Deferred revenue increased by 6% to $1.10 billion, indicating future revenue streams.
  • 7Operating income turned positive, shifting from a loss of $3.7 million in Q1 2016 to an income of $5.4 million in Q1 2017.

Frequently Asked Questions

Fortinet's total revenue grew by 20% year-over-year to $340.6 million in Q1 2017. This growth was primarily driven by a substantial 28% increase in service revenue, which now accounts for 60% of total revenue, and a 9% increase in product revenue.

Fortinet's profitability improved significantly. The company reported an operating income of $5.4 million for the first quarter of 2017, a substantial improvement from an operating loss of $3.7 million in the same period last year. Net income also increased to $10.7 million, or $0.06 per diluted share, from $2.1 million, or $0.01 per diluted share, in the prior year's quarter.

Fortinet demonstrated strong cash flow generation, with operating activities providing $129.7 million, a 29% increase year-over-year. The company's cash, cash equivalents, and investments totaled $1.44 billion as of March 31, 2017, indicating a robust liquidity position.

The increase in deferred revenue to $1.10 billion signifies that Fortinet has invoiced customers for services that will be recognized as revenue in future periods. This is particularly important for subscription-based services like FortiGuard and FortiCare, indicating a strong pipeline of recurring revenue and providing greater revenue visibility.