10-QPeriod: Q2 FY2019

Fortinet, Inc. Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 1, 2019For Securities:FTNT

Summary

Fortinet, Inc. (FTNT) reported solid financial results for the quarter ended June 30, 2019, demonstrating continued growth across its product and service offerings. Total revenue increased by 18% year-over-year, driven significantly by a 21% surge in service revenue, highlighting the growing importance of its subscription-based security and support services. This strong top-line performance translated into robust operating income growth of 48%, indicating effective cost management and operating leverage. The company maintains a strong financial position, with cash, cash equivalents, and investments growing to $1.98 billion. The increase in deferred revenue to $1.87 billion further signals sustained future revenue potential from recurring service contracts. Fortinet also generated substantial operating cash flow of $396.4 million for the six-month period, underscoring its healthy cash generation capabilities. The company continued its capital return strategy through share repurchases, demonstrating a commitment to shareholder value.

Financial Highlights

52 data points
Beta

Revenue

$521.70M

75.4% Gross Margin

Net Income

$72.70M

13.9% Net Margin

EPS (Diluted)

$0.08

Total Assets

$3.37B

Cash & Equivalents

$1.02B

Free Cash Flow

$177.80M

Financial Statements
Beta
Revenue$521.70M
Cost of Revenue$128.30M
Gross Profit$393.40M
R&D Expenses$67.40M
Operating Expenses$318.20M
Operating Income$75.20M
Net Income$72.70M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)855.50M
Shares Outstanding (Diluted)875.50M

Key Highlights

  • 1Total revenue grew 18% year-over-year to $521.7 million for the three months ended June 30, 2019.
  • 2Service revenue showed strong growth of 21% year-over-year, reaching $331.8 million, driven by security subscriptions and technical support.
  • 3Operating income increased by 48% to $75.2 million for the quarter, indicating improved profitability.
  • 4Cash, cash equivalents, and investments increased to $1.98 billion, showcasing a strong liquidity position.
  • 5Deferred revenue grew to $1.87 billion, a positive indicator for future revenue recognition.
  • 6Operating cash flow for the six months ended June 30, 2019, was $396.4 million, a significant increase of 41% year-over-year.
  • 7The company repurchased $91.1 million of common stock during the six months ended June 30, 2019, as part of its ongoing share repurchase program.

Frequently Asked Questions

Fortinet reported an 18% year-over-year increase in total revenue for the three months ended June 30, 2019, reaching $521.7 million. The primary driver of this growth was the robust performance of its service revenue, which increased by 21% to $331.8 million. This growth in services was fueled by strong sales of FortiGuard security subscriptions and FortiCare technical support contracts.

Fortinet demonstrated significant improvement in profitability. Operating income for the three months ended June 30, 2019, increased by 48% to $75.2 million compared to the same period last year. This was achieved through a combination of revenue growth and a slight improvement in the overall gross margin, alongside operating expenses growing at a slower pace than revenue.

As of June 30, 2019, Fortinet maintained a strong liquidity position with cash, cash equivalents, and investments totaling $1.98 billion, an increase of 15% from the end of 2018. The company generated $396.4 million in cash from operating activities during the first six months of 2019, highlighting its strong cash-generating capabilities. Fortinet also has $642.7 million remaining under its share repurchase program, indicating continued capital management flexibility.

The increase in deferred revenue to $1.87 billion as of June 30, 2019, is a positive indicator for future financial performance. Deferred revenue primarily represents unearned revenue from multi-year service contracts, such as security subscriptions and technical support. An increasing deferred revenue balance suggests a strong pipeline of recurring revenue that will be recognized in future periods, providing visibility and stability.