10-QPeriod: Q1 FY2020

Fortinet, Inc. Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 7, 2020For Securities:FTNT

Summary

Fortinet, Inc. reported solid revenue growth for the first quarter of 2020, with total revenue reaching $576.9 million, a 22% increase year-over-year. This growth was driven by both product revenue (up 18%) and service revenue (up 24%), indicating strong demand across its cybersecurity offerings. The company also reported a significant increase in operating income to $115.9 million, largely bolstered by a $36.8 million gain from an intellectual property matter. Despite the positive revenue and profit trends, the company's cash, cash equivalents, and investments decreased by 29% sequentially to $1.57 billion, primarily due to a substantial share repurchase program where $899.9 million was spent during the quarter. Despite the significant cash outflow for share repurchases, Fortinet generated strong operating cash flow of $319.4 million. The company highlighted its continued investment in R&D and sales and marketing to support future growth. While the company noted potential impacts from the COVID-19 pandemic, it stated that as of the filing date, there had been no material impact on its business and operations. However, management acknowledges the uncertainty and potential for future material negative impacts from the pandemic.

Financial Highlights

53 data points
Beta

Revenue

$577.70M

77.7% Gross Margin

Net Income

$104.60M

18.1% Net Margin

EPS (Diluted)

$0.12

Total Assets

$3.21B

Cash & Equivalents

$626.10M

Free Cash Flow

$291.80M

Financial Statements
Beta
Revenue$577.70M
Cost of Revenue$128.70M
Gross Profit$449.00M
R&D Expenses$80.30M
Operating Expenses$332.30M
Operating Income$116.70M
Net Income$104.60M
EPS (Basic)$0.12
EPS (Diluted)$0.12
Shares Outstanding (Basic)853.00M
Shares Outstanding (Diluted)871.00M

Key Highlights

  • 1Total revenue grew 22% year-over-year to $576.9 million, with service revenue showing a strong 24% increase.
  • 2Operating income significantly increased by 129% to $115.9 million, aided by a $36.8 million gain from an intellectual property matter.
  • 3The company repurchased a substantial $899.9 million of its common stock during the quarter.
  • 4Despite significant share repurchases, operating cash flow remained robust at $319.4 million.
  • 5Deferred revenue increased by 4% to $2.23 billion, indicating a strong pipeline for future service revenue recognition.
  • 6Headcount grew by 5% sequentially to 7,448 employees and contractors, reflecting continued investment in growth.
  • 7The company reported no material impact from COVID-19 as of the reporting date, though acknowledged future uncertainty.

Frequently Asked Questions

Fortinet reported total revenue of $576.9 million for the first quarter of 2020, a 22% increase compared to $472.6 million in the same period of 2019. Product revenue increased by 18% to $192.3 million, and service revenue increased by 24% to $384.6 million.

Fortinet recognized a $36.8 million gain on an intellectual property matter in the first quarter of 2020, stemming from a mutual covenant-not-to-sue and release agreement with a competitor. This gain significantly boosted operating income, which increased by 129% year-over-year.

As of the filing date, Fortinet stated that the COVID-19 pandemic had not materially impacted its business and operations, financial condition, or cash flows. However, management acknowledges the uncertainty and the potential for future material negative impacts on its business, operations, and financial results.

The company generated $319.4 million in cash from operating activities. However, it used a significant portion of its cash for share repurchases, spending $899.9 million to buy back its common stock. This led to a decrease in total cash, cash equivalents, and investments by 29% sequentially to $1.57 billion.