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Fortinet Posts Double-Digit Growth

By Timothy Green - Feb 6, 2018 at 7:06PM

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A big surge in service revenue offset sluggish product revenue growth.

Cybersecurity company Fortinet (FTNT 1.40%) reported fourth-quarter results after the market closed on Feb. 5. Revenue grew at a double-digit pace, and the company forecast a similar growth rate for 2018.

Charges related to the tax bill knocked down earnings, but the company sees adjusted earnings growing by more than 25% this year. Here's what investors need to know about Fortinet's fourth-quarter results.

Fortinet results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$416.7 million

$362.8 million

14.9%

Net income

($29.0 million)

$25.2 million

N/A

Non-GAAP EPS

$0.32

$0.30

6.7%

Data source: Fortinet.

A Fortinet universal access point.

Image source: Fortinet.

What happened with Fortinet this quarter?

  • Fortinet's GAAP earnings were negatively impacted by a one-time tax expense of $63 million, or $0.36 per share, related to the Tax Cuts and Jobs Act.
  • Fortinet's service revenue rose 25% year over year, to $254.6 million. Product revenue jumped 2%, to $162.1 million.
  • Total billings increased by 15% year over year, to $534 million.
  • Total deferred revenue was $1.34 billion at the end of the fourth quarter, up from $1.22 billion at the end of the third quarter, and up from $1.04 billion at the end of the prior-year period.
  • Fortinet produced $157.5 million of cash from operations and $143.9 million of free cash flow. Free cash flow was up 71% year over year.
  • Fortinet's cash, cash equivalents, and investments totaled $1.35 billion at the end of the fourth quarter, down from $1.52 billion at the end of the third quarter.
  • Fortinet spent $322.4 million on share repurchases during the quarter, buying back 7.9 million shares.

Fortinet provided the following guidance for the first quarter of 2018 and the full year:

  • First-quarter revenue is expected to be between $387 million and $393 million, up from $340.6 million in the prior-year period. At the midpoint, this guidance represents 14.5% growth. Billings between $449 million and $457 million are expected.
  • First-quarter non-GAAP earnings per share (EPS) are expected to be between $0.21 and $0.22, up from $0.17 in the prior-year period.
  • Full-year revenue is expected to be between $1.695 billion and $1.715 billion, up from $1.49 billion in 2017. Billings between $2.03 billion and $2.05 billion are anticipated.
  • Full-year non-GAAP EPS is expected to be between $1.30 and $1.32, up from $1.04 in 2017.

What management had to say

Fortinet CEO Ken Xie summed up the company's year:

We are pleased with our strong fourth quarter and full-year results, which demonstrate our clear technology advantage and market leadership. Our ability to provide our customers with broad, integrated and automated security across the entire network infrastructure sets us apart from our competition. Led by the innovation of the Fortinet Security Fabric, Fortinet has strong market momentum and is well positioned for robust future growth.

Looking forward

Along with reporting its results, Fortinet announced that chief accounting officer Keith Jenson would take over as interim CFO, effective Feb. 16. The current CFO is leaving to pursue another opportunity.

Fortinet continued to grow at a double-digit pace during the fourth quarter, and it expects similar growth in 2018. The tax bill that was passed late last year took a one-time bite out of earnings, but adjusted earnings continued to move higher, along with revenue. Demand for cybersecurity products and services will only rise going forward, and Fortinet is well-positioned to take advantage of that trend.

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Fortinet, Inc. Stock Quote
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