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Fortinet Expects Another Solid Year

By Timothy Green – May 3, 2019 at 4:00PM

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The company isn't feeling some of the headwinds other companies are facing.

Cybersecurity company Fortinet (FTNT -0.62%) reported its first-quarter results after the market closed on May 2. Both revenue and earnings grew at double-digit rates, and the company isn't seeing any real impact from macroeconomic developments or from the slowdown in data center demand that's hurting some companies' results.

Fortinet results: The raw numbers


Q1 2019

Q1 2018

Year-Over-Year Change


$472.6 million

$399.0 million


Net income

$58.8 million

$41.6 million


Non-GAAP earnings per share




Data source: Fortinet. GAAP = generally accepted accounting principles.

What happened with Fortinet this quarter?

  • Product revenue was $162.7 million, up 14% year over year.
  • Service revenue was $309.9 million, up 21% year over year.
  • Total billings rose 19% year over year to $551.6 million, while deferred revenue jumped 26% to $1.77 billion.
  • Fortinet produced cash flow from operations of $201.3 million, up from $139.7 million in the prior-year period. Free cash flow was $191.1 million, up from $128.1 million.
  • GAAP operating margin was 11%, while non-GAAP operating margin was 20%.
  • Fortinet spent $56 million on share buybacks during the quarter, leaving $677.5 million remaining on its share-purchase authorization.
Servers in a data center.

Image source: Getty Images.

What management had to say

Fortinet CFO Keith Jensen during the earnings call detailed the company's success winning large deals:

There were 35 deals over $1 million in the quarter versus 34 in the year-ago period. The dollar value of the deals over $1 million increased 20%. In the quarter we closed a seven-figure operational technology-focused transaction with an EMEA-based power and water utility company.

Jensen also discussed the impact of macroeconomic developments on the company:

At the moment, I don't think we're concerned about government shutdowns or Brexit seems to have been deferred. We'll see what happens between China and the US. But as I commented earlier in the -- in the call, at the end of the day I think Q1 pretty much shaped up like we expected it to, but with a little bit of outperformance on the billings line. And I think with Q1 underneath the belt, we feel good about the rest of the year.

Looking forward

Fortinet provided the following guidance for the second quarter:

  • Revenue is expected to land between $505 million and $515 million, up 15.6% year over year at the midpoint.
  • Billings are expected to be between $585 million and $605 million, up 15.9% year over year at the midpoint.
  • Non-GAAP earnings per share are estimated to be between $0.49 and $0.51, driven by a non-GAAP operating margin between 22% and 22.5%. The company produced non-GAAP EPS of $0.41 in the prior-year period.

For the full year, Fortinet expects:

  • Revenue between $2.07 billion and $2.10 billion, up 15.8% from 2018 at the midpoint.
  • Service revenue between $1.34 billion and $1.36 billion, up 19.8% from 2018 at the midpoint.
  • Billings between $2.47 billion and $2.52 billion, up 16% from 2018 at the midpoint.
  • Non-GAAP earnings per share between $2.10 and $2.15, driven by a non-GAAP operating margin between 22.5% and 23.5%. The company produced non-GAAP EPS of $1.84 in the prior-year period.

Unlike some other enterprise and data center-focused companies, Fortinet isn't seeing any significant slowdown in demand. The company's full-year guidance represents a slight increase over guidance issued a few months ago. The second quarter will feature slightly slower growth than the first quarter, but the company's growth rate is still squarely in the double digits.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Fortinet. The Motley Fool has a disclosure policy.

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