Cybersecurity company Fortinet (NASDAQ:FTNT) 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

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$472.6 million

$399.0 million

18.4%

Net income

$58.8 million

$41.6 million

41.3%

Non-GAAP earnings per share

$0.46

$0.33

39.4%

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.

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