Fortinet Boosts Guidance Despite Escalating Trade War

Cybersecurity company Fortinet (FTNT +0.02%) reported its second-quarter results after the market closed on Aug. 1. Fortinet put up results similar to those of the first quarter, with double-digit revenue and earnings growth, and it boosted its guidance for the full year. The company also doesn't see the latest tariff developments negatively affecting its ability to deliver on its full-year forecast.

Fortinet results: The raw numbers

Data source: Fortinet.

What happened with Fortinet this quarter?

• Product revenue was $189.9 million, up 14% year over year.
• Service revenue was $331.8 million, up 21% year over year.
• Billings increased 21% year over year to $622.4 million. Growth was partly driven by a strong performance in the United States. From a product perspective, Fortinet Security Fabric, SD-WAN, and cloud offerings were behind the billings growth.
• Deferred revenue was $1.87 billion at the end of the quarter, up 27% year over year.
• GAAP operating margin was 14%, up from 11% in the prior-year period. Non-GAAP operating margin was 24%, up from 21% in the prior-year period.
• Fortinet generated operating cash flow of $195.1 million during the second quarter, up from $142.2 million in the prior-year period. Free cash flow was $177.8 million, up from $130.6 million.

Image source: Getty Images.

What management had to say

During the earnings call, Fortinet CFO Keith Jensen explained that the company doesn't have much customer concentration risk: "...consistent with prior quarters, our largest deal in the quarter was significantly less than 2% of total billings. Clearly, our business is not dependent on a handful of large deals in any given quarter."

Jensen also discussed the latest tariff announcement on Chinese products:

Regarding tariffs, we saw the announcement earlier today. We did some double-checking on that and made sure that we were still fine with our guide, and we're very fine. We do have some production that I mentioned before in Southern China but that the majority is outside of China.

Looking forward

Fortinet provided the following guidance for the third quarter:

• Revenue between $525 million and $540 million, up 17.3% year over year at the midpoint.
• Billings between $600 million and $615 million.
• Non-GAAP gross margin between 75.5% and 76.5% and non-GAAP operating margin between 23% and 23.5%.
• Non-GAAP earnings per share between $0.55 and $0.57.

For the full year, Fortinet raised its guidance. It now expects:

• Revenue between $2.10 billion and $2.12 billion, up from previous guidance of $2.07 billion and $2.10 billion.
• Service revenue between $1.34 billion and $1.36 billion, unchanged from previous guidance.
• Billings between $2.51 billion and $2.54 billion, up from previous guidance of $2.47 billion to $2.52 billion.
• Non-GAAP gross margin between 75.5% and 76.5% and non-GAAP operating margin between 23% and 23.5%.
• Non-GAAP EPS between $2.23 and $2.26, up from previous guidance of $2.10 to $2.15.

Fortinet doesn't appear to be feeling any pain from tariffs on Chinese products or from the general macroeconomic environment. The company's guidance calls for continued double-digit growth, and it raised its full-year outlook despite an escalation in the U.S.-China trade war. Fortinet may not remain immune if the situation escalates further, but for now, the company continues to execute well.