Fortinet reports second quarter 2020 financial results

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Fortinet financial results for the second quarter ended June 30, 2020 highlights:

  • Total revenue of $615.5 million, up 18 per cent year over year
  • Product revenue of $211.9 million, up 12 per cent year over year
  • Billings of $711.5 million, up 14 per cent year over year (1)
  • Deferred revenue of $2.32 billion, up 24 per cent year over year
  • GAAP operating margin of 19.0 per cent, up 460 basis points year over year
  • Non-GAAP operating margin of 27.3 per cent, up 370 basis points year over year (1)
  • GAAP diluted net income per share of $0.68
  • Non-GAAP diluted net income per share of $0.82 (1)
  • Cash flow from operations of $247.0 million
  • Free cash flow of $216.1 million, up $38.3 million year over year (1)
  • Cash paid for share repurchases of $156.1 million

“Strong demand for secure SD-WAN and work-from-home capabilities helped power 18 per cent second quarter revenue growth. Secure SD-WAN billings were approximately 12 per cent of second quarter billings, making this the first time in which SD-WAN represented over 10 per cent of quarterly billings,” said Ken Xie, founder, chairman and chief executive officer. “With the network edge stretched across the entire digital infrastructure, we believe networking and security will continue to converge. Recent Secure Access Service Edge, or SASE, market momentum further validates our security-driven networking approach. Our OPAQ Networks acquisition means Fortinet will have one of the most comprehensive SASE platforms.”

Financial highlights for the second quarter of 2020

  • Revenue: Total revenue was $615.5 million for the second quarter of 2020, an increase of 18.0 per cent compared to $521.7 million for the same quarter of 2019.
  • Product revenue: Product revenue was $211.9 million for the second quarter of 2020, an increase of 11.6 per cent compared to $189.9 million for the same quarter of 2019.
  • Service revenue: Service revenue was $403.6 million for the second quarter of 2020, an increase of 21.6 per cent compared to $331.8 million for the same quarter of 2019.
  • Billings (1): Total billings were $711.5 million for the second quarter of 2020, an increase of 14.3 per cent compared to $622.4 million for the same quarter of 2019.
  • Deferred revenue: Total deferred revenue was $2.32 billion as of June 30, 2020, an increase of 24.4 per cent compared to $1.87 billion as of June 30, 2019.
  • GAAP operating income and margin: GAAP operating income was $116.7 million for the second quarter of 2020, representing a GAAP operating margin of 19.0 per cent. GAAP operating income was $75.2 million for the same quarter of 2019, representing a GAAP operating margin of 14.4 per cent.
  • Non-GAAP operating income and margin (1): Non-GAAP operating income was $168.2 million for the second quarter of 2020, representing a non-GAAP operating margin of 27.3 per cent. Non-GAAP operating income was $123.1 million for the second quarter of 2019, representing a non-GAAP operating margin of 23.6 per cent.
  • GAAP net income and diluted net income per share: GAAP net income was $112.1 million for the second quarter of 2020, compared to GAAP net income of $72.7 million for the same quarter of 2019. GAAP diluted net income per share was $0.68 for the second quarter of 2020, based on 165.4 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.42 for the same quarter of 2019, based on 175.1 million diluted weighted-average shares outstanding.
  • Non-GAAP net income and diluted net income per share (1): Non-GAAP net income was $135.1 million for the second quarter of 2020, compared to non-GAAP net income of $101.6 million for the same quarter of 2019. Non-GAAP diluted net income per share was $0.82 for the second quarter of 2020, based on 165.4 million diluted weighted-average shares outstanding, compared to $0.58 for the same quarter of 2019, based on 175.1 million diluted weighted-average shares outstanding.
  • Cash flow and free cash flow (1): In the second quarter of 2020, cash flow from operations was $247.0 million compared to $195.1 million in the same quarter of 2019. Free cash flow was $216.1 million during the second quarter of 2020, compared to $177.8 million for the same quarter of 2019.
  • Share repurchase: In the second quarter of 2020, cash paid for share repurchases was $156.1 million compared to $33.8 million in the same quarter of 2019. In July 2020, Fortinet’s board of directors has authorised the increase of $500.0 million to $3.0 billion of our outstanding common stock and extended the share repurchase program through February 28, 2022. As of August 6, 2020, $1.05 billion remained available for future share repurchase.

Guidance
For the third quarter of 2020, Fortinet currently expects:

  • Revenue in the range of $630 million to $645 million
  • Billings in the range of $705 million to $730 million
  • Non-GAAP gross margin in the range of 78.0 per cent to 79.0 per cent
  • Non-GAAP operating margin in the range of 25.5 per cent to 26.5 per cent
  • Diluted non-GAAP net income per share in the range of $0.76 to $0.78, assuming a non-GAAP effective tax rate of 22 per cent. This assumes a diluted share count of 168 million to 170 million.

These statements are forward looking and actual results may differ materially. Refer to the Forward-Looking Statements section below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Our guidance with respect to non-GAAP financial measures excludes stock-based compensation, amortisation of acquired intangible assets and gain on intellectual property matter. We have not reconciled our guidance with respect to non-GAAP financial measures to the corresponding GAAP measures because certain items that impact these measures are uncertain or out of our control, or cannot be reasonably predicted. Accordingly, a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort.

(1) A reconciliation of GAAP to non-GAAP measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

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