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Fortinet (FTNT) Earnings & Revenues Beat Estimates in Q1

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Fortinet Inc. FTNT delivered first-quarter 2022 non-GAAP earnings per share (EPS) of 94 cents, which beat the Zacks Consensus Estimate of 79 cents. The bottom line improved from the year-ago quarter’s earnings of 81 cents per share.

Total revenues of $954.8 million surpassed the consensus mark of $883.5 million and improved 34% year over year. The top line was driven by strong demand for the company’s FortiGate technology, which includes a security processing unit, an integrated Security Fabric platform and hybrid multi-cloud offerings.

Strategic investments in developing powerful products and services, and efforts to expand into the adjacent addressable markets and boost the firm’s global sales force aided Fortinet’s quarterly performance.

Fortinet, Inc. Price, Consensus and EPS Surprise

Fortinet, Inc. Price, Consensus and EPS Surprise
Fortinet, Inc. Price, Consensus and EPS Surprise

Fortinet, Inc. price-consensus-eps-surprise-chart | Fortinet, Inc. Quote

Quarter in Detail

Segment-wise, Product revenues jumped 54% year over year to $371 million. This uptick was supported by the continued adoption of the FortiGate-based secure SD-WAN solution as well as strong revenues at non-FortiGate products and increased demand for integrated security fabric products.

Services revenues climbed 24.3% to $583.8 million.

Billings were up 36.4% to $1.16 billion on solid execution and growth across all regions. Bookings surged 50% year over year to $1.28 billion, while the backlog was $278.3 at the close of the first quarter.

Geographically, the APAC region registered the highest top-line growth with a 57.4% increase, followed by America’s 31.5% and the EMEA’s 25.5%.

During the March-end quarter, the company secured 90 total deals worth equal to or more than $1 million each. Secure SD-WAN continued to be the leading contributor to growth in terms of the number of deals worth more than $1 million in the quarter.

Margins

The gross margin contracted 450 basis points (bps) year over year to 74.4% in the first quarter of 2022. This reflects a contraction of 200 bps in the Services gross margin and 520 bps in the Product gross margin.

Non-GAAP operating income jumped 20.9% to $210.2 million in the reported quarter, while non-GAAP operating margin shrunk 250 bps to 22%.

Balance Sheet & Cash Flow

Fortinet exited the first quarter with cash and cash equivalents and short-term investments of $2.11 billion, down from $2.51 billion reported at the end of fourth quarter 2021.

During the January-March period, FTNT generated operating and free cash flow of $396.1 million and $273.5 million, respectively.

In October 2021, the company increased its share-repurchase authorization by $1.25 billion. During the first quarter, the company bought back $691.2 million worth of shares. As of Mar 31, 2022, the company had approximately $830 million left under the ongoing authorization, which is set to expire on Feb 28, 2023.

Guidance

Fortinet issued impressive guidance for the second quarter and revised the same for full-year 2022. For the second quarter of 2022, the company estimates revenues in the range of $1.005 billion to $1.035 billion. Billings are estimated to be $1.05-$1.09 billion.

Non-GAAP gross margin is expected in the range of 74.5% to 76%, while non-GAAP operating margin is anticipated between 22% and 23.5%. Non-GAAP EPS is projected at $1.05-$1.10.

For 2022, Fortinet now predicts revenues in the band of $4.350-$4.400 billion compared with the prior guided range of $4.275 billion to $4.325 billion. Billings are expected in the band of $5.500 billion to $5.580 billion now, compared with the earlier range of $5.40 billion to $5.48 billion.

Non-GAAP EPS is now anticipated between $5.00 and $5.15, up from the previous range of $4.85-$5.00.

Non-GAAP gross margin and operating margin are still expected in the bands of 74-76% and 24-26%, respectively.

Zacks Rank & Key Picks

Fortinet currently carries a Zacks Rank #3 (Hold). Shares of FTNT have climbed 37.3% in the past year.

Some better-ranked stocks from the broader Computer and Technology sector include Avnet AVT, Gogo GOGO and Analog Devices ADI. While Avnet and Gogo sport a Zacks Rank #1 (Strong Buy), Analog Devices carry a Zacks Rank of 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Avnet's fourth-quarter fiscal 2022 earnings has been revised 55 cents northward to $1.96 per share over the past seven days. For 2022, earnings estimates have moved north by 20.5% to $6.83 per share in the past seven days.

Avnet's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 21.2%. Shares of AVT have increased 8.7% in the past year.

The Zacks Consensus Estimate for Gogo's first-quarter 2022 earnings has been revised downward by a penny to 13 cents per share over the past 30 days. For 2022, Gogo's earnings estimates have moved 25% north to 65 cents per share in the past 60 days.

Gogo's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 65%. Shares of GOGO have soared 91.1% in the past year.

The Zacks Consensus Estimate for Analog Devices' second-quarter fiscal 2022 earnings has been revised upward by 4 cents to $2.12 per share over the past 30 days. For fiscal 2022, earnings estimates have moved north by 11 cents to $8.43 per share in the past 30 days.

Analog Devices' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 6%. Shares of ADI have increased 7.1% in the past year.


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