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Fortinet (FTNT) Q3 Earnings & Revenues Beat Estimates, Up Y/Y

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Zacks Equity Research
·4 min read
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Fortinet Inc. FTNT delivered third-quarter 2020 non-GAAP earnings per share of 88 cents, beating the Zacks Consensus Estimate by 12.8%. The reported figure also improved significantly from the year-ago quarter’s 67 cents.

Moreover, revenues of $651.1 million surpassed the consensus mark of $638.8 million and increased 18.8% year over year. This top-line growth was driven by advanced FortiGate technology with SPU, integrated Security Fabric platform and hybrid multi-cloud offerings.

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

Quarter in Detail

Segment wise, Product revenues increased 13.5% year over year to $223.8 million. This uptick was supported by the continued adoption of the FortiGate-based secure SD-WAN solution.

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

Services revenues climbed 21.7% to $427.3 million. Notably, FortiGuard security subscription revenues grew 22% to $235 million. FortiCare technical support and other service revenues jumped 21% to $192 million.

Billings were up 19.7% to $749.8 million on solid execution and growth across all regions. The APAC region registered the highest growth, followed by the EMEA, and then the Americas, including Latin America.

During the September-end quarter, the company secured 48 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. Secure SD-WAN accounted for seven of the large deals won during the third quarter.

Margins

Gross margin expanded 130 basis points (bps) year over year to 79.5% during the September-end quarter. Product gross margin advanced 220 bps to 62.9% during this period.

Non-GAAP operating income surged 23% to $178.6 million in the reported quarter, while non-GAAP operating margin expanded 90 bps to 27.4%.

Balance Sheet & Cash Flow

Fortinet exited the third quarter with cash and cash equivalents, and short-term investments of $1.66 billion, up from the $1.5 billion reported at the end of the previous quarter.

During the July-September quarter, the company generated operating cash flow of $220.8 million compared with the year-ago quarter’s $221.2 million. Free cash flow was $185.7 million compared with the $203.7 million witnessed in the third quarter of 2019.

In the first nine months of 2020, the company purchased shares worth $1.05 billion. In July, the company increased its share-repurchase authorization by $500 million to $3 billion.

Guidance

For the fourth quarter, the company expects revenues of $710-$730 million. Billings are estimated in the band of $890-$920 million.

Non-GAAP earnings per share are projected at 95-97 cents.

Non-GAAP gross margin is expected in the range of 78-80%, whereas non-GAAP operating margin is anticipated between 27% and 29%.

Notably, the uncertainty surrounding the coronavirus pandemic might have a material negative impact on Fortinet’s fourth-quarter and annual results.

Zacks Rank and Other Key Picks

Fortinet currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader technology sector include Zoom Video Communications ZM, Viasat VSAT and CDW Corporation CDW, all sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Zoom, Viasat and CDW is currently pegged at 25%, 19%, and 13.1%, respectively.

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