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Fortinet (FTNT) Q4 Earnings and Revenues Surpass Estimates

Zacks Equity Research

Fortinet Inc. FTNT delivered fourth-quarter 2019 non-GAAP earnings per share of 76 cents, which beat the Zacks Consensus Estimate of 70 cents and also improved significantly from the year-ago figure of 59 cents.

Moreover, revenues of $614 million surpassed the consensus estimate of $604 million and also increased 21% year over year, driven by advanced FortiGate technology with SPU, integrated Security Fabric platform and hybrid multi-cloud offerings.

Quarter in Detail

Segment wise, Product revenues increased 19% year over year to $238.8 million. The growth was driven by legacy firewall use cases and continued adoption of FortiGate based secure SD-WAN solution.

Services revenues rose 23% to $375.6 million. Notably, FortiGuard security subscription revenues grew 24% to $205 million. FortiCare technical support and other service revenues increased 21% to $170 million.

Billings were up 24% to $802 million, driven by solid execution and growth across EMEA and APAC.

During the quarter, the company secured 64 total deals worth more than $1 million. Secure SD-WAN was a leading contributor to growth in the number of deals in excess of $1 million.

The number of deals more than $250,000 rose 29% to 469 and the number of deals over $500K was up 53% to 197.

Geographically, revenues in America were up 23%, APAC up 22%, and EMEA up 19%.

Fortinet, Inc. Price, Consensus and EPS Surprise

Fortinet, Inc. Price, Consensus and EPS Surprise

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

Margins

Gross margin expanded 230 basis points (bps) year over year to 78%. Also, services gross margin expanded 90 bps to 88.2% as well as product gross margin grew 400 bps to 60.9%.

Non-GAAP operating income surged 31.3% to $529.2 million while non-GAAP operating margin expanded 110 bps to 27%.

Rise in the pace of hiring, mostly in sales and marketing, lower sales attrition and M&A spends were overhangs on margin.

Balance Sheet & Cash Flow

Fortinet exited the reported quarter with cash and cash equivalents, and short-term investments of approximately $2.07 billion, up from $1.94 billion recorded at the end of the previous quarter.

During the fourth quarter, the company generated operating cash flow of $190.4 million compared with $221.2 million in the previous quarter. Free cash flow was $143.2 million compared with $203.7 million in the third quarter.

In the fourth quarter, the company purchased approximately 303,000 shares of common stock for $23 million.

2019 Highlights

Fortinet reported revenues of $2.16 billion in 2019, which increased 20% from 2018.

Product revenue was $788.5 million, up 17% while Service revenue of $1.37 billion improved 21% year over year.

The company repurchased 1.9 million shares for $141 million in 2019.

Guidance

For 2020, the company expects revenues in the range of $2.525-$2.555 billion.

Moreover, non-GAAP earnings per share are anticipated in the range of $2.70-$2.73.

For 2020, billings are expected within $3.025-$3.075 billion.

Non-GAAP gross margin is projected in the range of 77.5-78.5%. Non-GAAP operating margin is anticipated between 23.5% and 24.5%.

For the first quarter of 2020, the company expects revenues of $555-$565 million. Billings are estimated in the band of $635-$655 million.

Non-GAAP earnings per share are envisioned within 50-52 cents.

Non-GAAP gross margin is expected in the range of 77.5-78.5% whereas non-GAAP operating margin is anticipated between 19% and 20%.

Zacks Rank and Stocks to Consider

Fortinet currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader technology sector are Perficient PRFT, Applied Materials AMAT and ManTech International Corporation MANT, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Perficient, Applied Materials and ManTech is currently pegged at 11.75%, 8.2% and 8%, respectively.

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