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Fortinet (FTNT) Q4 Earnings & Revenues Top Estimates, Up Y/Y

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Fortinet Inc. FTNT delivered fourth-quarter 2020 non-GAAP earnings per share of $1.06, beating the Zacks Consensus Estimate of 96 cents. The reported figure also improved significantly from the year-ago quarter’s 77 cents.

Moreover, revenues of $748 million surpassed the consensus mark of $722.4 million and increased 21% 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 boost the firm’s global sales force aided the company’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 20.8% year over year to $288.4 million. This uptick was supported by the continued adoption of the FortiGate-based secure SD-WAN solution.

Services revenues climbed 21.2% to $459.6 million chiefly on strong demand for fabric and cloud security solutions.

Billings were up 19.8% to $960.9 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 December-end quarter, the company secured 68 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 16 of the large deals won during the fourth quarter.

Margins

Gross margin expanded 40 basis points (bps) year on year to 78.5% during the October-December quarter. Product gross margin advanced 130 bps to 63.2% during this period primarily on higher mix of software products and lower direct cost of its new generation FortiGate products.

Non-GAAP operating income surged 30.4% to $219.9 million in the reported quarter, while non-GAAP operating margin expanded 210 bps to 29.4%.

Balance Sheet & Cash Flow

Fortinet exited the fourth quarter with cash and cash equivalents, and short-term investments of $1.84 billion, up from the $1.66 billion reported at the end of the previous quarter.

During the October-December period, the company generated operating cash flow of $296.5 million compared with the year-ago quarter’s $190.4 million. Free cash flow was $264.2 million compared with the $143.2 million witnessed in the fourth quarter of 2019.

During full-year 2020, Fortinet generated operating and free cash flows of $1.08 billion and $907.8 million, respectively. The company repurchased $1.08 billion worth of its common stock in 2020.

Notably, in July 2020, the company had increased its share-repurchase authorization by $500 million to $3 billion. At the end of 2020, it had $1 billion left under the ongoing authorization which is set to expire in February 2022.

Guidance

For first-quarter 2021, the company estimates revenues of $670-$685 million. Billings are estimated in the band of $765-$780 million.

Non-GAAP earnings per share are projected at 70-75 cents.

Non-GAAP gross margin is expected in the range of 78.5-79.5%, whereas non-GAAP operating margin is anticipated between 22.5% and 23.5%.

For 2021, Fortinet forecasts revenues and billings in the band of $3.025-$3.075 billion and $3.560-$3.640 billion, respectively. Non-GAAP earnings per share are projected to lie between $3.60 and $3.75.

Non-GAAP gross and operating margin is anticipated in the band of 78-80% and 25-27%, respectively.

Zacks Rank and Key Picks

Fortinet currently carries a Zacks Rank #5 (Strong Sell).

Better-ranked stocks in the broader technology sector include Shopify SHOP, Zoom Video Communications ZM and Apple AAPL, all flaunting 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 Shopify, Zoom and Apple is currently pegged at 32.5%, 25% and 11.5%, respectively.

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