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Fortinet (FTNT) Beats on Q1 Earnings and Revenue Estimates
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Fortinet Inc. (FTNT - Free Report) started 2023 on a strong note by reporting overwhelming first-quarter results. Revenues and earnings surpassed the respective Zacks Consensus Estimate and registered a significant year-over-year improvement.
Fortinet reported first-quarter 2023 non-GAAP earnings per share (EPS) of 34 cents, which topped the Zacks Consensus Estimate of 28 cents. The bottom line improved 79% from the year-ago quarter’s earnings of 19 cents per share.
Total revenues of $1.26 billion came ahead of the consensus mark of $1.20 billion and improved 32.2% year over year. The top line was driven by the strong demand for the company’s Core and Enhanced Platform Technologies.
Strategic investments in developing powerful products and services and efforts in expanding in adjacent addressable markets and boosting the firm’s global sales force aided Fortinet’s quarterly performance.
Segment-wise, Product revenues jumped 35% year over year to $500.7 million. This upside can be attributed to the continued adoption of the FortiGate-based secure SD-WAN solution, strong revenues from non-FortiGate products and the increased demand for integrated security fabric products.
Services revenues climbed 30.5% to $761.6 million, primarily driven by strong growth in the company’s security subscriptions. Billings were up 29.6% to $1.5 billion, primarily driven by strong customer demand across its Core and Enhanced Platform Technologies.
As of Mar 31, 2023, deferred revenues were $4.88 billion, up 33.4% year over year.
Geographically, the EMEA region registered the highest top-line growth with a 38.2% increase followed by the Americas’ 36.8% and the APAC’s 15.2%. In the first quarter, the Americas accounted for 41.5% of the total revenues, while the EMEA and the APAC accounted for 37.9% and 20.6%, respectively.
During the March-end quarter, the company secured 124 total deals worth $1 million or more each.
Margins
The non-GAAP gross margin expanded 190 basis points (bps) year over year to 76.3% in the first quarter of 2023. This reflects an expansion of 440 bps in the Product gross margin, while the Services gross margin increased 70 bps.
Legacy pricing actions, easing supply-chain cost pressures and improved discounting drove the Product gross margin higher. The service gross margin improved due to price increases, which more than offset the negative impact of increased investments in data centers and Points of Presence.
The non-GAAP operating income jumped 58.9% to $334 million in the reported quarter. Meanwhile, the non-GAAP operating margin increased 450 bps to 26.5%, mainly benefiting from higher revenues, an improved gross margin and a positive impact of foreign currency exchange rates.
Balance Sheet & Cash Flow
Fortinet exited the first quarter with cash and cash equivalents and short-term investments of $2.85 billion, up from the $2.19 billion reported at the end of the fourth quarter of 2022.
During the reported quarter, FTNT generated operating and free cash flows of $677.5 million and $647.2 million, respectively. In the first quarter, the company didn’t buy back common stock.
Guidance
Buoyed by the strong first-quarter performance, Fortinet raised the revenue and non-GAAP EPS guidance for the full-year 2023. For 2023, the company now predicts revenues in the range of $5.425-$5.485 billion, up from the earlier range of $5.37-$5.43 billion.
Service revenues are now projected in the range of $3.37-$3.40 billion, up from the previous forecast in the band of $3.335-$3.365 billion. Billings are now expected in the range of $6.75-$6.81 billion instead of the $6.71-$6.79 billion band anticipated earlier.
The non-GAAP gross margin and the operating margin are still expected in the band of 75-76% and 25-26%, respectively. Non-GAAP EPS is now anticipated between $1.44 and $1.48, up from the earlier projection of $1.39-$1.41. It forecasts a non-GAAP effective tax rate of 17% and a diluted share count between 795 million and 805 million.
Fortinet issued impressive guidance for the second quarter. The company estimates revenues in the range of $1.28-$1.32 billion for the second quarter of 2023. Billings are estimated in the band of $1.56-$1.60 billion.
The non-GAAP gross margin is expected in the range of 75.5-76.5%, while the non-GAAP operating margin is anticipated between 24.5% and 25.5%. Non-GAAP EPS is projected in the range of 33-35 cents. The company assumes a non-GAAP effective tax rate of 17% for the second quarter and diluted shares outstanding between 790 million and 800 million.
Zacks Rank & Other Stocks to Consider
Currently, Fortinet carries a Zacks Rank #2 (Buy). Shares of FTNT have rallied 26.1% over the past year.
The Zacks Consensus Estimate for Wix.com’s first-quarter 2023 earnings has been revised upward to 23 cents per share from 16 cents per share 60 days ago. For 2023, earnings estimates have been revised northward by 7 cents to $1.49 per share in the past 60 days.
Wix.com's earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing the same on one occasion, the average surprise being 225%. Shares of WIX have declined 2% YTD.
The Zacks Consensus Estimate for Zscaler's third-quarter fiscal 2023 earnings has been revised 2 cents northward to 39 cents per share in the past 60 days. For fiscal 2023, earnings estimates have been revised northward by 8 cents to $1.52 per share in the past 60 days.
Zscaler’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 29.7%. Shares of ZS have declined 21.2% YTD.
The Zacks Consensus Estimate for Check Point Software's second-quarter 2023 earnings has remained unchanged at $1.89 per share for the past 60 days. For 2023, earnings estimates have moved upward by a penny to $7.98 per share in the past seven days.
Check Point Software's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 3.7%. Shares of CHKP have declined 6.1% YTD.
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Fortinet (FTNT) Beats on Q1 Earnings and Revenue Estimates
Fortinet Inc. (FTNT - Free Report) started 2023 on a strong note by reporting overwhelming first-quarter results. Revenues and earnings surpassed the respective Zacks Consensus Estimate and registered a significant year-over-year improvement.
Fortinet reported first-quarter 2023 non-GAAP earnings per share (EPS) of 34 cents, which topped the Zacks Consensus Estimate of 28 cents. The bottom line improved 79% from the year-ago quarter’s earnings of 19 cents per share.
Total revenues of $1.26 billion came ahead of the consensus mark of $1.20 billion and improved 32.2% year over year. The top line was driven by the strong demand for the company’s Core and Enhanced Platform Technologies.
Strategic investments in developing powerful products and services and efforts in expanding in adjacent addressable markets and boosting the firm’s global sales force aided Fortinet’s quarterly performance.
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 35% year over year to $500.7 million. This upside can be attributed to the continued adoption of the FortiGate-based secure SD-WAN solution, strong revenues from non-FortiGate products and the increased demand for integrated security fabric products.
Services revenues climbed 30.5% to $761.6 million, primarily driven by strong growth in the company’s security subscriptions. Billings were up 29.6% to $1.5 billion, primarily driven by strong customer demand across its Core and Enhanced Platform Technologies.
As of Mar 31, 2023, deferred revenues were $4.88 billion, up 33.4% year over year.
Geographically, the EMEA region registered the highest top-line growth with a 38.2% increase followed by the Americas’ 36.8% and the APAC’s 15.2%. In the first quarter, the Americas accounted for 41.5% of the total revenues, while the EMEA and the APAC accounted for 37.9% and 20.6%, respectively.
During the March-end quarter, the company secured 124 total deals worth $1 million or more each.
Margins
The non-GAAP gross margin expanded 190 basis points (bps) year over year to 76.3% in the first quarter of 2023. This reflects an expansion of 440 bps in the Product gross margin, while the Services gross margin increased 70 bps.
Legacy pricing actions, easing supply-chain cost pressures and improved discounting drove the Product gross margin higher. The service gross margin improved due to price increases, which more than offset the negative impact of increased investments in data centers and Points of Presence.
The non-GAAP operating income jumped 58.9% to $334 million in the reported quarter. Meanwhile, the non-GAAP operating margin increased 450 bps to 26.5%, mainly benefiting from higher revenues, an improved gross margin and a positive impact of foreign currency exchange rates.
Balance Sheet & Cash Flow
Fortinet exited the first quarter with cash and cash equivalents and short-term investments of $2.85 billion, up from the $2.19 billion reported at the end of the fourth quarter of 2022.
During the reported quarter, FTNT generated operating and free cash flows of $677.5 million and $647.2 million, respectively. In the first quarter, the company didn’t buy back common stock.
Guidance
Buoyed by the strong first-quarter performance, Fortinet raised the revenue and non-GAAP EPS guidance for the full-year 2023. For 2023, the company now predicts revenues in the range of $5.425-$5.485 billion, up from the earlier range of $5.37-$5.43 billion.
Service revenues are now projected in the range of $3.37-$3.40 billion, up from the previous forecast in the band of $3.335-$3.365 billion. Billings are now expected in the range of $6.75-$6.81 billion instead of the $6.71-$6.79 billion band anticipated earlier.
The non-GAAP gross margin and the operating margin are still expected in the band of 75-76% and 25-26%, respectively. Non-GAAP EPS is now anticipated between $1.44 and $1.48, up from the earlier projection of $1.39-$1.41. It forecasts a non-GAAP effective tax rate of 17% and a diluted share count between 795 million and 805 million.
Fortinet issued impressive guidance for the second quarter. The company estimates revenues in the range of $1.28-$1.32 billion for the second quarter of 2023. Billings are estimated in the band of $1.56-$1.60 billion.
The non-GAAP gross margin is expected in the range of 75.5-76.5%, while the non-GAAP operating margin is anticipated between 24.5% and 25.5%. Non-GAAP EPS is projected in the range of 33-35 cents. The company assumes a non-GAAP effective tax rate of 17% for the second quarter and diluted shares outstanding between 790 million and 800 million.
Zacks Rank & Other Stocks to Consider
Currently, Fortinet carries a Zacks Rank #2 (Buy). Shares of FTNT have rallied 26.1% over the past year.
Some other top-ranked stocks from the broader technology sector are Wix.com (WIX - Free Report) , Zscaler (ZS - Free Report) and Check Point Software (CHKP - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Wix.com’s first-quarter 2023 earnings has been revised upward to 23 cents per share from 16 cents per share 60 days ago. For 2023, earnings estimates have been revised northward by 7 cents to $1.49 per share in the past 60 days.
Wix.com's earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing the same on one occasion, the average surprise being 225%. Shares of WIX have declined 2% YTD.
The Zacks Consensus Estimate for Zscaler's third-quarter fiscal 2023 earnings has been revised 2 cents northward to 39 cents per share in the past 60 days. For fiscal 2023, earnings estimates have been revised northward by 8 cents to $1.52 per share in the past 60 days.
Zscaler’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 29.7%. Shares of ZS have declined 21.2% YTD.
The Zacks Consensus Estimate for Check Point Software's second-quarter 2023 earnings has remained unchanged at $1.89 per share for the past 60 days. For 2023, earnings estimates have moved upward by a penny to $7.98 per share in the past seven days.
Check Point Software's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 3.7%. Shares of CHKP have declined 6.1% YTD.