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Fortinet Inc. (FTNT - Free Report) reported strong first-quarter 2024 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate and improved year over year.
Fortinet reported first-quarter 2024 non-GAAP earnings per share (EPS) of 43 cents, which beat the Zacks Consensus Estimate by 13.16%. The bottom line climbed 26.5% from the year-ago quarter’s earnings of 34 cents per share.
Total revenues of $1.353 billion beat the consensus mark by 1.4% and improved 7.2% year over year, driven by strong growth in services revenues.
Segment-wise, Product revenues declined 18% year over year to $409 million, primarily due to a tough comparison. Product revenues grew 35% in the prior-year period, benefiting from the drawdown of backlog. Software license revenues increased 20% and represented a mid-to-high teens mix of product revenues.
Combined revenues from software licenses and software services, such as cloud and SaaS security solutions, increased 29% and represented an annual revenue run rate approaching $750 million.
Services revenues climbed 24% to $944 million, primarily driven by more than 30% growth from Unified SASE and SecOps. Services revenues accounted for 70% of total revenues.
Billings were down 6.4% to $1.407 billion. The performance was due to the difficult year-earlier comparison created by the backlog contributions to billings that occurred in the year-ago quarter.
For the first quarter, Unified SASE accounted for 24% of total billings. Fortinet’s Security Operations solutions, which are better integrated and automated together than competitors, accounted for 9% of total billings. Initially launched as part of FortiSIEM and FortiSOAR, the GenAI technology, FortiAI, is being deployed across both networking and security products. Secure Networking accounted for 67% of total billings.
Larger enterprises are proving to be the company’s largest customer segment, with large and mid-enterprises representing 78% and 84% of SecOps and Unified SASE billings.
As of Mar 31, 2024, deferred revenues were $5.79 billion, up 18.6% year over year.
Geographically, the Middle East and Africa region registered the highest top-line growth with a 12.8% increase, followed by the America region’s 6.4%, while the Asia Pacific region dropped 1.4%.
Margins
The non-GAAP gross margin expanded 180 basis points (bps) year over year to 78.1% in the first quarter of 2024. Service gross margins of 87.9% were up 200 bps as service revenue growth outpaced labor cost increases and benefited from the mix shift toward higher-margin FortiGuard security subscriptions. Product gross margins were 55.7% as the company witnessed margin pressure related to inventory levels and the transition to a more normalized demand environment.
Non-GAAP operating income was $386.1 million for the first quarter of 2024, representing a non-GAAP operating margin of 28.5%.
Balance Sheet & Cash Flow
Fortinet exited the first quarter with cash and cash equivalents and short-term investments of $3 billion, up from the $2.14 billion reported at the end of the fourth quarter of 2023.
During the reported quarter, FTNT generated operating and free cash flows of $830.4 million and $608.5 million, respectively.
Guidance
Fortinet estimates second-quarter revenues in the range of $1.375-$1.435 billion. Billings are estimated in the band of $1.49-$1.55 billion.
The non-GAAP gross margin is expected in the range of 76.5-77.5%, while the non-GAAP operating margin is anticipated between 25.75% and 26.75%. Non-GAAP EPS is projected in the band of 39-41 cents. The company expects a non-GAAP effective tax rate of 17% for the first quarter and diluted shares outstanding between 775 million and 785 million.
For 2024, Fortinet predicts revenues in the range of $5.745-$5.845 billion. Services revenues are projected in the range of $3.94-$3.99 billion. Billings are expected in the range of $6.4-$6.6 billion.
The non-GAAP gross margin and operating margin are expected in the band of 76.5-78% and 26.5-28%, respectively. Non-GAAP EPS is anticipated between $1.73 and $1.79. It forecasts a non-GAAP effective tax rate of 17% and a diluted share count between 780 million and 790 million.
Zacks Rank & Stocks to Consider
Currently, Fortinet carries a Zacks Rank #3 (Hold). Shares of FTNT have gained 11.4% year to date.
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Fortinet (FTNT) Q1 Earnings Beat Expectations, Sales Rise Y/Y
Fortinet Inc. (FTNT - Free Report) reported strong first-quarter 2024 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate and improved year over year.
Fortinet reported first-quarter 2024 non-GAAP earnings per share (EPS) of 43 cents, which beat the Zacks Consensus Estimate by 13.16%. The bottom line climbed 26.5% from the year-ago quarter’s earnings of 34 cents per share.
Total revenues of $1.353 billion beat the consensus mark by 1.4% and improved 7.2% year over year, driven by strong growth in services revenues.
Fortinet, Inc. Price, Consensus and EPS Surprise
Fortinet, Inc. price-consensus-eps-surprise-chart | Fortinet, Inc. Quote
Quarter in Detail
Segment-wise, Product revenues declined 18% year over year to $409 million, primarily due to a tough comparison. Product revenues grew 35% in the prior-year period, benefiting from the drawdown of backlog. Software license revenues increased 20% and represented a mid-to-high teens mix of product revenues.
Combined revenues from software licenses and software services, such as cloud and SaaS security solutions, increased 29% and represented an annual revenue run rate approaching $750 million.
Services revenues climbed 24% to $944 million, primarily driven by more than 30% growth from Unified SASE and SecOps. Services revenues accounted for 70% of total revenues.
Billings were down 6.4% to $1.407 billion. The performance was due to the difficult year-earlier comparison created by the backlog contributions to billings that occurred in the year-ago quarter.
For the first quarter, Unified SASE accounted for 24% of total billings. Fortinet’s Security Operations solutions, which are better integrated and automated together than competitors, accounted for 9% of total billings. Initially launched as part of FortiSIEM and FortiSOAR, the GenAI technology, FortiAI, is being deployed across both networking and security products. Secure Networking accounted for 67% of total billings.
Larger enterprises are proving to be the company’s largest customer segment, with large and mid-enterprises representing 78% and 84% of SecOps and Unified SASE billings.
As of Mar 31, 2024, deferred revenues were $5.79 billion, up 18.6% year over year.
Geographically, the Middle East and Africa region registered the highest top-line growth with a 12.8% increase, followed by the America region’s 6.4%, while the Asia Pacific region dropped 1.4%.
Margins
The non-GAAP gross margin expanded 180 basis points (bps) year over year to 78.1% in the first quarter of 2024. Service gross margins of 87.9% were up 200 bps as service revenue growth outpaced labor cost increases and benefited from the mix shift toward higher-margin FortiGuard security subscriptions. Product gross margins were 55.7% as the company witnessed margin pressure related to inventory levels and the transition to a more normalized demand environment.
Non-GAAP operating income was $386.1 million for the first quarter of 2024, representing a non-GAAP operating margin of 28.5%.
Balance Sheet & Cash Flow
Fortinet exited the first quarter with cash and cash equivalents and short-term investments of $3 billion, up from the $2.14 billion reported at the end of the fourth quarter of 2023.
During the reported quarter, FTNT generated operating and free cash flows of $830.4 million and $608.5 million, respectively.
Guidance
Fortinet estimates second-quarter revenues in the range of $1.375-$1.435 billion. Billings are estimated in the band of $1.49-$1.55 billion.
The non-GAAP gross margin is expected in the range of 76.5-77.5%, while the non-GAAP operating margin is anticipated between 25.75% and 26.75%. Non-GAAP EPS is projected in the band of 39-41 cents. The company expects a non-GAAP effective tax rate of 17% for the first quarter and diluted shares outstanding between 775 million and 785 million.
For 2024, Fortinet predicts revenues in the range of $5.745-$5.845 billion. Services revenues are projected in the range of $3.94-$3.99 billion. Billings are expected in the range of $6.4-$6.6 billion.
The non-GAAP gross margin and operating margin are expected in the band of 76.5-78% and 26.5-28%, respectively. Non-GAAP EPS is anticipated between $1.73 and $1.79. It forecasts a non-GAAP effective tax rate of 17% and a diluted share count between 780 million and 790 million.
Zacks Rank & Stocks to Consider
Currently, Fortinet carries a Zacks Rank #3 (Hold). Shares of FTNT have gained 11.4% year to date.
Some better-ranked stocks from the broader Computer and Technology sector are Arista Networks (ANET - Free Report) , NVIDIA (NVDA - Free Report) and Dell Technologies (DELL - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Arista Networks have gained 11.6% year to date. ANET is set to report first-quarter 2024 results on May 7.
Shares of NVIDIA have surged 74.5% year to date. NVDA is slated to report first-quarter 2024 results on May 22.
Shares of Dell Technologies have rallied 62.1% year to date. DELL is set to report first-quarter fiscal 2025 results on May 30.