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Fortinet (FTNT) Q2 Earnings and Revenues Surpass Estimates
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Fortinet Inc. (FTNT - Free Report) reported strong results for second-quarter 2018, wherein revenues and earnings surpassed the respective Zacks Consensus Estimate.
Fortinet’s non-GAAP earnings per share of 41 cents beat the Zacks Consensus Estimate of 35 cents and marked an improvement over the year-ago quarter’s earnings of 27 cents.
Revenues of $441.3 million surpassed the Zacks Consensus Estimate of $425.5 million and increased 21.4% from than the year-ago quarter.
A large number of deal wins and customer additions during the reported quarter proved conducive to top-line growth.
Management notes that strong global demand for the company’s Security Fabric offerings due to digital transformation and security refresh cycle across most industries is a tailwind. The company’s Security Fabric architecture, its cloud offering and customer FortiASIC technology are helping it expand in the market.
Quarter in Detail
Segment wise, Product revenues increased approximately 17% year over year to $166.3 million, while Services revenues jumped 25% to $275 million.
Geographically, Fortinet generated 43% of sales from Americas, up 18% year over year. Sales from EMEA, contributing 37% to net sales, increased 27% from the prior-year quarter. The company generated 20% of revenues from APAC, up 20% on a year-over-year basis.
During the quarter, the company witnessed 20% year-over-year growth in the number of deals worth more than $1 million driven by enterprise business. The strength in the company’s network security business among medium-sized companies is evident from a 51% increase in the number of deals worth more than $500K and 35% surge in deals over $250K.
During the quarter, the company won a SD-WAN deal against a large networking company, with a sizable European supermarket chain.
Billings were up 20% on a year-over-year basis to $513.4 million.
During the quarter, the company, with the acquisition of Bradford Networks, expanded its IoT security offerings.
Gross margin increased 60 basis points (bps) to 75.4%. The robust gross margin performance was mainly driven by a shift in sales mix to higher-margin subscription services.
Non-GAAP operating profit surged 41.7% to $93.1 million from approximately $42.7 million in the year-ago quarter. Non-GAAP operating margin expanded 300 bps to 21%.
Balance Sheet & Cash Flow
Fortinet exited the reported quarter with cash and cash equivalents, and short-term investments of approximately $1.50 billion, up from $1.39 billion recorded at the end of the previous quarter.
During the second quarter, the company generated operating cash flow of $142.2 million. Free cash flow came in at $130.6 million.
Fortinet bought back 27K shares for $1.5 million during the quarter. The board increased the share repurchase authorization by $500 million, which brings the total authorization to $1.5 billion and extends the term to the end of 2019.
Guidance
Buoyed by overwhelming second-quarter results, Fortinet raised its guidance for full-year 2018.
For 2018, management projects revenues in the range of $1.770-$1.790 billion, up from the previous range of $1.715-$1.735 billion. Billings range has also been raised to $2.085-$2.110 billion from $2.040-$2.065 billion forecast previously.
However, non-GAAP gross margin remained unchanged at 75-76%. Non-GAAP operating margin projections have been raised to 21.2-21.7% from the previous range of 20.2-20.7%. Non-GAAP operating margin includes a 350-bps benefit related to the adoption of new accounting standards.
Non-GAAP earnings per share are now estimated between $1.63 and $1.67, up from the earlier forecast of $1.51-$1.55.
For the third quarter, the company expects revenues of $445-$455 million. Billings are estimated in the range of $500-$515 million.
Non-GAAP earnings per share are anticipated in the band of 41-43 cents. Non-GAAP gross margin is expected in the range of 75-76%, whereas non-GAAP operating margin is anticipated between 21.5% and 22%.
Zacks Rank and Stocks to Consider
Fortinet currently carries a Zacks Rank #3 (Hold).
Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.
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Fortinet (FTNT) Q2 Earnings and Revenues Surpass Estimates
Fortinet Inc. (FTNT - Free Report) reported strong results for second-quarter 2018, wherein revenues and earnings surpassed the respective Zacks Consensus Estimate.
Fortinet’s non-GAAP earnings per share of 41 cents beat the Zacks Consensus Estimate of 35 cents and marked an improvement over the year-ago quarter’s earnings of 27 cents.
Revenues of $441.3 million surpassed the Zacks Consensus Estimate of $425.5 million and increased 21.4% from than the year-ago quarter.
A large number of deal wins and customer additions during the reported quarter proved conducive to top-line growth.
Management notes that strong global demand for the company’s Security Fabric offerings due to digital transformation and security refresh cycle across most industries is a tailwind. The company’s Security Fabric architecture, its cloud offering and customer FortiASIC technology are helping it expand in the market.
Quarter in Detail
Segment wise, Product revenues increased approximately 17% year over year to $166.3 million, while Services revenues jumped 25% to $275 million.
Geographically, Fortinet generated 43% of sales from Americas, up 18% year over year. Sales from EMEA, contributing 37% to net sales, increased 27% from the prior-year quarter. The company generated 20% of revenues from APAC, up 20% on a year-over-year basis.
During the quarter, the company witnessed 20% year-over-year growth in the number of deals worth more than $1 million driven by enterprise business. The strength in the company’s network security business among medium-sized companies is evident from a 51% increase in the number of deals worth more than $500K and 35% surge in deals over $250K.
During the quarter, the company won a SD-WAN deal against a large networking company, with a sizable European supermarket chain.
Billings were up 20% on a year-over-year basis to $513.4 million.
During the quarter, the company, with the acquisition of Bradford Networks, expanded its IoT security offerings.
Fortinet, Inc. Price, Consensus and EPS Surprise
Fortinet, Inc. Price, Consensus and EPS Surprise | Fortinet, Inc. Quote
Margins
Gross margin increased 60 basis points (bps) to 75.4%. The robust gross margin performance was mainly driven by a shift in sales mix to higher-margin subscription services.
Non-GAAP operating profit surged 41.7% to $93.1 million from approximately $42.7 million in the year-ago quarter. Non-GAAP operating margin expanded 300 bps to 21%.
Balance Sheet & Cash Flow
Fortinet exited the reported quarter with cash and cash equivalents, and short-term investments of approximately $1.50 billion, up from $1.39 billion recorded at the end of the previous quarter.
During the second quarter, the company generated operating cash flow of $142.2 million. Free cash flow came in at $130.6 million.
Fortinet bought back 27K shares for $1.5 million during the quarter. The board increased the share repurchase authorization by $500 million, which brings the total authorization to $1.5 billion and extends the term to the end of 2019.
Guidance
Buoyed by overwhelming second-quarter results, Fortinet raised its guidance for full-year 2018.
For 2018, management projects revenues in the range of $1.770-$1.790 billion, up from the previous range of $1.715-$1.735 billion. Billings range has also been raised to $2.085-$2.110 billion from $2.040-$2.065 billion forecast previously.
However, non-GAAP gross margin remained unchanged at 75-76%. Non-GAAP operating margin projections have been raised to 21.2-21.7% from the previous range of 20.2-20.7%. Non-GAAP operating margin includes a 350-bps benefit related to the adoption of new accounting standards.
Non-GAAP earnings per share are now estimated between $1.63 and $1.67, up from the earlier forecast of $1.51-$1.55.
For the third quarter, the company expects revenues of $445-$455 million. Billings are estimated in the range of $500-$515 million.
Non-GAAP earnings per share are anticipated in the band of 41-43 cents. Non-GAAP gross margin is expected in the range of 75-76%, whereas non-GAAP operating margin is anticipated between 21.5% and 22%.
Zacks Rank and Stocks to Consider
Fortinet currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector are YY Inc. (YY - Free Report) , Science Applications (SAIC - Free Report) and Verint Systems (VRNT - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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