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.
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.
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