Fortinet Inc. (FTNT - Free Report) reported strong second-quarter 2019 results, wherein both earnings and revenues surpassed estimates.
Fortinet’s non-GAAP earnings per share of 58 cents beat the Zacks Consensus Estimate of 50 cents, and increased significantly from the year-ago quarter figure of 41 cents.
Revenues of $521.7 million surpassed the consensus estimate of $511 million and increased 18% year over year, driven by growth across both its segments. Strength in the Americas region was also a positive.
Quarter in Detail
Segment wise, Product revenues increased approximately 14.2% year over year to $162.7 million.
Services revenues jumped 20.7% to $331.8 million.
Total deferred revenues of $1.87 billion as of Jun 30, 2019, grew 27%.
Billings were up 21% on a year-over-year basis to $622.4 million. Strong momentum in demand for Fortinet’s Security Fabric, SD-WAN and cloud offerings contributed to billings growth.
During the quarter, the company secured 46 total deals worth more than $1 million, up 28%.
Revenues from the Americas (43% of total revenues) grew 19% year over year to $226 million, revenues from the EMEA (Europe, Middle East and Africa) region (37%) increased 17% to $192 million, and that from APAC (Asia Pacific) region (20%) jumped 19% to $104 million.
Gross margin expanded 100 basis points (bps) year over year to 76.4%, driven by a 100-bps increase in services gross margin, and 110 bps expansion in product gross margin.
Non-GAAP operating income surged 32.3% to $123 million. Non-GAAP operating margin expanded 250 bps to 23.6% on the back of solid revenue growth.
Balance Sheet & Cash Flow
Fortinet exited the reported quarter with cash and cash equivalents, and short-term investments of approximately $1.83 billion, up from $1.8 billion recorded at the end of the previous quarter.
During the second quarter, the company generated operating cash flow of $195.1 million compared with $201.3 million in the previous quarter. Free cash flow was $177.8 million compared with $191.1 million in the first quarter.
For 2019, management increased revenue guidance, and projects the same in the range of $2.10-$2.12 billion compared with $2.07-$2.10 billion estimated earlier. The Zacks Consensus Estimate is pegged at $2.09 billion.
Billings are now expected to be within $2.51-$2.54 billion, up from $2.47-$2.52 billion.
Non-GAAP gross margin continues to be projected in the 75.5-76.5% band. Non-GAAP operating margin is now expected between 23% and 23.5%, up from previously guided 22.5-23.5% range.
Non-GAAP earnings per share expectations were also raised to $2.23-$2.26, up from $2.10-$2.15. The Zacks Consensus Estimate stands at $2.13.
For the third quarter of 2019, the company expects revenues of $525-$540 million. The consensus estimate is pegged at $523.8 million. Billings are estimated in the range of $600-$615 million.
Non-GAAP earnings per share are anticipated in the band of 55-57 cents. The Zacks Consensus Estimate is pegged at 53 cents. Non-GAAP gross margin is expected in the range of 75.5% to 76.5%, whereas non-GAAP operating margin is anticipated between 23% and 23.5%.
Zacks Rank and Key Picks
Fortinet currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A few better-ranked stocks in the broader technology sector are Rosetta Stone (RST - Free Report) , Anixter International (AXE - Free Report) and Alteryx (AYX - Free Report) , each flaunting a Zacks Rank #1.
Long-term earnings growth rate for Rosetta Stone, Anixter and Alteryx is currently projected to be 12.5%, 8% and 13.7%, respectively.
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