Fortinet Inc. (FTNT - Free Report) delivered first-quarter 2020 non-GAAP earnings per share of 60 cents, which beat the Zacks Consensus Estimate by 20% and improved significantly from the year-ago quarter’s 46 cents.
Moreover, revenues of $576.9 million surpassed the consensus mark of $557 million and increased 22% year over year, driven by advanced FortiGate technology with SPU, integrated Security Fabric platform and hybrid multi-cloud offerings.
Strategic investments in developing powerful products and services, efforts to expand into adjacent addressable markets and increase its global sales force drove the performance.
Quarter in Detail
Segment-wise, Product revenues increased 18.2% year over year to $192.3 million. The growth was driven by the continued adoption of the FortiGate-based secure SD-WAN solution.
Services revenues rose 24.1% to $384.6 million. Notably, FortiGuard security subscription revenues grew 24% to $205 million. FortiCare technical support and other service revenues increased 21% to $170 million.
Billings were up 21.1% to $667.8 million, driven by solid execution and growth across EMEA and APAC.
During the quarter, the company secured 38 total deals worth equal to or more than $1 million each. Secure SD-WAN was a leading contributor to growth, in terms of the number of deals worth more than $1 million.
The number of deals worth more than $250,000 rose 21.4% to 323 and the number of deals worth more than $500K was up 11.1% to 120.
Geographically, revenues in America were up 20.8%, APAC up 20.1% and EMEA up 24.5%.
Gross margin expanded 150 basis points (bps) year over year to 78.7%. Services gross margin expanded 30 bps to 87.4% as well as product gross margin grew 300 bps to 61.4%.
Non-GAAP operating income surged 33% to $128.4 million, while non-GAAP operating margin expanded 190 bps to 22.3%.
Balance Sheet & Cash Flow
Fortinet exited the reported quarter with cash and cash equivalents, and short-term investments of approximately $1.4 billion, down from $2.07 billion reported at the end of the previous quarter.
During the first quarter, the company generated operating cash flow of $319.4 million compared with $190.4 million in the previous quarter. Free cash flow was $241.8 million compared with $143.2 million in the fourth quarter of 2019.
In the first quarter, the company purchased approximately 10 million shares of common stock for $899.9 million.
For the second quarter of 2020, the company expects revenues of $590-$605 million. Billings are estimated in a band of $700-$725 million.
Non-GAAP earnings per share are envisioned to be 64-66 cents.
Non-GAAP gross margin is expected in the range of 77.5-78.5%, whereas non-GAAP operating margin is anticipated between 23% and 24%.
Notably, the uncertainty surrounding the coronavirus pandemic may have a material negative impact on Fortinet’s second quarter and annual results.
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 Advanced Semiconductor Engineering Inc (ASX - Free Report) , NeoPhotonics Corporation (NPTN - Free Report) and Avid Technology, Inc. (AVID - 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 rate for Advanced Semiconductor, NeoPhotonics and Avid is currently pegged at 26.63%, 15% and 20%, respectively.
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