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Fortinet Reports Fourth Quarter and Full Year 2018 Financial Results

Fortinet® (Nasdaq: FTNT), a global leader in broad, integrated and automated cybersecurity solutions, today announced financial results for the fourth quarter and full year ended December 31, 2018.

“Our strong fourth quarter results drove a solid finish to 2018, demonstrating demand for our product and services and illustrating our ability to drive disciplined growth with solid margin improvement,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “We are well-positioned to achieve another year of better than industry growth in 2019, driven by business momentum and strong customer demand for our broad, integrated, and automated security solutions across their entire network infrastructure.”

Financial Highlights for the Fourth Quarter of 2018

  • Revenue: Total revenue was $507.0 million for the fourth quarter of 2018, an increase of 22% compared to $416.6 million in the same quarter of 2017.

  • Product revenue was $200.8 million for the fourth quarter of 2018, an increase of 24% compared to $162.1 million in the same quarter of 2017.

  • Service revenue was $306.2 million for the fourth quarter of 2018, an increase of 20% compared to $254.5 million in the same quarter of 2017.

  • Billings: Total billings were $649.2 million for the fourth quarter of 2018, an increase of 22% compared to $534.0 million in the same quarter of 2017.

  • GAAP Operating Income and Margin: GAAP operating income was $85.1 million for the fourth quarter of 2018, representing a GAAP operating margin of 17%. GAAP operating income was $42.2 million for the same quarter of 2017, representing a GAAP operating margin of 10%.

  • Non-GAAPOperating Incomeand Margin: Non-GAAP operating income was $130.6 million for the fourth quarter of 2018, representing a non-GAAP operating margin of 26%. Non-GAAP operating income was $78.7 million for the fourth quarter of 2017, representing a non-GAAP operating margin of 19%.

  • GAAP Net Income or Loss and Diluted Net Income or Loss Per Share: GAAP net income was $182.6 million for the fourth quarter of 2018, compared to GAAP net loss of $29.0 million for the same quarter of 2017. GAAP diluted net income per share was $1.04 for the fourth quarter of 2018, based on 175.8 million diluted weighted-average shares outstanding, compared to GAAP diluted net loss per share of $0.17 for the same quarter of 2017, based on 171.5 million diluted weighted-average shares outstanding.

  • Non-GAAPNet Income and Diluted Net Income Per Share: Non-GAAP net income was $104.6 million for the fourth quarter of 2018, compared to non-GAAP net income of $55.4 million for the same quarter of 2017. Non-GAAP diluted net income per share was $0.59 for the fourth quarter of 2018, based on 175.8 million diluted weighted-average shares outstanding, compared to $0.32 for the same quarter of 2017, based on 175.4 million diluted weighted-average shares outstanding.

  • Cash Flow and Free Cash Flow: In the fourth quarter of 2018, cash flow from operations was $180.2 million compared to $157.5 million in the same quarter of 2017. Free cash flow was $168.6 million during the fourth quarter of 2018, compared to $143.9 million in the same quarter of 2017.

  • Share Repurchase: During the fourth quarter of 2018, Fortinet repurchased 1.3 million shares of its common stock for a total purchase price of $92.0 million. During the fourth quarter of 2017, Fortinet repurchased 7.9 million shares of its common stock for a total purchase price of $322.4 million.

 Financial Highlights for the Full Year 2018

  • Revenue: Total revenue was $1.80 billion for 2018, an increase of 20% compared to $1.49 billion in 2017.

  • Product revenue was $674.4 million for 2018, an increase of 17% compared to $577.2 million in 2017.

  • Service revenue was $1.13 billion for 2018, an increase of 23% compared to $917.7 million in 2017.

  • Billings: Total billings were $2.15 billion for 2018, an increase of 20% compared to $1.80 billion in 2017.

  • Deferred Revenue: Total deferred revenue was $1.69 billion as of December 31, 2018, an increase of 26% compared to $1.34 billion as of December 31, 2017.

  • GAAP Operating Income and Margin: GAAP operating income was $231.0 million for 2018, representing a GAAP operating margin of 13%. GAAP operating income was $109.8 million for 2017, representing a GAAP operating margin of 7%.

  • Non-GAAP Operating Incomeand Margin1: Non-GAAP operating income was $402.9 million for 2018, representing a non-GAAP operating margin of 22%. Non-GAAP operating income was $257.4 million for 2017, representing a non-GAAP operating margin of 17%.

  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $332.2 million for 2018, compared to GAAP net income of $31.4 million for 2017. GAAP diluted net income per share was $1.91 for 2018, based on 174.2 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.18 for 2017, based on 178.1 million diluted weighted-average shares outstanding.

  • Non-GAAPNet Incomeand Diluted Net Income Per Share1: Non-GAAP net income was $319.7 million for 2018, compared to non-GAAP net income of $184.7 million for 2017. Non-GAAP diluted net income per share was $1.84 for 2018, based on 174.2 million diluted weighted-average shares outstanding, compared to Non-GAAP diluted net income per share of $1.04 for 2017, based on 178.1 million diluted weighted-average shares outstanding.

  • Cash Flow and Free Cash Flow1: In 2018, cash flow from operations was $638.9 million, compared to $594.4 million in 2017. Free cash flow was $585.9 million in 2018, compared to $459.1 million in 2017.

  • Share Repurchase: During 2018, Fortinet repurchased 3.8 million shares of its common stock for a total purchase price of $209.1 million. During 2017, Fortinet repurchased 11.2 million shares of its common stock for a total purchase price of $446.3 million.

Guidance

For the first quarter of 2019, Fortinet currently expects:

  • Revenue in the range of $465 million to $475 million

  • Billings in the range of $515 million to $535 million

  • Non-GAAP gross margin in the range of 75.5% to 76.5%

  • Non-GAAP operating margin in the range of 18.0% to 18.5%

  • Diluted non-GAAP earnings per share in the range of $0.37 to $0.39, assuming a non-GAAP effective tax rate of 24%. This assumes a diluted share count of 176 million to 178 million

For the fiscal year 2019, Fortinet currently expects:

  • Revenue in the range of $2.06 billion to $2.10 billion

  • Service revenue in the range of $1.33 billion to $1.36 billion

  • Billings in the range of $2.45 billion to $2.50 billion

  • Non-GAAP gross margin in the range of 75.5% to 76.5%

  • Non-GAAP operating margin in the range of 22.5% to 23.5%

  • Diluted non-GAAP earnings per share in the range of $2.05 to $2.10, assuming a non-GAAP effective tax rate of 24%. This assumes a diluted share count of 181 million to 183 million

Our guidance with respect to non-GAAP financial measures excludes stock-based compensation and amortization of acquired intangible assets. We have not reconciled our guidance with respect to non-GAAP financial measures to the corresponding GAAP measures because certain items that impact these measures are uncertain or out of our control, or cannot be reasonably predicted. Accordingly, a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort.

A reconciliation of GAAP to non-GAAP measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

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