Fortinet Reports Record Financial Results
- Revenues of $116.4 million, up 37% year over year
- Billings of $118.4 million, up 25% year over year
- GAAP EPS of $0.11 and Non-GAAP EPS of $0.13
- Cash and investments of $503.0 million, with no debt
- Free cash flow of $34.7 million, up 10% year over year
- GAAP net income of $17.9 million, up 28% year over year
- Non-GAAP net income of $21.7 million, up 61% year over year
Fortinet® (NASDAQ: FTNT) - a leading network security provider and the worldwide leader in unified threat management (UTM) solutions - today announced financial results for the third quarter ended September 30, 2011.
Financial Highlights for the Third Quarter of 2011
- Revenue(1), (2): Total revenue was $116.4 million for the third quarter of 2011, an increase of 37% compared to the third quarter of 2010. Within total revenue, product revenue was $53.1 million, an increase of 48% compared to the third quarter of 2010. Services revenue was $57.8 million, an increase of 30% compared to the third quarter of 2010. Ratable and other revenue was $5.5 million, an increase of 21% compared to the third quarter of 2010.
- Billings (2), (3): Total billings were $118.4 million for the third quarter of 2011, an increase of 25% compared to the third quarter of 2010. We define billings, a non-GAAP financial measure, as revenue recognized during the period plus the change in deferred revenue from the beginning to the end of the period.
- Deferred Revenue: Deferred revenue was $275.1 million as of September 30, 2011, an increase of 17% compared to deferred revenue as of September 30, 2010, and up $1.9 million from June 30, 2011.
- Cash and Cash Flow (2): As of September 30, 2011, cash, cash equivalents and investments were $503.0 million, compared to $468.5 million as of June 30, 2011. Cash flow from operations was $36.0 million for the third quarter of 2011, compared to $32.2 million for the third quarter of 2010. In the third quarter of 2011, free cash flow was $34.7 million, compared to $31.5 million for the third quarter of 2010. We define free cash flow, a non-GAAP financial measure of liquidity, as net cash provided by operating activities less capital expenditures.
- GAAP Operating Income (2): GAAP operating income was $26.2 million for the third quarter of 2011, representing a GAAP operating margin of 22%, and an increase of 44% compared to the third quarter of 2010.
- Non-GAAP3 Operating Income (2): Non-GAAP operating income was $31.4 million for the third quarter of 2011, representing a non-GAAP operating margin of 27% and an increase of 52% compared to the third quarter of 2010. Non-GAAP operating income and operating margin exclude stock-based compensation expense and income from payments we received related to a patent settlement.
- GAAP Net Income and EPS (2): GAAP net income was $17.9 million for the third quarter of 2011, based on a 34% tax rate for the quarter. This compares to GAAP net income of $14.0 million for the third quarter of 2010, based on a 23% tax rate for the quarter. GAAP diluted EPS was $0.11 for the third quarter of 2011, based on 163.9 million weighted-average diluted shares outstanding, compared to $0.09 for the third quarter of 2010, based on 155.8 million weighted-average diluted shares outstanding (4). GAAP EPS includes $0.01 attributable to a sale of previously-acquired patents and its related tax effects.
- Non-GAAP (3) Net Income and EPS (2): Non-GAAP net income was $21.7 million for the third quarter of 2011, based on a 33% effective tax rate for the quarter. Non-GAAP net income for the third quarter of 2010 was $13.5 million, based on a 35% effective tax rate. Non-GAAP diluted EPS was $0.13 for the third quarter of 2011 based on 163.9 million weighted-average diluted shares outstanding, compared to $0.09 for the third quarter of 2010 based on 155.8 million weighted-average diluted shares outstanding (4). Non-GAAP net income and non-GAAP EPS exclude stock-based compensation expense, income from payments we received related to a patent settlement and the related tax effects. Non-GAAP EPS includes $0.01 attributable to a sale of previously-acquired patents and its related tax effects.
Ken Xie, founder, president and chief executive officer of Fortinet, stated: "We are very pleased with our performance during the third quarter, as demand in the UTM market combined with the successful implementation of our global go-to-market sales strategy continued to drive growth and market share gains. A strong network security product portfolio and the execution of our growth plan enabled us to continue to win business with service providers, and gain further traction with large enterprise deployments across all of our geographies. In addition, we demonstrated the value of our products by winning a landmark enterprise deal in the United States, which represents the largest contract in the company's history. Our high performance UTM solutions continue to differentiate us in the marketplace and fuel our growth."
Ken Goldman, chief financial officer of Fortinet, stated: "We had record financial performance during the third quarter -- exceeding expectations from a revenue, billings, profitability and cash flow perspective. Product revenue growth was strong, which we view as a leading indicator for our business. In addition, we continued to achieve improvements in productivity levels as we remain focused on leveraging our investments in R&D and implementing our global sales strategy throughout the organization. The strength of our balance sheet and liquidity is demonstrated by our exceeding $500 million in cash and investments with no debt."
Conference Call Details
Fortinet will host a conference call today, October 24, 2011, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its financial results. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 17263883. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of our website at: http://investor.fortinet.com, and a replay will be archived and accessible at: http://investor.fortinet.com/.... A replay of this conference call can also be accessed through November 7, 2011, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID# 17263883.
Following our earnings conference call, we will host an additional question-and-answer session at 3:30 p.m. Pacific Time (6:30 p.m. Eastern Time) to provide an opportunity for financial analysts to ask more detailed product and financial questions. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 17263883. This follow-up call will be webcast live and accessible at http://investor.fortinet.com, and a replay will be archived and accessible at http://investor.fortinet.com/.... A replay of this conference call can also be accessed through November 7, 2011, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID # 17263883.
This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding the momentum in our business, continued differentiation and growth based on our high performance UTM solutions, our pipeline of business, improving trends in EMEA, and our fourth-quarter product launches. Although we attempt to be accurate in making forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. Important factors that could cause results to differ materially from the statements herein include the following: general economic risks; specific economic risks in different geographies and among different customer segments; uncertainty regarding increased business and renewals from existing customers; uncertainties around continued success in sales growth and market share gains; failure to convert sales pipeline into final sales; risks associated with successful implementation of multiple integrated software products and other product functionality risks; execution risks around new product introductions and innovation; the ability to attract and retain personnel; changes in strategy; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organizations; technological changes that make our products and services less competitive; risks associated with the adoption of, and demand for, the UTM model in general and by specific customer segments; and the other risk factors set forth from time to time in our filings with the SEC, copies of which are available free of charge at the SEC's website at www.sec.gov or upon request from our investor relations department. All forward-looking statements herein reflect our opinions only as of the date of this release, and we undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements herein in light of new information or future events.
(1) Effective January 1, 2011, we prospectively adopted the Financial Accounting Standards Board's new accounting standards related to software revenue recognition for applicable transactions originating or materially modified after December 31, 2010.
(2) Includes the impact of a $2.6 million sale of previously-acquired patents during the quarter.
(3) A reconciliation of GAAP to non-GAAP financial 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."
(4) Effective June 1, 2011, we completed a two-for-one stock split of our outstanding shares of common stock effected in the form of a stock dividend. All prior share and per share amounts in this release have been retroactively adjusted so the stock split is reflected for all periods presented.
Fortinet (NASDAQ: FTNT) is a worldwide provider of network security appliances and the market leader in unified threat management (UTM). Our products and subscription services provide broad, integrated and high-performance protection against dynamic security threats while simplifying the IT security infrastructure. Our customers include enterprises, service providers and government entities worldwide, including the majority of the 2009 Fortune Global 100. Fortinet's flagship FortiGate product delivers ASIC-accelerated performance and integrates multiple layers of security designed to help protect against application and network threats. Fortinet's broad product line goes beyond UTM to help secure the extended enterprise -- from endpoints, to the perimeter and the core, including databases and applications. Fortinet is headquartered in Sunnyvale, Calif., with offices around the world.