Fortinet (FTNT) Q2 Earnings and Revenues Surpass Estimates

Fortinet Inc. FTNT delivered second-quarter 2020 non-GAAP earnings per share of 82 cents, which beat the Zacks Consensus Estimate by 26.2%. The reported figure also improved significantly from the year-ago quarter’s 58 cents.

Moreover, revenues of $615.5 million surpassed the consensus mark of $598.3 million and increased 18% year over year. This top-line growth was 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 the firm’s global sales force aided the performance.

Fortinet, Inc. Price, Consensus and EPS Surprise

Fortinet, Inc. price-consensus-eps-surprise-chart | Fortinet, Inc. Quote

Quarter in Detail

Segment wise, Product revenues increased 11.6% year over year to $211.9 million. This growth was supported by the continued adoption of the FortiGate-based secure SD-WAN solution.

Services revenues climbed 21.6% to $403.6 million. Notably, FortiGuard security subscription revenues grew 22% to $223 million. FortiCare technical support and other service revenues climbed 22% to $181 million.

Billings were up 14% to $711 million on solid execution and growth across EMEA and APAC.

During the June-end quarter, the company secured 59 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. Secure SD-WAN accounted for 13 of the large deals won during the second quarter.

Margins

Gross margin expanded 260 basis points (bps) year over year to 79%. Services gross margin expanded 120 bps to 88.5% as well as product gross margin advanced 340 bps to 61%.

Non-GAAP operating income surged 36.6% to $168.2 million, while non-GAAP operating margin expanded 370 bps to 27.3%.

Balance Sheet & Cash Flow

Fortinet exited the reported quarter with cash and cash equivalents, and short-term investments of $1.5 billion, up from the $1.4 billion reported at the end of the previous quarter.

During the April-June quarter, the company generated operating cash flow of $247 million compared with the year-ago quarter’s $195.1 million. Free cash flow was $216.1 million compared with the $177.8 million witnessed in the second quarter of 2019.

In the second quarter, the company purchased 1.4 million shares of common stock for $156.1 million. Last month, the company increased its share-repurchase authorization by $500 million to $3 billion. As of Aug 6, $1.05 billion remained under its current authorization limit.

Guidance

For the third quarter of 2020, the company expects revenues of $630-$645 million. Billings are estimated in the band of $705-$730 million.

Non-GAAP earnings per share are projected at 76-78 cents.

Non-GAAP gross margin is expected in the range of 78-79%, whereas non-GAAP operating margin is anticipated between 25.5% and 26.5%.

Notably, the uncertainty surrounding the coronavirus pandemic might have a material negative impact on Fortinet’s third-quarter and annual results.

Zacks Rank and Other Key Picks

Currently, Fotinet carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector include Benefitfocus BNFT, Cogent Communications Holdings CCOI and Synaptics SYNA, all carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Benefitfocus, Cogent and Synaptics is currently pegged at 30%, 10.6%, and 10%, respectively.

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