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Fortinet Reports Fourth Quarter and Full Year 2019 Financial Results

Fourth Quarter 2019 Highlights

  • Total revenue of $614.4 million, up 21% year over year
  • Product revenue of $238.8 million, up 19% year over year
  • Billings of $802.3 million, up 24% year over year1
  • GAAP operating margin of 19%, up 250 basis points year over year
  • Non-GAAP operating margin of 27%, up 1  0 basis points year over year1
  • GAAP diluted net income per share of $0.66
  • Non-GAAP diluted net income per share of $0.761
  • Cash flow from operations of $190.4 million
  • Free cash flow of $143.2 million1

Full Year 2019 Highlights

  • Total revenue of $2.16 billion, up 20% year over year
  • Product revenue of $788.5 million, up 17% year over year
  • Billings of $2.60 billion, up 21% year over year1
  • Deferred revenue of $2.14 billion, up 27% year over year
  • GAAP operating margin of 16%, up 310 basis points year over year
  • Non-GAAP operating margin of 25%, up 220 basis points year over year1
  • GAAP diluted net income per share of $1.87
  • Non-GAAP diluted net income per share of $2.471
  • Cash flow from operations of $808.0 million
  • Free cash flow of $715.8 million1

Fortinet integrated and automated cybersecurity solutions, today announced financial results for the fourth quarter and full year ended December 31, 2019.

“Our advanced architecture with proprietary SPU technology gives us a significant capacity advantage over our competition as indicated by our security compute ratings and enables us to add additional functionality into our products. Our strong fourth quarter product revenue growth was driven by our ability to include cutting-edge security and networking functionality, including SD-WAN, in our products,” said Ken Xie, Founder, Chairman, and Chief Executive Officer. “We are focused on continuing to gain market share by investing in network security, the build out of our Security Fabric platform, and innovations in the areas of 5G, IoT, edge and cloud  security.”

  • Revenue: Total revenue was $614.4 million for the fourth quarter of 2019, an increase of 21% compared to $507.0 million for the same quarter of 2018.
  • Product Revenue: Product revenue was $238.8 million for the fourth quarter of 2019, an increase of 19% compared to $200.8 million for the same quarter of 2018.
  • Service Revenue: Service revenue was $375.6 million for the fourth quarter of 2019, an increase of 23% compared to $306.2 million for the same quarter of 2018.
  • Billings1: Total billings were $802.3 million for the fourth quarter of 2019, an increase of 24% compared to $649.2 million for the same quarter of 2018.
  • GAAP Operating Income and Margin: GAAP operating income was $118.4 million for the fourth quarter of 2019, representing a GAAP operating margin of 19%. GAAP operating income was $85.1 million for the same quarter of 2018, representing a GAAP operating margin of 17%.
  • Non-GAAP Operating Income and Margin1: Non-GAAP operating income was $164.9 million for the fourth quarter of 2019, representing a non-GAAP operating margin of 27%. Non-GAAP operating income was $130.6 million for the fourth quarter of 2018, representing a non-GAAP operating margin of 26%.
  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $115.2 million for the fourth quarter of 2019, compared to GAAP net income of $182.6 million for the same quarter of 2018. GAAP diluted net income per share was $0.66 for the fourth quarter of 2019, based on 175.2 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $1.04 for the same quarter of 2018, based on 175.8 million diluted weighted-average shares outstanding.
  • Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $132.4 million for the fourth quarter of 2019, compared to non-GAAP net income  of $104.6 million for the same quarter of 2018. Non-GAAP diluted net income per share was $0.76 for the fourth quarter of 2019, based on 175.2 million diluted weighted- average shares outstanding, compared to $0.59 for the same quarter of 2018, based of 175.8 million diluted weighted-average shares outstanding.
  • Cash Flow and Free Cash Flow1: In the fourth quarter of 2019, cash flow from operations was $190.4 million compared to $180.2 million in the same quarter of 2018. Free cash flow was $143.2 million during the fourth quarter of 2019, compared to $168.6 million for the same quarter of 2018.
  • Revenue: Total revenue was $2.16 billion for 2019, an increase of 20% compared to $1.80 billion in 2018.
  • Product Revenue: Product revenue was $788.5 million for 2019, an increase of 17% compared to $674.4 million in 2018.
  • Service Revenue: Service revenue was $1.37 billion for 2019, an increase of 21% compared to $1.13 billion in 2018.
  • Billings1: Total billings were $2.60 billion for 2019, an increase of 21% compared to $$2.15 billion in 2018.
  • Deferred Revenue: Total deferred revenue was $2.14 billion as of December 31, 2019, an increase of 27% compared to $1.69 billion as of December 31,  2018.
  • GAAP Operating Income and Margin: GAAP operating income was $344.2 million for 2019, representing a GAAP operating margin of 16%. GAAP operating income wa$231.0 million for 2018, representing a GAAP operating margin of 13%.
  • Non-GAAP Operating Income and Margin1: Non-GAAP operating income was $529.2 million for 2019, representing a non-GAAP operating margin of 25%. Non-GAAP operating income was $402.9 million for 2018, representing a non-GAAP operating margin of 22%.
  • GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $326.5 million for 2019, compared to GAAP net income of $332.2 million for 2018. GAAP diluted net income per share was $1.87 for 2019, based on 175.0 million diluted weighted- average shares outstanding, compared to GAAP diluted net income per share of $1.91 for 2018, based on 174.2 million diluted weighted-average shares outstanding.
  • Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $431.7 million for 2019, compared to non-GAAP net income of $319.7 million for 2018.
  • Non-GAAP diluted net income per share was $2.47 for 2019, based on 175.0 million diluted weighted-average shares outstanding, compared to Non-GAAP diluted net income per share of $1.84 for 2018, based on 174.2 million diluted weighted-average shares outstanding.
  • Cash Flow and Free Cash Flow1: In 2019, cash flow from operations was $808.0 million, compared to $638.9 million in 2018. Free cash flow was $715.8 million in 2019, compared to $585.9 million in 2018.

For the first quarter of 2020, Fortinet currently expects:

  • Revenue in the range of $555 million to $565 million
  • Billings in the range of $635 million to $655 million
  • Non-GAAP gross margin in the range of 77.5% to 78.5%
  • Non-GAAP operating margin in the range of 19.0% to 20.0%
  • Diluted non-GAAP net income per share in the range of $0.50 to $0.52, assuming a non- GAAP effective tax rate of 24%. This assumes a diluted share count of 175 million to 177 million.

For the fiscal year 2020, Fortinet currently expects:

  • Revenue in the range of $2.525 billion to $2.555 billion
  • Service revenue in the range of $1.635 billion to $1.655 billion
  • Billings in the range of $3.025 billion to $3.075 billion
  • Non-GAAP gross margin in the range of 77.5% to 78.5%
  • Non-GAAP operating margin in the range of 23.5% to 24.5%
  • Diluted non-GAAP net income per share in the range of $2.70 to $2.73, assuming a non- GAAP effective tax rate of 24%. This assumes a diluted share count of 180 million to 182 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.

1 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.”