) reported second-quarter 2014 earnings per share of 5 cents, which
missed the Zacks Consensus Estimate by a penny. The quarter's
earnings, which exclude the effect of amortization and impairment
of intangibles but include stock-based compensation expenses, were
also down 12.8% reported in the year-ago quarter.
Nonetheless, shares of Fortinet went up 8.6% in after-hours trading
on Wednesday, primarily due to a strong year-over-year increase in
revenues and a positive guidance that indicate enhanced growth
prospects in all the segments.
Fortinet reported second-quarter revenues of $184.1 million, up
24.9% from the year-ago quarter. Revenues were above the Zacks
Consensus Estimate of $171.0 million and the company's guided range
of $169.0-$172.0 million.
The year-over-year improvement was primarily aided by solid yield
on sales and marketing strategies and strong network security
market. Moreover, a 28.3% increase in Product revenues and a 22.0%
increase in Services & other revenues also supported
year-over-year growth in revenues.
Geographically, Americas (43.0% of total revenue) grew 31.0% from
the year-ago quarter, EMEA (34.0% of total revenue) increased 23.0%
from the year-ago quarter while Asia Pacific (constituting the
remaining 23.0% of revenues) grew 18.0%on a year-over-year basis.
Billings during the quarter grew 32.5% on a year-over-year basis to
$212.9 million. Number of deals worth over $100K was 263, up from
190 in the year-ago quarter. Deals over $250k increased to 97 from
58 in the year-ago period while deals over $500k were 39, up from
20 in the year-ago quarter.
Adjusted gross profit increased 21.8% from the year-ago quarter to
$126.3 million. However, gross margin contracted172 basis points
year over year to 68.6%, primarily due to higher cost of services.
Higher-than-expected adjusted operating expenses (up 28.1% year
over year) led to a decline in operating margin. Moreover, as a
percentage of revenues, operating expenses increased 156 basis
points, thereby impacting margins. Adjusted operating margin came
in at 7.6%, down from 9.6% in the year-ago quarter.
Fortinet, Inc - Earnings Surprise |
Fortinet posted adjusted net income (excluding the effect of
amortization and Impairment of intangibles but include stock-based
compensation expenses) on a proportionate tax basis of $8.1 million
or 5 cents per share compared with $9.2 million or 5 cents in the
Balance Sheet & Cash Flow
Fortinet exited the second-quarter with cash and cash equivalents
and short-term investments of $558.1 million, down from $561.1
million in the previous quarter. Accounts receivable were $127.8
compared with $111.5 million in the year-ago quarter.
Cash from operating activities was $104.7 million, up from $60.9
million in the previous quarter. Free cash flow in the
second-quarter was $34.0 million. During the second quarter of
2014, the company repurchased $15.0 million worth of shares.
For the third quarter of 2014, management expects revenues in the
range of $182.0-$185.0 million, a 19.0% year-over-year increase at
the mid-point. The Zacks Consensus Estimate is pegged at $176.0
million. Billings are expected in the range of $195.0 million to
$200.0 million, up approximately 20.0% year over year.
Gross margin is expected in the range of 70.0%-71.0%. The company
expects operating margin to be in the range of 14.0%-15.0%, diluted
share count to be approximately 169 million to 171 million and
earnings per share to be approximately 11 cents, higher than the
Zacks Consensus Estimate of 8 cents.
For fiscal 2014, management expects revenues in the range of
$735.0-$740.0 million, a 20.0% year-over-year increase at the
mid-point. The Zacks Consensus Estimate is pegged at $712.0
million. Billings are expected in the range of $835.0 million to
$840.0 million, up approximately 22.0% year over year.
Gross margin for fiscal 2014 is expected in the range of
70.0%-71.0%. The company expects operating margin to be in the
range of 16.0%-17.0%, diluted share count to be approximately 168
million to 170 million and earnings per share to be in the range of
47 cents to 48 cents, higher than the Zacks Consensus Estimate of
Fortinet provides network security solutions, which include
firewall, VPN, application control, antivirus, intrusion
prevention, web filtering, anti-spam, and WAN acceleration.
Fortinet reported mixed second-quarter results, wherein the top
line came ahead of Zacks Consensus Estimate while the bottom line
missed the same. However, the company provided an encouraging
second-quarter and fiscal 2014 guidance. Moreover, revenues
increased year over year aided by an increase in its operating
Despite the continuing macro uncertainty, Fortinet seems positive
on a healthy network security market, its product lineup and
Margin contraction due to continuous investments in research and
development and competition from key network security players such
Cisco Systems Inc.
Check Point Software Technology
) and Palo Alto Networks are concerns. But we believe that product
ramps, deal wins, continuous growth of the network security market
and expected benefits from the ongoing investments are positives.
Currently, Fortinet has a Zacks Rank #3 (Hold).
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