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Fortinet Reports First Quarter 2012 Financial Results
- Revenues of
$117.2 million , up 26% year over year - Billings of
$137.0 million , up 28% year over year - GAAP diluted net income per share of
$0.09 - Non-GAAP diluted net income per share of
$0.11 - Free cash flow of
$46.9 million - Cash, cash equivalents and investments of
$600.3 million , with no debt
Financial Highlights for the First Quarter of 2012
- Revenue: Total revenue was
$117.2 million for the first quarter of 2012, an increase of 26% compared to$93.3 million in the same quarter of 2011. Within total revenue, product revenue was$53.2 million , an increase of 32% compared to the same quarter of 2011. Services revenue was$62.1 million , an increase of 28% compared to the same quarter of 2011. - Billings(1): Total billings were
$137.0 million for the first quarter of 2012, an increase of 28% compared to$106.7 million in the same quarter of 2011. - Deferred Revenue: Deferred revenue was
$314.6 million as ofMarch 31, 2012 , an increase of 18% compared to deferred revenue of$266.0 million as ofMarch 31, 2011 , and up$19.7 million from$294.8 million as ofDecember 31, 2011 . Cash and Free Cash Flow (1): As ofMarch 31, 2012 , cash, cash equivalents and investments were$600.3 million , compared to$538.7 million as ofDecember 31, 2011 . In the first quarter of 2012, free cash flow was$46.9 million .- GAAP Operating Income: GAAP operating income was
$18.7 million for the first quarter of 2012, representing a GAAP operating margin of 16%. GAAP operating income was$17.4 million for the same quarter of 2011, representing a GAAP operating margin of 19%. - GAAP Net Income and Diluted Net Income Per Share: GAAP net income was
$14.2 million for the first quarter of 2012, based on a 28% tax rate for the quarter. This compares to GAAP net income of$13.6 million for the same quarter of 2011, based on a 25% tax rate for the quarter. GAAP diluted net income per share was$0.09 for the first quarter of 2012, based on 165.8 million weighted-average diluted shares outstanding, compared to$0.08 for the same quarter of 2011, based on 162.9 million weighted-average diluted shares outstanding(2). - Non-GAAP Operating Income(1): Non-GAAP operating income was
$25.5 million for the first quarter of 2012, representing a non-GAAP operating margin of 22%. Non-GAAP operating income was$20.0 million for the same quarter of 2011, representing a non-GAAP operating margin of 21%. - Non-GAAP Net Income and Diluted Net Income Per Share(1): Non-GAAP net income was
$17.5 million for the first quarter of 2012, based on a 34% effective tax rate for the quarter. Non-GAAP net income for the same quarter of 2011 was$13.9 million , based on a 33% effective tax rate. Non-GAAP diluted net income per share was$0.11 for the first quarter of 2012 based on 165.8 million weighted-average diluted shares outstanding, compared to$0.09 for the same quarter of 2011, based on 162.9 million weighted-average diluted shares outstanding(2).
(1) 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."
(2) Effective
Management Commentary:
Conference Call Details
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About
Copyright © 2012 Fortinet, Inc. All rights reserved. The symbols ® and ™ denote respectively federally registered trademarks and unregistered trademarks of
FTNT-F
Forward-looking Statements
This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding our expectations regarding market share and our growth, the momentum in our business, our forthcoming product lineup and our pipeline of business in 2012. 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 risks associated with the adoption of, and demand for, our products and services in certain customer verticals; and the other risk factors set forth from time to time in our filings with the
Non-GAAP Financial Measures
We have provided in this release financial information that has not been prepared in accordance with Generally Accepted Accounting Principles (GAAP). We use these non-GAAP financial measures internally in analyzing our financial results and believe they are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures below. As previously mentioned, a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.
Billings. We define billings as revenue recognized plus the change in deferred revenue from the beginning to the end of the period. We consider billings to be a useful metric for management and investors because billings drive deferred revenue, which is an important indicator of the health and visibility of our business, and has historically represented a majority of the quarterly revenue that we recognize. There are a number of limitations related to the use of billings versus revenue calculated in accordance with GAAP. First, billings include amounts that have not yet been recognized as revenue. Second, we may calculate billings in a manner that is different from peer companies that report similar financial measures. Management compensates for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with revenues calculated in accordance with GAAP.
Free
Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income plus stock-based compensation reduced by the income from payments we received from a patent settlement. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenue. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of stock-based compensation expense and patent settlement related income so that our management and investors can compare our recurring core business operating results over multiple periods. There are a number of limitations related to the use of non-GAAP operating income versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes stock-based compensation expense. Stock-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in our business. Second, stock-based compensation is an important part of our employees' compensation and impacts their performance. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their non-GAAP results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP.
Non-GAAP net income and diluted net income per share. We define non-GAAP net income as net income plus stock-based compensation expense reduced by the income from payments we received from a patent settlement, less the related tax effects. We define non-GAAP diluted net income per share as non-GAAP net income divided by the weighted-average shares outstanding. We consider these non-GAAP financial measures to be useful metrics for management and investors for the same reasons that we use non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we exclude from non-GAAP net income and non-GAAP diluted net income per share, the tax effects associated with stock-based compensation and the patent settlement. We believe the effective tax rates we used are reasonable estimates of long-term normalized tax rates under our global operating structure. The same limitations described above regarding our use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP diluted net income per share. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP diluted net income per share and evaluating non-GAAP net income and non-GAAP diluted net income per share together with net income and diluted net income per share calculated in accordance with GAAP.
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
March 31, December 31,
ASSETS 2012 2011
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 74,783 $ 71,990
Short-term investments 353,287 318,283
Accounts receivable, net of allowance for
doubtful accounts of $316 and $336 ,
respectively 84,759 95,522
Inventory 17,959 16,249
Deferred tax assets 6,963 7,578
Prepaid expenses and other current assets 13,749 13,948
-------------- --------------
Total current assets 551,500 523,570
PROPERTY AND EQUIPMENT - Net 9,560 7,966
DEFERRED TAX ASSETS - Non-current 46,523 46,523
LONG-TERM INVESTMENTS 172,236 148,414
OTHER ASSETS 8,625 8,274
-------------- --------------
TOTAL ASSETS $ 788,444 $ 734,747
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,764 $ 19,768
Accrued liabilities 16,721 15,971
Accrued payroll and compensation 23,918 24,197
Deferred revenue 216,558 206,928
-------------- --------------
Total current liabilities 270,961 266,864
DEFERRED REVENUE - Non-current 98,014 87,905
OTHER LIABILITIES 21,142 21,624
-------------- --------------
Total liabilities 390,117 376,393
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock 158 156
Additional paid-in-capital 341,096 317,026
Treasury stock (2,995) (2,995)
Accumulated other comprehensive income 2,130 402
Retained earnings 57,938 43,765
-------------- --------------
Total stockholders' equity 398,327 358,354
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 788,444 $ 734,747
============== ==============
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
Three Months Ended
--------------------------
March 31, March 31,
2012 2011
------------ ------------
REVENUE:
Product $ 53,204 $ 40,165
Services 62,138 48,686
Ratable and other revenue 1,905 4,415
------------ ------------
Total revenue 117,247 93,266
------------ ------------
COST OF REVENUE:
Product(1) 19,067 14,075
Services(1) 11,213 7,781
Ratable and other revenue 763 1,560
------------ ------------
Total cost of revenue 31,043 23,416
------------ ------------
GROSS PROFIT:
Product 34,137 26,090
Services 50,925 40,905
Ratable and other revenue 1,142 2,855
------------ ------------
Total gross profit 86,204 69,850
------------ ------------
OPERATING EXPENSES:
Research and development(1) 19,667 14,421
Sales and marketing(1) 42,036 32,718
General and administrative(1) 5,786 5,266
------------ ------------
Total operating expenses 67,489 52,405
------------ ------------
OPERATING INCOME 18,715 17,445
INTEREST INCOME 1,085 793
OTHER EXPENSE - NET (71) (95)
------------ ------------
INCOME BEFORE INCOME TAXES 19,729 18,143
PROVISION FOR INCOME TAXES 5,556 4,556
------------ ------------
NET INCOME $ 14,173 $ 13,587
============ ============
Net income per share(2):
Basic $ 0.09 $ 0.09
============ ============
Diluted $ 0.09 $ 0.08
============ ============
Weighted-average shares outstanding(2):
Basic 156,010 150,308
============ ============
Diluted 165,751 162,864
============ ============
(1) Includes stock-based compensation expense as follows:
Cost of product revenue $ 64 $ 22
Cost of services revenue 745 198
Research and development 1,957 453
Sales and marketing 3,443 1,900
General and administrative 1,037 497
------------ ------------
$ 7,246 $ 3,070
============ ============
(2) Effective June 1, 2011 , we completed a two-for-one stock split of our
outstanding shares of common stock. We have retroactively displayed the
effect of the change in our condensed consolidated financial statements.
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
Three Months Ended
--------------------------
March 31, March 31,
2012 2011
------------ ------------
Net income $ 14,173 $ 13,587
Other comprehensive income:
Foreign currency translation 558 654
Unrealized gains (losses) on investments 1,799 (5)
Unrealized losses on cash flow hedges - (74)
Tax provision related to items of other
comprehensive income (629) -
------------ ------------
Net change in accumulated other comprehensive
income 1,728 575
------------ ------------
Comprehensive income $ 15,901 $ 14,162
============ ============
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
--------------------------
March 31, March 31,
2012 2011
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,173 $ 13,587
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,082 1,678
Loss on disposal of fixed assets 19 -
Amortization of investment premiums 3,255 3,261
Stock-based compensation 7,246 3,070
Excess tax benefits from employee stock
option plans (2,320) (1,115)
Changes in operating assets and liabilities:
Accounts receivable - net 10,763 1,009
Inventory (3,409) 550
Deferred tax assets (15) (17)
Prepaid expenses and other current assets (330) (510)
Other assets 569 (1,149)
Accounts payable (6,319) (4,225)
Accrued liabilities 42 2,389
Accrued payroll and compensation (547) (23)
Other liabilities (273) 3,623
Deferred revenue 19,696 13,398
Income taxes payable 3,886 4,650
------------ ------------
Net cash provided by operating
activities 48,518 40,176
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (192,567) (129,695)
Sales of investments 17,416 11,591
Maturities of investments 115,026 71,864
Payments made in connection with business
acquisition (550) -
Purchase of property and equipment (1,624) (694)
------------ ------------
Net cash used in investing activities (62,299) (46,934)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and
warrants 13,551 6,960
Excess tax benefit from employee stock option
plans 2,320 1,115
------------ ------------
Net cash provided by financing
activities 15,871 8,075
------------ ------------
EFFECT OF EXCHANGE RATES ON CASH AND CASH
EQUIVALENTS 703 805
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,793 2,122
CASH AND CASH EQUIVALENTS - Beginning of period 71,990 66,859
------------ ------------
CASH AND CASH EQUIVALENTS - End of period $ 74,783 $ 68,981
============ ============
Reconciliations of non-GAAP results of operations measures to the nearest
comparable GAAP measures
(Unaudited, in thousands)
Reconciliation of GAAP revenue to billings
Three Months Ended
--------------------------
March 31, March 31,
2012 2011
------------ ------------
Total revenue $ 117,247 $ 93,266
Increase in deferred revenue 19,739 13,398
------------ ------------
Total billings (Non-GAAP) $ 136,986 $ 106,664
============ ============
Reconciliation of cash provided by operating
activities to free cash flow
Three Months Ended
--------------------------
March 31, March 31,
2012 2011
------------ ------------
Net cash provided by operating activities $ 48,518 $ 40,176
Less purchases of property and equipment (1,624) (694)
------------ ------------
Free cash flow (Non-GAAP) $ 46,894 $ 39,482
============ ============
Reconciliation of non-GAAP results of operations to the nearest comparable
GAAP measures
(Unaudited, in thousands, except per share amounts)
Reconciliation of GAAP to non-GAAP operating income, operating margin, net
income and diluted net income per share
Three Months Ended Three Months Ended
March 31, 2012 March 31, 2011
------------------------------ --------------------------------
GAAP Non-GAAP GAAP Non-GAAP
Results Adjustments Results Results Adjustments Results
-------- -------- -------- -------- -------- --------
Operating
Income $ 18,715 6,768 (a) $ 25,483 $ 17,445 2,593 (b) $ 20,038
======== ======== ======== ======== ======== ========
Operating
Margin 16% 22% 19% 21%
======== ======== ======== ========
6,768 (a) 2,593 (b)
(3,453)(c) (2,287)(c)
-------- --------
Net
Income $ 14,173 3,315 $ 17,488 $ 13,587 306 $ 13,893
======== ======== ======== ========
Diluted
net
income
per
share $ 0.09 $ 0.11 $ 0.08(d) $ 0.09(d)
======== ======== ======== ========
Shares
used in
per
share
calculat
ions -
diluted 165,751 165,751 162,864(d) 162,864(d)
======== ======== ======== ========
(a) To exclude $7.2 million of stock-based compensation expense offset by
the $0.5 million of patent settlement income in the three months ended
March 31, 2012 .
(b) To exclude $3.1 million of stock-based compensation expense offset by
the $0.5 million of patent settlement income in the three months ended
March 31, 2011 .
(c) To exclude the tax effects related to expenses noted in (a) and (b).
(d) Effective June 1, 2011 , we completed a two-for-one stock split of our
outstanding shares of common stock. We have retroatively displayed the
effect of the change in our condensed consolidated financial statements.
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Investor & Media Contact:Michelle Spolver Fortinet, Inc. 408-486-7837 mspolver@fortinet.com
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