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Fortinet Reports Second Quarter 2012 Financial Results
- Revenues of
$129.0 million , up 25% year over year - Billings of
$145.8 million , up 32% year over year(1) - GAAP diluted net income per share of
$0.08 - Non-GAAP diluted net income per share of
$0.12 (1) - Free cash flow of
$41.3 million (1) - Cash, cash equivalents and investments of
$644.4 million , with no debt
Financial Highlights for the Second Quarter of 2012
- Revenue: Total revenue was
$129.0 million for the second quarter of 2012, an increase of 25% compared to$103.0 million in the same quarter of 2011. Within total revenue, product revenue was$61.7 million , an increase of 32% compared to the same quarter of 2011.Services revenue was$65.4 million , an increase of 24% compared to the same quarter of 2011. - Billings(1): Total billings were
$145.8 million for the second quarter of 2012, an increase of 32% compared to$110.2 million in the same quarter of 2011. - Deferred Revenue: Deferred revenue was
$331.4 million as ofJune 30, 2012 , an increase of 21% compared to deferred revenue of$273.2 million as ofJune 30, 2011 , and up$16.8 million from$314.6 million as ofMarch 31, 2012 . Cash and Free Cash Flow (1): As ofJune 30, 2012 , cash, cash equivalents and investments were$644.4 million , compared to$600.3 million as ofMarch 31, 2012 . In the second quarter of 2012, free cash flow was$41.3 million .- GAAP Operating Income: GAAP operating income was
$21.0 million for the second quarter of 2012, representing a GAAP operating margin of 16%. GAAP operating income was$18.8 million for the same quarter of 2011, representing a GAAP operating margin of 18%. - GAAP Net Income and Diluted Net Income Per Share: GAAP net income was
$14.0 million for the second quarter of 2012, based on a 37% tax rate for the quarter. This compares to GAAP net income of$14.5 million for the same quarter of 2011, based on a 25% tax rate for the quarter.GAAP diluted net income per share was$0.08 for the second quarter of 2012, based on 166.1 million weighted-average diluted shares outstanding, compared to$0.09 for the same quarter of 2011, based on 163.9 million weighted-average diluted shares outstanding. - Non-GAAP Operating Income(1): Non-GAAP operating income was
$28.3 million for the second quarter of 2012, representing a non-GAAP operating margin of 22%. Non-GAAP operating income was$22.2 million for the same quarter of 2011, representing a non-GAAP operating margin of 22%. - Non-GAAP Net Income and Diluted Net Income Per Share(1): Non-GAAP net income was
$19.5 million for the second quarter of 2012, based on a 34% effective tax rate for the quarter.Non-GAAP net income for the same quarter of 2011 was$15.3 million , based on a 33% effective tax rate.Non-GAAP diluted net income per share was$0.12 for the second quarter of 2012 based on 166.1 million weighted-average diluted shares outstanding, compared to$0.09 for the same quarter of 2011, based on 163.9 million weighted-average diluted shares outstanding.
(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."
Management Commentary:
Conference Call Details
Following
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 the momentum in our business, growth of our business and our product pipeline 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 development and introductions and innovation; litigation and disputes and the potential cost, distraction and damage to sales and reputation caused thereby; market acceptance of new products and services; 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; competition and pricing pressure; 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 diluted 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)
June 30, December 31,
2012 2011
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 81,226 $ 71,990
Short-term investments 320,403 318,283
Accounts receivable, net of allowance for
doubtful accounts of $229 and $336 ,
respectively 95,351 95,522
Inventory 20,828 16,249
Deferred tax assets 7,063 7,578
Prepaid expenses and other current assets 15,570 13,948
----------- ------------
Total current assets 540,441 523,570
PROPERTY AND EQUIPMENT-Net 10,247 7,966
DEFERRED TAX ASSETS-Non-current 46,003 46,523
LONG-TERM INVESTMENTS 242,769 148,414
OTHER ASSETS 7,715 8,274
----------- ------------
TOTAL ASSETS $ 847,175 $ 734,747
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,101 $ 19,768
Accrued liabilities 17,280 15,971
Accrued payroll and compensation 27,086 24,197
Deferred revenue 226,510 206,928
----------- ------------
Total current liabilities 294,977 266,864
DEFERRED REVENUE-Non-current 104,858 87,905
OTHER LIABILITIES 20,696 21,624
----------- ------------
Total liabilities 420,531 376,393
----------- ------------
STOCKHOLDERS' EQUITY:
Common stock 159 156
Additional paid-in capital 356,438 317,026
Treasury stock (2,995) (2,995)
Accumulated other comprehensive income 1,154 402
Retained earnings 71,888 43,765
----------- ------------
Total stockholders' equity 426,644 358,354
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 847,175 $ 734,747
=========== ============
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2012 2011 2012 2011
--------- --------- --------- ---------
REVENUE:
Product $ 61,692 $ 46,687 $ 114,896 $ 86,852
Services 65,412 52,671 127,550 101,357
Ratable and other revenue 1,858 3,665 3,763 8,080
--------- --------- --------- ---------
Total revenue 128,962 103,023 246,209 196,289
--------- --------- --------- ---------
COST OF REVENUE:
Product (1) 23,935 16,591 43,003 30,666
Services (1) 12,467 8,596 23,680 16,377
Ratable and other revenue 725 1,371 1,487 2,931
--------- --------- --------- ---------
Total cost of revenue 37,127 26,558 68,170 49,974
--------- --------- --------- ---------
GROSS PROFIT:
Product 37,757 30,096 71,893 56,186
Services 52,945 44,075 103,870 84,980
Ratable and other revenue 1,133 2,294 2,276 5,149
--------- --------- --------- ---------
Total gross profit 91,835 76,465 178,039 146,315
--------- --------- --------- ---------
OPERATING EXPENSES:
Research and development (1) 20,388 15,942 40,055 30,363
Sales and marketing (1) 44,259 35,896 86,295 68,614
General and administrative (1) 6,238 5,848 12,023 11,114
--------- --------- --------- ---------
Total operating expenses 70,885 57,686 138,373 110,091
--------- --------- --------- ---------
OPERATING INCOME 20,950 18,779 39,666 36,224
INTEREST INCOME 1,203 863 2,287 1,656
OTHER INCOME (EXPENSE)-Net 73 (207) 3 (302)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 22,226 19,435 41,956 37,578
PROVISION FOR INCOME TAXES 8,276 4,941 13,833 9,497
--------- --------- --------- ---------
NET INCOME $ 13,950 $ 14,494 $ 28,123 $ 28,081
========= ========= ========= =========
Net income per share:
Basic $ 0.09 $ 0.10 $ 0.18 $ 0.19
========= ========= ========= =========
Diluted $ 0.08 $ 0.09 $ 0.17 $ 0.17
========= ========= ========= =========
Weighted-average shares
outstanding:
Basic 157,474 152,267 156,742 151,293
========= ========= ========= =========
Diluted 166,061 163,887 165,808 163,393
========= ========= ========= =========
(1) Includes stock-based
compensation expense as follows:
Cost of product revenue $ 88 $ 43 $ 152 $ 65
Cost of services revenue 941 362 1,686 560
Research and development 2,292 985 4,249 1,438
Sales and marketing 3,475 1,681 6,918 3,581
General and administrative 1,056 799 2,093 1,296
--------- --------- --------- ---------
$ 7,852 $ 3,870 $ 15,098 $ 6,940
========= ========= ========= =========
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2012 2011 2012 2011
--------- --------- --------- ---------
Net income $ 13,950 $ 14,494 $ 28,123 $ 28,081
Other comprehensive income:
Foreign currency translation (783) 269 (225) 923
Unrealized gains (losses) on
investments (326) 159 1,473 154
Unrealized gains (losses) on
cash flow hedges 19 - 19 (74)
Tax provision related to items
of other comprehensive income 114 - (515) -
--------- --------- --------- ---------
Net change in accumulated other
comprehensive income (976) 428 752 1,003
--------- --------- --------- ---------
Comprehensive income $ 12,974 $ 14,922 $ 28,875 $ 29,084
========= ========= ========= =========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
--------------------
June 30, June 30,
2012 2011
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,123 $ 28,081
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,077 3,336
Loss on disposal of fixed assets 31 -
Amortization of investment premiums 6,528 6,291
Stock-based compensation 15,098 6,940
Excess tax benefits from employee stock option
plans (5,158) (4,491)
Changes in operating assets and liabilities:
Accounts receivable-net (328) 63
Inventory (7,952) (1,455)
Deferred tax assets 520 (5,546)
Prepaid expenses and other current assets (250) (1,000)
Other assets 886 (887)
Accounts payable 4,321 355
Accrued liabilities 910 3,660
Accrued payroll and compensation 2,998 357
Other liabilities (1,014) 3,170
Deferred revenue 36,502 20,544
Income taxes payable 5,744 14,826
--------- ---------
Net cash provided by operating activities 92,036 74,244
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (355,025) (287,659)
Sales of investments 44,255 75,582
Maturities of investments 209,242 136,263
Purchases of property and equipment (3,855) (1,450)
Payment made in connection with business acquisition (550) (2,623)
--------- ---------
Net cash used in investing activities (105,933) (79,887)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 17,650 11,219
Excess tax benefit from employee stock option plans 5,158 4,491
--------- ---------
Net cash provided by financing activities 22,808 15,710
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 325 1,093
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,236 11,160
CASH AND CASH EQUIVALENTS-Beginning of period 71,990 66,859
--------- ---------
CASH AND CASH EQUIVALENTS-End of period $ 81,226 $ 78,019
========= =========
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
------------------------
June 30, June 30,
2012 2011
----------- -----------
Total revenue $ 128,962 $ 103,023
Increase in deferred revenue 16,796 7,170
----------- -----------
Total billings (Non-GAAP) $ 145,758 $ 110,193
=========== ===========
Reconciliation of net cash provided by operating activities to free cash
flow
Three Months Ended
------------------------
June 30, June 30,
2012 2011
----------- -----------
Net cash provided by operating activities $ 43,518 $ 34,068
Less purchases of property and equipment (2,231) (756)
----------- -----------
Free cash flow (Non-GAAP) $ 41,287 $ 33,312
=========== ===========
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 June 30, Three Months Ended June 30,
2012 2011
----------------------------- -------------------------------
Non- Non-
GAAP Adjust- GAAP GAAP Adjust- GAAP
Results ments Results Results ments Results
Operating
Income $20,950 $ 7,374 (a) $28,324 $ 18,779 $ 3,392 (b) $22,171
======= ======= ======= ======== ======= =======
Operating
Margin 16% 22% 18% 22%
======= ======= ======== =======
7,374 (a) 3,392 (b)
(1,788) (c) (2,592) (c)
------- -------
Net Income $13,950 $ 5,586 $19,536 $ 14,494 $ 800 $15,294
======= ======= ======== =======
Diluted net
income per
share $ 0.08 $ 0.12 $ 0.09 $ 0.09
======= ======= ======== =======
Shares used
in per
share
calcula-
tions
-diluted 166,061 166,061 163,887 163,887
======= ======= ======== =======
(a) To exclude $7.8 million of stock-based compensation expense offset by
$0.5 million of patent settlement income in the three months ended June 30,
2012 .
(b) To exclude $3.9 million of stock-based compensation expense offset by
$0.5 million of patent settlement income in the three months ended June 30,
2011 .
(c) To exclude the tax effects related to expenses noted in (a) and (b).
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Investor Contact:Michelle Spolver Fortinet, Inc. 408-486-7837 mspolver@fortinet.com Media Contact:Rick Popko Fortinet, Inc. 408-486-7853 rpopko@fortinet.com
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