Fortinet Inc. FTNT reported better-than-expected results for second-quarter 2016, wherein both the top line and bottom line outpaced the respective Zacks Consensus Estimate. The network security solution provider’s adjusted earnings per share (excluding one-time items but including stock-based compensation) came in at 3 cents, while the Zacks Consensus Estimate stood a tad lower at 2 cents.
However, on a year-over-year basis, the company reported earnings remained flat, while on a GAAP basis, it reported a loss of a penny, compared with breakeven results in the year-ago quarter.
Revenues
Fortinet reported second-quarter revenues of $311.4 million, up 29.9%. Revenues also beat the Zacks Consensus Estimate of $304 million and exceeded the company’s guidance of $301–$306 million. Segment-wise, Product revenues jumped 19% year over year to $136.6 million, while Services revenues surged 40% to $174.8 million.
The year-over-year improvement was primarily aided by strength in the network security market. A large number of deal wins and customer additions during the quarter further contributed to top–line growth.
During the quarter, Fortinet added approximately 9,000 customers, bringing the total count to over 280,000. The company witnessed 36% year-over-year growth in the number of deals worth over $100,000, while the number of deals worth over $250,000 and $500,000 increased 35% and 19%, respectively.
Billings soared 26% on a year-over-year basis to $373.8 million.
Operating Results
Gross profit increased 33.2% from the year-ago quarter to $226.9 million. Moreover, gross margin expanded 190 basis points (bps) to 72.7% primarily backed by sales of higher-value subscription bundles.
Higher-than-expected adjusted operating expenses (up 35.9% year over year) hurt operating results. As a percentage of revenues, operating expenses increased 320 bps to 71.1%. Adjusted operating profit during the quarter came in at $5.6 million, lower than the year-ago quarter profit level of $7.5 million.
Balance Sheet & Cash Flow
Fortinet exited the quarter with cash and cash equivalents, and short-term investments of approximately $984.8 million, up from $952.6 million at the end of the previous quarter. Accounts receivable were $254.4 million, compared with $220.1 million at the end of the first quarter.
During the quarter, the company generated cash flow of $67.9 million. Free cash flow for the quarter came in at $53.5 million. In first half of 2016, the company generated operating cash flow of $168.5 million.
During the first six months of 2016, Fortinet repurchased 2 million shares worth $50.0 million. However, during the second quarter, the company did not repurchase any stock.