Fortinet CEO Said Subscriptions And Services Gave It A Billings Boost

Cybersecurity technology vendor Fortinet on Wednesday reported revenue and billings growth as more customers embrace the company's subscription model for its products and services.

Fortinet's Chairman and CEO Ken Xie, during his prepared remarks to investors, said Fortinet in the second quarter, ended June 30, showed strong leadership in the security market. "We continue to grow revenue and billings above market rates," he said. "Ongoing strength in subscription services is creating high-margin recurring revenue."

Fortinet in April unveiled the extension of the Fortinet Security Fabric to the cloud as part of its FortiOS 5.6 release. The fabric solutions are growing fast, but growth does take time, the CEO said. "We also need to train sales and partners beyond the traditional firewall," he said, noting that Fortinet is selling the Fortinet Security Fabric based on the value of its management and orchestration capabilities.

"I don't think we feel the pressures of other competitors in this space," he said. "We're seeing our market share growing."

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Fortinet is also continuing to grow its business in the SMB market, with sales in the first quarter of 2017 up 12.4 percent compared to competitors who grew at less than 10 percent, Xie said, citing IDC market share numbers. "So we keep gaining share … We don't see any competitor come close to us in SMB," he said.

Fortinet also sees strength in its enterprise and service provider business, including strong customer interest in the company's 7000 series firewalls, Xie said. "but the bigger customers take a longer time to sell, even in the enterprise … I think the 7000 will help in bigger deals a little bit," he said.

Fortinet reported revenue for the second fiscal quarter of 2017 of $363 million, up 17 percent compared to the $311 million the company reported for the year-ago quarter. Billings in the second quarter of 2017 reached $427 million, up 14 percent annually.

The company reported second quarter net income of $48 million, with earnings per share of 27 cents, just about double the $24 million, or 14 cents per share, it reported last year.

Analysts had been expecting revenue of about $361 million and earnings per share of 20 cents, according to Seeking Alpha, and Fortinet beat both numbers.

Drew Del Matto, Fortinet's CFO, said second quarter subscription services revenue rose 26 percent year-over-year to $221 million, while product revenue grew year-over-year 4 percent to $143 million.

The Americas accounted for 44 percent of total revenue, up from last year's 43 percent, with revenue in that geography growing 21 percent over last year, Del Matto said.

Service providers accounted for about 18 percent of Fortinet's total revenue, compared to 15 percent from government sales, 13 percent from financial services, and 10 percent from education, he said.

Fortinet expects revenue for the third fiscal quarter of 2017 to be between $417 million and $427 million, which at the midpoint is up about 21 percent year-over-year, Del Matto said. Diluted earnings per share in the third quarter is expected to be between 22 cents and 23 cents, he said.