Fortinet sees record margins & higher service revenue in Q2 2024

Fortinet has released its financial results for the second quarter of 2024, showing an increase in total revenue alongside record operating margins. The cybersecurity company reported total revenue of USD $1.43 billion, representing a rise of 10.9% compared to USD $1.29 billion in the same quarter of 2023. However, product revenue saw a slight decline of 4.4% from USD $472.6 million to USD $451.9 million year-over-year. In contrast, service revenue rose by 19.8%, reaching USD $982.4 million compared to USD $820.2 million in the same period last year.

GAAP operating income was USD $437.2 million, equating to a GAAP operating margin of 30.5%, a noteworthy improvement from the previous year’s GAAP operating income of USD $279.0 million and operating margin of 21.6%. Non-GAAP figures also showed impressive growth, with operating income reported at USD $503.6 million, translating to a non-GAAP operating margin of 35.1%, compared to 26.9% in the second quarter of 2023.

Ken Xie, founder, chairman, and CEO of Fortinet, emphasised the company’s progress in balancing growth and profitability. "In the second quarter, we successfully balanced growth and profitability as our non-GAAP operating margin increased 820 basis points year-over-year to a company record of 35.1%, while billings and revenue were at the high end of their respective guidance ranges," he said.

Xie highlighted Fortinet's strategic focus on the fast-growing unified Secure Access Service Edge (SASE) and security operations markets. "We are continuing to execute our strategy to invest in the fast-growing unified SASE and security operations markets, while gaining market share in secure networking. We expect to emerge as a SASE leader, as we are the only vendor in the Gartner Magic Quadrant for Single-Vendor SASE that is also recognised in five different network security Magic Quadrant reports," he added.

The company's second-quarter GAAP net income was USD $379.8 million, up from USD $266.3 million in the same quarter of 2023. GAAP diluted net income per share also increased to USD $0.49, compared to USD $0.33 in the corresponding period last year. Non-GAAP net income rose to USD $439.9 million in the second quarter of 2024, up from USD $300.4 million in the same quarter of 2023. Non-GAAP diluted net income per share was USD $0.57, compared to USD $0.38 during the same period in 2023.

Despite the positive earnings, cash flow from operations saw a decline, with Fortinet generating USD $342.0 million in the second quarter of 2024, down from USD $515.1 million in the second quarter of 2023. Free cash flow also decreased, amounting to USD $318.9 million compared to USD $438.3 million in the same period last year.

Looking ahead, Fortinet has provided guidance for the third quarter and the full fiscal year of 2024. For the third quarter, the company anticipates revenue in the range of USD $1.445 billion to USD $1.505 billion and billings between USD $1.530 billion to USD $1.600 billion. Non-GAAP gross margin is expected to be in the range of 79.0% to 80.0%, with a non-GAAP operating margin projected between 30.5% and 31.5%. Diluted non-GAAP net income per share is forecasted to be between USD $0.56 and USD $0.58, assuming a non-GAAP effective tax rate of 17%.

For the full fiscal year 2024, Fortinet expects revenue in the range of USD $5.800 billion to USD $5.900 billion, with service revenue projected to be between USD $3.975 billion and USD $4.025 billion. The company also estimates billings in the range of USD $6.400 billion to USD $6.600 billion. Non-GAAP gross margin is anticipated to be between 79.0% and 80.0%, with a non-GAAP operating margin forecasted in the range of 30.0% to 31.5%. Diluted non-GAAP net income per share is expected to be between USD $2.13 and USD $2.19, assuming a non-GAAP effective tax rate of 17%.