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Fortinet weathers pandemic storm, posts robust Q1 earnings

Networking and security vendor Fortinet barreled through a tumultuous first quarter of 2020 largely unscathed by the ongoing pandemic. The company enjoyed double-digit growth across the board during the quarter with revenues up 22% year over year for a total of $576.9 million. Meanwhile, product revenue for the quarter was up 18% over the same period to 192.3 million.

In a brief statement during the company’s Q1 earnings call Wednesday, CEO Ken Xie thanked Fortinet’s employees, customers, partners, and suppliers for their commitment, which he claimed enabled the company to weather the pandemic. “Our ability to directly manage our supply chain and shipping logistics allowed us to quickly adjust to the current dynamic environment,” Xie said.

The only area where the company faced setbacks as a result of the coronavirus was at its new campus in Sunnyvale, California. Construction on the new headquarters was halted in mid-March due to shelter-in-place orders and only resumed this week.

First Quarter Earnings

Looking to financials, CFO Keith Jensen credited Fortinet’s highly diversified portfolio of networking and security services, which he said fueled the company’s growth during a quarter. “The strong first-quarter revenue growth, demonstrates the benefit of our diversification across geographies, customer segments and industry verticals,” he said.

This was evidenced by strong performance across the company’s product, service provider, security, and service revenues, which all saw double-digit growth during the quarter.

According to Jensen, Fortinet’s product revenues were bolstered by strong demand for the company’s FortiGate appliances, SD-WAN service, integrated fabric platform, and its embedded and standalone work-from-home security offerings.

“Our growth rates and industry reports suggest we continue to take market share in both the firewall and SD-WAN markets,” he said.

The company’s service provider revenue, which saw a 24% year-over-year increase during the quarter, was a particularly bright spot for the company. Service provider revenue now accounts for 67% of total quarterly revenue, Jensen said. A large portion of the service provider segment was driven by the small to midsized business (SMB), he added.

Fortinet’s strong SMB performance in this economically sensitive impressed BMO Capital Markets financial analyst Keith Bachman. “This level of activity comes as a surprise since leading software companies, including Microsoft and Atlassian, have called out SMB weakness,” wrote Bachman in a note. “Growth is being helped by Fortinet’s ability to help [work-from-home] environments more secure, which is again likely boosted by its SD-WAN offering.”

Q2 Forecast

Looking to the second quarter, Fortinet predicts revenues between $590 and $605 million dollars, with billings ranging from $700 million to $725 million. However, due to “increased uncertainty” because of the pandemic, Jenson said the company would pull its full-year 2020 financial guidance.

“There’s a lot of uncertainty about the future economic conditions,” he said. “We believe the prudent thing to do is to withdraw our previously issued full-year guidance.”

Bachman called the guidance, which came in below expectations, conservative. “Overall, we think Fortinet is well positioned relative to the other firewall vendors, and see more upside than downside to the [second quarter 2020] guidance,” he wrote.

New Hardware

Also on the call, Xie touted the release of the company’s latest FortiGate next-generation firewall, thus driving home the company’s business as usual sentiment.

The FortiGate 4200F is designed to support enterprises with large security surfaces such as those experiencing a rapid increase in remote workers.

Thanks to the company’s proprietary NP7 networking ASIC, which was announced earlier this year, Fortinet claims the firewall will enable up to 400 million concurrent sessions and as many as eight million connections per second.

In addition to remote workers, Fortinet is also targeting large manufacturing and energy companies, online retailers, as well as any enterprise or government organization that require support for elephant flows.

―SDX Central

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