Fortinet, Inc. reports 958% Net Income growth in 2018 and 4.9 pp EBITDA Margin growth from 11.1% to 15.9%
02/06/2019 • About Fortinet, Inc. (
$FTNT) • By InTwits
Fortinet, Inc. reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- Fortinet, Inc. is a fast growth stock: 2018 revenue growth was 20.5%, 5 year revenue CAGR was 24.0% at 2018 ROIC 28.0%
- EBITDA Margin is expanding: 15.9% in 2018 vs. 11.1% in 2017 vs. 10.6% in 2014
- EBITDA Margin is quite volatile: 15.9% in 2018, 11.1% in 2017, 7.2% in 2016, 4.6% in 2015, 10.6% in 2014
- Fortinet, Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for 2014-2018 was 9.1% while average EBITDA Margin was 10.6% for the sames years
- Fortinet, Inc. has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.0%. At the same time it's a lot of higher than industry average of 3.1%.
- CAPEX is quite volatile: $53m in 2018, $135m in 2017, $67m in 2016, $37m in 2015, $32m in 2014
- The company has highly profitable business model: ROIC is 28.0%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Fortinet, Inc.'s Revenue jumped on 20.5%. Revenue growth showed acceleration in 18Q4 - it increased 21.7% YoY. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased on 4.9 pp from 11.1% to 15.9% in 2018. During 2014-2018 EBITDA Margin bottomed in 2015 at 4.6% and was growing since that time.
Gross Margin increased slightly on 0.77 pp from 74.2% to 75.0% in 2018. Gross Margin stuck to a growing trend at 1.3 pp per annum in the last 5 years. SG&A as a % of Revenue decreased on 4.2 pp from 52.8% to 48.6% in 2018. During 2014-2018 SG&A as a % of Revenue topped in 2016 at 55.5% and was declining since that time. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018. During 2014-2018 SBC as a % of Revenue topped in 2016 at 9.6% and was declining since that time.
Net Income margin jumped on 16.3 pp from 2.1% to 18.4% in 2018.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 2.9% in 2018. Fortinet, Inc.'s CAPEX/Revenue decreased slightly on 0.76 pp from 3.7% in 2015 to 2.9% in 2018. For the last three years the average CAPEX/Revenue was 5.8%.
Accounts receivable as a % of Revenue increased slightly on 1.4 pp from 23.3% to 24.7% in 2018. Inventories as a % of Revenue showed almost no change at 5.0% in 2018. Accounts payable as a % of Revenue increased slightly on 1.0 pp from 18.2% to 19.2% in 2018.
Fortinet, Inc. has spent
$22m on M&A in 2018 which accounts for 1.2% of revenue.
Return on investment
The company operates at high and attractive ROIC (28.0%) and ROE (41.5%). ROIC surged on 13.0 pp from 15.0% to 28.0% in 2018. ROE surged on 37.1 pp from 4.4% to 41.5% in 2018. During the last 5 years ROIC bottomed in 2015 at 2.1% and was growing since that time. During the last 5 years ROE bottomed in 2015 at 1.1% and was growing since that time.
Leverage (Debt)
The company has no debt. Cash jumped on 37.2%.
Valuation and dividends
The company's trades at EV/EBITDA 45.0x and P/E 42.2x.
Management team
Fortinet, Inc.'s CEO Ken Xie is a founder and has spent 18 years with the company. CEO total compensation was
$6,761,686 in 2018 which included
$625,000 salary. Keith F Jensen is a the company's CFO. Keith F Jensen has spent 1 year at the company.
At the end of financial year the company had 14.5% shares owned by insiders. Insider ownership didn't change in 2018.
At the end of financial year the company had 5,845 employees. The number of employees surged on 15.4%. Average revenue per employee in 2018 was
$308,161 and it increased on 4.4%.
Financial and operational results
FY ended 12/31/2018
Fortinet, Inc. ($FTNT) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 770 | 1,009 | 1,275 | 1,495 | 1,801 | 20.5% |
| Gross Profit | 539 | 722 | 938 | 1,110 | 1,351 | 21.7% |
| SG&A | 357 | 542 | 708 | 789 | 875 | 11.0% |
| EBITDA | 81 | 46 | 91 | 165 | 287 | 73.5% |
| EBIT | 59 | 15 | 43 | 110 | 231 | 110.4% |
| Tax | 36 | 9 | 11 | 93 | -81 | -187.8% |
| Net Income | 25 | 8 | 32 | 31 | 332 | 958.0% |
| Stock Based Compensation | 59 | 95 | 122 | 137 | 163 | 18.7% |
Balance Sheet
|
|---|
| Cash | 283 | 543 | 709 | 811 | 1,112 | 37.2% |
| Accounts Receivable | 185 | 260 | 313 | 348 | 445 | 27.7% |
| Inventory | 69 | 84 | 107 | 77 | 90 | 16.4% |
| Accounts Payable | 50 | 62 | 57 | 70 | 86 | 23.4% |
| Short Term Debt | 0 | 0 | 0 | 0 | 0 | |
| Long Term Debt | 0 | 0 | 0 | 0 | 0 | |
Cash flow
|
|---|
| Capex | 32 | 37 | 67 | 135 | 53 | -60.8% |
| Acquisitions | 0 | 38 | 22 | | 22 | |
Ratios
|
|---|
| Revenue growth | 25.2% | 31.0% | 26.4% | 17.2% | 20.5% | |
| EBITDA growth | -7.3% | -42.9% | 96.8% | 80.7% | 73.5% | |
|
|---|
| Gross Margin | 70.0% | 71.6% | 73.5% | 74.2% | 75.0% | 0.8% |
| EBITDA Margin | 10.6% | 4.6% | 7.2% | 11.1% | 15.9% | 4.9% |
| EBIT Margin | 7.7% | 1.5% | 3.4% | 7.3% | 12.8% | 5.5% |
| SG&A, % of revenue | 46.4% | 53.7% | 55.5% | 52.8% | 48.6% | -4.2% |
| SBC, % of revenue | 7.7% | 9.4% | 9.6% | 9.2% | 9.0% | -0.1% |
| Net Income Margin | 3.3% | 0.8% | 2.5% | 2.1% | 18.4% | 16.3% |
| CAPEX, % of revenue | 4.2% | 3.7% | 5.3% | 9.1% | 2.9% | -6.1% |
|
|---|
| ROIC | 9.2% | 2.1% | 5.3% | 15.0% | 28.0% | 13.0% |
| ROE | 4.0% | 1.1% | 4.0% | 4.4% | 41.5% | 37.1% |
| Net Debt/EBITDA | -3.5x | -11.7x | -7.8x | -4.9x | -3.9x | 1.0x |
People
|
|---|
| Insider ownership | 14.5% | 14.5% | 14.5% | 14.5% | 14.5% | 0.0% |
| Employees | 2,854 | 4,018 | 4,665 | 5,066 | 5,845 | 15.4% |
| Revenue/Employee, th. $ | 270 | 251 | 273 | 295 | 308 | 4.4% |
Fortinet, Inc. ($FTNT) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 399 | 441 | 454 | 507 | | 17.2% | 21.4% | 21.3% | 21.7% |
| EBITDA | 46 | 64 | 77 | 100 | | 141.2% | 51.3% | 62.4% | 76.7% |
| Net Income | 42 | 49 | 59 | 183 | | 288.2% | 114.0% | 119.9% | |
Balance Sheet
|
|---|
| Cash | 836 | 972 | 1,169 | 1,112 | | 1.5% | 13.9% | 29.1% | 37.2% |
| Long Term Debt | 0 | 0 | 0 | 0 | | | | | |
Ratios
|
|---|
| Gross Margin | 75.6% | 74.4% | 75.4% | 74.7% | | 2.2% | 0.7% | 0.4% | -0.0% |
| EBITDA Margin | 11.4% | 14.6% | 17.0% | 19.7% | | 5.9% | 2.9% | 4.3% | 6.1% |
| Net Income Margin | 10.4% | 11.2% | 12.9% | 36.0% | | 7.3% | 4.8% | 5.8% | 43.0% |
Peers in Systems Software
Below you can find Fortinet, Inc. benchmarking vs. other companies in Systems Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Advantego Corp ($ADGO) | | | | | 973.8% |
| Solbright Group Inc ($SBRT) | | | 286.4% | 25.4% | 414.0% |
| Duos Technologies Group Inc ($DUOT) | | 61.0% | -9.8% | -36.4% | 210.2% |
| Dell Technologies Inc. ($DVMT) | | | | | 145.7% |
| Finjan Holdings, Inc. ($FNJN) | | -6.2% | 292.3% | 174.6% | 63.0% |
| |
|---|
| Median (48 companies) | | 18.2% | 14.6% | 14.0% | 19.0% |
|---|
| Fortinet, Inc. ($FTNT) | | 31.0% | 26.4% | 17.2% | 20.5% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| StrikeForce Technologies Inc ($SFOR) | 97.0% | 96.9% | 98.3% | 95.4% | 94.0% |
| Varonis Systems, Inc. ($VRNS) | 90.2% | 90.6% | 90.5% | 90.4% | 89.8% |
| Check Point Software Technologies Ltd. ($CHKP) | 88.2% | 88.5% | 88.5% | 88.6% | 89.6% |
| Tableau Software, Inc. ($DATA) | 91.0% | 88.7% | 88.0% | 87.1% | 87.7% |
| Attunity Ltd. ($ATTU) | 90.7% | 84.9% | 83.9% | 84.1% | 87.5% |
| |
|---|
| Median (53 companies) | 77.0% | 75.4% | 73.1% | 73.9% | 73.5% |
|---|
| Fortinet, Inc. ($FTNT) | 70.0% | 71.6% | 73.5% | 74.2% | 75.0% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Check Point Software Technologies Ltd. ($CHKP) | 54.3% | 52.4% | 49.8% | 50.7% | 48.8% |
| SolarWinds Corporation ($SWI) | | | -8.0% | 44.0% | 44.8% |
| Finjan Holdings, Inc. ($FNJN) | -192.1% | -295.2% | 2.2% | 30.2% | 42.0% |
| Oracle Corporation ($ORCL) | 46.2% | 43.8% | 40.8% | 40.2% | 40.8% |
| CA Inc. ($CA) | 33.9% | 36.7% | 37.2% | 36.1% | 35.3% |
| |
|---|
| Median (47 companies) | -2.4% | -6.6% | -9.8% | -5.4% | -4.7% |
|---|
| Fortinet, Inc. ($FTNT) | 10.6% | 4.6% | 7.2% | 11.1% | 15.9% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| The Rubicon Project, Inc. ($RUBI) | 15.6% | 11.4% | 12.0% | 26.0% | 16.0% |
| CYREN Ltd. ($CYRN) | 2.4% | 4.4% | 3.2% | 5.8% | 9.2% |
| ServiceNow, Inc. ($NOW) | 8.0% | 8.7% | 7.6% | 7.8% | 8.6% |
| Qualys, Inc. ($QLYS) | 10.4% | 12.2% | 11.7% | 16.4% | 8.2% |
| Zscaler, Inc. ($ZS) | | 12.5% | 7.8% | 6.5% | 8.0% |
| |
|---|
| Median (48 companies) | 2.7% | 2.1% | 2.0% | 2.2% | 2.5% |
|---|
| Fortinet, Inc. ($FTNT) | 4.2% | 3.7% | 5.3% | 9.1% | 2.9% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Finjan Holdings, Inc. ($FNJN) | -42.6% | -113.5% | 3.4% | 46.6% | 64.1% |
| Check Point Software Technologies Ltd. ($CHKP) | 22.2% | 23.7% | 24.7% | 26.8% | 25.5% |
| MAM Software Group, Inc. ($MAMS) | 13.3% | 19.3% | 21.1% | 24.2% | 25.2% |
| Red Hat, Inc. ($RHT) | 15.1% | 14.1% | 14.2% | 16.4% | 22.4% |
| GlobalSCAPE, Inc. ($GSB) | 21.9% | 27.0% | 18.9% | 8.5% | 19.9% |
| |
|---|
| Median (56 companies) | 0.0% | 0.0% | -4.3% | -4.7% | -1.9% |
|---|
| Fortinet, Inc. ($FTNT) | 9.2% | 2.1% | 5.3% | 15.0% | 28.0% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| NXT-ID Inc. ($NXTD) | | | | | 9.7x |
| Symantec Corporation ($SYMC) | -3.2x | -1.5x | -5.0x | 10.0x | 4.7x |
| SolarWinds Corporation ($SWI) | | | | 6.2x | 4.1x |
| Oracle Corporation ($ORCL) | 0.4x | 1.2x | 1.6x | 2.4x | 2.4x |
| ServiceNow, Inc. ($NOW) | | | | 9.0x | 0.9x |
| |
|---|
| Median (22 companies) | -2.1x | -1.4x | -1.0x | -0.3x | -0.4x |
|---|
| Fortinet, Inc. ($FTNT) | -3.5x | -11.7x | -7.8x | -4.9x | -3.9x |
