Fortinet, Inc. reports 47.3% Net Income growth in 2020 and 19.9% Revenue growth
02/04/2021 • About Fortinet, Inc. (
$FTNT) • By InTwits
Fortinet, Inc. reported 2020 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Fortinet, Inc. is a fast growth stock: 2020 revenue growth was 19.9%, 5 year revenue CAGR was 20.8% at 2020 ROIC 46.3%
- EBITDA Margin is expanding: 23.9% in 2020 vs. 19.8% in 2019 vs. 7.2% in 2016
- EBITDA Margin is quite volatile: 23.9% in 2020, 19.8% in 2019, 15.9% in 2018, 11.1% in 2017, 7.2% in 2016
- Fortinet, Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for 2016-2020 was 4.5% while average EBITDA Margin was 17.0% for the sames years
- Fortinet, Inc. has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.3%. At the same time it's a lot of higher than industry average of 3.2%.
- CAPEX is quite volatile: $126m in 2020, $92m in 2019, $53m in 2018, $135m in 2017, $67m in 2016
- The company has highly profitable business model: ROIC is 46.3%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 19.9%. Revenue growth showed acceleration in 20Q4 - it increased 21.0% YoY. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 2.6 pp from 35.7% to 33.1% in 2020. EBITDA Margin grew at 4.2 pp per annum in 2016-2020.
Gross Margin increased slightly on 1.4 pp from 76.6% to 78.0% in 2020. Gross Margin grew at 1.1 pp per annum in 2016-2020. SG&A as a % of Revenue decreased slightly on 1.7 pp from 47.6% to 45.9% in 2020. SG&A as a % of Revenue stuck to a declining trend at -2.4 pp per annum in the last 5 years.
Net Income margin increased on 3.5 pp from 15.3% to 18.8% in 2020.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 4.9% in 2020. Fortinet, Inc.'s CAPEX/Revenue decreased on 4.2 pp from 9.1% in 2017 to 4.9% in 2020. For the last three years the average CAPEX/Revenue was 4.0%.
Return on investment
The company operates at high and attractive ROIC (46.3%) and ROE (44.4%). ROIC surged on 17.3 pp from 29.0% to 46.3% in 2020. ROE surged on 16.2 pp from 28.2% to 44.4% in 2020. ROIC followed a growing trend at 9.6 pp per annum in 2016-2020.
Leverage (Debt)
Company's Net Debt / EBITDA is -1.6x and Debt / EBITDA is 0.1x. Debt surged on 15.2% while cash dropped on 13.1%.
Fortinet, Inc. has no short term refinancing risk: cash is higher than short term debt (5,559.2%).
Valuation and dividends
The company's trades at EV/EBITDA 41.0x and P/E 54.1x.
Management team
Fortinet, Inc.'s CEO Ken Xie has spent 20 years with the company. Keith F Jensen is a Fortinet, Inc.'s CFO. Keith F Jensen has spent 2 years at the company.
Financial and operational results
FY ended 12/31/2020
Fortinet, Inc. ($FTNT) key annual financial indicators| mln. $ | 2016 | 2017 | 2018 | 2019 | 2020 | 2020/2019 |
|---|
P&L
|
|---|
| Revenue | 1,275 | 1,495 | 1,801 | 2,163 | 2,594 | 19.9% |
| Gross Profit | 938 | 1,110 | 1,351 | 1,657 | 2,024 | 22.2% |
| SG&A | 708 | 789 | 875 | 1,029 | 1,191 | 15.8% |
| EBITDA | 91 | 165 | 287 | 428 | 619 | 44.7% |
| EBIT | 43 | 110 | 231 | | | |
| Tax | 11 | 93 | -81 | | | |
| Net Income | 32 | 31 | 332 | 332 | 489 | 47.3% |
| Stock Based Compensation | 122 | 137 | 163 | | | |
Balance Sheet
|
|---|
| Cash | 709 | 811 | 1,112 | 1,223 | 1,062 | -13.1% |
| Accounts Receivable | 313 | 348 | 445 | | | |
| Inventory | 107 | 77 | 90 | | | |
| Accounts Payable | 57 | 70 | 86 | | | |
| Short Term Debt | 0 | 0 | 0 | 16 | 19 | 23.2% |
| Long Term Debt | 0 | 0 | 0 | 31 | 34 | 11.1% |
Cash flow
|
|---|
| Capex | 67 | 135 | 53 | 92 | 126 | 36.6% |
| Acquisitions | 22 | | 22 | | | |
Ratios
|
|---|
| Revenue growth | 26.4% | 17.2% | 20.5% | 20.1% | 19.9% | |
| EBITDA growth | 96.8% | 80.7% | 73.5% | 49.3% | 44.7% | |
|
|---|
| Gross Margin | 73.5% | 74.2% | 75.0% | 76.6% | 78.0% | 1.4% |
| EBITDA Margin | 7.2% | 11.1% | 15.9% | 19.8% | 23.9% | 4.1% |
| EBIT Margin | 3.4% | 7.3% | 12.8% | | |
| SG&A, % of revenue | 55.5% | 52.8% | 48.6% | 47.6% | 45.9% | -1.7% |
| SBC, % of revenue | 9.6% | 9.2% | 9.0% | | |
| Net Income Margin | 2.5% | 2.1% | 18.4% | 15.3% | 18.8% | 3.5% |
| CAPEX, % of revenue | 5.3% | 9.1% | 2.9% | 4.3% | 4.9% | 0.6% |
|
|---|
| ROIC | 5.3% | 15.0% | 28.0% | 29.0% | 46.3% | 17.3% |
| ROE | 4.0% | 4.4% | 41.5% | 28.2% | 44.4% | 16.2% |
| Net Debt/EBITDA | -7.8x | -4.9x | -3.9x | -2.7x | -1.6x | 1.1x |
People
|
|---|
| Insider ownership | 14.5% | 14.5% | 14.5% | | | |
| Employees | 4,665 | 5,066 | 5,845 | | | |
| Revenue/Employee, th. $ | 273 | 295 | 308 | | | |
Fortinet, Inc. ($FTNT) key quoterly financial indicators
| mln. $ | 20Q1 | 20Q2 | 20Q3 | 20Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 577 | 616 | 651 | 748 | | 22.1% | 18.0% | 18.8% | 21.0% |
| EBITDA | 138 | 139 | 148 | 191 | | 97.1% | 47.6% | 24.3% | 34.6% |
| Net Income | 104 | 112 | 123 | 147 | | 76.9% | 54.2% | 53.9% | 24.1% |
Balance Sheet
|
|---|
| Cash | 626 | 916 | 882 | 1,062 | | -48.5% | -10.3% | -24.9% | -13.1% |
| Short Term Debt | 15 | 16 | 17 | 19 | | 24.4% | 34.2% | 23.7% | 23.2% |
| Long Term Debt | 28 | 28 | 31 | 34 | | 2.9% | 7.0% | 11.9% | 11.1% |
Ratios
|
|---|
| Gross Margin | 77.7% | 78.1% | 78.6% | 77.7% | | 1.6% | 2.6% | 1.3% | 0.4% |
| EBITDA Margin | 23.9% | 22.6% | 22.8% | 25.5% | | 9.1% | 4.5% | 1.0% | 2.6% |
| Net Income Margin | 18.0% | 18.2% | 19.0% | 19.6% | | 5.6% | 4.3% | 4.3% | 0.5% |
Peers in Systems Software
Below we provide Fortinet, Inc. benchmarking against other companies in Systems Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Zscaler, Inc. ($ZS) | - | 56.5% | 51.3% | 59.2% | 42.4% |
| ServiceNow, Inc. ($NOW) | - | 38.0% | 36.0% | 32.6% | 30.6% |
| SailPoint Technologies Holdings, Inc. ($SAIL) | - | 40.5% | 33.8% | 15.9% | 26.6% |
| Rapid7, Inc. ($RPD) | - | 27.6% | 21.5% | 33.9% | 25.9% |
| Tenable Holdings, Inc. ($TENB) | - | 50.9% | 42.4% | 32.6% | 24.2% |
| |
|---|
| Median (23 companies) | 12.9% | 14.0% | 19.0% | 15.9% | 12.9% |
|---|
| Fortinet, Inc. ($FTNT) | - | 17.2% | 20.5% | 20.1% | 19.9% |
Top companies by Gross margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Check Point Software Technologies Ltd. ($CHKP) | 88.5% | 88.6% | 89.6% | 89.5% | 89.4% |
| Progress Software Corporation ($PRGS) | 83.8% | 82.6% | 83.1% | 81.8% | 86.0% |
| Varonis Systems, Inc. ($VRNS) | 90.5% | 90.4% | 89.8% | 86.2% | 84.9% |
| Vmware, Inc. ($VMW) | 85.2% | - | 85.5% | 83.9% | 83.4% |
| Tenable Holdings, Inc. ($TENB) | 88.6% | 86.4% | 83.9% | 82.8% | 82.4% |
| |
|---|
| Median (23 companies) | 73.1% | 73.9% | 73.5% | 75.4% | 76.5% |
|---|
| Fortinet, Inc. ($FTNT) | 73.5% | 74.2% | 75.0% | 76.6% | 78.0% |
Top companies by EBITDA margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Check Point Software Technologies Ltd. ($CHKP) | 49.8% | 50.7% | 48.8% | 46.0% | 45.1% |
| Qualys, Inc. ($QLYS) | 23.8% | 25.1% | 28.4% | 36.5% | 40.3% |
| SolarWinds Corporation ($SWI) | -8.0% | 44.0% | 44.8% | 44.7% | 39.8% |
| Progress Software Corporation ($PRGS) | 2.4% | 28.6% | 32.9% | 23.4% | 34.4% |
| Vmware, Inc. ($VMW) | 25.2% | - | 28.8% | 26.3% | 22.9% |
| |
|---|
| Median (23 companies) | -9.8% | -5.4% | -4.7% | -1.4% | -1.1% |
|---|
| Fortinet, Inc. ($FTNT) | 7.2% | 11.1% | 15.9% | 19.8% | 23.9% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Zscaler, Inc. ($ZS) | 7.8% | 6.5% | 8.0% | 9.5% | 12.0% |
| ServiceNow, Inc. ($NOW) | 7.6% | 7.8% | 8.6% | 7.7% | 9.3% |
| Qualys, Inc. ($QLYS) | 11.7% | 16.4% | 8.2% | 8.6% | 8.3% |
| Zuora, Inc. ($ZUO) | 3.4% | 3.3% | 2.8% | 5.7% | 7.8% |
| Proofpoint, Inc. ($PFPT) | 9.2% | 9.0% | 4.1% | 4.0% | 6.9% |
| |
|---|
| Median (23 companies) | 2.0% | 2.2% | 2.5% | 3.4% | 2.8% |
|---|
| Fortinet, Inc. ($FTNT) | 5.3% | 9.1% | 2.9% | 4.3% | 4.9% |
Top companies by ROIC, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Check Point Software Technologies Ltd. ($CHKP) | 24.7% | 26.8% | 25.5% | 24.2% | 25.6% |
| Qualys, Inc. ($QLYS) | 13.7% | 12.3% | 14.3% | 18.7% | 22.0% |
| Vmware, Inc. ($VMW) | 15.9% | - | - | 18.1% | 19.6% |
| Progress Software Corporation ($PRGS) | -4.9% | 13.5% | 18.5% | 7.6% | 16.0% |
| A10 Networks, Inc. ($ATEN) | -24.4% | -11.3% | -27.2% | -13.0% | 13.0% |
| |
|---|
| Median (23 companies) | -4.3% | -4.7% | -1.9% | -6.4% | -6.4% |
|---|
| Fortinet, Inc. ($FTNT) | 5.3% | 15.0% | 28.0% | 29.0% | 46.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| SolarWinds Corporation ($SWI) | - | 6.2x | 4.1x | 4.4x | 4.1x |
| Proofpoint, Inc. ($PFPT) | - | - | - | -27.4x | 2.5x |
| Progress Software Corporation ($PRGS) | -7.5x | -0.1x | 0.1x | 1.5x | 2.1x |
| Vmware, Inc. ($VMW) | -0.7x | - | -0.8x | 0.3x | 1.5x |
| CyberArk Software Ltd. ($CYBR) | -4.1x | -5.7x | -4.5x | -3.6x | 0.9x |
| |
|---|
| Median (11 companies) | -1.0x | -0.3x | -0.4x | -0.3x | 0.9x |
|---|
| Fortinet, Inc. ($FTNT) | -7.8x | -4.9x | -3.9x | -2.7x | -1.6x |
