Fortinet expects to obtain US$1 billion of non-firewall revenue this year as customers look to consolidate their security footprint behind a smaller number of vendors.
The platform security vendor saw 40 percent year-over-year sales growth in its non-firewall business in the quarter ended March 31, according to CFO Keith Jensen. As a result, 31 percent of Fortinet’s revenue now comes from non-firewall products, which Jensen said is 4 percent higher than a year ago.
“There’s two different ways to expand,” Jensen said during an earnings call Thursday. “One is finding more and more use cases inside organizations for firewalls, and increasing the displacement opportunities. And then the second is the expansion opportunity with those non-FortiGate Fabric partner products, and what we’re seeing is … an affirmation of the [second] strategy.”
The growth rate for Fortinet’s non-firewall business has been almost double that of the FortiGate firewall business over the last few years, and that trend is expected to continue, according to founder, chairman and CEO Ken Xie. As a result, Xie said Fortinet’s non-firewall business will probably be larger than the company’s FortiGate business within a few years.
“Most of the products we develop internally from day one, so they integrate and operate well together,” Xie said. “That’s probably the key number one reason customers want to buy [the Fortinet Security Fabric] is they want to consolidate and make it easier to manage. It’s different than some other companies where they acquire some products or companies from outside.
Jensen said he’s been on phone calls with very large enterprises in the Americas that want to learn more about the Fabric now that they’ve become comfortable with Fortinet’s firewall. This ran contrary to Jensen’s expectations, who had thought the Fabric would play more to the SMB part of Fortinet’s business than to the enterprise.
Enterprises have been willing to engage with the Fabric since it’s a more cost-effective way to secure their ecosystem while remaining within budget, Jensen said. Customers are additionally excited that all the products run on or can be integrated into the FortiOS 7.0 operating system, which Jensen said opens the door to conversations about a SASE (Secure Access Service Edge) offering running on the same OS.
“To see the non-FortiGate billings growth at that 50 percent number and see that mix of business obviously makes us very excited,” Jensen said. “You can manage your infrastructure much, much easier with a single vendor strategy than you can otherwise.”
Fortinet’s sales for the quarter ended March 31 soared to US$710.3 million, up 23 percent from US$577.7 million a year earlier. That crushed Seeking Alpha’s quarterly revenue projection of US$680.8 million.
Net income inched ahead to US$107.2 million, or US$0.64 per diluted share, up 2.5 percent from US$104.6 million, or US$0.60 per diluted share. On a non-GAAP basis, net income US$135.6 million, or US$0.81 per diluted share, up 29 percent from US$105.1 million, or US$0.60 per diluted share. That beat Seeking Alpha’s non-GAAP earnings estimate of US$0.74 per share.
Fortinet’s stock climbed US$7.53 (3.85 percent) to US$203 per share in after-hours trading. The company’s earnings were announced after the market closed Thursday.
The company’s growth was balanced, with services sales climbing to US$469.6 million, up 21.8 million the year prior. Fortinet’s product sales also jumped to US$240.7 million, up 25.2 percent from US$192.3 million last year.
From a geographic standpoint, Fortinet’s sales in the Americas rose to US$290.9 million, up 20 percent from US$242.5 million the year prior. The Americas accounted for 41 percent of Fortinet’s revenue in the quarter, which is down from 42 percent last year.
For the coming quarter, Fortinet expects to see diluted non-GAAP earnings of between US$0.83 and US$0.88 per share on revenue in the range of US$733 million to US$747 million.