Fortinet Rides Large SD-WAN Deals To Q2 Sales Success

‘As we keep investing in marketing and sales coverage in [SD-WAN], we do believe we'll become a leader in this space,’ says Fortinet Founder, Chairman and CEO Ken Xie.

Fortinet executives said the company capitalized on its SD-WAN cost and performance advantage to land six SD-WAN deals greater than $1 million in the second quarter.

The Sunnyvale, Calif.-based platform security vendor said its FortiGate next-generation firewall product is dominating the SD-WAN market, with interest fairly evenly spread across Fortinet's low-end, mid-range, and high-end FortiGates, according to CFO Keith Jensen.

The SD-WAN surge has also driven interest in other Fortinet Security Fabric products, Jensen said, with about 70 percent of SD-WAN deals having a services component in the mix. And since FortiGate is part of the FortiOS operating system, customers can rely on an integrated single box covering both security and SD-WAN networking that's easy to manage, said Ken Xie, Fortinet's founder, chairman and CEO.

[Related: Fortinet CEO: Partners See Advantages Of Our Product, Better Margins]

"We feel we have a much better, broader, and more advanced approach," Xie told Wall Street analysts Thursday. "We see a huge potential going forward."

Xie chalked much of Fortinet's advantage in SD-WAN up to the company's proprietary ASIC chip, which he said gives the company a leg up in price. In order to address the security needs around SD-WAN, Xie said many competitors have resorted to adding computing power or having multiple boxes, both of which come at a high cost.

"Our advantage is very huge," Xie said. "As we keep investing in marketing and sales coverage in this space, we do believe we'll become a leader in this space."

As Fortinet increases its market share in SD-WAN, Xie said economies of scale will make it so that the cost of each ASIC chip is lower, which in turn will allow the company to enjoy better margins. And unlike competitors that are focused either on traditional network security gateways or handling applications in the cloud, Xie said Fortinet's infrastructure-centric approach will pay dividends going forward.

"The infrastructure security trend will keep going for the next ten-to-twenty years," Xie said. "We are well-positioned for that change."

Fortinet's sales for the quarter ended June 30 jumped to $521.7 million, up 18.2 percent from $441.3 million the year prior. That beat Seeking Alpha's estimate of $511.4 million.

Net income skyrocketed to $72.7 million, or $0.42 per diluted share, up 47.5 percent from $49.3 million, or $0.28 per diluted share, last year. On a non-GAAP basis, net income soared to $101.6 million, or $0.58 per diluted share, up 42.3 percent from $71.4 million, or $0.41 per diluted share, the year prior. That bested Seeking Alpha's earnings projection of $0.50 per diluted share.

Fortinet's stock jumped $6.98 (8.83 percent) to $86 per share in after-hours trading. Earnings were announced after the market closed Thursday.

The company's growth was largely driven by success in its services business, with sales climbing to $331.8 million, up 20.7 percent from $275 million the year prior. Fortinet's product sales also jumped to $189.9 million, up 14.2 percent from $166.3 million the year prior.

From a geographic standpoint, Fortinet's sales in the Americas role to $226 million, up 19 percent from $189 million the year prior. The Americas accounted for 43 percent of Fortinet's revenue in the quarter, which is unchanged from last year.

In the coming quarter, Fortinet expects to see diluted non-GAAP earnings between $0.55 and $0.57 per share on revenue in the range of $525 million to $540 million. Analysts had been expecting earnings of $0.53 per share on sales of $524.1 million, according to Seeking Alpha.