Fortinet Inc. (FTNT, Financial) filed Quarterly Report for the period ended 2011-06-30.
Fortinet Inc. has a market cap of $3.2 billion; its shares were traded at around $21.08 with a P/E ratio of 57.8 and P/S ratio of 9.8.
Billings, a non-GAAP financial measure that we define as total revenue plus the change in deferred revenue (further described under "Non-GAAP Financial Measures"), were $110.2 million in the second quarter of 2011, an increase of 22% compared to the second quarter of 2010. Our billings growth rate was adversely impacted by slower billings growth in our EMEA region. Total revenue was $103.0 million for the second quarter of 2011, an increase of 35% compared to the second quarter of 2010. Revenue for the second quarter of 2011 includes a $5.7 million, or 6%, positive impact related to the adoption of the new revenue recognition rules, as described in our "Summary of Significant Accounting Policies" included in - Footnote 1 of our Condensed Consolidated Financial Statements. The increase was primarily due to certain product revenue, which can now be recognized upon shipment, and would have been deferred under the previous revenue recognition rules. Product revenue was $46.7 million, an increase of 50% compared to the second quarter of 2010, and a greater percentage of total revenue (45% in the second quarter of 2011, compared to 41% in the second quarter of 2010). The higher product revenue can be attributed to a richer mix of product, compared to services, billings compared to last year and upfront recognition of revenue related to sales in China previously amortized ratably. Services revenue in the second quarter of 2011 was $52.7 million, an increase of 29% compared to the second quarter of 2010. Services revenue is important to our future revenue and profitability as it provides a source of recurring revenue for us, representing 51% and 54% of total revenue for the second quarter of 2011 and 2010, respectively. Ratable product and services revenue in the second quarter of 2011 was $3.7 million, a decrease of 15% compared to the second quarter of 2010. Adoption of the new revenue recognition rules is expected to result in a decline in ratable revenue over time.
We are a global, geographically diversified business, with 61% of our total revenue generated outside of the Americas region in the second quarter of 2011. Our strong operating results were driven by strong performance across all geographies, especially in APAC and the Americas. During the quarter, $40.5 million, or 39%, of our total revenue was generated from the Americas, representing an increase of 40% from the second quarter of 2010. EMEA generated $36.6 million, or 36%, of our total revenue during the second quarter of 2011, representing an increase of 24% from the second quarter of 2010. APAC generated $25.8 million, or 25%, of our total revenue during the second quarter of 2011, representing an increase of 44% from the second quarter of 2010.
Our total operating expenses were $57.7 million for the second quarter of 2011, an increase of 24% compared to the same period in the prior year. The 35% increase in revenues compared to the 29% increase in sales and marketing expense from the second quarter of 2010 (as discussed under "Results of Operations" below) demonstrates the leverage that we are achieving from the investment in our sales force during the past year. We are achieving even higher leverage in the first half of 2011, as revenues increased 35% compared to the 24% increase in sales and marketing expense from the first half of 2010. Despite the negative impact of foreign currency fluctuations experienced during the quarter, operating expenses as a percentage of revenue decreased to 56% from 61% during the second quarter last year. We are also seeing improvements in productivity and efficiencies in our overall headcount as our annualized second quarter 2011 revenue per employee, defined as quarterly revenue, annualized and divided by average headcount, reached $288,000, up from $241,000 for the second quarter of 2010. Headcount increased during the second quarter of 2011 from 1,389 at the end of the first quarter of 2011 to 1,475, as our pace of hiring picked up this quarter (particularly in research and development), following a ramp up in our recruiting efforts over the past few quarters. A portion of the headcount (35 employees) increase was due to our TalkSwitch acquisition in the current quarter.
(4) Pro-forma tax provision related to non-GAAP income before tax reflects 33.0% and 35.0% effective tax rates in the second quarter of 2011 and 2010, respectively. Based on the annual estimate for geographic split of income, as well as various tax credits we expect to achieve in various locations, we currently plan to use a 33.0% tax rate for the year, subject to discrete items that may occur in a particular quarter.
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Fortinet Inc. has a market cap of $3.2 billion; its shares were traded at around $21.08 with a P/E ratio of 57.8 and P/S ratio of 9.8.
Highlight of Business Operations:
changes meaningful in terms of business trends. The percentage of our FortiGate related billings from the mid-range category increased to 33% in the second quarter of 2011 from 30% in the second quarter of 2010, while the high-end category decreased from 35% to 34%, and the entry-level category decreased from 35% to 33%.Billings, a non-GAAP financial measure that we define as total revenue plus the change in deferred revenue (further described under "Non-GAAP Financial Measures"), were $110.2 million in the second quarter of 2011, an increase of 22% compared to the second quarter of 2010. Our billings growth rate was adversely impacted by slower billings growth in our EMEA region. Total revenue was $103.0 million for the second quarter of 2011, an increase of 35% compared to the second quarter of 2010. Revenue for the second quarter of 2011 includes a $5.7 million, or 6%, positive impact related to the adoption of the new revenue recognition rules, as described in our "Summary of Significant Accounting Policies" included in - Footnote 1 of our Condensed Consolidated Financial Statements. The increase was primarily due to certain product revenue, which can now be recognized upon shipment, and would have been deferred under the previous revenue recognition rules. Product revenue was $46.7 million, an increase of 50% compared to the second quarter of 2010, and a greater percentage of total revenue (45% in the second quarter of 2011, compared to 41% in the second quarter of 2010). The higher product revenue can be attributed to a richer mix of product, compared to services, billings compared to last year and upfront recognition of revenue related to sales in China previously amortized ratably. Services revenue in the second quarter of 2011 was $52.7 million, an increase of 29% compared to the second quarter of 2010. Services revenue is important to our future revenue and profitability as it provides a source of recurring revenue for us, representing 51% and 54% of total revenue for the second quarter of 2011 and 2010, respectively. Ratable product and services revenue in the second quarter of 2011 was $3.7 million, a decrease of 15% compared to the second quarter of 2010. Adoption of the new revenue recognition rules is expected to result in a decline in ratable revenue over time.
We are a global, geographically diversified business, with 61% of our total revenue generated outside of the Americas region in the second quarter of 2011. Our strong operating results were driven by strong performance across all geographies, especially in APAC and the Americas. During the quarter, $40.5 million, or 39%, of our total revenue was generated from the Americas, representing an increase of 40% from the second quarter of 2010. EMEA generated $36.6 million, or 36%, of our total revenue during the second quarter of 2011, representing an increase of 24% from the second quarter of 2010. APAC generated $25.8 million, or 25%, of our total revenue during the second quarter of 2011, representing an increase of 44% from the second quarter of 2010.
Our total operating expenses were $57.7 million for the second quarter of 2011, an increase of 24% compared to the same period in the prior year. The 35% increase in revenues compared to the 29% increase in sales and marketing expense from the second quarter of 2010 (as discussed under "Results of Operations" below) demonstrates the leverage that we are achieving from the investment in our sales force during the past year. We are achieving even higher leverage in the first half of 2011, as revenues increased 35% compared to the 24% increase in sales and marketing expense from the first half of 2010. Despite the negative impact of foreign currency fluctuations experienced during the quarter, operating expenses as a percentage of revenue decreased to 56% from 61% during the second quarter last year. We are also seeing improvements in productivity and efficiencies in our overall headcount as our annualized second quarter 2011 revenue per employee, defined as quarterly revenue, annualized and divided by average headcount, reached $288,000, up from $241,000 for the second quarter of 2010. Headcount increased during the second quarter of 2011 from 1,389 at the end of the first quarter of 2011 to 1,475, as our pace of hiring picked up this quarter (particularly in research and development), following a ramp up in our recruiting efforts over the past few quarters. A portion of the headcount (35 employees) increase was due to our TalkSwitch acquisition in the current quarter.
(4) Pro-forma tax provision related to non-GAAP income before tax reflects 33.0% and 35.0% effective tax rates in the second quarter of 2011 and 2010, respectively. Based on the annual estimate for geographic split of income, as well as various tax credits we expect to achieve in various locations, we currently plan to use a 33.0% tax rate for the year, subject to discrete items that may occur in a particular quarter.
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