Fortinet delivered impressive results for its third quarter, with billings, revenue, and EPS far exceeding consensus expectations. Increasing enterprise penetration, improved sales execution, strong new product reception, and a strong demand environment were the primary drivers of growth. Guidance for fourth-quarter billings against a tough year-ago comparison still calls for 18% growth, even when taking into account a $2.2 million patent sale in the prior year, implying healthy billings guidance of closer to 19% excluding the patent sale.
The strong results this quarter and resilient guidance suggest Fortinet’s improved execution and increased enterprise spending are driving stronger results and solid market share gains against vulnerable competitors. The heightened security spending environment is also benefiting the company. We continue to be encouraged by the fourth consecutive quarter of strong results, suggesting that Fortinet has resolved its prior execution issues and should continue to deliver solid growth. While some investors may attribute the strength in billings to the current product cycle, through which the company is only halfway, we tend to believe the company is mainly benefiting from better sales execution, strong products, and a favorable IT security spending environment.
For the fourth quarter, management’s outlook was well above our prior estimates for billings and revenue (18% versus 14.9%, and 18% versus 15.9%, respectively), and below our estimate for pro forma earnings per share ($0.14 versus $0.15). Management expects pro forma operating margin of 16%. For the full year, the company expects billings growth of 26%, revenue growth of 23%, and operating margin of 16%.
Management reiterated it would continue to invest in growing its business. These investments include approximately $7 million in capital expenditures, continued investment in sales headcount, channel distribution, and marketing.