Fortinet Sees Surging SMB Demand As Remote Work Rises

Fortinet said its SMB-driven service provider and managed security service provider business hit its highest mark in five quarters, representing 19 percent of total billings in the first quarter.

Fortinet’s SMB business is growing faster than the company as a whole despite small businesses having to grapple with the economic impact of the coronavirus pandemic.

The Sunnyvale, Calif.-based platform security vendor said its service provider and managed security service provider (MSSP) business hit its highest mark in five quarters, representing 19 percent of Fortinet’s total billings in the first quarter, according to Chief Financial Officer Keith Jensen. Fortinet relies on service providers and MSSPs to serve a large portion of the SMB market, Jensen said.

“In terms of SD-WAN and the MSSP, I would characterize that as being a market that we’re very interested in because it’s a very large market,” Jensen told investors Wednesday. “Obviously, the MSPs have already come to use with an incumbent that we’re trying to displace. But that’s an opportunity I would say we’re very focused on internally.”

[Related: Fortinet Expands SD-WAN Vision For 2020 With Product, Partner Perks]

Fortinet CEO Ken Xie chalked the company’s recent success in the SMB market up to three factors. The first is that, prior to the coronavirus pandemic, less than 5 percent of small businesses had a network security tool in place for remote workers. Given that remote work will remain more common after the pandemic, Xie said Fortinet can capitalize on helping customers implement work from home technology.

Secondly, Xie said combining Fortinet’s SD-WAN and WiFi offerings togethers can save small businesses a lot of money. Finally, Xie said Fortinet has in recent quarters refreshed its low-end FortiGate appliances, beginning three quarters ago with the 80F next-generation firewall and continuing with the 60F and 40F firewalls.

The 60F was a real beast in the recent quarter, Jensen said, and provided Fortinet with a bit of a margin lift since it has a slightly different cost structure than its predecessor. All told, Xie said SMBs as a percentage of Fortinet’s overall business increased by 1 or 2 percent in the most recent quarter.

“These three factors contributed to SMB actually growing even faster than average,” Xie said. “It’s all helping to drive the SMB or work from home solution.”

Fortinet’s sales for the quarter ended March 31 soared to $576.9 million, up 22.1 percent from $472.6 million a year earlier. That beat Seeking Alpha’s quarterly revenue projection of $554.2 million.

Net income skyrocketed to $104 million, or $0.60 per diluted share, up 76.9 percent from $58.8 million, or $0.34 per diluted share, last year. On a non-GAAP basis, net income climbed to $104.4 million, or $0.60 per diluted share, up 29.2 percent from $80.8 million, or $0.46 per diluted share, a year ago. That crushed Seeking Alpha’s non-GAAP earnings estimate of $0.50 per share.

Fortinet’s stock jumped $7.54 (6.76 percent) to $119 per share in after-hours trading Wednesday. That’s the highest the Fortinet’s stock has traded since Feb. 19.

The company’s growth was driven largely by success in its services business, with sales climbing to $384.6 million, up 24.1 percent from $309.9 million the year prior. Fortinet’s product sales also jumped to $192.3 million, up 18.2 percent from $162.7 million last year.

From a geographic standpoint, Fortinet’s sales in the Americas rose to $242.2 million, up 20.8 percent from $200.5 million the year prior. The Americas accounted for 42 percent of Fortinet’s revenue in the quarter, which is down from 42.4 percent last year.

For the coming quarter, Fortinet expects to see diluted non-GAAP earnings between $0.64 and $0.66 per share on revenue in the range of $590 million to $605 million.