Sizing Up Some Q1 Tech Earnings Winners

We are in the thick of first-quarter earnings season. And it’s going pretty well so far: More than 70% of reporting companies have beaten their consensus earnings estimates, according to Bespoke Investment Group. While Apple Inc. (Nasdaq: AAPL) had a stellar report, several other tech companies have put up impressive first-quarter numbers. Here is a rundown of some of these winners.

It was a second solid quarter in a row for Akamai Technologies Inc. (Nasdaq: AKAM), an accomplishment for this provider of content delivery and cloud infrastructure services, as the company is not known for its earnings consistency. Revenue in the first quarter rose 16% year over year to $319 million, handily topping the consensus estimate of $310.7 million, while Earnings Per Share (EPS) of 41 cents beat the consensus by three cents.

The company’s media and entertainment division experienced strong traffic growth (revenue rose 14% year over year), beating internal expectations for the second straight quarter, while the commerce unit turned in 21% growth. Cloud infrastructure solutions represented 57% of total revenue, up from 55% in the fourth quarter.

For the June quarter, Akamai sees revenue of $322 million to $330 million, above the consensus estimate of $314.8 million, while EPS guidance of 36 cents to 38 cents came in a little light (the consensus of 39 cents). Increased network investments as well as costs associated with integrating the recent Cotendo and Blaze Software acquisitions will cause second quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to dip to the 41% to 42% range from 45%. It will take a few quarters for EBITDA margin to rebound to the long-term guidance range of 45% to 47%, according to management.

In networking security, Fortinet Inc. (Nasdaq: FTNT) (Nasdaq: FTNT), reported first-quarter revenue of $117.2 million (+26% year over year), above the consensus estimate of $114.9 million. Billings totaled $137 million (well above the guidance range of $122 million to $127 million) and growth accelerated for the third quarter in a row, coming in at 28%, up from 27% in the fourth quarter.

Product revenue advanced 32% to $53.2 million, driven by robust demand for mid-range and high-end security solutions. Sales were strongest into these industry verticals: service provider (30% of billings), retail (12%), government (11%), financial services (8%), and education (6%).

Deferred revenue rose 18% to $314.6 million, and the long-term portion of deferred revenue was up 25% to $98 million, indicating an increased number of larger deals with associated multi-year service contracts. Fortinet closed 153 deals worth more than $100,000 each, up from 111 in the year-ago quarter. The number of deals worth more than $250,000 each jumped 28% year over year.

For 2012, Fortinet raised its revenue guidance range to $515 million to $530 million from the previous forecast of $505 million to $520 million. The company maintained its full-year operating margin goal of 24%; management expects operating margin to tick up to 23% in the second quarter from 22% in the March quarter.

Citrix Systems Inc. (Nasdaq: CTXS) reported first-quarter results well ahead of expectations. Revenue advanced 20.1% to $589 million, easily beating the consensus estimate of $562.1 million, and EPS of 59 cents topped the consensus by nine cents. Revenue growth in the desktop virtualization unit (57% of total revenue) accelerated to 17% from 14% in the fourth quarter, driven by 19 XenDesktop deals worth more than $1 million each.

In the datacenter/cloud unit (17% of total revenue), revenue growth accelerated to 28% from 21% in the fourth quarter, with NetScaler application delivery controller (ADC) product revenue up 46%. Citrix continues to see success in cross-selling its ADC solution into its enterprise customer base, as 400 desktop deals in the latest quarter included NetScaler. The high-end NetScaler SDX, aimed at service providers and larger enterprises, experienced revenue growth of 20% sequentially and accounted for 10% of all NetScaler licenses.

Citrix boosted its 2012 EPS outlook to a range of $2.75 to $2.79, above previous guidance of $2.70 to $2.74 and the current consensus estimate of $2.74. The midpoint of the new revenue guidance range of $2.53 billion to $2.56 billion (the consensus is $2.51 billion) indicates expected growth of 15.1%.

Shares of Ultimate Software (Nasdaq: ULTI), a provider of cloud-based talent management solutions, surged 8% in one session this week after the company reported first-quarter earnings of 13 cents, three cents above the consensus estimate. Revenue rose 21.4% year over year to $78.3 million, comfortably above the consensus of $76 million. Recurring revenue of $60.9 million (representing 78% of total revenue) rose 21.9%, and the company maintained its strong customer retention rate of 96%.

With the recent jump in the stock price, Ultimate Software’s market cap has reached $2 billion, or six times the 2012 consensus revenue estimate of $331 billion. This elevated valuation reflects the fact that the company has been viewed as a possible takeover target now that competitors Taleo and SuccessFactors have been acquired by Oracle Corp. (Nasdaq: ORCL) and SAP AG (NYSE/Frankfurt: SAP), respectively.

Cornerstone OnDemand (Nasdaq: CSOD), the other significant pure play in talent management, has a market cap of $1 billion and trades at 8.8 times its 2012 consensus revenue estimate of $113.5 million. For 2012, analysts expect Ultimate Software to deliver revenue growth of around 23%, while Cornerstone’s expected growth rate is 50%.