Fortinet Reports Third Quarter 2021 Financial Results
Fortinet® (Nasdaq: FTNT), a global leader in broad, integrated and
automated cybersecurity solutions, today announced financial
results for the third quarter ended September 30, 2021.
“We are extremely pleased with our third quarter performance as
we exceeded $1 billion in quarterly billings for the first time in
Fortinet’s history. Additionally, Gartner again recognized our
Secure SD-WAN solution as a Leader in the 2021 Magic Quadrant for
WAN Edge Infrastructure while placing highest in its ability to
execute,” said Ken Xie, Founder, Chairman, and Chief Executive
Officer. “The total addressable market for network security is
rapidly expanding from the data center outward to the local and
wide-area networks, to the work-from-anywhere environment and to
the cloud. We are focused on leveraging our ASIC-supported security
fabric platform across this expanding total addressable market to
drive better than industry average long-term growth for
Fortinet.”
Financial Highlights for the Third Quarter of
2021
- Revenue: Total revenue was $867.2 million for
the third quarter of 2021, an increase of 33.2% compared to $651.1
million for the same quarter of 2020.
- Product Revenue: Product revenue was $337.1
million for the third quarter of 2021, an increase of 50.6%
compared to $223.8 million for the same quarter of 2020.
- Service Revenue: Service revenue was $530.1
million for the third quarter of 2021, an increase of 24.1%
compared to $427.3 million for the same quarter of 2020.
- Billings1:
Total billings were $1.06 billion for the third quarter of 2021, an
increase of 41.9% compared to $749.8 million for the same quarter
of 2020.
- Deferred Revenue: Total deferred revenue was
$3.11 billion as of September 30, 2021, an increase of 29.9%
compared to $2.39 billion as of September 30, 2020.
- GAAP Operating Income and Margin: GAAP
operating income was $166.4 million for the third quarter of 2021,
representing a GAAP operating margin of 19.2%. GAAP operating
income was $126.9 million for the same quarter of 2020,
representing a GAAP operating margin of 19.5%.
- Non-GAAP Operating Income
and Margin1:
Non-GAAP operating income was $223.6 million for the third quarter
of 2021, representing a non-GAAP operating margin of 25.8%.
Non-GAAP operating income was $178.6 million for the same quarter
of 2020, representing a non-GAAP operating margin of 27.4%.
- GAAP Net Income and Diluted Net Income Per Share
Attributable to Fortinet, Inc. Common Stockholders: GAAP
net income was $163.1 million for the third quarter of 2021,
compared to GAAP net income of $123.4 million for the same quarter
of 2020. GAAP diluted net income per share was $0.97 for the third
quarter of 2021, based on 167.7 million diluted
weighted-average shares outstanding, compared to GAAP diluted net
income per share of $0.75 for the same quarter of 2020, based on
165.6 million diluted weighted-average shares
outstanding.
- Non-GAAP Net Income and Diluted Net
Income Per Share Attributable to Fortinet, Inc. Common
Stockholders1: Non-GAAP
net income was $165.9 million for the third quarter of 2021,
compared to non-GAAP net income of $145.4 million for the same
quarter of 2020. Non-GAAP diluted net income per share was $0.99
for the third quarter of 2021, based on 167.7 million diluted
weighted-average shares outstanding, compared to $0.88 for the same
quarter of 2020, based on 165.6 million diluted
weighted-average shares outstanding.
- Cash Flow: Cash flow from operations was
$398.8 million for the third quarter of 2021, compared to $220.8
million for the same quarter of 2020.
- Free Cash
Flow1: Free cash flow
was $329.8 million for the third quarter of 2021, compared to
$185.7 million for the same quarter of 2020.
- Share Repurchase Program: In
October 2021, Fortinet’s Board of Directors authorized a
$1.25 billion increase in the authorized stock repurchase
under the Repurchase Program and extended the term of the
Repurchase Program to February 28, 2023. As of November 1, 2021,
approximately $2 billion remained available for future share
repurchases.
Guidance
For the fourth quarter of 2021, Fortinet currently expects:
- Revenue in the range of $940 million to $970 million
- Billings in the range of $1.165 billion to $1.215 billion
- Non-GAAP gross margin in the range of 75.0% to 76.0%
- Non-GAAP operating margin in the range of 27.0% to 28.0%
- Diluted non-GAAP net income per share attributable to Fortinet,
Inc. common stockholders in the range of $1.10 to $1.15, assuming a
non-GAAP effective tax rate of 21%. This assumes a diluted share
count of 168 million to 170 million.
For the fiscal year 2021, Fortinet currently expects:
- Revenue in the range of $3.320 billion to $3.350 billion
- Service revenue in the range of $2.080 billion to $2.090
billion
- Billings in the range of $4.040 billion to $4.090 billion
- Non-GAAP gross margin in the range of 76.5% to 77.5%
- Non-GAAP operating margin in the range of 25.5% to 26.5%
- Diluted non-GAAP net income per share attributable to Fortinet,
Inc. common stockholders in the range of $3.85 to $3.95, assuming a
non-GAAP effective tax rate of 21%. This assumes a diluted share
count of 167 million to 169 million.
These statements are forward looking and actual results may
differ materially. Refer to the Forward-Looking Statements section
below for information on the factors that could cause our actual
results to differ materially from these forward-looking
statements.
Our guidance with respect to non-GAAP financial measures
excludes stock-based compensation, amortization of acquired
intangible assets and gain on intellectual property matter. We have
not reconciled our guidance with respect to non-GAAP financial
measures to the corresponding GAAP measures because certain items
that impact these measures are uncertain or out of our control, or
cannot be reasonably predicted. Accordingly, a reconciliation of
these non-GAAP financial measures to the corresponding GAAP
measures is not available without unreasonable effort.
1 A reconciliation of GAAP to non-GAAP measures
has been provided in the financial statement tables included in
this press release. An explanation of these measures is also
included below under the heading “Non-GAAP Financial Measures”.
Conference Call Details
Fortinet will host a conference call today at 1:30 p.m. Pacific
Time (4:30 p.m. Eastern Time) to discuss the earnings results. The
call can be accessed by dialing (877) 303-6913 (domestic) or (224)
357-2188 (international) with conference ID # 2990496. A live
webcast of the conference call and supplemental slides will be
accessible from the Investor Relations page of Fortinet’s website
at https://investor.fortinet.com and a replay will be archived
and accessible at
https://investor.fortinet.com/events-and-presentations. A replay of
this conference call can also be accessed through November 11, 2021
by dialing (855) 859-2056 (domestic) or (404) 537-3406
(international) with conference ID # 2990496.
Fourth Quarter 2021 Virtual Conference Participation
Schedule:
- Wells Fargo Virtual 5th
Annual TMT SummitNovember 30, 2021
- Nasdaq 45th Investor
ConferenceDecember 1 - 2, 2021
- UBS Global TMT Virtual ConferenceDecember 7,
2021
- Barclays Global Technology, Media and
Telecommunications ConferenceDecember 8, 2021
Members of Fortinet’s management team are expected to present at
these conferences and discuss the latest company strategies and
initiatives. Fortinet’s conference presentations are expected to be
available via webcast on the company’s web site. To access the most
updated information and listen to the webcast of each event, please
visit the Investor Relations page of Fortinet’s website at
https://investor.fortinet.com. The schedule is subject to
change.
About Fortinet (www.fortinet.com)
Fortinet (Nasdaq: FTNT) secures the largest enterprise, service
provider, and government organizations around the world. Fortinet
empowers its customers with complete visibility and control across
the expanding attack surface and the power to take on
ever-increasing performance requirements today and into the future.
The Fortinet Security Fabric platform can address the most critical
security challenges and protect data across the entire digital
infrastructure, whether in networked, application, multi-cloud or
edge environments. Both a technology company and a learning
organization, the Fortinet Network Security Institute has one of
the largest and broadest cybersecurity training programs in the
industry. Learn more at https://www.fortinet.com, the Fortinet
Blog or FortiGuard Labs.
Copyright © 2021 Fortinet, Inc. All rights
reserved. The symbols ® and ™ denote respectively federally
registered trademarks and common law trademarks of Fortinet, Inc.,
its subsidiaries and affiliates. Fortinet’s trademarks include, but
are not limited to, the following: Fortinet, the Fortinet logo,
FortiGate, FortiOS, FortiGuard, FortiCare, FortiAnalyzer,
FortiManager, FortiASIC, FortiClient, FortiCloud, FortiMail,
FortiSandbox, FortiADC, FortiAI, FortiAIOps, FortiAntenna, FortiAP,
FortiAuthenticator, FortiCache, FortiCall, FortiCam, FortiCamera,
FortiCarrier, FortiCASB, FortiCentral, FortiConnect,
FortiController, FortiConverter, FortiCWP, FortiDB, FortiDDoS,
FortiDeceptor, FortiDeploy, FortiDirector, FortiEDR, FortiExplorer,
FortiExtender, FortiFirewall, FortiFone, FortiGSLB,
FortiHypervisor, FortiInsight, FortiIsolator, FortiLAN, FortiLink,
FortiMoM, FortiMonitor, FortiNAC, FortiPenTest, FortiPhish,
FortiPlanner, FortiPortal, FortiPresence, FortiProxy,
FortiRecorder, FortiSASE, FortiSDNConnector, FortiSIEM, FortiSMS,
FortiSOAR, FortiSwitch, FortiTester, FortiToken, FortiVoice,
FortiWAN, FortiWeb, FortiWiFi, FortiWLC and FortiWLM. Other
trademarks belong to their respective owners. Fortinet has not
independently verified statements or certifications herein
attributed to third parties and Fortinet does not independently
endorse such statements. Notwithstanding anything to the contrary
herein, nothing herein constitutes a warranty, guarantee, contract,
binding specification or other binding commitment by Fortinet or
any indication of intent related to a binding commitment, and
performance and other specification information herein may be
unique to certain environments.
FTNT-F
Forward-Looking Statements
This press release contains forward-looking statements that
involve risks and uncertainties. These forward-looking statements
include statements regarding demand for our products and services,
guidance and expectations around future financial results,
including guidance and expectations for the fourth quarter and full
year 2021, statements regarding the momentum in our business and
future growth expectations, and statements regarding growth in
market demand, the expansion of the total addressable market for
network security, and leveraging our ASIC-supported security fabric
platform. Although we attempt to be accurate in making
forward-looking statements, it is possible that future
circumstances might differ from the assumptions on which such
statements are based such that actual results are materially
different from our forward-looking statements in this release.
Important factors that could cause results to differ materially
from the statements herein include the following: general economic
risks, including those caused by the COVID-19 pandemic; supply
chain challenges which are significantly heightened in the current
environment; negative impacts from the COVID-19 pandemic on sales,
billings, revenue, demand and buying patterns, component supply and
ability to manufacture products to meet demand in a timely fashion,
and costs such as possible increased costs for shipping and
components; global economic conditions, country-specific economic
conditions, and foreign currency risks; competitiveness in the
security market; the dynamic nature of the security market and its
products and services; specific economic risks worldwide and in
different geographies, and among different customer segments;
uncertainty regarding demand and increased business and renewals
from existing customers; uncertainties around continued success in
sales growth and market share gains; actual or perceived
vulnerabilities in our supply chain, products or services, and any
actual or perceived breach of our network or our customers’
networks; longer sales cycles, particularly for larger enterprise,
service providers, government and other large organization
customers; the effectiveness of our salesforce and failure to
convert sales pipeline into final sales; risks associated with
successful implementation of multiple integrated software products
and other product functionality risks; risks associated with
integrating acquisitions and changes in circumstances and plans
associated therewith, including, among other risks, changes in
plans related to product and services integrations, product and
services plans and sales strategies; sales and marketing execution
risks; execution risks around new product development and
introductions and innovation; litigation and disputes and the
potential cost, distraction and damage to sales and reputation
caused thereby or by other factors; cybersecurity threats, breaches
and other disruptions; market acceptance of new products and
services; the ability to attract and retain personnel; changes in
strategy; risks associated with management of growth; lengthy sales
and implementation cycles, particularly in larger organizations;
technological changes that make our products and services less
competitive; risks associated with the adoption of, and demand for,
our products and services in general and by specific customer
segments, including those caused by the COVID-19 pandemic;
competition and pricing pressure; product inventory shortages for
any reason, including those caused by the COVID-19 pandemic; risks
associated with business disruption caused by natural disasters and
health emergencies such as earthquakes, fires, power outages,
typhoons, floods, health epidemics and viruses such as the COVID-19
pandemic, and by manmade events such as civil unrest, labor
disruption, international trade disputes, international conflicts,
terrorism, wars, and critical infrastructure attacks; tariffs,
trade disputes and other trade barriers, and negative impact on
sales based on geo-political dynamics and disputes and
protectionist policies; any political and government disruption
around the world, including the impact of any future shutdowns of
the U.S. government; and the other risk factors set forth from time
to time in our most recent Annual Report on Form 10-K, our most
recent Quarterly Report on Form 10-Q and our other filings with the
Securities and Exchange Commission (SEC), copies of which are
available free of charge at the SEC’s website at
www.sec.gov or upon request from our investor relations
department. All forward-looking statements herein reflect our
opinions only as of the date of this release, and we undertake no
obligation, and expressly disclaim any obligation, to update
forward-looking statements herein in light of new information or
future events.
COVID-19 Impact
While the broader implications of the COVID-19 pandemic on our
employees and overall financial performance remain uncertain, we
have seen certain impacts on our business and operations, results
of operations, financial condition, cash flows, liquidity and
capital and financial resources. Going forward, the situation is
uncertain, rapidly changing and hard to predict, and the COVID-19
pandemic may have a material negative impact on our future periods,
including our results for the three months ending December 31,
2021, our annual results for 2021, and beyond. To highlight the
uncertainty remaining for the three-month period ending December
31, 2021, it should be noted that, due to customer buying patterns
and the efforts of our sales force and channel partners to meet or
exceed quarterly quotas, we have historically received a
substantial portion of each quarter’s sales orders and generated a
substantial portion of each quarter’s billings and revenue during
the last two weeks of the quarter. Additionally, supply chain
challenges are impacting businesses around the world. If we
experience significant changes in our billings growth rates or if
we are unable to supply product to meet demand, it will impact
product revenue in the current quarter and FortiGuard and FortiCare
service revenues in subsequent quarters, as we sell annual and
multi-year service contracts that are recognized ratably over the
contractual service term. In addition, the broader implications of
the pandemic on our business and operations and our financial
results, including the extent to which the effects of the pandemic
will impact future results and growth in the cybersecurity
industry, remain uncertain. The duration and severity of the
economic downturn from the pandemic may negatively impact our
business and operations, results of operations, financial
condition, cash flows, liquidity and capital and financial
resources in a material way. As a result, the effects of the
pandemic may not be fully reflected in our results of operations
until future periods.
Non-GAAP Financial Measures
We have provided in this release financial information that has
not been prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP). These non-GAAP financial and
liquidity measures are not based on any standardized methodology
prescribed by GAAP and are not necessarily comparable to similar
measures presented by other companies. We use these non-GAAP
financial measures internally in analyzing our financial results
and believe they are useful to investors, as a supplement to GAAP
measures, in evaluating our ongoing operational performance. We
believe that the use of these non-GAAP financial measures provides
an additional tool for investors to use in evaluating ongoing
operating results and trends and in comparing our financial results
with peer companies, many of which present similar non-GAAP
financial measures to investors.
Non-GAAP financial measures should not be considered in
isolation from, or as a substitute for, financial information
prepared in accordance with GAAP. Investors are encouraged to
review the reconciliation of these non-GAAP financial measures to
their most directly comparable GAAP financial measures provided in
the financial statement tables below.
Billings (non-GAAP). We define billings as revenue recognized in
accordance with GAAP plus the change in deferred revenue from the
beginning to the end of the period, less any deferred revenue
balances acquired from business combination(s) during the period.
We consider billings to be a useful metric for management and
investors because billings drive current and future revenue, which
is an important indicator of the health and viability of our
business. There are a number of limitations related to the use of
billings instead of GAAP revenue. First, billings include amounts
that have not yet been recognized as revenue and are impacted by
the term of security and support agreements. Second, we may
calculate billings in a manner that is different from peer
companies that report similar financial measures. Management
accounts for these limitations by providing specific information
regarding GAAP revenue and evaluating billings together with GAAP
revenue.
Free cash flow (non-GAAP). We define free cash flow as net cash
provided by operating activities minus purchases of property and
equipment and excluding any significant non-recurring items, such
as proceeds from intellectual property matter. We believe free cash
flow to be a liquidity measure that provides useful information to
management and investors about the amount of cash generated by the
business that, after capital expenditures and net of proceeds from
intellectual property matter, can be used for strategic
opportunities, including repurchasing outstanding common stock,
investing in our business, making strategic acquisitions and
strengthening the balance sheet. A limitation of using free cash
flow rather than the GAAP measures of cash provided by or used in
operating activities, investing activities, and financing
activities is that free cash flow does not represent the total
increase or decrease in the cash and cash equivalents balance for
the period because it excludes cash flows from significant
non-recurring items, such as proceeds from intellectual property
matter, investing activities other than capital expenditures and
cash flows from financing activities. Management accounts for this
limitation by providing information about our capital expenditures
and other investing and financing activities on the face of the
cash flow statement and under the caption “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources” in our most recent
Quarterly Report on Form 10-Q and Annual Report on Form 10-K and by
presenting cash flows from investing and financing activities in
our reconciliation of free cash flow. In addition, it is important
to note that other companies, including companies in our industry,
may not use free cash flow, may calculate free cash flow in a
different manner than we do or may use other financial measures to
evaluate their performance, all of which could reduce the
usefulness of free cash flow as a comparative measure.
Non-GAAP operating income and operating margin. We define
non-GAAP operating income as operating income plus stock-based
compensation, impairment and amortization of acquired intangible
assets, less gain on intellectual property matter and, when
applicable, other significant non-recurring items in a given
quarter, such as non-recurring gains or losses on
litigation-related matters. Non-GAAP operating margin is defined as
non-GAAP operating income divided by GAAP revenue. We consider
these non-GAAP financial measures to be useful metrics for
management and investors because they exclude the items noted above
so that our management and investors can compare our recurring core
business operating results over multiple periods. There are a
number of limitations related to the use of non-GAAP operating
income instead of operating income calculated in accordance with
GAAP. First, non-GAAP operating income excludes the items noted
above. Second, the components of the costs that we exclude from our
calculation of non-GAAP operating income may differ from the
components that peer companies exclude when they report their
non-GAAP results of operations. Management accounts for these
limitations by providing specific information regarding the GAAP
amounts excluded from non-GAAP operating income and evaluating
non-GAAP operating income together with operating income calculated
in accordance with GAAP.
Non-GAAP net income and diluted net income per share
attributable to Fortinet, Inc. common stockholders. We define
non-GAAP net income as net income or loss plus the items noted
above under non-GAAP operating income and operating margin. In
addition, we adjust non-GAAP net income and diluted net income per
share for gains or losses on investments in privately held
companies, a tax adjustment required for an effective tax rate on a
non-GAAP basis and adjustments attributable to non-controlling
interests, which differs from the GAAP effective tax rate. We
define non-GAAP diluted net income per share as non-GAAP net income
divided by the non-GAAP diluted weighted-average shares
outstanding. We consider these non-GAAP financial measures to be
useful metrics for management and investors for the same reasons
that we use non-GAAP operating income and non-GAAP operating
margin. However, in order to provide a more complete picture of our
recurring core business operating results, we include in non-GAAP
net income and non-GAAP diluted net income per share, the tax
adjustment required resulting in an effective tax rate on a
non-GAAP basis, which often differs from the GAAP tax rate. We
believe the non-GAAP effective tax rates we use are reasonable
estimates of normalized tax rates for our current and prior fiscal
years under our global operating structure. The same
limitations described above regarding our use of non-GAAP operating
income and non-GAAP operating margin apply to our use of non-GAAP
net income and non-GAAP diluted net income per share. We account
for these limitations by providing specific information regarding
the GAAP amounts excluded from non-GAAP net income and non-GAAP
diluted net income per share and evaluating non-GAAP net income and
non-GAAP diluted net income per share together with net income or
loss and diluted net income per share calculated in accordance with
GAAP.
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, in millions)
|
September 30,2021 |
|
December 31,2020 |
ASSETS |
|
|
|
CURRENT ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
1,852.1 |
|
|
$ |
1,061.8 |
|
Short-term investments |
1,228.1 |
|
|
775.5 |
|
Marketable equity securities |
40.8 |
|
|
— |
|
Accounts receivable—net |
604.9 |
|
|
720.0 |
|
Inventory |
177.9 |
|
|
139.8 |
|
Prepaid expenses and other current assets |
59.7 |
|
|
43.3 |
|
Total current assets |
3,963.5 |
|
|
2,740.4 |
|
LONG-TERM INVESTMENTS |
298.2 |
|
|
118.3 |
|
PROPERTY AND
EQUIPMENT—NET |
556.6 |
|
|
448.0 |
|
DEFERRED CONTRACT COSTS |
378.8 |
|
|
304.8 |
|
DEFERRED TAX ASSETS |
337.3 |
|
|
245.2 |
|
GOODWILL AND OTHER INTANGIBLE
ASSETS—NET |
198.6 |
|
|
124.6 |
|
OTHER ASSETS |
237.6 |
|
|
63.2 |
|
TOTAL ASSETS |
$ |
5,970.6 |
|
|
$ |
4,044.5 |
|
LIABILITIES AND
EQUITY |
|
|
|
CURRENT LIABILITIES: |
|
|
|
Accounts payable |
$ |
142.3 |
|
|
$ |
141.6 |
|
Accrued liabilities |
247.8 |
|
|
149.2 |
|
Accrued payroll and compensation |
174.2 |
|
|
145.9 |
|
Current portion of long-term debt |
17.6 |
|
|
— |
|
Deferred revenue |
1,616.1 |
|
|
1,392.8 |
|
Total current liabilities |
2,198.0 |
|
|
1,829.5 |
|
DEFERRED REVENUE |
1,490.3 |
|
|
1,212.5 |
|
INCOME TAX LIABILITIES |
96.5 |
|
|
90.3 |
|
LONG-TERM DEBT |
988.0 |
|
|
— |
|
OTHER LIABILITIES |
62.2 |
|
|
56.2 |
|
Total liabilities |
4,835.0 |
|
|
3,188.5 |
|
COMMITMENTS AND
CONTINGENCIES |
|
|
|
EQUITY: |
|
|
|
Common stock |
0.2 |
|
|
0.2 |
|
Additional paid-in capital |
1,257.7 |
|
|
1,207.2 |
|
Accumulated other comprehensive income (loss) |
(1.2 |
) |
|
0.7 |
|
Accumulated deficit |
(138.6 |
) |
|
(352.1 |
) |
Total Fortinet, Inc. stockholders’ equity |
1,118.1 |
|
|
856.0 |
|
Non-controlling interests |
17.5 |
|
|
— |
|
Total equity |
1,135.6 |
|
|
856.0 |
|
TOTAL LIABILITIES AND
EQUITY |
$ |
5,970.6 |
|
|
$ |
4,044.5 |
|
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME(Unaudited, in millions, except per share
amounts)
|
Three Months Ended |
|
Nine Months Ended |
|
September 30,2021 |
|
September 30,2020 |
|
September 30,2021 |
|
September 30,2020 |
REVENUE: |
|
|
|
|
|
|
|
Product |
$ |
337.1 |
|
|
$ |
223.8 |
|
|
$ |
876.1 |
|
|
$ |
628.0 |
|
Service |
530.1 |
|
|
427.3 |
|
|
1,502.5 |
|
|
1,218.4 |
|
Total revenue |
867.2 |
|
|
651.1 |
|
|
2,378.6 |
|
|
1,846.4 |
|
COST OF REVENUE: |
|
|
|
|
|
|
|
Product |
134.3 |
|
|
84.3 |
|
|
341.2 |
|
|
245.0 |
|
Service |
76.9 |
|
|
54.9 |
|
|
213.5 |
|
|
158.0 |
|
Total cost of revenue |
211.2 |
|
|
139.2 |
|
|
554.7 |
|
|
403.0 |
|
GROSS PROFIT: |
|
|
|
|
|
|
|
Product |
202.8 |
|
|
139.5 |
|
|
534.9 |
|
|
383.0 |
|
Service |
453.2 |
|
|
372.4 |
|
|
1,289.0 |
|
|
1,060.4 |
|
Total gross profit |
656.0 |
|
|
511.9 |
|
|
1,823.9 |
|
|
1,443.4 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
Research and development |
107.8 |
|
|
90.0 |
|
|
311.6 |
|
|
252.4 |
|
Sales and marketing |
347.1 |
|
|
266.7 |
|
|
978.0 |
|
|
780.5 |
|
General and administrative |
35.8 |
|
|
29.4 |
|
|
102.2 |
|
|
87.1 |
|
Gain on intellectual property matter |
(1.1 |
) |
|
(1.1 |
) |
|
(3.4 |
) |
|
(39.0 |
) |
Total operating expenses |
489.6 |
|
|
385.0 |
|
|
1,388.4 |
|
|
1,081.0 |
|
OPERATING INCOME |
166.4 |
|
|
126.9 |
|
|
435.5 |
|
|
362.4 |
|
INTEREST INCOME |
1.2 |
|
|
2.5 |
|
|
3.5 |
|
|
15.7 |
|
INTEREST EXPENSE |
(4.6 |
) |
|
— |
|
|
(10.4 |
) |
|
— |
|
OTHER EXPENSE—NET |
(6.3 |
) |
|
(1.0 |
) |
|
(7.5 |
) |
|
(8.1 |
) |
INCOME BEFORE INCOME TAXES AND
LOSS FROM EQUITY METHOD INVESTMENT |
156.7 |
|
|
128.4 |
|
|
421.1 |
|
|
370.0 |
|
PROVISION FOR (BENEFIT FROM)
INCOME TAXES |
(9.3 |
) |
|
5.0 |
|
|
10.4 |
|
|
28.2 |
|
LOSS FROM EQUITY METHOD
INVESTMENT |
(2.8 |
) |
|
— |
|
|
(2.8 |
) |
|
— |
|
NET INCOME INCLUDING
NON-CONTROLLING INTERESTS |
163.2 |
|
|
123.4 |
|
|
407.9 |
|
|
341.8 |
|
Less: NET INCOME ATTRIBUTABLE
TO NON-CONTROLLING INTERESTS, NET OF TAX |
0.1 |
|
|
— |
|
|
0.1 |
|
|
— |
|
NET INCOME ATTRIBUTABLE TO
FORTINET, INC. |
$ |
163.1 |
|
|
$ |
123.4 |
|
|
$ |
407.8 |
|
|
$ |
341.8 |
|
Net income per share
attributable to Fortinet, Inc. common stockholders: |
|
|
|
|
|
|
|
Basic |
$ |
1.00 |
|
|
$ |
0.76 |
|
|
$ |
2.50 |
|
|
$ |
2.07 |
|
Diluted |
$ |
0.97 |
|
|
$ |
0.75 |
|
|
$ |
2.44 |
|
|
$ |
2.03 |
|
Weighted-average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
163.5 |
|
|
162.1 |
|
|
163.3 |
|
|
164.8 |
|
Diluted |
167.7 |
|
|
165.6 |
|
|
167.1 |
|
|
168.4 |
|
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS(Unaudited, in millions)
|
Nine Months Ended |
|
September 30,2021 |
|
September 30,2020 |
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
Net income including non-controlling interests |
$ |
407.9 |
|
|
$ |
341.8 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Stock-based compensation |
154.8 |
|
|
143.0 |
|
Amortization of deferred contract costs |
126.9 |
|
|
99.8 |
|
Depreciation and amortization |
59.1 |
|
|
52.1 |
|
Amortization of investment premium |
4.8 |
|
|
0.2 |
|
Loss from equity method investment |
2.8 |
|
|
— |
|
Other |
4.4 |
|
|
5.8 |
|
Changes in operating assets and liabilities, net of impact of
business combinations: |
|
|
|
Accounts receivable—net |
130.6 |
|
|
(3.1 |
) |
Inventory |
(19.5 |
) |
|
(31.0 |
) |
Prepaid expenses and other current assets |
(12.5 |
) |
|
(4.6 |
) |
Deferred contract costs |
(201.0 |
) |
|
(143.9 |
) |
Deferred tax assets |
(91.9 |
) |
|
4.4 |
|
Other assets |
(15.7 |
) |
|
(2.0 |
) |
Accounts payable |
(11.8 |
) |
|
(4.2 |
) |
Accrued liabilities |
77.0 |
|
|
16.5 |
|
Accrued payroll and compensation |
23.1 |
|
|
19.5 |
|
Other liabilities |
(3.2 |
) |
|
10.3 |
|
Deferred revenue |
497.1 |
|
|
282.6 |
|
Net cash provided by operating activities |
1,132.9 |
|
|
787.2 |
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
Purchases of investments |
(1,749.9 |
) |
|
(776.3 |
) |
Sales of investments |
82.2 |
|
|
141.4 |
|
Maturities of investments |
1,029.0 |
|
|
730.3 |
|
Purchases of property and equipment |
(144.6 |
) |
|
(93.6 |
) |
Purchase of investment in privately held company |
(160.0 |
) |
|
— |
|
Payments made in connection with business combinations, net of cash
acquired |
(73.4 |
) |
|
(9.2 |
) |
Purchases of marketable equity securities |
(42.5 |
) |
|
(0.4 |
) |
Net cash used in investing activities |
(1,059.2 |
) |
|
(7.8 |
) |
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
Proceeds from long-term borrowings, net of discount and
underwriting fees |
989.4 |
|
|
— |
|
Payments for debt issuance costs |
(2.4 |
) |
|
— |
|
Payments of debt assumed in connection with business
combination |
(2.2 |
) |
|
(4.1 |
) |
Repurchase and retirement of common stock |
(170.0 |
) |
|
(1,046.0 |
) |
Proceeds from issuance of common stock |
20.7 |
|
|
18.2 |
|
Taxes paid related to net share settlement of equity awards |
(118.9 |
) |
|
(86.5 |
) |
Other |
(0.2 |
) |
|
(1.2 |
) |
Net cash provided by (used in) financing activities |
716.4 |
|
|
(1,119.6 |
) |
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS |
0.2 |
|
|
— |
|
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS |
790.3 |
|
|
(340.2 |
) |
CASH AND CASH
EQUIVALENTS—Beginning of period |
1,061.8 |
|
|
1,222.5 |
|
CASH AND CASH EQUIVALENTS—End
of period |
$ |
1,852.1 |
|
|
$ |
882.3 |
|
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION: |
|
|
|
Cash paid for income
taxes—net |
$ |
69.9 |
|
|
$ |
27.6 |
|
Operating lease liabilities
arising from obtaining right-of-use assets |
$ |
31.0 |
|
|
$ |
14.7 |
|
Reconciliations of non-GAAP results of
operations measures to the nearest comparable GAAP
measures(Unaudited, in millions, except per share
amounts)
Reconciliation of net cash provided by operating
activities to free cash flow
|
Three Months Ended |
|
September 30,2021 |
|
September 30,2020 |
Net cash provided by operating activities |
$ |
398.8 |
|
|
$ |
220.8 |
|
Less: Purchases of property and equipment |
(69.0 |
) |
|
(35.1 |
) |
Free cash flow |
$ |
329.8 |
|
|
$ |
185.7 |
|
Net cash used in investing
activities |
$ |
(307.5 |
) |
|
$ |
(224.6 |
) |
Net cash used in financing
activities |
$ |
(118.7 |
) |
|
$ |
(30.3 |
) |
Reconciliation of GAAP operating income to non-GAAP
operating income, operating margin, net income and diluted net
income per share attributable to Fortinet, Inc. common
stockholders
|
Three Months Ended September 30, 2021 |
|
Three Months Ended September 30, 2020 |
|
GAAPResults |
|
Adjustments |
|
Non-GAAPResults |
|
GAAPResults |
|
Adjustments |
|
Non-GAAPResults |
Operating income |
$ |
166.4 |
|
|
$ |
57.2 |
|
(a) |
$ |
223.6 |
|
|
$ |
126.9 |
|
|
$ |
51.7 |
|
(b) |
$ |
178.6 |
|
Operating margin |
19.2 |
% |
|
|
|
25.8 |
% |
|
19.5 |
% |
|
|
|
27.4 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
53.5 |
|
|
|
|
|
|
50.0 |
|
|
|
Amortization of acquired intangible assets |
|
|
4.8 |
|
|
|
|
|
|
2.8 |
|
|
|
Gain on intellectual property matter |
|
|
(1.1 |
) |
|
|
|
|
|
(1.1 |
) |
|
|
Tax adjustment |
|
|
(54.2 |
) |
(c) |
|
|
|
|
(29.7 |
) |
(c) |
|
Adjustments attributable non-controlling interests |
|
|
(0.2 |
) |
(d) |
|
|
|
|
— |
|
|
|
Net income attributable to
Fortinet, Inc. |
$ |
163.1 |
|
|
$ |
2.8 |
|
|
$ |
165.9 |
|
|
$ |
123.4 |
|
|
$ |
22.0 |
|
|
$ |
145.4 |
|
Diluted net income per share
attributable to Fortinet, Inc. common stockholders |
$ |
0.97 |
|
|
|
|
$ |
0.99 |
|
|
$ |
0.75 |
|
|
|
|
$ |
0.88 |
|
Shares used in diluted net
income per share calculations |
167.7 |
|
|
|
|
167.7 |
|
|
165.6 |
|
|
|
|
165.6 |
|
(a) To exclude $53.5 million of stock-based compensation and
$4.8 million of amortization of acquired intangible assets, offset
by a $1.1 million gain on intellectual property matter in the three
months ended September 30, 2021.(b) To exclude $50.0 million
of stock-based compensation and $2.8 million of amortization of
acquired intangible assets, offset by a $1.1 million gain on
intellectual property matter in the three months ended
September 30, 2020.(c) Non-GAAP financial information is
adjusted to an effective tax rate of 21% and 19% in the three
months ended September 30, 2021 and 2020, respectively, on a
non-GAAP basis, which differs from the GAAP effective tax rate.(d)
Adjustments include amortization of acquired intangible assets
attributable to non-controlling interests and Non-GAAP financial
information adjusted to an effective tax rate of 31% for the
subsidiary of AlaxalA standalone in the three months ended
September 30, 2021.
Reconciliation of total consolidated revenue to total
billings
|
Three Months Ended |
|
September 30,2021 |
|
September 30,2020 |
Total revenue |
$ |
867.2 |
|
|
$ |
651.1 |
|
Add: Change in deferred revenue |
201.0 |
|
|
98.9 |
|
Less: Deferred revenue balance acquired in business
combination |
(4.1 |
) |
|
(0.2 |
) |
Total billings |
$ |
1,064.1 |
|
|
$ |
749.8 |
|
Investor
Contact: |
|
Media
Contact: |
|
|
|
Peter Salkowski |
|
Sandra Wheatley |
Fortinet, Inc. |
|
Fortinet, Inc. |
408-331-4595 |
|
408-391-9408 |
psalkowski@fortinet.com |
|
swheatley@fortinet.com |
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