Fortinet Reports Third Quarter 2022 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,
2022.
“We continued to gain market share in the large addressable and
fast-growing cybersecurity industry. Revenue and billings growth of
over 30% in the third quarter significantly outpaced industry
growth rates,” said Ken Xie, Founder, Chairman, and Chief Executive
Officer. “Fortinet’s future growth will be driven by the
convergence of security and networking, the industry trend of
vendor and product consolidation, the elevated threat environment,
and a greater focus on offering services for existing and new
customers.”
Financial Highlights for the Third Quarter of
2022
- Revenue: Total revenue was $1.15 billion for
the third quarter of 2022, an increase of 32.6% compared to $867.2
million for the same quarter of 2021.
- Product Revenue: Product revenue was $468.7
million for the third quarter of 2022, an increase of 39.0%
compared to $337.1 million for the same quarter of 2021.
- Service Revenue: Service revenue was $680.8
million for the third quarter of 2022, an increase of 28.4%
compared to $530.1 million for the same quarter of 2021.
- Billings1: Total billings were $1.41 billion
for the third quarter of 2022, an increase of 32.6% compared to
$1.06 billion for the same quarter of 2021.
- Deferred Revenue: Total deferred revenue was
$4.19 billion as of September 30, 2022, an increase of 35.0%
compared to $3.11 billion as of September 30, 2021.
- GAAP Operating Income and Margin: GAAP
operating income was $265.5 million for the third quarter of 2022,
representing a GAAP operating margin of 23.1%. GAAP operating
income was $166.4 million for the same quarter of 2021,
representing a GAAP operating margin of 19.2%.
- Non-GAAP Operating Income and Margin1:
Non-GAAP operating income was $324.9 million for the third quarter
of 2022, representing a non-GAAP operating margin of 28.3%.
Non-GAAP operating income was $223.6 million for the same quarter
of 2021, representing a non-GAAP operating margin of
25.8%.
- GAAP Net Income and Diluted Net Income Per Share
Attributable to Fortinet, Inc.2: GAAP net income was
$231.6 million for the third quarter of 2022, compared to GAAP net
income of $163.1 million for the same quarter of 2021. GAAP diluted
net income per share was $0.29 for the third quarter of 2022, based
on 798.6 million diluted weighted-average shares outstanding,
compared to GAAP diluted net income per share of $0.19 for the same
quarter of 2021, based on 838.6 million diluted
weighted-average shares outstanding.
- Non-GAAP Net Income and Diluted Net Income Per Share
Attributable to Fortinet, Inc.1,2: Non-GAAP net income was
$262.7 million for the third quarter of 2022, compared to non-GAAP
net income of $165.9 million for the same quarter of 2021. Non-GAAP
diluted net income per share was $0.33 for the third quarter of
2022, based on 798.6 million diluted weighted-average shares
outstanding, compared to $0.20 for the same quarter of 2021, based
on 838.6 million diluted weighted-average shares
outstanding.
- Cash Flow: Cash flow from operations was
$483.0 million for the third quarter of 2022, compared to $398.8
million for the same quarter of 2021.
- Free Cash Flow1: Free cash flow was $395.2
million for the third quarter of 2022, compared to $329.8 million
for the same quarter of 2021.
- Share Repurchase Program2: During the three
and nine months ended September 30, 2022, Fortinet repurchased 10.2
million and 36.0 million shares of its common stock, respectively,
at an average price of $49.15 and $55.37 per share, respectively,
and for an aggregate purchase price of $500.0 million
and $1.99 billion, respectively. During the three and nine months
ended September 30, 2021, Fortinet repurchased 1.8 million and 4.1
million shares of its common stock, respectively, at an average
price of $58.81 and $48.59 per share, respectively, and for an
aggregate purchase price of $108.8 million and $200.4 million.
Guidance
For the fourth quarter of 2022, Fortinet currently expects:
- Revenue in the range of $1.275 billion to $1.315 billion
- Billings in the range of $1.665 billion to $1.720 billion
- Non-GAAP gross margin in the range of 75.0% to 76.0%
- Non-GAAP operating margin in the range of 30.0% to 31.0%
- Diluted non-GAAP net income per share attributable to Fortinet,
Inc. in the range of $0.38 to $0.40, assuming a non-GAAP effective
tax rate of 17%. This assumes a diluted share count of 795 million
to 805 million.
For the fiscal year 2022, Fortinet currently expects:
- Revenue in the range of $4.410 billion to $4.450 billion
- Service revenue in the range of $2.645 billion to $2.655
billion
- Billings in the range of $5.540 billion to $5.595 billion
- Non-GAAP gross margin in the range of 75.0% to 76.0%
- Non-GAAP operating margin in the range of 26.0% to 27.0%
- Diluted non-GAAP net income per share attributable to Fortinet,
Inc. in the range of $1.13 to $1.15, assuming a non-GAAP effective
tax rate of 17%. This assumes a diluted share count of 800 million
to 810 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 matters. 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”.2 All share and per share amounts
presented herein have been retroactively adjusted to reflect the
five-for-one forward stock split which was effective June 22,
2022.
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. 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.
Fourth Quarter 2022 Conference Participation
Schedule:
- Stifel Midwest One-on-One Growth Conference
November 10, 2022
- Wells Fargo TMT SummitNovember 29, 2022
- Barclays Global Technology, Media &
Telecommunications ConferenceDecember 7, 2022
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, pre-register and listen to the webcast of each
event, please visit the Investor Presentation & Events page of
Fortinet’s website at
https://investor.fortinet.com/events-and-presentations. The
schedule is subject to change.
About Fortinet (www.fortinet.com)
Fortinet (NASDAQ: FTNT) makes possible a digital world that we
can trust through its mission to protect people, devices and data
everywhere. This is why many of the world’s largest enterprises,
service providers and government organizations choose Fortinet to
securely accelerate their digital journey. The Fortinet Core
Platform and Platform Extension products deliver broad, integrated
and automated protections across the entire digital attack surface,
securing critical devices, data, applications, and connections from
the data center to the cloud to the home office. The Fortinet NSE
Training Institute, an initiative of Fortinet’s Training
Advancement Agenda, provides one of the largest and broadest
training programs in the industry to make cyber training and new
career opportunities available to everyone. Learn more at
https://www.fortinet.com, the Fortinet Blog or FortiGuard
Labs.
Copyright © 2022 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,
FortiAPCam, FortiAuthenticator, FortiCache, FortiCall, FortiCam,
FortiCamera, FortiCarrier, FortiCASB, FortiCentral, FortiCNP,
FortiConnect, FortiController, FortiConverter, FortiCWP, FortiDB,
FortiDDoS, FortiDeceptor, FortiDeploy, FortiDevSec, FortiEdge,
FortiEDR, FortiExplorer, FortiExtender, FortiFirewall, FortiFone,
FortiGSLB, FortiGuest, FortiHypervisor, FortiInsight,
FortiIsolator, FortiLAN, FortiLink, FortiMoM, FortiMonitor,
FortiNAC, FortiNDR, FortiPenTest, FortiPhish, FortiPolicy,
FortiPortal, FortiPresence, FortiProxy, FortiRecon, FortiRecorder,
FortiSASE, FortiSDNConnector, FortiSIEM, FortiSMS, FortiSOAR,
FortiSwitch, FortiTester, FortiToken, FortiTrust, FortiVoice,
FortiWAN, FortiWeb, FortiWiFi, FortiWLC, FortiWLM and FortiXDR.
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 any indications related to future
market share gains, guidance and expectations around future
financial results, including guidance and expectations for the
fourth quarter and full year 2022, statements regarding the
momentum in our business and future growth expectations, and any
statements regarding our market opportunity and market size, and
business momentum. 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, the war in
Ukraine, economic challenges, expectations of a recession or any
actual recession, and the effects of increased inflation in certain
geographies; significantly heightened supply chain challenges due
to the current global 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; uncertainties in market opportunities and the market
size; 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, the war in Ukraine and the effects of increased
inflation in certain geographies; 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 such as the war in Ukraine,
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,
2022, our annual results for 2022, and beyond. To highlight the
uncertainty remaining for the three-month period ending December
31, 2022, 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, significantly
heightened supply chain challenges are impacting businesses around
the globe. 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) and adjustment due
to adoption of new accounting standard 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. We define non-GAAP net income as net
income 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 and diluted net income per share
calculated in accordance with GAAP.
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, in millions)
|
September 30, 2022 |
|
December 31, 2021 |
ASSETS |
|
|
|
CURRENT ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
964.0 |
|
|
$ |
1,319.1 |
|
Short-term investments |
|
739.5 |
|
|
|
1,194.0 |
|
Marketable equity securities |
|
26.9 |
|
|
|
38.6 |
|
Accounts receivable—net |
|
963.2 |
|
|
|
807.7 |
|
Inventory |
|
215.8 |
|
|
|
175.8 |
|
Prepaid expenses and other current assets |
|
72.8 |
|
|
|
65.4 |
|
Total current assets |
|
2,982.2 |
|
|
|
3,600.6 |
|
LONG-TERM INVESTMENTS |
|
84.0 |
|
|
|
440.8 |
|
PROPERTY AND
EQUIPMENT—NET |
|
889.5 |
|
|
|
687.6 |
|
DEFERRED CONTRACT COSTS |
|
480.5 |
|
|
|
423.3 |
|
DEFERRED TAX ASSETS |
|
515.5 |
|
|
|
342.3 |
|
GOODWILL AND OTHER INTANGIBLE
ASSETS—NET |
|
159.0 |
|
|
|
188.7 |
|
OTHER ASSETS |
|
225.2 |
|
|
|
235.8 |
|
TOTAL ASSETS |
$ |
5,335.9 |
|
|
$ |
5,919.1 |
|
LIABILITIES AND EQUITY
(DEFICIT) |
|
|
|
CURRENT LIABILITIES: |
|
|
|
Accounts payable |
$ |
215.1 |
|
|
$ |
148.4 |
|
Accrued liabilities |
|
244.8 |
|
|
|
197.3 |
|
Accrued payroll and compensation |
|
190.7 |
|
|
|
195.0 |
|
Deferred revenue |
|
2,129.0 |
|
|
|
1,777.4 |
|
Total current liabilities |
|
2,779.6 |
|
|
|
2,318.1 |
|
DEFERRED REVENUE |
|
2,064.5 |
|
|
|
1,675.5 |
|
INCOME TAX LIABILITIES |
|
67.8 |
|
|
|
79.5 |
|
LONG-TERM DEBT |
|
989.9 |
|
|
|
988.4 |
|
OTHER LIABILITIES |
|
56.9 |
|
|
|
59.2 |
|
Total liabilities |
|
5,958.7 |
|
|
|
5,120.7 |
|
COMMITMENTS AND
CONTINGENCIES |
|
|
|
EQUITY (DEFICIT): |
|
|
|
Common stock |
|
0.8 |
|
|
|
0.8 |
|
Additional paid-in capital |
|
1,250.2 |
|
|
|
1,253.6 |
|
Accumulated other comprehensive loss |
|
(25.5 |
) |
|
|
(4.8 |
) |
Accumulated deficit |
|
(1,860.2 |
) |
|
|
(467.9 |
) |
Total Fortinet, Inc. stockholders’ equity (deficit) |
|
(634.7 |
) |
|
|
781.7 |
|
Non-controlling interests |
|
11.9 |
|
|
|
16.7 |
|
Total equity (deficit) |
|
(622.8 |
) |
|
|
798.4 |
|
TOTAL LIABILITIES AND EQUITY
(DEFICIT) |
$ |
5,335.9 |
|
|
$ |
5,919.1 |
|
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME(Unaudited, in millions, except per share
amounts)
|
Three Months Ended |
|
Nine Months Ended |
|
September 30,2022 |
|
September 30,2021 |
|
September 30,2022 |
|
September 30,2021 |
REVENUE: |
|
|
|
|
|
|
|
Product |
$ |
468.7 |
|
|
$ |
337.1 |
|
|
$ |
1,240.4 |
|
|
$ |
876.1 |
|
Service |
|
680.8 |
|
|
|
530.1 |
|
|
|
1,894.0 |
|
|
|
1,502.5 |
|
Total revenue |
|
1,149.5 |
|
|
|
867.2 |
|
|
|
3,134.4 |
|
|
|
2,378.6 |
|
COST OF REVENUE: |
|
|
|
|
|
|
|
Product |
|
185.2 |
|
|
|
134.3 |
|
|
|
501.4 |
|
|
|
341.2 |
|
Service |
|
97.8 |
|
|
|
76.9 |
|
|
|
286.2 |
|
|
|
213.5 |
|
Total cost of revenue |
|
283.0 |
|
|
|
211.2 |
|
|
|
787.6 |
|
|
|
554.7 |
|
GROSS PROFIT: |
|
|
|
|
|
|
|
Product |
|
283.5 |
|
|
|
202.8 |
|
|
|
739.0 |
|
|
|
534.9 |
|
Service |
|
583.0 |
|
|
|
453.2 |
|
|
|
1,607.8 |
|
|
|
1,289.0 |
|
Total gross profit |
|
866.5 |
|
|
|
656.0 |
|
|
|
2,346.8 |
|
|
|
1,823.9 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
Research and development |
|
134.3 |
|
|
|
107.8 |
|
|
|
383.5 |
|
|
|
311.6 |
|
Sales and marketing |
|
427.1 |
|
|
|
347.1 |
|
|
|
1,230.2 |
|
|
|
978.0 |
|
General and administrative |
|
40.7 |
|
|
|
35.8 |
|
|
|
124.7 |
|
|
|
102.2 |
|
Gain on intellectual property matter |
|
(1.1 |
) |
|
|
(1.1 |
) |
|
|
(3.4 |
) |
|
|
(3.4 |
) |
Total operating expenses |
|
601.0 |
|
|
|
489.6 |
|
|
|
1,735.0 |
|
|
|
1,388.4 |
|
OPERATING INCOME |
|
265.5 |
|
|
|
166.4 |
|
|
|
611.8 |
|
|
|
435.5 |
|
INTEREST INCOME |
|
4.6 |
|
|
|
1.2 |
|
|
|
8.3 |
|
|
|
3.5 |
|
INTEREST EXPENSE |
|
(4.5 |
) |
|
|
(4.6 |
) |
|
|
(13.5 |
) |
|
|
(10.4 |
) |
OTHER EXPENSE—NET |
|
(0.9 |
) |
|
|
(6.3 |
) |
|
|
(19.3 |
) |
|
|
(7.5 |
) |
INCOME BEFORE INCOME TAXES AND
LOSS FROM EQUITY METHOD INVESTMENT |
|
264.7 |
|
|
|
156.7 |
|
|
|
587.3 |
|
|
|
421.1 |
|
PROVISION FOR (BENEFIT FROM)
INCOME TAXES |
|
27.3 |
|
|
|
(9.3 |
) |
|
|
21.6 |
|
|
|
10.4 |
|
LOSS FROM EQUITY METHOD
INVESTMENT |
|
(6.3 |
) |
|
|
(2.8 |
) |
|
|
(22.9 |
) |
|
|
(2.8 |
) |
NET INCOME INCLUDING
NON-CONTROLLING INTERESTS |
|
231.1 |
|
|
|
163.2 |
|
|
|
542.8 |
|
|
|
407.9 |
|
Less: NET INCOME (LOSS)
ATTRIBUTABLE TO NON-CONTROLLING INTERESTS, NET OF TAX |
|
(0.5 |
) |
|
|
0.1 |
|
|
|
(0.7 |
) |
|
|
0.1 |
|
NET INCOME ATTRIBUTABLE TO
FORTINET, INC. |
$ |
231.6 |
|
|
$ |
163.1 |
|
|
$ |
543.5 |
|
|
$ |
407.8 |
|
Net income per share
attributable to Fortinet, Inc.(a): |
|
|
|
|
|
|
|
Basic |
$ |
0.29 |
|
|
$ |
0.20 |
|
|
$ |
0.68 |
|
|
$ |
0.50 |
|
Diluted |
$ |
0.29 |
|
|
$ |
0.19 |
|
|
$ |
0.67 |
|
|
$ |
0.49 |
|
Weighted-average shares used
to compute net income per share attributable to Fortinet,
Inc.(a): |
|
|
|
|
|
|
|
Basic |
|
786.2 |
|
|
|
817.7 |
|
|
|
795.0 |
|
|
|
816.5 |
|
Diluted |
|
798.6 |
|
|
|
838.6 |
|
|
|
809.8 |
|
|
|
835.4 |
|
(a) All share and per share amounts presented herein have been
retroactively adjusted to reflect the five-for-one forward stock
split which was effective June 22, 2022.
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS(Unaudited, in millions)
|
Nine Months Ended |
|
September 30, 2022 |
|
September 30, 2021 |
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
Net income including non-controlling interests |
$ |
542.8 |
|
|
$ |
407.9 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Stock-based compensation |
|
162.6 |
|
|
|
154.8 |
|
Amortization of deferred contract costs |
|
163.8 |
|
|
|
126.9 |
|
Depreciation and amortization |
|
77.0 |
|
|
|
59.1 |
|
Amortization of investment premiums |
|
3.6 |
|
|
|
4.8 |
|
Loss from equity method investment |
|
22.9 |
|
|
|
2.8 |
|
Other |
|
21.2 |
|
|
|
4.4 |
|
Changes in operating assets and liabilities, net of impact of
business combinations: |
|
|
|
Accounts receivable—net |
|
(162.7 |
) |
|
|
130.6 |
|
Inventory |
|
(59.7 |
) |
|
|
(19.5 |
) |
Prepaid expenses and other current assets |
|
(7.6 |
) |
|
|
(12.5 |
) |
Deferred contract costs |
|
(221.0 |
) |
|
|
(201.0 |
) |
Deferred tax assets |
|
(172.0 |
) |
|
|
(91.9 |
) |
Other assets |
|
(13.9 |
) |
|
|
(15.7 |
) |
Accounts payable |
|
78.6 |
|
|
|
(11.8 |
) |
Accrued liabilities |
|
27.8 |
|
|
|
77.0 |
|
Accrued payroll and compensation |
|
(3.2 |
) |
|
|
23.1 |
|
Other liabilities |
|
(0.5 |
) |
|
|
(3.2 |
) |
Deferred revenue |
|
742.8 |
|
|
|
497.1 |
|
Net cash provided by operating activities |
|
1,202.5 |
|
|
|
1,132.9 |
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
Purchases of investments |
|
(389.1 |
) |
|
|
(1,749.9 |
) |
Sales of investments |
|
3.0 |
|
|
|
82.2 |
|
Maturities of investments |
|
1,182.9 |
|
|
|
1,029.0 |
|
Purchases of property and equipment |
|
(250.3 |
) |
|
|
(144.6 |
) |
Purchases of investment in privately held company |
|
— |
|
|
|
(160.0 |
) |
Payments made in connection with business combinations, net of cash
acquired |
|
— |
|
|
|
(73.4 |
) |
Purchases of marketable equity securities |
|
— |
|
|
|
(42.5 |
) |
Net cash provided by (used in) investing activities |
|
546.5 |
|
|
|
(1,059.2 |
) |
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 |
) |
Repurchase and retirement of common stock |
|
(1,991.2 |
) |
|
|
(170.0 |
) |
Proceeds from issuance of common stock |
|
21.7 |
|
|
|
20.7 |
|
Taxes paid related to net share settlement of equity awards |
|
(132.1 |
) |
|
|
(118.9 |
) |
Other |
|
(1.3 |
) |
|
|
(0.2 |
) |
Net cash provided by (used in) financing activities |
|
(2,102.9 |
) |
|
|
716.4 |
|
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS |
|
(1.2 |
) |
|
|
0.2 |
|
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS |
|
(355.1 |
) |
|
|
790.3 |
|
CASH AND CASH
EQUIVALENTS—Beginning of period |
|
1,319.1 |
|
|
|
1,061.8 |
|
CASH AND CASH EQUIVALENTS—End
of period |
$ |
964.0 |
|
|
$ |
1,852.1 |
|
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, 2022 |
|
September 30, 2021 |
Net cash provided by operating
activities |
$ |
483.0 |
|
|
$ |
398.8 |
|
Less: Purchases of property and equipment |
|
(87.8 |
) |
|
|
(69.0 |
) |
Free cash flow |
$ |
395.2 |
|
|
$ |
329.8 |
|
Net cash provided by (used in)
investing activities |
$ |
297.8 |
|
|
$ |
(307.5 |
) |
Net cash used in financing
activities |
$ |
(526.6 |
) |
|
$ |
(118.7 |
) |
Reconciliation of GAAP operating income to non-GAAP
operating income, operating margin, net income attributable to
Fortinet, Inc. and diluted net income per share attributable to
Fortinet, Inc.
|
Three Months Ended September 30, 2022 |
|
Three Months Ended September 30, 2021 |
|
GAAPResults |
|
Adjustments |
|
Non-GAAP Results |
|
GAAPResults |
|
Adjustments |
|
Non-GAAP Results |
Operating income |
$ |
265.5 |
|
|
$ |
59.4 |
|
(a) |
$ |
324.9 |
|
|
$ |
166.4 |
|
|
$ |
57.2 |
|
(b) |
$ |
223.6 |
|
Operating margin |
|
23.1 |
% |
|
|
|
|
28.3 |
% |
|
|
19.2 |
% |
|
|
|
|
25.8 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
55.3 |
|
|
|
|
|
|
|
53.5 |
|
|
|
Amortization of acquired intangible assets |
|
|
|
5.2 |
|
|
|
|
|
|
|
4.8 |
|
|
|
Gain on intellectual property matter |
|
|
|
(1.1 |
) |
|
|
|
|
|
|
(1.1 |
) |
|
|
Tax adjustment |
|
|
|
(27.8 |
) |
(c) |
|
|
|
|
|
(54.2 |
) |
(c) |
|
Adjustments attributable non-controlling interests |
|
|
|
(0.5 |
) |
(d) |
|
|
|
|
|
(0.2 |
) |
(d) |
|
Net income attributable to
Fortinet, Inc. |
$ |
231.6 |
|
|
$ |
31.1 |
|
|
$ |
262.7 |
|
|
$ |
163.1 |
|
|
$ |
2.8 |
|
|
$ |
165.9 |
|
Diluted net income per share
attributable to Fortinet, Inc.(e) |
$ |
0.29 |
|
|
|
|
$ |
0.33 |
|
|
$ |
0.19 |
|
|
|
|
$ |
0.20 |
|
Shares used in diluted net
income per share attributable to Fortinet, Inc.
calculations(e) |
|
798.6 |
|
|
|
|
|
798.6 |
|
|
|
838.6 |
|
|
|
|
|
838.6 |
|
(a) To exclude $55.3 million of stock-based compensation and
$5.2 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, 2022.(b) 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.(c) Non-GAAP financial information is
adjusted to an effective tax rate of 17% and 21% in the three
months ended September 30, 2022 and 2021, respectively, on a
non-GAAP basis, which differs from the GAAP effective tax rate.(d)
Adjustments related to the non-GAAP results attributable to
non-controlling interests, which were adjusted to an effective tax
rate of 31% for the subsidiary of Alaxala Networks Corporation in
the three months ended September 30, 2022 and 2021.(e) All
share and per share amounts presented herein have been
retroactively adjusted to reflect the five-for-one forward stock
split which was effective June 22, 2022.
Reconciliation of total revenue to total
billings
|
Three Months Ended |
|
September 30, 2022 |
|
September 30, 2021 |
Total revenue |
$ |
1,149.5 |
|
$ |
867.2 |
|
Add: Change in deferred revenue |
|
261.5 |
|
|
201.0 |
|
Less: Deferred revenue balance acquired in business
combination |
|
— |
|
|
(4.1 |
) |
Total billings |
$ |
1,411.0 |
|
$ |
1,064.1 |
|
Investor
Contact: |
|
Media
Contact: |
|
|
|
Peter Salkowski |
|
John Welton |
Fortinet, Inc. |
|
Fortinet, Inc. |
408-331-4595 |
|
408-235-7700 |
psalkowski@fortinet.com |
|
pr@fortinet.com |
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