January 30, 2013

Fortinet Reports Fourth Quarter and Full Year 2012 Financial Results

Company Exceeds Its Expectations Across All Key Metrics

SUNNYVALE, CA -- (Marketwire) -- 01/30/13 -- Fortinet® (NASDAQ: FTNT)

Fourth Quarter 2012 Highlights

  • Revenues of $151.2 million, up 25% year over year(2)
  • Billings of $174.3 million, up 24% year over year(1,2)
  • GAAP diluted net income per share of $0.13
  • Non-GAAP diluted net income per share of $0.17(1)
  • Cash flow from operations of $50.3 million
  • Free cash flow of $48.5 million(1,2)
  • Cash, cash equivalents and investments of $739.6 million(4), with no debt

Full Year 2012 Highlights

  • Revenues of $533.6 million, up 23% year over year(3)
  • Billings of $602.0 million, up 27% year over year(1,3)
  • GAAP diluted net income per share of $0.40
  • Non-GAAP diluted net income per share of $0.53(1)
  • Cash flow from operations of $183.9 million
  • Free cash flow of $161.8 million(1,3,4)

Fortinet® (NASDAQ: FTNT) -- a leader in high-performance network security -- today announced financial results for the fourth quarter and full year ended December 31, 2012.

Financial Highlights for the Fourth Quarter of 2012

  • Revenue(2): Total revenue was $151.2 million for the fourth quarter of 2012, an increase of 25% compared to $120.9 million in the same quarter of 2011. Within total revenue, product revenue was $71.0 million, an increase of 24% compared to the same quarter of 2011. Services revenue was $76.7 million, an increase of 26% compared to the same quarter of 2011.

  • Billings(1,2): Total billings were $174.3 million for the fourth quarter of 2012, an increase of 24% compared to $140.6 million in the same quarter of 2011.

  • Deferred Revenue: Deferred revenue was $363.2 million as of December 31, 2012, up $23.1 million from $340.1 million as of September 30, 2012.

  • Cash and Cash Flow(1,2): As of December 31, 2012, cash, cash equivalents and investments were $739.6 million, compared to $690.3 million as of September 30, 2012. In the fourth quarter of 2012, cash flow from operations was $50.3 million and free cash flow was $48.5 million.

  • GAAP Operating Income(2,5): GAAP operating income was $35.0 million for the fourth quarter of 2012, representing a GAAP operating margin of 23%. GAAP operating income was $26.5 million for the same quarter of 2011, representing a GAAP operating margin of 22%.

  • GAAP Net Income and Diluted Net Income Per Share(2,5): GAAP net income was $21.5 million for the fourth quarter of 2012, based on a 41% tax rate for the quarter. This compares to GAAP net income of $16.5 million for the same quarter of 2011, based on a 40% tax rate for the quarter. GAAP diluted net income per share was $0.13 for the fourth quarter of 2012, based on 167.0 million weighted-average diluted shares outstanding, compared to $0.10 for the same quarter of 2011, based on 164.5 million weighted-average diluted shares outstanding.

  • Non-GAAP Operating Income(1,2): Non-GAAP operating income was $41.3 million for the fourth quarter of 2012, representing a non-GAAP operating margin of 27%. Non-GAAP operating income was $32.4 million for the same quarter of 2011, representing a non-GAAP operating margin of 27%.

  • Non-GAAP Net Income and Diluted Net Income Per Share(1,2): Non-GAAP net income was $28.1 million for the fourth quarter of 2012, based on a 34% effective tax rate for the quarter. Non-GAAP net income for the same quarter of 2011 was $22.3 million, based on a 33% effective tax rate. Non-GAAP diluted net income per share was $0.17 for the fourth quarter of 2012 based on 167.0 million weighted-average diluted shares outstanding, compared to $0.14 for the same quarter of 2011, based on 164.5 million weighted-average diluted shares outstanding.

Financial Highlights for the Full Year 2012

  • Revenue(3): Total revenue was $533.6 million for fiscal 2012, an increase of 23% compared to $433.6 million for fiscal 2011. Within total revenue, product revenue was $248.9 million for fiscal 2012, an increase of 26% compared to $197.4 million for fiscal 2011. Services revenue was $274.0 million for fiscal 2012, an increase of 24% compared to $220.3 million for fiscal 2011.

  • Billings(1,3): Total billings were $602.0 million for fiscal 2012, an increase of 27% compared to $475.8 million in fiscal 2011.

  • Deferred Revenue: Deferred revenue was $363.2 million as of December 31, 2012, an increase of 23% compared to deferred revenue of $294.8 million as of December 31, 2011.

  • Cash and Cash Flow(1,3,4): As of December 31, 2012, cash, cash equivalents and investments were $739.6 million, compared to $538.7 million as of December 31, 2011. In fiscal 2012, cash flow from operations was $183.9 million and free cash flow was $161.8 million.

  • GAAP Operating Income(3,5): GAAP operating income was $100.5 million for fiscal 2012, representing a GAAP operating margin of 19%. GAAP operating income was $88.9 million for fiscal 2011, representing a GAAP operating margin of 21%.

  • GAAP Net Income and Diluted Net Income Per Share(3,5): GAAP net income was $66.8 million for fiscal 2012, based on a 36% tax rate for the year. This compares to GAAP net income of $62.5 million for fiscal 2011, based on a 32% tax rate for the year. GAAP diluted net income per share was $0.40 for fiscal 2012, based on 166.3 million weighted-average diluted shares outstanding, compared to $0.38 for fiscal 2011, based on 163.8 million weighted-average diluted shares outstanding.

  • Non-GAAP Operating Income(1,3): Non-GAAP operating income was $129.3 million for fiscal 2012, representing a non-GAAP operating margin of 24%. Non-GAAP operating income was $106.0 million for fiscal 2011, representing a non-GAAP operating margin of 24%.

  • Non-GAAP Net Income and Diluted Net Income Per Share(1,3): Non-GAAP net income was $88.3 million for fiscal 2012, based on a 34% effective tax rate for the year. Non-GAAP net income for fiscal 2011 was $73.1 million, based on a 33% effective tax rate. Non-GAAP diluted net income per share was $0.53 for fiscal 2012 based on 166.3 million weighted-average diluted shares outstanding, compared to $0.45 for fiscal 2011, based on 163.8 million weighted-average diluted shares outstanding.

(1) A reconciliation of GAAP to non-GAAP financial 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) Includes the impact of a $1.9 million sale of previously-acquired patents during the fourth quarter of 2012.

(3) Includes the impact of a $3.7 million sale of previously-acquired patents during fiscal 2012. In addition, fiscal 2011 includes the impact of a $2.6 million sale of previously-acquired patents.

(4) Includes the impact of $14.5 million paid for the purchase of land and buildings near our Silicon Valley headquarters during the third quarter of 2012.

(5) Includes the impact of a $1.5 million non-recurring cumulative out-of-period adjustment recorded during the fourth quarter of 2012 to reflect a true-up related to forfeitures of stock awards granted to employees. The adjustment resulted in lower stock-based compensation expense and higher operating income and net income during the fourth quarter of 2012. We believe the impact of the adjustment is not material to the current or prior fiscal periods.

Management Commentary:
Ken Xie, founder, president and chief executive officer of Fortinet, stated: "We had a great fourth quarter, which resulted in a strong finish to the year as we demonstrated our ability to successfully execute our global go to market strategy and increase market share. We continued to attract and retain a number of large profile enterprise and service provider customers, and we introduced several new and competitive products that differentiate us from our competitors. With a healthy pipeline of business and a plan to continue investments in sales, marketing and product development, we are well-positioned to continue to gain market share and grow our business."

Nancy Bush, interim chief financial officer of Fortinet, stated: "We reported strong fourth quarter results, which exceeded our expectations across all of our key operating metrics. We had particularly strong growth in revenue, profitability, and cash flow generation, and ended the quarter with a cash, cash equivalents and investments balance of approximately $740 million with no debt. We are confident, yet cautious, as we enter 2013 and remain focused on further gaining market share worldwide by delivering innovative new products, and expanding our sales, marketing and R&D infrastructure."

Conference Call Details
Fortinet will host a conference call today, January 30, 2013, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its financial results. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 87079826. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet's website at http://investor.fortinet.com and a replay will be archived and accessible at http://investor.fortinet.com/events.cfm. A replay of this conference call can also be accessed through February 13, 2013, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID# 87079826.

Following Fortinet's earnings conference call, the Company will host an additional question-and-answer session at 3:30 p.m. Pacific Time (6:30 p.m. Eastern Time) to provide an opportunity for financial analysts and investors to ask more detailed product and financial questions. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 87078965. This follow-up call will be webcast live and accessible at http://investor.fortinet.com, and a replay will be archived and available after the call at http://investor.fortinet.com/events.cfm. A replay of this conference call will also be available through February 7, 2013 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID # 87078965.

About Fortinet (www.fortinet.com)
Fortinet (NASDAQ: FTNT) is a worldwide provider of network security appliances and a market leader in unified threat management (UTM). Our products and subscription services provide broad, integrated and high-performance protection against dynamic security threats while simplifying the IT security infrastructure. Our customers include enterprises, service providers and government entities worldwide, including the majority of the 2012 Fortune Global 100. Fortinet's flagship FortiGate product delivers ASIC-accelerated performance and integrates multiple layers of security designed to help protect against application and network threats. Fortinet's broad product line goes beyond UTM to help secure the extended enterprise - from endpoints, to the perimeter and the core, including databases and applications. Fortinet is headquartered in Sunnyvale, Calif., with offices around the world.

Copyright © 2013 Fortinet, Inc. All rights reserved. The symbols ® and ™ denote respectively federally registered trademarks and unregistered trademarks of Fortinet, Inc., its subsidiaries and affiliates. Fortinet's trademarks include, but are not limited to, the following: Fortinet, FortiGate, FortiGuard, FortiManager, FortiMail, FortiClient, FortiCare, FortiAnalyzer, FortiReporter, FortiOS, FortiASIC, FortiWiFi, FortiSwitch, FortiVoIP, FortiBIOS, FortiLog, FortiResponse, FortiCarrier, FortiScan, FortiDB and FortiWeb. Other trademarks belong to their respective owners.

FTNT-F

Forward-looking Statements
This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding the momentum in our business, growth of our business, positioning to continue to gain market share, our outlook as we enter 2013, our pipeline, and expanding our infrastructure and continued investments in sales, marketing and product development. 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. Important factors that could cause results to differ materially from the statements herein include the following: general economic risks; specific economic risks in different geographies and among different customer segments; uncertainty regarding increased business and renewals from existing customers; uncertainties around continued success in sales growth and market share gains; failure to convert sales pipeline into final sales; risks associated with successful implementation of multiple integrated software products and other product functionality risks; execution risks around marketing, new product development and introductions and innovation; litigation and disputes and the potential cost, distraction and damage to sales and reputation caused thereby; market acceptance of new products and services; the ability to attract and retain personnel, particularly sales and technical 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, the UTM model in general and by specific customer segments; competition and pricing pressure; 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 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.

Non-GAAP Financial Measures
We have provided in this release financial information that has not been prepared in accordance with Generally Accepted Accounting Principles (GAAP). 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 other companies in our industry, 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 below. As previously mentioned, a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Billings. We define billings as revenue recognized during a period plus the change in deferred revenue from the beginning to the end of the period. We consider billings to be a useful metric for management and investors because billings drive deferred revenue, which is an important indicator of the health and visibility of our business, and has historically represented a majority of the quarterly revenue that we recognize. There are a number of limitations related to the use of billings versus revenue calculated in accordance with GAAP. First, billings include amounts that have not yet been recognized as revenue. Second, we may calculate billings in a manner that is different from other companies that report similar financial measures. Management compensates for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with revenues calculated in accordance with GAAP.

Free cash flow. We define free cash flow as net cash provided by operating activities minus capital expenditures. We consider 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 the acquisition of property and equipment, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow facilitates management's comparisons of our operating results to competitors' operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating the Company is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it includes the impact of cash paid for capital expenditures. Management compensates for this limitation by providing information about our capital expenditures 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.

Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income plus stock-based compensation reduced by the income from payments we received from a patent settlement. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenue. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of stock-based compensation expense and patent settlement related income 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 versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes stock-based compensation expense. Stock-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in our business. Second, stock-based compensation is an important part of our employees' compensation and impacts their performance. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their non-GAAP results of operations. Management compensates 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. We define non-GAAP net income as net income plus stock-based compensation expense reduced by the income from payments we received from a patent settlement, and includes the impact of the tax adjustment, if any, required to achieve the effective tax rate on a pro forma basis, which could differ from the GAAP tax rate. We define non-GAAP diluted net income per share as non-GAAP net income divided by the weighted-average diluted 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 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 to achieve the effective tax rate on a pro forma basis, which could differ from the GAAP tax rate. We believe the effective tax rates we used are reasonable estimates of long-term normalized tax rates 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 compensate 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.

                        CONSOLIDATED BALANCE SHEETS

                         (Unaudited, in thousands)





                                                 December 31,  December 31,

                                                     2012          2011

                                                 ------------  ------------

                     ASSETS

CURRENT ASSETS:

  Cash and cash equivalents                      $    122,975  $     71,990

  Short-term investments                              290,719       318,283

  Accounts receivable, net of allowance for

   doubtful accounts of $115 and $336,

   respectively                                       107,642        95,522

  Inventory                                            21,060        16,249

  Deferred tax assets                                  13,663         7,578

  Prepaid expenses and other current assets            13,215        13,948

                                                 ------------  ------------

    Total current assets                              569,274       523,570

PROPERTY AND EQUIPMENT-Net                             25,638         7,966

DEFERRED TAX ASSETS-Non-current                        48,525        46,523

LONG-TERM INVESTMENTS                                 325,892       148,414

OTHER ASSETS                                            6,168         8,274

                                                 ------------  ------------

TOTAL ASSETS                                     $    975,497  $    734,747

                                                 ============  ============

      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

  Accounts payable                               $     20,816  $     19,768

  Accrued liabilities                                  22,263        15,971

  Accrued payroll and compensation                     28,957        24,197

  Deferred revenue                                    247,268       206,928

                                                 ------------  ------------

    Total current liabilities                         319,304       266,864

DEFERRED REVENUE-Non-current                          115,917        87,905

OTHER LIABILITIES                                      29,342        21,624

                                                 ------------  ------------

    Total liabilities                                 464,563       376,393

                                                 ------------  ------------

STOCKHOLDERS' EQUITY:

  Common stock                                            162           156

  Additional paid-in capital                          400,075       317,026

  Treasury stock                                       (2,995)       (2,995)

  Accumulated other comprehensive income                3,091           402

  Retained earnings                                   110,601        43,765

                                                 ------------  ------------

    Total stockholders' equity                        510,934       358,354

                                                 ------------  ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $    975,497  $    734,747

                                                 ============  ============





                               FORTINET, INC.

                   CONSOLIDATED STATEMENTS OF OPERATIONS

            (Unaudited, in thousands, except per share amounts)



                         Three Months Ended              Year Ended

                     --------------------------  --------------------------

                     December 31,  December 31,  December 31,  December 31,

                         2012          2011          2012          2011

                     ------------  ------------  ------------  ------------

REVENUE:

  Product            $     71,025  $     57,463  $    248,948  $    197,408

  Services                 76,711        61,076       274,043       220,268

  Ratable and other

   revenue                  3,426         2,322        10,648        15,900

                     ------------  ------------  ------------  ------------

    Total revenue         151,162       120,861       533,639       433,576

                     ------------  ------------  ------------  ------------

COST OF REVENUE:

  Product (1)              26,974        21,929        93,971        73,201

  Services (1)             13,836         9,671        50,682        35,486

  Ratable and other

   revenue                    632           886         2,767         4,911

                     ------------  ------------  ------------  ------------

    Total cost of

     revenue               41,442        32,486       147,420       113,598

                     ------------  ------------  ------------  ------------

GROSS PROFIT:

  Product                  44,051        35,534       154,977       124,207

  Services                 62,875        51,405       223,361       184,782

  Ratable and other

   revenue                  2,794         1,436         7,881        10,989

                     ------------  ------------  ------------  ------------

    Total gross

     profit               109,720        88,375       386,219       319,978

                     ------------  ------------  ------------  ------------

OPERATING EXPENSES:

  Research and

   development (1)         20,525        16,379        81,078        63,577

  Sales and

   marketing (1)           48,117        39,984       179,155       145,532

  General and

   administrative

   (1)                      6,038         5,492        25,511        21,965

                     ------------  ------------  ------------  ------------

    Total operating

     expenses              74,680        61,855       285,744       231,074

                     ------------  ------------  ------------  ------------

OPERATING INCOME           35,040        26,520       100,475        88,904

INTEREST INCOME             1,400           963         5,006         3,523

OTHER EXPENSE-Net            (170)         (112)         (485)         (354)

                     ------------  ------------  ------------  ------------

INCOME BEFORE INCOME

 TAXES                     36,270        27,371       104,996        92,073

PROVISION FOR INCOME

 TAXES                     14,763        10,877        38,160        29,581

                     ------------  ------------  ------------  ------------

NET INCOME           $     21,507  $     16,494  $     66,836  $     62,492

                     ============  ============  ============  ============

Net income per

 share:

  Basic              $       0.13  $       0.11  $       0.42  $       0.41

                     ============  ============  ============  ============

  Diluted            $       0.13  $       0.10  $       0.40  $       0.38

                     ============  ============  ============  ============

Weighted-average

 shares outstanding:

  Basic                   160,034       154,429       158,074       152,581

                     ============  ============  ============  ============

  Diluted                 166,955       164,505       166,329       163,781

                     ============  ============  ============  ============



(1) Includes stock-

 based compensation

 expense as follows:

  Cost of product

   revenue           $         96  $         54  $        333  $        183

  Cost of services

   revenue                  1,032           666         3,736         1,790

  Research and

   development              2,452         1,737         9,226         4,691

  Sales and

   marketing                1,996         3,036        12,793         9,325

  General and

   administrative           1,186           848         4,602         3,026

                     ------------  ------------  ------------  ------------

                     $      6,762  $      6,341  $     30,690  $     19,015

                     ============  ============  ============  ============





       CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  (Unaudited, in thousands)







                         Three Months Ended              Year Ended

                     --------------------------  --------------------------

                     December 31,  December 31,  December 31,  December 31,

                         2012          2011          2012          2011

                     ------------  ------------  ------------  ------------

Net income           $     21,507  $     16,494  $     66,836  $     62,492

Other comprehensive

 income (loss):

  Foreign currency

   translation gains

   (losses)                  (344)          246           524          (553)

  Unrealized gains

   (losses) on

   investments               (110)         (509)        3,331        (1,702)

  Unrealized gains

   (losses) on cash

   flow hedges                  -           119             -           (74)

  Tax provision

   related to items

   of other

   comprehensive

   income or loss             (32)          550        (1,166)          550

                     ------------  ------------  ------------  ------------

Net change in

 accumulated other

 comprehensive

 income                      (486)          406         2,689        (1,779)

                     ------------  ------------  ------------  ------------

Comprehensive income $     21,021  $     16,900  $     69,525  $     60,713

                     ============  ============  ============  ============





                      FORTINET, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                         (Unaudited, in thousands)





                         Three Months Ended              Year Ended

                     --------------------------  --------------------------

                     December 31,  December 31,  December 31,  December 31,

                         2012          2011          2012          2011

                     ------------  ------------  ------------  ------------

CASH FLOWS FROM

 OPERATING

 ACTIVITIES:

  Net income         $     21,507  $     16,494  $     66,836  $     62,492

  Adjustments to

   reconcile net

   income to net

   cash provided by

   operating

   activities:

    Depreciation and

     amortization           3,488         1,875        11,564         6,989

    Amortization of

     investment

     premiums               2,960         3,007        12,962        12,515

    Stock-based

     compensation           6,762         6,341        30,690        19,015

    Excess tax

     benefits from

     employee stock

     option plan           (2,458)      (10,565)      (12,069)      (19,829)

    Other non-cash

     items, net               (12)            -           881            22

    Changes in

     operating

     assets and

     liabilities:

    Accounts

     receivable-net       (17,800)      (19,687)      (12,120)      (23,246)

    Inventory               3,674        (4,556)      (11,303)       (6,034)

    Deferred tax

     assets                (4,739)       (2,328)       (9,254)       (7,874)

    Prepaid expenses

     and other

     current assets           862        (1,906)          791        (2,915)

    Other assets              585           (85)        2,470           227

    Accounts payable       (2,088)        4,287           961         6,801

    Accrued

     liabilities             (491)       (3,102)        2,171         1,765

    Accrued payroll

     and

     compensation           3,036         3,191         4,599         4,773

    Other

     liabilities             (509)       (2,664)       (1,870)            -

    Deferred revenue       23,100        19,706        68,292        42,177

    Income taxes

     payable               12,416        12,551        28,265        35,964

    Net cash

     provided by

     operating

     activities            50,293        22,559       183,866       132,842

                     ------------  ------------  ------------  ------------

CASH FLOWS FROM

 INVESTING

 ACTIVITIES:

                     ------------  ------------  ------------  ------------

  Purchases of

   investments            (77,698)     (109,796)     (601,087)     (516,906)

  Sales of

   investments                500             -        26,268        75,582

  Maturities of

   investments             72,266        76,646       415,440       280,745

  Purchases of

   property and

   equipment               (1,800)         (839)      (22,083)       (3,624)

  Payments made in

   connection with

   business

   acquisitions              (500)            -        (1,249)       (2,623)

    Net cash used in

     investing

     activities            (7,232)      (33,989)     (182,711)     (166,826)

                     ------------  ------------  ------------  ------------

CASH FLOWS FROM

 FINANCING

 ACTIVITIES:

                     ------------  ------------  ------------  ------------

  Proceeds from

   issuance of

   common stock             2,081         5,950        38,087        19,968

  Excess tax benefit

   from employee

   stock option plan        2,458        10,565        12,069        19,829

    Net cash

     provided by

     financing

     activities             4,539        16,515        50,156        39,797

                     ------------  ------------  ------------  ------------

EFFECT OF EXCHANGE

 RATES ON CASH AND

 CASH EQUIVALENTS             (91)          275          (326)         (682)

                     ------------  ------------  ------------  ------------

NET INCREASE IN CASH

 AND CASH

 EQUIVALENTS               47,509         5,360        50,985         5,131

CASH AND CASH

 EQUIVALENTS-

 Beginning of period       75,466        66,630        71,990        66,859

                     ------------  ------------  ------------  ------------

CASH AND CASH

 EQUIVALENTS-End of

 period              $    122,975  $     71,990  $    122,975  $     71,990

                     ============  ============  ============  ============





Reconciliations of non-GAAP results of

 operations measures to the nearest comparable

 GAAP measures

(Unaudited, in thousands)





Reconciliation of GAAP revenue to billings





                         Three Months Ended              Year Ended

                     --------------------------  --------------------------

                     December 31,  December 31,  December 31,  December 31,

                         2012          2011          2012          2011

                     ------------  ------------  ------------  ------------

Total revenue        $    151,162  $    120,861  $    533,639  $    433,576

  Increase in

   deferred revenue        23,107        19,706        68,352        42,202

                     ------------  ------------  ------------  ------------

Total billings (Non-

 GAAP)               $    174,269  $    140,567  $    601,991  $    475,778

                     ============  ============  ============  ============





Reconciliation of net cash provided by

operating activities to free cash flow





                         Three Months Ended              Year Ended

                     --------------------------  --------------------------

                     December 31,  December 31,  December 31,  December 31,

                         2012          2011          2012          2011

                     ------------  ------------  ------------  ------------

Net cash provided by

 operating

 activities          $     50,293  $     22,559  $    183,866  $    132,842

  Less purchases of

   property and

   equipment               (1,800)         (839)      (22,083)       (3,624)

                     ------------  ------------  ------------  ------------

Free cash flow (Non-

 GAAP)               $     48,493  $     21,720  $    161,783  $    129,218

                     ============  ============  ============  ============





Reconciliation of non-GAAP results of operations to the nearest comparable

GAAP measures

(Unaudited, in thousands, except per share amounts)



Reconciliation of GAAP to Non-GAAP operating income, operating margin, net

income and diluted net income per share




                                    Three Months Ended December 31, 2012

                                -------------------------------------------

                                    GAAP                          Non-GAAP

                                  Results      Adjustments        Results

Operating Income                $    35,040    $     6,284  (a) $    41,324

                                ===========    ===========      ===========

Operating Margin                         23%                             27%

                                ===========                     ===========

Adjustments:

  Stock-based compensation

   expense                                           6,762

  Patent settlement income                            (478)

  Tax adjustment                                       295  (c)

                                               -----------

Net Income                           21,507          6,579           28,086

                                ===========                     ===========

Diluted net income per share    $      0.13                     $      0.17

Shares used in per share

 calculations - diluted             166,955                         166,955





                                    Three Months Ended December 31, 2011

                                -------------------------------------------

                                    GAAP                          Non-GAAP

                                  Results      Adjustments        Results

Operating Income                $    26,520    $     5,863  (b) $    32,383

                                ===========    ===========      ===========

Operating Margin                         22%                             27%

                                ===========                     ===========

Adjustments:

  Stock-based compensation

   expense                                           6,341

  Patent settlement income                            (478)

  Tax adjustment                                       (90) (d)

                                               -----------

Net Income                           16,494          5,773           22,267

                                ===========                     ===========

Diluted net income per share    $      0.10                     $      0.14

Shares used in per share

 calculations - diluted             164,505                         164,505



(a) To exclude $6.8 million of stock-based compensation expense offset by

 $0.5 million of patent settlement income in the three months ended December

 31, 2012.



(b) To exclude $6.3 million of stock-based compensation expense offset by

 $0.5 million of patent settlement income in the three months ended December

 31, 2011.



(c) Non-GAAP financial information is adjusted to achieve an overall 34

 percent effective tax rate on a pro forma basis, which differs from the

 GAAP tax rate, in the three months ended December 31, 2012.



(d) Non-GAAP financial information is adjusted to achieve an overall 33

 percent effective tax rate on a pro forma basis, which differs from the

 GAAP tax rate, in the three months ended December 31, 2011.







                                         Year Ended December 31, 2012

                                  -----------------------------------------

                                      GAAP                        Non-GAAP

                                    Results    Adjustments        Results

Operating Income                  $   100,475  $    28,778  (e) $   129,252

                                  ===========  ===========      ===========

Operating Margin                           19%                           24%

                                  ===========                   ===========

Adjustments:

  Stock-based compensation

   expense                                          30,690

  Patent settlement income                          (1,912)

  Tax adjustment                                    (7,323) (g)

                                               -----------

Net Income                             66,836       21,455           88,291

                                  ===========                   ===========

Diluted net income per share      $      0.40                   $      0.53

Shares used in per share

 calculations - diluted               166,329                       166,329







                                         Year Ended December 31, 2011

                                  -----------------------------------------

                                      GAAP                        Non-GAAP

                                    Results    Adjustments        Results

Operating Income                  $    88,904  $    17,104  (f) $   106,008

                                  ===========  ===========      ===========

Operating Margin                           21%                           24%

                                  ===========                   ===========

Adjustments:

  Stock-based compensation

   expense                                          19,015

  Patent settlement income                          (1,911)

  Tax adjustment                                    (6,447) (h)

                                               -----------

Net Income                             62,492       10,657           73,149

                                  ===========                   ===========

Diluted net income per share      $      0.38                   $      0.45

Shares used in per share

 calculations - diluted               163,781                       163,781



(e) To exclude $30.7 million of stock-based compensation expense offset by

 $1.9 million of patent settlement income in the year ended December 31,

 2012.



(f) To exclude $19.0 million of stock-based compensation expense offset by

 $1.9 million of patent settlement income in the year ended December 31,

 2011.



(g) Non-GAAP financial information is adjusted to achieve an overall 34

 percent effective tax rate on a pro forma basis, which differs from the

 GAAP tax rate, in the year ended December 31, 2012.



(h) Non-GAAP financial information is adjusted to achieve an overall 33

 percent effective tax rate on a pro forma basis, which differs from the

 GAAP tax rate, in the year ended December 31, 2011.



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Fortinet, Inc.

408-486-7837

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Fortinet, Inc.

408-486-7853

rpopko@fortinet.com



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