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Fortinet Reports Record Financial Results
- Revenues of
$116.4 million , up 37% year over year - Billings of
$118.4 million , up 25% year over year - GAAP EPS of
$0.11 and Non-GAAP EPS of$0.13 - Cash and investments of
$503.0 million , with no debt - Free cash flow of
$34.7 million , up 10% year over year - GAAP net income of
$17.9 million , up 28% year over year - Non-GAAP net income of
$21.7 million , up 61% year over year
Fortinet® (NASDAQ: FTNT) -- a leading network security provider and the worldwide leader in unified threat management (UTM) solutions -- today announced financial results for the third quarter ended
Financial Highlights for the Third Quarter of 2011
- Revenue(1, 2): Total revenue was
$116.4 million for the third quarter of 2011, an increase of 37% compared to the third quarter of 2010. Within total revenue, product revenue was$53.1 million , an increase of 48% compared to the third quarter of 2010. Services revenue was$57.8 million , an increase of 30% compared to the third quarter of 2010. Ratable and other revenue was$5.5 million , an increase of 21% compared to the third quarter of 2010.
- Billings(2, 3): Total billings were
$118.4 million for the third quarter of 2011, an increase of 25% compared to the third quarter of 2010. We define billings, a non-GAAP financial measure, as revenue recognized during the period plus the change in deferred revenue from the beginning to the end of the period.
- Deferred Revenue: Deferred revenue was
$275.1 million as ofSeptember 30, 2011 , an increase of 17% compared to deferred revenue as ofSeptember 30, 2010 , and up$1.9 million fromJune 30, 2011 .
Cash and Cash Flow (2): As ofSeptember 30, 2011 , cash, cash equivalents and investments were$503.0 million , compared to$468.5 million as ofJune 30, 2011 . Cash flow from operations was$36.0 million for the third quarter of 2011, compared to$32.2 million for the third quarter of 2010. In the third quarter of 2011, free cash flow was$34.7 million , compared to$31.5 million for the third quarter of 2010. We define free cash flow, a non-GAAP financial measure of liquidity, as net cash provided by operating activities less capital expenditures.
- GAAP Operating Income(2): GAAP operating income was
$26.2 million for the third quarter of 2011, representing a GAAP operating margin of 22%, and an increase of 44% compared to the third quarter of 2010.
- Non-GAAP(3) Operating Income(2): Non-GAAP operating income was
$31.4 million for the third quarter of 2011, representing a non-GAAP operating margin of 27% and an increase of 52% compared to the third quarter of 2010. Non-GAAP operating income and operating margin exclude stock-based compensation expense and income from payments we received related to a patent settlement.
- GAAP Net Income and EPS(2): GAAP net income was
$17.9 million for the third quarter of 2011, based on a 34% tax rate for the quarter. This compares to GAAP net income of$14.0 million for the third quarter of 2010, based on a 23% tax rate for the quarter. GAAP diluted EPS was$0.11 for the third quarter of 2011, based on 163.9 million weighted-average diluted shares outstanding, compared to$0.09 for the third quarter of 2010, based on 155.8 million weighted-average diluted shares outstanding(4). GAAP EPS includes$0.01 attributable to a sale of previously-acquired patents and its related tax effects.
- Non-GAAP(3) Net Income and EPS(2): Non-GAAP net income was
$21.7 million for the third quarter of 2011, based on a 33% effective tax rate for the quarter. Non-GAAP net income for the third quarter of 2010 was$13.5 million , based on a 35% effective tax rate. Non-GAAP diluted EPS was$0.13 for the third quarter of 2011 based on 163.9 million weighted-average diluted shares outstanding, compared to$0.09 for the third quarter of 2010 based on 155.8 million weighted-average diluted shares outstanding(4). Non-GAAP net income and non-GAAP EPS exclude stock-based compensation expense, income from payments we received related to a patent settlement and the related tax effects. Non-GAAP EPS includes$0.01 attributable to a sale of previously-acquired patents and its related tax effects.
(1) Effective
(2) Includes the impact of a
(3) 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."
(4) Effective
Management Commentary:
Conference Call Details
Fortinet will host a conference call today,
Following our earnings conference call, we will host an additional question-and-answer session at
About Fortinet (www.fortinet.com)
Fortinet (NASDAQ: FTNT) is a worldwide provider of network security appliances and the 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 2009 Fortune Global 100. Fortinet's flagship FortiGate product delivers
Copyright © 2011 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, FortiAP, FortiDB and FortiWeb. 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.
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, continued differentiation and growth based on our high performance UTM solutions, our pipeline of business, improving trends in EMEA, and our fourth-quarter product launches. 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 new product introductions and innovation; 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, the UTM model in general and by specific customer segments; and the other risk factors set forth from time to time in our filings with the
Non-GAAP Financial Measures
We have provided in this release financial information that has not been prepared in accordance with 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 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 peer 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
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 EPS. 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, less the related tax effects for both periods presented. We define non-GAAP EPS as non-GAAP net income divided by the weighted-average shares outstanding, on a fully-diluted basis. We consider these non-GAAP financial measures to be a useful metric 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 exclude from non-GAAP net income and non-GAAP EPS the tax effects associated with stock-based compensation and the patent settlement. We used a 33 percent effective tax rate to calculate non-GAAP net income for the third quarter of 2011. We used a 35 percent effective tax rate to calculate non-GAAP net income for the third quarter of 2010. We believe these effective tax rates 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 EPS. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net income and non-GAAP EPS together with net income and EPS calculated in accordance with GAAP.
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30, December 31,
ASSETS 2011 2010
------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 66,630 $ 66,859
Short-term investments 322,536 246,651
Accounts receivable, net of allowance for
doubtful accounts of $180 and
$303, respectively 75,835 72,336
Inventory 12,968 13,517
Deferred tax asset 14,330 8,158
Prepaid expenses and other current assets 9,258 8,849
Deferred cost of revenues 2,369 3,788
------------- -------------
Total current assets 503,926 420,158
PROPERTY AND EQUIPMENT -- Net 7,485 7,056
DEFERRED TAX ASSET -- Non-current 37,443 37,443
DEFERRED COST OF REVENUES 3,775 5,543
LONG-TERM INVESTMENTS 113,801 73,950
OTHER ASSETS 4,557 1,272
------------- -------------
TOTAL ASSETS $ 670,987 $ 545,422
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,342 $ 12,761
Accrued liabilities 22,286 16,303
Accrued payroll and compensation 21,112 19,670
Deferred revenue 192,927 169,648
------------- -------------
Total current liabilities 251,667 218,382
DEFERRED REVENUE -- Non-current 82,199 82,983
OTHER NON-CURRENT LIABILITIES 20,254 11,603
------------- -------------
Total liabilities 354,120 312,968
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock 155 150
Additional paid-in-capital 292,440 251,845
Treasury stock -- common (2,995) (2,995)
Accumulated other comprehensive income
(loss) (4) 2,181
Retained earnings (accumulated deficit) 27,271 (18,727)
------------- -------------
Total stockholders' equity 316,867 232,454
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 670,987 $ 545,422
============= =============
FORTINET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
------------- ------------- ------------- -------------
REVENUE:
Product $ 53,093 $ 35,913 $ 139,945 $ 94,060
Services 57,835 44,527 159,192 124,116
Ratable and
other
revenue(1) 5,498 4,531 13,578 12,921
------------- ------------- ------------- -------------
Total revenue 116,426 84,971 312,715 231,097
------------- ------------- ------------- -------------
COST OF REVENUE:
Product(2) 20,606 13,263 51,272 36,399
Services(2) 9,438 6,565 25,815 19,851
Ratable and
other revenue 1,095 1,615 4,026 4,733
------------- ------------- ------------- -------------
Total cost of
revenue 31,139 21,443 81,113 60,983
------------- ------------- ------------- -------------
GROSS PROFIT:
Product 32,487 22,650 88,673 57,661
Services 48,397 37,962 133,377 104,265
Ratable and
other revenue 4,403 2,916 9,552 8,188
------------- ------------- ------------- -------------
Total gross
profit 85,287 63,528 231,602 170,114
------------- ------------- ------------- -------------
OPERATING
EXPENSES:
Research and
development(2) 16,834 12,389 47,197 36,999
Sales and
marketing(2) 36,934 26,987 105,548 81,487
General and
administrative(
2) 5,359 5,993 16,473 16,985
------------- ------------- ------------- -------------
Total
operating
expenses 59,127 45,369 169,218 135,471
------------- ------------- ------------- -------------
OPERATING INCOME 26,160 18,159 62,384 34,643
INTEREST INCOME 904 514 2,560 1,181
OTHER INCOME
(EXPENSE) -- NET 60 (402) (242) (565)
------------- ------------- ------------- -------------
INCOME BEFORE
INCOME TAXES 27,124 18,271 64,702 35,259
PROVISION FOR
INCOME TAXES 9,207 4,254 18,704 10,155
------------- ------------- ------------- -------------
NET INCOME $ 17,917 $ 14,017 $ 45,998 $ 25,104
============= ============= ============= =============
Net income per
share(3):
Basic $ 0.12 $ 0.10 $ 0.30 $ 0.18
============= ============= ============= =============
Diluted $ 0.11 $ 0.09 $ 0.28 $ 0.16
============= ============= ============= =============
Weighted-average
shares
outstanding(3):
Basic 153,265 143,672 151,958 138,376
============= ============= ============= =============
Diluted 163,869 155,842 163,554 153,290
============= ============= ============= =============
------------------
(1) Ratable and other revenue was formerly referred to as Ratable product
and services revenue. We have made this change to reflect the $2.6 million
sale of patents during the current quarter.
(2) Includes
stock-based
compensation
expense as
follows:
Cost of product
revenue $ 64 $ 26 $ 129 $ 76
Cost of services
revenue 564 242 1,124 684
Research and
development 1,516 600 2,954 1,741
Sales and
marketing 2,708 1,017 6,289 2,780
General and
administrative 882 549 2,178 1,565
------------- ------------- ------------- -------------
$ 5,734 $ 2,434 $ 12,674 $ 6,846
============= ============= ============= =============
(3) Effective June 1, 2011 , we completed a two-for-one stock split of our
outstanding shares of common stock. In accordance with GAAP, we have
retroactively displayed the effect of the change in our condensed
consolidated financial statements.
FORTINET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
-----------------------------
September 30, September 30,
2011 2010
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,998 $ 25,104
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,114 4,233
Loss on disposal of fixed assets 22 14
Amortization of investment premiums 9,508 4,934
Stock-based compensation 12,674 6,846
Excess tax benefit from employee stock
option plans (9,264) (4,191)
Changes in operating assets and
liabilities:
Accounts receivable -- net (3,559) (5,011)
Inventory (1,478) (2,815)
Deferred tax assets (5,546) (8)
Prepaid expenses and other current
assets (2,429) (2,905)
Deferred cost of revenues 3,188 (274)
Other assets (1,456) 50
Accounts payable 2,514 (689)
Accrued liabilities 4,867 1,711
Accrued payroll and compensation 1,582 4,312
Other liabilities 2,664 -
Deferred revenue 22,471 33,321
Income taxes payable 23,413 7,327
------------- -------------
Net cash provided by operating
activities 110,283 71,959
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (407,110) (311,995)
Maturities and sales of investments 279,681 80,097
Payments made in connection with business
acquisition, net (2,623) -
Purchase of property and equipment (2,785) (2,900)
Deposits of restricted cash - (4)
------------- -------------
Net cash used in investing activities (132,837) (234,802)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and
warrants 14,018 23,892
Offering costs paid in connection with
Initial Public Offering - (872)
Excess tax benefit from employee stock
option plans 9,264 4,191
------------- -------------
Net cash provided by financing
activities 23,282 27,211
------------- -------------
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS (957) 313
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (229) (135,319)
CASH AND CASH EQUIVALENTS -- Beginning of
period 66,859 212,458
------------- -------------
CASH AND CASH EQUIVALENTS -- End of period $ 66,630 $ 77,139
============= =============
Reconciliations of non-GAAP results of operations measures to the nearest
comparable GAAP measures
(in thousands)
(unaudited)
Reconciliation of GAAP revenue to billings
Three Months Ended
-----------------------------
September 30, September 30,
2011 2010
------------- -------------
Total revenue $ 116,426 $ 84,971
Increase in deferred revenue 1,927 9,729
------------- -------------
Total billings (Non-GAAP) $ 118,353 $ 94,700
============= =============
---------------------------------------------------------------------------
Reconciliation of cash provided by operating
activities to free cash flow
Three Months Ended
-----------------------------
September 30, September 30,
2011 2010
------------- -------------
Net cash provided by operating activities $ 36,039 $ 32,193
Less purchases of property and equipment (1,335) (671)
------------- -------------
Free cash flow (Non-GAAP) $ 34,704 $ 31,522
============= =============
Net cash used in investing activities* $ (52,950) $ (32,953)
============= =============
Net cash provided by financing activities $ 7,572 $ 7,635
============= =============
*includes purchases of property and
equipment.
Reconciliations of non-GAAP results of operations measures to the nearest
comparable GAAP measures and other non-GAAP financial information
(in thousands, except per share amounts)
(unaudited)
Reconciliation of GAAP to non-GAAP operating income, operating margin, net
income and net income per share.
Three Months Ended Three Months Ended
September 30, 2011 September 30, 2010
------------------------------ ------------------------------
GAAP Adjust Non-GAAP GAAP Adjust Non-GAAP
Results ments Results Results ments Results
-------- ------ -------- -------- ------ --------
Operating
Income $ 26,160 5,191 (a) $ 31,351 $ 18,159 2,434 (b) $ 20,593
======== ====== ======== ======== ====== ========
Operating
Margin 22% 27% 21% 24%
======== ======== ======== ========
5,191 (a) 2,434 (b)
(1,457) (c) (2,993) (c)
------ ------
Net Income $ 17,917 3,734 $ 21,651 $ 14,017 (559) $ 13,458
======== ======== ======== ========
Net income
per share -
diluted $ 0.11 $ 0.13 $ 0.09 $ 0.09
======== ======== ======== ========
Shares used
in per share
calculation
- diluted 163,869 163,869 155,842 155,842
======== ======== ======== ========
(a) To eliminate $5.7 million of stock-based compensation expense offset by
the $0.5 million of patent settlement income in the three months ended
September 30, 2011 .
(b) To eliminate $2.4 million of stock-based compensation expense in the
three months ended September 30, 2010 .
(c) To eliminate the tax effects related to expenses noted in (a) and (b).
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Investor & Media Contact:Michelle Spolver Fortinet, Inc. 408-486-7837 mspolver@fortinet.com
Source: Fortinet
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