Fortinet Reports Second Quarter 2019 Financial Results

Second Quarter 2019 Highlights

• Revenue of $521.7 million, up 18% year over year

• Billings of $622.4 million, up 21% year over year1

• Deferred revenue of $1.87 billion, up 27% year over year

• GAAP operating margin of 14%

• Non-GAAP operating margin of 24%1

• GAAP diluted net income per share of $0.42

• Non-GAAP diluted net income per share of $0.581

• Cash flow from operations of $195.1 million

• Free cash flow of $177.8 million1

Dubai, UAE. - August 4, 2019 - Fortinet® (Nasdaq: FTNT), a global leader in broad, integrated and automated cybersecurity solutions, today announced financial results for the second quarter ended June 30, 2019.

“Our strong performance in the United States contributed to second quarter billings growth that outpaced our competitors. Our Fortinet Security Fabric, SD-WAN and cloud offerings contributed to our 21% year-over-year billings growth,” said Ken Xie, Founder, Chairman and Chief Executive Officer. “We expect 2019 to be another year of better-than-industry growth, driven by our advanced security processing technology, new products and services offerings, and new market opportunities.”

Financial Highlights for the Second Quarter of 2019

• Revenue: Total revenue was $521.7 million for the second quarter of 2019, an increase of 18% compared to $441.3 million for the same quarter of 2018.

• Product revenue was $189.9 million for the second quarter of 2019, an increase of 14% compared to $166.3 million for the same quarter of 2018.

• Service revenue was $331.8 million for the second quarter of 2019, an increase of 21% compared to $275.0 million for the same quarter of 2018.

• Billings1: Total billings were $622.4 million for the second quarter of 2019, an increase of 21% compared to $513.4 million for the same quarter of 2018.

• Deferred Revenue: Total deferred revenue was $1.87 billion as of June 30, 2019, an increase of 27% compared to $1.47 billion as of June 30, 2018.

• GAAP Operating Income and Margin: GAAP operating income was $75.2 million for the second quarter of 2019, representing a GAAP operating margin of 14%. GAAP operating income was $50.7 million for the same quarter of 2018, representing a GAAP operating margin of 11%.

• Non-GAAP Operating Income and Margin1: Non-GAAP operating income was $123.1 million for the second quarter of 2019, representing a non-GAAP operating margin of 24%. Non-GAAP operating income was $93.1 million for the second quarter of 2018, representing a non-GAAP operating margin of 21%.

• GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $72.7 million for the second quarter of 2019, compared to GAAP net income of $49.3 million for the same quarter of 2018. GAAP diluted net income per share was $0.42 for the second quarter of 2019, based on 175.1 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.28 for the same quarter of 2018, based on 173.5 million diluted weighted-average shares outstanding.

• Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $101.6 million for the second quarter of 2019, compared to non-GAAP net income of $71.4 million for the same quarter of 2018. Non-GAAP diluted net income per share was $0.58 for the second quarter of 2019, based on 175.1 million diluted weighted-average shares outstanding, compared to $0.41 for the same quarter of 2018, based on 173.5 million diluted weighted-average shares outstanding.

• Cash Flow and Free Cash Flow1: In the second quarter of 2019, cash flow from operations was $195.1 million compared to $142.2 million in the same quarter of 2018. Free cash flow was $177.8 million during the second quarter of 2019, compared to $130.6 million for the same quarter of 2018.

Guidance

For the third quarter of 2019, Fortinet currently expects:

• Revenue in the range of $525 million to $540 million

• Billings in the range of $600 million to $615 million

• Non-GAAP gross margin in the range of 75.5% to 76.5%

• Non-GAAP operating margin in the range of 23.0% to 23.5%

• Diluted non-GAAP net income per share in the range of $0.55 to $0.57, assuming a non-GAAP effective tax rate of 24%. This assumes a diluted share count of 177 million to 179 million

For the fiscal year 2019, Fortinet currently expects:

• Revenue in the range of $2.10 billion to $2.12 billion

• Service revenue in the range of $1.34 billion to $1.36 billion

• Billings in the range of $2.51 billion to $2.54 billion

• Non-GAAP gross margin in the range of 75.5% to 76.5%

• Non-GAAP operating margin in the range of 23.0% to 23.5%

• Diluted non-GAAP net income per share in the range of $2.23 to $2.26, assuming a non-GAAP effective tax rate of 24%. This assumes a diluted share count of 177 million to 179 million

Our guidance with respect to non-GAAP financial measures excludes stock-based compensation and amortization of acquired intangible assets. We have not reconciled our guidance with respect to non-GAAP financial measures to the corresponding GAAP measures because certain items that impact these measures are uncertain or out of our control, or cannot be reasonably predicted. Accordingly, a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort.

1 A reconciliation of GAAP to non-GAAP measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Conference Call Details

Fortinet will host a conference call today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss the earnings results. The call can be accessed by dialing (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 8583905. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet’s website at https://investor.fortinet.com and a replay will be archived and accessible at https://investor.fortinet.com/events-and-presentations. A replay of this conference call can also be accessed through August 8, 2019, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID #8583905.

Third Quarter 2019 Investor Conference Participation Schedule:

• Oppenheimer 22nd Annual Technology, Internet & Communications Conference

August 7, 2019 - Boston, MA

• Raymond James SMID Conference (Meetings Only)

August 21, 2019 - Chicago, IL

• Dougherty Institutional Investors Conference (Meetings Only)

September 5, 2019 - Minneapolis, MN

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 listen to these presentations and access the most updated information and listen to the webcast of each event, please visit the Investor Relations page of Fortinet’s website at http://investor.fortinet.com. The schedule is subject to change.