Fortinet Reports Second Quarter 2013 Financial Results

Fortinet Reports Second Quarter 2013 Financial Results 
SUNNYVALE, CA -- (Marketwired) -- 07/30/13 --  Fortinet(R) (NASDAQ:
FTNT) 


 
--  Revenues of $147.4 million, up 14% year over year
--  Billings of $160.7 million, up 10% year over year(1)
--  GAAP diluted net income per share of $0.05
--  Non-GAAP diluted net income per share of $0.10(1)
--  Cash flow from operations of $37.2 million
--  Free cash flow of $35.2 million(1)
--  Cash, cash equivalents and investments of $814.4 million, with no debt

  
Fortinet(R) (NASDAQ: FTNT) -- a leader in high-performance network
security -- today announced financial results for the second quarter
ended June 30, 2013.  
"Our ability to meet or exceed billings, revenue and profitability
expectations during the second quarter against challenging conditions
in some markets and geographies highlights the breadth and diversity
of Fortinet's business," said Ken Xie, founder, president and chief
executive officer.  "While we will continue to move forward
cautiously due to the ongoing macro uncertainty, we feel confident
that the combination of our strong competitive advantages and product
superiority positions us well for continued growth and market share
gains."  
Financial Highlights for the Second Quarter of 2013 


 
--  Revenue: Total revenue was $147.4 million for the second quarter of
    2013, an increase of 14% compared to $129.0 million in the same
    quarter of 2012. Within total revenue, product revenue was $66.5
    million, an increase of 8% compared to the same quarter of 2012. 
    Services revenue was $79.7 million, an increase of 22% compared to the
    same quarter of 2012.
    
    
--  Billings(1): Total billings were $160.7 million for the second quarter
    of 2013, an increase of 10% compared to $145.8 million in the same
    quarter of 2012.
    
    
--  Deferred Revenue: Deferred revenue was $389.7 million as of June 30,
    2013, an increase of 18% compared to deferred revenue of $331.4
    million as of June 30, 2012, and an increase of $13.3 million from
    $376.4 million as of March 31, 2013.
    
    
--  Cash and Cash Flow: As of June 30, 2013, cash, cash equivalents and
    investments were $814.4 million, compared to $782.5 million as of
    March 31, 2013. In the second
 quarter of 2013, cash flow from
    operations was $37.2 million and free cash flow was $35.2 million(1).
    
    
--  GAAP Operating Income: GAAP operating income was $13.8 million for the
    second quarter of 2013, representing a GAAP operating margin of 9%.
    GAAP operating income was $21.0 million for the same quarter of 2012,
    representing a GAAP operating margin of 16%.
    
    
--  GAAP Net Income and Diluted Net Income Per Share: GAAP net income was
    $9.0 million for the second quarter of 2013, based on a 40% effective
    tax rate for the quarter. This compared to GAAP net income of $14.0
    million for the same quarter of 2012, based on a 37% effective tax
    rate for the quarter. GAAP diluted net income per share was $0.05 for
    the second quarter of 2013, based on 168.0 million weighted-average
    diluted shares outstanding, compared to $0.08 for the same quarter of
    2012, based on 166.1 million weighted-average diluted shares
    outstanding.
    
    
--  Non-GAAP Operating Income(1): Non-GAAP operating income was $24.4
    million for the second quarter of 2013, representing a non-GAAP
    operating margin of 17%. Non-GAAP operating income was $28.6 million
    for the same quarter of 2012, representing a non-GAAP operating margin
    of 22%.
    
    
--  Non-GAAP Net Income and Diluted Net Income Per Share(1): Non-GAAP net
    income was $17.2 million for the second quarter of 2013, based on a
    33% effective tax rate for the quarter. Non-GAAP net income for the
    same quarter of 2012 was $19.7 million, based on a 34% effective tax
    rate. Non-GAAP diluted net income per share was $0.10 for the second
    quarter of 2013 based on 168.0 million weighted-average diluted shares
    outstanding, compared to $0.12 for the same quarter of 2012, based on
    166.1 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." 
Conference Call Details 
Fortinet will host a conference call today, July 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 # 15101590. 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 August 6, 2013, by
dialing (855) 859-2056 (domestic) or (404) 537-3406 (international)
with conference ID# 15101590.  
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 # 15104274. 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
August 6, 2013 by dialing (855) 859-2056 (domestic) or (404) 537-3406
(international) with conference ID # 15104274.  
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 a 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 Copyright 2013 Fortinet, Inc. All rights reserved. The
symbols (R) and (TM) 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 potential growth of our business and market
share gains. 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
development and introductions and innovation; customer support
challenges; 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 and the loss of any key personnel; changes in
strategy; risks associated with management of growth; lengthy sales
and implementation cycles, particularly in larger organizations and
service providers; 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). These non-GAAP financial 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 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 less any
deferred revenue balances acquired from business combination(s)
during the period. We consider billings to be a useful metric for
management and investors because billings drive 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 excludes cash used 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
expense and, beginning this quarter, amortization expense of certain
intangible assets 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, amortization expense of certain intangible assets, 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 and amortization expense of certain
intangible assets. Stock-based compensation expense 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 other companies exclude when they report t
heir
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 and amortization expense of certain intangible assets 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 effective 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.
Management compensates 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 thousands)                          
                                                                            
                                                                            
                                                   June 30,    December 31, 
                                                     2013          2012     
                                                  ----------  ------------- 
                      ASSETS                                                
CURRENT ASSETS:                                                             
  Cash and cash equivalents                       $  123,468  $     122,975 
  Short-term investments                             379,229        290,719 
  Accounts receivable -- Net                         108,907        107,642 
  Inventory                                           33,317         21,060 
  Prepaid expenses and other current assets           27,479         26,878 
                                                  ----------  ------------- 
    Total current assets                             672,400        569,274 
PROPERTY AND EQUIPMENT -- Net                         27,047         25,638 
LONG-TERM INVESTMENTS                                311,713        325,892 
GOODWILL AND OTHER INTANGIBLE ASSETS -- Net            9,539          2,117 
DEFERRED TAX ASSETS -- Non-current                    61,764         48,525 
OTHER ASSETS                                           3,283          4,051 
                                                  ----------  ------------- 
TOTAL ASSETS                                      $1,085,746  $     975,497 
                                                  ==========  ============= 
       LIABILITIES AND STOCKHOLDERS' EQUITY                                 
CURRENT LIABILITIES:                                                        
  Accounts payable                                $   35,964  $      20,816 
  Accrued liabilities                                 28,091         22,263 
  Accrued payroll and compensation                    30,787         28,957 
  Deferred revenue                                   265,639        247,268 
                                                  ----------  ------------- 
    Total current liabilities                        360,481        319,304 
DEFERRED REVENUE -- Non-current                      124,043        115,917 
INCOME TAX LIABILITIES -- Non-current                 32,628         28,778 
OTHER LIABILITIES                                      1,409            564 
                                                  ----------  ------------- 
    Total liabilities                                518,561        464,563 
                                                  ----------  ------------- 
STOCKHOLDERS' EQUITY:                                                       
  Common stock                                           164            162 
  Additional paid-in capital                         437,837        400,075 
  Treasury stock                                      (2,995)        (2,995)
  Accumulated other comprehensive income                 350          3,091 
  Retained earnings                                  131,829        110,601 
                                                  ----------  ------------- 
    Total stockholders' equity                       567,185        510,934 
                                                  ----------  ------------- 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $1,085,746  $     975,497 
                                                  ==========  ============= 
                                                                            
Note: Certain prior period amounts have been combined to conform to current 
 period presentation                                                        
                                                                            
                                                                            
                                                                            
                                                                            
                               FORTINET, INC.                               
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS              
             (Unaudited, in thousands, except per share amounts)            
                                                                            
                                     Three Months Ended    Six Months Ended 
                                    -------------------- -------------------
                  
                   June 30,   June 30,  June 30,  June 30,
                                       2013       2012      2013      2012  
                                    ---------  --------- --------- ---------
REVENUE:                                                                    
  Product                           $  66,525  $  61,692 $ 124,475 $ 114,896
  Services                             79,668     65,412   155,564   127,550
  Ratable and other revenue             1,235      1,858     3,209     3,763
                                    ---------  --------- --------- ---------
    Total revenue                     147,428    128,962   283,248   246,209
                                    ---------  --------- --------- ---------
COST OF REVENUE:                                                            
  Product (1)                          26,948     23,935    49,906    43,003
  Services (1)                         16,259     12,467    31,833    23,680
  Ratable and other revenue 
              501        725     1,097     1,487
                                    ---------  --------- --------- ---------
    Total cost of revenue              43,708     37,127    82,836    68,170
                                    ---------  --------- --------- ---------
GROSS PROFIT:                                                               
  Product                              39,577     37,757    74,569    71,893
  Services                             63,409     52,945   123,731   103,870
  Ratable and other revenue               734      1,133     2,112     2,276
                                    ---------  --------- --------- ---------
    Total gross profit                103,720     91,835   200,412   178,039
                                    ---------  --------- --------- ---------
OPERATING EXPENSES:                                                         
  Research and development (1)         25,158     20,388    48,492    40,055
  Sales and marketing (1)              55,997     44,259   105,973    86,295
  General and administrative (1)        8,788      6,238    16,779    12,023
                                    ---------  --------- --------- ---------
    Total operating expenses           89,943     70,885   171,244   138,373
                                    ---------  --------- --------- ---------
OPERATING INCOME                       13,777     20,950    29,168    39,666
INTEREST INCOME                         1,337      1,203     2,706     2,287
OTHER (EXPENSE) INCOME-Net               (100)        73       115         3
                                    ---------  --------- --------- ---------
INCOME BEFORE INCOME TAXES             15,014     22,226    31,989    41,956
PROVISION FOR INCOME TAXES              6,035      8,276    10,761    13,833
                                    ---------  --------- --------- ---------
NET INCOME                          $   8,979  $  13,950 $  21,228 $  28,123
                                    =========  ========= ========= =========
Net income per share:                                                       
  Basic                             $    0.06  $    0.09 $    0.13 $    0.18
                                    =========  ========= ========= =========
  Diluted                           $    0.05  $    0.08 $    0.13 $    0.17
                                    =========  ========= ========= =========
Weighted-average shares                                                     
 outstanding:                                                               
  Basic                               162,247    157,474   161,767   156,742
                                    =========  ========= ========= =========
  Diluted                             168,042    166,061   168,033   165,808
                                    =========  ========= ========= =========
                                                                            
(1) Includes stock-based                                                    
 compensation expense as follows:                                           
  Cost of product revenue           $      96  $      88 $     186 $     152
  Cost of services revenue              1,226        941     2,246     1,686
  Research and development              3,291      2,292     6,057     4,249
  Sales and marketing                   4,594      3,475     8,712     6,918
  General and administrative            1,500      1,056     2,805     2,093
                                    ---------  --------- --------- ---------
                                    $  10,707  $   7,852 $  20,006 $  15,098
                                    =========  ========= ========= =========
                                                                            
                                                                            
                                                                            
                                                                            
                               FORTINET, INC.                               
         CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME          
                         (Unaudited, in thousands)                          
                                                                            
                                                                            
                                                                            
                                  Three Months Ended     Six Months Ended   
                                 --------------------  -------------------- 
                                  June 30,   June 30,   June 30,   June 30, 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Net income                       $   8,979  $  13,950  $  21,228  $  28,123 
Other comprehensive (loss)                                                  
 income, net of reclassification                                            
 adjustments:                                                               
  Foreign currency translation                                              
   losses                             (861)      (783)    (1,813)      (225)
  Unrealized (losses) gains on                                              
   investments                      (1,468)      (326)    (1,426)     1,473 
  Unrealized gains on cash flow                                             
   hedges                                -         19          -         19 
  Tax benefit (provision)                                                   
   related to items of other                                                
   comprehensive income or loss        513        114        498       (515)
                                 ---------  ---------  ---------  --------- 
Other comprehensive (loss)                                                  
 income, net of tax                 (1,816)      (976)    (2,741)       752 
                                 ---------  ---------  ---------  --------- 
Comprehensive income             $   7,163  $  12,974  $  18,487  $  28,875 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
                                                                            
                                                                            
                               FORTINET, INC.                               
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS               
                         (Unaudited, in thousands)                          
                                                                            
                                                                            
                                                         Six Months Ended   
                                                       -------------------- 
                                                        June 30,   June 30, 
                                                          2013       2012   
                                                       ---------  --------- 
CASH FLOWS FROM OPERATING ACTIVITIES:                                       
  Net income                                           $  21,228  $  28,123 
  Adjustments to reconcile net income to net cash                           
   provided by operating activities:                                        
    Depreciation and amortization                          7,322      5,077 
    Amortization of investment premiums                    5,889      6,528 
    Stock-based compensation                              20,006     15,098 
    Excess tax benefit from employee stock option                           
     plans                    
                            (1,894)    (5,158)
    Other non-cash items, net                               (925)        31 
    Changes in operating assets and liabilities:                            
    Accounts receivable -- Net                              (801)       171 
    Inventory                                            (16,375)    (7,952)
    Prepaid expenses and other current assets               (243)      (152)
    Other assets                                         (12,442)     1,461 
    Accounts payable                                      14,255      4,337 
    Accrued payroll and compensation                       2,287      3,119 
    Accrued and other liabilities                           (257)      (115)
    Deferred revenue                                      25,943     36,492 
    Income taxes payable                                  11,339      5,743 
                                                       ---------  --------- 
    Net cash provided by operating activities             75,332     92,803 
                                                       ---------  --------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                       
  Purchases of investments                              (275,029)  (355,025)
  Sales of investments                                    16,691     44,255 
  Maturities of investments                              176,378    209,242 
  Purchases of property and equipment                     (3,569)    (3,855)
  Payments made in connection with business                                 
   acquisitions                                           (5,985)      (550)
                                                       ---------  --------- 
    Net cash used in investing activities                (91,514)  (105,933)
                                                       ---------  --------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                       
  Proceeds from issuance of common stock                  15,590     17,650 
  Excess tax benefit from employee stock option plans      1,894      5,158 
                                                       ---------  --------- 
    Net cash provided by financing activities             17,484     22,808 
                                                       ---------  --------- 
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS       (809)      (442)
                                                       ---------  --------- 
NET INCREASE IN CASH AND CASH EQUIVALENTS                    493      9,236 
CASH AND CASH EQUIVALENTS -- Beginning of period         122,975     71,990 
                                                       ---------  --------- 
CASH AND CASH EQUIVALENTS -- End of period             $ 123,468  $  81,226 
                                                       =========  ========= 
                                                                            
                                                                            
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
                                                         -------------------
                                                          June 30,  June 30,
                                                            2013      2012  
                                                         --------- ---------
Total revenue                                            $ 147,428 $ 128,962
  Add increase in deferred revenue                          13,268    16,796
                                                         --------- ---------
Total billings (Non-GAAP)                                $ 160,696 $ 145,758
                                                         ========= =========
                                                                            
                                                                            
Reconciliation of net cash provided by operating activities to free cash    
 flow                                                                       
                                                                            
                                                        Three Months Ended  
                                                       -------------------- 
                                                        June 30,   June 30, 
                                                          2013       2012   
                                                       ---------  --------- 
Net cash provided by operating activities              $  37,221  $  44,285 
  Less purchases of property and equipment                (2,035)    (2,231)
                                                       ---------  --------- 
Free cash flow (Non-GAAP)                              $  35,186  $  42,054 
                                                       =========  ========= 
                                                                            
                                                                            
                                                                            
                                                                            
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 June 30,   Three Months Ended June 30,  
                             2013                          2012             
                ----------------------------- ----------------------------- 
                  GAAP   Adjust-     Non-GAAP   GAAP   Adjust-     Non-GAAP 
                 Results  ments       Results  Results  ments       Results 
                -------- -------     -------- -------- -------     -------- 
Operating                                                                   
 Income         $ 13,777 $10,583 (a) $ 24,360 $ 20,950 $ 7,600 (b) $ 28,550 
                ======== =======     ======== ======== =======     ======== 
Operating                                                                   
 Margin                9%                  17%      16%                  22%
                ========             ======== ========             ======== 
Adjustments:                                                                
  Stock-based                                                               
   compensation                                                             
   expense                10,707                         7,852              
  Amortization                                                              
   expense of                                                               
   certain                                                                  
   intangible                                                               
   assets                    354 (c)                       226 (c)          
  Patent                                                                    
   settlement                   
                                            
   income                   (478)                         (478)             
  Tax                                                                       
   adjustment             (2,412)(d)                    (1,865)(e)          
                -------- -------                       -------              
Net Income         8,979 $ 8,171     $ 17,150 $ 13,950 $ 5,735     $ 19,685 
                ========             ======== ========             ======== 
Diluted net                                                                 
 income per                                                                 
 share          $   0.05             $   0.10 $   0.08             $   0.12 
                ========             ======== ========             ======== 
Shares used in                                                              
 per share                                                                  
 calculations -                                                             
 diluted         168,042              168,042  166,061              166,061 
                ========             ======== ========             ======== 
                                                                            
                                                                            
(a) To exclude $10.7 million of stock-based compensation expense and $0.4   
    million of amortization expense of certain intangible assets offset by  
    $0.5 million of patent settlement income in the three months ended June 
    30, 2013.                                                               
                                                                            
(b) To exclude $7.9 million of stock-based compensation expense and $0.2    
    million of amortization expense of certain intangible assets offset by  
    $0.5 million of patent settlement income in the three months ended June 
    30, 2012.                                                               
                                                                            
(c) Effective second quarter of fiscal 2013, amortization expense of certain
    intangible assets is excluded from GAAP net income. Prior period amounts
    have been adjusted to conform to the current period presentation.       
                                                                            
(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 June 30, 2013.                 
                                                                            
(e) 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 June 30, 2012.                 

  
Investor Contact: 
Michelle Spolver 
Fortinet, Inc. 
408-486-7837  
mspolver@fortinet.com  
Media Contact: 
Rick Popko  
Fortinet, Inc.  
408-486-7853  
rpopko@fortinet.com 
 
 
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