Fortinet Reports Second Quarter 2024 Financial Results

Second Quarter 2024 Highlights

• Total revenue of $1.43 billion, up 11% year over year
• Service revenue of $982 million, up 20% year over year
• Record GAAP operating margin of 30.5%
• Record Non-GAAP operating margin of 35.1%¹
• Cash flow from operations of $342 million

SUNNYVALE, Calif. - August 6, 2024 - Fortinet® (Nasdaq: FTNT), a global cybersecurity leader driving the convergence of networking and security, today announced financial results for the second quarter ended June 30, 2024.

"In the second quarter, we successfully balanced growth and profitability as our non-GAAP operating margin increased 820 basis points year-over-year to a company record of 35.1%¹, while billings and revenue were at the high end of their respective guidance ranges," said Ken Xie, Founder, Chairman and Chief Executive Officer of Fortinet. "We are continuing to execute our strategy to invest in the fast-growing Unified SASE and Security Operations markets, while gaining market share in Secure Networking. We expect to emerge as a SASE leader, as we are the only vendor in the Gartner Magic Quadrant™ for Single-Vendor SASE that is also recognized in five different network security Magic Quadrant™ reports.²"

Financial Highlights for the Second Quarter of 2024

• Revenue: Total revenue was $1.43 billion for the second quarter of 2024, an increase of 10.9% compared to $1.29 billion for the same quarter of 2023.
• Product Revenue: Product revenue was $451.9 million for the second quarter of 2024, a decrease of 4.4% compared to $472.6 million for the same quarter of 2023.
• Service Revenue: Service revenue was $982.4 million for the second quarter of 2024, an increase of 19.8% compared to $820.2 million for the same quarter of 2023.
• Billings¹: Total billings were $1.54 billion for the second quarter of 2024, remaining flat compared to $1.54 billion for the same quarter of 2023.
• Deferred Revenue: Total deferred revenue was $5.90 billion as of June 30, 2024, an increase of 15.0% compared to $5.13 billion as of June 30, 2023.
• GAAP Operating Income and Margin: GAAP operating income was $437.2 million for the second quarter of 2024, representing a GAAP operating margin of 30.5%. GAAP operating income was $279.0 million for the same quarter of 2023, representing a GAAP operating margin of 21.6%.
• Non-GAAPOperating Incomeand Margin¹: Non-GAAP operating income was $503.6 million for the second quarter of 2024, representing a non-GAAP operating margin of 35.1%. Non-GAAP operating income was $348.1 million for the same quarter of 2023, representing a non-GAAP operating margin of 26.9%.
• GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $379.8 million for the second quarter of 2024, compared to GAAP net income of $266.3 million for the same quarter of 2023. GAAP diluted net income per share was $0.49 for the second quarter of 2024, based on 769.9 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.33 for the same quarter of 2023, based on 795.9 million diluted weighted-average shares outstanding.
• Non-GAAPNet Income and Diluted Net Income Per Share¹: Non-GAAP net income was $439.9 million for the second quarter of 2024, compared to non-GAAP net income of $300.4 million for the same quarter of 2023. Non-GAAP diluted net income per share was $0.57 for the second quarter of 2024, based on 769.9 million diluted weighted-average shares outstanding, compared to $0.38 for the same quarter of 2023, based on 795.9 million diluted weighted-average shares outstanding.
• Cash Flow: Cash flow from operations was $342.0 million for the second quarter of 2024, compared to $515.1 million for the same quarter of 2023.
• Free Cash Flow¹: Free cash flow was $318.9 million for the second quarter of 2024, compared to $438.3 million for the same quarter of 2023.

Guidance

For the third quarter of 2024, Fortinet currently expects:

• Revenue in the range of $1.445 billion to $1.505 billion
• Billings in the range of $1.530 billion to $1.600 billion
• Non-GAAP gross margin in the range of 79.0% to 80.0%
• Non-GAAP operating margin in the range of 30.5% to 31.5%
• Diluted non-GAAP net income per share in the range of $0.56 to $0.58, assuming a non-GAAP effective tax rate of 17%. This assumes a diluted share count of 767 million to 777 million.

For the fiscal year 2024, Fortinet currently expects:

• Revenue in the range of $5.800 billion to $5.900 billion
• Service revenue in the range of $3.975 billion to $4.025 billion
• Billings in the range of $6.400 billion to $6.600 billion
• Non-GAAP gross margin in the range of 79.0% to 80.0%
• Non-GAAP operating margin in the range of 30.0% to 31.5%
• Diluted non-GAAP net income per share in the range of $2.13 to $2.19, assuming a non-GAAP effective tax rate of 17%. This assumes a diluted share count of 767 million to 777 million.

These statements are forward looking and actual results may differ materially. Refer to the Forward-Looking Statements section below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Our guidance with respect to non-GAAP financial measures excludes stock-based compensation, amortization of acquired intangible assets, gain on intellectual property matters and non-cash charge on equity method investment of impairment. 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.

GARTNER is a registered trademark and service mark of Gartner and Magic Quadrant is a registered trademark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and are used herein with permission. All rights reserved.

Gartner does not endorse any vendor, product or service depicted in our research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

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

² Magic Quadrant for SD-WAN, Jonathan Forest, Naresh Singh, Andrew Lerner, Karen Brown, Published 27 September 2023
Magic Quadrant for Enterprise Wired and Wireless LAN Infrastructure, Tim Zimmerman, Christian Canales, Nauman Raja, Mike Leibovitz, Published 06 March 2024
Magic Quadrant for Network Firewalls, Rajpreet Kaur, Adam Hils, Thomas Lintemuth, Published 19 December 2022
Magic Quadrant for Security Service Edge, Charlie Winckless, Thomas Lintemuth, Dale Koeppen, Published 15 April 2024
Magic Quadrant for Single-Vendor SASE, Andrew Lerner, Jonathan Forest, Neil MacDonald, Nat Smith, Charlie Winckless, Published 16 August 2023

Conference Call Details

Fortinet will host a conference call today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss the earnings results. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet's website at https://investor.fortinet.com and a replay will be archived and accessible at https://investor.fortinet.com/events-and-presentations.

Third Quarter 2024 Conference Participation Schedule:

• Oppenheimer Technology, Internet & Communications Conference
  August 12, 2024
• Deutsche Bank Technology Conference
  August 28, 2024
• Goldman Sachs Communacopia + Technology Conference
  September 9, 2024

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 website. To access the most updated information, pre-register and listen to the webcast of each event, please visit the Investor Presentation & Events page of Fortinet's website at https://investor.fortinet.com/events-and-presentations. The schedule is subject to change.