Fourth Quarter 2023 Highlights 

• Total revenue of US$1.42 billion, up 10.3 per cent year over year.
• Billings of US$1.86 billion, up 8.5 per cent year over year. (1)
• Generally Accepted Accounting Principles (GAAP) operating income of US$385 million.
• Non-GAAP operating income of US$454 million. (1)
• GAAP operating margin of 27.2 per cent.
• Non-GAAP operating margin of 32.0 per cent. (1)
• Cash paid for share repurchases of US$896 million.

Full Year 2023 Highlights 

• Total revenue of US$5.30 billion, up 20 per cent year over year.
• Service revenue of US$3.38 billion, up 28 per cent year over year.
• Billings of US$6.40 billion, up 14 per cent year over year. (1)
• Deferred revenue of US$5.74 billion, up 24 per cent year over year.
• GAAP operating income of US$1.24 billion, up 28 per cent year over year.
• Non-GAAP operating income of US$1.51 billion, up 25 per cent year over year. (1)
• GAAP operating margin of 23.4 per cent.
• Non-GAAP operating margin of 28.4 per cent. (1)
• GAAP diluted net income per share attributable to Fortinet, Inc. of US$1.46, up 38 per cent year over year.
• Non-GAAP diluted net income per share attributable to Fortinet, Inc. of US$1.63, up 37 per cent year over year. (1)
• Cash flow from operations of US$1.94 billion.
• Free cash flow of US$1.73 billion. (1)
• Cash paid for share repurchases of US$1.50 billion.

Fortinet® (Nasdaq: FTNT), a global cybersecurity leader driving the convergence of networking and security, has announced financial results for the fourth quarter of 2023 and full year ended December 31, 2023.

Ken Xie, founder, chairman, and chief executive officer, Fortinet, said, “In the fourth quarter of 2023, security operations billings grew 44 per cent year over year and secure access service edge (SASE) billings increased 19 per cent year over year, driven by our successful sales strategy shift and the improved execution of our sales teams.

“Our platform strategy is resonating with enterprises worldwide as we are a leader in secure networking and are the #1 firewall vendor for units shipped with FortiGates accounting for over half of the global deployment. Fortinet is well-positioned to consolidate the security capabilities of our over half a million customers onto our integrated FortiOS operating system, which encompasses over 30 networking and security functions spanning on-premises and cloud environments.”

Financial Highlights for the Fourth Quarter of 2023

Revenue: Total revenue was US$1.42 billion for the fourth quarter of 2023, an increase of 10.3 per cent compared to US$1.28 billion for the same quarter of 2022.
Service revenue: Service revenue was US$927.0 million for the fourth quarter of 2023, an increase of 24.8 per cent compared to US$742.9 million for the same quarter of 2022.
Product revenue: Product revenue was US$488.1 million for the fourth quarter of 2023, a decrease of 9.6 per cent compared to US$540.1 million for the same quarter of 2022.
Billings (1): Total billings were US$1.86 billion for the fourth quarter of 2023, an increase of 8.5 per cent compared to US$1.72 billion for the same quarter of 2022.
GAAP operating income and margin: GAAP operating income was US$385.4 million for the fourth quarter of 2023, representing a GAAP operating margin of 27.2 per cent. GAAP operating income was US$357.8 million for the same quarter of 2022, representing a GAAP operating margin of 27.9 per cent.
Non-GAAP operating income and margin (1): Non-GAAP operating income was US$453.5 million for the fourth quarter of 2023, representing a non-GAAP operating margin of 32.0 per cent. Non-GAAP operating income was US$417.6 million for the same quarter of 2022, representing a non-GAAP operating margin of 32.5 per cent.
GAAP net income and diluted net income per share attributable to Fortinet, Inc.: GAAP net income was US$310.9 million for the fourth quarter of 2023, compared to GAAP net income of US$313.8 million for the same quarter of 2022. GAAP diluted net income per share was US$0.40 for the fourth quarter of 2023, based on 772.3 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of US$0.40 for the same quarter of 2022, based on 791.8 million diluted weighted-average shares outstanding.

Non-GAAP net income and diluted net Income per share attributable to Fortinet, Inc. (1): Non-GAAP net income was US$392.0 million for the fourth quarter of 2023, compared to non-GAAP net income of US$349.7 million for the same quarter of 2022. Non-GAAP diluted net income per share was US$0.51 for the fourth quarter of 2023, based on 772.3 million diluted weighted-average shares outstanding, compared to US$0.44 for the same quarter of 2022, based on 791.8 million diluted weighted-average shares outstanding.
Cash flow: Cash flow from operations was US$191.7 million for the fourth quarter of 2023, compared to US$528.1 million for the same quarter of 2022.
Free cash flow (1): Free cash flow was US$164.8 million for the fourth quarter of 2023, compared to US$497.2 million for the same quarter of 2022.
Share repurchase program: During the three months ended December 31, 2023, Fortinet repurchased 16.8 million shares of its common stock at an average price of US$53.29 per share and for an aggregate purchase price of US$895.3 million. In January 2024, Fortinet’s board of directors authorised a US$500.0 million increase in the authorised share repurchase amount under our share repurchase program. As of February 6, 2024, approximately US$1.03 billion remained available for future share repurchases under our share repurchase program.

Financial Highlights For The Full Year 2023

Revenue: Total revenue was US$5.30 billion for 2023, an increase of 20.1 per cent compared to US$4.42 billion in 2022.
Service revenue: Service revenue was US$3.38 billion for 2023, an increase of 28.1 per cent compared to US$2.64 billion in 2022.
Product revenue: Product revenue was US$1.93 billion for 2023, an increase of 8.2 per cent compared to US$1.78 billion in 2022.
Billings (1): Total billings were US$6.40 billion for 2023, an increase of 14.4 per cent compared to US$5.59 billion in 2022.
Deferred revenue: Total deferred revenue was US$5.74 billion as of December 31, 2023, an increase of 23.6 per cent compared to US$4.64 billion as of December 31, 2022.
GAAP operating income and margin: GAAP operating income was US$1.24 billion for 2023, representing a GAAP operating margin of 23.4 per cent. GAAP operating income was US$969.6 million for 2022, representing a GAAP operating margin of 21.9 per cent.
Non-GAAP operating income and margin (1): Non-GAAP operating income was US$1.51 billion for 2023, representing a non-GAAP operating margin of 28.4 per cent. Non-GAAP operating income was US$1.21 billion for 2022, representing a non-GAAP operating margin of 27.3 per cent.
GAAP net income and diluted net income per share attributable to Fortinet, Inc.: GAAP net income was US$1.15 billion for 2023, compared to GAAP net income of US$857.3 million for 2022. GAAP diluted net income per share was US$1.46 for 2023, based on 788.2 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of US$1.06 for 2022, based on 805.3 million diluted weighted-average shares outstanding.
Non-GAAP net income and diluted net income per share attributable to Fortinet, Inc. (1): Non-GAAP net income was US$1.29 billion for 2023, compared to non-GAAP net income of US$961.6 million for 2022. Non-GAAP diluted net income per share was US$1.63 for 2023, based on 788.2 million diluted weighted-average shares outstanding, compared to US$1.19 for 2022, based on 805.3 million diluted weighted-average shares outstanding.
Cash flow: Cash flow from operations was US$1.94 billion in 2023 compared to US$1.73 billion in 2022.
Free cash flow (1): Free cash flow was US$1.73 billion in 2023, compared to US$1.45 billion in 2022.
Share repurchase program: During the years ended December 31, 2023 and 2022, Fortinet repurchased 27.2 million and 36.0 million shares of its common stock at an average price of US$55.25 and US$55.37 per share, respectively, and for an aggregate purchase price of US$1.50 billion and US$1.99 billion, respectively. Since the beginning of 2020, Fortinet repurchased 134.6 million shares of its common stock at an average price of US$39.47 per share for an aggregate purchase price of US$5.31 billion.

Guidance

For the first quarter of 2024, Fortinet currently expects:

• Revenue in the range of US$1.300 billion to US$1.360 billion.
• Billings in the range of US$1.390 billion to US$1.450 billion.
• Non-GAAP gross margin in the range of 76.5 per cent to 77.5 per cent.
• Non-GAAP operating margin in the range of 25.5 per cent to 26.5 per cent.
• Diluted non-GAAP net income per share attributable to Fortinet, Inc. in the range of US$0.37 to US$0.39, assuming a non-GAAP effective tax rate of 17 per cent. This assumes a diluted share count of 775 million to 785 million.

For the fiscal year 2024, Fortinet currently expects:

• Revenue in the range of US$5.715 billion to US$5.815 billion.
• Service revenue in the range of US$3.920 billion to US$3.970 billion.
• Billings in the range of US$6.400 billion to US$6.600 billion.
• Non-GAAP gross margin in the range of 76.0 per cent to 78.0 per cent.
• Non-GAAP operating margin in the range of 25.5 per cent to 27.5 per cent.
• Diluted non-GAAP net income per share attributable to Fortinet, Inc. in the range of US$1.65 to US$1.70, assuming a non-GAAP effective tax rate of 17 per cent. This assumes a diluted share count of 785 million to 795 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, amortisation of acquired intangible assets and gain on intellectual property matters. 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”.

About Fortinet

Fortinet (Nasdaq: FTNT) is a driving force in the evolution of cybersecurity and the convergence of networking and security. Our mission is to secure people, devices and data everywhere, and today we deliver cybersecurity everywhere our customers need it with the largest integrated portfolio of over 50 enterprise-grade products. Over half a million customers trust Fortinet’s solutions, which are among the most deployed, most patented and most validated in the industry. The Fortinet Training Institute, one of the largest and broadest training programs in the industry, is dedicated to making cybersecurity training and new career opportunities available to everyone. FortiGuard Labs, Fortinet’s elite threat intelligence and research organisation, develops and utilises leading-edge machine learning and AI technologies to provide customers with timely and consistently top-rated protection and actionable threat intelligence. Learn more at https://www.fortinet.com, the Fortinet blog or FortiGuard Labs.

Copyright © 2024 Fortinet, Inc. All rights reserved. The symbols ® and ™ denote respectively federally registered trademarks and common law trademarks of Fortinet, Inc., its subsidiaries and affiliates. Fortinet’s trademarks include, but are not limited to, the following: Fortinet, the Fortinet logo, FortiGate, FortiOS, FortiGuard, FortiCare, FortiAnalyzer, FortiManager, FortiASIC, FortiClient, FortiCloud, FortiMail, FortiSandbox, FortiADC, FortiAIOps, FortiAntenna, FortiAP, FortiAPCam, FortiAuthenticator, FortiCache, FortiCam, FortiCamera, FortiCarrier, FortiCASB, FortiCentral, FortiCNP, FortiConnect, FortiController, FortiConverter, FortiCWP, FortiDAST, FortiDB, FortiDDoS, FortiDeceptor, FortiDeploy, FortiDevSec, FortiEDR, FortiExplorer, FortiExtender, FortiFirewall, FortiFlex, FortiFone, FortiGSLB, FortiGuest, FortiHypervisor, FortiInsight, FortiIsolator, FortiLAN, FortiLink, FortiMonitor, FortiNAC, FortiNDR, FortiPAM, FortiPenTest, FortiPhish, FortiPoint, FortiPolicy, FortiPortal, FortiPresence, FortiProxy, FortiRecon, FortiRecorder, FortiSASE, FortiSDNConnector, FortiSIEM, FortiSMS, FortiSOAR, FortiSRA, FortiStack, FortiSwitch, FortiTester, FortiToken, FortiTrust, FortiVoice, FortiWAN, FortiWeb, FortiWiFi, FortiWLC, FortiWLM and FortiXDR. 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. Notwithstanding anything to the contrary herein, nothing herein constitutes a warranty, guarantee, contract, binding specification or other binding commitment by Fortinet or any indication of intent related to a binding commitment, and performance and other specification information herein may be unique to certain environments.

Forward-looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding any indications related to future growth and market share gains, our strategy going forward, and guidance and expectations around future financial results, including guidance and expectations for the first quarter of 2024 and full year 2024, and any statements regarding our market opportunity and market size, and business momentum. 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 such that actual results are materially different from our forward-looking statements in this release. Important factors that could cause results to differ materially from the statements herein include the following: general economic risks, including those caused by economic challenges, a possible economic downturn or recession and the effects of inflation or stagflation, rising interest rates or reduced information technology spending; instability in the global banking system; supply chain challenges; negative impacts from the ongoing war in Ukraine and its related macroeconomic effects and our decision to reduce operations in Russia, as well as the Israel-Hamas war; competitiveness in the security market; the dynamic nature of the security market and its products and services; specific economic risks worldwide and in different geographies, and among different customer segments; uncertainty regarding demand and increased business and renewals from existing customers; uncertainties around continued success in sales growth and market share gains; uncertainties in market opportunities and the market size; actual or perceived vulnerabilities in our supply chain, products or services, and any actual or perceived breach of our network or our customers’ networks; longer sales cycles, particularly for larger enterprise, service providers, government and other large organisation customers; the effectiveness of our salesforce and failure to convert sales pipeline into final sales; risks associated with successful implementation of multiple integrated software products and other product functionality risks; risks associated with integrating acquisitions and changes in circumstances and plans associated therewith, including, among other risks, changes in plans related to product and services integrations, product and services plans and sales strategies; sales and marketing execution risks; execution risks around new product development and introductions and innovation; litigation and disputes and the potential cost, distraction and damage to sales and reputation caused thereby or by other factors; cybersecurity threats, breaches and other disruptions; market acceptance of new products and services; the ability to attract and retain personnel; changes in strategy; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organisations; technological changes that make our products and services less competitive; risks associated with the adoption of, and demand for, our products and services in general and by specific customer segments, including those caused by competition and pricing pressure; excess product inventory for any reason, including those caused by the effects of increased inflation and interest rates in certain geographies and the war in Ukraine and the Israel-Hamas war; risks associated with business disruption caused by natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, health epidemics and viruses, and by manmade events such as civil unrest, labour disruption, international trade disputes, international conflicts such as the war in Ukraine and the Israel-Hamas war or tensions between China and Taiwan, terrorism, wars, and critical infrastructure attacks; tariffs, trade disputes and other trade barriers, and negative impact on sales based on geo-political dynamics and disputes and protectionist policies; any political and government disruption around the world, including the impact of any future shutdowns of the U.S. government; 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 Securities and Exchange Commission (“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 U.S. GAAP. These non-GAAP financial and liquidity measures are not based on any standardised 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 analysing 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 peer companies, 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 provided in the financial statement tables below.

Billings (non-GAAP). We define billings as revenue recognised in accordance with GAAP 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 current and future revenue, which is an important indicator of the health and viability of our business. There are a number of limitations related to the use of billings instead of GAAP revenue. First, billings include amounts that have not yet been recognised as revenue and are impacted by the term of security and support agreements. Second, we may calculate billings in a manner that is different from peer companies that report similar financial measures. Management accounts for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with GAAP revenue.

Free cash flow (non-GAAP). We define free cash flow as net cash provided by operating activities minus purchases of property and equipment and excluding any significant non-recurring items. We believe 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 capital expenditures, can be used for strategic opportunities, including repurchasing outstanding common stock, investing in our business, making strategic acquisitions and strengthening the balance sheet. A limitation of using free cash flow rather than the GAAP measures of cash provided by or used in operating activities, investing activities, and financing activities is that free cash flow does not represent the total increase or decrease in the cash and cash equivalents balance for the period because it excludes cash flows from significant non-recurring items, investing activities other than capital expenditures and cash flows from financing activities. Management accounts for this limitation by providing information about our capital expenditures and other investing and financing activities 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 and by presenting cash flows from investing and financing activities in our reconciliation of free cash flow. In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure.

Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income plus stock-based compensation, amortisation of acquired intangible assets, less gain on intellectual property matter and, when applicable, other significant non-recurring items in a given quarter. Non-GAAP operating margin is defined as non-GAAP operating income divided by GAAP revenue. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the items noted above 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 instead of operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes the items noted above. Second, the components of the costs that we exclude from our calculation of non-GAAP operating income may differ from the components that peer companies exclude when they report their non-GAAP results of operations. Management accounts 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 attributable to Fortinet, Inc. We define non-GAAP net income as net income plus the items noted above under non-GAAP operating income and operating margin. In addition, we adjust non-GAAP net income and diluted net income per share for a tax adjustment required for an effective tax rate on a non-GAAP basis and adjustments attributable to non-controlling interests, which differs from the GAAP effective tax rate. We define non-GAAP diluted net income per share as non-GAAP net income divided by the non-GAAP diluted weighted-average 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 more 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 resulting in an effective tax rate on a non-GAAP basis, which often differs from the GAAP tax rate. We believe the non-GAAP effective tax rates we use are reasonable estimates of normalised tax rates for our current and prior fiscal years 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 account 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.