Fortinet reports fourth quarter and full year 2013 financial results

Fortinet a leader in high-performance network security – announced financial results for the fourth quarter and full year ended December 31, 2013.

February 18, 2014

Fourth Quarter 2013 Highlights

• Billings of $209.8 million, up 20% year over year1,2
• Revenues of $177.4 million, up 17% year over year2
• GAAP diluted net income per share of $0.072
• Non-GAAP diluted net income per share of $0.151,2
• Cash flow from operations of $46.7 million
• Free cash flow of $39.5 million1
• Cash, cash equivalents and investments of $843.0 million7, with no debt

Full Year 2013 Highlights

• Billings of $684.2 million, up 14% year over year1,3
• Revenues of $615.3 million, up 15% year over year3
• GAAP diluted net income per share of $0.263
• Non-GAAP diluted net income per share of $0.481,3
• Cash flow from operations of $147.4 million
• Free cash flow of $133.5 million1

Fortinet a leader in high-performance network security – announced financial results for the fourth quarter and full year ended December 31, 2013.

“We had a strong finish to 2013, meeting or exceeding our expectations across our key non-GAAP operating metrics during the fourth quarter,” said Ken Xie, founder, chairman, and chief executive officer. “Our performance highlights the global demand for our network security solutions, improved execution, and the leverage we are now experiencing from prior investments in our sales, marketing, and product development. Looking forward, we expect the advanced persistent threat opportunity, continued execution in the data centre with 100Gbps deployments, and next-generation firewall displacements, to be key drivers of our business.”

Financial Highlights for the Fourth Quarter of 2013

Billings1,2: Total billings were $209.8 million for the fourth quarter of 2013, an increase of 20% compared to $174.3 million in the same quarter of 2012.

Revenue2: Total revenue was $177.4 million for the fourth quarter of 2013, an increase of 17% compared to $151.2 million in the same quarter of 2012. Within total revenue, product revenue was $83.9 million, an increase of 18% compared to the same quarter of 2012. Services revenue was $90.3 million, an increase of 18% compared to the same quarter of 2012.

Deferred Revenue: Deferred revenue was $432.6 million as of December 31, 2013, up $32.5 million from $400.2 million as of September 30, 2013.

Cash and Cash Flow1,4,6: As of December 31, 2013, cash, cash equivalents and investments were $843.0 million, compared to $839.0 million as of September 30, 2013. In the fourth quarter of 2013, cash flow from operations was $46.7 million and free cash flow was $39.5 million.

GAAP Operating Income2,5: GAAP operating income was $24.6 million for the fourth quarter of 2013, representing a GAAP operating margin of 14%. GAAP operating income was $35.0 million for the same quarter of 2012, representing a GAAP operating margin of 23%.

GAAP Net Income and Diluted Net Income Per Share2,5: GAAP net income was $12.0 million for the fourth quarter of 2013, based on a 53% tax rate for the quarter. This compares to GAAP net income of $21.5 million for the same quarter of 2012, based on a 41% tax rate for the quarter. GAAP diluted net income per share was $0.07 for the fourth quarter of 2013, based on 168.9 million weighted-average diluted shares outstanding, compared to $0.13 for the same quarter of 2012, based on 167.0 million weighted-average diluted shares outstanding.

Non-GAAP Operating Income1,2,5: Non-GAAP operating income was $37.8 million for the fourth quarter of 2013, representing a non-GAAP operating margin of 21%. Non-GAAP operating income was $41.6 million for the same quarter of 2012, representing a non-GAAP operating margin of 27%.

Non-GAAP Net Income and Diluted Net Income Per Share1,2,5: Non-GAAP net income was $25.9 million for the fourth quarter of 2013, based on a 33% effective tax rate for the quarter. Non-GAAP net income for the same quarter of 2012 was $28.2 million, based on a 34% effective tax rate. Non-GAAP diluted net income per share was $0.15 for the fourth quarter of 2013 based on 168.9 million weighted-average diluted shares outstanding, compared to $0.17 for the same quarter of 2012, based on 167.0 million weighted-average diluted shares outstanding.

Financial Highlights for the Full Year 2013

Billings1,3: Total billings were $684.2 million for fiscal 2013, an increase of 14% compared to $602.0 million in fiscal 2012.

Revenue3: Total revenue was $615.3 million for fiscal 2013, an increase of 15% compared to $533.6 million for fiscal 2012. Within total revenue, product revenue was $278.0 million for fiscal 2013, an increase of 12% compared to $248.9 million for fiscal 2012. Services revenue was $329.7 million for fiscal 2013, an increase of 20% compared to $274.0 million for fiscal 2012.

Deferred Revenue: Deferred revenue was $432.6 million as of December 31, 2013, an increase of 19% compared to deferred revenue of $363.2 million as of December 31, 2012.

Cash and Cash Flow1,4,7: As of December 31, 2013, cash, cash equivalents and investments were $843.0 million4, compared to $739.6 million as of December 31, 2012. In fiscal 2013, cash flow from operations was $147.4 million and free cash flow was $133.5 million.

GAAP Operating Income3,5: GAAP operating income was $72.1 million for fiscal 2013, representing a GAAP operating margin of 12%. GAAP operating income was $100.5 million for fiscal 2012, representing a GAAP operating margin of 19%.

GAAP Net Income and Diluted Net Income Per Share3,5: GAAP net income was $44.3 million for fiscal 2013, based on a 42% tax rate for the year. This compares to GAAP net income of $66.8 million for fiscal 2012, based on a 36% tax rate for the year. GAAP diluted net income per share was $0.26 for fiscal 2013, based on 168.2 million weighted-average diluted shares outstanding, compared to $0.40 for fiscal 2012, based on 166.3 million weighted-average diluted shares outstanding.

Non-GAAP Operating Income1,3,5: Non-GAAP operating income was $116.7 million for fiscal 2013, representing a non-GAAP operating margin of 19%. Non-GAAP operating income was $130.1 million for fiscal 2012, representing a non-GAAP operating margin of 24%.

Non-GAAP Net Income and Diluted Net Income Per Share1,3,5: Non-GAAP net income was $80.7 million for fiscal 2013, based on a 33% effective tax rate for the year. Non-GAAP net income for fiscal 2012 was $88.8 million, based on a 34% effective tax rate. Non-GAAP diluted net income per share was $0.48 for fiscal 2013 based on 168.2 million weighted-average diluted shares outstanding, compared to $0.53 for fiscal 2012, based on 166.3 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.”

2 Includes the impact of a $2.2 million and $1.9 million sale of patents during the fourth quarter of fiscal 2013 and 2012, respectively.

3 Includes the impact of a $2.8 million and $3.7 million sale of patents during fiscal 2013 and 2012, respectively.

4 Excludes $2.0 million equity investment in a privately-held company, which is recorded in other assets on the consolidated balance sheets.

5 Includes the impact of a $1.5 million non-recurring cumulative out-of-period adjustment recorded during the fourth quarter of fiscal 2012 to reflect a true-up related to forfeitures of stock awards granted to employees. The adjustment resulted in lower stock-based compensation expense and higher operating income and net income during the fourth quarter of fiscal 2012.

6 During the fourth quarter of fiscal 2013, the Company repurchased $38.9 million of its common stock under its share repurchase program, all of which was paid in the fourth quarter of fiscal 2013 except for $5.4 million which was settled and paid in January 2014. In addition, capital expenditure related to the construction and improvement of the Company’s future corporate headquarters amounted to $5.5 million.

7 During fiscal 2013, the Company repurchased $38.9 million of its common stock under its repurchase program, all of which was paid in fiscal 2013 except for $5.4 million which was settled and paid in January 2014. In addition, capital expenditure related to the construction and improvement of the Company’s future corporate headquarters amounted to $6.8 million.