Fortinet Reports Fourth Quarter and Full Year 2011 Financial Results

(PresseBox) (Sunnyvale, Calif., ) .

Fourth Quarter 2011 Highlights

- Revenues of $120.9 million, up 29% year over year
- Billings of $140.6 million, up 27% year over year
- GAAP EPS of $0.10 and Non-GAAP EPS of $0.14
- Free cash flow of $30.7 million
- Cash and investments of $538.7 million, with no deb

Full Year 2011 Highlights

- Revenues of $433.6 million, up 34% year over year
- Billings of $475.8 million, up 27% year over year
- GAAP EPS of $0.38 and Non-GAAP EPS of $0.45
- Free cash flow of $135.2 million

Fortinet® (NASDAQ: FTNT) - a leading network security provider and the worldwide leader in unified threat management (UTM) solutions - today announced financial results for the fourth quarter and full year ended December 31, 2011.

Financial Highlights for the Fourth Quarter of 2011

- Revenue(1): Total revenue was $120.9 million for the fourth quarter of 2011, an increase of 29% compared to the fourth quarter of 2010. Within total revenue, product revenue was $57.5 million, an increase of 40% compared to the fourth quarter of 2010. Services revenue was $61.1 million, an increase of 27% compared to the fourth quarter of 2010. Ratable and other revenue was $2.3 million compared to $4.6 million for the fourth quarter of 2010.

- Billings(2): Total billings were $140.6 million for the fourth quarter of 2011, an increase of 27% compared to the fourth quarter of 2010. We define billings, a non-GAAP financial measure, as revenue recognized during the period plus the change in deferred revenue from the beginning to the end of the period.

- Deferred Revenue: Deferred revenue was $294.8 million as of December 31, 2011, an increase of 17% compared to deferred revenue as of December 31, 2010, and up $19.7 million from September 30, 2011.

- Cash and Free Cash Flow(3): As of December 31, 2011, cash, cash equivalents and investments were $538.7 million, compared to $503.0 million as of September 30, 2011. In the fourth quarter of 2011, free cash flow was $30.7 million, compared to $30.5 million for the fourth quarter of 2010. We define free cash flow, a non-GAAP financial measure of liquidity, as net cash provided by operating activities plus the amount we paid in the fourth quarter of 2011 to settle a lawsuit with Trend Micro Incorporated, less capital expenditure(2). Free cash flow does not include the excess tax benefits that we received from option exercises pursuant to our employee equity incentive plans.

- GAAP Operating Income: GAAP operating income was $26.5 million for the fourth quarter of 2011, and $20.7 million for the fourth quarter of 2010, representing a GAAP operating margin of 22% for both periods.

- Non-GAAP Operating Income(2): Non-GAAP operating income was $32.4 million for the fourth quarter of 2011, representing a non-GAAP operating margin of 27%, and $23.2 million for the fourth quarter of 2010, representing a non-GAAP operating margin of 25%. Non-GAAP operating income and operating margin exclude stock-based compensation expense and income from payments we received related to a patent settlement.

- GAAP Net Income and EPS: GAAP net income was $16.5 million for the fourth quarter of 2011, based on a 40% tax rate for the quarter. The fourth quarter rate brings us to a 32% tax rate for the year. This compares to GAAP net income of $16.1 million for the fourth quarter of 2010, based on a 23% tax rate for the quarter. GAAP diluted EPS was $0.10 for the fourth quarter of 2011, based on 164.5 million weighted-average diluted shares outstanding, compared to $0.10 for the fourth quarter of 2010, based on 160.7 million weighted-average diluted shares outstanding(4).

- Non-GAAP Net Income and EPS(2): Non-GAAP net income was $22.3 million for the fourth quarter of 2011, based on a 33% effective tax rate for the quarter. Non-GAAP net income for the fourth quarter of 2010 was $17.3 million, based on a 27% effective tax rate. Non-GAAP diluted EPS was $0.14 for the fourth quarter of 2011 based on 164.5 million weighted-average diluted shares outstanding, compared to $0.11 for the fourth quarter of 2010, based on 160.7 million weighted-average diluted shares outstanding4. Non-GAAP net income and non-GAAP EPS exclude stock-based compensation expense and income from payments we received related to a patent settlement, less the related tax effects.

Full Year 2011 Financial Results

- Revenue(1): Total revenue was $433.6 million for fiscal 2011, an increase of 34% compared to fiscal 2010. Within total revenue, product revenue was $197.4 million for fiscal 2011, an increase of 46% compared to fiscal 2010, and services revenue was $220.3 million, an increase of 28% compared to fiscal 2010. Ratable and other revenue was $15.9 million compared to $17.5 million for fiscal 2010.

- Billings(2): Total billings were $475.8 million for fiscal 2011, an increase of 27% compared to fiscal 2010.

- Cash and Free Cash Flow(3): As of December 31, 2011, cash, cash equivalents and investments were $538.7 million, compared to $387.5 million as of December 31, 2010. Free cash flow was $135.2 million, compared to $99.6 million for fiscal 2010(2).

- GAAP Operating Income: GAAP operating income was $88.9 million for fiscal 2011, representing a GAAP operating margin of 21%, and $55.3 million for fiscal 2010, representing a GAAP operating margin of 17%.

- Non-GAAP Operating Income(2): Non-GAAP operating income was $106.0 million for fiscal 2011, representing a non-GAAP operating margin of 24%, and $64.7 million for fiscal 2010, representing a non-GAAP operating margin of 20%.

- GAAP Net Income and EPS: GAAP net income was $62.5 million for fiscal 2011, based on a 32% tax rate for the year. This compares to GAAP net income of $41.2 million for fiscal 2010, based on a 27% tax rate for the year. GAAP EPS was $0.38 on 163.8 million weighted-average diluted shares outstanding for fiscal 2011, compared to $0.26 on 156.4 million weighted-average diluted shares outstanding for fiscal 2010(4).

- Non-GAAP Net Income and EPS(2): Non-GAAP net income was $73.1 million for fiscal 2011, based on a 33% effective tax rate. Non-GAAP net income for fiscal 2010 was $44.6 million, based on a 32% effective tax rate. Non-GAAP EPS was $0.45 on 163.8 million weighted-average diluted shares outstanding for fiscal 2011, compared to $0.29 on 156.4 million weighted-average diluted shares outstanding for fiscal 2010(4).

(1) Effective January 1, 2011, we prospectively adopted the Financial Accounting Standards Board's new accounting standards related to software revenue recognition for applicable transactions originating or materially modified after December 31, 2010.

(2) 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."

(3) Includes the impact of a $9.0 million payment in the fourth quarter of 2011 to Trend Micro Incorporated to settle a dispute.

(4) Effective June 1, 2011, we completed a two-for-one stock split of our outstanding shares of common stock effected in the form of a stock dividend. All prior share and per share amounts in this release have been retroactively adjusted so the stock split is reflected for all periods presented.

Management Commentary

Ken Xie, founder, president and chief executive officer of Fortinet, stated: "2011 was another exciting year for Fortinet. Demand for network security solutions remained robust and our growth continued to significantly outpace the overall UTM market and we continued to win business in other network security markets. Our efforts to strengthen our global sales team and enhance our product portfolio have enabled us to successfully penetrate the large enterprise market that is looking to deploy high performance, low latency next generation firewall solutions, as well as grow in the service provider and SMB markets."

Ken Goldman, chief financial officer of Fortinet, stated: "We had a very strong finish to 2011 with exceptional execution across all geographies and verticals. Since becoming a public company nine quarters ago, we have exceeded our expectations across key metrics, and our fourth quarter results are no exception. We once again outperformed in terms of revenue, profitability, and cash flow and continued to enhance our competitive position and leverage the investments we have made in our R&D and sales infrastructure. Our strong billings performance, robust product revenue growth, market-leading product portfolio and solid overall pipeline of business position the company to maintain momentum in the year ahead."

Conference Call Details

Fortinet hosted a conference call on January 31, 2012, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its financial results. 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/.... A replay of this conference call can also be accessed through February 14, 2012, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID# 41662134.

Following Fortinet's earnings conference call, the Company hosted 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. 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/.... A replay of this conference call will also be available through February 14, 2012 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID # 41663984.

Forward-looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding the momentum in our business and our pipeline of business in 2012. 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 introductions and innovation; the ability to attract and retain personnel; changes in strategy; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organizations; 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; and the other risk factors set forth from time to time in our 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.

Fortinet GmbH

Fortinet (NASDAQ: FTNT) is a worldwide provider of network security appliances and the 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 the majority of the 2011 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.

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