0001262039false2024Q112/31P1YP2YP3YP1YP2YP3Y36700012620392024-01-012024-03-3100012620392024-05-03xbrli:shares00012620392024-03-31iso4217:USD00012620392023-12-31iso4217:USDxbrli:shares0001262039us-gaap:ProductMember2024-01-012024-03-310001262039us-gaap:ProductMember2023-01-012023-03-310001262039us-gaap:ServiceMember2024-01-012024-03-310001262039us-gaap:ServiceMember2023-01-012023-03-3100012620392023-01-012023-03-310001262039us-gaap:RetainedEarningsMember2024-01-012024-03-310001262039us-gaap:CommonStockMember2023-12-310001262039us-gaap:AdditionalPaidInCapitalMember2023-12-310001262039us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001262039us-gaap:RetainedEarningsMember2023-12-310001262039us-gaap:CommonStockMember2024-01-012024-03-310001262039us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001262039us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310001262039us-gaap:CommonStockMember2024-03-310001262039us-gaap:AdditionalPaidInCapitalMember2024-03-310001262039us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310001262039us-gaap:RetainedEarningsMember2024-03-310001262039us-gaap:CommonStockMember2022-12-310001262039us-gaap:AdditionalPaidInCapitalMember2022-12-310001262039us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001262039us-gaap:RetainedEarningsMember2022-12-3100012620392022-12-310001262039us-gaap:CommonStockMember2023-01-012023-03-310001262039us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001262039us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001262039us-gaap:RetainedEarningsMember2023-01-012023-03-310001262039us-gaap:CommonStockMember2023-03-310001262039us-gaap:AdditionalPaidInCapitalMember2023-03-310001262039us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001262039us-gaap:RetainedEarningsMember2023-03-3100012620392023-03-310001262039ftnt:SecuritySubscriptionMember2024-01-012024-03-310001262039ftnt:SecuritySubscriptionMember2023-01-012023-03-310001262039ftnt:TechnicalSupportandOtherMember2024-01-012024-03-310001262039ftnt:TechnicalSupportandOtherMember2023-01-012023-03-3100012620392024-04-012024-03-310001262039us-gaap:USTreasuryAndGovernmentMember2024-03-310001262039us-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2024-03-310001262039ftnt:CertificatesofDepositandTermDepositsMember2024-03-310001262039us-gaap:CorporateDebtSecuritiesMember2024-03-310001262039us-gaap:USTreasuryAndGovernmentMember2023-12-310001262039us-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2023-12-310001262039ftnt:CertificatesofDepositandTermDepositsMember2023-12-310001262039us-gaap:CorporateDebtSecuritiesMember2023-12-310001262039ftnt:EquitySecuritiesLineItemMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2024-03-310001262039ftnt:EquitySecuritiesLineItemMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2023-12-310001262039us-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2024-03-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2024-03-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2024-03-310001262039us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2024-03-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2023-12-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2023-12-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2023-12-310001262039us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMember2023-12-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberftnt:CertificatesofDepositandTermDepositsMember2024-03-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberftnt:CertificatesofDepositandTermDepositsMember2024-03-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberftnt:CertificatesofDepositandTermDepositsMember2024-03-310001262039us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberftnt:CertificatesofDepositandTermDepositsMember2024-03-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberftnt:CertificatesofDepositandTermDepositsMember2023-12-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberftnt:CertificatesofDepositandTermDepositsMember2023-12-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberftnt:CertificatesofDepositandTermDepositsMember2023-12-310001262039us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberftnt:CertificatesofDepositandTermDepositsMember2023-12-310001262039us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039ftnt:MoneyMarketFundsExcludingCommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039ftnt:MoneyMarketFundsExcludingCommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueInputsLevel2Memberftnt:MoneyMarketFundsExcludingCommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039ftnt:MoneyMarketFundsExcludingCommercialPaperMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039ftnt:MoneyMarketFundsExcludingCommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039ftnt:MoneyMarketFundsExcludingCommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueInputsLevel2Memberftnt:MoneyMarketFundsExcludingCommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039ftnt:MoneyMarketFundsExcludingCommercialPaperMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:EquitySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:EquitySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:EquitySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:EquitySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:EquitySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:EquitySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:EquitySecuritiesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:EquitySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueMeasurementsRecurringMemberftnt:CashEquivalentsLineItemMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueMeasurementsRecurringMemberftnt:CashEquivalentsLineItemMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2023-12-310001262039ftnt:ShortTermInvestmentsLineItemMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2024-03-310001262039ftnt:ShortTermInvestmentsLineItemMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2023-12-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2024-03-310001262039us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMember2023-12-310001262039us-gaap:LandMember2024-03-310001262039us-gaap:LandMember2023-12-310001262039us-gaap:BuildingAndBuildingImprovementsMember2024-03-310001262039us-gaap:BuildingAndBuildingImprovementsMember2023-12-310001262039us-gaap:ComputerEquipmentMember2024-03-310001262039us-gaap:ComputerEquipmentMember2023-12-310001262039us-gaap:LeaseholdsAndLeaseholdImprovementsMember2024-03-310001262039us-gaap:LeaseholdsAndLeaseholdImprovementsMember2023-12-310001262039ftnt:EvaluationUnitsMember2024-03-310001262039ftnt:EvaluationUnitsMember2023-12-310001262039us-gaap:FurnitureAndFixturesMember2024-03-310001262039us-gaap:FurnitureAndFixturesMember2023-12-310001262039us-gaap:ConstructionInProgressMember2024-03-310001262039us-gaap:ConstructionInProgressMember2023-12-310001262039stpr:CA2024-01-012024-03-310001262039stpr:CAus-gaap:LandMember2024-03-310001262039stpr:CAus-gaap:BuildingAndBuildingImprovementsMember2024-03-310001262039stpr:CAus-gaap:FurnitureAndFixturesMember2024-03-310001262039ftnt:LinksysMember2021-01-012021-12-310001262039ftnt:LinksysMember2021-12-31xbrli:pure0001262039ftnt:LinksysMember2024-01-012024-03-310001262039ftnt:LinksysMember2023-01-012023-03-310001262039ftnt:LinksysMember2024-03-310001262039ftnt:LinksysMember2023-12-310001262039us-gaap:DevelopedTechnologyRightsMember2024-01-012024-03-310001262039us-gaap:DevelopedTechnologyRightsMember2024-03-310001262039us-gaap:CustomerRelationshipsMember2024-01-012024-03-310001262039us-gaap:CustomerRelationshipsMember2024-03-310001262039us-gaap:TradeNamesMember2024-01-012024-03-310001262039us-gaap:TradeNamesMember2024-03-310001262039ftnt:BacklogMember2024-01-012024-03-310001262039ftnt:BacklogMember2024-03-310001262039us-gaap:DevelopedTechnologyRightsMember2023-01-012023-12-310001262039us-gaap:DevelopedTechnologyRightsMember2023-12-310001262039us-gaap:CustomerRelationshipsMember2023-01-012023-12-310001262039us-gaap:CustomerRelationshipsMember2023-12-310001262039us-gaap:TradeNamesMember2023-01-012023-12-310001262039us-gaap:TradeNamesMember2023-12-310001262039ftnt:BacklogMember2023-01-012023-12-310001262039ftnt:BacklogMember2023-12-310001262039us-gaap:RestrictedStockUnitsRSUMember2024-01-012024-03-310001262039us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-03-310001262039us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001262039us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001262039us-gaap:PerformanceSharesMember2024-01-012024-03-310001262039us-gaap:PerformanceSharesMember2023-01-012023-03-310001262039us-gaap:RestrictedStockUnitsRSUMemberus-gaap:StockCompensationPlanMember2024-01-012024-03-310001262039us-gaap:RestrictedStockUnitsRSUMemberus-gaap:StockCompensationPlanMember2023-01-012023-03-310001262039us-gaap:StockCompensationPlanMemberus-gaap:EmployeeStockOptionMember2024-01-012024-03-310001262039us-gaap:StockCompensationPlanMemberus-gaap:EmployeeStockOptionMember2023-01-012023-03-310001262039us-gaap:SeniorNotesMember2021-03-050001262039us-gaap:SeniorNotesMemberftnt:A2026SeniorNotesMember2021-03-050001262039ftnt:A2031SeniorNotesMemberus-gaap:SeniorNotesMember2021-03-050001262039us-gaap:SeniorNotesMemberftnt:A2026SeniorNotesMember2024-03-310001262039us-gaap:SeniorNotesMemberftnt:A2026SeniorNotesMember2023-12-310001262039ftnt:A2031SeniorNotesMemberus-gaap:SeniorNotesMember2024-03-310001262039ftnt:A2031SeniorNotesMemberus-gaap:SeniorNotesMember2023-12-310001262039us-gaap:SeniorNotesMember2024-03-310001262039us-gaap:SeniorNotesMember2023-12-310001262039us-gaap:SeniorNotesMember2023-01-012023-03-310001262039us-gaap:SeniorNotesMember2024-01-012024-03-310001262039us-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMember2024-03-310001262039us-gaap:StockCompensationPlanMember2024-03-310001262039us-gaap:RestrictedStockUnitsRSUMember2023-12-310001262039us-gaap:RestrictedStockUnitsRSUMember2024-03-310001262039us-gaap:EmployeeStockOptionMember2023-12-310001262039us-gaap:EmployeeStockOptionMember2023-01-012023-12-310001262039us-gaap:EmployeeStockOptionMember2024-03-310001262039srt:MinimumMemberus-gaap:PerformanceSharesMember2024-03-310001262039us-gaap:PerformanceSharesMembersrt:MaximumMember2024-03-310001262039us-gaap:ShareBasedCompensationAwardTrancheOneMemberus-gaap:PerformanceSharesMember2024-01-012024-03-310001262039us-gaap:ShareBasedCompensationAwardTrancheTwoMemberus-gaap:PerformanceSharesMember2024-01-012024-03-310001262039us-gaap:PerformanceSharesMemberus-gaap:ShareBasedCompensationAwardTrancheThreeMember2024-01-012024-03-310001262039us-gaap:PerformanceSharesMemberftnt:ShareBasedPaymentArrangementTrancheFourMember2024-01-012024-03-310001262039us-gaap:PerformanceSharesMember2024-03-310001262039ftnt:CostOfGoodsSoldMember2024-01-012024-03-310001262039ftnt:CostOfGoodsSoldMember2023-01-012023-03-310001262039ftnt:CostOfServicesMember2024-01-012024-03-310001262039ftnt:CostOfServicesMember2023-01-012023-03-310001262039us-gaap:ResearchAndDevelopmentExpenseMember2024-01-012024-03-310001262039us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-03-310001262039us-gaap:SellingAndMarketingExpenseMember2024-01-012024-03-310001262039us-gaap:SellingAndMarketingExpenseMember2023-01-012023-03-310001262039us-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-03-310001262039us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-03-310001262039ftnt:ShareRepurchaseProgramMember2024-01-012024-01-310001262039ftnt:ShareRepurchaseProgramMember2024-01-310001262039ftnt:ShareRepurchaseProgramMember2024-03-31ftnt:business_activityftnt:segment_managerftnt:operating_segmentftnt:reportable_segment0001262039country:US2024-01-012024-03-310001262039country:US2023-01-012023-03-310001262039ftnt:OtherAmericasMember2024-01-012024-03-310001262039ftnt:OtherAmericasMember2023-01-012023-03-310001262039srt:AmericasMember2024-01-012024-03-310001262039srt:AmericasMember2023-01-012023-03-310001262039ftnt:EuropeMiddleEastAndAfricaMember2024-01-012024-03-310001262039ftnt:EuropeMiddleEastAndAfricaMember2023-01-012023-03-310001262039ftnt:AsiaPacificAndJapanMember2024-01-012024-03-310001262039ftnt:AsiaPacificAndJapanMember2023-01-012023-03-310001262039country:US2024-03-310001262039country:US2023-12-310001262039country:CA2024-03-310001262039country:CA2023-12-310001262039srt:LatinAmericaMember2024-03-310001262039srt:LatinAmericaMember2023-12-310001262039srt:AmericasMember2024-03-310001262039srt:AmericasMember2023-12-310001262039ftnt:EuropeMiddleEastAndAfricaMember2024-03-310001262039ftnt:EuropeMiddleEastAndAfricaMember2023-12-310001262039ftnt:AsiaPacificAndJapanMember2024-03-310001262039ftnt:AsiaPacificAndJapanMember2023-12-310001262039us-gaap:SalesRevenueNetMemberftnt:DistributorAMemberus-gaap:CustomerConcentrationRiskMember2024-01-012024-03-310001262039us-gaap:SalesRevenueNetMemberftnt:DistributorAMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-03-310001262039us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMemberftnt:DistributorBMember2024-01-012024-03-310001262039us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMemberftnt:DistributorBMember2023-01-012023-03-310001262039us-gaap:SalesRevenueNetMemberftnt:DistributorCMemberus-gaap:CustomerConcentrationRiskMember2024-01-012024-03-310001262039us-gaap:SalesRevenueNetMemberftnt:DistributorCMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-03-310001262039ftnt:DistributorAMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMember2024-01-012024-03-310001262039ftnt:DistributorAMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMember2023-01-012023-12-310001262039us-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMemberftnt:DistributorBMember2024-01-012024-03-310001262039us-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMemberftnt:DistributorBMember2023-01-012023-12-310001262039ftnt:DistributorCMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMember2024-01-012024-03-310001262039ftnt:DistributorCMemberus-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMember2023-01-012023-12-310001262039ftnt:KeithJensenMember2024-01-012024-03-310001262039ftnt:KeithJensenMember2024-03-31
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from              to             
Commission file number: 001-34511
______________________________________
FORTINET, INC.
(Exact name of registrant as specified in its charter)
______________________________________

Delaware77-0560389
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

909 Kifer Road
Sunnyvale, California 94086
(Address of principal executive offices, including zip code)

(408) 235-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 Par ValueFTNTThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 


Table of Contents
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes       No  
As of May 3, 2024, there were 763,938,008 shares of the registrant’s common stock outstanding.




FORTINET, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2024
Table of Contents
 
  Page
PART IFINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.






Summary of Risk Factors

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. Some of the principal risks and uncertainties include:

Our operating results are likely to vary significantly and be unpredictable.

Adverse economic conditions, such as a possible economic downturn or recession, and possible impacts of inflation or stagflation, increasing or decreasing interest rates, changes in government spending or reduced information technology spending, including firewall spending, may adversely impact our business.

We have been, and may in the future be, susceptible to supply chain constraints, supply shortages and disruptions, long or less predictable lead times for components and finished goods and supply changes because some of the key components in our products come from limited sources of supply.

As a result of supply chain disruptions in previous periods, we increased our purchase order commitments in previous periods and, as a result, may be required to accept or pay for components and finished goods regardless of our level of sales in a particular period, which may negatively impact our operating results and financial condition.

Our billings, revenue, and free cash flow growth may slow further or may not continue, and our operating margins may decline.

Our real estate assets, including construction, acquisitions, sales or strategy changes, and ongoing maintenance and management of office buildings, warehouses, data centers and points of presence, as well as data center expansions or enhancements, could involve significant risks to our business.

Our backlog may fluctuate over quarters and any decrease in growth or negative growth of in-quarter billings and revenue may not be reflected by our aggregate billings and revenue if we experience supply chain shortages, including component and other shortages. When we fulfill, ship and bill during a quarter to satisfy backlog, this increases our aggregate billings and revenue during any particular quarter.

As the supply chain challenges normalize, the growth comparisons versus prior quarters where backlog contributed more to billings become more challenging. This reduced quarterly billings based on reduced backlog contribution to billings has resulted, and will result, in decreased year-over-year quarterly growth.

Any weakness in sales strategy, productivity, personnel and execution could negatively impact our results of operations.

We are dependent on the continued services and performance of our senior management, as well as our ability to hire, retain and motivate qualified personnel.

We rely on third-party channel partners for substantially all of our billings, revenue, and a small number of distributors represents a large percentage of our revenue and accounts receivable.

Reliance on a concentration of shipments at the end of the quarter could cause our billings and revenue to fall below expected levels.

We rely significantly on revenue from FortiGuard security subscription and FortiCare technical support services, and revenue from these services may decline or fluctuate.

We have incurred indebtedness and may incur other debt in the future, which may adversely affect our financial condition and future financial results.

We generate a majority of billings, revenue and cash flow from sales outside of the United States.

We may not be successful in executing our strategy to increase our sales to large- and medium-sized end-customers.

A portion of our revenue is generated by sales to government organizations and other customers, which are subject to a number of regulatory requirements, challenges and risks.
1



We face intense competition in our market and we may not maintain or improve our competitive position.

We order components from third-party manufacturers based on our forecasts of future demand and targeted inventory levels, which exposes us to the risk of both product shortages, may result in lost sales and higher expenses, including excess inventory charges and costs related to future purchase commitments, and may require us to sell our products at discounts or offer various other incentives.

We depend on third parties to provide various components for our products and build our products and are susceptible to manufacturing delays, capacity constraints and cost increases.

We are susceptible to defects or vulnerabilities in our products or services, as well as reputational harm from the failure or misuse of our products or services, and any actual or perceived defects or vulnerabilities in our products or services, failure of our products or services to detect or prevent a security incident, failure of our customers to implement preventative actions such as updates to one of our deployed solutions or failure to help secure our customers, could cause our products or services to allow unauthorized access to our customers’ networks and harm our operational results and reputation more significantly as compared to certain other companies given we are a security company.

Our inability to successfully acquire and integrate other businesses, products or technologies, or to successfully invest in and form successful strategic alliances with other businesses, could seriously harm our competitive position and could negatively affect our financial condition and results of operations. In addition, any additional future impairment of the value of our investment in Linksys Holdings, Inc. (“Linksys”) could negatively affect our financial condition and results of operations.

Investors’ and regulators’ expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

Our proprietary rights may be difficult to enforce and we may be subject to claims by others that we infringe their proprietary technology.

The trading price of our common stock may be volatile, which volatility may be exacerbated by share repurchases under our Share Repurchase Program (the “Repurchase Program”).

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Global economic uncertainty and weakening product demand caused by political instability, changes in trade agreements, wars and foreign conflicts, such as the war in Ukraine and the Israel-Hamas war or tensions between China and Taiwan, could adversely affect our business and financial performance.
2

Table of Contents
PART I—FINANCIAL INFORMATION

ITEM 1.     Financial Statements
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 March 31,
2024
December 31,
2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$1,926.3 $1,397.9 
Short-term investments1,075.4 1,021.5 
Marketable equity securities21.4 21.0 
Accounts receivable—net 996.2 1,402.0 
Inventory439.5 484.8 
Prepaid expenses and other current assets100.9 101.1 
Total current assets4,559.7 4,428.3 
PROPERTY AND EQUIPMENT—NET1,247.4 1,044.4 
DEFERRED CONTRACT COSTS600.0 605.6 
DEFERRED TAX ASSETS942.5 868.8 
GOODWILL129.0 126.5 
OTHER INTANGIBLE ASSETS—NET34.1 35.3 
OTHER ASSETS149.4 150.0 
TOTAL ASSETS$7,662.1 $7,258.9 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable$135.2 $204.3 
Accrued liabilities538.7 423.7 
Accrued payroll and compensation214.5 242.3 
Deferred revenue2,912.0 2,848.7 
Total current liabilities3,800.4 3,719.0 
DEFERRED REVENUE2,877.9 2,886.3 
LONG-TERM DEBT992.8 992.3 
OTHER LIABILITIES128.5 124.7 
Total liabilities7,799.6 7,722.3 
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ DEFICIT:
Common stock, $0.001 par value—1,500.0 shares authorized; 763.2 and 761.0 shares issued and outstanding on March 31, 2024 and December 31, 2023, respectively
0.8 0.8 
Additional paid-in capital1,448.9 1,416.4 
Accumulated other comprehensive loss(24.8)(18.9)
Accumulated deficit(1,562.4)(1,861.7)
Total stockholders’ deficit
(137.5)(463.4)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
$7,662.1 $7,258.9 
See notes to condensed consolidated financial statements.
3

Table of Contents

FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 Three Months Ended
March 31,
2024
March 31,
2023
REVENUE:
Product$408.9 $500.7 
Service 944.4 761.6 
Total revenue1,353.3 1,262.3 
COST OF REVENUE:
Product182.8 193.6 
Service 121.9 114.2 
Total cost of revenue304.7 307.8 
GROSS PROFIT:
Product226.1 307.1 
Service 822.5 647.4 
Total gross profit1,048.6 954.5 
OPERATING EXPENSES:
Research and development173.0 151.1 
Sales and marketing501.1 478.3 
General and administrative54.4 52.8 
Gain on intellectual property matter(1.1)(1.2)
Total operating expenses727.4 681.0 
OPERATING INCOME321.2 273.5 
INTEREST INCOME32.2 20.6 
INTEREST EXPENSE(5.1)(5.0)
OTHER INCOME (EXPENSE)—NET
(2.9)2.0 
INCOME BEFORE INCOME TAXES AND LOSS FROM EQUITY METHOD INVESTMENTS
345.4 291.1 
PROVISION FOR INCOME TAXES
39.5 21.3 
LOSS FROM EQUITY METHOD INVESTMENTS
(6.6)(22.1)
NET INCOME
$299.3 $247.7 
Net income per share (Note 8):
Basic$0.39 $0.32 
Diluted$0.39 $0.31 
Weighted-average shares outstanding:
Basic762.4 783.2 
Diluted770.5 793.4 
See notes to condensed consolidated financial statements.
4

Table of Contents
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 Three Months Ended
 March 31,
2024
March 31,
2023
Net income
$299.3 $247.7 
Other comprehensive income (loss):
Change in foreign currency translation(5.2)(0.8)
Change in unrealized gains (losses) on investments(0.9)3.8 
Less: tax provision (benefit) related to items of other comprehensive income (loss)
(0.2)0.9 
Other comprehensive income (loss)
(5.9)2.1 
Comprehensive income
$293.4 $249.8 
See notes to condensed consolidated financial statements.
5

Table of Contents
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited, in millions)
Three Months Ended March 31, 2024
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Loss
Accumulated Deficit
Total Stockholders’ Deficit
SharesAmount
BALANCE—December 31, 2023
761.0 $0.8 $1,416.4 $(18.9)$(1,861.7)$(463.4)
Issuance of common stock in connection with equity incentive plans - net of tax withholding2.2 — (29.8)— — (29.8)
Stock-based compensation expense— — 62.3 — — 62.3 
Net unrealized loss on investments - net of tax
— — — (0.7)— (0.7)
Foreign currency translation adjustment— — — (5.2)— (5.2)
Net income— — — — 299.3 299.3 
BALANCE—March 31, 2024
763.2 $0.8 $1,448.9 $(24.8)$(1,562.4)$(137.5)
Three Months Ended March 31, 2023
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Loss
Accumulated Deficit
Total Stockholders’ Equity (Deficit)
SharesAmount
BALANCE—December 31, 2022
781.5 $0.8 $1,284.2 $(20.2)$(1,546.4)$(281.6)
Issuance of common stock in connection with equity incentive plans - net of tax withholding2.9 — (13.1)— — (13.1)
Stock-based compensation expense— — 56.3 — — 56.3 
Net unrealized gain on investments - net of tax
— — — 2.9 — 2.9 
Foreign currency translation adjustment— — — (0.8)— (0.8)
Net income
— — — — 247.7 247.7 
BALANCE—March 31, 2023
784.4 $0.8 $1,327.4 $(18.1)$(1,298.7)$11.4 
See notes to condensed consolidated financial statements.
6

Table of Contents
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 Three Months Ended
 March 31,
2024
March 31,
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$299.3 $247.7 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation62.3 56.3 
Amortization of deferred contract costs72.0 62.5 
Depreciation and amortization28.6 27.5 
Amortization of investment discounts
(12.2)(0.3)
Loss from equity method investments
6.6 22.1 
Other 3.3 3.8 
Changes in operating assets and liabilities, net of impact of business combination:
Accounts receivable—net405.6 171.1 
Inventory36.5 (45.3)
Prepaid expenses and other current assets(0.1)(16.0)
Deferred contract costs(66.5)(81.2)
Deferred tax assets(73.9)(81.1)
Other assets(6.2)4.5 
Accounts payable(61.6)(4.1)
Accrued liabilities105.0 80.0 
Accrued payroll and compensation(27.4)(6.0)
Other liabilities4.3 (4.7)
Deferred revenue54.8 240.7 
Net cash provided by operating activities830.4 677.5 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments(436.1)(207.2)
Maturities of investments393.4 195.0 
Purchases of property and equipment(221.9)(30.3)
Payment made in connection with a business combination, net of cash acquired
(5.7) 
Other 0.1 
Net cash used in investing activities
(270.3)(42.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock13.4 21.2 
Taxes paid related to net share settlement of equity awards(42.9)(34.5)
Other(0.8)(0.4)
Net cash used in financing activities(30.3)(13.7)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(1.4)(0.1)
NET INCREASE IN CASH AND CASH EQUIVALENTS
528.4 621.3 
CASH AND CASH EQUIVALENTS—Beginning of period1,397.9 1,682.9 
CASH AND CASH EQUIVALENTS—End of period$1,926.3 $2,304.2 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes—net $31.1 $20.7 
Operating lease liabilities arising from obtaining right-of-use assets$15.0 $4.7 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfers of evaluation units from inventory to property and equipment$6.5 $6.9 
Liability for purchase of property and equipment$27.6 $18.8 
See notes to condensed consolidated financial statements.
7

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Preparation—The unaudited condensed consolidated financial statements of Fortinet, Inc. and its subsidiaries (collectively, “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information, as well as the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2023, contained in our Annual Report on Form 10-K filed with the SEC on February 26, 2024. In the opinion of management, all adjustments, which include normal recurring adjustments, considered necessary for a fair presentation, have been included. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year or for any future periods. The condensed consolidated balance sheet as of December 31, 2023 is derived from the audited consolidated financial statements for the year ended December 31, 2023.

The condensed consolidated financial statements include the accounts of Fortinet, Inc. and its subsidiaries. We consolidate all legal entities in which we have an absolute controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2024, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC.

Recent Accounting Standards Not Yet Effective

Segment Reporting

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments are effective for our annual reporting for fiscal year 2024, and for our interim period reporting starting in fiscal year 2025 retrospectively, with early adoption permitted. We are currently evaluating the ASU to determine its impact on our disclosures.

Income Taxes

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for our annual period beginning fiscal year 2025, with early adoption permitted, and should be applied prospectively. We are currently evaluating the ASU to determine its impact on our disclosures.



8

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2.     REVENUE RECOGNITION

Disaggregation of Revenue

The following table presents our revenue disaggregated by major product and service lines (in millions):
Three Months Ended
March 31,
2024
March 31,
2023
Product$408.9 $500.7 
Service:
Security subscription536.9 421.7 
Technical support and other407.5 339.9 
Total service revenue944.4 761.6 
Total revenue$1,353.3 $1,262.3 

Deferred Revenue

During the three months ended March 31, 2024 and 2023, we recognized $851.1 million and $675.9 million in service revenue that was included in the deferred revenue balance as of December 31, 2023 and 2022, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $5.81 billion, which was substantially comprised of deferred security subscription and technical support services revenue that will be recognized in future periods. We expect to recognize approximately $2.93 billion as revenue over the next 12 months and the remainder thereafter.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount, net of an allowance for expected credit losses. We measure expected credit losses of accounts receivable on a collective (pooled) basis, aggregating accounts receivable that are either current or no more than 60 days past due, and aggregating accounts receivable that are more than 60 days past due. We apply a credit-loss percentage to each of the pools that is based on our historical credit losses. We review whether each of our significant accounts receivable that is more than 60 days past due continues to exhibit similar risk characteristics with the other accounts receivable in the pool. If we determine that it does not, we evaluate it for expected credit losses on an individual basis. Expected credit losses are recorded as general and administrative expenses on our condensed consolidated statements of income.

The allowance for credit losses was $6.9 million and $8.2 million as of March 31, 2024 and December 31, 2023, respectively. Provisions, write-offs and recoveries were not material during the three months ended March 31, 2024 and 2023.

Deferred Contract Costs
    
Amortization of deferred contract costs during the three months ended March 31, 2024 and 2023 were $72.0 million and $62.5 million, respectively.

9

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3.     FINANCIAL INSTRUMENTS AND FAIR VALUE

Available-for-Sale Investments

The following tables summarize our available-for-sale investments (in millions):
 
 March 31, 2024
 Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
U.S. government and agency securities$479.9 $ $(0.4)$479.5 
Commercial paper478.1  (0.4)477.7 
Certificates of deposit and term deposits71.6   71.6 
Corporate debt securities46.6   46.6 
Total available-for-sale investments
$1,076.2 $ $(0.8)$1,075.4 
 December 31, 2023
 Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
U.S. government and agency securities$461.5 $0.2 $(0.3)$461.4 
Commercial paper401.7 0.2 (0.1)401.8 
Certificates of deposit and term deposits88.2 0.1  88.3 
Corporate debt securities70.0 0.1 (0.1)70.0 
Total available-for-sale investments
$1,021.4 $0.6 $(0.5)$1,021.5 
The following tables show the gross unrealized losses and the related fair values of our available-for-sale investments that have been in a continuous unrealized loss position (in millions):
March 31, 2024
 Less Than 12 Months12 Months or GreaterTotal
 Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. government and agency securities$302.1 $(0.3)$9.9 $(0.1)$312.0 $(0.4)
Commercial paper417.5 (0.4)  417.5 (0.4)
Corporate debt securities29.1  2.0  31.1  
Total available-for-sale investments
$748.7 $(0.7)$11.9 $(0.1)$760.6 $(0.8)
December 31, 2023
 Less Than 12 Months12 Months or GreaterTotal
 Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. government and agency securities$47.1 $ $11.7 $(0.3)$58.8 $(0.3)
Commercial paper200.8 (0.1)  200.8 (0.1)
Corporate debt securities21.8  26.9 (0.1)48.7 (0.1)
Total available-for-sale investments
$269.7 $(0.1)$38.6 $(0.4)$308.3 $(0.5)

10

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The contractual maturities of our investments were (in millions):
 March 31,
2024
December 31,
2023
Due within one year$1,075.4 $1,021.5 
Due within one to three years  
Total$1,075.4 $1,021.5 

Available-for-sale investments are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of stockholders’ equity (deficit) and in comprehensive income. We do not intend to sell any of the securities in an unrealized loss position and it is not more likely than not that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity.

Realized gains and losses on available-for-sale investments were insignificant in the periods presented.

Marketable Equity Securities

Our marketable equity securities were $21.4 million and $21.0 million as of March 31, 2024 and December 31, 2023. The changes in fair value of our marketable equity securities are recorded in other income (expense)—net on the condensed consolidated statements of income. We recognized a $0.3 million and $0.6 million gain during the three months ended March 31, 2024 and 2023, respectively.

Fair Value of Financial Instruments

Fair Value Accounting—We apply the following fair value hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

We measure the fair value of money market funds, certain U.S. government and agency securities and marketable equity securities using quoted prices in active markets for identical assets. The fair value of all other financial instruments was based on quoted prices for similar assets in active markets, or model-driven valuations using significant inputs derived from or corroborated by observable market data.

We classify investments within Level 1 if quoted prices are available in active markets for identical securities.

We classify items within Level 2 if the investments are valued using model-driven valuations using observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Investments are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

11

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Assets Measured at Fair Value on a Recurring Basis

The following tables present the fair value of our financial assets measured at fair value on a recurring basis (in millions):
 March 31, 2024December 31, 2023
 Aggregate
Fair
Value
Quoted
Prices in
Active
Markets For
Identical
Assets
Significant
Other
Observable
Remaining
Inputs
Significant
Other
Unobservable
Remaining
Inputs
Aggregate
Fair
Value
Quoted
Prices in
Active
Markets For
Identical
Assets
Significant
Other
Observable
Remaining
Inputs
Significant
Other
Unobservable
Remaining
Inputs
  (Level 1)(Level 2)(Level 3) (Level 1)(Level 2)(Level 3)
Assets:
U.S. government and agency securities$495.4 $438.9 $56.5 $ $501.4 $433.3 $68.1 $ 
Commercial paper555.3  555.3  472.2  472.2  
Certificates of deposit and term deposits92.8  92.8  104.8  104.8  
Corporate debt securities47.5  47.5  73.0  73.0  
Money market funds254.6 254.6   277.1 277.1   
Marketable equity securities21.4 21.4   21.0 21.0   
Total$1,467.0 $714.9 $752.1 $ $1,449.5 $731.4 $718.1 $ 
Reported as:
Cash equivalents$370.2 $407.0 
Marketable equity securities21.4 21.0 
Short-term investments1,075.4 1,021.5 
Total$1,467.0 $1,449.5 

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2024 and year ended December 31, 2023.

4.     INVENTORY

Inventory, net of reserves, consisted of (in millions):
 March 31,
2024
December 31,
2023
Raw materials$104.5 $92.1 
Work in process6.2 7.7 
Finished goods328.8 385.0 
Inventory$439.5 $484.8 

The excess and obsolete inventory reserve was $101.6 million and $89.2 million as of March 31, 2024 and December 31, 2023, respectively. Inventory write-downs related to excess and obsolete inventory were $18.1 million for the three months ended March 31, 2024, and were not material for the three months ended March 31, 2023. These were recorded in cost of product revenue on the condensed consolidated statements of income.
12

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5.     PROPERTY AND EQUIPMENT—Net

Property and equipment—net consisted of (in millions):
 
 March 31,
2024
December 31,
2023
Land$453.0 $351.7 
Buildings and improvements712.5 595.5 
Computer equipment and software265.6 261.1 
Leasehold improvements66.7 61.4 
Evaluation units32.3 30.8 
Furniture and fixtures35.2 33.6 
Construction-in-progress56.0 63.3 
Total property and equipment1,621.3 1,397.4 
Less: accumulated depreciation(373.9)(353.0)
Property and equipment—net$1,247.4 $1,044.4 

During the three months ended March 31, 2024, we purchased certain real estate properties in California for a total purchase price of $207.1 million to be used predominantly for research and development and warehousing operations. The purchases were accounted for under the asset acquisition method. The cost of the assets allocated to land, buildings and improvements, and furniture and fixtures were $101.4 million, $104.8 million, and $0.9 million, respectively, based on their relative fair values.

Depreciation expense was $25.6 million and $22.8 million during the three months ended March 31, 2024 and 2023, respectively.

6.     INVESTMENT IN PRIVATELY HELD COMPANY

Linksys Holdings, Inc.

During 2021, we invested $160.0 million in cash for shares of the Series A Preferred Stock of privately held Linksys Holdings, Inc. (“Linksys”), for a 50.8% ownership interest in outstanding equity of Linksys. As of March 31, 2024 and December 31, 2023, our ownership interest remained the same. Linksys provides router connectivity solutions to the consumer and small business markets.

We have concluded that our investment in Linksys is an in-substance common stock investment and that we do not hold an absolute controlling financial interest in Linksys, but that we have the ability to exercise significant influence over the operating and financial policies of Linksys. Determining that we have significant influence but not control over the operating and financial policies of Linksys required significant judgement of many factors, including but not limited to the ownership interest in Linksys, board representation, participation in policy-making processes and participation rights in certain significant financial and operating decisions of Linksys in the ordinary course of business. Therefore, we determined to account for this investment using the equity method of accounting. We record our share of Linksys’ financial results on a three-month lag basis, with the exception of material transactions or events that occur during the intervening period that materially affect the financial position or results of operations. We determined that there was a basis difference between the cost of our investment in Linksys and the amount of underlying equity in net assets of Linksys.

Our share of loss of Linksys’ financial results, as well as our share of the amortization of the basis differences, totaled $6.4 million and $22.1 million for the three months ended March 31, 2024 and 2023, respectively, and has been recorded in loss from equity method investments on the condensed consolidated statements of income. The carrying amount of our Linksys investment was $35.8 million and $42.2 million as of March 31, 2024 and December 31, 2023, respectively, and the investment was included in other assets on our condensed consolidated balance sheets.

Due to the presence of impairment indicators, such as a series of operating losses, we evaluated our equity method investment for an other-than-temporary impairment (“OTTI”) during the three months ended March 31, 2024. We considered various factors in determining whether an OTTI has occurred, including the limited operating history available, our ability and intent to hold the investment until its fair value recovers, the implied revenue valuation multiples compared to guideline public
13

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

companies, Linksys’ ability to achieve milestones and any notable operational and strategic changes. After the evaluation, we determined that an additional OTTI has not occurred as of March 31, 2024. However, we may be required to recognize an impairment loss in future reporting periods if and when our evaluation of the aforementioned factors indicates that the investment in Linksys is determined to be other than temporarily impaired. Such determination will be based on the prevailing facts and circumstances at that time, including the results and disclosures of Linksys.

7.     GOODWILL AND OTHER INTANGIBLE ASSETS—Net

Goodwill

The following table presents the changes in the carrying amount of goodwill (in millions):
Amount
Balance—December 31, 2023
$126.5 
Additions due to business combination
3.9 
Foreign currency translation adjustments(1.4)
Balance—March 31, 2024
$129.0 

There were no impairments to goodwill during the three months ended March 31, 2024 or during prior periods.

Other Intangible Assets—Net

The following tables present other intangible assets—net (in millions, except years):
March 31, 2024
 Weighted-Average Useful Life (in Years)GrossAccumulated AmortizationNet
Other intangible assets—net:
Finite-lived intangible assets:
Developed technologies4.6$80.1 $62.0 $18.1 
Customer relationships7.030.6 18.0 12.6 
Trade name10.04.6 1.2 3.4 
Backlog1.03.6 3.6  
Total other intangible assets—net$118.9 $84.8 $34.1 
December 31, 2023
 Weighted-Average Useful Life (in Years)GrossAccumulated AmortizationNet
Other intangible assets—net:
Finite-lived intangible assets:
Developed technologies4.4$79.4 $60.6 $18.8 
Customer relationships7.130.4 17.7 12.7 
Trade name10.05.0 1.2 3.8 
Backlog1.03.9 3.9  
Total other intangible assets—net$118.7 $83.4 $35.3 

Amortization expense was $3.0 million and $4.7 million during the three months ended March 31, 2024 and 2023, respectively.

14

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes estimated future amortization expense of finite-lived intangible assets—net (in millions):
 Amount
Years:
2024 (the remainder of 2024)
$9.5 
20258.6 
20264.8 
20274.4 
20281.5 
Thereafter5.3 
Total$34.1 

8.     NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, plus the dilutive effects of restricted stock units (“RSUs”), stock options and performance stock units (“PSUs”). Dilutive shares of common stock are determined by applying the treasury stock method.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is (in millions, except per share amounts):
 Three Months Ended
 March 31,
2024
March 31,
2023
Numerator:
Net income
$299.3 $247.7 
Denominator:
Basic shares:
Weighted-average common stock outstanding-basic762.4 783.2 
Diluted shares:
Weighted-average common stock outstanding-basic762.4 783.2 
Effect of potentially dilutive securities:
RSUs 2.7 3.6 
Stock options5.1 6.6 
PSUs0.3  
Weighted-average shares used to compute diluted net income per share
770.5 793.4 
Net income per share
Basic$0.39 $0.32 
Diluted$0.39 $0.31 

15

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following weighted-average shares of common stock were excluded from the computation of diluted net income per share for the periods presented, as their effect would have been antidilutive (in millions):
 Three Months Ended
 March 31,
2024
March 31,
2023
RSUs  1.8 
Stock options3.1 2.3 
Total 3.1 4.1 

9.     DEBT

2026 and 2031 Senior Notes

On March 5, 2021, we issued $1.0 billion aggregate principal amount of senior notes (collectively, the “Senior Notes”), consisting of $500.0 million aggregate principal amount of 1.0% notes due March 15, 2026 (the “2026 Senior Notes”) and $500.0 million aggregate principal amount of 2.2% notes due March 15, 2031 (the “2031 Senior Notes”), in an underwritten registered public offering. The Senior Notes are senior unsecured obligations and rank equally with each other in right of payment and with our other outstanding obligations. We may redeem the Senior Notes at any time in whole or in part for cash, at specified redemption prices that include accrued and unpaid interest, if any, and a make-whole premium. However, no make-whole premium will be paid for redemptions of the 2026 Senior Notes on or after February 15, 2026, or the 2031 Senior Notes on or after December 15, 2030. Interest on the Senior Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2021. As of March 31, 2024 and December 31, 2023, the Senior Notes were recorded as long-term debt, net of discount and issuance costs, which are amortized to interest expense over the respective contractual terms of these notes using the effective interest method.

The total outstanding debt is summarized below (in millions, except percentages):
 MaturityCoupon RateEffective Interest RateMarch 31,
2024
December 31,
2023
Debt
2026 Senior NotesMarch 20261.0%1.3%$500.0 $500.0 
2031 Senior NotesMarch 20312.2%2.3%500.0 500.0 
Total debt1,000.0 1,000.0 
Less: Unamortized discount and debt issuance costs7.2 7.7 
Total long-term debt$992.8 $992.3 

As of March 31, 2024 and December 31, 2023, we accrued interest payable of $0.7 million and $4.7 million, respectively, and there are no financial covenants with which we must comply. During the three months ended March 31, 2024 and 2023, we recorded $4.5 million of total interest expense in relation to these Senior Notes in each period. No interest costs were capitalized for the three months ended March 31, 2024 and 2023, as the costs that qualified for capitalization were not material.

The total estimated fair value of the outstanding Senior Notes was approximately $878.9 million, including accrued and unpaid interest, as of March 31, 2024. The fair value was determined based on observable market prices of identical instruments in less active markets. The estimated fair values are based on Level 2 inputs.

10.     COMMITMENTS AND CONTINGENCIES

The following table summarizes our inventory purchase commitments as of March 31, 2024 (in millions):
Total2024
Thereafter
Inventory purchase commitments$629.7 $575.4 $54.3 

16

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Inventory Purchase Commitments—We purchase components of our inventory from certain suppliers and use several independent contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory based upon criteria as defined by us or establish the parameters defining our requirements. A significant portion of our reported purchase commitments arising from these agreements consists of firm, non-cancelable and unconditional commitments. Certain of these inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods. In certain instances, these agreements allow us the option to reschedule and adjust our requirements based on our business needs prior to firm orders being placed.

As of March 31, 2024, we had $629.7 million of non-cancelable inventory purchase commitments with our independent contract manufacturers. We recorded a liability for these purchase commitments for quantities in excess of our future estimated demand forecasts, consistent with the valuation of our excess and obsolete inventory. As of March 31, 2024 and December 31, 2023, the liability for these inventory purchase commitments was $115.0 million and $84.7 million, respectively, and was recorded in accrued liabilities on our condensed consolidated balance sheets. The expense related to such accrued liability for inventory purchase commitments was $31.6 million and $10.4 million during the three months ended March 31, 2024 and 2023, respectively, and was recorded in cost of product revenue on the condensed consolidated statements of income.

Other Contractual Commitments and Open Purchase Orders—In addition to commitments with contract manufacturers, we have open purchase orders and contractual obligations in the ordinary course of business for which we have not received goods or services. A significant portion of our reported purchase commitments consist of non-cancelable commitments. In certain instances, contractual commitments allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to firm orders being placed. As of March 31, 2024, we had $40.4 million in other contractual commitments having a remaining term in excess of one year that are non-cancelable.

As of March 31, 2024, we had $89.8 million in contractual commitments related to payments for operating leases.

Litigation—We are involved in disputes, litigation, and other legal actions. For lawsuits where we are the defendant, we are in the process of defending these litigation matters, and while there can be no assurances and the outcome of certain of these matters is currently not determinable and not predictable, we currently are unaware of any existing claims or proceedings that we believe are likely to have a material adverse effect on our financial position. There are many uncertainties associated with any litigation and these actions or other third-party claims against us may cause us to incur costly litigation fees, costs and substantial settlement charges, and possibly subject us to damages and other penalties. In addition, the resolution of any intellectual property (“IP”) litigation may require us to make royalty payments, which could adversely affect our gross margins in future periods. If any of those events were to occur, our business, financial condition, results of operations, and cash flows could be adversely affected. Litigation is unpredictable and the actual liability in any such matters may be materially different from our current estimates, which could result in the need to adjust any accrued liability and record additional expenses. We accrue for contingencies when we believe that a loss is probable and that we can reasonably estimate the amount of any such loss. These accruals are generally based on a range of possible outcomes that require significant management judgement. If no amount within a range is a better estimate than any other, we accrue the minimum amount. Litigation loss contingency accruals associated with outstanding cases were not material as of March 31, 2024, and December 31, 2023.

On March 21, 2019, we were sued by Alorica Inc. (“Alorica”) in Santa Clara County Superior Court in California. Alorica has alleged breach of warranty and misrepresentation claims, which we deny. Fact discovery closed during the quarter ended June 30, 2023 and trial is currently set for September 2024. Although we believe that the ultimate outcome of this matter will not materially impact our financial position, results of operations or cash flows, legal proceedings are subject to inherent uncertainties, and an unfavorable ruling could occur, which may result in a material adverse impact on our business, financial position, results of operations and cash flows. No loss accrual had been recorded as of March 31, 2024 or December 31, 2023 related to this litigation.

Indemnification and Other Matters—Under the indemnification provisions of our standard sales contracts, we agree to defend our customers against third-party claims asserting various allegations such as product defects and infringement of certain IP rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such claims. In some contracts, our exposure under these indemnification provisions is limited by the terms of the contracts to certain defined limits, such as the total amount paid by our customer under the agreement. However, certain agreements include covenants, penalties and indemnification provisions including and beyond indemnification for third-party claims of IP infringement that could potentially expose us to losses in excess of the amount received under the agreement, and in some instances to potential liability that is not contractually limited. Although from time to time there are indemnification claims
17

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

asserted against us and currently there are pending indemnification claims, to date there have been no material awards under such indemnification provisions.

Similar to other security companies and companies in other industries, we have experienced and may experience in the future, cybersecurity threats, malicious activity directed against our information technology infrastructure or unauthorized attempts to gain access to our and our customers’ sensitive information and systems. We currently are unaware of any existing claims or proceedings related to these types of matters, including any that we believe are likely to have a material adverse effect on our financial position.

11.     EQUITY PLANS AND SHARE REPURCHASE PROGRAM

Stock-Based Compensation Plans

We maintain the Amended and Restated Fortinet, Inc. 2009 Equity Incentive Plan (the “Amended Plan”) pursuant to which we have granted RSUs, stock options and PSUs. As of March 31, 2024, there were a total of 50.8 million shares of common stock available for grant under the Amended Plan.

Restricted Stock Units

The following table summarizes the activity and related information for RSUs for the periods presented below (in millions, except per share amounts):
 Restricted Stock Units Outstanding
 Number of SharesWeighted-Average Grant Date Fair Value per Share
Balance—December 31, 2023
9.1 $53.61 
Granted2.7 65.34 
Forfeited(0.2)55.59 
Vested(1.7)47.69 
Balance—March 31, 2024
9.9 $57.90 

Stock compensation expense is recognized on a straight-line basis over the vesting period of each RSU. As of March 31, 2024, total compensation expense related to unvested RSUs granted to employees and non-employees under the Amended Plan, but not yet recognized, was $529.6 million, with a weighted-average remaining vesting period of 2.9 years.

RSUs settle into shares of common stock upon vesting. Upon the vesting of the RSUs, we net-settle the RSUs and withhold a portion of the shares to satisfy employee withholding tax requirements. The payment of the withheld taxes to the tax authorities is reflected as a financing activity within the condensed consolidated statements of cash flows.

The following summarizes the number and value of the shares withheld for employee taxes (in millions):
Three Months Ended
March 31,
2024
March 31,
2023
Shares withheld for taxes0.6 0.7 
Amount withheld for taxes$42.9 $34.6 

18

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Employee Stock Options

The following table summarizes the weighted-average assumptions relating to our employee stock options: 
 Three Months Ended
 March 31,
2024
March 31,
2023
Expected term in years4.54.4
Volatility42.9 %42.0 %
Risk-free interest rate4.34 %4.2 %
Dividend rate % %

The following table summarizes the stock option activity and related information for the periods presented below (in millions, except exercise prices and contractual life):
 Options Outstanding
 Number
of Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Balance—December 31, 2023
11.2 $31.14 3.3$315.8 
Granted0.6 65.34 
Forfeited 56.93 
Exercised(1.0)13.50 
Balance—March 31, 2024
10.8 $34.64 
Options vested and expected to vest—March 31, 2024
10.8 $34.64 3.5$365.3 
Options exercisable—March 31, 2024
7.9 $26.34 2.7$330.1 

The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted market price of our common stock for all in-the-money stock options. Stock compensation expense is recognized on a straight-line basis over the vesting period of each stock option. As of March 31, 2024, total compensation expense related to unvested stock options granted to employees but not yet recognized was $63.6 million, with a weighted-average remaining vesting period of 2.7 years.

Additional information related to our stock options is summarized below (in millions, except per share amounts):
Three Months Ended
March 31,
2024
March 31,
2023
Weighted-average fair value per share granted $26.92 $24.24 
Intrinsic value of options exercised $51.8 $72.7 
Fair value of options vested$12.1 $11.7 

Market/Performance-Based PSUs

We granted market/performance-based PSUs under the Amended Plan to certain of our executives. Based on the achievement of the market/performance-based vesting conditions during the performance period, the final settlement of the PSUs will range between 0% and 200% of the target shares underlying the PSUs based on the percentile ranking of our total stockholder return over one-, two-, three- and four-year periods among companies included in the S&P 500 Index. 20%, 20%, 20% and 40% of the PSUs vest over one-, two-, three- and four-year service periods, respectively.
19

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The following table summarizes the weighted-average assumptions relating to our PSUs:
 Three Months Ended
 March 31,
2024
March 31,
2023
Expected term in years2.72.7
Volatility45.5 %47.5 %
Risk-free interest rate4.5 %4.6 %
Dividend rate % %

We granted approximately 0.3 million shares of PSU awards with a weighted-average grant date fair value of $98.19 and $90.96 per share to certain of our executives during the first quarter of 2024 and 2023, respectively. The grant date fair value of these awards was determined using a Monte Carlo simulation pricing model. Approximately 0.1 million shares of PSU awards vested during the three months ended March 31, 2024. No shares of PSU awards vested during the three months ended March 31, 2023. None of these PSU awards were forfeited during the three months ended March 31, 2024 and 2023.

As of March 31, 2024, total compensation expense related to unvested PSUs that were granted to certain of our executives, but not yet recognized, was $38.7 million. This expense is expected to be amortized on a graded vesting method over a weighted-average vesting period of 2.5 years.

Stock-Based Compensation Expense

Stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, is included in costs and expenses (in millions):
 Three Months Ended
 March 31,
2024
March 31,
2023
Cost of product revenue$0.5 $0.4 
Cost of service revenue6.2 5.1 
Research and development19.8 17.0 
Sales and marketing26.7 26.3 
General and administrative9.8 8.2 
Total stock-based compensation expense$63.0 $57.0 

The following table summarizes stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, by award type (in millions):
 Three Months Ended
 March 31,
2024
March 31,
2023
RSUs$52.0 $49.1 
Stock options7.3 6.7 
PSUs3.7 1.2 
Total stock-based compensation expense$63.0 $57.0 

Total income tax benefit associated with stock-based compensation that is recognized in the condensed consolidated statements of income is (in millions):
Three Months Ended
March 31,
2024
March 31,
2023
Income tax benefit associated with stock-based compensation $13.9 $12.6 
20

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Share Repurchase Program

In January 2024, our board of directors approved a $500.0 million increase in the authorized share repurchase amount under the Repurchase Program, bringing the aggregate amount authorized to be repurchased to $7.25 billion of our outstanding common stock. In February 2024, our board of directors approved an extension of the Repurchase Program to February 28, 2025. Share repurchases may be made by us from time to time in privately negotiated transactions or in open-market transactions. The Repurchase Program does not require us to purchase a minimum number of shares, and may be suspended, modified or discontinued at any time without prior notice.

There were no shares repurchased under the Repurchase Program during the three months ended March 31, 2024. As of March 31, 2024, $1.03 billion remained available for future share repurchases under the Repurchase Program.

12.    INCOME TAXES

Our effective tax rate was 11% for the three months ended March 31, 2024, compared to an effective tax rate of 7for the same period last year. The tax rates for the three months ended March 31, 2024 and 2023 were composed of U.S. federal and state taxes, withholding taxes and foreign taxes that amounted to $81.7 million and $85.8 million, respectively. The tax rate for the three months ended March 31, 2024 was impacted by a tax benefit of $24.0 million from the FDII deduction, and excess tax benefits from stock-based compensation expense of $18.2 million. The tax rate for the three months ended March 31, 2023 was impacted by a tax benefit of $38.2 million from the FDII deduction and excess tax benefits from stock-based compensation expense of $26.3 million.

As of March 31, 2024 and December 31, 2023, unrecognized tax benefits were $66.0 million and $65.8 million, respectively. If recognized, $55.4 million of the unrecognized tax benefits as of March 31, 2024 would favorably affect our effective tax rate. It is our policy to include accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2024 and December 31, 2023, accrued interest and penalties were $6.9 million and $6.4 million, respectively. It is reasonably possible that our gross unrecognized tax benefits will decrease by up to $4.7 million in the next 12 months, due to the lapse of statutes of limitation in various jurisdictions. This decrease, if recognized, would favorably impact our effective tax rate, and would be recognized as an additional tax benefit.

We file income tax returns in the U.S. federal jurisdiction and in various U.S. state and foreign jurisdictions. Generally, we are no longer subject to examination by U.S federal income tax authorities for tax years prior to 2015. We are no longer subject to U.S. state and foreign income tax examinations by tax authorities for tax years prior to 2010. We currently have ongoing tax audits in the United Kingdom, Canada and several other foreign jurisdictions. The focus of these audits is the inter-company profit allocation.

On January 4, 2022, the U.S. Treasury published another tranche of final regulations regarding the foreign tax credit. These final regulations impose new requirements that a foreign tax must meet in order to be creditable against U.S. income taxes, and generally apply to tax years beginning on or after December 28, 2021. On July 26, 2022, the U.S. Treasury released corrections to the final regulations. On July 21, 2023, the IRS released a notice that suspended the application of significant portions of the final regulations regarding the foreign tax credit for tax years 2022 and 2023. The notice released in July 2023 favorably impacted our ability to claim foreign tax credits in the United States for certain taxes imposed by certain foreign jurisdictions. On December 11, 2023, the IRS released a notice that extended the suspension of significant portions of the final regulations beyond December 31, 2023, until further guidance is issued.

In December 2021, the Organisation for Economic Co-operation and Development (the “OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting, legislation on this. The OECD continues to release additional guidance on these rules. Based on the enacted laws, BEPS Pillar Two has no impact to our effective tax rate or cash flows for the three months ended March 31, 2024. We will continue to evaluate the impact of these tax law changes on future reporting periods.

13.     DEFINED CONTRIBUTION PLANS

Our tax-deferred savings plan under our 401(k) Plan permits participating U.S. employees to contribute a portion of their pre-tax or after-tax earnings. In Canada, we have a Group Registered Retirement Savings Plan Program (the “RRSP”), which permits participants to make pre-tax contributions. Our board of directors approved 50% matching contributions on
21

Table of Contents
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

employee contributions up to 4% of each employee’s eligible earnings. Our matching contributions to our 401(k) Plan and the RRSP for the three months ended March 31, 2024 and 2023 were $6.3 million and $4.4 million, respectively.

14.     SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer. Our chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. We have one business activity, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, we have determined that we have one operating segment, and therefore, one reportable segment.

Revenue by geographic region is based on the billing address of our customers. The following tables set forth revenue and property and equipment—net by geographic region (in millions):
Three Months Ended
RevenueMarch 31,
2024
March 31,
2023
Americas:
United States$407.1 $384.1 
Other Americas149.9 139.4 
Total Americas557.0 523.5 
Europe, Middle East and Africa (“EMEA”)539.4 478.2 
Asia Pacific (“APAC”)256.9 260.6 
Total revenue$1,353.3 $1,262.3 

Property and Equipmentnet
March 31,
2024
December 31,
2023
Americas:
United States$908.0 $701.6 
Canada213.2 212.8 
Latin America2.3 2.3 
Total Americas1,123.5 916.7 
EMEA63.5 65.5 
APAC60.4 62.2 
Total property and equipment—net$1,247.4 $1,044.4 

The following distributors accounted for 10% or more of our revenue:
 Three Months Ended
March 31,
2024
March 31,
2023
Distributor A31 %28 %
Distributor B15 %14 %
Distributor C13 %14 %


22


The following distributors accounted for 10% or more of net accounts receivable:
March 31,
2024
December 31,
2023
Distributor A28 %33 %
Distributor B13 %14 %
Distributor C13 %10 %

23

Table of Contents
ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, among other things, statements concerning our expectations regarding:

continued growth and market share gains;

variability in sales in certain product and service categories from year to year and between quarters;

expected impact of sales from certain products and services;

increasing or decreasing inflation or stagflation, and changing interest rates in many geographies and changes in currency exchange rates and currency regulations;

competition in our markets;

macroeconomic, geopolitical factors and other disruption on our manufacturing or sales, including public health issues, wars and natural disasters;

government regulation, tariffs and other policies;

drivers of long-term growth and operating leverage, such as pricing of our products and services, sales productivity, pipeline and capacity, functionality, value and technology improvements in our service offerings;

growing our solution sales through channel partners to businesses, service providers and government organizations, our ability to execute these sales and the complexity of providing solutions to all segments (including the increased competition and unpredictability of timing associated with sales to larger enterprises), the impact of sales to these organizations on our long-term growth, expansion and operating results, and the effectiveness of our sales organization;

our ability to successfully anticipate market changes related to cloud-based solutions and to sell, support and meet service level agreements related to cloud-based solutions;

growth expectations for the secure networking market;

supply chain constraints, component availability and other factors affecting our manufacturing capacity, delivery, cost and inventory management;

forecasts of future demand and targeted inventory levels, including changing market drivers and demands;

the effect of backlog from prior quarters, including its effect on growth of in-quarter billings and revenue;

our ability to hire properly qualified and effective sales, support and engineering employees;

risks and expectations related to acquisitions and equity interests in private and public companies, including integration issues related to go-to-market plans, product plans, employees of such companies, controls and processes and the acquired technology, and risks of negative impact by such acquisitions and equity investments on our financial results;

trends in revenue, cost of revenue and gross margin, including expectations regarding product revenue and service revenue growth;
 
trends in our operating expenses, including sales and marketing expense, research and development expense, general and administrative expense, and expectations regarding these expenses;

expected impact of plans and strategy for the acceleration of our points of presence (“PoP”) deployment;
24

Table of Contents

expectations that our operating expenses will increase year over year in absolute dollars during the remainder of 2024;

expectations that proceeds from the exercise of stock options in future years will be adversely impacted by the increased mix of restricted stock units and performance stock units versus stock options granted or a decline in our stock price;

uncertain tax benefits and our effective domestic and global tax rates, the impact of interpretations of or changes to tax law, and the timing of tax payments;

expectations regarding spending related to real estate assets, acquisitions and development, including data center, office building and warehouse investments, as well as other capital expenditures and to the impact on free cash flow and expenses;

estimates of a range of 2024 spending on capital expenditures;

expected outcomes and liabilities in litigation;

our intentions regarding share repurchases and the sufficiency of our existing cash, cash equivalents and investments to meet our cash needs, including our debt servicing requirements, for at least the next 12 months;

other statements regarding our future operations, financial condition and prospects and business strategies; and

adoption and impact of new accounting standards.

These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and, in particular, the risks discussed under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those discussed in other documents we file with the SEC. We undertake no obligation, and specifically disclaim any obligation, to revise or publicly release the results of any revision to these and any other forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Business Overview

Fortinet is a leader in cybersecurity and the convergence of networking and security. Our mission is to secure people, devices and data everywhere. Our integrated platform, the Fortinet Security Fabric, spans secure networking, unified SASE and AI-driven security operations to deliver cybersecurity where our customers need it. As of March 31, 2024, over a half million customers trusted our solutions, including enterprises such as in the financial services, retail, healthcare and operational technology market verticals, communication and security service providers, and government organizations. As a global company headquartered in Sunnyvale, California our research and development is centered in the United States and Canada with a global footprint of support and centers of excellence around the world. As of March 31, 2024, we held 978 U.S. patents and 1,318 global patents and we are recognized in over 100 enterprise analyst reports demonstrating both our vision and execution across security and networking products.

Secure Networking—Our Secure Networking solutions focus on the convergence of networking and security via FortiOS, our networking and security operating system that is the foundation of our Fortinet Security Fabric platform and supports over 30 functions that can be delivered via a physical, virtual, cloud or SaaS solution. When delivered via our network firewall appliances, functionality is accelerated through our proprietary ASIC technology. These proprietary ASICs, allow our systems to scale, run multiple applications at higher performance, lower power consumption and perform more processor-intensive operations, such as inspecting encrypted traffic, including streaming video. The Network Firewall solution consists of FortiGate data centers, hyperscale and distributed firewalls, as well as encrypted applications (SSL inspection, Virtual Private Network and IPsec connectivity). Our ability to converge networking and security also enables the ethernet to become an extension of a company’s security infrastructure through FortiSwitch and FortiLink. Our wireless LAN solution leverages secure networking to provide secure wireless access for the enterprise LAN edge. FortiExtender secures 5G/LTE and remote ethernet extenders to
25

Table of Contents
connect and secure any branch environment. The Secure Connectivity solution includes FortiSwitch Secure Ethernet Switches, FortiAP Wireless Local Area Network Access Points and FortiExtender 5G Connectivity Gateways.

Unified Secure Access Service Edge (SASE)—As applications move to the cloud and work from anywhere becomes established, cloud delivery enables secure access to applications on any cloud. The Fortinet Unified SASE solution is a single-vendor SASE solution that includes Firewall, SD-WAN, Secure Web Gateway, Cloud Access Services Broker, Data Loss Prevention, Zero Trust Network Access and cloud security, including Web Application Firewalls, Virtualized Firewalls and Cloud-Native Firewalls, among other products. These functions are delivered through our FortiOS operating systems, which can deploy the full SASE stack through the cloud or on our ASIC-driven appliances. All functions can be managed through a unified management console.

Security Operations (SecOps)—Fortinet’s Security Operations portfolio is comprised of cybersecurity solutions that identify, protect, detect, respond and recover, and are delivered as a platform that automates detection and response to accelerate discovery and remediation. The SecOps solution includes FortiAI generative AI assistant, FortiSIEM Security Information and Event Management, FortiSOAR Security Orchestration, Automation and Response, FortiEDR Endpoint Detection and Response, FortiXDR Extended Detection and Response, FortiMDR Managed Detection and Response Service, FortiNDR Network Detection and Response, FortiRecon Digital Risk Protection, FortiDeceptor Deception technology, FortiGuard SoCaaS, FortiSandbox Sandboxing Services and FortiGuard Incident Response Services, among other products.

FortiGuard Labs is our cybersecurity threat intelligence and research organization comprised of experienced threat hunters, researchers, analysts, engineers and data scientists who develop and utilize machine learning and AI technologies to provide timely protection updates and actionable threat intelligence for the benefit of our customers. FortiGuard Security Services are a suite of AI-powered security capabilities that are natively integrated as part of the Fortinet Security Fabric to deliver coordinated detection and enforcement across the entire attack surface. The portfolio consists of FortiGuard application security services, content security services, device security services, NOC/SOC security services and web security services.

FortiCare Technical Support Service is a per-device technical support service, which provides customers access to experts to ensure efficient and effective operations and maintenance of their Fortinet capabilities. Global technical support is offered 24x7 with flexible add-ons, including enhanced SLAs and premium hardware replacement through in-country depots. Organizations have the flexibility to procure different levels of service for different devices based on their availability needs. We offer three per-device support options tailored to the needs of our enterprise customers: FortiCare Premium, FortiCare Elite and FortiCare Essential. The FortiCare Elite service aims to provide 15-minute response times for key product families.

Additionally, Fortinet is committed to addressing the cybersecurity skills shortage through training and certification programs for customers, partners and employees. The Fortinet Training Institute’s ecosystem of public and private partnerships around the world extend to industry, academia, government and nonprofits to ensure we are reaching and increasing access of our cybersecurity certifications and training to all populations. The Fortinet Training Institute has issued over 1.5 million certifications to date.

Financial Highlights

Total revenue was $1.35 billion during the three months ended March 31, 2024, an increase of 7%, compared to $1.26 billion in the same period last year. Our revenue growth was driven by growth in service revenue. Product revenue was $408.9 million during the three months ended March 31, 2024, a decrease of 18%, compared to $500.7 million in the same period last year. Service revenue was $944.4 million during the three months ended March 31, 2024, an increase of 24%, compared to $761.6 million in the same period last year.

Total gross profit was $1.05 billion during the three months ended March 31, 2024, an increase of 10%, compared to $954.5 million in the same period last year. Total gross margin was 77.5% during the three months ended March 31, 2024, an increase of 1.9 percentage points, compared to 75.6% in the same period last year.

Operating income was $321.2 million during the three months ended March 31, 2024, an increase of 17%, compared to $273.5 million in the same period last year.

Cash, cash equivalents, short-term and long-term investments and marketable equity securities were $3.02 billion as of March 31, 2024.

Deferred revenue was $5.79 billion, including short-term deferred revenue of $2.91 billion, as of March 31, 2024.

26

Table of Contents
Cash flows from operating activities were $830.4 million during the three months ended March 31, 2024, an increase of $152.9 million, or 23%, compared to the same period last year.

On a geographic basis, revenue continues to be diversified globally, which remains a key strength of our business. During the three months ended March 31, 2024, the Americas region, the Europe, Middle East and Africa (“EMEA”) region and the Asia Pacific (“APAC”) region contributed 41%, 40% and 19% of our total revenue, respectively. Americas region and EMEA region increased 6% and 13%, respectively, and APAC region decreased 1% during the three months ended March 31, 2024 compared to the same period last year.

Product revenue decreased 18% during the three months ended March 31, 2024 compared to the same period last year, due to the decrease in hardware revenue, partially offset by the increase in software revenue. The decrease in hardware revenue was impacted by the backlog drawdown in the prior period, continued product digestion of previously placed orders, reduced net prices on certain products and macroeconomic conditions. When we fulfill, ship and bill during a quarter to satisfy backlog, this increases our aggregate billings and revenue during any particular quarter. As the supply chain challenges normalize, the growth comparisons versus prior quarters where backlog contributed more to billings become more challenging. For the remainder of 2024, we expect product revenue growth rates will continue to be impacted by drawdown of backlog in earlier periods and earlier pricing actions.

Service revenue growth during the three months ended March 31, 2024 was 24%, as compared to the same period last year, was primarily driven by the strength of our security subscription revenue, which grew 27%. The increase was primarily due to the recognition of revenue from our growing deferred revenue balance related to FortiGuard and other security subscriptions delivered to on-premise and cloud-based environments and strength in unified SASE and SecOps. We expect our service revenue to continue to grow for the remainder of 2024, with growth opportunities that include unified SASE and SecOps offerings. While service revenue is expected to grow, we anticipate that the growth rates will ease for the remainder of 2024.

Our billings were diversified on a geographic basis. During the three months ended March 31, 2024, six countries represented approximately 50% of our billings and the remaining 50% in the aggregate were from over 100 countries that each individually contributed less than 3% of our billings.

Operating expenses as a percentage of revenue decreased 0.1 percentage points during the three months ended March 31, 2024 compared to the same period last year, mainly driven by a decrease in marketing expense. Headcount decreased to 13,522 employees and contractors as of March 31, 2024, a 0.3% decrease compared to 13,568 as of December 31, 2023.

Impact of Macroeconomic Developments

Our overall performance depends in part on worldwide economic and geopolitical conditions, such as the war in Ukraine and the Israel-Hamas war or tensions between China and Taiwan, and their impact on customer behavior. Worsening economic conditions, including inflation, higher interest rates, slower growth, any recession, fluctuations in foreign exchange rates and other changes in economic conditions, may result in decreased sales productivity and growth and adversely affect our results of operations and financial performance. We have seen certain impacts on our business, results of operations, financial condition, cash flows, liquidity and capital and financial resources such as longer sales cycles, delayed purchases and increased commitments with certain suppliers and increased inventory and inventory purchase commitment reserves.

Worsening economic conditions may have a material negative impact on our results in future periods and may negatively impact our billings, revenue and costs, and may decrease growth and profitability. The extent of the impact of economic conditions on our operational and financial performance will depend on ongoing developments, including those discussed above and others identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. Given the dynamic nature of these circumstances, the full impact of worsening economic conditions on our business and operations, results of operations, financial condition, cash flows, liquidity and capital and financial resources cannot be reasonably estimated at this time.

Business Model

We typically sell our security solutions to distributors that sell to networking security focused resellers and to certain service providers and managed security service providers (“MSSPs”), who, in turn, sell to end-customers or use our products and services to provide hosted solutions to other enterprises. At times, we also sell directly to certain large enterprise customers, large service providers and major systems integrators. In addition, we sell our software licenses and services via different cloud service provider platforms, both directly and through our channel partners. Our end-customers are located in over 100 countries and include small, medium and large enterprises and government organizations across a wide range of industries, including financial services, government, healthcare, manufacturing, retail, technology and telecommunications. An end-customer
27

Table of Contents
deployment may involve as few as one or as many as thousands of secure networking, unified SASE and security operations technology products, depending on the end-customer’s size and security requirements.

Our customers purchase our hardware products, software licenses and cloud-delivered solutions, as well as our FortiGuard and other security subscription and FortiCare technical support services. We generally invoice at the time of our sale for the total price of the products and services. Standard payment terms are generally no more than 60 days, though we may offer extended payment terms to certain distributors or related to certain transactions.

We also offer our products hosted in our own data centers, PoPs and through co-locations and major cloud service providers, including Amazon Web Services, Microsoft Azure and Google Cloud. We have also recognized revenue from customers who deploy our products in a bring-your-own-license (“BYOL”) arrangements at cloud service providers or at private clouds. In a BYOL arrangement, a customer purchases a software license through our channel partners and deploys the software in a cloud provider’s environment, in third-party clouds or in their private cloud.

Key Metrics

We monitor several key metrics, including the key financial metrics set forth below, in order to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The following table summarizes revenue, deferred revenue, billings (non-GAAP), net cash provided by operating activities, and free cash flow (non-GAAP). We discuss revenue below under “Results of Operations,” and we discuss net cash provided by operating activities below under “—Liquidity and Capital Resources.” Deferred revenue, billings (non-GAAP), and free cash flow (non-GAAP) are discussed immediately below the following table:
 Three Months Ended Or As Of
March 31, 2024March 31, 2023
(in millions)
Revenue$1,353.3 $1,262.3 
Deferred revenue$5,789.9 $4,880.9 
Billings (non-GAAP)$1,407.2 $1,502.9 
Net cash provided by operating activities$830.4 $677.5 
Free cash flow (non-GAAP)$608.5 $647.2 

Deferred revenue. Our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue. The majority of our deferred revenue balance consists of the unrecognized portion of service revenue from FortiGuard and other security subscriptions and FortiCare technical support service contracts, which is recognized as revenue ratably over the service term. We monitor our deferred revenue balance, short-term and total deferred revenue growth and the mix of short-term and long-term deferred revenue because deferred revenue represents a significant portion of free cash flow and of revenue to be recognized in future periods. Deferred revenue was $5.79 billion as of March 31, 2024, an increase of $54.9 million, or 1%, from December 31, 2023. Short term deferred revenue was $2.91 billion as of March 31, 2024, an increase of $63.3 million, or 2%, from December 31, 2023.

Billings (non-GAAP). We define billings as revenue recognized 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 several limitations related to the use of billings instead of GAAP revenue. First, billings include amounts that have not yet been recognized as revenue and are impacted by the term of FortiGuard security subscription and FortiCare and other 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. Total billings were $1.41 billion for the three months ended March 31, 2024, a decrease of 6% compared to $1.50 billion in the same period last year.

Our backlog fluctuated over quarters and any decrease in growth or negative growth of in-quarter billings and revenue may not be reflected by our aggregate billings and revenue. When we have fulfilled, shipped and billed during a quarter to satisfy backlog, this increased our aggregate billings and revenue during any particular quarter, and as the supply chain challenges normalized, the growth comparisons versus prior quarters where backlog contributed more to billings became more challenging.

28

Table of Contents
A reconciliation of revenue, the most directly comparable financial measure calculated and presented in accordance with GAAP, to billings is provided below:
 Three Months Ended
March 31, 2024March 31, 2023
(in millions)
Billings:
Revenue$1,353.3 $1,262.3 
Add: Change in deferred revenue54.9 240.6 
Less: Deferred revenue balance acquired in business combination(1.0)— 
Total billings (non-GAAP)$1,407.2 $1,502.9 

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 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 condensed consolidated statements of cash flows and under “—Liquidity and Capital Resources” 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. A reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP, to free cash flow is provided below:
 Three Months Ended
March 31, 2024March 31, 2023
(in millions)
Free Cash Flow:
Net cash provided by operating activities$830.4 $677.5 
Less: Purchases of property and equipment(221.9)(30.3)
Free cash flow (non-GAAP)$608.5 $647.2 
Net cash used in investing activities
$(270.3)$(42.4)
Net cash used in financing activities$(30.3)$(13.7)

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, cost of revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

There were no material changes to our critical accounting policies and estimates as of and for the three months ended March 31, 2024, as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K filed with the SEC on February 26, 2024 (the “Form 10-K”).

See Note 1 of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements.

29

Table of Contents
Results of Operations

Three Months Ended March 31, 2024 and 2023

Revenue
 Three Months Ended  
March 31,
2024
March 31,
2023
  
Amount% of
Revenue
Amount% of
Revenue
Change% Change
(in millions, except percentages)
Revenue: