Fortinet Reports Fourth Quarter And Full Year 2015 Financial Results

Company grows Q415 billings 35% and FY15 billings 37% year over year 

Fortinet®, a global leader in high performance cyber security solutions, today announced financial results for the fourth quarter and full year ended December 31, 2015.

“Fortinet’s solid fourth quarter results help close a strong year, highlighted by our ability to achieve, for the full year, 37% billings growth and reach more than $1 billion in billings and revenue,” said Ken Xie, founder, chairman and chief executive officer. “Very few companies have achieved this type of growth at Fortinet’s scale and it is due to our strong technology advantage and early returns on our customer acquisition and expansion strategy. With cyber security remaining at the forefront of enterprise IT priorities, Fortinet is well-positioned to grow and gain global market share in 2016 and beyond.”

Financial Highlights for the Fourth Quarter of 2015

• Billings1: Total billings were $380.9 million for the fourth quarter of 2015, an increase of 35% compared to $282.7 million in the same quarter of 2014. Total billings for the fourth quarter of 2015 of $380.9 million included billings of $16.5 million from products and services pursuant to our July 2015 acquisition of Meru Networks. Excluding Meru, our billings were $364.4 million, an increase of 29% compared to the same quarter last year.

• Revenue: Total revenue was $296.5 million for the fourth quarter of 2015, an increase of 32% compared to $224.0 million in the same quarter of 2014. Total revenue for the fourth quarter of 2015 of $296.5 million included Meru’s revenue of $16.0 million. Excluding Meru, our revenue was $280.5 million, an increase of 25% compared to the same quarter last year.

Within total revenue, product revenue was $144.8 million, an increase of 31% compared to $110.7 million in the same quarter of 2014. Product revenue included revenue from Meru of $12.7 million. Service revenue was $151.8 million, an increase of 34% compared to $113.3 million in the same quarter of 2014. Service revenue included revenue from Meru of $3.3 million.

• Deferred Revenue: Total deferred revenue was $791.3 million as of December 31, 2015, an increase of $84.4 million compared to $706.9 million as of September 30, 2015. Total deferred revenue as of December 31, 2015 of $791.3 million included deferred revenue relating to Meru of $14.5 million, or 2% of total deferred revenue. Excluding Meru, our deferred revenue was $776.8 million, an increase of $83.9 million or 12% compared to September 30, 2015.

• Cash and Cash Flow2: As of December 31, 2015, cash, cash equivalents and investments were $1.16 billion, compared to $1.17 billion as of September 30, 2015. In the fourth quarter of 2015, cash flow from operations was $68.6 million compared to $35.4 million in the same quarter of 2014. Free cash flow1 was $60.2 million during the fourth quarter of 2015 compared to $30.0 million in the same quarter of 2014.

• GAAP Operating Income: GAAP operating income was $12.9 million for the fourth quarter of 2015, representing a GAAP operating margin of 4%. GAAP operating income was $19.9 million for the same quarter of 2014, representing a GAAP operating margin of 9%.

• Non-GAAP Operating Income1: Non-GAAP operating income was $47.6 million for the fourth quarter of 2015, representing a non-GAAP operating margin of 16%. Non-GAAP operating income was $36.8 million for the same quarter of 2014, representing a non-GAAP operating margin of 16%.

• GAAP Net Income or Loss and Diluted Net Income or Loss Per Share: GAAP net loss was $2.5 million for the fourth quarter of 2015, compared to GAAP net income of $6.8 million for the same quarter of 2014. GAAP diluted net loss per share was $0.01 for the fourth quarter of 2015, compared to GAAP diluted net income per share of $0.04 for the same quarter of 2014.

• Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $32.4 million for the fourth quarter of 2015, compared to non-GAAP net income of $24.1 million for the same quarter of 2014. Non-GAAP diluted net income per share was $0.18 for the fourth quarter of 2015, compared to $0.14 for the same quarter of 2014.

Financial Highlights for the Full Year 2015                                 • Billings1: Total billings were $1.23 billion for 2015, an increase of 37% compared to $896.5 million in 2014. Total billings in 2015 of $1.23 billion included Meru’s billings from July 8, 2015 to December 31, 2015 of $32.8 million, or 3% of total billings. Excluding Meru, our billings were $1.20 billion, an increase of 34% compared to 2014.

• Revenue: Total revenue was $1.01 billion for 2015, an increase of 31% compared to $770.4 million in 2014. Total revenue in 2015 of $1.01 billion included Meru’s revenue from July 8, 2015 to December 31, 2015 of $28.1 million, or 3% of total revenue. Excluding Meru, our revenue was $981.2 million, an increase of 27% compared to 2014.

Within total revenue, product revenue was $476.8 million, an increase of 32% compared to $360.6 million in 2014. Product revenue included revenue from Meru of $22.2 million. Service revenue was $532.5 million, an increase of 30% compared to $409.8 million in 2014. Service revenue included revenue from Meru of $5.8 million.

• Deferred Revenue: Total deferred revenue was $791.3 million as of December 31, 2015, an increase of $232.5 million compared to $558.8 million as of December 31, 2014. Total deferred revenue as of December 31, 2015 of $791.3 million included deferred revenue relating to Meru of $14.5 million, or 2% of total deferred revenue. Excluding Meru, our deferred revenue was $776.8 million, an increase of $218.0 million or 39% compared to December 31, 2014.

• Cash and Cash Flow2: As of December 31, 2015, cash, cash equivalents and investments were $1.16 billion, compared to $991.7 million as of December 31, 2014. In 2015, cash flow from operations was $282.5 million compared to $196.6 million in 2014. Free cash flow1 was $245.2 million in 2015 compared to $164.4 million in 2014.

• GAAP Operating Income: GAAP operating income was $14.9 million for 2015, representing a GAAP operating margin of 1%. GAAP operating income was $59.3 million for 2014, representing a GAAP operating margin of 8%.

• Non-GAAP Operating Income1: Non-GAAP operating income was $133.3 million for 2015, representing a non-GAAP operating margin of 13%. Non-GAAP operating income was $122.1 million for 2014, representing a non-GAAP operating margin of 16%.

• GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $8.0 million for 2015, compared to GAAP net income of $25.3 million for 2014. GAAP diluted net income per share was $0.05 for 2015, compared to $0.15 for 2014.

• Non-GAAP Net Income and Diluted Net Income Per Share1: Non-GAAP net income was $89.4 million for 2015, compared to non-GAAP net income of $80.8 million for 2014. Non-GAAP diluted net income per share was $0.51 for 2015, compared to $0.48 for 2014.

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

2 During the fourth quarter and year ended December 31, 2015, we repurchased $60.0 million of our common stock under our share repurchase program. During the fourth quarter and year ended December 31, 2014, we repurchased $5.4 million and $38.6 million, respectively, of our common stock under our share repurchase program.

Conference Call Details
Fortinet will host a conference call today, January 28, 2016, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its financial results. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 20590459. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet’s website at http://investor.fortinet.com and a replay will be archived and accessible at http://investor.fortinet.com/events.cfm. A replay of this conference call can also be accessed through February 4, 2016, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID# 20590459.

Following Fortinet’s financial results conference call, the Company will host an additional question-and-answer session at 3:30 p.m. Pacific Time (6:30 p.m. Eastern Time) to provide an opportunity for financial analysts and investors to ask more detailed questions. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 20592139. This follow-up call will be webcast live and accessible at http://investor.fortinet.com, and a replay will be archived and available after the call at http://investor.fortinet.com/events.cfm. A replay of this conference call will also be available through February 4, 2016 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID # 20592139.