Fortinet reports fourth quarter, full year 2023 financial results

Fortinet CEO, Ken Xie.

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• Total revenue of $1.42 billion, up 10.3% year over year
• Billings of $1.86 billion, up 8.5% year over year
• GAAP operating income of $385 million
• Non-GAAP operating income of $454 million
• GAAP operating margin of 27.2%
• Non-GAAP operating margin of 32.0%
• Cash paid for share repurchases of $896 million

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

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

“In the fourth quarter of 2023, security operations billings grew 44% year over year and SASE billings increased 19% year over year, driven by our successful sales strategy shift and the improved execution of our sales teams,” said Ken Xie, Founder, Chairman and Chief Executive Officer of Fortinet. “Our platform strategy is resonating with enterprises worldwide as we are a leader in secure networking and are the number one firewall vendor for units shipped, with FortiGate accounting for over half of the global deployment. Fortinet is well-positioned to consolidate the security capabilities of our over half a million customers onto our integrated FortiOS operating system, which encompasses over 30 networking and security functions spanning on-premises and cloud environments.”

• Revenue: Total revenue was $1.42 billion for the fourth quarter of 2023, an increase of 10.3% compared to $1.28 billion for the same quarter of 2022.
• Service revenue: Service revenue was $927.0 million for the fourth quarter of 2023, an increase of 24.8% compared to $742.9 million for the same quarter of 2022.
• Product revenue: Product revenue was $488.1 million for the fourth quarter of 2023, a decrease of 9.6% compared to $540.1 million for the same quarter of 2022.
• Billings: Total billings were $1.86 billion for the fourth quarter of 2023, an increase of 8.5% compared to $1.72 billion for the same quarter of 2022.
• GAAP operating income and margin: GAAP operating income was $385.4 million for the fourth quarter of 2023, representing a GAAP operating margin of 27.2%. GAAP operating income was $357.8 million for the same quarter of 2022, representing a GAAP operating margin of 27.9%.
• Non-GAAP operating income and margin: Non-GAAP operating income was $453.5 million for the fourth quarter of 2023, representing a non-GAAP operating margin of 32.0%. Non-GAAP operating income was $417.6 million for the same quarter of 2022, representing a non-GAAP operating margin of 32.5%.
• GAAP net income and diluted net income per share attributable to Fortinet: GAAP net income was $310.9 million for the fourth quarter of 2023, compared to GAAP net income of $313.8 million for the same quarter of 2022. GAAP diluted net income per share was $0.40 for the fourth quarter of 2023, based on 772.3 million diluted weighted-average shares outstanding, compared to GAAP diluted net income per share of $0.40 for the same quarter of 2022, based on 791.8 million diluted weighted-average shares outstanding.
• Non-GAAP net income and diluted net income per share attributable to Fortinet: Non-GAAP net income was $392.0 million for the fourth quarter of 2023, compared to non-GAAP net income of $349.7 million for the same quarter of 2022. Non-GAAP diluted net income per share was $0.51 for the fourth quarter of 2023, based on 772.3 million diluted weighted-average shares outstanding, compared to $0.44 for the same quarter of 2022, based on 791.8 million diluted weighted-average shares outstanding.
• Cashflow: Cashflow from operations was $191.7 million for the fourth quarter of 2023, compared to $528.1 million for the same quarter of 2022.
• Free cashflow: Free cashflow was $164.8 million for the fourth quarter of 2023, compared to $497.2 million for the same quarter of 2022.
• Share repurchase program: During the three months ended 31 December 2023, Fortinet repurchased 16.8 million shares of its common stock at an average price of $53.29 per share and for an aggregate purchase price of $895.3 million. In January 2024, Fortinet’s board of directors authorised a $500.0 million increase in the authorised share repurchase amount under our share repurchase program. As of 6 February 2024, approximately $1.03 billion remained available for future share repurchases under our share repurchase program.

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

For the first quarter of 2024, Fortinet currently expects:

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

For the fiscal year 2024, Fortinet currently expects:

• Revenue in the range of $5.715 billion to $5.815 billion
• Service revenue in the range of $3.920 billion to $3.970 billion
• Billings in the range of $6.400 billion to $6.600 billion
• Non-GAAP gross margin in the range of 76.0% to 78.0%
• Non-GAAP operating margin in the range of 25.5% to 27.5%
• Diluted non-GAAP net income per share attributable to Fortinet in the range of $1.65 to $1.70, assuming a non-GAAP effective tax rate of 17%. This assumes a diluted share count of 785 million to 795 million

These statements are forward looking and actual results may differ materially. Refer to the forward-looking statements section below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Our guidance with respect to non-GAAP financial measures excludes stock-based compensation, amortisation of acquired intangible assets and gain on intellectual property matters. We have not reconciled our guidance with respect to non-GAAP financial measures to the corresponding GAAP measures because certain items that impact these measures are uncertain or out of our control, or cannot be reasonably predicted. Accordingly, a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort.

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

Fortinet will host a conference call today at 1:30pm Pacific Time (4:30pm Eastern Time) to discuss the earnings results. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet’s website at https://investor.fortinet.com and a replay will be archived and accessible at https://investor.fortinet.com/events-and-presentations.

First quarter 2024 conference participation schedule:

• Morgan Stanley Technology, Media & Telecom Conference, 5 March 2024

Members of Fortinet’s management team are expected to present at this conference and discuss the latest company strategies and initiatives. Fortinet’s conference presentations are expected to be available via webcast on the company’s web site. To access the most updated information, pre-register and listen to the webcast of each event, please visit the Investor Presentation & Events page of Fortinet’s website at https://investor.fortinet.com/events-and-presentations. The schedule is subject to change.