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  • Billings of $106.7 million, up 34% year over year
  • Revenues of $93.3 million, up 34% year over year
  • GAAP EPS of $0.171
  • Non-GAAP EPS of $0.171
  • Free cash flow of $36.5 million

SUNNYVALE, Calif. – April 27, 2011 – Fortinet® (NASDAQ: FTNT) – a leading network security provider and the worldwide leader in unified threat management (UTM) solutions – today announced financial results for the first quarter ended March 31, 2011.

Financial Highlights for the First Quarter of 2011

  • Billings2: Total billings were $106.7 million for the first quarter of 2011, an increase of 34% compared to the first quarter of 2010.  We define billings, a non-GAAP financial measure, as revenue recognized during the period plus the change in deferred revenue from the beginning to the end of the period.
  • Revenue: Total revenue was $93.3 million for the first quarter of 2011, an increase of 34% compared to the first quarter of 2010.  Within total revenue, product revenue was $40.2 million, an increase of 48% compared to the first quarter of 2010.  Services revenue was $48.7 million, an increase of 26% compared to the first quarter of 2010.  Ratable product and services revenue was $4.4 million, an increase of 9% compared to the first quarter of 2010.  Revenue includes a $3.3 million positive impact related to the implementation of new revenue recognition rules.1
  • Deferred Revenue: Deferred revenue was $266.0 million as of March 31, 2011, an increase of 26% compared to deferred revenue as of March 31, 2010, and up $13.4 million from December 31, 2010.
  • Cash and Cash Flow: As of March 31, 2011, cash, cash equivalents and investments were $432.7 million, compared to $387.5 million as of December 31, 2010.  Cash flow from operations was $40.2 million for the first quarter of 2011, compared to $21.8 million for the first quarter of 2010.  In the first quarter of 2011, free cash flow was $36.5 million, compared to $20.8 million for the first quarter of 2010.  We define free cash flow, a non-GAAP financial measure of liquidity, as net cash provided by operating activities less capital expenditures and the upfront payment related to the patent settlement.2
  • GAAP Operating Income: GAAP operating income was $17.4 million for the first quarter of 2011, representing a GAAP operating margin of 19% and an increase of 160% compared to the first quarter of 2010. Excluding the impact of the new revenue recognition rules and its related tax effects, operating income would have been $15.0 million during the first quarter of 2011, representing an operating margin of 17%.
  • • Non-GAAP2 Operating Income: Non-GAAP operating income was $20.0 million for the first quarter of 2011, representing a non-GAAP operating margin of 21% and an increase of 126% compared to the first quarter of 2010.  Non-GAAP operating income and operating margin exclude stock-based compensation expense and income from patent settlement. Excluding the impact of the new revenue recognition rules and its related tax effects, non-GAAP operating income would have been $17.6 million during the first quarter of 2011, representing a non-GAAP operating margin of 20%.
  • GAAP Net Income and EPS: GAAP net income was $13.6 million for the first quarter of 2011, based on a 25% tax rate for the quarter.  This compares to GAAP net income of $4.2 million for the first quarter of 2010.  GAAP diluted EPS was $0.17 for the first quarter of 2011, based on 81.4 million weighted-average diluted shares outstanding, compared to $0.06 for the first quarter of 2010, based on 74.9 million weighted-average diluted shares outstanding. Excluding the impact of the new revenue recognition rules and its related tax effects, EPS would have been $0.14 during the first quarter of 2011.
  • Non-GAAP2 Net Income and EPS: Non-GAAP net income was $13.9 million for the first quarter of 2011, based on a 33% tax rate for the quarter.  Non-GAAP net income for the first quarter of 2010 was $5.8 million, based on a 35% tax rate.  Non-GAAP diluted EPS was $0.17 for the first quarter of 2011 based on 81.4 million weighted-average diluted shares outstanding, compared to $0.08 for the first quarter of 2010 based on 74.9 million weighted-average diluted shares outstanding.  Non-GAAP net income and non-GAAP EPS exclude stock-based compensation expense, income from patent settlement and the related tax effects.  Excluding the impact of the new revenue recognition rules and its related tax effects, non-GAAP EPS would have been $0.15 during the first quarter of 2011.

1 Effective January 1, 2011, Fortinet prospectively adopted the Financial Accounting Standards Board’s new accounting standards related to software revenue recognition for applicable transactions originating or materially modified after December 31, 2010. Adoption of the new accounting standards changes how we account for certain items, particularly ratable revenues.2A 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.”

Management Commentary:

Ken Xie, founder, president and chief executive officer of Fortinet, stated: “The first quarter marked a strong start to the year for Fortinet with solid execution and a healthy pipeline of business.  Our recent investments in our global sales organization and sharpened focus on penetrating the large enterprise have resulted in significant momentum in our business across geographic regions, with especially strong performance in the Americas.  Our ability to demonstrate the price performance advantage of our solutions and to introduce new cutting edge technologies continues to strengthen our competitive position in the marketplace, particularly as demand trends in the broader UTM market accelerate.”

Ken Goldman, chief financial officer of Fortinet, stated: “We are very pleased with our solid first quarter results, which exceeded our expectations across the board.  Our ability to successfully execute our global go-to-market strategy combined with the underlying strength of our business model drove strong top line results, healthy profitability levels, and substantial cash flow generation.  We remain focused on investing in our sales and R&D resources in order to expand our reach into new high growth verticals and emerging markets.”

Stock SplitFortinet also announced today that its Board of Directors has approved a two-for-one stock split of the company’s outstanding shares of common stock to be effected in the form of a stock dividend. The stock split will entitle each stockholder of record at the close of business on May 9, 2011, to receive one additional share for every one share owned as of that date. The additional shares resulting from the stock split are expected to be distributed by the company’s transfer agent on or about June 1, 2011. Upon the completion of the stock split, Fortinet will have approximately 153 million shares of common stock outstanding.

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