Summary
Fortinet closed the first quarter of fiscal 2022 with total revenue of $954.8 million, up 34.4% from the prior-year quarter. Gross profit was $701.0 million, up 26.6%. Operating income was $151.0 million, up 24.2%. Net income was $138.4 million, up 29.1%. Diluted EPS was $0.84, up $0.20 or 31.2%. Gross margin was 73.4%, down 4.5 percentage points. Operating margin was 15.8%, down 1.3 percentage points. On a non-GAAP basis, operating income was $210.2 million, operating margin was 22.0%, and diluted EPS was $0.94. Operating cash flow was $396.1 million, up 25.4%. Capital expenditures were $122.6 million, up 135.3%. Free cash flow was $273.5 million.
Demand metrics held up well. Non-GAAP billings were $1.16 billion, up 36.4% from $850.6 million. Bookings were $1.28 billion, up 49.9% from $851.6 million. Backlog was $278.3 million as of March 31, 2022, an increase of $116.4 million from $161.9 million as of December 31, 2021. Current deferred revenue was $1.89 billion, up 29.2%. Remaining performance obligations were $3.66 billion, up 33.1%. Management said the company increased backlog by $116 million in the quarter, which improved visibility into future business. Core Platform products accounted for more than half of product growth, and the company also pointed to strength in OT solutions and secure access products. Service growth came from FortiCare technical support and FortiGuard security subscriptions.
Guidance for the second quarter of 2022 calls for sales of $1.005 billion to $1.035 billion and billings of $1.225 billion to $1.265 billion. Non-GAAP gross margin is guided to 74.5% to 76.0% and non-GAAP operating margin to 22.0% to 23.5%. Non-GAAP diluted EPS is guided to $1.05 to $1.10, assuming a non-GAAP effective tax rate of 17% and a diluted share count of 165 million to 167 million. For the full fiscal year 2022, guidance calls for sales of $4.350 billion to $4.400 billion and billings of $5.500 billion to $5.580 billion. Non-GAAP gross margin is guided to 74.0% to 76.0% and non-GAAP operating margin to 24.0% to 26.0%. Full year non-GAAP diluted EPS is guided to $5.00 to $5.15, assuming a non-GAAP effective tax rate of 17% and a diluted share count of 166 million to 168 million.
Risks remain significant. Fortinet cited supply chain constraints, global chip and component shortages, higher costs for components and shipping, the COVID-19 pandemic, the war in Ukraine, its suspension of operations in Russia, and increased inflation in certain geographies. It also flagged competition, foreign currency risk, and longer sales cycles for larger customers. The company estimated capital expenditures of $150.0 million to $180.0 million in the rest of 2022. Purchase commitments totaled $1.37 billion as of March 31, 2022. Headcount was 10,860 employees and contractors as of March 31, 2022, up 7% from 10,195 as of December 31, 2021. Fortinet repurchased 2.3 million shares for $691.2 million during the quarter, leaving $829.6 million available under the repurchase program as of March 31, 2022. Cash, cash equivalents, short-term and long-term investments and marketable equity securities were $2.50 billion as of March 31, 2022. Long-term debt was $988.9 million and working capital was $697.8 million.
The company expects research and development, sales and marketing, and general and administrative expenses to increase in absolute dollars during the remainder of 2022. The gross margin decline came from the consolidation of Alaxala and a shift in mix toward lower margin product sales and away from higher margin service sales. CEO Ken Xie said the results reflect strong demand across the portfolio and that teams navigated a challenging supply chain environment.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $954.8M | $963.6M | -0.9% | $710.3M | +34.4% |
| Gross profit | $701.0M | $735.3M | -4.7% | $553.7M | +26.6% |
| Gross margin | 73.4% | 76.3% | -2.9 pp | 78.0% | -4.5 pp |
| Research & development | $124.9M | $112.6M | +10.9% | $97.2M | +28.5% |
| Sales & marketing | $387.6M | $367.7M | +5.4% | $304.0M | +27.5% |
| General & administrative | $38.6M | $41.3M | -6.5% | $32.0M | +20.6% |
| Total operating expenses | $550.0M | $520.4M | +5.7% | $432.1M | +27.3% |
| Operating income (loss) | $151.0M | $214.9M | -29.7% | $121.6M | +24.2% |
| Operating margin | 15.8% | 22.3% | -6.5 pp | 17.1% | -1.3 pp |
| Net income (loss) | $138.4M | $198.9M | -30.4% | $107.2M | +29.1% |
| Net margin | 14.5% | 20.6% | -6.1 pp | 15.1% | -0.6 pp |
| Diluted EPS | $0.84 | $1.19 | -$0.35 | $0.64 | +$0.20 |
Risks
Ongoing global chip and component shortages and increased costs are disrupting production and inventory, with total gross margin down 4.5 percentage points in FY2022 Q1 versus FY2021 Q1. MD&A notes the company does not have enough inventory to promptly meet all demand and has increased supplier commitments.
The war in Ukraine and suspension of sales, support and operations in Russia create uncertainty, potential unpaid receivables, sanctions compliance costs, and reduced demand in affected regions. FY2022 Q1 had no material adverse impact, but future impact cannot be fully assessed.
Substantially all revenue depends on channel partners, and one distributor accounted for 29% of total net accounts receivable as of March 31, 2022, while six distributor customers were 64% in aggregate. The largest distributor is private equity-backed, limiting visibility into its financial condition.
Inventory management is complex amid supply chain disruption, and backlog was $278.3 million as of March 31, 2022, up $116.4 million from December 31, 2021. Insufficient inventory may delay revenue while excess inventory may harm gross margins.
Efforts to increase sales to large and medium-sized businesses, service providers, and government organizations involve longer sales cycles, often over 12 months, uneven traction, and greater competition. MD&A highlights continued sales and marketing investment to support growth.
Intense competition from larger and cloud-focused security vendors, including Zscaler, Cisco, Palo Alto Networks, and others, may lead to price reductions, fewer orders, and loss of market share. Competitors can bundle products and have greater resources.
Inflation, possible stagflation, recession, and reduced information technology spending could lower demand, lengthen sales cycles, and increase component costs. MD&A cites increased inflation and the war in Ukraine as ongoing uncertainties.
The company depends on senior management, especially Ken Xie and Michael Xie, and on hiring and retaining sales, support, and engineering personnel. The return-to-office plan may lead to attrition or difficulty in hiring.
As of March 31, 2022, $988.9 million of senior notes were outstanding, and interest expense increased 246% in FY2022 Q1 versus FY2021 Q1. Covenants and refinancing risks could affect liquidity and flexibility.
International operations are subject to complex tax, trade, export control, and sanctions rules, with ongoing tax audits in the United Kingdom, Canada, Germany, and other jurisdictions focused on profit allocation. Changes in tax laws or OECD proposals could raise the effective tax rate.
Capital expenditures were up 135.3% to $122.6 million in FY2022 Q1 versus FY2021 Q1, with estimated spending of $150.0 million to $180.0 million for the rest of 2022. Real estate holdings and development plans create impairment or accelerated depreciation risk.
SaaS KPIs
All quarters →Billings
Free Cash Flow
Non-GAAP Operating Margin
Deferred Revenue
Non-GAAP Operating Income
Backlog
Bookings
Summary, forecast, risks and KPIs are extracted from Fortinet, Inc.'s SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.