Summary
Fortinet's FY2021 Q2 revenue was $801.1 million, up 29.7% from the prior-year quarter. Gross profit was $614.2 million, up 27.3%. Operating income reached $147.5 million, up 24.2%. Net income was $137.5 million, up 20.8%, and diluted EPS was $0.82, up 18.8%. Gross margin was 76.7%, down 1.5 percentage points from the prior-year quarter, and operating margin was 18.4%, down 0.8 percentage points. The mix shift toward lower-margin product revenue pressured gross margin, while operating expenses as a percentage of revenue stayed flat excluding gains on an IP matter. For the six months ended June 30, 2021, revenue was $1,511.4 million, up 26.4%; operating income was $269.1 million, up 14.3%; net income was $244.7 million, up 12.0%; and diluted EPS was $1.47, up 14.0%.
Cash generation was strong. Operating cash flow for the quarter was $418.2 million, up 69.3% from the prior-year quarter. Capital expenditures were $23.5 million, down 23.9%. Free cash flow, a non-GAAP measure, was $394.7 million, which the company said was a quarterly record, compared with $216.1 million in the prior-year quarter. Billings, also non-GAAP, were $960.9 million, up 35% from $711.5 million. For the six months ended June 30, 2021, operating cash flow was $734.1 million, up 29.6%, and capital expenditures were $75.6 million, up 29.2%. Short-term deferred revenue was $1,533.0 million, up 20.2% from the prior-year quarter, and remaining performance obligations were $2,910.0 million, up 25.4%.
Operational momentum came from broad demand. The company said it delivered its highest quarterly billings growth in over five years, led by the Americas and EMEA regions. FortiGate products accounted for more than half of product revenue growth in the quarter. Secure SD-WAN contributed, but the main driver was strong demand for the wider set of operating system capabilities embedded in FortiGate products. Non-GAAP operating margin was 25.4%, and non-GAAP diluted EPS was $0.95. Headcount was 9,043 employees and contractors as of June 30, 2021, up 5% from March 31, 2021 and up 10% from December 31, 2020. Cash, cash equivalents and investments totaled $3.36 billion as of June 30, 2021. During the six months ended June 30, 2021, the company repurchased 0.5 million shares for $91.6 million. In March 2021, it issued $1.0 billion of senior notes, and long-term debt was $987.5 million as of June 30, 2021. Average service contract duration increased by about two months in Q2 2021 compared with Q2 2020.
Guidance points to continued growth. For the third quarter of 2021, the company guided revenue of $800 million to $815 million, billings of $940 million to $960 million, non-GAAP gross margin of 77.5% to 78.5%, non-GAAP operating margin of 24.5% to 25.5%, and diluted non-GAAP EPS of $0.90 to $0.95. That assumes a non-GAAP effective tax rate of 21% and a diluted share count of 169 million to 171 million. For the full fiscal year 2021, it guided revenue of $3.210 billion to $3.250 billion, billings of $3.870 billion to $3.920 billion, non-GAAP gross margin of 77.0% to 79.0%, non-GAAP operating margin of 25.0% to 27.0%, and diluted non-GAAP EPS of $3.75 to $3.90. That assumes a non-GAAP effective tax rate of 21% and a diluted share count of 168 million to 170 million. The company said it raised full-year revenue and billings guidance.
Risks remain. The 10-Q cites the COVID-19 pandemic and its variants, return-to-office plans, global chip and component shortages, manufacturing capacity, inventory management, longer sales cycles, competition and pricing pressure, foreign currency, tariffs and trade disputes, geopolitical developments, litigation, and cybersecurity threats. The filing also disclosed a correction of prior period financial data related to an immaterial error in revenue recognition for certain FortiCare support service contracts, which understated prior-year service revenue, gross profit, operating income and net income. The company said the correction did not affect operating cash flow, billings or free cash flow. Interest income decreased and interest expense increased in the quarter because of the senior notes issued in March 2021.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $801.1M | $710.3M | +12.8% | $615.5M | +30.2% |
| Gross profit | $614.2M | $553.7M | +10.9% | $480.4M | +27.9% |
| Gross margin | 76.7% | 78.0% | -1.3 pp | 78.0% | -1.4 pp |
| Research & development | $106.6M | $97.2M | +9.7% | $82.1M | +29.8% |
| Sales & marketing | $326.9M | $304.0M | +7.5% | $253.8M | +28.8% |
| General & administrative | $34.4M | $32.0M | +7.5% | $28.9M | +19.0% |
| Total operating expenses | $466.7M | $432.1M | +8.0% | $363.7M | +28.3% |
| Operating income (loss) | $147.5M | $121.6M | +21.3% | $116.7M | +26.4% |
| Operating margin | 18.4% | 17.1% | +1.3 pp | 19.0% | -0.6 pp |
| Net income (loss) | $137.5M | $107.2M | +28.3% | $112.1M | +22.7% |
| Net margin | 17.2% | 15.1% | +2.1 pp | 18.2% | -1.1 pp |
| Diluted EPS | $0.82 | $0.64 | +$0.18 | $0.68 | +$0.14 |
Risks
Risk factors highlight chip and component shortages, contract manufacturer capacity constraints and global supply chain costs that may cause lost sales, delayed revenue or harm gross margins. MD&A notes Fortinet increased on-hand stock of certain products to mitigate supply chain risk, and total gross margin decreased 1.5 percentage points in the quarter ended June 30, 2021 versus prior year.
Substantially all revenue comes through channel partners, and Exclusive Networks accounted for 32% of total net accounts receivable as of June 30, 2021 and 31% and 32% of total revenue for the three and six months ended June 30, 2021. Six distributor customers were 66% of total net accounts receivable in aggregate.
Risk factors say sales to large and medium-sized end-customers, service providers, MSSPs and government organizations involve longer and less predictable sales cycles, often longer than 12 months, and service providers/MSSPs are the largest industry vertical. MD&A reports sales cycles for some customers appeared to lengthen during COVID-19 and more recently may have accelerated.
Risk factors cite intense competition across cybersecurity, including cloud-based providers such as Zscaler and other large vendors with greater resources and broader product lines that may bundle or discount. MD&A says revenue grew 29.7% in the quarter ended June 30, 2021 versus prior year, but the competitive landscape remains dynamic.
Risk factors warn the COVID-19 pandemic, including the Delta variant and other variants, could materially disrupt demand, supply chain and operations, and the return-to-office plan may cause attrition or hiring difficulty. MD&A says the situation remains uncertain, rapidly changing and hard to predict.
Risk factors state dependence on Ken Xie and Michael Xie and inability to hire, retain and motivate qualified sales, support and engineering personnel, especially in the San Francisco Bay Area and Vancouver. MD&A shows headcount increased to 9,043 as of June 30, 2021, up 10% from December 31, 2020.
Risk factors and MD&A discuss senior notes issued in Q1 2021 and related interest expense, which may reduce financial flexibility and require cash flow to service. The agreements also impose covenants and may require repurchase upon certain change-of-control events.
Risk factors note ongoing tax audits in the United Kingdom, Canada, Germany and other jurisdictions, and proposed U.S. legislation could raise the corporate tax rate to 28% from 21%. A higher tax rate or adverse audit outcomes could increase the effective tax rate and reduce net income.
The filing discloses an immaterial error related to the commencement of revenue recognition for certain FortiCare support service contracts, which understated revenue, gross profit and operating income during the three and six months ended June 30, 2020. The correction was determined not to materially impact trends, but it highlights revenue recognition and internal control risk.
SaaS KPIs
All quarters →Billings
Free Cash Flow
Non-GAAP Operating Margin
Deferred Revenue
Summary, forecast, risks and KPIs are extracted from Fortinet, Inc.'s SEC filings for Q2 FY2021 (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 2, 2026.