Summary
Fortinet reported FY2024 Q3 revenue of $1.51 billion, up 13.0% from the prior-year quarter. Year-to-date revenue was $4.30 billion, up 10.4%. Gross profit was $1.24 billion for the quarter, up 22.4%, and gross margin was 82.5%, up 6.3 percentage points. Operating income was $470.9 million, up 55.3%, and operating margin was 31.2%, up 8.5 percentage points. Net income was $539.9 million, up 67.2%, and diluted EPS was $0.70, up 70.7%. The GAAP results include acquisition-related items that the company excludes from non-GAAP results. Non-GAAP operating margin was 36.1%, and non-GAAP diluted EPS was $0.63.
The quarter showed broad profitability gains. Year-to-date gross profit was $3.45 billion, up 16.3%, and year-to-date gross margin was 80.4%, up 4.1 percentage points. Year-to-date operating income was $1.23 billion, up 43.7%, with an operating margin of 28.6%, up 6.6 percentage points. Year-to-date net income was $1.22 billion, up 45.7%, and year-to-date diluted EPS was $1.58, up 50.5%. Operating cash flow was $608.1 million for the quarter, up 10.3%, and $1.78 billion year to date, up 2.1%. Capital expenditures were $36.3 million for the quarter, down 48.2%, and $281.3 million year to date, up 58.7%. Free cash flow, a non-GAAP measure, was $571.8 million for the quarter.
Billings, a non-GAAP measure, were $1.58 billion, up 6.1% from the prior-year quarter. Short-term deferred revenue was $3.08 billion, up 16.4%, and remaining performance obligations were $6.08 billion, up 14.7%. Fortinet closed the Lacework acquisition on August 1, 2024, and the Next DLP acquisition on August 5, 2024. Management said the acquisitions added capabilities in cloud security and insider risk. Headcount was 13,986 employees and contractors as of September 30, 2024, up 3% from 13,568 as of December 31, 2023.
Guidance for the fourth quarter of 2024 calls for billings of $1.900 billion to $2.000 billion, non-GAAP gross margin of 79.5% to 80.5%, non-GAAP operating margin of 33.0% to 34.0%, and diluted non-GAAP EPS of $0.58 to $0.62. For the full fiscal year 2024, Fortinet expects billings of $6.430 billion to $6.530 billion, non-GAAP gross margin of 80.3% to 81.3%, non-GAAP operating margin of 32.9% to 33.9%, and diluted non-GAAP EPS of $2.20 to $2.28. The company raised its 2024 revenue and non-GAAP operating margin guidance. Fortinet also increased its share repurchase authorization by $1.0 billion in October 2024, leaving approximately $2.03 billion available as of November 7, 2024.
Risks remain tied to the macro and geopolitical backdrop. The 10-Q cites economic challenges, a possible downturn or recession, inflation or stagflation, rising interest rates, and reduced information technology spending. It also flags longer sales cycles, especially for larger enterprise, service provider, and government customers, plus competition, pricing pressure, supply chain constraints, and inventory risk. Other named risks include litigation, cybersecurity threats and breaches, foreign exchange fluctuations, tariffs and trade barriers, and the war in Ukraine and the Israel-Hamas war. Management expects operating expenses to increase in absolute dollars for the remainder of 2024, while gross margin and operating margin are expected to increase for full year 2024 compared with full year 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2024 | Q2 FY2024 | QoQ | Q3 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.51B | $1.43B | +5.1% | $1.33B | +13.0% |
| Gross profit | $1.24B | $1.16B | +7.4% | $1.02B | +22.4% |
| Gross margin | 82.5% | 80.8% | +1.7 pp | 76.2% | +6.3 pp |
| Research & development | $187.3M | $165.4M | +13.2% | $156.9M | +19.4% |
| Sales & marketing | $515.9M | $501.3M | +2.9% | $504.4M | +2.3% |
| General & administrative | $71.7M | $56.6M | +26.7% | $53.5M | +34.0% |
| Total operating expenses | $773.8M | $722.1M | +7.2% | $713.7M | +8.4% |
| Operating income (loss) | $470.9M | $437.2M | +7.7% | $303.2M | +55.3% |
| Operating margin | 31.2% | 30.5% | +0.7 pp | 22.7% | +8.5 pp |
| Net income (loss) | $539.9M | $379.8M | +42.2% | $322.9M | +67.2% |
| Net margin | 35.8% | 26.5% | +9.3 pp | 24.2% | +11.6 pp |
| Diluted EPS | $0.70 | $0.49 | +$0.21 | $0.41 | +$0.29 |
Risks
MD&A states worsening economic conditions have already contributed to longer sales cycles, delayed purchases and increased supplier commitments and inventory purchase commitment reserves, and warns they may materially negatively impact future billings, revenue and costs. Risk factors also cite inflation, changing interest rates, the war in Ukraine, the Israel-Hamas war and China-Taiwan tensions.
Product revenue was $1.33 billion for the nine months ended September 30, 2024, a decrease of 7% compared to the prior-year period, due to lower hardware revenue. MD&A attributes the decline partly to backlog changes and macroeconomic conditions and warns product revenue growth may be lower as supply chain challenges normalize and backlog contributes less to billings.
Substantially all revenue is generated through channel partners, and one distributor accounted for 27% of total net accounts receivable as of September 30, 2024, while six distributor customers accounted for 65% in the aggregate. This creates credit and liquidity exposure if key partners fail to perform or pay.
Risk factors describe intense competition from Aruba, Check Point, Cisco, CrowdStrike, F5, Huawei, Juniper, Palo Alto Networks, SonicWALL, Sophos and Zscaler, with larger competitors having broader offerings, bundling power and resources. Vendor consolidation and cloud-based security alternatives could lead to price reductions, fewer orders and loss of market share.
Service revenue was $2.96 billion for the nine months ended September 30, 2024, an increase of 21%, and $1.03 billion for the quarter, an increase of 19%. MD&A expects service revenue growth rates to ease for the remainder of 2024 due to slowing deferred revenue over the past several quarters, and current deferred revenue was up 16.4% versus the prior-year quarter.
Risk factors state Fortinet is substantially dependent on its sales organization to add end-customers and grow existing accounts, and that hiring, training and retaining effective sales personnel, especially for enterprise and government deals, is difficult and can take significant time. Failure to align sales capacity with market demand could harm growth and operating results.
Fortinet closed the Lacework and Next DLP acquisitions in August 2024, which contributed $13.8 million of revenue, or 0.9% and 0.3% of total revenue for the three and nine months ended September 30, 2024, and generated a $106.3 million gain on bargain purchase. Risk factors cite integration risks, unforeseen liabilities and write-downs that could negatively affect financial results.
Inventory purchase commitments totaled $550.0 million as of September 30, 2024, down from $637.3 million as of December 31, 2023, with a $76.3 million liability for commitments in excess of demand. Risk factors still highlight component shortages, inventory obsolescence, supplier cost increases and logistics disruptions.
As of September 30, 2024, Fortinet had $993.8 million of indebtedness outstanding under its Senior Notes. Risk factors state restrictive covenants, potential acceleration if covenants are breached, and required repurchases on certain change-of-control events could reduce financial flexibility and divert cash from capital expenditures, share repurchases and acquisitions.
The effective tax rate was 14% for the nine months ended September 30, 2024 compared to 5% for the prior-year period. Risk factors cite ongoing tax audits in the United Kingdom, Canada and other foreign jurisdictions focused on profit allocation, plus OECD tax changes that could increase the worldwide effective tax rate.
Future performance depends on senior management, particularly Co-Founder, CEO and Chairman Ken Xie and Co-Founder, President and CTO Michael Xie, and on sales, support and engineering talent in locations such as the San Francisco Bay Area and Vancouver. Risk factors note turnover in management-level personnel, including the Chief Revenue Officer's announced retirement in December 2023.
Sales to U.S. and foreign government organizations require certifications such as FedRAMP, compliance with procurement rules and audits, and are subject to budget cycles and geopolitical trade restrictions. Lack of required certifications or an unfavorable audit could reduce government purchases and damage reputation with other customers.
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 Q3 FY2024 (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.