Item 1. Financial Statements

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Item 1. Financial Statements

FORTINET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in millions, except per share amounts)


	March 31, 2022		December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	923.5	$	1,319.1
Short-term investments	1,185.7		1,194.0
Marketable equity securities	32.4		38.6
Accounts receivable—net	790.4		807.7
Inventory	184.6		175.8
Prepaid expenses and other current assets	91.7		65.4
Total current assets	3,208.3		3,600.6
LONG-TERM INVESTMENTS	360.8		440.8
PROPERTY AND EQUIPMENT—NET	786.5		687.6
DEFERRED CONTRACT COSTS	437.5		423.3
DEFERRED TAX ASSETS	431.7		342.3
GOODWILL	123.8		125.1
OTHER INTANGIBLE ASSETS—NET	55.1		63.6
OTHER ASSETS	247.4		235.8
TOTAL ASSETS	$	5,651.1	$	5,919.1
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	174.7	$	148.4
Accrued liabilities	261.4		197.3
Accrued payroll and compensation	181.1		195.0

Deferred revenue	1,893.3		1,777.4
Total current liabilities	2,510.5		2,318.1
DEFERRED REVENUE	1,764.6		1,675.5
INCOME TAX LIABILITIES	82.7		79.5
LONG-TERM DEBT	988.9		988.4
OTHER LIABILITIES	71.2		59.2
Total liabilities	5,417.9		5,120.7
COMMITMENTS AND CONTINGENCIES (Note 12)
EQUITY:
Common stock, $0.001 par value—300.0 shares authorized; 160.3 and 162.0 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	0.2		0.2
Additional paid-in capital	1,236.3		1,254.2
Accumulated other comprehensive loss	(15.4)		(4.8)
Accumulated deficit	(1,003.4)		(467.9)

Total Fortinet, Inc. stockholders’ equity	217.7		781.7
Non-controlling interests	15.5		16.7
Total equity	233.2		798.4
TOTAL LIABILITIES AND EQUITY	$	5,651.1	$	5,919.1

See notes to condensed consolidated financial statements.

FORTINET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited, in millions, except per share amounts)


	Three Months Ended
March 31, 2022			March 31, 2021
REVENUE:
Product	$	371.0		$	240.7
Service	583.8			469.6
Total revenue	954.8			710.3
COST OF REVENUE:
Product	161.0			91.3
Service	92.8			65.3
Total cost of revenue	253.8			156.6
GROSS PROFIT:
Product	210.0			149.4
Service	491.0			404.3
Total gross profit	701.0			553.7
OPERATING EXPENSES:
Research and development	124.9			97.2
Sales and marketing	387.6			304.0
General and administrative	38.6			32.0
Gain on intellectual property matter	(1.1)			(1.1)
Total operating expenses	550.0			432.1
OPERATING INCOME	151.0			121.6
INTEREST INCOME	1.3			1.1
INTEREST EXPENSE	(4.5)			(1.3)
OTHER EXPENSE—NET	(9.1)			(2.0)
INCOME BEFORE INCOME TAXES AND LOSS FROM EQUITY METHOD INVESTMENT	138.7			119.4
PROVISION FOR (BENEFIT FROM) INCOME TAXES	(8.1)			12.2
LOSS FROM EQUITY METHOD INVESTMENT	(8.5)			—
NET INCOME INCLUDING NON-CONTROLLING INTERESTS	138.3			107.2
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS, NET OF TAX	(0.1)			—
NET INCOME ATTRIBUTABLE TO FORTINET, INC.	$	138.4		$	107.2
Net income per share attributable to Fortinet, Inc. (Note 9):
Basic	$	0.86		$	0.66
Diluted	$	0.84		$	0.64
Weighted-average shares used to compute net income per share attributable to Fortinet, Inc.:
Basic	160.7			163.0
Diluted	164.2			166.4

See notes to condensed consolidated financial statements.

FORTINET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in millions)


	Three Months Ended
	March 31, 2022		March 31, 2021
Net income including non-controlling interests	$	138.3	$	107.2
Other comprehensive loss:
Change in foreign currency translation	(4.5)		—
Change in unrealized losses on investments	(9.3)		(0.6)
Less: tax benefit related to items of other comprehensive income or loss	(2.1)		(0.2)
Other comprehensive loss	(11.7)		(0.4)
Comprehensive income including non-controlling interests	126.6		106.8
Less: comprehensive loss attributable to non-controlling interests	(1.2)		—
Comprehensive income attributable to Fortinet, Inc.	$	127.8	$	106.8

See notes to condensed consolidated financial statements.

FORTINET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited, in millions)


	Three Months Ended March 31, 2022
	Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Non-Controlling Interests		Total Equity
Shares		Amount
BALANCE—December 31, 2021	162.0		$	0.2	$	1,254.2	$	(4.8)	$	(467.9)	$	16.7	$	798.4
Issuance of common stock in connection with equity incentive plans - net of tax withholding	0.6		—		(53.8)		—		—		—		(53.8)
Repurchase and retirement of common stock	(2.3)		—		(17.3)		—		(673.9)		—		(691.2)
Stock-based compensation expense	—		—		53.2		—		—		—		53.2
Net unrealized loss on investments - net of tax	—		—		—		(7.2)		—		—		(7.2)
Foreign currency translation adjustment	—		—		—		(3.4)		—		(1.1)		(4.5)
Net income	—		—		—		—		138.4		(0.1)		138.3
BALANCE—March 31, 2022	160.3		$	0.2	$	1,236.3	$	(15.4)	$	(1,003.4)	$	15.5	$	233.2



	Three Months Ended March 31, 2021
	Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Non-Controlling Interests		Total Equity
Shares		Amount
BALANCE—December 31, 2020	162.5		$	0.2	$	1,207.2	$	0.7	$	(352.1)	$	—	$	856.0
Issuance of common stock in connection with equity incentive plans - net of tax withholding	0.8		—		(31.5)		—		—		—		(31.5)
Stock-based compensation expense	—		—		49.5		—		—		—		49.5
Net unrealized loss on investments - net of tax	—		—		—		(0.4)		—		—		(0.4)
Net income	—		—		—		—		107.2		—		107.2
BALANCE—March 31, 2021	163.3		$	0.2	$	1,225.2	$	0.3	$	(244.9)	$	—	$	980.8

See notes to condensed consolidated financial statements.

FORTINET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)


	Three Months Ended
	March 31, 2022		March 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including non-controlling interests	$	138.3	$	107.2
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	53.2		49.5
Amortization of deferred contract costs	52.5		39.7
Depreciation and amortization	25.5		17.3
Amortization of investment premiums	1.7		1.2
Loss from equity method investment	8.5		—
Other	8.4		0.4
Changes in operating assets and liabilities, net of impact of business combinations:
Accounts receivable—net	15.4		82.5
Inventory	(13.5)		(14.7)
Prepaid expenses and other current assets	(26.0)		(13.4)
Deferred contract costs	(66.6)		(55.2)
Deferred tax assets	(87.6)		(15.2)
Other assets	(20.6)		(4.8)
Accounts payable	35.5		(12.4)
Accrued liabilities	68.2		(2.8)
Accrued payroll and compensation	(13.6)		(3.9)
Other liabilities	11.3		0.2
Deferred revenue	205.5		140.3
Net cash provided by operating activities	396.1		315.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments	(385.2)		(647.1)
Sales of investments	3.0		18.6
Maturities of investments	459.4		292.4
Purchases of property and equipment	(122.6)		(52.1)
Purchase of investment in privately held company	—		(75.0)
Payments made in connection with business combinations, net of cash acquired	—		(10.3)
Net cash used in investing activities	(45.4)		(473.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings, net of discount and underwriting fees	—		989.4
Payments for debt issuance costs	—		(1.9)
Repurchase and retirement of common stock	(691.2)		—
Proceeds from issuance of common stock	11.0		9.9
Taxes paid related to net share settlement of equity awards	(64.8)		(41.4)
Other	(1.0)		—
Net cash provided by (used in) financing activities	(746.0)		956.0
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(0.3)		—
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(395.6)		798.4
CASH AND CASH EQUIVALENTS—Beginning of period	1,319.1		1,061.8
CASH AND CASH EQUIVALENTS—End of period	$	923.5	$	1,860.2
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes—net	$	18.8	$	23.6
Operating lease liabilities arising from obtaining right-of-use assets	$	24.6	$	9.8
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfers of evaluation units from inventory to property and equipment	$	2.9	$	5.1
Liability for purchase of property and equipment	$	15.5	$	34.3
Liability incurred in connection with business acquisition	$	—	$	0.5

See notes to condensed consolidated financial statements.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Preparation—The unaudited condensed consolidated financial statements of Fortinet, Inc. and its subsidiaries (collectively, “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information, as well as the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2021, contained in our Annual Report on Form 10-K filed with the SEC on February 25, 2022. In the opinion of management, all adjustments, which include normal recurring adjustments, considered necessary for a fair presentation, have been included. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year or for any future periods. The condensed consolidated balance sheet as of December 31, 2021 is derived from the audited consolidated financial statements for the year ended December 31, 2021.

The condensed consolidated financial statements include the accounts of Fortinet, Inc. and its subsidiaries. We consolidate all legal entities in which we have an absolute controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2022.

Recently Adopted and Recently Issued Accounting Standards

There were no recently adopted accounting standards which would have a material effect on our condensed consolidated financial statements and accompanying disclosures, and no recently issued accounting standards that are expected to have a material impact on our condensed consolidated financial statements and accompanying disclosures.

2. REVENUE RECOGNITION

We sell cybersecurity solutions to a variety of organizations, such as enterprises, communication service providers, government organizations and small to medium-sized enterprises. Our revenue consists of product and service revenue. Product revenue is generated by our Core Platform (previously referred to as FortiGate network security and other products), our Platform Extensions (previously referred to as Fortinet Security Fabric products and other products). Service revenue relates to sales of our security subscription services, which mainly consists of our FortiGuard security subscriptions, as well as our FortiCare technical support services and other services.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Disaggregation of Revenue

The following table presents our revenue disaggregated by major product and service lines (in millions):


	Three Months Ended
	March 31, 2022		March 31, 2021
Product	$	371.0	$	240.7
Service:
Security subscription	312.9		255.3
Technical support and other	270.9		214.3
Total service revenue	583.8		469.6
Total revenue	$	954.8	$	710.3

Deferred Revenue

During the three months ended March 31, 2022 and 2021, we recognized $507.3 million and $417.9 million in service revenue that was included in the deferred revenue balance as of December 31, 2021 and 2020, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $3.66 billion, which was substantially comprised of deferred security subscription and technical support services revenue. We expect to recognize approximately $1.89 billion as revenue over the next 12 months and the remainder thereafter.

Accounts receivable

Trade accounts receivable are recorded at the invoiced amount. Our accounts receivable balance is reduced by an allowance for expected credit losses. We measure expected credit losses of accounts receivable on a collective (pooled) basis, aggregating accounts receivable that are either current or no more than 60 days past due, and aggregating accounts receivable that are more than 60 days past due. We apply a credit-loss percentage to each of the pools that is based on our historical credit losses. We review whether each of our significant accounts receivable that is more than 60 days past due continues to exhibit similar risk characteristics with the other accounts receivable in the pool. If we determine that it does not, we evaluate it for expected credit losses on an individual basis. Expected credit losses are recorded as general and administrative expenses on our consolidated statements of income.

The allowance for credit losses was $2.5 million and $2.4 million as of March 31, 2022 and December 31, 2021, respectively. Provisions, write-offs and recoveries were not material during the three months ended March 31, 2022 and 2021.

Deferred Contract Costs

Amortization of deferred contract costs during the three months ended March 31, 2022 and 2021 were $52.5 million and $39.7 million, respectively.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. FINANCIAL INSTRUMENTS AND FAIR VALUE

The following tables summarize our available-for-sale securities (in millions):


	March 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper	$	488.2	$	—	$	(1.4)	$	486.8
Corporate debt securities	489.5		—		(5.0)		484.5
U.S. government and agency securities	410.5		—		(4.9)		405.6
Certificates of deposit and term deposits	164.8		—		(0.4)		164.4
Municipal bonds	5.3		—		(0.1)		5.2
Total available-for-sale securities	$	1,558.3	$	—	$	(11.8)	$	1,546.5


	December 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Commercial paper	$	566.0	$	—	$	(0.2)	$	565.8
Corporate debt securities	540.7		—		(1.2)		539.5
U.S. government and agency securities	356.1		—		(1.0)		355.1
Certificates of deposit and term deposits	169.1		—		(0.1)		169.0
Municipal bonds	5.4		—		—		5.4
Total available-for-sale securities	$	1,637.3	$	—	$	(2.5)	$	1,634.8

The following tables show the gross unrealized losses and the related fair values of our available-for-sale securities that have been in a continuous unrealized loss position (in millions):


	March 31, 2022
	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Commercial paper	$	435.1	$	(1.4)	$	—	$	—	$	435.1	$	(1.4)
Corporate debt securities	466.8		(5.0)		10.6		—		477.4		(5.0)
U.S. government and agency securities	405.7		(4.9)		—		—		405.7		(4.9)
Certificates of deposit and term deposits	149.8		(0.4)		—		—		149.8		(0.4)
Municipal bonds	5.2		(0.1)		—		—		5.2		(0.1)
Total available-for-sale securities	$	1,462.6	$	(11.8)	$	10.6	$	—	$	1,473.2	$	(11.8)


	December 31, 2021
	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Commercial paper	$	288.0	$	(0.2)	$	—	$	—	$	288.0	$	(0.2)
Corporate debt securities	494.4		(1.2)		—		—		494.4		(1.2)
U.S. government and agency securities	334.2		(1.0)		—		—		334.2		(1.0)
Certificates of deposit and term deposits	93.1		(0.1)		—		—		93.1		(0.1)
Municipal bonds	5.3		—		—		—		5.3		—
Total available-for-sale securities	$	1,215.0	$	(2.5)	$	—	$	—	$	1,215.0	$	(2.5)

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The contractual maturities of our investments were as follows (in millions):


	March 31, 2022		December 31, 2021
Due within one year	$	1,185.7	$	1,194.0
Due within one to three years	360.8		440.8
Total	$	1,546.5	$	1,634.8

Available-for-sale securities are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of equity and in comprehensive income.

Realized gains and losses on available-for-sale securities were insignificant in the periods presented.

Our marketable equity securities were $32.4 million and $38.6 million as of March 31, 2022 and December 31, 2021. The changes in fair value of our marketable equity securities are recorded in other expense, net on the condensed consolidated statements of income. We recognized $6.2 million loss during the three months ended March 31, 2022.

Fair Value Accounting—We apply the following fair value hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

We measure the fair value of money market funds, certain U.S. government and agency securities and marketable equity securities using quoted prices in active markets for identical assets. The fair value of all other financial instruments was based on quoted prices for similar assets in active markets, or model-driven valuations using significant inputs derived from or corroborated by observable market data.

We classify investments within Level 1 if quoted prices are available in active markets for identical securities.

We classify items within Level 2 if the investments are valued using model-driven valuations using observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Investments are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value of Financial Instruments

Assets Measured at Fair Value on a Recurring Basis

The following tables present the fair value of our financial assets measured at fair value on a recurring basis (in millions):


	March 31, 2022								December 31, 2021
	Aggregate Fair Value		Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Remaining Inputs		Significant Other Unobservable Remaining Inputs		Aggregate Fair Value		Quoted Prices in Active Markets For Identical Assets		Significant Other Observable Remaining Inputs		Significant Other Unobservable Remaining Inputs
			(Level 1)		(Level 2)		(Level 3)				(Level 1)		(Level 2)		(Level 3)
Assets:
Commercial paper	$	522.7	$	—	$	522.7	$	—	$	580.3	$	—	$	580.3	$	—
Corporate debt securities	487.9		—		487.9		—		542.5		—		542.5		—
U.S. government and agency securities	405.6		396.1		9.5		—		355.1		345.2		9.9		—
Certificates of deposit and term deposits	254.4		—		254.4		—		259.0		—		259.0		—
Money market funds	116.8		116.8		—		—		57.5		57.5		—		—
Municipal bonds	5.2		—		5.2		—		5.4		—		5.4		—
Marketable equity securities	32.4		32.4		—		—		38.6		38.6		—		—
Total	$	1,825.0	$	545.3	$	1,279.7	$	—	$	1,838.4	$	441.3	$	1,397.1	$	—

Reported as:
Cash equivalents	$	246.1							$	165.0
Marketable equity securities	32.4								38.6
Short-term investments	1,185.7								1,194.0
Long-term investments	360.8								440.8
Total	$	1,825.0							$	1,838.4

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2022 and year ended December 31, 2021.

4. INVENTORY

Inventory consisted of the following (in millions):


	March 31, 2022		December 31, 2021
Raw materials	$	39.1	$	40.2
Work in process	8.3		9.8
Finished goods	137.2		125.8
Inventory	$	184.6	$	175.8

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. PROPERTY AND EQUIPMENT—Net

Property and equipment—net consisted of the following (in millions):


	March 31, 2022		December 31, 2021
Land	$	250.4	$	204.5
Buildings and improvements	459.2		416.2
Computer equipment and software	188.0		176.1
Leasehold improvements	41.8		40.1
Evaluation units	14.8		15.6
Furniture and fixtures	28.5		26.9
Construction-in-progress	31.3		19.9
Total property and equipment	1,014.0		899.3
Less: accumulated depreciation	(227.5)		(211.7)
Property and equipment—net	$	786.5	$	687.6

Depreciation expense was $19.1 million and $14.0 million during the three months ended March 31, 2022 and 2021, respectively.

6. INVESTMENTS IN PRIVATELY HELD COMPANIES

Linksys Holdings, Inc.

On March 19, 2021, we invested $75.0 million in cash for shares of the Series A Preferred Stock of Linksys Holdings, Inc. (“Linksys”) for a 32.6% ownership interest. On September 24, 2021, we invested an additional $85.0 million in cash for shares of Series A Preferred Stock of Linksys, and as of September 30, 2021, we held 50.8% of the outstanding common stock (on an as-converted basis) of Linksys. Linksys provides router connectivity solutions to the consumer and small business markets.

We have concluded that our investment in Linksys is an in-substance common stock investment and that we do not hold an absolute controlling financial interest in Linksys, but that we have the ability to exercise significant influence over the operating and financial policies of Linksys. Determining that we have significant influence but not control over the operating and financial policies of Linksys required significant judgement of many factors, including but not limited to the ownership interest in Linksys, board representation, participation in policy-making processes and participation rights in certain significant financial and operating decisions of Linksys in the ordinary course of business. Therefore, we determined to account for this investment using the equity method of accounting. We record our share of Linksys’ financial results on a three-month lag basis. We determined that there was a basis difference between the cost of our investment in Linksys and the amount of underlying equity in net assets of Linksys. Our share of loss of Linksys’ financial results, as well as our share of the amortization of the basis differences, in total was $8.5 million for the three months ended March 31, 2022, and has been recorded in loss from equity method investment on the condensed consolidated statements of income.

As of March 31, 2022 and December 31, 2021, the investment was included in other assets on our condensed consolidated balance sheets. Transaction costs related to this investment were not material.

7. BUSINESS COMBINATIONS

2021 Acquisitions

Alaxala Networks Corporation

On August 31, 2021, we closed an acquisition of 75% of equity interests as controlling interests in Alaxala Networks Corporation (“Alaxala”), a privately held network hardware equipment company in Japan, for $64.2 million in cash. We acquired the equity interests in Alaxala to broaden our offering of secure switches integrated with our Core Platform and

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Platform Extension functionality, and, over time, to innovate and rebrand certain of Alaxala’s switches to offer a broader suite of secure switches globally.

Under the acquisition method of accounting in accordance with ASC 805, the total purchase price was allocated to Alaxala’s identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values using management’s best estimates and assumptions to assign fair value as of the acquisition date. The following table provides the assets acquired and liabilities assumed as of the date of acquisition:


(in millions)	Estimated Fair Value
ASSETS
Cash	$	1.1
Accounts receivable—net	15.6
Inventory	33.4
Prepaid expenses and other current assets	2.9
Property and equipment	5.3
Goodwill	25.5
Other intangible assets	48.0
Other long-term assets	5.2
TOTAL ASSETS	$	137.0

LIABILITIES
Accounts payable	$	11.0
Current portion of long-term debt	20.2
Accrued and other current liabilities	17.1
Other long-term liabilities	6.7
TOTAL LIABILITIES	$	55.0
NON-CONTROLLING INTERESTS	$	17.8
Net purchase consideration	$	64.2

The excess of the purchase consideration and the fair value of non-controlling interests over the fair value of net tangible and identified intangible assets acquired was recorded as goodwill, which is not deductible for tax purposes. Goodwill is primarily attributable to the assembled workforce of Alaxala and the anticipated operational synergies.

The fair value of the non-controlling interests of $17.8 million was estimated based on the non-controlling interests’ respective share of the fair value of Alaxala.

Identified intangible assets acquired and their estimated useful lives (in years) as of August 31, 2021, were as follows (in millions, except years):


	Fair Value		Estimated Useful Life (in years)
Developed technology	$	26.6	4
Customer relationships	10.0		10
Trade name	6.4		10
Backlog	5.0		1
Total identified intangible assets:	$	48.0

Developed technology relates to Alaxala’s network equipment. We valued the developed technology using the relief-from-royalty method under the income approach. This method reflects the present value of the projected cost savings that are expected to be realized by the owner of the royalty granted in exchange for the use of the asset. The economic useful life was

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

Customer relationships represent the fair value of future projected revenue that will be derived from sales to existing customers of Alaxala. Customer contracts and related relationships were valued using the multi-period excess earnings method. This method reflects the present value of the projected cash flows that are expected to be generated by the customer contracts and relationships less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on historical customer turnover rates.

Trade name relates to the “Alaxala” trade name. The fair value was determined by applying the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the trade name. The economic useful life was determined based on the expected life of the trade name and the cash flows anticipated over the forecast period.

Customer backlog relates to the unfulfilled customer contract orders. Backlog was valued using the multi-period excess earnings method. This method reflects the present value of the projected cash flows that are expected to be generated by the execution of the unfulfilled customer contract orders less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the anticipated contract orders’ execution timeframe.

In connection with our acquisition of Alaxala, we assumed certain current debt liabilities of $20.2 million as of August 31, 2021. We concluded that the fair value of this debt approximated its book value as of the acquisition date. We repaid this debt in full in September and October 2021. During the post-acquisition period from September 1, 2021 through the repayment dates, interest expense related to Alaxala debt was not material.

The following unaudited pro forma financial information presents the combined results of operations of Fortinet, Inc. and Alaxala, as if Alaxala had been acquired as of the beginning of business on January 1, 2020. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business that would have been achieved if the acquisition had taken place at the beginning of business on January 1, 2020, or of the results of our future operations of the combined business. The following unaudited pro forma financial information for all periods presented includes purchase accounting adjustments for amortization of acquired intangible assets, depreciation of acquired property and equipment, the purchase accounting effect on inventory acquired and related tax effects (in millions):


	Three Months Ended
	March 31, 2021		March 31, 2020
Pro forma revenue	$	746.6	$	612.6
Pro forma net income attributable to Fortinet, Inc.	$	107.6	$	101.4

ShieldX Networks, Inc.

On March 10, 2021, we closed an acquisition of certain assets and liabilities of ShieldX Networks Inc. (“ShieldX”), a provider of a security platform focusing on protecting multi-cloud data centers from the risk of lateral movement that can lead to attacks such as ransomware, data loss and service disruption, for $10.8 million in cash, of which, $6.2 million was allocated to goodwill.

8. GOODWILL AND OTHER INTANGIBLE ASSETS—Net

Goodwill

The following table presents the changes in the carrying amount of goodwill (in millions):


	Amount
Balance—December 31, 2021	$	125.1
Foreign currency translation adjustments	(1.3)
Balance—March 31, 2022	$	123.8

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There were no impairments to goodwill during the three months ended March 31, 2022 or during prior periods.

Other Intangible Assets—Net

The following tables present other intangible assets—net (in millions, except years):


	March 31, 2022
	Weighted-Average Useful Life (in Years)	Gross		Accumulated Amortization		Net
Other intangible assets—net:
Finite-lived intangible assets:
Developed technologies	4.0	$	80.8	$	42.1	$	38.7
Customer relationships	5.9	21.6		12.5		9.1
Trade name	10.0	5.7		0.3		5.4
Backlog	1.0	4.5		2.6		1.9
Total other intangible assets—net		$	112.6	$	57.5	$	55.1


	December 31, 2021
	Weighted-Average Useful Life (in Years)	Gross		Accumulated Amortization		Net
Other intangible assets—net:
Finite-lived intangible assets:
Developed technologies	4.0	$	82.2	$	38.0	$	44.2
Customer relationships	6.0	22.2		11.9		10.3
Trade name	10.0	6.1		0.2		5.9
Backlog	1.0	4.8		1.6		3.2
Total other intangible assets—net		$	115.3	$	51.7	$	63.6

Amortization expense was $6.4 million and $3.4 million during the three months ended March 31, 2022 and 2021, respectively.

The following table summarizes estimated future amortization expense of finite-lived intangible assets—net (in millions):


	Amount
Years:
2022 (the remainder of 2022)	$	15.8
2023	15.7
2024	11.0
2025	5.8
2026	1.3
Thereafter	5.5
Total	$	55.1

9. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income attributable to Fortinet, Inc., by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income attributable to Fortinet, Inc. by the weighted-average number of shares of common stock outstanding during the period, plus the dilutive effects of restricted stock units (“RSUs”) and stock options. Dilutive shares of common stock are determined by applying the treasury stock method.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share attributable to Fortinet, Inc. is as follows (in millions, except per share amounts):


	Three Months Ended
	March 31, 2022		March 31, 2021
Numerator:
Net income including non-controlling interests	$	138.3	$	107.2
Net income attributable to non-controlling interests	(0.1)		—
Net income attributable to Fortinet, Inc.	$	138.4	$	107.2

Denominator:
Basic shares:
Weighted-average common stock outstanding-basic	160.7		163.0
Diluted shares:
Weighted-average common stock outstanding-basic	160.7		163.0
Effect of potentially dilutive securities:
RSUs	1.7		2.0
Stock options	1.8		1.4
Weighted-average shares used to compute diluted net income per share attributable to Fortinet, Inc.	164.2		166.4
Net income per share attributable to Fortinet, Inc.:
Basic	$	0.86	$	0.66
Diluted	$	0.84	$	0.64

The following weighted-average shares of common stock were excluded from the computation of diluted net income per share attributable to Fortinet, Inc. for the periods presented, as their effect would have been antidilutive (in millions):


	Three Months Ended
	March 31, 2022	March 31, 2021
RSUs	0.1	0.4
Stock options	0.2	0.3
Total	0.3	0.7

10. DEBT

2026 and 2031 Senior Notes

On March 5, 2021, we issued $1.0 billion aggregate principal amount of senior notes (collectively, the “Senior Notes”), consisting of $500.0 million aggregate principal amount of 1.0% notes due March 15, 2026 (the “2026 Senior Notes”) and $500.0 million aggregate principal amount of 2.2% notes due March 15, 2031 (the “2031 Senior Notes”), in an underwritten registered public offering. The Senior Notes are senior unsecured obligations and rank equally with each other in right of payment and with our other outstanding obligations. We may redeem the Senior Notes at any time in whole or in part for cash, at specified redemption prices that include accrued and unpaid interest, if any, and a make-whole premium. However, no make-whole premium will be paid for redemptions of the 2026 Senior Notes on or after February 15, 2026, or the 2031 Senior Notes on or after December 15, 2030. Interest on the Senior Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2021. As of March 31, 2022 and December 31, 2021, the Senior Notes were recorded as long-term debt, net of discount and issuance costs, which are amortized to interest expense over the respective contractual terms of these notes using the effective interest method.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The total outstanding debt is summarized below (in millions, except percentages):


	Maturity	Coupon Rate	Effective Interest Rate	March 31, 2022		December 31, 2021
Debt
2026 Senior Notes	March 2026	1.0%	1.3%	$	500.0	$	500.0
2031 Senior Notes	March 2031	2.2%	2.3%	500.0		500.0
Total debt				1,000.0		1,000.0
Less: Unamortized discount and debt issuance costs				11.1		11.6
Total long-term debt				$	988.9	$	988.4

As of March 31, 2022 and December 31, 2021, we accrued interest payable of $0.7 million and $4.7 million, and there are no financial covenants with which we must comply. During the three months ended March 31, 2022 and 2021 we recorded $4.5 million and $1.3 million of total interest expense in relation to these Senior Notes, respectively. No interest costs were capitalized for the three months ended March 31, 2022 and 2021, as the costs that qualified for capitalization were not material.

The total estimated fair value of the outstanding Senior Notes was approximately $899.5 million, including accrued and unpaid interest, as of March 31, 2022. The fair value was determined based on observable market prices of identical instruments in less active markets. The estimated fair values are based on Level 2 inputs.

11. MUTUAL COVENANT-NOT-TO-SUE AND RELEASE AGREEMENT

In January 2020, we entered into an agreement with a competitor in the network security industry whereby, in February 2020, the competitor party paid us a lump sum of $50.0 million for a seven-year mutual covenant-not-to-sue for patent claims. Pursuant to this agreement, at the end of this first seven-year period, either party may extend the agreement for an additional seven-year mutual covenant-not-to-sue in return for this competitor paying us an additional $50.0 million. This agreement arose after expiration of previous agreements between the parties whereby the competitor had paid us sums for a limited term license to certain of our intellectual property (“IP”) and a limited term mutual covenant-not-to-sue.

We concluded that the agreement was a 14-year contract with a total transaction price of $100.0 million, and that it contained two material distinct performance obligations: (1) the right to use our existing patents, and (2) the right to use any patents that we develop over the term of the contract. We allocated $36.0 million to the functional patents, which was recognized upon commencement of the contract; the remaining $64.0 million, representing the right to utilize future patents, will be recognized over the contract term. We further concluded that our existing patents represent functional IP that should be recognized upon granting our competitor access. We also concluded that the right to receive additional functional IP that we will develop in the future represents a stand ready obligation. Therefore, the transaction price allocated to this obligation is recognized ratably over the 14-year contract term. We estimated the stand-alone selling price of each distinct performance obligation and allocated the $100.0 million transaction price.

During each of the three months ended March 31, 2022 and 2021, we recorded $1.1 million gain on IP matter in our condensed consolidated statements of income. We had $4.1 million in accrued liabilities and $5.2 million in accrued liabilities and other liabilities in our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.

12. COMMITMENTS AND CONTINGENCIES

The following table summarizes our inventory purchase commitments as of March 31, 2022 (in millions):


			Total						2022						Thereafter
Inventory purchase commitments			$	1,372.6					$	1,283.3					$	89.3

Inventory Purchase Commitments—Our independent contract manufacturers and certain component suppliers procure components and build our products based on our forecasts. These forecasts are based on estimates of future demand for our products, which are in turn based on historical trends and an analysis from our sales and marketing organizations, adjusted for extended lead times, changes in supplier delivery commitments and other supply chain matters and other market conditions.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In order to manage manufacturing lead times, plan for adequate component supply and incentivize suppliers to deliver, we may issue purchase orders to some of our independent contract manufacturers which are non-cancelable. As of March 31, 2022 and December 31, 2021, we had $1.37 billion and $1.14 billion, respectively, of open purchase orders with our independent contract manufacturers that are non-cancelable.

Other Contractual Commitments and Open Purchase Orders—In addition to commitments with contract manufacturers, we have open purchase orders and contractual obligations in the ordinary course of business for which we have not received goods or services. A significant portion of our reported purchase commitments consist of firm and non-cancelable commitments. In certain instances, contractual commitments allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to firm orders being placed. As of March 31, 2022 and December 31, 2021, we had $114.4 million and $126.7 million, respectively, in other contractual commitments having a remaining term in excess of one year that are non-cancelable and an additional $85.4 million and $68.9 million, respectively, in contractual commitments for operating lease liabilities.

Litigation—We are involved in disputes, litigation, and other legal actions. For lawsuits where we are the defendant, we are in the process of defending these litigation matters, and while there can be no assurances and the outcome of certain of these matters is currently not determinable and not predictable, we currently are unaware of any existing claims or proceedings that we believe are likely to have a material adverse effect on our financial position. There are many uncertainties associated with any litigation and these actions or other third-party claims against us may cause us to incur costly litigation fees, costs and substantial settlement charges, and possibly subject us to damages and other penalties. In addition, the resolution of any IP litigation may require us to make royalty payments, which could adversely affect our gross margins in future periods. If any of those events were to occur, our business, financial condition, results of operations, and cash flows could be adversely affected. Litigation is unpredictable and the actual liability in any such matters may be materially different from our current estimates, which could result in the need to adjust any accrued liability and record additional expenses. We accrue for contingencies when we believe that a loss is probable and that we can reasonably estimate the amount of any such loss. These accruals are generally based on a range of possible outcomes that require significant management judgement. If no amount within a range is a better estimate than any other, we accrue the minimum amount.

In December 2021, we entered into an agreement that provided for settlement and dismissal of an existing patent infringement lawsuit and a mutual covenant-not-to-sue for a defined duration of time. We have settled and paid $10.0 million in cash, of which $5.6 million was related to the dismissal of lawsuit and was expensed as a general and administrative expense, and $4.4 million was deferred and will be expensed over time as royalty cost of revenue. Litigation loss contingency accruals associated with other outstanding cases were not material as of March 31, 2022 and December 31, 2021.

Indemnification and Other Matters—Under the indemnification provisions of our standard sales contracts, we agree to defend our customers against third-party claims asserting various allegations such as product defects and infringement of certain IP rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such claims. In some contracts, our exposure under these indemnification provisions is limited by the terms of the contracts to certain defined limits, such as the total amount paid by our customer under the agreement. However, certain agreements include covenants, penalties and indemnification provisions including and beyond indemnification for third-party claims of IP infringement that could potentially expose us to losses in excess of the amount received under the agreement, and in some instances to potential liability that is not contractually limited. Although from time to time there are indemnification claims asserted against us and currently there are pending indemnification claims, to date there have been no material awards under such indemnification provisions.

Similar to other security companies and companies in other industries, we have in the past experienced, and we may in the future experience, cybersecurity threats, malicious activity directed against our information technology infrastructure or unauthorized attempts to gain access to our and our customers’ sensitive information and systems. We currently are unaware of any existing claims or proceedings related to these types of matters, including any that we believe are likely to have a material adverse effect on our financial position.

13. EQUITY

Stock-Based Compensation Plans

We maintain the Amended and Restated Fortinet, Inc. 2009 Equity Incentive Plan (the “Amended Plan”) pursuant to which we have granted RSUs and stock options. As of March 31, 2022, there were a total of 11.4 million shares of common stock available for grant under the Amended Plan.

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restricted Stock Units

The following table summarizes the activity and related information for RSUs for the periods presented below (in millions, except per share amounts):


	Restricted Stock Units Outstanding
	Number of Shares	Weighted-Average Grant Date Fair Value per Share
Balance—December 31, 2021	3.2	$	136.08
Granted	0.4	310.54
Forfeited	(0.1)	157.04
Vested	(0.6)	110.99
Balance—March 31, 2022	2.9	$	166.60

Stock compensation expense is recognized on a straight-line basis over the vesting period of each RSU. As of March 31, 2022, total compensation expense related to unvested RSUs granted to employees and non-employees under the Amended Plan, but not yet recognized, was $449.7 million, with a weighted-average remaining vesting period of 2.8 years.

RSUs settle into shares of common stock upon vesting. Upon the vesting of the RSUs, we net-settle the RSUs and withhold a portion of the shares to satisfy employee withholding tax requirements. The payment of the withheld taxes to the tax authorities is reflected as a financing activity within the condensed consolidated statements of cash flows.

The following summarizes the number and value of the shares withheld for employee taxes (in millions):


	Three Months Ended
	March 31, 2022		March 31, 2021
Shares withheld for taxes	0.2		0.3
Amount withheld for taxes	$	64.8	$	41.4

Employee Stock Options

The following table summarizes the weighted-average assumptions relating to our employee stock options:


	Three Months Ended
	March 31, 2022		March 31, 2021
Expected term in years	4.4		4.4
Volatility	41.0	%	39.5	%
Risk-free interest rate	1.8	%	0.5	%
Dividend rate	—	%	—	%

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the stock option activity and related information for the periods presented below (in millions, except exercise prices and contractual life):


	Options Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Balance—December 31, 2021	2.7	$	92.87	4.0	$	729.9
Granted	0.3	310.54
Forfeited	—	178.88
Exercised	(0.1)	86.37
Balance—March 31, 2022	2.9	$	112.70
Options vested and expected to vest—March 31, 2022	2.9	$	112.70	4.0	$	655.3
Options exercisable—March 31, 2022	1.8	$	66.68	3.0	$	482.4

The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted market price of our common stock on March 31, 2022 for all in-the-money stock options. Stock compensation expense is recognized on a straight-line basis over the vesting period of each stock option. As of March 31, 2022, total compensation expense related to unvested stock options granted to employees but not yet recognized was $67.0 million, with a weighted-average remaining vesting period of 3.1 years.

Additional information related to our stock options is summarized below (in millions, except per share amounts):


	Three Months Ended
	March 31, 2022		March 31, 2021
Weighted-average fair value per share granted	$	111.62	$	56.49
Intrinsic value of options exercised	$	29.9	$	22.3
Fair value of options vested	$	10.2	$	7.0

Stock-Based Compensation Expense

Stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, is included in costs and expenses as follows (in millions):


	Three Months Ended
	March 31, 2022		March 31, 2021
Cost of product revenue	$	0.4	$	0.4
Cost of service revenue	4.5		3.5
Research and development	15.1		13.0
Sales and marketing	26.7		26.8
General and administrative	7.2		6.3
Total stock-based compensation expense	$	53.9	$	50.0

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, by award type (in millions):


	Three Months Ended
	March 31, 2022		March 31, 2021
RSUs	$	48.3	$	45.8
Stock options	5.6		4.2
Total stock-based compensation expense	$	53.9	$	50.0

Total income tax benefit associated with stock-based compensation that is recognized in the condensed consolidated statements of income is as follows (in millions):


	Three Months Ended
	March 31, 2022		March 31, 2021
Income tax benefit associated with stock-based compensation	$	11.8	$	11.0

Share Repurchase Program

In October 2021, under the Share Repurchase Program originally approved by our board of directors in January 2016 (the “Repurchase Program”), our board of directors approved a $1.25 billion increase and extended the term to February 28, 2023, bringing the aggregate amount authorized to be repurchased to $4.25 billion. Share repurchases may be made by us from time to time in privately negotiated transactions or in open-market transactions. The Repurchase Program does not require us to purchase a minimum number of shares, and may be suspended, modified or discontinued at any time without prior notice.

During the three months ended March 31, 2022, we repurchased 2.3 million shares of common stock under the Repurchase Program in open-market transactions at a weighted-average price of $304.13 per share for an aggregate purchase price of $691.2 million. As of March 31, 2022, $829.6 million remained available for future share repurchases under the Repurchase Program.

14. INCOME TAXES

Our effective tax rate was negative 6% for the three months ended March 31, 2022, compared to an effective tax rate of 10% for the same period last year. The effective tax rates for the periods presented are primarily comprised of U.S. federal and state taxes, withholding taxes, foreign taxes, the tax benefit from foreign-derived intangible income deduction (the “FDII deduction”) and excess tax benefits from stock-based compensation expense. The tax rates for the three months ended March 31, 2022 and 2021 were composed of U.S. federal and state taxes, withholding taxes and foreign taxes that amounted to $38.5 million and $35.7 million, respectively. The tax rate for the three months ended March 31, 2022 was impacted by a tax benefit of $14.4 million from the FDII deduction and excess tax benefits from stock-based compensation expense of $32.2 million. The tax rate for the three months ended March 31, 2021 was impacted by a tax benefit of $7.3 million from the FDII deduction and excess tax benefits from stock-based compensation expense of $16.2 million. The change of effective tax rate from March 31, 2021 to March 31, 2022 primarily resulted from the increase in the FDII deduction and excess tax benefits from stock-based compensation expense.

As of March 31, 2022 and December 31, 2021, unrecognized tax benefits were $75.6 million and $73.3 million, respectively. If recognized, $67.6 million of the unrecognized tax benefits would favorably affect our effective tax rate. It is our policy to include accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2022 and December 31, 2021, accrued interest and penalties were $14.4 million and $13.3 million, respectively. It is reasonably possible that our gross unrecognized tax benefits will decrease by up to $19.0 million in the next 12 months, due to the lapse of statutes of limitation in various jurisdictions. This decrease, if recognized, would favorably impact our effective tax rate, and would be recognized as additional tax benefits.

We file income tax returns in the U.S. federal jurisdiction and in various U.S. state and foreign jurisdictions. Generally, we are no longer subject to examination by U.S federal income tax authorities for tax years prior to 2015. We are no longer subject to U.S. state and foreign income tax examinations by tax authorities for tax years prior to 2010. We currently

FORTINET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

have ongoing tax audits in the United Kingdom, Canada, Germany and several other foreign jurisdictions. The focus of these audits is the inter-company profit allocation.

On September 29, 2020, the United States Department of the Treasury (the “U.S. Treasury”) and the Internal Revenue Service (the “IRS”) released final regulations related to foreign tax credits that were the subject of proposed regulations issued in December 2019 and proposed certain provisions in proposed regulations issued in December 2019. The final and proposed regulations provide administrative guidance for the foreign tax credit regime, which was updated in the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”). Generally, the provisions that were included in the 2019 proposed regulations apply to taxable years ended on or after December 16, 2019, except as otherwise specified. On December 28, 2021, the U.S. Treasury and the IRS released final regulations addressing various aspects of the foreign tax credit regime, which did not have a material impact on our consolidated financial statements as of December 31, 2021. On January 4, 2022, the U.S. Treasury and the IRS published another tranche of final regulations regarding the foreign tax credit. These final regulations impose new requirements that a foreign tax must meet in order to be creditable against U.S. income taxes, and generally apply to tax years beginning on or after December 28, 2021. These final regulations adversely impact our ability to claim foreign tax credits in the United States for certain taxes imposed by certain foreign jurisdictions. These final regulations increased our tax expense in the three months ended March 31, 2022 by approximately $4.1 million.

15. DEFINED CONTRIBUTION PLANS

Our tax-deferred savings plan under our 401(k) Plan permits participating U.S. employees to contribute a portion of their pre-tax or after-tax earnings. In Canada, we have a Group Registered Retirement Savings Plan Program (the “RRSP”), which permits participants to make tax-deductible contributions. Our board of directors approved 50% matching contributions on employee contributions up to 4% of each employee’s eligible earnings. Our matching contributions to our 401(k) Plan and the RRSP for the three months ended March 31, 2022 and 2021 were $3.4 million and $2.7 million, respectively.

16. SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer. Our chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. We have one business activity, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, we have determined that we have one operating segment, and therefore, one reportable segment.

Revenue by geographic region is based on the billing address of our customers. The following tables set forth revenue and property and equipment—net by geographic region (in millions):


	Three Months Ended
Revenue	March 31, 2022		March 31, 2021
Americas:
United States	$	285.8	$	212.5
Other Americas	96.8		78.4
Total Americas	382.6		290.9
Europe, Middle East and Africa (“EMEA”)	346.0		275.7
Asia Pacific (“APAC”)	226.2		143.7
Total revenue	$	954.8	$	710.3


Property and Equipment—net	March 31, 2022		December 31, 2021
Americas:
United States	$	562.2	$	472.4
Canada	174.9		170.9
Latin America	1.4		1.6
Total Americas	738.5		644.9
EMEA	31.2		31.0
APAC	16.8		11.7
Total property and equipment—net	$	786.5	$	687.6

The following distributors accounted for 10% or more of our revenue:


	Three Months Ended
	March 31, 2022		March 31, 2021
Distributor A	29	%	32	%
Distributor B	14	%	*
Distributor C	13	%	11	%

Represents less than 10%

The following distributors accounted for 10% or more of net accounts receivable:


	March 31, 2022		December 31, 2021
Distributor A	29	%	33	%
Distributor B	13	%	13	%
Distributor C	13	%	13	%

17. SUBSEQUENT EVENTS

Common Stock Split

On April 14, 2022, our Board of Directors approved a five-for-one forward stock split of our common stock, conditioned on obtaining stockholder approval at our upcoming 2022 Annual Meeting of Stockholders to be held on June 17, 2022 (the “Stock Split”). If approved by our stockholders, the Stock Split would be effected through an amendment and restatement of our amended and restated certificate of incorporation.

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