filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
| June 30, 2022 | December 31, 2021 | |||||||||||||
| ASSETS | ||||||||||||||
| CURRENT ASSETS: | ||||||||||||||
| Cash and cash equivalents | $ | 710.0 | $ | 1,319.1 | ||||||||||
| Short-term investments | 1,020.6 | 1,194.0 | ||||||||||||
| Marketable equity securities | 24.3 | 38.6 | ||||||||||||
| Accounts receivable—net | 919.5 | 807.7 | ||||||||||||
| Inventory | 195.2 | 175.8 | ||||||||||||
| Prepaid expenses and other current assets | 83.3 | 65.4 | ||||||||||||
| Total current assets | 2,952.9 | 3,600.6 | ||||||||||||
| LONG-TERM INVESTMENTS | 188.5 | 440.8 | ||||||||||||
| PROPERTY AND EQUIPMENT—NET | 814.6 | 687.6 | ||||||||||||
| DEFERRED CONTRACT COSTS | 456.9 | 423.3 | ||||||||||||
| DEFERRED TAX ASSETS | 480.2 | 342.3 | ||||||||||||
| GOODWILL | 121.3 | 125.1 | ||||||||||||
| OTHER INTANGIBLE ASSETS—NET | 45.4 | 63.6 | ||||||||||||
| OTHER ASSETS | 234.7 | 235.8 | ||||||||||||
| TOTAL ASSETS | $ | 5,294.5 | $ | 5,919.1 | ||||||||||
| LIABILITIES AND EQUITY (DEFICIT) | ||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||
| Accounts payable | $ | 193.1 | $ | 148.4 | ||||||||||
| Accrued liabilities | 241.2 | 197.3 | ||||||||||||
| Accrued payroll and compensation | 187.4 | 195.0 | ||||||||||||
| Deferred revenue | 2,013.2 | 1,777.4 | ||||||||||||
| Total current liabilities | 2,634.9 | 2,318.1 | ||||||||||||
| DEFERRED REVENUE | 1,918.8 | 1,675.5 | ||||||||||||
| INCOME TAX LIABILITIES | 67.1 | 79.5 | ||||||||||||
| LONG-TERM DEBT | 989.4 | 988.4 | ||||||||||||
| OTHER LIABILITIES | 63.9 | 59.2 | ||||||||||||
| Total liabilities | 5,674.1 | 5,120.7 | ||||||||||||
| COMMITMENTS AND CONTINGENCIES (Note 11) | ||||||||||||||
| EQUITY (DEFICIT): | ||||||||||||||
| Common stock, $0.001 par value—1,500.0 shares authorized; 788.4 and 810.0 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 0.8 | 0.8 | ||||||||||||
| Additional paid-in capital | 1,237.3 | 1,253.6 | ||||||||||||
| Accumulated other comprehensive loss | (23.4) | (4.8) | ||||||||||||
| Accumulated deficit | (1,607.6) | (467.9) | ||||||||||||
| Total Fortinet, Inc. stockholders’ equity (deficit) | (392.9) | 781.7 | ||||||||||||
| Non-controlling interests | 13.3 | 16.7 | ||||||||||||
| Total equity (deficit) | (379.6) | 798.4 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY (DEFICIT) | $ | 5,294.5 | $ | 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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| REVENUE: | |||||||||||||||||||||||
| Product | $ | 400.7 | $ | 298.3 | $ | 771.7 | $ | 539.0 | |||||||||||||||
| Service | 629.4 | 502.8 | 1,213.2 | 972.4 | |||||||||||||||||||
| Total revenue | 1,030.1 | 801.1 | 1,984.9 | 1,511.4 | |||||||||||||||||||
| COST OF REVENUE: | |||||||||||||||||||||||
| Product | 155.2 | 115.6 | 316.2 | 206.9 | |||||||||||||||||||
| Service | 95.6 | 71.3 | 188.4 | 136.6 | |||||||||||||||||||
| Total cost of revenue | 250.8 | 186.9 | 504.6 | 343.5 | |||||||||||||||||||
| GROSS PROFIT: | |||||||||||||||||||||||
| Product | 245.5 | 182.7 | 455.5 | 332.1 | |||||||||||||||||||
| Service | 533.8 | 431.5 | 1,024.8 | 835.8 | |||||||||||||||||||
| Total gross profit | 779.3 | 614.2 | 1,480.3 | 1,167.9 | |||||||||||||||||||
| OPERATING EXPENSES: | |||||||||||||||||||||||
| Research and development | 124.3 | 106.6 | 249.2 | 203.8 | |||||||||||||||||||
| Sales and marketing | 415.5 | 326.9 | 803.1 | 630.9 | |||||||||||||||||||
| General and administrative | 45.4 | 34.4 | 84.0 | 66.4 | |||||||||||||||||||
| Gain on intellectual property matter | (1.2) | (1.2) | (2.3) | (2.3) | |||||||||||||||||||
| Total operating expenses | 584.0 | 466.7 | 1,134.0 | 898.8 | |||||||||||||||||||
| OPERATING INCOME | 195.3 | 147.5 | 346.3 | 269.1 | |||||||||||||||||||
| INTEREST INCOME | 2.4 | 1.2 | 3.7 | 2.3 | |||||||||||||||||||
| INTEREST EXPENSE | (4.5) | (4.5) | (9.0) | (5.8) | |||||||||||||||||||
| OTHER INCOME (EXPENSE)—NET | (9.3) | 0.8 | (18.4) | (1.2) | |||||||||||||||||||
| INCOME BEFORE INCOME TAXES AND LOSS FROM EQUITY METHOD INVESTMENT | 183.9 | 145.0 | 322.6 | 264.4 | |||||||||||||||||||
| PROVISION FOR (BENEFIT FROM) INCOME TAXES | 2.4 | 7.5 | (5.7) | 19.7 | |||||||||||||||||||
| LOSS FROM EQUITY METHOD INVESTMENT | (8.1) | — | (16.6) | — | |||||||||||||||||||
| NET INCOME INCLUDING NON-CONTROLLING INTERESTS | 173.4 | 137.5 | 311.7 | 244.7 | |||||||||||||||||||
| LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS, NET OF TAX | (0.1) | — | (0.2) | — | |||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO FORTINET, INC. | $ | 173.5 | $ | 137.5 | $ | 311.9 | $ | 244.7 | |||||||||||||||
| Net income per share attributable to Fortinet, Inc. (Note 9): | |||||||||||||||||||||||
| Basic | $ | 0.22 | $ | 0.17 | $ | 0.39 | $ | 0.30 | |||||||||||||||
| Diluted | $ | 0.21 | $ | 0.16 | $ | 0.38 | $ | 0.29 | |||||||||||||||
| Weighted-average shares used to compute net income per share attributable to Fortinet, Inc.: | |||||||||||||||||||||||
| Basic | 795.4 | 816.7 | 799.4 | 815.9 | |||||||||||||||||||
| Diluted | 810.1 | 835.4 | 815.4 | 833.7 |
See notes to condensed consolidated financial statements.
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Net income including non-controlling interests | $ | 173.4 | $ | 137.5 | $ | 311.7 | $ | 244.7 | |||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||
| Change in foreign currency translation | (8.3) | — | (12.8) | — | |||||||||||||||||||
| Change in unrealized losses on investments | (2.4) | (0.4) | (11.7) | (1.0) | |||||||||||||||||||
| Less: tax benefit related to items of other comprehensive income or loss | (0.6) | — | (2.7) | (0.2) | |||||||||||||||||||
| Other comprehensive loss | (10.1) | (0.4) | (21.8) | (0.8) | |||||||||||||||||||
| Comprehensive income including non-controlling interests | 163.3 | 137.1 | 289.9 | 243.9 | |||||||||||||||||||
| Less: comprehensive loss attributable to non-controlling interests | (2.2) | — | (3.4) | — | |||||||||||||||||||
| Comprehensive income attributable to Fortinet, Inc. | $ | 165.5 | $ | 137.1 | $ | 293.3 | $ | 243.9 |
See notes to condensed consolidated financial statements.
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(unaudited, in millions)
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Non-Controlling Interests | Total Equity (Deficit) | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| BALANCE—March 31, 2022 | 801.3 | $ | 0.8 | $ | 1,235.7 | $ | (15.4) | $ | (1,003.4) | $ | 15.5 | $ | 233.2 | ||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans - net of tax withholding | 1.5 | — | (30.8) | — | — | — | (30.8) | ||||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (14.4) | — | (22.3) | — | (777.7) | — | (800.0) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 54.7 | — | — | — | 54.7 | ||||||||||||||||||||||||||||||||||
| Net unrealized loss on investments - net of tax | — | — | — | (1.8) | — | — | (1.8) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | (6.2) | — | (2.1) | (8.3) | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | 173.5 | (0.1) | 173.4 | ||||||||||||||||||||||||||||||||||
| BALANCE—June 30, 2022 | 788.4 | $ | 0.8 | $ | 1,237.3 | $ | (23.4) | $ | (1,607.6) | $ | 13.3 | $ | (379.6) | ||||||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Non-Controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| BALANCE—March 31, 2021 | 816.5 | $ | 0.8 | $ | 1,224.6 | $ | 0.3 | $ | (244.9) | $ | — | $ | 980.8 | ||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans - net of tax withholding | 2.3 | — | (28.7) | — | — | — | (28.7) | ||||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (2.3) | — | (3.3) | — | (88.3) | — | (91.6) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 52.6 | — | — | — | 52.6 | ||||||||||||||||||||||||||||||||||
| Net unrealized loss on investments - net of tax | — | — | — | (0.4) | — | — | (0.4) | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 137.5 | — | 137.5 | ||||||||||||||||||||||||||||||||||
| BALANCE—June 30, 2021 | 816.5 | $ | 0.8 | $ | 1,245.2 | $ | (0.1) | $ | (195.7) | $ | — | $ | 1,050.2 |
See notes to condensed consolidated financial statements.
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Non-Controlling Interests | Total Equity (Deficit) | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| BALANCE—December 31, 2021 | 810.0 | $ | 0.8 | $ | 1,253.6 | $ | (4.8) | $ | (467.9) | $ | 16.7 | $ | 798.4 | ||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans - net of tax withholding | 4.2 | — | (84.6) | — | — | — | (84.6) | ||||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (25.8) | — | (39.6) | — | (1,451.6) | — | (1,491.2) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 107.9 | — | — | — | 107.9 | ||||||||||||||||||||||||||||||||||
| Net unrealized loss on investments - net of tax | — | — | — | (9.0) | — | — | (9.0) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | (9.6) | — | (3.2) | (12.8) | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | 311.9 | (0.2) | 311.7 | ||||||||||||||||||||||||||||||||||
| BALANCE—June 30, 2022 | 788.4 | $ | 0.8 | $ | 1,237.3 | $ | (23.4) | $ | (1,607.6) | $ | 13.3 | $ | (379.6) | ||||||||||||||||||||||||||||
| Six Months Ended June 30, 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 | 812.7 | $ | 0.8 | $ | 1,206.6 | $ | 0.7 | $ | (352.1) | $ | — | $ | 856.0 | ||||||||||||||||||||||||||||
| Issuance of common stock in connection with equity incentive plans - net of tax withholding | 6.1 | — | (60.2) | — | — | — | (60.2) | ||||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (2.3) | — | (3.3) | — | (88.3) | — | (91.6) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 102.1 | — | — | — | 102.1 | ||||||||||||||||||||||||||||||||||
| Net unrealized gain on investments - net of tax | — | — | — | (0.8) | — | — | (0.8) | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 244.7 | — | 244.7 | ||||||||||||||||||||||||||||||||||
| BALANCE—June 30, 2021 | 816.5 | $ | 0.8 | $ | 1,245.2 | $ | (0.1) | $ | (195.7) | $ | — | $ | 1,050.2 |
See notes to condensed consolidated financial statements.
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
| Six Months Ended | |||||||||||
| June 30, 2022 | June 30, 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income including non-controlling interests | $ | 311.7 | $ | 244.7 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Stock-based compensation | 107.9 | 102.1 | |||||||||
| Amortization of deferred contract costs | 107.1 | 81.8 | |||||||||
| Depreciation and amortization | 50.6 | 36.2 | |||||||||
| Amortization of investment premiums | 2.8 | 2.9 | |||||||||
| Loss from equity method investment | 16.6 | — | |||||||||
| Other | 22.8 | 0.3 | |||||||||
| Changes in operating assets and liabilities, net of impact of business combinations: | |||||||||||
| Accounts receivable—net | (119.3) | 135.6 | |||||||||
| Inventory | (31.2) | (20.1) | |||||||||
| Prepaid expenses and other current assets | (18.2) | (16.4) | |||||||||
| Deferred contract costs | (140.6) | (124.8) | |||||||||
| Deferred tax assets | (136.3) | (25.8) | |||||||||
| Other assets | (16.7) | (11.8) | |||||||||
| Accounts payable | 52.7 | (9.5) | |||||||||
| Accrued liabilities | 30.1 | 21.3 | |||||||||
| Accrued payroll and compensation | (6.8) | 18.7 | |||||||||
| Other liabilities | 5.7 | (1.2) | |||||||||
| Deferred revenue | 480.6 | 300.1 | |||||||||
| Net cash provided by operating activities | 719.5 | 734.1 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of investments | (389.1) | (1,262.5) | |||||||||
| Sales of investments | 3.0 | 71.4 | |||||||||
| Maturities of investments | 797.3 | 600.3 | |||||||||
| Purchases of property and equipment | (162.5) | (75.6) | |||||||||
| Purchase of investment in privately held company | — | (75.0) | |||||||||
| Payments made in connection with business combinations, net of cash acquired | — | (10.3) | |||||||||
| Net cash provided by (used in) investing activities | 248.7 | (751.7) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from long-term borrowings, net of discount and underwriting fees | — | 989.4 | |||||||||
| Payments for debt issuance costs | — | (2.4) | |||||||||
| Repurchase and retirement of common stock | (1,491.2) | (91.6) | |||||||||
| Proceeds from issuance of common stock | 15.9 | 15.8 | |||||||||
| Taxes paid related to net share settlement of equity awards | (99.9) | (76.0) | |||||||||
| Other | (1.1) | (0.1) | |||||||||
| Net cash provided by (used in) financing activities | (1,576.3) | 835.1 | |||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (1.0) | — | |||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (609.1) | 817.5 | |||||||||
| CASH AND CASH EQUIVALENTS—Beginning of period | 1,319.1 | 1,061.8 | |||||||||
| CASH AND CASH EQUIVALENTS—End of period | $ | 710.0 | $ | 1,879.3 | |||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid for income taxes—net | $ | 129.1 | $ | 48.3 | |||||||
| Operating lease liabilities arising from obtaining right-of-use assets | $ | 30.8 | $ | 21.1 | |||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||||||||||
| Transfers of evaluation units from inventory to property and equipment | $ | 6.9 | $ | 10.3 | |||||||
| Liability for purchase of property and equipment | $ | 21.4 | $ | 33.5 | |||||||
| 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 and six months ended June 30, 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.
On April 14, 2022, our Board of Directors approved a five-for-one forward stock split of our common stock (the "Forward Stock Split"), which was conditioned upon obtaining stockholder approval for the Forward Stock Split, and to increase the number of our authorized shares of common stock. On June 17, 2022, at our 2022 Annual Meeting of Stockholders, our stockholders approved the Forward Stock Split and the amendment and restatement of our amended and restated certificate of incorporation to increase the number of authorized shares of common stock from 300 million to 1.5 billion. The par value of our common stock was not adjusted as a result of the Forward Stock Split. Effective June 22, 2022, we filed our amended and restated certification of incorporation and completed the Forward Stock Split. All share and per share amounts and related stockholders’ equity (deficit) balances presented herein have been retroactively adjusted to reflect the Forward Stock Split.
There have been no material changes to our significant accounting policies as of and for the three and six months ended June 30, 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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Product | $ | 400.7 | $ | 298.3 | $ | 771.7 | $ | 539.0 | |||||||||||||||
| Service: | |||||||||||||||||||||||
| Security subscription | 340.4 | 272.9 | 653.3 | 528.2 | |||||||||||||||||||
| Technical support and other | 289.0 | 229.9 | 559.9 | 444.2 | |||||||||||||||||||
| Total service revenue | 629.4 | 502.8 | 1,213.2 | 972.4 | |||||||||||||||||||
| Total revenue | $ | 1,030.1 | $ | 801.1 | $ | 1,984.9 | $ | 1,511.4 |
Deferred Revenue
During the three and six months ended June 30, 2022, we recognized $457.6 million and $964.9 million in service revenue that was included in the deferred revenue balance as of December 31, 2021, respectively. During the three and six months ended June 30, 2021, we recognized $371.2 million and $789.1 million in service revenue that was included in the deferred revenue balance as of December 31, 2020, respectively.
Transaction Price Allocated to the Remaining Performance Obligations
As of June 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $3.93 billion, which was substantially comprised of deferred security subscription and technical support services revenue. We expect to recognize approximately $2.01 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 $5.2 million and $2.4 million as of June 30, 2022 and December 31, 2021, respectively. Provisions, write-offs and recoveries were not material during the six months ended June 30, 2022 and 2021.
Deferred Contract Costs
Amortization of deferred contract costs during the three months ended June 30, 2022 and 2021 were $54.6 million and $42.1 million, respectively. Amortization of deferred contract costs during the six months ended June 30, 2022 and 2021 were $107.1 million and $81.8 million, respectively.
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3. FINANCIAL INSTRUMENTS AND FAIR VALUE
Available-for-sale Securities
The following tables summarize our available-for-sale securities (in millions):
| June 30, 2022 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Corporate debt securities | $ | 410.6 | $ | — | $ | (6.2) | $ | 404.4 | |||||||||||||||
| U.S. government and agency securities | 380.2 | — | (6.1) | 374.1 | |||||||||||||||||||
| Commercial paper | 306.4 | — | (1.4) | 305.0 | |||||||||||||||||||
| Certificates of deposit and term deposits | 120.8 | — | (0.4) | 120.4 | |||||||||||||||||||
| Municipal bonds | 5.3 | — | (0.1) | 5.2 | |||||||||||||||||||
| Total available-for-sale securities | $ | 1,223.3 | $ | — | $ | (14.2) | $ | 1,209.1 |
| December 31, 2021 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Corporate debt securities | $ | 540.7 | $ | — | $ | (1.2) | $ | 539.5 | |||||||||||||||
| U.S. government and agency securities | 356.1 | — | (1.0) | 355.1 | |||||||||||||||||||
| Commercial paper | 566.0 | — | (0.2) | 565.8 | |||||||||||||||||||
| 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):
| June 30, 2022 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| Corporate debt securities | $ | 376.2 | $ | (5.8) | $ | 25.7 | $ | (0.4) | $ | 401.9 | $ | (6.2) | |||||||||||||||||||||||
| U.S. government and agency securities | 359.3 | (5.9) | 14.9 | (0.2) | 374.2 | (6.1) | |||||||||||||||||||||||||||||
| Commercial paper | 303.0 | (1.4) | — | — | 303.0 | (1.4) | |||||||||||||||||||||||||||||
| Certificates of deposit and term deposits | 113.3 | (0.4) | — | — | 113.3 | (0.4) | |||||||||||||||||||||||||||||
| Municipal bonds | 5.1 | (0.1) | — | — | 5.1 | (0.1) | |||||||||||||||||||||||||||||
| Total available-for-sale securities | $ | 1,156.9 | $ | (13.6) | $ | 40.6 | $ | (0.6) | $ | 1,197.5 | $ | (14.2) |
| December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| 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) | |||||||||||||||||||||||||||||
| Commercial paper | 288.0 | (0.2) | — | — | 288.0 | (0.2) | |||||||||||||||||||||||||||||
| 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):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Due within one year | $ | 1,020.6 | $ | 1,194.0 | |||||||
| Due within one to three years | 188.5 | 440.8 | |||||||||
| Total | $ | 1,209.1 | $ | 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 (deficit) and in comprehensive income. We do not intend to sell any of the securities in an unrealized loss position and it is not more likely than not that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity.
Realized gains and losses on available-for-sale securities were insignificant in the periods presented.
Marketable Equity Securities
Our marketable equity securities were $24.3 million and $38.6 million as of June 30, 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 $8.1 million and $14.3 million loss during the three and six months ended June 30, 2022, respectively. We recognized $0.5 million and $0.8 million gain during the three and six months ended June 30, 2021, respectively.
Fair Value of Financial Instruments
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)
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):
| June 30, 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: | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | 404.4 | $ | — | $ | 404.4 | $ | — | $ | 542.5 | $ | — | $ | 542.5 | $ | — | |||||||||||||||||||||||||||||||
| U.S. government and agency securities | 374.1 | 364.6 | 9.5 | — | 355.1 | 345.2 | 9.9 | — | |||||||||||||||||||||||||||||||||||||||
| Commercial paper | 305.0 | — | 305.0 | — | 580.3 | — | 580.3 | — | |||||||||||||||||||||||||||||||||||||||
| Certificates of deposit and term deposits | 120.5 | — | 120.5 | — | 259.0 | — | 259.0 | — | |||||||||||||||||||||||||||||||||||||||
| Money market funds | 277.7 | 277.7 | — | — | 57.5 | 57.5 | — | — | |||||||||||||||||||||||||||||||||||||||
| Municipal bonds | 5.2 | — | 5.2 | — | 5.4 | — | 5.4 | — | |||||||||||||||||||||||||||||||||||||||
| Marketable equity securities | 24.3 | 24.3 | — | — | 38.6 | 38.6 | — | — | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,511.2 | $ | 666.6 | $ | 844.6 | $ | — | $ | 1,838.4 | $ | 441.3 | $ | 1,397.1 | $ | — | |||||||||||||||||||||||||||||||
| Reported as: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents | $ | 277.8 | $ | 165.0 | |||||||||||||||||||||||||||||||||||||||||||
| Marketable equity securities | 24.3 | 38.6 | |||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | 1,020.6 | 1,194.0 | |||||||||||||||||||||||||||||||||||||||||||||
| Long-term investments | 188.5 | 440.8 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,511.2 | $ | 1,838.4 |
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2022 and year ended December 31, 2021.
4. INVENTORY
Inventory consisted of the following (in millions):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Raw materials | $ | 41.3 | $ | 40.2 | |||||||
| Work in process | 9.6 | 9.8 | |||||||||
| Finished goods | 144.3 | 125.8 | |||||||||
| Inventory | $ | 195.2 | $ | 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):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Land | $ | 253.4 | $ | 204.5 | |||||||
| Buildings and improvements | 475.3 | 416.2 | |||||||||
| Computer equipment and software | 207.8 | 176.1 | |||||||||
| Leasehold improvements | 48.8 | 40.1 | |||||||||
| Evaluation units | 14.0 | 15.6 | |||||||||
| Furniture and fixtures | 30.4 | 26.9 | |||||||||
| Construction-in-progress | 27.5 | 19.9 | |||||||||
| Total property and equipment | 1,057.2 | 899.3 | |||||||||
| Less: accumulated depreciation | (242.6) | (211.7) | |||||||||
| Property and equipment—net | $ | 814.6 | $ | 687.6 |
Depreciation expense was $19.1 million and $15.3 million during the three months ended June 30, 2022 and 2021, respectively. Depreciation expense was $38.2 million and $29.3 million during the six months ended June 30, 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 for a 32.6% ownership interest in this privately-held company. 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 June 30, 2022 and December 31, 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 $8.1 million and $16.6 million for the three and six months ended June 30, 2022, and has been recorded in loss from equity method investment on the condensed consolidated statements of income. As of June 30, 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.
Due to the presence of impairment indicators, such as a series of operating losses, we evaluated our equity method investment for an other-than-temporary impairment (“OTTI”) during the three months ended June 30, 2022. We considered various factors in determining whether an OTTI has occurred, including the limited operating history available, our ability and intent to hold the investment until its fair value recovers, the implied revenue valuation multiples compared to guideline public companies, Linksys’ ability to achieve milestones and any notable operational and strategic changes. After the evaluation, we determined that an OTTI has not occurred as of June 30, 2022 and as of the date of this Quarterly Report on Form 10-Q. However, we may be required to recognize an impairment loss in future reporting periods if and when our evaluation of the aforementioned factors indicates that the investment in Linksys is determined to be other than temporarily impaired. Such determination will be based on the prevailing facts and circumstances at that time, including the reported results and disclosures of Linksys.
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 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.
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2021 | June 30, 2021 | ||||||||||||||||||||||
| Pro forma revenue | $ | 825.2 | $ | 1,572.6 | |||||||||||||||||||
| Pro forma net income attributable to Fortinet, Inc. | $ | 134.9 | $ | 242.4 |
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 | (3.8) | ||||
| Balance—June 30, 2022 | $ | 121.3 |
There were no impairments to goodwill during the six months ended June 30, 2022 or during prior periods.
Other Intangible Assets—Net
The following tables present other intangible assets—net (in millions, except years):
| June 30, 2022 | |||||||||||||||||||||||
| Weighted-Average Useful Life (in Years) | Gross | Accumulated Amortization | Net | ||||||||||||||||||||
| Other intangible assets—net: | |||||||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||
| Developed technologies | 4.0 | $ | 78.2 | $ | 45.7 | $ | 32.5 | ||||||||||||||||
| Customer relationships | 5.7 | 20.7 | 13.1 | 7.6 | |||||||||||||||||||
| Trade name | 10.0 | 5.1 | 0.4 | 4.7 | |||||||||||||||||||
| Backlog | 1.0 | 4.0 | 3.4 | 0.6 | |||||||||||||||||||
| Total other intangible assets—net | $ | 108.0 | $ | 62.6 | $ | 45.4 |
| 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 $6.0 million and $3.5 million during the three months ended June 30, 2022 and 2021, respectively. Amortization expense was $12.4 million and $6.9 million during the six months ended June 30, 2022 and 2021, respectively.
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes estimated future amortization expense of finite-lived intangible assets—net (in millions):
| Amount | |||||
| Years: | |||||
| 2022 (the remainder of 2022) | $ | 9.1 | |||
| 2023 | 14.9 | ||||
| 2024 | 10.2 | ||||
| 2025 | 5.2 | ||||
| 2026 | 1.1 | ||||
| Thereafter | 4.9 | ||||
| Total | $ | 45.4 |
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.
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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income including non-controlling interests | $ | 173.4 | $ | 137.5 | $ | 311.7 | $ | 244.7 | |||||||||||||||
| Net loss attributable to non-controlling interests | (0.1) | — | (0.2) | — | |||||||||||||||||||
| Net income attributable to Fortinet, Inc. | $ | 173.5 | $ | 137.5 | $ | 311.9 | $ | 244.7 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic shares: | |||||||||||||||||||||||
| Weighted-average common stock outstanding-basic | 795.4 | 816.7 | 799.4 | 815.9 | |||||||||||||||||||
| Diluted shares: | |||||||||||||||||||||||
| Weighted-average common stock outstanding-basic | 795.4 | 816.7 | 799.4 | 815.9 | |||||||||||||||||||
| Effect of potentially dilutive securities: | |||||||||||||||||||||||
| RSUs | 6.4 | 11.0 | 7.5 | 10.6 | |||||||||||||||||||
| Stock options | 8.3 | 7.7 | 8.5 | 7.2 | |||||||||||||||||||
| Weighted-average shares used to compute diluted net income per share attributable to Fortinet, Inc. | 810.1 | 835.4 | 815.4 | 833.7 | |||||||||||||||||||
| Net income per share attributable to Fortinet, Inc.: | |||||||||||||||||||||||
| Basic | $ | 0.22 | $ | 0.17 | $ | 0.39 | $ | 0.30 | |||||||||||||||
| Diluted | $ | 0.21 | $ | 0.16 | $ | 0.38 | $ | 0.29 |
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| RSUs | 0.4 | 0.4 | 0.4 | 1.1 | |||||||||||||||||||
| Stock options | 1.6 | 2.5 | 1.2 | 2.1 | |||||||||||||||||||
| Total | 2.0 | 2.9 | 1.6 | 3.2 |
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 June 30, 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.
The total outstanding debt is summarized below (in millions, except percentages):
| Maturity | Coupon Rate | Effective Interest Rate | June 30, 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 | 10.6 | 11.6 | |||||||||||||||||||||||||||
| Total long-term debt | $ | 989.4 | $ | 988.4 |
As of June 30, 2022 and December 31, 2021, we accrued interest payable of $4.7 million, and there are no financial covenants with which we must comply. During the three months ended June 30, 2022 and 2021 we recorded $4.5 million of total interest expense in relation to these Senior Notes in each quarter. During the six months ended June 30, 2022 and 2021 we recorded $9.0 million and $5.8 million of total interest expense in relation to these Senior Notes, respectively. No interest costs were capitalized for the three months or six months ended June 30, 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 $848.4 million, including accrued and unpaid interest, as of June 30, 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.
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11. COMMITMENTS AND CONTINGENCIES
The following table summarizes our inventory purchase commitments as of June 30, 2022 (in millions):
| Total | 2022 | Thereafter | |||||||||||||||
| Inventory purchase commitments | $ | 1,492.1 | $ | 1,203.4 | $ | 288.7 |
Inventory Purchase Commitments—Our independent contract manufacturers and certain component suppliers procure components and build our products based on our forecasts and the availability of various components. 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. 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 June 30, 2022 and December 31, 2021, we had $1.49 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 June 30, 2022 and December 31, 2021, we had $117.1 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 $80.0 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 the 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 June 30, 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
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
12. EQUITY (DEFICIT)
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 June 30, 2022, there were a total of 57.3 million shares of common stock available for grant under the Amended Plan.
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 | 15.7 | $ | 27.06 | ||||||||
| Granted | 2.7 | 60.67 | |||||||||
| Forfeited | (0.7) | 33.06 | |||||||||
| Vested | (4.9) | 22.36 | |||||||||
| Balance—June 30, 2022 | 12.8 | $ | 35.61 |
Stock compensation expense is recognized on a straight-line basis over the vesting period of each RSU. As of June 30, 2022, total compensation expense related to unvested RSUs granted to employees and non-employees under the Amended Plan, but not yet recognized, was $413.7 million, with a weighted-average remaining vesting period of 2.7 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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Shares withheld for taxes | 0.6 | 0.9 | 1.7 | 2.2 | |||||||||||||||||||
| Amount withheld for taxes | $ | 35.3 | $ | 34.7 | $ | 100.1 | $ | 76.1 |
Employee Stock Options
The following table summarizes the weighted-average assumptions relating to our employee stock options:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Expected term in years | 4.4 | 4.4 | 4.4 | 4.4 | |||||||||||||||||||
| Volatility | 43.6 | % | 36.6 | % | 41.1 | % | 39.4 | % | |||||||||||||||
| Risk-free interest rate | 2.9 | % | 0.7 | % | 1.9 | % | 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 | 13.7 | $ | 18.57 | 4.0 | $ | 729.9 | |||||||||||||||||
| Granted | 1.4 | 61.71 | |||||||||||||||||||||
| Forfeited | (0.1) | 35.94 | |||||||||||||||||||||
| Exercised | (1.0) | 16.30 | |||||||||||||||||||||
| Balance—June 30, 2022 | 14.0 | $ | 22.83 | ||||||||||||||||||||
| Options vested and expected to vest—June 30, 2022 | 14.0 | $ | 22.83 | 3.8 | $ | 482.2 | |||||||||||||||||
| Options exercisable—June 30, 2022 | 9.0 | $ | 14.10 | 2.9 | $ | 383.8 |
The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted market price of our common stock on June 30, 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 June 30, 2022, total compensation expense related to unvested stock options granted to employees but not yet recognized was $61.6 million, with a weighted-average remaining vesting period of 2.9 years.
Additional information related to our stock options is summarized below (in millions, except per share amounts):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Weighted-average fair value per share granted | $ | 21.33 | $ | 12.28 | $ | 22.28 | $ | 11.35 | |||||||||||||||
| Intrinsic value of options exercised | $ | 13.8 | $ | 16.9 | $ | 43.7 | $ | 39.3 | |||||||||||||||
| Fair value of options vested | $ | 4.8 | $ | 3.7 | $ | 15.0 | $ | 10.7 |
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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Cost of product revenue | $ | 0.4 | $ | 0.5 | $ | 0.8 | $ | 0.9 | |||||||||||||||
| Cost of service revenue | 4.7 | 3.8 | 9.2 | 7.3 | |||||||||||||||||||
| Research and development | 16.1 | 14.5 | 31.2 | 27.5 | |||||||||||||||||||
| Sales and marketing | 26.4 | 27.7 | 53.1 | 54.5 | |||||||||||||||||||
| General and administrative | 7.7 | 7.0 | 14.9 | 13.3 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 55.3 | $ | 53.5 | $ | 109.2 | $ | 103.5 |
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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| RSUs | $ | 49.0 | $ | 48.5 | $ | 97.3 | $ | 94.3 | |||||||||||||||
| Stock options | 6.3 | 5.0 | 11.9 | 9.2 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 55.3 | $ | 53.5 | $ | 109.2 | $ | 103.5 |
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 | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Income tax benefit associated with stock-based compensation | $ | 12.2 | $ | 11.8 | $ | 24.0 | $ | 22.8 |
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. Refer to Note 16. Subsequent Events for information of the approved $1.0 billion increase in the authorized stock repurchase under the Repurchase Program in July 2022.
During the three and six months ended June 30, 2022, we repurchased 14.4 million and 25.8 million shares of common stock, respectively, under the Repurchase Program in open-market transactions at a weighted-average price of $55.45 per share and $57.82 per share, respectively, for an aggregate purchase price of $800.0 million and $1.49 billion, respectively. As of June 30, 2022, $29.6 million remained available for future share repurchases under the Repurchase Program.
13. INCOME TAXES
Our effective tax rate was 1% for the three months ended June 30, 2022, compared to an effective tax rate of 5% for the same period last year. Our effective tax rate was negative 2% for the six months ended June 30, 2022, compared to an effective tax rate of 7% 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 June 30, 2022 and 2021 were composed of U.S. federal and state taxes, withholding taxes and foreign taxes that amounted to $54.5 million and $38.0 million, respectively. The tax rate for the three months ended June 30, 2022 was impacted by a tax benefit of $18.6 million from the FDII deduction, excess tax benefits from stock-based compensation expense of $17.3 million and release of reserves of $16.2 million on uncertain tax positions and the accrued interest thereon due to the expiration of the statute of limitations. The tax rate for the three months ended June 30, 2021 was impacted by a tax benefit of $7.1 million from the FDII deduction, excess tax benefits from stock-based compensation expense of $18.2 million and release of reserves of $5.2 million on uncertain tax positions and the accrued interest thereon due to the expiration of the statute of limitations.
The tax rates for the six months ended June 30, 2022 and 2021 were composed of U.S. federal and state taxes, withholding taxes and foreign taxes that amounted to $93.3 million and $75.4 million, respectively. The tax rate for the six months ended June 30, 2022 was impacted by a tax benefit of $33.3 million from the FDII deduction, excess tax benefits from stock-based compensation expense of $49.5 million and release of reserves of $16.2 million on uncertain tax positions and the accrued interest thereon due to the expiration of the statute of limitations. The tax rate for the six months ended June 30, 2021 was impacted by a tax benefit of $15.2 million from the FDII deduction, excess tax benefits from stock-based compensation
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
expense of $35.3 million and release of reserves of $5.2 million on uncertain tax positions and the accrued interest thereon due to the expiration of the statute of limitations.
As of June 30, 2022 and December 31, 2021, unrecognized tax benefits were $64.9 million and $73.3 million, respectively. If recognized, $56.6 million of the unrecognized tax benefits as of June 30, 2022 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 June 30, 2022 and December 31, 2021, accrued interest and penalties were $9.8 million and $13.3 million, respectively. It is reasonably possible that our gross unrecognized tax benefits will decrease by up to $21.1 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 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 six months ended June 30, 2022 by approximately $9.3 million.
14. 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 pre-tax 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 June 30, 2022 and 2021 were $3.2 million and $2.7 million, respectively. Our matching contributions to our 401(k) Plan and the RRSP for the six months ended June 30, 2022 and 2021 were $6.6 million and $5.4 million, respectively.
15. 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 | Six Months Ended | ||||||||||||||||||||||
| Revenue | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||||||||
| Americas: | |||||||||||||||||||||||
| United States | $ | 312.9 | $ | 251.7 | $ | 598.7 | $ | 464.2 | |||||||||||||||
| Other Americas | 100.7 | 85.3 | 197.5 | 163.7 | |||||||||||||||||||
| Total Americas | 413.6 | 337.0 | 796.2 | 627.9 | |||||||||||||||||||
| Europe, Middle East and Africa (“EMEA”) | 391.8 | 306.2 | 737.8 | 581.9 | |||||||||||||||||||
| Asia Pacific (“APAC”) | 224.7 | 157.9 | 450.9 | 301.6 | |||||||||||||||||||
| Total revenue | $ | 1,030.1 | $ | 801.1 | $ | 1,984.9 | $ | 1,511.4 |
| Property and Equipment—net | June 30, 2022 | December 31, 2021 | |||||||||
| Americas: | |||||||||||
| United States | $ | 564.0 | $ | 472.4 | |||||||
| Canada | 196.5 | 170.9 | |||||||||
| Latin America | 1.3 | 1.6 | |||||||||
| Total Americas | 761.8 | 644.9 | |||||||||
| EMEA | 34.1 | 31.0 | |||||||||
| APAC | 18.7 | 11.7 | |||||||||
| Total property and equipment—net | $ | 814.6 | $ | 687.6 |
The following distributors accounted for 10% or more of our revenue:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Distributor A | 29 | % | 31 | % | 29 | % | 32 | % | |||||||||||||||
| Distributor B | 14 | % | 12 | % | 14 | % | 12 | % | |||||||||||||||
| Distributor C | 13 | % | * | 14 | % | * | |||||||||||||||||
- Represents less than 10%
The following distributors accounted for 10% or more of net accounts receivable:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Distributor A | 30 | % | 33 | % | |||||||
| Distributor B | 12 | % | 13 | % | |||||||
| Distributor C | 16 | % | 13 | % | |||||||
FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
16. SUBSEQUENT EVENTS
Real property purchase
In July 2022, we purchased real property in Union City totaling approximately 59,000 square feet for a cash payment of $65.3 million.
Share Repurchase Program
In July 2022, our board of directors approved a $1.00 billion increase in the authorized stock repurchase under our share repurchase program. As of August 4, 2022, approximately $1.03 billion remained available for future share repurchases.
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