Fortinet, Inc. · NASDAQ:FTNT
Fortinet — Investor Day (March 2021)
38 slides from Fortinet's investor day presentation, March 2021
Slide 1: Keith Jensen, Chief Financial Officer
Keith Jensen Chief Financial Officer
Slide 2: Safe Harbor Statement
Safe Harbor Statement Information, statements and projections contained in the 2021 Analyst Day presentation slides and related webcast concerning Fortinet’s business outlook, the Q1 and 2021 guidance, medium-term targets, and future prospects and expectations and any other forward-looking statement
Slide 3: Agenda
Agenda 1 Investment Thesis 2 Growth Drivers 3 Margins, Cash Flow and Capital 4 Consistency, Predictability and Visibility © Fortinet Inc. All Rights Reserved. 3
Slide 4: Investment Thesis
Investment Thesis 1 Cybersecurity is a massive market with growth driven by long-term secular tailwinds Fortinet is an industry leader with proprietary ASIC technology and an integrated 2 platform providing security anywhere in any form factor 3 Revenue is diversified across geographies, customer si
Slide 5: Who We Are
Who We Are 20 Years of Organic Growth $28B Market Cap (1) $3.1B ~$900M Nasdaq: FTNT FY2020 Billings Free Cash Flow A Leading Firewall Firm in S&P 500 Organic Revenue of $2.5B+ Top 10% FCF Margin of S&P 500 ~80% >25% BBB+ & Baa1 Gross Margin Operating Margin Investment Grade Rating Recurring Service
Slide 6: Fortinet Framework
Fortinet Framework Gain Market Share And Improve Profitability (2) Fortinet Growth Non-GAAP Operating Margin Market Revenue Over 30% Growth (1) Growth Market 26.9% 2017 13% 17% +4 25% 950 2018 12% 20% +8 bps 20% 2019 11% 20% +9 17.4% 2020 TBD 20% TBD 15% 10% 2017 2018 2019 2020 (1) Market growth bas
Slide 7: Solid Organic Growth at Scale
Solid Organic Growth at Scale Led by Growth in Higher Margin, More Predictable Service Revenue Total Revenue $2,594 $2,163 17% $916 Product $1,805 CAGR $1,498 22% Service $577 CAGR $1,678 65% $ In Millions $921 61% Service Revenue Conversion from Deferred Revenue (1) 2017 2018 2019 2020 92.0% 91.6%
Slide 8: Growth Drivers
ACCELERATE 2021 Growth Drivers
Slide 9: One Opportunity - TAM $93B+ by 2024
One Opportunity - TAM $93B+ by 2024 2020: $65B, Growing 4YR CAGR of 9.7% Network Security User/Device Security Cloud Security Security Ops $14B $48B $14B $18B WAF ADC VPN ZTNA Threat Intel CWPP SEG OT NAC IAM SOAR SIEM CASB 5G Network Firewall Endpoint Switching Web (SASE) NPMD (NOC) Wireless SD-WAN
Slide 10: Most Deployed Network Security
Most Deployed Network Security % of Units Shipped Customer Count 35% 500,000 30% 440,000 385,000 25% 340,000 20% 15% Cisco 10% Check Point 5% 2017 2018 2019 2020 Palo Alto Networks 0% 50K+ 45K+ 55K+ 60K+ 2017 2018 2019 2020 Net new end customers © Fortinet Inc. All Rights Reserved. 10 Source: IDC Wo
Slide 11: Secure SD-WAN
Secure SD-WAN Billings, Product Revenue and Pipeline Have Grown Rapidly Secure SD-WAN Billings Secure SD-WAN Pipeline $355 $ in Millions $221 $178 $134 $32 2018 2019 2020 2018 2019 2020 Product Revenue Deferred Revenue © Fortinet Inc. All Rights Reserved. 11 Note: Billings data is derived from invoi
Slide 12: Moving Up Market
Moving Up Market Deal Count Over $500K Billings for Deals Over $500K (1) 639 582 $736 $658 213 $ In Millions 425 $490 358 $397 130 426 228 2017 2018 2019 2020 2017 2018 2019 2020 Deals Over $500K Deals Over $1M © Fortinet Inc. All Rights Reserved. 12 (1) Excludes Telco. Billings data is derived from
Slide 13: FortiGate and Non-FortiGate Fabric Billings
FortiGate and Non-FortiGate Fabric Billings Billings top $3B in 2020, increased by ~$1B in two years Total 19% 20% 21% 19% Growth Y/Y $3,090 CAGR (2017 to 2020) $2,603 28% $ in Millions TOTAL 20% $2,153 $1,796 Non-FG Fabric 35% FortiGate Fabric 17% 23% 72% 77% 2017 2018 2019 2020 FortiGate Fabric No
Slide 14: Non-FortiGate Fabric Platform Billings
Non-FortiGate Fabric Platform Billings Fabric and Cloud Billings on pace to be a $1 billion business exiting this year $743 CAGR (2017 to 2020) $237 $533 $ in Millions Cloud 36% $400 Infrastructure Fabric 35% $299 $94 $505 $205 2017 2018 2019 2020 Infrastructure Fabric Cloud © Fortinet Inc. All Righ
Slide 15: Key Fabric Platform Solutions
Key Fabric Platform Solutions Fabric Fabric Infrastructure Infrastructure Cloud Solution Cloud Solution Fabric Fabric Cloud Security Management Center NOC & SOC Forti- Cloud Cloud Forti- Analyzer HW Cloud GateVM Cloud Cloud Cloud Mail HW Cloud EDR SW Cloud SASE(1) Cloud Manager HW Cloud Web HW Cloud
Slide 16: Margins, Cash Flow and Capital
Margins, Cash Flow and Capital
Slide 17: Improving Product and Service Gross Margin
Improving Product and Service Gross Margin Recurring Service Revenue is ~65% of Total Revenue with 88% Gross Margin Total Gross Margin 75% 76% 78% 79% $2,048 $1,678 $570 $1,373 $ in Millions $1,128 Product Gross Profit $338 Service Gross Profit $1,478 $790 2017 2018 2019 2020 Product Gross Margin 59
Slide 18: Improving Margins while Investing in Future Growth
Improving Margins while Investing in Future Growth Sales Leverage and Expense Discipline Drive Margin Growth 5500 30% 26.9% CAGR 2020 Headcount Mix 24.8% (2017-2020) 4500 22.5% 4,247 25% S&M HC 22% 5% G&A 3,494 20% 3500 17.4% 20% COGS 2,765 S&M 52% 2500 2,333 15% R&D 23% 1500 10% 500 5% ~8,200 Emplo
Slide 19: Growing Deferred Revenue and Free Cash Flow
Growing Deferred Revenue and Free Cash Flow Service Contracts Generating Free Cash Flow Deferred Revenue Free Cash Flow (1) Annual 29% 26% 27% 24% Growth $908 $2,605 $716 $2,109 $ In Millions $1,212 $586 $ In Millions $1,667 35% $459 $1,320 33% 32% $535 $1,393 31% $785 2017 2018 2019 2020 2017 2018
Slide 20: Fortinet is a Top 10% S&P Free Cash Flow Leader
Fortinet is a Top 10% S&P 500 Free Cash Flow Leader 2020 Free Cash Flow Margin (1) 75% 2020 Free Cash Flow (2) % Free Cash Flow Margin Top 10% 50% totaled $908M, or ~35% of Revenue 25% 0% 100 200 300 400 500 S&P 500 Companies -25% (1) Data as of December 31, 2020. © Fortinet Inc. All Rights Reserved
Slide 21: Strategic Capital Allocation And Investment
Strategic Capital Allocation And Investment Strong financial profile characterized by growing scale, strong cash flow generation, and conservative balance sheet and financial policies Intend to maintain appropriate amount of financial leverage and liquidity over the long-run • Targeted minimum c
Slide 22: Strategic Capital Allocation and Investment
Strategic Capital Allocation and Investment Focus on Innovation and Shareholder Return 377% 400% Stock Performance (2) Invest M&A Return 300% 243% Innovation Opportunistic Capital Return Extending our Since 2016, total 200% Our innovation Integrated Platform– shares repurchased 126% investment was O
Slide 23: Consistency, Predictability and Visibility
Consistency, Predictability and Visibility Financial Targets
Slide 24: Driving Consistent Execution
Driving Consistent Execution Average Contract Term Discount Rate +2% 28 mo. -2% 24 mo. Attach Rate Renewal Rate +2% -2% +2% FortiCare FortiGuard -2% +2% -2% © Fortinet Inc. All Rights Reserved. 24 Note: Each chart above compared to +/-2 of the 3 year average.
Slide 25: Revenue by Geography
Revenue by Geography Geographic Diversity Drives to Consistent Growth Geographic revenue mix remains very consistent 100% 20% 20% 20% 20% CAGR (2017 to 2020) TOTAL 20% 37% 38% 38% 38% APAC 21% EMEA 21% AMERICAS 19% 43% 42% 42% 42% 0% 2017 2018 2019 2020 APAC EMEA Americas © Fortinet Inc. All Rights
Slide 26: Billings Mix 2020
Billings Mix 2020 Diversified across Customer Segments, Geographies, and Industries Segment Geography Industry 34% 33% SMB 80+ 34% 32% All Others 49% Countries 50% Mid- 24% 22% Enterprise 66% 68% Enterprise 51% Top 6 Top 5 45% and 50% 43% Countries Industries MSSP/SP 2019 2020 2019 2020 2019 2020 To
Slide 27: Guidance for Q1'21 and 2021
Guidance for Q1’21 and 2021 As of February 4, 2021 Q1’21 2021 Guidance Guidance Billings $765-780M $3.560-3.640B Y/Y Mid-Pt Growth 16% 17% Revenue (GAAP) $670-685M $3.025-3.075B Y/Y Mid-Pt Growth 17% 18% Service Revenue (GAAP) $2.015-2.045B Y/Y Mid-Pt Growth 21% Gross Margin 78.5-79.5% 78.0-80.0% Op
Slide 28: Additional Modeling Points
Additional Modeling Points As of February 4, 2021 2021 Q1’21 Guidance Cash Paid for Taxes ~$80M Capital Expenditures $50-60M $150-170M Non-GAAP Tax Rate 21% 21% Shares Outstanding 167-169M 170-172M © Fortinet Inc. All Rights Reserved. 28 Note: In order to provide a more complete picture of our recur
Slide 29: Mid-Term Model: 2021-2023
Mid-Term Model: 2021-2023 Billings of ~$5B and Revenue of ~$4B by 2023 2023 2018 2019 2020 2021E Targets YoY Growth Billings 20% 21% 19% 17% ~$5B 3 Yr CAGR of ~17% Revenue (GAAP) 20% 20% 20% 18% ~$4B 3 Yr CAGR of 17% Gross Margin 76.1% 77.6% 78.9 78-80% ~80% Operating Margin 22.5% 24.8% 26.9% 25-27%
Slide 30: Investment Thesis
Investment Thesis 1 Cybersecurity is a massive market with growth driven by long-term secular tailwinds Fortinet is an industry leader with proprietary ASIC technology and an integrated 2 platform providing security anywhere in any form factor 3 Revenue diversified across geographies, customer size
Slide 31: Appendix
ACCELERATE 2021 Appendix
Slide 32: Broad, Diversified Global Footprint
Broad, Diversified Global Footprint Significant R&D Investment and Global Presence Vancouver Edinburgh Scotland Canada Sophia Headquarters France Ottawa Canada Herzliya Dev Centers Israel Centers of Excellence Sunnyvale Concord Support Centers US US Owned Real Estate / R&D Centers Bangalore India Ub
Slide 33: Seasoned Management Team With 20+ Years Average Experience
Seasoned Management Team With 20+ Years Average Experience Ken Xie Michael Xie Keith Jensen John Maddison Christiane Ohlgart Chairman of the Board and CEO President and CTO CFO & Chief Accounting Officer CMO and EVP, Products VP Finance 25+ years of experience 25+ years of experience 30+ years of ex
Slide 34: Reconciliation of Non-GAAP Results to GAAP Results
Reconciliation of Non-GAAP Results to GAAP Results $ in millions 2017 2018 2019 2020 Total revenue $1,497.7 $1,804.6 $2,163.0 $2,594.4 Add change in deferred revenue 298.2 347.1 442.3 496.2 Add deferred revenue adjustment due to adoption of the new revenue recognition standard - 4.1 - - Less deferre
Slide 35: Reconciliation of Non-GAAP Results to GAAP Results
Reconciliation of Non-GAAP Results to GAAP Results $ in millions 2017 2018 2019 2020 GAAP product gross profit $333.4 $383.4 $463.9 $564.0 Stock‐based compensation 1.4 1.5 1.5 1.6 Amortization of acquired intangible assets 3.8 6 6.5 4.7 Non‐GAAP product gross profit $338.6 $390.9 $471.9 $570.3 Non‐G
Slide 36: Reconciliation of Non-GAAP Results to GAAP Results
Reconciliation of Non-GAAP Results to GAAP Results $ in millions 2017 2018 2019 2020 GAAP operating income $112.6 $234.4 $351.0 $531.8 GAAP operating margin 8% 13% 16% 21% Stock‐based compensation 137.2 162.9 174.1 193.8 Amortization of acquired intangible assets 8.6 9.0 10.9 13.3 Restructuring char
Slide 37: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow $ in millions 2017 2018 2019 2020 Net cash provided by operating activities $594.4 $638.9 $808.0 $1,083.7 Less purchases of property and equipment (135.3) (53.0) (92.2) (125.9) Less proceeds from IP matter - - - (50.0) Free cash flow 459.1 585.9 715.8 907.8 Free cash
Slide 38: Fortinet Accelerate 2021
F=:RTINET. ACCELERATE 2021