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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from              to             
Commission file number: 001-34511
______________________________________
FORTINET, INC.
(Exact name of registrant as specified in its charter)
______________________________________

Delaware77-0560389
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

899 Kifer Road
Sunnyvale, California 94086
(Address of principal executive offices, including zip code)

(408) 235-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 Par ValueFTNTThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 


Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes       No  
As of November 4, 2022, there were 781,236,011 shares of the registrant’s common stock outstanding.




FORTINET, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2022
Table of Contents
 
  Page
PART IFINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.






Summary of Risk Factors

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. Some of the principal risks and uncertainties include the following:

Our operating results are likely to vary significantly and be unpredictable.

The effects of the COVID-19 pandemic, including its ongoing variants, will likely continue to adversely affect our business in a significant way, for example, through product and component shortages, longer product lead times, changes in customer buying-behavior including delays in service contract registrations, accelerating or delaying purchases, changes in the mix of backlog and the related margins or a negative impact on demand.

Adverse economic conditions, such as a possible recession and possible impacts of inflation or stagflation, rising interest rates or reduced information technology spending may adversely impact our business.

Our billings, revenue, and free cash flow growth may slow or may not continue, and our operating margins may decline.

We are dependent on the continued services and performance of our senior management, as well as our ability to hire, retain and motivate qualified personnel, particularly for our sales organization.

We rely on third-party channel partners for substantially all of our revenue and a small number of distributors represents a large percentage of our revenue and accounts receivable.

Reliance on a concentration of shipments at the end of the quarter could cause our billings and revenue to fall below expected levels or delay collections and the related addition to free cash flow.

We rely significantly on revenue from FortiGuard security subscription and FortiCare technical support services, and revenue from these services may decline or fluctuate.

We have incurred indebtedness and may incur other debt in the future, which may adversely affect our financial condition and future financial results.

We generate a majority of revenue and cash flow from sales outside of the United States.

The war in Ukraine, related macroeconomic effects and our decision to suspend operations in Russia have affected and may continue to affect our business.

We may not be successful in executing our strategy to increase our sales to large- and medium-sized end-customers.

A portion of our revenue is generated by sales to government organizations and customers, which are subject to a number of regulatory requirements, challenges and risks.

We face intense competition in our market and we may not maintain or improve our competitive position.

Insufficient inventory or components, including finished goods, chips and other components, and including component or inventory shortages related to the COVID-19 pandemic, manufacturer’s capacity, shipping challenges, delays in timing of receipts of inventory, or other factors affecting the global supply chain, may result in lost sales opportunities or delayed billings and revenue and increased costs, and may harm our gross margins and our product price increases designed to help mitigate lower gross margins may not be acceptable to customers.

We depend on third-party manufacturers to provide various components for our products and build our products and are susceptible to manufacturing delays, capacity constraints and cost increases.

We may be adversely affected by the effects of inflation or stagflation in certain geographies, rising interest rates and by the effects of an economic downturn and possible recession.

1


We are susceptible to supply chain constraints, supply shortages and disruptions, long lead times for components and finished goods and supply changes because some of the key components in our products come from limited sources of supply.

We are susceptible to defects or vulnerabilities in our products or services, as well as reputational harm from the failure or misuse of our products or services, and any actual or perceived defects or vulnerabilities in our products or services or the failure of our products or services to detect or prevent a security breach could harm our reputation, even more so than with other companies given that we are a security company.

Our inability to successfully acquire and integrate other businesses, products or technologies, or to successfully invest in and form successful strategic alliances with other businesses, could seriously harm our competitive position and could negatively affect our financial condition and results of operations. In addition, any potential future impairment of the value of our investment in Linksys Holdings, Inc. (“Linksys”) could negatively affect our financial condition and results of operations.

Investors’ and regulators’ expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

Our proprietary rights may be difficult to enforce and we may be subject to claims by others that we infringe their proprietary technology.

The trading price of our common stock may be volatile, which volatility may be exacerbated by share repurchases under our Share Repurchase Program (the “Repurchase Program”).

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Global economic uncertainty and weakening product demand caused by political instability, changes in trade agreements and conflicts, such as the war in Ukraine, could adversely affect our business and financial performance.
2

PART I—FINANCIAL INFORMATION

ITEM 1.     Financial Statements
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 September 30,
2022
December 31,
2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$964.0 $1,319.1 
Short-term investments739.5 1,194.0 
Marketable equity securities26.9 38.6 
Accounts receivable—net 963.2 807.7 
Inventory215.8 175.8 
Prepaid expenses and other current assets72.8 65.4 
Total current assets2,982.2 3,600.6 
LONG-TERM INVESTMENTS84.0 440.8 
PROPERTY AND EQUIPMENT—NET889.5 687.6 
DEFERRED CONTRACT COSTS480.5 423.3 
DEFERRED TAX ASSETS515.5 342.3 
GOODWILL120.2 125.1 
OTHER INTANGIBLE ASSETS—NET38.8 63.6 
OTHER ASSETS225.2 235.8 
TOTAL ASSETS$5,335.9 $5,919.1 
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable$215.1 $148.4 
Accrued liabilities244.8 197.3 
Accrued payroll and compensation190.7 195.0 
Deferred revenue2,129.0 1,777.4 
Total current liabilities2,779.6 2,318.1 
DEFERRED REVENUE2,064.5 1,675.5 
INCOME TAX LIABILITIES67.8 79.5 
LONG-TERM DEBT989.9 988.4 
OTHER LIABILITIES56.9 59.2 
Total liabilities5,958.7 5,120.7 
COMMITMENTS AND CONTINGENCIES (Note 11)
EQUITY (DEFICIT):
Common stock, $0.001 par value—1,500.0 shares authorized; 780.1 and 810.0 shares issued and outstanding on September 30, 2022 and December 31, 2021, respectively
0.8 0.8 
Additional paid-in capital1,250.2 1,253.6 
Accumulated other comprehensive loss(25.5)(4.8)
Accumulated deficit(1,860.2)(467.9)
Total Fortinet, Inc. stockholders’ equity (deficit)(634.7)781.7 
Non-controlling interests11.9 16.7 
Total equity (deficit)(622.8)798.4 
TOTAL LIABILITIES AND EQUITY (DEFICIT)$5,335.9 $5,919.1 
See notes to condensed consolidated financial statements.
3


FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 Three Months EndedNine Months Ended
September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
REVENUE:
Product$468.7 $337.1 $1,240.4 $876.1 
Service 680.8 530.1 1,894.0 1,502.5 
Total revenue1,149.5 867.2 3,134.4 2,378.6 
COST OF REVENUE:
Product185.2 134.3 501.4 341.2 
Service 97.8 76.9 286.2 213.5 
Total cost of revenue283.0 211.2 787.6 554.7 
GROSS PROFIT:
Product283.5 202.8 739.0 534.9 
Service 583.0 453.2 1,607.8 1,289.0 
Total gross profit866.5 656.0 2,346.8 1,823.9 
OPERATING EXPENSES:
Research and development134.3 107.8 383.5 311.6 
Sales and marketing427.1 347.1 1,230.2 978.0 
General and administrative40.7 35.8 124.7 102.2 
Gain on intellectual property matter(1.1)(1.1)(3.4)(3.4)
Total operating expenses601.0 489.6 1,735.0 1,388.4 
OPERATING INCOME265.5 166.4 611.8 435.5 
INTEREST INCOME4.6 1.2 8.3 3.5 
INTEREST EXPENSE(4.5)(4.6)(13.5)(10.4)
OTHER EXPENSE—NET(0.9)(6.3)(19.3)(7.5)
INCOME BEFORE INCOME TAXES AND LOSS FROM EQUITY METHOD INVESTMENT264.7 156.7 587.3 421.1 
PROVISION FOR (BENEFIT FROM) INCOME TAXES27.3 (9.3)21.6 10.4 
LOSS FROM EQUITY METHOD INVESTMENT
(6.3)(2.8)(22.9)(2.8)
NET INCOME INCLUDING NON-CONTROLLING INTERESTS231.1 163.2 542.8 407.9 
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS, NET OF TAX
(0.5)0.1 (0.7)0.1 
NET INCOME ATTRIBUTABLE TO FORTINET, INC.$231.6 $163.1 $543.5 $407.8 
Net income per share attributable to Fortinet, Inc. (Note 9):
Basic$0.29 $0.20 $0.68 $0.50 
Diluted$0.29 $0.19 $0.67 $0.49 
Weighted-average shares used to compute net income per share attributable to Fortinet, Inc.:
Basic786.2 817.7 795.0 816.5 
Diluted798.6 838.6 809.8 835.4 
See notes to condensed consolidated financial statements.
4

FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 Three Months EndedNine Months Ended
 September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Net income including non-controlling interests$231.1 $163.2 $542.8 $407.9 
Other comprehensive loss:
Change in foreign currency translation(3.7)(1.6)(16.5)(1.6)
Change in unrealized gains (losses) on investments1.0  (10.7)(1.0)
Less: tax provision (benefit) related to items of other comprehensive income or loss0.3 (0.1)(2.4)(0.3)
Other comprehensive loss(3.0)(1.5)(24.8)(2.3)
Comprehensive income including non-controlling interests228.1 161.7 518.0 405.6 
Less: comprehensive loss attributable to non-controlling interests(1.4)(0.3)(4.8)(0.3)
Comprehensive income attributable to Fortinet, Inc.$229.5 $162.0 $522.8 $405.9 
See notes to condensed consolidated financial statements.
5

FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(unaudited, in millions)
Three Months Ended September 30, 2022
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Loss
Accumulated DeficitNon-Controlling InterestsTotal
Deficit
SharesAmount
BALANCE—June 30, 2022788.4 $0.8 $1,237.3 $(23.4)$(1,607.6)$13.3 $(379.6)
Issuance of common stock in connection with equity incentive plans - net of tax withholding1.9 — (26.0)— — — (26.0)
Repurchase and retirement of common stock(10.2)— (15.8)— (484.2)— (500.0)
Stock-based compensation expense— — 54.7 — — — 54.7 
Net unrealized gain on investments - net of tax— — — 0.7 — — 0.7 
Foreign currency translation adjustment— — — (2.8)— (0.9)(3.7)
Net income (loss)— — — — 231.6 (0.5)231.1 
BALANCE—September 30, 2022780.1 $0.8 $1,250.2 $(25.5)$(1,860.2)$11.9 $(622.8)
Three Months Ended September 30, 2021
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Loss
Accumulated DeficitNon-Controlling InterestsTotal
Equity
SharesAmount
BALANCE—June 30, 2021816.5 $0.8 $1,245.2 $(0.1)$(195.7)$ $1,050.2 
Issuance of common stock in connection with equity incentive plans - net of tax withholding2.1 — (38.0)— — — (38.0)
Repurchase and retirement of common stock(1.8)— (2.8)— (106.0)— (108.8)
Stock-based compensation expense— — 52.7 — — — 52.7 
Recognition of non-controlling interests upon business combination— — — — — 17.8 17.8 
Net unrealized gain on investments - net of tax— — — 0.1 — — 0.1 
Foreign currency translation adjustment— — — (1.2)— (0.4)(1.6)
Net income— — — — 163.1 0.1 163.2 
BALANCE—September 30, 2021816.8 $0.8 $1,257.1 $(1.2)$(138.6)$17.5 $1,135.6 
See notes to condensed consolidated financial statements.
6

Nine Months Ended September 30, 2022
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Loss
Accumulated DeficitNon-Controlling InterestsTotal
Equity (Deficit)
SharesAmount
BALANCE—December 31, 2021810.0 $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 withholding6.1 — (110.6)— — — (110.6)
Repurchase and retirement of common stock(36.0)— (55.4)— (1,935.8)— (1,991.2)
Stock-based compensation expense— — 162.6 — — — 162.6 
Net unrealized loss on investments - net of tax— — — (8.3)— — (8.3)
Foreign currency translation adjustment— — — (12.4)— (4.1)(16.5)
Net income (loss)— — — — 543.5 (0.7)542.8 
BALANCE—September 30, 2022780.1 $0.8 $1,250.2 $(25.5)$(1,860.2)$11.9 $(622.8)
Nine Months Ended September 30, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated DeficitNon-Controlling InterestsTotal
Equity
SharesAmount
BALANCE—December 31, 2020812.7 $0.8 $1,206.6 $0.7 $(352.1)$ $856.0 
Issuance of common stock in connection with equity incentive plans - net of tax withholding8.2 — (98.2)— — — (98.2)
Repurchase and retirement of common stock(4.1)— (6.1)— (194.3)— (200.4)
Stock-based compensation expense— — 154.8 — — — 154.8 
Recognition of non-controlling interests upon business combination— — — — — 17.8 17.8 
Net unrealized loss on investments - net of tax— — — (0.7)— — (0.7)
Foreign currency translation adjustment— — — (1.2)— (0.4)(1.6)
Net income— — — — 407.8 0.1 407.9 
BALANCE—September 30, 2021816.8 $0.8 $1,257.1 $(1.2)$(138.6)$17.5 $1,135.6 
See notes to condensed consolidated financial statements.
7

FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 Nine Months Ended
 September 30,
2022
September 30,
2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including non-controlling interests$542.8 $407.9 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation162.6 154.8 
Amortization of deferred contract costs163.8 126.9 
Depreciation and amortization77.0 59.1 
Amortization of investment premiums3.6 4.8 
Loss from equity method investment22.9 2.8 
Other 21.2 4.4 
Changes in operating assets and liabilities, net of impact of business combinations:
Accounts receivable—net(162.7)130.6 
Inventory(59.7)(19.5)
Prepaid expenses and other current assets(7.6)(12.5)
Deferred contract costs(221.0)(201.0)
Deferred tax assets(172.0)(91.9)
Other assets(13.9)(15.7)
Accounts payable78.6 (11.8)
Accrued liabilities27.8 77.0 
Accrued payroll and compensation(3.2)23.1 
Other liabilities(0.5)(3.2)
Deferred revenue742.8 497.1 
Net cash provided by operating activities1,202.5 1,132.9 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments(389.1)(1,749.9)
Sales of investments3.0 82.2 
Maturities of investments1,182.9 1,029.0 
Purchases of property and equipment(250.3)(144.6)
Purchase of investment in privately held company (160.0)
Payments made in connection with business combinations, net of cash acquired (73.4)
Purchases of marketable equity securities (42.5)
Net cash provided by (used in) investing activities546.5 (1,059.2)
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)
Payments of debt assumed in connection with business combination (2.2)
Repurchase and retirement of common stock(1,991.2)(170.0)
Proceeds from issuance of common stock21.7 20.7 
Taxes paid related to net share settlement of equity awards(132.1)(118.9)
Other(1.3)(0.2)
Net cash provided by (used in) financing activities(2,102.9)716.4 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(1.2)0.2 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(355.1)790.3 
CASH AND CASH EQUIVALENTS—Beginning of period1,319.1 1,061.8 
CASH AND CASH EQUIVALENTS—End of period$964.0 $1,852.1 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes—net $197.6 $69.9 
Operating lease liabilities arising from obtaining right-of-use assets$36.2 $31.0 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfers of evaluation units from inventory to property and equipment$13.1 $14.6 
Liability for purchase of property and equipment$25.3 $23.8 
Liability for repurchase of common stock$ $30.4 
See notes to condensed consolidated financial statements.
8

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 nine months ended September 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 nine months ended September 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 channel partners who in turn sell such solutions to a variety of organizations, such as large-, medium- and small-sized enterprises, communication service providers and government organizations. 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) and our Enhanced Platform Technologies (previously referred to as Platform Extension). 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.

9

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 EndedNine Months Ended
September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Product$468.7 $337.1 $1,240.4 $876.1 
Service:
Security subscription369.8 287.4 1,023.1 815.6 
Technical support and other311.0 242.7 870.9 686.9 
Total service revenue680.8 530.1 1,894.0 1,502.5 
Total revenue$1,149.5 $867.2 $3,134.4 $2,378.6 

Deferred Revenue

During the three and nine months ended September 30, 2022, we recognized $401.9 million and $1.37 billion in service revenue that was included in the deferred revenue balance as of December 31, 2021, respectively. During the three and nine months ended September 30, 2021, we recognized $309.2 million and $1.10 billion 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 September 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $4.21 billion, which was substantially comprised of deferred security subscription, technical support services revenue and unbilled contract revenue from non-cancellable contracts that will be recognized in future periods. We expect to recognize approximately $2.15 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 $3.7 million and $2.4 million as of September 30, 2022 and December 31, 2021, respectively. Provisions, write-offs and recoveries were not material during the nine months ended September 30, 2022 and 2021.

Deferred Contract Costs
    
Amortization of deferred contract costs during the three months ended September 30, 2022 and 2021 were $56.7 million and $45.1 million, respectively. Amortization of deferred contract costs during the nine months ended September 30, 2022 and 2021 were $163.8 million and $126.9 million, respectively.

10

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):
 
 September 30, 2022
 Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Corporate debt securities$342.5 $ $(6.2)$336.3 
U.S. government and agency securities292.2  (6.2)286.0 
Commercial paper141.3  (0.4)140.9 
Certificates of deposit and term deposits55.5  (0.2)55.3 
Municipal bonds5.2  (0.2)5.0 
Total available-for-sale securities$836.7 $ $(13.2)$823.5 
 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 securities356.1  (1.0)355.1 
Commercial paper566.0  (0.2)565.8 
Certificates of deposit and term deposits169.1  (0.1)169.0 
Municipal bonds5.4   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):
September 30, 2022
 Less Than 12 Months12 Months or GreaterTotal
 Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Corporate debt securities$251.5 $(4.4)$84.8 $(1.8)$336.3 $(6.2)
U.S. government and agency securities218.0 (4.1)68.0 (2.1)286.0 (6.2)
Commercial paper140.9 (0.5)  140.9 (0.5)
Certificates of deposit and term deposits43.0 (0.2)1.5  44.5 (0.2)
Municipal bonds5.0 (0.1)  5.0 (0.1)
Total available-for-sale securities$658.4 $(9.3)$154.3 $(3.9)$812.7 $(13.2)
December 31, 2021
 Less Than 12 Months12 Months or GreaterTotal
 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 securities334.2 (1.0)  334.2 (1.0)
Commercial paper288.0 (0.2)  288.0 (0.2)
Certificates of deposit and term deposits93.1 (0.1)  93.1