Company Quick10K Filing
Fortinet
Price78.86 EPS1
Shares175 P/E65
MCap13,793 P/FCF22
Net Debt-1,176 EBIT252
TEV12,617 TEV/EBIT50
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-06
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-26
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-07
10-Q 2018-03-31 Filed 2018-05-08
10-K 2017-12-31 Filed 2018-02-26
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-11-08
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-04
10-Q 2015-03-31 Filed 2015-05-01
10-K 2014-12-31 Filed 2015-03-02
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-05
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-03-03
10-Q 2013-09-30 Filed 2013-11-05
10-Q 2013-06-30 Filed 2013-08-06
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-02-27
10-Q 2012-09-30 Filed 2012-10-30
10-Q 2012-06-30 Filed 2012-08-08
10-Q 2012-03-31 Filed 2012-05-07
10-K 2011-12-31 Filed 2012-02-28
10-Q 2011-09-30 Filed 2011-11-04
10-Q 2011-06-30 Filed 2011-08-04
10-Q 2011-03-31 Filed 2011-05-05
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-13
10-K 2009-12-31 Filed 2010-03-05
8-K 2020-10-29
8-K 2020-08-22
8-K 2020-08-06
8-K 2020-07-17
8-K 2020-06-19
8-K 2020-05-06
8-K 2020-04-17
8-K 2020-02-26
8-K 2020-02-06
8-K 2019-12-12
8-K 2019-10-31
8-K 2019-10-28
8-K 2019-10-18
8-K 2019-08-01
8-K 2019-06-21
8-K 2019-05-02
8-K 2019-02-06
8-K 2018-11-01
8-K 2018-10-23
8-K 2018-08-01
8-K 2018-06-22
8-K 2018-06-04
8-K 2018-05-03
8-K 2018-02-02

FTNT 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ftnt-ex31120200930x10q.htm
EX-31.2 ftnt-ex31220200930x10q.htm
EX-32.1 ftnt-ex32120200930x10q.htm

Fortinet Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
3.62.92.21.40.70.02012201420172020
Assets, Equity
0.60.50.30.20.0-0.12012201420172020
Rev, G Profit, Net Income
0.30.20.0-0.1-0.3-0.42012201420172020
Ops, Inv, Fin

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Table of Contents
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, 2020
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:
Common Stock, $0.001 Par ValueFTNTThe Nasdaq Stock Market LLC
(Title of each class)(Trading Symbol)(Name of exchange on which registered)

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. 


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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 October 30, 2020, there were 162,332,075 shares of the registrant’s common stock outstanding.




FORTINET, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2020
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 5.
Item 6.





Table of Contents
PART I—FINANCIAL INFORMATION

ITEM 1.     Financial Statements
FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)
 September 30,
2020
December 31,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$882.3 $1,222.5 
Short-term investments774.4 843.1 
Accounts receivable—net546.6 544.3 
Inventory134.5 117.9 
Prepaid expenses and other current assets46.8 41.2 
Total current assets2,384.6 2,769.0 
LONG-TERM INVESTMENTS117.9 144.3 
PROPERTY AND EQUIPMENT—NET419.4 344.3 
DEFERRED CONTRACT COSTS281.1 237.0 
DEFERRED TAX ASSETS230.1 226.3 
GOODWILL68.2 67.2 
OTHER INTANGIBLE ASSETS—NET25.3 31.1 
OTHER ASSETS59.6 60.0 
TOTAL ASSETS$3,586.2 $3,879.2 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$95.9 $96.4 
Accrued liabilities127.8 101.8 
Accrued payroll and compensation121.9 101.8 
Deferred revenue1,300.0 1,155.8 
Total current liabilities1,645.6 1,455.8 
DEFERRED REVENUE1,092.0 953.3 
INCOME TAX LIABILITIES79.3 82.8 
OTHER LIABILITIES56.1 44.9 
Total liabilities2,873.0 2,536.8 
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value—300 shares authorized; 162.3 and 171.7 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
0.2 0.2 
Additional paid-in capital1,178.5 1,180.3 
Accumulated other comprehensive income1.4 1.1 
Retained earnings (accumulated deficit)(466.9)160.8 
Total stockholders’ equity713.2 1,342.4 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,586.2 $3,879.2 
See notes to condensed consolidated financial statements.
1

Table of Contents
FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)
 Three Months EndedNine Months Ended
September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
REVENUE:
Product$223.8 $197.1 $628.0 $549.7 
Service 427.3 351.0 1,218.4 995.2 
Total revenue651.1 548.1 1,846.4 1,544.9 
COST OF REVENUE:
Product84.3 79.0 245.0 231.9 
Service 54.9 45.1 158.0 133.5 
Total cost of revenue139.2 124.1 403.0 365.4 
GROSS PROFIT:
Product139.5 118.1 383.0 317.8 
Service 372.4 305.9 1,060.4 861.7 
Total gross profit511.9 424.0 1,443.4 1,179.5 
OPERATING EXPENSES:
Research and development90.0 69.9 252.4 205.9 
Sales and marketing266.7 227.4 780.5 669.8 
General and administrative29.4 26.1 87.1 74.9 
Gain on intellectual property matter(1.1) (39.0) 
Total operating expenses385.0 323.4 1,081.0 950.6 
OPERATING INCOME126.9 100.6 362.4 228.9 
INTEREST INCOME—NET2.5 11.4 15.7 32.6 
OTHER EXPENSE—NET(1.0)(6.0)(8.1)(6.9)
INCOME BEFORE INCOME TAXES128.4 106.0 370.0 254.6 
PROVISION FOR INCOME TAXES5.0 25.8 28.2 41.1 
NET INCOME$123.4 $80.2 $341.8 $213.5 
Net income per share (Note 10):
Basic$0.76 $0.47 $2.07 $1.25 
Diluted$0.75 $0.46 $2.03 $1.22 
Weighted-average shares outstanding:
Basic162.1 171.3 164.8 170.9 
Diluted165.6 174.8 168.4 174.9 
See notes to condensed consolidated financial statements.
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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
 Three Months EndedNine Months Ended
 September 30,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Net income$123.4 $80.2 $341.8 $213.5 
Other comprehensive income (loss):
Change in unrealized gains (losses) on investments(1.4)0.2 0.7 2.7 
Less: tax provision (benefit) related to change in unrealized gains (losses) on investments(0.3) 0.4 0.7 
Other comprehensive income (loss)(1.1)0.2 0.3 2.0 
Comprehensive income$122.3 $80.4 $342.1 $215.5 
See notes to condensed consolidated financial statements.
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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in millions)
Three Months Ended September 30, 2020
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income
Accumulated DeficitTotal
Stockholders’
Equity
SharesAmount
BALANCE—June 30, 2020161.8 $0.2 $1,154.3 $2.5 $(590.3)$566.7 
Issuance of common stock in connection with equity incentive plans - net of tax withholding0.5 — (25.1)— — (25.1)
Stock-based compensation expense— — 49.3 — — 49.3 
Net unrealized loss on investments - net of tax— — — (1.1)— (1.1)
Net income— — — — 123.4 123.4 
BALANCE—September 30, 2020162.3 $0.2 $1,178.5 $1.4 $(466.9)$713.2 
Three Months Ended September 30, 2019
 Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income
Retained Earnings (Accumulated Deficit)Total
Stockholders’
Equity
SharesAmount
BALANCE—June 30, 2019171.0 $0.2 $1,130.2 $0.9 $8.1 $1,139.4 
Issuance of common stock in connection with equity incentive plans - net of tax withholding0.6 — (17.8)— — (17.8)
Repurchase and retirement of common stock(0.3)— (2.2)— (24.3)(26.5)
Stock-based compensation expense— — 42.4 — — 42.4 
Net unrealized gain on investments - net of tax— — — 0.2 — 0.2 
Net income— — — — 80.2 80.2 
BALANCE—September 30, 2019171.3 $0.2 $1,152.6 $1.1 $64.0 $1,217.9 

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Nine Months Ended September 30, 2020
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income
Retained Earnings (Accumulated Deficit)Total
Stockholders’
Equity
SharesAmount
BALANCE—December 31, 2019171.7 $0.2 $1,180.3 $1.1 $160.8 $1,342.4 
Issuance of common stock in connection with equity incentive plans - net of tax withholding2.0 — (68.3)— — (68.3)
Repurchase and retirement of common stock(11.4)— (76.5)— (969.5)(1,046.0)
Stock-based compensation expense— — 143.0 — — 143.0 
Net unrealized gain on investments - net of tax— — — 0.3 — 0.3 
Net income— — — — 341.8 341.8 
BALANCE—September 30, 2020162.3 $0.2 $1,178.5 $1.4 $(466.9)$713.2 
Nine Months Ended September 30, 2019
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive Income (Loss)
Retained Earnings (Accumulated Deficit)Total
Stockholders’
Equity
SharesAmount
BALANCE—December 31, 2018169.8 $0.2 $1,068.3 $(0.8)$(42.2)$1,025.5 
Issuance of common stock in connection with equity incentive plans - net of tax withholding3.1 — (36.1)— — (36.1)
Repurchase and retirement of common stock(1.6)— (10.0)— (107.4)(117.4)
Stock-based compensation expense— — 130.4 — — 130.4 
Cumulative-effect adjustment from adoption of ASU 2018-02(0.1)0.1  
Net unrealized gain on investments - net of tax— — — 2.0 — 2.0 
Net income— — — — 213.5 213.5 
BALANCE—September 30, 2019171.3 $0.2 $1,152.6 $1.1 $64.0 $1,217.9 
See notes to condensed consolidated financial statements.
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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
 Nine Months Ended
 September 30,
2020
September 30,
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$341.8 $213.5 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation143.0 130.4 
Amortization of deferred contract costs99.8 78.5 
Depreciation and amortization52.1 45.9 
Amortization of investment premiums (discounts)0.2 (4.7)
Other 5.8 5.0 
Changes in operating assets and liabilities:
Accounts receivable—net(3.1)60.5 
Inventory(31.0)(25.2)
Prepaid expenses and other current assets(4.6)(6.3)
Deferred contract costs(143.9)(113.1)
Deferred tax assets4.4 11.5 
Other assets(2.0)(0.8)
Accounts payable(4.2)(6.2)
Accrued liabilities16.5 (16.6)
Accrued payroll and compensation19.5 (9.5)
Other liabilities10.3 (1.0)
Deferred revenue282.6 255.7 
Net cash provided by operating activities787.2 617.6 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments(776.3)(1,072.4)
Sales of investments141.4 19.7 
Maturities of investments730.3 695.0 
Purchases of property and equipment(93.6)(45.0)
Payments made in connection with business combination, net of cash acquired(9.2) 
Other(0.4) 
Net cash used in investing activities(7.8)(402.7)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase and retirement of common stock(1,046.0)(117.6)
Proceeds from issuance of common stock18.2 41.8 
Taxes paid related to net share settlement of equity awards(86.5)(76.0)
Payments of debt assumed in connection with business combination(4.1) 
Other(1.2) 
Net cash used in financing activities(1,119.6)(151.8)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(340.2)63.1 
CASH AND CASH EQUIVALENTS—Beginning of period1,222.5 1,112.4 
CASH AND CASH EQUIVALENTS—End of period$882.3 $1,175.5 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Operating lease liabilities arising from obtaining right-of-use assets$14.7 $12.6 
Cash paid to settle liability incurred for repurchase of common stock$ $4.2 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfers of evaluation units from inventory to property and equipment$14.8 $16.3 
Liability for purchase of property and equipment$26.1 $20.1 
Liability incurred for repurchase of common stock$ $4.0 
See notes to condensed consolidated financial statements.
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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 wholly owned 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, 2019, contained in our Annual Report on Form 10-K filed with the SEC on February 26, 2020. In the opinion of management, all adjustments, which includes normal recurring adjustments, considered necessary for a fair presentation have been included. All intercompany balances, transactions and cash flows have been eliminated. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the full year or for any future periods. The condensed consolidated balance sheet as of December 31, 2019 is derived from the audited consolidated financial statements for the year ended December 31, 2019. For 2020, the amounts previously reported as Income taxes payable are included in Accrued liabilities. Prior periods have been reclassified to conform with current period presentation.

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

There have been no material changes to our significant accounting policies as of and for the three and nine months ended September 30, 2020.

Recently Adopted Accounting Standards

Financial Instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”), which provides guidance on how an entity should measure credit losses on financial instruments. The standard replaces the existing incurred loss model with an expected credit loss model for financial assets measured at amortized cost, including trade receivables, and requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The new approach to estimating credit losses (referred to as the current expected credit losses model) generally accelerates recognition of credit losses. We adopted Topic 326 on January 1, 2020 using the modified retrospective method. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Cloud Computing

In August 2018, the FASB issued ASU 2018-15—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other, to determine which implementation costs to capitalize as assets or expense as incurred. We adopted ASU 2018-15 on January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements in ASC 820, Fair Value Measurement, as part of its disclosure framework project. We adopted ASU 2018-13 on January 1, 2020. The adoption of this standard did not have a material impact on our disclosures.

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

    Recent Accounting Standards Not Yet Effective

Income Taxes

In December 2019, the FASB issued ASU 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application and simplification of GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for us beginning on January 1, 2021. We are currently evaluating the impact of ASU 2019-12 on our condensed consolidated financial statements.

2.     IMMATERIAL CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS

Subsequent to the issuance of our condensed consolidated financial statements for the period ended June 30, 2020, we identified an immaterial error related to the commencement of revenue recognition for certain FortiCare standalone service contracts. Rather than commencing recognition upon end user registration, we should have begun to recognize revenue over the service period when control had passed to the distributor which we have determined is our customer. We assessed the effect of this correction, individually and in the aggregate, on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletins No. 99 and 108 and, based on an analysis of quantitative and qualitative factors, determined that the correction was not individually material to any of our prior interim or annual consolidated financial statements.

All financial information contained in the accompanying notes to these condensed consolidated financial statements has been revised to reflect the correction of this error.

The corrections to our condensed consolidated balance sheet as of December 31, 2019 were as follows (in millions):
December 31, 2019
 As Previously ReportedCorrectionsAs Corrected
ASSETS
DEFERRED TAX ASSETS$232.6 $(6.3)$226.3 
TOTAL ASSETS3,885.5 (6.3)3,879.2 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Deferred revenue1,173.6 (17.8)1,155.8 
Total current liabilities1,473.6 (17.8)1,455.8 
DEFERRED REVENUE962.3 (9.0)953.3 
Total liabilities2,563.6 (26.8)2,536.8 
STOCKHOLDERS’ EQUITY:
Retained earnings (accumulated deficit)140.3 20.5 160.8 
Total stockholders’ equity1,321.9 20.5 1,342.4 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,885.5 $(6.3)$3,879.2 

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The corrections to our condensed consolidated statements of income for the three and nine months ended September 30, 2019 were as follows (in millions, except per share amounts):
Three Months Ended September 30, 2019
 As Previously ReportedCorrectionsAs Corrected
REVENUE:
Service $350.4 $0.6 $351.0 
Total revenue547.5 0.6 548.1 
GROSS PROFIT:
Service 305.3 0.6 305.9 
Total gross profit423.4 0.6 424.0 
OPERATING INCOME100.0 0.6 100.6 
INCOME BEFORE INCOME TAXES105.4 0.6 106.0 
PROVISION FOR INCOME TAXES25.6 0.2 25.8 
NET INCOME$79.8 $0.4 $80.2 
Net income per share (Note 10):
Basic$0.47 $ $0.47 
Diluted$0.46 $ $0.46 
Nine Months Ended September 30, 2019
 As Previously ReportedCorrectionsAs Corrected
REVENUE:
Service $992.1 $3.1 $995.2 
Total revenue1,541.8 3.1 1,544.9 
GROSS PROFIT:
Service 858.6 3.1 861.7 
Total gross profit1,176.4 3.1 1,179.5 
OPERATING INCOME225.8 3.1 228.9 
INCOME BEFORE INCOME TAXES251.5 3.1 254.6 
PROVISION FOR INCOME TAXES40.2 0.9 41.1 
NET INCOME$211.3 $2.2 $213.5 
Net income per share (Note 10):
Basic$1.24 $0.01 $1.25 
Diluted$1.21 $0.01 $1.22 

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The corrections to our condensed consolidated statements of cash flows for the nine months ended September 30, 2019 were as follows (in millions):
Nine Months Ended September 30, 2019
 As Previously ReportedCorrectionsAs Corrected
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$211.3 $2.2 $213.5 
Changes in operating assets and liabilities:
Deferred tax assets10.6 0.9 11.5 
Deferred revenue258.8 (3.1)255.7 
Net cash provided by operating activities$617.6 $ $617.6 

The results for the nine months ended September 30, 2020 include corrections to increase revenue, gross profit and operating income by $0.8 million and $2.1 million for the three months ended March 31, 2020 and June 30, 2020, respectively, and to increase net income by $0.6 million and $1.7 million for the three months ended March 31, 2020 and June 30, 2020, respectively. The correction did not change diluted net income per share for the three months ended March 31, 2020 but did increase diluted net income per share by $0.01 for the three months ended June 30, 2020. For all periods in which we corrected net income, we made corresponding corrections to net income and comprehensive income in our condensed consolidated statements of comprehensive income and to net income, retained earnings (accumulated deficit) and total stockholders’ equity in our condensed consolidated statements of stockholders’ equity.

3.     REVENUE RECOGNITION

We sell cybersecurity solutions to a variety of organizations, such as enterprises, communication service providers, government organizations and small businesses. Our revenue consists of product and service revenue. Product revenue is generated by our FortiGate network security appliances, our Fortinet Security Fabric platform products and other products. Service revenue relates to sales of our security subscription services, which mainly consist of our FortiGuard security solutions, as well as our FortiCare technical support services and other services.

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,
2020
September 30,
2019
September 30,
2020
September 30,
2019
Product$223.8 $197.1 $628.0 $549.7 
Service:
Security subscription235.4 192.8 669.4 545.5 
Technical support and other191.9 158.2 549.0 449.7 
Total service revenue427.3 351.0 1,218.4 995.2 
Total revenue$651.1 $548.1 $1,846.4 $1,544.9 

Deferred Revenue

During the three months ended September 30, 2020 and September 30, 2019, we recognized $263.1 million and $211.8 million in service revenue that was included in the deferred revenue balance as of December 31, 2019 and December 31, 2018, respectively. During the nine months ended September 30, 2020 and September 30, 2019, we recognized $921.7 million and $754.5 million in service revenue that was included in the deferred revenue balance as of December 31, 2019 and December 31, 2018, respectively.

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Transaction Price Allocated to the Remaining Performance Obligations

As of September 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $2.39 billion, which was substantially comprised of deferred security subscription and technical support services revenue. We expect to recognize approximately $1.30 billion as revenue over the next 12 months and the remainder thereafter.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. On January 1, 2020, we adopted Topic 326, which provides guidance on how to measure credit losses on financial instruments, including accounts receivable. Prior to our adoption of Topic 326, our accounts receivable balance was reduced by an allowance for doubtful accounts that we determined based on our assessment of the collectability of customer accounts. Under Topic 326, 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.

The COVID-19 pandemic and the recent economic downturn prompted us to perform additional credit reviews of our existing customers, including obtaining recent credit reports and reviewing their latest available statements of financial position. In addition, we have seen an increase in requests for extended payment terms. After performing our additional reviews, we increased the allowance for credit losses for certain accounts receivable.

The allowance for credit losses was $2.2 million as of September 30, 2020, and the allowance for doubtful accounts was $1.2 million as of December 31, 2019. Provisions, write-offs and recoveries were not material during the nine months ended September 30, 2020.

Deferred Contract Costs

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. The amortization of deferred contract costs is included in sales and marketing expense in our condensed consolidated statements of income. Amortization of deferred contract costs during the three months ended September 30, 2020 and September 30, 2019 were $35.3 million and $27.5 million, respectively. Amortization of deferred contract costs during the nine months ended September 30, 2020 and September 30, 2019 were $99.8 million and $78.5 million, respectively.

4.     FINANCIAL INSTRUMENTS AND FAIR VALUE

The following tables summarize our investments (in millions):
 
 September 30, 2020
 Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Corporate debt securities$501.1 $1.8 $(0.1)$502.8 
U.S. government securities166.3 0.1