What changed in this filing

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Item 1A. Risk Factors

2021-08-02 compared with 2021-05-03 · 93 added, 83 removed, 826 unchanged (18% of the section changed)

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• Our billings, revenue, operating margin and free cash flow growth may slow or may not continue.

• The COVID-19 pandemic could adversely affect our business in a material way.

• The COVID-19 pandemic, including the Delta variant and other variants, could adversely affect our business in a material way.

• 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 gross accounts receivable.

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

enhancements and innovations that address a fast-changing technology and threat landscape and that achieve sufficient market acceptance, in order to maintain or improve our competitive position.

• Insufficient inventory or components, including component or inventory shortages based on the COVID-19 pandemic or other factors affecting the global supply chain, may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

• We depend on several third-party manufacturers to build our products and are susceptible to manufacturing delays and cost increases.

• Our industry is highly competitive and we must accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs, including by introducing products and product enhancements and innovations that address a fast-changing technology and threat landscape and that achieve sufficient market acceptance, in order to maintain or improve our competitive position.

• Insufficient inventory or components, including component or inventory shortages based on the COVID-19 pandemic, chip or component shortages, contract manufacturer’s capacity or other factors affecting the global supply chain or costs, may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

• We depend on several third-party manufacturers to build our products and are susceptible to manufacturing delays, capacity constraints and cost increases.

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

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• Global economic uncertainty and weakening product demand caused by political instability, changes in trade agreements and other conflict could adversely affect our business and financial performance.

• Our inability to successfully acquire and integrate other businesses, products or technologies could seriously harm our competitive position.

• 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.

• The trading price of our common stock may be volatile, which volatility may be exacerbated by share repurchases under our Repurchase Program.

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• our ability to attract and retain new end-customers or sell additional products and services to our existing end-customers;

• the level of demand for our products and services, which may render forecasts inaccurate and may be impacted by the COVID-19 pandemic in ways that we are not able to foresee;

• the level of demand for our products and services, which may render forecasts inaccurate and may be impacted by the COVID-19 pandemic and supply chain constraints in ways that we are not able to foresee;

• the timing of channel partner and end-customer orders, and our reliance on a concentration of shipments at the end of each quarter;

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• inventory management;

• component and product inventory shortages, including those caused by factors outside of our control such as the COVID-19 pandemic, international trade disputes or tariffs, natural disasters, health emergencies, power outages, civil unrest, labor disruption, international conflicts, terrorism, wars and critical infrastructure attacks;

• component, including chips and other components, and product inventory shortages, including those caused by factors outside of our control such as the COVID-19 pandemic, international trade disputes or tariffs, natural disasters, health emergencies, power outages, civil unrest, labor disruption, international conflicts, terrorism, wars and critical infrastructure attacks;

• the mix of products sold and the mix of revenue between products and services, as well as the degree to which products and services are bundled and sold together for a package price;

• the purchasing practices and budgeting cycles of our channel partners and end-customers, including the effect of the end of product refresh cycles;

• any decreases in demand by channel partners or end-customers, including any such decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;

• any decreases in demand by channel partners or end-customers, including any such decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, droughts, fires, power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;

• the effectiveness of our sales organization, generally or in a particular geographic region, the time it takes to hire sales personnel and the timing of hiring, and our ability to hire and retain effective sales personnel;

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The COVID-19 pandemic could adversely affect our business in a material way.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and demand for certain solutions and created significant volatility in, and disruption of, global financial markets.

The COVID-19 pandemic, including the Delta variant and other COVID-19 variants, has negatively impacted the global economy, disrupted global supply chains and demand for certain solutions and created significant volatility in, and disruption of, global financial markets.

The extent of the future impact of the COVID-19 pandemic on our operational and financial performance, including on demand for our products and services, our ability to source components, and our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the COVID-19 pandemic and related restrictions on, and disruptions of, business and world economies, all of which are uncertain and difficult to predict.

An extended period of global supply chain disruption, demand reduction and economic slowdown would materially negatively affect our overall business and our operating results, including billings, revenue, gross margins, operating margins, cash flows and other operating results.

If the spread of the COVID-19 pandemic limits the availability of our products, either by limiting components available, by limiting the actual manufacture and assembly or by limiting or restricting shipping of components and products, this likely would result in increased product backlog, lower billings, lower revenue and decreased profitability and would negatively impact, and may materially negatively impact, our operating results and business.

In addition, we may also face

personnel-related risks as restrictions related to the COVID-19 pandemic begin to ease and we transition back to an in-person working model, including that our “return to office” plan may be viewed negatively by employees and lead to attrition or to difficulty in hiring.

operating results and business.

In addition, we may also face personnel-related risks as restrictions related to the COVID-19 pandemic begin to ease and we transition back to an in-person working model, including that our “return to office” plan may be viewed negatively by employees and lead to attrition or to difficulty in hiring.

Moreover, the COVID-19 pandemic has created a reduction in certain business activity and demand for certain solutions, which we believe has negatively impacted our billings and may in the future materially and negatively affect the rate and amount of our billings.

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If our partners fail to perform, our ability to sell our products and services will be limited, and if we fail to optimize our channel partner model going forward, our operating results may be harmed.

Additionally, a small number of distributors represents a large percentage of our revenue and gross accounts receivable, and one distributor accounted fo r 31% of our total net accounts receivable as of March 31, 2021.

Additionally, a small number of distributors represents a large percentage of our revenue and gross accounts receivable, and one distributor accounted fo r 32% of our total net accounts receivable as of June 30, 2021.

A significant portion of our sales is generated through a limited number of distributors, and substantially all of our revenue is from sales by our channel partners, including distributors and resellers.

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We may also become increasingly dependent on a more limited number of channel partners, as consolidation increases the relative proportion of our business for which each channel partner is responsible, which may magnify the risks described in the preceding paragraphs.

Exclusive Networks Group (“Exclusive”) accounted for 31% and 34% of our total net accounts receivable as of March 31, 2021 and December 31, 2020, respectively, and six distributor customers accounted for 70% of our total net accounts

receivable in the aggregate, respectively.

During the three months ended March 31, 2021 and 2020, Exclusive accounted for 32% and 31% of our total revenue, respectively.

Exclusive Networks Group (“Exclusive”) accounted for 32% and 34% of our total net accounts receivable as of June 30, 2021 and December 31, 2020, respectively, and six distributor customers accounted for 66% and 70% of our total net

accounts receivable in the aggregate, respectively.

During the three and six months ended June 30, 2021, Exclusive accounted for 31% and 32% of our total revenue, respectively, and Ingram Micro accounted for 12% of our total revenue, respectively.

During the three and six months ended June 30, 2020, Exclusive accounted for 31% of our total revenue.

In addition to other risks associated with the concentration of accounts receivable and revenue from these distributors, Exclusive is a private equity-backed company and we may not have sufficient information to assess its financial condition and, accordingly, if Exclusive were to experience financial difficulties, we might not have advance notice.

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Any new sales channel partner will require extensive training and may take several months or more to achieve productivity.

Our channel partner sales structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of our channel partners misrepresent the functionality of our products or services to end-customers or our channel partners violate laws or our corporate policies.

Our channel partner sales structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of our channel partners misrepresent the functionality of our products or services to end-customers, our service provider customers suffer a cyber event impacting end users, or our channel partners violate laws or our corporate policies.

We depend on our global channel partners to comply with applicable legal and regulatory requirements.

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• our logistics partners’ failure or inability to ship products prior to quarter-end to fulfill purchase orders received near the end of the quarter;

• disruption in manufacturing or shipping based on power outages, system failures, labor disputes, natural disasters or widespread public health problems including pandemics and epidemics such as the COVID-19 pandemic;

• disruption in manufacturing or shipping based on power outages, system failures, labor disputes or constraints, excessive demand, natural disasters or widespread public health problems including pandemics and epidemics such as the COVID-19 pandemic;

• our failure to accurately forecast our inventory requirements and to appropriately manage inventory to meet demand;

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retain highly skilled personnel will be critical to our future success.

Competition for highly skilled personnel is frequently intense, especially for qualified sales, support and engineering employees in network security and especially in the locations where we have a substantial presence and need for highly skilled personnel, such as the San Francisco Bay Area and Vancouver, Canada.

We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs.

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

As of March 31, 2021, we had an aggregate of $1.0 billion of indebtedness outstanding under our senior notes.

As of June 30, 2021, we had an aggregate of $987.5 million of indebtedness outstanding under our senior notes.

Under the agreements governing our indebtedness, we are permitted to incur additional debt.

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• costs of compliance with foreign policies, laws and regulations and the risks and costs of non-compliance with such policies, laws and regulations;

• disruption in manufacturing or shipping or decreases in demand by channel partners or end-customers, including any such disruption or decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, fires, power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;

• disruption in manufacturing or shipping or decreases in demand by channel partners or end-customers, including any such disruption or decreases caused by factors outside of our control such as natural disasters and health emergencies, including earthquakes, droughts, fires, power outages, typhoons, floods, pandemics or epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks;

• protectionist policies and penalties, and local laws, requirements, policies and perceptions that may adversely impact a U.S.-headquartered business’s sales in certain countries outside of the U.S.

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• public sector budgetary cycles;

• the government has and in the future may require them to make operational changes in order to obtain the necessary approvals to sell into the government;

• funding authorizations and requirements unique to government agencies, with funding or purchasing reductions or delays adversely affecting public sector demand for our products;

• geopolitical matters, including tariff and trade disputes, government shutdowns and trade protectionism and other political dynamics that may adversely affect our ability to sell in certain locations or obtain the requisite permits and clearances required for certain purchases by government organizations of our products and services;

• rules and regulations applicable to certain government sales, including GSA regulations.

• rules and regulations applicable to certain government sales, including GSA regulations and certain third-party security certifications, and changes to such rules and regulations that may require us to make operational changes in order to obtain the necessary approvals to sell to government agencies.

Government spending may also be negatively impacted by the COVID-19 pandemic.

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Risks Related to Our Industry, Customers, Products and Services

We face intense competition in our market and we may lack sufficient financial or other resources to maintain or improve our competitive position.

The market for network security products is intensely competitive and we expect competition to intensify in the future.

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

The market for network security products is intensely competitive and dynamic, and we expect competition to continue to intensify.

We face many competitors across the different cybersecurity markets.

Our competitors include companies such as Barracuda Networks, Inc., Check Point Software Technologies Ltd., Cisco Systems, Inc.

(“Cisco”), CrowdStrike Holdings, Inc., F5 Networks, Inc.

, FireEye, Inc., Forcepoint LLC, Imperva, Inc., Juniper Networks, Inc.

Our competitors include companies such as

Barracuda Networks, Inc., Check Point Software Technologies Ltd., Cisco Systems, Inc.

(“Cisco”), CrowdStrike Holdings, Inc., F5 Networks, Inc., FireEye, Inc., Forcepoint LLC, Imperva, Inc., Juniper Networks, Inc.

(“Juniper”), McAfee, LLC, Palo Alto Networks, Inc., Proofpoint, Inc., SonicWALL, Inc., Sophos Group Plc, Trend Micro Incorporated and Zscaler, Inc.

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Conditions in our markets could change rapidly and significantly as a result of technological advancements or continuing market consolidation.

Our competitors and potential competitors may also be able to develop products or services, and leverage new business models, that are equal or superior to ours, achieve greater market acceptance of their products and services, and increase sales by utilizing different distribution channels than we do.

For example, certain of our competitors are focusing on delivering security services from the cloud.

Our competitors and potential competitors may also be able to develop products or services, and leverage new business models, that are equal or superior to ours, achieve greater market acceptance of their products and services, disrupt our markets, and increase sales by utilizing different distribution channels than we do.

For example, certain of our competitors are focusing on delivering security services from the cloud which include cloud-based security providers, such as Zscaler.

In addition, current or potential competitors may be acquired by third parties with greater available resources, and new competitors may arise pursuant to acquisitions of network security companies or divisions.

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We spend substantial amounts of time and money to acquire and develop internally new products and enhanced versions of our existing products in order to incorporate additional features, improved functionality or other enhancements in order to meet our customers’ rapidly evolving demands for network security in our highly competitive industry.

When we develop a new product or an enhanced version of an existing product, we typically incur expenses and expend resources upfront to market, promote and sell the new offering.

When we develop a new product or an enhanced version of an existing product, we typically incur expenses and expend resources upfront

to market, promote and sell the new offering.

Therefore, when we develop and introduce new or enhanced products, they must achieve high levels of market acceptance in order to justify the amount of our investment in developing and bringing them to market.

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In addition, the market perception that “all-in-one” solutions may be suitable only for small and medium-sized businesses because such solution lacks the performance capabilities and functionality of other solutions may harm our sales to large businesses, service provider and government organization end-customers.

If the foregoing concerns and perceptions

become prevalent, even if there is no factual basis for these concerns and perceptions, or if other issues arise with our market in general, demand for multi-security functionality products could be severely limited, which would limit our growth and harm our business, financial condition and results of operations.

If the foregoing concerns and perceptions become prevalent, even if there is no factual basis for these concerns and perceptions, or if other issues arise with our market in general, demand for multi-security functionality products could be severely limited, which would limit our growth and harm our business, financial condition and results of operations.

Further, a successful and publicized targeted attack against us, exposing a “single point of failure,” could significantly increase these concerns and perceptions and may harm our business and results of operations.

If functionality similar to that offered by our products is incorporated into existing network infrastructure products, organizations may decide against adding our appliances to their network, which would have an adverse effect on our business.

Large, well-established providers of networking equipment, such as Cisco and Juniper, offer, and may continue to introduce, network security features that compete with our products, either in standalone security products or as additional features in their network infrastructure products.

Large, well-established providers of networking equipment, such as Cisco, offer, and may continue to introduce, network security features that compete with our products, either in standalone security products or as additional features in their network infrastructure products.

The inclusion of, or the announcement of an intent to include, functionality perceived to be similar to that offered by our security solutions in networking products that are already generally accepted as necessary components of network architecture may have an adverse effect on our ability to market and sell our products.

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Our channel partners also may adjust their orders in response to the supply of our products and the products of our competitors that are available to them and in response to seasonal fluctuations in end-customer demand.

Furthermore, if the time required to source components, manufacture or ship certain products increases for any reason, inventory shortfalls could result.

If we cannot manufacture and ship our products due to, for example, global chip shortages, natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, pandemics and epidemics such as the COVID-19 pandemic or manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks, our business and financial results could be materially and adversely impacted.

Furthermore, if the time required to source components including chips and other components, or manufacture or ship certain products increases for any reason, inventory shortfalls could result and costs to manufacture and ship on-time could increase.

If we cannot manufacture and ship our products due to, for example, global chip shortages, excessive demand on contract manufacturers capacity, natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, cyber events, pandemics and epidemics such as the COVID-19 pandemic or manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks, our business and financial results could be materially and adversely impacted.

For example, the global chip shortage caused by the COVID-19 pandemic and other factors affecting manufacturing capacity in Asia has continued into 2021 and may have an adverse impact on our ability to manage our inventory and to meet product demand in a timely fashion.

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For example, we have in the past experienced inventory shortages and excesses due to the variance in demand for certain products from forecasted amounts.

Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to effectively manage

Our inventory management systems and related supply chain visibility tools may be inadequate to enable us to effectively manage inventory.

If we are unable to effectively manage our inventory and that of our channel partners, our results of operations could be adversely affected.

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Our reliance on our third-party manufacturers in Asia and elsewhere reduces our control over the manufacturing process, exposing us to risks, including reduced control over quality assurance, costs, supply and timing and possible tariffs.

Any manufacturing disruption related to our third-party manufacturers or their component suppliers for any reason, including global chip shortages, natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, health pandemics and epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks, could impair our ability to fulfill orders.

Any manufacturing disruption related to our third-party manufacturers or their component suppliers for any reason, including global chip shortages, natural disasters and health emergencies such as earthquakes, fires, power outages, typhoons, floods, health pandemics and epidemics such as the COVID-19 pandemic and manmade events such as civil unrest, labor disruption, cyber events, international trade disputes, international conflicts, terrorism, wars and critical infrastructure attacks, could impair our ability to fulfill orders.

If we are unable to manage our relationships with these third-party manufacturers effectively, or if these third-party manufacturers experience delays, increased manufacturing lead-times, disruptions, capacity constraints or quality control problems in their manufacturing operations, or fail to meet our future requirements for timely delivery, our ability to ship products to our customers could be impaired and our business would be seriously harmed.

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We have incurred and expect to incur additional costs to comply with the rules, including costs related to efforts to determine the origin, source and chain of custody of the conflict minerals used in our products and the adoption of conflict minerals-related governance policies, processes and controls.

Moreover, the implementation of these compliance measures could adversely affect the sourcing, availability and pricing of materials used in the manufacture of our

products to the extent that there may be only a limited number of suppliers that are able to meet our sourcing requirements, which would make it more difficult to obtain such materials in sufficient quantities or at competitive prices.

Moreover, the implementation of these compliance measures could adversely affect the sourcing, availability and pricing of materials used in the manufacture of our products to the extent that there may be only a limited number of suppliers that are able to meet our sourcing requirements, which would make it more difficult to obtain such materials in sufficient quantities or at competitive prices.

We may also encounter customers who require that all of the components of our products be certified as conflict-free.

If we are not able to meet customer requirements, such customers may choose to not purchase our products, which could impact our sales and the value of portions of our inventory.

If we are not able to

meet customer requirements, such customers may choose to not purchase our products, which could impact our sales and the value of portions of our inventory.

Because some of the key components in our products come from limited sources of supply, we are susceptible to supply shortages, long lead times for components, and supply changes, each of which could disrupt or delay our scheduled product deliveries to our customers, result in inventory shortage, cause loss of sales and customers or increase component costs resulting in lower gross margins and free cash flow.

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In addition, defects or errors in our FortiGuard and other security subscription or FortiCare updates or our Fortinet appliances and operating systems could result in a failure of our FortiGuard and other security subscription services to effectively update end-customers’ Fortinet appliances and cloud-based products and thereby leave customers vulnerable to attacks.

Furthermore, our solutions may also fail to detect or prevent viruses, worms or similar threats due to a number of reasons such as the evolving nature of such threats and the continual emergence of new threats that we may fail to add to our FortiGuard databases in time to protect our end-customers’ networks.

Furthermore, our solutions may also fail to detect or prevent viruses, worms, ransomware attacks or similar threats due to a number of reasons such as the evolving nature of such threats and the continual emergence of new threats that we may fail to add to our FortiGuard databases in time to protect our end-customers’ networks.

Our data centers and networks and those of our hosting vendors and cloud service providers, may also experience technical failures and downtime, and may fail to distribute appropriate updates, or fail to meet the increased requirements of our customer base.

Any such technical failure, downtime or failures in general may temporarily or permanently expose our end-customers’ networks, leaving their networks unprotected against the latest security threats.

An actual, possible or perceived security breach or infection of the network of one of our end-customers, regardless of whether the breach is attributable to the failure of our products or services to prevent the security breach, or any actual or perceived security risk in our supply chain, could adversely affect the market’s perception of our security products and services, cause customers and customer prospects not to buy from us and, in some instances, subject us to potential liability that is not contractually limited.

cause customers and customer prospects not to buy from us and, in some instances, subject us to potential liability that is not contractually limited.

We may not be able to correct any security flaws or vulnerabilities promptly, or at all.

Our products may also be misused by end-customers or third parties who obtain access to our products.

Our products may also be misused or misconfigured by end-customers or third parties who obtain access to our products.

For example, our products could be used to censor private access to certain information on the internet.

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If we do not quickly respond to the rapidly changing and rigorous needs of our end-customers by developing and releasing and making available on a timely basis new products and services or enhancements that can respond adequately to new security threats, our competitive position and business prospects may be harmed.

Moreover, business models based on SaaS, either hosted or cloud-based services, have become increasingly in-demand by our end-customers and adopted by other providers, including our competitors.

Moreover, business models based on a subscription software as a service, or SaaS, cloud-based services, have become increasingly in-demand by our end-customers and adopted by other providers, including our competitors.

While we have introduced additional cloud-based products and services and will continue to do so, most of our platform is currently deployed on premise, and therefore, if customers demand that our platform be provided through a SaaS business model, we would be required to make additional investments in our infrastructure and personnel to be able to more fully provide our platform through a SaaS model in order to maintain the competitiveness of our platform.

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Additionally, if we are unable to meet the demand to provide our services through a SaaS model, we may lose customers to competitors.

Unforeseen COVID-19 pandemic impacts on global supply chains may impact our ability to procure parts required for building our hardware appliances.

Extended lead time may be introduced in identifying alternative sources and in delivering orders than is typical.

The COVID-19 pandemic has continued to impact global supply chains for many organizations, resulting in shortages of and delays in both raw equipment and electronic components such as computer chips.

Though we have managed our supply availability well thus far during the COVID-19 pandemic, unforeseen events in upstream supplies and component availability may impact our ability to plan and deliver upon orders received.

Additionally, such unforeseen impacts to required component supply chains may introduce increases in prices of components that may require us to raise prices of our products in turn;

such price increases may result in our products being less price-competitive in the market.

Our uniform resource locator (“URL”) database for our web filtering service may fail to keep pace with the rapid growth of URLs and may not categorize websites in accordance with our end-customers ’ expectations.

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Any such false identification or perceived false identification of important files, applications or vulnerabilities could result in negative publicity, loss of end-customers and sales, increased costs to remedy any problem and costly litigation.

Our ability to sell our products is dependent on the quality of our technical support services, and our failure to offer high-quality technical support services would have a material adverse effect on our sales and results of operations.

Our ability to sell our products is dependent on our quality control processes and the quality of our technical support services, and our failure to offer high-quality technical support services would have a material adverse effect on our sales and results of operations.

Once our products are deployed within our end-customers’ networks, our end-customers depend on our technical support services, as well as the support of our channel partners and other third parties, to resolve any issues relating to our products.

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Many large end-customers, and service provider or government organization end-customers, require higher levels of support than smaller end-customers because of their more complex deployments and more demanding environments and business models.

If we, our channel partners or other third parties fail to meet the requirements of our larger end-customers, it may be more difficult to execute on our strategy to increase our

penetration with large businesses, service providers and government organizations.

If we, our channel partners or other third parties fail to meet the requirements of our larger end-customers, it may be more difficult to execute on our strategy to increase our penetration with large businesses, service providers and government organizations.

Our failure to maintain high-quality support services would have a material adverse effect on our business, financial condition and results of operations and may subject us to litigation, reputational damage, loss of customers and additional costs.

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Our success depends on the market’s confidence in our ability to provide effective network security protection.

Despite our efforts and processes to prevent breaches of our internal networks, systems and websites, we are still vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service, vulnerabilities in vendor hardware and software that we leverage, and other cyber-attacks and similar disruptions from unauthorized access to our internal networks, systems or websites.

Despite our efforts and processes to prevent breaches of our internal networks, systems and websites, we are still vulnerable to computer viruses, break-ins, phishing attacks, ransomware attacks, attempts to overload our servers with denial-of-service, vulnerabilities in vendor hardware and software that we leverage, and other cyber-attacks and similar disruptions from unauthorized access to our internal networks, systems or websites.

Our security measures may also be breached due to employee error, malfeasance or otherwise, which breaches may be more difficult to detect than outsider threats, and the existing programs and trainings we have in place to prevent such insider threats may not be effective or sufficient.

Third parties may also attempt to fraudulently induce our employees to transfer funds or disclose information in order to gain access to our networks and confidential information.

Third parties may also attempt to fraudulently induce our employees to transfer funds or disclose information in order to gain access to our

networks and confidential information.

Third parties may also send our customers or others malware or malicious emails that falsely indicate that we are the source, potentially causing lost confidence in us and reputational harm.

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These and other hacking efforts against us and our customers may be ongoing and may recur in the future.

Although we take numerous measures and implement multiple layers of security to protect our networks and our customers’ networks, we cannot guarantee that our security products, processes and services will secure against all threats.

Although we take numerous measures and implement multiple layers of security to protect our networks, we cannot guarantee that our security products, processes and services will secure against all threats.

F urther, we cannot be sure that third parties have not been, or will not in the future be, successful in improperly accessing our systems and our customers’ systems, which could negatively impact us and our customers.

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Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results and financial condition.

If we are unable to protect our proprietary rights (including aspects of our software and products protected other than by patent rights), we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date.

If we are unable to protect our proprietary rights (including aspects of our software and products protected other than by patent rights),

we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date.

Our products contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our products.

Our products contain software modules licensed to us by third-party authors under “open source” licenses, including the GNU Public License, the GNU Lesser Public License, the BSD License, the Apache License, the MIT X License and the

Mozilla Public License.

From time to time, there have been claims against companies that distribute or use open source software in their products and services, asserting that open source software infringes the claimants’ IP rights.

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We have several ongoing patent lawsuits, certain companies have sent us demand letters proposing that we license certain of their patents, and organizations have sent letters demanding that we provide indemnification for patent claims.

As two examples of the ongoing patent lawsuits against us, one such patent lawsuit by British Telecommunications plc was filed in federal court in Delaware in July 2018, and a second such lawsuit by Finjan, Inc.

examples of the ongoing patent lawsuits against us, one such patent lawsuit by British Telecommunications plc was filed in federal court in Delaware in July 2018, and a second such lawsuit by Finjan, Inc.

was filed in federal court in California in October 2018, and additional patent lawsuits have been filed against us since.

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For example, in June 2018, California passed the California Consumer Privacy Act (the “CCPA”), which provides new data privacy rights for consumers and new operational requirements for companies and became effective on January 1, 2020.

The CCPA was expanded pursuant to the California Privacy Rights Act, which was passed in 2020 and which will become effective in 2023.

The CCPA was expanded pursuant to the California Privacy Rights Act, which was passed in 2020 and which will become

effective in 2023.

The costs of compliance with and the penalties for violations of the GDPR and CCPA, along with other burdens imposed by these regulations, may limit the use and adoption of our products and services and could have an adverse impact on our business.

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Failure to comply with these requirements or to obtain and maintain government permits and clearances required to do certain business, by either us or our channel partners, could subject us to investigations, fines, suspension, limitations on business or debarment from doing business with the U.S.

government or one of its divisions, as well as other penalties, damages and reputational harms, which

could have an adverse effect on our business, operating results, financial condition and prospects.

government or one of its divisions, as well as other penalties, damages and reputational harms, which could have an adverse effect on our business, operating results, financial condition and prospects.

Any violations of regulatory and contractual requirements could result in us being suspended or debarred from future government contracting.

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As a result, China and other countries imposed retaliatory tariffs on goods exported from the United States and both the United States and foreign countries have threatened to alter or leave current trade agreements.

response to the tariffs, the cost of our products could increase, our operations could be disrupted or we could be required to raise our prices, which may result in the loss of customers and harm to our reputation and operating performance.

While we do not currently expect these tariffs to have a significant effect on our raw material and product import costs, if the United States expands increased tariffs, or retaliatory trade measures are taken by China or other countries in response to the tariffs, the cost of our products could increase, our operations could be disrupted or we could be required to raise our prices, which may result in the loss of customers and harm to our reputation and operating performance.

Any modification in these areas, any shift in the enforcement or scope of existing regulations or any change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations and could result in increased costs.

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Our failure to comply with these and future environmental rules and regulations could result in reduced sales of our products, increased costs, substantial product inventory write-offs, reputational damage, penalties and other sanctions.

Our inability to successfully acquire and integrate other businesses, products or technologies could seriously harm our competitive position.

In order to remain competitive, we may seek to acquire additional businesses, products, technologies or IP, such as patents.

For example, we acquired ShieldX in 2021.

F or any possible future acquisitions, we may not be successful in negotiating the terms of the acquisition or financing the acquisition.

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.

In order to remain competitive, we may seek to acquire additional businesses, products, technologies or IP, such as patents, and to make equity investments in businesses coupled with strategic alliances.

For example, in 2021, we acquired ShieldX and we made an equity investment in Linksys.

F or any possible future acquisitions or investments, we may not be successful in negotiating the terms of the acquisition or investment or financing the acquisition or investment.

For both our prior and future acquisitions, we may not be successful in effectively integrating the acquired business, product, technology or IP and sales force into our existing business and operations.

We may have difficulty incorporating acquired technologies, IP or products with our existing product lines, integrating reporting systems and procedures, and maintaining uniform standards, controls, procedures and policies.

For example, we may experience difficulties integrating an acquired company’s ERP or CRM systems, sales support and other processes and systems, with our current systems and processes.

Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues with IP, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues, and we may not accurately forecast the financial impact of an acquisition.

In addition, any acquisitions we are able to complete may be dilutive to revenue growth and earnings and may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial.

For example, we may experience difficulties integrating an acquired company’s ERP or CRM systems, sales support and other processes and systems, with our current systems and processes.We may also experience difficulty in timely obtaining financial information from the companies in which we have invested in order to meet our financial reporting requirements.

Our due diligence for acquisitions and investments may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues with IP, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues, and we may not accurately forecast the financial impact of an acquisition or an investment and alliance.

In addition, any acquisitions and significant investments we are able to complete may be dilutive to revenue growth and earnings and may not result in any synergies or other benefits we had expected to achieve, which could result in negative impact to our operating results and impairment charges that could be substantial.

We may have to pay cash, incur debt or issue equity securities to pay for any acquisition, each of which could affect our financial condition or the value of our capital stock and could result in dilution to our stockholders.

Acquisitions during a quarter may result in increased operating expenses and adversely affect our results of operations for that period or future periods compared to the results that we have previously forecasted or achieved.

Further, completing a potential acquisition and integrating acquired businesses, products, technologies or IP could significantly divert management time and resources.

Acquisitions or investments during a quarter may result in increased operating expenses and adversely affect our cash flows or our results of operations for that period and future periods compared to the results that we have previously forecasted or achieved.

Further, completing a potential acquisition or investment and alliance and integrating acquired businesses, products, technologies or IP are challenging to do successfully and could significantly divert management time and resources.

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

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We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in this Quarterly Report on Form 10-Q, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.

Significant assumptions and estimates used in preparing our condensed consolidated financial statements include those related to revenue recognition, deferred contract costs

and commission expense, valuation of inventory, accounting for business combination, contingent liabilities and accounting for income taxes.

Our operating results may be adversely affected if our assumptions change or if actual

circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in our stock price.

Significant assumptions and estimates used in preparing our condensed consolidated financial statements include those related to revenue recognition, deferred contract costs and commission expense, valuation of inventory, accounting for business combination, contingent liabilities and accounting for income taxes.

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

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• transfer pricing adjustments;

• increases to the corporate tax rate, including the increase proposed in 2021;

• increases to corporate tax rates, including the increase proposed to the U.S.

federal corporate rate in 2021;

• an increase in non-deductible expenses for tax purposes, including certain stock-based compensation expense;

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We currently have ongoing tax audits in the United Kingdom, Canada, Germany and several other foreign jurisdictions.

The focus of all of these audits is the allocation of profit between our legal entities.

The focus of all of these audits is the allocation of profits among our legal entities.

We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes.

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If ineffectual, such restructurings or transfers could increase our income tax liabilities, and in turn, increase our global effective tax rate.

Moreover, our existing corporate structure and intercompany arrangements have been implemented in a manner that we believe is in compliance with current prevailing tax laws.

Moreover, our existing corporate structure and intercompany arrangements have been implemented in a

manner that we believe is in compliance with current prevailing tax laws.

However, the tax authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, which could impact our worldwide effective tax rate and harm our financial position and operating results.

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To forecast our global tax rate, we estimate our pre-tax profits and losses by jurisdiction and forecast our tax expense by jurisdiction.

If the mix of profits and losses, our ability to use tax credits or effective tax rates in a given jurisdiction differs from our estimate, our actual tax rate could be materially different than forecasted, which could have a material impact on our results of business, financial condition and results of operations.

If the mix of profits and losses, our ability to use tax credits or our effective tax rate in a given jurisdiction differs from our estimate, our actual tax rate could be materially different than forecasted, which could have a material impact on our results of business, financial condition and results of operations.

Additionally, our actual tax rate may be subject to further uncertainty due to potential changes in U.S.

and foreign tax rules.

For example, in April 2021, legislation was proposed that would increase the corporate tax rate to 28% from its current 21%.

If passed, this legislation would increase our tax rate in the United States.

For example, in April 2021, legislation was proposed that would increase the corporate tax rate in the United States to 28% from its current 21%.

If passed, this legislation would increase our effective tax rate.

As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions.

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The market price of our common stock may be subject to wide fluctuations in response to, among other things, the risk factors described in this pe riodic report, news about us and our financial results, the impact of the COVID-19 pandemic, news about our competitors and their results, and other factors such as rumors or fluctuations in the valuation of companies perceived by investors to be comparable to us.

For example, during the three months ended March 31, 2021, the closing price of our common stock ranged from $138.11 to $192.03 per share.

For example, during the six months ended June 30, 2021, the closing price of our common stock ranged from $138.11 to $247.04 per share.

Furthermore, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.

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In July 2020, our board of directors approved a $500.0 million increase in the authorized stock repurchase amount under the Repurchase Program and extended the term of the Repurchase Program to February 28, 2022, bringing the aggregate amount authorized to be repurchased to $3.0 billion.

As of March 31, 2021, $1.01 billion remained available for future share repurchases under the Repurchase Program.

As of June 30, 2021, $921.1 million remained available for future share repurchases under the Repurchase Program.

Share repurchases under the Repurchase Program could affect the price of our common stock, increase stock price volatility and diminish our cash reserves.

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The continuing effect of any or all of these events could adversely impact demand for our products, harm our operations and weaken our financial results.

Our business is subject to the risks of earthquakes, fire, power outages, typhoon, floods, virus outbreaks and other broad health-related challenges and other catastrophic events, and to interruption by manmade problems such as civil unrest, labor disruption, critical infrastructure attack and terrorism.

A significant natural disaster, such as an earthquake, fire, power outage, flood, viral outbreak or other catastrophic event, could have a material adverse impact on our business, operating results and financial condition.

Our business is subject to the risks of earthquakes, drought, fire, power outages, typhoon, floods, virus outbreaks and other broad health-related challenges, cyber events and other catastrophic events, and to interruption by manmade problems such as civil unrest, labor disruption, critical infrastructure attack and terrorism.

A significant natural disaster, such as an earthquake, drought, fire, power outage, flood, viral outbreak or other catastrophic event, could have a material adverse impact on our business, operating results and financial condition.

Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity, and our research and development and data center in Burnaby, Canada, from which we deliver to customers our FortiGuard and other security subscription updates, is subject to the risk of flooding and is also in a region known for seismic activity.

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For example, a typhoon in Taiwan could materially negatively impact our ability to ship products and could result in delays and reductions in billings and revenues, and the COVID-19 pandemic will negatively impact our ability to manufacture and ship products, possibly in a material way, and could result in delays and reductions in billings and revenues, also possibly in a material way.

The impact of climate change could affect economies in ways that negatively impact us and our results of operations.

In the event our or our service providers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in our missing financial targets, such as revenue and shipment targets, for a particular quarter.

In addition, regional instability, civil unrest, labor disruptions, acts of terrorism and other geo-political unrest could cause disruptions in our business or the business of our manufacturers, logistics providers, partners or end-customers, or of the economy as a whole.

In addition, regional instability, international disputes, wars and other acts of aggression, civil and political unrest, labor disruptions, rebellions, acts of terrorism and other geo-political unrest could cause disruptions in our business or the business of our manufacturers, suppliers, logistics providers, partners or end-customers, or of the economy as a whole.

Given our typical concentration of sales at the end of each quarter, any disruption in the business of our manufacturers, logistics providers, partners or end-customers that impacts sales at the end of our quarter could have a significant adverse impact on our quarterly results.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors