FireEye Inc (FEYE) Reports Record Q2 Billings and Revenue and Raises 2015 Outlook


FireEye Inc (NASDAQ:FEYE), the leader at stopping today’s advanced cyber attacks, today announced financial results for the second quarter of 2015.

“Our business continued to gain momentum in the second quarter as the power of our platform resulted in expansion of our customer base, new strategic partnerships, and additional cross-selling opportunities,” said David DeWalt, CEO and chairman of the board of FireEye. “Record sales across our portfolio of network, endpoint, cloud and services offerings further highlight the power of our platform to drive growth and deliver value to customers. Our strong second quarter billings and revenue performance resulted in improved operating leverage and operating cash flow of more than $39 million, giving us the confidence to raise our outlook and accelerate our anticipated timeline for achieving positive annual operating cash flow. We achieved these outstanding financial results while increasing our investments in new products, global infrastructure, and sales capacity to extend our leadership in advanced security.”

Second Quarter 2015 Revenue and Billings

  • Revenue: Second quarter revenue was $147.2 million, an increase of 56 percent from the second quarter of 2014 and above the previously issued guidance range of $140 to $144 million. Total revenue included product revenue of $49.7 million, product subscription revenue of $48.5 million, support and maintenance revenue of $21.4 million and professional services revenue of $27.6 million.
  • Billings1: Second quarter billings were $178.3 million, an increase of 57 percent from the second quarter of 2014 and above the previously issued guidance range of $165 to $170 million. Total billings included product billings of $48.8 million, product subscription billings of $72.5 million, support and maintenance billings of $31.1 million, and professional services billings of $25.9 million. The average contract length for new subscription and support billings was approximately 31 months, compared to approximately 29 months in the second quarter of 2014.
  • Deferred revenue: Deferred revenue totaled $409.9 million at the end of the second quarter, an increase of $177.9 million, or 77 percent, from the end of the second quarter of 2014. Current deferred revenue was $232.5 million, an increase of $95.7 million from the end of the second quarter of 2014, and included $9.2 million in deferred product revenue and $223.3 million in deferred subscription, support and services revenue. Non-current deferred revenue was $177.4 million, an increase of $82.2 million from the end of the second quarter of 2014. Non-current deferred revenue included $3.6 million of deferred product revenue and $173.8 million of deferred subscription, support and services revenue.

“Demand was strong across product families, vertical markets and geographies in the second quarter, strengthening our belief that we have ‘crossed the chasm’ in advanced security,” said DeWalt. “The opportunity continues to expand, and we believe the breadth and depth of our platform positions us to extend our leadership as the market develops.”

Second Quarter 2015 Operating Performance
“Our continued focus on driving efficiency along with growth resulted in improved operating leverage and the best operating cash flow in our history,” said FireEye Chief Financial Officer Michael Sheridan. “Our results this quarter demonstrate the strength of our business model to generate operating and free cash flow. We expect our operating cash flows to be within $10 million of break-even for 2015, more than a year earlier than our most optimistic targets.”

  • Cash flow from operations: Second quarter cash flow from operations increased more than $100 million year-over-year to $39.1 million, compared to negative $61.9 million in the second quarter of 2014. Purchases of property and equipment decreased to $11.9 million in the second quarter of 2015, compared to $17.3 million in the second quarter of 2014.
  • GAAP net loss: Second quarter GAAP net loss was $133.6 million, or $0.87 per share, based on approximately 154 million weighted average shares outstanding. This compares to a GAAP net loss of $116.8 million, or $0.82 per share, based on approximately 142 million weighted average shares outstanding, in the second quarter of 2014.
  • Non-GAAP net loss1: Second quarter non-GAAP net loss was $62.6 million, or 43 percent of revenue, compared to a non-GAAP net loss of$78.5 million, or 83 percent of revenue in the second quarter of 2014. Non-GAAP net loss per share was $0.41, based on approximately 154 million weighted average shares outstanding, compared to second quarter 2014 non-GAAP net loss per share of $0.55, based on approximately 142 million weighted average shares. Non-GAAP net loss and net loss per share in the second quarter 2015 excluded stock-based compensation expense, amortization of intangible assets, and $2.8 million of non-cash interest expense related to our outstanding convertible senior notes. Non-GAAP net loss for the second quarter of 2014 excluded stock-based compensation expense, amortization of intangible assets,$11.6 million in discrete tax benefits related to acquisition of Mandiant and $0.5 million in acquisition-related expenses related to the acquisition of nPulse Technologies.

1 A reconciliation of GAAP to non-GAAP financial measures is provided in the financial statement tables included in this press release. An explanation of these measures is also included under the heading “Non-GAAP Financial Measures.”

Third Quarter and Updated 2015 Outlook
FireEye provides guidance based on current market conditions and expectations.

For the third quarter of 2015, FireEye expects total revenue in the range of $164 to $168 million. Additionally, for the third quarter, on a non-GAAP basis, the company expects:

  • Total billings in the range of $225 to $230 million.
  • Gross margin in the range of 70 to 73 percent of total revenue.
  • Research and development expenses in the range of 33 to 36 percent of total revenue.
  • Sales and marketing expenses in the range of 61 to 65 percent of total revenue.
  • General and administrative expenses in the range of 13 to 17 percent of total revenue.
  • Interest expense of $3.0 million related to the company’s convertible senior notes.
  • Loss per share of $0.44 to $0.48, based on estimated weighted average shares outstanding of approximately 154 million.

For 2015, the company currently expects total revenue in the range of $630 to $645 million. Additionally, for 2015, on a non-GAAP basis, the company expects:

  • Total billings in the range of $840 to $850 million.
  • Gross margin in the range of 71 to 74 percent of total revenue.
  • Research and development expenses in the range of 33 to 36 percent of total revenue.
  • Sales and marketing expenses in the range of 61 to 65 percent of total revenue.
  • General and administrative expenses in the range of 13 to 17 percent of total revenue.
  • Interest expense of $7.0 million related to the company’s convertible senior notes.
  • Loss per share of $1.70 to $1.80, based on estimated weighted average shares outstanding of approximately 152 million.
  • Cash flow from operations in the range of negative $10 million to positive $10 million.

Guidance for non-GAAP financial measures excludes stock based compensation, amortization of intangible assets, non-cash interest expense related to the company’s convertible senior notes and other non-recurring expenses. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis.

CFO Transition Announced
FireEye also announced that Michael Sheridan, FireEye chief financial officer since 2011, intends to leave FireEye to accept a position as chief financial officer at a private technology company in an unrelated industry. Sheridan will remain with FireEye through the filing of the company’s second quarter Form 10-Q. Frank Verdecanna, FireEye vice president of finance, will serve as interim chief financial officer following Sheridan’s departure in early August while the company conducts an external search for a new CFO.

Verdecanna joined FireEye in November 2012 as the company’s vice president of finance, with responsibility for accounting, corporate financial planning and analysis, tax and revenue operations. Prior to joining FireEye, he served as chief financial officer of Apptera, a mobile communications and advertising company, and iPass, a publicly traded global provider of mobility software and services. Verdecanna began his career as a CPA in public accounting with Coopers and Lybrand and holds a B.S. in Business Administration from Cal Poly, San Luis Obispo.

“Mike helped build FireEye from an early-stage technology pioneer to a global leader in advanced threat protection,” said DeWalt. “We thank him for his many contributions over the past four years and wish him the greatest success in his future.”

“Frank Verdecanna is well qualified to lead FireEye’s finance and accounting organizations while we conduct our CFO search,” said DeWalt. “Given his deep knowledge of our organization, I expect a seamless transition.”

Additional Business Highlights
Business highlights since the release of first quarter 2015 financial results on April 30, 2015 included multiple product releases, an expansion of the company’s ecosystem of partners, the discovery of a new zero day attack, and the completion of a $920 million offering of convertible senior notes.

Enhancements to solutions in FireEye’s Threat Prevention Platform included:

  • New features and functionality for the FireEye Email Threat Prevention Platform ™ (EX™), including the availability of FireEye Advanced Threat Intelligence™ (ATI™) subscription on the EX Series of appliances.
  • A new release of FireEye Endpoint Security™ (HX™ Series) with security content support, enhanced compliance logging, and a redesigned reporting dashboard.
  • Internationalization of the FireEye security platform with the release of FireEye Endpoint Security in multiple languages, including Japanese and German.
  • A new release of the PX™ Series and IA™ Series of packet capture and analysis appliances for enterprise forensics.
  • Regular threat intelligence updates based on the discovery of new zero day attacks exploiting vulnerabilities in Adobe Flash software, identification of new variants of malware targeting Apple iOS, point-of-sale terminals, and banking systems, and exposure of a Chinese APT team’s obfuscation tactic on Microsoft’s TechNet web portal.

Also during this period, FireEye continued to expand its global reach and extend its technology, expertise and intelligence to new customers with:

  • An announcement with Visa to co-develop tools and services to help merchants and issuers protect against advanced cyber attacks targeting their IT and payment infrastructure.
  • A technology integration with PFU Systems, a Fujitsu company, to integrate PFU’s iNetSec Smart Finder and the FireEye NX Series security platform.
  • A strategic alliance with the ACE Group, one of the world’s largest multiline property and casualty insurers to allow cyber insurance to be tailored specifically for an organization’s risk profile.
  • A collaboration with Marsh, a global leader in insurance broking and risk management, to offer clients a new service designed to provide an objective evaluation of an organization’s ability to detect and respond to cyber attacks.
  • An initiative with the National Fusion Center Association (NFCA) focused on intelligence sharing and cyber training for state and local governments. The initiative includes the joint development of the Automated Threat Intelligence Exchange network (ATIX) for the California State Threat Assessment System (STAS). (Original Source)

In reaction to the earnings release, shares of FireEye are falling 7.87% to $43.80 in after-hours trading. FEYE has a 1-year high of $55.33 and a 1-year low of $24.81. The stock’s 50-day moving average is $49.53 and its 200-day moving average is $43.32.

On the ratings front, FireEye has been the subject of a number of recent research reports. In a report released yesterday, Oppenheimer analyst Shaul Eyal upgraded FEYE to Buy, with a price target of $58, which represents a potential upside of 21.3% from where the stock is currently trading. Separately, on July 15, Citigroup’s Walter Pritchard maintained a Hold rating on the stock .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Shaul Eyal and Walter Pritchard have a total average return of 19.6% and 13.7% respectively. Eyal has a success rate of 73.7% and is ranked #18 out of 3721 analysts, while Pritchard has a success rate of 69.1% and is ranked #283.

Overall, 7 research analysts have assigned a Hold rating and 6 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $45.67 which is 4.5% under where the stock opened today.

FireEye Inc provides cybersecurity solution for detecting, preventing and resolving cyber-attacks that evade legacy signature-based security products. Its solutions include traditional and next-generation firewalls, IPS, anti-virus, and gateways.