FireEye Inc (FEYE) Reports 2Q:17 Financial Results; Shares Soar 7%


FireEye Inc (NASDAQ:FEYE) announced financial results for the second quarter ended June 30, 2017.

“We executed well against our priorities in the second quarter, delivering billings, revenue, earnings per share and operating cash flow above expectations,” said Kevin Mandia, FireEye chief executive officer. “We have made great progress rationalizing our cost structure, and reduced our operating losses by more than $100 million in the first six months of the year compared to the first six months of 2016. As we look forward to the second half of 2017, we are focused on new opportunities to expand our customer base with our Helix platform, our next generation endpoint protection, and innovations in our network and email security solutions.”

Second Quarter 2017 Financial Results

  • Revenue of $185.5 million, an increase of 6 percent from the second quarter of 2016 and above the guidance range of $173 million to $179 million.
  • Billings of $172.0 million, a decrease of 12 percent from the second quarter of 2016 and near the high end of the guidance range of $155 million to $175 million.1
  • GAAP gross margin of 64 percent, compared to 61 percent in the second quarter of 2016.
  • Non-GAAP gross margin of 74 percent, compared to 73 percent in the second quarter of 2016 and above the guidance of approximately 72 percent.1
  • GAAP operating margin of negative 32 percent, compared to negative 73 percent in the second quarter of 2016.
  • Non-GAAP operating margin of negative 3 percent, compared to negative 28 percent in the second quarter of 2016 and better than the guidance range of approximately negative 9 percent to negative 10 percent.1
  • GAAP net loss per share of $0.40, compared to a GAAP net loss per share of $0.86 in the second quarter of 2016.
  • Non-GAAP net loss per share of $0.04, compared to a non-GAAP net loss per share of $0.33 in the second quarter of 2016 and better than the guidance range of $0.10 to $0.14.1
  • Cash flow from operations of negative $11.5 million, compared to cash flow from operations of negative $13.1 million in the second quarter of 2016 and better than the guidance range of negative $17 million to negative $27 million.

“We continue to become more efficient in running our operations, which contributed to increases in gross profit and operating margin in the second quarter,” said Frank Verdecanna, FireEye executive vice president and chief financial officer. “We reduced total GAAP operating expenses by 24 percent and total non-GAAP operating expenses by 20 percent, compared to the second quarter of 2016, even as we accelerated investments in the development of our Helix platform and next generation endpoint solution. Our ability to manage our expense structure as we build the foundation for future growth gives us confidence in our ability to achieve our growth and profitability objectives,” added Verdecanna.

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 2017 Outlook

FireEye provides guidance based on current market conditions and expectations.

For the third quarter of 2017, FireEye currently expects:

  • Total revenue in the range of $183 million to $189 million.
  • Billings in the range of $190 million to $205 million.
  • Non-GAAP gross margin of approximately 73 percent.
  • Non-GAAP operating margin of approximately negative 4 percent to negative 6 percent.
  • Non-GAAP net loss per share of $0.06 to $0.09.
  • Positive cash flow from operations of $1 million to $10 million.

Non-GAAP net loss per share for the third quarter assumes cash interest expense of approximately $3.0 million associated with the company’s convertible senior notes, provision for income taxes of between $1.0 and $1.5 million, and weighted average shares outstanding of approximately 179 million.

For 2017, FireEye currently expects:

  • Revenue in the range of $734 million to $746 million.
  • Billings in the range of $745 million to $775 million.
  • Positive non-GAAP operating income in the fourth quarter of 2017.
  • Non-GAAP net loss per share of $0.19 to $0.24.
  • Positive cash flow from operations of $1 million to $10 million.
  • Capital expenditures between $40 million and $50 million. Capital expenditures expectations for 2017 include an estimated $22 million in capital expenditures associated with the build-out and relocation of the company’s headquarters from five separate buildings to a single building in Milpitasin late 2017.

Non-GAAP net loss per share for 2017 assumes cash interest expense of approximately $12.1 million, paid semi-annually in June and December, associated with the company’s convertible senior notes, provision for income taxes of between $5 million and $6 million, and weighted average shares outstanding of approximately 177 million.

Shares of FireEye are up nearly 7% to $15.68 in after-hours trading Tuesday. FEYE has a 1-year high of $17.70 and a 1-year low of $10.35. The stock’s 50-day moving average is $15.39 and its 200-day moving average is $13.45.

On the ratings front, FireEye has been the subject of a number of recent research reports. In a report issued on July 17, Stifel Nicolaus analyst Gur Talpaz reiterated a Buy rating on FEYE, with a price target of $20, which implies an upside of 36% from current levels. Separately, on July 14, Northland Securities’ Robert Breza reiterated a Buy rating on the stock and has a price target of $19.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Gur Talpaz and Robert Breza have a yearly average return of 10.1% and 2.1% respectively. Talpaz has a success rate of 53% and is ranked #889 out of 4627 analysts, while Breza has a success rate of 53% and is ranked #2063.

Overall, 9 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 $16.38 which is 11.5% above where the stock opened today.

FireEye, Inc. develops virtual machine-based security platform that provides real-time protection to enterprises and governments worldwide against the next generation of cyber attacks. The FireEye Threat Prevention Platform provides real-time, dynamic threat protection without the use of signatures to protect an organization across the primary threat vectors, including Web, email, and files and across the different stages of an attack life cycle. Its virtual machine-based security platform is a virtual execution engine, complemented by dynamic threat intelligence, to identify and block cyber attacks in real time.