FireEye, Inc. (NASDAQ: FEYE), the intelligence-led security company,
today announced financial results for the second quarter ended June 30,
2018.
“Sales growth in the second quarter was broad based across all
geographies and product families, and demand for our differentiated
security products and services is increasing as we enter the second half
of 2018,” said Kevin Mandia, FireEye chief executive officer. “New logo
customers added in the quarter increased year-over-year and sequentially
for the first time since early 2016, and we added more than 75 new Helix
customers in the second quarter.”
“We continue to leverage our unique innovation cycle to quickly adapt
our products with knowledge gained on the front lines of combatting
cyber attacks,” added Mandia. “The most recent example of our innovation
cycle in action was yesterday’s release of our advanced machine
learning-based detection engine, MalwareGuard. MalwareGuard is designed
to provide superior signature-less detection of malware to better
protect our customers. MalwareGuard is included with our cloud and
on-premise Endpoint Security products, and we have plans to extend these
models to our Email Security and Network Security products.”
Second Quarter 2018 Financial Results
“We achieved non-GAAP profitability in the second quarter, and we are on
track to deliver non-GAAP profitability and positive free cash flow for
2018,” said Frank Verdecanna, FireEye chief financial officer and chief
accounting officer. “On a rolling four quarter basis, we generated $55
million in non-GAAP operating cash flow and were free cash flow positive
for the first time. These are important milestones in our efforts to
achieve our long-term financial targets and build shareholder value.”
“Our business continues to shift toward virtual appliances and
cloud-based solutions purchased on a subscription basis. In the second
quarter, more than 80 percent of our non-services billings were
recurring subscriptions and support,” added Verdecanna. “The increased
revenue visibility inherent in our subscriptions model, combined with
more than $1 billion in cash, cash equivalents and short-term
investments and deferred revenue of $880 million, provides a solid
foundation for balanced growth and profitability in the future. This
outlook is reflected in our increased guidance for 2018 billings and
non-GAAP operating cash flow.”
FireEye adopted Accounting Standards Update (ASU) 2014-09, Revenue from
Contracts with Customers (Topic 606), effective January 1, 2018 using
the full retrospective method. Certain prior period information has been
adjusted to reflect the adoption of the new standard.
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 2018 Outlook
FireEye provides guidance based on current market conditions and
expectations.
For the third quarter of 2018, FireEye currently expects:
Non-GAAP net income per share for the third quarter assumes cash
interest expense of approximately $3.5 million associated with the
company’s convertible senior notes, provision for income taxes of
between $1.0 million and $1.5 million, and diluted weighted average
shares outstanding of approximately 201 million.
For 2018, FireEye currently expects:
Non-GAAP net income per share for 2018 assumes cash interest expense of
approximately $13 million, paid semi-annually in June and December,
associated with the company’s convertible senior notes, provision for
income taxes of between $5.0 million and $6.0 million, and diluted
weighted average shares outstanding of approximately 199 million.
Guidance for non-GAAP financial measures excludes stock-based
compensation, amortization of stock-based compensation expense
capitalized in software development costs, amortization of intangible
assets, recognition of non-cash interest expense related to the
company’s convertible senior notes, and deemed repayment of accreted
debt discounts on repurchased Series A Notes. A reconciliation of
non-GAAP guidance measures to corresponding GAAP measures is not
available on a forward-looking basis due to the uncertainty regarding,
and the potential variability of, the amounts of stock-based
compensation expense, amortization of intangible assets, and
non-recurring expenses that may be incurred in the future. Stock-based
compensation expense is impacted by the company’s future hiring and
retention needs, as well as the future fair market value of the
company’s common stock, all of which are difficult to predict and
subject to constant change. The actual amount of stock-based
compensation in the third quarter of 2018 and full year 2018 will have a
significant impact on the company’s GAAP operating margin and net loss
per share. Further, amortization of intangible assets, as well as other
non-recurring expenses, if any, will also impact results. Accordingly, a
reconciliation of the non-GAAP financial measure guidance to the
corresponding GAAP measures is not available without unreasonable effort.
Conference Call Information
FireEye will host a conference call today, August 1, 2018, at 5 p.m.
Eastern time (2 p.m. Pacific time) to discuss its second quarter results
and the company’s outlook for the third quarter and updated outlook for
2018. Interested parties may access the conference call by dialing
877-312-5521 (domestic) or 678-894-3048 (international). A live audio
webcast of the call, as well as related multi-media content, can be
accessed from the Investor Relations section of the company’s website at http://investors.fireeye.com.
An archived version of the webcast will be available at the same website
shortly after the conclusion of the live event.
Forward-Looking Statements
This press release contains forward-looking statements, including
statements related to future financial results for the third quarter and
full year 2018, including revenue, billings, non-GAAP gross margin,
non-GAAP operating margin, GAAP and non-GAAP cash flows generated by
operations, cash interest expense, provision for income taxes, non-GAAP
net income per share, diluted weighted average shares outstanding, and
capital expenditures in the section entitled “Third Quarter and Updated
2018 Outlook” above, as well as statements related to future growth,
profitability, innovation, competitive advantages, adapting as the
threat landscape evolves, and new and enhanced offerings.
These forward-looking statements involve risks and uncertainties, as
well as assumptions which, if they do not fully materialize or prove
incorrect, could cause FireEye’s results to differ materially from those
expressed or implied by such forward-looking statements. The risks and
uncertainties that could cause FireEye’s results to differ materially
from those expressed or implied by such forward-looking statements
include customer demand and adoption of FireEye’s products and services;
real or perceived defects, errors or vulnerabilities in FireEye’s
products or services; any delay in the release of FireEye’s new products
or services; FireEye’s ability to react to trends and challenges in its
business and the markets in which it operates; FireEye’s ability to
anticipate market needs or develop new or enhanced products and services
to meet those needs; FireEye’s ability to hire and retain key executives
and employees; FireEye’s ability to attract new and retain existing
customers and train its sales force; the budgeting cycles, seasonal
buying patterns and length of FireEye’s sales cycle; risks associated
with new offerings; sales and marketing execution risks; the failure to
achieve expected synergies and efficiencies of operations between
FireEye and its acquired companies; the ability of FireEye and its
acquired companies to successfully integrate their respective market
opportunities, technologies, products, personnel and operations; the
ability of FireEye and its partners to execute their strategies, plans,
objectives and expected investments with respect to FireEye’s
partnerships; and general market, political, economic, and business
conditions, as well as those risks and uncertainties included under the
captions “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in FireEye’s Form 10-Q
filed with the Securities and Exchange Commission on May 4, 2018, which
should be read in conjunction with these financial results and is
available on the Investor Relations section of FireEye’s website at investors.fireeye.com
and on the SEC website at www.sec.gov.
All forward-looking statements in this press release are based on
information available to the company as of the date hereof, and FireEye
does not assume any obligation to update the forward-looking statements
provided to reflect events that occur or circumstances that exist after
the date on which they were made, except as required by law. Any future
product, service, feature, or related specification that may be
referenced in this release is for informational purposes only and is not
a commitment to deliver any offering, technology or enhancement. FireEye
reserves the right to modify future product or service plans at any time.
Non-GAAP Financial Measures
In this release FireEye has provided financial information that has not
been prepared in accordance with generally accepted accounting
principles in the United States (GAAP). These non-GAAP financial
measures are not based on any standardized methodology and are not
necessarily comparable to similar measures used by other companies. The
company uses these non-GAAP financial measures internally in analyzing
its financial results and believes that the use of these non-GAAP
financial measures is useful to investors as an additional tool to
evaluate ongoing operating results and trends, and in comparing the
company’s financial results with other companies in its industry, many
of which present similar non-GAAP financial measures.
Non-GAAP financial measures are not meant to be considered in isolation
or as a substitute for comparable financial information prepared in
accordance with GAAP, and should be read only in conjunction with the
company’s consolidated financial statements prepared in accordance with
GAAP. A reconciliation of the company’s non-GAAP financial measures to
their most directly comparable GAAP measures has been provided in the
financial statement tables included in this press release, and investors
are encouraged to review the reconciliation.
Billings. FireEye defines billings as revenue recognized plus the
change in deferred revenue from the beginning to the end of the period.
FireEye excludes deferred revenue assumed in connection with
acquisitions from the billings calculation. The company considers
billings to be a useful metric for management and investors because
billings drive deferred revenue balances, which are an important
indicator of the company’s future revenues. Revenue recognized from
deferred revenue represents a significant percentage of quarterly
revenue. There are a number of limitations related to the use of
billings versus revenue calculated in accordance with GAAP. First,
billings include amounts that have not yet been recognized as revenue.
Second, FireEye’s calculation of billings may be different from other
companies in its industry, some of which may not use billings, may
calculate billings differently, may have different billing frequencies,
or may use other financial measures to evaluate their performance, all
of which could reduce the usefulness of billings as a comparative
measure. FireEye compensates for these limitations by providing specific
information regarding GAAP revenue and evaluating billings together with
revenue calculated in accordance with GAAP.
Non-GAAP gross margin, operating income, operating margin, net income
(loss), net income (loss) per share, non-GAAP cash flow generated by
(used in) operations, and free cash flow. FireEye defines non-GAAP
gross margin as total gross profit excluding stock-based compensation
expense, amortization of stock-based compensation expense capitalized in
software development costs, amortization of intangible assets, and, as
applicable, other special or non-recurring items, divided by total
revenue. FireEye defines non-GAAP operating income (loss) as operating
income (loss) excluding stock-based compensation expense, amortization
of stock-based compensation expense capitalized in software development
costs, amortization of intangible assets, legal settlement costs,
acquisition-related expenses, change in fair value of contingent
earn-out liability, restructuring charges, and other special or
non-recurring items. FireEye defines non-GAAP operating margin as
non-GAAP operating income divided by total revenue. FireEye defines
non-GAAP net income (loss) as net income (loss) excluding stock-based
compensation expense, amortization of stock-based compensation expense
capitalized in software development costs, amortization of intangible
assets, legal settlement costs, acquisition-related expenses, change in
fair value of contingent earn-out liability, restructuring charges,
other special or non-recurring items, non-cash interest expense related
to the company’s convertible senior notes, non-cash losses on Series A
Notes retired prior to maturity, and discrete tax benefits. FireEye
defines non-GAAP net income per share as non-GAAP net income divided by
diluted weighted average shares outstanding. Diluted weighted average
shares used to calculate non-GAAP net income per share excludes shares
issuable upon conversion of the company’s convertible senior notes that
are anti-dilutive. FireEye defines non-GAAP net loss per share as
non-GAAP net loss divided by weighted average shares outstanding, which
excludes stock options, restricted stock units, performance stock units,
and shares issuable upon conversion of the company’s convertible senior
notes that are anti-dilutive. FireEye defines non-GAAP cash flow
generated by (used in) operations as cash flow generated by (used in)
operations excluding amounts deemed to be repayment of accreted debt
discount on repurchased convertible senior notes. FireEye defines free
cash flow as non-GAAP cash flow generated by (used in) operations less
purchases of property and equipment and demonstration units.
Non-GAAP net income and net income per share in the second quarter of
2018 excluded stock-based compensation expense, amortization of
stock-based compensation expense capitalized in software development
costs, amortization of intangible assets, acquisition-related expenses,
non-cash interest expense related to convertible senior notes issued in
June 2015 and the second quarter of 2018, non-cash losses on the
repurchase and retirement of $340 million principal amount of Series A
Notes, and discrete benefit from income taxes. Diluted weighted average
shares outstanding used to calculate non-GAAP net income per share
excluded shares issuable upon conversion of convertible senior notes
that are anti-dilutive.
Non-GAAP net loss and net loss per share for the second quarter of 2017
excluded stock-based compensation expense, amortization of intangible
assets, change in fair value of contingent earn-out liability, and
non-cash interest expense related to the convertible senior notes issued
in June 2015. Weighted average shares outstanding used to calculate
non-GAAP loss per share excluded stock options, restricted stock units,
performance stock units, and shares issuable upon conversion of
convertible senior notes that are anti-dilutive.
Non-GAAP cash generated by operations for the second quarter of 2018
excluded $43.6 million deemed to be a repayment of accreted debt
discount on $340 million principal amount of the Series A Notes that
were repurchased and retired prior to maturity.
FireEye considers these non-GAAP financial measures to be useful metrics
for management and investors because they exclude the effect of
stock-based compensation expense, amortization of stock-based
compensation expense capitalized in software development costs,
amortization of intangible assets, acquisition related expenses,
non-cash interest expense related to the company’s convertible senior
notes, deemed repayment of accreted debt discount on repurchased
convertible senior notes, change in fair value of contingent earn-out
liability, restructuring charges, and other non-recurring and discrete
items so that management and investors can compare the company’s core
business operating results, over multiple periods.
There are a number of limitations related to the use of these non-GAAP
financial measures versus their nearest GAAP equivalents. First, these
non-GAAP financial measures exclude stock-based compensation expense.
Stock-based compensation expense has been and will continue to be for
the foreseeable future a significant recurring expense in the company’s
business. Stock-based compensation is an important part of FireEye
employees’ overall compensation. Second, the components of the costs
that FireEye excludes in its calculation of these non-GAAP financial
measures, including not only stock-based compensation, but also
amortization of stock-based compensation expense capitalized in software
development costs, non-recurring or non-operating items such as
acquisition related expenses, legal settlement costs, amortization of
intangible assets, non-cash interest expense related to the company’s
convertible senior notes, deemed repayment of accreted debt discount on
convertible senior notes, non-cash losses related to the retirement of
convertible senior notes prior to maturity, change in fair value of
contingent earn-out liability, restructuring charges, and discrete tax
benefits, may differ from the components excluded by peer companies when
they report their non-GAAP results of operations. FireEye compensates
for these limitations by providing specific information regarding the
GAAP amounts excluded from non-GAAP financial measures and evaluating
non-GAAP financial measures together with their nearest GAAP equivalents.
About FireEye, Inc.
FireEye is the intelligence-led security company. Working as a seamless,
scalable extension of customer security operations, FireEye offers a
single platform that blends innovative security technologies,
nation-state grade threat intelligence, and world-renowned Mandiant®
consulting. With this approach, FireEye eliminates the complexity and
burden of cyber security for organizations struggling to prepare for,
prevent, and respond to cyber attacks. FireEye has over 7,100 customers
across 67 countries, including more than 45 percent of the Forbes Global
2000.
© 2018 FireEye, Inc. All rights reserved. FireEye, Mandiant, Helix and
MalwareGuard are registered trademarks or trademarks of FireEye, Inc. in
the United States and other countries. All other brands, products, or
service names are or may be trademarks or service marks of their
respective owners.
FireEye, Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited,
in thousands)
June 30, 2018
December 31,2017*
FireEye, Inc.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(Unaudited, in thousands, except per share
amounts)
Three MonthsEnded June 30,
Six MonthsEnded June 30,
Product, subscription and support
FireEye, Inc.CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS(Unaudited, in thousands)
Six Months EndedJune 30,
FireEye, Inc.RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES(Unaudited, in thousands, except per share
amounts)
Three Months EndedJune 30,
Six Months EndedJune 30,
FireEye, Inc.RECONCILIATION OF NON-GAAP BILLINGS
TO REVENUE(Unaudited, in thousands)
Three Months EndedJune 30,
Six Months EndedJune 30,
FireEye, Inc.BILLINGS BREAKOUT(Unaudited,
in thousands)
Three Months EndedJune 30,
Six Months EndedJune 30,
FireEye, Inc.REVENUE BREAKOUT(Unaudited,
in thousands)
Three Months EndedJune 30,
Six Months EndedJune 30,
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