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FireEye (FEYE) Q2 Loss Lower than Expected but Stock Down
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Shares of FireEye Inc. lost over 17% in afterhours trading yesterday after the company’s second-quarter 2016 revenues and billion fell short of management’s guidance. Furthermore, a weak guidance for the third quarter and a downbeat full-year outlook raised investor concerns regarding the company’s future prospects.
Nevertheless, FireEye’s bottom-line results were encouraging to some extent. The cyber security solution provider posted adjusted loss (excluding one-time items but including stock-based compensation) of 68 cents per share, narrower than the Zacks Consensus Estimate of a loss of 80 cents.
On a year-over-year basis too, FireEye’s adjusted loss narrowed by 10 cents per share mainly on the back of cost optimization initiatives.
On a GAAP basis, the company reported a loss of 86 cents per share, marginally narrower than the year-ago loss of 87 cents.
Revenues
FireEye’s second-quarter revenues surged 18.9% year over year to $175 million. The improvement was primarily driven by a large number of deal wins and customer additions during the quarter. Notably, the company closed 40 transactions with an individual value of over $1 million and added 308 new customers during the quarter.
However, quarterly revenues fell short of the Zacks Consensus Estimate of $181 million as well as the company’s own guidance range of $178–$185 million. FireEye believes that the revenue miss was mainly due to slower-than-expected services growth resulting from changes in the threat environment. FireEye hinted that some organizations might be opting for good enough solutions instead of shopping for the best, which is dampening its sales.
Segment-wise, Product revenues tanked 17.9% year over year to $40.8 million. Subscription and Services revenues, on the other hand, surged 37.7% to $134.3 million, driven mainly by continued transition to subscription and cloud-based offering.
Billings increased 10% to $196.4 million but remained below management’s guidance of $200 million to $215 million.
Operating Results
Adjusted gross profit jumped 30.6% from the year-ago quarter to $119.2 million. Gross margin improved 40 basis points (bps) to 68.1%.
Adjusted operating expenses increased 4.3% to $225.5 million. The company posted adjusted operating loss of $106.3 million, which was 8.9% narrower than the year-ago loss of $116.6 million.
Adjusted net loss for the second quarter was $109.5 million, or 68 cents per share, compared with the year-ago net loss of $119 million or 78 cents.
Balance Sheet & Cash Flow
FireEye exited the quarter with cash and cash equivalents and short-term investments of roughly $916.8 million. Accounts receivable were $124.3 million, compared with $141.2 million at the end of first quarter. During the first half of 2016, the company used $35.6 million of cash for operating activities.
Guidance
FireEye has revised its guidance for the full year. It lowered its revenue guidance range to $716 million and $728 million (mid-point: $722 million) from the previous projection of $780–$810 million (mid-point: $795 million). The Zacks Consensus Estimate of $794.7 million is higher than the mid-point of management’s guided range.
Non-GAAP billings are now anticipated to be between $835 million and $855 million, down from the earlier guidance of $975–$1.055 billion. Non-GAAP operating margin is now projected to be -26% to -28% of revenues, which is worse than its previous guidance range of -22% to -24%.
The company now expects loss to be wider than its previous guidance. Non-GAAP net loss per share is expected to be between $1.28 and $1.32 (mid-point $1.30), compared with the earlier projection of $1.20–$1.27 (mid-point: $1.235).
For the third quarter, FireEye anticipates revenues in the range of $180 million to $186 million (mid-point: $183 million), much below the Zacks Consensus Estimate of $207.9 million. Non-GAAP billings are expected in the range of $200 million to $215 million. Non-GAAP operating margin is projected to remain in the range of -25% to -27% of revenues. The company expects non-GAAP loss per share of 30–32 cents (mid-point: 31 cents).
FireEye, headquartered in Milpitas, CA, is a global provider of web, email, file and malware security to enterprises and governments. Although the company’s bottom-line results fared better than the Zacks Consensus Estimate, revenues fell short of the same due to changes in the threat environment and organizations opting for good enough security solutions instead of the best in class.
The company also lowered its full-year revenue and non-GAAP earnings guidance.
Despite persistent macro uncertainty, the company appears optimistic due to a healthy security market, strong product line-up, deal wins and investment plans, which should boost results in the long run.
Furthermore, FireEye’s strategy of growing through acquisitions is encouraging. The latest of such transactions was the iSIGHT Partners buyout during the first quarter. The deal has beefed up FireEye’s cyber security suite and enhanced its competitive dynamics.
FireEye has also taken over Invotas, a firm specializing in improving response times post a cyber attack. Its product, Security Orchestrator, is designed to compile information from a range of security products and automate responses when an incident occurs.
Furthermore, FireEye recently launched FireEye Essentials, a lower-cost, simpler version of the FireEye Global Threat Management Platform. It is targeting smaller, mid-market companies with the new offering.
All these moves indicate FireEye’s efforts on moving beyond the enterprise-level, end-point protection products it had initially started with. These factors are also likely to aid the company’s long-term results.
However, an uncertain economic environment, competition from the likes of Palo Alto Networks Inc. (PANW - Free Report) and Juniper Networks Inc. (JNPR - Free Report) , and currency headwinds remain concerns.
Currently, FireEye carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader technology sector is Paycom Software Inc. (PAYC - Free Report) with a Zacks Rank #2 (Buy).
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FireEye (FEYE) Q2 Loss Lower than Expected but Stock Down
Shares of FireEye Inc. lost over 17% in afterhours trading yesterday after the company’s second-quarter 2016 revenues and billion fell short of management’s guidance. Furthermore, a weak guidance for the third quarter and a downbeat full-year outlook raised investor concerns regarding the company’s future prospects.
Nevertheless, FireEye’s bottom-line results were encouraging to some extent. The cyber security solution provider posted adjusted loss (excluding one-time items but including stock-based compensation) of 68 cents per share, narrower than the Zacks Consensus Estimate of a loss of 80 cents.
On a year-over-year basis too, FireEye’s adjusted loss narrowed by 10 cents per share mainly on the back of cost optimization initiatives.
On a GAAP basis, the company reported a loss of 86 cents per share, marginally narrower than the year-ago loss of 87 cents.
Revenues
FireEye’s second-quarter revenues surged 18.9% year over year to $175 million. The improvement was primarily driven by a large number of deal wins and customer additions during the quarter. Notably, the company closed 40 transactions with an individual value of over $1 million and added 308 new customers during the quarter.
However, quarterly revenues fell short of the Zacks Consensus Estimate of $181 million as well as the company’s own guidance range of $178–$185 million. FireEye believes that the revenue miss was mainly due to slower-than-expected services growth resulting from changes in the threat environment. FireEye hinted that some organizations might be opting for good enough solutions instead of shopping for the best, which is dampening its sales.
Segment-wise, Product revenues tanked 17.9% year over year to $40.8 million. Subscription and Services revenues, on the other hand, surged 37.7% to $134.3 million, driven mainly by continued transition to subscription and cloud-based offering.
Billings increased 10% to $196.4 million but remained below management’s guidance of $200 million to $215 million.
Operating Results
Adjusted gross profit jumped 30.6% from the year-ago quarter to $119.2 million. Gross margin improved 40 basis points (bps) to 68.1%.
Adjusted operating expenses increased 4.3% to $225.5 million. The company posted adjusted operating loss of $106.3 million, which was 8.9% narrower than the year-ago loss of $116.6 million.
Adjusted net loss for the second quarter was $109.5 million, or 68 cents per share, compared with the year-ago net loss of $119 million or 78 cents.
Balance Sheet & Cash Flow
FireEye exited the quarter with cash and cash equivalents and short-term investments of roughly $916.8 million. Accounts receivable were $124.3 million, compared with $141.2 million at the end of first quarter. During the first half of 2016, the company used $35.6 million of cash for operating activities.
Guidance
FireEye has revised its guidance for the full year. It lowered its revenue guidance range to $716 million and $728 million (mid-point: $722 million) from the previous projection of $780–$810 million (mid-point: $795 million). The Zacks Consensus Estimate of $794.7 million is higher than the mid-point of management’s guided range.
Non-GAAP billings are now anticipated to be between $835 million and $855 million, down from the earlier guidance of $975–$1.055 billion. Non-GAAP operating margin is now projected to be -26% to -28% of revenues, which is worse than its previous guidance range of -22% to -24%.
The company now expects loss to be wider than its previous guidance. Non-GAAP net loss per share is expected to be between $1.28 and $1.32 (mid-point $1.30), compared with the earlier projection of $1.20–$1.27 (mid-point: $1.235).
For the third quarter, FireEye anticipates revenues in the range of $180 million to $186 million (mid-point: $183 million), much below the Zacks Consensus Estimate of $207.9 million. Non-GAAP billings are expected in the range of $200 million to $215 million. Non-GAAP operating margin is projected to remain in the range of -25% to -27% of revenues. The company expects non-GAAP loss per share of 30–32 cents (mid-point: 31 cents).
FIREEYE INC Price, Consensus and EPS Surprise
FIREEYE INC Price, Consensus and EPS Surprise | FIREEYE INC Quote
Our Take
FireEye, headquartered in Milpitas, CA, is a global provider of web, email, file and malware security to enterprises and governments. Although the company’s bottom-line results fared better than the Zacks Consensus Estimate, revenues fell short of the same due to changes in the threat environment and organizations opting for good enough security solutions instead of the best in class.
The company also lowered its full-year revenue and non-GAAP earnings guidance.
Despite persistent macro uncertainty, the company appears optimistic due to a healthy security market, strong product line-up, deal wins and investment plans, which should boost results in the long run.
Furthermore, FireEye’s strategy of growing through acquisitions is encouraging. The latest of such transactions was the iSIGHT Partners buyout during the first quarter. The deal has beefed up FireEye’s cyber security suite and enhanced its competitive dynamics.
FireEye has also taken over Invotas, a firm specializing in improving response times post a cyber attack. Its product, Security Orchestrator, is designed to compile information from a range of security products and automate responses when an incident occurs.
Furthermore, FireEye recently launched FireEye Essentials, a lower-cost, simpler version of the FireEye Global Threat Management Platform. It is targeting smaller, mid-market companies with the new offering.
All these moves indicate FireEye’s efforts on moving beyond the enterprise-level, end-point protection products it had initially started with. These factors are also likely to aid the company’s long-term results.
However, an uncertain economic environment, competition from the likes of Palo Alto Networks Inc. (PANW - Free Report) and Juniper Networks Inc. (JNPR - Free Report) , and currency headwinds remain concerns.
Currently, FireEye carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader technology sector is Paycom Software Inc. (PAYC - Free Report) with a Zacks Rank #2 (Buy).
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