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FireEye (FEYE) Down Despite Narrower-than-Expected Q4 Loss
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FireEye Inc. seems to be having quite a nightmare. Despite reporting narrower-than-expected loss for the fourth quarter of 2016, shares of the cyber security company could not arrest its fall in yesterdays’ after hour trade.
The cyber security solution provider posted adjusted loss (excluding one-time items but including stock-based compensation) of 22 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 49 cents as well as the year-ago quarter’s loss of 73 cents.
On a GAAP and non-GAAP basis as well, the year-over-year comparisons were favorable. On a GAAP basis, the company reported loss of 37 cents per share, while it had reported a loss of 87 cents in the year-ago period.
On a non-GAAP basis, FireEye posted loss per share of 3 cents compared with a loss of 36 cents in the fourth quarter of 2015. The quarter’s non-GAAP loss per share was also significantly narrower than management’s loss guidance of 16–18 cents (mid-point: 17 cents).
Although this was the second consecutive quarter of better-than-expected results for the bottom line as well as year-over-year improvement, the company’s stock bore the brunt of slowing top-line growth and a dismal outlook. Once investors’ darling, FireEye’s stock plunged nearly 18% and touched an all-time low of $10.35 yesterday.
Notably, in the last one-year period, FireEye underperformed the Zacks categorized Internet Software industry. The stock lost nearly 28% in the said period comparing unfavorably with the industry’s gain of 9.7%.
Revenues
FireEye’s top-line performance was quite a disappointment. The company’s fourth-quarter revenues of $184.7 million not only registered a marginal year-over-year decline for the first time ever but also fell short of the Zacks Consensus Estimate of $192 million as well as its own guidance of $187 million to $193 million (mid-point: $190 million).
The company determined several internal and external factors which impacted its overall top-line performance. Internal factors include a number of sales leadership vacancies, reduced sales capacity and release of several major innovations on a limited basis focused on a set of targeted customers only. From an external perspective, the company analyzed less in the sense of urgency in some buyers.
The company further revealed that dismal performance in the Asia-Pacific region was the main reason behind the underperformance. The performance in the Asia-Pacific region was mainly impacted by the company’s management challenges.
Billings decreased 14% to $221.8 million, below management’s guidance of $230 million to $250 million mainly due to all the factors mentioned above.
Segment-wise, Product revenues tanked 49.6% year over year to $33.6 million. Apart from the aforementioned factors, FireEye’s strategy of transitioning its business to subscription and cloud-based offerings from hardware offerings was the main reason for the decline in product revenues. Subscription and Services revenues, on the other hand, rose 27.9% to $151.1 million.
Nonetheless, FireEye continues to win large deals. Notably, the company closed 34 transactions with an individual value of over $1 million. The company also added 330 customers in the quarter. Moreover, its customer renewal rate remained above 90% during the quarter.
Operating Results
Adjusted gross profit increased 1.6% from the year-ago quarter to $132.2 million. Gross margin improved 120 basis points (bps) to 71.6%.
Adjusted operating expenses decreased 31.5% to $164.6 million. FireEye revealed that it managed to bring down its non-GAAP operating expenses on a year over year and sequential basis due to its sustained focus on cost optimization and productivity.
The company posted adjusted operating loss of $32.4 million, 70.6% narrower than the year-ago loss of $110.3 million. Moreover, FireEye revealed that its non-GAAP operating margin was -1%, compared with -28% in the fourth quarter of 2015. This marked the best operating margin performance by FireEye in its entire history.
Adjusted net loss for the fourth quarter was $35.9 million, compared with the year-ago net loss of $114.3 million. On a non-GAAP basis, the company reported net loss of $4.8 million compared with the year-ago quarter’s loss of $56.5 million.
Balance Sheet & Cash Flow
FireEye exited the quarter with cash and cash equivalents and short-term investments of approximately $935.7 million, slightly higher than $926.2 million at the end of the previous quarter. Accounts receivable were $121.2 million compared with $124 million at the end of the third quarter. During the year, the company used $14.6 million of cash for operating activities.
Guidance
FireEye provided a disappointing first-quarter outlook. For the quarter, the company anticipates revenues in the range of $160 million to $166 million (mid-point: $163 million), below the Zacks Consensus Estimate of $177.54 million. Billings are expected in the range of $130 million to $150 million. Non-GAAP operating margin is projected to remain in the band of -24% to -26% of revenues. The company expects non-GAAP loss per share of 26–28 cents (mid-point: 27 cents). Operating cash flow is likely to remain in the range of negative $30 million to negative $40 million.
For 2017, the company provided only quantitative guidance. FireEye expects billings and revenues to improve throughout the year, mainly in the second half. It further anticipates positive operating cash flow for the first time ever in 2017.
Our Take
FireEye, headquartered in Milpitas, CA, is a global provider of web, email, file and malware security to enterprises and governments. The company posted dismal fourth-quarter results and provided a disappointing outlook.
Although FireEye posted narrower-than-expected loss during the quarter, it marked the first year-over-year decline in revenues for the company. The dreary outlook makes us more cautious over the stock’s future performance.
We believe that FireEye’s dismal fourth-quarter performance was mainly due to its internal challenges as other companies in the space including Check Point Software (CHKP - Free Report) and Proofpoint have reported tremendous top-line growth.
Notably, over the past several quarters, the company has been losing business to its rivals. FireEye faces stiff competition from other well-established players in the cyber security space. Furthermore, the company’s top-line growth has also been affected due to its futuristic approach toward transitioning itself to cloud and shifting its business model from hardware centric to subscription-based services. It should be noted that the company generates higher initial sales from hardware than the subscriptions.
Due to the aforementioned factors, the company’s top-line growth rates have been slowing down as evident from its last quarterly results.
Nonetheless, FireEye’s management has been striving to turn the business around through a string of initiatives, which includes new product launches, acquisition and cost optimization. Although the company expects these initiatives to prove beneficial in the long run, uncertainty related to the payback period prevails.
Currently, FireEye carries a Zacks Rank #4 (Sell).
The stock surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with an average positive earnings surprise of 20.25%.
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FireEye (FEYE) Down Despite Narrower-than-Expected Q4 Loss
FireEye Inc. seems to be having quite a nightmare. Despite reporting narrower-than-expected loss for the fourth quarter of 2016, shares of the cyber security company could not arrest its fall in yesterdays’ after hour trade.
The cyber security solution provider posted adjusted loss (excluding one-time items but including stock-based compensation) of 22 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 49 cents as well as the year-ago quarter’s loss of 73 cents.
On a GAAP and non-GAAP basis as well, the year-over-year comparisons were favorable. On a GAAP basis, the company reported loss of 37 cents per share, while it had reported a loss of 87 cents in the year-ago period.
On a non-GAAP basis, FireEye posted loss per share of 3 cents compared with a loss of 36 cents in the fourth quarter of 2015. The quarter’s non-GAAP loss per share was also significantly narrower than management’s loss guidance of 16–18 cents (mid-point: 17 cents).
Although this was the second consecutive quarter of better-than-expected results for the bottom line as well as year-over-year improvement, the company’s stock bore the brunt of slowing top-line growth and a dismal outlook. Once investors’ darling, FireEye’s stock plunged nearly 18% and touched an all-time low of $10.35 yesterday.
Notably, in the last one-year period, FireEye underperformed the Zacks categorized Internet Software industry. The stock lost nearly 28% in the said period comparing unfavorably with the industry’s gain of 9.7%.
Revenues
FireEye’s top-line performance was quite a disappointment. The company’s fourth-quarter revenues of $184.7 million not only registered a marginal year-over-year decline for the first time ever but also fell short of the Zacks Consensus Estimate of $192 million as well as its own guidance of $187 million to $193 million (mid-point: $190 million).
The company determined several internal and external factors which impacted its overall top-line performance. Internal factors include a number of sales leadership vacancies, reduced sales capacity and release of several major innovations on a limited basis focused on a set of targeted customers only. From an external perspective, the company analyzed less in the sense of urgency in some buyers.
The company further revealed that dismal performance in the Asia-Pacific region was the main reason behind the underperformance. The performance in the Asia-Pacific region was mainly impacted by the company’s management challenges.
Billings decreased 14% to $221.8 million, below management’s guidance of $230 million to $250 million mainly due to all the factors mentioned above.
Segment-wise, Product revenues tanked 49.6% year over year to $33.6 million. Apart from the aforementioned factors, FireEye’s strategy of transitioning its business to subscription and cloud-based offerings from hardware offerings was the main reason for the decline in product revenues. Subscription and Services revenues, on the other hand, rose 27.9% to $151.1 million.
Nonetheless, FireEye continues to win large deals. Notably, the company closed 34 transactions with an individual value of over $1 million. The company also added 330 customers in the quarter. Moreover, its customer renewal rate remained above 90% during the quarter.
Operating Results
Adjusted gross profit increased 1.6% from the year-ago quarter to $132.2 million. Gross margin improved 120 basis points (bps) to 71.6%.
Adjusted operating expenses decreased 31.5% to $164.6 million. FireEye revealed that it managed to bring down its non-GAAP operating expenses on a year over year and sequential basis due to its sustained focus on cost optimization and productivity.
The company posted adjusted operating loss of $32.4 million, 70.6% narrower than the year-ago loss of $110.3 million. Moreover, FireEye revealed that its non-GAAP operating margin was -1%, compared with -28% in the fourth quarter of 2015. This marked the best operating margin performance by FireEye in its entire history.
Adjusted net loss for the fourth quarter was $35.9 million, compared with the year-ago net loss of $114.3 million. On a non-GAAP basis, the company reported net loss of $4.8 million compared with the year-ago quarter’s loss of $56.5 million.
Balance Sheet & Cash Flow
FireEye exited the quarter with cash and cash equivalents and short-term investments of approximately $935.7 million, slightly higher than $926.2 million at the end of the previous quarter. Accounts receivable were $121.2 million compared with $124 million at the end of the third quarter. During the year, the company used $14.6 million of cash for operating activities.
Guidance
FireEye provided a disappointing first-quarter outlook. For the quarter, the company anticipates revenues in the range of $160 million to $166 million (mid-point: $163 million), below the Zacks Consensus Estimate of $177.54 million. Billings are expected in the range of $130 million to $150 million. Non-GAAP operating margin is projected to remain in the band of -24% to -26% of revenues. The company expects non-GAAP loss per share of 26–28 cents (mid-point: 27 cents). Operating cash flow is likely to remain in the range of negative $30 million to negative $40 million.
For 2017, the company provided only quantitative guidance. FireEye expects billings and revenues to improve throughout the year, mainly in the second half. It further anticipates positive operating cash flow for the first time ever in 2017.
Our Take
FireEye, headquartered in Milpitas, CA, is a global provider of web, email, file and malware security to enterprises and governments. The company posted dismal fourth-quarter results and provided a disappointing outlook.
Although FireEye posted narrower-than-expected loss during the quarter, it marked the first year-over-year decline in revenues for the company. The dreary outlook makes us more cautious over the stock’s future performance.
FireEye, Inc. Price, Consensus and EPS Surprise
FireEye, Inc. Price, Consensus and EPS Surprise | FireEye, Inc. Quote
We believe that FireEye’s dismal fourth-quarter performance was mainly due to its internal challenges as other companies in the space including Check Point Software (CHKP - Free Report) and Proofpoint have reported tremendous top-line growth.
Notably, over the past several quarters, the company has been losing business to its rivals. FireEye faces stiff competition from other well-established players in the cyber security space. Furthermore, the company’s top-line growth has also been affected due to its futuristic approach toward transitioning itself to cloud and shifting its business model from hardware centric to subscription-based services. It should be noted that the company generates higher initial sales from hardware than the subscriptions.
Due to the aforementioned factors, the company’s top-line growth rates have been slowing down as evident from its last quarterly results.
Nonetheless, FireEye’s management has been striving to turn the business around through a string of initiatives, which includes new product launches, acquisition and cost optimization. Although the company expects these initiatives to prove beneficial in the long run, uncertainty related to the payback period prevails.
Currently, FireEye carries a Zacks Rank #4 (Sell).
A better-ranked stock in the broader technology sector is Aspen Technology, Inc. (AZPN - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with an average positive earnings surprise of 20.25%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>