It has been about a month since the last earnings report for FireEye (FEYE - Free Report) . Shares have added about 6.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is FireEye due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
FireEye Reports Q3 Results
FireEye reported third-quarter 2018 earnings of 6 cents, surpassing the Zacks Consensus Estimate of 2 cents. The company had incurred loss of 2 cents per share in the year-ago quarter.
Revenues totaled $211.7 million, which increased 11.6% year over year and outpaced the Zacks Consensus Estimate of $208.4 million.
Notably, the company’s third-quarter performance indicates that its turnaround efforts, which include shifting the business model to a subscription-based one, are apparently paying off.
Product, subscription and support revenues (83% of total) increased 7.6% year over year to $175.7 million.
Further segregating, Product and related subscription, and support revenues rose 4.2% to $127 million, driven by growth in virtual deployments and Cloud MVX. Cloud subscription and managed services revenues grew 17.7% to $48.6 million backed by strength in Managed Defense, stand-alone iSIGHT Threat Intelligence, Helix subscriptions and cloud e-mail.
Revenues from Professional Services (17%) were up 5.3% from the year-ago quarter to $36 million.
Further, billings climbed 8% year over year to $219.3 million driven by 7% growth in Product and related subscriptions and support billings and 16% growth in cloud subscriptions and managed services billings.
Additionally, FireEye closed 43 transactions, with individual value of more than $1 million. The company also added 243 new logo customers in the third quarter particularly from e-mail, Endpoint, services as well the network side of the business. Its Helix Platform added 100 customers.
The company’s customer retention rate remained nearly at 90%. Management noted that the company added more customers in this quarter compared with the year-ago quarter. Notably, the company reported annual recurring revenues of $538 million, which increased 10% on a year-over-year basis.
The company also witnessed strong demand from U.S. federal in the quarter, which exceeded their expectation.
Non-GAAP gross profit was $14.2 million against non-GAAP operating loss of 950K in the year-ago quarter. Non-GAAP gross margin expanded 200 basis points (bps) to 76%.
Non-GAAP operating margin was 7% in the quarter against breakeven in the year-ago quarter. Reduction in operating expenses due to lower payroll taxes was a tailwind.
Improved operational efficiency, sales productivity and higher mix of software and cloud solutions drove the company’s margins.
Balance Sheet & Cash Flow
FireEye exited the third quarter with cash and cash equivalents, and short-term investments of approximately $1.09 billion, up from $1.08 billion at the end of the previous quarter.
During the quarter, the company’s cash flow from operation was $21.9 million.
For the fourth quarter, FireEye anticipates revenues to be between $214 million and $218 million. Billings are projected in the range of $245-$255 million. Non-GAAP gross margin is anticipated to be between 75% and 76% and non-GAAP operating margin is estimated in the band of 5-7%.
The company forecasts non-GAAP earnings to be in the range of 4-6 cents.
For 2018, the company increased its revenues estimates to $827-$831 million from $820-$830 million predicted earlier. Billings are now projected to be $835-$845 million, compared with the prior guidance of $825-$845 million.
Non-GAAP operating margin is estimated in the band of 2-4%, up from the earlier guidance of 1-2%.
The company forecasts non-GAAP earnings to be in the range of 6-8 cents per share.
Management notes that the shift toward virtual, cloud and hybrid from appliance-based products is improving the mix of recurring subscriptions and support, which will aid the company’s long-term growth.
Moreover, management is extremely bullish about the launch of Expertise On-Demand, which they expect “to have a pretty significant monetization stream on top of Helix as well.”
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 9.09% due to these changes.
At this time, FireEye has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise FireEye has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.