FireEye Reports Financial Results for Fourth Quarter and Full Year 2018

  • Record revenue and billings for fourth quarter and full year 2018
  • Q4 revenue of $218 million increased 6 percent from the fourth
    quarter of 2017
  • Q4 billings of $265 million increased 10 percent from the fourth
    quarter of 2017
    1
  • Q4 ending annual recurring revenue of $553 million increased 9
    percent compared to the end of the fourth quarter of 2017

MILPITAS, Calif.–(BUSINESS WIRE)–FireEye, Inc. (NASDAQ: FEYE), the intelligence-led security company,
today announced financial results for the fourth quarter and full year
ended December 31, 2018.

The fourth quarter was a strong finish to a record year for FireEye,”
said Kevin Mandia, FireEye chief executive officer. “We posted
double-digit billings growth for the quarter and the year, and achieved
full-year non-GAAP profitability for the first time in our history.”

Fourth Quarter 2018 Financial Results

  • Revenue of $218 million increased 6 percent from the fourth quarter of
    2017 and was at the high end of the guidance range of $214 million to
    $218 million.
  • Billings of $265 million increased 10 percent from the fourth quarter
    of 2017 and were above the guidance range of $245 million to $255
    million.1
  • GAAP gross margin was 68 percent of revenue, compared to 66 percent of
    revenue in the fourth quarter of 2017.
  • Non-GAAP gross margin was 75 percent of revenue, compared to 76
    percent of revenue in the fourth quarter of 2017, and was within the
    guidance range of 75 percent to 76 percent of revenue.1
  • GAAP operating margin was negative 17 percent of revenue, compared to
    negative 29 percent of revenue in the fourth quarter of 2017.
  • Non-GAAP operating margin was 5 percent of revenue, compared to 5
    percent of revenue in the fourth quarter of 2017, and was within the
    guidance range of 5 percent to 7 percent of revenue.1
  • GAAP net loss per share was $0.25, compared to GAAP net loss per share
    of $0.39 in the fourth quarter of 2017.
  • Non-GAAP diluted net income per share was $0.06, compared to non-GAAP
    diluted net income per share of $0.04 in the fourth quarter of 2017,
    and was at the high end of the guidance range of $0.04 to $0.06.1
  • Cash flow generated by operations was $31 million, compared to cash
    flow generated by operations of $34 million in the fourth quarter of
    2017, and was within the guidance range of $30 million to $35 million.

2018 Financial Results

  • Revenue of $831 million increased 7 percent from 2017 and was at the
    high end of the guidance range of $827 million to $831 million.
  • Billings of $856 million increased 12 percent from 2017 and were above
    the guidance range of $835 million to $845 million.1
  • GAAP gross margin was 67 percent of revenue, compared to 65 percent of
    revenue in 2017.
  • Non-GAAP gross margin was 75 percent of revenue, compared to 75
    percent of revenue in 2017.1
  • GAAP operating margin was negative 22 percent of revenue, compared to
    negative 31 percent of revenue in 2017.
  • Non-GAAP operating margin was 3 percent of revenue, compared to
    breakeven in 2017, and was within the guidance range of 2 percent to 4
    percent of revenue.1
  • GAAP net loss per share was $1.27, compared to GAAP net loss per share
    of $1.60 in 2017.
  • Non-GAAP diluted net income per share was $0.08, compared to non-GAAP
    net loss per share of $0.05 in 2017, and was at the high end of the
    guidance range of $0.06 to $0.08.1
  • Cash flow generated by operations was $18 million, compared to cash
    flow generated by operations of $18 million in 2017.
  • Non-GAAP cash flow generated by operations was $62 million, compared
    to cash flow generated by operations of $18 million in 2017. Non-GAAP
    cash flow generated by operations in 2018 excludes approximately $44
    million that was deemed to be repayment of accreted debt discount on
    $340 million principal amount of the 1.000% Convertible Senior Notes
    due 2035 (“Series A Notes”), which were repurchased and retired on May
    24, 2018.1

Our business continued to evolve toward a recurring subscription
model,” said Frank Verdecanna, FireEye chief financial officer and chief
accounting officer. “Recurring subscriptions and support billings
increased more than 20 percent year over year and accounted for 82
percent of non-services billings in 2018.”

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.”

First Quarter and 2019 Outlook

FireEye provides guidance based on current market conditions and
expectations.

For the first quarter of 2019, FireEye currently expects:

  • Revenue in the range of $208 million to $212 million.
  • Billings in the range of $170 million to $180 million.
  • Non-GAAP gross margin as a percent of revenue of approximately 74
    percent.
  • Non-GAAP operating margin as a percent of revenue in the range of
    negative 3 percent to negative 1 percent.
  • Non-GAAP net loss per share between $0.02 and $0.04.
  • Cash flow generated by operations between $10 million and $15 million.
  • Capital expenditures of approximately $10 million.

Non-GAAP net loss per share for the first quarter assumes interest
income on cash and cash equivalents and short-term investments will
offset cash interest expense associated with the company’s convertible
senior notes, provision for income taxes of between $1.5 million and
$2.0 million, and weighted average shares outstanding of approximately
198 million.

For 2019, FireEye currently expects:

  • Revenue in the range of $880 million to $890 million.
  • Billings in the range of $910 million to $930 million.
  • Non-GAAP gross margin as a percent of revenue of approximately 75
    percent.
  • Non-GAAP operating margin as a percent of revenue between 5 percent
    and 6 percent.
  • Non-GAAP diluted net income per share between $0.17 and $0.21.
  • Cash flow generated by operations between $90 million and $110 million.
  • Capital expenditures between $40 million and $50 million.

Non-GAAP diluted net income per share for 2019 assumes interest income
on cash and cash equivalents and short-term investments will offset cash
interest expense associated with the company’s convertible senior notes,
provision for income taxes of between $6 million and $8 million, and
diluted weighted average shares outstanding of approximately 210 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, non-cash interest expense related to the company’s convertible
senior notes, and other non-recurring items. 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 first quarter of 2019 and full year 2019 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 for future periods is not available without
unreasonable effort.

Conference Call Information

FireEye will host a conference call today, February 6, 2019, at 5 p.m.
Eastern time (2 p.m. Pacific time) to discuss its fourth quarter and
full year 2018 financial results and the company’s outlook for the first
quarter and full year 2019. 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 can be accessed from the Investor
Relations section of the company’s website at https://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 first quarter and
full year 2019, including revenue, billings, non-GAAP gross margin,
non-GAAP operating margin, interest income and expense, provision for
income taxes, non-GAAP net income (loss) per share, basic and diluted
weighted average shares outstanding, cash flows generated by operations,
and capital expenditures in the section entitled “First Quarter and 2019
Outlook” above, as well as statements related to future growth,
profitability, innovation, and competitive advantages.

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 November 2, 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 provision (benefits). FireEye
defines non-GAAP diluted 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 diluted 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 basic 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 cash flow generated by (used
in) operations plus amounts deemed to be repayment of accreted debt
discount on repurchased convertible senior notes, less purchases of
property and equipment and demonstration units.

Non-GAAP diluted net income and net income per share in the fourth
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, and discrete benefit from
income taxes. Diluted weighted average shares outstanding used to
calculate non-GAAP diluted net income per share excluded shares issuable
upon conversion of convertible senior notes that are anti-dilutive.

Non-GAAP diluted net income and net income per share in the fourth
quarter of 2017 excluded stock-based compensation expense, amortization
of intangible assets, acquisition-related expenses, non-cash interest
expense related to convertible senior notes issued in June 2015, and
legal settlement costs. Diluted weighted average shares outstanding used
to calculate non-GAAP diluted net income per share excluded shares
issuable upon conversion of convertible senior notes that are
anti-dilutive.

Non-GAAP diluted net income and net income per share for 2018 excluded
stock-based compensation expense, amortization of intangible assets,
acquisition-related expenses, change in the fair value of contingent
earn-out liability, non-cash interest expense related to convertible
senior notes issued in June 2015, and legal settlement costs. Weighted
average shares outstanding used to calculate non-GAAP net 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 net loss and net loss per share for 2017 excluded stock-based
compensation expense, amortization of intangible assets,
acquisition-related expenses, change in the fair value of contingent
earn-out liability, non-cash interest expense related to convertible
senior notes issued in June 2015, and legal settlement costs. Weighted
average shares outstanding used to calculate non-GAAP net 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.

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, amounts 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 is an important part of FireEye employees’
overall compensation and has been, and will continue to be for the
foreseeable future, a significant recurring expense in the company’s
business. 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, amounts 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 7,700 customers
across 67 countries, including more than 50 percent of the Forbes Global
2000.

© 2019 FireEye, Inc. All rights reserved. FireEye and Mandiant 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.

Source: FireEye

FireEye, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

   
December 31, 2018 December 31, 2017*
Assets
Current assets:
Cash and cash equivalents $ 409,829 $ 180,891
Short-term investments 706,691 715,911
Accounts receivable, net 157,817 146,317
Inventories 6,548 5,746
Prepaid expenses and other current assets 100,295   93,799  
Total current assets 1,381,180 1,142,664
Property and equipment, net 89,163 71,357
Goodwill 999,804 984,661
Intangible assets, net 143,162 187,388
Deposits and other long-term assets 82,769   72,767  
Total assets $ 2,696,078   $ 2,458,837  
 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 26,944 $ 35,684
Accrued and other current liabilities 29,797 19,569
Accrued compensation 63,808 59,588
Deferred revenue, current portion 556,815   546,615  
Total current liabilities 677,364 661,456
Convertible senior notes, net 962,577 779,578
Deferred revenue, non-current portion 378,013 363,485
Other long-term liabilities 27,730   22,102  
Total liabilities 2,045,684 1,826,621
Stockholders’ equity:
Common stock 20 19
Additional paid-in capital 3,152,159 2,891,441
Treasury stock (150,000 ) (150,000 )
Accumulated other comprehensive loss (2,299 ) (2,881 )
Accumulated deficit (2,349,486 ) (2,106,363 )
Total stockholders’ equity 650,394   632,216  
Total liabilities and stockholders’ equity $ 2,696,078   $ 2,458,837  

Contacts

Media contact:
Dan Wire
FireEye,
Inc.
415-895-2101
dan.wire@fireeye.com

Investor contact:
Kate Patterson
FireEye,
Inc.
408-321-4957
kate.patterson@fireeye.com

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