FireEye Earnings: Results Top Expectations, but Shares Fall as CFO Departs

Source: FireEye.

FireEye delivered record second-quarter results that exceeded Wall Street's expectations for nearly every metric, and raised its outlook for the year ahead. However, the sudden departure of the cyber security provider's chief financial officer appears to have spooked investors, with shares falling more than 5% in after-hours trading as of 7:00 p.m. ET.

Second-quarter revenue surged 56% year over year, to $147.2 million. That topped Wall Street's projections for $143 million, and FireEye's own previously issued guidance range of $140 million to $144 million.

Billings growth also exceeded FireEye's guidance, rising 57%, to $178.3 million. In addition, the average contract length for new subscription and support billings rose to 31 months, up from 29 months in the second quarter of 2014.

Deferred revenue totaled $409.9 million at the end of the second quarter, an increase of 77% from the prior year.

Second quarter GAAP net loss was $133.6 million, or $0.87 per share, compared to a loss of $116.8 million, or $0.82 per share, in the year-ago quarter. Excluding stock-based compensation and certain other expenses, non-GAAP net loss was $62.6 million, or 43% of revenue, compared to a loss of $78.5 million, or 83% of revenue in the second quarter of 2014. Non-GAAP net loss per share narrowed to $0.41, up from a loss $0.55 per share in the year-ago period. Analysts had expected a loss of $0.48 per share.

Cash flow from operations also showed strong improvement, increasing more than $100 million year over year, to $39.1 million -- compared to negative $61.9 million in the second quarter of 2014 -- and helping to drive free cash flow production of more than $27 million.

"Our continued focus on driving efficiency along with growth resulted in improved operating leverage and the best operating cash flow in our history," said FireEye CFO Michael Sheridan in a press release. "Our results this quarter demonstrate the strength of our business model to generate operating and free cash flow. We expect our operating cash flows to be within $10 million of break-even for 2015, more than a year earlier than our most optimistic targets."

CFO departureSomewhat overshadowing FireEye's strong financial results was the surprising announcement that Michael Sheridan, FireEye chief financial officer since 2011, would be leaving to accept a position as CFO at a private technology company in an unrelated industry. So the statement above will likely be one of his last as FireEye's CFO.

Frank Verdecanna, FireEye vice president of finance, will serve as interim chief financial officer following Sheridan's departure in early August while the company conducts an external search for a new CFO.

GuidanceManagement issued its outlook for the third quarter of 2015, including expectations for revenue in the range of $164 million to $168 million, and billings in the range of $225 million to $230 million. Gross margin is projected to be between 70% and 73%. And the company anticipates a loss of $0.44 to $0.48 per share.

Management also updated its outlook for full-year 2015 results as follows:

  • Revenue in the range of $630 million to $645 million, up from $615 million to$635 million
  • Total billings in the range of $840 million to $850 million, up from $825 million to $835 million
  • Gross margin in the range of 71% to 74%, versus previous range of 71% to 75%
  • Loss per share of $1.70 to $1.80, down from $1.75to$1.85
  • Cash flow from operations in the range of negative $10 million to positive $10 million, compared to previous estimate of negative $65 million to$80 million

"Demand was strong across product families, vertical markets, and geographies in the second quarter, strengthening our belief that we have 'crossed the chasm' in advanced security," said Chairman and CEO David DeWalt. "The opportunity continues to expand, and we believe the breadth and depth of our platform positions us to extend our leadership as the market develops."

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