FireEye (FEYE) Q3 Earnings And Revenues Surpass Estimates

FireEye Inc. (NASDAQ:FEYE) 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.

Quarter Details

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 the government in the quarter.

FireEye, Inc. Price, Consensus and EPS Surprise

FireEye, Inc. Price, Consensus and EPS Surprise | FireEye, Inc. Quote

Operating Results

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.

Guidance

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.”

Zacks Rank and Key Picks

FireEye currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Intel Corporation (NASDAQ:INTC) , Twitter, Inc. (NYSE:TWTR) and CyberArk Software Ltd. (NASDAQ:CYBR) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Intel, Twitter and CyberArk is projected to be 8.4%, 22.1% and 19.8%, respectively.

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