Soft Guidance Overshadowed FireEye's Latest Quarterly Beat

FireEye (MNDT) announced fourth-quarter 2018 results on Wednesday after the market closed, detailing stronger-than-expected growth as the company simultaneously fosters its recurring revenue streams. 

Still, the cybersecurity specialist's forward guidance left the market wanting more. With shares down around 8% in after-hours trading as of this writing, let's dig deeper to see how FireEye ended the year, as well as what's behind its seemingly underwhelming outlook.

IMAGE SOURCE: GETTY IMAGES.

FireEye results: The raw numbers

Data source: FireEye. 

What happened with FireEye this quarter?

• On an adjusted (non-GAAP) basis -- which excludes items like stock-based compensation -- net income was $11.5 million, or $0.06 per share, up from $0.04 per share in the same year-ago period.
• These results were near the high end of FireEye's guidance provided in late October, which called for earnings per share of $0.04 to $0.06 on revenue of $214 million to $218 million. 
• Billings increased 10% year over year to $265 million, comfortably above guidance for a range of $245 million to $255 million. 
• Product, subscription, and support revenue climbed 4.6% year over year to $178.8 million.
• Professional services revenue rose 11.1% to $38.7 million.
• FireEye added 354 new logo customers this quarter, up 19% year over year, while its customer retention rate remained at roughly 90%. FireEye also enjoyed "strong" follow-on purchases from existing customers.

What management said

"The fourth quarter was a strong finish to a record year for FireEye," according to CEO Kevin Mandia. "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."

"Our business continued to evolve toward a recurring subscription model," added CFO and chief accounting officer Frank Verdecanna. "Recurring subscriptions and support billings increased more than 20% year over year and accounted for 82% of non-services billings in 2018."

Check out the latest FireEye earnings call transcript.

Looking forward

For the first quarter of 2019, however, FireEye anticipates revenue of $208 million to $212 million, billings of $170 million to $180 million, and an adjusted net loss per share of between $0.02 and $0.04. By contrast -- and though we don't usually pay close attention to Wall Street's demands -- most analysts were modeling adjusted net income of a penny per share on revenue close to the high end of FireEye's guidance range.

Similarly, FireEye called for full-year 2019 revenue of $880 million to $890 million -- up 6.5% at the midpoint -- with billings of $910 million to $930 million (up 8% at the midpoint), and adjusted net income per share of between $0.17 and $0.21. In this case, while FireEye's full-year earnings outlook fell squarely in line with consensus estimates, most analysts were anticipating revenue near the high end of its expected range. 

During the subsequent conference call, FireEye management chalked up the light top-line outlook to a combination of headwinds for current deferred revenue as the company recognizes more product and related subscriptions and support revenue than it's building, particularly given a decline in new appliance sales that began in mid-2016. FireEye also does not currently anticipate any deals greater than $10 million in 2019, whereas it won two such deals in the first half of 2018. Excluding those deals, FireEye's expected growth for 2019 at the midpoint would be closer to 10.5%.

To be fair, that leaves room for FireEye to potentially extend its streak of underpromising and overdelivering. But however pronounced the impact of those larger deals last year, it's still hard to blame the market for letting out a collective sigh in response to FireEye's impending deceleration in growth.