FireEye Jumps Over a Low Bar, Reduces 2019 Guidance Anyway

FireEye (MNDT) announced second-quarter 2019 results on Tuesday after the market closed. The cybersecurity platform leader handily beat its own light revenue guidance that was first provided in late April, then updated a month later to reflect the contributions of a recent acquisition.

But despite its relative top-line outperformance to end the first half, FireEye left the market flustered by missing earnings expectations and lowering its full-year revenue and profit guidance. Let's log in, then, for a better idea of what drove these seemingly conflicting stories.

IMAGE SOURCE: FIREEYE.

FireEye results: The raw numbers

Data source: FireEye. 

What happened with FireEye this quarter?

• Revenue was above the high end of FireEye's guidance, which called for a range of $213 million to $217 million.
• On an adjusted (non-GAAP) basis -- which excludes items like stock-based compensation -- FireEye's net loss was $1.7 million, or $0.01 per share, below guidance for adjusted net income of flat to $0.02 per share, and swinging from adjusted net income of $0.5 million, or roughly flat on a per-share basis in the same year-ago period.
• Billings climbed 13% year over year to $221 million, near the high end of guidance for a range of $207 million to $222 million. 
• Product, subscription, and support revenue increased 4% year over year to $174.1 million, while professional services revenue climbed 23.4% to $43.5 million.
• FireEye added 261 new customers during the quarter, bringing its total to over 8,200 customers. It also booked 45 transactions with a value of at least $1 million apiece.
• In late May, FireEye acquired security instrumentation specialist Verodin for $250 million.

What management said

FireEye CEO Kevin Mandia stated:

Our billings growth in the second quarter was led by an acceleration in growth in our platform, cloud subscription, and managed services category. Demand was strong for our threat intelligence and managed defense solutions, as well as our strategic Mandiant services. Looking forward, we are excited by the opportunities created by the addition of the Verodin security instrumentation platform to our solutions offering.

But CFO Frank Verdecanna also added:

We were encouraged by our continued strong billings performance in the second quarter, and in particular by an increase in new business sales and growth in our platform, cloud subscription and managed services category. However, these positive dynamics in our business also resulted in a greater than expected increase in expenses related to cloud hosting and commissions on new business, which negatively impacted our gross and operating margins. Additionally, the end of life for our third-generation appliances resulted in a decline in annual recurring revenue in the product and related subscription and support category as contracts attached to these appliances expired. This resulted in a reduced outlook for revenue in the product and related subscription and support category in the second half of 2019.

Looking forward

More specifically for the third quarter of 2019, FireEye sees revenue ranging from $217 million to $221 million, billings of $245 million to $255 million, and adjusted net income being flat to positive $0.02 per share. 

Consequently, FireEye reduced its full-year outlook to call for 2019 revenue of $865 million to $875 million (down from $890 million to $900 million previously), billings of $935 million to $955 million (unchanged from the old range), and adjusted net income per share of flat to positive $0.04 (down from $0.12 to $0.16 per share before).

In light of that lowered 2019 outlook -- however encouraging the underlying causes -- it's of little consequence to the market that FireEye technically exceeded its conservative guidance in the second quarter. The stock is understandably plunging in response.