FireEye (NASDAQ:FEYE) reported third-quarter results on Nov. 4, 2015. The cybersecurity leader's shares sank about 20% after the company projected full-year billings and revenue below its previous forecast.
Second-quarter revenue jumped 45% year over year, to $165.6 million. That was within FireEye's previously issued guidance range of $164 million to $168 million.
However, billings -- an important measure of future revenue -- fell short of FireEye's forecast of between $225 million and $230 million, increasing 28%, to $210.6 million. FireEye also cut its full-year revenue and billings guidance to $620 million to $628 million (down from $630 million to $645 million), and $780 million to $800 million (down from $840 million to $850 million), respectively.
In the earnings release and subsequent conference call, Chairman and CEO David DeWalt listed weakness in Europe as the primary cause of the billings shortfall:
Europe, which has always lagged the U.S. in the adoption of advanced security technologies, was particularly weak. Growth in Europe has been below that of our total company for several quarters and we attributed this to the relatively young field organization we have, the strength of the dollar relative to European currencies, data privacy concerns, and economic turmoil in some of the regions.
DeWalt also said that "emergency spending" on advanced cybersecurity is slowing due to the recent cyber peace initiatives between the U.S and China. However, DeWalt warned that this likely short-term trend should not be taken as a sign that the threat has diminished:
We know from our visibility into the threat landscape that the decline in attacks targeting U.S. organizations is offset by an increase in the number of attacks in other regions. We also know that the Chinese particularly, as well as many other nations, continue to build out their attack infrastructures and invest in new capabilities. We're also seeing subtle shifts in the attacker profiles, attack vectors, and attack techniques. As a result, I'm convinced the threat landscape is every bit as dangerous as it was before.
Moreover, there were some bright spots in the quarter. Customer renewal rates remained above 90%, and non-GAAP gross margin, excluding stock-based compensation and certain other expenses, increased to 73%, up from 71% in Q3 2014.
Operating margins and cash flow also improved, with CFO Mike Berry adding:
The leverage inherent in our business model was evident in the 32-percentage-point improvement in our non-GAAP operating margin and our operating cash flow performance. Our operating margin has improved year-over-year in every quarter since the second quarter of 2014, as we continue to balance growth with progress on our path to profitability. Also significant was an improvement in our operating cash flow by nearly $159 million year-to-date, compared to the first nine months of 2014.
All told, non-GAAP net loss per share narrowed to $0.37, down from a loss of $0.51 per share in the year-ago period, and better than FireEye's guidance for a loss between $0.44 and $0.48 per share.
For the fourth quarter, management now expects revenue in the range of $182 million to $190 million. Additionally, on a non-GAAP basis, the company is forecasting:
- Billings in the range of $240 million to $260 million
- Gross margin in the range of 72% to 74%
- Operating margin in the range of negative 28% to negative 31%
- Net loss per share of $0.36 to $0.38
"Our role as first responder to today's most significant breaches, combined with our threat research labs and global FireEye as a Service infrastructure, gives us unique visibility into threats as the attackers adapt their tactics," commented CEO DeWalt. "We support our technology, consulting services, and threat intelligence leadership with a solid financial foundation and $1.2 billion in cash, cash equivalents, and short-term investments. I believe we have never been in a stronger position to help organizations reduce risk as the threat landscape evolves."
Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends FireEye. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.