Business Wire | Jul 28, 2020 04:01PM EDT

FireEye Reports Financial Results for Second Quarter 2020

Jul. 28, 2020

MILPITAS, Calif.--(BUSINESS WIRE)--Jul. 28, 2020--FireEye, Inc. (NASDAQ: FEYE), the intelligence-led security company, today announced financial results for the second quarter ended June 30, 2020.

"The steps we have taken to accelerate our transformation to a security-as-a-service company resulted in record second quarter revenue and our highest ever non-GAAP profitability," said Kevin Mandia, FireEye chief executive officer. "Growing adoption of our validation platform, cloud-based security products and intelligence solutions, combined with improved net retention in our appliance-based security controls business, drove annualized recurring revenue to record levels."

"Cyber security remains a top spending priority for organizations worldwide, and the uncertainty of the current environment is creating opportunities for solutions that allow customers to purchase exactly what they need, when they need it," added Mandia. "We know more about cyber threats and threat actors than any other company in our industry, and we continue to invest in solutions that make our knowledge and expertise available on demand and immediately actionable for our customers."

Second Quarter 2020 Financial Results

Q2 2020 Q2 2019 Y/Y change

Revenue $230 $218 +6% million million

Annualized recurring revenue^2 $598 $552 +8% million million

GAAP gross margin 65% 64% +1 pt

Non-GAAP gross margin^1 72% 72% -

GAAP operating margin (17)% (26)% +9 pts

Non-GAAP operating margin^1 10% (1)% +11 pts

GAAP net income (loss) per share, basic and $(0.24) $(0.33) +$0.09diluted

Non-GAAP net income (loss) per share, basic $0.09 $(0.01) +$0.10and diluted^1

Cash flow provided (used) by operating $15 $(15) $30activities million million million

Capital expenditures $6 million $15 $(9) million million

^1 A reconciliation of GAAP to non-GAAP financial measures is provided in thefinancial statement tables included in this press release. An explanation ofthese measures is also included under the heading "Non-GAAP FinancialMeasures."

^2 Annualized recurring revenue is defined as the annualized run-rate of activeterm licenses, subscriptions, and support contracts at the end of a reportingperiod.

Third Quarter and Updated 2020 Outlook

FireEye provides guidance based on current market conditions and expectations. The company emphasizes that the guidance is subject to various important cautionary factors referenced in the section entitled "Forward-Looking Statements" below, including risks and uncertainties associated with the COVID-19 pandemic.

Q3 2020 Outlook Updated 2020 Outlook

Revenue $225 - $229 $905 - $925 million million

Non-GAAP gross margin 70% - 71% 70.5% - 71.5%

Non-GAAP operating margin 7.5% - 8.5% 6.5% - 7.5%

Net interest income (expense) $0 - $(1) million $(2) - $(3) million

Provision for non-GAAP income taxes $1.5 - $2.0 $4 - $6 million million

Weighted average shares outstanding, 227 million 227 milliondiluted

Non-GAAP net income per share, diluted $0.06 - $0.08 $0.22 - $0.26

Capital expenditures ~ $7 million $30 - $35 million

Guidance for non-GAAP financial measures excludes stock-based compensation, amortization of stock-based compensation expense capitalized in software development costs, amortization of intangible assets, restructuring charges, non-cash interest expense related to the company's convertible senior notes, and other non-recurring items. A reconciliation of non-GAAP guidance measures to the most directly comparable GAAP financial measures is not available on a forward-looking basis due to the uncertainty regarding, and the potential variability of, the amounts of stock-based compensation expense, amortization of intangible assets, and non-recurring expenses that may be incurred in the future. Stock-based compensation expense is impacted by the company's future hiring and retention needs, as well as the future fair market value of the company's common stock, all of which are difficult to predict and subject to constant change. The actual amount of stock-based compensation expense in the third quarter of 2020 and full year 2020 will have a significant impact on the company's GAAP operating margin and net loss per share. Further, amortization of intangible assets, as well as other non-recurring expenses, if any, will also impact results. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the most directly comparable GAAP financial measures for future periods is not available without unreasonable effort.

Conference Call Information

FireEye will host a conference call today, July 28, 2020, at 5 p.m. Eastern time (2 p.m. Pacific time) to discuss its second quarter financial results and the company's outlook for the third quarter and full year 2020. Interested parties may access the conference call by dialing 877-312-5521 (domestic) or 678-894-3048 (international). A live audio webcast of the call can be accessed from the Investor Relations section of the company's website at https://investors.fireeye.com. An archived version of the webcast will be available at the same website shortly after the conclusion of the live event.

Forward-Looking Statements

This press release contains forward-looking statements, including statements related to future financial results for the third quarter and full year 2020, including revenue, non-GAAP gross margin, non-GAAP operating margin, net interest income and expense, provision for non-GAAP income taxes, weighted average shares outstanding, non-GAAP net income per share, and capital expenditures in the section entitled "Third Quarter and Updated 2020 Outlook" above, as well as statements regarding opportunities and continued investments.

These forward-looking statements involve risks and uncertainties, as well as assumptions which, if they do not fully materialize or prove incorrect, could cause FireEye's results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause FireEye's results to differ materially from those expressed or implied by such forward-looking statements include customer demand and adoption of FireEye's products, solutions and services; real or perceived defects, errors or vulnerabilities in FireEye's products, solutions or services; any delay in the release of FireEye's new products, solutions or services; FireEye's ability to realize the expected benefits resulting from its first half 2020 restructuring plans; the potential disruption or perception of disruption to FireEye's business due to the restructuring plans; the impact of the COVID-19 pandemic on FireEye's business, results of operations, liquidity and capital resources; FireEye's ability to react to trends and challenges in its business and the markets in which it operates; FireEye's ability to anticipate market needs or develop new or enhanced products, solutions and services to meet those needs; FireEye's ability to hire and retain key executives and employees; FireEye's ability to attract new and retain existing customers and train its sales force; the budgeting cycles, seasonal buying patterns and length of FireEye's sales cycle; risks associated with new offerings; sales and marketing execution risks; the failure to achieve expected synergies and efficiencies of operations between FireEye and its acquired companies; the ability of FireEye and its acquired companies to successfully integrate their respective market opportunities, technologies, products, personnel and operations; the ability of FireEye and its partners to execute their strategies, plans, objectives and expected investments with respect to FireEye's partnerships; and general market, political, economic, and business conditions, as well as those risks and uncertainties included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in FireEye's Form 10-Q filed with the Securities and Exchange Commission on May 1, 2020, which should be read in conjunction with these financial results and is available on the Investor Relations section of FireEye's website at investors.fireeye.com and on the SEC website at www.sec.gov.

All forward-looking statements in this press release are based on information available to the company as of the date hereof, and FireEye does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law. Any future product, service, feature, or related specification that may be referenced in this release is for informational purposes only and is not a commitment to deliver any offering, technology or enhancement. FireEye reserves the right to modify future product or service plans at any time.

Non-GAAP Financial Measures

In this release FireEye has provided financial information that has not been prepared in accordance with generally accepted accounting principles in the United States (GAAP). These non-GAAP financial measures are not based on any standardized methodology and are not necessarily comparable to similar measures used by other companies. The company uses these non-GAAP financial measures internally in analyzing its financial results and believes the use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing operating results and trends, and in comparing the company's financial results with other companies in its industry, many of which present similar non-GAAP financial measures.

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable financial information prepared in accordance with GAAP and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. A reconciliation of the company's non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.

Non-GAAP gross margin, operating income (loss), operating margin, net income (loss), and net income (loss) per basic and diluted share. FireEye defines non-GAAP gross margin as total gross profit excluding stock-based compensation expense, amortization of stock-based compensation expense capitalized in software development costs, amortization of intangible assets, and, as applicable, other special or non-recurring items, divided by total revenue.

FireEye defines non-GAAP operating income (loss) as operating income (loss) excluding stock-based compensation expense, amortization of stock-based compensation expense capitalized in software development costs, amortization of intangible assets, acquisition-related expenses, restructuring charges, and other special or non-recurring items. FireEye defines non-GAAP operating margin as non-GAAP operating income (loss) divided by total revenue.

FireEye defines non-GAAP net income (loss) as net income (loss) excluding stock-based compensation expense, amortization of stock-based compensation expense capitalized in software development costs, amortization of intangible assets, acquisition-related expenses, restructuring charges, other special or non-recurring items, non-cash interest expense related to the company's convertible senior notes, and discrete tax provision (benefits). FireEye defines non-GAAP net income per diluted share as non-GAAP net income divided by weighted average diluted shares outstanding. Weighted average diluted shares used to calculate non-GAAP net income per diluted share excludes shares issuable upon conversion of the company's convertible senior notes that are anti-dilutive. FireEye defines non-GAAP net loss per share as non-GAAP net loss divided by weighted average basic shares outstanding, which excludes stock options, restricted stock units, performance stock units, and shares issuable upon conversion of the company's convertible senior notes that are anti-dilutive.

Non-GAAP net income and net income per diluted share in the second quarter of 2020 excluded stock-based compensation expense, amortization of intangible assets, amortization of stock-based compensation expense capitalized in software development costs, restructuring charges, non-cash interest expense related to convertible senior notes issued in June 2015 and the second quarter of 2018, and discrete benefit from income taxes. Weighted average diluted shares outstanding used to calculate non-GAAP net income per diluted share excluded shares issuable upon conversion of the company's convertible senior notes that were anti-dilutive.

Non-GAAP net loss and net loss per share in the second quarter of 2019 excluded stock-based compensation expense, amortization of intangible assets, amortization of stock-based compensation expense capitalized in software development costs, acquisition related expenses, non-cash interest expense related to convertible senior notes issued in June 2015 and the second quarter of 2018, and discrete provision for income taxes. Weighted average basic shares outstanding used to calculate non-GAAP net loss per share excluded stock options, restricted stock units, performance stock units, and shares issuable upon conversion of the company's convertible senior notes that were anti-dilutive.

FireEye considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of stock-based compensation expense, amortization of stock-based compensation expense capitalized in software development costs, amortization of intangible assets, acquisition related expenses, non-cash interest expense related to the company's convertible senior notes, restructuring charges, and other non-recurring and discrete items so that management and investors can compare the company's core business operating results over multiple periods.

There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. First, these non-GAAP financial measures exclude stock-based compensation expense. Stock-based compensation is an important part of FireEye employees' overall compensation and has been, and will continue to be for the foreseeable future, a significant recurring expense in the company's business. Second, the components of the costs that FireEye excludes in its calculation of these non-GAAP financial measures, including not only stock-based compensation, but also amortization of stock-based compensation expense capitalized in software development costs, non-recurring or non-operating items such as acquisition related expenses, amortization of intangible assets, non-cash interest expense related to the company's convertible senior notes, restructuring charges, and discrete tax provision (benefits), may differ from the components excluded by peer companies when they report their non-GAAP results of operations. FireEye compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP financial measures and evaluating non-GAAP financial measures together with their nearest GAAP equivalents.

About FireEye, Inc.

FireEye is the intelligence-led security company. Working as a seamless, scalable extension of customer security operations, FireEye offers a single platform that blends innovative security technologies, nation-state grade threat intelligence, and world-renowned Mandiant(r) consulting. With this approach, FireEye eliminates the complexity and burden of cyber security for organizations struggling to prepare for, prevent, and respond to cyber attacks. FireEye has over 9,300 customers across 103 countries, including more than 50 percent of the Forbes Global 2000.

(c) 2020 FireEye, Inc. All rights reserved. FireEye and Mandiant are registered trademarks or trademarks of FireEye, Inc. in the United States and other countries. All other brands, products, or service names are or may be trademarks or service marks of their respective owners.

FireEye, Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited, in thousands)

June 30, 2020 December 31, 2019

ASSETS

Current assets:

Cash and cash equivalents $ 404,346 $ 334,603

Short-term investments 509,858 704,955

Accounts receivable, net 119,842 171,459

Inventories 5,440 5,892

Prepaid expenses and other current assets 94,654 96,827

Total current assets 1,134,140 1,313,736

Property and equipment, net 87,405 93,812

Operating lease right-of-use assets, net 54,572 58,758

Goodwill 1,213,454 1,205,292

Intangible assets, net 116,864 134,420

Deposits and other long-term assets 74,998 84,468

TOTAL ASSETS $ 2,681,433 $ 2,890,486



LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable $ 10,733 $ 26,271

Operating lease liabilities, current 18,545 18,437

Accrued and other current liabilities 19,726 24,496

Accrued compensation 71,423 59,513

Convertible senior notes, current, net - 117,288

Deferred revenue, current 563,190 603,944

Total current liabilities 683,617 849,949

Convertible senior notes, non-current, net 938,536 893,273

Deferred revenue, non-current 329,656 370,623

Operating lease liabilities, non-current 64,611 70,481

Other long-term liabilities 4,654 4,494

Total liabilities 2,021,074 2,188,820

Stockholders' equity:

Common stock 22 22

Additional paid-in capital 3,470,503 3,457,359

Treasury stock (80,000 ) (150,000 )

Accumulated other comprehensive income (loss) 6,311 1,180

Accumulated deficit (2,736,477 ) (2,606,895 )

Total stockholders' equity 660,359 701,666

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,681,433 $ 2,890,486

FireEye, Inc.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited, in thousands, except per share amounts)

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019

Revenue:

Product, subscription $ 177,305 $ 174,102 $ 351,388 $ 344,005 and support

Professional services 52,595 43,506 103,234 84,147

Total revenue 229,900 217,608 454,622 428,152

Cost of revenue: (1)(2) (3)

Product, subscription 54,026 53,198 107,162 101,666 and support

Professional services 26,967 24,195 55,417 47,295

Total cost of revenue 80,993 77,393 162,579 148,961

Total gross profit 148,907 140,215 292,043 279,191

Operating expenses:

Research and 60,596 67,538 128,099 134,933 development (1)(2)(3)

Sales and marketing (1) 90,042 101,494 190,242 205,390 (2)

General and 25,281 27,926 52,710 55,302 administrative (1)

Restructuring charges 12,558 - 23,532 3,799 (4)

Total operating 188,477 196,958 394,583 399,424 expenses

Operating loss (39,570 ) (56,743 ) (102,540 ) (120,233 )

Other expense, net (5) (12,612 ) (10,040 ) (25,023 ) (19,743 )

Loss before income (52,182 ) (66,783 ) (127,563 ) (139,976 )taxes

Provision for income 1,094 540 2,019 2,722 taxes (6)

Net loss $ (53,276 ) $ (67,323 ) $ (129,582 ) $ (142,698 )

Net loss per share, $ (0.24 ) $ (0.33 ) $ (0.59 ) $ (0.71 )basic and diluted

Weighted average sharesused in per share 221,352 204,109 219,570 201,001 calculations, basic anddiluted

FireEye, Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited, in thousands)

Six Months Ended June 30,

2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ (129,582 ) $ (142,698 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization 47,738 48,102

Stock-based compensation 73,224 80,474

Non-cash interest expense related to convertible 24,367 23,700 senior notes

Deferred income taxes 154 (18 )

Other 6,608 637

Changes in operating assets and liabilities, net ofassets acquired and liabilities assumed in business acquisitions:

Accounts receivable 50,320 32,860

Inventories (15 ) (243 )

Prepaid expenses and other assets 13,137 3,959

Accounts payable (12,971 ) 4,415

Accrued liabilities (6,073 ) (3,566 )

Accrued compensation 11,910 (8,704 )

Deferred revenue (81,721 ) (24,830 )

Other long-term liabilities (6,862 ) (4,564 )

Net cash provided by (used in) operating activities (9,766 ) 9,524

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment and (17,556 ) (28,240 )demonstration units

Purchases of short-term investments (106,631 ) (258,104 )

Proceeds from maturities of short-term investments 277,749 311,905

Proceeds from sales of short-term investments 28,208 -

Business acquisitions, net of cash acquired (12,948 ) (127,249 )

Purchase of investment in privately held company (1,000 ) -

Lease deposits 87 426

Net cash provided by (used in) investing activities 167,909 (101,262 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase of convertible senior notes (96,392 ) -

Payment related to shares withheld for taxes (8,039 ) -

Proceeds from employee stock purchase plan 12,300 12,315

Proceeds from exercise of equity awards 3,731 1,495

Net cash provided by (used in) financing activities (88,400 ) 13,810

Net change in cash and cash equivalents 69,743 (77,928 )

Cash and cash equivalents, beginning of period 334,603 409,829

Cash and cash equivalents, end of period $ 404,346 $ 331,901

FireEye, Inc.RECONCILIATION OF NON-GAAP FINANCIAL MEASURES(Unaudited, in thousands, except per share amounts)

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019

GAAP operating loss $ (39,570 ) $ (56,743 ) $ (102,540 ) $ (120,233 )

Stock-basedcompensation expense 37,046 40,151 73,224 80,474 (1)

Amortization ofstock-basedcompensation 1,084 847 2,110 1,640 capitalized in softwaredevelopment costs (3)

Amortization of 11,245 12,952 23,205 25,078 intangible assets (2)

Acquisition related - 597 - 597 expenses (4)

Restructuring charges 12,558 - 23,532 3,799 (5)

Non-GAAP operating $ 22,363 $ (2,196 ) $ 19,531 $ (8,646 )income (loss)

GAAP gross margin 65 % 64 % 64 % 65 %

Stock-basedcompensation expense 4 % 4 % 4 % 4 %(1)

Amortization of 3 % 4 % 3 % 4 %intangible assets (2)

Non-GAAP gross margin 72 % 72 % 71 % 73 %

GAAP operating margin (17 ) (26 ) (23 ) (28 ) % % % %

Stock-basedcompensation expense 17 % 19 % 16 % 19 %(1)

Amortization of 5 % 6 % 5 % 6 %intangible assets (2)

Restructuring charges 5 % - % 5 % 1 %(5)

Non-GAAP operating 10 % (1 ) 3 % (2 )margin % %

GAAP net loss $ (53,276 ) $ (67,323 ) $ (129,582 ) $ (142,698 )

Stock-basedcompensation expense 37,046 40,151 73,224 80,474 (1)

Amortization ofstock-basedcompensation 1,084 847 2,110 1,640 capitalized in softwaredevelopment costs (3)

Amortization of 11,245 12,952 23,205 25,078 intangible assets (2)

Acquisition related - 597 - 597 expenses (4)

Restructuring charges 12,558 - 23,532 3,799 (5)

Non-cash interestexpense related to 12,002 11,922 24,367 23,700 convertible seniornotes (6)

Adjustment to provision(benefit) from income - (834 ) (315 ) (223 )taxes (7)

Non-GAAP net income $ 20,659 $ (1,688 ) $ 16,541 $ (7,633 )(loss)

GAAP net loss percommon share, basic and $ (0.24 ) $ (0.33 ) $ (0.59 ) $ (0.71 )diluted

Stock-basedcompensation expense 0.17 0.20 0.33 0.40 (1)

Amortization ofstock-basedcompensation - - 0.01 0.01 capitalized in softwaredevelopment costs (3)

Amortization of 0.05 0.06 0.11 0.12 intangible assets (2)

Acquisition related - - - - expenses (4)

Restructuring charges 0.06 - 0.11 0.02 (5)

Non-cash interestexpense related to 0.05 0.06 0.11 0.12 convertible seniornotes (6)

Adjustment to provision(benefit) from income - - - - taxes (7)

Non-GAAP net income(loss) per common $ 0.09 $ (0.01 ) $ 0.08 $ (0.04 )share, basic

Non-GAAP net income(loss) per common $ 0.09 $ (0.01 ) $ 0.07 $ (0.04 )share, diluted

Weighted average sharesused in per share 221,352 204,109 219,570 201,001 calculation for GAAP,basic and diluted

Weighted average sharesused in per share 221,352 204,109 219,570 201,001 calculation forNon-GAAP, basic

Weighted average sharesused in per share 223,263 204,109 222,664 201,001 calculation forNon-GAAP, diluted





(1) Includesstock-based compensation expense asfollows:

Cost of product,subscription and $ 4,051 $ 3,964 $ 7,792 $ 7,911 support revenue

Cost of professional 4,450 3,641 8,351 7,350 services revenue

Research and 9,861 11,889 21,406 24,313 development expense

Sales and marketing 11,410 13,227 22,896 25,767 expense

General and 6,981 7,430 12,486 15,133 administrative expense

Restructuring charges 293 - 293 -

Total stock-based $ 37,046 $ 40,151 $ 73,224 $ 80,474 compensation expense



(2) Includesamortization of intangible assets asfollows:

Cost of product,subscription and $ 7,009 $ 8,947 $ 14,739 $ 17,176 support revenue

Research and 109 109 218 227 development expense

Sales and marketing 4,127 3,896 8,248 7,675 expense

Total amortization of $ 11,245 $ 12,952 $ 23,205 $ 25,078 intangible assets



(3) Includesamortization ofstock-basedcompensation capitalized in softwaredevelopment costs asfollows:

Cost of product,subscription and $ 60 $ 196 $ 114 $ 399 support revenue

Cost of professional 30 97 57 199 services revenue

Research and 994 554 1,939 1,042 development expense

Total amortization ofstock-basedcompensation $ 1,084 $ 847 $ 2,110 $ 1,640 capitalized in softwaredevelopment costs



(4) Includesacquisition related expenses as follows:

General and $ - $ 597 $ - $ 597 administrative expense



(5) Includesrestructuring charges as follows:

Restructuring charges $ 12,558 $ - $ 23,532 $ 3,799



(6) Includes non-cashinterest expenserelated to convertible senior notes asfollows:

Other expense, net $ 12,002 $ 11,922 $ 24,367 $ 23,700



(7) Includes income taxeffect of non-GAAP adjustments as follows:

Benefit from income $ - $ (834 ) $ (315 ) $ (223 )taxes

FireEye, Inc.REVENUE BREAKOUT(Unaudited, in thousands)

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019

Product and relatedsubscription and support $ 103,804 $ 117,490 $ 209,492 $ 235,938 revenue

Platform, cloudsubscription and managed 73,501 56,612 141,896 108,067 services revenue

Product, subscription and 177,305 174,102 351,388 344,005 support revenue

Professional services 52,595 43,506 103,234 84,147 revenue

Total revenue $ 229,900 $ 217,608 $ 454,622 $ 428,152

ANNUALIZED RECURRING REVENUE BREAKOUT(Unaudited, in thousands)

As of June 30,

2020 2019

Product and related subscription and support $ 295,850 $ 313,135

Platform, cloud subscription and managed services 302,231 238,724

Total annualized recurring revenue $ 598,081 $ 551,859

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