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3 Things FireEye Management Wants You to Know

The cybersecurity software company, FireEye (NASDAQ: FEYE), released its second quarter earnings earlier this month. Kevin Mandia, FireEye's CEO, has had 15 months on the job now and can't play the "new guy" card anymore, but luckily he didn't need it. The company put up solid results for the quarter, is looking forward to a good second half of the year, and has plans to expand its market beyond its historical customer base of large enterprise clients.

Solid financial performance

FireEye had a good quarter in terms of financial metrics. Kevin Mandia, FireEye's CEO, summed it up by saying "We did what we said we would do, meeting or exceeding our guidance ranges for every financial metric." Let's dive into the key financials for the quarter.

Image Source: Getty images

Revenue was up 6% to $185.5 million for the quarter. Gains were driven by the support and maintenance segment and a record services revenue. Expected losses in product revenue were offset by gains in subscription revenue.

Non-GAAP operating expenses decreased 20% year over year, dropping to 76% of revenue. Note that non-GAAP operating expenses excludes stock-based compensation and other costs management deems as non-recurring.

As a result, non-GAAP operating profit climbed to -3%, up from -28% last year. The company is on target for posting non-GAAP profits in the fourth quarter of this year.

While all of these numbers are going in the right direction, 6% growth without profits (even non-GAAP profits) is still not something to cheer about, but management is encouraged about the opportunity for second half of the year.

Management positive on the second half

Management increased full year revenue guidance by $10 million to a range of $734 million to $746 million. This increase was due to the company's ability to execute and the positive reception of its new product, Helix.  The company also sees the number of product renewals coming up in the second half of the year as a benefit to revenue. In the past, Frank Verdecanna, chief accounting officer, indicated the company has executed well on these refresh opportunities.

We've reached refresh [on] basically every dollar we were expecting a refresh plus additional dollars from expanded deployments and additional products and subscriptions sold into that renewal.

The Helix product has been a revenue win for FireEye in the current quarter and has captured two dollars of additional product and subscription revenue for every dollar of the new product sold in Q2. This expected to be the case going forward into second half. Additionally, management is enthusiastic about the reception of the new product as its pipeline (number of sales leads) is up 6x from the start of Q2.

While management is excited about the opportunities in the second half, Mandia understands that the company needs to expand the customer base to get back to healthy revenue growth.

Expanding the market

FireEye has historically served large enterprise clients with a premium-priced product. Mandia would like to expand its market to small- and medium-sized companies, which are more price sensitive. FireEye thinks that a more competitively priced Helix subscription delivered through the cloud can be adapted to sell to this market, but way the product is sold today is too complex. Mandia answered an analyst's question on go-to-market strategy in a no-nonsense manner.

I thought that we've got to simplify our messaging. We have a menu, EX, HX, FX, AX, NX, EX, and you go through all of these things, can't we just have network, email and endpoint? Because that's actually what we have. 

Additionally, the company is performing a holistic pricing review to see if the company's products are priced appropriately and competitively with the goal of seeing if it can simplify its offering and provide a more value centric offering to smaller companies. Mandia indicated this study would be complete in the next 11 to 12 weeks.

I continue to be impressed with Mandia and the actions he's taking to turnaround FireEye. He's executed on his two overarching priorities: rightsize the company's cost structure and completely overhaul the legacy products to one comprehensive, subscription-based platform in the cloud. While the results for this quarter are nothing to be gaga about, I am more confident about the future of FireEye than I have been in a while.

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Brian Withers owns shares of FireEye. The Motley Fool recommends FireEye. The Motley Fool has a disclosure policy.