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July 31, 2020, 4:56 p.m. EDT

10-Q: FIREEYE, INC.

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements regarding: the evolution of the threat landscape facing our customers and prospects;

our ability, and the effects of our efforts, to educate the market regarding the advantages of our security solutions;

our ability to continue to grow revenues, in particular annual recurring revenues from cloud and subscriptions;

our expected rate of decline in mature appliance revenues and associated subscription and support revenues;

our future financial and operating results;

our business plan and our ability to effectively manage our growth and associated investments;

our beliefs and objectives for future operations;

our ability to maintain our leadership position in advanced network security;

our ability to attract and retain customers and to expand our solutions footprint within each of these customers;

our expectations concerning customer retention rates as well as expectations for the value of subscriptions and services renewals;

our ability to maintain our competitive technological advantages against new entrants in our industry;

our ability to timely and effectively scale and adapt our existing technology;

our ability to innovate new products and bring them to market in a timely manner;

our ability to maintain, protect, and enhance our brand and intellectual property;

our ability to expand internationally;

the effects of increased competition in our market and our ability to compete effectively;

cost of revenue, including changes in costs associated with products, manufacturing and customer support;

trends in operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses;

anticipated income tax rates;

potential attrition and other impacts associated with restructuring;

sufficiency of cash to meet cash needs for at least the next 12 months;

our ability to generate cash flows from operations and free cash flows;

our ability to capture new, and renew existing, contracts with the United States and international governments;

our expectations concerning relationships with third parties, including channel partners and logistics providers;

the release of new products;

economic and industry trends or trend analysis;

the impact of the COVID-19 pandemic and related public health measures on our business and the global economy;

the attraction, training, integration and retention of qualified employees and key personnel;

future acquisitions of or investments in complementary companies, products, subscriptions or technologies;

our expectations, beliefs, plans, intentions and strategies related to our acquisition of Verodin, Inc. ("Verodin"); and

the effects of seasonal trends on our results of operations.

as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ

materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the caption "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q and those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Overview

Our Business Model

Product, subscription and support

detection and response services are included in the platform, cloud subscription and managed services sub-category. For the three months ended June 30, 2020 and 2019, product and related subscription and support revenue as a percentage of total revenue was 45% and 54% respectively. For the six months ended June 30, 2020 and 2019, product and related subscription and support revenue as a percentage of total revenue was 46% and 55%, respectively. Revenue from platform, cloud subscription and managed services was 32% and 26% for the three months ended June 30, 2020 and 2019 respectively. Revenue from platform, cloud subscription and managed services was 31% and 25% for the six months ended June 30, 2020 and 2019, respectively.

as services are delivered. Revenue from our Expertise-on-Demand subscription and some pre-paid professional services is deferred, and revenue is recognized when services are delivered. Deferred revenue from professional services as of June 30, 2020 and December 31, 2019 was $85.1 million and $96.4 million, respectively.







        Key Business Metrics
        We monitor our key business metrics set forth below to help us evaluate growth
        trends, establish budgets, measure the effectiveness of our sales and marketing
        efforts, and assess operational efficiencies. We discuss revenue and gross
        margin below under "Components of Operating Results." Deferred revenue,
        annualized recurring revenue, billings (a non-GAAP metric), net cash flow
        provided by (used in) operating activities, and free cash flow (a non-GAAP
        metric) are discussed immediately below the following table (in thousands,
        except percentages).
                                             Three Months Ended or as of           Six Months Ended or as of
                                                      June 30,                              June 30,
                                              2020                 2019               2020              2019
        Product, subscription and
        support revenue                 $      177,305       $      174,102     $     351,388       $  344,005
        Professional services revenue           52,595               43,506           103,234           84,147
        Total revenue                   $      229,900       $      217,608     $     454,622       $  428,152
        Year-over-year percentage
        increase                                     6 %                  7 %               6 %              7 %
        Gross margin percentage                     65 %                 64 %              64 %             65 %
        Deferred revenue, (current and
        non-current)                    $      892,846       $      912,749     $     892,846       $  912,749
        Annualized recurring revenue    $      598,081       $      551,859     $     598,081       $  551,859
        Billings (non-GAAP)             $      202,890       $      221,417     $     372,901       $  403,323
        Net cash provided by (used in)
        operating activities            $       14,690       $      (14,929 )   $      (9,766 )     $    9,524
        Free cash flow (non-GAAP)       $        8,814       $      (29,666 )   $     (27,322 )     $  (18,716 )
        


Deferred revenue. Our deferred revenue consists of amounts that we have the right to invoice but have not yet been recognized into revenue as of the end of the respective period. We monitor our deferred revenue balance because it represents a significant portion of revenue to be recognized in future periods. The majority of our deferred revenue consists of the unamortized balance of deferred revenue from previously invoiced sales of our security appliance hardware and non-cancelable contracts for subscriptions to our network, email and endpoint security solutions, Helix and security validation platforms, threat intelligence, managed detection and response services and support and maintenance contracts. Invoiced amounts for such contracts can be for multiple years, and we classify our deferred revenue as current or non-current depending on when we expect to recognize the related revenue. If the deferred revenue is expected to be recognized within 12 months it is classified as current, otherwise, the deferred revenue is classified as non-current. A table for our deferred revenue is provided below (in thousands):







                                          As of June 30,
                                         2020         2019
        Deferred revenue, current     $ 563,190    $ 545,876
        Deferred revenue, non-current   329,656      366,873
        Total deferred revenue        $ 892,846    $ 912,749
        


Annualized recurring revenue. Annualized recurring revenue ("ARR") is an operating metric and represents the annualized revenue run-rate of active term licenses, subscriptions, and support contracts at the end of a reporting period. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or replace these items. ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates, and does not include revenue from appliance hardware, perpetual software or professional services except for service level agreement payments. We consider ARR a useful measure of the value of the recurring components of our business because it reflects both our ability to attract new customers for our solutions and our success at retaining and expanding our relationships with existing customers. Further, ARR is not impacted by variations in contract length, enabling more meaningful comparison to prior periods as we align our invoicing practices to growing customer preference for annual billing on multi-year contracts. We disaggregate ARR by the same sub-categories we use for disaggregation of billings and revenue in the table below (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
        


Billings. Billings is a non-GAAP financial metric that we define as revenue recognized in accordance with generally accepted accounting principles ("GAAP") plus the change in deferred revenue from the beginning to the end of the period, excluding deferred revenue assumed through acquisitions. We monitor billings as a supplement to revenue (the corresponding GAAP measure), because billings impact our deferred revenue, which is an important indicator of the health and visibility of trends in our business and represents a significant percentage of future revenue. However, it is important to note that other companies, including companies in our industry, may not use billings, may define billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure. Additionally, the calculated billings metric represents the total contract value we have the right to invoice, which includes multi-year subscriptions to our solutions. Calculated billings is impacted by changes in average contract length, thereby reducing the usefulness of comparisons to prior periods. A reconciliation of billings to revenue, the most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below (in thousands):







                                                 Three Months Ended June 30,          Six Months Ended June 30,
                                                   2020               2019               2020              2019
        Revenue                              $     229,900       $     217,608     $     454,622       $  428,152
        Add: deferred revenue, end of period       892,846             912,749           892,846          912,749
        Less: deferred revenue, beginning of
        period                                    (919,856 )          (906,190 )        (974,567 )       (934,828 )
        Less: deferred revenue assumed
        through acquisitions                             -              (2,750 )               -           (2,750 )
        Billings (non-GAAP)                  $     202,890       $     221,417     $     372,901       $  403,323
        


We have provided disaggregation of billings below (in thousands):







                                               Three Months Ended June 30,         Six Months Ended June 30,
                                                   2020              2019             2020             2019
        Product and related subscription and
        support                              $        79,363     $  112,693     $      154,596     $  213,289
        Platform, cloud subscription and
        managed services                              73,957         63,181            126,411        106,294
        Professional services                         49,570         45,543             91,894         83,740
        Billings (non-GAAP)                  $       202,890     $  221,417     $      372,901     $  403,323
        


Net cash provided by (used in) operating activities. We monitor net cash provided by (used in) operating activities as a measure of our overall business performance. Our net cash provided by (used in) operating activities performance is driven in large part by sales of our products and from up-front payments for both subscriptions and support and maintenance services. Monitoring net cash provided by (used in) operating activities enables us to analyze our financial performance without the non-cash effects of certain items, such as depreciation, amortization and stock-based compensation costs, thereby allowing us to better understand and manage the cash needs of our business.







                                                 Three Months Ended June 30,          Six Months Ended June 30,
                                                   2020               2019              2020              2019
        Net cash provided by (used in)
        operating activities                 $      14,690       $     (14,929 )   $     (9,766 )     $    9,524
        Less: purchase of property and
        equipment and demonstration units           (5,876 )           (14,737 )        (17,556 )        (28,240 )
        Free cash flow (non-GAAP)            $       8,814       $     (29,666 )   $    (27,322 )     $  (18,716 )
        Net cash provided by (used in)
        investing activities                 $     188,139       $     (72,194 )   $    167,909       $ (101,262 )
        Net cash provided by (used in)
        financing activities                 $     (82,349 )     $      12,967     $    (88,400 )     $   13,810
        


Factors Affecting our Performance

Jul 31, 2020

COMTEX_368707362/2041/2020-07-31T16:55:35

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