By Wallace Witkowski, MarketWatch
FireEye Inc. said Tuesday afternoon that higher-than-expected costs from migrating data to the cloud and a headwind from smaller customers migrating to updated services weighed on earnings and forced the cybersecurity company to lower its profit forecast for the year.
FireEye /zigman2/quotes/204730283/composite FEYE -1.01% shares fell about 13% in immediate after-hours trading following release of the results, following a 0.5% decline in the regular session to close at $16.10. The stock was down 12% premarket Wednesday.
The company ran into some trouble having some customers upgrade from a product it was no longer supporting, Chief Executive Kevin Mandia said in an interview Tuesday.
“The appliances that we went public on five, six years ago, we got a headwind there and some of the renewals with smaller customers,” Mandia said.
“What we got to do is keep going platform in our cloud offerings and we got to just grow them faster, so you’re going to see me invest more and more into the future of the company while balancing some of the renewal challenges that we have with the smaller customers,” Mandia said.
The company reported a second-quarter loss of $67.3 million, or 33 cents a share, compared with a loss of $72.9 million, or 38 cents a share, in the year-ago period. FireEye reported an adjusted loss of a penny a share. Analysts surveyed by FactSet had forecast earnings of a penny a share and FireEye had forecast adjusted second-quarter earnings of break-even to 2 cents a share.
Revenue rose to $217.6 million from $202.7 million in the year-ago quarter, while the Street had estimated revenue of $215.2 million after FireEye’s guide of $213 million to $217 million.
Adjusted billings rose to $221.4 million from $196.1 million in the year ago period. Wall Street was looking for $213.8 million, after FireEye’s billings forecast of billings of $207 million to $222 million.
Customers who had subscribed to FireEye’s third-generation security service, which had been released in 2012, needed to upgrade to the company’s fifth-generation service, and that resulted in lower-than-expected renewal rates especially from smaller customers, Frank Verdecanna, FireEye’s chief financial officer, said in an interview.
Faster-than-expected internal data upgrades for FireEye’s traffic also resulted in higher costs.
“We actually moved all our traffic on our cloud services from our internal data centers to a public cloud provider and we did it in a pretty quick fashion,” said Verdecanna, with the primary cloud provider being Amazon.com Inc.’s /zigman2/quotes/210331248/composite AMZN +2.90% AWS. “That basically spiked our cost because we are still running our internal data center costs for a few more quarters.”
Also, higher commissions paid to salespeople for bringing in new customers compared with those paid for renewals also ate into FireEye’s bottom line.
“So, we’re over planned for the year in new business and we’re under planned for the year on renewals,” Verdecanna said.
For the third quarter, FireEye expects earnings of break-even to 2 cents a share on revenue of $217 million to $221 million, and billings of $245 million to $255 million. Analysts had forecast earnings of 7 cents a share on revenue of $228.4 million and billings of $249.4 million.
For the year, FireEye forecast earnings of break-even to 4 cents a share on revenue of $865 million to $875 million, and billings of $935 million to $955 million. Wall Street was looking for a consensus 15 cents a share on revenue of $893.5 million and billings of $943.1 million.
In late May, FireEye said it acquired security instrumentation company Verodin, after which it forecast a full-year outlook of adjusted earnings of 12 cents to 16 cents a share on revenue of $890 million to $900 million, and billings of $935 million to $955 million.