2016 ANNUAL REPORT
FIREEYE EVOLUTION
Expand
the
Platform
Evangelize
Balanced
Growth &
Profitability
1.0
2004-2013
2.2.2.2..00000
2014-20166666
3.0
The Future
cost of ownership.
current security safeguards
•
•
and analyze and respond to sssssecececurururritityy threats.
FIREEYE HELIX™
MVX Engine
Helix
I
Intelligence | Case Management | Orchestration
ence | Case Management | Orchestrati
Endpoint
Network
Email
3rd Party Events
TO OUR STOCKHOLDERS:
2016 WAS A YEAR OF
CHANGE FOR FIREEYE,
BOTH INTERNALLY AND
EXTERNALLY. AS OUR GROWTH
EXPECTATIONS MODERATED
MID-YEAR, WE TOOK
SWIFT ACTION TO REDUCE OUR COST STRUCTURE,
REPRIORITIZE OUR INVESTMENTS, AND STREAMLINE
OUR GLOBAL INFRASTRUCTURE. I BELIEVE THE CHANGES WE
MADE POSITION US TO DELIVER BALANCED GROWTH AND
PROFITABILITY IN THE FUTURE.1
1 Cautionary statement regarding forward-looking statements in this letter can be found on page 4.
FireEye | 2016 ANNUAL REPORT 1
For the year, we achieved revenue of $714.1 million, an increase of 15 percent,
and annual billings2 of $819.5 million, an increase of three percent from 2015.
The mix of our sales continued to shift to renewable subscriptions, and we
ended the year with $653.5 million in deferred revenue, an increase of 24
percent from the end of 2015.
We need to view our 2016 results in the context of the multiple transitions we are
going through, including transitions from discrete security products to a single,
unified platform; from nation-state sponsored advanced persistent threats to a
broad range of attacks; from on-premise appliances to more cloud and hybrid
solutions; and from product revenues to recurring subscription revenues.
As we manage our business through these transitions, we have maintained
our focus on two significant priorities. Our first priority is rightsizing our
cost structure to support a balance of growth and profitability. Our second
priority, which is equally important to our long-term success, is the evolution
of our product portfolio into a comprehensive security platform, delivered as a
service, on premise or through the cloud. We demonstrated good progress on
both objectives in 2016, and remain committed to these objectives in 2017.
We reduced our non-GAAP operating losses by $87 million in 2016, and exited
the year with a cost structure that we believe will enable us to achieve non-GAAP
profitability in the fourth quarter of 2017. We also completed a multi-year effort
to re-architect our core MVX® detection technologies to enable cloud-based and
hybrid deployments, and enhanced our next generation endpoint solution with
additional detection and prevention capabilities. These innovations, together
with our FireEye® iSIGHT® Intelligence and FireEye orchestration technologies,
enable FireEye Helix™.
2 Billings are a non-GAAP metric mathematically equivalent to revenue plus the change in deferred revenue.
A reconciliation of billings to revenue can be found in the table on page 54 of the Annual Report in this publication.
FireEye | 2016 ANNUAL REPORT
We believe FireEye Helix is the security platform of the future. FireEye
Helix is an end-to-end detection and response platform designed
by practitioners to simplify, integrate and automate security
operations. It provides visibility across customers’ entire security
infrastructure, improves the speed of response and lowers cost of
security through high fidelity alerts, intelligence, automation and
integration. FireEye Helix launched in the first quarter of 2017, and
we believe it will be an important driver of our future growth.
2016 BILLINGS2 BY CATEGORY
Professional
Services
16%
Product
19%
Support &
Maintenance
18%
$820
million
In conclusion, I want to say that I’ve never been more excited for
FireEye. We have outlined a bold vision for our future, and I believe
Product
Subscription
47%
we have the best-of-breed technology, world-class cyber security
2016 REVENUE BY REGION
expertise and military-grade threat intelligence necessary to succeed.
Our mission is to relentlessly protect our customers from cyber
attacks with innovative technologies and expertise learned on
the front lines. Thanks to the commitment and hard work of our
employees, we have become a trusted partner to many of the
most security conscious organizations in the world. We must
never lose sight of this identity and purpose.
Rest of World
4%
Asia-
Pacific
13%
EMEA
14%
$714
million
U.S.
68%
I believe our dedicated pursuit of both profitability and innovation
HEADCOUNT BY FUNCTION
will allow us to fulfill our mission to our customers, as well as provide
increased value to our stockholders. We appreciate your continued
support and look forward to reporting our progress next year.
Sincerely,
Kevin R. Mandia
Chief Executive Officer
Services,
Support &
Operations
32%
Admin
10%
Research &
Development
27%
2,900*
Sales &
Marketing
31%
* As of 12/31/16. Rounded to the nearest hundred.
FireEye | 2016 ANNUAL REPORT 3
SELECTED FINANCIAL DATA
Dollars in thousands
2012 2013 2014
2015
2016
Revenue
$83,316
$161,552
$425,662
$622,967
$714,114
Deferred revenue
$76,406
$187,514
$352,543
$526,998
$653,516
Cash and cash equivalents
and short term investments
$60,200
$173,918
$402,208
$1,169,877
$935,725
Cash flow from operations
$21,500
($69,762)
($131,270)
$37,015
($14,585)
Total assets
$125,273
$1,376,313
$1,758,881
$2,441,473
$2,382,965
Total stockholders’ equity
$5,390
$1,048,102
$1,250,828
$1,044,372
$841,112
CUSTOMERS*
5,600
4,400
3,100
2,000
900
REVENUE
(millions)
$623
$714
$426
$162
$83
DEFERRED
REVENUE
(millions)
$654
$527
$353
$188
$76
‘12
‘13
‘14
‘15
‘16
‘12
‘13
‘14
‘15
‘16
‘12
‘13
‘14
‘15
‘16
* As of 12/31. Rounded to nearest hundred.
FORWARD-LOOKING STATEMENTS
The letter to stockholders contains forward-looking statements, including statements related to expectations and beliefs regarding expected growth,
product releases and the security market. These forward-looking statements involve risks and uncertainties, as well as assumptions which, if they do
not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
The risks and uncertainties that could cause such results to differ materially from those expressed or implied by such forward-looking statements include
customer demand and adoption of FireEye’s offerings; real or perceived defects, errors or vulnerabilities in FireEye’s offerings; 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
offerings to meet those needs; FireEye’s ability to hire and retain critical executives and key employees; and general economic 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2017, which is available on the
Investor Relations section of the company’s website at investors.FireEye.com and on the SEC website at www.sec.gov. All forward-looking statements in
the letter are based on information available to FireEye 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.
4 FireEye | 2016 ANNUAL REPORT
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2017 PR OXY STATEMENT
FIREEYE, INC.
1440 McCarthy Blvd.
Milpitas, California 95035
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held at 10:00 a.m. Pacific Time on Thursday, June 1, 2017
Dear Stockholder:
You are cordially invited to attend the 2017 annual meeting of stockholders (the “Annual Meeting”) of
FireEye, Inc., a Delaware corporation (“FireEye”). The Annual Meeting will be held on Thursday, June 1, 2017
at 10:00 a.m. Pacific Time, at 1390 McCarthy Blvd., Milpitas, California 95035, for the following purposes, as
more fully described in the accompanying proxy statement:
1. To elect two Class I directors to serve until the 2020 annual meeting of stockholders or until their
successors are duly elected and qualified;
2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm
for our fiscal year ending December 31, 2017;
3. To conduct an advisory vote to approve the compensation of our named executive officers for our fiscal
year ended December 31, 2016, as described in the proxy statement; and
4. To transact such other business as may properly come before the Annual Meeting or any adjournments or
postponements thereof.
Our board of directors has fixed the close of business on April 3, 2017 as the record date for the Annual
Meeting. Only stockholders of record on April 3, 2017 are entitled to notice of and to vote at the Annual
Meeting. Further information regarding voting rights and the matters to be voted upon is presented in the
accompanying proxy statement.
On or about April 17, 2017, we expect to mail to our stockholders a Notice of Internet Availability of Proxy
Materials (the “Notice”) containing instructions on how to access our proxy statement and our annual report. The
Notice provides instructions on how to vote via the Internet or by telephone and includes instructions on how to
receive a paper copy of our proxy materials by mail. The accompanying proxy statement and our annual report
can be accessed directly at the Internet address listed on the Notice.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Annual Meeting, we urge you
to submit your vote via the Internet, telephone or mail as soon as possible so that your shares can be voted
at the Annual Meeting in accordance with your instructions.
Thank you for your continued support of FireEye.
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By order of the Board of Directors,
Kevin R. Mandia
Chief Executive Officer
Milpitas, California
April 17, 2017
[THIS PAGE INTENTIONALLY LEFT BLANK]
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominees for Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Meetings and Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Considerations in Evaluating Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Recommendations for Nominations to the Board of Directors . . . . . . . . . . . . . . . . . . . . . .
Communications with the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Governance Guidelines and Code of Business Conduct and Ethics . . . . . . . . . . . . . . . . . . . .
Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside Director Compensation Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 1 ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees Paid to the Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auditor Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 3 ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table for Fiscal Year 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards Table for Fiscal Year 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at 2016 Fiscal Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested for Fiscal Year 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment Agreements for Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Control Severance Policy for Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments upon a Change of Control, upon Termination or upon Termination Following a
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . .
RELATED PERSON TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policies and Procedures for Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CEO Travel Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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TABLE OF CONTENTS
(continued)
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company Website . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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FIREEYE, INC.
PROXY STATEMENT
FOR 2017 ANNUAL MEETING OF STOCKHOLDERS
To Be Held at 10:00 a.m. Pacific Time on Thursday, June 1, 2017
This proxy statement and the enclosed form of proxy are furnished in connection with the solicitation of
proxies by our board of directors for use at our 2017 annual meeting of stockholders (the “Annual Meeting”), and
any postponements, adjournments or continuations thereof. The Annual Meeting will be held on Thursday,
June 1, 2017 at 10:00 a.m. Pacific Time, at 1390 McCarthy Blvd., Milpitas, California 95035. The Notice of
Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access this proxy
statement and our annual report is first being mailed on or about April 17, 2017 to all stockholders entitled to
receive notice of and to vote at the Annual Meeting.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
The information provided in the “question and answer” format below addresses certain frequently asked
questions but is not intended to be a summary of all matters contained in this proxy statement. Please read the
entire proxy statement carefully before voting your shares.
What matters am I voting on?
You will be voting on:
•
•
•
•
the election of two Class I directors to hold office until the 2020 annual meeting of stockholders or
until their successors are duly elected and qualified;
a proposal to ratify the appointment of Deloitte & Touche LLP as our independent registered public
accounting firm for our fiscal year ending December 31, 2017;
an advisory vote to approve named executive officer compensation; and
any other business that may properly come before the Annual Meeting or any adjournments or
postponements thereof.
How does our board of directors recommend that I vote?
Our board of directors recommends that you vote:
•
•
•
FOR the two nominees for election as Class I directors;
FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public
accounting firm for our fiscal year ending December 31, 2017; and
FOR the approval, on an advisory basis, of named executive officer compensation.
Will there be any other items of business on the agenda?
If any other items of business or other matters are properly brought before the Annual Meeting, your proxy
gives discretionary authority to the persons named on the proxy card with respect to those items of business or
other matters. The persons named on the proxy card intend to vote the proxy in accordance with their best
judgment. Our board of directors does not intend to bring any other matters to be voted on at the Annual
Meeting, and we are not currently aware of any matters that may be properly presented by others for
consideration at the Annual Meeting.
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Who is entitled to vote at the Annual Meeting?
Holders of our common stock at the close of business on April 3, 2017, the record date for the Annual
Meeting (the “Record Date”), are entitled to notice of and to vote at the Annual Meeting. Each stockholder is
entitled to one vote for each share of our common stock held as of the Record Date. As of the Record Date, there
were 177,856,766 shares of common stock outstanding and entitled to vote. Stockholders are not permitted to
cumulate votes with respect to the election of directors.
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
Stockholder of Record: Shares Registered in Your Name. If, at the close of business on the Record Date,
your shares were registered directly in your name with American Stock Transfer & Trust Company, LLC, our
transfer agent, then you are considered the stockholder of record with respect to those shares. As the stockholder
of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to
vote in person at the Annual Meeting.
Beneficial Owners: Shares Registered in the Name of a Broker, Bank or Other Nominee. If, at the close of
business on the Record Date, your shares were held, not in your name, but rather in a stock brokerage account or
by a bank or other nominee on your behalf, then you are considered the beneficial owner of shares held in “street
name.” As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your
shares by following the voting instructions your broker, bank or other nominee provides. If you do not provide
your broker, bank or other nominee with instructions on how to vote your shares, your broker, bank or other
nominee may, in its discretion, vote your shares with respect to routine matters but may not vote your shares with
respect to any non-routine matters. Please see “What if I do not specify how my shares are to be voted?” for
additional information.
Do I have to do anything in advance if I plan to attend the Annual Meeting in person?
Stockholder of Record: Shares Registered in Your Name. If you were a stockholder of record at the close of
business on the Record Date, you do not need to do anything in advance to attend and/or vote your shares in
person at the Annual Meeting, but you will need to present government-issued photo identification for entrance
to the Annual Meeting.
Beneficial Owners: Shares Registered in the Name of a Broker, Bank or Other Nominee. If you were a
beneficial owner at the close of business on the Record Date, you may not vote your shares in person at the
Annual Meeting unless you obtain a “legal proxy” from your broker, bank or other nominee who is the
stockholder of record with respect to your shares. You may still attend the Annual Meeting even if you do not
have a legal proxy. For entrance to the Annual Meeting, you will need to provide proof of beneficial ownership
as of the Record Date, such as the notice or voting instructions you received from your broker, bank or other
nominee or a brokerage statement reflecting your ownership of shares as of the Record Date, and present
government-issued photo identification.
Please note that no cameras, recording equipment, large bags, briefcases or packages will be permitted in
the Annual Meeting.
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How do I vote and what are the voting deadlines?
Stockholder of Record: Shares Registered in Your Name. If you are a stockholder of record, you can vote in
one of the following ways:
•
•
•
You may vote via the Internet or by telephone. To vote via the Internet or by telephone, follow the
instructions provided in the Notice of Internet Availability of Proxy Materials. If you vote via the
Internet or by telephone, you do not need to return a proxy card by mail. Internet and telephone voting
are available 24 hours a day. Votes submitted through the Internet or by telephone must be received by
11:59 p.m. Eastern Time on May 31, 2017. Alternatively, you may request a printed proxy card by
telephone
https://us.astfinancial.com/proxyservices/
at
Internet
requestmaterials.asp, or by email at info@astfinancial.com.
888-776-9962,
over
the
at
You may vote by mail. If you have received printed proxy materials by mail and would like to vote by
mail, you need to complete, date and sign the proxy card that accompanies this proxy statement and
promptly mail it to the tabulation agent in the enclosed postage-paid envelope so that it is received no
later than May 31, 2017. You do not need to put a stamp on the enclosed envelope if you mail it from
within the United States. The persons named in the proxy card will vote the shares you own in
accordance with your instructions on the proxy card you mail. If you return the proxy card, but do not
give any instructions on a particular matter to be voted on at the Annual Meeting, the persons named in
the proxy card will vote the shares you own in accordance with the recommendations of our board of
directors. Our board of directors recommends that you vote FOR the two nominees for election as
Class I directors, FOR the ratification of the appointment of Deloitte & Touche LLP as our
independent registered public accounting firm for our fiscal year ending December 31, 2017, and FOR
the approval, on an advisory basis, of named executive officer compensation.
You may vote in person. If you plan to attend the Annual Meeting, you may vote by delivering your
completed proxy card in person or by completing and submitting a ballot, which will be provided at the
Annual Meeting.
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Beneficial Owners: Shares Registered in the Name of a Broker, Bank or Other Nominee. If you are the
beneficial owner of shares held of record by a broker, bank or other nominee, you will receive voting instructions
from your broker, bank or other nominee. You must follow the voting instructions provided by your broker, bank
or other nominee in order to instruct your broker, bank or other nominee how to vote your shares. The
availability of Internet and telephone voting options will depend on the voting process of your broker, bank or
other nominee. As discussed above, if you are a beneficial owner, you may not vote your shares in person at
the Annual Meeting unless you obtain a legal proxy from your broker, bank or other nominee.
Can I change my vote or revoke my proxy?
Stockholder of Record: Shares Registered in Your Name. If you are a stockholder of record, you may revoke
your proxy or change your proxy instructions at any time before your proxy is voted at the Annual Meeting by:
•
•
•
•
entering a new vote by Internet or telephone;
signing and returning a new proxy card with a later date;
delivering a written revocation to our Secretary at FireEye, Inc., 1440 McCarthy Blvd., Milpitas,
California 95035, by 11:59 p.m. Eastern Time on May 31, 2017; or
attending the Annual Meeting and voting in person.
Beneficial Owners: Shares Registered in the Name of a Broker, Bank or Other Nominee. If you are the
beneficial owner of your shares, you must contact the broker, bank or other nominee holding your shares and
follow their instructions to change your vote or revoke your proxy.
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What is the effect of giving a proxy?
Proxies are solicited by and on behalf of our board of directors. The persons named in the proxy have been
designated as proxy holders by our board of directors. When a proxy is properly dated, executed and returned, the
shares represented by the proxy will be voted at the Annual Meeting in accordance with the instructions of the
stockholder. If no specific instructions are given, however, the shares will be voted in accordance with the
recommendations of our board of directors. If any matters not described in this proxy statement are properly
presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote your
shares. If the Annual Meeting is postponed or adjourned, the proxy holders can vote your shares on the new
meeting date, unless you have properly revoked your proxy, as described above.
What if I do not specify how my shares are to be voted?
Stockholder of Record: Shares Registered in Your Name. If you are a stockholder of record and you submit
a proxy but you do not provide voting instructions, your shares will be voted:
•
•
•
•
FOR the two nominees for election as Class I directors (Proposal No. 1);
FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public
accounting firm for our fiscal year ending December 31, 2017 (Proposal No. 2);
FOR the approval, on an advisory basis, of named executive officer compensation (Proposal No. 3);
and
In the discretion of the named proxy holders regarding any other matters properly presented for a vote
at the Annual Meeting.
Beneficial Owners: Shares Registered in the Name of a Broker, Bank or Other Nominee. If you are a
beneficial owner and you do not provide your broker, bank or other nominee that holds your shares with voting
instructions, then your broker, bank or other nominee will determine if it has discretion to vote on each matter.
Brokers do not have discretion to vote on non-routine matters. Proposal No. 1 (election of directors) and Proposal
No. 3 (advisory vote to approve named executive officer compensation) are non-routine matters, while Proposal
No. 2 (ratification of appointment of independent registered public accounting firm) is a routine matter. As a
result, if you do not provide voting instructions to your broker, bank or other nominee, then your broker, bank or
other nominee may not vote your shares with respect to Proposal No. 1 and Proposal No. 3, which would result in
a “broker non-vote,” but your broker, bank or other nominee may, in its discretion, vote your shares with respect
information regarding broker non-votes, see “What are the effects of
to Proposal No. 2. For additional
abstentions and broker non-votes?” below.
What is a quorum?
A quorum is the minimum number of shares required to be present at the Annual Meeting for the meeting to
be properly held under our bylaws and Delaware law. A majority of the shares of common stock outstanding and
entitled to vote, in person or by proxy, constitutes a quorum for the transaction of business at the Annual
Meeting. As noted above, as of the Record Date, there were a total of 177,856,766 shares of common stock
outstanding, which means that 88,928,384 shares of common stock must be represented in person or by proxy at
the Annual Meeting to have a quorum. If there is no quorum, a majority of the shares present at the Annual
Meeting may adjourn the meeting to a later date.
What are the effects of abstentions and broker non-votes?
An abstention represents a stockholder’s affirmative choice to decline to vote on a proposal. If a stockholder
indicates on its proxy card that it wishes to abstain from voting its shares, or if a broker, bank or other nominee
holding its customers’ shares of record causes abstentions to be recorded for shares, these shares will be
considered present and entitled to vote at the Annual Meeting. As a result, abstentions will be counted for
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purposes of determining the presence or absence of a quorum and will also count as votes against a proposal in
cases where approval of the proposal requires the affirmative vote of a majority of the shares present and entitled
to vote at the Annual Meeting (e.g., Proposal No. 2 and Proposal No. 3). However, because the outcome of
Proposal No. 1 (election of directors) will be determined by the affirmative vote of shares representing a majority
of the votes cast for each Class I director nominee, abstentions will have no impact on the outcome of such
proposal as long as a quorum exists given abstentions are not considered as votes cast.
A broker non-vote occurs when a broker, bank or other nominee holding shares for a beneficial owner does
not vote on a particular proposal because the broker, bank or other nominee does not have discretionary voting
power with respect to such proposal and has not received voting instructions from the beneficial owner of the
shares. Broker non-votes will be counted for purposes of calculating whether a quorum is present at the Annual
Meeting but will not be counted for purposes of determining the number of votes cast. Therefore, a broker non-
vote will make a quorum more readily attainable but will not otherwise affect the outcome of the vote on any
proposal.
How many votes are needed for approval of each proposal?
•
•
•
Proposal No. 1: To be elected, each Class I director nominee must receive the affirmative vote of
shares representing a majority of the votes cast, meaning the number of votes “FOR” that nominee
must exceed the number of votes “AGAINST” that nominee. You may vote FOR, AGAINST or
ABSTAIN with respect to each nominee. If you ABSTAIN from voting on the election of any nominee,
the abstention will have no effect on the election of that nominee.
Proposal No. 2: The ratification of the appointment of Deloitte & Touche LLP requires an affirmative
vote of a majority of the shares of our common stock present in person or by proxy at the Annual
Meeting and entitled to vote thereon to be approved. You may vote FOR, AGAINST or ABSTAIN. If
you ABSTAIN from voting on Proposal No. 2, the abstention will have the same effect as a vote
AGAINST the proposal.
Proposal No. 3: The approval, on an advisory basis, of named executive officer compensation requires
an affirmative vote of a majority of the shares of our common stock present in person or by proxy at
the Annual Meeting and entitled to vote thereon to be approved. You may vote FOR, AGAINST or
ABSTAIN. If you ABSTAIN from voting on Proposal No. 3, the abstention will have the same effect
as a vote AGAINST the proposal.
What happens if a director nominee who is duly nominated does not receive a majority vote?
Our board of directors only nominates for election candidates who have tendered, in advance of such
nomination, an irrevocable, conditional resignation that will be effective only upon both (i) the failure to receive
the required vote at the next stockholders’ meeting at which they face reelection and (ii) our board of directors’
acceptance of such resignation. In an uncontested election, our board of directors, after taking into consideration
the recommendation of our nominating and corporate governance committee, will determine whether or not to
accept the pre-tendered resignation of any nominee for director who receives a greater number of votes
“AGAINST” such nominee’s election than votes “FOR” such nominee’s election. In the event of a contested
election, the director nominees who receive the largest number of votes cast “FOR” their election will be elected
as directors.
How are proxies solicited for the Annual Meeting and who is paying for such solicitation?
Our board of directors is soliciting proxies for use at the Annual Meeting by means of the proxy materials.
We will bear the entire cost of proxy solicitation, including the preparation, assembly, printing, mailing and
distribution of the proxy materials. Copies of solicitation materials will also be made available upon request to
brokers, banks and other nominees to forward to the beneficial owners of the shares held of record by such
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brokers, banks or other nominees. The original solicitation of proxies may be supplemented by solicitation by
telephone, electronic communication, or other means by our directors, officers and employees. No additional
compensation will be paid to these individuals for any such services, although we may reimburse such
individuals for their reasonable out-of-pocket expenses in connection with such solicitation. We may also
reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial
owners. We hired D.F. King & Co., Inc. (“D.F. King”) to help us solicit proxies. We expect to pay D.F. King a
solicitation fee of $7,500 plus reimbursement of reasonable out-of-pocket expenses.
If you choose to access the proxy materials and/or vote over the Internet, you are responsible for Internet
access charges you may incur. If you choose to vote by telephone, you are responsible for telephone charges you
may incur.
Why did I receive a Notice of Internet Availability of Proxy Materials instead of a full set of proxy
materials?
In accordance with the rules of the Securities and Exchange Commission, or the SEC, we have elected to furnish
our proxy materials, including this proxy statement and our annual report, primarily via the Internet. Stockholders may
request to receive proxy materials in printed form by mail or electronically by e-mail by following the instructions
contained in the Notice. We encourage stockholders to take advantage of the availability of our proxy materials on the
Internet to help reduce the environmental impact of our annual meetings of stockholders.
What does it mean if I received more than one Notice?
If you receive more than one Notice, your shares may be registered in more than one name or in different
accounts. Please follow the voting instructions on each Notice to ensure that all of your shares are voted.
Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a
manner that protects your voting privacy. Your vote will not be disclosed either within FireEye or to third parties,
except as necessary to meet applicable legal requirements, to allow for the tabulation of votes and certification of
the vote, or to facilitate a successful proxy solicitation.
Will members of the board of directors attend the Annual Meeting?
We encourage, but do not require, our board members to attend the Annual Meeting. Those who do attend
will be available to answer appropriate questions from stockholders.
I share an address with another stockholder, and we received only one paper copy of the proxy materials.
How may I obtain an additional copy of the proxy materials?
We have adopted an SEC-approved procedure called “householding,” under which we can deliver a single
copy of the proxy materials and annual report to multiple stockholders who share the same address unless we
received contrary instructions from one or more of the stockholders. This procedure reduces our printing and
mailing costs. Stockholders who participate in householding will continue to be able to access and receive
separate proxy cards. Upon written or oral request, we will promptly deliver a separate copy of the proxy
materials and annual report to any stockholder at a shared address to which we delivered a single copy of any of
these documents. To receive a separate copy, or, if you are receiving multiple copies, to request that we only send
a single copy of next year’s proxy materials and annual report, you may contact us as follows:
FireEye, Inc.
Attention: Secretary
1440 McCarthy Blvd.
Milpitas, CA 95035
(408) 321-6300
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Stockholders who hold shares in street name may contact their brokerage firm, bank, broker-dealer or other
nominee to request information about householding.
How can I find out the results of the voting at the Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. In addition, final voting results will be
published in a current report on Form 8-K that we expect to file within four business days after the Annual
Meeting. If final voting results are not available to us at that time, we intend to file a Form 8-K to publish
preliminary results and, within four business days after the final results are known to us, file an amendment to the
Form 8-K to publish the final results.
What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or
to nominate individuals to serve as directors?
Stockholder Proposals
Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the
next annual meeting of stockholders by submitting their proposals in writing to our Secretary in a timely manner.
For a stockholder proposal to be considered for inclusion in our proxy statement for our 2018 annual meeting of
stockholders, our Secretary must receive the written proposal at our principal executive offices not later than
December 18, 2017. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 under
the Securities Exchange Act of 1934, as amended, or the Exchange Act, regarding the inclusion of stockholder
proposals in company-sponsored proxy materials. Stockholder proposals should be addressed to:
FireEye, Inc.
Attention: Secretary
1440 McCarthy Blvd.
Milpitas, CA 95035
Our bylaws also establish an advance notice procedure for stockholders who wish to present a proposal
before an annual meeting of stockholders but do not intend for the proposal to be included in our proxy
statement. Our bylaws provide that the only business that may be conducted at an annual meeting is business that
is (i) specified in our proxy materials with respect to such meeting, (ii) otherwise properly brought before the
annual meeting by or at the direction of our board of directors, or (iii) properly brought before the annual meeting
by a stockholder of record entitled to vote at the annual meeting who has delivered timely written notice to our
Secretary, which notice must contain the information specified in our bylaws. To be timely for our 2018 annual
meeting of stockholders, our Secretary must receive the written notice at our principal executive offices:
•
•
not earlier than February 1, 2018; and
not later than March 3, 2018.
In the event that we hold our 2018 annual meeting of stockholders more than 30 days before or more than
60 days after the first anniversary of the date of the Annual Meeting, then notice of a stockholder proposal that is
not intended to be included in our proxy statement must be received no earlier than the close of business on the
120th day before such annual meeting and no later than the close of business on the later of the following two
dates:
•
•
the 90th day prior to such annual meeting; or
the 10th day following the day on which public announcement of the date of such annual meeting is
first made.
If a stockholder who has notified us of his, her or its intention to present a proposal at an annual meeting
does not appear to present his, her or its proposal at such annual meeting, we are not required to present the
proposal for a vote at such annual meeting.
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Nomination of Director Candidates
You may propose director candidates for consideration by our nominating and corporate governance
committee. Any such recommendations should include the nominee’s name and qualifications for membership
on our board of directors and should be directed to our Secretary at the address set forth above. For additional
information regarding stockholder recommendations for director candidates, see “Board of Directors and
Corporate Governance—Stockholder Recommendations for Nominations to the Board of Directors.”
In addition, our bylaws permit stockholders to nominate directors for election at an annual meeting of
stockholders. To nominate a director, the stockholder must provide the information required by our bylaws. In
addition, the stockholder must give timely notice to our Secretary in accordance with our bylaws, which, in
general, require that the notice be received by our Secretary within the time period described above under
“Stockholder Proposals” for stockholder proposals that are not intended to be included in a proxy statement.
Availability of Bylaws
A copy of our bylaws may be obtained by accessing our public filings on the SEC’s website at
www.sec.gov. You may also contact our Secretary at our principal executive office for a copy of the relevant
bylaw provisions regarding the requirements for making stockholder proposals and nominating director
candidates.
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BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Our business affairs are managed under the direction of our board of directors, which is currently composed
of seven members. Six of our directors are independent within the meaning of the independent director
requirements of The NASDAQ Stock Market. Our board of directors is divided into three classes with staggered
three-year terms. At each annual meeting of stockholders, a class of directors will be elected for a three-year term
to succeed the same class whose term is then expiring. In addition, pursuant to our bylaws, at any time before, on
or after the day of the Annual Meeting, our board of directors may increase the authorized number of directors
and fill the vacancy or vacancies created thereby with one or more new directors.
There are three Class I directors whose current term of office expires at the Annual Meeting: Kimberly
Alexy, William M. Coughran Jr. and Stephen Pusey. On March 28, 2017, Mr. Coughran notified us of his
decision to not stand for re-election at the Annual Meeting and, accordingly, the authorized number of directors
will be reduced effective as of the Annual Meeting to eliminate any vacancy on our board of directors resulting
from the expiration of his term.
Our board of directors has nominated Ms. Alexy and Mr. Pusey for re-election at the Annual Meeting to
serve as Class I directors until the 2020 annual meeting of stockholders or until their successors are duly elected
and qualified.
The following table sets forth the names, ages as of April 3, 2017, and certain other information for each of
the directors whose terms expire at the Annual Meeting and for each of the directors whose terms do not expire at
the Annual Meeting:
Name
Class Age
Position(s)
Director
Since
Current
Term
Expires
Expiration
of Term
For Which
Nominated
1. Directors Whose Terms Expire
at the Annual Meeting
Kimberly Alexy(1) . . . . . . . . . . . .
William M. Coughran Jr.(2)(3) . . .
. . . . . . . . . . . . .
Stephen Pusey(3)
2. Directors Whose Terms Do Not
Expire at the Annual Meeting
Deepak Ahuja(1) . . . . . . . . . . . . . .
Ronald E. F. Codd(1)(2) . . . . . . . .
. . . . . . . . . . .
Kevin R. Mandia(4)
Enrique Salem(3)(4) . . . . . . . . . . .
I
I
I
46 Director
64 Director
55 Director
2015
2012
2015
2017
2017
2017
2020
—
2020
II
III
III
III
54 Director
61 Director
46 Chief Executive Officer and
2015
2012
2016
2018
2019
2019
Director
51 Chairman of the Board
2013
2019
—
—
—
—
(1) Member of our audit committee
(2) Member of our nominating and corporate governance committee
(3) Member of our compensation committee
(4) Member of our government classified information and security committee
Nominees for Director
Kimberly Alexy has served as a member of our board of directors since January 2015. Ms. Alexy has served
as the Principal of Alexy Capital Management, a private investment management firm that she founded, since
June 2005. Ms. Alexy has served on the board of directors of CalAmp Corp. since May 2008, the board of
directors of Five9, Inc. since October 2013, the board of directors of Microsemi Corporation since September
2016 and the board of directors of Alteryx, Inc. since March 2017. She previously served on the board of
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directors of SMART Modular Technologies (WWH), Inc. from September 2009 to August 2011, the board of
directors of SouthWest Water Company from August 2009 to September 2010, the board of directors of Dot Hill
Systems Corp. from December 2005 to May 2010, and the board of directors of Maxtor Corporation from June
2005 to May 2006. From 2012 to 2014, Ms. Alexy served as an Adjunct Lecturer at San Diego State University
in the Graduate School of Business. From 1998 to 2003, she served as Senior Vice President and Managing
Director of Equity Research for Prudential Securities, where she served as principal technology hardware analyst
for the firm. Prior to joining Prudential, Ms. Alexy served as Vice President of Equity Research at Lehman
Brothers, where she covered the computer hardware sector, and Assistant Vice President of Corporate Finance at
Wachovia Bank. Ms. Alexy is a Chartered Financial Analyst (CFA), and holds a B.A. from Emory University
and an M.B.A. with a concentration in Finance and Accounting from the College of William and Mary. Our
board of directors believes that Ms. Alexy possesses specific attributes that qualify her to serve as a director,
including her accounting expertise, extensive experience on public company boards and her experience in the
financial services industry as an investment professional.
Stephen Pusey has served as a member of our board of directors since June 2015. Mr. Pusey served as the
Group Chief Technology Officer of Vodafone Group Plc from September 2006 to August 2015, and as a member
of its board of directors from June 2009 to August 2015. From 1982 to August 2006, Mr. Pusey held various
positions at Nortel Networks, most recently as Executive Vice President and President, Nortel EMEA. Mr. Pusey
has served on the board of directors of Centrica plc since April 2015, and previously served as a Vodafone
representative board member of Verizon Wireless from January 2009 to September 2013. Mr. Pusey holds a TEC
degree in Communications and Microelectronics from Uxbridge Technical College and a Higher TEC degree in
Communications and Microelectronics from Acton Technical College and attended the Advanced Management
Program at Harvard University. Our board of directors believes that Mr. Pusey possesses specific attributes that
qualify him to serve as a director, including his more than 35 years of international business experience across a
number of technology and service provider markets and the perspective and experience he brings as a former
group chief technology officer and board member for a large international public company.
Other Directors
Deepak Ahuja has served as a member of our board of directors since September 2015. Mr. Ahuja has
served as the Chief Financial Officer of Tesla Motors, Inc. since March 2017, and previously served in such role
at Tesla Motors from July 2008 to November 2015. Prior to joining Tesla Motors, Mr. Ahuja served in various
positions at Ford Motor Company from August 1993 to July 2008, most recently as the Vehicle Line Controller
of Small Cars Product Development from July 2006 to July 2008, and as Chief Financial Officer for Ford of
Southern Africa from February 2003 to June 2006. Mr. Ahuja also served as the Chief Financial Officer for Auto
Alliance International, a joint venture between Ford and Mazda, from September 2000 to February 2003.
Mr. Ahuja holds an M.S.I.A. (which was subsequently redesignated as an M.B.A.) from Carnegie Mellon
University, an M.S. in materials engineering from Northwestern University and a B. Tech in ceramic engineering
from Banaras Hindu University in India. Our board of directors believes that Mr. Ahuja possesses specific
attributes that qualify him to serve as a director, including his extensive executive experience and his financial
and accounting expertise with international companies.
Ronald E. F. Codd has served as a member of our board of directors since July 2012. Mr. Codd has been an
independent business consultant since April 2002. From January 1999 to April 2002, Mr. Codd served as
President, Chief Executive Officer and a director of Momentum Business Applications, Inc., an enterprise
software company. From September 1991 to December 1998, Mr. Codd served as Senior Vice President of
Finance and Administration and Chief Financial Officer of PeopleSoft, Inc., a provider of human resource
management systems. Mr. Codd has served on the board of directors of ServiceNow, Inc., Rocket Fuel Inc., and
Veeva Systems Inc. since February 2012. Additionally, Mr. Codd previously served on the boards of directors of
numerous information technology companies, including most recently DemandTec, Inc., Interwoven, Inc. and
Data Domain, Inc. Mr. Codd holds a B.S. in Accounting from the University of California, Berkeley and an
M.M. in Finance and M.I.S. from the Kellogg Graduate School of Management at Northwestern University. Our
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board of directors believes that Mr. Codd possesses specific attributes that qualify him to serve as a director,
including his extensive management and software industry experience, and his experience in finance.
William M. Coughran Jr. has served as a member of our board of directors since July 2012. Mr. Coughran
has been a partner of Sequoia Capital, a venture capital firm, since October 2011. He currently serves on the
board of directors of multiple private companies, and he served on the board of directors of Clearwell Systems,
Inc. from March 2005 to June 2011, when it was acquired by Symantec, Inc. Prior to joining Sequoia Capital,
Mr. Coughran held a number of roles at Google Inc. from April 2003 to September 2011, including Senior Vice
President of Engineering. At Google, he was responsible for security efforts as well as serving on the executive
committee and as an advisor to the founders and Eric Schmidt. Prior to Google, Mr. Coughran co-founded
Entrisphere, Inc., a telecom equipment vendor, and served as its initial Chief Executive Officer and in other roles
from November 1999 to December 2002. From 1980 to 1999, Mr. Coughran held a number of roles at Bell Labs,
Inc. (originally part of AT&T, Inc. and then Lucent Technologies, Inc.), including vice president of the
Computing Sciences Research Center, known for key developments in operating and distributed systems as well
as early work in networked computer security. Mr. Coughran has held adjunct and visiting faculty roles at
Stanford University, Duke University, and ETH Zürich. Mr. Coughran has a B.S. and M.S. in Mathematics from
California Institute of Technology and an M.S. and Ph.D. in Computer Science from Stanford University.
Mr. Coughran is not standing for re-election at the Annual Meeting and, accordingly, it is anticipated that his
service on our board of directors will be completed on June 1, 2017.
Kevin R. Mandia has served as our Chief Executive Officer since June 2016 and as a member of our board
of directors since February 2016. He previously served as our President from February 2015 to June 2016 and as
our Senior Vice President and Chief Operating Officer from the date of FireEye’s acquisition of Mandiant
Corporation, or Mandiant, in December 2013 through February 2015. Prior to joining FireEye, Mr. Mandia was
the Chief Executive Officer of Mandiant and had served in that capacity since he founded Mandiant in 2004.
Prior to forming Mandiant, Mr. Mandia served as the Director of Computer Forensics at Foundstone (later
acquired by McAfee Corporation) from 2000 to 2003 and as the Director of Information Security for Sytex (later
acquired by Lockheed Martin) from 1998 to 2000. From 1993 to 2000, Mr. Mandia was an officer in the United
States Air Force, where he served in various capacities, including as a computer security officer in the 7th
Communications Group at the Pentagon, and later as a special agent in the Air Force Office of Special
Investigations (AFOSI). Mr. Mandia holds a B.S. in Computer Science from Lafayette College and an M.S. in
Forensic Science from The George Washington University. In 2011, Mr. Mandia was named Ernst & Young
Entrepreneur of the Year for the Greater Washington area. He completed the Harvard Business School’s Owner/
President Management Program in February 2013. Mr. Mandia has taught graduate level courses at Carnegie
Melon University and The George Washington University and has co-authored two books on responding to
security breaches: Incident Response: Performing Computer Forensics (McGraw-Hill, 2003) and Incident
Response: Investigating Computer Crime (McGraw-Hill, 2001). Our board of directors believes that Mr. Mandia
possesses specific attributes that qualify him to serve as a director, including the perspective and experience he
brings as our Chief Executive Officer and his extensive senior management expertise in the network security
industry.
Enrique Salem has served as a member of our board of directors since February 2013 and as our Chairman
of the Board since March 2017. Mr. Salem previously served as our Lead Independent Director from February
2016 to March 2017. He has been a managing director of Bain Capital Ventures, a venture capital firm, since
July 2014. Mr. Salem was president, Chief Executive Officer and a director of Symantec Corporation, a provider
of information security, storage and systems management solutions, from April 2009 until July 2012. Mr. Salem
was Chief Operating Officer of Symantec Corporation from January 2008 to April 2009, group President,
Worldwide Sales and Marketing from April 2007 to January 2008, group President, Consumer Products from
May 2006 to April 2007, Senior Vice President, Consumer Products and Solutions from February 2006 to May
2006, Senior Vice President, Security Products and Solutions from January 2006 to February 2006, and Senior
Vice President, Network and Gateway Security Solutions from June 2004 to February 2006. Prior to Symantec,
from April 2002 to June 2004, Mr. Salem served as President and Chief Executive Officer of Brightmail, Inc., an
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email filtering company, prior to its acquisition by Symantec in 2004. Mr. Salem also held senior leadership roles
at Oblix Inc., Ask Jeeves Inc., Peter Norton Computing, Inc. and Security Pacific Merchant Bank. In March
2011, he was appointed to President Barack Obama’s Management Advisory Board. Mr. Salem has served on the
board of directors of Atlassian Corporation Plc since July 2013 and previously served on the board of directors of
Automatic Data Processing, Inc. from January 2010 to November 2013 and the board of directors of Symantec
Corporation from April 2009 to July 2012. Mr. Salem also currently serves on the board of directors of multiple
private companies. He received the Estrella Award from the Hispanic IT Executive Council in 2010 and was
named Entrepreneur of the Year in 2004 by Ernst & Young. Mr. Salem holds an A.B. in Computer Science from
Dartmouth College. Our board of directors believes that Mr. Salem possesses specific attributes that qualify him
to serve as a director, including his extensive leadership experience, including oversight of global operations, as
well as a strong background in information technology, data security, compliance and systems management.
Director Independence
Our common stock is listed on The NASDAQ Global Select Market. Under the rules of The NASDAQ
Stock Market, independent directors must comprise a majority of a listed company’s board of directors. In
addition, the rules of The NASDAQ Stock Market require that, subject to specified exceptions, each member of a
listed company’s audit, compensation, and nominating and corporate governance committees be independent.
Under the rules of The NASDAQ Stock Market, a director will only qualify as an “independent director” if, in
the opinion of the listed company’s board of directors, the director does not have a relationship that would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the
Exchange Act and the listing requirements of The NASDAQ Stock Market. In addition, compensation committee
members must satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act and the listing
requirements of The NASDAQ Stock Market.
Our board of directors has undertaken a review of the independence of each director and considered whether
such director has a material relationship with us that could compromise his or her ability to exercise independent
judgment in carrying out his or her responsibilities. As a result of this review, our board of directors has
determined that Ms. Alexy and Messrs. Ahuja, Codd, Coughran, Pusey and Salem are “independent directors” as
defined under the applicable rules and regulations of the SEC and the listing requirements and rules of The
NASDAQ Stock Market.
Board Leadership Structure
Our board of directors does not view any particular leadership structure as preferred and routinely considers
the appropriate leadership structure. This consideration includes the pros and cons of alternative leadership
structures in light of our operating and governance environment at the time, with the goal of achieving the
optimal model for board leadership and effective oversight of management by our board of directors.
Our board of directors consists of seven directors. Our only management director is Mr. Mandia, our Chief
Executive Officer. Enrique Salem, an independent director, holds the role of Chairman of the Board. Our board
of directors believes this structure benefits the board of directors and us by enabling our Chief Executive Officer
to focus on operational and strategic matters while enabling the Chairman of the Board to focus on board and
governance matters.
In addition, each committee of our board of directors has a designated chairperson and, other than our
government classified information and security committee, is comprised solely of independent directors.
-12-
Board Meetings and Committees
During 2016, our board of directors held 14 meetings (including regularly scheduled and special meetings),
and each director attended at least 75% of the aggregate of (i) the total number of meetings of our board of
directors held during the period for which he or she served as a director and (ii) the total number of meetings held
by all committees of our board of directors on which he or she served during the periods that he or she served.
It is the policy of our board of directors to regularly have separate meeting times for independent directors
without management.
Although we do not have a formal policy regarding attendance by members of our board of directors at
annual meetings of stockholders, we encourage, but do not require, our directors to attend. Six of the nine
directors who served on the date of our 2016 annual meeting of stockholders attended the meeting.
Our board of directors has four standing committees: an audit committee, a compensation committee, a
nominating and corporate governance committee and a government classified information and security
committee. The composition and responsibilities of each of the committees of our board of directors are
described below. Members will serve on these committees until their resignation or until otherwise determined
by our board of directors.
Audit Committee
Our audit committee is comprised of Deepak Ahuja, Kimberly Alexy and Ronald E. F. Codd, each of whom
is a non-employee member of our board of directors. Ms. Alexy is the chair of our audit committee. Our board of
directors has determined that each of the members of our audit committee satisfies the requirements for
independence and financial literacy under the rules and regulations of the SEC, including Rule 10A-3 under the
Exchange Act, and the listing requirements of The NASDAQ Stock Market. Our board of directors has also
determined that each of Ms. Alexy and Messrs. Ahuja and Codd qualify as an “audit committee financial expert”
as defined in the SEC rules and satisfy the financial sophistication requirements of The NASDAQ Stock Market.
This designation does not impose on Ms. Alexy and Messrs. Ahuja and Codd any duties, obligations or liabilities
that are greater than those generally imposed on members of our audit committee and our board of directors. Our
audit committee is responsible for, among other things:
•
•
•
•
•
•
•
•
selecting and hiring our independent registered public accounting firm;
evaluating the performance and independence of our independent registered public accounting firm;
pre-approving any audit and non-audit services to be performed by our independent registered public
accounting firm;
reviewing the adequacy and effectiveness of our internal control policies and procedures and our
disclosure controls and procedures;
overseeing procedures for the treatment of complaints on accounting, internal accounting controls or
audit matters;
reviewing and discussing with management and the independent registered public accounting firm the
results of our annual audit, our quarterly financial statements and our publicly filed reports;
reviewing and approving related person transactions; and
preparing the audit committee report that the SEC requires in our annual proxy statements.
Our audit committee operates under a written charter that satisfies the applicable rules and regulations of the
SEC and the listing requirements of The NASDAQ Stock Market. A copy of the charter of our audit committee is
available on our website at www.FireEye.com in the Corporate Governance section of our Investor Relations
webpage. During 2016, our audit committee held 12 meetings.
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Compensation Committee
Our compensation committee is comprised of William M. Coughran Jr., Stephen Pusey and Enrique Salem,
each of whom is a non-employee member of our board of directors. Mr. Salem is the chair of our compensation
committee. Our board of directors has determined that each member of our compensation committee meets the
requirements for independence under the rules and regulations of the SEC, including Rule 10C-1 under the
Exchange Act, and the listing requirements of The NASDAQ Stock Market, is a “non-employee director” within
the meaning of Rule 16b-3 under the Exchange Act and is an “outside director” within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, or the Code. Our compensation committee is responsible
for, among other things:
•
•
•
reviewing and approving our Chief Executive Officer’s and other executive officers’ annual base
salaries; incentive compensation plans, including the specific goals and amounts; equity compensation,
employment agreements, severance arrangements and change in control agreements; and any other
benefits, compensation or arrangements; provided that any approvals relating to the Chief Executive
Officer’s compensation will be subject to the ratification of our entire board of directors, with any non-
independent directors not voting;
administering our equity compensation plans; and
overseeing our overall compensation philosophy, compensation plans and benefits programs.
Our compensation committee may form subcommittees and may delegate to such subcommittees such
power and authority as our compensation committee deems appropriate. Our compensation committee operates
under a written charter that satisfies the applicable rules and regulations of the SEC and the listing requirements
of The NASDAQ Stock Market. A copy of the charter of our compensation committee is available on our
website at www.FireEye.com in the Corporate Governance section of our Investor Relations webpage. During
2016, our compensation committee held six meetings.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee is comprised of Ronald E. F. Codd and William M.
Coughran Jr., each of whom is a non-employee member of our board of directors. Mr. Coughran is the chair of
our nominating and corporate governance committee. Our board of directors has determined that each member of
our nominating and corporate governance committee meets the requirements for independence under the listing
requirements of The NASDAQ Stock Market. Our nominating and corporate governance committee is
responsible for, among other things:
•
•
•
•
evaluating and making recommendations regarding the composition, organization, and governance of
our board of directors and its committees;
evaluating and making recommendations regarding the creation of additional committees or the change
in mandate or dissolution of committees;
reviewing and making recommendations with regard to our corporate governance guidelines and
compliance with laws and regulations; and
reviewing and approving conflicts of interest of our directors and corporate officers, other than related
person transactions reviewed by the audit committee.
Our nominating and corporate governance committee operates under a written charter that satisfies the
listing standards of The NASDAQ Stock Market. A copy of the charter of our nominating and corporate
governance committee is available on our website at www.FireEye.com in the Corporate Governance section of
our Investor Relations webpage. During 2016, our nominating and corporate governance committee held three
meetings.
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Government Classified Information and Security Committee
Our government classified information and security committee is comprised of Kevin Mandia and Enrique
Salem. Mr. Mandia is the chair of our government classified information and security committee. Our
government classified information and security committee is responsible for, among other things:
•
•
reviewing and making recommendations to our board of directors on matters concerning the Company
that involve or relate to (i) information or activities that have been classified for purposes of national
security by an agency or instrumentality of the government and (ii) the security of the Company’s
personnel, data and facilities; and
assisting our board of directors in fulfilling its oversight responsibilities relating to such matters.
Our government classified information and security committee operates under a written charter. During
2016, our government classified information and security committee did not hold any meetings.
Compensation Committee Interlocks and Insider Participation
During 2016, William M. Coughran Jr., Stephen Pusey and Enrique Salem served as members of our
compensation committee. None of the members of our compensation committee is or has been an officer or
employee of our company. None of our executive officers currently serves, or in the past year has served, as a
member of the board of directors or compensation committee, or other board committee performing equivalent
functions, of any entity that has one or more executive officers serving on our compensation committee or our
board of directors. We have had a compensation committee since November 2012. Prior to establishing the
compensation committee, our full board of directors made decisions relating to the compensation of our
executive officers.
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Considerations in Evaluating Director Nominees
Our nominating and corporate governance committee uses a variety of methods for identifying and
evaluating director nominees. In its evaluation of director candidates, our nominating and corporate governance
committee will consider the composition of our board of directors, including, without limitation, issues of
character, integrity, judgment, diversity, age, independence, expertise, length of service, understanding of our
business and other commitments. Members of our board of directors are expected to prepare for, attend, and
participate in all board of director and applicable committee meetings. Our nominating and corporate governance
committee requires the following minimum qualifications to be satisfied by any nominee for a position on the
board of directors: (i) the highest personal and professional ethics and integrity, (ii) proven achievement and
competence in the nominee’s field and the ability to exercise sound business judgment, (iii) skills that are
complementary to those of the existing board of directors, (iv) the ability to assist and support management and
make significant contributions to our success, and (v) an understanding of the fiduciary responsibilities that are
required of a member of the board of directors and the commitment of time and energy necessary to diligently
carry out those responsibilities. Other than the foregoing, there are no other stated minimum criteria for director
nominees, although our nominating and corporate governance committee may also consider such other factors as
it may deem, from time to time, are in our and our stockholders’ best interests.
Although our board of directors does not maintain a specific policy with respect to board diversity, our
board of directors believes that our board of directors should be a diverse body, and our nominating and
corporate governance committee considers a broad range of backgrounds and experiences.
In making
determinations regarding nominations of directors, our nominating and corporate governance committee may
take into account the benefits of diverse viewpoints. Our nominating and corporate governance committee also
considers these and other factors as it oversees the annual board of director and committee evaluations. After
completing its review and evaluation of director candidates, our nominating and corporate governance committee
recommends to our full board of directors the director nominees for selection.
-15-
Stockholder Recommendations for Nominations to the Board of Directors
Our nominating and corporate governance committee will consider candidates for directors recommended
by stockholders holding at least one percent (1%) of the fully diluted capitalization of the company continuously
for at least 12 months prior to the date of the submission of the recommendation. Our nominating and corporate
governance committee will evaluate such recommendations in accordance with its charter, our bylaws, our
policies and procedures for director candidates, as well as the regular director nominee criteria described above.
This process is designed to ensure that our board of directors includes members with diversity of experience,
skills and experience, including appropriate financial and other expertise relevant to our business. Stockholders
wishing to recommend a candidate for nomination should contact our Secretary in writing. Such
recommendations must
information, detailed
include the candidate’s name, home and business contact
biographical data, relevant qualifications, a signed letter from the candidate confirming willingness to serve on
our board of directors, information regarding any relationships between the candidate and FireEye and evidence
of the recommending stockholder’s ownership of our common stock. Such recommendations must also include a
statement from the recommending stockholder in support of the candidate, particularly within the context of the
criteria for board of directors membership. Our nominating and corporate governance committee has discretion
to decide which individuals to recommend for nomination as directors.
A stockholder can nominate a candidate directly for election to our board of directors by complying with the
procedures in Section 2.4(ii) of our bylaws and the rules and regulations of the SEC. Any eligible stockholder
who wishes to submit a nomination should review the requirements in the bylaws on nominations by
stockholders. Any nomination should be sent in writing to our Secretary at FireEye, Inc., 1440 McCarthy Blvd.,
Milpitas, California 95035. To be timely for our 2018 annual meeting of stockholders, our Secretary must receive
the nomination no earlier than February 1, 2018 and no later than March 3, 2018. The notice must state the
information required by Section 2.4(ii) of our bylaws and otherwise must comply with applicable federal and
state law.
Communications with the Board of Directors
Stockholders wishing to communicate with our board of directors or with an individual member of our
board of directors may do so by writing to our board of directors or to the particular member of our board of
directors, and mailing the correspondence to our General Counsel at FireEye, Inc., 1440 McCarthy Blvd.,
Milpitas, CA 95035. Our General Counsel will review all incoming stockholder communications (excluding
mass mailings, product complaints or inquiries, job inquiries, business solicitations and patently offensive or
otherwise inappropriate material), and if deemed appropriate, the stockholder communications will be forwarded
to the appropriate member or members of our board of directors, or if none is specified, to the chairman of our
board of directors. This procedure does not apply to stockholder proposals submitted pursuant to Rule 14a-8
under the Exchange Act.
Corporate Governance Guidelines and Code of Business Conduct and Ethics
Our board of directors has adopted Corporate Governance Guidelines. These guidelines address items such
as the qualifications and responsibilities of our directors and director candidates and corporate governance
policies and standards applicable to us in general. In addition, our board of directors has adopted a Code of
Business Conduct and Ethics that applies to all of our employees, officers and directors, including our Chief
Executive Officer, Chief Financial Officer, and other executive and senior financial officers. The full text of our
Corporate Governance Guidelines and our Code of Business Conduct and Ethics is posted on our website at
www.FireEye.com in the Corporate Governance section of our Investor Relations webpage. We intend to post
any amendments to our Code of Business Conduct and Ethics, and any waivers of our Code of Business Conduct
and Ethics for directors and executive officers, on the same website.
-16-
Risk Management
Risk is inherent with every business, and we face a number of risks, including strategic, financial, business
and operational, legal and compliance, and reputational. We have designed and implemented processes to
manage risk in our operations. Management is responsible for the day-to-day management of risks the company
faces, while our board of directors, as a whole and assisted by its committees, has responsibility for the oversight
of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the
risk management processes designed and implemented by management are appropriate and functioning as
designed.
Our board of directors believes that open communication between management and our board of directors is
essential for effective risk management and oversight. Our board of directors meets with our Chief Executive
Officer and other members of the senior management team at quarterly meetings of our board of directors,
where, among other topics, they discuss strategy and risks facing the company, as well as at such other times as
they deemed appropriate.
While our board of directors is ultimately responsible for risk oversight, our board committees assist our
board of directors in fulfilling its oversight responsibilities in certain areas of risk. Our audit committee assists
our board of directors in fulfilling its oversight responsibilities with respect to risk management in the areas of
internal control over financial reporting and disclosure controls and procedures, legal and regulatory compliance,
and discusses with management and the independent auditor guidelines and policies with respect to risk
assessment and risk management. Our audit committee also reviews our major financial risk exposures and the
steps management has taken to monitor and control these exposures. In addition, our audit committee monitors
certain key risks on a regular basis throughout the fiscal year, such as risk associated with internal control over
financial reporting and liquidity risk. Our nominating and corporate governance committee assists our board of
directors in fulfilling its oversight responsibilities with respect to the management of risk associated with board
organization, membership and structure, and corporate governance. Our compensation committee assesses risks
created by the incentives inherent in our compensation policies. Finally, our full board of directors reviews
strategic and operational risk, including but not limited to cybersecurity risk, in the context of reports from the
management team, receives reports on all significant committee activities at each regular meeting, and evaluates
the risks inherent in significant transactions.
Outside Director Compensation Policy
Members of our board of directors who are not our employees are eligible for awards under our Outside
Director Compensation Policy, which our board of directors approved in August 2014 and amended in June 2016
and March 2017.
Under our Outside Director Compensation Policy, non-employee directors will receive compensation in the
form of equity, or a mixture of equity and cash awards, as described below:
Initial Award
Upon joining our board of directors, each new non-employee director elected or appointed will
automatically receive an equity award of restricted stock units with a total value of $400,000. This award will
vest as to 1/3 of the shares subject to the restricted stock units annually over a three-year period, subject to
continued service through the applicable vesting date.
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Annual Awards
On the date of each annual meeting of our stockholders, each non-employee director who has been a non-
employee director for at least six months will be entitled to receive an annual fee with a total value based on
board and other service as set forth in the following table, provided that no award will be granted to any non-
employee director who is not continuing as a director following the applicable annual meeting of stockholders:
Annual Fee
Board Member: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairperson of the Board (if applicable): . . . . . . . . . . . . . .
. . . . . . . . . . . .
Lead Independent Director (if applicable):
$200,000
$45,000
$20,000
Committee Service:
Chair
Member
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation:
Nominating and Corporate Governance:
. . . . . . . . . .
Government Classified Information and Security: . . .
$20,000
$10,000
$6,250
$6,250
$7,000
$5,000
$2,500
$2,500
Unless an eligible non-employee director elects to receive all of his or her annual fee in the form of an
equity award of restricted stock units, 50% of an eligible non-employee director’s annual fee will be awarded in
the form of an equity award of restricted stock units and the other 50% of such non-employee director’s annual
fee will be awarded in the form of cash. All of a non-employee director’s equity award of restricted stock units
will be granted to him or her on the date of the annual meeting of our stockholders and will fully vest upon the
earlier of the first anniversary of the grant date or the day prior to the next annual meeting of stockholders, in
each case, subject to his or her continued service through the vesting date. All of a non-employee director’s cash,
if any, will be paid to him or her in four equal installments on a quarterly basis, with one installment paid on the
15th day of each of the first four calendar quarters following the date of such annual meeting, in each case subject
to his or her continued service through the applicable payment date.
For purposes of our Outside Director Compensation Policy, equity awards are valued at the fair market
value of the shares subject to the award on the grant date of the award or such other methodology determined by
our board of directors or our compensation committee.
Director Compensation Table
The table below shows all compensation awarded to or paid in 2016 to the directors who served during 2016
(other than each director who was one of our named executive officers for 2016).
Name
Deepak Ahuja(3) . . . . . . . . . . . . . . . . . . . . .
Kimberly Alexy(4) . . . . . . . . . . . . . . . . . . .
Ronald E. F. Codd(5) . . . . . . . . . . . . . . . . .
William M. Coughran Jr.(6) . . . . . . . . . . . .
Stephen Pusey(7)
. . . . . . . . . . . . . . . . . . . .
Enrique Salem(8) . . . . . . . . . . . . . . . . . . . .
Ashar Aziz(9) . . . . . . . . . . . . . . . . . . . . . . .
Fees earned or paid in
cash ($)(1)
Stock Awards
($)(2)
51,750
—
52,375
—
51,250
—
—
103,489
219,986
104,739
211,237
102,486
232,499
—
Total ($)
155,239
219,986
157,114
211,237
153,736
232,499
—
(1) The amounts reported in this column represent the aggregate amount of quarterly cash awards paid in July
2016 and October 2016 in accordance with the Outside Director Compensation Policy, and does not include
the quarterly cash awards paid in January 2017 and April 2017 in accordance with the Outside Director
Compensation Policy.
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(2) On June 14, 2016, we granted awards of restricted stock units to our non-employee directors for service on
our board of directors in accordance with the Outside Director Compensation Policy. Each award will fully
vest upon the earlier of the first anniversary of the grant date or the day prior to our next annual meeting of
stockholders that follows the grant date, in each case, subject to continued service through the vesting date.
Ms. Alexy and Messrs. Coughran and Salem elected to receive all of their 2016 annual fees in the form of
equity awards of restricted stock units. The amounts reported in this column represent the aggregate grant
date fair value of the awards as computed in accordance with Financial Accounting Standard Board
Accounting Standards Codification Topic 718. The assumptions used in calculating the grant date fair value
of the awards reported in this column are set forth in the notes to our audited consolidated financial
statements included in our Annual Report on Form 10-K, as filed with the SEC on February 24, 2017.
(3) As of December 31, 2016, Mr. Ahuja held 13,941 shares of common stock issuable upon the vesting of
restricted stock units.
(4) As of December 31, 2016, Ms. Alexy held 23,211 shares of common stock issuable upon the vesting of
restricted stock units.
(5) As of December 31, 2016, Mr. Codd held (i) an option to purchase 118,000 shares of common stock at an
exercise price of $2.48 per share, all of which shares had vested as of December 31, 2016, and (ii) 6,788
shares of common stock issuable upon the vesting of restricted stock units.
(6) As of December 31, 2016, Mr. Coughran held 13,690 shares of common stock issuable upon the vesting of
restricted stock units.
(7) As of December 31, 2016, Mr. Pusey held 11,662 shares of common stock issuable upon the vesting of
restricted stock units.
(8) As of December 31, 2016, Mr. Salem held 15,068 shares of common stock issuable upon the vesting of
restricted stock units.
(9) Mr. Aziz resigned as a director on August 31, 2016, did not qualify to receive any compensation pursuant to
the Outside Director Compensation Policy in 2016, and was not awarded any compensation in 2016 for his
service on our board of directors.
See “Executive Compensation” for information about the compensation of each director who was also one
of our named executive officers for 2016.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our board of directors is currently composed of seven members. In accordance with our certificate of
incorporation, our board of directors is divided into three classes with staggered three-year terms. At the Annual
Meeting, stockholders are being asked to elect two Class I directors for a three-year term to succeed the same
class whose term is then expiring. Each director’s term continues until the election and qualification of such
director’s successor, or such director’s earlier death, resignation, or removal. This classification of our board of
directors may have the effect of delaying or preventing changes in control of our company.
Nominees
Our nominating and corporate governance committee has recommended, and our board of directors has
approved, Kimberly Alexy and Stephen Pusey as nominees for election as Class I directors at the Annual
Meeting. If elected, each of Ms. Alexy and Mr. Pusey will serve as Class I directors until the 2020 annual
meeting of stockholders or until their successors are duly elected and qualified. Each of the nominees is currently
a director of our company. For information concerning the nominees, please see the section titled “Board of
Directors and Corporate Governance.”
If you are a stockholder of record and you sign your proxy card or vote over the Internet or by telephone but
do not give instructions with respect to the voting of directors, your shares will be voted FOR the re-election of
Ms. Alexy and Mr. Pusey. We expect that Ms. Alexy and Mr. Pusey will accept such nomination; however, in the
event that a director nominee is unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by our board of directors to fill such vacancy. If
you are a beneficial owner of shares of our common stock and you do not give voting instructions to your broker,
bank or other nominee, then your broker, bank or other nominee will leave your shares unvoted on this matter.
Vote Required
Our bylaws and Corporate Governance Guidelines provide for a majority voting standard in uncontested
elections of directors. An uncontested election is one in which the number of nominees for director does not
exceed the number of directors to be elected. The director election taking place at this meeting is uncontested,
and therefore, the majority voting standard will apply. That means, in order for a nominee to be elected, the votes
cast “FOR” such nominee’s election must exceed the votes cast “AGAINST” such nominee’s election.
Abstentions and broker non-votes with respect to the election of any nominee will have no effect on such
nominee’s election. Under our Corporate Governance Guidelines, each director is required to submit in advance
an irrevocable, conditional resignation that will be effective only upon both (1) the failure to receive the required
vote at the next stockholders’ meeting at which the director faces reelection and (2) our board of directors’
acceptance of such resignation. If an incumbent director fails to receive the required vote for reelection, our
nominating and corporate governance committee will act
the director’s
resignation and will submit its recommendation to our board of directors for consideration.
to determine whether to accept
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE “FOR” THE TWO NOMINEES NAMED ABOVE.
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PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our audit committee has appointed Deloitte & Touche LLP, or Deloitte, as our independent registered
public accounting firm to audit our consolidated financial statements for our fiscal year ending December 31,
2017. Deloitte also served as our independent registered public accounting firm for our fiscal year ended
December 31, 2016.
At
the Annual Meeting, stockholders are being asked to ratify the appointment of Deloitte as our
independent registered public accounting firm for our fiscal year ending December 31, 2017. Stockholder
ratification of the appointment of Deloitte is not required by our bylaws or other applicable legal requirements.
However, our board of directors is submitting the appointment of Deloitte to our stockholders for ratification as a
matter of good corporate governance. In the event that this appointment is not ratified by the affirmative vote of a
majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote, such appointment
will be reconsidered by our audit committee. Even if the appointment is ratified, our audit committee, in its sole
discretion, may appoint another independent registered public accounting firm at any time during our fiscal year
ending December 31, 2017 if our audit committee believes that such a change would be in the best interests of
FireEye and its stockholders. A representative of Deloitte is expected to be present at the Annual Meeting, will
have an opportunity to make a statement if he or she wishes to do so, and is expected to be available to respond
to appropriate questions from stockholders.
Fees Paid to the Independent Registered Public Accounting Firm
The following table presents fees for professional audit services and other services rendered to us by
Deloitte for our fiscal years ended December 31, 2016 and 2015.
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Audit Fees (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees (2)
. . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,214,861
—
—
—
$3,208,969
79,000
—
—
2016
2015
$3,214,861
$3,287,969
(1) “Audit Fees” consist of fees for professional services rendered in connection with the audit of our annual
financial statements, review of our quarterly financial statements, and services that are normally provided by
Deloitte in connection with statutory and regulatory filings or engagements for those fiscal years. Fees for
2016 also included fees billed for professional services rendered in connection with our acquisitions in
2016. Fees for 2015 also included fees for professional services rendered in connection with our offering
memorandum related to our convertible notes offering completed in June 2015.
(2) “Audit-Related Fees” consist of fees for professional services for assurance and related services that are
reasonably related to the performance of the audit or review of our consolidated financial statements and are
not reported under “Audit Fees.” Fees for 2015 included fees for professional services rendered in
connection with the issuance of a comfort letter in connection with our offering memorandum related to our
convertible notes offering completed in June 2015.
(3) “Tax Fees” consist of fees for professional services rendered by Deloitte for tax compliance, tax advice and
tax planning.
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Auditor Independence
In 2016, there were no other professional services provided by Deloitte that would have required our audit
committee to consider their compatibility with maintaining the independence of Deloitte.
Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Registered Public Accounting Firm
Our audit committee has established a policy governing our use of the services of our independent registered
public accounting firm. Under the policy, our audit committee is required to pre-approve all audit and
permissible non-audit services performed by our independent registered public accounting firm in order to ensure
that the provision of such services does not impair such accounting firm’s independence. All fees paid to Deloitte
for our fiscal years ended December 31, 2015 and 2016 were pre-approved by our audit committee.
Vote Required
The ratification of the appointment of Deloitte requires the affirmative vote of a majority of the shares of
our common stock present in person or by proxy at the Annual Meeting and entitled to vote thereon. Abstentions
will have the effect of a vote AGAINST the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR OUR FISCAL YEAR
ENDING DECEMBER 31, 2017.
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PROPOSAL NO. 3
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
In accordance with Section 14A of the Exchange Act and the SEC rules, we are providing our stockholders
with the opportunity to vote to approve, on an advisory (and non-binding) basis, the compensation of our named
executive officers as disclosed in accordance with the SEC’s rules in the “Executive Compensation” section of
this proxy statement beginning on page 27 below. This proposal, commonly known as a “say-on-pay” proposal,
gives our stockholders the opportunity to express their views on our named executive officers’ compensation as a
whole. This vote is not intended to address any specific item of compensation or any specific named executive
officer, but rather the overall compensation of all of our named executive officers and the philosophy, policies
and practices described in this proxy statement.
The say-on-pay vote is advisory, and therefore not binding on FireEye, the compensation committee or our
board of directors. The say-on-pay vote will, however, provide information to us regarding investor sentiment
about our executive compensation philosophy, policies and practices, which the compensation committee will be
able to consider when determining executive compensation for the remainder of the current fiscal year and
beyond. Our board of directors and the compensation committee value the opinions of our stockholders and to
the extent there is any significant vote against the named executive officer compensation as disclosed in this
proxy statement, we will consider our stockholders’ concerns and the compensation committee will evaluate
whether any actions are necessary to address those concerns.
We believe that the information we’ve provided in the “Executive Compensation” section of this proxy
statement, and in particular the information discussed in “Executive Compensation—Compensation Discussion
and Analysis—Compensation Philosophy and Objectives” beginning on page 30 below, demonstrates that our
executive compensation program was designed appropriately and is working to ensure management’s interests
are aligned with our stockholders’ interests to support long-term value creation. Accordingly, we ask our
stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that FireEye’s stockholders approve, on an advisory basis, the compensation paid to the
named executive officers, as disclosed in FireEye’s proxy statement for the 2017 Annual Meeting pursuant to the
compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation
tables and narrative discussion, and other related disclosure.”
Vote Required
The approval, on an advisory basis, of named executive officer compensation requires an affirmative vote of
a majority of the shares of our common stock present in person or by proxy at the Annual Meeting and entitled to
vote thereon to be approved. Accordingly, abstentions will have the effect of a vote AGAINST the proposal.
Broker non-votes will have no effect on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL, ON AN
ADVISORY BASIS, OF THE COMPENSATION PAID TO OUR NAMED EXECUTIVE
OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
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AUDIT COMMITTEE REPORT
The information contained in the following Audit Committee Report shall not be deemed to be soliciting
material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, except to the extent that FireEye, Inc., or the Company, specifically incorporates it by
reference in such filing.
The audit committee has reviewed and discussed the Company’s audited consolidated financial statements
with management and Deloitte & Touche LLP, or Deloitte, the Company’s independent registered public
accounting firm. The audit committee has discussed with Deloitte the matters required to be discussed by
Auditing Standard No. 1301, Communications with Audit Committees, issued by the Public Company Accounting
Oversight Board.
The audit committee has received and reviewed the written disclosures and the letter from Deloitte required
by the applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte’s
communications with the audit committee concerning independence, and has discussed with Deloitte its
independence.
Based on the review and discussions referred to above, the audit committee recommended to the board of
directors that the Company’s audited consolidated financial statements be included in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2016 for filing with the Securities and Exchange
Commission.
Respectfully submitted by the members of the audit committee of the board of directors:
Kimberly Alexy (Chair)
Deepak Ahuja
Ronald E. F. Codd
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EXECUTIVE OFFICERS
The following table identifies certain information about our executive officers as of April 3, 2017. Each
executive officer serves at the discretion of our board of directors and holds office until his or her successor is
duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships
among any of our directors or executive officers.
Name
Age
Position(s)
Alexa King . . . . . . . . . . . . . . . . . . . .
Kevin R. Mandia . . . . . . . . . . . . . . . .
Travis M. Reese . . . . . . . . . . . . . . . .
William T. Robbins . . . . . . . . . . . . . .
Frank E. Verdecanna . . . . . . . . . . . . .
49 Executive Vice President, General Counsel and Secretary
46 Chief Executive Officer and Director
45
49 Executive Vice President of Worldwide Sales
46 Executive Vice President, Chief Financial Officer and Chief
President
Accounting Officer
Alexa King has served as our General Counsel and Secretary since April 2012 and as our Executive Vice
President since May 2016. She previously served as our Senior Vice President from April 2012 to May 2016.
Prior to joining FireEye, Ms. King was Vice President, General Counsel and Secretary of Aruba Networks, Inc.
from December 2005 to April 2012. From 2000 to 2005, Ms. King served as Senior Director of Legal at Siebel
Systems, Inc. and her early career included working at Pillsbury Madison & Sutro (now Pillsbury Winthrop) and
Fenwick & West. Ms. King has served on the board of directors of Vocera Communications, Inc. since July
2016. Additionally, Ms. King served as founding director of Pathbrite, Inc. (f/k/a RippleSend, Inc.) from 2008 to
2009 and as advisor from 2009 to 2011. Ms. King graduated magna cum laude from Harvard College with a
degree in Eastern European Studies and received her J.D. from the University of California, Berkeley, Boalt Hall
School of Law, where she was named to the Order of the Coif.
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Kevin R. Mandia has served as our Chief Executive Officer since June 2016 and as a member of our board
of directors since February 2016. He previously served as our President from February 2015 to June 2016 and as
our Senior Vice President and Chief Operating Officer from the date of our acquisition of Mandiant Corporation,
or Mandiant, in December 2013 through February 2015. Prior to joining FireEye, Mr. Mandia was the Chief
Executive Officer of Mandiant and had served in that capacity since he founded Mandiant in 2004. Prior to
forming Mandiant, Mr. Mandia served as the Director of Computer Forensics at Foundstone (later acquired by
McAfee Corporation) from 2000 to 2003 and as the Director of Information Security for Sytex (later acquired by
Lockheed Martin) from 1998 to 2000. From 1993 to 2000, Mr. Mandia was an officer in the United States Air
Force, where he served in various capacities, including as a computer security officer in the 7th Communications
Group at the Pentagon, and later as a special agent in the Air Force Office of Special Investigations (AFOSI).
Mr. Mandia holds a B.S. in Computer Science from Lafayette College and an M.S. in Forensic Science from The
George Washington University. In 2011, Mr. Mandia was named Ernst & Young Entrepreneur of the Year for
the Greater Washington area. He completed the Harvard Business School’s Owner/President Management
Program in February 2013. Mr. Mandia has taught graduate level courses at Carnegie Melon University and The
George Washington University and has co-authored two books on responding to security breaches: Incident
Response: Performing Computer Forensics (McGraw-Hill, 2003) and Incident Response: Investigating Computer
Crime (McGraw-Hill, 2001).
Travis M. Reese has served as our President since June 2016. He previously served as our President of
Mandiant Consulting and iSIGHT Intelligence from January 2016 to June 2016 and as our President of Mandiant
Consulting from December 2013 to January 2016. Prior to joining FireEye, Mr. Reese had been with Mandiant
from April 2006 to December 2013, where he started as the Vice President of Federal and culminated as the
President and Chief Operating Officer. From May 2000 to April 2006, Mr. Reese was a Vice President at Aegis
Research Corporation which later became a business unit of ManTech International through an acquisition in
August 2002. Prior to Aegis Research Corporation, Mr. Reese spent ten years in the United States Air Force from
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1990 to 2000, as a Special Agent with the United States Air Force Office of Special Investigations (AFOSI).
Mr. Reese completed the Harvard Business School’s Finance for Senior Executives program in 2010. Mr. Reese
holds a B.S. in Criminal Justice from Wayland Baptist University.
William T. Robbins has served as our Executive Vice President of Worldwide Sales since November 2016.
Prior to joining FireEye, Mr. Robbins was Executive Vice President of Worldwide Sales of Nuance
Communications, Inc. from December 2013 to November 2016. From January 2013 to December 2013,
Mr. Robbins served as Chief Operating Officer of [24]7. From May 2005 to December 2012, Mr. Robbins held
various positions at Symantec Corporation, most recently as Executive Vice President, Worldwide Sales &
Services. Mr. Robbins holds both a B.S. in Economics and a B.B.A. in Finance from Southern Methodist
University.
Frank E. Verdecanna has served as our Executive Vice President and Chief Financial Officer since
February 2017 and as our Chief Accounting Officer since August 2016. He previously served as our Senior Vice
President of Finance from November 2015 to February 2017, as our interim Chief Financial Officer from August
2015 to September 2015 and as our Vice President of Finance from November 2012 to November 2015. Prior to
joining FireEye, Mr. Verdecanna was the Chief Financial Officer of Apptera, Inc., a mobile communications and
advertising company, from February 2010 to November 2012. From October 2000 to July 2009, Mr. Verdecanna
held various finance positions, most recently as Vice President and Chief Financial Officer, at iPass Inc., a
publicly traded global provider of mobility software and services. Mr. Verdecanna holds a B.S. in Business
Administration from California Polytechnic State University-San Luis Obispo.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides information regarding the 2016 compensation of each
individual who served as our principal executive officer in 2016, our principal financial officer in 2016, and the
three executive officers (other than each individual who served as our principal executive officer in 2016 and our
principal financial officer in 2016) who were our most highly-compensated executive officers as of the end of
2016. These individuals were:
•
David G. DeWalt, our Executive Chairman of the Board, who previously served as our Chief Executive
Officer from November 2012 through June 14, 2016 (our “Prior CEO”);
• Michael J. Berry, our Executive Vice President, Chief Financial Officer and Chief Operating Officer;
•
•
•
Alexa King, our Executive Vice President, General Counsel and Secretary;
Kevin R. Mandia, our Chief Executive Officer (our “Current CEO”);
Travis M. Reese, our President; and
• William T. Robbins, our Executive Vice President of Worldwide Sales.
These individuals (with the applicable titles described above as of the end of 2016) were our named
executive officers (the “Named Executive Officers”) for 2016.
Management Changes
Mr. DeWalt served as our Chief Executive Officer from January 1, 2016 to June 14, 2016, and transitioned
to the role of Executive Chairman of the Board on June 15, 2016. Mr. Berry was promoted to Executive Vice
President on May 5, 2016 and assumed the additional role of Chief Operating Officer effective June 15, 2016.
Ms. King was promoted to Executive Vice President on May 5, 2016. Mr. Mandia served as our President from
January 1, 2016 to June 14, 2016, and was appointed as our Chief Executive Officer effective June 15, 2016.
Mr. Reese served as our President of Mandiant Consulting from January 1, 2016 to January 13, 2016 and as our
President of Mandiant Consulting and iSIGHT Intelligence from January 14, 2016 to June 14, 2016 and was
appointed as our President effective June 15, 2016. Mr. Robbins joined us as our Executive Vice President of
Worldwide Sales on November 18, 2016. The employment of Messrs. DeWalt and Berry terminated after year
end.
Overview
This Compensation Discussion and Analysis describes the material elements of our executive compensation
program during the fiscal year ended December 31, 2016. It also provides an overview of our executive
compensation philosophy, as well as our principal compensation policies and practices. Finally, it analyzes how
and why the Compensation Committee of our Board of Directors (the “Compensation Committee”) arrived at the
specific compensation decisions for our executive officers, including the Named Executive Officers, in 2016, and
discusses the key factors that the Compensation Committee considered in determining the compensation of our
Named Executive Officers.
Executive Summary
We provide comprehensive intelligence-based cybersecurity solutions that allow organizations to prepare
for, prevent, respond to and remediate cyber attacks. Our portfolio of cybersecurity products and services is
designed to detect and prevent attacks as well as enable rapid discovery and response when a breach occurs.
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2016-Related Executive Compensation Actions
In line with our performance and compensation objectives, the Compensation Committee approved (or, in
some cases, recommended that our Board of Directors approve or ratify, with any non-independent directors not
voting), the following actions related to the 2016 compensation for the Named Executive Officers:
•
•
•
•
•
•
•
Base Salary. Increased the annual base salaries of certain of the Named Executive Officers to reflect
competitive market conditions in amounts ranging from 5% to 17%, with our Prior CEO’s annual base
salary for 2016 remaining unchanged from his 2015 level and our Current CEO’s annual base salary
for 2016 increased 8% from his 2015 level;
Target Cash Incentive Compensation Opportunities. Increased the target annual cash incentive
compensation opportunities of certain of the Named Executive Officers to reflect competitive market
conditions in amounts ranging from approximately 5% to 17%, with our Prior CEO’s target annual
cash incentive compensation opportunity for 2016 remaining unchanged from his 2015 level and our
Current CEO’s target annual cash incentive compensation opportunity for 2016 increased 8% from his
2015 level;
Short-Term Incentive Compensation. Based upon the levels of achievement of
the corporate
performance objectives and individual performance objectives established under our Employee
Incentive Plan for the 2016 annual cash incentive compensation opportunities of the Named Executive
Officers, approved cash payouts ranging from $25,772 to 251,125, with a cash payout for our Current
CEO in the amount of $214,375 (representing 61% of his 2016 target annual cash incentive
compensation opportunity) and a cash payout for our Prior CEO in the amount of $214,375
(representing 61% of his target annual cash incentive compensation opportunity) in recognition of his
performance during 2016 preceding his resignation in January 2017;
Discretionary Cash Bonuses. Awarded discretionary cash bonuses ranging from $5,784 to $48,125 to
certain of our Named Executive Officers (including a discretionary cash bonus payout for our Current
CEO in the amount of $48,125) in recognition of their efforts in managing our business through a shift
in strategic focus in mid-2016 toward non-GAAP profitability, primarily by reducing our cost structure,
which may have negatively impacted our ability to achieve the 2016 corporate performance objectives
under our Employee Incentive Plan;
Long-Term Incentive Compensation. Continued the practice of providing long-term incentive
compensation in the form of restricted stock unit (“RSU”) awards and performance-based restricted
stock unit (“PSU”) awards for shares of our common stock;
Equity Awards. Granted a combination of RSU and PSU awards to each of the Named Executive
Officers, subject to a time-based vesting requirement in the case of the RSU awards and both a
performance condition and a time-based vesting requirement in the case of the PSU awards, with the
aggregate grant date fair value of the equity awards granted to each of the Named Executive Officers
ranging from $2,001,000 to $7,175,000, with an aggregate grant date fair value of our Prior CEO’s
awards in the amount of $6,010,000 (which were all subsequently cancelled effective June 2016), and
an aggregate grant date fair value of our Current CEO’s awards in the amount of $7,175,000; and
Payout of PSU Awards. Based upon the level of achievement of the performance condition for the 2016
PSU awards, determined that none of the target number of shares of our common stock subject to the
PSU awards for 2016 performance had been earned for the PSU awards. This determination of zero
achievement was a result of strict application of actual performance against the pre-established
performance conditions. However, our Board of Directors exercised its discretion and approved a
payout of 20% of the target number of shares of our common stock subject to the PSU awards,
conditioned on the continued service of the Named Executive Officers through the applicable vesting
dates for the PSU awards, with the last such vesting date being in February 2020, in recognition of our
positive performance during the second half of 2016 as we shifted our focus toward non-GAAP
profitability, primarily by reducing our cost structure, the successful completion of our restructuring
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plan during the second half of 2016, our reduction of non-GAAP operating losses by more than $50
million in the fourth quarter of 2016 compared to the fourth quarter of 2015, our generation of positive
operating cash flow in the fourth quarter of 2016, and to acknowledge the impact of the shift in focus
on our ability to attain our billings target for the year (all such factors collectively being referred to as
the “2016 Transition Initiative Factors”).
Pay for Performance
A significant portion of the target total direct compensation provided to our Named Executive Officers each
year is at-risk and subject to our achieving our operating results as follows:
•
•
Our short-term incentive compensation program requires achievement of corporate and/or individual
objectives for any payment to be made thereunder.
For each Named Executive Officer, a significant portion of the equity awards granted in 2016 were at-
risk and subject to achievement of pre-established performance conditions: 50% in the case of Messrs.
DeWalt, Mandia, Berry and Reese and Ms. King and 38% in the case of Mr. Robbins. If the
performance condition was not achieved at a threshold level, then none of the shares of our common
stock subject to the performance-based equity awards would be earned. Because we did not achieve the
threshold performance condition for the 2016 PSUs none of the shares of our common stock were
earned based on strict application of the pre-established 2016 performance criteria. However, in
recognition of the 2016 Transition Initiative Factors described above, our Board of Directors exercised
its discretion and approved a payout of 20% of the target number of shares of our common stock
subject to the PSU awards, conditioned on the continued service of the Named Executive Officers
through the applicable vesting dates for the PSU awards. Because of our pay for performance focus and
our overall results, no payouts were made for a significant portion of the awards.
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Executive Compensation-Related Policies and Practices
We endeavor to maintain sound executive compensation policies and practices, including compensation-
related corporate governance standards that are consistent with our executive compensation philosophy. During
2016, we maintained the following executive compensation policies and practices, including both policies and
practices we have implemented to drive performance and policies and practices that either prohibit or minimize
behavior that we do not believe serve our stockholders’ long-term interests:
What We Do
• Maintain a Compensation Committee comprised solely of independent directors who have established
effective means for communicating with our stockholders regarding their executive compensation
comments and concerns.
•
•
•
the
Enable the Compensation Committee to engage and retain its own advisors. During 2016,
Compensation Committee engaged Compensia, Inc., a national compensation consulting firm, to assist
with its responsibilities.
Support the Compensation Committee in its annual review of our executive compensation strategy,
including its review of the compensation peer group used for comparative purposes and, to help avoid
creating compensation-related risks that would be reasonably likely to have a material adverse effect on
us, its annual review of our compensation-related risk profile.
Design the equity awards granted to our executive officers to vest or be earned over one year or longer
periods, which is consistent with current market practice and better serves our long-term value creation
goals and retention objectives.
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•
•
Prohibit our executive officers and the non-employee members of our Board of Directors from
speculating in our equity securities or engaging in any other hedging transactions with respect to our
equity securities. In addition, we prohibit our executive officers and the non-employee members of our
Board of Directors from pledging their equity securities or using such securities as collateral for a loan.
Support the Board of Directors in its review of the risks associated with our key executive positions on
an annual basis so that we have an adequate succession strategy and plans are in place for our most
critical positions.
• Maintain formal stock ownership guidelines for our executive officers and the non-employee members
of our Board of Directors to support these individuals acting as owners of the Company.
• Maintain a compensation recovery policy which provides that, in the event we are required to prepare
an accounting restatement as a result of fraud or intentional misconduct, we may recover from those
current and former executive officers who are subject to the reporting requirements of Section 16 of the
Exchange Act and were involved in the fraud or misconduct any incentive compensation erroneously
paid or awarded in excess of what would have been paid pursuant to the restated financial statements.
What We Do Not Do
•
•
•
Offer pension arrangements, defined benefit retirement plans, or nonqualified deferred compensation
plans to our executive officers.
Reprice options to purchase shares of our common stock without stockholder approval.
Provide perquisites and other personal benefits to our executive officers unless they serve a sound
business purpose.
Effect of Stockholder Advisory Vote on Executive Compensation
The Compensation Committee considers the results of the annual stockholder advisory vote on the
compensation of our Named Executive Officers and stockholder feedback on our executive compensation
program as part of its annual executive compensation review. At our 2016 annual meeting of stockholders,
approximately 53.6% of the votes cast approved the compensation program for our Named Executive Officers as
described in our 2016 proxy statement. As reflected in the above summary, the Compensation Committee is
committed to policies and practices that drive stockholders’ long-term interests, including a pay for performance
approach. In 2016, a significant portion of each Named Executive Officer’s compensation was at risk, and we
ended up not paying a signification portion of such at-risk compensation because performance was not achieved.
The Compensation Committee will continue to consider best practices from a stockholder and corporate
the Compensation
governance perspective when it designs our executive compensation program. Further,
Committee will continue to consider the results of the annual advisory vote on our executive compensation
program and policies and use this feedback in shaping our executive compensation program.
Compensation Philosophy and Objectives
Compensation Philosophy
As a cybersecurity provider, we operate in a rapidly evolving industry sector. To succeed in this
environment, we must attract and retain a highly talented executive team, including executive officers with
strong leadership skills who can run our business functions, achieve results that meet our clients’ objectives, and
sell our products, subscriptions and services. We compete with other companies in our industry and other
technology companies in the San Francisco Bay Area to attract and retain a skilled management team. We have
designed our executive compensation program to accomplish our goals in the highly competitive area for top
talent, while at the same time fostering a “pay for performance” environment that aligns the long-term interests
of our executive officers with the interests of our stockholders.
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Compensation Program Objectives
To be successful in our industry requires that we continually build on our expertise in the cybersecurity
space, expand the breadth and quality of our solutions, continuously enhance our technology platforms, and
manage our expanding operations efficiently and effectively. Our executive compensation program is designed to
achieve these objectives so that we are able to:
•
•
•
•
attract and retain talented and experienced executive officers, who possess the knowledge, skills, and
leadership criteria critical to our success;
motivate these executive officers to achieve our business objectives and uphold our core values;
promote teamwork within the executive team, while also recognizing the unique role each executive
officer plays in our success; and
ensure the alignment of the long-term interests of our executive officers with the interests of our
stockholders.
As we continue to grow as a publicly-traded company, we will evaluate our compensation philosophy and
program objectives as circumstances require. At a minimum, we expect the Compensation Committee to review
executive compensation annually. Further, as part of this review process, we expect
the Compensation
Committee to apply our values and the objectives described above, while considering the compensation levels
needed to ensure that our executive compensation program remains competitive.
Compensation-Setting Process
Role of Compensation Committee
The Compensation Committee oversees our executive compensation and other compensation and benefit
programs, administers our equity compensation plans, and reviews, formulates, and determines the design and
amount of compensation for our executive officers, including the Named Executive Officers, except that any
approvals by the Compensation Committee relating to the compensation of our Chief Executive Officer are
subject to the ratification of our Board of Directors (with any non-independent directors abstaining from the
vote).
At the beginning of each year, the Compensation Committee reviews our executive compensation program,
including any incentive compensation plans and arrangements to determine whether they are appropriate,
properly coordinated, and achieve their intended purposes and makes any modifications to existing plans and
arrangements or adopts new plans or arrangements. The Compensation Committee also conducts an annual
review of our executive compensation strategy to ensure that it is appropriately aligned with our business strategy
and the achievement of our desired objectives. Further, the Compensation Committee reviews market trends and
changes in competitive compensation practices, as further described below. Based on its review and assessment,
the Compensation Committee, from time to time, makes changes in our executive compensation program or
recommends changes to our Board of Directors.
The factors considered by the Compensation Committee in determining the compensation of our executive
officers and developing its recommendations to our Board of Directors for 2016 included:
•
•
•
•
•
•
the recommendations of our Chief Executive Officer (except with respect to his own compensation) as
described below;
our corporate growth and other elements of financial performance;
the individual achievement of each executive officer against his or her management objectives;
a review of the relevant competitive market data (as described below);
the expected future contribution of the individual executive officer; and
internal pay equity based on the impact on our business and performance.
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The Compensation Committee does not weigh these factors in any predetermined manner, nor does it apply
any formulas in developing its compensation determinations and recommendations. Rather, in making its
determinations and recommendations,
the members of the Compensation Committee consider all of this
information in light of their individual experience, knowledge of the Company, knowledge of the competitive
market, knowledge of each executive officer, and business judgment.
The Compensation Committee’s authority, duties, and responsibilities are described in its charter, which is
reviewed annually and revised and updated as warranted. The charter is available on our website at
www.FireEye.com in the Corporate Governance section of our Investor Relations webpage.
Role of Management
Our Chief Executive Officer works closely with the Compensation Committee in determining the
compensation of our other executive officers, including the other Named Executive Officers. Typically, our Chief
Executive Officer works with the Compensation Committee to recommend the structure of the annual cash
incentive compensation opportunities, to identify and develop corporate and individual performance objectives
for such cash incentive compensation opportunities, and to evaluate actual performance against the selected
measures. Our Chief Executive Officer also makes recommendations to the Compensation Committee as
described in the following paragraph and is involved in the determination of compensation for the respective
executive officers who report to him.
At the beginning of each year, our Chief Executive Officer reviews the performance of our other executive
officers for the previous year, and then shares these evaluations with, and makes recommendations to, the
Compensation Committee for each element of compensation. These recommendations concern the base salary,
annual cash incentive compensation, and long-term incentive compensation for each of our executive officers
(other than himself) based on our results, the individual executive officer’s contribution to these results, and his
or her performance toward achieving his or her individual performance objectives. The Compensation
Committee then reviews these recommendations and considers the other factors described above and makes
decisions as to the target total direct compensation of each executive officer (other than our Chief Executive
Officer), as well as each individual compensation element.
While the Compensation Committee considers our Chief Executive Officer’s recommendations, it only uses
these recommendations as one of several factors in making its decisions with respect to the compensation of our
executive officers. In all cases, the final decisions on compensation matters are made by the Compensation
Committee or our Board of Directors (with any non-independent directors abstaining from the vote). Moreover,
no executive officer participates in the determination of the amounts or elements of his or her own compensation.
At the request of the Compensation Committee, our Chief Executive Officer typically attends a portion of
each Compensation Committee meeting in which executive compensation is discussed, including meetings at
which the Compensation Committee’s compensation consultant is present.
Role of Compensation Consultant
Pursuant to its charter, the Compensation Committee has the authority to retain the services of one or more
executive compensation advisors, as it determined in its sole discretion, including compensation consultants,
in the creation of our compensation plans and
to assist
legal counsel, accounting, and other advisors,
arrangements and related policies and practices. The Compensation Committee makes all determinations
regarding the engagement, fees, and services of these external advisors, and any such external advisor reports
directly to the Compensation Committee.
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During 2016, the Compensation Committee engaged Compensia, Inc., a national compensation consulting
firm, to provide information, analysis, and other assistance relating to our executive compensation program on an
ongoing basis. The nature and scope of the services provided to the Compensation Committee by Compensia in
2016 were as follows:
•
•
•
•
•
•
conducted a review and updating of the compensation peer group;
conducted an analysis of the levels of overall compensation and each element of compensation for our
executive officers;
provided advice with respect to compensation best practices and market trends for our executive
officers and the non-employee members of our Board of Directors;
assessed our compensation risk profile and reported on this assessment;
conducted an analysis of the levels of overall compensation and each element of compensation for the
non-employee members of our Board of Directors; and
provided ad hoc advice and support throughout the year.
The Compensation Committee may replace its compensation consultant or hire additional advisors at any
time. Representatives of Compensia attend meetings of the Compensation Committee, as requested, and
communicate with the Compensation Committee Chair and with management as circumstances warrant. All
decisions regarding the compensation of our executive officers, however, are made by the Compensation
Committee (provided that any approvals by the Compensation Committee relating to the compensation of our
Chief Executive Officer are subject to the ratification of our Board of Directors, with any non-independent
directors abstaining from the vote) or our Board of Directors (with any non-independent directors abstaining
from the vote).
Compensia reports directly to the Compensation Committee. The Compensation Committee has assessed the
independence of Compensia taking into account, among other things, the enhanced independence standards and factors
set forth in Exchange Act Rule 10C-1 and the applicable NASDAQ Listing Standards, and concluded that that there
are no conflicts of interest with respect to the work that Compensia performs for the Compensation Committee.
Use of Competitive Market Data
As part of its deliberations, the Compensation Committee considers competitive market data on executive
compensation levels and practices and a related analysis of such data, but does not use this data for
benchmarking the compensation of the Named Executive Officers. This market data is drawn from a select group
of peer companies developed by the Compensation Committee, as well as compensation survey data.
At the direction of the Compensation Committee, Compensia developed a revised compensation peer group
in August 2015 to ensure that our executive compensation decisions for 2016 were positioned to be competitive
with comparable peer companies. This updated peer group was based on an evaluation of companies that the
Compensation Committee believed were comparable to us, taking into consideration the size of each company
(based on revenues and market capitalization) and the following additional factors:
•
•
•
•
•
•
the comparability of the company’s business model;
the company’s business services focus;
the comparability of the company’s operating history;
the comparability of the company’s organizational complexities and growth attributes;
the stage of the company’s maturity curve (which increases its likelihood of attracting the type of
executive talent for whom we compete); and
the comparability of the company’s operational performance (for consistency with our strategy and
future performance expectations).
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Based on these criteria, the Compensation Committee approved an updated compensation peer group
consisting of 18 publicly-traded business services and related technology companies. At the time Compensia
updated the peer group, the selected companies had revenues ranging from approximately $300 million to
approximately $1 billion, with a median of $584 million, and market capitalizations ranging from approximately
$2.3 billion to approximately $15.7 billion, with a median of $6.1 billion. The companies comprising the
compensation peer group were as follows:
Arista Networks
Aspen Technology
CoStar Group
Fortinet
GrubHub
Guidewire Software
LendingClub
NetSuite
Palo Alto Networks
ServiceNow
SolarWinds
Splunk
Tableau Software
The Ultimate Software Grp.
Verisign
Workday
Yelp
Zillow
Of the 18 companies in our 2016 compensation peer group, 14 were carried over from 2015 (Aspen
Technology, CoStar Group, Fortinet, GrubHub, Guidewire Software, NetSuite, Palo Alto Networks, ServiceNow,
SolarWinds, Splunk, Tableau Software, The Ultimate Software Grp., Yelp and Zillow). The turnover of our
compensation peer group was a result of the evaluation and selection criteria described above.
least
in at
The Compensation Committee believes that information regarding the compensation practices at other
the Compensation Committee recognizes that our
companies is useful
compensation policies and practices must be competitive in the marketplace. Second, this information is useful in
assessing the reasonableness and appropriateness of individual executive compensation elements and of our
overall executive compensation packages. This information is only one of several factors that the Compensation
Committee considers, however, in making its decisions with respect to the compensation of our executive
officers.
two respects. First,
Compensation Elements
Our executive compensation program consists primarily of three elements: base salary, short-term incentive
compensation in the form of cash awards, and long-term incentive compensation in the form of equity awards.
Our executive officers also participate in several Company-wide welfare and health benefit plans, which are
consistent with the arrangements offered to our other employees. Finally, our executive officers are eligible to
receive certain post-employment compensation arrangements.
We use these compensation elements to make up our executive compensation program because (i) they are
consistent with other programs in our competitive market and allow us to effectively compete for highly-
qualified talent, (ii) each element supports achievement of one or more of our compensation objectives, and
(iii) collectively, they have been and, we believe, will continue to be, effective means for motivating our
executive officers. We view the three primary compensation elements as related, but distinct, components of our
total compensation program. We do not believe that total compensation should be derived from a single element,
or that significant compensation from one element should negate or reduce compensation from other elements.
Each of these compensation elements is discussed in detail below, including a description of the particular
element and how it fits into our overall executive compensation and a discussion of the amounts of compensation
paid to the Named Executive Officers in 2016 under each of these elements.
Base Salary
We believe that a competitive base salary is necessary to attract and retain a stable executive team. Base
salaries for our executive officers are also intended to be competitive with those received by other individuals in
similar positions at the companies with which we compete for talent, as well as equitable across the executive
team.
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Generally, we establish the initial base salaries of our executive officers through arm’s-length negotiation at
the time we hire the individual executive officer, taking into account his or her position, qualifications,
experience, prior salary level, and the base salaries of our other executive officers.
Thereafter, the Compensation Committee reviews the base salaries of our executive officers, including the
Named Executive Officers, annually and makes adjustments to base salaries as it determines to be necessary or
appropriate.
In February 2016, the Compensation Committee reviewed the base salaries of our executive officers (other
than Mr. Robbins, who was not an executive officer at such time), taking into consideration a competitive market
analysis performed by Compensia and the recommendations of our Prior CEO (except with respect to his own
base salary), as well as the other factors described above. Following this review, the Compensation Committee
determined that adjustments were necessary in some cases to maintain the competitiveness of our executive
officers’ target total cash compensation and in those cases decided to increase the base salaries compared to their
2015 levels, effective as of April 1, 2016. The ending base salaries of the Named Executive Officers for 2016
compared to 2015 levels were as follows:
Named Executive Officer
Ending 2015 Base Salary Ending 2016 Base Salary Amount Increase Percentage Increase
Mr. DeWalt
. . . . . . . . .
Mr. Berry . . . . . . . . . . .
Ms. King . . . . . . . . . . . .
Mr. Mandia . . . . . . . . . .
Mr. Reese . . . . . . . . . . .
Mr. Robbins(1) . . . . . . .
$350,000
$410,000
$270,000
$325,000
$320,000
N/A
$350,000
$410,000
$316,667
$350,000
$335,000
$450,000
—
—
$46,667
$25,000
$15,000
N/A
—
—
17%
8%
5%
N/A
(1) Mr. Robbins did not receive his full 2016 base salary because his employment with us commenced on
November 18, 2016.
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The base salaries earned by the Named Executive Officers for 2016 are set forth in the “Summary
Compensation Table for Fiscal Year 2016” below.
Annual Cash Incentive Compensation—Overview
We use annual cash incentive compensation paid under our Employee Incentive Plan (the “Incentive Plan”)
to motivate our executive officers, including the Named Executive Officers, and designated employees to achieve
our short-term financial and operational objectives while making progress towards our longer-term growth and
other goals. Consistent with our executive compensation philosophy, this annual cash incentive compensation is
intended to help us deliver a competitive total direct compensation opportunity to our executive officers.
Under the Incentive Plan, the Compensation Committee establishes annual performance measures and
related target levels applicable to any cash incentive compensation opportunity under the Incentive Plan each
year. Performance objectives that involve our financial results may be determined in accordance with GAAP or
may consist of non-GAAP financial measures, and any actual results may be adjusted by the Compensation
Committee for one-time items or unbudgeted or unexpected items when determining whether the performance
objectives have been met. Individual performance objectives may be established on the basis of any factors the
Compensation Committee determines relevant, and may be adjusted on an individual, divisional, business unit, or
Company-wide basis. The performance objectives may differ from participant to participant and from cash
incentive compensation opportunity to cash incentive compensation opportunity.
The Compensation Committee may, in its sole discretion and at any time, increase, reduce, or eliminate a
participant’s actual cash payment, and/or increase, reduce, or eliminate the amount of cash allocated for a
particular performance period. The actual cash payment may be below, at, or above a participant’s target cash
incentive compensation opportunity, in the Compensation Committee’s sole discretion. The Compensation
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Committee may determine the amount of any reduction on the basis of such factors as it deems relevant, and it is
not required to establish any allocation or weighting with respect to the factors it considers.
Actual cash incentive compensation is paid only after it is earned.
The Compensation Committee has the authority to amend, alter, suspend, or terminate annual performance
measures and related target levels, provided that such action does not impair the existing rights of any participant
with respect to any earned cash incentive compensation.
Target Cash Incentive Compensation Opportunities
The Compensation Committee reviews the performance of each executive officer, including each of the
Named Executive Officers, relative to his or her target cash incentive compensation opportunity objectives at its
regularly scheduled February meeting. Based on this review, the Compensation Committee determines and
approves the cash payment for each of our eligible executive officers.
In February 2016, the Compensation Committee reviewed the annual target variable compensation levels of
our executive officers (other than Mr. Robbins, who was not an executive officer at such time), and our Board of
Directors also reviewed the annual target variable compensation level of our Prior CEO, taking into consideration
a competitive market analysis performed by Compensia and the recommendations of our Prior CEO (except with
respect to his own annual target cash incentive compensation opportunity), as well as the other factors described
above. Following its review, the Compensation Committee determined that adjustments were necessary in some
cases to maintain the competitiveness of our executive officers’ cash incentive compensation and in those cases
decided to increase the annual target cash incentive compensation opportunities compared to 2015 levels.
Following its review, our Board of Directors determined not to make any adjustments to the target cash incentive
compensation opportunity for our Prior CEO.
At that time, under the terms of the Incentive Plan, the Compensation Committee also established annual
performance measures and related target levels for potential 2016 cash incentive compensation for our executive
officers (the “2016 Incentive Compensation Plan”), other than Mr. Robbins. Mr. Robbins became eligible to
participate in the 2016 Incentive Compensation Plan when his employment commenced in November 2016. The
2016 Incentive Compensation Plan provided the eligible executive officers with an opportunity to receive cash
incentive compensation in February 2017, subject to the achievement of performance objectives in 2016.
The target cash incentive compensation opportunities of the Named Executive Officers under the 2016
Incentive Plan were as follows:
Named Executive Officer
Mr. DeWalt . . . . . . . . . . . . . . . . . . .
Mr. Berry . . . . . . . . . . . . . . . . . . . .
Ms. King . . . . . . . . . . . . . . . . . . . . .
Mr. Mandia . . . . . . . . . . . . . . . . . . .
Mr. Reese . . . . . . . . . . . . . . . . . . . .
Mr. Robbins(1) . . . . . . . . . . . . . . . .
2015 Target Cash
Incentive
Compensation
Opportunity
2016 Target Cash
Incentive
Compensation
Opportunity
$350,000
$410,000
$135,000
$325,000
$256,000
N/A
$350,000
$410,000
$158,333
$350,000
$268,000
$ 42,076
Amount
Increase
Percentage
Increase
—
—
$23,333
$25,000
$12,000
N/A
—
—
17%
8%
5%
N/A
2016 Target Cash
Incentive
Compensation
Opportunity (as a
percentage of ending
2016 annual base
salary)
100%
100%
50%
100%
80%
78%
(1) The amount and percentage for Mr. Robbins are pro-rated to reflect his employment start date of
November 18, 2016.
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Short-Term Incentive Compensation
Weighting of Target Cash Incentive Compensation Opportunities
Under the 2016 Incentive Compensation Plan, the target cash incentive compensation opportunities of the
Named Executive Officers were weighted 75% on corporate performance objectives and 25% on individual
performance objectives.
The Compensation Committee determined these allocations to be appropriate to focus our executive officers
on our short-term financial objectives as reflected in our annual operating plan while, at the same time,
recognizing their contributions to the achievement of these objectives and the successful execution of their
individual roles and responsibilities.
Corporate Performance Objectives
For 2016, the Compensation Committee selected billings, non-GAAP operating loss, and free cash flow as
the corporate performance measures for the 2016 Incentive Compensation Plan.1 The Compensation Committee
believed these performance measures were appropriate for our business because they provided a balance between
generating billings and cash, managing our expenses, and growing our business, which it believes most directly
influences long-term stockholder value. At the same time, for each of these measures, the Compensation
Committee established target performance levels that it believed would be challenging, but attainable, through
the successful execution of our annual operating plan.
For the 2016 Incentive Compensation Plan, each of these corporate performance measures was equally
weighted. The minimum level of achievement for each corporate performance measure was 85%, with the actual
cash payment with respect to each measure to be determined independently, in accordance with the following
schedule:
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Annual Company Achievement Percentage
Annual Company Performance Payment Factor
120% or greater
At least 101%, but less than 120%
At least 86% through 100%
85%
Less than 85%
150%
2.5:1 Addition from 101% to 120% achievement
2:1 Addition from 86% to 100% achievement
70%
0%
Under the 2016 Incentive Compensation Plan, the Compensation Committee reserved the right to adjust the
target levels for each corporate performance measure in the event of a merger, acquisition, or such other
unforeseeable future event occurs.
1
Billings, non-GAAP operating loss, and free cash flow are non-GAAP financial measures. The
reconciliation between billings and revenue, and the reconciliation between free cash flow and cash flow
provided by (used in) operating activities, are set forth in the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” section on page 44 of our Annual Report on Form 10-K
filed with the SEC on February 24, 2017. The reconciliation between non-GAAP operating loss and GAAP
operating loss is set forth in the “Reconciliation of Non-GAAP Financial Measures” table in Exhibit 99.1 to
our Current Report on Form 8-K filed with the SEC on February 2, 2017.
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The Compensation Committee established the following target
levels for the corporate performance
measures based on billings, non-GAAP operating loss and free cash flow under the 2016 Incentive Compensation
Plan:
Financial Measure
Fiscal 2016 Target Level
Percentage of 2016
Target Cash Incentive
Compensation
Opportunity Based on
Three Financial Measures
Billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP operating loss . . . . . . . . . . . . . . . . . . . . .
Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,113.4 million
176.0 million)
($
30.0 million
$
25%
25%
25%
Individual Performance Objectives
In addition to the corporate performance objectives, the annual cash incentive compensation for our eligible
executive officers was also based on each executive officer’s achievement against his or her individual
performance objectives. Individual performance objectives for each of these executive officers (other than
Mr. Robbins) were established at the beginning of the year in discussions with our Prior CEO. The individual
performance objectives for Mr. Robbins were established in discussions with our Current CEO upon the
commencement of Mr. Robbin’s employment. The individual performance objectives could be quantitative or
qualitative goals, depending on the organizational priorities for a given year, and typically focused on key
departmental or operational objectives or functions. Most of these objectives were intended to provide a set of
common goals that facilitated collaborative management and engagement, although our executive officers could
also be assigned individual goals. These objectives set expectations for what our Chief Executive Officer and the
Compensation Committee anticipated will be the means by which the individual component of cash incentive
compensation is determined. In all cases, the individual performance objectives were intended to be challenging,
but attainable, and designed to produce annual cash incentive payments that reflect meaningful performance
requirements.
The individual performance objectives for the Named Executive Officers under the 2016 Incentive
the
the beginning of 2016 (or,
Compensation Plan were established at
commencement of his employment), were qualitative in nature and were closely linked to their roles at the time.
in the case of Mr. Robbins, at
• Mr. DeWalt: Mr. DeWalt’s specific goals included customer visits, participating in media and press
engagements, providing product strategy and vision overall, and other goals related to achieving our
externally-communicated financial targets.
• Mr. Berry: Mr. Berry’s specific goals included business planning activities, conducting quarterly
earnings calls, providing quarterly and annual financial guidance, working with investors and analysts,
and identifying areas of optimization opportunities.
• Ms. King: Ms. King’s specific goals included supporting our mergers and acquisition activity,
developing and building our patent portfolio and trademarks, managing the legal function with respect
to corporate and securities matters, and overseeing our litigation.
• Mr. Mandia: Mr. Mandia’s specific goals included translating global business priorities into
operational tactics for FireEye’s products, subscriptions and services, customer engagement activities,
and participating in conference keynotes and media interviews as a FireEye trusted security advisor.
• Mr. Reese: Mr. Reese’s specific goals included customer engagement activities, business planning
activities, and providing leadership of our services teams.
• Mr. Robbins: Mr. Robbins’ specific goals included ramping up in his new position within an
accelerated onboarding timeframe to understand the FireEye business by the end of our fourth quarter,
assisting with our year-end sales efforts, assisting with our 2017 planning process, and assisting with
the preparation for our annual global partner and sales conference in mid-January 2017.
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The evaluation of each eligible executive officer (other than our Prior CEO and our Current CEO) under the
2016 Incentive Compensation Plan was based on an assessment by our Current CEO against their respective
individual performance objectives for the year. Because our Current CEO is closest to the performance of the
other executive officers, our Current CEO determined if the individual performance objectives were met, how
they were met and whether there were other objectives that were more relevant indicators of performance for that
individual. Our Current CEO then made his recommendations about achievement for the individual performance
objectives to the Compensation Committee, which the Compensation Committee then took into consideration.
The Compensation Committee had complete discretion to accept our Current CEO’s recommendation, or to
increase, reduce, or eliminate this aspect of an executive officer’s cash incentive compensation based on any
factors it deemed relevant.
In February 2017, the level of achievement and payment associated with the individual performance
objectives established for each executive officer (other than our Prior CEO and our Current CEO) were
determined by our Current CEO and then submitted to the Compensation Committee for review and approval.
Payments for the individual performance component of the 2016 Incentive Compensation Plan could be up to
150% of the portion of each executive officer’s target cash incentive compensation opportunity allocated to
individual performance.
2016 Performance Results and Award Decisions
In February 2017, the Compensation Committee and our Board of Directors (with our sole non-independent
director not present at the meeting and therefore not voting) determined that our achievement, and corresponding
payment levels, with respect to the corporate performance objectives under the 2016 Incentive Compensation
Plan were as follows:
Corporate Performance Objective
2016 Target Level
Approved
2016 Achievement
Percentage
Achievement
against Target
Payout Level
Billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP operating loss . . . . . . . . . . . . . . . .
Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . .
1,113.4 million) $ 819.5 million
($149.5 million)
($ 50.9 million)
($ 176.0 million)
30.0 million
74%
118%
0%
0%
145%
0%
The Compensation Committee in February 2017 (with respect to the Named Executive Officers other than
our Prior CEO and our Current CEO) and our Board of Directors in February 2017 (with respect to our Current
CEO) and in March 2017 (with respect to our Prior CEO) also determined (with our sole non-independent
director not present at the meetings and therefore not voting) that the individual performance objectives of each
of the Named Executive Officers had been attained at the following percentage levels:
Named Executive Officer
Individual Performance Objectives Attainment Level
Mr. DeWalt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Berry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ms. King . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Mandia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Reese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Robbins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
100%
100%
100%
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Based on its review of our overall performance in 2016 against the corporate performance objectives and, to
the extent applicable, the achievement of individual performance objectives of the Named Executive Officers as
described above, the Compensation Committee in February 2017 (with respect to the Named Executive Officers
other than our Prior CEO and our Current CEO) and our Board of Directors in February 2017 (with respect to our
Current CEO) and March 2017 (with respect to our Prior CEO) also determined (with our sole non-independent
director not present at the meetings and therefore not voting) determined to award cash payments under the 2016
Incentive Compensation Plan as follows for the Named Executive Officers:
Named Executive Officer
2016 Target Cash
Incentive
Compensation
Opportunity
. . . . . . . . . . . . . . . . . . . .
Mr. DeWalt
Mr. Berry . . . . . . . . . . . . . . . . . . . . . .
Ms. King . . . . . . . . . . . . . . . . . . . . . .
Mr. Mandia . . . . . . . . . . . . . . . . . . . .
Mr. Reese . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Mr. Robbins(1)
$350,000
$410,000
$158,333
$350,000
$268,000
$ 42,076
Amount
Related to
Corporate
Financial
Objectives
$262,500
$307,500
$118,750
$262,500
$201,000
$ 31,557
Amount Related to
Individual
Performance
Objectives
$ 87,500
$102,500
$ 39,583
$ 87,500
$ 67,000
$ 10,519
Actual Cash
Incentive
Payment
$214,375
$251,125
$ 96,979
$214,375
$164,150
$ 25,772
Percentage of
Target Cash
Incentive
Compensation
Opportunity
61%
61%
61%
61%
61%
61%
(1) The amounts for Mr. Robbins are pro-rated to reflect his employment start date of November 18, 2016.
The cash amounts paid to the Named Executive Officers under the 2016 Incentive Compensation Plan are
also set forth in the “Summary Compensation Table for Fiscal Year 2016” below under the heading “Non-Equity
Incentive Plan Compensation.”
Short-Term Incentive Compensation – Discretionary Cash Bonuses
In mid-2016, we shifted our focus toward our path to non-GAAP profitability and adjusted our cost structure
accordingly. We made strong progress with respect to such initiatives, with our successful completion of a
restructuring plan and reduction in workforce during the second half of 2016, our reduction of non-GAAP
operating losses by more than $50 million in the fourth quarter of 2016 compared to the fourth quarter of 2015,
and our generation of positive operating cash flow in the fourth quarter of 2016. However, the shift may have
negatively impacted the achievement of the corporate performance objectives under the 2016 Incentive
Compensation Plan. For example, we reduced approximately 10% of our workforce in the second half of 2016,
which may have caused business disruptions with customers and potential customers.
In recognition of the foregoing, as well as to reward the Named Executive Officers (other than Messrs.
DeWalt and Berry, who were not considered because they had by then tendered their resignations) for managing
our business through the transition mentioned above, the Compensation Committee (with respect to Ms. King
and Messrs. Reese and Robbins) and our Board of Directors (with respect to our Current CEO, with our sole non-
independent director not present at the meeting and therefore not voting) awarded discretionary cash bonuses to
Messrs. Mandia, Reese and Robbins and Ms. King, payable to them in February 2017, in the following amounts:
Named Executive Officer
Discretionary Cash Bonus
Ms. King . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Mandia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Reese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Robbins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,771
$48,125
$36,850
$ 5,784
The discretionary cash bonus amounts paid to the Named Executive Officers for 2016 performance is also
set forth in the “Summary Compensation Table for Fiscal Year 2016” below under the heading “Bonus.”
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Long-Term Incentive Compensation
We believe that if our executive officers own shares of our common stock in amounts that are significant to
them, they will have an incentive to act to maximize long-term stockholder value. As discussed in the section
“Other Compensation Policies” below, we use stock ownership guidelines to complement our long-term
incentive compensation arrangements, so our executive officers maintain a strong link to the interests of
stockholders and to the movements in our stock price. We also believe that long-term incentive compensation in
the form of equity awards is an integral component of our efforts to attract and retain exceptional executive
officers. In the past three years, we have relied on RSU awards that may be settled for shares of our common
stock and PSU awards for shares of our common stock as the principal vehicles for delivering long-term
incentive compensation opportunities to our executive officers. We believe this approach enables us to attract and
retain key talent in our industry and aligns our executive team’s interests with the long-term interests of our
stockholders.
Generally, in determining the size of the equity awards granted to our executive officers, the Compensation
Committee takes into consideration the recommendations of our Chief Executive Officer (except with respect to
his own equity awards), as well as the factors described above. The Compensation Committee also considers the
dilutive effect of our long-term incentive compensation practices, and the overall impact that these equity
awards, as well as awards to other employees, will have on stockholder value.
February 2016 Awards
In February 2016, the Compensation Committee granted equity awards to the Named Executive Officers
(other than Mr. DeWalt, who was our Chief Executive Officer at such time, and Mr. Robbins, who was not an
executive officer at such time), in recognition of our financial results and their individual performance for 2015.
the Compensation
In determining the amount of the equity awards for such Named Executive Officers,
Committee also took into consideration the recommendations of our Prior CEO, as well as the factors described
above. The Compensation Committee also considered the existing equity holdings of such Named Executive
Officers, including the current economic value of their unvested equity awards and the ability of these unvested
holdings to satisfy our retention objectives.
Also in February 2016, the Compensation Committee recommended that our Board of Directors grant equity
awards to Mr. DeWalt. The Compensation Committee based its recommendation in part on Mr. DeWalt’s
continued effectiveness in overseeing the efforts of our executive officers to achieve our short-term and long-
term business objectives and to set an appropriate tone for our general workforce. In addition to considering his
achievements in the previous year and continued effectiveness and in view of the importance of his role, the
Compensation Committee also based its recommendation on the retentive value of the awards to provide an
opportunity to earn additional shares of our common stock over a critical period of our growth as a relatively new
publicly-traded company. Finally, the Compensation Committee determined that, given his responsibilities,
Mr. DeWalt’s equity award should be larger than the awards of the other executive officers to reflect his greater
role and responsibilities. Following its consideration of the Compensation Committee’s recommendation, our
Board of Directors (with the non-independent directors not present at the meeting and therefore not voting)
granted equity awards to Mr. DeWalt in February 2016.
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The equity awards granted to certain of our Named Executive Officers in February 2016 consisted of both
RSU and PSU awards, and the number of shares of our common stock under the RSU awards and the target and
maximum number of shares of our common stock under the PSU awards were as follows:
RSU Awards
PSU Awards
Named Executive Officer
Number of Shares
. . . . . . . . . . . . . .
Mr. DeWalt
Mr. Berry . . . . . . . . . . . . . . . .
Ms. King . . . . . . . . . . . . . . . .
Mr. Mandia . . . . . . . . . . . . . .
Mr. Reese . . . . . . . . . . . . . . . .
250,000
25,000
50,000
125,000
50,000
Target Number of Shares
under PSU Awards for
2016 Performance Year
Maximum Number of Shares
(assuming overachievement)
250,000
25,000
50,000
125,000
50,000
375,000
37,500
75,000
187,500
75,000
The RSU awards were subject to a time-based vesting requirement. Pursuant to this vesting requirement,
one-third of the shares of our common stock subject to the RSU awards will vest on each of the first three
anniversaries of February 15, 2016, with the vesting in each case being subject to the Named Executive Officer’s
continued service with us through the applicable vesting date.
The PSU awards were subject to both a performance condition and a time-based vesting requirement.
Pursuant to the performance condition, the number of shares of our common stock that could be earned under the
award was based on pre-established threshold, target, and maximum performance levels for our billings in 2016.
The target performance level for our billings in 2016 was $1,113.4 million. The PSU awards provided that, for
the performance period commencing on January 1, 2016 and ending on December 31, 2016, the number of shares
of our common stock earned would be determined in accordance with the following payout schedule (the “2016
PSU Payout Schedule”):
•
•
•
•
if we achieved less than 85% of the target performance level, no shares would be earned,
if we achieved at least 85% but less than 100% of the target performance level, a portion of the target
number of shares granted would be earned,
if we achieved 100% of the target performance level, the target number of shares granted would be
earned, and
if we exceeded the target performance level, up to 150% of the target number of shares granted would
be earned.
With respect to the time-based vesting requirement, the PSU awards provided that 50% of the shares
approved for release will vest in February 2017, 25% of the shares approved for release will vest in February
2018, and the remaining 25% will vest in February 2019, with the vesting in each case being subject to his or her
continued service with us through the applicable vesting date.
May 2016 Awards
In May 2016, our Board of Directors granted equity awards for the Named Executive Officers (other than
Mr. DeWalt, who at that time planned to transition from serving as our Chief Executive Officer to serving as our
Executive Chairman of the Board, and Mr. Robbins, who was not an executive officer at such time), in
connection with their promotions and to further assist with their retention in light of our pending management
changes at the time. In determining the amount of the equity awards for such Named Executive Officers, our
Board of Directors also took into consideration the recommendations of our Prior CEO, as well as the factors
described above. Our Board of Directors also considered the existing equity holdings of such Named Executive
Officers, including the current economic value of their unvested equity awards and the ability of these unvested
holdings to satisfy our retention objectives.
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The equity awards granted to certain of our Named Executive Officers in May 2016 consisted of both RSU
and PSU awards, and the number of shares of our common stock under the RSU awards and the target and
maximum number of shares of our common stock under the PSU awards were as follows:
RSU Awards
PSU Awards
Named Executive Officer
Number of Shares
Mr. Berry . . . . . . . . . . . . . . . .
Ms. King . . . . . . . . . . . . . . . .
Mr. Mandia . . . . . . . . . . . . . .
Mr. Reese . . . . . . . . . . . . . . . .
50,000
25,000
125,000
125,000
Target Number of Shares
under PSU Awards for
2016 Performance Year
Maximum Number of Shares
(assuming overachievement)
50,000
25,000
125,000
125,000
75,000
37,500
187,500
187,500
The RSU awards were subject to a time-based vesting requirement. Pursuant to this vesting requirement,
25% of the shares of our common stock subject to the RSU awards will vest on each of the first four
anniversaries of June 15, 2016 (in the case of Messrs. Mandia and Reese) or May 15, 2016 (in the case of
Ms. King and Mr. Berry), with the vesting in each case being subject to his or her continued service with us
through the applicable vesting date.
The PSU awards were subject to both a performance condition and a time-based vesting requirement.
Pursuant to the performance condition, the number of shares of our common stock that could be earned under the
award was based on pre-established threshold, target, and maximum performance levels for our billings in 2016.
The target performance level for our billings in 2016 was $1,113.4 million. The PSU awards provided that, for
the performance period commencing on January 1, 2016 and ending on December 31, 2016, the number of shares
earned would be determined in accordance with the 2016 PSU Payout Schedule.
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With respect to the time-based vesting requirement, the PSU awards provided that 25% of the shares
approved for release will vest on February 15, 2017, and 25% of the shares approved for release will thereafter
vest on each of the first three anniversaries of February 15, 2017, with the vesting in each case being subject to
his or her continued service with us through the applicable vesting date under the PSU awards.
June 2016 Cancellation of Mr. DeWalt’s February 2016 Awards
In connection with Mr. DeWalt’s transition from Chief Executive Officer to the role of Executive Chairman
of the Board effective June 15, 2016, the RSU and PSU awards granted to him in February 2016 were cancelled
effective June 15, 2016 and certain of Mr. DeWalt’s other equity awards granted to him prior to 2016 were
amended or partially cancelled. As a result, no shares vested or were earned under the RSU or PSU awards
granted to Mr. DeWalt in 2016.
August 2016 Award for Mr. Reese
In August 2016, the Compensation Committee granted Mr. Reese an RSU award in connection with his
relocation of his primary business location to our California headquarters at our request. The award was granted
as part of a cash and equity package reflected in Mr. Reese’s amended and restated offer letter that the Company
and Mr. Reese entered into on July 27, 2016, for the purpose of reimbursing Mr. Reese for his relocation
expenses and a portion of his ongoing living expenses while serving as our President and working at our
California headquarters.
The RSU award is convertible into 50,000 shares of our common stock and is subject to a time-based
vesting requirement. Pursuant to this vesting requirement, the shares of our common stock subject to the award
for Mr. Reese is scheduled to vest in full on August 15, 2017, with the vesting being subject to his continued
service with us through the vesting date.
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December 2016 Awards for Mr. Robbins
In December 2016, in connection with his appointment as our Executive Vice President of Worldwide Sales,
the Compensation Committee granted the following equity awards to Mr. Robbins:
•
•
•
an RSU award for 125,000 shares of our common stock that vested in full on January 2, 2017, subject
to his continued service with us through such vesting date;
an RSU award for 200,000 shares of our common stock that vests over four years from November 15,
2016, with 25% of the shares vesting on November 15, 2017, and (ii) 6.25% of the shares vesting each
quarter thereafter, in each case subject to his continued service with us through the applicable vesting
date; and
a PSU award for a target number of 200,000 shares of our common stock that is to be earned over four
consecutive one-year performance periods with the first installment vesting on February 15, 2018. The
PSU award is subject to both a performance condition and a time-based vesting requirement, for each
of the 2017, 2018, 2019 and 2020 performance years. Pursuant to the performance condition for a
performance year, the number of shares of our common stock that could be earned under the PSU
target, and maximum
award for the performance year is based on pre-established threshold,
performance levels for our bookings for the performance year. The PSU award provided that, for each
performance year, the number of shares earned would be determined in accordance with the 2016 PSU
Payout Schedule.
With respect to the time-based vesting requirement, the PSU award also provided that the shares of our
common stock earned for a performance year will vest in the February following the applicable
performance year, subject to Mr. Robbins’ continued service with us through the vesting date.
The RSU award that vested in full on January 2, 2017 was granted to attract Mr. Robbins to start his
employment with us in November 2017 so that he could, among other things, assist with our year-end sales
efforts, our 2017 planning process and the preparation for our annual global partner and sales conference in mid-
January 2017. This RSU award was also intended to compensate Mr. Robbins for the bonus payment and equity
vesting he would have received in December 2016 from his prior employer had he remained with his prior
employer through mid-December 2016.
Since no portion of Mr. Robbins’ PSU award is tied to 2016 performance, no shares have yet been earned
under the PSU award.
December 2013 Award for Mr. Reese
In December 2013, in connection with Mr. Reese joining FireEye, the Compensation Committee granted
him a PSU award, with a target of 6,800 shares of our common stock tied to 2016 company performance. Half of
the PSU award was originally tied to the performance of Mandiant’s business and the other half to the
performance of FireEye’s business, but since Mandiant’s business has been fully integrated into FireEye’s
business and Mandiant-specific information is not available for 2016, the Compensation Committee measured all
of this PSU award on company performance.
Pursuant to the performance condition for the 2016 performance year, the number of shares of our common
stock that could be earned under the PSU award for the 2016 performance year was based on pre-established
threshold, target, and maximum performance levels for our bookings for the performance year. The target level
and actual amount achieved for the corporate performance measure based on bookings for 2016 is not disclosed
because it is considered an internal measure, the disclosure of which could result in competitive harm to us.
The PSU award provided that (i) if we achieve less than 80% of the target for a performance year, no shares
will be earned for that year, (ii) if we achieve at least 80% but less than 90% of the target for the 2016
performance year, 80% of the number of shares allocated to that year will be earned for that year, (iii) if we
achieve at least 90% but less than 100% of the target for the 2016 performance year, 90% of the number of
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shares allocated to that year will be earned for that year, (iv) if we achieve at least 100% but less than 110% of
the target for the 2016 performance year, 100% of the number of shares allocated to that year will be earned for
that year, and (v) if we exceed the target for the 2016 performance year, up to 150% of the number of shares
allocated to that year will be earned for that year. Pursuant to the vesting requirement, the PSU award also
provided that the shares earned for the 2016 performance year will vest in February 2017, subject to Mr. Reese’s
continued service with us through the vesting date.
November 2015 Award for Mr. Berry
In November 2015, in connection with Mr. Berry joining FireEye, the Compensation Committee granted
him a PSU award, with a target of 28,750 shares of our common stock tied to 2016 company performance. The
award originally was tied to a bookings target, but was amended in May 2016 to instead be tied to our billings in
2016, in order to align with the performance measure under the PSU awards granted to our Named Executive
Officers in 2016.
Pursuant to the performance condition for the 2016 performance year, the number of shares of our common
stock that could be earned under the PSU award for the 2016 performance year was based on pre-established
threshold, target, and maximum performance levels for our billings for the performance year. The target
performance level for our billings in 2016 was $1,113.4 million.
The PSU award provided that (i) if we achieve less than 80% of the target for the 2016 performance year, no
shares will be earned for that year, (ii) if we achieve at least 80% but less than 100% of the target for the 2016
performance year, a portion of the number of shares allocated to that year will be earned for that year, (iii) if we
achieve 100% of the target for the 2016 performance year, the number of shares allocated to that year will be
earned for that year, and (iv) if we exceed the target for the 2016 performance year, up to 150% of the number of
shares allocated to that year will be earned for that year. Pursuant to the vesting requirement, the PSU award also
provided that the shares earned for the 2016 performance year will vest in February 2017, subject to Mr. Berry’s
continued service with us through the vesting date.
Payout of PSU Awards
In February 2017, our Board of Directors determined that, with our actual billings in 2016 being $819.5
million, the billings performance condition under each of the PSU awards (other than the PSU award granted to
Mr. Reese in December 2013) was achieved at the 74% level, and that the bookings performance condition under
the PSU award granted to Mr. Reese in December 2013 was achieved at the 73% level, in each case equating to
none of the target number of shares of our common stock being earned pursuant to the performance requirements
for the PSU awards tied to 2016 performance. However, in recognition of the 2016 Transition Initiative Factors
described above, our Board of Directors exercised its discretion and approved a payout of 20% of the target
number of shares of our common stock subject to the PSU awards, conditioned on the continued service of the
Named Executive Officers through the applicable vesting dates for the PSU awards. Our executives successfully
performed against the 2016 Transition Initiative Factors and the 20% payout acknowledges this accomplishment.
Because of our pay for performance focus and our overall results, no payouts were made for a significant portion
of the awards.
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The following table sets forth the number of shares approved for release, and the corresponding number of
shares cancelled, for all of the PSU awards tied to 2016 performance that were granted in 2016 or prior to 2016
to the Named Executive Officers:
Named Executive Officer
Month PSU
Awards Granted
Target Number of
Shares under
PSU Awards Tied
to 2016
Performance
Ms. King . . . . . . . . . . . .
Mr. DeWalt(1) . . . . . . .
Mr. Berry . . . . . . . . . . .
February 2016
February 2016
May 2016
November 2015
February 2016
May 2016
February 2016
May 2016
February 2016
May 2016
December 2013
Mr. Robbins(2) . . . . . . . December 2016
Mr. Reese . . . . . . . . . . .
Mr. Mandia . . . . . . . . . .
N/A
25,000
50,000
28,750
50,000
25,000
125,000
125,000
50,000
125,000
6,800
N/A
Approved Payout
Level
N/A
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
N/A
Actual Number of
Shares Approved
for Release under
PSU Awards
Number of
Shares Cancelled
under PSU
Awards
N/A
5,000
10,000
5,750
10,000
5,000
25,000
25,000
10,000
25,000
1,360
N/A
N/A
20,000
40,000
23,000
40,000
20,000
100,000
100,000
40,000
100,000
5,440
N/A
(1) The PSU award granted to Mr. DeWalt in February 2016 was cancelled effective June 15, 2016. As a result,
effective June 15, 2015, Mr. DeWalt did not have any PSU awards tied to 2016 performance.
(2) No portion of the PSU award granted to Mr. Robbins in December 2016 was tied to 2016 performance.
The equity awards granted in 2016 to the Named Executive Officers are set forth in the “Summary
Compensation Table for Fiscal Year 2016” and the “Grants of Plan-Based Awards Table for Fiscal Year 2016”
below.
Welfare and Health Benefits
We maintain a tax-qualified retirement plan (the “FireEye 401(k) plan”) under Section 401(k) of the Internal
Revenue Code (the “Code”) for our executive officers and other employees who satisfy certain eligibility
requirements, including requirements relating to age and length of service. The FireEye 401(k) plan provides
eligible employees with an opportunity to save for retirement on a tax-advantaged basis. This plan is intended to
qualify under Sections 401(a) and 501(a) of the Code so that contributions by employees to the plans, and income
earned on plan contributions, are not taxable to employees until distributed from the applicable plan. In addition,
all contributions are deductible by us when made.
All participants’ interests in their deferrals are 100% vested when contributed under the FireEye 401(k)
plan. Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected
investment alternatives according to the participants’ directions. In 2016, we made no matching contributions
into the FireEye 401(k) plan.
As part of our acquisition of iSIGHT Partners in January 2016, the iSIGHT 401(k) plan was frozen, with no
new contributions or participation from the date of the acquisition. The iSIGHT 401(k) Plan was merged into the
FireEye 401(k) as of March 1, 2016.
In addition, we provide other benefits to our executive officers on the same basis as all of our full-time
employees. These benefits include health, dental and vision benefits, health and dependent care flexible spending
accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance, and
basic life insurance coverage. We also provide flexible time off and other paid holidays to all employees,
including our executive officers. We do not offer our employees a non-qualified deferred compensation plan or
pension plan.
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We design our employee benefits programs to be affordable and competitive in relation to the market, as
well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based
upon regular monitoring of applicable laws and practices, the competitive market and our employees’ needs.
Perquisites and Other Personal Benefits
Currently, we do not view perquisites or other personal benefits as a significant component of our executive
compensation program. Accordingly, we do not provide perquisites to our executive officers, except in situations
where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our
executive officers more efficient and effective, for recruitment and retention purposes, or consistent with benefits
provided to our other full-time employees. During 2016, none of the Named Executive Officers (other than
Mr. Reese with respect to our reimbursement of his expenses associated with the relocation of his primary
business location to our California headquarters at our request and a portion of his ongoing living expenses while
serving as our President and working at our California headquarters) received perquisites or other personal
benefits that were not generally available on a non-discriminatory basis to all our employees and that were, in the
aggregate, $10,000 or more for each Named Executive Officer.
In the future, we may provide perquisites or other personal benefits to our executive officers in limited
circumstances, such as where we believe it is appropriate to assist an individual executive officer in the
performance of his or her duties, to make our executive officers more efficient and effective, for recruitment,
motivation or retention purposes, or consistent with benefits provided to our other full-time employees. We do
not expect that these perquisites or other personal benefits will be a significant aspect of our executive
compensation program. All future practices with respect to perquisites or other personal benefits will be
approved and subject to periodic review by the Compensation Committee.
Employment Arrangements
We have entered into written employment offer letters with each of the Named Executive Officers. Each of
these arrangements was approved on our behalf by our Board of Directors or the Compensation Committee, as
applicable. We believe that these arrangements were appropriate to induce these individuals to forego other
employment opportunities or leave their current employer for the uncertainty of a demanding position in a new
and unfamiliar organization.
In filling these executive positions, our Board of Directors or the Compensation Committee, as applicable,
was aware that it would be necessary to recruit candidates with the requisite experience and skills to manage a
growing business in a dynamic and ever-changing industry. Accordingly, it recognized that it would need to
develop competitive compensation packages to attract qualified candidates in a highly-competitive labor market.
At the same time, our Board of Directors or the Compensation Committee, as applicable, was sensitive to the
need to integrate new executive officers into the executive compensation structure that it was seeking to develop,
balancing both competitive and internal equity considerations.
Each of these employment offer letters provides for “at will” employment and sets forth the initial
compensation arrangements for the Named Executive Officer, including an initial base salary, an annual target
cash incentive compensation opportunity, and, in some instances, a recommendation for an equity award.
For a summary of the material terms and conditions of the employment offer letters with each of the Named
Executive Officers, see “—Employment Agreements for Executive Officers” and “—Other Employment
Agreements” below.
Post-Employment Compensation
Prior to July 2013, the employment offer letters that we entered into with the Named Executive Officers
provided for certain payments and benefits in the event of their termination of employment under specified
circumstances, including following a change in control of the Company. We believed that these arrangements
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were significant factors in the recruitment of these executive officers and would help these individuals maintain
continued focus and dedication to their responsibilities to help maximize stockholder value if there was a
potential transaction that could involve a change in control of the Company.
In July 2013, the Compensation Committee adopted a Change of Control Severance Policy for Officers (the
“Severance Policy”), a standardized approach for the payment of severance and change in control benefits to our
executive officers. Under the Severance Policy, the rights of our executive officers upon an involuntary termination
of employment, including an involuntary termination of employment following a change in control of the Company,
were established on a uniform basis. In addition, the post-employment compensation and benefits of our executive
officers were established separately from their other compensation elements. The Severance Policy is applicable to
all new executive officers hired since July 2013. In addition, our executive officers were given the opportunity to
waive the existing severance and change in control protections in their employment offer letters in favor of the
Severance Policy. Each of the Named Executive Officers who were employed with us at July 2013 agreed to
relinquish the severance payments and benefits otherwise provided in his or her employment offer letter in
exchange for eligibility to receive payments and benefits under the Severance Policy.
We believe the Severance Policy serves several objectives. First, it eliminates the need to negotiate
separation payments and benefits on a case-by-case basis. It also helps assure an executive officer that his or her
severance payments and benefits are comparable to those of other executive officers with similar levels of
responsibility and tenure. Further, it acts as an incentive for our executive officers to remain employed and
focused on their responsibilities during the threat or negotiation of a change-in-control transaction, which we
believe will help preserve our value and the potential benefit to be received by our stockholders in any such
transaction. Finally, the Severance Policy is easier for us to administer, as it requires less time and expense.
The Severance Policy contemplates that the payments and benefits in the event of a change in control of the
Company are payable only upon a “double trigger”; that is, only following a change in control and a qualifying
termination of employment, including a termination of employment without cause or a resignation for good
reason, and in each case requires that the executive officer execute a general release of claims in favor of the
Company. In addition, the Severance Policy provides payments and benefits to our executive officers for
qualified terminations of employment unrelated to a change in control of the Company.
For a summary of the material terms and conditions of the Severance Policy, see “—Change of Control
Severance Policy for Officers” and “—Potential Payments upon a Change of Control, upon Termination or upon
Termination Following a Change of Control” below.
Other Compensation Policies
Stock Ownership Guidelines
We believe that stock ownership by our executive officers and non-employee members of our Board of
Directors is important to link the risks and rewards inherent in stock ownership of these individuals and our
stockholders. Our Board of Directors has adopted formal stock ownership guidelines that require our executive
officers and non-employee members of our Board of Directors to own a minimum number of shares of our
common stock. These mandatory ownership levels are intended to create a clear standard that ties a portion of
these individuals’ economic interests to the performance of our stock price. Compliance is evaluated on an
annual basis, as determined by the Compensation Committee, and not on an ongoing basis. Shares of our
common stock underlying RSU awards that are not then subject to achievement of performance conditions and
the shares of our common stock subject to vested stock options (on a net exercise basis) count toward meeting
the requirements. The current required ownership levels are as follows:
Individual Subject to Ownership Guidelines
Minimum Required Level of Stock Ownership
Chief Executive Officer
Other Executive Officers
Non-employee members of Board of Directors
6x base salary
1x base salary
3x annual retainer
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During any year in which an individual’s required ownership level is not met, he or she is required to retain
at least 50% of the net shares following the exercise of stock options, the vesting of RSU awards or the vesting of
PSU awards until the required ownership level has been met. The guidelines provide that in the event the annual
retainer (or any portion thereof) is paid to a non-employee member of our Board of Directors in equity instead of
cash, the annual retainer (or applicable portion thereof) means the grant date fair value of the annual equity
award (or applicable portion thereof) for regular service on our Board of Directors.
In March 2017, the Compensation Committee evaluated executive officer and director compliance with the
guidelines for 2016 and determined that our Current CEO and each of our other executive officers and two non-
employee members of our Board of Directors had satisfied his or her required stock ownership level. Ms. Alexy
and Messrs. Ahuja, Coughran and Pusey, who are non-employee members of our Board of Directors, are within a
grace period, defined as five years from the date of first becoming subject to the guidelines, and, thus, are still in
the process of satisfying their required stock ownership level.
Compensation Recovery Policy
Our Board of Directors has adopted a compensation recovery policy allowing it to require the repayment or
forfeiture of all or part of any performance-based cash incentive compensation, performance-based equity award
or other performance-based award paid or granted to our executive officers where the payment, grant or vesting
of such compensation or award was based on the achievement of financial results that were subsequently the
subject of a financial restatement and where the restatement was the result of fraud or intentional misconduct.
This policy only applies to current and former executive officers subject to the reporting requirements of
Section 16 of the Exchange Act who were involved in the fraud or misconduct. In addition to the foregoing, our
Chief Executive Officer and our Chief Financial Officer are subject to the compensation recovery provisions of
Section 304 of the Sarbanes-Oxley Act.
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Equity Award Grant Policy
We maintain an Equity Award Grant Policy that provides the following guidelines to be observed by the
Compensation Committee and our Board of Directors when granting equity awards under the Company’s equity
compensation plans:
•
•
•
•
Any equity awards granted by the Compensation Committee to our Chief Executive Officer are subject
to the ratification of our Board of Directors (with any non-independent directors abstaining from the
vote).
Generally, equity awards for new hires will be granted on a monthly basis. An equity award granted to
a new hire may not have a grant date prior to such individual’s first date of bona fide employment or
service.
The Compensation Committee, our Board of Directors, and/or the Equity Award Committee (a
committee, consisting of our Chief Financial Officer and our General Counsel,
to which the
Compensation Committee has delegated non-exclusive authority to grant equity awards to employees
where the award falls within prescribed guidelines approved by the Compensation Committee) has the
authority to grant occasional retention, promotion, or merit equity awards during the year in a manner
that is consistent with the terms of this policy.
Equity awards should not be timed in relation to the release of material non-public information, and it
is the intent of the policy to specify the timing of effectiveness of equity award grants to avoid such
timing.
Under our current equity compensation plan, the exercise price of any option to purchase shares of our
common stock may not be less than the fair market value of our common stock on the date of grant.
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Derivatives Trading, Hedging, and Pledging Policies
Our insider trading policy prohibits our executive officers and the non-employee members of our Board of
Directors from, among other things, derivative securities transactions, including any hedging, with respect to
shares of our common stock and from pledging Company securities as collateral or holding Company securities
in a margin account.
Risk Assessment and Compensation Practices
Our management assesses and discusses with the Compensation Committee our compensation policies and
practices for our employees as they relate to our risk management, and based upon this assessment, we believe
that, for the following reasons, any risks arising from such policies and practices are not reasonably likely to have
a material adverse effect on us in the future:
•
•
Our annual incentive plan considers a multiple of corporate and individual performance factors and
allows the Compensation Committee to review performance on a holistic basis (including the 2016
Transition Initiative Factors) minimizing risk related to our short-term variable compensation; and
Our equity awards include multi-year vesting schedules requiring a long-term employee commitment.
Tax and Accounting Considerations
Deductibility of Executive Compensation
Section 162(m) of the Code generally disallows a deduction for federal income tax purposes to any publicly-
traded corporation for any remuneration in excess of $1 million paid in any taxable year to its chief executive
officer and each of the three other most highly-compensated executive officers (other than its chief financial
officer). Generally, remuneration in excess of $1 million may be deducted if, among other things, it qualifies as
“performance-based compensation” within the meaning of the Code or satisfies the conditions of another
exemption. In this regard, the compensation income realized upon the exercise of options to purchase shares of
the granting company’s securities granted under a stockholder-approved stock option plan generally will be
deductible so long as the options are granted by a committee whose members are outside directors and certain
other conditions are satisfied.
Prior to our becoming a public company, our Board of Directors had not previously taken the deductibility
limit imposed by Section 162(m) into consideration in setting compensation for the covered executive officers.
As a publicly-traded company, the Compensation Committee is mindful of the benefits of full deductibility of
compensation, and intends to operate our executive compensation program to be most efficient and effective for
our stockholders, which may include compliance with Section 162(m) of the Code.
The Compensation Committee seeks to qualify the incentive compensation paid to the covered executive
officers for the “performance-based compensation” exemption from the deduction limit under Section 162(m)
when it believes such action is in our best interests. In approving the amount and form of compensation for our
executive officers, the Compensation Committee considers all elements of the cost to us of providing such
compensation, including the potential impact of the Section 162(m) deduction limit. However, the Compensation
Committee reserves the discretion, in its judgment, to approve compensation payments that do not comply with
an exemption from the deduction limit when it believes that such payments are appropriate to attract and retain
executive talent.
Taxation of Nonqualified Deferred Compensation
Section 409A of the Code requires that amounts that qualify as “nonqualified deferred compensation”
satisfy requirements with respect to the timing of deferral elections, timing of payments, and certain other
matters. Generally, the Compensation Committee intends to administer our executive compensation program and
design individual compensation components, as well as the compensation plans and arrangements for our
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employees generally, so that they are either exempt from, or satisfy the requirements of, Section 409A. From
time to time, we may be required to amend some of our compensation plans and arrangements to ensure that they
are either exempt from, or compliant with, Section 409A.
Taxation of “Parachute” Payments
Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant
equity interests and certain other service providers may be subject to significant additional taxes if they receive
payments or benefits in connection with a change in control of the Company that exceeds certain prescribed
limits, and that the Company (or a successor) may forfeit a deduction on the amounts subject to this additional
tax. We are not obligated to provide any Named Executive Officer with a “gross-up” or other reimbursement
payment for any tax liability that he or she may owe as a result of the application of Sections 280G or 4999 in the
event of a change in control of the Company.
Accounting for Stock-Based Compensation
The Compensation Committee takes accounting considerations into account in designing compensation
plans and arrangements for our executive officers and other employees. Chief among these is Financial
Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”), the standard
which governs the accounting treatment of stock-based compensation awards.
ASC Topic 718 requires us to recognize in our financial statements all share-based payment awards to
employees, including grants of options to purchase shares of our common stock and restricted stock awards that
may be settled for shares of our common stock to our executive officers, based on their fair values. For certain
performance-based stock awards, we also must apply judgment in determining the periods when, and if, the
achievement of the related performance targets becomes probable.
ASC Topic 718 also requires us to recognize the compensation cost of our share-based payment awards in
our income statement over the period that an employee, including our executive officers, is required to render
service in exchange for the award (which, generally, will correspond to the award’s vesting schedule).
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Compensation Committee Report
The information contained in the following Compensation Committee Report shall not be deemed to be
soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by
reference in such filing.
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis
required by 402(b) of Regulation S-K with management. Based on this review and discussion, the compensation
committee recommended to our board of directors that the Compensation Discussion and Analysis be included in
this proxy statement.
Respectfully submitted by the members of the compensation committee of the board of directors:
Enrique Salem (Chair)
William M. Coughran Jr.
Stephen Pusey
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Summary Compensation Table for Fiscal Year 2016
The following table provides information regarding the compensation awarded to, or earned by, the Named
Executive Officers during 2014, 2015 and 2016.
Name and Principal
Position
David G. DeWalt, . . . . . . . . . . . . . . . . . . .
Executive Chairman of the Board and
Former Chief Executive Officer(5)
Michael J. Berry,
. . . . . . . . . . . . . . . . . . .
Executive Vice President, Chief
Financial Officer and Chief Operating
Officer(6)
Alexa King, . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice President, General
Counsel and Secretary
Kevin R. Mandia, . . . . . . . . . . . . . . . . . . .
Chief Executive Officer(7)
Travis M. Reese, . . . . . . . . . . . . . . . . . . . .
President(8)
William T. Robbins, . . . . . . . . . . . . . . . . .
Executive Vice President of Worldwide
Sales(9)
Year
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
Salary
($)
Bonus
($)(1)
Stock Awards
($)(2)
350,000
350,000
350,000
410,000
115,115
—
—
—
—
—
—
—
6,010,000
15,703,600
12,846,000
2,199,000
6,653,900
—
305,000
270,000
250,000
21,771
—
—
343,750
325,000
—
48,125
—
—
331,250
—
—
36,850
—
—
52,841
—
—
5,784
—
—
2,001,000
1,460,800
2,974,001
7,175,000
9,130,000
—
6,077,000
—
—
6,502,125
—
—
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)(3)
All Other
Compensation
($)(4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
214,375
324,625
367,500
251,125
380,275
—
96,979
133,650
137,500
214,375
301,438
—
164,150
—
—
25,772
—
—
24,408
—
—
1,518
—
—
30,836
—
—
34,644
—
—
126,057
—
—
110
—
—
Total ($)
6,598,783
16,378,225
13,563,500
2,861,643
7,149,290
—
2,455,586
1,864,450
3,361,501
7,815,894
9,756,438
—
6,735,307
—
—
6,586,632
—
—
(1) The amounts in this column represent discretionary cash bonuses based on 2016 performance but paid in
2017. All other cash incentive compensation is shown in the column for “Non-Equity Incentive Plan
Compensation.”
(2) The amounts in this column represent the aggregate grant date fair value of time-based restricted stock units
(“RSUs”) and performance-based restricted stock units (“PSUs”) as computed in accordance with Financial
Accounting Standard Board Accounting Standards Codification Topic 718. The assumptions used in
calculating the grant date fair value of the awards reported in this column are set forth in the notes to our
audited consolidated financial statements included in our Annual Report on Form 10-K, as filed with the
SEC on February 24, 2017. The PSUs were valued based on the target outcome of performance-based
conditions (i.e., based on 100% achievement). If the PSUs were instead valued based on the maximum
outcome of performance-based conditions (i.e., based on 150% achievement), the total amount represented
in this column for 2016 would be as follows: Mr. DeWalt: $7,512,500; Mr. Berry: $2,748,750; Ms. King:
$2,501,250; Mr. Mandia: $8,968,750; Mr. Reese: $7,376,250; and Mr. Robbins: $7,740,625.
(3) The amounts in this column represent amounts paid under the Employee Incentive Plan.
(4) For 2016, the amounts in this column include: (i) for Mr. DeWalt, payout of vacation time in the amount of
$22,560; (ii) for Ms. King, payout of vacation time in the amount of $29,873; (iii) for Mr. Mandia, payout of
vacation time in the amount of $33,654; and (iv) for Mr. Reese, payout of vacation time in the amount of
$32,212 and $92,464 of relocation and living expenses paid in connection with the relocation of his primary
business location to our California headquarters at our request.
(5) Mr. DeWalt’s served as our Chief Executive Officer until June 14, 2016 and terminated his employment
with us on January 31, 2017.
(6) Mr. Berry’s employment with us terminated on February 3, 2017.
(7) Mr. Mandia became a Named Executive Officer in 2015. Accordingly, only information for 2016 and 2015
is provided with respect to Mr. Mandia.
(8) Mr. Reese was appointed as our President effective June 15, 2016 and accordingly only information for
2016 is provided with respect to Mr. Reese.
(9) Mr. Robbins was appointed as our Executive Vice President of Worldwide Sales on November 18, 2016 and
accordingly only information for 2016 is provided with respect to Mr. Robbins.
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Grants of Plan-Based Awards Table for Fiscal Year 2016
The following table provides information regarding the amount of equity awards granted to the Named
Executive Officers during 2016.
Name
David G. DeWalt . . . . . . . . .
Michael J. Berry . . . . . . . . .
Alexa King . . . . . . . . . . . . .
Kevin R. Mandia . . . . . . . . .
Travis M. Reese . . . . . . . . . .
William T. Robbins . . . . . . .
Grant
Date
—
2/9/16
2/9/16
—
2/9/16
2/9/16
5/5/16
5/5/16
—
2/9/16
2/9/16
5/5/16
5/5/16
—
2/9/16
2/9/16
5/3/16
5/3/16
—
2/9/16
2/9/16
5/5/16
5/5/16
8/2/16
—
12/27/16
12/27/16
12/27/16
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(1)
Estimated Future
Payouts Under
Equity Incentive
Plan
Awards(2)
Threshold($) Target($) Max($) Target(#) Max(#)
All Other
Stock
Awards:
Number
of Shares
of Stock
or
Units(#)(3)
Grant Date
Fair Value of
Stock and
Option
Awards($)(4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
37,500
75,000
—
—
—
—
—
—
—
—
— 50,000
350,000 525,000
—
— 3,005,000
3,005,000
—
300,500
300,500
799,000
799,000
—
601,000
601,000
399,500
399,500
—
— 250,000
—
—
—
37,500
— 25,000
—
— 50,000
—
—
75,000
—
—
— 250,000 375,500
—
—
—
410,000 615,000
— 25,000
—
—
— 50,000
—
—
—
158,333 237,500
— 50,000
—
—
— 25,000
— 25,000
—
—
—
—
—
350,000 525,000
— 1,502,500
— 125,000 187,500
1,502,500
—
—
— 2,085,000
— 125,000 187,500
2,085,000
—
—
—
—
268,000 402,000
— 50,000
—
—
— 125,000 187,500
— 125,000
—
—
— 50,000
—
—
—
—
—
63,114
— 2,477,000
— 200,000 300,000
1,548,125
—
—
2,477,000
—
—
601,000
601,000
— 1,997,500
1,997,500
880,000
—
— 125,000
—
—
—
75,000
— 50,000
—
—
—
—
—
42,076
—
—
—
— 125,000
— 200,000
— 125,000
—
—
—
—
(1) The amounts in the Estimated Future Payouts Under Non-Equity Incentive Plan Awards columns relate to
amounts payable for the achievement of the 2016 performance metrics established by our compensation
committee under our Employee Incentive Plan. The target column assumes the achievement of the corporate
performance metrics and the individual performance metrics at the target level. The maximum column
assumes the achievement of the corporate performance metrics and the individual performance metrics at
the maximum level. Notwithstanding the level of performance achieved by such executives, our
compensation committee reserves the right to increase, reduce or eliminate any incentive compensation in
its discretion. The actual amounts paid to the Named Executive Officers that are our current and former
executive officers are set forth in the Summary Compensation Table for Fiscal Year 2016 above. For more
information, see “Compensation Discussion and Analysis—Compensation Elements” above.
(2) Represents performance-based restricted stock unit awards which were granted under the FireEye, Inc. 2013
Equity Incentive Plan. For more information, see “Compensation Discussion and Analysis—Compensation
Elements” above.
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(3) Represents restricted stock unit awards which were granted under the FireEye, Inc. 2013 Equity Incentive Plan.
(4) The amounts in this column represent the aggregate grant date fair value of the award as computed in
accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718. The
assumptions used in calculating the grant date fair value of the awards reported in this column are set forth
in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K,
as filed with the SEC on February 24, 2017.
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Outstanding Equity Awards at 2016 Fiscal Year-End
The following table presents certain information concerning equity awards held by the Named Executive
Officers as of December 31, 2016.
Option Awards
Stock Awards(1)
Name
Grant Date
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Equity
incentive
plan
awards:
number
of
unearned
shares,
units or
other
rights
that have
not
vested(#)
Equity
incentive
plan
awards:
market
or payout
value of
unearned
shares,
units or
other
rights
that have
not
vested($)
Number
of
Shares
or Units
of Stock
that
have
not
Vested
(#)
Market
Value of
Shares or
Units of
Stock
that have
not
Vested
($)(2)
Michael J. Berry(6) . . . .
David G. DeWalt(3) . . . .
Alexa King . . . . . . . . . . .
Kevin R. Mandia . . . . . .
6/15/12(4)
1/22/13(5)
11/3/15
11/3/15(9)
2/9/16(10)
2/9/16(11)
5/5/16(12)
5/5/16(13)
2/14/14(14)
2/14/14(15)
2/14/14(16)
2/10/15(17)
2/10/15(18)
2/9/16(19)
2/9/16(20)
5/5/16(21)
5/5/16(22)
2/9/16(23)
2/9/16(24)
5/3/16(25)
5/3/16(26)
Travis M. Reese . . . . . . . 10/27/11(27)
1/24/13(28)
11/16/13(29)
12/30/13(30)
2/10/15(31)
2/10/15(32)
5/27/15(33)
2/9/16(34)
2/9/16(35)
5/5/16(36)
5/5/16(37)
8/2/16(38)
William T. Robbins . . . . 12/27/16(39)
12/27/16(40)
12/27/16(41)
41,000
139,944
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
173,677
46,980
72,428
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
21,533
—
—
—
—
—
—
—
—
—
—
—
—
1.65
5.44
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6.61
7.92
9.56
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6/14/2022
—
1/21/2023
5,750(7) 68,425
—
1,026,375
86,250
—
59,500
5,000
—
297,500
25,000
—
119,000
10,000
—
595,000
50,000
—
104,125
8,750
—
29,750
—
2,500
256,148
— 21,525
342,720
— 28,800
119,000
10,000
—
119,000
10,000
—
595,000
50,000
—
59,500
5,000
—
297,500
25,000
—
297,500
25,000
—
1,487,500
—
125,000
— 25,000
297,500
— 125,000 1,487,500
—
—
—
16,184
428,400
148,750
743,750
119,000
595,000
297,500
1,487,500
595,000
10/26/2021
1/23/2023
11/15/2023
—
—
—
—
—
—
—
—
—
—
— 125,000 1,487,500
— 200,000 2,380,000
—
—
57,500(8) 684,250
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 200,000 2,380,000
—
—
—
—
—
1,360
36,000
12,500
62,500
10,000
50,000
25,000
125,000
50,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) Unless otherwise described in the footnotes below, represents (i) restricted stock awards, (ii) performance based
restricted stock awards and (iii) shares of restricted stock issued upon the early exercise of stock options, in each case
that remained unvested as of December 31, 2016. We have a right to repurchase any unvested shares subject to each such
award if the holder of the award ceases to provide services to us prior to the date on which all shares subject to the award
have vested in accordance with the applicable vesting schedule described in the footnotes below.
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(2) The market value of unvested shares is calculated by multiplying the number of unvested shares held by the applicable
Named Executive Officer by the closing market price of our common stock on The NASDAQ Global Select Market on
December 30, 2016, which was $11.90 per share.
(3) Mr. DeWalt’s service terminated on January 31, 2017. At that time, he did not hold any unvested equity awards.
(4) The stock option is fully vested and immediately exercisable.
(5) The stock option is fully vested and immediately exercisable.
(6) Mr. Berry’s service terminated on March 1, 2017, at which time all then unvested options and unvested restricted stock
units previously granted to him were forfeited.
(7) Upon the achievement of certain performance conditions, 5,750 of the eligible restricted stock units relating to the 2016
performance year were earned and vested on February 15, 2017.
(8) Upon the achievement of the target outcome of certain performance conditions, 50% of the eligible restricted stock units
will vest on February 15, 2018, and 50% of the eligible restricted stock units will vest on February 15, 2019, in each case
subject to Mr. Berry’s continuous status as a service provider on each such vesting date.
(9) 25% of the shares subject to the restricted stock unit award vested on February 15, 2016, and the remaining shares
subject to the restricted stock unit award will vest annually in three equal installments on the anniversary of such date, in
each case subject to Mr. Berry’s continuous status as a service provider on each such vesting date.
(10) Represents the actual number of shares issuable upon the vesting of restricted stock units. 50% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest annually in two equal installments on the anniversary of such date, in each case
subject to Mr. Berry’s continuous status as a service provider on each such vesting date.
(11) One-third of the shares subject to the restricted stock unit award will vest annually beginning on February 15, 2017, in
each case subject to Mr. Berry’s continuous status as a service provider on each such date.
(12) Represents the actual number of shares issuable upon the vesting of restricted stock units. 25% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest annually in three equal installments on the anniversary of such date, in each case
subject to Mr. Berry’s continuous status as a service provider on each such vesting date.
(13) 25% of the shares subject to the restricted stock unit award will vest annually beginning on May 15, 2017, in each case
subject to Mr. Berry’s continuous status as a service provider on each such vesting date.
(14) 100% of the shares subject to the restricted stock unit award will vest on February 15, 2017, subject to Ms. King’s
continuous status as a service provider on such vesting date.
(15) 50% of the shares subject to the restricted stock unit award will vest on February 15, 2017, and 50% of the shares subject
to the restricted stock unit award will vest on February 15, 2018, in each case subject to Ms. King’s continuous status as
a service provider on each such vesting date.
(16) Represents the actual number of shares issuable upon the vesting of restricted stock units. The amount earned, which was
based on the achievement of certain performance conditions, will vest on February 15, 2017, subject to Ms. King’s
continuous status as a service provider on such vesting date.
(17) Represents the actual number of shares issuable upon the vesting of restricted stock units. 50% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest on February 15, 2018, in each case subject to Ms. King’s continuous status as a
service provider on each such vesting date.
(18) 50% of the shares subject to the restricted stock unit award will vest annually beginning on February 15, 2017, subject to
Ms. King’s continuous status as a service provider on each such vesting date.
(19) Represents the actual number of shares issuable upon the vesting of restricted stock units. 50% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest annually in two equal installments on the anniversary of such date, in each case
subject to Ms. King’s continuous status as a service provider on each such vesting date.
(20) One-third of the shares subject to the restricted stock unit award will vest annually beginning on February 15, 2017, in
each case subject to Ms. King’s continuous status as a service provider on each such date.
(21) Represents the actual number of shares issuable upon the vesting of restricted stock units. 25% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest annually in three equal installments on the anniversary of such date, in each case
subject to Ms. King’s continuous status as a service provider on each such vesting date.
(22) 25% of the shares subject to the restricted stock unit award will vest annually beginning on May 15, 2017, in each case
subject to Ms. King’s continuous status as a service provider on each such vesting date.
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(23) Represents the actual number of shares issuable upon the vesting of restricted stock units. 50% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest annually in two equal installments on the anniversary of such date, in each case
subject to Mr. Mandia’s continuous status as a service provider on each such vesting date.
(24) One-third of the shares subject to the restricted stock unit award will vest annually beginning on February 15, 2017, in
each case subject to Mr. Mandia’s continuous status as a service provider on each such vesting date.
(25) Represents the actual number of shares issuable upon the vesting of restricted stock units. 25% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest annually in three equal installments on the anniversary of such date, in each case
subject to Mr. Mandia’s continuous status as a service provider on each such vesting date.
(26) 25% of the shares subject to the restricted stock unit award will vest annually beginning on June 15, 2017, in each case
subject to Mr. Mandia’s continuous status as a service provider on each such vesting date.
(27) The stock option is fully vested and immediately exercisable.
(28) The stock option is fully vested and immediately exercisable.
(29) 25% of the shares subject to the option vested on November 16, 2014, and the remaining shares subject to the option will
vest in 36 equal monthly installments thereafter, in each case subject to Mr. Reese’s continuous status as a service
provider on each such vesting date.
(30) Upon the achievement of certain performance conditions, 1,360 of the eligible restricted stock units relating to the 2016
performance year were earned and vested on February 15, 2017.
(31) Represents the actual number of shares issuable upon the vesting of restricted stock units. 50% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest on February 15, 2018, in each case subject to Mr. Reese’s continuous status as a
service provider on each such vesting date.
(32) 50% of the shares subject to the restricted stock unit award will vest annually beginning on February 15, 2017, in each
case subject to Mr. Reese’s continuous status as a service provider on each such vesting date.
(33) 25% of the shares subject to the restricted stock unit award vested on May 15, 2016, and 6.25% of the shares subject to
the restricted stock unit award will vest quarterly thereafter, in each case subject to Mr. Reese’s continuous status as a
service provider on each such vesting date.
(34) Represents the actual number of shares issuable upon the vesting of restricted stock units. 50% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest annually in two equal installments on the anniversary of such date, in each case
subject to Mr. Reese’s continuous status as a service provider on each such vesting date.
(35) One-third of the shares subject to the restricted stock unit award will vest annually beginning on February 15, 2017, in
each case subject to Mr. Reese’s continuous status as a service provider on each such vesting date.
(36) Represents the actual number of shares issuable upon the vesting of restricted stock units. 25% of the amount earned,
which was based on the achievement of certain performance conditions, will vest on February 15, 2017, and the
remaining amount earned will vest annually in three equal installments on the anniversary of such date, in each case
subject to Mr. Reese’s continuous status as a service provider on each such vesting date.
(37) 25% of the shares subject to the restricted stock unit award will vest annually beginning on June 15, 2017, subject to
Mr. Reese’s continuous status as a service provider on each such vesting date.
(38) 100% of the shares subject to the restricted stock unit award will vest on August 15, 2017, subject to Mr. Reese’s
continuous status as a service provider on such vesting date.
(39) Upon the achievement of the target outcome of certain performance conditions, 25% of the eligible restricted stock units
will vest on February 15, 2018, 25% of the eligible restricted stock units will vest on February 15, 2019, 25% of the
eligible restricted stock units will vest on February 15, 2020, and 25% of the eligible restricted stock units will vest on
February 15, 2021, in each case subject to Mr. Robbins’ continuous status as a service provider on each such vesting date.
(40) 100% of the shares subject to the restricted stock unit award will vest on January 2, 2017, subject to Mr. Robbins’
continuous status as a service provider on such vesting date.
(41) 25% of the shares subject to the restricted stock unit award will vest on November 15, 2017, and 6.25% of the shares
subject to the restricted stock unit award will vest quarterly thereafter, in each case subject to Mr. Robbins’ continuous
status as a service provider on each such vesting date.
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Option Exercises and Stock Vested for Fiscal Year 2016
The following table sets forth the number of shares acquired and the value realized upon the exercise of
stock options and the vesting of restricted stock awards and restricted stock units during fiscal year 2016 by each
of the Named Executive Officers.
Name
David G. DeWalt . . . . . .
Alexa King . . . . . . . . . . .
Michael J. Berry . . . . . . .
Kevin R. Mandia . . . . . .
Travis M. Reese . . . . . . .
William T. Robbins . . . .
Option Awards
Stock Awards
Number of Shares
Acquired on Exercise
(#)
Value Realized on Exercise
($)
Number of Shares
Acquired on Vesting
(#)
Value Realized on Vesting
($)(1)
—
—
—
—
—
—
—
—
—
—
—
—
471,066
1,250
56,350
279,256
55,865
—
5,778,682
15,000
676,200
3,478,132
716,828
—
(1) Based on the market price of the Company’s common stock on the vesting date, multiplied by the number of
shares vested.
Employment Agreements for Executive Officers
Kevin R. Mandia
Effective December 30, 2013, we entered into an offer letter with Kevin R. Mandia, our Chief Executive
Officer. The offer letter is for no specific term and provides that Mr. Mandia is an at-will employee.
Mr. Mandia’s current annual base salary is $350,000, and he is eligible for annual target incentive payments
equal to $350,000 for 2017. Mr. Mandia is also eligible for severance benefits under our Change of Control
Severance Policy for Officers.
The offer letter also contains certain covenants regarding activities that Mr. Mandia cannot engage in while
providing services to us.
Alexa King
Effective August 1, 2013, we entered into a confirmatory offer letter with Alexa King, our Executive Vice
President, General Counsel and Secretary. The offer letter is for no specific term and provides that Ms. King is an
at-will employee. Ms. King’s current annual base salary is $316,667, and she is eligible for annual target
incentive payments equal to $158,333 for 2017. Ms. King is also eligible for severance benefits under our
Change of Control Severance Policy for Officers.
Travis M. Reese
Effective July 20, 2016, we entered into an amended and restated offer letter with Travis M. Reese, our
President. The offer letter is for no specific term and provides that Mr. Reese is an at-will employee. Mr. Reese’s
current annual base salary is $335,000, and he is eligible for annual target incentive payments equal to $268,000
for 2017. Mr. Reese is also eligible for severance benefits under our Change of Control Severance Policy for
Officers.
The offer letter also contains certain benefits for Mr. Reese in connection with the relocation of his primary
business location to our California headquarters in August 2016. In support of the relocation, we agreed to
reimburse Mr. Reese, or directly pay on his behalf, (i) his reasonable, approved and documented expenses
incurred in relocating his household to California and (ii) up to $10,000 per month of his actual and documented
housing rental expenses in California that he incurs, during the two year period after the date of his relocation,
while he serves as our President and his primary business location is our California headquarters.
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William T. Robbins
Effective November 14, 2016, we entered into an offer letter with William T. Robbins, our Executive Vice
President of Worldwide Sales. The offer letter is for no specific term and provides that Mr. Robbins is an at-will
employee. Mr. Robbins’ current annual base salary is $450,000, and he is eligible for annual target incentive
payments equal to $350,000 for 2017. Mr. Robbins is also eligible for severance benefits under our Change of
Control Severance Policy for Officers.
Frank E. Verdecanna
Effective October 30, 2012, we entered into an offer letter with Frank E. Verdecanna, our Executive Vice
President, Chief Financial Officer and Chief Accounting Officer. The offer letter is for no specific term and
provides that Mr. Verdecanna is an at-will employee. Mr. Verdecanna’s current annual base salary is $370,000,
and he is eligible for annual target incentive payments equal to $185,000 for 2017. Mr. Verdecanna is also
eligible for severance benefits under our Change of Control Severance Policy for Officers.
Other Employment Agreements
David G. DeWalt
Effective June 15, 2016, we entered into an amended and restated offer letter with David G. DeWalt, our
former Executive Chairman of the Board and former Chief Executive Officer. The offer letter has no specific
term and provides that Mr. DeWalt is an at-will employee. Pursuant to the offer letter, certain of Mr. DeWalt’s
equity awards were amended or cancelled. Mr. DeWalt’s employment with us terminated on January 31, 2017.
Michael J. Berry
Effective August 27, 2015, we entered into an offer letter with Michael J. Berry, our former Executive Vice
President, Chief Financial Officer and Chief Operating Officer. The offer letter is for no specific term and
provides that Mr. Berry is an at-will employee. Mr. Berry’s employment with us terminated in February 2017.
Effective February 2, 2017, we entered into a transition agreement with Mr. Berry. Under the transition
agreement, Mr. Berry agreed to provide transition services to us through the date of the filing of our Form 10-K
for the fiscal year ended December 31, 2016 with the SEC or March 1, 2017, whichever is later. Mr. Berry’s
transition services terminated on March 1, 2017.
Change of Control Severance Policy for Officers
In July 2013, our compensation committee adopted and approved a Change of Control Severance Policy for
Officers, or the Severance Policy. All of our executive officers and certain of our non-executive officers
(collectively referred to as “eligible employees”) are generally eligible for severance benefits under the
Severance Policy, subject to the conditions described below. Each eligible employee may receive benefits upon a
qualified termination of employment three months prior to, or 12 months following a change of control, or the
change of control period. In addition, eligible employees may receive severance benefits for qualified
terminations of employment unrelated to a change of control. The benefits in the Severance Policy vary based on
whether an eligible employee is an executive officer, or Tier 1 Executive, or a non-executive officer, or Tier II
Executive.
In the event of a termination of employment without “cause” (as generally defined below) outside of the
change of control period, an eligible employee will receive the following:
•
Tier I Executive:
•
•
lump-sum 12 months base salary payment; and
paid COBRA continuation for 12 months.
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Tier II Executive:
•
•
lump-sum 6 months base salary payment; and
paid COBRA continuation for 6 months.
In the event of a termination of employment without “cause” or a resignation for “good reason” (as such
terms are generally defined below), in each case, during the change of control period, an eligible employee will
receive the following:
•
Tier I Executive:
•
•
•
•
lump-sum 12 months base salary payment;
pro-rata bonus for the year of termination;
100% acceleration of unvested equity awards with performance awards vesting at maximum level;
and
paid COBRA continuation for 12 months.
•
Tier II Executive:
•
•
•
•
lump-sum 12 months base salary payment;
pro-rata bonus for the year of termination;
100% acceleration of unvested equity awards with performance awards vesting at maximum level;
and
paid COBRA continuation for 12 months.
To be an eligible employee, the participant must enter into a participation agreement with us. Also, all
severance benefits under the Severance Policy are subject to the eligible employee executing a release of clams.
Benefits under the Severance Policy replace any then-existing severance and/or change of control benefit
that an eligible employee had previously.
For purposes of the Severance Policy, “cause” means generally:
•
•
•
•
•
•
•
the unauthorized use or disclosure of our confidential information or trade secrets, which use or
disclosure causes material harm to us;
the material breach of any agreement between us and the named executive officer;
the material failure to comply with our written policies or rules;
the conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or
any State;
gross negligence or willful misconduct in the performance of the named executive officer’s duties;
the continuing failure to perform assigned duties after receiving written notification of the failure from
the Chief Executive Officer; or
the failure to cooperate in good faith with a governmental or internal investigation of the company or
our directors, officers or employees, if we have requested such cooperation;
provided, however, that “cause” will not be deemed to exist in certain of the events above unless the named
executive officer has been provided with (i) 30 days’ written notice by the board of directors of the act or
omission constituting “cause” and (ii) 30 days’ opportunity to cure such act or omission, if capable of cure.
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For purposes of the Severance Policy, “good reason” means generally any of the following without an
eligible employee’s consent:
•
•
•
•
•
a material reduction in duties, authority, reporting relationship, or responsibilities;
a material reduction in annual cash compensation;
a requirement to relocate to a location more than twenty miles from the eligible employee’s then-
current office location;
a material breach by us of the eligible employee’s employment agreement or any other agreement
between the eligible employee and us; or
a failure by any successor entity to assume the Severance Policy.
Potential Payments upon a Change of Control, upon Termination or upon Termination Following a
Change of Control
Potential Payments Upon Termination of Employment Outside of the Change of Control Period
The table below shows the estimated benefits and compensation that each Named Executive Officer would
have received under the Severance Policy if the Named Executive Officer had been terminated without cause on
December 31, 2016, assuming that such termination occurred outside of a change of control period.
Name
Salary Continuation($)
Value of Continued
Health Care
Premiums($)(1)
David G. DeWalt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael J. Berry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexa King . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kevin R. Mandia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travis M. Reese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William T. Robbins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
350,000
410,000
316,667
350,000
335,000
450,000
21,806
21,806
21,806
21,806
16,706
21,806
(1) Estimates of COBRA value are based on coverage in effect as of December 31, 2016.
Total($)
371,806
431,806
338,473
371,806
351,706
471,806
Potential Payments Upon Termination of Employment During the Change of Control Period
The table below shows the estimated benefits and compensation that each Named Executive Officer would
have received under the Severance Policy if the Named Executive Officer had been terminated without cause, or
had resigned for good reason, on December 31, 2016, assuming that such termination or resignation for good
reason occurred within a change of control period.
Acceleration
Name
Salary Continuation($)
David G. DeWalt . . . . .
Michael J. Berry . . . . . .
Alexa King . . . . . . . . . .
Kevin R. Mandia . . . . .
Travis M. Reese . . . . . .
William T. Robbins . . .
350,000
410,000
316,667
350,000
335,000
450,000
Pro rata Cash
Incentive($)(1)
Option
Awards($)
Stock
Awards($)
350,000
410,000
158,333
350,000
268,000
42,076
—
—
— 4,797,188
— 3,082,993
— 7,437,500
7,243,530
— 7,437,500
50,387
Value of
Continued
Health Care
Premiums($)(2)
21,806
21,806
21,806
21,806
16,706
21,806
Total($)
721,806
5,638,994
3,984,994
8,159,306
8,154,598
7,951,382
(1) Represents amount of target annual cash incentive opportunity as of December 31, 2016.
(2) Estimates of COBRA value are based on coverage in effect as of December 31, 2016.
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Equity Compensation Plan Information
The following table provides information as of December 31, 2016 with respect to shares of our common
stock that may be issued under our existing equity compensation plans. The table does not include information
with respect to shares of our common stock subject to outstanding stock options that were assumed by us in
connection with our acquisition of Mandiant or nPulse Technologies, which originally granted those stock
options. However, footnote 3 to the table sets forth the total number of shares of our common stock issuable upon
the exercise of those assumed options as of December 31, 2016, and the weighted average exercise price of those
assumed stock options.
Plan Category
(a) Number of
Securities to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights
(b) Weighted Average
Exercise Price of
Outstanding Options,
Warrants and
Rights(1)
(c) Number of
Securities Remaining
Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a))
Equity compensation plans approved by
stockholders(2)
. . . . . . . . . . . . . . . . . . . . . . . .
27,084,961
Equity compensation plans not approved by
stockholders(3)
. . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
27,084,961
$10.975
—
$10.975
12,888,906
—
12,888,906
(1) The weighted average exercise price is calculated based solely on outstanding stock options. It does not take
(2)
into account restricted stock units, which have no exercise price.
Includes the following plans: FireEye, Inc. 2008 Stock Plan, FireEye, Inc. 2013 Equity Incentive Plan
(“2013 Plan”) and FireEye, Inc. 2013 Employee Stock Purchase Plan (“ESPP”). Our 2013 Plan provides that
on the first day of each fiscal year, the number of shares available for issuance thereunder is automatically
increased by a number equal to the least of (i) 12,100,000 shares of common stock, (ii) five percent
(5.0%) of the aggregate number of shares of common stock outstanding on December 31st of the preceding
fiscal year, or (iii) such other amount as may be determined by our board of directors. Our ESPP provides
that on the first day of each fiscal year, the number of shares available for issuance thereunder is
automatically increased by a number equal to the least of (i) 3,700,000 shares of common stock, (ii) one
percent (1.0%) of the aggregate number of shares of common stock outstanding on such date, or (iii) such
other amount as may be determined by our board of directors. On January 1, 2017, the number of shares
available for issuance under our 2013 Plan and our ESPP increased by 8,729,801 shares and 1,745,960
shares, respectively, pursuant to these provisions. These increases are not reflected in the table above.
(3) The table does not include information for the Mandiant Corporation 2006 Equity Incentive Plan, Mandiant
Corporation 2011 Equity Incentive Plan, FireEye, Inc. Umbrella Plan for Assumed Options and nPulse
Technologies, Inc. 2012 Stock Incentive Plan, which are equity compensation plans governing stock options
assumed by us in connection with the acquisitions of Mandiant and nPulse Technologies. As of
December 31, 2016, there were a total of 830,303 shares subject to outstanding stock options assumed by us
in connection with the acquisitions of Mandiant and nPulse Technologies. Those outstanding stock options
had a weighted average exercise price of $8.03 per share. No additional awards may be made under those
plans.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common
stock as of April 3, 2017 for:
•
•
•
•
each of our directors and nominees for director;
each of the Named Executive Officers;
all of our current directors and current executive officers as a group; and
each person or group who is known by us to be the beneficial owner of more than 5% of our common
stock.
We have determined beneficial ownership in accordance with the rules of the SEC and the information is
not necessarily indicative of beneficial ownership for any other purpose. Unless otherwise indicated below, to our
knowledge, the persons and entities named in the table have sole voting and sole investment power with respect
to all shares that they beneficially owned, subject to community property laws where applicable.
We have based our calculation of the percentage of beneficial ownership on 177,856,766 shares of our
common stock outstanding as of April 3, 2017. We have deemed shares of our common stock subject to stock
options that are currently exercisable or exercisable within 60 days of April 3, 2017, or issuable pursuant to
restricted stock units that are subject to vesting conditions expected to occur within 60 days of April 3, 2017, to
be outstanding and to be beneficially owned by the person holding the stock option or restricted stock units for
the purpose of computing the percentage ownership of that person. We did not deem these shares outstanding,
however, for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o FireEye,
Inc., 1440 McCarthy Blvd., Milpitas, CA 95035.
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Name of Beneficial Owner+
5% Stockholders:
Number of Shares Beneficially
Owned
Percentage of Shares
Beneficially Owned
Shapiro Capital Management LLC and Samuel R.
Shapiro(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Vanguard Group(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,757,168
11,403,274
Directors and Named Executive Officers:
David G. DeWalt(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael J. Berry(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexa King(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kevin R. Mandia(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travis M. Reese(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William T. Robbins(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kimberly Alexy(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deepak Ahuja(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ronald E. F. Codd(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William M. Coughran Jr.(12) . . . . . . . . . . . . . . . . . . . . . . . .
Stephen Pusey(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enrique Salem(14)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All current directors and current executive officers as a
4,978,391
113,830
324,601
2,754,375
572,650
70,214
23,211
11,324
231,110
24,243
9,152
207,191
group (11 persons)(15) . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,337,928
10.5%
6.4%
2.8%
*
*
1.5%
*
*
*
*
*
*
*
*
2.4%
*
Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common
stock.
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+
Certain options to purchase shares of our capital stock included in this table are early exercisable, and to the
extent such shares are unvested as of a given date, such shares will remain subject to a right of repurchase
held by us.
(1) As of February 28, 2017, the reporting date of the filing by Shapiro Capital Management LLC and Samuel
R. Shapiro with the SEC on March 10, 2017 pursuant to Section 13(g) of the Exchange Act, (i) Shapiro
Capital Management LLC, as investment advisor, has sole voting power with respect to 16,956,863 shares
of our common stock, shared voting power with respect to 1,600,305 shares of our common stock, sole
dispositive power with respect to 18,557,168 shares of our common stock and shared dispositive power with
respect to zero shares of our common stock and (ii) Samuel R. Shapiro, the chairman, a director and
majority shareholder of Shapiro Capital Management LLC, for his individual account, has sole voting power
with respect to 200,000 shares of our common stock, shared voting power with respect to zero shares of our
common stock, sole dispositive power with respect to 200,000 shares of our common stock and shared
dispositive power with respect to zero shares of our common stock. Mr. Shapiro exercises dispositive power
over the shares of our common stock held by Shapiro Capital Management LLC, may be deemed to have
indirect beneficial ownership over such shares, and disclaimed beneficial ownership of all such shares. The
principal business address of both Shapiro Capital Management LLC and Mr. Shapiro is 3060 Peachtree
Road, Suite 1555 N.W., Atlanta, Georgia 30305.
(2) As of December 31, 2016, the reporting date of The Vanguard Group’s filing with the SEC on February 10,
2017 pursuant to Section 13(g) of the Exchange Act, The Vanguard Group, as investment advisor, has sole
voting power with respect to 89,171 shares of our common stock, shared voting power with respect to
14,500 shares of our common stock, sole dispositive power with respect to 11,306,803 shares of our
common stock and shared dispositive power with respect to 96,471 shares of our common stock. Vanguard
Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner
of 81,971 shares or .04% of our common stock as a result of its serving as investment manager of collective
trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group,
Inc., is the beneficial owner of 21,700 shares or .01% of our common stock as a result of its serving as
investment manager of Australian investment offerings. The address of The Vanguard Group is 100
Vanguard Blvd., Malvern, PA 19355.
(3) Represents shares held as of January 31, 2017, Mr. DeWalt’s last day of employment with us, consisting of
(i) 4,336,947 shares held of record by Mr. DeWalt, (ii) 180,944 shares issuable pursuant to outstanding
stock options, all of which were fully vested as of such date, (iii) 219,000 shares held of record by David G.
DeWalt and Mary Kathleen DeWalt, trustees of David G. DeWalt 2009 Irrevocable Trust, (iv) 219,000
shares held of record by David G. DeWalt and Mary Kathleen DeWalt, trustees of Mary Kathleen DeWalt
2009 Irrevocable Trust, and (v) 22,500 shares held of record by the DeWalt Family Trust U/A DTD
04/01/2003. Mr. DeWalt shares voting and investment power with respect to the shares held of record by
(i) David G. DeWalt and Mary Kathleen DeWalt, trustees of the David G. DeWalt 2009 Irrevocable Trust,
(ii) David G. DeWalt and Mary Kathleen DeWalt, trustees of the Mary Kathleen DeWalt 2009 Irrevocable
Trust, and (iii) DeWalt Family Trust U/A DTD 04/01/2003.
(4) Consists of (i) 52,496 shares held of record by Mr. Berry as of February 3, 2017, Mr. Berry’s last day of
employment with us, (ii) 13,500 shares held of record jointly by Mr. Berry and his wife as of February 3,
2017, and (iii) 47,834 shares of common stock issuable upon the vesting of restricted stock units within 60
days of February 3, 2017. Mr. Berry has shared voting and investment power with respect to the shares held
of record jointly by Mr. Berry and his wife.
(5) Consists of (i) 318,351 shares held of record by Ms. King and David Yamamoto as community property
with the right of survivorship and (ii) 6,250 shares of common stock issuable upon the vesting of restricted
stock units within 60 days of April 3, 2017. Ms. King has shared voting and investment power with respect
to the shares held of record by Ms. King and David Yamamoto as community property with the right of
survivorship.
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(6) Consists of (i) 2,269,499 shares held of record by Mr. Mandia, (ii) 340,691 shares held of record by Kevin
R. Mandia 2011 Irrevocable Trust Dated July 29, 2011, and (iii) 144,185 shares held of record by
Mr. Mandia’s wife. Mr. Mandia’s wife, as trustee, has shared voting and investment power with respect to
the shares held of record by the Kevin R. Mandia 2011 Irrevocable Trust dated July 29, 2011. Mr. Mandia
disclaims beneficial ownership of the shares held of record by the Kevin R. Mandia 2011 Irrevocable Trust
dated July 29, 2011 and the shares held of record by Mr. Mandia’s wife.
(7) Consists of (i) 86,828 shares held of record by Mr. Reese, (ii) 302,872 shares issuable pursuant to
outstanding stock options exercisable within 60 days of April 3, 2017, all of which will be fully vested as of
such date, (iii) 6,250 shares of common stock issuable upon the vesting of restricted stock units within 60
days of April 3, 2017, (iv) 121,585 shares held of record by the Travis M Reese Family Trust, for which
Mr. Reese and his wife serve as trustees, (v) 35,000 shares held of record by the Travis M. Reese Revocable
Trust, for which Mr. Reese serves as a trustee, and (vi) 20,115 shares held of record by Mr. Reese’s wife.
Mr. Reese’s wife, as trustee, has shared voting and investment power with respect to the shares held of
record by the Travis M Reese Family Trust. Mr. Reese disclaims beneficial ownership of the shares held of
record by his wife.
(8) Consists of 70,214 shares held of record by Mr. Robbins.
(9) Consists of (i) 8,954 shares held of record by Ms. Alexy and (ii) 14,257 shares of common stock issuable
upon the vesting of restricted stock units within 60 days of April 3, 2017.
(10) Consists of (i) 3,617 shares held of record by Mr. Ahuja, (ii) 6,707 shares of common stock issuable upon
the vesting of restricted stock units within 60 days of April 3, 2017, and (iii) 1,000 shares held of record by
the Ahuja Family Trust. Mr. Ahuja, as trustee, has shared voting and investment power with respect to the
shares held of record by the Ahuja Family Trust.
(11) Consists of (i) 106,322 shares held of record by the Codd Revocable Trust Dtd March 6, 1998, (ii) 118,000
shares issuable pursuant to outstanding stock options exercisable within 60 days of April 3, 2017, all of
which were fully vested as of such date, and (iii) 6,788 shares of common stock issuable upon the vesting of
restricted stock units within 60 days of April 3, 2017. Mr. Codd, as trustee, has shared voting and
investment power with respect to the shares held of record by the Codd Revocable Trust Dtd March 6, 1998.
(12) Consists of (i) 10,553 shares held of record by Mr. Coughran and (ii) 13,690 shares of common stock
issuable upon the vesting of restricted stock units within 60 days of April 3, 2017.
(13) Consists of (i) 2,510 shares held of record by Mr. Pusey and (ii) 6,642 shares of common stock issuable
upon the vesting of restricted stock units within 60 days of April 3, 2017.
(14) Consists of (i) 192,123 shares held of record by Mr. Salem and (ii) 15,068 shares of common stock issuable
upon the vesting of restricted stock units within 60 days of April 3, 2017.
(15) Consists of (i) 3,751,588 shares beneficially owned by our current directors and current executive officers,
(ii) 508,864 shares issuable pursuant to outstanding stock options exercisable within 60 days of April 3,
2017, all of which will be fully vested as of such date, and (iii) 77,476 shares of common stock issuable
upon the vesting of restricted stock units within 60 days of April 3, 2017.
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RELATED PERSON TRANSACTIONS
We describe below transactions and series of similar transactions, since the beginning of our last fiscal year,
to which we were or will be a party, in which:
•
•
the amounts involved exceeded or will exceed $120,000; and
any of our directors, nominees for director, executive officers or holders of more than 5% of our
outstanding capital stock, or any immediate family member of, or person sharing the household with,
any of these individuals or entities, had or will have a direct or indirect material interest.
Other than as described below, there has not been, nor is there any currently proposed, transactions or series
of similar transactions to which we have been or will be a party.
Indemnification Agreements
We have also entered into indemnification agreements with our directors and certain of our executive
officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify
our directors and officers to the fullest extent permitted by Delaware law.
Policies and Procedures for Related Party Transactions
Our audit committee has adopted a formal written policy providing that our audit committee is responsible
for reviewing “related party transactions,” which are transactions (i) in which we were, are or will be a
participant, (ii) in which the aggregate amount involved exceeds or may be expected to exceed $50,000, and
(iii) in which a related person had, has or will have a direct or indirect material interest. For purposes of this
policy, a related person is defined as a director, nominee for director, executive officer, or greater than 5%
beneficial owner of our common stock and their immediate family members. Under this policy, all related party
transactions may be consummated or continued only if approved or ratified by our audit committee. In
determining whether to approve or ratify any such proposal, our audit committee will take into account, among
other factors it deems appropriate, (i) whether the transaction is on terms no less favorable than terms generally
available to an unaffiliated third party under the same or similar circumstances and (ii) the extent of the related
party’s interest in the transaction. The policy grants standing pre-approval of certain transactions, including
(i) certain compensation arrangements of executive officers, (ii) certain director compensation arrangements,
(iii) transactions with another company at which a related party’s only relationship is as a non-executive
employee, director or beneficial owner of less than 10% of that company’s shares and the aggregate amount
involved does not exceed the greater of $500,000 or 2% of the company’s total annual revenue, (iv) transactions
where a related party’s interest arises solely from the ownership of our common stock and all holders of our
common stock received the same benefit on a pro rata basis, and (v) transactions available to all U.S. employees
generally.
CEO Travel Policy
In May 2016, our board of directors adopted a travel reimbursement policy whereby the individual serving
as our Chief Executive Officer is permitted to travel by private aircraft for FireEye business trips. Under the
policy, the individual is eligible for reimbursement for the incremental aircraft operating costs (e.g., minimum
and segment fees) and catering fees charged by the carrier for such travel. The policy applies to any travel from
and after January 1, 2016 and the total reimbursement for all eligible expenses with respect to private aircraft
travel is capped at $1,000,000 per year. For fiscal 2016, there were reimbursements of $37,946 to Mr. DeWalt for
such expenses incurred when he was our Chief Executive Officer.
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OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our executive officers and directors, and persons who own
more than 10% of our common stock, file reports of ownership and changes of ownership with the SEC. Such
directors, executive officers and 10% stockholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file.
SEC regulations require us to identify in this proxy statement anyone who filed a required report late during
the most recent fiscal year. Based on our review of forms we received, or written representations from reporting
persons stating that they were not required to file these forms, we believe that during our fiscal year ended
December 31, 2016, all Section 16(a) filing requirements were satisfied on a timely basis.
Available Information
Our financial statements for our fiscal year ended December 31, 2016 are included in our Annual Report on
Form 10-K. This proxy statement and our annual report are posted on the Investor Relations section of our
website at investors.FireEye.com and are available from the SEC at its website at www.sec.gov. You may also
obtain a copy of our annual report without charge by sending a written request to FireEye, Inc., Attention:
Investor Relations, 1440 McCarthy Blvd., Milpitas, California 95035.
Company Website
We maintain a website at www.FireEye.com. Information contained on, or that can be accessed through, our
website is not intended to be incorporated by reference into this proxy statement, and references to our website
address in this proxy statement are inactive textual references only.
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The board of directors does not know of any other matters to be presented at the Annual Meeting. If any
additional matters are properly presented at the Annual Meeting, the persons named on the enclosed proxy card
will have discretion to vote the shares of common stock they represent in accordance with their own judgment on
such matters.
It is important that your shares of common stock be represented at the Annual Meeting, regardless of the
number of shares that you hold. You are, therefore, urged to vote over the Internet or by telephone as instructed
on the enclosed proxy card or execute and return, at your earliest convenience, the enclosed proxy card in the
envelope that has also been provided.
THE BOARD OF DIRECTORS
Milpitas, California
April 17, 2017
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[THIS PAGE INTENTIONALLY LEFT BLANK]
201 6 ANN UA L REPORT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 001-36067
FireEye, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
20-1548921
(I.R.S. Employer
Identification Number)
1440 McCarthy Blvd.
Milpitas, CA 95035
(408) 321-6300
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant
Act. Yes È No ‘
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the “Exchange Act”). Yes ‘ No È
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes È No ‘
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer È
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
‘
Accelerated filer
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
As of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market
value of the registrant’s common stock held by non-affiliates was approximately $2.5 billion, based on the closing price of such stock
reported for such date on The NASDAQ Global Select Market. This calculation does not reflect a determination that persons are
affiliates for any other purposes.
The number of outstanding shares of the registrant’s common stock was 177,507,475 as of February 21, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2017 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2016 are incorporated by
reference into Part III of this Annual Report on Form 10-K.
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
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Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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PART IV
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K,
including the sections entitled “Business,” “Risk Factors,” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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. The words “believe,” “may,” “will,”
“potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan” “expect,” the
negative and plural forms of these words and similar expressions that convey uncertainty of future events or
outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are
not limited to, statements concerning the following:
•
•
•
•
•
•
•
•
•
•
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•
•
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the evolution of the threat landscape facing our customers and prospects;
our ability to educate the market regarding the advantages of our security solutions;
our ability to continue to grow revenues;
our future financial and operating results;
our business plan and our ability to effectively manage our growth and associated investments;
beliefs and objectives for future operations;
our ability to expand 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 renewal rates for subscriptions and services by existing customers;
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;
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;
costs associated with defending intellectual property infringement and other claims, such as those
claims discussed in “Business—Legal Proceedings”;
our expectations concerning relationships with third parties, including channel partners and logistics
providers;
the release of new products;
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economic and industry trends or trend analysis;
the attraction and retention of qualified employees and key personnel;
future acquisitions of or investments in complementary companies, products, subscriptions or
technologies; and
the effects of seasonal trends on our results of operations.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including
those described in “Risk Factors” included in Part I, Item 1A and elsewhere in this Annual Report on Form 10-K.
Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time
to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on
our business or the extent to which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements we may make. In light of these risks,
uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Annual Report on
Form 10-K may not occur, or unanticipated events or circumstances that we did not foresee may materialize,
either of which could cause actual results to differ materially and adversely from those anticipated or implied in
our forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe
that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the
future results, levels of activity, performance or events and circumstances described in the forward-looking
statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this Annual Report on Form 10-K to conform these
statements to actual results or to changes in our expectations, except as required by law.
You should read this Annual Report on Form 10-K and the documents that we reference in this Annual
Report on Form 10-K and have filed with the SEC as exhibits to this Annual Report on Form 10-K with the
understanding that our actual future results, levels of activity, performance and events and circumstances may be
materially different from what we expect.
4
Item 1. Business
General
PART I
We provide comprehensive intelligence-based cybersecurity solutions that allow organizations to prepare
for, prevent, respond to and remediate cyber attacks. Our portfolio of cybersecurity products and services is
designed to detect and prevent attacks as well as enable rapid discovery and response when a breach occurs. We
accomplish this through the “productization” of our three core competitive advantages:
• Our high efficacy detection of known and unknown threats by our proprietary Multi-vector Virtual
Execution (MVX) engine and intelligence-driven analysis (IDA) technologies,
• Our intelligence on threats and threat actors, based on the continuous flow of new attack data from our
global network of sensors and virtual machines, as well as intelligence gathered by our security
researchers and incident responders, and
• Our accumulated security expertise derived from responding to thousands of significant breaches over
the past decade.
Our MVX-based detection and prevention solutions encompass web, email, endpoint, cloud and content
(file) attack vectors, and provide the first line of defense against known and unknown attacks. These products are
complemented by our network forensics, cloud-based intelligence and threat analytics, managed security
services, cybersecurity consulting and incident response offerings. In combination, our products and services
enable a proactive approach to cybersecurity that extends across the security operations cycle to reduce
organizations’ overall cyber-risk at a lower total cost of ownership.
We were founded in 2004 to address the inability of signature-based security solutions to detect the new
generation of dynamic, stealthy and targeted cyberattacks, known as advanced persistent threats (APTs). To meet
the challenges of detecting these previously unknown threats, for which there were no signatures, we developed
our MVX engine, a purpose-built virtual machine-based threat detection and analysis engine. MVX employs a
two-phased approach to deliver high fidelity alerts—anomaly detection using our IDA technologies to capture
suspicious content, followed by virtual machine validation to minimize costly false positive alerts. MVX
generates a continuous flow of real-time “victim-based” threat data to our Dynamic Threat Intelligence (DTI)
cloud, allowing our solutions to be updated in near-real time as new threats emerge.
We have expanded our business from a narrow focus on the detection of advanced threats to helping our
customers improve their resilience to attacks using our technologies, intelligence and expertise. In the fourth
quarter of 2016, we announced an early adopter program for our FireEye Helix cybersecurity platform. Helix
integrates our network and endpoint security technologies, advanced threat intelligence, threat analytics, and
orchestration capabilities in a single subscription offering designed to simplify security operations. The cloud-
based Helix console provides a unified, customized view of an organization’s attack surface, enriching alerts
from FireEye and third party security products with contextual threat intelligence on attackers’ identity, tools and
techniques. Helix also includes pre-determined threat response “playbooks” based on Mandiant expertise and
best practices. Helix allows security analysts to prioritize critical alerts, rapidly pivot from detection to response,
and reduce the business impact of an attack.
As of December 31, 2016, we had approximately 5,600 end-customers, including more than 40% of the
including
Forbes Global 2000. Our customers include leading enterprises in a diverse set of industries,
telecommunications, technology, financial services, public utilities, healthcare and oil and gas, as well as leading
U.S. and international governmental agencies.
For 2016, 2015 and 2014, our revenue was $714.1 million, $623.0 million and $425.7 million, respectively,
representing year-over-year growth of 15% for 2016, 46% for 2015 and 163% for 2014, and our net losses were
$480.1 million, $539.2 million and $443.8 million, respectively.
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Our business is geographically diversified, with 69% of our total revenue from the United States, 14% from
Europe, the Middle East, and Africa (EMEA), 13% from Asia Pacific and Japan (APAC), and 4% from other
regions in 2016. See Note 15 contained in “Notes to Consolidated Financial Statements” in Item 8 of Part II of
this Annual Report on Form 10-K for more information about our customers, revenue and long-lived assets by
geographic region.
We were incorporated in Delaware in February 2004 under the name NetForts, Inc., and changed our name
to FireEye, Inc. in September 2005. Our principal executive offices are located at 1440 McCarthy Blvd, Milpitas,
California 95035, and our telephone number is (408) 321-6300. Our website is www.fireeye.com. Information
contained on, or that can be accessed through, our website is not incorporated by reference into this report, and
you should not consider information on our website to be part of this report. Our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished
pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of
charge on the Investors portion of our web site as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.
We are organized and operate in a single segment. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included in Part II, Item 7 of this Annual Report on Form 10-K.
Our Products, Subscriptions and Services
Our products are designed to address security requirements for small-to-mid sized businesses, remote offices,
large enterprises, governments and service providers. We offer multiple appliance models and form factors, each
with various features and capabilities. All our detection and prevention appliance products require subscriptions to
threat intelligence and support, which are typically priced as a percentage of the appliance price in one or three year
subscriptions. Our security-as-a-service offerings are offered in one or three year subscriptions and are priced based
on appropriate use metrics. We typically invoice customers for the full term of subscriptions up front. Professional
services are invoiced according to pre-determined contract terms for consulting services and on a time-and-
materials basis for incident response. We recognize revenue as our services are delivered.
Products
•
Threat Detection and Prevention Solutions. Our detection and prevention products consist of vector-
specific appliance and cloud-based solutions to detect and block known and unknown cyber attacks. Our
portfolio encompasses products for network, email, cloud, endpoint, and file (content) threat vectors.
•
Network security products (NX and MVX Compute Node Series). Our network security products
detect and block known and unknown threats hidden in Internet traffic. They are typically deployed
behind traditional signature- and policy-based defenses to detect and validate attacks missed by those
products, and are available in a variety of form factors, deployment options and performance/capacity
levels.
Integrated network security appliances. Our NX Series of integrated appliances combine our IDA rules
engines and MVX validation in a single, standalone appliance to secure an Internet access point at a
single site. NX Series capacity scales from 50 megabits per second (Mbps) to multiple gigabits per
second (Gbps) of throughput.
Distributed network security appliances. In November 2016, we introduced new appliances that
separated the two primary detection and prevention processes to enable distributed, cloud and hybrid
deployments. Network traffic capture and anomaly detection is performed by our virtual and physical
Smart Node appliances installed at Internet access points on the customers’ premise. MVX virtual
machine-based analysis and validation is performed by the highly scalable, centrally shared MVX
Smart Grid. Existing NX Series appliances can be configured to operate as Smart Nodes, allowing
organizations to migrate their on-premise security infrastructures seamlessly to hybrid and cloud-based
architectures.
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•
•
•
Email security products (EX Series and ETP). Our email security solutions detect and stop spear
phishing, ransomware, sender impersonation, credential phishing, typo-squatting, and other email-
based attacks. Our EX Series appliances and ETP cloud-based solution inspect emails for zero-day
exploits, malicious URLs, behavioral anomalies, and malware hidden in attachments. If an attack is
confirmed, the malicious email is quarantined for further analysis and deletion. All our email security
solutions integrate with FireEye network security through our Central Management System to protect
against multi-vector, blended attacks.
Endpoint security products (HX Series). Our HX next generation endpoint security solution equips
security organizations to detect, analyze and resolve security incidents, including exploits, on desktops,
laptops and other end-user devices using our intelligence-driven analysis engines. Threat intelligence
and alerts are correlated between our network security products and endpoint security products to
provide visibility across an organization and enable rapid containment. Additionally, the HX agent
collects forensic data necessary for investigation and analysis of attacks. In February 2017, we
announced an original equipment manufacturer (OEM) relationship with a leading provider of anti-
virus software to integrate signature-based malware detection and prevention on HX. The addition of
legacy malware detection functionality to our next-generation endpoint security solution provides a
comprehensive detection, protection and response solution.
Content security products (FX Series). Our FX Series of integrated appliances analyze content on
network file servers to detect and quarantine malicious content embedded in files brought into the
network online file sharing services and portable file storage devices.
•
Security Management and Orchestration Products
•
•
Central Management System (CMS). Our Central Management System, or CMS, manages the overall
deployment of our on-premise integrated NX, EX, FX, and AX security appliances by unifying
reporting, configuration, and threat
intelligence sharing. Customers generally purchase the CMS
appliance to manage multiple FireEye detection and prevention appliances.
FireEye Security Orchestrator (FSO). FireEye Security Orchestrator accelerates and simplifies
security operations by unifying disparate technologies and incident handling into a single console. FSO
coordinates the response to critical alerts across the security and IT infrastructure using customized
workflows, granular permissions, and bi-directional command and control plug-ins for many popular
security and infrastructure products. FSO also provides an investigative dashboard and is a core
enabling technology for the Helix platform.
•
Forensics and Investigation Products. Our forensics and investigation products provide the tools, threat
intelligence, and codified expertise necessary to rapidly prioritize, investigate and respond to threat alerts.
•
Threat Analytics Platform (TAP). TAP is a cloud-based detection and incident
investigation
application that enables security teams to identify and effectively respond to cyber threats in on-
premise, cloud and hybrid environments. TAP is designed to enable rapid search of billions of events to
identify malicious events. TAP integrates with the FireEye Security Orchestrator and the analytics are
key components of the Helix security console.
• Malware Analysis (AX Series). Our AX Series of appliances are intended for use by forensics experts
for detailed analysis and investigation of cyber attacks.
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Enterprise Forensics (PX Series and IA Series). Our PX Series of appliances captures, stores and
indexes full network packets at extremely rapid speeds to allow organizations to investigate and resolve
security incidents. Our Investigative Analysis System (IA Series) provides a centralized, easy-to-use
analytical interface to our PX Series of appliances to provide data visualization and in-depth analytics
in a single workbench.
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Subscription and Services
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Product Subscriptions
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Threat Intelligence Subscriptions
• Dynamic Threat Intelligence (DTI) Cloud. Our DTI cloud is a bi-directional system that
collects security data from our appliances, our global threat gathering network and our
security labs, and uses machine-learning and analysis techniques to identify new threats.
• Advanced Threat Intelligence (ATI). Our Advanced Threat Intelligence augments our
Dynamic Threat Intelligence by correlating validated alerts with contextual information on
known threat actors, including information on the identity of the attacker, likely motives, and
details on attack patterns.
• FireEye iSIGHT Intelligence. FireEye iSIGHT Intelligence is based on active monitoring of
threats, threat actors, threat sponsors, and their tools and tactics. Intelligence is codified in
reports to enable organizations to proactively defend against new and emerging cyber threats
before an attack is launched.
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Security-as-a-Service Offerings
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Email Threat Prevention Cloud (ETP). Our cloud-based Email Threat Prevention solution (ETP) is a
software-as-a-service (SaaS) offering that protects cloud-based mailboxes from advanced threats and
provides anti-spam and anti-virus protection.
FireEye Helix. Our FireEye Helix platform combines our cloud-based network and endpoint detection
capabilities, contextual threat intelligence, threat analytics, and orchestration capabilities with a unified
cloud-based console. Helix enriches security event data from FireEye and third party security products
with our threat intelligence, to enable alert prioritization and rapid response, as well as detailed
reporting for compliance purposes.
FireEye-as-a-Service. Our FireEye-as-a-Service offering is a managed service offering using our threat
intelligence and analytics to monitor and analyze network traffic and security alerts from FireEye and
third party products.
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Customer Support and Maintenance Services. We offer
technical support on our products and
subscriptions. We provide multiple levels of support and have regional support centers located across the
globe to help customers solve technical challenges that they may encounter. In addition to post-sales support
activities, our support organization works with our product management and engineering teams to ensure the
attainment of defined pre-requisite quality levels for our products and services prior to release.
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Professional Services
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Incident response, compromise assessments and related security consulting services. Our
cybersecurity experts help customers identify and remediate cyber breaches. Additionally, we
provide security programs assessments and planning, provide litigation support, and perform
forensic analyses. These consulting services are marketed under the Mandiant brand.
• Cyber Threat Intelligence Services. Cyber threat intelligence services design and build cyber
threat intelligence processes and solutions within customers’ security operations.
• Training. We offer training services to our customers and channel partners through our
training department and authorized training partners.
For contributions to total revenue by significant class of revenues, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this Annual Report on
Form 10-K.
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Our Technologies
We have developed proprietary technologies related to threat detection, virtual machine-based threat
analysis, endpoint protection, and security orchestration. We believe these technologies, combined with our
threat intelligence and security expertise, differentiate our products and services.
Advanced Threat Detection and Prevention Technology. At the core of our network, email, endpoint, and
content security solutions is our proprietary, purpose-built Multi-Vector Virtual Execution (MVX) engine. We
have developed our MVX engine to provide high efficacy threat protection through high fidelity detection,
negligible false-positive rates, and minimal impact on network performance. Our foundational technologies in
the MVX engine are: (i) line rate anomaly detection, (ii) proprietary virtual execution, and (iii) multi-flow cross
correlation. We have built our technology over 10 years of research and development, and we believe it
represents a significant competitive advantage for us. Because we first identify suspicious flows with our line
rate anomaly detector, using Intelligent-Driven Analysis (IDA) technologies, and then, through a separate
process, use our MVX engine to determine whether such suspicious flows are malicious, our technology can be
deployed on a single integrated appliance, as a cloud-based service, or in a hybrid appliance/cloud architecture.
Advanced Endpoint Validation and Containment. Our endpoint security solution includes proprietary
technologies that enable (i) automatic creation of indicators of compromise coupled with rapid enterprise-wide
search, (ii) exploit detection and prevention, (iii) forensic data capture and (iv) rapid containment and
investigation for connected and unconnected endpoints. Additionally, we have developed our endpoint
technologies to correlate and consume threat intelligence from our network-based security solutions.
Evolved Network Security Architecture and Security Orchestration. Our solutions are designed to operate
as part of a comprehensive security architecture to defend networks against today’s advanced threats and
minimize the business impact of attacks. The ability to monitor all traffic and file stores is critical to detecting
next-generation threats that will enter through multiple vectors and move laterally across the network. We
combine this visibility with our dynamic, contextual and strategic threat intelligence to enable rapid, prioritized
response to critical alerts across the IT infrastructure using our security orchestration technologies and tools.
Customers
Our customer base has grown from approximately 450 end-customers at the end of 2011 to approximately
5,600 end-customers as of December 31, 2016, including more than 40% of the Forbes Global 2000. We provide
products, subscriptions and services to customers of varying sizes, including enterprises, governmental agencies
and educational and nonprofit organizations. Our customers include leading enterprises in a diverse set of
industries, including telecommunications providers, financial services entities, Internet search engines, social
networking sites, stock exchanges, electrical grid operators, networking vendors, oil and gas companies,
healthcare and pharmaceutical companies and leading U.S. and international governmental agencies. Our
business is not dependent on any particular end-customer as no end-customer represented more than 10% of our
revenue for any of the years ended December 31, 2016, 2015 or 2014. For the years ended December 31, 2016,
2015 and 2014, one reseller represented 12%, 13% and 11%, respectively, of our total revenue. For the years
ended December 31, 2016 and 2015, one distributor represented 19% and 17%, respectively, of our total revenue.
No distributor represented 10% or greater of our total revenue for the year ended December 31, 2014.
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Backlog
Orders for subscriptions and services for multiple years are typically billed in their entirety shortly after
receipt of the order and are included in deferred revenue. The timing of revenue recognition for subscriptions and
services may vary depending on the contractual service period or when the services are rendered. Products are
shipped and billed shortly after receipt of an order. The majority of our product revenue comes from orders that
are received and shipped in the same quarter. We do not believe that our product backlog at any particular time is
meaningful because it is not necessarily indicative of future revenue in any given period, as the fulfillment of
such orders may be delayed.
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Sales and Marketing
Sales. Our sales organization consists of in-house sales teams who work in collaboration with external
channel partners to identify new sales prospects, sell additional products, subscriptions and services, and provide
post-sale support. Our field sales team is organized by territory and is responsible for enterprise and government
accounts within their region. Our inside sales organization is responsible for sales to medium-sized and smaller
organizations, and for renewal of existing subscriptions.
We also have a dedicated team focused on channel sales who manage the relationships with our value-added
reseller and distributor partners and work with these channel partners to win and support customers. We believe
this hybrid direct-touch sales approach allows us to leverage the benefits of broader market coverage provided by
a reseller channel while maintaining a face-to-face connection with our customers, including key enterprise
accounts.
We have also cultivated alliances with non-traditional partners to generate customer referrals and extend our
technologies and sales coverage to new market segments. These relationships include relationships with
insurance providers, large systems integrators and managed service providers, and we have engaged in joint
solution development with leading providers of engineering services and payment systems.
Our sales organization is supported by sales engineers with deep technical domain expertise who are
responsible for pre-sales technical support, solutions engineering for our customers, proof of concept work and
technical training for our channel partners. Our sales engineers also act as the liaison between customers and our
marketing and product development organizations.
As part of our sales strategy, we often provide prospective customers with our detection and prevention
products for a short-term evaluation period. In such cases, our products are deployed within the prospective
customer’s network, typically for a period ranging from one week to several months. During this period, the
prospective customer conducts evaluations with the assistance of our system engineers and members of our
security research team. We believe that by providing proof of concept evaluations to potential customers, we are
able to contrast the effectiveness of our platform versus our competitors in identifying suspicious and potentially
malicious software code in their actual IT environments. Additionally, our Mandiant consultants use our
technologies and products in their incident response and consulting engagements, providing de facto proof of
concept evaluations in the customer’s environment. Our sales cycle varies by industry and can be long and
unpredictable, but is typical of large, complex enterprise sales cycles that can last several months or more.
However, some transactions can close in a few weeks when an active breach is discovered.
Marketing. Our marketing is focused on building our brand reputation and market awareness for our
solutions, driving customer demand and a strong sales pipeline, and working with our channel partners around
the globe. Our marketing team consists primarily of corporate marketing, channel marketing, account/lead
development, operations and corporate communications. Marketing activities include demand generation,
advertising, product launch activities, managing our corporate Website and partner portal, trade shows and
conferences, press and analyst relations, and customer awareness. We are also actively engaged in driving global
thought leadership programs through blogs and media and developing rich content such as the global cyber maps
and threat reports.
Technology Alliance Partners
FireEye has built a robust ecosystem of Technology Alliance Partners who, through integration and joint go-
to-market efforts, extend the breadth and depth of cybersecurity and protection customers gain from FireEye.
Spanning multiple technology categories, including network monitoring vendors, security information and event
management vendors, network equipment vendors, forensic software vendors and web application firewall
vendors, these partnerships provide for threat intelligence sharing, cross-vendor technology integrations, and
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joint solution development. By helping to ease the complications that organizations face when implementing
multi-layered security solutions, our technology alliances facilitate integrated solution design, accelerate the time
to realize value, and enhance our role as a strategic security partner.
Government Affairs
We maintain relationships with several governments around the globe. Our thought leadership in defending
against next-generation threats has helped to shape the legislative, regulatory and policy environment to better
enhance these governments’ individual and collective cyber posture. As part of this effort, we contribute to the
evolving standard-making processes, help define best practices in various jurisdictions and help organizations of
all sizes better understand the cyber threat landscape. We also help governments identify future needs and
requirements. Through these and related activities, we engage on the front lines of emerging cybersecurity
related public policy and use our knowledge and insight to improve the cybersecurity of our government and
industry customers.
Manufacturing
The manufacturing of our security products is outsourced to principally one third-party contract
manufacturer. This approach allows us to reduce our costs as it reduces our manufacturing overhead and
inventory and also allows us to adjust quickly to changing customer demand. Our manufacturing partner
assembles our products using design specifications, quality assurance programs, and standards that we establish,
and it procures components and assembles our products based on our demand forecasts. These forecasts represent
our estimates of future demand for our products based upon historical trends and analysis from our sales and
product management functions as adjusted for overall market conditions.
Our primary contract manufacturer is Flextronics Telecom Systems, Ltd., or Flextronics. The manufacturing
agreement we have entered into with Flextronics does not provide for any minimum purchase commitments and
had an initial term of one year and automatically renews for one-year terms, unless either party gives written
notice to the other party not less than 90 days prior to the last day of the applicable term. Additionally, this
agreement may be terminated by either party (i) with advance written notice provided to the other party, subject
to certain notice period limitations, or (ii) with written notice, subject to applicable cure periods, if the other party
has materially breached its obligations under the agreement.
Research and Development
We invest substantial resources in research and development to enhance our virtual execution detection
engines and threat intelligence, build add-on functionality to our products and improve our core technologies. We
believe that hardware, software and cloud-based technologies are critical to maintaining and expanding our
leadership in the security industry. Our engineering teams have deep networking and security expertise and work
closely with our customers to identify their current and future needs. Additionally, our Mandiant consultants use
our products in their incident response and compromise assessment engagements and provide continual feedback
to our engineering teams on product performance, detection efficacy, evasion techniques and attack trends.
In addition to our focus on platform expansion and enhancement, our research and development teams are
focused on developing automation tools and machine learning techniques to reduce the time to discover and
distribute new threat intelligence, as well as generate efficiencies in our services offerings. We are also investing
in security platform management and orchestration capabilities to provide unified reporting and security
orchestration features to customers in a single dashboard.
We maintain research and development activities across the globe with teams located in Germany, India,
Ireland, Japan, Singapore and the United States.
Research and development expense totaled $279.6 million, $279.5 million and $203.2 million for the years
ended December 31, 2016, 2015 and 2014, respectively.
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Competition
We operate in the intensely competitive IT security market which is characterized by constant change and
innovation. Changes in the threat
in evolving customer
requirements for security. Several vendors have either introduced new products or incorporated new features into
existing products that compete with our solutions. Our current and potential future competitors fall into six
general categories:
landscape and broader IT infrastructures result
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large networking vendors such as Cisco and Juniper that may emulate or integrate certain features
similar to ours into their own products;
large companies such as Intel, IBM and HPE that have acquired security vendors in recent years and
have the technical and financial resources to bring competitive solutions to the market;
independent security vendors such as Palo Alto Networks and Trend Micro that offer products or
features that claim to perform similar functions to our platform;
small and large companies, including new market entrants, that offer narrow product solutions that
compete with some of the features present in our platform;
providers of traditional signature-based security solutions, such as Symantec; and
other providers of incident response and compromise assessment services.
As our market grows and IT budgets are allocated to support protection from advanced threats, it will attract
more highly specialized vendors as well as larger technology vendors that may continue to acquire or bundle
their products more effectively. The principal competitive factors in our market include:
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ability to deliver the combination of technology, intelligence and expertise necessary to combat the
current threat landscape;
ability to detect and prevent known and unknown threats by overcoming the limitations of signature-
based approaches, while maintaining a low rate of false-positive alerts;
scalability, throughput and overall performance of our detection and prevention technologies;
visibility into all stages of an attack, especially the exploit phase;
breadth and richness of the shared threat
threat
intelligence,
intelligence on cyber crime, cyber espionage, hacktivism, attacks on critical infrastructure and nation-
state attacks;
including dynamic and contextual
flexible deployment options, including on-premise appliances, cloud-based software or a hybrid of
both, as well as “as-a-service” options;
brand awareness and reputation;
strength and effectiveness of sales and marketing efforts;
product extensibility and ability to integrate with other technologies in the network infrastructure;
ease of use;
price and total cost of ownership; and
ability to provide an orchestrated solution of products and services for detecting, preventing and
resolving advanced cybersecurity threats across multiple attack vectors.
We believe we compete favorably with our competitors on the basis of these factors as a result of the
features and performance of our platform, the ease of integration of our products with network infrastructures,
the breadth of our services and solution offerings and the relatively low total cost of ownership of our products.
However, many of our competitors have substantially greater financial, technical and other resources, greater
name recognition, larger sales and marketing budgets, deeper customer relationships, broader distribution, and
larger and more mature intellectual property portfolios.
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Intellectual Property
Our success depends in part upon our ability to protect our core technology and intellectual property. We
rely on, among other things, patents, trademarks, copyrights and trade secret laws, confidentiality safeguards and
procedures, and employee non-disclosure and invention assignment agreements to protect our intellectual
property rights. We file patent applications to protect our intellectual property and believe that the duration of our
issued patents is sufficient when considering the expected lives of our products. We cannot assure you whether
any of our patent applications will result in the issuance of a patent or whether the examination process will
result in patents of valuable breadth or applicability. In addition, any patents that may issue may be contested,
circumvented, found unenforceable or invalidated, and we may not be able to prevent third parties from
infringing them. We also license software from third parties for integration into our products, including open
source software and other software available on commercially reasonable terms.
We control access to and use of our proprietary software, technology and other proprietary information
through the use of internal and external controls, including contractual protections with employees, contractors,
end-customers and partners, and our software is protected by U.S. and international copyright, patent and trade
technology and other proprietary information,
secret
unauthorized parties may still copy or otherwise obtain and use our software, technology and other proprietary
information. In addition, we intend to expand our international operations, and effective patent, copyright,
trademark, and trade secret protection may not be available or may be limited in foreign countries.
laws. Despite our efforts to protect our software,
Our industry is characterized by the existence of a large number of patents and frequent claims and related
litigation regarding patent and other intellectual property rights. If we become more successful, we believe that
competitors will be more likely to try to develop products that are similar to ours and that may infringe our
proprietary rights. It may also be more likely that competitors or other third parties will claim that our products
infringe their proprietary rights. In particular, large and established companies in the IT security industry have
extensive patent portfolios and are regularly involved in both offensive and defensive litigation. From time-to-
time, third parties, including certain of these large companies and non-practicing entities, may assert patent,
trademark, and other intellectual property rights against us, our channel partners, or our end-
copyright,
customers, whom our standard license and other agreements obligate us to indemnify against such claims.
Successful claims of infringement by a third party, if any, could prevent us from distributing certain products or
performing certain services, require us to expend time and money to develop non-infringing solutions, or force us
to pay substantial damages (including, in the United States, treble damages if we are found to have willfully
infringed patents), royalties or other fees. We cannot assure you that we do not currently infringe, or that we will
not in the future infringe, upon any third-party patents or other proprietary rights. For example, we are currently a
party to claims alleging, among other things, patent infringement, which are in the early stages of litigation. See
“Risk Factors—Risks Related to Our Business and Our Industry—Claims by others that we infringe their
proprietary technology or other rights could harm our business” for additional information.
Business Seasonality
For discussion of seasonal trends, see our quarterly results of operations discussion within “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this
Annual Report on Form 10-K.
Employees
As of December 31, 2016, we had approximately 2,900 employees. None of our employees is represented
by a labor organization or is a party to any collective bargaining arrangement. We have never had a work
stoppage, and we consider our relationship with our employees to be good.
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Facilities
We currently lease approximately 221,000 square feet of space for our corporate headquarters in Milpitas,
California under lease agreements that expire during the year ended December 31, 2018. In August 2016, we
entered into a lease agreement for our new corporate headquarters, expected to commence mid-2017. We
maintain additional offices throughout the United States and various international locations including, Australia,
Dubai, Germany, India, Ireland, Japan, Singapore and the United Kingdom. We believe that these facilities are
adequate to meet our ongoing needs, and that, if we require additional space, we will be able to obtain additional
facilities on commercially reasonable terms.
Legal Proceedings
The information set forth under “Litigation” in Note 9 contained in the “Notes to Consolidated Financial
Statements” in Item 8 of Part II of this Annual Report on Form 10-K is incorporated herein by reference.
Item 1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties including those described
below. The risks and uncertainties described below are not the only ones we face. Additional risks and
uncertainties that we are unaware of, or that we currently believe are not material, also may become important
factors that affect us. If any of the following risks or others not specified below materialize, our business,
financial condition and results of operations could be materially adversely affected. In that case, the trading
price of our common stock could decline.
Risks Related to Our Business and Our Industry
If the IT security market does not continue to adopt our security platforms, our sales will not grow as quickly
as anticipated, or at all, and our business, results of operations and financial condition would be harmed.
Our future success depends on market adoption of our unique approach to IT security. We are seeking to
disrupt the IT security market with our security platforms. Our platforms interoperate with but do not replace
most signature-based IT security products. Enterprises and governments that use signature-based security
products, such as firewalls, intrusion prevention systems, or IPS, anti-virus, or AV, and Web and messaging
gateways, for their IT security may be hesitant to purchase our security platforms if they believe that signature-
based products are more cost effective, provide substantially the same functionality as our platforms or provide a
level of IT security that is sufficient to meet their needs. Currently, most enterprises and governments have not
allocated a fixed portion of their budgets to protect against next-generation advanced cyber attacks. As a result,
to expand our customer base, we need to convince potential customers to allocate a portion of their discretionary
budgets to purchase our platforms. However, even if we are successful in doing so, any future deterioration in
general economic conditions may cause our customers to cut their overall IT spending, and such cuts may fall
disproportionately on products and services like ours, for which no fixed budgetary allocation has been made. If
we do not succeed in convincing customers that our platforms should be an integral part of their overall approach
to IT security and that a fixed portion of their annual IT budgets should be allocated to our platforms, our sales
will not grow as quickly as anticipated, or at all, which would have an adverse impact on our business, results of
operations and financial condition.
Even if there is significant demand for security solutions like ours, if our competitors include functionality
that is, or is perceived to be, better than or equivalent to that of our platforms, we may have difficulty increasing
the market penetration of our platforms. Furthermore, even if the functionality offered by other IT security
providers is different and more limited than the functionality of our platforms, organizations may elect to accept
such limited functionality in lieu of adding products from additional vendors like us, especially if competitor
offerings are free or available at a lower cost.
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In addition, changes in customer requirements could reduce customer demand for our security solutions. For
example, if customers were to reduce their number of web egress points in order to reduce their cyber attack
surface, they would not need to purchase as many of our Network Threat Prevention appliances, which currently
account for the largest portion of our threat prevention product revenue. Similarly, if one or more governments
share, on a free or nearly free basis, threat intelligence with other governmental agencies or organizations, such
as critical infrastructure companies, then those agencies or organizations might have less demand for additional
threat intelligence and may purchase less of our threat intelligence offerings.
If enterprises and governments do not continue to adopt our security platforms for any of the reasons
discussed above or for other reasons not contemplated, our sales would not grow as quickly as anticipated, or at
all, and our business, results of operations and financial condition would be harmed.
We have had operating losses each year since our inception, and may not achieve or maintain profitability in
the future.
We have incurred operating losses each year since 2004, including net losses of $480.1 million, $539.2
million and $443.8 million during the years ended December 31, 2016, 2015 and 2014, respectively. Our revenue
growth may slow or our revenue may decline for a number of reasons, including reduced demand for our
platform, increased competition, a decrease in the growth or size of the IT security market, particularly the
market for solutions that target the next generation of advanced cyber attacks, or any failure to capitalize on
growth opportunities. Any failure to increase our revenue as we grow our business could prevent us from
achieving or, if achieved, maintaining profitability. If we are unable to meet these risks and challenges as we
encounter them, our business, financial condition and results of operations may suffer.
In addition, we may have difficulty achieving profitability under U.S. GAAP, due to stock-based
compensation, intangible amortization and other non-cash charges.
We face intense competition and could lose market share to our competitors, which could adversely affect our
business, financial condition and results of operations.
requirements,
The market for security products and services is intensely competitive and characterized by rapid changes in
technology, customer
introductions and
improvements. We anticipate continued challenges from current competitors, which in many cases are more
established and enjoy greater resources than us, as well as by new entrants into the industry. If we are unable to
anticipate or effectively react to these competitive challenges, our competitive position could weaken, and we
could experience a decline in our growth rate or revenue that could adversely affect our business and results of
operations.
industry standards and frequent new product
Our competitors and potential competitors include large networking vendors such as Cisco Systems, Inc.
and Juniper Networks, Inc. that may emulate or integrate virtual-machine features similar to ours into their own
products; large companies such as Intel, IBM, and HPE that have acquired large IT security specialist vendors in
recent years and have the technical and financial resources and broad customer bases needed to bring competitive
solutions to the market; independent IT security vendors such as Sourcefire (which was acquired by Cisco
Systems, Inc.) and Palo Alto Networks that offer products that claim to perform similar functions to our
platform; small and large companies that offer point solutions that compete with some of the features present in
our platform; and other providers of incident response and compromise assessment services. Other IT providers
offer, and may continue to introduce, security features that compete with our platform, either in stand-alone
security products or as additional features in their network infrastructure products. Many of our existing
competitors have, and some of our potential competitors could have, substantial competitive advantages such as:
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greater name recognition, longer operating histories and larger customer bases;
larger sales and marketing budgets and resources;
broader distribution and established relationships with channel and distribution partners and customers;
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greater customer support resources;
greater resources to make acquisitions;
lower labor and research and development costs;
larger and more mature intellectual property portfolios; and
substantially greater financial, technical and other resources.
In addition, some of our larger competitors have substantially broader product offerings and may be able to
leverage their relationships with distribution partners and customers based on other products or incorporate
functionality into existing products to gain business in a manner that discourages users from purchasing our
products, subscriptions and services, including by selling at zero or negative margins, product bundling or
offering closed technology platforms. Potential customers may also prefer to purchase from their existing
suppliers rather than a new supplier regardless of product performance or features. As a result, even if the
features of our platform are superior, customers may not purchase our products. In addition, new innovative start-
up companies, and larger companies that are making significant investments in research and development, may
invent similar or superior products and technologies that compete with our platform. Our current and potential
competitors may also establish cooperative relationships among themselves or with third parties that may further
enhance their resources.
Some of our competitors have made or could make acquisitions of businesses that allow them to offer more
competitive and comprehensive solutions. As a result of such acquisitions, our current or potential competitors
may be able to accelerate the adoption of new technologies that better address end-customer needs, devote
greater resources to bring these products and services to market,
initiate or withstand substantial price
competition, or develop and expand their product and service offerings more quickly than we do. These
competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer
orders, reduced revenue and gross margins, and loss of market share.
If we are unable to compete successfully, or if competing successfully requires us to take costly actions in
response to the actions of our competitors, our business, financial condition and results of operations could be
adversely affected.
Real or perceived defects, errors or vulnerabilities in our products or services, the misconfiguration of our
products, the failure of our products or services to block malware or prevent a security breach, or the failure
of customers to take action on attacks identified by our products could harm our reputation and adversely
impact our business, financial position and results of operations.
Because our products and services are complex,
they have contained and may contain design or
manufacturing defects or errors that are not detected until after their deployment. Our products also provide our
customers with the ability to customize a multitude of settings, and it is possible that a customer could
misconfigure our products or otherwise fail to configure our products in an optimal manner. Such defects and
misconfigurations of our products could cause our products or services to be vulnerable to security attacks, cause
them to fail to secure networks and detect and block threats, or temporarily interrupt the networking traffic of our
customers. In addition, because the techniques used by computer hackers to access or sabotage networks change
frequently and generally are not recognized until launched against a target, there is a risk that an advanced attack
could emerge that our products and services are unable to detect or prevent. Moreover, as our products and
services are adopted by an increasing number of enterprises and governments, it is possible that the individuals
and organizations behind advanced malware attacks will begin to focus on finding ways to defeat our products
and services. If this happens, our networks, products, services and subscriptions could be targeted by attacks
specifically designed to disrupt our business and undermine the perception that our products and services are
capable of providing superior IT security, which, in turn, could have a serious impact on our reputation as a
provider of virtual machine-based security solutions. Any breach or perceived security breaches of our network
could materially and adversely affect our business, financial condition and results of operations.
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If any of our customers becomes infected with malware after using our products or services, such customer
could be disappointed with our products and services, regardless of whether our products or services blocked the
theft of any of such customer’s data or would have blocked such theft if configured properly. Similarly, if our
products detect attacks against a customer but the customer has not permitted our products to block the theft of
customer data, customers and the public may erroneously believe that our products were not effective. For any
security breaches against customers that use our services, such as customers that have hired us to monitor their
networks and endpoints through our own or our co-branded security operation centers, breaches against those
customers may result in customers and the public believing that our products and services failed. Furthermore, if
any enterprises or governments that are publicly known to use our products or services are the subject of an
advanced cyber attack that becomes publicized, our other current or potential customers may look to our
competitors for alternatives to our products and services. Real or perceived security breaches of our customers’
networks could cause disruption or damage to their networks or other negative consequences and could result in
negative publicity to us, damage to our reputation, declining sales, increased expenses and customer relations issues.
Furthermore, our products and services may fail to detect or prevent malware, viruses, worms or similar
threats for any number of reasons, including our failure to enhance and expand our products and services to
reflect industry trends, new technologies and new operating environments, the complexity of the environment of
our clients and the sophistication of malware, viruses and other threats. In addition, from time to time, firms test
our products against other security products. Our products may fail to detect or prevent threats in any particular
test for a number of reasons, including misconfiguration. To the extent potential customers, industry analysts or
testing firms believe that the occurrence of a failure to detect or prevent any particular threat is a flaw or indicates
that our products or services do not provide significant value, our reputation and business could be harmed.
Failure to keep pace with technological changes in the IT security industry and changes in the threat landscape
could adversely affect our ability to protect against security breaches and could cause us to lose customers. In
addition, in the event that a customer suffers a cyber attack, we could be subject to claims based on a
misunderstanding of the scope of our contractual warranties or the protection afforded by the Support Anti-
Terrorism by Fostering Effective Technologies Act of 2002, or the SAFETY Act.
Any real or perceived defects, errors or vulnerabilities in our products and services, or any other failure of
our products and services to detect an advanced threat, could result in:
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a loss of existing or potential customers or channel partners;
delayed or lost revenue and harm to our financial condition and results of operations;
a delay in attaining, or the failure to attain, market acceptance;
the expenditure of significant financial and product development resources in efforts to analyze,
correct, eliminate, or work around errors or defects, to address and eliminate vulnerabilities, or to
identify and ramp up production with alternative third-party manufacturers;
an increase in warranty claims, or an increase in the cost of servicing warranty claims, either of which
would adversely affect our gross margins;
harm to our reputation or brand; and
litigation, regulatory inquiries, or investigations that may be costly and further harm our reputation.
Our results of operations are likely to vary significantly from period to period, which could cause the trading
price of our common stock to decline.
Our results of operations have varied significantly from period to period, and we expect that our results of
operations, including, but not limited to our GAAP and non-GAAP measures, will continue to vary as a result of
a number of factors, many of which are outside of our control and may be difficult to predict, including:
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changes in our mix of products, subscriptions and services sold;
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the timing and success of new product, subscription or service introductions by us or our competitors;
real or perceived reductions in our product efficacy by our customers or in the marketplace;
the budgeting cycles, seasonal buying patterns and purchasing practices of customers;
the timing of shipments of our products and length of our sales cycles;
changes in customer or reseller requirements or market needs;
changes in the growth rate of the IT security market, particularly the market for threat protection
solutions like ours that target next-generation advanced cyber attacks;
the impact of our restructuring plan, whether the estimated cost savings associated with our
restructuring plan are achieved, and any disruptions in our business caused by the implementation of
our restructuring plan;
any change in the competitive landscape of the IT security market, including consolidation among our
customers or competitors;
the level of awareness of IT security threats, particularly advanced cyber attacks, and the market
adoption of our platform;
deferral of orders from customers in anticipation of new products or product enhancements announced
by us or our competitors;
our ability to successfully expand our business domestically and internationally;
reductions in customer renewal rates for our subscriptions and support;
decisions by organizations to purchase IT security solutions from larger, more established security
vendors or from their primary IT equipment vendors;
changes in our pricing policies or those of our competitors;
any disruption in, or termination of, our relationships with channel partners;
our inability to fulfill our customers’ orders due to supply chain delays or events that impact our
manufacturers or their suppliers;
insolvency or credit difficulties confronting our customers, affecting their ability to purchase or pay for
our products, subscriptions and services, or confronting our key suppliers, particularly our sole source
suppliers, which could disrupt our supply chain;
the cost and potential outcomes of existing and future litigation, including, without limitation, the
purported stockholder lawsuits described under the “Litigation” subheading in Note 9 Commitments
and Contingencies contained in the “Notes to Consolidated Financial Statements” in Item 8 of Part II of
this Annual Report on Form 10-K;
seasonality in our business;
general economic and political conditions, both domestic and in our foreign markets, including
economic and political uncertainty caused by the recent U.S. presidential election;
future accounting pronouncements or changes in our accounting policies or practices;
the amount and timing of operating costs and capital expenditures related to the expansion of our
business; and
increases or decreases in our revenues and expenses caused by fluctuations in foreign currency
exchange rates.
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Any of the above factors, individually or in the aggregate, may result in significant fluctuations in our
financial and other operating results from period to period. For example, as we offer more and more solutions
through subscriptions and services, it becomes increasingly difficult for us to predict whether customers will
purchase our solutions as a product, a subscription or a service. If customers purchase our solutions through
subscriptions and services that have less profit associated with them than our products, our operating results
could be harmed. Changes in the mix of offerings sold impacts the timing of recognition of revenue for our sales.
Consequently, given the different
revenue recognition policies associated with sales of our products,
subscriptions and services, customers purchasing more of our subscription and services offerings and less of our
product offerings than we anticipated could result in our actual revenue falling below our publicly announced
guidance or the expectations of securities analysts and investors, resulting in a decline in our stock price.
As a result of this variability, our historical results of operations should not be relied upon as an indication
of future performance. Moreover, this variability and unpredictability could result in our failure to meet our
operating plan or the expectations of investors or analysts for any period. If we fail to meet such expectations for
these or other reasons, the market price of our common stock could fall substantially, and we could face costly
lawsuits, including securities class action suits.
Fluctuating economic conditions make it difficult to predict revenue for a particular period, and a shortfall in
revenue may harm our operating results.
Our revenue depends significantly on general economic conditions and the demand for products in the IT
security market. Economic weakness, customer financial difficulties, and constrained spending on IT security
may result in decreased revenue and earnings. Such factors could make it difficult to accurately forecast our sales
and operating results and could negatively affect our ability to provide accurate forecasts to our contract
manufacturers and manage our inventory purchases, contract manufacturer relationships and other costs and
expenses. In addition, concerns regarding the impact of the recent U.S. presidential election or the impact of the
“Brexit” referendum in which voters in the U.K. in June 2016 approved the withdrawal of the U.K. from the EU,
as well as continued budgetary challenges in the United States and Europe and geopolitical turmoil in many parts
of the world, have and may continue to put pressure on global economic conditions and overall spending on IT
security. General economic weakness may also lead to longer collection cycles for payments due from our
customers, an increase in customer bad debt, restructuring initiatives and associated expenses, and impairment of
investments. Furthermore, the continued weakness and uncertainty in worldwide credit markets, including the
sovereign debt situation in certain countries in the EU may adversely impact the ability of our customers to
adequately fund their expected capital expenditures, which could lead to delays or cancellations of planned
purchases of our platform.
Uncertainty about future economic conditions also makes it difficult to forecast operating results and to
make decisions about future investments. Future or continued economic weakness for us or our customers,
failure of our customers and markets to recover from such weakness, customer financial difficulties, and
reductions in spending on IT security could have a material adverse effect on demand for our platform and
consequently on our business, financial condition and results of operations.
If we fail to effectively manage our growth, our business, financial condition and results of operations would
be harmed.
Although our business has experienced significant growth in the past, we cannot provide any assurance that
our business will continue to grow at the same rate or at all. To improve our infrastructure, we continue to
enhance our enterprise resource planning system, including revenue recognition and management software, and
implement and enhance additional systems and controls. There is no assurance that we will be able to
successfully scale improvements to our enterprise resource planning system or implement or scale improvements
to our other systems, processes and controls in a manner that keeps pace with our growth or that such systems,
processes and controls will be effective in preventing or detecting errors, omissions or fraud.
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As part of our efforts to improve our internal systems, processes and controls, we have licensed technology
from third parties. The support services available for such third-party technology are outside of our control and
may be negatively affected by consolidation in the software industry. In addition, if we do not receive adequate
support for the software underlying our systems, processes and controls, our ability to provide products and
services to our customers in a timely manner may be impaired, which may cause us to lose customers, limit us to
smaller deployments of our platform or increase our technical support costs.
Many of our expenses are relatively fixed, at least in the short term. If our projections or assumptions on
which we base our projections are incorrect, we may not be able to adjust our expenses rapidly enough to avoid
an adverse impact on our profitability or cash flows.
To manage this growth effectively, we must continue to improve our operational, financial and management
systems and controls by, among other things:
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effectively attracting, training and integrating new employees, particularly members of our sales and
management teams;
further improving our key business applications, processes and IT infrastructure, including our data
centers, to support our business needs;
continuing to refine our ability to forecast our bookings, billings, revenues, expenses and cash flows;
enhancing our information and communication systems to ensure that our employees and offices
around the world are well coordinated and can effectively communicate with each other and our
growing base of channel partners and customers;
improving our internal control over financial reporting and disclosure controls and procedures to
ensure timely and accurate reporting of our operational and financial results; and
appropriately documenting and testing our IT systems and business processes.
These and other improvements in our systems and controls will require significant capital expenditures and
the allocation of valuable management and employee resources. If we fail to implement these improvements
effectively, our ability to manage our expected growth, ensure uninterrupted operation of key business systems
and comply with the rules and regulations applicable to public reporting companies would be impaired, and our
business, financial condition and results of operations would be harmed.
Recent and future acquisitions and investments could disrupt our business and harm our financial condition
and operating results.
Our success will depend, in part, on our ability to expand our platform and grow our business in response to
changing technologies, customer demands and competitive pressures. In some circumstances, we may decide to
do so through the acquisition of complementary businesses and technologies rather than through internal
development, including, for example, our acquisition of iSIGHT Security, Inc. (d/b/a iSIGHT Partners, Inc.), or
iSIGHT, and our acquisition of Invotas International Corporation, or Invotas. The identification of suitable
acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully
complete acquisitions that we target in the future. The risks we face in connection with acquisitions, including
our acquisitions of iSIGHT and Invotas, include:
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time and focus from operating our business to addressing acquisition
coordination of research and development and sales and marketing functions;
integration of product and service offerings;
retention of key employees from the acquired company;
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changes in relationships with strategic partners as a result of product acquisitions or strategic
positioning resulting from the acquisition;
cultural challenges associated with integrating employees from the acquired company into our
organization;
integration of the acquired company’s accounting, management information, human resources and
other administrative systems;
the need to implement or improve controls, procedures, and policies at a business that prior to the
acquisition may have lacked sufficiently effective controls, procedures and policies;
financial reporting, revenue recognition or other financial or control deficiencies of the acquired
company that we don’t adequately address and that cause our reported results to be incorrect;
liability for activities of the acquired company before the acquisition, including intellectual property
infringement claims, violations of laws, commercial disputes, tax liabilities and other known and
unknown liabilities;
unanticipated write-offs or charges; and
litigation or other claims in connection with the acquired company, including claims from terminated
employees, customers, former stockholders or other third parties.
Our failure to address these risks or other problems encountered in connection with our past or future
acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or
investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions
could also result in dilutive issuances of equity securities. For example, in January 2016, we issued 1,793,305
shares of common stock in connection with our acquisition of iSIGHT, and in February 2016, we issued 742,026
shares of common stock in connection with our acquisition of Invotas. There is also a risk that future acquisitions
will result in the incurrence of debt, contingent liabilities, amortization expenses, incremental operating expenses
or the write-off of goodwill, any of which could harm our financial condition or operating results.
Actions that we are taking to restructure our business to better align with our business model transition
strategy may be costly and may not be as effective as anticipated.
On August 2, 2016, our board of directors approved a restructuring plan and reduction in workforce to
reduce operating expenses and align the company’s expense structure with current growth expectations. We
recognized restructuring charges of $27.6 million during the year ended December 31, 2016, which consisted of
employee severance and other termination benefits associated with a 10% reduction in our workforce, costs to
consolidate certain real estate facilities and impairment charges for certain assets. These charges are primarily
cash-based, with $21.5 million being paid during 2016. The actions associated with the restructuring plan taken
in 2016 are expected to result in annualized savings of at least $80 million. However, there may be adverse
consequences related to such actions which include unwanted employee attrition, various charges for severance
and severance-related costs and the loss of propriety information and in-house knowledge in connection with the
planned reduction in our workforce. This type of restructuring activity may result in business disruptions and
may not produce the full efficiency and cost reduction benefits anticipated. Further, the benefits may be realized
later than expected and the cost of implementing these measures may be greater than anticipated. If these
measures are not successful, we may need to undertake additional cost reduction efforts, which could result in
future charges. Moreover, the restructuring plan may cause business disruptions with customers and elsewhere if
our cost reduction efforts prove ineffective, and our business may not be more efficient or effective than prior to
implementation of the plan. Our restructuring activities, including the related charges and the impact of the
related workforce reduction, could have a material adverse effect on our business, operating results and financial
condition.
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If we are unable to maintain successful relationships with our channel partners and technology alliance
partners, or if our channel partners or technology alliance partners fail to perform, our ability to market, sell
and distribute our platform will be limited, and our business, financial position and results of operations will
be harmed.
In addition to our direct sales force, we rely on our indirect channel partners to sell and support our
platform. We derive a substantial portion of our revenue from sales of our products, subscriptions and services
through, or with the assistance of, our indirect channel, and we expect that sales through channel partners will
continue to be a significant percentage of our revenue. We also partner with our technology alliance partners to
design go-to-market strategies that combine our platform with products or services provided by our technology
alliance partners.
Our agreements with our channel partners and our technology alliance partners are generally non-exclusive,
meaning our partners may offer customers products from several different companies, including products that
compete with ours. If our channel partners do not effectively market and sell our platform, choose to use greater
efforts to market and sell their own products or those of our competitors, or fail to meet the needs of our
customers, our ability to grow our business and sell our platform may be adversely affected. Our channel partners
and technology alliance partners may cease marketing our platform with limited or no notice and with little or no
penalty, and new channel partners require extensive training and may take several months or more to achieve
productivity. The loss of a substantial number of our channel partners, our possible inability to replace them, or
the failure to recruit additional channel partners could materially and adversely affect our results of operations. In
addition, sales by channel partners are more likely than direct sales to involve collectability concerns, particularly
in developing markets. Our channel partner structure could also subject us to lawsuits or reputational harm if, for
example, a channel partner misrepresents the functionality of our platform to customers or violates applicable
laws or our corporate policies.
Our ability to achieve revenue growth in the future will depend in part on our success in maintaining
successful relationships with our channel partners, and in training our channel partners to independently sell and
deploy our platform. If we are unable to maintain our relationships with these channel partners or otherwise
develop and expand our indirect sales channel, or if our channel partners fail to perform, our business, financial
position and results of operations could be adversely affected.
If we are unable to sustain revenue growth, we may not achieve or maintain profitability in the future.
From the year ended December 31, 2010 to the year ended December 31, 2016, our revenue grew from
$11.8 million to $714.1 million, which represents a compounded annual growth rate of approximately 98%.
Although we have experienced rapid growth historically and currently have high renewal rates, we may not
continue to grow in the future and our renewal rates may decline. Any success that we may experience in the
future will depend, in large part, on our ability to, among other things:
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increase revenues from existing customers through increased use of our products, subscriptions and
services within their organizations;
improve the capabilities of our products and subscriptions through research and development;
continue to develop our cloud-based solutions;
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continue to successfully expand our business domestically and internationally; and
successfully compete with other companies.
If we are unable to maintain consistent revenue growth or if our revenues decline, our stock price could be
volatile, and it may be difficult to achieve and maintain profitability. Our revenue for any prior quarterly or
annual periods should not be relied upon as any indication of our future revenue or revenue growth.
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If the general level of advanced cyber attacks declines, or is perceived by our current or potential customers to
have declined, our business could be harmed.
Our business is substantially dependent on enterprises and governments recognizing that advanced cyber
attacks are pervasive and are not effectively prevented by legacy security solutions. High visibility attacks on
prominent enterprises and governments have increased market awareness of the problem of advanced cyber
attacks and help to provide an impetus for enterprises and governments to devote resources to protecting against
advanced cyber attacks, such as testing our platform, purchasing it, and broadly deploying it within their
organizations. If advanced cyber attacks were to decline, or enterprises or governments perceived that the general
level of advanced cyber attacks have declined, our ability to attract new customers and expand our offerings
within existing customers could be materially and adversely affected. A reduction in the threat landscape, for
example, as a result of the 2015 cybersecurity agreement between China and the U.S., may reduce the demand
from customers or prospects for our solutions, and therefore could increase our sales cycles and harm our
business, results of operations and financial condition.
Seasonality may cause fluctuations in our revenue.
We believe there are significant seasonal factors that may cause us to record higher revenue in some
quarters compared with others. We believe this variability is largely due to (i) our customers’ budgetary and
spending patterns, as many customers spend the unused portions of their discretionary budgets prior to the end of
their fiscal years, and (ii) our sales compensation plans, which are typically structured around annual quotas and
stair step commission rates. For example, we have historically recorded our highest level of revenue in our fourth
quarter, which we believe corresponds to the fourth quarter of a majority of our customers. Similarly, we have
historically recorded our second-highest level of revenue in our third quarter, which corresponds to the fourth
quarter of U.S. federal agencies and other customers in the U.S. federal government. Our rapid growth rate over
the last couple years may have made seasonal fluctuations more difficult to detect. If our rate of growth slows
over time, seasonal or cyclical variations in our operations may become more pronounced, and our business,
results of operations and financial position may be adversely affected.
We rely on our management team and other key employees and will need additional personnel to grow our
business, and the loss of one or more key employees or our inability to attract and retain qualified personnel,
including members for our board of directors, could harm our business.
Our future success is substantially dependent on our ability to attract, retain and motivate the members of
our management team and other key employees throughout our organization, including key employees obtained
through our acquisitions. Competition for highly skilled personnel is intense, especially in the San Francisco Bay
Area and the Washington D.C. Area, where we have a substantial presence and need for highly skilled personnel.
We may not be successful in attracting or retaining qualified personnel to fulfill our current or future needs. We
are also substantially dependent on the continued service of our existing engineering personnel because of the
complexity of our platform. Our competitors may be successful in recruiting and hiring members of our
management team or other key employees, including key employees obtained through our acquisitions, and it
may be difficult for us to find suitable replacements on a timely basis, on competitive terms, or at all. Also, to the
extent we hire employees from mature public companies with significant financial resources, we may be subject
to allegations that such employees have been improperly solicited, or that they have divulged proprietary or other
confidential information or that their former employers own such employees’ inventions or other work product.
The workforce reductions made in connection with our restructuring plans may adversely affect our ability
to attract and retain highly skilled employees. Even if our key personnel are not directly affected by these
reductions, the termination of others may have a negative impact on morale and our ability to retain current
personnel, as well as our ability to attract qualified new personnel in the future.
Our recently announced changes in our sales leadership may also adversely affect our ability to attract and
retain highly skilled employees. In addition, if we fail to integrate a new head of worldwide sales and a new head
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of EMEA, and create effective working relationships among them, other members of management and our sales
personnel, our business, financial condition and results of operations could be adversely affected. Moreover, if
the sales leadership changes or our workforce reductions have a negative impact on sales productivity or sales
execution, our business, financial condition and results of operations could be negatively impacted.
We recently announced the resignations of our former Executive Chairman of the Board and former Chief
Financial Officer and Chief Operating Officer, the appointment of our new Chief Financial Officer, and other
recent leadership appointments. Leadership transitions and management changes can be inherently difficult to
manage and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover in
key officers and employees. Our success depends in part on having a successful leadership team. If we cannot
effectively manage the leadership transitions and management changes, it could make it more difficult to
successfully operate our business and pursue our business goals.
In addition, we believe that it is important to establish and maintain a corporate culture that facilitates the
maintenance and transfer of institutional knowledge within our organization and also fosters innovation,
teamwork, a passion for customers and a focus on execution. Our Chief Executive Officer, our President, our
Chief Financial Officer, our Executive Vice President of Worldwide Sales, our Executive Vice President of
Global Services and Intelligence and our Executive Vice President of Global Engineering & Security Products
and certain other key members of our management and finance teams have only been working together for a
relatively short period of time. If we are not successful in integrating these key employees into our organization,
such failure could delay or hinder our product development efforts and the achievement of our strategic
objectives, which could adversely affect our business, financial condition and results of operations.
Our employees, including our executive officers, work for us on an “at-will” basis, which means they may
terminate their employment with us at any time. We do not maintain key person life insurance policies on any of
our key employees. If one or more of our key employees resigns or otherwise ceases to provide us with their
service, our business could be harmed.
If we do not effectively hire and train our direct sales force, we may be unable to add new customers or
increase sales to our existing customers, and our business will be adversely affected.
We continue to be substantially dependent on our direct sales force to obtain new customers and increase
sales with existing customers. There is significant competition for sales personnel with the skills and technical
knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our
success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth,
particularly in international markets. New hires require significant training and may take significant time before
they achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we
expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where
we do business or plan to do business. In addition, a large percentage of our sales force is new to our Company.
If we are unable to hire and train a sufficient number of effective sales personnel, or the sales personnel we hire
are not successful in obtaining new customers or increasing sales to our existing customer base, our business will
be adversely affected.
Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense.
As a result, our sales, billings and revenue are difficult to predict and may vary substantially from period to
period, which may cause our results of operations to fluctuate significantly.
Our results of operations may fluctuate, in part, because of the resource intensive nature of our sales efforts,
the length and variability of our sales cycle and the short-term difficulty in adjusting our operating expenses. Our
results of operations depend in part on sales to large organizations. The length of our sales cycle, from proof of
concept to delivery of and payment for our platform, is typically three to nine months but can be more than a
year. To the extent our competitors develop products that our prospective customers view as equivalent to ours,
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our average sales cycle may increase. Because the length of time required to close a sale varies substantially from
customer to customer, it is difficult to predict exactly when, or even if, we will make a sale with a potential
customer. As a result, large individual sales have, in some cases, occurred in quarters subsequent to or in advance
of those we anticipated, or have not occurred at all. We are billing a number of large deals and the loss or delay
of one or more of these large transactions in a quarter could impact our results of operations for that quarter and
any future quarters for which revenue from that transaction is delayed. Furthermore, some sales (such as product
sales) generally result in immediate recognition of revenue, while other sales, such as product subscription sales,
require the recognition of revenue over periods of one year or longer typically. As a result of these factors, it is
difficult for us to forecast our revenue accurately in any quarter based on our internal forecasts of billings.
Because a substantial portion of our expenses are relatively fixed in the short term, our results of operations will
suffer if our revenue falls below our or analysts’ expectations in a particular quarter, which could cause the price
of our common stock to decline.
If we are unable to sell additional products, subscriptions and services, as well as renewals of our
subscriptions and services, to our customers, our future revenue and operating results will be harmed.
Our future success depends, in part, on our ability to expand the deployment of our platform with existing
customers by selling them additional products, subscriptions and services. This may require increasingly
sophisticated and costly sales efforts and may not result in additional sales. In addition, the rate at which our
customers purchase additional products, subscriptions and services depends on a number of factors, including the
perceived need for additional IT security, general economic conditions, and our customers’ satisfaction with our
existing solutions they have previously purchased. If our efforts to sell additional products, subscriptions and
services to our customers are not successful, our business may suffer.
Further, existing customers that purchase our platform have no contractual obligation to renew their
subscriptions and support and maintenance services after the initial contract period, and given our limited
operating history, we may not be able to accurately predict our renewal rates. Our customers’ renewal rates may
decline or fluctuate as a result of a number of factors, including the level of their satisfaction with our platform,
our customer support, customer budgets and the pricing of our platform compared with the products and services
offered by our competitors. If our customers renew their subscriptions, they may renew for shorter contract
lengths or on other terms that are less economically beneficial to us. We cannot assure you that our customers
will renew their subscriptions, and if our customers do not renew their subscriptions or renew on less favorable
terms, our revenue may grow more slowly than expected, not grow at all, or even decline.
We also depend on our installed customer base for future support and maintenance revenue. We offer our
support and maintenance agreements for terms that generally range between one and five years. If customers
choose not to renew their support and maintenance agreements or seek to renegotiate the terms of their support
and maintenance agreements prior to renewing such agreements, our revenue may grow more slowly than
expected, not grow at all, or even decline.
We rely on revenue from subscriptions and service contracts, and because we recognize revenue from
subscriptions and service contracts over the term of the relevant subscription or service period, downturns or
upturns in sales are not immediately reflected in full in our results of operations.
Subscription and services revenue accounts for a significant portion of our total revenue, comprising 79%,
65% and 58% for the years ended December 31, 2016, 2015 and 2014, respectively. Sales of new or renewal
subscription and service contracts may decline or fluctuate as a result of a number of factors, including
customers’ level of satisfaction with our products and subscriptions, the actual or perceived efficacy of our
security solutions, the prices of our products and subscriptions, the prices of products and subscriptions offered
by our competitors or reductions in our customers’ spending levels. If our sales of new or renewal subscription
and service contracts decline, our revenue and revenue growth rate may decline and adversely affect our
business. In addition, we recognize subscription and service revenue ratably over the term of the relevant service
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period, which is generally between one to five years. As a result, much of the subscription and service revenue
we report each quarter is derived from subscription and service contracts that we sold in prior quarters.
Consequently, a decline in new or renewed subscription or service contracts in any one quarter will not be fully
reflected in revenue in that quarter but will negatively affect our revenue in future quarters. Accordingly, the
effect of significant decreases in the market acceptance of, or demand for, our subscriptions or services may not
be immediately apparent from our results of operations until future periods. Also, it is difficult for us to rapidly
increase our subscription revenue through additional sales in any period, as revenue from new and renewal
subscription contracts must be recognized ratably over the applicable service period. Furthermore, any increases
in the average term of subscriptions contracts would result in revenue for those subscription contracts being
recognized over longer periods of time.
Reliance on shipments at the end of each quarter could cause our revenue for the applicable period to fall
below expected levels.
As a result of customer buying patterns and the efforts of our sales force and channel partners to meet or
exceed their sales objectives, we have historically received a substantial portion of sales orders and generated a
substantial portion of revenue during the last few weeks and days of each quarter. A significant interruption in
our IT systems, which manage critical functions such as order processing, revenue recognition, financial
forecasts, inventory and supply chain management, and trade compliance reviews, or our supply chain could
result in delayed order fulfillment and decreased revenue for that quarter. If expected revenue at the end of any
quarter is delayed for any reason, including the failure of anticipated purchase orders to materialize, our logistics
or channel partners’ inability to ship products prior to quarter-end to fulfill purchase orders received near the end
of the quarter, our failure to manage inventory to meet demand, our inability to release new products on
schedule, any failure of our systems related to order review, processing and licensing, or any delays in shipments
based on trade compliance requirements, our revenue for that quarter could fall below our expectations and the
estimates of market analysts, which could adversely impact our business and results of operations and cause a
decline in the trading price of our common stock.
If we do not accurately anticipate and respond promptly to changes in our customers’ technologies, business
plans or security needs, our competitive position and prospects could be harmed.
The IT security market has grown quickly and is expected to continue to evolve rapidly. Moreover, many of
our customers operate in markets characterized by rapidly changing technologies and business plans, which
to increasingly complex IT networks,
require them to add numerous network access points and adapt
incorporating a variety of hardware, software applications, operating systems and networking protocols. As their
technologies and business plans grow more complex, we expect these customers to face new and increasingly
sophisticated methods of attack. We face significant challenges in ensuring that our platform effectively
identifies and responds to these advanced and evolving attacks without disrupting our customers’ network
performance. As a result of the continued rapid innovations in the technology industry, including the rapid
growth of smart phones, tablets and other devices, the trend of “bring your own device” in enterprises, and the
rapidly evolving Internet of Things (“IOT”), we expect the networks of our customers to continue to change
rapidly and become more complex.
We have identified a number of new products and enhancements to our platform that we believe are
important to our continued success in the IT security market. There can be no assurance that we will be
successful in developing and marketing, on a timely basis, such new products or enhancements or that our new
products or enhancements will adequately address the changing needs of the marketplace. In addition, some of
our new products and enhancements may require us to develop new hardware architectures that involve complex,
expensive and time-consuming research and development processes. Although the market expects rapid
introduction of new products and enhancements to respond to new threats, the development of these products and
enhancements is difficult and the timetable for commercial release and availability is uncertain, as there can be
time lags between initial beta releases and the commercial availability of new products and
significant
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enhancements. We may experience unanticipated delays in the availability of new products and enhancements to
our platform and fail to meet customer expectations with respect to the timing of such availability. If we do not
quickly respond to the rapidly changing and rigorous needs of our customers by developing, releasing and
making available on a timely basis new products and enhancements to our platform that can adequately respond
to advanced threats and our customers’ needs, our competitive position and business prospects will be harmed.
Furthermore, from time to time, we or our competitors may announce new products with capabilities or
technologies that could have the potential to replace or shorten the life cycles of our existing products. There can
be no assurance that announcements of new products will not cause customers to defer purchasing our existing
products.
Additionally, the process of developing new technology is expensive, complex and uncertain. The success
of new products and enhancements depends on several factors, including appropriate component costs, timely
completion and introduction, differentiation of new products and enhancements from those of our competitors,
and market acceptance. To maintain our competitive position, we must continue to commit significant resources
to developing new products or enhancements to our platform before knowing whether these investments will be
cost-effective or achieve the intended results. There can be no assurance that we will successfully identify new
product opportunities, develop and bring new products or enhancements to market in a timely manner, or achieve
market acceptance of our platform, or that products and technologies developed by others will not render our
platform obsolete or noncompetitive. If we expend significant resources on researching and developing products
or enhancements to our platform and such products or enhancements are not successful, our business, financial
position and results of operations may be adversely affected.
Disruptions or other business interruptions that affect the availability of our Dynamic Threat Intelligence, or
DTI, cloud or other cloud-based products and services we offer or may offer could adversely impact our
customer relationships as well as our overall business.
When a customer purchases one or more of our threat prevention appliances, it must also purchase a
subscription to our DTI cloud for a term of either one or three years. Our DTI cloud enables global sharing of
threat intelligence uploaded by any of our customers’ cloud-connected FireEye appliances. We also offer
additional cloud-based platforms such as our Email Threat Prevention, Mobile Threat Prevention and Threat
Analytics Platforms and provide security solutions through our own and our co-branded security operation
centers.
Our customers depend on the continuous availability of our DTI and other cloud-based products and
services. Our cloud-based products and services are vulnerable to damage or interruption from a variety of
sources,
including damage or interruption caused by fire, earthquake, power loss, telecommunications or
computer systems failure, cyber attack, human error, terrorist acts and war. Our data centers and networks may
experience technical failures and downtime, may fail to distribute appropriate updates, or may fail to meet the
increased requirements of a growing customer base, any of which could temporarily or permanently expose our
customers’ networks, leaving their networks unprotected against the latest security threats or, in the case of
technical failures and downtime of security operation centers, all security threats.
In addition, there may also be system or network interruptions if new or upgraded systems are defective or
not installed properly. Moreover, interruptions in our subscription updates could result in a failure of our DTI
cloud to effectively update customers’ hardware products and thereby leave our customers more vulnerable to
attacks. Interruptions or failures in our service delivery could cause customers to terminate their subscriptions
with us, could adversely affect our renewal rates, and could harm our ability to attract new customers. Our
business would also be harmed if our customers believe that our DTI cloud or other cloud-based products and
services are unreliable.
In addition, we provide our cloud-based products and services through third-party data center hosting
facilities located in the United States and other countries. While we control and have access to our servers and all
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of the components of our network that are located in our data centers, we do not control the operation of these
facilities. The owners of the data center facilities have no obligation to renew their agreements with us on
commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable
terms, or if one of our data center operators is acquired, we may be required to transfer our servers and other
infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in
connection with doing so.
Our current research and development efforts may not produce successful products or enhancements to our
platform that result in significant revenue, cost savings or other benefits in the near future, if at all.
We must continue to dedicate significant financial and other resources to our research and development
efforts if we are to maintain our competitive position. However, developing products and enhancements to our
platform is expensive and time consuming, and there is no assurance that such activities will result in significant
new marketable products or enhancements to our platform, design improvements, cost savings, revenue or other
expected benefits. If we spend significant resources on research and development and are unable to generate an
adequate return on our investment, our business and results of operations may be materially and adversely
affected.
If we are unable to increase sales of our platform to large organizations while mitigating the risks associated
with serving such customers, our business, financial position and results of operations may suffer.
Our growth strategy is dependent, in part, upon increasing sales of our platform to large enterprises and
governments. Sales to large customers involve risks that may not be present (or that are present to a lesser extent)
with sales to smaller entities. These risks include:
•
increased purchasing power and leverage held by large customers in negotiating contractual
arrangements with us;
• more stringent or costly requirements imposed upon us in our support service contracts with such
customers, including stricter support response times and penalties for any failure to meet support
requirements;
• more complicated implementation processes;
•
•
longer sales cycles and the associated risk that substantial time and resources may be spent on a
potential customer that ultimately elects not to purchase our platform or purchases less than we hoped;
closer relationships with, and dependence upon, large technology companies who offer competitive
products; and
• more pressure for discounts and write-offs.
In addition, because security breaches with respect to larger, high-profile enterprises are likely to be heavily
publicized, there is increased reputational risk associated with serving such customers. If we are unable to
increase sales of our platform to large enterprise and government customers while mitigating the risks associated
with serving such customers, our business, financial position and results of operations may suffer.
The sales prices of our products, subscriptions and services may decrease, which may reduce our gross profits
and adversely impact our financial results.
The sales prices for our products, subscriptions and services may decline for a variety of reasons, including
competitive pricing pressures, discounts, a change in our mix of products, subscriptions and services, anticipation
of the introduction of new products, subscriptions or services, or promotional programs. Competition continues
to increase in the market segments in which we participate, and we expect competition to further increase in the
future, thereby leading to increased pricing pressures. Larger competitors with more diverse product and service
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offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with
other products and subscriptions. Additionally, although we price our products and subscriptions worldwide in
U.S. dollars, currency fluctuations in certain countries and regions may negatively impact actual prices that
partners and customers are willing to pay in those countries and regions, or the effective prices we realize in our
reporting currency. Furthermore, we anticipate that the sales prices and gross profits for our products will
decrease over product life cycles. We cannot assure you that we will be successful in developing and introducing
new offerings with enhanced functionality on a timely basis, or that our new product and subscription offerings,
if introduced, will enable us to maintain our prices and gross profits at levels that will allow us to maintain
positive gross margins and achieve profitability.
Because we depend on a limited number of manufacturers to build the appliances used in our platform, we are
susceptible to manufacturing delays and pricing fluctuations that could prevent us from shipping customer
orders on time, or on a cost-effective basis, which may result in the loss of sales and customers.
We depend on a limited number of third-party manufacturers, primarily Flextronics Telecom Systems, Ltd.,
as sole source manufacturers for our appliances used in our platform. Our reliance on third-party manufacturers
reduces our control over the manufacturing process and exposes us to risks, including reduced control over
quality assurance, product costs, product supply and timing. Any manufacturing disruption by these third-party
manufacturers could severely impair our ability to fulfill orders on time. If we are unable to manage our
relationships with these third-party manufacturers effectively, or if these manufacturers suffer delays or
disruptions for any reason, experience increased manufacturing lead-times, capacity constraints or quality control
problems in their manufacturing operations, or fail to meet our future requirements for timely delivery, our
ability to ship products to our customers would be severely impaired, and our business and results of operations
would be harmed.
to incur additional costs to comply with the disclosure requirements,
In addition, our reliance on third-party manufacturers exposes us to the risk that certain minerals, known as
“conflict minerals,” that are contained in our products have originated in the Democratic Republic of the Congo
or an adjoining country. As a result of the passage of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, the SEC adopted disclosure requirements for public companies whose products contain
conflict minerals that are necessary to the functionality or production of such products. We have incurred and
expect
including costs related to
determining the source of the conflict minerals used in our products. Moreover, the implementation of these new
requirements could adversely affect the sourcing, availability and pricing of materials used in the manufacture of
our products to the extent that there may be only a limited number of suppliers offering “conflict free” minerals
that can be used in our products. There can be no assurance that we will be able to obtain such minerals in
sufficient quantities or at competitive prices. We may also encounter customers who require that all of the
components of our products be certified as conflict free. If we are not able to meet customer requirements, such
customers may choose to not purchase our products, which could impact our sales.
Our third-party manufacturers typically fulfill our supply requirements on the basis of individual orders. We
are subject to a risk of supply shortages and changes in pricing terms because we do not have long-term contracts
with our third-party manufacturers that guarantee capacity, the continuation of particular pricing terms or the
extension of credit limits. Our contract with our primary manufacturer permits it to terminate such contract at its
convenience, subject to prior notice requirements. Any production interruptions for any reason, such as a natural
disaster, epidemic, capacity shortages, or quality problems at one of our manufacturing partners would negatively
affect sales of our products and adversely impact our business and results of operations.
We may be unable to protect our intellectual property adequately, which could harm our business, financial
condition and results of operations.
We believe that our intellectual property is an essential asset of our business. We rely on a combination of
patent, copyright,
laws, as well as confidentiality procedures and contractual
provisions, to establish and protect our intellectual property rights in the United States and abroad. The efforts we
trademark and trade secret
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have taken to protect our intellectual property may not be sufficient or effective, and our trademarks, copyrights
and patents may be held invalid or unenforceable. Any U.S. or other patents issued to us may not be sufficiently
broad to protect our proprietary technologies, and given the costs of obtaining patent protection, we may choose
not to seek patent protection for certain of our proprietary technologies. We may not be effective in policing
unauthorized use of our intellectual property, and even if we do detect violations, litigation may be necessary to
enforce our intellectual property rights. Any enforcement efforts we undertake, including litigation, could be
time-consuming and expensive, could divert management’s attention and may result in a court determining that
our intellectual property rights are unenforceable. If we are not successful in cost-effectively protecting our
intellectual property rights, our business, financial condition and results of operations could be harmed.
Claims by others that we infringe their proprietary technology or other rights could harm our business.
Technology companies frequently enter into litigation based on allegations of patent infringement or other
violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they
have purchased or otherwise obtained. As we face increasing competition and gain an increasingly higher profile,
the possibility of intellectual property rights claims against us grows. From time to time, third parties have
asserted, and we expect that third parties will continue to assert, claims of infringement of intellectual property
rights against us. For example, we are currently a party to a suit by a non-practicing entity alleging, among other
things, patent infringement, which is in the early stages of litigation. Third parties may in the future also assert
claims against our customers or channel partners, whom our standard license and other agreements obligate us to
indemnify against claims that our products infringe the intellectual property rights of third parties. While we
intend to increase the size of our patent portfolio, many of our competitors and others may now and in the future
have significantly larger and more mature patent portfolios than we have. In addition, future litigation may
involve patent holding companies or other patent owners who have no relevant product offerings or revenue and
against whom our own patents may therefore provide little or no deterrence or protection. Any claim of
intellectual property infringement by a third party, even a claim without merit, could cause us to incur substantial
costs defending against such claim, could distract our management from our business and could require us to
cease use of such intellectual property. Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation, there is a risk that some of our confidential information could be
compromised by the discovery process.
Although third parties may offer a license to their technology or other intellectual property, the terms of any
offered license may not be acceptable, and the failure to obtain a license or the costs associated with any license
could cause our business, financial condition and results of operations to be materially and adversely affected. In
addition, some licenses may be non-exclusive, and therefore our competitors may have access to the same
technology licensed to us. If a third party does not offer us a license to its technology or other intellectual
property on reasonable terms, or at all, we could be enjoined from continued use of such intellectual property. As
a result, we may be required to develop alternative, non-infringing technology, which could require significant
time (during which we could be unable to continue to offer our affected products, subscriptions or services),
effort, and expense and may ultimately not be successful. Furthermore, a successful claimant could secure a
judgment or we may agree to a settlement that prevents us from distributing certain products, providing certain
subscriptions or performing certain services or that requires us to pay substantial damages, royalties or other fees.
Any of these events could harm our business, financial condition and results of operations.
We incorporate technology from third parties into our products, and our inability to obtain or maintain rights
to the technology could harm our business.
We incorporate technology from third parties into our products. We cannot be certain that our suppliers and
licensors are not infringing the intellectual property rights of third parties or that the suppliers and licensors have
sufficient rights to the technology in all jurisdictions in which we may sell our products. Some of our agreements
with our suppliers and licensors may be terminated for convenience by them. If we are unable to obtain or
maintain rights to any of this technology because of intellectual property infringement claims brought by third
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parties against our suppliers and licensors or against us, or if we are unable to continue to obtain such technology
or enter into new agreements on commercially reasonable terms, our ability to develop and sell products,
subscriptions and services containing such technology could be severely limited, and our business could be
harmed. Additionally, if we are unable to obtain necessary technology from third parties, including certain sole
suppliers, we may be forced to acquire or develop alternative technology, which may require significant time,
cost and effort and may be of lower quality or performance standards. This would limit and delay our ability to
offer new or competitive products and increase our costs of production. If alternative technology cannot be
obtained or developed, we may not be able to offer certain functionality as part of our products, subscriptions and
services. As a result, our margins, market share and results of operations could be significantly harmed.
Our products and subscriptions contain third-party open source software components, and failure to comply
with the terms of the underlying open source software licenses could restrict our ability to sell our products
and subscriptions.
Our products and subscriptions contain software modules licensed to us by third-party authors under “open
source” licenses. The use and distribution of open source software may entail greater risks than the use of third-
party commercial software, as open source licensors generally do not provide warranties or other contractual
protections regarding infringement claims or the quality of the code. Some open source licenses contain
requirements that we make available source code for modifications or derivative works we create based upon the
type of open source software we use. If we combine our proprietary software with open source software in a
certain manner, we could, under certain open source licenses, be required to release the source code of our
proprietary software to the public. This would allow our competitors to create similar products with lower
development effort and time and ultimately could result in a loss of sales for us.
Although we monitor our use of open source software to avoid subjecting our products and subscriptions to
conditions, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk
that these licenses could be construed in ways that could impose unanticipated conditions or restrictions on our
ability to commercialize products and subscriptions incorporating such software. Moreover, we cannot assure
you that our processes for controlling our use of open source software in our products and subscriptions will be
effective. From time to time, we may face claims from third parties asserting ownership of, or demanding release
of, the open source software or derivative works that we developed using such software (which could include our
proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These
claims could result in litigation. If we are held to have breached the terms of an open source software license, we
could be required to seek licenses from third parties to continue offering our products on terms that are not
economically feasible, to re-engineer our products, to discontinue the sale of our products if re-engineering could
not be accomplished on a timely or cost-effective basis, or to make generally available, in source code form, our
proprietary code, any of which could adversely affect our business, results of operations and financial condition.
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U.S. federal, state and local government sales are subject to a number of challenges and risks that may
adversely impact our business.
Sales to U.S. federal, state, and local governmental agencies have accounted for, and may in the future
account for, a significant portion of our revenue. Sales to such government entities are subject to the following
risks:
•
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selling to governmental agencies can be highly competitive, expensive and time consuming, often
requiring significant upfront time and expense without any assurance that such efforts will generate a
sale;
government certification requirements applicable to our products may change and, in doing so, restrict
our ability to sell
into the U.S. federal government sector until we have attained the revised
certification;
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•
government demand and payment for our products and services may be impacted by public sector
budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting
public sector demand for our products and services;
• we sell our platform to governmental agencies through our indirect channel partners, and these
agencies may have statutory, contractual or other legal rights to terminate contracts with our
distributors and resellers for convenience or due to a default, and any such termination may adversely
impact our future results of operations;
•
•
governments routinely investigate and audit government contractors’ administrative processes, and any
unfavorable audit could result in the government refusing to continue buying our platform, which
would adversely impact our revenue and results of operations, or institute fines or civil or criminal
liability if the audit were to uncover improper or illegal activities; and
governments may require certain products purchased by it to be manufactured in the United States and
other relatively high-cost manufacturing locations, and we may not manufacture all products in
locations that meet these requirements, affecting our ability to sell these products to governmental
agencies.
Our ability to maintain customer satisfaction depends in part on the quality of our professional service
organization and technical and other support services, including the quality of the support provided on our
behalf by certain channel partners. Failure to maintain high-quality customer support could have a material
adverse effect on our business, financial condition and results of operations.
Once our platform is deployed within our customers’ networks, our customers depend on our technical and
other support services, as well as the support of our channel partners, to resolve any issues relating to the
implementation and maintenance of our platform. If we or our channel partners do not effectively assist our
customers in deploying our platform, succeed in helping our customers quickly resolve post-deployment issues,
or provide effective ongoing support, our ability to sell additional products, subscriptions or services as part of
our platform to existing customers would be adversely affected and our reputation with potential customers could
be damaged. Many larger organizations have more complex networks and require higher levels of support than
smaller customers. If we fail to meet the requirements of our larger customers, it may be more difficult to execute
on our strategy of upselling and cross selling with these customers. Additionally, if our channel partners do not
effectively provide support to the satisfaction of our customers, we may be required to provide this level of
support to those customers, which would require us to hire additional personnel and to invest in additional
resources. It can take significant time and resources to recruit, hire, and train qualified technical support
employees. We may not be able to hire such resources fast enough to keep up with demand. To the extent that we
or our channel partners are unsuccessful in hiring, training, and retaining adequate support resources, our ability
and the ability of our channel partners to provide adequate and timely support to our customers will be negatively
impacted, and our customers’ satisfaction with our platform will be adversely affected. Additionally, to the extent
that we need to rely on our sales engineers to provide post-sales support, our sales productivity will be negatively
impacted, which would harm our results of operations.
Our limited operating history makes it difficult to evaluate our current business and prospects and may
increase the risk that we will not be successful.
We were founded in 2004, and our first commercially successful product was shipped in 2008. Since then,
we have continued to expand our platform, both organically and through acquisitions, including through the
addition of Mandiant Corporation’s endpoint threat detection, response and remediation products; advanced
threat intelligence capabilities; and incident response and security consulting services. The majority of our
revenue growth began in 2010. Our limited operating history makes it difficult to evaluate our current business
and prospects and plan for and model our future growth. We have encountered and will continue to encounter
risks and uncertainties frequently encountered by rapidly growing companies in developing markets.
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If our assumptions regarding these risks and uncertainties are incorrect or change in response to changes in
the IT security market, our results of operations and financial results could differ materially from our plans and
forecasts. Although we have experienced rapid growth in the past, there is no assurance that such growth will
continue. Any success we may experience in the future will depend in large part on our ability to, among other
things:
• maintain and expand our customer base and the ways in which customers use our products and
services;
•
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•
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expand revenue from existing customers through increased or broader use of our products and services
within their organizations;
convince customers to allocate a fixed portion of their annual IT budgets to our products and services;
improve the performance and capabilities of our platform through research and development;
effectively expand our business domestically and internationally, which will require that we fill key
management positions, particularly internationally; and
successfully compete with other companies that currently provide, or may in the future provide,
solutions like ours that protect against next-generation advanced cyber attacks.
If we are unable to achieve our key objectives, including the objectives listed above, our business and results
of operations will be adversely affected and the fair market value of our common stock could decline.
Managing the supply of our products and their components is complex. Insufficient supply and inventory may
result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.
Our third-party manufacturers procure components and build our products based on our forecasts, and we
generally do not hold inventory for a prolonged period of time. These forecasts are based on estimates of future
demand for our products, which are in turn based on historical trends and analyses from our sales and marketing
organizations, adjusted for overall market conditions. In order to reduce manufacturing lead times and plan for
adequate component supply, from time to time we may issue forecasts for components and products that are non-
cancelable and non-returnable.
Our inventory management systems and related supply chain visibility tools may be inadequate to enable us
to make accurate forecasts and effectively manage the supply of our products and product components. Supply
management remains an area of increasing focus as we balance the need to maintain supply levels that are
sufficient
to ensure competitive lead times against the risk of obsolescence because of rapidly changing
technology and customer requirements. If we ultimately determine that we have excess supply, we may have to
reduce our prices and write-down inventory, which in turn could result in lower gross margins. Alternatively,
insufficient supply levels may lead to shortages that result in delayed revenue or loss of sales opportunities
altogether as potential customers turn to competitors’ products that may be readily available. Additionally, any
increases in the time required to manufacture or ship our products could result in supply shortfalls. If we are
unable to effectively manage our supply and inventory, our results of operations could be adversely affected.
Because some of the key components in our products come from limited sources of supply, we are susceptible
to supply shortages or supply changes, which could disrupt or delay our scheduled product deliveries to our
customers and may result in the loss of sales and customers.
Our platform relies on key components, including a motherboard and chassis, which our third-party
manufacturers purchase on our behalf from a sole source provider. The manufacturing operations of some of our
component suppliers are geographically concentrated in Asia, which makes our supply chain vulnerable to
regional disruptions. A localized health risk affecting employees at these facilities, such as the spread of a
pandemic influenza, could impair the total volume of components that we are able to obtain, which could result
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in substantial harm to our results of operations. Similarly, a fire, flood, earthquake, tsunami or other disaster,
condition or event such as political instability, terrorist act, civil unrest or a power outage that adversely affects
any of these component suppliers’ facilities could significantly affect our ability to obtain the components needed
for our products, which could result in a substantial loss of sales and revenue and a substantial harm to our results
of operations.
We do not have volume purchase contracts with any of our component suppliers, and they could cease
selling to us at any time. In addition, our component suppliers change their selling prices frequently in response
to market trends, including industry-wide increases in demand, and because we do not have contracts with these
suppliers, we are susceptible to price fluctuations related to raw materials and components. If we are unable to
pass component price increases along to our customers or maintain stable pricing, our gross margins and results
of operations could be negatively impacted. If we are unable to obtain a sufficient quantity of these components
in a timely manner for any reason, sales of our products could be delayed or halted or we could be forced to
expedite shipment of such components or our products at dramatically increased costs, which would negatively
impact our revenue and gross margins. Additionally, poor quality in any of the sole-sourced components in our
products could result in lost sales or lost sales opportunities. If the quality of the components does not meet our
if we are unable to obtain components from our existing suppliers on
or our customers’ requirements,
commercially reasonable terms, or if any of our sole source providers cease to remain in business or continue to
manufacture such components, we could be forced to redesign our products and qualify new components from
alternate suppliers. The resulting stoppage or delay in selling our products and the expense of redesigning our
products could result in lost sales opportunities and damage to customer relationships, which would adversely
affect our business and results of operations.
Our failure to adequately protect personal information could have a material adverse effect on our business.
A wide variety of provincial, state, national, and international laws and regulations apply to the collection,
use, retention, protection, disclosure, transfer and other processing of personal data. These data protection and
privacy-related laws and regulations are evolving and may result in ever-increasing regulatory and public
scrutiny and escalating levels of enforcement and sanctions. Our failure to comply with applicable laws and
regulations, or to protect such data, could result in enforcement action against us, including fines, imprisonment
of company officials and public censure, claims for damages by customers and other affected individuals,
damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers),
any of which could have a material adverse effect on our operations, financial performance and business.
Evolving and changing definitions of personal data and personal information within the European Union, the
United States, and elsewhere, especially relating to classification of IP addresses, machine identification, location
data and other information, may limit or inhibit our ability to operate or expand our business, including limiting
technology alliance partners that may involve the sharing of data. Even the perception of privacy concerns,
whether or not valid, may harm our reputation, inhibit adoption of our products by current and future customers,
or adversely impact our ability to attract and retain workforce talent.
Our technology alliance partnerships expose us to a range of business risks and uncertainties that could have
a material adverse impact on our business and financial results.
We have entered, and intend to continue to enter, into technology alliance partnerships with third parties to
support our future growth plans. Such relationships include technology licensing, joint technology development
and integration, research cooperation, co-marketing activities and sell-through arrangements. We face a number
of risks relating to our technology alliance partnerships that could prevent us from realizing the desired benefits
from such partnerships on a timely basis or at all, which, in turn, could have a negative impact on our business
and financial results.
Technology alliance partnerships require significant coordination between the parties involved, particularly
if a partner requires that we integrate its products with our products. This could involve a significant commitment
of time and resources by our technical staff and their counterparts within our technology alliance partner. The
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integration of products from different companies may be more difficult than we anticipate, and the risk of
integration difficulties, incompatible products and undetected programming errors or defects may be higher than
the risks normally associated with the introduction of new products. It may also be more difficult to market and
sell products developed through technology alliance partnerships than it would be to market and sell products
that we develop on our own. Sales and marketing personnel may require special training, as the new products
may be more complex than our other products.
We invest significant time, money and resources to establish and maintain relationships with our technology
alliance partners, but we have no assurance that any particular relationship will continue for any specific period
of time. Generally, our agreements with these technology alliance partners are terminable without cause with no
or minimal notice or penalties. If we lose a significant technology alliance partner, we could lose the benefit of
our investment of time, money and resources in the relationship. In addition, we could be required to incur
significant expenses to develop a new strategic alliance or to determine and implement an alternative plan to
pursue the opportunity that we targeted with the former partner.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that
change or prove to be incorrect, our results of operations could fall below our publicly announced guidance or
the expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements in conformity with generally accepted accounting principles, or
GAAP, requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section
entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results
of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and
expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if
our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our
results of operations to fall below our publicly announced guidance or the expectations of securities analysts and
investors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our
consolidated financial statements include those related to assets, liabilities, revenue, expenses and related
disclosures.
We are exposed to the credit risk of some of our distributors, resellers and customers and to credit exposure in
weakened markets, which could result in material losses.
Most of our sales are on an open credit basis. Although we have programs in place that are designed to
monitor and mitigate these risks, we cannot assure you these programs will be effective in reducing our credit
risks, especially as we expand our business internationally. If we are unable to adequately control these risks, our
business, results of operations and financial condition could be harmed.
Our failure to raise additional capital or generate the significant capital necessary to expand our operations
and invest in new products could reduce our ability to compete and could harm our business.
We intend to continue to make investments to support our business growth and may require additional funds
to respond to business challenges, including the need to develop new products and enhancements to our platform,
improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we
may need to engage in equity or debt financings to secure additional funds. If we raise additional equity
financing, our stockholders may experience significant dilution of their ownership interests and the per share
value of our common stock could decline. Furthermore, if we engage in additional debt financing, the holders of
debt would have priority over the holders of common stock, and we may be required to accept terms that restrict
our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise
be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which
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could harm our business, results of operations, and financial condition. If we need additional capital and cannot
raise it on acceptable terms, we may not be able to, among other things:
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develop or enhance our products and subscriptions;
continue to expand our sales and marketing and research and development organizations;
acquire complementary technologies, products or businesses;
expand operations, in the United States or internationally;
hire, train and retain employees; or
respond to competitive pressures or unanticipated working capital requirements.
Our failure to do any of these things could harm our business, financial condition and results of operations.
If our products do not effectively interoperate with our customers’ IT infrastructure, installations could be
delayed or cancelled, which would harm our business.
Our products must effectively interoperate with our customers’ existing or future IT infrastructure, which
often has different specifications, utilizes multiple protocol standards, deploys products from multiple vendors,
and contains multiple generations of products that have been added over time. As a result, when problems occur
in a network, it may be difficult to identify the sources of these problems. If we find errors in the existing
software or defects in the hardware used in our customers’ infrastructure or problematic network configurations
or settings, we may have to modify our software or hardware so that our products will interoperate with our
customers’ infrastructure. In such cases, our products may be unable to provide significant performance
improvements for applications deployed in our customers’ infrastructure. These issues could cause longer
installation times for our products and could cause order cancellations, either of which would adversely affect
our business, results of operations and financial condition. In addition, government and other customers may
require our products to comply with certain security or other certifications and standards. If our products are late
in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve
compliance with these certifications and standards, we may be disqualified from selling our products to such
customers, or may otherwise be at a competitive disadvantage, either of which would harm our business, results
of operations, and financial condition.
We generate a significant amount of revenue from sales to resellers, distributors and customers outside of the
United States, and we are therefore subject to a number of risks associated with international sales and
operations.
We have a limited history of marketing, selling, and supporting our platform internationally. As a result, we
must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we
experience difficulties in recruiting, training, managing, and retaining international employees, particularly
managers and other members of our international sales team, we may experience difficulties in sales productivity
in, or market penetration of, foreign markets. We also enter into strategic distributor and reseller relationships
with companies in certain international markets where we do not have a local presence. If we are not able to
maintain successful strategic distributor relationships with our international channel partners or recruit additional
channel partners, our future success in these international markets could be limited. Business practices in the
international markets that we serve may differ from those in the United States and may require us to include non-
standard terms in customer contracts, such as extended payment or warranty terms. To the extent that we enter
into customer contracts in the future that
include non-standard terms related to payment, warranties, or
performance obligations, our results of operations may be adversely impacted.
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Additionally, our international sales and operations are subject to a number of risks, including the following:
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greater difficulty in enforcing contracts and managing collections, as well as longer collection periods;
higher costs of doing business internationally, including costs incurred in establishing and maintaining
office space and equipment for our international operations;
fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do
business, such as the British Pound Sterling, which experienced a sharp decline in value compared to
the U.S. dollar and other currencies;
• management communication and integration problems resulting from cultural and geographic
dispersion;
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risks associated with trade restrictions and foreign legal requirements, including any importation,
certification, and localization of our platform that may be required in foreign countries and any changes
in trade relations and restrictions as a result of the recent U.S. presidential election;
greater risk of unexpected changes in tariffs and tax laws and treaties;
compliance with anti-bribery laws, including, without limitation, compliance with the U.S. Foreign
Corrupt Practices Act of 1977, as amended, the U.S. Travel Act and the UK Bribery Act 2010,
violations of which could lead to significant fines, penalties and collateral consequences for our
Company;
heightened risk of unfair or corrupt business practices in certain geographies and of improper or
fraudulent sales arrangements that may impact financial results and result in restatements of, or
irregularities in, financial statements;
the uncertainty of protection for intellectual property rights in some countries;
general economic and political conditions in these foreign markets;
foreign exchange controls or tax regulations that might prevent us from repatriating cash earned outside
the United States;
political and economic instability in some countries, such as those caused by the recent U.S.
presidential election and the referendum on June 23, 2016, in which voters in the U.K. approved an exit
from the EU, commonly referred to as “Brexit”; and
double taxation of our international earnings and potentially adverse tax consequences due to changes
in the tax laws of the United States or the foreign jurisdictions in which we operate.
Further, the interpretation and application of foreign laws and regulations in many cases is uncertain, and
our legal and regulatory obligations in foreign jurisdictions are subject to frequent and unexpected changes,
including the potential for various regulatory or other governmental bodies to enact new or additional laws or
regulations or to issue rulings that invalidate prior laws or regulations.
For example, with regard to transfers of personal data from our European customers and employees to the
U.S., we have historically relied on compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks as
agreed to by the U.S. Department of Commerce, and the EU and Switzerland, which established means for
legitimizing the transfer of personal data by U.S. companies from the European Economic Area, or EEA, to the
U.S. In a recent ruling by the EU Court of Justice in Case C-362/14 (Schrems v. Data Protection Commissioner),
the U.S.-EU Safe Harbor Framework was deemed an invalid method of compliance with restrictions under EU
law regarding the transfer of personal data outside of the EEA. EU and U.S. political authorities reached political
agreement in February 2016 regarding the U.S.-EU Privacy Shield, which would provide a new mechanism for
companies to transfer EU personal data to the United States. Although the U.S.-EU Privacy Shield was granted
an adequacy decision by the EU College of Commissioners on July 12, 2016, and became available to U.S.
companies on August 1, 2016, it has been challenged and may be suspended or invalidated. It is uncertain that
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the U.S.-EU Privacy Shield will continue to remain intact and serve as an appropriate means for us to meet EU
requirements for personal data transfers from the EEA to the United States. In particular, it is unclear whether the
new Administration may pursue changes to, or withdrawal from, the U.S.-EU Privacy Shield Framework. Policy
positions and executive orders of President Trump may cause European officials to pursue changes to, or
withdrawal from, the U.S.-EU Privacy Shield. The invalidation of the U.S.-EU Safe Harbor or subsequent
developments in the legal landscape affecting the transfer of personal data from the EEA may cause us to find it
necessary or desirable to modify our data handling practices, and may serve as a basis for our personal data
handling practices, or those of our customers and vendors, to be challenged and may otherwise adversely impact
our business, financial condition and operating results.
These and other factors could harm our ability to generate future international revenue and, consequently,
materially impact our business, results of operations and financial condition.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial
condition and results of operations.
Our sales contracts are denominated in U.S. dollars, and therefore our revenue is not subject to foreign
currency risk. However, strengthening of the U.S. dollar increases the real cost of our products, subscriptions and
services to our customers outside of the United States, which could lead to delays in the purchase of our products
and services and the lengthening of our sales cycle. If the U.S. dollar continues to strengthen, this could
adversely affect our financial condition and results of operations. In addition, we are incurring an increasing
portion of our operating expenses outside the United States. These expenses are denominated in foreign
currencies and are subject to fluctuations due to changes in foreign currency exchange rates.
Additionally, on June 23, 2016, the U.K. held a referendum in which British voters approved an exit from
the EU, commonly referred to as “Brexit.” This resulted in an adverse impact to currency exchange rates, notably
the British Pound Sterling which experienced a sharp decline in value compared to the U.S. dollar and other
currencies. Continued volatility in currency exchange rates is expected in the near term as the U.K. negotiates its
exit from the EU. A significantly weaker British Pound Sterling compared to the U.S. dollar could have a
significantly negative effect on our financial condition and results of operations.
We do not currently hedge against the risks associated with currency fluctuations but may do so in the
future.
Failure to comply with governmental laws and regulations could harm our business.
these regulatory requirements may be more stringent
Our business is subject to regulation by various U.S. federal, state, local and foreign governments. In certain
jurisdictions,
than those in the United States.
Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions,
mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal
penalties, injunctions or other collateral consequences. If any governmental sanctions are imposed, or if we do
not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition
could be materially adversely affected. In addition, responding to any action will likely result in a significant
diversion of management’s attention and resources and an increase in professional fees. U.S. regulations
surrounding our operating activities in foreign jurisdictions are not always consistent with, and at times are in
contravention to, the local regulations or laws in such jurisdictions. Enforcement actions and sanctions could
harm our business, reputation, results of operations and financial condition.
We are subject to governmental export and import controls that could subject us to liability or impair our
ability to compete in international markets.
Our products are subject to U.S. export controls, specifically the Export Administration Regulations and
economic sanctions enforced by the Office of Foreign Assets Control. We incorporate standard encryption
algorithms into our products, which, along with the underlying technology, may be exported outside of the U.S.
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only with the required export authorizations, including by license, license exception or other appropriate
government authorizations, which may require the filing of an encryption registration and classification request.
Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and
services to countries, governments, and persons targeted by U.S. sanctions. While we have taken precautions to
prevent our products and services from being exported in violation of these laws, in certain instances in the past
we shipped our encryption products prior to obtaining the required export authorizations and/or submitting the
required requests, including a classification request and request for an encryption registration number, resulting
in an inadvertent violation of U.S. export control laws. As a result, in February 2013, we filed a Voluntary Self
Disclosure with the U.S. Department of Commerce’s Bureau of Industry and Security, or BIS, concerning these
potential violations. In June 2013, BIS notified us that it had completed its review of this matter and closed its
review with the issuance of a warning letter. No monetary penalties were assessed. Even though we take
precautions to ensure that our channel partners comply with all relevant regulations, any failure by our channel
partners to comply with such regulations could have negative consequences, including reputational harm,
government investigations and penalties.
In addition, various countries regulate the import of certain encryption technology, including through import
permit and license requirements, and have enacted laws that could limit our ability to distribute our products or
could limit our customers’ ability to implement our products in those countries. Changes in our products or
changes in export and import regulations may create delays in the introduction of our products into international
markets, prevent our customers with international operations from deploying our products globally or, in some
cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any
change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or
scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such
regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our
products to, existing or potential customers with international operations. Any decreased use of our products or
limitation on our ability to export to or sell our products in international markets would likely adversely affect
our business, financial condition and results of operations.
Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events,
and to interruption by man-made problems such as terrorism.
A significant natural disaster, such as an earthquake, a fire, a flood, or significant power outage could have a
material adverse impact on our business, results of operations, and financial condition. Our corporate
headquarters and servers hosting our cloud services are located in California, a region known for seismic activity.
In addition, natural disasters could affect our supply chain, manufacturing vendors, or logistics providers’ ability
to provide materials and perform services such as manufacturing products or assisting with shipments on a timely
basis. In the event that our or our service providers’ information technology systems or manufacturing or
logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in
missed financial targets, such as revenue and shipment targets, for a particular quarter. In addition, acts of
terrorism and other geo-political unrest could cause disruptions in our business or the business of our supply
chain, manufacturers, logistics providers, partners, or customers or the economy as a whole. Any disruption in
the business of our supply chain, manufacturers, logistics providers, partners or end-customers that impacts sales
at the end of a fiscal quarter could have a significant adverse impact on our financial results. All of the
aforementioned risks may be further increased if the disaster recovery plans for us and our suppliers prove to be
inadequate. To the extent that any of the above should result in delays or cancellations of customer orders, or the
delay in the manufacture, deployment or shipment of our products, our business, financial condition and results
of operations would be adversely affected.
If we fail to comply with environmental requirements, our business, financial condition, results of operations
and reputation could be adversely affected.
We are subject to various environmental laws and regulations including laws governing the hazardous
material content of our products and laws relating to the collection and recycling of electrical and electronic
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equipment. Examples of these laws and regulations include the EU Restrictions on the Use of certain Hazardous
Substances in Electronic Equipment Directive and the EU Waste Electrical and Electronic Equipment Directive
as well as the implementing legislation of the EU member states. Similar laws and regulations have been passed
or are pending in China, South Korea and Japan and may be enacted in other regions, including in the United
States, and we are, or may in the future be, subject to these laws and regulations.
Our failure to comply with past, present, and future laws could result in reduced sales of our products,
substantial product inventory write-offs, reputational damage, penalties, and other sanctions, any of which could
harm our business and financial condition. We also expect
that our products will be affected by new
environmental laws and regulations on an ongoing basis. To date, our expenditures for environmental compliance
have not had a material impact on our results of operations or cash flows, and although we cannot predict the
future impact of such laws or regulations, they will likely result in additional costs and may increase penalties
associated with violations or require us to change the content of our products or how they are manufactured,
which could have a material adverse effect on our business, results of operations and financial condition.
The enactment of legislation implementing changes in the U.S. taxation of international business activities or
the adoption of other tax reform policies could materially impact our financial position and results of
operations.
Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign
tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to
the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax
treatment of our foreign earnings. Due to expansion of our international business activities, any changes in the
U.S. taxation of such activities may increase our worldwide effective tax rate and adversely affect our financial
condition and operating results.
In addition, Congress and the current administration have indicated a desire to reform the U.S. corporate
income tax. As part of any tax reform, it is possible that the current corporate income tax rate may be reduced,
and there may be other potential changes including limiting or eliminating various other deductions, credits or
tax preferences. At this time, it is not possible to measure the potential impact on the value of our deferred tax
assets, business, prospects or results of operations that might result upon enactment.
If we do not achieve increased tax benefits as a result of our corporate structure, our operating results and
financial condition may be negatively impacted.
We generally conduct our international operations through wholly-owned subsidiaries and report our taxable
income in various jurisdictions worldwide based upon our business operations in those jurisdictions. In 2013, we
completed the reorganization of our corporate structure and intercompany relationships to more closely align our
corporate organization with the expansion of our international business activities. Although we anticipate
achieving a reduction in our overall effective tax rate in the future as a result of this reorganized corporate
structure, we may not realize any benefits. Our intercompany relationships are subject to complex transfer
pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities
may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such
a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes,
interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows
and lower overall profitability of our operations. In addition, if the intended tax treatment of our reorganized
corporate structure is not accepted by the applicable taxing authorities, changes in tax law negatively impact the
structure or we do not operate our business consistent with the structure and applicable tax laws and regulations,
we may fail to achieve any tax advantages as a result of the reorganized corporate structure, and our future
operating results and financial condition may be negatively impacted.
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We could be subject to additional tax liabilities.
We are subject to U.S. federal, state, local and sales taxes in the United States and foreign income taxes,
withholding taxes and transaction taxes in numerous foreign jurisdictions. Significant judgment is required in
evaluating our tax positions and our worldwide provision for taxes. During the ordinary course of business, there
are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax
obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and
other laws, regulations, principles and interpretations,
including those relating to income tax nexus, by
recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and
higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign
currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. We may be
audited in various jurisdictions, and such jurisdictions may assess additional taxes, sales taxes and value-added
taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits
or litigation could be materially different from our historical tax provisions and accruals, which could have a
material adverse effect on our operating results or cash flows in the period or periods for which a determination
is made.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation
that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating
losses, or NOLs, to offset future taxable income. Our existing NOLs may be subject to limitations arising from
previous ownership changes. Future changes in our stock ownership, some of which are outside of our control,
could result in an ownership change under Section 382 of the Code and adversely affect our ability to utilize our
NOLs in the future. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may
be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of
NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future
income tax liabilities. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on
our balance sheet, even if we attain profitability.
Risks Related to Our Convertible Senior Notes
We are leveraged financially, which could adversely affect our ability to adjust our business to respond to
competitive pressures and to obtain sufficient funds to satisfy our future growth, business needs and
development plans.
We have substantial existing indebtedness. In June 2015, we issued $920.0 million aggregate principal
amount of convertible senior notes (the “convertible notes”).
The degree to which we are leveraged could have negative consequences, including, but not limited to, the
following:
• we may be more vulnerable to economic downturns, less able to withstand competitive pressures and
less flexible in responding to changing business and economic conditions;
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our ability to obtain additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate or other purposes may be limited
a substantial portion of our cash flows from operations in the future may be required for the payment of
the principal amount of our existing indebtedness when it becomes due; and
• we may elect to make cash payments upon any conversion of the convertible notes, which would
reduce our cash on hand.
Our ability to meet our payment obligations under our convertible notes depends on our ability to generate
significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive,
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legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance
that our business will generate cash flow from operations, or that additional capital will be available to us, in an
amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are
unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure
our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to
implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which
could have a material adverse effect on our business, results of operations, or financial condition.
The conditional conversion feature of the convertible notes, if triggered, may adversely affect our financial
condition and operating results.
In the event the conditional conversion feature of the convertible notes is triggered, holders of such convertible
notes will be entitled to convert their convertible notes at any time during specified periods at their option. If one or
more holders elect to convert their convertible notes, unless we elect to satisfy our conversion obligation by delivering
solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be
required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely
affect our liquidity. In addition, even if holders do not elect to convert their convertible notes, we could be required
under applicable accounting rules to reclassify all or a portion of the outstanding principal of the convertible notes as a
current rather than long-term liability, which would result in a material reduction of our net working capital.
The accounting method for convertible debt securities that may be settled in cash, such as the convertible
notes, is subject to changes that could have a material effect on our reported financial results.
In May 2008, the Financial Accounting Standards Board, which we refer to as FASB, issued FASB Staff
Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon
Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards
Codification 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20. Under ASC
470-20, an entity must separately account for the liability and equity components of the convertible debt
instruments (such as the convertible notes) that may be settled entirely or partially in cash upon conversion in a
manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the
convertible notes is that the equity component is required to be included in the additional paid-in capital section
of stockholders’ equity on our consolidated balance sheet and the value of the equity component would be treated
as original issue discount for purposes of accounting for the debt component of the convertible notes. As a result,
we will be required to record a greater amount of non-cash interest expense in current periods presented as a
result of the amortization of the discounted carrying value of the convertible notes to their face amount over the
term of the convertible notes. We will report lower net income in our financial results because ASC 470-20 will
require interest to include both the current period’s amortization of the debt discount and the instrument’s non-
convertible coupon interest for the convertible notes, which could adversely affect our reported or future
financial results and the trading price of our common stock.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This standard
clarifies how certain cash receipts and payments should be classified in the statement of cash flows, including the
cash settlement of our Convertible Senior Notes. Upon cash settlement, repayment of the principal amount will
be bifurcated between cash outflows for operating activities for the portion related to accreted interest
attributable to debt discounts arising from the difference between the coupon interest rate and the effective
interest rate, and financing activities for the remainder. This will require us to classify the $233.9 million of
accreted interest as cash used in operating activities in our consolidated financial statements upon cash
settlement, which could adversely affect our future financial results.
In addition, under certain circumstances, convertible debt instruments (such as the convertible notes) that
may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect
of which is that any shares issuable upon conversion of the convertible notes are not included in the calculation
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of diluted earnings per share except to the extent that the conversion value of the convertible notes exceeds their
principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is
accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we
elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future
will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in
accounting for the shares issuable upon conversion of the convertible notes, then our diluted earnings per share
would be adversely affected.
Conversion of our convertible notes will dilute the ownership interest of existing stockholders and may depress
the price of our common stock.
The conversion of some or all of our convertible notes, if such conversion occurs, will dilute the ownership
interests of then-existing stockholders to the extent we deliver shares upon conversion of any of the convertible
notes. Any sales in the public market of the common stock issuable upon such conversion could adversely affect
prevailing market prices of our common stock. In addition, the existence of the convertible notes may encourage
short selling by market participants because the conversion of the convertible notes could be used to satisfy short
positions, or anticipated conversion of the convertible notes into shares of our common stock could depress the
price of our common stock.
Risks Related to Ownership of Our Common Stock
If securities or industry analysts do not publish research or reports about our business, or publish inaccurate
or unfavorable research reports about our business, our share price and trading volume could decline.
The trading market for our common stock, to some extent, depends on the research and reports that
securities or industry analysts publish about us or our business. We do not have any control over these analysts.
If one or more of the analysts who cover us should downgrade our shares or change their opinion of our shares,
industry sector or products, our share price would likely decline. If one or more of these analysts ceases coverage
of our Company or fails to regularly publish reports on us, we could lose visibility in the financial markets,
which could cause our share price or trading volume to decline.
We may fail to meet our publicly announced guidance or other expectations about our business and future
operating results, which would cause our stock price to decline.
We have provided and may continue to provide guidance about our business and future operating results. In
developing this guidance, our management must make certain assumptions and judgments about our future
performance, including the level of anticipated cost savings we expect to achieve as a result of our restructuring plan.
Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a
consensus about our future performance. Our business results may vary significantly from such guidance or that
consensus due to a number of factors, many of which are outside of our control, and which could adversely affect our
operations and operating results. Furthermore, if we make downward revisions of our previously announced guidance,
or if our publicly announced guidance of future operating results fails to meet expectations of securities analysts,
investors or other interested parties, the price of our common stock would decline.
The price of our common stock has been and may continue to be volatile, and the value of your investment
could decline.
The trading price of our common stock has been volatile since our initial public offering, and is likely to
continue to be volatile. Since the date of our initial public offering, the price of our common stock has ranged
from $10.60 to $97.35 through February 21, 2017, and the last reported sale price on February 21, 2017 was
$11.80. The trading price of our common stock may fluctuate widely in response to various factors, some of
which are beyond our control. These factors include:
• whether our results of operations, and in particular, our revenue growth rates, meet the expectations of
securities analysts or investors;
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•
•
•
•
•
•
•
•
•
•
•
actual or anticipated changes in the expectations of investors or securities analysts, whether as a result
of our forward-looking statements, our failure to meet such expectation or otherwise;
announcements of new products, services or technologies, commercial relationships, acquisitions or
other events by us or our competitors;
changes in how customers perceive the effectiveness of our platform in protecting against advanced
cyber attacks or other reputational harm;
publicity concerning cyber attacks in general or high profile cyber attacks against specific
organizations;
price and volume fluctuations in the overall stock market from time to time;
significant volatility in the market price and trading volume of technology and/or growth companies in
general and of companies in the IT security industry in particular;
fluctuations in the trading volume of our shares or the size of our public float;
actual or anticipated changes or fluctuations in our results of operations;
litigation involving us, our industry, or both;
regulatory developments in the United States, foreign countries or both;
general economic conditions and trends;
• major catastrophic events;
•
•
sales of large blocks of our common stock; and
departures of key personnel.
In addition, if the market for technology stocks or the stock market in general experiences a loss of investor
confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of
operations or financial condition. The trading price of our common stock might also decline in reaction to events
that affect other companies in our industry even if these events do not directly affect us. In the past, following
periods of volatility in the market price of a company’s securities, securities class action litigation has often been
brought against that company. The price of our common stock has been highly volatile since our IPO in
September 2013, and beginning in June 2014, several lawsuits alleging violations of securities laws were filed
against us and certain of our current and former directors and executive officers. This and any future securities
litigation could result in substantial costs and divert our management’s attention and resources from our business.
This could have a material adverse effect on our business, results of operations and financial condition.
Sales of substantial amounts of our common stock in the public markets, or sales of our common stock by our
executive officers and directors under Rule 10b5-1 plans, could adversely affect the market price of our
common stock.
Sales of a substantial number of shares of our common stock in the public market, or the perception that
such sales could occur, could adversely affect the market price of our common stock and may make it more
difficult for you to sell your common stock at a time and price that you deem appropriate. In addition, certain of
our executive officers and directors have adopted, and other executive officers and directors may in the future
adopt, written plans, known as “Rule 10b5-1 Plans,” under which they have contracted, or may in the future
contract, with a broker to sell shares of our common stock on a periodic basis to diversify their assets and
investments. Sales made by our executive officers and directors pursuant to Rule 10b5-1, regardless of the
amount of such sales, could adversely affect the market price of our common stock.
44
The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive
plans, conversion of our convertible notes or otherwise will dilute all other stockholders.
investment, our stock incentive plans,
Our amended and restated certificate of incorporation authorizes us to issue up to 1,000,000,000 shares of
common stock and up to 100,000,000 shares of preferred stock with such rights and preferences as may be
determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue
shares of common stock or securities convertible into our common stock from time to time in connection with a
financing, acquisition,
the conversion of our convertible notes or
otherwise. For example, in December 2013, we issued approximately 16.9 million shares of common stock and
assumed options to purchase approximately 4.6 million shares of our common stock in connection with our
acquisition of Mandiant; in May 2014, we issued 295,681 shares of common stock and assumed options to
purchase 63,490 shares of our common stock in connection with our acquisition of nPulse Technologies; in
January 2016, we issued 1,793,305 shares of common stock in connection with our acquisition of iSIGHT; and in
February 2016, we issued 742,026 shares of common stock in connection with our acquisition of Invotas. In
addition, in June 2015, we issued $920.0 million aggregate principal amount of convertible senior notes. Any
future issuances could result in substantial dilution to our existing stockholders and cause the trading price of our
common stock to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to
finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the
future. As a result, you may only receive a return on your investment in our common stock if the market price of
our common stock increases.
The requirements of being a public company may strain our resources, divert management’s attention and
affect our ability to attract and retain qualified board members.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended, or the Exchange Act, the listing requirements of the NASDAQ Stock Market and other applicable
securities rules and regulations. Compliance with these rules and regulations has increased and will continue to
increase our legal and financial compliance costs, has made and will continue to make some activities more
difficult, time-consuming or costly, and has increased and will continue to increase demand on our systems and
resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with
respect to our business and results of operations and maintain effective disclosure controls and procedures and
internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls
and procedures and internal control over financial reporting to meet this standard, significant resources and
management oversight may be required. As a result, management’s attention may be diverted from other
business concerns, which could harm our business and results of operations. Although we have already hired
additional employees to comply with these requirements, we may need to hire even more employees in the
future, which will increase our costs and expenses.
We are subject to the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act
(“Section 404”), enhanced disclosure obligations regarding executive compensation in our periodic reports and
proxy statements, and the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. While we were able to
determine in our management’s report for fiscal 2016 that our internal control over financial reporting is
effective, as well as provide an unqualified attestation report from our independent registered public accounting
firm to that effect, we have and will continue to consume management resources and incur significant expenses
for Section 404 compliance on an ongoing basis. In the event that our Chief Executive Officer, Chief Financial
Officer, or independent registered public accounting firm determines in the future that our internal control over
to one or more
financial reporting is not effective as defined under Section 404, we could be subject
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investigations or enforcement actions by state or federal regulatory agencies, stockholder lawsuits or other
adverse actions requiring us to incur defense costs, pay fines, settlements or judgments and causing investor
perceptions to be adversely affected and potentially resulting in a decline in the market price of our stock.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are
creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities
more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due
to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters
and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest
resources to comply with evolving laws, regulations, and standards, and this investment will increase our general and
administrative expense and a diversion of management’s time and attention from revenue-generating activities to
compliance activities. If our efforts to comply with new laws, regulations, and standards are unsuccessful, regulatory
authorities may initiate legal proceedings against us and our business may be harmed.
We also expect that being a public company and these new rules and regulations will make it more
expensive for us to obtain and maintain director and officer liability insurance, and in the future, we may be
required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could
also make it more difficult for us to attract and retain qualified executive officers and members of our board of
directors, particularly to serve on our audit committee and compensation committee.
In addition, as a result of our disclosure obligations as a public company, we have reduced strategic
flexibility and are under pressure to focus on short-term results, which may adversely impact our ability to
achieve long-term profitability.
We are obligated to maintain proper and effective internal control over financial reporting. We may not
complete our analysis of our internal control over financial reporting in a timely manner, or this internal
control may not be determined to be effective, which may adversely affect investor confidence in our Company
and, as a result, the value of our common stock.
We are required, pursuant to the Exchange Act, to furnish a report by management on, among other things,
the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure
of any material weaknesses identified by our management in our internal control over financial reporting, as well
as a statement that our auditors have issued an attestation report on our internal controls.
While we were able to determine in our management’s report for fiscal 2016 that our internal control over
financial reporting is effective, as well as provide an unqualified attestation report from our independent
registered public accounting firm to that effect, we may not be able to complete our evaluation, testing, and any
required remediation in a timely fashion or our independent registered public accounting firm may not be able to
formally attest to the effectiveness of our internal control over financial reporting in the future. During the
evaluation and testing process, if we identify one or more material weaknesses in our internal control over
financial reporting that we are unable to remediate before the end of the same fiscal year in which the material
weakness is identified, we will be unable to assert that our internal controls are effective. If we are unable to
assert that our internal control over financial reporting is effective, or if our independent registered public
accounting firm is unable to attest to the effectiveness of our internal controls or determine we have a material
weakness in our internal controls, we could lose investor confidence in the accuracy and completeness of our
financial reports, which would cause the price of our common stock to decline.
Our charter documents and Delaware law, as well as certain provisions of our convertible notes, could
discourage takeover attempts and lead to management entrenchment, which could also reduce the market
price of our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions
that could delay or prevent a change in control of our Company. These provisions could also make it difficult for
46
stockholders to elect directors who are not nominated by the current members of our board of directors or take
other corporate actions, including effecting changes in our management. These provisions include:
•
•
•
•
•
•
•
•
a classified board of directors with three-year staggered terms, which could delay the ability of
stockholders to change the membership of a majority of our board of directors;
the ability of our board of directors to issue shares of preferred stock and to determine the price and
other terms of those shares, including preferences and voting rights, without stockholder approval,
which could be used to significantly dilute the ownership of a hostile acquiror;
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion
of our board of directors or the resignation, death or removal of a director, which prevents stockholders
from being able to fill vacancies on our board of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at
an annual or special meeting of our stockholders;
the requirement that a special meeting of stockholders may be called only by our board of directors, the
chairperson of our board of directors, our Chief Executive Officer or our President (in the absence of a
Chief Executive Officer), which could delay the ability of our stockholders to force consideration of a
proposal or to take action, including the removal of directors;
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the
then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of
our amended and restated certificate of incorporation relating to the management of our business
(including our classified board structure) or certain provisions of our amended and restated bylaws,
which may inhibit the ability of an acquiror to effect such amendments to facilitate an unsolicited
takeover attempt;
the ability of our board of directors to amend the bylaws, which may allow our board of directors to
take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquiror to amend
the bylaws to facilitate an unsolicited takeover attempt; and
advance notice procedures with which stockholders must comply to nominate candidates to our board
of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or
deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of
directors or otherwise attempting to obtain control of us.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation
Law, which may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting
stock, from merging or combining with us for a specified period of time. Additionally, certain provisions of our
convertible notes could make it more difficult or more expensive for a third party to acquire us. The application
of Section 203 or certain provisions of our convertible notes also could have the effect of discouraging, delaying
or preventing a transaction involving a change in control of us. Any of these provisions could, under certain
circumstances, depress the market price of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in Milpitas, California where we currently lease approximately
221,000 square feet of space under lease agreements that expire during the year ended December 31, 2018. In
August 2016, we entered into a lease agreement for our new corporate headquarters, expected to commence mid-
2017. We maintain additional offices throughout the United States and various international locations, including,
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but not limited to, Australia, Dubai, Germany, India, Ireland, Japan, Singapore and the United Kingdom. We
believe that our current facilities are adequate to meet our ongoing needs, and that, if we require additional space,
we will be able to obtain additional facilities on commercially reasonable terms.
Item 3. Legal Proceedings
The information set forth under “Litigation” in Note 9 contained in the “Notes to Consolidated Financial
Statements” in Item 8 of Part II of this Annual Report on Form 10-K is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock, $0.0001 par value per share, began trading on The NASDAQ Global Select Market on
September 20, 2013, where its prices are quoted under the symbol “FEYE.”
Holders of Record
As of December 31, 2016, there were 89 holders of record of our common stock. Because many of our
shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total
number of stockholders represented by these record holders.
Price Range of Our Common Stock
The following table sets forth the reported high and low sales prices of our common stock for the periods
indicated, as regularly quoted on The NASDAQ Global Select Market:
Year Ended December 31, 2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stock Performance Graph
High
Low
$22.48
$18.73
$18.42
$15.03
$11.35
$12.38
$13.38
$10.87
High
Low
$46.44
$55.33
$50.94
$33.15
$29.25
$37.66
$30.15
$19.76
The following performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange
Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by
reference into any of our filings under the Securities Act or the Exchange Act, except as shall be expressly set
forth by specific reference in such filing.
The following graph compares the cumulative total return of our common stock with the total return for the
Standard & Poor’s 500 Index and the Standard & Poor’s Information Technology Index from September 20,
2013 (the date our common stock commenced trading on The NASDAQ Global Select Market) through
December 31, 2016. The graph assumes that $100 was invested on September 20, 2013 in our common stock, the
Standard & Poor’s 500 Index and the Standard & Poor’s Information Technology Index, and assumes
reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative
of future stock price performance.
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COMPARISON OF 40 MONTH CUMULATIVE TOTAL RETURN*
Among FireEye, Inc., the S&P 500 Index and the S&P Information Technology Index
$250
$200
$150
$100
$50
$0
9/20/13
12/13
4/14
8/14
12/14
4/15
8/15
12/15
4/16
8/16
12/16
FireEye, Inc.
S&P 500
S&P Information Technology
*$100 invested on 9/20/13 in stock or 8/31/13 in index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2017 Standard & Poor's, a division of S&P Global. All rights reserved.
9/20/13
12/13
4/14
8/14
12/14
4/15
8/15
12/15
4/16
8/16
12/16
FireEye, Inc.
S&P 500
S&P Information Technology
$100.00 $121.14 $109.06 $ 86.50 $ 87.72 $114.72 $104.94 $ 57.61 $ 48.19 $ 39.89 $ 33.06
$100.00 $113.98 $116.90 $125.25 $129.58 $132.07 $125.84 $131.37 $133.66 $141.64 $147.09
$100.00 $116.52 $119.52 $133.90 $139.96 $144.05 $137.19 $148.25 $143.92 $162.82 $168.79
Dividend Policy
We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash
dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any,
will be at the discretion of our board of directors, subject to applicable laws, and will depend on then existing
conditions, including our financial condition, operating results, contractual restrictions, capital requirements,
business prospects, and other factors our board of directors may deem relevant.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the period covered by this Annual Report, other than
those previously reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Issuer Purchases of Equity Securities
No shares of our common stock were repurchased during the three months ended December 31, 2016.
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Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of Part III of this Annual Report on Form 10-K regarding information about securities
authorized for issuance under our equity compensation plans.
Item 6. Selected Consolidated Financial Data
The following selected historical financial data should be read in conjunction with Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the
related notes appearing in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on
Form 10-K to fully understand the factors that may affect the comparability of the information presented below.
The statements of operations data for the years ended December 31, 2016, 2015 and 2014 and the balance
sheet data as of December 31, 2016 and 2015 are derived from our audited financial statements appearing in
Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K. The statements of
operations for the years ended December 31, 2013 and 2012 and the balance sheet data as of December 31, 2014,
2013 and 2012 are derived from audited financial statements not included in this Annual Report on Form 10-K.
Our historical results are not necessarily indicative of the results to be expected in the future.
Consolidated Statements of Operations Data:
Revenue:
Product
Subscription and services
Total revenue
Cost of revenue:(1)
Product
Subscription and services
Total cost of revenue
Total gross profit
Operating expenses:(1)
Research and development
Sales and marketing
General and administrative
Restructuring charges
Year Ended December 31,
2016
2015
2014
2013
2012
(In thousands, except per share data)
$ 151,926
562,188
$ 216,632
406,335
$ 178,246
247,416
$ 88,253
73,299
$ 52,265
31,051
714,114
622,967
425,662
161,552
83,316
65,158
206,710
74,481
158,723
58,980
116,113
271,868
233,204
175,093
28,912
18,853
47,765
442,246
389,763
250,569
113,787
279,594
439,499
139,839
27,630
279,467
476,166
141,790
—
203,187
401,151
121,099
4,327
66,036
167,466
52,503
—
14,467
3,163
17,630
65,686
16,522
67,562
15,221
—
99,305
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Total operating expenses
886,562
897,423
729,764
286,005
Operating loss
Interest income
Interest expense
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
(444,316)
6,582
(47,869)
(3,247)
(488,850)
(8,721)
(507,660)
2,935
(27,116)
(3,284)
(535,125)
4,090
(479,195)
713
(26)
(1,936)
(480,444)
(36,654)
(172,218)
68
(525)
(7,257)
(179,932)
(59,297)
(33,619)
7
(537)
(2,572)
(36,721)
(965)
Net loss attributable to common stockholders
$(480,129) $(539,215) $(443,790) $(120,635) $(35,756)
Net loss per share attributable to common
stockholders, basic and diluted
Weighted-average shares used to compute net loss
per share attributable to common stockholders
$
(2.94) $
(3.50) $
(3.12) $
(2.66) $
(3.28)
163,211
154,120
142,176
45,271
10,917
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(1)
Includes share-based compensation expense as follows:
Stock-Based Compensation Expense:
Cost of product revenue
Cost of subscription and services revenue
Research and development
Sales and marketing
General and administrative
Restructuring
Year Ended December 31,
2016
2015
2014
2013
2012
(In thousands)
$
2,092
29,811
64,755
57,750
43,343
1,144
$
1,588
29,435
68,329
73,286
49,793
—
$
888
17,037
28,968
66,773
38,186
—
$
469
2,341
6,958
10,748
8,342
—
$ 115
55
1,465
1,672
3,536
—
Total stock-based compensation expense
$198,895
$222,431
$151,852
$28,858
$6,843
Consolidated Balance Sheet Data:
Cash and cash equivalents
Total assets
Total deferred revenue
Total long-term debt
Total stockholders’ equity
2016
2015
2014
2013
2012
As of December 31,
(In thousands)
$ 223,667
2,382,965
653,516
741,980
$ 841,112
$ 402,102
2,441,473
526,998
706,198
$1,044,372
$ 146,363
1,758,881
352,543
$ 173,918
1,376,313
187,514
—
—
$1,250,828
$1,048,102
$ 60,200
125,273
76,406
12,147
5,390
$
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Item 7. 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 financial statements and related notes appearing elsewhere in this Annual Report on Form
the following discussion contains forward-looking
10-K. In addition to historical
statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those
contained in or implied by any forward-looking statements. Factors that could cause or contribute to these
differences include those under “Risk Factors” included in Part I, Item 1A or in other parts of this Annual
Report on Form 10-K.
information,
financial
Overview
We provide comprehensive intelligence-based cybersecurity solutions that allow organizations to prepare
for, prevent, respond to and remediate cyber attacks. Our portfolio of cybersecurity products and services is
designed to detect and prevent attacks as well as enable rapid discovery and response when a breach occurs.
Our Business Model
We generate revenue from sales of our products, subscriptions and services. Our product revenue consists
primarily of revenue from the sale of our appliance-based threat detection and prevention solutions, consisting of
NX, EX, HX and FX Series of security appliances. While our NX Series of integrated appliances still accounts
for the largest portion of our product revenue, we offer our threat detection and prevention products in multiple
form factors for cloud and hybrid deployments. Our detection and prevention products are complemented by our
forensics and investigation products, our security management appliance, our orchestration software and our
consulting services to enable a proactive approach to cybersecurity that extends across the entire security
operations lifecycle. Revenue from sales of our security appliances is generally recognized at the time of
shipment.
We require customers to purchase a subscription to our DTI cloud and support and maintenance services
when they purchase any of our appliance-based detection and prevention products. Our customers generally
purchase these subscriptions and services for a one or three year term, and revenue from such subscriptions is
recognized ratably over the subscription period. Sales of these subscriptions and support services have increased
our deferred revenue, which totaled $653.5 million and $527.0 million as of December 31, 2016 and 2015,
respectively. Amortization of this growing deferred revenue has contributed to the increase in our subscription
and services revenue as a percentage of total revenue. For the years ended December 31, 2016, 2015 and 2014,
subscription and services revenue as a percentage of total revenue was 79%, 65% and 58%, respectively. While
most of the growth in our subscription and services revenue during such years relates to the amortization of the
initial subscription and services agreements, renewals of such agreements have also contributed to this growth.
Our renewal rate for subscriptions and support expiring in the 12 months ended December 31, 2016 was in
excess of 90%, and we expect to maintain high renewal rates in the future due to the significant value we believe
these subscriptions and support add to the efficacy of our product portfolio.
Beyond the product and attached threat intelligence subscriptions and support and maintenance services, we
offer several security-as-a-service offerings, including Cloud MVX, ETP, TAP, FireEye-as-a-Service and our
newly introduced FireEye Helix platform. Revenue from these security-as-a-service subscriptions is recognized
ratably over the subscription term; typically one to three years. We also offer professional services, including
incident response and other security consulting services for our customers who have experienced a cybersecurity
breach or require assistance assessing the resilience of their networks. Revenue from these professional services
is recognized as the services are delivered.
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Key Business Metrics
We monitor the 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, 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.
Year Ended or as of December 31,
2016
2015
2014
Product revenue
Subscription and services revenue
Total revenue
Year-over-year percentage increase
Gross margin percentage
Deferred revenue, current
Deferred revenue, non-current
Billings (non-GAAP)
Net cash provided by (used in) operating activities
Free cash flow (non-GAAP)
(Dollars in thousands)
$216,632
406,335
$ 178,246
247,416
$151,926
562,188
$714,114
$622,967
$ 425,662
15%
62%
46%
63%
163%
59%
$ 203,877
$305,169
$397,118
$ 148,666
$221,829
$256,398
$ 590,691
$819,545
$797,422
$ (14,585) $ 37,015
$(131,270)
$ (50,899) $ (17,534) $(198,985)
Deferred revenue. Our deferred revenue consists of amounts that have been invoiced but have not yet been
recognized as revenue as of period end. The majority of our deferred revenue consists of the unamortized balance
of revenue from previously invoiced subscriptions to our threat intelligence, security-as-a-service and support
and maintenance contracts. Subscriptions and support contracts are generally non-cancelable, except for cause,
and are typically invoiced and paid up-front. Because invoiced amounts for subscriptions and services can be for
multiple years, 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. We monitor our deferred
revenue balance because it represents a significant portion of revenue to be recognized in future periods.
Billings. Billings are a non-GAAP financial metric that we define as revenue recognized in accordance with
generally accepted accounting principles, or GAAP, plus the change in deferred revenue from the beginning to the
end of the period, excluding deferred revenue assumed through acquisitions. We consider billings to be a useful
metric for management and investors, as a supplement to the corresponding GAAP measure, because billings drive
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. For the year ended December 31, 2016, billings exclude $21.1
million of deferred revenue assumed in connection with our acquisitions. A reconciliation of billings to revenue, the
most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below:
Revenue
Add: Deferred revenue, end of period
Less: Deferred revenue, beginning of period
Less: Deferred revenue assumed through acquisitions
Billings (non-GAAP)
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Year Ended December 31,
2016
2015
2014
$714,114
653,516
526,998
21,087
(in thousands)
$622,967
526,998
352,543
—
$425,662
352,543
187,514
—
$819,545
$797,422
$590,691
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
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.
Free cash flow. Free cash flow is a non-GAAP financial measure we define as net cash provided by (used
in) operating activities, the most directly comparable GAAP financial measure, less purchases of property and
equipment and demonstration units. We consider free cash flow to be a liquidity measure that provides useful
information to management and investors about the amount of cash generated by our business that, after the
purchases of property and equipment and demonstration units, can be used by us for strategic opportunities,
including investing in our business, making strategic acquisitions and strengthening our balance sheet if and
when generated. However, it is important to note that other companies, including companies in our industry, may
not use free cash flow, may calculate free cash flow differently, or may use other financial measures to evaluate
their performance, all of which could reduce the usefulness of free cash flow as a comparative measure. A
reconciliation of free cash flow to cash flow provided by (used in) operating activities is provided below:
Cash flow provided by (used in) operating activities
Less: purchase of property and equipment and demonstration units
Free cash flow (non-GAAP)
Net cash used in investing activities
Net cash provided by financing activities
Factors Affecting our Performance
Year Ended December 31,
2016
2015
2014
(in thousands)
$ (14,585) $ 37,015
54,549
36,314
$(131,270)
67,715
$ (50,899) $ (17,534) $(198,985)
$(189,696) $(576,749) $(382,511)
$ 25,846
$ 795,473
$ 486,226
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Market Adoption. We rely on market education to raise awareness of today’s next-generation cyber attacks
and articulate the need for our security solutions and, in particular, the reasons to purchase our products. Our
prospective customers often do not have a specific portion of their IT budgets allocated for products that address
the next generation of advanced cyber attacks. We invest heavily in sales and marketing efforts to increase
market awareness, educate prospective customers and drive adoption of our solution. This market education is
critical to creating new IT budget dollars or allocating IT budget dollars across enterprises and governments for
next-generation threat protection solutions and, in particular, our platform. Our investment in market education
has also increased awareness of us and our solution in international markets. The degree to which prospective
customers recognize the mission critical need for next-generation threat protection solutions, and subsequently
allocate budget dollars for our platform, will drive our ability to acquire new customers and increase renewals
and follow-on sales opportunities, which, in turn, will affect our future financial performance.
Sales Productivity. Our sales organization consists of in-house sales teams who work in collaboration with
external partners to identify new sales prospects, sell additional products, subscriptions and services, and provide
post-sale support. To date, we have primarily targeted large enterprise and government customers, who typically
have sales cycles that can last several months or more. We have also expanded our inside sales teams to pursue
customers in the small and medium enterprise, or SME, market.
Newly hired sales and marketing resources will require several months to establish prospect relationships
and drive overall sales productivity. In addition, sales teams in certain international markets will face local
markets that have not had significant market education about the advanced security threats that our platform
addresses. All of these factors will influence the timing and overall levels of sales productivity, impacting the
rate at which we will be able to convert prospects to sales and drive revenue growth.
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Renewal Rates. New or existing customers who purchase one of our appliances are required to purchase a
one or three year subscription to our DTI cloud and support and maintenance services. New or existing customers
who purchase our Security Forensic Products System or Central Management System appliances are required to
purchase support and maintenance services for a term of one or three years.
We believe our renewal rate is an important metric to measure the long-term value of customer agreements and our
ability to retain our customers. We calculate our renewal rate by dividing the number of renewing customers who were
due for renewal in any rolling 12 month period by the number of customers who were due for renewal in that rolling 12
month period. Our renewal rate for subscriptions and support expiring in the 12 months ended December 31, 2016 was
in excess of 90%. These high renewal rates are primarily attributable to the incremental value added to our appliances by
our cloud subscriptions, support and maintenance services and other professional services. As cloud subscriptions,
support and maintenance services and other professional services represented 79%, 65% and 58% of our total revenue
during the years ended December 31, 2016, 2015 and 2014, respectively, we expect our ability to maintain high renewal
rates for these subscriptions and services to have a material impact on our future financial performance.
Follow-On Sales. After the initial sale to a new customer, we focus on expanding our relationship with such
customer to sell additional products, subscriptions and services. To grow our revenue, it is important that our
customers make additional purchases of our products, subscriptions and services. Sales to our existing customer
base can take the form of incremental sales of appliances, subscriptions and services, either to deploy our
platform into additional parts of their network or to protect additional threat vectors. Our opportunity to expand
our customer relationships through follow-on sales will increase as we add new customers, broaden our product
portfolio to support more threat vectors, add new services,
increase network performance and enhance
functionality. Follow-on sales lead to increased revenue over the lifecycle of a customer relationship and can
significantly increase the return on our sales and marketing investments. With some of our most significant
customers, we have realized follow-on sales that were multiples of the value of their initial purchases.
Components of Operating Results
Revenue
We generate revenue from the sales of our products, subscriptions and services. As discussed further in
“Critical Accounting Policies and Estimates-Revenue Recognition” below,
revenue is recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectability is reasonably assured.
• Product revenue. Our product revenue is generated from sales of our appliances, which we generally
recognize at the time of shipment, provided that all other revenue recognition criteria have been met.
•
Subscription and services revenue. Subscription and services revenue is generated primarily from our
cloud subscriptions, FireEye-as-a-Service, support and maintenance services and other professional
services. We recognize revenue from subscriptions and support and maintenance services over the one
or three year contract term, as applicable. Professional services revenue, which includes incident
response and compromise assessments, is offered on a time-and-material basis or through a fixed fee
arrangement and is recognized as the services are delivered.
Cost of Revenue
Our total cost of revenue consists of cost of product revenue and cost of subscription and services revenue.
Personnel costs associated with our operations and global customer support organizations consist of salaries,
benefits, bonuses and stock-based compensation. Overhead costs consist of certain facilities, depreciation and
information technology costs.
• Cost of product revenue. Cost of product revenue primarily consists of costs paid to our third-party
contract manufacturers for our appliances and personnel and other costs in our manufacturing
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operations department. Our cost of product revenue also includes product testing costs, shipping costs
and allocated overhead costs. We expect our cost of product revenue to decrease as our product
revenue decreases, as customers’ buying preferences shift away from on premise appliance-based
solutions and towards cloud-based and cloud-enabled solutions. Our cost of product revenue may
increase as a percentage of product revenue, due to the fixed nature of a portion of these costs.
• Cost of subscription and services revenue. Cost of subscription and services revenue consists of
personnel costs for our global customer support and services organization and allocated overhead costs.
We expect our cost of subscription and services revenue to decrease as a percentage of total revenue.
Gross Margin
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a
variety of factors, including our average selling price, manufacturing costs, the mix of products sold, and the mix
of revenue among products, subscriptions and services. We expect our gross margins to fluctuate over time
depending on these factors.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing and general and
administrative expenses, as well as restructuring charges. Personnel costs are the most significant component of
operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and, with regard to sales
and marketing expense, sales commissions. Operating expenses also include allocated overhead costs consisting
of certain facilities, depreciation and information technology costs.
• Research and development. Research and development expense consists primarily of personnel costs
and allocated overhead. Research and development expense also includes prototype related expenses.
We expect research and development expense to decrease as a percentage of total revenue.
•
Sales and marketing. Sales and marketing expense consists primarily of personnel costs, partner referral
fees, incentive commission costs and allocated overhead. We expense commission costs as incurred.
Sales and marketing expense also includes costs for market development programs, promotional and
other marketing activities, travel, depreciation of proof-of-concept evaluation units and outside consulting
costs. We expect sales and marketing expense to decrease as a percentage of total revenue.
• General and administrative. General and administrative expense consists of personnel costs,
professional service costs and allocated overhead. General and administrative personnel include our
executive, finance, human resources, facilities and legal organizations. Professional service costs
consist primarily of legal, auditing, accounting and other consulting costs. We expect general and
administrative expense to decrease as a percentage of total revenue.
• Restructuring charges. In addition to our previous restructuring activities, our Board of Directors
approved a restructuring plan and reduction in workforce in August 2016, designed to reduce operating
expenses and align our expense structure with current growth expectations. Expenses incurred primarily
consisted of employee severance charges and other termination benefits, as well as real estate and related
fixed asset charges for the consolidation of certain leased facilities. We do not expect to incur significant
additional restructuring costs. We did not incur any expenses related to restructuring activities in 2015.
Interest Income
Interest income consists of interest earned on our cash and cash equivalent and investment balances. We
have historically invested our cash in money-market funds and other short-term, high quality securities. We
expect interest income to vary each reporting period depending on our average investment balances during the
period, types and mix of investments and market interest rates.
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Interest Expense
Interest expense is primarily a result of our convertible senior notes, consisting of interest at the stated rate
(coupon) and amortization of discounts and issuance costs.
Other Income (Expense), Net
Other income (expense), net includes gains or losses on the disposal of fixed assets, gains or losses from our
equity-method investment, foreign currency re-measurement gains and losses and foreign currency transaction gains and
losses. We expect other income (expense), net to fluctuate depending primarily on foreign exchange rate movements.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of federal and state income taxes in the United
States and income taxes in certain foreign jurisdictions in which we conduct business. Income in certain countries
may be taxed at statutory tax rates that are lower than the U.S. statutory tax rate. As a result, our overall effective tax
rate over the long-term may be lower than the U.S. federal statutory tax rate due to a larger proportion of net income
that was subject to foreign income tax rates that are lower than the U.S. federal statutory rate.
Results of Operations
The following tables summarize our results of operations for the periods presented and as a percentage of
our total revenue for those periods. The period-to-period comparison of results is not necessarily indicative of
results for future periods.
Revenue:
Product
Subscription and services
Total revenue
Cost of revenue:
Product
Subscription and services
Total cost of revenue
Total gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charges
Total operating expenses
Operating loss
Interest income
Interest expense
Other expense, net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss attributable to common stockholders
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Year Ended December 31,
2016
2015
2014
(In thousands)
$ 151,926
562,188
$ 216,632
406,335
$ 178,246
247,416
714,114
622,967
425,662
65,158
206,710
271,868
442,246
279,594
439,499
139,839
27,630
886,562
74,481
158,723
233,204
389,763
279,467
476,166
141,790
—
897,423
58,980
116,113
175,093
250,569
203,187
401,151
121,099
4,327
729,764
(444,316)
6,582
(47,869)
(3,247)
(488,850)
(8,721)
(507,660)
2,935
(27,116)
(3,284)
(535,125)
4,090
(479,195)
713
(26)
(1,936)
(480,444)
(36,654)
$(480,129) $(539,215) $(443,790)
Revenue:
Product
Subscription and services
Total revenue
Cost of revenue:
Product
Subscription and services
Total cost of revenue
Total gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charges
Total operating expenses
Operating loss
Interest income
Interest expense
Other expense, net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss attributable to common stockholders
Comparison of the Years Ended December 31, 2016 and 2015
Revenue
Year Ended December 31,
2016
2015
2014
(Percent of total revenue)
21%
79
35%
65
42%
58
100
100
100
9
29
38
62
39
61
20
4
124
(62)
1
(7)
—
(68)
(1)
12
25
37
63
45
76
23
—
144
(81)
—
(4)
(1)
(86)
1
14
27
41
59
48
94
28
1
171
(112)
—
—
(1)
(113)
(9)
(67)%
(87)% (104)%
Revenue:
Product
Subscription and services
Total revenue
Subscription and services by type:
Product subscription
Support and maintenance
Professional services
Total subscription and services revenue
Revenue by geographic region:
United States
EMEA
APAC
Other
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Year Ended December 31,
2016
2015
Change
Amount
% of Total
Revenue
Amount
% of Total
Revenue
Amount
%
(Dollars in thousands)
$151,926
562,188
21% $216,632
406,335
79
35% $ (64,706)
155,853
65
(30)%
38
$714,114
100% $622,967
100% $ 91,147
15%
$316,986
123,341
121,861
$562,188
$488,623
102,288
95,285
27,918
45% $205,303
89,800
17
111,232
17
33% $111,683
33,541
14
10,629
18
79% $406,335
65% $155,853
69% $439,205
80,960
14
73,009
13
29,793
4
70% $ 49,418
21,328
13
22,276
12
(1,875)
5
54%
37
10
38%
11%
26
31
(6)
15%
Total revenue
$714,114
100% $622,967
100% $ 91,147
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Product revenue decreased by $64.7 million, or 30%, during the year ended December 31, 2016 compared
to the year ended December 31, 2015. The decrease in product revenue was primarily due to a shift in customer
buying preferences away from on premise appliance-based solutions to cloud-based and cloud-enabled
subscriptions, including security delivered as a service. As a result, revenue from sales of our threat prevention
appliances has declined as revenue from our cloud-based solutions has increased. Our Network Threat Prevention
product continued to account for the largest portion of our product revenue. This reflects the fact that customers
who purchase our product portfolio generally purchase more Network Threat Prevention appliances than our
other appliances, as their networks typically have more Web entry points than email or file entry points to
protect. We expect product revenue growth rates to continue to decline as part of this ongoing transition.
Subscription and services revenue increased by $155.9 million, or 38%, during the year ended December 31,
2016 compared to the year ended December 31, 2015. This increase was comprised of subscription revenue of
$111.7 million, support and maintenance revenue of $33.6 million and professional services revenue of $10.6
million. The increase in subscription revenue of $111.7 million and the increase in support and maintenance
revenue of $33.6 million were primarily due to an increase in initial customer purchases of $74.0 million and an
increase in the amortization of deferred subscription and support revenue related to renewals of $71.3 million
during the year ended December 31, 2016 compared to the year ended December 31, 2015. We expect a
continued transition of customers from product sales to our cloud subscriptions. Given our high renewal rate, we
expect revenue from the amortization of deferred subscription and support related to renewals to increase as a
percentage of our total revenue from subscription and support. Our renewal rate for subscription and support
agreements expiring in the 12 months ended December 31, 2016 was in excess of 90%.
Our international revenue increased $41.7 million, or 23%, during the year ended December 31, 2016
compared to the year ended December 31, 2015, which reflects our increasing international market presence.
Cost of Revenue and Gross Margin
Cost of revenue:
Product
Subscription and services
Total cost of revenue
Gross margin:
Product
Subscription and services
Total gross margin
Year Ended December 31,
2016
2015
Change
Amount
Gross
Margin
Amount
Gross
Margin
Amount %
(Dollars in thousands)
$ 65,158
206,710
$271,868
$ 74,481
158,723
$233,204
$ (9,323)
47,987
(13)%
30
$38,664
17%
57%
63%
62%
66%
61%
63%
The cost of product revenue decreased $9.3 million, or 13%, during the year ended December 31, 2016
compared to the year ended December 31, 2015. The decrease in cost of product revenue was primarily driven by
fewer product shipments and lower average product cost per unit, partially offset by greater inventory reserves.
The cost of subscription and services revenue increased $48.0 million, or 30%, during the year ended
December 31, 2016 compared to the year ended December 31, 2015. The increase in cost of subscription and
services revenue was due to a $31.4 million increase in personnel costs, largely driven by increased headcount,
including those attributable to our 2016 acquisitions. Additionally, $11.3 million of the increase is due to the
amortization of intangible assets obtained through our 2016 acquisitions, and $5.6 million of the increase was for
higher facility and IT costs.
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Gross margin was slightly lower for the year ended December 31, 2016 compared to the year ended
December 31, 2015, due to a decrease in product margins partially offset by an increase in subscription and
services margins. The decreased product margins were driven by decreased shipments and the mix of products
sold. The increased subscription and services margins were driven by higher utilization of our professional
services personnel.
Operating Expenses
Year Ended December 31,
2016
2015
Change
Amount
% of Total
Revenue
Amount
% of Total
Revenue
Amount
%
(Dollars in thousands)
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charges
$279,594
439,499
139,839
27,630
39% $279,467
476,166
61
141,790
20
—
4
127 — %
45% $
76
23
—
(36,667)
(1,951)
27,630
(8)
(1)
Total operating expenses
$886,562
124% $897,423
144% $(10,861)
(1)%
Includes stock-based compensation expense of:
Research and development
Sales and marketing
General and administrative
Total
Research and Development
$ 64,755
57,750
43,343
$165,848
$ 68,329
73,286
49,793
$191,408
Research and development expense for the year ended December 31, 2016 was consistent with the year
ended December 31, 2015. This is a result of increased headcount contributing to higher personnel costs, offset
by lower facility, IT and other costs due to savings from the restructuring.
Sales and Marketing
Sales and marketing expense decreased $36.7 million, or 8%, during the year ended December 31, 2016
compared to the year ended December 31, 2015. The decrease was primarily due to lower commissions of $24.5
million as well as a $9.0 million net decrease in personnel costs, composed of a $15.5 million decrease in stock-
based compensation charges, partially offset by a $6.5 million increase in salaries.
General and Administrative
General and administrative expense decreased $2.0 million, or 1%, during the year ended December 31,
2016 compared to the year ended December 31, 2015. The decrease was driven by lower legal and other
professional service vendor costs of $2.9 million and lower facility and IT costs of $1.4 million. This was
partially offset by a $2.4 million charge for the change in fair value of the contingent earn-out liability.
Restructuring Charges
During the year ended December 31, 2016, we incurred restructuring charges of approximately $27.6
million, which primarily related to a 10% reduction in our workforce, the consolidation of certain real estate
facilities and impairment of certain assets under our August 2016 restructuring plan. We incurred no
restructuring expenses during the year ended December 31, 2015.
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Interest Income
Interest income
Year Ended December 31,
Change
2016
2015
Amount %
(Dollars in thousands)
$6,582
$2,935
$3,647
124%
Interest income increased for the year ended December 31, 2016 compared to the year ended December 31,
2015, primarily due to higher average balances in our cash and cash equivalents and investments, as well as a
higher rate of return on our investments.
Interest Expense
Interest expense
Year Ended December 31,
2016
2015
Change
Amount %
(Dollars in thousands)
$(47,869) $(27,116) $(20,753) 77%
Interest expense increased for the year ended December 31, 2016 compared to the year ended December 31,
2015 due to greater interest expense from the Convertible Senior Notes issued in June 2015.
Other Expense, Net
Other expense, net
Year Ended December 31,
Change
2016
2015
Amount %
$(3,247)
(Dollars in thousands)
$(3,284)
$37
(1)%
Other expense, net remained consistent for the year ended December 31, 2016 compared to the year ended
December 31, 2015.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes
Effective tax rate
Year Ended December 31,
2016
2015
(Dollars in thousands)
$4,090
$(8,721)
1.8%
(0.8)%
We recorded a tax benefit for the year ended December 31, 2016 compared to a tax provision for the year
ended December 31, 2015. The change to a tax benefit in 2016 is primarily due to the reversal of a valuation
allowance of approximately $12 million that had been previously recorded to reduce the benefit of U.S. deferred
tax assets. We reversed the valuation allowance in 2016 as we recorded a similar amount of acquisition related
U.S. deferred tax liabilities during the year, which are considered a source of future taxable income available to
realize the benefit of U.S. deferred tax assets. We continue to maintain a full valuation allowance against the
remainder of our U.S. deferred tax assets.
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Comparison of the Years Ended December 31, 2015 and 2014
Revenue
Revenue:
Product
Subscription and services
Total revenue
Subscription and services by type:
Product subscription
Support and maintenance
Professional services
Total subscription and services
revenue
Revenue by geographic region:
United States
EMEA
APAC
Other
Year Ended December 31,
2015
2014
Change
Amount
% of Total
Revenue
Amount
% of Total
Revenue
Amount
%
(Dollars in thousands)
$216,632
406,335
35% $178,246
247,416
65
42% $ 38,386
158,919
58
$622,967
100% $425,662
100% $197,305
$205,303
89,800
111,232
33% $121,907
53,406
14
72,103
18
29% $ 83,396
36,394
12
39,129
17
22%
64
46%
68%
68
54
$406,335
65% $247,416
58% $158,919
64%
$439,205
80,960
73,009
29,793
70% $319,144
57,721
13
34,284
12
14,513
5
75% $120,061
23,239
14
38,725
8
15,280
3
38%
40
113
105
Total revenue
$622,967
100% $425,662
100% $197,305
46%
Product revenue increased by $38.4 million, or 22%, during the year ended December 31, 2015 compared to
the year ended December 31, 2014. The increase in product revenue was primarily driven by growth in our
installed base of customers, which grew from approximately 3,100 as of December 31, 2014 to over 4,400 as of
December 31, 2015, as well as follow-on purchases from customers expanding their initial deployments of our
product portfolio. Our Network Threat Prevention and Email Threat Prevention products have historically
accounted for the largest portion of our product revenue as customers initially focused on protecting Web and
email entry points when building our their security infrastructure. Our product revenue growth rates have
declined as new customers began adopting our cloud subscriptions, including FireEye-as-a-Service and ETP. We
expect product revenue growth rates to continue to decline as part of this ongoing transition.
Subscription and service revenue increased by $158.9 million, or 64%, during the year ended December 31,
2015 compared to the year ended December 31, 2014. This increase is comprised of an increase in subscription
revenue of $83.4 million, an increase in professional services revenue of $39.1 million and an increase in support
and maintenance revenue of $36.4 million. The increase in subscription revenue of $83.4 million and the increase
in support and maintenance revenue of $36.4 million is primarily due to an increase in initial customer purchases
of $87.6 million and an increase in the amortization of deferred subscription and support and maintenance
revenue related to renewals of $32.2 million for the year ended December 31, 2015 compared to the year ended
December 31, 2014. We expect a continued transition of customers from product sales to our cloud subscriptions.
Given our high renewal rate and increasing base of customers, we expect revenue from the amortization of
deferred subscription and services revenue related to renewals to increase as a percentage of our total revenue
from deferred subscription and services revenue. Our renewal rate for subscription and support agreements
expiring in the 12 months ended December 31, 2015 was in excess of 90%.
International revenue increased $77.2 million, or 73%, during the year ended December 31, 2015 compared
to the year ended December 31, 2014, which reflects our increasing international market presence.
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Cost of Revenue and Gross Margin
Cost of revenue:
Product
Subscription and services
Total cost of revenue
Gross margin:
Product
Subscription and services
Total gross margin
Year Ended December 31,
2015
2014
Change
Amount
Gross
Margin
Amount
Gross
Margin
Amount %
(Dollars in thousands)
$ 74,481
158,723
$233,204
$ 58,980
116,113
$175,093
$15,501
26%
42,610 37
$58,111 33%
66%
61%
63%
67%
53%
59%
The cost of product revenue increased $15.5 million, or 26%, during the year ended December 31, 2015
compared to the year ended December 31, 2014. The increase in cost of product revenue was driven primarily by
an increase in product revenue.
The cost of subscription and services revenue increased $42.6 million, or 37%, during the year ended
December 31, 2015 compared to the year ended December 31, 2014. The increase in cost of subscription and
services revenue was driven by a $16.4 million increase in facility and IT costs to support departmental
expansion, a $12.4 million increase in stock-based compensation charges, a $6.8 million increase due to higher
data hosting services and a $5.4 million increase in depreciation, of which $1.1 million related to accelerated
depreciation as a result of changes in the estimated useful life of certain assets which were replaced in the first
quarter of 2016.
Gross margin increased for the year ended December 31, 2015 compared to the year ended December 31,
2014, due to the increase in subscription and services margins. The increase in subscription and services margins
is primarily due to the proportion of revenues attributable to subscriptions, which have higher gross margins
compared to incident response, compromise assessments and other professional services.
Operating Expenses
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charges
Year Ended December 31,
2015
2014
Change
Amount
% of
Total
Revenue
% of
Total
Revenue
Amount
(Dollars in thousands)
Amount
%
$279,467
476,166
141,790
—
45% $203,187
401,151
76
121,099
23
4,327
—
48% $ 76,280
75,015
94
20,691
28
(4,327)
1
38%
19
17
(100)
Total operating expenses
$897,423
144% $729,764
171% $167,659
23%
Includes stock-based compensation expense of:
Research and development
Sales and marketing
General and administrative
Total
$ 28,968
66,773
38,186
$133,927
$ 68,329
73,286
49,793
$191,408
64
Research and Development
Research and development expense increased $76.3 million, or 38%, during the year ended December 31,
2015 compared to the year ended December 31, 2014. The increase was primarily driven by a $62.2
million increase in personnel costs, primarily due to a $39.4 million increase in stock-based compensation
charges, as well as a 24% increase in headcount. Additionally, $8.8 million of the increase was driven by higher
facility and IT costs to support departmental expansion and continued investment in our future product and
service offerings.
Sales and Marketing
Sales and marketing expense increased $75.0 million, or 19%, during the year ended December 31, 2015
compared to the year ended December 31, 2014. The increase was primarily driven by a $38.7 million increase in
personnel costs, of which $6.5 million was related to stock-based compensation charges, largely as a result of
a 28% increase in headcount, as well as a $23.4 million increase in commissions associated with higher sales.
Additionally, $7.5 million of the increase was driven by higher facility and IT costs to support departmental
expansion.
General and Administrative
General and administrative expense increased $20.7 million, or 17%, during the year ended December 31,
2015 compared to the year ended December 31, 2014. The increase was primarily driven by a $21.2
million increase in personnel costs, of which $11.6 million was related to stock-based compensation charges,
largely as a result of a 32% increase in headcount.
Restructuring Charges
During the year ended December 31, 2014, we incurred restructuring charges of $4.3 million, of which $1.6
million related to workforce reductions and $2.7 million related to facility consolidations, as part of our plans
initiated in August 2014 to reduce our cost structure and improve efficiency. We incurred no restructuring
charges during the year ended December 31, 2015.
Interest Income
Interest income
Year Ended December 31,
Change
2015
2014
Amount %
(Dollars in thousands)
$2,935
$713
$2,222
312%
Interest
income increased during the year ended December 31, 2015 compared to the year ended
December 31, 2014 due to higher average balances in our cash and cash equivalents and investments.
Interest Expense
Interest expense
Year Ended December 31,
Change
2015
2014
Amount
%
(Dollars in thousands)
$(27,116)
$(26)
$(27,090) 104,192%
Interest expense increased during the year ended December 31, 2015 compared to the year ended
December 31, 2014 due to cash interest expense of $7.0 million and amortization of discount and issuance costs
of $20.1 million from the Convertible Senior Notes issued in June 2015.
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Other Expense, Net
Other expense, net
Year Ended December 31,
Change
2015
2014
Amount %
$(3,284)
(Dollars in thousands)
$(1,936)
$(1,348) 70%
The increase in other expense, net during the year ended December 31, 2015 compared to the year ended
December 31, 2014 was primarily due to foreign currency transaction losses caused by unfavorable changes in
foreign currency exchange rates.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes
Effective tax rate
Year Ended December 31,
2015
2014
(Dollars in thousands)
$4,090
$(36,654)
(0.8)%
7.6%
The change from a benefit from income taxes to a provision for income taxes during the year ended
December 31, 2015 compared to the year ended December 31, 2014 was primarily due to the fact that we no
longer have deferred tax liabilities in excess of our deferred tax assets which would be available as a source of
income for purposes of determining our valuation allowance. We continue to maintain a full valuation allowance
on all of our U.S. and Singapore-based deferred tax assets to the extent that deferred tax liabilities are not
available as a source of income as of December 31, 2015. The tax expense for the year ended December 31, 2015
is primarily due to foreign taxes.
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Quarterly Results of Operations
The following unaudited quarterly statements of operations data for each of the eight quarters in the period
ended December 31, 2016 have been prepared on a basis consistent with our audited annual financial statements
included in this Annual Report on Form 10-K and include, in our opinion, all normal recurring adjustments
necessary for the fair presentation of the financial information contained in those statements. Our historical
results are not necessarily indicative of the results that may be expected in the future. The following quarterly
financial data should be read in conjunction with our audited financial statements and the related notes included
in this Annual Report on Form 10-K.
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
March 31,
2015
Three Months Ended
(In thousands)
$ 33,586
$ 43,857
$ 40,776 $ 33,707
$ 66,598
$ 60,101
$ 49,696 $ 40,237
151,110
184,696
15,391
48,567
63,958
120,738
54,574
84,310
30,914
142,554
186,411
134,265
134,259
175,041
167,966
118,176
184,774
105,515
165,616
97,511
85,133
147,207
125,370
16,675
15,959
17,133
20,915
21,265
17,101
15,200
52,378
51,468
54,297
42,260
40,606
39,006
36,851
69,053
67,427
117,358
107,614
71,430
96,536
63,175
121,599
61,871
103,745
56,107
91,100
52,051
73,319
62,665
110,756
76,372
121,405
85,983
123,028
71,690
135,432
73,374
117,131
68,798
116,008
65,605
107,595
32,860
33,809
42,256
37,978
36,518
34,687
32,607
—
22,423
3,537
1,670
—
—
—
—
169,798
(49,060)
1,803
(12,132)
(2,404)
(61,793)
228,704
(111,346)
1,687
(12,019)
(467)
235,123
(127,509)
1,627
(11,909)
(1,191)
252,937
(156,401)
1,465
(11,809)
815
245,100
(123,501)
1,319
(11,691)
(725)
227,023
(123,278)
956
(11,587)
(985)
219,493
(128,393)
391
(3,838)
(806)
205,807
(132,488)
269
—
(768)
(122,145)
(138,982)
(165,930)
(134,598)
(134,894)
(132,646)
(132,987)
(257)
1,228
338
(10,030)
1,550
636
927
977
$ (61,536)
$(123,373)
$(139,320) $(155,900)
$(136,148)
$(135,530)
$(133,573) $(133,964)
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$
(0.37)
$
(0.75)
$
(0.86) $
(0.98)
$
(0.87)
$
(0.88)
$
(0.87) $
(0.88)
167,228
164,728
162,045
158,781
156,137
154,523
154,121
151,651
Revenue:
Product
Subscription and
services
Total revenue
Cost of revenue:
Product
Subscription and
services
Total cost of
revenue
Total gross profit
Operating expenses:
Research and
development
Sales and marketing
General and
administrative
Restructuring
charges
Total operating
expenses
Operating loss
Interest income
Interest expense
Other expense, net
Loss before income taxes
Provision for (benefit from)
income taxes
Net loss attributable to
common stockholders
Net loss per share attributable
to common stockholders,
basic and diluted
Weighted average shares used
to compute net loss per
share attributable to
common stockholders,
basic and diluted
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Three Months Ended
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
September 30,
2015
June 30,
2015
March 31,
2015
(Percent of total revenue)
Revenue:
Product
Subscription and services
Total revenue
Cost of revenue:
Product
Subscription and services
Total cost of revenue
Total gross profit
Operating expenses:
Research and
development
Sales and marketing
General and
18%
82
100
8
26
34
66
30
46
administrative
17
Restructuring charges —
93
(27)
1
(7)
(1)
(34)
Total operating
expenses
Operating loss
Interest income
Interest expense
Other expense, net
Loss before income taxes
Provision for (benefit from)
income taxes
Net loss attributable to
common stockholders
Quarterly Revenue Trends
24%
76
23%
77
20%
80
36%
64
36%
64
34%
66
32%
68
100
100
100
100
100
100
100
9
28
37
63
34
59
18
12
123
(60)
1
(7)
—
(66)
9
30
39
61
44
69
19
2
10
33
43
57
51
73
25
1
150
(93)
1
(7)
134
(73)
1
(7)
(1) —
(80)
(99)
11
23
34
66
39
73
21
—
133
(67)
1
(6)
(1)
(73)
13
24
37
63
44
71
22
—
137
(74)
1
(7)
(1)
(81)
12
26
38
62
47
79
12
30
42
58
52
86
23
—
26
—
149
(87)
—
164
(106)
—
(3) —
—
—
(90)
(106)
—
—
—
(6)
1
1
1
1
(34)%
(66)%
(80)% (93)%
(74)%
(82)%
(91)% (107)%
Our quarterly revenue increased year-over-year for all periods presented, except the fourth quarter of 2016
which was consistent with the fourth quarter of 2015 due to unseasonably low product sales in the fourth quarter
of 2016. This is primarily due to increased subscription sales which were bolstered by our acquisition of iSIGHT
in the first quarter of 2016. Sequentially, our subscription and services revenues continued to increase each
quarter due to a shift in customer buying preferences away from on premise appliance-based solutions to cloud-
based and cloud-enabled subscriptions. As our mix of sales continues to shift from products to subscriptions and
services, we believe there will be less volatility in our quarterly trends due to the ratable nature of revenue
recognition associated with our subscription and service offerings. However, we have not yet assessed all the
potential impacts the new standard on revenue recognition will have, which upon implementation could, at least
temporarily, increase the volatility in these results (See Note 1 contained in the “Notes to Consolidated Financial
Statements” in Item 8 of Part II of this Annual Report on Form 10-K for discussion of anticipated impact and
status of adoption of the new standard on revenue recognition).
Quarterly Gross Margin Trends
Consistent with our quarterly revenues, quarterly gross profit increased year-over-year for all periods
presented, except the fourth quarter of 2016 which was consistent with the fourth quarter of 2015. Total gross
margin, or gross profit as a percentage of revenue, steadily increased each sequential quarter within both 2015
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and 2016, largely due to the shift in sales mix in product and subscriptions and services, other than from the
fourth quarter of 2015 to the first quarter of 2016. As our mix of sales continues to shift from products to
subscriptions and services, we believe there will be less volatility in our quarterly trends due to the ratable nature
of revenue recognition associated with our subscription and service offerings, but still expect fluctuations in our
quarterly gross margins in the future.
Quarterly Expense Trends
Total operating expenses increased sequentially through the first quarter of 2016, after which it began to
decline each subsequent quarter as a result of our restructuring activities in 2016. This trend was consistent
among each category of operating expenses. Beginning with the second quarter of 2016, we began realizing
savings from our restructuring plans designed to align our expense structure with current growth expectations.
Liquidity and Capital Resources
Cash and cash equivalents
Short-term investments
Cash provided by (used in) operating activities
Cash used in investing activities
Cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
As of December 31,
2016
2015
(In thousands)
$223,667
$712,058
$402,102
$767,775
Year Ended December 31,
2016
2015
2014
(In thousands)
$ (14,585) $ 37,015
(576,749)
(189,696)
795,473
25,846
$(131,270)
(382,511)
486,226
$(178,435) $ 255,739
$ (27,555)
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As of December 31, 2016, our cash and cash equivalents of $223.7 million were held for working capital,
capital expenditures, investment in technology, debt servicing and business acquisition purposes, of which
approximately $59.6 million was held outside of the United States. We consider the undistributed earnings of our
foreign subsidiaries as of December 31, 2016 to be indefinitely reinvested outside the United States on the basis
of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our
plan for reinvestment of our foreign subsidiaries’ undistributed earnings.
In February 2016, we acquired Invotas, a provider of security automation and orchestration technology. We
paid upfront cash consideration of $17.7 million and issued 742,026 shares of our common stock with an
estimated fair value of $11.1 million.
In January 2016, we acquired iSIGHT, one of the world’s leading providers of cyber threat intelligence for
global enterprises. We paid upfront cash consideration of $192.8 million, incurred liabilities of $39.1 million
contingent upon the achievement of a threat intelligence bookings target on or before the end of the second
quarter of 2018, and issued 1,793,305 shares of our common stock with an estimated fair value of $29.9 million.
In June 2015, we issued $460.0 million principal amount of 1.000% Convertible Senior Notes due 2035 (the
“Series A Notes”) and $460.0 million principal amount of 1.625% Convertible Senior Notes due 2035 (the
“Series B Notes” and together with the Series A Notes, the “Convertible Senior Notes”), in a private placement
to qualified institutional purchasers pursuant to an exemption from registration provided by Section 4(a)(2) and
Rule 144A under the Securities Act of 1933, as amended. We received total net proceeds after the initial
purchasers’ discount and issuance costs of $896.5 million. In connection with the issuance of the Convertible
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Senior Notes, we also entered into privately negotiated prepaid forwards (each a “Prepaid Forward”) with one of
the initial purchasers of the Convertible Senior Notes, pursuant to which we purchased approximately $150.0
million worth of our common stock (equivalent to approximately 3.3 million shares) for settlement on or around
June 1, 2020 and June 1, 2022, respectively, subject to any early settlement in whole or in part of each Prepaid
Forward.
In May 2014, we acquired privately held nPulse Technologies, a performance leader in network forensics
based in Charlottesville, Virginia. This purchase consisted of $55.2 million in cash, $0.1 million of equity awards
assumed, and 54,319 shares of our common stock with a fair value of $1.3 million which will vest upon the
achievement of certain milestones.
In March 2014, we completed our follow-on public offering in which we issued and sold 5,582,215 shares
of common stock at a price of $82.00 per share. We received aggregate proceeds of $446.5 million from the sale
of shares of common stock, net of underwriters’ discounts and commissions of $11.2 million, but before
deducting offering expenses of $2.2 million. Another 8,417,785 shares were sold by certain selling stockholders,
which included 796,846 shares sold pursuant to the exercise of vested outstanding options by our employees. We
did not receive any of the proceeds from the sales of shares by the selling stockholders.
We believe that our existing cash and cash equivalents and short-term investments and any cash inflow from
operations will be sufficient to meet our anticipated cash needs, including cash we will consume for operations, for
at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate,
the timing and extent of spending to support development efforts, the introduction of new and enhanced product and
service offerings, the cost of any future acquisitions of technology or businesses, and the continuing market
acceptance of our products. In the event that additional financing is required from outside sources, we may not be
able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when
desired, our business, operating results and financial condition would be adversely affected.
Operating Activities
During the year ended December 31, 2016, our operating activities used cash of $14.6 million. We incurred
a net loss of $480.1 million, which included net non-cash expenses of $354.4 million, primarily consisting of
stock-based compensation charges and depreciation and amortization expense. Our net change in operating assets
and liabilities provided cash of $111.2 million, primarily sourced from deferred revenue for $105.4 million, as a
result of increases in sales of subscriptions and support and maintenance services, and accounts receivable for
$61.8 million, resulting from increased collections which benefited from the restructuring of programs to
incentivize early payment. These sources of cash were partially offset by the use of cash related to current
liabilities of $62.6 million, which included the payment of $7.7 million for transaction costs incurred by iSIGHT
and Invotas prior to acquisition.
During the year ended December 31, 2015, our operating activities provided cash of $37.0 million. We
incurred a net loss of $539.2 million, which included net non-cash expenses of $357.5 million, primarily
consisting of stock-based compensation charges, depreciation and amortization expense and non-cash interest
expense related to our convertible senior notes. Our net change in operating assets and liabilities provided cash of
$218.8 million, primarily sourced from deferred revenue for $174.5 million, as a result of increases in sales of
subscriptions and support and maintenance services, accounts receivable for $19.1 million, resulting from
increased collection efforts and early payment incentives, and accrued liabilities and compensation for $22.2
million as a result of growth in our headcount and business expansion.
During the year ended December 31, 2014, our operating activities used cash of $131.3 million. We
incurred a net loss of $443.8 million, which included net non-cash expenses of $208.4 million, primarily
consisting of stock-based compensation charges, depreciation and amortization expense, and deferred tax benefit.
Our net change in operating assets and liabilities provided cash of $104.1 million, primarily sourced from
deferred revenue for $164.7 million as a result of increases in sales of subscriptions and support and maintenance
70
services, and accrued liabilities and compensation for $35.1 million as a result of the growth in our headcount
and business expansion, partially offset by the use of cash related to accounts receivable for $97.2 million
resulting from growth in our billings.
Investing Activities
Cash used in investing activities during the year ended December 31, 2016 was $189.7 million, primarily for
the acquisitions of iSIGHT and Invotas and, to a lesser extent, capital expenditures to purchase property and
equipment and demonstration units, partially offset by net redemptions and sales of short-term investments.
Cash used in investing activities during the year ended December 31, 2015 was $576.7 million, primarily for
the purchase of marketable securities to invest a significant portion of the cash received from our convertible
senior notes offering, net of maturities, and, to a lesser extent, for capital expenditures to purchase property and
equipment and demonstration units.
Cash used in investing activities during the year ended December 31, 2014 was $382.5 million, primarily for
the purchase of marketable securities to invest a significant portion of the cash received from our follow-on
public offering, net of maturities, and, to a lesser extent, for capital expenditures to purchase property and
equipment and demonstration units and for the acquisition of nPulse. This use of cash was partially offset by
$31.6 million received from the sale of certain marketable securities.
Financing Activities
During the year ended December 31, 2016, financing activities provided $25.8 million in cash, primarily
due to proceeds from employee purchases of shares under our 2013 Employee Stock Purchase Plan (“ESPP”) and
exercises of stock options, partially offset by the repayment of debt assumed through acquisitions.
During the year ended December 31, 2015, financing activities provided $795.5 million in cash, primarily
from net proceeds of $896.5 million from our convertible senior notes offering, as well as proceeds of $29.1
million from the exercise of employee stock options, net of repurchases. These sources of cash were partially
offset by the use of $150.0 million associated with the Prepaid Forward.
During the year ended December 31, 2014, financing activities provided $486.2 million in cash, primarily
from net proceeds of $444.3 million from our follow-on public offering, as well as proceeds of $22.7 million
from the exercise of employee stock options, net of repurchases.
Contractual Obligations and Commitments
The following summarizes our contractual obligations and commitments as of December 31, 2016:
Convertible Senior Notes
Operating leases
Purchase obligations
Contract manufacturer commitments
Total
Payments Due by Period
Total
Less Than
1 Year
1 - 3 Years
3 - 5 Years
More Than
5 Years
$ 977,213
105,410
20,673
10,239
$12,075
15,715
14,812
10,239
(In thousands)
$24,150
27,688
5,861
—
$477,250
22,743
—
—
$463,738
39,264
—
—
$1,113,535
$52,841
$57,699
$499,993
$503,002
Total future non-cancelable minimum rental payments under operating leases of $105.4 million shown in
the table above have not been reduced by future minimum sublease rentals totaling $6.9 million.
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Total future payments related to our Convertible Senior Notes of $977.2 million shown in the table above is
composed of $460.0 million principal amount of Series A Notes, $460.0 million principal amount of Series B
Notes and future interest of $57.2 million. Although the Convertible Senior Notes have a stated maturity of
June 1, 2035, they have been reflected in the table above assuming repurchase on June 1, 2020 in the case of the
Series A Notes and June 1, 2022 in the case of the Series B Notes (the first date holders have the right to require
us to repurchase all or any portion of their Convertible Senior Notes) at 100% of the principal amount plus
accrued and unpaid interest as of these dates.
Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax
benefits as of December 31, 2016, we are unable to make reasonably reliable estimates of the period of cash
settlement with the respective taxing authorities. Therefore, approximately $2.0 million of unrecognized tax
benefits classified as “Other long-term liabilities” in the accompanying consolidated balance sheets as of
December 31, 2016, have been excluded from the contractual obligations table above.
Off-Balance Sheet Arrangements
As of December 31, 2016, we did not have any relationships with unconsolidated entities or financial
partnerships, such as structured finance or special purpose entities, which were established for the purpose of
facilitating off-balance sheet arrangements or other purposes.
Segment Information
We have one primary business activity and operate in one reportable segment.
Concentration
For the years ended December 31, 2016 and 2015, one distributor represented 19% and 17%, respectively,
and one reseller represented 12% and 13%, respectively, of our total revenue. For the year ended December 31,
2014, no distributor represented 10% or greater of our total revenue, and one reseller represented 11% of our
total revenue. Our agreements with these distributors and resellers were made in the ordinary course of our
business and may be terminated with or without cause by either party with advance notice. Although we believe
we would experience some short-term disruption in the distribution of our products and subscriptions and
services if these agreements were terminated, we believe such termination would not have a long-term material
adverse effect on our financial results and that alternative resellers and other channel partners exist to deliver our
products to our end-customers.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures.
We base our estimates on historical experience and on various other assumptions that we believe are reasonable
under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may
differ from these estimates. To the extent that there are material differences between these estimates and our
actual results, our future financial statements will be affected.
The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the
most significant impact on our consolidated financial statements are described below.
Revenue Recognition
We generate revenue from the sales of products, subscriptions, support and maintenance, and other services
primarily through our indirect relationships with our partners as well as end customers through a direct sales
force. Our products include operating system software that is integrated into the appliance hardware and is
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deemed essential to its functionality. As a result, we account for product revenue in accordance with Accounting
Standards Codification 605, Revenue Recognition, and all related interpretations, as all our security appliance
deliverables include proprietary operating system software, which together deliver the essential functionality of
our products.
Revenue is recognized when all of the following criteria are met:
• Persuasive Evidence of an Arrangement Exists. We rely upon non-cancelable sales agreements and
purchase orders to determine the existence of an arrangement.
• Delivery has Occurred. We use shipping documents or transmissions of service contract registration
codes to verify delivery.
• The Fee is Fixed or Determinable. We assess whether the fee is fixed or determinable based on the
payment terms associated with the transaction.
• Collectability is Reasonably Assured. We assess collectability based on credit analysis and payment
history.
Our products include principal security product families that address critical vectors of attack, including
Web, email, endpoint, file and mobile. Our Network Threat Prevention, Endpoint Threat Prevention, File Content
Security, Malware Analysis System, Network Forensics Platform, Investigation Analysis System, Central
Management System and Email Threat Prevention, appliances and subscription services qualify as separate units
of accounting. Therefore, revenue from the sale of these products is recognized at the time of shipment. At the
time of shipment, product revenue generally meets the criteria for fixed or determinable fees as our partners
receive an order from an end-customer prior to placing an order with us. In addition, payment from our partners
is not contingent on the partners’ collection from their end-customers. Our partners do not stock products and do
not have any stock rotation rights. We recognize subscription and support and maintenance services revenue
ratably over the contractual service period, which is typically one or three years. Professional services revenue,
including incident response and related consulting services for our customers who have experienced a
cybersecurity breach or who require assistance assessing the vulnerability of their networks, and training services
revenue is recognized as the services are rendered.
At the time of shipment, product revenue generally meets the criteria for fixed or determinable fees as our
partners receive an order from an end-customer prior to placing an order with us. In addition, payment from our
partners is not contingent on the partners’ collection from their end-customers. Our partners do not stock
products and do not have any stock rotation rights. We recognize subscription and support and maintenance
services revenue ratably over the contractual service period, which is typically one or three years. Professional
services revenue, including incident response and related consulting services for our customers who have
experienced a cybersecurity breach or who require assistance assessing the vulnerability of their networks, and
training services revenue is recognized as the services are rendered.
Most of our arrangements, other than renewals of subscriptions and support and maintenance services, are
multiple-element arrangements with a combination of product, subscriptions, support and maintenance, and other
services. For multiple-element arrangements, we allocate revenue to each unit of accounting based on an
estimated selling price at the arrangement inception. The estimated selling price for each element is based upon
the following hierarchy: vendor-specific objective evidence, or VSOE, of selling price, if available, third-party
evidence, or TPE, of selling price, if VSOE of selling price is not available, or best estimate of selling price, or
BESP,
if neither VSOE of selling price nor TPE of selling price are available. The total arrangement
consideration is allocated to each separate unit of accounting using the relative estimated selling prices of each
unit based on the aforementioned selling price hierarchy. We limit the amount of revenue recognized for
delivered elements to an amount that is not contingent upon future delivery of additional products or services or
meeting of any specified performance conditions.
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To determine the estimated selling price in multiple-element arrangements, we seek to establish VSOE of
selling price using the prices charged for a deliverable when sold separately and, for subscriptions and support
and maintenance, based on the renewal rates and discounts offered to partners. If VSOE of selling price cannot
be established for a deliverable, we seek to establish TPE of selling price by evaluating similar and
interchangeable competitor products or services in standalone arrangements with similarly situated partners.
However, as our products contain a significant element of proprietary technology and offer substantially different
features and functionality from our competitors, we are unable to obtain comparable pricing of our competitors’
products with similar functionality on a stand-alone basis. Therefore, we have not been able to obtain reliable
evidence of TPE of selling price. If neither VSOE nor TPE of selling price can be established for a deliverable,
we establish BESP primarily based on historical transaction pricing. Historical transactions are segregated based
on our pricing model and our go-to-market strategy, which include factors such as type of sales channel (reseller,
distributor, or end-customer), the geographies in which our products and services were sold (domestic or
international), offering type (products or services), and whether or not the opportunity was identified by our sales
force or by our partners. In analyzing historical transaction pricing, we evaluate whether a majority of the prices
charged for a product, as represented by a percentage of list price, fall within a reasonable range. To further
support the BESP of selling price as determined by the historical transaction pricing or when such information is
unavailable, such as when there are limited sales of a new product, we consider the same factors we have
established through our pricing model and go-to-market strategy. The determination of BESP is made through
consultation with and approval by our management. We have established the estimated selling price of all of our
deliverables using BESP.
Shipping charges billed to partners are included in revenue while related costs are included in cost of
revenue. Sales commissions and other incremental costs to acquire contracts are also expensed as incurred. After
receipt of a partner order, any amounts billed in excess of revenue recognized are recorded as deferred revenue.
Stock-Based Compensation
Compensation expense related to stock-based transactions, including employee and non-employee director
stock options, is measured and recognized in the financial statements based on the fair value of the awards
granted. The fair value of each option award is estimated on the grant date using the Black-Scholes option-
pricing model and a single option award approach. The fair value of stock options granted to non-employees is
remeasured as the stock options vest, and the resulting change in value, if any, is recognized in the statement of
operations during the period the related services are rendered. Stock-based compensation expense is recognized
over the requisite service periods of the awards, which is generally four years.
Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions,
including the fair value of the underlying common stock prior to our IPO in September 2013, the expected term
of the option, the expected volatility of the price of our common stock, risk-free interest rates, and the expected
dividend yield of our common stock. The assumptions used in our option-pricing model represent management’s
best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If
factors change and different assumptions are used, our stock-based compensation expense could be materially
different in the future. These assumptions and estimates are as follows:
•
Fair Value of Common Stock. Because our common stock was not publicly traded until September 20,
2013, we were required to estimate the fair value of common stock for grants made prior to that date, as
discussed in “Common Stock Valuations” below.
• Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option-pricing
model on the implied yield available on U.S. Treasury zero-coupon issues with a remaining term
equivalent to that of the options for each option group.
• Expected Term. The expected term represents the period that our stock-based awards are expected to
be outstanding. We base the expected term assumption on our historical exercise behavior combined
with estimates of the post-vesting holding period.
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• Volatility. We determine the price volatility factor based on the historical volatilities of our publicly
traded peer group as we do not have a significant trading history for our common stock. Industry peers
consist of several public companies in the technology industry that are similar to us in size, stage of life
cycle, and financial leverage. We used the same set of peer group companies in all the relevant
valuation estimates. We did not rely on implied volatilities of traded options in our industry peers’
common stock because the volume of activity was relatively low. We intend to continue to consistently
apply this process using the same or similar public companies until a sufficient amount of historical
information regarding the volatility of our own common stock share price becomes available, or unless
circumstances change such that the identified companies are no longer similar to us, in which case,
more suitable companies whose share prices are publicly available would be utilized in the calculation.
• Dividend Yield. The expected dividend assumption is based on our current expectations about our
anticipated dividend policy. Consequently, we used an expected dividend yield of zero.
See Note 11 for the assumptions used in the Black-Scholes option-pricing model to determine the fair value
of our stock options granted for the year ended December 31, 2014.
In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimated a
forfeiture rate to calculate the stock-based compensation expense for our awards prior to January 1, 2016.
Beginning January 1, 2016, we began recognizing forfeitures as they occur with the adoption of ASU 2016-09.
We estimate the fair value of the rights to acquire stock under our ESPP using the Black-Scholes option
pricing formula. Our ESPP typically provides for consecutive twelve-month offering periods and we use our peer
group volatility data in the valuation of ESPP shares. We recognize such compensation expense on a straight-line
basis over the requisite service period.
We account for the fair value of restricted stock units (“RSUs”) using the closing market price of our
common stock on the date of grant. For new-hire grants, RSUs generally vest ratably on an annual basis over four
years. For annual refresh grants, RSUs generally vest ratably on an annual, or combination of annual and
quarterly, basis over two to four years.
We account for the fair value of performance stock units (“PSUs”) using the closing market price of our
common stock on the date of grant. We begin recognizing compensation expense when we conclude that it is
probable that the performance conditions will be achieved. We reassess the probability of vesting at each
reporting period and adjust our compensation cost based on this probability assessment.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on
a prospective basis. As we continue to accumulate additional data related to our common stock, we may have
refinements to our estimates which could materially impact our future stock-based compensation expense.
Income Taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been recognized in our
financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing
net operating losses and research and development credit carryforwards. Valuation allowances are provided when
necessary to reduce deferred tax assets to the amount expected to be realized.
We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the
financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We
recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that it is more likely than not
that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50%
likely to be realized upon ultimate settlement.
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Significant judgment is required in evaluating our uncertain tax positions and determining our provision for
income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax
outcome of these matters will not be different from that which is reflected in our historical income tax provisions
and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax
audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than
the amounts recorded, such differences may impact the provision for income taxes in the period in which such
determination is made.
Significant judgment is also required in determining any valuation allowance recorded against deferred tax
assets. In assessing the need for a valuation allowance, we consider all available evidence, including scheduled
reversal of deferred tax liabilities, past operating results, the feasibility of tax planning strategies and estimates of
future taxable income. Estimates of future taxable income are based on assumptions that are consistent with our
plans. Assumptions represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgment. Should actual amounts differ from our estimates, the amount of our tax expense and
liabilities could be materially impacted.
We do not provide for a U.S. income tax liability on undistributed foreign earnings of our foreign
subsidiaries. The earnings of non-U.S. subsidiaries are indefinitely reinvested in non-U.S. operations.
Contract Manufacturer Liabilities
We outsource most of our manufacturing, repair, and supply chain management operations to our
independent contract manufacturers and payments to them are a significant portion of our product cost of
revenue. Although we could be contractually obligated to purchase manufactured products, we generally do not
own the manufactured products. Product title transfers from our independent contract manufacturers to us and
immediately to our partners upon shipment. Our independent contract manufacturers assemble our products using
design specifications, quality assurance programs, and standards that we establish, and they procure components
and assemble our products based on our demand forecasts. These forecasts represent our estimates of future
demand for our products based upon historical trends and analysis from our sales and product management
functions as adjusted for overall market conditions. If the actual component usage and product demand are
significantly lower than forecast, we accrue for costs for contractual manufacturing commitments in excess of
our forecasted demand, including costs for excess components or for carrying costs incurred by our contract
manufacturers. To date, we have not accrued any significant costs associated with this exposure.
Loss Contingencies
We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We
consider the likelihood of loss or impairment of an asset, or the incurrence of a liability, as well as our ability to
reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is
accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss
can be reasonably estimated. If we determine that a loss is possible and the range of the loss can be reasonably
determined, then we disclose the range of the possible loss. We regularly evaluate current information available
to us to determine whether an accrual is required, an accrual should be adjusted or a range of possible loss should
be disclosed.
Warranties
We generally provide a one-year warranty on hardware. We do not accrue for potential warranty claims as a
component of cost of product revenue as all product warranty claims are satisfied under our support and
maintenance contracts.
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Goodwill
Goodwill is the excess of the aggregate purchase price paid over the fair value of the net tangible assets
acquired. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. We have determined that we operate as
one reporting unit and have selected December 1 as the date to perform our annual impairment test. In the
valuation of our goodwill, we must make assumptions regarding estimated future cash flows to be derived from
our business. If these estimates or their related assumptions change in the future, we may be required to record
impairment for these assets. The first step of the impairment test involves comparing the fair value of the
reporting unit to its net book value, including goodwill. If the net book value exceeds its fair value, then we
would perform the second step of the goodwill impairment test to determine the amount of the impairment loss.
The impairment loss would be calculated by comparing our implied fair value to our net book value. In
calculating our implied fair value of goodwill, our fair value would be allocated to all of the other assets and
liabilities based on their fair values. The excess of our fair value over the amount assigned to our other assets and
liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying
amount of goodwill exceeds its implied fair value. There was no impairment of goodwill recorded for the years
ended December 31, 2016, 2015 or 2014, and our reporting unit was not at risk of failing the first step of the
impairment test for any of these periods.
Business Combinations
We account
for all of our acquisitions using the acquisition method of accounting for business
combinations. The fair value of purchase consideration is allocated to the tangible assets acquired, liabilities
assumed and intangible assets acquired, based on their estimated fair values. The excess of the fair value of
purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill.
When determining the fair value of assets acquired and liabilities assumed, management makes significant
estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain
identifiable assets include, but are not limited to, expected long-term market growth, customer retention, future
expected operating expenses, costs of capital, and appropriate discount rates. Management’s estimates of fair
value are based upon assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable and, as a result, actual results may differ from estimates.
Recent Accounting Pronouncements
See Note 1 Description of Business and Summary of Significant Accounting Policies contained in the
“Notes to Consolidated Financial Statements” in Item 8 of Part II of this Annual Report on Form 10-K for a full
description of the recent accounting pronouncements and our expectation of their impact, if any, on our results of
operations and financial conditions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk
Our sales contracts are primarily denominated in U.S. dollars. A portion of our operating expenses are
incurred outside the United States and are denominated in foreign currencies and are subject to fluctuations due
to changes in foreign currency exchange rates, particularly changes in the Indian Rupee, British Pound Sterling,
Japanese Yen and Euro. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize
transaction gains and losses in our statement of operations. On June 23, 2016, the United Kingdom (“U.K.”) held
a referendum in which British voters approved an exit from the European Union (“EU”), commonly referred to
as “Brexit.” This resulted in an adverse impact to currency exchange rates, notably the British Pound Sterling
which experienced a sharp decline in value compared to the U.S. dollar and other currencies. Continued volatility
in currency exchange rates is expected as the U.K. negotiates its exit from the EU, which could result in greater
transaction gains or losses in our statement of operations.
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The effect of a hypothetical 10% adverse change in foreign exchange rates on monetary assets and liabilities
at December 31, 2016 would not be material to our financial condition or results of operations. To date, foreign
currency transaction gains and losses and exchange rate fluctuations have not been material to our financial
statements, and we have not engaged in any foreign currency hedging transactions.
As our international operations continue to grow, our risks associated with fluctuations in currency rates will
become greater, and we will continue to reassess our approach to managing this risk. In addition, currency
fluctuations or a weakening U.S. dollar can increase the costs of our international expansion, and a strengthening
U.S. dollar could slow international demand as products and services priced in U.S. dollars become more
expensive.
Interest Rate Risk
We had cash and cash equivalents and investments of $935.7 million and $1,169.9 million as of
December 31, 2016 and 2015, respectively, consisting of bank deposits, money market funds, certificates of
deposit, commercial paper and bonds issued by corporate institutions and U.S. government agencies. Such
interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not
been significant.
We do not enter into investments for trading or speculative purposes and have not used any derivative
financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we
anticipate being exposed to, material risks due to changes in interest rates.
Our cash flow exposure due to changes in interest rates related to our debt is limited as our Convertible
Senior Notes have fixed interest rates at 1.000% and 1.625%. The fair value of the Convertible Senior Notes may
increase or decrease for various reasons, including fluctuations in the market price of our common stock,
fluctuations in market interest rates and fluctuations in general economic conditions. Based upon the quoted
market price as of December 31, 2016, the fair value of our Convertible Senior Notes was approximately $844.7
million.
A hypothetical 10% change in interest rates during any of the periods presented would not have had a
material impact on our financial statements.
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 . . . . . . . . .
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, 2015 and
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2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015 and
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Certain supplementary financial information required by this Item 8 is included in Item 7 under the caption
“Quarterly Results of Operations.”
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
FireEye, Inc.
Milpitas, California
We have audited the accompanying consolidated balance sheets of FireEye, Inc. and subsidiaries (the
“Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15.
These financial statements and financial statement schedule are the responsibility of
the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of FireEye, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2016, based on the
criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 24, 2017 expressed an unqualified
opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 24, 2017
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FIREEYE, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $1,590 and
$2,021 at December 31, 2016 and 2015, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Deposits and other long-term assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued and other current liabilities
Accrued compensation
Deferred revenue, current portion
Total current liabilities
Convertible senior notes, net
Deferred revenue, non-current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (NOTE 9)
Stockholders’ equity:
As of December 31,
2016
2015
$
223,667
712,058
$
402,102
767,775
121,150
5,955
25,081
1,087,911
61,852
978,260
244,032
10,910
172,752
13,747
30,883
1,387,259
78,368
750,288
214,560
10,998
$ 2,382,965
$ 2,441,473
$
$
20,269
22,997
96,004
397,118
536,388
741,980
256,398
7,087
43,650
29,820
79,294
305,169
457,933
706,198
221,829
11,141
1,541,853
1,397,101
Common stock, par value of $0.0001 per share; 1,000,000 shares authorized,
174,596 shares and 161,643 shares issued and outstanding as of
December 31, 2016 and 2015, respectively
Additional paid-in capital
Treasury stock, at cost; 3,333 shares as of December 31, 2016 and 2015
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
17
2,682,909
(150,000)
(1,742)
(1,690,072)
16
2,403,088
(150,000)
(2,225)
(1,206,507)
841,112
1,044,372
$ 2,382,965
$ 2,441,473
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See accompanying notes to consolidated financial statements.
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FIREEYE, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
Revenue:
Product
Subscription and services
Total revenue
Cost of revenue:
Product
Subscription and services
Total cost of revenue
Total gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charges
Total operating expenses
Operating loss
Interest income
Interest expense
Other expense, net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss attributable to common stockholders
Year Ended December 31,
2016
2015
2014
$ 151,926
562,188
$ 216,632
406,335
$ 178,246
247,416
714,114
622,967
425,662
65,158
206,710
74,481
158,723
58,980
116,113
271,868
233,204
175,093
442,246
389,763
250,569
279,594
439,499
139,839
27,630
279,467
476,166
141,790
—
203,187
401,151
121,099
4,327
886,562
897,423
729,764
(444,316)
6,582
(47,869)
(3,247)
(488,850)
(8,721)
(507,660)
2,935
(27,116)
(3,284)
(535,125)
4,090
(479,195)
713
(26)
(1,936)
(480,444)
(36,654)
$(480,129) $(539,215) $(443,790)
Net loss per share attributable to common stockholders, basic and diluted
$
(2.94) $
(3.50) $
(3.12)
Weighted average shares used in computing net loss per share attributable
to common stockholders, basic and diluted
163,211
154,120
142,176
See accompanying notes to consolidated financial statements.
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FIREEYE, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
Net loss
Change in net unrealized gains (losses) on available-for-sale
investments, net of tax
Comprehensive loss
Year Ended December 31,
2016
2015
2014
$(480,129) $(539,215) $(443,790)
483
(1,784)
(441)
$(479,646) $(540,999) $(444,231)
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See accompanying notes to consolidated financial statements.
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FIREEYE, INC.
Consolidated Statement of Stockholders’ Equity
(In thousands)
Common Stock
Shares Amount
Additional
Paid-In
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
137,758 $ 14
$1,271,590 $
—
$ —
$(223,502) $1,048,102
nPulse Technologies, Inc. acquisition
296 —
1,398
Balance at December 31, 2013
Issuance of common stock in connection
with follow-on public offering, net of
offering costs
Issuance of common stock for equity
awards, net of repurchases and tax
withholdings
Issuance of common stock related to
Issuance of common stock related to
employee stock purchase plan
Assumption of vested options related to
the acquisition of Mandiant, Inc.
Vesting of early exercise of equity
awards
Stock-based compensation
Unrealized loss on investments
Net loss
Balance at December 31, 2014
Issuance of common stock for equity
awards, net of repurchases and tax
withholdings
Issuance of common stock related to
employee stock purchase plan
Excess tax benefit on vesting of awards
and options exercised
Equity component of convertible senior
notes, net
Prepaid forward stock purchase
Vesting of early exercise of equity
awards
Stock-based compensation
Unrealized loss on investments
Net loss
5,582 —
444,295
8,030
1
20,658
1,194 —
21,228
—
—
—
—
—
—
—
—
—
—
3,135
4,390
151,852
—
—
152,860
15
1,918,546
7,786
1
27,062
997 —
21,880
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(441)
—
(441)
—
—
—
—
—
—
—
—
—
—
—
—
—
(443,790)
444,295
20,659
1,398
21,228
3,135
4,390
151,852
(441)
(443,790)
(667,292)
1,250,828
—
—
—
—
—
—
—
—
(539,215)
27,063
21,880
809
210,401
(150,000)
2,271
222,119
(1,784)
(539,215)
809
210,401
— (150,000)
2,271
222,119
—
—
—
—
—
—
—
—
(1,784)
—
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Balance at December 31, 2015
Issuance of common stock for equity
awards, net of repurchases and tax
withholdings
Issuance of common stock related to
employee stock purchase plan
Issuance of common stock related to
iSIGHT Security, Inc. acquisition
Issuance of common stock related to Invotas
International Corporation acquisition
Vesting of early exercise of equity awards
Stock-based compensation
Unrealized gain on investments
Cumulative-effect adjustment for adoption
of ASU 2016-09
Net loss
Common Stock
Shares Amount
Additional
Paid-In
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
161,643
16
2,403,088 (150,000)
(2,225)
(1,206,507) 1,044,372
8,438
1
12,720
1,980 —
22,080
1,793 —
29,900
742 —
— —
— —
— —
— —
— —
11,100
1,519
199,066
—
3,436
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
483
—
—
—
—
—
—
—
—
—
12,721
22,080
29,900
11,100
1,519
199,066
483
(3,436)
(480,129)
—
(480,129)
Balance at December 31, 2016
174,596 $ 17 $2,682,909 $(150,000)
$(1,742)
$(1,690,072) $ 841,112
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FIREEYE, INC.
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation
Non-cash interest expense related to convertible senior notes
Change in fair value of contingent earn-out liability
Deferred income taxes
Other
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued liabilities
Accrued transaction costs of acquiree
Accrued compensation
Deferred revenue
Other long-term liabilities
Year Ended December 31,
2016
2015
2014
$(480,129) $(539,215) $(443,790)
119,267
199,066
35,782
2,356
(11,926)
9,836
61,785
1,415
9,344
(19,093)
(11,154)
(7,727)
(24,621)
105,431
(4,217)
111,956
222,119
20,069
—
(1,353)
4,672
19,126
(7,820)
(675)
7,705
7,495
—
14,742
174,455
3,739
94,136
151,852
—
—
(39,869)
2,261
(97,165)
(2,024)
1,450
(3,193)
11,403
—
23,658
164,728
5,283
Net cash provided by (used in) operating activities
(14,585)
37,015
(131,270)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and demonstration units
Purchases of short-term investments
Proceeds from maturities of short-term investments
Proceeds from sales of short-term investments
Business acquisitions, net of cash acquired
Purchase of investment in private company
Lease deposits
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from follow-on public offering
Net proceeds from issuance of convertible senior notes
Prepaid forward stock purchase
Repayment of debt of acquired business
Payments for contingent earn-outs
Payment related to shares withheld for taxes
Proceeds from employee stock purchase plan
Proceeds from exercise of equity awards
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes
Cash paid for interest
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Common stock issued in connection with acquisitions
Contingent earn-out in connection with acquisitions
Purchases of property and equipment and demonstration units in accounts payable and accrued
liabilities
(36,314)
(507,073)
554,358
4,507
(204,926)
—
(248)
(54,549)
(769,097)
245,116
4,807
—
(1,800)
(1,226)
(67,715)
(390,360)
99,541
31,577
(55,058)
—
(496)
(189,696)
(576,749)
(382,511)
—
—
—
(8,842)
(112)
(1,124)
22,080
13,844
—
896,530
(150,000)
—
—
(2,027)
21,880
29,090
444,338
—
—
—
—
(2,058)
21,228
22,718
25,846
795,473
486,226
(178,435)
402,102
255,739
146,363
(27,555)
173,918
$ 223,667
$ 402,102
$ 146,363
$
5,209
$ 12,098
$ 41,000
$ 39,088
$
4,035
$
$
$
$
$
2,686
6,004
$
$
2,489
27
— $
— $
1,398
—
8,604
$
6,716
See accompanying notes to consolidated financial statements.
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FIREEYE, INC.
Notes to Consolidated Financial Statements
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
FireEye, Inc., with principal executive offices located in Milpitas, California, was incorporated as NetForts,
Inc. on February 18, 2004, under the laws of the State of Delaware, and changed its name to FireEye, Inc. on
September 7, 2005.
FireEye, Inc. and its wholly owned subsidiaries (collectively, the “Company”, “we”, “us” or “our”) is a
leader in stopping advanced cyber attacks that use advanced malware, zero-day exploits, and APT (“Advanced
Persistent Threat”) tactics. Our solutions supplement
traditional and next-generation firewalls, Intrusion
Prevention Systems (“IPS”), anti-virus, and gateways, which cannot stop advanced threats, leaving security holes
in networks. We offer a solution that detects and blocks attacks across Web, email, endpoint, file and mobile
threat vectors, as well as latent malware resident on file shares. Our solutions address all stages of an attack
lifecycle with a signature-less engine utilizing stateful attack analysis to detect zero-day threats.
In February 2016, we acquired Invotas International Corporation (“Invotas”), a provider of security
automation and orchestration technology. We paid upfront cash consideration of $17.7 million and issued
742,026 shares of our common stock with an estimated fair value of $11.1 million.
In January 2016, we acquired iSIGHT Security, Inc. (d/b/a iSIGHT Partners, Inc.) (“iSIGHT”), one of the
world’s leading providers of cyber threat intelligence for global enterprises. We paid upfront cash consideration
of $192.8 million, incurred liabilities of $39.1 million contingent upon the achievement of a threat intelligence
bookings target on or before the end of the second quarter of 2018, and issued 1,793,305 shares of our common
stock with an estimated fair value of $29.9 million.
In June 2015, we issued $460.0 million principal amount of 1.000% Convertible Senior Notes due 2035 (the
“Series A Notes”) and $460.0 million principal amount of 1.625% Convertible Senior Notes due 2035 (the
“Series B Notes” and together with the Series A Notes, the “Convertible Senior Notes”), in a private placement
to qualified institutional purchasers pursuant to an exemption from registration provided by Section 4(a)(2) and
Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). We recognized total net proceeds
after the initial purchasers’ discount and issuance costs of $896.5 million. In connection with the issuance of the
Convertible Senior Notes, we also entered into privately negotiated prepaid forward stock purchase transactions
(each a “Prepaid Forward”) with one of the initial purchasers of the Convertible Senior Notes, pursuant to which
we paid approximately $150.0 million. The amount of the prepaid is equivalent to approximately 3.3 million
shares which are to be settled on or around June 1, 2020 and June 1, 2022, respectively, subject to any early
settlement in whole or part of each Prepaid Forward.
In March 2014, we completed our follow-on public offering in which we issued and sold 5,582,215 shares
of common stock at a price of $82.00 per share. We received aggregate proceeds of $446.5 million from the sale
of shares of common stock, net of underwriters’ discounts and commissions of $11.2 million, but before
deducting offering expenses of approximately $2.2 million. Another 8,417,785 shares were sold by certain
selling stockholders, which included 796,846 shares sold pursuant to the exercise of vested outstanding options
by our employees. We did not receive any of the proceeds from the sales of shares by the selling stockholders.
We sell the majority of our products, subscriptions and services to end-customers through distributors,
resellers, and strategic partners, with a lesser percentage of sales directly to end-customers.
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Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of FireEye, Inc. and its wholly owned
subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United
intercompany balances and transactions have been eliminated in
States of America (“U.S. GAAP”). All
consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Such management estimates include, but are not limited to, the best
estimate of selling price for our products, subscriptions and services, commissions expense, bonus expense,
future taxable income, contract manufacturer
loss
liabilities,
contingencies, fair value of our equity awards, achievement of targets for performance stock units, fair value of
the liability and equity components of Convertible Senior Notes and the purchase price allocation of acquired
businesses. We base our estimates on historical experience and also on assumptions that we believe are
reasonable. Changes in facts or circumstances may cause us to change our assumptions and estimates in future
periods, and it is possible that actual results could differ from current or revised future estimates.
litigation and settlement costs and other
Concentrations
Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments, and accounts receivable. We maintain a substantial portion of our cash and
cash equivalents in money market funds invested in U.S. Treasury related obligations. Management believes that
these financial institutions are financially sound and, accordingly, are subject to minimal credit risk. Deposits
held with banks may exceed the amount of insurance provided on such deposits.
Our short-term investments primarily consist of notes and bonds issued by corporate institutions and U.S.
Government agencies. All of our investments are highly-rated by credit rating agencies and are issued by
organizations with reputable credit, and therefore bear minimal credit risk.
Our accounts receivables are primarily derived from a diverse set of customers across various geographical
locations. We perform ongoing credit evaluations of our customers and generally do not require collateral on
accounts receivable. We maintain an allowance for doubtful accounts for estimated potential credit losses. See
Note 15 for information on major customers.
We rely primarily on a single contract manufacturer to assemble our products. In some cases we rely on sole
suppliers for a certain number of our components.
Foreign Currency Translation and Transactions
The functional currency of our foreign subsidiaries is the U.S. dollar. We translate all monetary assets and
liabilities denominated in foreign currencies into U.S. dollars using the exchange rates in effect at the balance
sheet dates and other assets and liabilities using historical exchange rates.
Foreign currency denominated revenue and expenses have been re-measured using the average exchange
rates in effect during each period. Foreign currency re-measurement gains and losses have been included in other
income (expense) and have not been significant for the years ended December 31, 2016, 2015 and 2014.
Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less at date of purchase
to be cash equivalents. We determine the appropriate classification of our investments at the time of purchase,
and evaluate such designation at each balance sheet date.
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Short-term Investments
We classify our investments in debt and equity securities as available-for-sale and record these investments
at fair value. Investments with an original maturity of three months or less at the date of purchase are considered
cash equivalents, while all other investments are classified as short-term or long-term based on the nature of the
investments, their maturities, and their availability for use in current operations. Unrealized gains and losses are
reported as a component of other comprehensive loss. Realized gains and losses are determined based on the
specific identification method, and are reflected in our Consolidated Statements of Operations. We regularly
review our investment portfolio to identify and evaluate investments that have indicators of possible impairment.
Factors considered in determining whether a loss is other-than-temporary include, but are not limited to: the
length of time and extent a security’s fair value has been below its cost, the financial condition and near-term
prospects of the investee, the credit quality of the security’s issuer, likelihood of recovery and our intent and
ability to hold the security for a period of time sufficient to allow for any anticipated recovery in value. For our
debt instruments, we also evaluate whether we have the intent to sell the security or it is more likely than not that
we will be required to sell the security before recovery of its cost basis.
Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary.
Fair value is calculated based on publicly available market information or other estimates determined by
management. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market
conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than
cost and whether we have plans to sell the security, or it is more likely than not that we will be required to sell
the security, before recovery. Once a decline in fair value is determined to be other-than-temporary, an
impairment charge is recorded to other income (expense) and a new cost basis in the investment is established.
Fair Value of Financial Instruments
We define fair value as the price that would be received from selling an asset, or paid to transfer a liability,
in an orderly transaction between market participants at the measurement date. When determining the fair value
measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal
or most advantageous market in which to transact and the market-based risk. We apply fair value accounting for
all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a
recurring basis. The carrying amounts reported in the consolidated financial statements approximate the fair
value for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due to their
short-term nature.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The
allowance for doubtful accounts is based on our assessment of the collectability of accounts. Management
regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding
invoice, each partner’s expected ability to pay and the collection history with each partner, when applicable, to
determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged
against the allowance for doubtful accounts when identified.
Inventories
Inventories are stated at the lower of cost or market. Provisions have been made to reduce all slow-moving,
obsolete or unusable inventories to their net realizable values. We purchase completed units from contract
manufacturers. Accordingly, substantially all inventories are finished goods with an immaterial balance of
replacement parts. As of December 31, 2016 and 2015, the reserves for excess and obsolete inventories were $3.8
million and $1.4 million, respectively.
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Deferred Costs of Revenue
Deferred cost of revenue consists of direct and incremental costs related to product revenue deferred in
accordance with the Company’s revenue recognition policy. Deferred cost of revenue that will be realized within
the succeeding 12 month period is classified as current, and included in prepaid expenses and other current assets
on the consolidated balance sheets. The remaining balance is classified as non-current, and included in deposits
and other long-term assets.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, generally two to five years.
The estimated useful lives of property and equipment are described below:
Property and Equipment
Computer equipment and software
Leasehold improvements
Furniture and fixtures
Machinery and equipment
Demonstration Units
Useful Life
2 to 5 years
Shorter of estimated useful life or remaining lease
term
5 years
2 to 5 years
Product demonstration units are included in prepaid expenses and other current assets on the consolidated
balance sheets. Demonstration units are recorded at cost and are amortized over the estimated useful life from the
date of transfer from inventory, generally 12 months. We generally do not resell units that have been used for
demonstration purposes.
Impairment of Long-Lived Assets
We evaluate events and changes in circumstances that could indicate carrying amounts of long-lived assets
may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of
long-lived assets by determining whether or not the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the future undiscounted cash flows is less than the
carrying amount of an asset, we record an impairment charge for the amount by which the carrying amount of the
assets exceeds the fair value of the asset. Through December 31, 2016 we have not written down any of our long-
lived assets as a result of impairment.
Business Combinations
We have accounted for all of our acquisitions using the acquisition method. The Company allocates the fair
value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired,
based on their estimated fair values. The excess of the fair value of purchase consideration over the values of
these identifiable assets and liabilities is recorded as goodwill.
When determining the fair value of assets acquired and liabilities assumed, management makes significant
estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain
identifiable assets include, but are not limited to, expected long-term market growth, future expected operating
expenses, costs of capital, and appropriate discount rates. Management’s estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may
differ from estimates.
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Goodwill and Purchased Intangibles
Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net tangible
assets acquired. Goodwill is not amortized and is tested for impairment at least annually or whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined
that it operates as one reporting unit and has selected December 1 as the date to perform its annual impairment
test.
In the valuation of its goodwill, the Company must make assumptions regarding estimated future cash flows
to be derived from the Company. If these estimates or their related assumptions change in the future, the
Company may be required to record impairment for these assets. The first step of the impairment test involves
comparing the fair value of the reporting unit to its net book value, including goodwill. If the net book value
exceeds its fair value, then the Company would perform the second step of the goodwill impairment test to
determine the amount of the impairment loss. The impairment loss would be calculated by comparing the implied
fair value of the Company to its net book value. In calculating the implied fair value of the Company’s goodwill,
the fair value of the Company would be allocated to all of the other assets and liabilities based on their fair
values. The excess of the fair value of the Company over the amount assigned to its other assets and liabilities is
the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of
goodwill exceeds its implied fair value. There was no impairment of goodwill recorded for the years ended
December 31, 2016, 2015 or 2014.
Purchased intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization
is computed over the estimated useful lives of the respective assets. Purchased intangible assets with indefinite
lives are assessed for potential impairment annually, or when events or circumstances indicate that their carrying
amounts might be impaired.
Warranties
We generally provide a one-year warranty on hardware. We do not accrue for potential warranty claims as a
component of cost of product revenue as all product warranty claims are satisfied under our support and
maintenance contracts.
Deferred Revenue
Deferred revenue consists of amounts that have been invoiced and for which the Company has the right to
bill, but that have not been recognized as revenue. Deferred revenue that will be realized during the succeeding
12 month period is recorded as current, and the remaining deferred revenue is recorded as non-current.
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Contract Manufacturer Liabilities
We outsource most of our manufacturing, repair, and supply chain management operations to our
independent contract manufacturers and payments to such manufacturers are a significant portion of our product
cost of revenue. Although we could be contractually obligated to purchase manufactured products, we generally
do not own the manufactured products. Product title transfers from our independent contract manufacturers to us
and to our partners upon shipment. Our independent contract manufacturers assemble our products using design
specifications, quality assurance programs, and standards that we establish, and they procure components and
assemble our products based on our demand forecasts. These forecasts represent our estimates of future demand
for our products based upon historical trends and analysis from our sales and product management functions as
adjusted for overall market conditions. If the actual component usage and product demand are significantly lower
than forecast, we may accrue for costs for contractual manufacturing commitments in excess of our forecasted
demand, including costs for excess components or for carrying costs incurred by our contract manufacturers. To
date, we have not accrued any significant costs associated with this exposure.
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Revenue Recognition
We generate revenue from the sales of products, subscriptions, support and maintenance and professional
services, primarily through our indirect relationships with our partners as well as end customers through our
direct sales force. Our products include operating system software that is integrated into the appliance hardware
and is deemed essential to its functionality. As a result, we account for product revenue in accordance with
Accounting Standards Codification 605, Revenue Recognition, and all related interpretations, as all of our
security appliance deliverables include proprietary operating system software, which together delivers the
essential functionality of our products. Our professional services consist primarily of time and materials based
contracts, and the revenue is recognized as costs are incurred at amounts represented by the agreed-upon billing
amounts. Revenue from fixed-price professional services engagements are recognized under the proportional
performance method of accounting.
Revenue is recognized when all of the following criteria are met:
• Persuasive Evidence of an Arrangement Exists. We rely upon non-cancelable sales agreements and
purchase orders to determine the existence of an arrangement.
• Delivery has Occurred. We use shipping documents or transmissions of service contract registration
codes to verify delivery.
• The Fee is Fixed or Determinable. We assess whether the fee is fixed or determinable based on the
payment terms associated with the transaction.
• Collectability is Reasonably Assured. We assess collectability based on credit analysis and payment
history.
Our products include principal security product families that address critical vectors of attack, including
Web, email, endpoint, file and mobile. Our Network Threat Prevention, Endpoint Threat Prevention, Email
Threat Prevention, File Content Security, Forensic Analysis System and Central Management System appliance
and subscription services qualify as separate units of accounting. Therefore product revenue from these
appliances is recognized at the time of shipment.
At the time of shipment, product revenue meets the criteria for fixed or determinable fees. In addition,
payment from our partners is not contingent on the partners’ collection from their end-customers. Our partners do
not stock products and do not have any stock rotation rights. We recognize subscription and support and
maintenance service revenue ratably over the contractual service period, which is typically one or three years.
Professional services revenue, including incident response and related consulting services for our customers who
have experienced a cybersecurity breach or who require assistance assessing the vulnerability of their networks,
and training services revenue is recognized as the services are rendered.
Most of our arrangements, other than renewals of subscriptions and support and maintenance services, are
multiple-element arrangements with a combination of product, subscriptions, support and maintenance, and other
services. For multiple-element arrangements, we allocate revenue to each unit of accounting based on an
estimated selling price at the arrangement inception. The estimated selling price for each element is based upon
the following hierarchy: vendor-specific objective evidence (“VSOE”) of selling price, if available, third-party
evidence (“TPE”) of selling price, if VSOE of selling price is not available, or best estimate of selling price
(“BESP”), if neither VSOE of selling price nor TPE of selling price are available. The total arrangement
consideration is allocated to each separate unit of accounting using the relative estimated selling prices of each
unit based on the aforementioned selling price hierarchy. We limit the amount of revenue recognized for
delivered elements to an amount that is not contingent upon future delivery of additional products or services or
meeting of any specified performance conditions.
To determine the estimated selling price in multiple-element arrangements, we seek to establish VSOE of
selling price using the prices charged for a deliverable when sold separately and, for subscriptions and support
and maintenance, based on the renewal rates and discounts offered to partners. If VSOE of selling price cannot
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be established for a deliverable, we seek to establish TPE of selling price by evaluating similar and
interchangeable competitor products or services in standalone arrangements with similarly situated partners.
However, as our products contain a significant element of proprietary technology and offer substantially different
features and functionality from our competitors, we are unable to obtain comparable pricing of our competitors’
products with similar functionality on a standalone basis. Therefore, we have not been able to obtain reliable
evidence of TPE of selling price. If neither VSOE nor TPE of selling price can be established for a deliverable,
we establish BESP primarily based on historical transaction pricing. Historical transactions are segregated based
on our pricing model and our go-to-market strategy, which include factors such as type of sales channel (reseller,
distributor, or end-customer), the geographies in which our products and services were sold (domestic or
international), offering type (products, subscriptions or services), and whether or not the opportunity was
identified by our sales force or by our partners. In analyzing historical transaction pricing, we evaluate whether a
majority of the prices charged for a product, as represented by a percentage of list price, fall within a reasonable
range. To further support the best estimate of selling price as determined by the historical transaction pricing or
when such information is unavailable, such as when there are limited sales of a new product, we consider the
same factors we have established through our pricing model and go-to-market strategy. The determination of
BESP is made through consultation with and approval by our management. We have established the estimated
selling price of all of our deliverables using BESP.
Shipping charges billed to partners are included in revenue and related costs are included in cost of revenue.
Sales commissions and other incremental costs to acquire contracts are also expensed as incurred and are
recorded in sales and marketing expense. After receipt of a partner order, any amounts billed in excess of revenue
recognized are recorded as deferred revenue.
Advertising Costs
Advertising costs, which are expensed and included in sales and marketing expense when incurred, were
$3.6 million, $5.1 million and $2.3 million during the years ended December 31, 2016, 2015 and 2014,
respectively.
Software Development Costs
The costs to develop internal-use software are subject to capitalization and begin amortizing once the
software is substantially ready for use. These costs are included in property and equipment and are generally
amortized over 3 years. All other software development costs are expensed as incurred and included in research
and development expense on the consolidated statements of operations.
Stock-Based Compensation
Compensation expense related to stock-based transactions, including employee and non-employee director
awards and our 2013 Employee Stock Purchase Plan (the “ESPP”), is measured and recognized in the financial
statements based on fair value. The fair value of each option award is estimated on the grant date using the
Black-Scholes option-pricing model and a single option award approach. This model requires that at the date of
grant we determine the fair value of the underlying common stock, the expected term of the award, the expected
volatility of the price of our common stock, risk-free interest rates, and expected dividend yield of our common
stock. The fair value of restricted stock awards and restricted stock units is based on the closing market price of
our common stock on the date of grant. The stock-based compensation expense is recognized using a straight-line
basis over the requisite service period of the entire awards, which is generally four years, unless the awards are
subject to performance conditions, in which case the Company recognizes compensation expense over the
requisite service period of each vesting tranche. For performance-based awards, the Company recognizes
compensation expense when it becomes probable that the performance criteria set by the Board of Directors will
be achieved.
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Beginning January 1, 2016 with the adoption of ASU 2016-09, we elected to recognize forfeitures as they
occur, and no longer estimate a forfeiture rate when calculating the stock-based compensation for our equity
awards. Stock-based compensation for the years ended December 31, 2015 and 2014 was calculated using an
estimated forfeiture rate based on an analysis of our actual historical forfeitures.
We account for stock options issued to non-employees based on the fair value of the awards determined
using the Black-Scholes option-pricing model. The fair value of stock options granted to non-employees is
remeasured as the stock options vest, and the resulting change in value, if any, is recognized in the statement of
operations during the period the related services are rendered.
Income Taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been recognized in our
financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing
net operating losses and research and development credit carry forwards. Valuation allowances are provided
when necessary to reduce deferred tax assets to the amount expected to be realized.
We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the
financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We
recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that it is more likely than not
that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step requires us to estimate and measure the tax liability as the largest amount that is more likely than
not to be realized upon ultimate settlement. We recognize interest and penalties related to unrecognized tax
benefits within the income tax expense line in the accompanying consolidated statements of operations. Accrued
interest and penalties are included within other long-term liabilities in the consolidated balance sheets.
Net Loss Per Share Attributable to Common Stockholders
We calculate our basic and diluted net loss per share attributable to common stockholders in conformity
with the two-class method required for companies with participating securities. Under the two-class method, in
periods when the Company has net income, net income attributable to common stockholders is determined by
allocating undistributed earnings, calculated as net income less current period convertible preferred stock non-
cumulative dividends, between common stock and the convertible preferred stock. In computing diluted net
income attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential
impact of dilutive securities. The Company’s basic net loss per share attributable to common stockholders is
calculated by dividing the net loss attributable to common stockholders by the weighted-average number of
shares of common stock outstanding for the period. The diluted net loss per share attributable to common
stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the
period. For purposes of this calculation, options to purchase common stock are considered common stock
equivalents, but have been excluded from the calculation of diluted net loss per share attributable to common
stockholders as their effect is anti-dilutive.
Convertible Senior Notes
We allocated the principal amount of the Convertible Senior Notes between its liability and equity
components. The carrying amount of the liability component was determined by measuring the fair value of a
similar debt instrument of similar credit quality and maturity that did not have the convert feature. The carrying
amount of the equity component, representing the embedded conversion option, was determined by deducting the
fair value of the liability component from the principal amount of the Convertible Senior Notes as a whole. The
equity component was recorded to additional paid-in capital and is not remeasured as long as it continues to meet
the conditions for equity classification. The excess of the principal amount of the Convertible Senior Notes over
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the carrying amount of the liability component was recorded as a debt discount, and is being amortized to interest
expense using the effective interest method through the first date holders have the right to require us to
repurchase all or any portion of their Convertible Senior Notes; the first put date (see Note 8). We allocate the
total amount of transaction costs incurred to the liability and equity components using the same proportions as
the proceeds from the Convertible Senior Notes. Transaction costs attributable to the liability component were
recorded as a direct deduction from the liability component of the Convertible Senior Notes, and are being
amortized to interest expense using the effective interest method through the first put date. Transaction costs
attributable to the equity component were netted with the equity component of the Convertible Senior Notes in
additional paid-in capital.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment. This standard eliminates the requirement to calculate the implied fair value of
goodwill to measure a goodwill impairment charge (i.e. Step 2 of the current guidance), instead measuring the
impairment charge as the excess of the reporting unit’s carrying amount over its fair value (i.e. Step 1 of the
current guidance). The guidance is effective for us beginning in the first quarter of 2020, and should be applied
prospectively. Early adoption is permitted for impairment testing dates after January 1, 2017. The adoption of
this standard is not expected to have a significant impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business. This standard changes the definition of a business by requiring at least one substantive
process. It also states that if substantially all of the fair value of the gross assets acquired is concentrated in a
single identifiable asset or group of similar identifiable assets, then the set of transferred assets and activities is
not a business. The guidance is effective for us beginning in the first quarter of 2018, and should be applied
prospectively. Early adoption is permitted. The adoption of this standard is not expected to have a significant
impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This standard
clarifies how certain cash receipts and payments should be classified in the statement of cash flows, including the
cash settlement of our Convertible Senior Notes. Upon cash settlement, repayment of the principal amount will
be bifurcated between cash outflows for operating activities for the portion related to accreted interest
attributable to debt discounts arising from the difference between the coupon interest rate and the effective
interest rate, and financing activities for the remainder. This will result in $233.9 million of accreted interest
being classified as cash used in operating activities in our consolidated financial statements upon cash settlement.
See Note 8 Convertible Senior Notes regarding timing of settlement. The guidance is effective for us beginning
in the first quarter of 2018, and should be applied retrospectively. Early adoption is permitted. We elected to
early adopt this standard in the third quarter of 2016.
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In June 2016,
the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. This standard changes the impairment model for most
financial assets and certain other instruments by introducing a current expected credit loss (CECL) model. The
CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring
entities to estimate and record losses expected over the remaining contractual life of an asset. The guidance is
effective for us beginning in the first quarter of 2020. Early adoption beginning in 2019 is permitted. We are
currently evaluating the impact the adoption of this guidance will have on our consolidated financial statements
and related disclosures.
In March 2016,
the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting. This standard simplifies various aspects related
to how share-based payments are accounted for and presented in the financial statements, including income
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taxes, forfeitures and statutory tax withholding requirements. The guidance is effective for us beginning in the
first quarter of 2017. Early adoption is permitted. We elected to early adopt this standard in the first quarter of
2016.
As a result of adopting this standard, we have made an accounting policy election to account for forfeitures
as they occur. This change has been applied on a modified retrospective basis, resulting in a cumulative-effect
adjustment to increase accumulated deficit by $3.4 million as of January 1, 2016; the date of adoption. The
adoption of this guidance also requires excess tax benefits and tax deficiencies be recorded in the income
statement as opposed to additional paid-in capital when the awards vest or are settled, and has been applied on a
prospective basis. As a result, the table of deferred tax assets shown in Note 12 includes certain deferred tax
assets as of December 31, 2016 that arose directly from tax deductions related to equity compensation greater
than compensation recognized for financial reporting in the amount of $117.3 million. The adoption of an
amendment related to the accounting for minimum statutory withholding tax requirements included in this
guidance has no impact on our current consolidated financial statements or on any prior period financial
statements presented.
This guidance also requires changes in the classification of shares withheld to pay employee taxes and
excess tax benefits on the consolidated statements of cash flows. The amendments require cash paid by an
employer when directly withholding shares for tax-withholding purposes be classified as a financing activity, and
be applied retrospectively to all prior periods presented. As these cash flows have previously been presented as
financing activities, there is no change resulting from the adoption of this amendment. The amendments also
require excess tax benefits be classified as an operating activity, consistent with other income tax cash flows, and
may be applied either on a retrospective or prospective basis. We have elected to apply this amendment on a
prospective basis, as there is no impact to our prior period consolidated statements of cash flows. As such, prior
periods have not been adjusted.
In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and
Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force). This standard clarifies the
requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on
debt instruments are clearly and closely related to their debt hosts. The guidance is effective for us beginning in
the first quarter of 2017 and should be applied on a modified retrospective basis to existing debt instruments as of
the beginning of the fiscal year for which the amendments are effective. Early adoption is permitted. We elected
to early adopt this standard in the third quarter of 2016. As we previously assessed the embedded call (put)
options associated with our Convertible Senior Notes in accordance with the requirements in this guidance, the
adoption of this standard did not have any impact on our consolidated financial statements and related
disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard is intended to
increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on
the balance sheet and disclosing key information about leasing arrangements. The guidance is effective for us
beginning in the first quarter of 2019, and should be applied on a modified retrospective basis. Early adoption is
permitted. We expect the adoption of this standard to have a material impact on our consolidated financial
statements and related disclosures, as we expect to recognize material lease assets and lease liabilities from our
building leases and other items.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying
the Accounting for Measurement-Period Adjustments. This standard eliminates the requirement that an acquirer
in a business combination account for measurement-period adjustments retrospectively. Under this guidance,
measurement-period adjustments will be recognized during the period in which they are determined. We adopted
this standard in the first quarter of 2016 and the adoption did not have a material impact on our consolidated
financial statements and related disclosures. See Note 5 for details of measurement-period adjustments.
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In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
This standard provides a single model for revenue arising from contracts with customers and supersedes current
revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services.
In July 2015, the FASB decided to defer the effective date by one year, and as a result, the guidance is
effective for us beginning in the first quarter of 2018. Early adoption as of the original effective date would be
permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods
presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The FASB has
subsequently issued several clarifying standards to address stakeholder questions and implementation issues.
We currently anticipate adopting the standard retrospectively to all prior periods presented. Our ability to
apply the requirements retrospectively to all prior periods presented is dependent on system readiness, including
software procured from third-party providers, and the completion of our analysis of information necessary to
restate prior period financial statements.
We anticipate this standard will have a material impact on our consolidated financial statements and related
disclosures. While we are continuing to assess all the potential impacts this standard will have, and as such we do
not know or cannot reasonably estimate quantitative information related to the impact of this standard on our
consolidated financial statements at this time, we currently believe the most significant impact relates to our
accounting for intelligence dependent appliance and software license revenue. We expect revenue related to
certain appliances and software licenses not dependent on intelligence, subscription and support offerings, cloud
offerings and professional services to remain substantially unchanged. Specifically, under the new standard we
to combine intelligence dependent appliances and software licenses with the related intelligence
expect
subscription and support as a single performance obligation. As a result, we expect to recognize intelligence
dependent appliance and software license revenue ratably over the life of the related device or license, rather than
at the time of shipping, when our contracts contain material right of renewal options. Where our contracts do not
contain material right of renewal options, we expect to recognize intelligence dependent appliance and software
license revenue ratably over the contractual term. Due to complexity of certain of our customer contracts, the
actual revenue recognition treatment required under the standard will be dependent on contract-specific terms,
and may vary in some instance from the recognition models noted above. We currently believe appliance and
software license revenue will be recognized predominantly over the useful life of the device or license as most of
our appliance and license offerings are intelligence dependent. Additionally, we currently expect commissions to
be deferred at the time of sale, and recognized ratably over the life of the related device or license or over the
contractual term.
2. Fair Value Measurements
The accounting guidance for fair value measurements provides a framework for measuring fair value on
either a recurring or nonrecurring basis, whereby the inputs used in our valuation techniques are assigned a
hierarchical level. The following are the three levels of inputs to measure fair value:
•
•
•
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in
active markets.
Level 2: Inputs that reflect quoted prices for identical assets or liabilities in less active markets; quoted
prices for similar assets or liabilities in active markets; benchmark yields, reported trades, broker/dealer
quotes, inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are
derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Unobservable inputs that reflect our own assumptions incorporated in valuation techniques
used to measure fair value. These assumptions are required to be consistent with market participant
assumptions that are reasonably available.
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We consider an active market to be one in which transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing basis, and consider an inactive market to be
one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price
quotations vary substantially either over time or among market makers. Where appropriate, our own or the
counterparty’s non-performance risk is considered in measuring the fair values of assets.
The following table presents our assets and liabilities measured at fair value on a recurring basis using the
above input categories (in thousands):
Description
Assets
Cash equivalents:
Money market funds
As of December 31, 2016
As of December 31, 2015
Level 1 Level 2 Level 3
Total
Level 1
Level 2 Level 3 Total
$ 449 $ — $ — $
449 $210,533 $ — $ — $210,533
Total cash equivalents
449
—
—
449 210,533
— — 210,533
Short-term investments:
Certificates of deposit
Commercial paper
Corporate notes and bonds
U.S. Government agencies
9,569 —
9,569
—
— 29,920 — 29,920
— 420,684 — 420,684
— 251,885 — 251,885
— 19,124 — 19,124
—
—
— —
— 447,267 — 447,267
— 301,384 — 301,384
Total short-term investments
— 712,058 — 712,058
— 767,775 — 767,775
Total assets measured at fair value
$ 449 $712,058 $ — $712,507 $210,533 $767,775 $ — $978,308
Liabilities
Contingent earn-out
$ — $ — $41,332 $ 41,332 $ — $ — $ — $ —
Total liabilities measured at fair value
$ — $ — $41,332 $ 41,332 $ — $ — $ — $ —
The estimated fair value of the contingent earn-out incurred in connection with our acquisition of iSIGHT is
considered to be a Level 3 measurement due to the use of significant unobservable inputs. The value was
determined using a discounted risk-adjusted expected (probability-weighted) cash flow methodology, by
applying a real options approach model. The real options approach incorporated management’s estimates of
expected quarterly growth rates in bookings (63% on average), which could not be corroborated by observable
market data, with the volatility of revenue for comparable companies (16.5% on average) and the correlation
between comparable companies’ quarterly revenue growth and that of the S&P 500 Index (44.7% on average),
which are observable in the market, to determine the probability of achieving estimated bookings within the earn-
out period of performance (2.5 years). The resulting expected earn-out payment was discounted back to present
value using our cost of debt (ranging from 6.3% to 7.1%).
The following is a reconciliation of the Level 3 contingent earn-out
liability for the year ended
December 31, 2016 (in thousands):
Balance at acquisition (January 14, 2016)
Measurement period adjustments(1)
Changes in fair value(2)
Cash payments
Balance as of December 31, 2016
Amount
$35,588
3,500
2,356
(112)
$41,332
(1) See Note 5 Business Combinations for adjustments made to initial amounts recorded in our acquisition of
iSIGHT.
(2) Changes in fair value are recorded in general and administrative expenses in our consolidated statements of
operations.
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Additionally, we have a restructuring liability related to certain real estate facilities which was calculated based on
the present value of future lease payments, less estimated sublease income, discounted at a rate commensurate with our
current cost of financing. This non-recurring fair value measurement is considered to be a Level 3 measurement due to
the use of significant unobservable inputs. To the extent that actual sublease income or the timing of subleasing these
facilities is different than initial estimates, we will adjust the restructuring liability in the period during which such
information becomes known. See Note 6 Restructuring Charges for a reconciliation of this liability.
We measure certain assets, including goodwill, intangible assets and our equity-method investment in a
private company at fair value on a nonrecurring basis when there are identifiable events or changes in
circumstances that may have a significant adverse impact on the fair value of these assets. No such events or
changes occurred during the year ended December 31, 2016.
The estimated fair value of the Convertible Senior Notes as of December 31, 2016 was determined to be
$844.7 million, based on quoted market prices. We consider the fair value of the Convertible Senior Notes to be a
Level 2 measurement as they are not actively traded.
3. Investments
Our investments consisted of the following (in thousands):
Certificates of deposit
Commercial paper
Corporate notes and bonds
U.S. Government agencies
Total
Certificates of deposit
Corporate notes and bonds
U.S. Government agencies
Total
As of December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Short-Term
Investments
$ 10
—
17
2
$
(1) $
(9)
(968)
(793)
9,569
29,920
420,684
251,885
$
9,569
29,920
420,684
251,885
Amortized
Cost
$
9,560
29,929
421,635
252,676
$713,800
$ 29
$(1,771) $712,058
$712,058
As of December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Short-Term
Investments
$ —
—
2
2
$
(36) $ 19,124
447,267
301,384
(1,421)
(770)
$ 19,124
447,267
301,384
$(2,227) $767,775
$767,775
Amortized
Cost
$ 19,160
448,688
302,152
$770,000
$
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The following tables present the gross unrealized losses and related fair values of our investments that have
been in a continuous unrealized loss position (in thousands):
Certificates of deposit
Commercial paper
Corporate notes and bonds
U.S. Government agencies
Less Than 12 Months
As of December 31, 2016
Greater Than 12
Months
Fair Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
$ — $ — $
24,925
294,818
222,171
(9)
(889)
(763)
199
—
99,433
17,657
$
(1)
—
(79)
(30)
Total
Fair Value
$
199
24,925
394,251
239,828
Unrealized
Loss
$
(1)
(9)
(968)
(793)
Total
$541,914
$(1,661) $117,289
$(110)
$659,203
$(1,771)
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Certificates of deposit
Corporate notes and bonds
U.S. Government agencies
As of December 31, 2015
Less Than 12 Months
Greater Than 12 Months
Total
Fair Value
$ 18,404
430,466
266,541
Unrealized
Loss
Fair
Value
Unrealized
Loss
$
(36) $ —
16,801
8,992
(1,407)
(761)
$ —
(15)
(8)
Fair Value
$ 18,404
447,267
275,533
Unrealized
Loss
(36)
$
(1,422)
(769)
Total
$715,411
$(2,204) $25,793
$ (23)
$741,204
$(2,227)
Unrealized losses related to these investments are due to interest rate fluctuations as opposed to credit
quality. In addition, we do not intend to sell, and it is not more likely than not that we would be required to sell,
these investments before recovery of their cost basis. As a result, there is no other-than-temporary impairment for
these investments as of December 31, 2016 and 2015.
The following table summarizes the contractual maturities of our investments at December 31, 2016 (in
thousands):
Due within one year
Due within one to two years
Total
Amortized
Cost
Fair Value
$383,604
330,196
$383,279
328,779
$713,800
$712,058
All available-for-sale securities have been classified as current, based on management’s intent and ability to
use the funds in current operations.
During 2015, we invested in a privately held company, obtaining an initial 12.5% ownership interest. This
investment is accounted for under the equity method based on our ability to exercise significant influence over
operating and financial policies of the investee, and is classified within deposits and other long-term assets on our
consolidated balance sheets. The carrying value of this investment was $0.9 million and $1.8 million as of
December 31, 2016 and 2015, respectively.
4. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
Computer equipment and software
Leasehold improvements
Furniture and fixtures
Machinery and equipment
Total property and equipment
Less: accumulated depreciation
Total property and equipment, net
As of December 31,
2016
2015
$ 144,892
41,796
14,499
447
$120,886
41,626
13,470
447
201,634
(139,782)
176,429
(98,061)
$ 61,852
$ 78,368
During the years ended December 31, 2016 and 2015, we capitalized $8.0 million and $4.3 million,
respectively, of software development costs related to our cloud subscription offerings. Software development
costs incurred during the year ended December 31, 2014 were not material for capitalization. Amortization
expense related to capitalized software development costs during the years ended December 31, 2016 and 2015
was $2.9 million and $0.8 million, respectively.
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Depreciation and amortization expense related to property and equipment and demonstration units during
the years ended December 31, 2016, 2015 and 2014 was $51.5 million, $61.2 million and $46.8 million,
respectively.
During the year ended December 31, 2015, we recognized $1.1 million in accelerated depreciation expense
associated with changes in the estimated useful life of certain assets which were replaced in the first quarter of
2016.
5. Business Combinations
Acquisitions in 2016
Acquisition of iSIGHT
On January 14, 2016, we acquired all of the outstanding shares of privately held iSIGHT, one of the world’s
leading providers of cyber threat intelligence for global enterprises. The acquisition extends our intelligence
network to create an advanced and comprehensive private cyber threat
intelligence operation, providing
customers with higher fidelity alerts, context to prioritize threats and the strategic insights to proactively prepare
for threats that might target their industry or region.
In connection with this acquisition, we paid upfront cash consideration of $192.8 million, incurred liabilities
of $39.1 million contingent upon the achievement of a threat intelligence bookings target on or before the end of
the second quarter of 2018, and issued 1,793,305 shares of our common stock with an estimated fair value of
$29.9 million; 1,793,297 of which were released in February 2017 to former stockholders of iSIGHT once the
threat intelligence bookings target was determined to have been achieved. This resulted in total purchase
consideration of $261.8 million. The number of shares was fixed at the completion of the acquisition and is the
maximum number of shares that can be released. The contingent earn-out liability is included in accrued
compensation on the consolidated balance sheet as of December 31, 2016, and subsequently resulted in a cash
payment of $41.3 million during February 2017, once the threat intelligence bookings target was determined to
have been achieved.
The acquisition of iSIGHT was accounted for in accordance with the acquisition method of accounting for
business combinations with FireEye as the accounting acquirer. Under the acquisition method of accounting, the
total purchase consideration is allocated to the tangible and identifiable intangible assets acquired and liabilities
assumed based on their estimated fair values, using information currently available to us. During the three
months ended June 30, 2016, we finalized our valuation analysis and revised our preliminary estimates of the
earn-out liability and related fair value of common stock contingent upon the achievement of a threat intelligence
bookings target by $3.5 million and $1.7 million, respectively, resulting in a higher purchase price of $5.2
million. As a result, we also revised our preliminary estimate of customer relationship and content intangible
assets by $1.1 million and $1.2 million, respectively, resulting in an additional $0.2 million of intangible
amortization.
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We expensed the related acquisition costs of $1.9 million in general and administrative expenses. We also
assumed and paid liabilities of $7.0 million for transaction costs incurred by iSIGHT prior to acquisition, which
were accounted for separate from consideration transferred.
Allocation of the purchase price of $261.8 million is as follows (in thousands):
Net tangible liabilities assumed
Intangible assets
Deferred tax liability
Goodwill
Total purchase price allocation
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Amount
$ (18,248)
85,100
(11,637)
206,623
$261,838
The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired,
resulting in the recognition of goodwill. Goodwill
is primarily attributable to expected synergies in our
subscription offerings and cross-selling opportunities. None of the goodwill is expected to be deductible for U.S.
federal income tax purposes.
Intangible assets consist primarily of customer relationships, content, developed technology and other
intangible assets. Customer relationship intangibles relate to iSIGHT’s ability to sell current and future content,
as well as products built around this content, to its existing customers. Content intangibles represent threat
intelligence data gathered through the analysis of cyber-crimes, cyber attacks, hacking, and cyber criminals.
Intangible assets attributable to developed technology include a combination of patented and unpatented
technology, trade secrets, computer software and research processes that represent the foundation for the existing
and planned new products to facilitate the generation of new content. The estimated useful life and fair values of
the identifiable intangible assets are as follows (in thousands):
Customer relationships
Content
Developed technology
Trade name
Non-competition agreements
Total identifiable intangible assets
Estimated Useful Life
(in years)
7
4
4-6
5
2
Amount
$33,700
30,100
17,100
3,100
1,100
$85,100
The value of customer relationships and content was estimated using the excess earnings method, an income
approach (Level 3), which converts projected revenues and costs into cash flows. To reflect the fact that certain
other assets contribute to the cash flows generated, the returns for these contributory assets were removed to
arrive at estimated cash flows solely attributable to the customer relationships and content, which were
discounted at rates of 15% and 14%, respectively.
The value of developed technology and the trade name was estimated using the relief-from-royalty method,
an income approach (Level 3), which estimates the cost savings that accrue to the owner of the intangible asset
that would otherwise be payable as royalties or license fees on revenues earned through the use of the asset. A
royalty rate is applied to the projected revenues associated with the intangible asset to determine the amount of
savings, which is then discounted to determine the fair value. The developed technology and trade name were
valued using royalty rates of 10% and 1%, respectively, and discounted at rates of 14% and 15%, respectively.
The results of operations of iSIGHT have been included in our consolidated statements of operations from
the acquisition date, and contributed $9.4 million to our consolidated revenues and $2.3 million to our
consolidated net loss during the three months ended March 31, 2016. Subsequent to March 31, 2016, the
operations of iSIGHT were integrated with the Company’s operations. Pro forma results of operations have not
been presented because the acquisition was not material to our results of operations.
Acquisition of Invotas
On February 1, 2016, we acquired all of the outstanding shares of privately held Invotas, a provider of
security automation and orchestration technology. This acquisition enables us to deliver a premier security
orchestration capability as part of our global threat management platform to unify cyber attack detection results,
threat intelligence and incident response elements of an organization’s security program into a single console,
giving enterprises the ability to respond more quickly to attacks through automation.
In connection with this acquisition, we paid upfront cash consideration of $17.7 million and issued 742,026
shares of our common stock with an estimated fair value of $11.1 million. This resulted in total purchase
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consideration of $28.8 million. Additionally, we replaced unvested option awards with grants of 95,614 restricted
stock units which will vest over the requisite service period of four years, and granted an additional 1,002,748
restricted stock units which were scheduled to vest upon the achievement of stated performance milestones over
a period of approximately three years, subject to continuing service during that time. A portion of these awards
have since been released following the achievement of the first milestone, while another portion of these awards
were modified to vest subject only to continuing service. These awards are being recognized as operating
expense over the requisite service periods as they relate to post-combination services.
The acquisition of Invotas was accounted for in accordance with the acquisition method of accounting for
business combinations with FireEye as the accounting acquirer. We expensed the related acquisition costs of $0.5
million in general and administrative expenses. We also assumed and paid liabilities of $0.7 million for
transaction costs incurred by Invotas prior to acquisition, which were accounted for separate from consideration
transferred. Under the acquisition method of accounting, the total purchase consideration is allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.
The total purchase price of $28.8 million was allocated using information currently available to us. Allocation of
the purchase price is as follows (in thousands):
Net tangible liabilities assumed
Intangible assets
Deferred tax liability
Goodwill
Total purchase price allocation
Amount
$ (306)
8,400
(688)
21,349
$28,755
The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired,
resulting in the recognition of goodwill. Goodwill is primarily attributable to increased selling opportunities.
None of the goodwill is expected to be deductible for U.S. federal income tax purposes.
Intangible assets consist primarily of developed technology, in-process research and development and other
intangible assets. Developed technology intangibles include a combination of patented and unpatented
technology, trade secrets, computer software and research processes that represent the foundation for the existing
and planned new product offerings. The in-process research and development intangible represents the estimated
fair value of acquired research projects which had not reached technological feasibility at acquisition date, but
have since been developed into products. The estimated useful life and fair values of the identifiable intangible
assets are as follows (in thousands):
Developed technology
In-process research and development
Customer relationships
Non-competition agreements
Total identifiable intangible assets
Estimated Useful Life
(in years)
4
N/A
10
3
Amount
$4,500
2,800
800
300
$8,400
The value of developed technology and in-process research and development (IPR&D) was estimated using
the excess earnings method, an income approach (Level 3), which converts projected revenues and costs into
cash flows. To reflect the fact that certain other assets contribute to the cash flows generated, the returns for these
contributory assets were removed to arrive at estimated cash flows solely attributable to the developed
technology and IPR&D, which were discounted at rates of 16% and 17%, respectively.
In-process research and development of $2.8 million obtained in our acquisition of Invotas reached technological
feasibility during the year ended December 31, 2016, resulting in its reclassification to developed technology.
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The results of operations of Invotas have been included in our consolidated statements of operations from
the acquisition date, although such results did not have a material impact on our consolidated revenues or net loss
during the year ended December 31, 2016. Pro forma results of operations have not been presented because the
acquisition was not material to our results of operations.
Acquisitions in 2014
On May 9, 2014, we acquired all outstanding shares of privately held nPulse Technologies, Inc. (“nPulse”),
a performance leader in network forensics based in Charlottesville, Virginia. The acquisition of nPulse
strengthens our position as a leader in advanced threat detection and incident response management solutions.
The total purchase consideration of $56.6 million consisted of $55.2 million in cash, $0.1 million of equity
awards assumed, and 54,319 shares of our common stock, with a fair value of $1.3 million which will vest upon
the achievement of milestones. The number of shares was fixed at the completion of the acquisition, and is the
maximum number of shares that can vest over a period of approximately three and half years from the acquisition
date.
The acquisition of nPulse was accounted for in accordance with the acquisition method of accounting for
business combinations with FireEye as the accounting acquirer. We expensed the related acquisition costs of $0.5
million in general and administrative expenses. Under the acquisition method of accounting, the total purchase
consideration is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based
on their estimated fair values. The purchase price was finalized during 2015. Total allocation of the purchase
price is as follows (in thousands):
Net tangible liabilities assumed
Intangible assets
Deferred tax asset
Deferred tax liability
Goodwill
Total purchase price allocation
Amount
$ (1,833)
24,700
442
(8,368)
41,671
$56,612
None of the goodwill is deductible for U.S. federal income tax purposes.
Intangible assets consist primarily of developed technology, customer relationships and in-process research
and development. Developed technology intangible includes a combination of patented and unpatented
technology, trade secrets, computer software and research processes that represent the foundation for the existing
and planned new products and services. Customer relationships intangible relates to nPulse’s ability to sell
existing, in-process and future products and services to its existing and potential customers. The in-process
research and development intangible represents the estimated fair value of acquired research projects which have
not reached technological feasibility at acquisition date, but have since been developed into products and
services. The estimated useful life and fair values of the identifiable intangible assets are as follows (in
thousands):
Developed technology
Customer relationships
In-process research and development
Total
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Estimated Useful Life
(in years)
6
8
N/A
Amount
$10,100
8,000
6,600
$24,700
As of December 31, 2015, all in-process research and development obtained in our acquisition of nPulse
was completed.
The results of operations of nPulse have been included in our consolidated statements of operations from the
acquisition date. Pro forma results of operations have not been presented because the acquisition was not material
to our results of operations.
Goodwill and Purchased Intangible Assets
There were no changes in the carrying amount of goodwill for the year ended December 31, 2015. Changes
in the carrying amount of goodwill for the year ended December 31, 2016 are as follows (in thousands):
Balance as of December 31, 2015
Goodwill acquired
Balance as of December 31, 2016
Purchased intangible assets consisted of the following (in thousands):
Developed technology
Content
Customer relationships
Contract backlog
Trade names
Non-competition agreements
Total intangible assets
Less: accumulated amortization
Total net intangible assets
Amount
$750,288
227,972
$978,260
As of December 31,
2016
2015
$ 102,593
158,700
109,800
12,500
15,500
1,400
$ 78,193
128,600
75,300
12,500
12,400
—
400,493
(156,461)
306,993
(92,433)
$ 244,032
$214,560
Amortization expense of intangible assets during the years ended December 31, 2016, 2015 and 2014 was
$64.0 million, $47.1 million and $45.2 million, respectively.
The expected future annual amortization expense of intangible assets as of December 31, 2016 is presented
below (in thousands):
Years Ending December 31,
2017
2018
2019
2020
2021
2022 and thereafter
Total
6. Restructuring Charges
Amount
$ 59,118
47,433
45,547
31,171
29,282
31,481
$244,032
In addition to our previous restructuring activities, our Board of Directors approved a restructuring plan and
reduction in workforce in August 2016 designed to reduce operating expenses and align our expense structure
with current growth expectations. This resulted in a 10% reduction in our workforce, the consolidation of certain
real estate facilities and impairment of certain assets.
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The following table sets forth a summary of restructuring activities during the years ended December 31,
2016 and 2015 (in thousands):
Balance, December 31, 2014
Provision for restructuring charges
Cash payments
Balance, December 31, 2015
Provision for restructuring charges
Cash payments
Other adjustments
Balance, December 31, 2016
Severance and
related costs
Facilities
costs
Total
costs
$ —
—
—
$ —
21,529
(20,308)
—
$
$
765
—
(548)
765
—
(548)
$
217
1,492
(1,201)
1,738
$
217
23,021
(21,509)
1,738
$ 1,221
$ 2,246
$ 3,467
The total provision for restructuring charges during the year ended December 31, 2016 of $27.6 million
includes $23.0 million of cash charges shown above, as well as non-cash charges of $3.5 million related to fixed
asset write-offs and $1.1 million related to stock-based compensation.
Other adjustments of $1.7 million primarily represent a reclassification of deferred rent liabilities related to
closed facilities.
The remaining restructuring balance of $3.5 million at December 31, 2016 is composed of $1.2 million of
severance payments which we expect to pay during the first quarter of 2017, and $2.2 million of non-cancelable
lease costs which we expect to pay over the terms of the related obligations through the third quarter of 2024, net
of sublease income.
7. Deferred Revenue
Deferred revenue consisted of the following (in thousands):
Product, current
Subscription and services, current
Total deferred revenue, current
Product, non-current
Subscription and services, non-current
Total deferred revenue, non-current
Total deferred revenue
8. Convertible Senior Notes
Convertible Senior Notes
As of December 31,
2016
2015
$
8,924
388,194
$
8,200
296,969
397,118
305,169
4,748
251,650
3,051
218,778
256,398
221,829
$653,516
$526,998
to qualified institutional purchasers pursuant
In June 2015, we issued $460.0 million principal amount of Series A Notes and $460.0 million principal
amount of Series B Notes, including the full exercise of the initial purchasers’ over-allotment option, in a private
placement
to an exemption from registration provided by
Section 4(a)(2) and Rule 144A under the Securities Act. The net proceeds after the initial purchasers’ discount of
$23.0 million and issuance costs of $0.5 million from the Convertible Senior Notes were $896.5 million. The
Series A Notes and Series B Notes bear interest at 1.000% per year and 1.625% per year, respectively, payable
semiannually in arrears on June 1 and December 1 of each year, beginning December 1, 2015. The Convertible
Senior Notes mature on June 1, 2035, unless earlier repurchased, redeemed or converted.
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The Convertible Senior Notes are unsecured obligations and rank senior in right of payment to any of our
indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes. They rank
equally in right of payment with all of our existing and future liabilities that are not expressly subordinated to the
Convertible Senior Notes and effectively rank junior in right of payment to any of our secured indebtedness to
the extent of the value of the assets securing such indebtedness. They are structurally junior to all indebtedness
and other liabilities (including trade payables) of our subsidiaries.
The Convertible Senior Notes do not contain any financial covenants and do not restrict us from paying
dividends or issuing or repurchasing our other securities.
The initial conversion rate on each series of Convertible Senior Notes is 16.4572 shares of our common
stock per $1,000 principal amount of Convertible Senior Notes, which is equivalent to an initial conversion price
of approximately $60.76 per share of common stock. The conversion rate of each series of Convertible Senior
Notes may be adjusted upon the occurrence of certain specified events, but not for accrued and unpaid interest.
Holders may convert the Convertible Senior Notes at their option in multiples of $1,000 principal amount
prior to March 1, 2035, excluding the period from March 1, 2020 to June 1, 2020 in the case of the Series A
Notes and March 1, 2022 to June 1, 2022 in the case of the Series B Notes, only under the following
circumstances:
•
•
•
•
during any calendar quarter commencing after the calendar quarter ended on September 30, 2015 (and
only during such calendar quarter), if the last reported sale price of the common stock for at least 20
trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the
last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the
conversion price for the Convertible Senior Notes of the relevant series on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading
price per $1,000 principal amount of Series A Notes or Series B Notes, as applicable, for each trading
day of the measurement period was less than 98% of the product of the last reported sale price of our
common stock and the conversion rate for the notes of the relevant series on each such trading day;
if we call any or all of the Convertible Senior Notes of a series for redemption, at any time prior to the
close of business on the scheduled trading day immediately preceding the relevant redemption date; or
upon the occurrence of specified corporate events, as specified in each indenture governing the
Convertible Senior Notes.
Regardless of the foregoing conditions, holders may convert their Convertible Senior Notes at their option
in multiples of $1,000 principal amount at any time during the period from March 1, 2020 to June 1, 2020 in the
case of the Series A Notes and during the period from March 1, 2022 to June 1, 2022 in the case of the Series B
Notes, or after March 1, 2035 until maturity for either series of Convertible Senior Notes. Upon conversion, the
Convertible Senior Notes can be settled in cash, shares of our common stock or any combination thereof at our
option.
We may be required by holders of the Convertible Senior Notes to repurchase all or any portion of their
Convertible Senior Notes at 100% of the principal amount plus accrued and unpaid interest, on each of June 1,
2020, June 1, 2025 and June 1, 2030, in the case of the Series A Notes, and each of June 1, 2022, June 1, 2025
and June 1, 2030 in the case of the Series B Notes. Holders may also require us to repurchase the Convertible
Senior Notes if we undergo a “fundamental change,” as defined in each indenture governing the Convertible
Senior Notes, at a purchase price equal to 100% of the principal amount, plus accrued and unpaid interest.
Additionally, we may redeem for cash all or any portion of the Series B Notes on or after June 1, 2020 until
June 1, 2022 if the last reported sale price of our common stock has been at least 130% of the conversion price
then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day
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period (including the last trading day of such period) ending not more than three trading days immediately
preceding the date we provide notice of redemption. We also may redeem for cash all or any portion of the Series
A Notes on or after June 1, 2020 until maturity and all or any portion of the Series B Notes on or after June 1,
2022 until maturity, regardless of the foregoing sale price condition.
In accordance with accounting for debt with conversions and other options, we allocated the principal
amount of the Convertible Senior Notes into liability and equity components. We also allocated the total amount
of initial purchasers’ discount and transaction costs incurred to the liability and equity components using the
same proportions as the proceeds from the Convertible Senior Notes. Transaction costs of $0.4 million and $0.1
million and initial purchasers’ discount of $17.6 million and $5.4 million were attributable to the liability
component and equity component of the Convertible Senior Notes, respectively.
The liability and equity components of the Convertible Senior Notes consisted of the following (in
thousands):
Liability component:
Principal
Less: Convertible senior notes discounts and issuance
costs, net of amortization
Net carrying amount
As of December 31,
2016
2015
Series A
Notes
Series B
Notes
Series A
Notes
Series B
Notes
$460,000
$ 460,000
$460,000
$ 460,000
(74,126)
(103,894)
(93,469)
(120,333)
$385,874
$ 356,106
$366,531
$ 339,667
Equity component, net of issuance costs
$ 92,567
$ 117,834
$ 92,567
$ 117,834
The unamortized discounts and issuance costs as of December 31, 2016 will be amortized over a weighted-
average remaining period of approximately 4.6 years.
Interest expense for the years ended December 31, 2016 and 2015 related to the Convertible Senior Notes
consisted of the following (in thousands):
Coupon interest
Amortization of convertible senior notes discounts and issuance
costs
Total interest expense recognized
Year Ended December 31,
2016
2015
Series A
Notes
Series B
Notes
Series A
Notes
Series B
Notes
$ 4,600
$ 7,475
$ 2,683
$ 4,361
19,343
16,439
10,833
9,236
$23,943
$23,914
$13,516
$13,597
Effective interest rate on the liability component
6.5%
7.0%
6.5%
7.1%
Prepaid Forward Stock Purchase
the initial purchasers of
In connection with the issuance of the Convertible Senior Notes, we also entered into privately negotiated
the Convertible Senior Notes (the “Forward
Prepaid Forwards with one of
to which we paid approximately $150.0 million. The amount of the prepaid is
Counterparty”), pursuant
equivalent to approximately 3.3 million shares which are to be settled on or around June 1, 2020 and June 1,
2022, respectively, subject to any early settlement, in whole or in part, of each Prepaid Forward. The Prepaid
Forwards are intended to facilitate privately negotiated derivative transactions by which investors in the
Convertible Senior Notes will be able to hedge their investment in the Convertible Senior Notes. In the event we
pay any cash dividends on our common stock, the Forward Counterparty will pay an equivalent amount back to
us.
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The related shares were accounted for as a repurchase of common stock, and are presented as Treasury
Stock in the consolidated balance sheets. The 3.3 million shares of common stock purchased under the Prepaid
Forwards are excluded from weighted-average shares outstanding for basic and diluted EPS purposes although
they remain legally outstanding.
9. Commitments and Contingencies
Leases
We lease our facilities under various non-cancelable operating leases, which expire on various dates through
the year ending December 31, 2027. In August 2016, we entered into a lease agreement for our new corporate
headquarters, expected to commence mid-2017. Rent expense is recognized using the straight-line method over
the term of the lease. Rent expense, net of sublease income, was $14.9 million, $14.4 million and $10.7 million
for the years ended December 31, 2016, 2015 and 2014, respectively.
The aggregate future non-cancelable minimum rental payments on our operating leases, as of December 31,
2016, are as follows (in thousands):
Years Ending December 31,
2017
2018
2019
2020
2021
2022 and thereafter
Total
Amount
$ 15,715
15,515
12,173
12,209
10,534
39,264
$105,410
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Total future non-cancelable minimum rental payments have not been reduced by future minimum sublease
rentals totaling $6.9 million.
We are party to letters of credit totaling $3.1 million and $1.2 million as of December 31, 2016 and 2015,
respectively, issued in support of operating leases at several of our facilities, as well as supporting credit limits on
international credit cards. These letters of credit are collateralized by a line with our bank. No amounts have been
drawn against these letters of credit.
Contract Manufacturer Commitments
Our independent contract manufacturers procure components and assemble our products based on our
forecasts. These forecasts are based on estimates of future demand for our products, which are in turn based on
historical trends and an analysis from our sales and product marketing organizations, adjusted for overall market
conditions. In order to reduce manufacturing lead times and plan for adequate supply, we may issue forecasts and
orders for components and products that are non-cancelable. As of December 31, 2016 and 2015, we had non-
cancelable open orders of $10.2 million and $16.9 million, respectively. We are required to record a liability for
firm, non-cancelable and unconditional purchase commitments with contract manufacturers and suppliers for
quantities in excess of our future demand forecasts. As of December 31, 2016, we have not accrued any
significant costs for such non-cancelable commitments.
Purchase Obligations
As of December 31, 2016, we had approximately $20.7 million of non-cancelable firm purchase
commitments primarily for purchases of software and services. In those situations in which we have received
delivery of the goods or services as of December 31, 2016 under purchase orders outstanding as of the same date,
such amounts are reflected in the consolidated balance sheet as accounts payable or accrued liabilities, and are
excluded from the $20.7 million.
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Litigation
We accrue for contingencies when we believe that a loss is probable and that we can reasonably estimate the
amount of any such loss. We have made an assessment of the probability of incurring any such losses and
whether or not those losses are estimable.
On June 20, 2014, a purported stockholder class action lawsuit was filed in the Superior Court of California,
County of Santa Clara, against the Company, current and former members of our Board of Directors, current and
former officers, and the underwriters of our March 2014 follow-on public offering. On July 17, 2014, a substantially
similar lawsuit was filed in the same court against the same defendants. The actions were consolidated and, on
March 4, 2015, an amended complaint was filed, alleging violations of the federal securities laws on behalf of a
purported class consisting of purchasers of the Company’s common stock pursuant or traceable to the registration
statement and prospectus for the follow-on public offering, and seeking unspecified compensatory damages and other
relief. On April 20, 2015, defendants filed demurrers seeking that the amended complaint be dismissed. On August 11,
2015, the court overruled defendants’ demurrers. On November 16, 2015, plaintiffs filed a motion seeking certification
of the putative class, which the court granted in part and denied in part on July 11, 2016. On January 6, 2016, the
Company and the individual defendants filed a motion for judgment on the pleadings seeking that the action be
dismissed for lack of subject-matter jurisdiction, which the court denied on April 1, 2016. On May 19, 2016, the
Company and the individual defendants filed a petition for a writ of mandate seeking the overturning of the court’s
denial of the motion for judgment on the pleadings. On September 8, 2016, the court of appeal denied the petition. On
September 16, 2016, the Company and the individual defendants filed a petition for review with the Supreme Court of
California. On November 9, 2016, the Supreme Court of California denied the petition for review. On December 8,
2016, the Company and the individual defendants filed a petition for a writ of certiorari before the United States
Supreme Court. On February 6, 2017, the parties submitted to the Superior Court a stipulation of settlement. The terms
of the settlement include a release and dismissal of all claims against all defendants without any liability or wrongdoing
attributed to them. On February 7, 2017, plaintiffs filed an unopposed motion for preliminary approval of the
settlement. The settlement, which is immaterial to the Company’s consolidated financial statements, is subject to
stockholder notice, court approval, and other customary conditions.
On November 24, 2014, a purported stockholder class action lawsuit was filed in the United States District Court
for the Northern District of California against the Company and certain of its officers. On June 29, 2015, plaintiffs filed
a consolidated complaint alleging violations of the federal securities laws on behalf of a putative class of all persons
who purchased or otherwise acquired the Company’s securities between January 2, 2014, and November 4, 2014.
Plaintiffs sought, among other things, compensatory damages and attorneys’ fees and costs on behalf of the putative
class. On August 21, 2015, defendants filed a motion to dismiss, which was heard on November 12, 2015. On
November 14, 2016, the Court granted the motion to dismiss with leave to amend. The parties subsequently submitted
a stipulation, which was adopted as an order of the Court on December 1, 2016, dismissing the action with prejudice as
to the named plaintiffs and providing that plaintiffs would not appeal the dismissal.
On January 28, 2015, certain of the Company’s officers and directors were named as defendants in a
putative derivative action filed in the Superior Court of California, County of Santa Clara. On April 21, 2015, a
substantially similar lawsuit was filed in the same court against the same defendants. The Company is named as a
nominal defendant in both actions. The actions were consolidated and a consolidated complaint was filed on
June 15, 2015, purporting to allege claims for breach of fiduciary duty and unjust enrichment. On July 15, 2015,
defendants filed demurrers to the consolidated complaint. On December 4, 2015, the court sustained, with leave
to amend, defendants’ demurrers on the basis that plaintiffs had failed adequately to allege derivative standing.
Plaintiffs filed an amended complaint on May 3, 2016. On June 8, 2016, defendants filed demurrers to the
amended complaint, which the court sustained on August 29, 2016, dismissing the case with prejudice. Plaintiffs
filed a notice of appeal on October 27, 2016. Based on information currently available, the Company has
determined that the amount of any possible loss or range of possible loss is not reasonably estimable.
In February 2016, a lawsuit was filed in the Superior Court of California, County of Santa Clara, by one of the
plaintiffs in the aforementioned putative derivative action against the Company, seeking production of certain books
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and records pursuant to Delaware and California law. On May 16, 2016, the court sustained the Company’s demurrer
to the petition, without leave to amend. Plaintiff filed a notice of appeal on October 27, 2016.
We are also subject to legal proceedings, claims and litigation, including intellectual property litigation,
arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes, and are
not predictable with assurance.
To the extent there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred,
and the amount of such additional loss would be material, we will either disclose the estimated additional loss or state
that such an estimate cannot be made. We do not currently believe that it is reasonably possible that additional losses in
connection with litigation arising in the ordinary course of business would be material.
Indemnification
Under the indemnification provisions of our standard sales related contracts, we agree to defend our
customers against third-party claims asserting infringement of certain intellectual property rights, which may
include patents, copyrights, trademarks, or trade secrets, and to pay judgments entered on such claims. Our
exposure under these indemnification provisions is generally limited to the total amount paid by our customer
under the agreement. However, certain agreements include indemnification provisions that could potentially
expose us to losses in excess of the amount received under the agreement. In addition, we indemnify our officers,
directors, and certain key employees for actions taken while they are or were serving in good faith in such
capacities. Through December 31, 2016, there have been no claims under any indemnification provisions.
10. Common Shares Reserved for Issuance
Under our amended and restated certificate of incorporation, we are authorized to issue 100,000,000 shares
of convertible preferred stock with a par value of $0.0001 per share, none of which were issued and outstanding
as of December 31, 2016 or 2015.
Under our amended and restated certificate of incorporation, we are authorized to issue 1,000,000,000
shares of common stock with a par value of $0.0001 per share as of December 31, 2016 and 2015. Each share of
common stock outstanding is entitled to one vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared by our Board of Directors, subject to the prior
rights of holders of all classes of convertible preferred stock outstanding.
We had reserved shares of common stock for issuance as follows (in thousands):
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Reserved under stock award plans
Convertible Senior Notes
ESPP
Total
11. Equity Award Plans
As of December 31,
2016
2015
38,005
15,141
2,851
38,500
15,141
3,214
55,997
56,855
We have operated under our 2013 Equity Incentive Plan (“2013 Plan”) since our initial public offering (“IPO”) in
September 2013. Our 2013 Plan provides for the issuance of restricted stock and the granting of options, stock
appreciation rights, performance shares, performance units and restricted stock units to our employees, officers,
directors and consultants. Our 2013 Plan provides for annual increases in the number of shares available for issuance
on the first day of each fiscal year. Awards granted under the 2013 Plan vest over the periods determined by our Board
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of Directors or compensation committee of our Board of Directors, generally four years, and stock options granted
under the 2013 Plan expire no more than ten years after the date of grant. In the case of an incentive stock option
granted to an employee who at the time of grant owns stock representing more than 10% of the total combined voting
power of all classes of stock, the exercise price shall be no less than 110% of the fair value per share on the date of
grant, and the award shall expire five years from the date of grant. For options granted to any other employee, the per
share exercise price shall be no less than 100% of the fair value per share on the date of grant. In the case of non-
statutory stock options and options granted to consultants, the per share exercise price shall be no less than 100% of the
fair value per share on the date of grant. Stock that is purchased prior to vesting is subject to our right of repurchase at
any time following termination of the participant’s service for so long as such stock remains unvested. Approximately
10.0 million shares and 7.2 million shares of our common stock were reserved for future grants as of December 31,
2016 and 2015, respectively, under the 2013 Plan. As of January 1, 2017, an additional 8,729,801 shares of common
stock became available for future grants under our 2013 Plan pursuant to provisions thereof that automatically increase
the share reserve under such plan each year.
Our ESPP allows eligible employees to acquire shares of our common stock at 85% of the lower of the fair
market value of our common stock on the first trading day of each offering period or on the exercise date. Our
ESPP provides for annual increases in the number of shares available for issuance on the first day of each fiscal
year. An aggregate of 2,850,830 shares and 3,214,287 shares of common stock were available for future issuance
as of December 31, 2016 and 2015, respectively, under our ESPP. As of January 1, 2017, an additional 1,745,960
shares of common stock became available for future issuance under our ESPP pursuant to the provisions thereof
that automatically increase the share reserve under such plan each year.
From time to time, we also grant restricted common stock or restricted stock awards outside of our equity
incentive plans to certain employees in connection with acquisitions.
Stock Option Activity
A summary of the activity for our stock option changes during the reporting periods and a summary of
information related to options outstanding and options exercisable are presented below (in thousands, except per
share amounts and contractual life years):
Balance—December 31, 2013
Granted
Exercised
Cancelled
Assumed in acquisition
Balance—December 31, 2014
Granted
Exercised
Cancelled
Balance—December 31, 2015
Granted
Exercised
Cancelled
Balance—December 31, 2016
Options exercisable—December 31, 2016
Options Outstanding
Weighted-
Average
Exercise
Price
Weighted-
Average
Grant Date
Fair Value
(per share)
Weighted-
Average
Contractual
Life (years)
Aggregate
Intrinsic
Value
Number of
Shares
$72.60
$ —
$ —
$ 5.82
72.60
2.97
9.10
20.60
$ 9.13
—
4.97
14.57
$10.67
—
5.64
23.40
$10.70
$ 9.74
27,422
676
(7,642)
(1,941)
63
18,578
—
(5,856)
(1,228)
11,494
—
(2,459)
(950)
8,085
7,331
112
$271,236
211,854
23,343
5.4
5.3
$ 40,304
$ 39,097
The aggregate intrinsic value above represents the pre-tax difference between the exercise price of stock
options and the quoted market price of our stock on that day for all in-the-money stock options.
Restricted Stock Award (RSA) and Restricted Stock Unit (RSU) Activity
A summary of the activity for our restricted common stock, RSAs and RSUs during the reporting periods
and a summary of information related to unvested restricted common stock, RSAs and RSUs and those expected
to vest based on the achievement of a performance condition are presented below (in thousands, except per share
amounts and contractual life years):
Weighted-
Average
Grant Date
Fair Value
(per share)
Weighted-
Average
Contractual
Life (years)
Aggregate
Intrinsic
Value
Number of
Shares
Unvested balance—December 31, 2013
Granted
Vested
Cancelled
Granted in acquisitions
Unvested balance—December 31, 2014
Granted
Vested
Cancelled
Unvested balance—December 31, 2015
Granted
Vested
Cancelled
Unvested balance—December 31, 2016
Unvested awards for which the requisite service period has not
been rendered but that are expected to vest based on the
achievement of a performance condition—December 31,
2016
3,602
6,734
(1,482)
(809)
296
8,341
16,876
(2,783)
(2,380)
20,054
12,711
(6,222)
(6,660)
19,883
$27.20
42.12
16.04
40.93
26.44
$39.57
32.25
35.66
41.11
$33.68
13.76
33.99
27.17
$22.23
1.5
$236,605
5,584
$20.22
2.0
$ 66,445
In connection with our acquisition of nPulse in May 2014, we issued 295,681 restricted stock awards at a
value of $26.44 per share. Of these awards, 54,319 were issued to former shareholders as purchase consideration,
while the other 241,362 were issued into escrow for employees continuing service with the Company. The
vesting of all these awards was over a period of approximately three and a half years from the acquisition date,
subject to the achievement of specified performance milestones. As of December 31, 2016, all milestones had
been achieved, and therefore none of these awards remain unvested.
During the year ended December 31, 2015, awards granted includes two cycles of annual refresh grants
made to the general employee population.
Included in the 12.7 million shares granted during the year ended December 31, 2016 are 3.6 million shares
granted to employees from acquisitions consummated in 2016.
During the years ended December 31, 2016, 2015 and 2014, we issued 3.0 million, 5.3 million and
1.7 million shares, respectively, of restricted common stock, restricted stock awards or restricted stock units to
certain employees which vest upon the achievement of certain performance conditions in addition to a continued
service relationship with the Company.
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Stock-Based Compensation
We record stock-based compensation based on the fair value as determined on the date granted. We
determine the fair value of stock options and shares of common stock to be issued under the ESPP using the
Black-Scholes option-pricing model. The fair value of restricted stock units and restricted stock awards equals
the market value of the underlying stock on the date of grant. We grant performance-based restricted stock units
and restricted stock awards to certain employees which vest upon the achievement of certain performance
conditions, subject to the employees’ continued service relationship with us. We assess the probability of vesting
at each reporting period and adjust our compensation cost based on this probability assessment. We recognize
such compensation expense on a straight-line basis over the service provider’s requisite service period. We
determined valuation assumptions as follows:
Fair Value of Common Stock
We use the listed stock price on the date of grant as the fair value of our common stock.
Risk-Free Interest Rate
We base the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield
available on U.S. Treasury zero-coupon issues with an equivalent expected term of the options for each option
group.
Expected Term
The expected term represents the period that our stock-based awards are expected to be outstanding. We
base the expected term assumption on our historical behavior combined with estimates of post-vesting holding
periods.
Volatility
We determine the price volatility factor based on the historical volatilities of our peer group as we do not
have sufficient trading history for our common stock.
Dividend Yield
The expected dividend assumption is based on our current expectations about our anticipated dividend
policy.
The following table summarizes the assumptions used in the Black-Scholes option-pricing model to
determine the fair value of our stock options granted:
Fair value of common stock
Risk-free interest rate
Expected term (in years)
Volatility
Dividend yield
No stock options were granted during the years ended December 31, 2016 and 2015.
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Year Ended
December 31, 2014
$27.89 – $75.87
1.8% – 2.0%
6
51% – 53%
—%
The following table summarizes the assumptions used in the Black-Scholes option-pricing model to
determine the fair value of our common shares under the ESPP:
Year Ended December 31,
2016
2015
2014
Fair value of common stock
Risk-free interest rate
Expected term (in years)
Volatility
Dividend yield
$13.12 – $14.12 $19.10 – $35.16 $27.08 – $32.32
0.38% – 0.79% 0.09% – 0.50%
0.5 – 1.0
57% – 63%
—%
0.5 – 1.0
38% – 42%
—%
0.1%
0.5 – 1.0
35% – 45%
—%
Stock-based compensation expense related to stock options, ESPP and restricted stock units and awards is
included in the consolidated statements of operations as follows (in thousands):
Cost of product revenue
Cost of subscription and services revenue
Research and development
Sales and marketing
General and administrative
Restructuring
Total
Year Ended December 31,
2016
2015
2014
$
2,092
29,811
64,755
57,750
43,343
1,144
$
1,588
29,435
68,329
73,286
49,793
—
$
888
17,037
28,968
66,773
38,186
—
$198,895
$222,431
$151,852
As of December 31, 2016, total compensation cost related to stock-based awards not yet recognized was
$294.9 million, which is expected to be amortized on a straight-line basis over the weighted-average remaining
vesting period of approximately 2.3 years.
12. Income Taxes
Loss before income taxes consisted of the following (in thousands):
United States
Foreign
Total
Year Ended December 31,
2016
2015
2014
$(289,783) $(324,805) $(269,426)
(211,018)
(210,320)
(199,067)
$(488,850) $(535,125) $(480,444)
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The provision for (benefit from) income taxes consisted of the following (in thousands):
Federal:
Current
Deferred
State:
Current
Deferred
Foreign:
Current
Deferred
Total
Year Ended December 31,
2016
2015
2014
$ — $ — $
(10,941)
—
11
(36,208)
49
(1,384)
(160)
—
255
(3,263)
3,156
399
5,604
(1,354)
2,945
(394)
$ (8,721) $ 4,090
$(36,654)
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Reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:
Federal statutory rate
Effect of:
State taxes, net of federal tax benefit
Change in valuation allowance
Research and development tax credit
Stock-based compensation
Impact of foreign tax differential
Non-deductible/non-taxable items
Other, net
Total
The components of the deferred tax assets and liabilities are as follows (in thousands):
Year Ended December 31,
2016
2015
2014
35.0% 35.0% 35.0%
0.3 —
(16.3)
1.1
(2.8)
(14.7)
(0.8)
—
(21.0)
1.1
(1.1)
(14.1)
(0.6)
(0.1)
0.6
(11.2)
1.2
(1.9)
(15.6)
(0.2)
(0.3)
1.8% (0.8)% 7.6%
Deferred tax assets:
Net operating loss carryforwards
Accruals and reserves
Stock-based compensation
Fixed assets
Deferred revenue
Research and development credits
Other deferred tax assets
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Acquisition related intangibles
Convertible senior notes
Other deferred tax liabilities
Total deferred tax liabilities
Total net deferred tax assets
As of December 31,
2016
2015
$ 216,397
15,335
48,212
14,025
64,691
30,852
673
$ 82,201
16,841
59,872
12,122
43,411
23,445
1,017
390,185
(233,783)
238,909
(81,937)
156,402
156,972
(93,151)
(61,811)
(7)
(81,621)
(73,427)
(92)
(154,969)
(155,140)
$
1,433
$
1,832
A valuation allowance is provided when it is more likely than not that the deferred tax asset will not be
realized. Our valuation allowance increased by approximately $151.8 million during the year ended
December 31, 2016, primarily as a result of additional deferred tax assets recorded during the year for net
operating loss carryforwards.
As of December 31, 2016, we had federal and state net operating loss carry forwards of approximately
$602.3 million and $705.0 million, respectively, available to reduce future taxable income, if any. If not utilized,
the federal net operating loss carry forwards will expire from the years ending December 31, 2024 through 2036
while state net operating loss carry forwards will expire from the years ending December 31, 2017 through 2036.
We also have federal and state research and development tax credit carry forwards of approximately $21.6
million and $13.6 million, respectively. If not utilized, the federal credit carry forwards will expire in various
amounts from the years ended December 31, 2024 through 2036. The state credit will carry forward indefinitely.
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Utilization of the net operating loss carry forwards and credits may be subject to an annual limitation due to
the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating losses and credits before
utilization.
On January 1, 2016, we adopted ASU 2016-09 which changes the accounting for employee share-based
payments. Under the new guidance, excess tax benefits or tax deficiencies associated with share-based payment
awards will be recognized in the income statement when the awards vest or settle, rather than in stockholders’
equity. As a result, the table of deferred tax assets shown above includes certain deferred tax assets as of
December 31, 2016 that arose directly from tax deductions related to equity compensation greater than
compensation recognized for financial reporting in the amount of $117.3 million.
As of December 31, 2016, we had $43.6 million of unrecognized tax benefits, of which if recognized, $1.8
million would affect our effective tax rate. We file income tax returns in U.S. federal, state and foreign
jurisdictions. As we have net operating loss carry forwards for U.S. federal and state jurisdictions, the statute of
limitations is open for all tax years. For foreign jurisdictions, the tax years open to examination include the years
2012 and forward. We do not expect the unrecognized tax benefits to change significantly over the next 12
months. We recognize both interest and penalties associated with uncertain tax positions as a component of
income tax expense. During the year ended December 31, 2016, we recognized a $31,000 decrease to interest and
penalties. During the years ended December 31, 2015 and 2014, we recognized interest and penalties of $183,000
and $115,000, respectively. As of December 31, 2016 and 2015, our total accrual for interest and penalties was
$367,000 and $398,000, respectively. The ultimate amount and timing of any future cash settlements cannot be
predicted with reasonable certainty.
A reconciliation of gross unrecognized tax benefits is as follows (in thousands):
Unrecognized tax benefits at the beginning of the period
Additions for tax positions related to the current year
Increases related to prior year tax positions
Decreases related to prior year tax positions
Decreases based on settlements with taxing authorities
Lapse of statute of limitations
Unrecognized tax benefits at the end of the period
Year Ended December 31,
2016
2015
2014
$31,902
12,435
561
(1,213)
(48)
—
$21,264
10,614
24
—
—
—
$10,887
10,452
—
(52)
—
(23)
$43,637
$31,902
$21,264
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As of December 31, 2016, we have not made any tax provision for U.S. federal and state income taxes on
approximately $23.6 million of undistributed earnings in foreign subsidiaries, which we expect to reinvest
outside of the U.S. indefinitely. If we were to repatriate these earnings to the U.S., we would be subject to U.S.
income taxes and subject to an adjustment for foreign tax credits and foreign withholding taxes. Determination of
the amount of unrecognized deferred tax liability related to these earnings is not practicable.
13. Net Loss per Share
Basic net loss per share is calculated by dividing net loss by the weighted average number of common
shares outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of
employee share based awards and warrants. Diluted net income per common share is computed giving effect to
all potentially dilutive common shares, including common stock issuable upon exercise of stock options,
conversion of the Convertible Senior Notes and unvested restricted common stock and stock units. As we had net
losses for the years ended December 31, 2016, 2015 and 2014, all potential common shares were determined to
be anti-dilutive.
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The following table sets forth the computation of net loss per common share (in thousands, except per share
amounts):
Numerator:
Net loss
Denominator:
Year Ended December 31,
2016
2015
2014
$(480,129) $(539,215) $(443,790)
Weighted average number of shares outstanding—basic and diluted
163,211
154,120
142,176
Net loss per share—basic and diluted
$
(2.94) $
(3.50) $
(3.12)
The following outstanding options, unvested shares and units, ESPP shares, shares issuable upon the
conversion of our Convertible Senior Notes and shares contingently issuable were excluded (as common stock
equivalents) from the computation of diluted net loss per common share for the periods presented as their effect
would have been anti-dilutive (in thousands):
Options to purchase common stock
Unvested early exercised common shares
Unvested restricted stock awards and units
Convertible senior notes
iSIGHT earn-out contingently issuable shares
ESPP shares
As of December 31,
2016
2015
2014
8,085
—
19,883
15,141
1,793
314
11,494
936
20,054
15,141
—
210
18,578
2,382
8,341
—
—
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In February 2017, we released 1,793,297 shares of common stock issued to former stockholders of iSIGHT
as the threat intelligence bookings target associated with the release of these shares was determined to have been
achieved. If all the necessary conditions for release were satisfied prior to December 31, 2016, the release would
have increased the number of weighted average shares outstanding used to compute basic net loss per share for
the year ended December 31, 2016.
14. Employee Benefit Plan
401(k) Plan
We have established a 401(k) tax-deferred savings plan (the “401(k) Plan”) which permits participants to
make contributions by salary deduction pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended. All participants’ interests in their deferrals are 100% vested when contributed. We are responsible for
administrative costs of the 401(k) Plan and have made no matching contributions into our 401(k) Plan since
inception. Under the 401(k) Plan, pre-tax contributions are allocated to each participant’s individual account and
are then invested in selected investment alternatives according to the participants’ directions. The 401(k) Plan is
intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan,
contributions to the 401(k) Plan and earnings on those contributions are not taxable to the employees until
distributed, and all contributions are deductible by us when and if made.
15. Segment and Major Customers Information
We conduct business globally and are primarily managed on a geographic basis. Our Chief Executive
Officer, who is our chief operating decision maker, reviews financial information presented on a consolidated
basis accompanied by information about revenue by geographic region for purposes of allocating resources and
evaluating financial performance. There are no segment managers who are held accountable for operations,
operating results, and plans for levels, components, or types of products or services below the consolidated unit
level. Accordingly, we are considered to be in a single reportable segment and operating unit structure.
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Revenue by geographic region based on the billing address is as follows (in thousands):
Revenue:
United States
EMEA
APAC
Other
Total revenue
Year Ended December 31,
2016
2015
2014
$488,623
102,288
95,285
27,918
$439,205
80,960
73,009
29,793
$319,144
57,721
34,284
14,513
$714,114
$622,967
$425,662
Long-lived assets by geographic region based on physical location is as follows (in thousands):
Property and Equipment, net:
United States
International
Total property and equipment, net
As of December 31,
2016
2015
$43,214
18,638
$57,537
20,831
$61,852
$78,368
For the years ended December 31, 2016 and 2015, one distributor represented 19% and 17%, respectively,
and one reseller represented 12% and 13%, respectively, of the Company’s total revenue. For the year ended
December 31, 2014, no distributor represented 10% or greater of the Company’s total revenue, and one reseller
represented 11% of the Company’s total revenue.
As of December 31, 2016, no customer represented 10% or more of the Company’s net accounts receivable
balance. As of December 31, 2015, two distributors represented 20% and 12%, respectively, of the Company’s
net accounts receivable balance.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Limitations on Effectiveness of Controls
In designing and evaluating our disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure controls and procedures must
reflect the fact that there are resource constraints and that management is required to apply its judgment in
evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2016. The term
“disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended (or the “Exchange Act”), means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to management, including our principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on our evaluation, our chief executive officer and chief financial officer concluded that, as of
December 31, 2016, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.
Under the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2016 based on the criteria related to internal control over financial
reporting described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal
control over financial reporting was effective as of December 31, 2016.
Deloitte & Touche LLP, the independent registered public accounting firm that audited the consolidated
financial statements included in this Form 10-K, has issued a report, included herein, on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2016.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the
evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
FireEye, Inc.
Milpitas, California
We have audited the internal control over financial reporting of FireEye, Inc. and subsidiaries (the “Company”)
as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on the criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements and financial statement schedule as of and for the year
ended December 31, 2016 of the Company and our report dated February 24, 2017 expressed an unqualified
opinion on those financial statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 24, 2017
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Item 9B. Other Information
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to our Proxy Statement for our 2017
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended
December 31, 2016.
As part of our system of corporate governance, our board of directors has adopted a code of business
conduct and ethics. The code applies to all of our employees, officers (including our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions),
agents and representatives, including our independent directors and consultants, who are not employees of ours,
with regard to their FireEye-related activities. Our code of business conduct and ethics is available on our
website at www.fireeye.com. We will post on this section of our website any amendment to our code of business
conduct and ethics, as well as any waivers of our code of business conduct and ethics, that are required to be
disclosed by the rules of the SEC or the NASDAQ Stock Market.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to our Proxy Statement for our 2017
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended
December 31, 2016.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item is incorporated by reference to our Proxy Statement for our 2017
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended
December 31, 2016.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to our Proxy Statement for our 2017
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended
December 31, 2016.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to our Proxy Statement for our 2017
Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended
December 31, 2016.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
Documents filed as part of this report are as follows:
1. Consolidated Financial Statements:
Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements”
in Part II, Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts is included below, and should be read in conjunction
with the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
All other schedules have been omitted because they are not required, not applicable, or the required
information is included elsewhere in this Annual Report on Form 10-K.
3. Exhibits:
The documents listed in the Exhibit Index of this Annual Report on Form 10-K are incorporated by
reference or are filed with this report, in each case as indicated therein (numbered in accordance with
Item 601 of Regulation S-K).
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Allowance for doubtful accounts receivable
Year ended December 31, 2014
Year ended December 31, 2015
Year ended December 31, 2016
Balance at
beginning of
period
Charged to
cost and
expenses
Write-offs, net of
recoveries
Balance at end of
period
$
20
586
$2,021
$ 566
1,342
$1,560
$ —
93
$(1,991)
$ 586
2,021
$1,590
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on
February 24, 2017.
FIREEYE, INC.
By: /s/ KEVIN R. MANDIA
Kevin R. Mandia
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kevin R. Mandia, Frank E. Verdecanna and Alexa King, and each of them, his or her
attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ KEVIN R. MANDIA
Kevin R. Mandia
Chief Executive Officer and Director
(Principal Executive Officer)
February 24, 2017
/S/ FRANK E. VERDECANNA
Frank E. Verdecanna
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
(Principal Financial and Accounting Officer)
February 24, 2017
/S/ DEEPAK AHUJA
Deepak Ahuja
/S/ KIMBERLY ALEXY
Kimberly Alexy
/S/ RONALD E. F. CODD
Ronald E. F. Codd
Director
February 24, 2017
Director
February 24, 2017
Director
February 24, 2017
/S/ WILLIAM M. COUGHRAN JR.
Director
February 24, 2017
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William M. Coughran Jr.
/S/ STEPHEN PUSEY
Stephen Pusey
/S/ ENRIQUE SALEM
Enrique Salem
Director
February 24, 2017
Director
February 24, 2017
125
EXHIBIT INDEX
Exhibit No.
2.1+
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
Description of Exhibit
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Agreement and Plan of Merger, dated as of
January 14, 2016, by and among the
Registrant, Iris Merger Corporation, iSIGHT
Security, Inc. and Shareholder Representative
Services LLC.
Amended and Restated Certificate of
Incorporation of the Registrant.
Amended and Restated Bylaws of the
Registrant.
Form of the Registrant’s common stock
certificate.
Indenture, dated as of June 2, 2015, between
the Registrant and U.S. Bank National
Association.
Form of Global 1.000% Convertible Senior
Note due 2035 (included in Exhibit 4.2).
Indenture, dated as of June 2, 2015, between
the Registrant and U.S. Bank National
Association.
Form of Global 1.625% Convertible Senior
Note due 2035 (included in Exhibit 4.4).
Form of Indemnification Agreement between
the Registrant and certain of its officers and
directors.
8-K
001-36067
2.1
January 20, 2016
8-K
001-36067
3.1
September 25, 2013
8-K
001-36067
3.1
August 4, 2016
S-1/A 333-190338
4.1
September 9, 2013
8-K
001-36067
4.1
June 5, 2015
8-K
001-36067
4.2
June 5, 2015
8-K
001-36067
4.3
June 5, 2015
8-K
001-36067
4.4
June 5, 2015
S-1
333-190338
10.1
August 2, 2013
Employee Incentive Plan.
S-1
333-190338 10.17
August 2, 2013
Change of Control Severance Policy for
Officers.
2004 Stock Option Plan, as amended,
including form agreements under 2004 Stock
Option Plan.
2008 Stock Plan, as amended, including form
agreements under 2008 Stock Plan.
2013 Equity Incentive Plan, including form
agreements under 2013 Equity Incentive Plan.
2013 Employee Stock Purchase Plan, as
amended and restated as of August 2, 2016.
Mandiant Corporation 2011 Equity Incentive
Plan, as amended, including form agreements
under Mandiant Corporation 2011 Equity
Incentive Plan.
S-1/A 333-190338 10.27 August 21, 2013
S-1
333-190338
10.5
August 2, 2013
S-1/A 333-190338
10.6
September 9, 2013
S-1/A 333-193717
10.6
March 3, 2014
10-Q 001-36067
10.1 November 4, 2016
S-1
333-193717
10.8
February 3, 2014
10.9†
Outside Director Compensation Policy, as
amended and currently in effect.
10-Q 001-36067
10.1
August 5, 2016
126
Exhibit No.
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21*†
10.22†
10.23†
10.24†
10.25
10.26
10.27
Description of Exhibit
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
8-K
001-36067
10.1
June 20, 2016
S-1
333-190338 10.10
August 2, 2013
S-1
333-190338 10.11
August 2, 2013
S-1
333-190338 10.12
August 2, 2013
8-K
001-36067
10.1
January 8, 2015
8-K
001-36067
10.1
June 17, 2015
8-K
001-36067
10.2
September 8, 2015
S-1/A 333-190338 10.16 August 21, 2013
8-K
001-36067
10.1
January 2, 2014
10-Q 001-36067
10.3
August 5, 2016
8-K
001-36067
10.1
September 8, 2015
8-K
001-36067
10.3
January 2, 2014
10-Q 001-36067
10.4
August 5, 2016
8-K
001-36067
10.1
February 2, 2017
S-1/A 333-190338
10.3
August 21, 2013
10-Q 001-36067
10.3
May 14, 2014
10-Q 001-36067
10.4
May 14, 2014
Offer Letter between the Registrant and David
DeWalt, dated June 15, 2016.
Offer Letter between the Registrant and Ashar
Aziz, dated November 26, 2012.
Offer Letter between the Registrant and
Enrique Salem, dated February 2, 2013.
Offer Letter between the Registrant and
Ronald E. F. Codd, dated July 28, 2012.
Offer Letter between the Registrant and
Kimberly Alexy, dated December 12, 2014.
Offer Letter between the Registrant and
Stephen Pusey, dated June 12, 2015.
Offer Letter between the Registrant and
Deepak Ahuja, dated August 27, 2015.
Offer Letter between the Registrant and Alexa
King, dated August 1, 2013.
Offer Letter, between the Registrant and Kevin
Mandia, dated December 24, 2013.
Offer Letter between the Registrant and Travis
Reese, dated June 27, 2016
Offer Letter between the Registrant and
Michael Berry, dated August 25, 2015.
Offer Letter between the Registrant and
William Robbins, dated October 31, 2016.
Key Employee Non-Competition Agreement,
dated as of December 30, 2013, by and
between Kevin Mandia and the Registrant.
Key Employee Non-Competition Agreement,
dated as of December 30, 2013, by and
between Travis Reese and the Registrant.
Transition Agreement between the Registrant
and Michael J. Berry, dated as of February 2,
2017.
Lease, dated as of January 15, 2008, by and
between the Registrant and Silicon Valley CA-
I, LLC, as amended and currently in effect.
Sixth Amendment, dated as of January 23,
2014, to the Lease dated as of January 15,
2008 by and between the Registrant and
Silicon Valley CA-I, LLC.
Seventh Amendment, dated as of March 24,
2014, to the Lease dated as of January 15,
2008 by and between the Registrant and
Silicon Valley CA-I, LLC.
127
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Exhibit No.
10.28
10.29
10.30††
10.31
10.32
10.33
10.34
10.35
21.1*
23.1*
24.1
31.1*
31.2*
32.1**
Description of Exhibit
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
S-1
333-190338
10.4
August 2, 2013
8-K
001-36067
10.1
August 16, 2016
S-1/A 333-190338 10.19 September 9, 2013
10-Q 001-36067
10.3 November 5, 2014
10-Q 001-36067
10.4 November 5, 2014
8-K
001-36067
10.1
May 29, 2015
8-K
001-36067
10.2
May 29, 2015
8-K
001-36067
10.3
May 29, 2015
Lease, dated as of March 11, 2010, by and
between the Registrant and Silicon Valley CA-
I, LLC, as amended, assigned and currently in
effect.
Lease, dated as of August 4, 2016, by and
between the Registrant and 601 McCarthy
Owner, LLC.
Flextronics Design and Manufacturing
Services Agreement, dated as of September
28, 2012, by and between the Registrant and
Flextronics Telecom Systems, Ltd.
Amendment to Flextronics Design and
Manufacturing Services Agreement, effective
as of August 1, 2013, by and among the
Registrant, FireEye Ireland Limited and
Flextronics Telecom Systems, Ltd.
Design Statement of Work A-1 to Flextronics
Design and Manufacturing Services
Agreement, dated December 4, 2013, by and
among the Registrant, FireEye Ireland Limited
and Flextronics Telecom Systems, Ltd.
Purchase Agreement, dated May 27, 2015,
among the Registrant and Morgan Stanley &
Co. LLC and J.P. Morgan Securities LLC, as
representatives of the several Initial Purchasers
named in Schedule I thereto
Forward Stock Purchase Transaction, dated
May 27, 2015, between the Registrant and
Morgan Stanley & Co. LLC.
Forward Stock Purchase Transaction, dated
May 27, 2015, between the Registrant and
Morgan Stanley & Co. LLC.
List of subsidiaries of the Registrant.
Consent of Deloitte & Touche LLP,
independent registered public accounting firm.
Power of Attorney (included on the signature
page to this Annual Report on Form 10-K).
Rule 13a-14(a) / 15(d)-14(a) Certification of
Principal Executive Officer.
Rule 13a-14(a) / 15(d)-14(a) Certification of
Principal Financial Officer.
Certifications of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS* XBRL Instance Document.
128
Exhibit No.
Description of Exhibit
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
101.SCH* XBRL Taxonomy Extension Schema
Document.
101.CAL* XBRL Taxonomy Extension Calculation
Linkbase Document.
101.DEF* XBRL Taxonomy Extension Definition
Linkbase Document.
101.LAB* XBRL Taxonomy Extension Label Linkbase
Document.
101.PRE* XBRL Taxonomy Extension Presentation
Linkbase Document.
*
Filed herewith.
** Furnished herewith.
+
The schedules and other attachments to this exhibit have been omitted. The Registrant agrees to furnish a
copy of any omitted schedules or attachments to the SEC upon request.
Indicates a management contract or compensatory plan or arrangement.
†
†† Portions of this exhibit have been granted confidential
treatment by the Securities and Exchange
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CORPORATE AND STOCKHOLDER INFORMATION
Executive Officers
Kevin R. Mandia
Chief Executive Officer
Alexa King
Executive Vice President,
General Counsel and
Secretary
Travis M. Reese
President
William T. Robbins
Executive Vice President
of Worldwide Sales
Frank E. Verdecanna
Executive Vice President, Chief
Financial Officer and
Chief Accounting Officer
Board of Directors
Enrique Salem3
Chairman of the Board of
FireEye, Inc.
Managing Director,
Bain Capital Ventures
Kevin R. Mandia
Chief Executive Officer,
FireEye, Inc.
Deepak Ahuja1
Chief Financial Officer,
Tesla Motors, Inc.
Kimberly Alexy1
Principal,
Alexy Capital Management
Ronald E. F. Codd1, 2
Independent Business Consultant
William M. Coughran Jr.2,3
Partner, Sequoia Capital
Corporate Headquarters
FireEye, Inc.
1440 McCarthy Blvd.
Milpitas, CA 95035
Legal Counsel
Wilson Sonsini Goodrich & Rosati, PC
Palo Alto, California
Independent Auditors
DELOITTE & TOUCHE LLP
San Jose, California
Transfer Agent and Registrar
American Stock Transfer
& Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
www.astfinancial.com
help@astfinancial.com
tel: 7 18 .921. 8124
800.937.5449
1 Audit Committee member
Stephen Pusey3
2 Nominating and Corporate
Former Group Chief Technology Officer,
Governance Committee member
Vodafone Group Plc
3 Compensation Committee member
Stock Information
FireEye common stock is listed on The NASDAQ Global Select Market under the symbol FEYE.
Investor Relations
FireEye welcomes investor interest and maintains a section on its website with investor information,
including press releases, stock data, SEC filings, and access to quarterly webcasts. Investors may
subscribe to automated email alerts for press releases, events and SEC filings through the site.
Website: investors.FireEye.com
Email: investor.relations@fireeye.com
Annual Stockholders’ Meeting
The annual meeting of stockholders will be held at 10 a.m. Pacific Time on June 1, 2017 at
FireEye, Inc.
1390 McCarthy Blvd.
Milpitas, CA 95035
© 2017 FireEye, Inc. All rights reserved. FireEye, Mandiant, iSIGHT, MVX, and Helix are registered trademarks
or trademarks of FireEye, Inc. in the United States and other countries.