Categories Earnings Call Transcripts, Technology

FireEye Inc  (NASDAQ: FEYE) Q4 2019 Earnings Call Transcript

Final Transcript

FireEye Inc  (NASDAQ: FEYE) Q4 2019 Earnings Conference Call
February 05, 2020

Corporate Participants:

Kate Patterson — Vice President, Investor Relations

Kevin Mandia — Chief Executive Officer

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Grady Summers — Executive Vice President, Products and Customer Success

Analysts:

Sterling Auty — J.P. Morgan — Analyst

Gur Talpaz — Stifel, Nicolaus & Company — Analyst

Gregg Moskowitz — Mizuho Securities — Analyst

Michael Turits — Raymond James — Analyst

Fatima Boolani — UBS — Analyst

Melissa Franchi — Morgan Stanley — Analyst

Patrick Colville — Arete Research — Analyst

Robbie Owens — Piper Sandler — Analyst

Jonathan Ho — William Blair & Company — Analyst

Brian Essex — Goldman Sachs — Analyst

Presentation:

Operator

Good day, everyone, and welcome to the FireEye Fourth Quarter 2019 Earnings Results Conference Call. [Operator Instructions] Also, this call is being recorded.

At this time, I would like to turn the call over to Kate Patterson. Please go ahead.

Kate Patterson — Vice President, Investor Relations

Thank you, Joelle. Good afternoon and thanks to everyone on the call for joining us today to discuss FireEye’s financial results for the fourth quarter of 2019 and the full-year 2019. This call is being broadcast live over the Internet and can be accessed on the Investor Relations section of FireEye’s website at investors.fireeye.com.

With me on today’s call are Kevin Mandia, FireEye’s Chief Executive Officer; Frank Verdecanna, Executive Vice President, Chief Financial Officer and Chief Accounting Officer of FireEye; Peter Bailey, FireEye’s Executive Vice President and Chief Operating Officer; and Bill Robbins, Executive Vice President, Chief Revenue Officer and General Manager of Products.

After the market closed today, FireEye issued a press release announcing the results for the fourth quarter of 2019 and the full-year 2019.

Before we begin, let me remind you that FireEye’s management will make forward-looking statements during the course of this call, including statements relating to FireEye’s guidance and expectations for certain financial results and metrics, FireEye’s priorities, initiatives, plans and investments, drivers and expectations for growth and business transformation, the expansion of FireEye’s platform and the benefits, capabilities and availability of new and enhanced offerings, competitive position, market opportunities and go-to-market strategies and organizational changes. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. And we undertake no obligation to update these statements after the call.

For a detailed description of the risks and uncertainties, please refer to our SEC filings, as well as our earnings release posted an hour ago. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website.

Additionally, certain non-GAAP financial metrics will be discussed on this call. We have provided reconciliations on these non-GAAP financial measures for the most directly comparable GAAP financial measures in the Investor Relations section of the website, as well as in the earnings release.

Finally, I’d like to point out that we have posted the supplemental slides and financial statements on the Investor Relations section of the website.

With that, I’ll turn the call over to Kevin.

Kevin Mandia — Chief Executive Officer

Thank you, Kate, and thank you to all the investors, employees, customers and partners joining us on this call. We appreciate your interest and support as we continue to transform from our origins as a network security appliance vendor to a comprehensive security solutions company. Let me begin by discussing some Q4 highlights and some full-year highlights, followed by our priorities for 2020. And then I’ll turn the call over to Frank to discuss the details of our fourth quarter and 2019 results, as well as the financial milestones we expect to achieve in 2020.

For Q4 in 2019. In Q4, we delivered record revenue, record billings and record operating cash flow. And we did that not just for the quarter, but for the full year. In the fourth quarter, we met or exceeded our revenue guidance for the 12th straight quarter, and also delivered improved profitability. However, our Q4 billings fell short of the midpoint of our guidance range by approximately $16 million and many of you may focus on that. But this shortfall was primarily due to a shorter average contract length as our business transforms from appliance-based solutions to our platform and cloud-based products, our security validation offerings like Verodin and our Mandiant Services. Frankly, this trend to shorter contract lengths is both welcome and expected to continue in the future as we accelerate our business transformation towards emerging growth solutions. So let’s review some of the highlights from the fourth quarter and the full-year.

Billings for the quarter was a record $274 million, an increase of 3% year-over-year. Billings for the year was $926 million, an increase of 8% over 2018. Revenue for the quarter was a record $235 million or $7 million above the high-end of our guidance range. Revenue growth accelerated to 8% year-over-year, the highest growth rate we’ve had since the first quarter of ’18. For the year, revenue was $889 million, also a record and up 7% over 2018. Our strong revenue performance in Q4 resulted in improved profitability, and our earnings per share were well above the high-end of our guided range. Our billings and revenue growth was led by our platform, cloud subscription and managed services category, as well as our Mandiant Services, all of which posted record billings and revenue. And first, I’d like to speak about our Mandiant Services.

Our Mandiant Services organization had another record quarter. It’s seventh in a row in regards to revenue. In the fourth quarter, Mandiant billings were $70 million, up 32% year-over-year. Mandiant Services revenue in the fourth quarter grew 29% year-over-year and exceeded $50 million for the first time. While its financial metrics are record setting, what is more important is what these results represent that Mandiant is trusted to handle the most complex security challenges.

Our Mandiant consultants have long been recognized as premier experts to respond to security incidents. And I believe we are also the best in world at red teaming. I received calls from customers telling me how our red teams exposed critical gaps in their security. Gaps that have been missed multiple times by other cyber consulting organizations. As the reputation and global footprint has grown, customers around the world have called Mandiant to not just respond to security breaches, but also proactively assess their resilience against the latest attacks, modernize their security operations and help them build in-house intelligence capabilities. These strategic services allow us to extend our customer relationships and creates a highly efficient sales motion for our complementary cloud-based solutions and Managed Defense.

In short, our Mandiant Services are trusted and efficient gateway to new customers for our platform, cloud and managed service offerings, driving a change from point in time revenue to our platform. In fact, more than 7% of the customers who engaged with Mandiant Services in 2018, purchased non-incident response solutions within 12 months of their engagement. The growth of our platform, cloud subscription and managed services category reflects this relationship. For example, billings for our platform, cloud and managed services subscriptions grew 17% year-over-year in the fourth quarter and 16% for the full-year. Revenue growth in the platform category continued to accelerate in Q4 and was up 41% year-over-year. For 2019, we generated 28% growth in our platform and cloud category. Moreover, the platform and cloud annual recurring revenue grew 31% year-over-year to a record $280 million. This is the second consecutive quarter of ARR growth greater than 30% for this category.

The strength in our platform, cloud and managed services billings and revenue offset decline in the mature appliance-centric product and related category. The decline in this category reflects the end of the hardware refresh cycle around our third generation appliances, as well as industry trends towards cloud-based and virtual form factors, increasingly delivered as a service and vendor consultation, especially for on-premise security controls. We expect these trends to continue and possibly accelerate in the future. Due to the transformation process we began in 2016, I believe FireEye is well positioned to thrive as the market evolves.

When I took over as CEO in 2016, nearly two-thirds of our business was appliance-based and deployed on-premise. And the products category was declining in performance year-over-year. At that time, we laid out our plans to modernize our solutions and transform our business to achieve profitability and sustained growth. I am pleased to announce that the billings for our emerging solutions in the platform, cloud and services categories business exceeded our mature on-premise appliance business for the first time in the third quarter of 2019. This gap widened in the fourth quarter as the solutions business accelerated, and our outlook for 2020 assume this trend will continue.

And I believe this is a critical point for FireEye and marks the turn that many investors have asked me about. To be clear, we anticipate that our billings, revenue, ARR for our platform, cloud and managed services category and Mandiant Services will continue to eclipse the products that FireEye pioneered 15 years ago. This is an important milestone for FireEye’s transformation.

I’d like to review some of the specific actions we took that are enabling this fundamental transformation of our business model. First, we invested in decoupling our detection capabilities in IP from our appliances, giving customers greater deployment flexibility and enabling new cloud offerings. We then simplified our go-to-market, and we introduced subscription pricing across all of our offerings. We introduced Helix, an open cloud-based security operations platform that serves as a portal to our intelligence and our expertise, and it integrates with more than 550 third-party products today. We continue to add features to Helix, and I’m excited about the next release that we’re going to launch at RSA. We made our expertise available on demand through Helix and as a standalone subscription. Expertise On Demand continues to gain momentum with customers and is a clear differentiator for our solutions.

We acquired Verodin, the leader in the rapidly emerging security validation market. And most recently, we acquired [Technical Issues] security company Cloudvisory. The technology provides visibility and control across multiple cloud and container environments, and it is a natural extension of our Helix platform.

In summary, we modernized how FireEye does business. We went from hardware to software, from on-premise to cloud and hybrid, from perpetual licensing to subscription, from safeguarding our customers from advanced threats to all kinds of threats, from unprofitable to profitable, from transactional to strategic. And with these changes, we have crossed the point where our emerging solutions in our growth categories are now the larger portion of our business.

To take the next steps to accelerate our transformation, we’re bringing parts of our business together. First, we are unifying our products, customer success, marketing and sales organizations under Bill Robbins. He will continue to work closely with Grady and Vasu to ensure we execute a cohesive go-to-market strategy, while emphasizing the growth of our platform, cloud and services offerings.

Second, I’m pleased to announce that Peter Bailey, who joined FireEye in December, has been appointed Chief Operating Officer; and in this leadership role, he will be driving the operational discipline necessary to support our growth and accelerate our transformation.

And finally, it’s with very mixed feelings that I tell you that next month, Travis Reese will be retiring from his day job at FireEye. Travis has been my friend and second-in-command for nearly 15 years. And I want to thank him for all he has done. He’s been a part of the FireEye Mandiant family since 2006, and my friend since we first met in the United States Air Force in 1996. The good news is that, Travis has agreed to become a member of our Advisory Board and stay close to me, stay close to our mission and stay close to the people who have had the privilege to serve with Travis in this mission.

Now, I’d like to talk to you about our 2020 priorities. Our mission to relentlessly protect our customers remains unchanged, and our objectives are clear. First, be the best in world at incident response, red teaming and threat intelligence. We intend to continue leading our industry in services and threat intelligence to ensure FireEye knows more about cyber attacks than anyone. Second, we continue to extend our dynamic threat detection and expertise to defend cloud-based infrastructure. Third, deliver our expertise on demand seamlessly through technology, where experts are available at the point when our customers need them most. And finally, we intend to be the best in world at security validation.

The Verodin platform operationalizes our threat intelligence and expertise to help customers measure and test their security effectiveness. I believe the process of attack, measure, fix, repeat, that process needs to be made simple, continuous and commonplace. When I meet with our customers, the number one question they ask is, are we secure? And the Verodin validation platform can address that question with a binary answer. As we increasingly use the Verodin validation platform in our red team engagements and security assessments, I believe our customers will clearly see the elegance of continuous security validation. Customers can either rely on our managed services offering to hunt for threat actors in their environment, or enable their internal teams with our continuous validation platform. In both scenarios, customers will progress from services engagements to subscriptions, delivering recurring value to our customers. It is a great solution for our customers and is helping accelerate a rapid transformation to a comprehensive solutions company.

I believe our strategic advantage lies in our ability to continuously adapt our model to the threat environment as it changes. We innovate at the pace of the adversary. Given the fact that most of our incident response customers are retargeted by attackers within the first year, the market desperately needs a model that continuously validate security controls against known threats in a customer’s production environment. We are focusing our resources on this need. And by doing so, I believe we will deliver growth consistent with industry leadership at scale.

With that, I want to deeply thank all FireEye employees for their continued efforts as we focus on leading modern cyber defense. I believe we have all the pieces necessary to change the game in security, and I look forward to our continued progress.

Now, I’d like to turn the call over to our Chief Financial Officer, Frank Verdecanna.

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Thanks, Kevin, and hello to everyone on the call. Before we move onto details of our Q4 results and guidance for Q1 and 2020, let me remind you that I’ll be referring to non-GAAP metrics, except for revenue and operating cash flow. Our non-GAAP measures exclude stock-based compensation, amortization of intangibles, non-cash interest expense on our convertible debt, restructuring charges and other non-recurring items.

Turning to our Q4 results. Let me start by emphasizing that Q4 was one of the best quarters in our history with billings, revenue, operating income, operating cash and free cash flow, all at the highest levels in our history. More importantly, although billings of $274 million were below the midpoint of our guidance range by about $16 million, we showed continued momentum in the metrics that I believe matter the most, which are subscription billings, ARR, revenue and operating leverage.

Our performance relative to our guidance was due primarily to a decrease in the average contract length as the mix shifted to subscription offerings and platform, cloud and managed services billings overall. The quality of our fourth quarter billings was high, which resulted in in-period revenue yield above our forecast and expectations. This helped drive revenue outperformance of $9 million above the midpoint of our guidance range. With expenses in line with our implied guidance on an absolute dollar basis, the revenue outperformance flowed directly to the bottom line, and we generated record operating and net income.

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Taking a closer look at our billings performance and the related ARR metrics by the portfolio categories: platform, cloud subscription and managed services, subscription billings increased 17% year-over-year, even though the average contract length, ACL for short, declined by approximately three months. Adjusting for our constant ACL, billings would have been approximately $100 million, and the year-over-year growth rate would have been 32%. Annual recurring revenue for this category accelerated to 31% year-over-year to $280 million.

Every one of our cloud security solutions posted healthy year-over-year increases in ARR with cloud endpoint, the highest, at more than 100%. Verodin finished the year, as expected, with about $20 million in billings and accounted for about one-third of the increase in ARR.

Mandiant billings grew 32% year-over-year to an all-time high of $70 million. Services deferred revenue was also at a record level, increasing 27% sequentially to $96 million. The majority of this growth was driven by strategic consulting services and Expertise On Demand. Please note some of these services within these categories tend to be reoccurring, but we do not include any services in our ARR calculations.

Finally, our appliance-based product and related business continue to stabilize. Although total billings for the category were down 16% compared with a year ago, the majority of the decline was in appliance hardware sales, as customers continue to show a preference for virtual and cloud-based solutions for incremental deployments. A one-month decrease in the average contract length was also a factor.

While ARR and the on-prem product and related category was down slightly on a sequential basis, if I look at our detection products across all form factors, ARR was up 1% sequentially. This is a really important point, and I want to emphasize that the sequential growth in the ARR for our detection solutions, shows that at most — at the most fundamental level, we continue to expand deployment of our detection technology just in different form factors.

Turning to revenue. Revenue of $235 million exceeded the midpoint of our guidance range by $9 million. The year-over-year growth rate accelerated to 8% as the strong growth in platform and cloud revenue offset the headwind from the ratable recognition of appliance hardware. Platform, cloud subscriptions and managed services revenue was a record $71 million in the quarter. The growth rate accelerated to 41% year-over-year, reflecting the growth in billings, ARR and deferred revenue we have experienced since early 2018.

Mandiant professional services revenue of $50 million was also at a high — all-time high, and the services revenue growth accelerated for the fifth consecutive quarter to 29% year-over-year. The growth reflects capacity expansion, as well as increased efficiencies in services delivery through technology enablement.

Product and related subscriptions and support revenue decreased $14 million or 11% from Q4 ’18 to $114 million. The year-over-year decrease in revenue recognized was driven by a decline in product and related current deferred revenue as appliance revenue from prior years amortizes off the balance sheet.

We’ve been talking about this for a while but as a quick reminder, we recognize appliance revenue ratably over four years under the 606 accounting standard. The good news is that, the accelerating growth in the platform, cloud subscriptions and services revenue lines more than offset this backward-looking dynamic again in Q4. We expect the headwind from appliance amortization to peak in 2020 and be less of a factor in 2021 and beyond.

Gross profit margin as a percentage of revenue was 73% in the quarter, consistent with our guidance range. The decrease from Q4 ’18 was primarily related to the higher mix of professional services. Note that although Mandiant Services are at a lower gross margin, our services contribution is consistent with, if not higher than, other areas of the business.

Total operating expenses decreased about $5 million sequentially. The sequential decline was primarily related to lower employee payroll taxes. On a year-over-year basis, operating expenses increased just 2%, substantially less than our revenue growth of 8%. The biggest increase in — was in R&D, largely due to the addition of the Verodin R&D team.

Our continued operating discipline allowed the revenue overperformance to flow through to operating margin and we generated record quarterly operating income of $16.8 million. With other income partially offsetting taxes, operating profit translated to net income of $15 million and earnings per share of $0.07, well above our guidance range of $0.03 to $0.05.

Turning to the balance sheet and cash flow. We continue to maintain a very healthy balance sheet with cash and short-term investments of more than $1 billion. We ended the quarter with receivables of approximately $171 million, an increase of about $18 million from the end of Q3. DSOs calculated on billings were 58 days, which were at the low-end of our targeted range of 55 days to 65 days. Total deferred revenue at year-end was approximately $975 million, an increase of $39 million sequentially, and $40 million from the end of 2018. $36 million of the $39 million increase was in current deferred. We generated a record $40 million in operating cash flow in the quarter, and $68 million for the year. This was a bit below our guidance range, primarily due to lower billings.

Capex was about $7 million for the quarter, resulting in free cash flow of about $33 million, also a record. For the year, free cash flow was $22 million, up 117% from 2018. All in all, our Q4 results capped a solid year of consistent performance as we continued the operational transformation of our business model in parallel with our sales and technology transformation. As Kevin mentioned, we are taking steps to accelerate this transformation and set the stage for increasing growth and profitability in the future.

Our outlook for 2020 reflects the internal and external forces driving our progress. Looking at the full-year guidance first. We currently expect total billings in the range of $930 million to $950 million. The 2020 billings outlook assumes a continued decline in appliance hardware sales, both in absolute dollars and as a percentage of the billings mix, as customers continue to opt for virtual and cloud form factors for new and expansion deployment. A two to three-month decline in average contract length. This decline reflects the higher mix of cloud and virtual subscriptions, which tend to be at a lower average contract length and subscriptions attached to hardware. Additionally, now that we have achieved consistent operating leverage and positive cash flow on an annual basis, we are gradually transitioning to annual billing cycles, consistent with the practices of other SaaS industry leaders. This allows us to shift our sales objectives to ARR growth rather than gross billings, and we have made some changes in our compensation plans to encourage this behavior.

While periodic billing creates a near-term headwind to billings growth, it’s a long-term positive for our business. Not only does it make our solutions more attractive to smaller customers, expanding our TAM, it encourages cross-sell and upsell conversations at more frequent intervals.

Finally, our guidance assumes a sustainable growth rate for services in the low- to mid-teens after a record 2019.

Working through the math associated with the contraction in the average contract length, the midpoint of our guidance range implies a 9% year-over-year billings growth at a constant ACL. An acceleration in the growth rate of ARR growth to the mid-teens from 6% growth in 2019, driven by 40-plus percent growth in the platform and cloud ARR.

Looking at revenue, we expect 2020 revenue in the range of $935 million to $945 million, an increase of 6% at the midpoint compared to 2019. Our revenue outlook assumes the revenue growth rate of the platform cloud category remains at about 30% for the year. It assumes negative revenue growth in the mid-teens for the product and related subscription and support category. As I mentioned earlier, this is the worst growth year for this category because 2020 revenues compared to 2019 revenue metrics that included the final amortization of appliance revenue from 2015. Recall that 2015 was a peak year for our appliance sales. Finally, we expect services revenue growth in the mid- to high-teens, reflecting the expanded capacity and the record level of current deferred revenue.

We expect gross margin of about 71% and an operating margin between 5% and 6%. When you do the math, you will see that this implies a decrease in our operating expenses of $20 million to $25 million compared with 2019, reflecting continued cost optimization efforts as we align our expense structure with the evolution of our billings mix and sales motions. We expect most of the year-over-year decrease in operating expense savings will be realized in Q3 and Q4. We expect expense savings to be realized across the business, but much more focused in the areas that are either declining or has slower growth.

Finally, with a consistent revenue growth across four quarters in mid-single digits, we expect to show increasing operating leverage as we progress through the year. This should allow us to exit the year with an operating margin in the 12% to 14% range.

Finally, we are looking for operating cash flow for the year to be between $65 million and $85 million, approximately flat with 2019, and capex of approximately $10 million per quarter or $40 million for the year.

For Q1, we are expecting billings in the range of $165 million to $175 million. Our Q1 billings guidance assumes appliance sales contribute low- to mid-teens of total billings mix similar to Q4 of ’19. This implies a decrease of 30% to 40% year-over-year. Recall that last year Q1 appliance sales were up 40% year-over-year due to the refresh of our third generation appliances. Overall, we expect product and related subscriptions and support to account for about 40% of the billings.

Q1 billings guidance also assumes continued strong 20-plus percent growth in the platform, cloud subscription and managed services categories, and assume services growth in the 15% to 20% range. We are assuming a decrease in the average contract length of two to three months. At a constant ACL, we estimate billings would have been relatively flat year-over-year. Based on the midpoints of Q1 and 2020 billings, this implies we will bill approximately 18% of the year in Q1, slightly below linearity last year, but within a normal range.

We expect revenue in the range of $222 million to $226 million. We expect product and related revenue to decline 10% to 15% as the last of the 2015 appliances were amortized in Q4. Platform revenue continue to grow to mid- to high-30s year-over-year. And services revenue to grow from 2019, but to remain in the mid- to high-teens growth rate. Note that because we expect revenue to be greater than billings in Q1, we will see a sequential decline in the current deferred revenue.

We expect gross margin of 71% and the normal seasonal increase in operating expenses as withholding taxes and other employee-related expenses restart for the new calendar year. As a result, we expect to post an operating loss in the range of 3% to 5% and a loss per share of $0.03 to $0.05.

With lower billings and higher cash expenses compared with Q1 of ’19, we expect operating cash flow in the range of negative $5 million to positive $5 million for the quarter.

That concludes my review of our guidance ranges and assumptions. I know there’s a lot of detail here, so we have summarized all the assumptions in the math for you in the guidance section of our slides.

Operator, we’ll now be open to take your calls — questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Sterling Auty with J.P. Morgan. Your line is now open.

Sterling Auty — J.P. Morgan — Analyst

Yeah, thanks. Hi, guys. So curious around the shortening of the duration with the impact that you mentioned. I guess, the question is, why does that come as a surprise? If we look back into 2019, we had the quarter where there was the impact on refresh, now the [Technical Issues] do you point where now that this has passed us, should things stabilize? Or is there another element that we want to watch for that could impact either billings or revenue?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Well, I think the impact –. Sterling, this is Frank. The impact that we’re expecting is that, we’re not expecting an impact on revenue, but we are expecting billings to have that headwind from a shorter contract duration. And I think it wasn’t a surprise, but it is something that we’re actually pushing forward on accelerating that transformation. So if you look at where Q4 ended, you can see that we ended with 59% of our business in the growth areas, and that would be platform, cloud subscription and managed services and services. So I think what you’re seeing is a quicker transformation, two subscription offerings, and we also, in our comp plans, had a bigger focus on ARR, which will help to drive kind of higher ARR, but shorter contract length.

Sterling Auty — J.P. Morgan — Analyst

I got you. And just a follow-up to that, just to push back a little bit. It’s — I think we’re all encouraged by the quality of the billings and the revenue direction where it’s headed. But just wondering if it wasn’t surprised why maybe not an adjustment in the guidance rather than having the billings miss that we saw in the quarter.

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. I think if you look at Q3 results and Q4 results, you’re starting to see less — greater than $1 million deals, and that’s because of the contract duration is coming down. I think you probably didn’t see in the Q4 guidance because we had one data point being Q3 and now we’ve got two data points. And we feel, especially with the changes in the comp plan that we’re kind of moving in that direction. And if you look at where the growth of the business is coming from, it’s coming from subscription offerings that we do anticipate having just shorter terms.

Sterling Auty — J.P. Morgan — Analyst

Got it. Thank you.

Kevin Mandia — Chief Executive Officer

Thank you, Sterling.

Operator

Thank you. Our next question comes from Gur Talpaz with Stifel. Your line is now open.

Gur Talpaz — Stifel, Nicolaus & Company — Analyst

Okay, great. Thanks for taking my questions. One for you, Kevin, one for you, Frank. For Kevin, with Verodin, can we talk a little bit about the automated security validation piece of the business? And then aside from the duration, have assumptions changed around potential contribution from Verodin this year? And then just taking a step back more broadly, can you talk about the efforts to upsell Mandiant customers here post engagement?

Kevin Mandia — Chief Executive Officer

Yeah. So, a couple of things on the Verodin platform. Over time, intel that we sell, which I think will never be ever replicated. We speak over 30 languages. We’re located in 20-plus countries now. You take our intel platform, we’re modernizing it. We’re bringing it to market with the Verodin security validation piece and you had Expertise On Demand.

What I — here’s what I can tell you about security validation. It’s — when you’re sitting in the C-suite, it is the number one thing that matters, Gur. People want to know, hey, am I secure? Well, here’s your vulnerability management report with 2 million vulnerabilities, 19,000 patches you have to do. And we have to do that stuff. There has been a 20-year run of vulnerability management paradigms in defense and depth paradigms. What we want to do here at FireEye is start a paradigm that I saw Richard Bejtlich and some other folks out in cybersecurity referred to as the threat elimination paradigm. That’s done with making it safe to do real attacks. Can FIN7 hack you? Yes or no. Can APT28 compromise you and get to your e-mail storage [Phonetic]? Yes or no. These kind of binary tests on a continuous basis, just cuts through the chase and gives you the clip notes of what you got to do for security right now to feel secure.

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So, talking about Verodin, combining it with our intel or attacker knowledge, adding a button for Expertise On Demand, and you can see that we can kind of attach to a SIM and provide exceptional value. Here’s our intel. And as we modernize that, what we want to do is almost provide a augmented reality of your SIM ingesting, where you go, oh, my gosh, this is — so in — here’s all the open source information on this alert, and here’s all the FireEye information on this alert, and here’s what we think we should do about it. Bring that to market in an elegant way and combine it with validation. That’s a long-winded way of saying this.

Intel [Technical Issues] Expertise On Demand is all really converging into a single platform that we will have and that it’s just unbelievably relevant right now. The fastest way to get on Barnes truth about what you got to do in security is hit the button, validate your controls. So I’m pretty optimistic on it.

On the pro [Phonetic] through side, think about what we do on red teaming. You’ll never — in my opinion, you probably will never truly automate humans, all right? And we’re not going to have robots doing red teaming, but we can get 85%, 90% of the validation into the Verodin platform. So, when we go out and do a red team today, and we’re already booked for the next couple of months, these folks are hard at work, they can use the validation platform while they’re doing the job, and then there’s constantly attack, rinse, repeat, attack, rinse, repeat. And when you do that for a customer that you take them from security Point A, geez, things are getting through to security Point B, acceptable risk. So I just see when our services folks are technology-enabled with our technology, it’s just a logical sell-through logical gateway. And that was my comment there. So…

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

And the second part of your question, Gur, your expectations for 2020 for Verodin remains at $70 million in billings.

Gur Talpaz — Stifel, Nicolaus & Company — Analyst

Perfect. That’s great. Even with the duration adjustment?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Correct. Verodin’s been primarily one year deal. So, they’re multi-year deals, but billed annually.

Gur Talpaz — Stifel, Nicolaus & Company — Analyst

Okay. And then, Frank, just one additional question for you. I’m sorry, go ahead.

Kevin Mandia — Chief Executive Officer

Go ahead, Frank.

Gur Talpaz — Stifel, Nicolaus & Company — Analyst

Yeah. So around product and support billings for next year and the implied 11% decline even with the duration adjustment. Can you talk about the delta there relative to what you offered at the Analyst Day for more like flattish growth? Would you call this conservatism? Or would you see this more as a reflection of the changes you’re making in the business to reflect a broader shift towards platform cloud management?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. I think we are seeing a broader shift towards the platform, cloud and managed services and services. So, we’re not updating our long-term model. But at this point, I think you can see in the 2020 guidance and Q1 guidance that we are anticipating a quicker transformation there.

Gur Talpaz — Stifel, Nicolaus & Company — Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Gregg Moskowitz with Mizuho. Your line is now open.

Gregg Moskowitz — Mizuho Securities — Analyst

Okay. Thank you very much. Hi, guys and thanks for taking the question. I guess, the first one just for Frank. So your revenue guidance for 2020, I know there has been a lot of focus on billings, but the revenue guide was below consensus, and I would have thought that would be unaffected by duration. So just wondering if there was anything else we should be aware of as it relates to in-period revenue that might potentially act as a headwind on the business this year. Or is there perhaps just a little bit of conservatism?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

I think it’s just a little bit of a mix difference. We have — we do have a couple products that are upfront revenue. And if you look at our expectations for 2020, there’s more of a mix shift from kind of those upfront products to more subscription-based products.

Gregg Moskowitz — Mizuho Securities — Analyst

Okay, thanks. And then for Kevin, so with Expertise On Demand, given that this was your Q4, Kevin, did you see bigger commits from customers looking ahead to 2020? How are customers engaging with you around EOD?

Kevin Mandia — Chief Executive Officer

Yeah. Well, it was our best quarter ever with regards to the billings. And basically, as I look at how it’s being used, we’ll always have to integrate it with our tech. You want it to be push button and then you can imagine a future where it’s not even push button, we just know when you need us based on how you’re interoperating with the data.

Long story made short, biggest use cases, hey, we need a forensic investigation. We need an unbiased party in 30 seconds to come in and take a look at something. And that’s kind of — and again, remember, EOD, we started that not to sell more services. It’s just been a 15-year march towards, I believe, the best products in the world provide a seamless extension to experts. And so, that’s why we have it. So bottom line, it was the best quarter ever for EOD. We’re continuing to modernize how we deliver it. Right now, we deliver it through the Helix platform, kind of like a click to chat in the top use cases, review this machine with your forensics experts to figure out, if I have a problem or not.

Gregg Moskowitz — Mizuho Securities — Analyst

Great. Thank you very much.

Operator

Thank you. Our next question comes from Michael Turits with Raymond James. Your line is now open.

Michael Turits — Raymond James — Analyst

Hey, guys. Good evening. Frank, for you, back to duration. Two things. One, is this just — is this more — is this a function primarily the mix shift? And is it — or is it more driven by you guys in terms of shift in the model or demand side from customers wanting to go that way?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. I think — I would say, Michael, it’s both. It’s — we’re seeing a quicker shift to subscription. But we’re also expanding kind of our market opportunity because we have seen a reluctance in the mid-market and a reluctance in the channel to bill multi-year upfront. And so, by tweaking the comp plans and by changing things a little bit to allow for that and put some more controls on degradation of ARR, on renewals and conversions, there’s just a much bigger focus on ARR that we know the changes will have an impact on duration, along with kind of the natural kind of move from appliance hardware that typically is three years to subscription that is usually a year or two.

Michael Turits — Raymond James — Analyst

And, I guess, I’m surprised that if you’re incenting it and there’s the demand side driver that it’s not more of an impact this year. I mean, is there any downside risk to that two to three months and where could it go longer term?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Well, I think, obviously, with guidance, there’s always an upside and a downside to it, but I would say that we feel pretty good with the changes we made driving somewhat of an impact, but I wouldn’t say a drastic impact. The comp plan changes aren’t drastic enough that it would move the needle that quickly the other way.

Michael Turits — Raymond James — Analyst

And longer term, I mean, does this continue each year? Where does it go eventually from your perspective?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. I think longer term, as we continue to focus on selling subscription and focus on ARR. I think you’ll see kind of a general trend downwards on contract length. But we do still sell product and appliances, and we do still incent longer-term deals than some of which are going to be paid upfront. So, I think it’s going to be more gradual, but two to three months in any one year, I think, is a pretty significant transformation.

Michael Turits — Raymond James — Analyst

Great. Okay. Frank, thanks a lot. Thanks, Kevin.

Kevin Mandia — Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Fatima Boolani with UBS. Your line is now open.

Fatima Boolani — UBS — Analyst

Good evening. Thank you for taking the…

Kevin Mandia — Chief Executive Officer

How are you?

Fatima Boolani — UBS — Analyst

I’m good, Kevin. How are you? Thank you for taking the questions. Kevin, I have one for you, and Frank, for you. I’ll start with you, Kevin. Just kind of digging into Travis’ retirement. I know over ’19, you had a pretty significant reorganization effort under Travis and Grady. So, at a very high level, how should we think about succession in continuity from here? And appreciating Bill’s sort of expanded role in the new COO. So if you can just help us contextualize around the succession?

Kevin Mandia — Chief Executive Officer

Yeah, sure. So first and foremost, and this is either complementing me or not complementing Travis. Travis and I have shared a brain for 20-something-years. So the spirit of Travis, we thought so much more like, this will sound like a strange comment, but I think I knew his habits better than I knew my wife’s habits. I mean, that’s what happens in the workplace. So he’s still working with me. He’ll always be an adviser. When we’re 80 years old and on the front porch, we’ll be talking about FireEye. So there’s going to be total continuity to the mission and the things you put forward. We’ve been doing this for a long time. Travis joined me in February of 2006. And since that time, a lot of things can happen. And when you’re putting in seven days a week and 24 hours a day, there comes a time where you say, hey, it’s time for me to step out of the river and be an adviser for a while and step back in.

So, my opinion, Travis and I always work together. We always benefit from his guidance, and all the things that we put in motion together over the years are going to stay in motion. I do not anticipate he’s a stranger at all. And as he goes into his new schedule, we have to, obviously, operationally execute. And what I do there, I guess, it’s just the first five to eight years of my career between ROTC and the military, when you’ve got to execute and execute quickly, you reduce your span of control and you roll. And that’s what we’re doing as an organization. We’re going to most senior executives, and we’re kind of tightening the org chart to execute quicker. So that’s where I’m doing those changes. But this is something that a lot of folks, when you’re in a start-up and you get bought by the big companies, this is six years later, and we were still here, and we’re in. And Travis is going to stay connected to it. But it’s been a 14-year run for him. And when folks get to that point, all I can do is salute and respect.

Fatima Boolani — UBS — Analyst

I appreciate that color. Frank, for you. If we can revisit just some of the dynamics around the product and related category and the declining or accelerating declines in that segment relative to what we discussed at Analyst Day. If you could put a finer point on that for us as it relates to the Gen 4, Gen 5, appliance refreshes and refresh rates, that would be really helpful just to — so we can better appreciate the disparity there? And that’s it for me. Thank you.

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. Fatima, so in Q1 of last year, we did have kind of the force end of life at the end of March 2019 for the third generation appliances. So that did have kind of an outsized kind of product impact in Q1 of ’19. So if you recall, in Q1 of ’19, product grew 40% year-over-year. And so, now you’re seeing kind of the converse of that having a more significant decline year-over-year because we don’t have a kind of a forced refresh happening in Q1 of ’20.

As we look at the year and we look at the pipeline, we just see significant growth opportunities in the platform, cloud subscription part of our business. Now, the good thing, even with contract length coming down from the billings perspective, we’re still getting multi-year commitments from customers. It’s just what’s being billed upfront is typically more annual than a three-year deal at this point.

And if you look at just the overall growth in ARR. I think you can see that metric really showing strength because of that transformation from on-prem to cloud. Our cloud endpoint, for example, grew 100% year-over-year in cloud and ARR. So, we are seeing that transformation probably a little bit quicker than we expected. But I think it’s a good thing for the business. Those are the growth areas of our business. They continue to grow very strongly.

Fatima Boolani — UBS — Analyst

Thank you.

Operator

Thank you. Our next question comes from Melissa Franchi with Morgan Stanley. Your line is now open.

Melissa Franchi — Morgan Stanley — Analyst

Great. Thanks for taking my question. I’ll start with just a product or segment-related question for you, Kevin. The strength in services was really notable this quarter. And I think when you guys talked to last quarter, you said that Mandiant was operating at near capacity for utilization. So, can you just talk about what drove that strength and outperformance? And what you’re seeing from a kind of a billing rate perspective and expectations for hiring in 2020?

Kevin Mandia — Chief Executive Officer

You bet. So here’s the reality. If we hire, it grows, that simple. You only got three things. How many folks you got, hourly rate and chargeability. Chargeability is every single metric for the Mandiant services component is exactly where you want it to be. It’s probably a little bit hot right now. Especially in the you call, we haul business of incident response. But the fact is its growth rate is directly tied to adding more people into the mix. And that’s it. And plus, we have expanded the services. We have Charles Carmakal leading strategic services. We have Ron Bushar, who leads a lot of our government efforts. And it’s just a little bit more expansion into the strategic side of things as well. The bottom line right now, if we hired 10 more folks, we’ve got work for them right now. If you hired 20 more folks, my god, we have work for them right now.

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

And Melissa, one of the things helping to drive that is the fact that we’ve been able to build kind of more than we’re delivering. And so, we’ve constantly been able to increase the professional services deferred revenue with things like Expertise On Demand. And what that does is give, even in between any major projects, we have a bunch of work we can do with the existing team. And so, services deferred revenue got up to $95 million in Q4. So I think that’s really healthy for the business because it gives us the ability to just continue to focus on hiring the right resources to be able to deliver on that.

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Melissa Franchi — Morgan Stanley — Analyst

That’s great. Okay. And one follow-up for you, Frank. I just wanted to contextualize your guidance for 2020 in light of your longer-term guidance. So if we look at the billings guide, and we normalize for the contract length. You’re guiding to 9% billings growth, I believe. And then looking at your longer-term guide for the CAGR through 2024, I think you initially guided for 12% to 16% CAGR. And so, can you just help us understand, well, first, whether that still stands? And then secondly, what drives like the acceleration beyond 2020?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Sure. So we haven’t updated the long-term guidance. But basically, if you look at where this business is heading, 59% of the billings is in areas that are growing very quickly. Growing at rates above that five-year CAGR — overall CAGR. And so, as we continue to move throughout the year and move into 2021 and 2022, what you’ll see is the growth part of your business is a much bigger part of the overall business. And so, the overall growth rate for that business is going to be much more significant. I mean, if you look at where we expect product billings and product billings ended at 10% of our overall billings. So, while that has been declining, it’s becoming a much smaller piece of our overall business. And so, as we go through the year and as we go through next year, I would expect that the overall growth rate will go up because your growth part of your business is just a much bigger portion.

Melissa Franchi — Morgan Stanley — Analyst

Very helpful. Thank you.

Operator

Thank you. Our next question comes from Patrick Colville with Arete Research. Your line is now open.

Patrick Colville — Arete Research — Analyst

Thank you for taking my question. Can I switch over to profitability, if possible, because — I mean, that was a pretty impressive area, both this quarter and in your guidance. So, can you just quickly talk through why we’re seeing that inflection in profitability in fiscal ’20 given that the last two years have not really been much increase in profitability?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. I think, Patrick, a lot of it is just the focus on having expenses go relatively down from where they are today. And so, ultimately, even though we’re investing anywhere from $25 million to $35 million in the growth areas of the business in 2020, we’re pulling out roughly $50 million in the other parts of the business that are slower growth, which enables us to have an overall opex of down $20 million to $25 million year-over-year. And I think what’s really impressive is, we’re getting to, by the end of the year, expecting 12% to 14% operating margin in Q4. And we haven’t been in double digits before. So, I think that really shows the leverage in the business.

Patrick Colville — Arete Research — Analyst

Yeah. That’s very clear. Thank you very much. And can I just circle back to the fiscal ’20 revenue guidance? And so, you talked about the headwind from the third generation appliances and actually fiscal ’20 being the worst of the headwind. I mean, is that what you had expected previously? Or has that kind of troughing out being pushed back a little bit versus your prior expectations?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. I mean, we knew the amortization from the appliance was going to continue impacting us in 2020. And the fact that we sold less appliances in Q3 and Q4, there was less to add back into that pool. So that doesn’t surprise us. It’s — again, the good news about that is that headwind kind of dissipates in 2021 and beyond. So it kind of hits its peak in 2020. So the revenue guidance, while having that headwind, we’re still able to show kind of an overall growth of 6% there.

Patrick Colville — Arete Research — Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Rob Owens with Piper Sandler. Your line is now open.

Robbie Owens — Piper Sandler — Analyst

Great, and thanks for taking my questions, guys. Wanted to drill in a little bit, number one, on the number of million dollar transactions and Frank, you did touch on the fact that for the back half of ’19, they were down on a year-over-year basis. So, how long would you expect that headwind to last? Is that — when it laps itself in Q3? Or is this going to persists throughout 2020 in your view, kind of given some of the changes?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

With the expectation of contract length going down, you’re going to see probably an impact in the greater $1 million deals. I mean, we’re able to grow over that because of the transaction velocity that we’re seeing within the business. But we’re just — less deals are going to get to that level because they’re going from three-year deals to two-year deals.

Robbie Owens — Piper Sandler — Analyst

Okay. Fair. And, I guess, on the long lines of transaction velocity, and then just switching to customer acquisition, it looked like for ’19, your new logos are actually flat on a year-over-year basis, and that’s reported. I’m not sure how Verodin, the acquisition actually would impact that, if it was in the number when acquired or not. But maybe you could just walk us through kind of your thoughts in terms of customer acquisition? With some of the new compensation, are you driving for new logos? And what we should see throughout 2020?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. Our expectation is that we’re going to continue focusing on new customers because if you look at our ability to cross-sell and upsell our existing customer base, we do a really good job of that. So I think planting those seeds for the future is really important. If you look at some of the comp plan changes, if you look at some of the newer products like Verodin, I think they fit the channel very well, and I think we should see some traction there from a new customer logo perspective.

Robbie Owens — Piper Sandler — Analyst

All right. Thanks.

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Thanks, Rob.

Operator

Thank you. Our next question comes from Jonathan Ho with William Blair. Your line is now open.

Jonathan Ho — William Blair & Company — Analyst

Hi, good afternoon. I just wanted to start out with maybe trying to understand a little bit better the acquisition around Cloudvisory. What trends are you seeing in sort of securing multi-cloud? And maybe prioritization for 2020?

Kate Patterson — Vice President, Investor Relations

Yeah. A couple of thoughts on that. First, you want to be able to secure multi-cloud in one interface, right? So you need AWS, Google Cloud, Azure, O365 all in one place. And then if you can get visibility and the security controls in one place, that’s also very valuable. So, bottom line is this, most companies want their enterprises going to the cloud faster than they know they are. I know that’s even here at FireEye. It’s always fun for us to watch your AWS bill climb up from time to time. And people are — need the visibility on it. And more importantly, they need to test the security controls in place, and then actually adjust.

Cloudvisory gives us visibility into these four: Google, AWS, O365 and Azure. And it means to do firewall rules and controls based on what we see. So it’s just a perfect kind of attitude, the log ingestion that we get from all those providers in Helix. And you can now go from visibility, log ingestion and let’s change some things and orchestrate some defenses. So that’s how it fits in with us. Bottom line, every vendor, every — we take that out, every customer of ours that’s going to cloud is going to need that capability.

Jonathan Ho — William Blair & Company — Analyst

Got it. Got it. And then just to maybe go back to the hardware discussion. At what point does it make sense to maybe just discontinue the hardware business or force customers to the cloud? Would there be any meaningful cost savings if you didn’t need to support sort of both platforms? Thank you.

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. I think from a customer perspective, there’s still a lot of industries where on-premise appliances are important. So, our intention would be to always support those customers. I think we have a pretty streamlined organization there supporting kind of the hardware. So I believe it wouldn’t be a huge savings to move straight to the cloud or force movement to the cloud. I think it’s an important part of various customer verticals.

Jonathan Ho — William Blair & Company — Analyst

Thank you.

Operator

Thank you.

Kevin Mandia — Chief Executive Officer

And Jonathan, just to be clear on this, too. I mean, there’s no question at this point, Grady and I have been on the phone with customers recognizing the fact that our cloud-based Helix is just going to advance at a rate and pace of change that’s different than the on-prem. So, at some point in time, you got to go to where the puck is going to be. It is obviously that it’s rare in history of the world, you can get something cheaper that’s better, and cloud platform is actually providing infrastructure that’s better and costs less. That’s simple. So as people embrace that change, we got to embrace it as well.

So, internally, when you look at the innovation that we’re doing, it’s cloud first. And that’s why Grady has the role he has because he has a bias for change and a bias for cloud, and he’s been putting me in a headlock from nine years now to get there faster. So, we’ll keep getting there as fast as we can. We’re there already. But we’re going to — and Cloudvisory shows that we wanted to get the visibility and the controls playing done as well. We already have the log ingestion done. So we kind of got the track factor there of how we need to operate in the cloud. We’ll get our validation there. You can already run our security validation in the cloud. But one thing that I think would be a great growth there — actually, two things, great growth areas for FireEye is, one, Managed Defense in the cloud. People want to just say, hey, man, I’m going out to the cloud, I’m going fast. Can you secure it for me? We ought to be able to say, hey, you know what, we’ll do that.

And the second thing is, we started doing security assessments for the cloud, and we like to do that through our own technology like Cloudvisory. So, I lied, there’s a third thing. We got to validate in the cloud. And imagine a day, and I’ll push FireEye’s innovators to do this, where you can come to our website and say, I want to validate my cloud infrastructure and just click through menus, click through the licensing agreements, buy it and run tests to make sure you can validate your security. And that, to me, is transacting like a SaaS company. So we’ll keep that as our aspiration.

Kate Patterson — Vice President, Investor Relations

Operator, I think we have time for one more question, please.

Operator

Thank you. And our next question comes from Brian Essex with Goldman Sachs. Your line is now open.

Brian Essex — Goldman Sachs — Analyst

All right. Thank you for squeezing me in. Maybe, Kevin, if I could just ask you real quick about — as we’re focused here on platform, cloud and managed services, how is the platform adoption trending relative to — I think at Analyst Day, you noted about 20% of customers with three or more products. Are you getting meaningful traction with platform business? Or is there another gear here in terms of growth if you get better adoption there?

Kevin Mandia — Chief Executive Officer

Yeah. First off, so I always believe there’s another gear, period. So yeah, I just waved Grady over as Captain Helix as I call him to give you the update. So Grady?

Grady Summers — Executive Vice President, Products and Customer Success

Yeah. I would just say, adoption is going well. We see the customers with three or more segments. We’ve shared this before, but it continues to grow, so about 36% CAGR. So we see customers once you get in the door, adding on those additional product and service pieces. I’d also add some of the announcements, just the product stuff that Kevin alluded to at RSA is the ability to manage our on-prem appliances through Helix, which we expect to be kind of a phase shift and how quickly customers adopt the platform. In other words, you don’t need that on-prem control anymore to manage your on-premise hardware. So it’s a really big step forward for us.

Brian Essex — Goldman Sachs — Analyst

Got it. That’s super helpful. And maybe Grady while you’re on the line, if you could maybe provide an update. I think when you shifted roles here, we noted that you had a lot of changes on the development side of the organization. In terms of the cost reduction and efficiency that I think Frank had alluded to, is any of that coming from maybe the R&D and development side? Or are all of these kind of just strictly around rationalizing expenses related to the legacy or on-premise product and attached business?

Grady Summers — Executive Vice President, Products and Customer Success

Yeah. Definitely a bit more than just that, but I’ll actually hand it back to Frank to answer specific questions on the optimization.

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. Brian, it really is across the business, but it’s much more focused and tailored to the areas that are not growing. So if you think kind of the more mature products, if you look at the platform, cloud category and solutions, we are actually investing quite a bit more in there. But we are pulling some costs out of kind of the more mature products.

Brian Essex — Goldman Sachs — Analyst

So any R&D scale would be incremental to those, I guess, efficiencies?

Frank Verdecanna — Executive Vice President, Chief Financial Officer and Chief Accounting Officer

That would be included in incremental.

Brian Essex — Goldman Sachs — Analyst

Okay. Got it. Thank you very much.

Operator

Thank you. This concludes our question-and-answer session. I would now like to turn the call back over to Kevin Mandia for any closing remarks.

Kevin Mandia — Chief Executive Officer

Yeah. This will be quick. I just want to thank you for your interest in FireEye. There’s — you can see there’s a lot of excitement in the business. Three and a half years ago, it might even be coming up on four years ago, I was appointed CEO of this organization, I knew we had to, in the back of my mind, I called it the turn in quotes. And the way I define that was growth business overcoming and becoming the larger portion of the FireEye business. We got there in Q3. We did it again in Q4. And now that we’ve arrived, you’re going to see us pivoting more and more of our focus towards those growth areas. So the first portion of the transformation, check mark, complete. Now it’s time to deliver more growth on the side of our business that can grow even faster and be more relevant. Thank you very much.

Operator

[Operator Closing Remarks]

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