N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A, N/A. FireEye, Inc.

Buy ACCESS_DENI ED ACC ESS_DENIED Reduce ACCESS_ DENI ED ACC ESS_DENIED Hold ACC ESS_DENIED ACCESS_DENIED IBC ACCESS_ DENI ED

N/A, N/A, N/A, N/A, N/A , N/A, N/A, N/A, N/A , N/A, N/A, N/A, N/A , N/A, N/A, N/A, N/A , N/A, N/A, N/A

Equity Research

September 10, 2015

Software and Cloud Technology

Joel P. Fishbein, Jr.

(212) 738-6136

jfishbein@btig.com

Edward Parker

Abhinav Kapur

FireEye, Inc.

Are Expectations Reasonable Considering the Changes

in the Security Landscape? Initiate at Neutral

FireEye maintains a dominant position as the leader in defending enterprises from advanced persistent threats (APTs), but the market is increasingly competitive as new entrants and legacy providers have introduced alternative solutions.

There is clear momentum in the underlying business, but competitive concerns, lack of profitability, and valuation keep us on the sidelines. Growth is still +60% over the past 2 Qs (albeit slower than the triple-digits seen last year), and attention is shifting to the long-term financial model and how the company can turn leading market share into positive cash flow.

While we are still early in the cross-/up-sell opportunity (the company is launching products into new markets (i.e. email advanced threat protection (ATP), FEYE’s core growth will likely slow significantly.

While we expect growth to remain ahead of peers, we don’t believe the current 8.5x EV/F15 Revenues (vs. our broader security coverage at ~7x) represents an attractive entry point for the stock. Initiate at Neutral.  _{Risks. Competition intensifying and larger players are potentially} 

commoditizing FEYE’s main product offerings. Street expectations may also be too high, as the company has little margin for error with respect to execution on its path to better leveraging the expense base and driving profitability.

 _{Valuation: FEYE currently trades at 8.5x EV/F15 Revenues vs. our}  broader security coverage at ~7x. While higher growth may justify the premium, a more intense competitive environment and significant execution expectations keep us on the sidelines. Our DCF model yields a price target within +/- 15% of current trading levels, so we rate FEYE Neutral.

FEYE

$38.29

NEUTRAL

Source: IDC. As of September 9, 2015.

Estimates

1Q14 A 2Q14 A 3Q14 A 4Q14 A FY14 A 1Q15 A 2Q15 A 3Q15 E 4Q15 E FY15 E FY16 E

Sales 74 94 114 143 426 125 147 167 200 639 879

Diluted EPS (Adj.) (0.53) (0.55) (0.51) (0.38) (1.98) (0.48) (0.41) (0.46) (0.44) (1.78) (1.48)

FCF (37) (79) (70) (13) (199) (16) 27 (46) (24) (58) (37)

EV/Sales (x) - - - - 12.69 - - - - 8.45 6.15

Source: BTIG Research Estimates and Company Documents ($ in millions, except per share amount) Adjusted EPS excludes stock-based comp, amortization and acquisition related costs.

Company Background

FireEye, Inc. develops virtual machine-based security platform that provides real-time protection to enterprises and governments worldwide against the next generation of cyber-attacks. The FireEye Threat Prevention Platform provides real-time, dynamic threat protection without the use of signatures to protect an organization across the primary threat vectors, including Web, email, and files and across the different stages of an attack life cycle. Its virtual machine-based security platform is a virtual execution engine, complemented by dynamic threat intelligence, to identify and block cyber-attacks in real time.

Investment Thesis

FireEye maintains a dominant position as the leader in defending enterprises from advanced persistent threats (APTs), but the market is increasingly competitive as less-expensive cloud-based solutions are coming to market. Growth is still +60% over the past 2 Qs (albeit slower than the triple-digits seen last year), and attention is shifting to the long-term financial model and how the company can turn leading market share into positive cash flow.

While we don’t doubt the momentum of the underlying business, given the constantly evolving threat environment and relatively low penetration of large enterprises and government organizations, execution risks (and valuation) keep us on the sidelines. Specifically, while we are still early in the cross-/up-sell opportunity for the company, FireEye’s bread and butter sandboxing technology is beginning to be commoditized as it gets incorporated into competitive (i.e. next-generation firewall) solutions. Also, in an effort to become a true security platform, the company is launching products into markets (i.e. email advanced threat protection (ATP)) with established, innovative leaders. While we expect growth to remain ahead of peers, we don’t believe the current 8.5x EV/F15 Revenues (vs. our broader security coverage at ~7x) represents an attractive entry point for the stock. Initiate at Neutral.

First-Movers in APT, but Competition Abounds

FireEye was instrumental in introducing next-generation technology to proactively defend enterprises from APTs, and was rewarded with triple-digit top-line growth over the past two years. Growth was primarily led by their primary web-gateway based sandboxing technology (Network Threat Prevention Platform, or NX Series).

The company has expanded this solution by integrating an intrusion prevention system (IPS) tool, and has built a more integrated platform with offerings to block email threats (spear-phishing), endpoints, mobile and consulting services. While building an integrated security platform has helped maintain strong growth (+62% in 1H15), FEYE is competing with an increasing number of competitors, including leading innovators, legacy incumbents playing catch-up, large next-generation companies expanding their own security platforms or well-funded private companies developing their own unique products. The advanced protection market is expected to grow at a ~49% CAGR through 2018 (per IDC), and is becoming an increasingly competitive space given the changing security paradigm from reactive to proactive.

The secure email gateway (SEG) market is a prime example of the challenges we expect FEYE to face as it expands its offerings. Specifically, spear-phishing remains an enormous challenge to business of all sizes, as attacks become increasingly varied and targeted (spear-phishing is still the source of ~90% of all data breaches and Gartner estimates that 65% of cyber espionage incidents over the past two years featured spear-phishing).

However, with respect to advanced threat detection, prevention and analytics, Proofpoint (PFPT, Buy, $72 PT) is the clear leader in the space (see Figure 1), with a dedicated cloud-based solution targeted at both enterprises and SMBs and a 99.8% anti-spam effectiveness rate. Similarly, although predominantly an on-premise solution, Cisco (CSCO, Not Rated) remains the market share leader in SEG (and a favorite choice of large enterprises), and is innovating its own email protection solutions to include cloud-based, proactive malware detection and threat remediation.

Symantec (SYMC, Neutral) is also showing renewed focus on becoming a next-generation security company and improving its own SEG capabilities via a cloud service with targeted phishing identification, Office 365 integration and better encryption services. Given that FEYE’s solution is still in its early stages relative to competitor offerings, we wouldn’t be surprised to see them taking share (particularly from larger, legacy customers); we still believe though that in the current security environment – where security buyers are firmly approaching the market on a “best-of-breed” basis – FEYE may have difficulty in acquiring customers and achieving scale.

Figure 1: FEYE’s Faces Significant Competition Across the SEG Spectrum

Source: Gartner Secure Email Gateway Magic Quadrant, as of June 2015.

Similarly, we believe FEYE’s core sandboxing technology is being commoditized as larger players in other security segments incorporate ATP tools into their own core offerings. For example, Palo Alto Networks (PANW, Buy, $210 PT) launched their Wildfire zero-day advanced threat detection technology as an augmentation to their tightly integrated next-generation firewall platform.

PANW released Wildfire ~3 years ago and has experienced significant growth to date with ~6,000 customers (25% of PANW’s total install base, a 124% CAGR since 2012). Furthermore, growth is accelerating as the company continues to add ~1,000 customers per quarter, highlighting not just the strength of this cloud-based technology (detects zero-day threats within 15 minutes), but also the rapid adoption and potential to further integrate it with their current install base. Likewise, Check Point (CHKP, Neutral) has a similarly large install base and has launched new products to augment their existing firewall solutions (both on-premise and cloud based), including CPU-level Threat Emulation (which goes head-to-head with FEYE’s endpoint prevention solution and is seeing good pipeline growth) and mobile security via its recent acquisition of Lacoon.

Essentially, while FEYE was able to capture the first-mover advantage in the advanced threat detection and prevention space, it is encountering fierce competition across the market landscape. Despite overall low customer penetration (less than 30% of the Global 2000), we believe we are in a “best-of- breed” security buying environment, where buyer behavior follows the best solution overall for different facets of their IT organization. Similarly, other, larger competitors are recognizing the “best-of-breed” approach and are proactively attempting to consolidate their position as the sole or leading enterprise security vendor. With their superior scale and resources, they are able to either invest in developing new solutions, or use their balance sheet to acquire smaller, private innovators and leverage their technology.

Are Cash, Margin and Execution Expectations Reasonable?

FEYE caught the Street by surprise in 2Q15, as it beat operating cash flow estimates by ~$84 million (+$39m reported vs. a loss of $44m for consensus), driven largely by significant improvement in net working capital (DSOs improved from 86 days in the year-ago quarter to 53 days). The company is guiding towards breakeven operating cash flow at the midpoint for F15, and believes that a “new range” of 65-75 DSOs is sustainable over the long-term. The company believes that better working capital management, continued top-line momentum and better expense management will enable them to achieve operating cash flow breakeven within the next 2-4 years (operating income breakeven expected in the next 3-5 years).

If sustainable, improved working capital management could accelerate this timeline, and the Street currently expects significant operating cash flow generation (+$72m) by F16 (one year ahead of schedule). While we agree with the Street on FEYE’s ability to generate positive operating cash flow in this shorter timeframe, we note that FEYE’s targets are hugely dependent on/sensitive to their ability to drive down sales and marketing (S&M) spending as a percentage of revenues. The company invested significantly in S&M to execute on strong demand for their innovative solutions, but now has a larger cost base than most peers (see Figure 2).

Figure 2: FEYE’s Strong Growth Corresponds to Large S&M Investment – But Drastic Reduction Needed for Breakeven ($mm)

Source: BTIG Research, FactSet, Company Filings.

Note: Includes select security companies with < $1 billion in LTM revenues and Y/Y % revenue growth of > 20%.

The company’s investment in S&M more than compensated for ~100% revenue growth over the last twelve months, resulting in an operating cash loss of ~$11m. We believe this is significant as other small, high-growth peers are already cash flow positive over the same time-frame (albeit without showing as much growth as FEYE). We therefore believe that there is potential downside risk to numbers, especially as competition intensifies in the advanced threat space and FEYE’s core sandbox technology gets commoditized and incorporated into other next-generation security solutions. We believe that Street (and the company’s) expectations are reasonable, and that FEYE’s growth rate will continue to “slow down.” Specifically, the Street expects a ~40% 2014 – 2017 CAGR for the top-line, slightly ahead of the company’s long-term target of 30-35% to achieve >$2 billion in billings ($1.5-$2 billion in revenue) by 2019.

However, we are less certain about the margin improvements required to reach longer-term operating profit breakeven. R&D is already generally above peer levels at 35-40% of revenue (a far cry from the long-term target of 13-15%), and Street expectations assume the company needs to reduce S&M costs by ~30% percentage points (pp) over the next 3 years to achieve ~65pp improvement in its operating margin (see Figure 3). Furthermore, despite these expected expense improvements, FEYE will still remain short of its long-term S&M target of 30-35% of revenues, and would need an incremental improvement of >10pp to be operating at peak efficiency.

72.3% 68.4% 59.1% 55.2% 46.2% 46.2% 43.0% 30.4% 28.0% 17.0% --10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% MOBL ($44.1) 23.3% FEYE ($10.9) 97.4% RPD ($3.2) 37.9% IMPV $12.4 30.1% LOCK $118.1 26.3% PFPT $37.7 38.5% CUDA $55.0 18.7% QLYS $51.8 24.1% CYBR $47.5 76.5% VDSI $31.5 45.4%

LTM Sales and Marketing as a % of Revenue

LTM OCF: LTM Rev. ∆:

Figure 3: Street Expectations Assume FEYE Exhibits Prolonged, Superior Execution and Operating Leverage

Source: BTIG Research, FactSet, Company Filings.

We believe the recent net working capital improvements can enable cash flow to turn positive ahead of the company’s initial guide in F16, but we are less clear if FEYE can show the tremendous amount of expense discipline required to effectively leverage the large-scale investments it’s made over the past two years.

We were pleased that Michael Berry has been appointed chief financial officer (CFO) and will join the company on September 21. Mike has an accomplished history most recently serving as chief financial officer of Informatica Corporation. Mike earlier led finance and other operations for a number of technology companies, including IO, SolarWinds, and i2 Technologies. However, Fireye’s business model is in transition as it necessitates drastic improvements in efficiency to achieve long-term profitability. We believe any long-term value for FEYE shareholders will be determined much more by consistent expense management; the company grew its sales capacity in order to capitalize on its first-mover advantage, but with the overall revenue growth rate slowing, we believe there is very little margin for error in order to turn FEYE from just a new, high-growth technology company into a leading, profitable security platform.

Year Revenue Y/Y % ∆ S&M % Y/Y pp ∆ O p Margin EP S CFO

F14 $426 163.5% 75.6% 21 pp (64.9%) ($1.98) ($131.3) F15 641 50.6 62.7 13 (39.7) (1.72) (4.9) F16 885 38.1 52.0 11 (22.3) (1.34) 71.8 F17 1,169 32.1 46.5 6 (7.0) (0.55) 159.6 F1 4 - F1 7 ∆ 4 0 % 2 9 pp 5 8 pp $ 1 .4 3 $ 2 9 0 .9 LT Targets/ Breakeven 3 0 -3 5 % 3 0 -3 5 % F1 8 -F2 0 F1 8 -F2 0 F1 7 -F1 9

Valuation

We rate FireEye Neutral, as our DCF analysis yields a price target within +/- 15% of current trading levels. Our analysis assumes a 10-year revenue CAGR of 25% and 15x terminal cash flow multiple. This implies a terminal EV/EBITDA multiple of ~14x.

FEYE currently trades at 8.5x EV/F15 Revenues vs. our broader security coverage at ~7x. While higher growth may justify the premium, a more intense competitive environment and significant execution expectations keep us on the sidelines.f

Figure 4: Estimate Summary

Source: BTIG Research, FactSet.

Note: Market data as of September 9, 2015.

FireEye BTIG Est. Summary Dec -1 5 Dec -1 6 Dec -1 7

($ in millions, except per share) FY1 5 E FY1 6 E FY1 7 E

Revenue $639 $879 $1,174 Billings 842 1,129 1,482 Operating income (263) (220) (93) EPS (1.78) (1.48) (0.63) FCF (58) (37) 120 Capex 56 70 82

Year over year growth

Revenue 50.1% 37.5% 33.6%

Billings 42.6% 34.1% 31.3%

Operating income nm nm nm

EPS nm nm nm

FCF nm nm nm

Valuation Summary FY1 5 E FY1 6 E FY1 7 E

EV/Revenues 8.5x 6.1x 4.6x

FireEye Income Statement

Source: BTIG Research, Company Filings.

FireEye Inc ome Statement FY2 0 1 2 FY2 0 1 3 FY2 0 1 4 FY2 0 1 4 FY2 0 1 5 E FY2 0 1 5 E FY2 0 1 6 E

($ in millions except per share) Q 1 -Mar-1 4 Q 2 -Jun-1 4 Q 3 -Sep-1 4 Q 4 -Dec -1 4 Q 1 -Mar-1 5 Q 2 -Jun-1 5 Q 3 -Sep-1 5 E Q 4 -Dec -1 5 E REVENUE

Product $52.265 $88.253 $24.252 $37.683 $48.375 $67.936 $178.246 $40.237 $49.696 $61.436 $82.882 $234.251 $299.389

Subscription and services 31.051 73.299 49.728 56.806 65.836 75.046 247.416 85.133 97.511 105.311 116.790 404.746 579.327

Total revenue 8 3 .3 1 6 1 6 1 .5 5 2 7 3 .9 8 0 9 4 .4 8 9 1 1 4 .2 1 1 1 4 2 .9 8 2 4 2 5 .6 6 2 1 2 5 .3 7 0 1 4 7 .2 0 7 1 6 6 .7 4 7 1 9 9 .6 7 2 6 3 8 .9 9 7 8 7 8 .7 1 6

Cost of product revenue 14.132 27.371 7.750 10.841 12.345 16.215 47.151 11.868 13.651 15.973 19.063 60.555 77.496

Cost of subscription and services 1.817 16.311 16.157 18.832 20.658 21.769 77.416 24.998 26.368 29.487 30.365 111.219 146.852

Total c ost of revenue 15.949 43.682 23.907 29.673 33.003 37.984 124.567 36.866 40.019 45.461 49.428 171.774 224.348

Gross profit 67.367 117.870 50.073 64.816 81.208 104.998 301.095 88.504 107.188 121.287 150.244 467.223 654.367

O perating expenses

Research and development 15.057 59.078 37.367 45.605 47.060 44.188 174.220 49.570 52.273 59.273 64.273 225.389 280.092

Sales and marketing 65.890 156.476 65.189 75.547 85.856 95.235 321.827 87.914 93.423 106.718 123.797 411.852 482.204

General and administrative 11.685 35.648 17.715 20.733 20.822 22.083 81.353 21.867 21.708 24.208 25.208 92.991 112.332

Total operating expenses 92.632 251.202 120.271 141.885 153.738 161.506 577.400 159.351 167.404 190.199 213.278 730.232 874.628

O perating inc ome (2 5 .2 6 5 ) (1 3 3 .3 3 2 ) (7 0 .1 9 8 ) (7 7 .0 6 9 ) (7 2 .5 3 0 ) (5 6 .5 0 8 ) (2 7 6 .3 0 5 ) (7 0 .8 4 7 ) (6 0 .2 1 6 ) (6 8 .9 1 2 ) (6 3 .0 3 4 ) (2 6 3 .0 0 9 ) (2 2 0 .2 6 1 )

(+) Depreciation 6.917 20.758 20.706 22.020 24.905 26.505 94.136 26.581 27.588 26.680 26.956 107.804 60.927

EBITDA - (112.574) (49.492) (55.049) (47.625) (30.003) (182.169) (44.266) (32.628) (42.233) (36.078) (155.205) (159.334)

Interest income and other expense, net (0.567) (1.176) (0.016) (0.150) (0.414) (0.671) (1.251) (0.499) (1.421) (0.800) (0.800) (3.520) (3.200)

Pretax income (Non-GAAP) (25.832) (134.508) (70.214) (77.219) (72.944) (57.179) (277.556) (71.346) (61.637) (69.712) (63.834) (266.529) (223.461)

Provision for income taxes (0.965) 0.323 1.200 1.262 0.927 (0.571) 2.818 0.977 0.927 1.250 1.250 4.404 4.400

Tax rate -2% -2% -1% 1% (1.0%) -1% -2% -2% -2% (1.7%) (2.0%)

Net inc ome (2 4 .8 6 7 ) (1 3 4 .8 3 1 ) (7 1 .4 1 4 ) (7 8 .4 8 1 ) (7 3 .8 7 1 ) (5 6 .6 0 8 ) (2 8 0 .3 7 4 ) (7 2 .3 2 3 ) (6 2 .5 6 4 ) (7 0 .9 6 2 ) (6 5 .0 8 4 ) (2 7 0 .9 3 3 ) (2 2 7 .8 6 1 )

EP S ($ 2 .2 8 ) ($ 2 .9 9 ) ($ 0 .5 3 ) ($ 0 .5 5 ) ($ 0 .5 1 ) ($ 0 .3 8 ) ($ 1 .9 8 ) ($ 0 .4 8 ) ($ 0 .4 1 ) ($ 0 .4 6 ) ($ 0 .4 4 ) ($ 1 .7 8 ) ($ 1 .4 8 )

Shares outstanding 10.917 45.032 133.976 141.895 144.923 147.746 142.135 151.651 154.121 154.121 149.121 152.254 154.121

Expense analysis (non-GAAP ):

Cost of revenues 80.9% 73.0% 67.7% 68.6% 71.1% 73.4% 70.7% 70.6% 72.8% 72.7% 75.2% 73.1% 74.5%

R&D 18.1% 36.6% 50.5% 48.3% 41.2% 30.9% 40.9% 39.5% 35.5% 35.5% 32.2% 35.3% 31.9%

Sales & marketing 79.1% 96.9% 88.1% 80.0% 75.2% 66.6% 75.6% 70.1% 63.5% 64.0% 62.0% 64.5% 54.9%

General & administrative 14.0% 22.1% 23.9% 21.9% 18.2% 15.4% 19.1% 17.4% 14.7% 14.5% 12.6% 14.6% 12.8%

Depreciation 8.3% 12.8% 28.0% 23.3% 21.8% 18.5% 22.1% 21.2% 18.7% 16.0% 13.5% 16.9% 6.9%

Margin analysis (non-GAAP ):

Product gross margin 73.0% 69.0% 68.0% 71.2% 74.5% 76.1% 73.5% 70.5% 72.5% 74.0% 77.0% 74.1% 74.1%

Subscrption and services gross margin 94.1% 77.7% 67.5% 66.8% 68.6% 71.0% 68.7% 70.6% 73.0% 72.0% 74.0% 72.5% 74.7%

Gross margin 80.9% 73.0% 67.7% 68.6% 71.1% 73.4% 70.7% 70.6% 72.8% 72.7% 75.2% 73.1% 74.5% O perating margin -3 0 .3 % -8 2 .5 % -9 4 .9 % -8 1 .6 % -6 3 .5 % -3 9 .5 % -6 4 .9 % -5 6 .5 % -4 0 .9 % -4 1 .3 % -3 1 .6 % -4 1 .2 % -2 5 .1 % EBITDA margin 0.0% -69.7% -66.9% -58.3% -41.7% -21.0% -42.8% -35.3% -22.2% -25.3% -18.1% -24.3% -18.1% Net margin -29.8% -83.5% -96.5% -83.1% -64.7% -39.6% -65.9% -57.7% -42.5% -42.6% -32.6% -42.4% -25.9% Q /Q growth rates: Product -24.9% 55.4% 28.4% 40.4% -40.8% 23.5% 23.6% 34.9%

Subscription and services 99.2% 14.2% 15.9% 14.0% 13.4% 14.5% 8.0% 10.9%

Total revenue 29.2% 27.7% 20.9% 25.2% -12.3% 17.4% 13.3% 19.7%

Gross profit 19.9% 29.4% 25.3% 29.3% -15.7% 21.1% 13.2% 23.9%

Operating expenses 47.6% 18.0% 8.4% 5.1% -1.3% 5.1% 13.6% 12.1%

Operating margin 76.8% 9.8% -5.9% -22.1% 25.4% -15.0% 14.4% -8.5%

Net income 76.4% 9.9% -5.9% -23.4% 27.8% -13.5% 13.4% -8.3%

Y/Y growth rates:

Product 68.9% 61.8% 118.6% 103.9% 110.4% 102.0% 65.9% 31.9% 27.0% 22.0% 31.4% 27.8%

Subscription and services 136.1% 270.3% 255.4% 247.9% 200.6% 237.5% 71.2% 71.7% 60.0% 55.6% 63.6% 43.1%

Total revenue 9 3 .9 % 1 6 0 .3 % 1 8 4 .4 % 1 6 7 .8 % 1 4 9 .7 % 1 6 3 .5 % 6 9 .5 % 5 5 .8 % 4 6 .0 % 3 9 .6 % 5 0 .1 % 3 7 .5 %

Gross profit 75.0% 127.3% 173.8% 166.9% 151.5% 155.4% 76.7% 65.4% 49.4% 43.1% 55.2% 40.1%

R&D 292.4% 310.4% 253.6% 159.4% 133.4% 194.9% 32.7% 14.6% 26.0% 45.5% 29.4% 24.3%

Sales & marketing 137.5% 135.1% 107.9% 111.6% 83.7% 105.7% 34.9% 23.7% 24.3% 30.0% 28.0% 17.1%

G&A 205.1% 191.1% 132.0% 109.7% 106.5% 128.2% 23.4% 4.7% 16.3% 14.2% 14.3% 20.8%

O perating expenses 1 7 1 .2 % 1 8 0 .2 % 1 4 3 .9 % 1 2 4 .0 % 9 8 .3 % 1 2 9 .9 % 3 2 .5 % 1 8 .0 % 2 3 .7 % 3 2 .1 % 2 6 .5 % 1 9 .8 %

Operating income 427.7% 236.0% 123.4% 89.8% 42.3% 107.2% 0.9% -21.9% -5.0% 11.5% -4.8% -16.3%

Net income 442.2% 235.6% 125.0% 93.4% 39.9% 107.9% 1.3% -20.3% -3.9% 15.0% -3.4% -15.9%

Appendix: Analyst Certification and Other Important Disclosures

Analyst Certification

I, Joel P. Fishbein, Jr., hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.

I, Edward Parker, hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.

I, Abhinav Kapur, hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.

Regulatory Disclosures

Analyst Stock Ratings Definitions

BTIG LLC’s (“BTIG”) ratings, effective May 10, 2010, are defined as follows:

BUY – A stock that is expected at initiation to produce a positive total return of 15% or greater over the 12 months following the initial recommendation. The BUY rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return.

SELL – A stock that is expected at initiation to produce a negative total return of 15% or greater over the next 12 months following the initial recommendation. The SELL rating may be maintained following initiation as long as it is deemed appropriate, notwithstanding price fluctuations that would cause the target to fall outside of the 15% return.

NEUTRAL – A stock that is not expected to appreciate or depreciate meaningfully over the next 12 months.

NOT RATED – A stock that is not rated but that is covered by BTIG.

Distribution of Ratings and Investment Banking Clients

BTIG must disclose in each research report the percentage of all securities rated by the member to which the member would assign a “buy”, “neutral” or “sell” rating. The said ratings are updated on a quarterly basis. BTIG must also disclose the percentage of subject companies within each of these three categories for whom the member has provided investment banking services within the previous twelve months. Stocks in coverage as of the end of the most recent calendar quarter (June 30, 2015): 129

Distribution of BTIG’s Research Recommendations (as of June 30, 2015): BUY: 65%; NEUTRAL: 31%; SELL: 4%

Distribution of BTIG’s Investment Banking Services (as of June 30, 2015): BUY: 83%; NEUTRAL: 17%; SELL: 0%

For purposes of FINRA ratings distribution rules, BTIG’s stock ratings of Buy, Neutral and Sell fall into Buy, Hold and Sell categories, respectively.

Company-Specific Regulatory Disclosures

FireEye, Inc. (FEYE) Valuation

FEYE currently trades at 8.5x EV/F15 Revenues vs. our broader security coverage at ~7x. While higher growth may justify the premium, a more intense competitive environment and significant execution expectations keep us on the sidelines. Our DCF model yields a price target within +/- 15% of current trading levels, so we rate FEYE Neutral.

Risks

Competition intensifying and larger players are potentially commoditizing FEYE’s main product offerings. Street expectations may also be too high, as the company has little margin for error with respect to execution on its path to better leveraging the expense base and driving profitability.

Check Point Software Technologies Ltd. (CHKP) Valuation

CHKP shares currently trade at 6.7x EV/F15 Revenues and 6.2x EV/F16. Our DCF analysis yields a price target within +/-15% of current trading levels, so we rate Check Point Neutral. BTIG does not provide price targets on Neutral-rated stocks.

Risks

CHKP is aggressively investing in R&D and sales and marketing to perpetuate strong growth, but the company risks margin dilution if incremental investments don’t yield results. CHKP has also recently become more acquisitive as it seeks to leverage its large install base to introduce new products, grow TAM and increase ASPs. However, execution risk (and increased competition) remain as it moves into high-growth markets currently attracting the attention of numerous legacy competitors and smaller, higher-growth innovators.

Palo Alto Networks, Inc. (PANW) Valuation

FCF generation is currently inflecting as operating margins climb into double digit territory and as new products like TRAPs begin to contribute. While the stock is one of the most expensive in the group, valuation is reasonable when looking at FCF. Our $210 price target is based on our DCF model and reflects 11x next year’s EV/revenue and 32x EV/FCF.

Risks

The primary risk around Palo Alto is high expectations for the company to build a multi-billion dollar franchise in security. We also highlight that while the company has a growing mix of recurring subscription revenues, a significant portion of the company’s revenues are book-ship in nature, which makes revenues less predictable than similarly valued SaaS companies.

Proofpoint, Inc. (PFPT) Valuation

We rate Proofpoint Buy with a $72 price target based on our DCF analysis. This equates to 10.8x 2015 EV/Revenue and 8.5x 2016 EV/Revenue, which we view as reasonable for a company expected to grow >25% for the next 3 years.

Risks

Secure email gateway is a mature market, and we expect PFPT’s recent >30% growth to slow as share gains begin to abate. Any perceived slowdown in core protection offering could be viewed unfavorably by investors. Recent strong growth in Advanced Threats market (+100% y/y for 7 straight Qs) may come under pressure as market growth (+45% CAGR through ’18) attracts new competitors, creating pricing pressure. Execution has been excellent to date, but any failure to continue exceeding and resetting guidance could accelerate growth concerns.

Symantec Corporation (SYMC) Valuation

DCF valuation yields a price target within +/- 15% of current trading levels, so we rate SYMC Neutral. BTIG does not provide price targets on Neutral-rated stocks.

Risks

We believe Symantec is relatively late in the game on its advanced threat protection products, and recent execution missteps may not bode well as the company aims to become a premier cyber security-focused company. Post-Veritas sale, both the enterprise and consumer security businesses are still in decline, and we don’t expect new initiatives to reverse these declines in the near-term. We concede though that upside remains to our estimates based on the cash received from the Veritas sale; the company has enough financial flexibility to boost future performance via smart acquisitions of next-generation security technology.

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