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CST: 11/11/2019 19:55:47   

Forescout Technologies Reports Third Quarter 2019 Financial Results

5 Days ago

  • Total Revenue of $91.6 million, compared to $85.6 million in the third quarter of 2018
  • Transforms Network Segmentation with the release of Forescout eyeSegment

SAN JOSE, Calif., Nov. 06, 2019 (GLOBE NEWSWIRE) -- Forescout Technologies, Inc. (NASDAQ:FSCT), the leader in device visibility and control, today announced results for its third quarter ended September 30, 2019.

“Our third quarter 2019 results were impacted by extended sales cycles, with the resulting revenue shortfall most pronounced in EMEA. These results are disappointing to us and we are taking a number of steps to improve things we can control, including sales execution and shaping our revenue model for better predictability,” said Michael DeCesare, CEO and President of Forescout Technologies. “We continue to be confident that we are in the early innings of a large market opportunity for device visibility and control and that Forescout is well-positioned to win. To that end, we are excited to announce eyeSegment, a major innovation for the company and our first cloud-delivered SaaS product that will help customers accelerate network segmentation.”

Third Quarter 2019 Financial Highlights

  • Revenue: Total revenue was $91.6 million, an increase of 7% over the third quarter of 2018

    o  License revenue was $50.2 million, a decrease of 2% over the third quarter of 2018

    o  Subscription revenue was $36.6 million, an increase of 21% over the third quarter of 2018

    o  Professional Services revenue was $4.8 million, an increase of 15% over the third quarter of 2018

  • Gross Profit: GAAP gross profit was $69.9 million, or 76% of total revenue, compared to $66.4 million in the third quarter of 2018, or 78% of total revenue. Non-GAAP gross profit was $71.4 million, or 78% of total revenue, compared to $67.2 million in the third quarter of 2018, or 78% of total revenue.

  • Operating Loss: GAAP operating loss was $17.0 million, or 19% of total revenue, compared to a loss of $8.6 million in the third quarter of 2018, or 10% of total revenue. Non-GAAP operating loss was $1.4 million, or 1% of total revenue, compared to $4.9 million in the third quarter of 2018, or 6% of total revenue.

  • Net Loss: GAAP net loss was $33.5 million, or $0.72 per share, compared to $8.3 million in the third quarter of 2018, or $0.20 per share. Non-GAAP net loss was $0.8 million, or $0.02 per share, based on 46.6 million weighted average diluted shares outstanding, compared to a net loss of $5.1 million in the third quarter of 2018, or $0.10 per share, based on 48.5 million weighted average diluted shares outstanding.

  • Cash Flow: Net cash used in operating activities was $13.9 million, or 15% of total revenue, compared to net cash used in operating activities of $11.6 million in the third quarter of 2018, or 14% of total revenue. Free cash flow was negative $16.2 million, or 18% of total revenue, compared to negative $13.6 million in the third quarter of 2018, or 16% of total revenue.

A reconciliation of GAAP to non-GAAP financial measures is provided in the financial statement tables included in this press release. An explanation of these measures is also included under the heading “Non-GAAP Financial Measures.”

“Our profitability in the third quarter was negatively impacted by the revenue shortfall. We are committed to being financially responsible and will balance our expenses versus growth,” said Criss Harms, Chief Financial Officer of Forescout. “Looking forward, we are on a path for greater visibility and predictability in our revenue model with plans underway to meaningfully accelerate adoption of term-based licensing and deliver Software-as-a-Service offerings to the market, beginning today with eyeSegment and a SaaS version of our core product eyeSight late next year.”

Recent Business Highlights

  • Launched new cloud-based offering, Forescout eyeSegment, to transform enterprise-wide network segmentation. Forescout's eyeSegment will help organizations accelerate network segmentation projects, driven by the need to secure critical applications, mitigate increased exposure due to IoT devices, and limit the lateral movement and blast radius of threats across flat networks.

  • Positioned as a Strong Performer in the Forrester Research, Inc. report, The Forrester Wave™: Zero Trust eXtended (ZTX) Ecosystem Providers, Q4 2019 Report and named as the vendor for Zero Trust IoT/OT focused security.

  • Received the Frost & Sullivan Global Enabling Technology Leadership Award for IT/OT Smart Building Security. The award recognizes the company for its deep visibility of assets and network behavior using its patented DPI technology, as well as its focus on innovation and customer satisfaction.

  • Announced that Forescout’s device visibility and control platform has been designated as a Cyber Catalyst by MarshSM, a global leader in insurance broking and innovative risk management solutions, based on its technical differentiation and value delivered in reducing cyber risk. Cyber Catalyst is a first-of-its-kind evaluation program designed to help organizations make more informed choices about cybersecurity products and services to manage their cyber risk.

  • Acquired certain assets of IoT security company Dojo to accelerate the development of the Forescout’s enterprise cloud-delivered products as part of its end-to-end device visibility and control platform.

  • Enhanced SilentDefense with a new Asset Risk Framework that will provide users with intuitive, impact-based scores in a central dashboard so they can determine their current security risk exposure, identify assets that have a high potential of being attached and enable engineers to take action on the assets that need attention.

Fourth Quarter and Full Year 2019 Outlook

Forescout provides guidance based on current market conditions and expectations.

For the fourth quarter of 2019, Forescout expects:

  • Revenue of $93.5 million - $96.5 million, representing year-over-year growth of 12% at the midpoint

  • Non-GAAP operating loss of ($3.3) million - ($2.3) million

  • Non-GAAP net loss per share of ($0.08) - ($0.06) using approximately 47.4 million weighted shares outstanding

For the full year 2019, Forescout expects:

  • Revenue of $339 million - $342 million, representing year-over-year growth of 14% at the midpoint

  • Non-GAAP operating loss of ($37.2) million - ($36.2) million

  • Non-GAAP net loss per share of ($0.82) - ($0.80) using approximately 45.9 million weighted shares outstanding

Guidance for non-GAAP operating loss and non-GAAP net loss per share excludes stock-based compensation expense, acquisition-related expenses, and amortization of acquired intangible assets. We have not reconciled non-GAAP operating loss guidance to GAAP operating loss, nor have we reconciled non-GAAP net loss per share to GAAP net loss per share, as a result of the uncertainty and the potential variability of the excluded items. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.

Conference Call Information

Forescout will host a conference call for analysts and investors to discuss its third quarter 2019 financial results today at 1:30 p.m. Pacific time. Open to the public, interested parties may access the conference call by dialing either (855) 659-9329 or (615) 247-5915 using the passcode 1388115.

A live webcast will be accessible on Forescout’s investor relations website at http://investors.Forescout.com. A telephonic replay of the conference call will be available through Wednesday, November 13, 2019. To access the replay, interested parties should dial either (855) 859-2056 or (404) 537-3406 using the passcode 1388115.

About Forescout

Forescout Technologies, Inc. provides security at first sight. Our company delivers device visibility and control to enable enterprises and government agencies to gain complete situational awareness of their environment and orchestrate action. Learn more at www.Forescout.com.

© 2019 Forescout Technologies, Inc. All rights reserved. Forescout Technologies, Inc. is a Delaware corporation. A list of our trademarks and patents can be found at https://www.Forescout.com/company/legal/intellectual-property-patents-trademarks. Other brands, products, or service names may be trademarks or service marks of their respective owners.

Investor Relations Contact: Media Relations Contact:
Michelle Spolver Katie Beck
408-721-5884 650-314-8705
michelle.spolver@forescout.com katie.beck@forescout.com

FSCT - F

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding our financial outlook for the fourth quarter of 2019 and fiscal year 2019, our growth prospects, demand for our products, and market opportunity, the benefits of our solution to customers, expectations regarding profitability and the predictability of our revenue model, and improvements in our revenue, gross margin, and product mix data. These forward-looking statements involve risks and uncertainties. If any of these risks or uncertainties materialize, or if any of our assumptions prove incorrect, our actual results could differ materially from the results expressed or implied by these forward-looking statements. These risks and uncertainties include risks associated with: the evolution of the cyberthreat landscape facing enterprises in the United States and other countries; our plans to attract new customers, retain existing customers and increase our annual revenue; the development and delivery of new products; our plans and expectations regarding software-as-a-service offerings; our ability to execute on, integrate, and realize the benefits of any acquisition; fluctuations in our quarterly results of operations and other operating measures; increasing competition; new integrations to the Forescout platform; general economic, market and business conditions and the risks described in the other filings we make with the Securities and Exchange Commission from time to time, including the risks described under the headings “Risk Factors” and “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 1, 2019, and which should be read in conjunction with our financial results and forward-looking statements, and is available on the SEC filings section of the Investor Relations page of our website at https://investors.Forescout.com. Additional information will also be set forth in Forescout’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.

Non-GAAP Financial Measures

Forescout has provided in this press release financial information that has not been prepared in accordance with generally accepted accounting principles in the United States (GAAP). Forescout uses these non-GAAP financial measures internally in analyzing its financial results and believes that use of these non-GAAP financial measures is useful to investors as an additional tool to evaluate ongoing operating results and trends and in comparing Forescout’s financial results with other companies in its industry, many of which present similar non-GAAP financial measures.

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures and should be read only in conjunction with Forescout’s condensed consolidated financial statements prepared in accordance with GAAP. A reconciliation of Forescout’s historical non-GAAP financial measures to the most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.

Non-GAAP Gross Profit. Forescout defines non-GAAP gross profit as gross profit plus stock-based compensation expense, acquisition-related expenses, and amortization of acquired intangible assets.

Non-GAAP Operating Expense. Forescout defines non-GAAP operating expense as operating expense excluding stock-based compensation expense, acquisition-related expenses, and amortization of acquired intangible assets.

Non-GAAP Operating Loss. Forescout defines non-GAAP operating loss as operating loss excluding stock-based compensation expense, acquisition-related expenses, and amortization of acquired intangible assets.

Non-GAAP Net Loss. Forescout defines non-GAAP net loss as net loss excluding stock-based compensation expense, acquisition-related expenses, amortization of acquired intangible assets, and tax effect of non-GAAP adjustments.

Non-GAAP Net Loss Per Share. Forescout defines non-GAAP net loss per share as non-GAAP net loss divided by the weighted average diluted shares outstanding.

Free Cash Flow. Forescout defines free cash flow as net cash provided by operating activities less purchases of property and equipment. Forescout defines free cash flow margin as free cash flow as a percentage of total revenue. Forescout considers free cash flow and free cash flow margin to be profitability and liquidity measures that provide useful information to management and investors about the amount of cash generated by the business that, after the purchases of property and equipment, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening our balance sheet.

 
FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands)
       
  September 30,   December 31,
    2019       2018  
Assets              
Current assets:              
Cash and cash equivalents $ 55,436     $ 66,895  
Marketable securities   38,235       47,632  
Accounts receivable   84,539       79,255  
Inventory   782       1,501  
Deferred commissions - current   12,231       12,543  
Prepaid expenses and other current assets   13,564       13,353  
Total current assets   204,787       221,179  
Deferred commissions - non-current   22,584       22,831  
Property and equipment, net   24,022       24,349  
Operating lease right-of-use assets   30,404       -  
Restricted cash - non-current   1,257       1,266  
Intangible assets, net   16,591       19,002  
Goodwill   92,045       92,482  
Other assets   7,306       7,369  
Total assets $ 398,996     $ 388,478  
               
Liabilities and stockholders' equity              
Current liabilities:              
Accounts payable $ 10,654     $ 12,118  
Accrued compensation   29,562       32,649  
Accrued expenses   15,268       14,558  
Deferred revenue - current   104,739       101,900  
Notes payable - current   7,397       7,331  
Operating lease liabilities - current   5,217       -  
Total current liabilities   172,837       168,556  
Deferred revenue - non-current   71,948       69,618  
Notes payable - non-current   2,692       8,248  
Operating lease liabilities - non-current   33,342       -  
Other liabilities   24,336       14,335  
Total liabilities   305,155       260,757  
               
Stockholders' equity:              
Common stock   47       43  
Additional paid-in capital   704,192       639,237  
Accumulated other comprehensive loss   (616 )     (302 )
Accumulated deficit   (609,782 )     (511,257 )
Total stockholders’ equity   93,841       127,721  
Total liabilities and stockholders' equity $ 398,996     $ 388,478  
               


 
FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
               
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
    2019       2018       2019       2018  
Revenue:                              
License $ 50,203     $ 51,082     $ 126,714     $ 115,185  
Subscription   36,570       30,339       105,191       85,684  
Professional services   4,849       4,207       13,565       12,050  
Total revenue   91,622       85,628       245,470       212,919  
Cost of revenue:                              
License   9,892       8,947       23,121       21,002  
Subscription   5,376       4,069       16,182       11,602  
Professional services   6,429       6,181       18,850       17,792  
Total cost of revenue   21,697       19,197       58,153       50,396  
Total gross profit   69,925       66,431       187,317       162,523  
Operating expenses:                              
Research and development   20,556       15,062       58,493       44,552  
Sales and marketing   51,035       46,098       163,131       133,416  
General and administrative   15,318       13,880       47,369       40,872  
Total operating expenses   86,909       75,040       268,993       218,840  
Loss from operations   (16,984 )     (8,609 )     (81,676 )     (56,317 )
Interest expense   (156 )     (208 )     (391 )     (676 )
Other income, net   374       865       1,496       2,040  
Loss before income taxes   (16,766 )     (7,952 )     (80,571 )     (54,953 )
Income tax provision   16,747       334       17,954       1,935  
Net loss $ (33,513 )   $ (8,286 )   $ (98,525 )   $ (56,888 )
Net loss per share, basic and diluted $ (0.72 )   $ (0.20 )   $ (2.17 )   $ (1.41 )
Weighted-average shares used to compute net loss per share, basic and diluted   46,584       42,064       45,433       40,294  
                               


 
FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
       
  Nine Months Ended
  September 30,
    2019       2018  
Cash flows from operating activities:              
Net loss $ (98,525 )   $ (56,888 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities              
Stock-based compensation   41,715       39,544  
Depreciation and amortization   8,777       5,490  
Other   (138 )     113  
Changes in operating assets and liabilities              
Accounts receivable   (5,459 )     (3,414 )
Inventory   713       3,348  
Deferred commissions   559       1,143  
Prepaid expenses and other current assets   (217 )     (1,924 )
Other assets   67       (154 )
Accounts payable   (1,448 )     (6,110 )
Accrued compensation   (3,075 )     (1,539 )
Accrued expenses   2,293       1,027  
Deferred revenue   5,028       27,222  
Other liabilities   17,022       (466 )
Net cash (used in) provided by operating activities   (32,688 )     7,392  
Cash flows from investing activities:              
Purchases of property and equipment   (5,611 )     (6,766 )
Purchases of marketable securities   (63,569 )     (54,530 )
Proceeds from maturities of marketable securities   73,345       97,050  
Net cash provided by investing activities   4,165       35,754  
Cash flows from financing activities:              
Repayments of notes payable   (5,625 )     (5,625 )
Proceeds from sales of shares through employee equity incentive plans   27,376       24,648  
Payment related to shares withheld for taxes on vesting of restricted stock units   (4,538 )     (10,727 )
Proceeds from public offerings, net   -       13,818  
Payments of deferred offering costs   -       (1,542 )
Net cash provided by financing activities   17,213       20,572  
Effect of exchange rate changes on cash and cash equivalents   (4 )     -  
Net change in cash, cash equivalents, and restricted cash for period   (11,314 )     63,718  
Cash, cash equivalents, and restricted cash at beginning of period   69,012       67,357  
Cash, cash equivalents, and restricted cash at end of period $ 57,698     $ 131,075  
               


 
FORESCOUT TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Unaudited, in thousands, except per share amounts)
               
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
    2019       2018       2019       2018  
                               
GAAP gross profit $ 69,925     $ 66,431     $ 187,317     $ 162,523  
Add:                              
Stock-based compensation expense   944       782       2,851       2,385  
Acquisition-related expenses   15       -       44       -  
Amortization of acquired intangible assets   470       -       1,404       -  
Non-GAAP gross profit $ 71,354     $ 67,213     $ 191,616     $ 164,908  
                               
GAAP operating expense: $ 86,909     $ 75,040     $ 268,993     $ 218,840  
Less:                              
Stock-based compensation expense   12,878       12,236       38,864       37,159  
Acquisition-related expenses   999       481       3,666       481  
Amortization of acquired intangible assets   307       -       915       -  
Non-GAAP operating expense   72,725       62,323       225,548       181,200  
                               
GAAP operating loss $ (16,984 )   $ (8,609 )   $ (81,676 )   $ (56,317 )
Add:                              
Stock-based compensation expense   13,822       13,018       41,715       39,544  
Acquisition-related expenses   1,014       481       3,710       481  
Amortization of acquired intangible assets   777       -       2,319       -  
Non-GAAP operating loss $ (1,371 )   $ 4,890     $ (33,932 )   $ (16,292 )
                               
GAAP net loss $ (33,513 )   $ (8,286 )   $ (98,525 )   $ (56,888 )
Add:                              
Stock-based compensation expense   13,822       13,018       41,715       39,544  
Acquisition-related expenses   1,014       481       3,710       481  
Amortization of acquired intangible assets   777       -       2,319       -  
Tax effect of non-GAAP adjustments   17,106       (131 )     16,750       (131 )
Non-GAAP net income (loss) $ (794 )   $ 5,082     $ (34,031 )   $ (16,994 )
Non-GAAP net income (loss) per share, diluted $ (0.02 )   $ 0.10     $ (0.75 )   $ (0.42 )
                               
Weighted-average shares used in per share calculation for GAAP, diluted   46,584       42,064       45,433       40,294  
Add:                              
Weighted-average effect of potentially dilutive securities   -       6,443       -       -  
Weighted-average shares used in per share calculation for non-GAAP, diluted   46,584       48,507       45,433       40,294  
                               
Net cash (used in) provided by operating activities $ (13,941 )   $ (11,644 )   $ (32,688 )   $ 7,392  
Less:                              
Net purchases of property and equipment   2,209       1,934       5,611       6,766  
Free cash flow (non-GAAP) $ (16,150 )   $ (13,578 )   $ (38,299 )   $ 626  
Net cash provided by investing activities $ 17,782     $ 37,307     $ 4,165     $ 35,754  
Net cash provided by financing activities $ 4,538     $ 3,815     $ 17,213     $ 20,572  
Free cash flow margin (non-GAAP)   (18 )%     (16 )%     (16 )%     - %
                               

 

 

 

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