Forescout Technologies Reports First Quarter 2020 Financial Results


  • Total Revenue of $57.2 million, compared to $75.6 million in the first quarter of 2019

SAN JOSE, Calif., May 11, 2020 (GLOBE NEWSWIRE) -- Forescout Technologies, Inc. (NASDAQ:FSCT), the leader in device visibility and control, today announced results for its first quarter ended March 31, 2020.

“In March, the severity of the COVID-19 pandemic sharply escalated around the world, causing some customers to delay purchasing decisions in order to prioritize employee health and safety and business continuity planning,” said Michael DeCesare, CEO and President of Forescout Technologies. “As organizations have shifted to remote workforces, their network footprint has evolved but the need for visibility and control of all devices on the network remains imperative, regardless of whether devices reside within the confines of corporate offices or in remote, work from home environments. Forescout’s platform is uniquely positioned to help enterprises in today’s perimeter-less world and defend against increasingly sophisticated cyber threats. We look forward to completing our pending transaction with Advent International Corporation, which will position us for long-term success as we execute on our large and growing market opportunity.”

First Quarter 2020 Financial Highlights

  • Revenue: Total revenue was $57.2 million, a decrease of 24% over the first quarter of 2019, primarily due to the effect of the COVID-19 pandemic on large-size deals and new perpetual licenses, as well as customer uncertainty related to our pending transaction with Advent International Corporation (Advent).

    • License revenue was $14.8 million, a decrease of 61% over the first quarter of 2019

    • Subscription revenue was $37.5 million, an increase of 11% over the first quarter of 2019

    • Professional Services revenue was $4.8 million, an increase of 18% over the first quarter of 2019

  • Gross Profit: GAAP gross profit was $37.6 million, or 66% of total revenue, compared to $56.6 million in the first quarter of 2019, or 75% of total revenue. Non-GAAP gross profit was $39.2 million, or 69% of total revenue, compared to $58.0 million in the first quarter of 2019, or 77% of total revenue.

  • Operating Loss: GAAP operating loss was $60.0 million, or 105% of total revenue, compared to a loss of $34.1 million in the first quarter of 2019, or 45% of total revenue. Non-GAAP operating loss was $31.4 million, or 55% of total revenue, compared to $17.8 million in the first quarter of 2019, or 24% of total revenue.

  • Net Loss: GAAP net loss was $61.2 million, or $1.26 per share, compared to $34.3 million in the first quarter of 2019, or $0.78 per share. Non-GAAP net loss was $32.5 million, or $0.67 per share, based on 48.6 million weighted average diluted shares outstanding, compared to a net loss of $18.2 million in the first quarter of 2019, or $0.41 per share, based on 44.2 million weighted average diluted shares outstanding.

  • Cash Flow: Net cash used in operating activities was $14.5 million, or 25% of total revenue, compared to net cash provided by operating activities of $6.4 million in the first quarter of 2019, or 9% of total revenue. Free cash flow was negative $15.3 million, or (27)% of total revenue, compared to positive $4.9 million in the first quarter of 2019, or 6% 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.”

Transaction with Advent

On February 6, 2020, Forescout announced that it has entered into an agreement to be acquired by entities affiliated with Advent for $1.9 billion in cash, or $33.00 per share. Advent has partnered with Crosspoint Capital Partners, a private equity investment firm focused on the cybersecurity and privacy industries, as a co-investor and advisor. The transaction was approved by Forescout shareholders on April 23, 2020. Upon completion of the transaction, Forescout will become a private company and its common stock will no longer be listed on any public market.

In light of the pending transaction with Advent, Forescout will not hold a conference call or provide forward looking guidance.

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.

©2020 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.

FSCT - F

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding the effects of the COVID-19 pandemic on our business, customers and markets, demand for our products, and market opportunity; the benefits of our solution to customers; our pending transaction with Advent, and the Company's prospects. 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 COVID-19 pandemic and related public health measures on our business, customers, markets and the worldwide economy; our pending transaction with Advent, including the risk that the conditions to the closing of the transaction are not satisfied or that the transaction is not consummated; potential litigation relating to the transaction; uncertainties as to the timing of the consummation of the transaction and the ability of each party to consummate the transaction; risks that the proposed transaction disrupts our current plans and operations; 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 (SEC) on February 28, 2020, as amended by Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K, which was filed the SEC on April 29, 2020, 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 our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed on or about the date hereof. 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, amortization of acquired intangible assets, merger-related expenses, and restructuring expenses.

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

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, merger-related expenses, restructuring expenses, 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.

Investor Relations Contact:Media Relations Contact:
Michelle SpolverKatie Beck
408-721-5884650-314-8705
michelle.spolver@forescout.comkatie.beck@forescout.com



FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
 
 
 March 31,
2020
December 31,
2019
 
Assets   
Current assets:   
Cash and cash equivalents$83,795 $69,030  
Marketable securities 16,126  29,181  
Accounts receivable 39,650  84,168  
Inventory 377  372  
Deferred commissions - current 12,854  12,843  
Prepaid expenses and other current assets 12,867  17,024  
Total current assets 165,669  212,618  
Deferred commissions - non-current 21,294  23,036  
Property and equipment, net 22,618  23,835  
Operating lease right-of-use assets 28,326  29,626  
Restricted cash - non-current 1,530  1,555  
Intangible assets, net 18,353  19,367  
Goodwill 98,018  98,018  
Other assets 7,460  8,172  
Total assets$363,268 $416,227  
    
Liabilities and stockholders' equity   
Current liabilities:   
Accounts payable$6,377 $10,692  
Accrued compensation 26,881  34,007  
Accrued expenses 15,397  16,279  
Deferred revenue - current 111,402  112,232  
Notes payable - current 6,402  8,248  
Revolving credit facility 16,000  -  
Operating lease liabilities - current 5,704  5,840  
Total current liabilities 188,163  187,298  
Deferred revenue - non-current 68,438  75,366  
Operating lease liabilities - non-current 30,333  32,125  
Other liabilities 23,705  23,893  
Total liabilities 310,639  318,682  
    
Stockholders' equity:   
Common stock 49  48  
Additional paid-in capital 744,299  727,922  
Accumulated other comprehensive loss (688) (633) 
Accumulated deficit (691,031) (629,792) 
Total stockholders’ equity 52,629  97,545  
Total liabilities and stockholders' equity$363,268 $416,227  
    



FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
 
 Three Months Ended March 31, 
  2020  2019  
Revenue:   
License$14,799 $37,680  
Subscription 37,526  33,799  
Professional services 4,828  4,089  
Total revenue 57,153  75,568  
Cost of revenue:   
License 5,419  7,607  
Subscription 7,013  5,207  
Professional services 7,165  6,186  
Total cost of revenue 19,597  19,000  
Total gross profit 37,556  56,568  
Operating expenses:   
Research and development 23,246  18,497  
Sales and marketing 47,288  55,923  
General and administrative 24,481  16,213  
Restructuring 2,512  -  
Total operating expenses 97,527  90,633  
Loss from operations (59,971) (34,065) 
Interest expense (235) (93) 
Other (expense) income, net (601) 617  
Loss before income taxes (60,807) (33,541) 
Income tax provision 432  711  
Net loss$(61,239)$(34,252) 
Net loss per share, basic and diluted$(1.26)$(0.78) 
Weighted-average shares used to compute net loss per share, basic and diluted 48,593  44,196  
    



FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
 
 Three Months Ended March 31, 
  2020  2019  
Cash flows from operating activities:   
Net loss$(61,239)$(34,252) 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities   
Stock-based compensation 13,858  13,828  
Depreciation and amortization 3,056  2,845  
Other 358  (15) 
Changes in operating assets and liabilities   
Accounts receivable 44,518  22,227  
Inventory (196) 253  
Deferred commissions 1,731  1,520  
Prepaid expenses and other current assets 4,168  (203) 
Other assets 328  385  
Accounts payable (4,274) (2,705) 
Accrued compensation (7,126) (4,512) 
Accrued expenses (1,715) 549  
Deferred revenue (7,758) 6,559  
Other liabilities (172) (40) 
Net cash (used in) provided by operating activities (14,463) 6,439  
Cash flows from investing activities:   
Purchases of property and equipment (823) (1,589) 
Purchases of marketable securities -  (37,651) 
Proceeds from maturities of marketable securities 13,000  29,123  
Net cash provided by (used in) investing activities 12,177  (10,117) 
Cash flows from financing activities:   
Proceeds from revolving credit facility 16,000  -  
Repayments of notes payable (1,875) (1,875) 
Proceeds from sales of shares through employee equity incentive plans 5,207  12,173  
Payment related to shares withheld for taxes on vesting of restricted stock units (2,319) (2,764) 
Others 13  -  
Net cash provided by financing activities 17,026  7,534  
Effect of exchange rate changes on cash and cash equivalents -  (70) 
Net change in cash, cash equivalents, and restricted cash for period 14,740  3,786  
Cash, cash equivalents, and restricted cash at beginning of period 71,591  69,012  
Cash, cash equivalents, and restricted cash at end of period$86,331 $72,798  
    



FORESCOUT TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Unaudited, in thousands, except per share amounts)
 
 
 Three Months Ended March 31, 
  2020  2019  
    
GAAP gross profit$37,556 $56,568  
Add:   
Stock-based compensation expense 1,162  927  
Acquisition-related expenses -  14  
Amortization of acquired intangible assets 471  467  
Non-GAAP gross profit$39,189 $57,976  
    
GAAP operating expense$97,527 $90,633  
Less:   
Stock-based compensation expense 12,696  12,901  
Acquisition-related expenses 775  1,624  
Amortization of acquired intangible assets 544  304  
Merger-related expenses 10,421  -  
Restructuring expenses 2,512  -  
Non-GAAP operating expense$70,579 $75,804  
    
GAAP operating loss$(59,971)$(34,065) 
Add:   
Stock-based compensation expense 13,858  13,828  
Acquisition-related expenses 775  1,638  
Amortization of acquired intangible assets 1,015  771  
Merger-related expenses 10,421  -  
Restructuring expenses 2,512  -  
Non-GAAP operating loss$(31,390)$(17,828) 
    
GAAP net loss$(61,239)$(34,252) 
Add:   
Stock-based compensation expense 13,858  13,828  
Acquisition-related expenses 775  1,638  
Amortization of acquired intangible assets 1,015  771  
Merger-related expenses 10,421  -  
Restructuring expenses 2,512  -  
Tax effect of non-GAAP adjustments 154  (145) 
Non-GAAP net loss$(32,504)$(18,160) 
Non-GAAP net loss per share, diluted$(0.67)$(0.41) 
Weighted-average shares used in per share calculation for GAAP and non-GAAP, diluted 48,593  44,196  
    
Net cash (used in) provided by operating activities$(14,463)$6,439  
Less:   
Net purchases of property and equipment 823  1,589  
Free cash flow (non-GAAP)$(15,286)$4,850  
Net cash provided by (used in) investing activities$12,177 $(10,117) 
Net cash provided by financing activities$17,026 $7,534  
Free cash flow margin (non-GAAP) (27)% 6%