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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 Spolver Katie Beck
408-721-5884 650-314-8705
michelle.spolver@forescout.com katie.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 %  
       


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