U.S. Markets close in 1 hr 15 mins

Forescout Technologies Reports Fourth Quarter and Full Year 2018 Financial Results

  • Revenue grows 35% year-over-year in Q4'18 and 33% year-over-year in FY'18
  • Added over 200 new customer logos in Q4'18
  • Q4'18 GAAP operating margin improved 3400 bps year-over-year; Q4’18 was the second consecutive quarter of non-GAAP operating profitability
  • Generated positive operating cash flow of $13.5 million and free cash flow of $5.9 million in FY'18
  • Generated positive operating cash flow of $6.1 million and free cash flow of $5.2 million in Q4’18

SAN JOSE, Calif., Feb. 07, 2019 (GLOBE NEWSWIRE) -- Forescout Technologies, Inc. (FSCT), the leader in device visibility and control, today announced results for its fourth quarter and full year ended December 31, 2018.

“We had an outstanding fourth quarter, finishing out our first full year as a publicly traded company on a high note with strong revenue growth and positive cash flow for the year,” said Michael DeCesare, CEO and President of Forescout Technologies. “The quarter was marked by a record number of new customer additions, some marquee customer wins across a diverse mix of industry verticals, strong international growth, and large expansion deals with notable existing customers. The fourth quarter capped off what was a very successful year for Forescout, and we are excited to further capitalize on the growing market opportunity for device visibility and control in the years ahead.”

Forescout 2019 Investor Day

The company also announced today it will host an investor day on Monday, March 4, 2019, in San Francisco. During the event, senior management will present Forescout’s vision, strategy, and future plans for growth. For further information, please email investors@forescout.com. A live webcast of the event, along with supporting materials, will be accessible from the Investor Relations section of the company’s website, http://investors.Forescout.com.

Fourth Quarter 2018 Financial Highlights

  • Revenue: Total revenue was $84.7 million, an increase of 35% over the fourth quarter of 2017.

    °  Product revenue was $47.5 million, an increase of 36% over the fourth quarter of 2017

    °  Maintenance and Professional Services revenue was $37.3 million, an increase of 33% over the fourth quarter of 2017

  • Gross Profit: GAAP gross profit was $67.2 million, or 79% of total revenue, compared to $46.8 million in the fourth quarter of 2017, or 74% of total revenue. Non-GAAP gross profit was $68.4 million, or 81% of total revenue, compared to $48.2 million in the fourth quarter of 2017, or 77% of total revenue.

  • Operating Loss/Income: GAAP operating loss was $17.2 million, or 20% of total revenue, compared to a loss of $33.7 million in the fourth quarter of 2017, or 54% of total revenue. Non-GAAP operating income was $0.2 million, or 0% of total revenue, compared to a loss of $3.1 million in the fourth quarter of 2017, or 5% of total revenue.

  • Net Loss/Income: GAAP net loss attributable to common stockholders was $17.9 million, or $0.42 per share, compared to $47.4 million in the fourth quarter of 2017, or $1.73 per share. Non-GAAP net loss was $0.4 million, or $0.01 per share, based on 43.0 million weighted average diluted shares outstanding, compared to a net loss of $3.6 million in the fourth quarter of 2017, or $0.13 per share, based on 27.3 million weighted average diluted shares outstanding.

  • Cash Flow: Net cash provided by operating activities was $6.1 million, or 7% of total revenue, compared to net cash used in operating activities of $6.3 million in the fourth quarter of 2017, or 10% of total revenue. Free cash flow was positive $5.2 million, or 6% of total revenue, compared to negative $7.4 million in the fourth quarter of 2017, or 12% of total revenue.

Full Year 2018 Financial Highlights

  • Revenue: Total revenue was $297.7 million, an increase of 33% over the full year 2017.

  • Operating Loss: GAAP operating loss was $73.5 million, or 25% of total revenue, compared to $77.2 million in the full year 2017, or 34% of total revenue. Non-GAAP operating loss was $16.1 million or 5% of total revenue, compared to $34.7 million in the full year 2017, or 15% of total revenue.

  • Net Loss: GAAP net loss attributable to common stockholders was $74.8 million, or $1.83 per share, compared to $93.5 million in the full year 2017, or $8.20 per share. Non-GAAP net loss was $17.4 million, or $0.42 per share, compared to $37.4 million in the full year 2017, or $3.28.

  • Cash Flow: Net cash provided by operating activities was $13.5 million, compared to net cash used in operating activities of $2.7 million in the full year 2017. Free cash flow was positive $5.9 million, or 2% of total revenue, compared to negative $7.3 million in the full year 2017, or 3% of total revenue.

Forescout adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), effective January 1, 2018 using the full retrospective method. Prior period information has been adjusted to reflect the adoption of the new standard.

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.”

“We were very pleased with the revenue growth that we achieved in the fourth quarter and full year 2018, which exceeded our expectations as a result of strong execution, successful deal conversion, and healthy market demand for our products,” said Criss Harms, Chief Financial Officer of Forescout. “We were also very pleased to achieve positive free cash flow for the year, one year ahead of our prior commitment, along with non-GAAP profitability for the second consecutive quarter. We achieved these results through consistent revenue outperformance, improving gross margins from an increasing mix of software products, while also demonstrating operating expense leverage with our maturing sales organization.”

Fourth Quarter 2018 Business Highlights

During the fourth quarter and recently, Forescout:

  • Announced the company created an integrated solution with ServiceNow to deliver an asset intelligence solution for customers, such as the State of Utah. Utah’s security strategy combines Forescout’s agentless network visibility, continuous monitoring and automated response capabilities with ServiceNow’s asset configuration, automated service mapping and regulatory compliance management. The integrated solution helps Utah enhance asset management, improve operational efficiencies and effectiveness as well as streamline compliance.

  • Selected to participate in a landmark IoT security research project with the National Institute of Standards and Technology’s (NIST) National Cybersecurity Center of Excellence (NCCoE) to help demonstrate security strategies and best practices for U.S. critical infrastructure operators and key economic sectors.

  • Named on Deloitte’s Technology Fast 500™ for the third year in a row. This ranking recognizes the 500 fastest growing technology, media, telecommunications, life sciences and energy tech companies in North America.

First Quarter and Full Year 2019 Outlook

Forescout provides guidance based on current market conditions and expectations.

For the first quarter of 2019, Forescout expects:

  • Revenue of $71.9 million - $74.9 million, representing year-over-year growth of 23% at the midpoint

  • Non-GAAP operating loss of $18.7 million - $17.7 million

  • Non-GAAP net loss per share of $0.45 - $0.43 using approximately 43.7 million weighted shares outstanding

For the full year 2019, Forescout expects:

  • Revenue of $363.1 million - $373.1 million, representing year-over-year growth of 24% at the midpoint

  • Non-GAAP operating loss of $16.0 million - $12.0 million

  • Non-GAAP net loss per share of $0.45 - $0.37 using approximately 44.5 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 fourth quarter 2018 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 2977228.

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 Thursday, February 14, 2019. To access the replay, interested parties should dial either (855) 859-2056 or (404) 537-3406 using the passcode 2977228.

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.

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 first quarter of 2019 and fiscal year 2019, our markets and the demand for our products, our growth prospects and market opportunity, the benefits of our solution to customers, the development of our sales organization, 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; developments and trends in the domestic and international markets for network security products; our growth in international markets; our expectations concerning the productivity of our expanding sales force as our sales representatives become more seasoned; our plans to attract new customers, retain existing customers and increase our annual revenue; fluctuations in our quarterly results of operations and other operating measures; increasing competition; new integrations to the Forescout platform; the receipt of product certifications and the importance of such certifications for government buyers and contractors; 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 Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on November 9, 2018, 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2018. 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 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 defined non-GAAP operating expense as operating expense excluding stock-based compensation expense, acquisition-related expenses, and amortization of acquired intangible assets.

Non-GAAP Operating Income (Loss). Forescout defines non-GAAP operating income (loss) as operating income (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, expense associated with the revaluation of preferred stock warrant liabilities, deemed dividend on the conversion of Series G redeemable convertible preferred stock, 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 (used in) 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)
 
  December 31,
 2018
  December 31,
 2017
Assets      
Current assets:      
Cash and cash equivalents $ 66,895     $ 63,009  
Marketable securities 47,632     123,384  
Accounts receivable 79,255     64,686  
Inventory 1,501     3,660  
Deferred commissions - current 12,543     10,957  
Prepaid expenses and other current assets 13,353     9,213  
Total current assets 221,179     274,909  
Deferred commissions - non-current 22,831     21,795  
Property and equipment, net 24,349     23,260  
Restricted cash - non current 1,266     4,146  
Intangible assets 19,002      
Goodwill 92,482      
Other assets 7,369     4,608  
Total assets $ 388,478     $ 328,718  
Liabilities and stockholders' equity      
Current liabilities:      
Accounts payable $ 12,118     $ 7,348  
Accrued compensation 32,649     25,358  
Accrued expenses 14,558     11,031  
Deferred revenue - current 101,900     79,631  
Notes payable - current 7,331     7,245  
Total current liabilities 168,556     130,613  
Deferred revenue - non-current 69,618     55,228  
Notes payable - non-current 8,248     15,579  
Other liabilities 14,335     11,807  
Total liabilities 260,757     213,227  
       
Stockholders' equity:      
Common stock 43     38  
Additional paid-in capital 639,237     551,986  
Accumulated other comprehensive loss (302 )   (112 )
Accumulated deficit (511,257 )   (436,421 )
Total stockholders’ equity 127,721     115,491  
Total liabilities and stockholders' equity $ 388,478     $ 328,718  

 

FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
 
  Three Months Ended December 31,   Year Ended December 31,
  2018   2017   2018   2017
                           
Revenue:                              
Product $ 47,482     $ 34,994     $ 162,667     $ 125,348  
Maintenance and professional services 37,250     27,913     134,984     99,056  
Total revenue 84,732     62,907     297,651     224,404  
Cost of revenue:              
Product 6,852     6,964     27,854     23,841  
Maintenance and professional services 10,634     9,109     40,028     34,771  
Total cost of revenue 17,486     16,073     67,882     58,612  
Total gross profit 67,246     46,834     229,769     165,792  
Operating expenses:              
Research and development 17,161     14,801     61,713     47,435  
Sales and marketing 50,464     41,769     183,880     144,398  
General and administrative 16,849     23,941     57,721     51,206  
Total operating expenses 84,474     80,511     303,314     243,039  
Loss from operations (17,228 )   (33,677 )   (73,545 )   (77,247 )
Interest expense (237 )   (270 )   (913 )   (1,223 )
Other income, net 527     382     2,567     316  
Revaluation of warrant liabilities     (385 )       (727 )
Loss before income taxes (16,938 )   (33,950 )   (71,891 )   (78,881 )
Income tax provision 1,010     618     2,945     1,839  
Net loss $ (17,948 )   $ (34,568 )   $ (74,836 )   $ (80,720 )
Deemed dividend on the conversion of Series G redeemable convertible preferred stock     12,810         12,810  
Net loss attributable to common stockholders $ (17,948 )   $ (47,378 )   $ (74,836 )   $ (93,530 )
Net loss per share attributable to common stockholders, basic and diluted $ (0.42 )   $ (1.73 )   $ (1.83 )   $ (8.20 )
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted 43,016     27,349     40,980     11,405  




FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
  Year Ended December 31,
  2018   2017
Cash flows from operating activities              
Net loss $ (74,836 )   $ (80,720 )
Adjustments to reconcile net loss to net cash used in operating activities      
Stock-based compensation 53,497     42,596  
Depreciation and amortization 8,003     6,068  
Revaluation of warrant liabilities     727  
Other 461     (127 )
Changes in operating assets and liabilities, net of business acquisition      
Accounts receivable (10,899 )   (19,992 )
Inventory 2,168     (2,719 )
Deferred commissions (2,621 )   (7,469 )
Prepaid expenses and other current assets (3,084 )   (141 )
Other assets (3,543 )   60  
Accounts payable 4,632     1,734  
Accrued compensation 7,057     8,072  
Accrued expenses 2,667     (599 )
Deferred revenue 30,366     49,569  
Other liabilities (379 )   206  
Net cash provided by (used in) operating activities 13,489     (2,735 )
Cash flows from investing activities      
Purchases of property and equipment (7,628 )   (4,517 )
Purchases of marketable securities (54,530 )   (123,032 )
Proceeds from maturities of marketable securities 130,633      
Business acquisition, net of cash acquired (105,425 )    
Net cash used in investing activities (36,950 )   (127,549 )
Cash flows from financing activities      
Repayments of notes payable (7,500 )   (7,500 )
Payment of accrued success fees     (350 )
Proceeds from sales of shares through employee equity incentive plans 31,790     1,626  
Payment related to shares withheld for taxes on vesting of restricted stock units (11,443 )    
Payments of deferred offering costs (1,542 )   (4,245 )
Proceeds from public offering, net of underwriting discounts and commissions 13,818     124,233  
Net cash provided by financing activities 25,123     113,764  
Effect of exchange rate changes on cash and cash equivalents (7 )    
Net change in cash, cash equivalents, and restricted cash for period 1,655     (16,520 )
Cash, cash equivalents, and restricted cash at beginning of period 67,357     83,877  
Cash, cash equivalents, and restricted cash at end of period $ 69,012     $ 67,357  



FORESCOUT TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Unaudited, in thousands, except per share amounts)
       
  Three Months Ended
December 31,
  Year Ended
December 31,
  2018
  2017
  2018
  2017
                 
                 
GAAP gross profit $ 67,246     $ 46,834     $ 229,769     $ 165,792  
Add:              
Stock-based compensation expense 883     1,404     3,268     2,394  
Acquisition-related expenses 16         16      
Amortization of acquired intangible assets 280         280      
Non-GAAP gross profit $ 68,425     $ 48,238     $ 233,333     $ 168,186  
               
GAAP operating expense: $ 84,474     $ 80,511     $ 303,314     $ 243,039  
Less:              
Stock-based compensation expense 13,070     29,132     50,229     40,202  
Acquisition-related expenses 3,000         3,481      
Amortization of acquired intangible assets 183         183      
Non-GAAP operating expense $ 68,221     $ 51,379     $ 249,421     $ 202,837  
               
GAAP operating loss $ (17,228 )   $ (33,677 )   $ (73,545 )   $ (77,247 )
Add:              
Stock-based compensation expense 13,953     30,536     53,497     42,596  
Acquisition-related expenses 3,016         3,497      
Amortization of acquired intangible assets 463         463      
Non-GAAP operating income (loss) $ 204     $ (3,141 )   $ (16,088 )   $ (34,651 )
               
GAAP net loss attributable to common stockholders $ (17,948 )   $ (47,378 )   $ (74,836 )   $ (93,530 )
Add:              
Stock-based compensation expense 13,953     30,536     53,497     42,596  
Acquisition-related expenses 3,016         3,497      
Amortization of acquired intangible assets 463         463      
Revaluation of warrant liabilities     385         727  
Tax effect of non-GAAP adjustments 104         (27 )    
Deemed dividend on the conversion of Series G redeemable convertible preferred stock     12,810         12,810  
Non-GAAP net loss attributable to common stockholders $ (412 )   $ (3,647 )   $ (17,406 )   $ (37,397 )
Non-GAAP net loss per share attributable to common stockholders, diluted $ (0.01 )   $ (0.13 )   $ (0.42 )   $ (3.28 )
Weighted-average shares used in per share calculation for GAAP and non-GAAP, diluted 43,016     27,349     40,980     11,405  
                               
Net cash provided by (used in) operating activities $ 6,097     $ (6,298 )   $ 13,489     $ (2,735 )
Less:                              
Net purchases of property and equipment   (862 )     (1,131 )     (7,628 )     (4,517 )
Free cash flow (non-GAAP) $ 5,235     $ (7,429 )   $ 5,861     $ (7,252 )
Net cash used in investing activities $ (72,704 )   $ (124,163 )   $ (36,950 )   $ (127,549 )
Net cash provided by financing activities $ 4,551     $ 121,136     $ 25,123     $ 113,764  
Free cash flow margin (non-GAAP)   6 %     (12 )%     2 %     (3 )%