Forescout Technologies Reports Fourth Quarter and Full Year 2019 Financial Results

Fourth Quarter Revenue of $91.3 million, compared to $84.7 million in the fourth quarter of 2018; Full Year Revenue of $336.8 million, compared to $297.7 million in the full year 2019
Term-based license contracts represented 21% of fourth quarter license revenue and 13% of full year license revenue
Announces agreement to be acquired by Advent International for $1.9 billion in cash
Cancels conference call in light of pending transaction

SAN JOSE, Calif., February 6, 2020 – Forescout Technologies, Inc. (NASDAQ:FSCT), the leader in device visibility and control, today announced results for its fourth quarter and full year ended December 31, 2019.

“Our results for the fourth quarter reflect strength across many parts of the business as we continue to see strong demand for device control and visibility across all segments of the market,” said Michael DeCesare, CEO and President of Forescout Technologies. “We expanded our market footprint with the addition of 160 new logos and 3.2 million new devices under management and we are making progress toward our transition to a more ratable revenue model, as demonstrated by a greater mix of term-based license contracts and strong initial results for eyeSegment, our first software as a service product. We continued to face macro and execution challenges in EMEA, however, we are taking steps to improve those variables that are within our control. Finally, we are excited about the transaction we announced today with Advent International, which positions us for long-term success in the large and growing market for device visibility and control.”

Fourth Quarter 2019 Financial Highlights

Revenue: Total revenue was $91.3 million, an increase of 8% over the fourth quarter of 2018
- License revenue was $48.4 million, an increase of 2% over the fourth quarter of 2018
- License revenue included $6.6 million in one-year term-based license subscription contracts
- Subscription revenue was $37.6 million, an increase of 14% over the fourth quarter of 2018
- Professional Services revenue was $5.3 million, an increase of 23% over the fourth quarter of 2018
Gross Profit: GAAP gross profit was $70.3 million, or 77% of total revenue, compared to $67.2 million in the fourth quarter of 2018, or 79% of total revenue. Non-GAAP gross profit was $71.9 million, or 79% of total revenue, compared to $68.4 million in the fourth quarter of 2018, or 81% of total revenue.
Operating Loss: GAAP operating loss was $19.6 million, or 21% of total revenue, compared to a loss of $17.2 million in the fourth quarter of 2018, or 20% of total revenue. Non-GAAP operating loss was $3.8 million, or 4% of total revenue, compared to Non-GAAP operating income of $0.2 million in the fourth quarter of 2018, or 0% of total revenue.
Net Loss: GAAP net loss was $20.0 million, or $0.42 per share, compared to $17.9 million in the fourth quarter of 2018, or $0.42 per share. Non-GAAP net loss was $4.4 million, or $0.09 per share, based on 47.5 million weighted average diluted shares outstanding, compared to a Non-GAAP net loss of $0.4 million in the fourth quarter of 2018, or $0.01 per share, based on 43.0 million weighted average diluted shares outstanding.
Cash Flow: Net cash provided by operating activities was $10.2 million, or 11% of total revenue, compared to net cash provided by operating activities of $6.1 million in the fourth quarter of 2018, or 7% of total revenue. Free cash flow was positive $8.0 million, or 9% of total revenue, compared to positive $5.2 million in the fourth quarter of 2018, or 6% of total revenue.

Full Year 2019 Financial Highlights

Revenue: Total revenue was $336.8 million, an increase of 13% over the full year 2018.
Operating Loss: GAAP operating loss was $101.2 million, or 30% of total revenue, compared to $73.5 million in the full year 2018, or 25% of total revenue. Non-GAAP operating loss was $37.8 million or 11% of total revenue, compared to a loss of $16.1 million in the full year 2018, or 5% of total revenue.
Net Loss: GAAP net loss was $118.5 million, or $2.58 per share, compared to $74.8 million in the full year 2018, or $1.83 per share. Non-GAAP net loss was $38.4 million, or $0.84 per share, compared to a loss of $17.4 million in the full year 2018, or $0.42 per share.
Cash Flow: Net cash used in operating activities was $22.5 million, compared to net cash provided by operating activities of $13.5 million in the full year 2018. Free cash flow was negative $30.3 million, or 9% of total revenue, compared to positive $5.9 million in the full year 2018, or 2% 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 International

In a separate press release issued today, Forescout announced that it has entered into an agreement to be acquired by Advent International for $1.9 billion in cash, or $33.00 per share. Advent will be joined by Crosspoint Capital Partners, a private equity investment firm focused on the cybersecurity and privacy industries, as a co-investor and advisor. The transaction is expected to close in the second calendar quarter of 2020, subject to customary closing conditions, including approval by Forescout shareholders and receipt of regulatory approvals. Upon completion of the transaction, Forescout will become a private company and its common stock will no longer be listed on any public market.

Cancellation of Conference Call and Suspension of Guidance

In light of the announced transaction with Advent International, the Company has cancelled its fourth quarter and full year 2019 earnings conference call, previously scheduled to be held today at 1:30 p.m. Pacific time. In addition, the Company is suspending financial guidance for the first quarter and full year 2020 as a result of the pending transaction.

©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 our pending acquisition by Advent International, including expected timing of the closing of the transaction; statements about our business model transition; and statements regarding our prospects and the markets in which we compete and our position in those markets. 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 risk that the conditions to the closing of the transaction are not satisfied, including the risk that required approvals from the stockholders of the Company for the transaction or required regulatory approvals are not obtained; 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 the current plans and operations of the Company; 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 plans to attract new customers, retain existing customers and increase our annual revenue; the development and profitability of our business model, including risks associated with the transition of our licensing model toward term-based licenses and delays or changes in the transition; risks associated with large agreements, including the length of the sales cycle and lack of predictability in the timing of the closing; 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; general economic, market and business conditions and the risks described in the 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. Additional information will also be set forth in Forescout’s Annual Report on Form 10-K for the fiscal year ended December 31, 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 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 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, 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.

FSCT Earnings Release Table 1