Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
May 10, 2018  

FORESCOUT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Delaware
 
001-38253
 
51-0406800
(State or other jurisdiction
of incorporation or organization)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
190 West Tasman Drive
San Jose, California 95134
(Address of principal executive offices, including zip code)
(408) 213-3191
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
 
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x



Item 2.02    Results of Operations and Financial Condition.

On May 10, 2018, ForeScout Technologies, Inc. (“ForeScout”) issued a press release announcing its financial results for the first quarter ended March 31, 2018. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

The information set forth under this Item 2.02 and in the accompanying Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing.




Item 9.01    Financial Statements and Exhibits.

(d)     Exhibits
 
 
 
 
Exhibit No.
 
Description
99.1
 







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
FORESCOUT TECHNOLOGIES, INC.
 
 
 
Date: May 10, 2018
By:
/s/ Darren J. Milliken
 
 
Darren J. Milliken
Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer

Exhibit
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12245204&doc=3
 

Exhibit 99.1

Investor Relations Contact:
Media Relations Contact:
Michelle Spolver
Katie Beck
408-721-5884
650-314-8705

ForeScout Technologies Reports Strong First Quarter 2018 Financial Results

Revenue grows 42% year-over-year
GAAP operating margin improves 1,500 bps year-over-year, Non-GAAP operating margin improves 2,700 bps year-over-year
Operating cash flow margin improves 1,100 bps year-over-year, free cash flow margin improves 1,000 bps year-over-year

SAN JOSE, Calif., May 10, 2018 – ForeScout Technologies, Inc. (NASDAQ:FSCT), a leading Internet of Things (IoT) security company, today announced results for its first quarter of 2018, ended March 31, 2018.

“We had a very strong start to the year, and I’m very pleased with both the results we achieved in the first quarter and our consistent execution since our IPO,” said Michael DeCesare, CEO and President of ForeScout Technologies. “The need for visibility solutions is growing by the minute as new devices are coming online at a relentless pace, while traditional IT infrastructure is moving to the cloud and IP-connected critical infrastructure creates vulnerabilities across networks. The momentum we are seeing is a testament to the market tailwinds we are benefiting from, coupled with our commitment to our technology and customers. We are growing across our business, consistently innovating, acquiring new marquee customers, and gaining a larger and more strategic footprint within our existing customer base. We are in the early innings of realizing our potential, and I feel great about our near and long-term opportunity.”

First Quarter 2018 Financial Highlights
Revenue: Total revenue was $59.7 million, an increase of 42% over the first quarter of 2017.
o
Product revenue was $29.8 million, an increase of 47% over the first quarter of 2017
o
Maintenance and Professional Services revenue was $29.9 million, an increase of 37% over the first quarter of 2017

Gross Profit: GAAP gross profit was $43.2 million, or 72% of total revenue, compared to $29.7 million in the first quarter of 2017, or 70% of total revenue. Non-GAAP gross profit was $44.0 million, or 74% of total revenue, compared to $30.0 million in the first quarter of 2017, or 71% of total revenue.

Operating Loss: GAAP operating loss was $27.5 million, or 46% of total revenue, compared to $25.6 million in the first quarter of 2017, or 61% of total revenue. Non-GAAP operating loss was $13.9 million, or 23% of total revenue, compared to $21.3 million in the first quarter of 2017, or 51% of total revenue.
Net Loss: GAAP net loss was $28.2 million, or $0.74 per share, compared to $27.1 million in the first quarter of 2017, or $4.57 per share. Non-GAAP net loss was $14.6 million, or $0.38 per share, compared to $22.5 million in the first quarter of 2017, or $3.79 per share.
Cash Flow: Net cash provided by operating activities was $24.5 million, or 41% of total revenue, compared to $12.8 million in the first quarter of 2017, or 30% of total revenue. Free cash flow was $22.1 million, or 37% of total revenue, compared to $11.5 million in the first quarter of 2017, or 27% 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.




 
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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 have continued to build on our momentum and are very pleased with our first quarter results, highlighted by revenue growth of 42% year-over-year. We once again saw strong performance across our business as a whole, as the need for visibility solutions touches organizations of all sizes and industries globally,” said Criss Harms, Chief Financial Officer of ForeScout. “I am pleased with the consistent performance we have demonstrated since our IPO, as we have exceeded our top line expectations while continuing to invest in the business for future growth. We remain confident in our model and are making progress on the path towards achieving our long-term profitability goals."

First Quarter 2018 Business Highlights
During the first quarter and recently, ForeScout:
Announced the release of ForeScout CounterACT 8, a foundational update that raises the bar on device visibility and control to mitigate risk, reduce the attack surface and automate incident response across the extended enterprise network. The enhanced ForeScout device visibility platform adds increased scalability, cloud-based device intelligence, IoT device assessment and flexible centralized licensing to help enterprises see and control IP-connected devices, including traditional, mobile, virtual, IoT and operational technology, of which there are more than five billion of these devices online today.
Announced recognition by CRN, a premier publication and brand of The Channel Company, with three awards across IoT, security and the channel. CRN awarded ForeScout a 5-Star rating on its 2018 Partner Program Guide. Additionally, ForeScout was named to CRN’s annual Security 100 list, the channel's definitive roster of top security technology suppliers, and to its Internet of Things 50 list, which celebrates vendors with offerings that are poised to transform the way we live and work with an unprecedented level of interconnectivity.
Announced the award of an enterprise-wide blanket purchase agreement from the U.S. Department of Defense (DoD) through the U.S. military’s Enterprise Software Initiative program. This agreement provides the most current commercially available ForeScout products, maintenance and support for DoD, intelligence community and Coast Guard activities worldwide.
Priced and closed a follow-on offering of common stock, raising aggregate proceeds of $16.4 million and providing a liquidity event for selling shareholders.

Second Quarter and Full Year 2018 Outlook
ForeScout provides guidance based on current market conditions and expectations.

For the second quarter of 2018, ForeScout expects:
Revenue of $61.0 million - $64.0 million, the midpoint of which would represent year-over-year growth of 25%.
Non-GAAP operating loss of $(14.6) - $(13.8) million
Non-GAAP net loss per share of $(0.39) - $(0.37) using approximately 40.0 million weighted shares outstanding

For the full year 2018, ForeScout expects:
Revenue of $270.4 million - $280.4 million, the midpoint of which would represent year-over-year growth of 23%.
Non-GAAP operating loss of $(40.0) - $(36.0) million
Non-GAAP net loss per share of $(1.08) - $(1.00) using approximately 40.0 million weighted shares outstanding

Guidance for non-GAAP operating loss and non-GAAP net loss per share excludes stock-based compensation expense. 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 regarding, and the potential variability of, these items. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.




 
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Conference Call Information
ForeScout will host a conference call for analysts and investors to discuss its first 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 9047438.

A live webcast will be accessible on ForeScout’s investor relations website at investors.forescout.com. A telephonic replay of the conference call will be available through Thursday, May 17, 2018. To access the replay, interested parties should dial either (855) 859-2056 or (404) 537-3406 using the passcode 9047438.

About ForeScout
ForeScout Technologies, Inc. helps make the invisible visible. Our company provides Global 2000 enterprises and government agencies with agentless visibility and control of traditional and IoT devices the instant they connect to the network. Our technology integrates with disparate security tools to help organizations accelerate incident response, break down silos, automate workflows and optimize existing investments. Learn more at www.forescout.com.

© 2018. 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 second quarter of 2018 and fiscal year 2018, our markets and demand for our products as well as our growth prospects and potential. 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; the release and adoption of CounterAct8; 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 February 22, 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 Quarterly Report on Form 10-Q for the quarter ended March 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.



 
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Non-GAAP Gross Profit. ForeScout defines non-GAAP gross profit as gross profit plus stock-based compensation expense. ForeScout considers non-GAAP gross profit to be a useful metric for management and investors as a more accurate comparison to our peer companies and a more accurate comparison of our financial results to previous periods due to the impact of differences in valuation assumptions and varying award types associated with stock-based compensation expense.

Non-GAAP Operating Loss. ForeScout defines non-GAAP operating loss as operating loss excluding stock-based compensation expense.

Non-GAAP Net Loss Per Share. ForeScout defines non-GAAP net loss as net loss excluding stock-based compensation expense, and expense associated with changes in warrants issued in connection with preferred shares. ForeScout defines non-GAAP net loss per share as non-GAAP net loss divided by the weighted average 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 the balance sheet.




FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands)
 
March 31,
2018
 
December 31,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
82,356

 
$
63,009

Marketable securities
140,663

 
123,384

Accounts receivable
54,780

 
64,686

Inventory
136

 
3,660

Deferred commission - current
10,928

 
10,957

Prepaid expenses and other current assets
10,992

 
9,213

Total current assets
299,855

 
274,909

Deferred commission - non-current
21,413

 
21,795

Property and equipment, net
23,918

 
23,260

Severance pay deposits
2,158

 
2,118

Restricted cash - non-current
4,144

 
4,146

Other assets
2,135

 
2,490

Total assets
$
353,623

 
$
328,718

 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,744

 
$
7,348

Accrued compensation
21,814

 
25,358

Accrued expenses
9,057

 
10,023

Customer deposits
974

 
1,008

Deferred revenue - current
102,273

 
79,631

Notes payable - current
7,266

 
7,245

Total current liabilities
143,128

 
130,613

Deferred revenue - non-current
66,918

 
55,228

Notes payable - non-current
13,754

 
15,579

Accrued severance pay liability
2,780

 
2,617

Other liabilities
9,991

 
9,190

Total liabilities
236,571

 
213,227

 
 
 
 
Stockholders' equity:
 
 
 
Common stock
39

 
38

Additional paid-in capital
581,988

 
551,986

Accumulated other comprehensive loss
(358
)
 
(112
)
Accumulated deficit
(464,617
)
 
(436,421
)
Total stockholders’ equity
117,052

 
115,491

Total liabilities and stockholders' equity
$
353,623

 
$
328,718






FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)
 
Three Months Ended
March 31,
 
2018
 
2017
Revenue:
 
 
 
Product
$
29,780

 
$
20,308

Maintenance and professional services
29,917

 
21,868

Total revenue
59,697

 
42,176

Cost of revenue:
 
 
 
Product
7,136

 
4,092

Maintenance and professional services
9,350

 
8,431

Total cost of revenue
16,486

 
12,523

Total gross profit
43,211

 
29,653

Operating expenses:
 
 
 
Research and development
14,687

 
10,947

Sales and marketing
42,279

 
35,045

General and administrative
13,732

 
9,215

Total operating expenses
70,698

 
55,207

Loss from operations
(27,487
)
 
(25,554
)
Interest expense
(243
)
 
(345
)
Other income (expense), net 
662

 
(144
)
Revaluation of warrant liabilities

 
(392
)
Loss before income taxes
(27,068
)
 
(26,435
)
Income tax provision
1,128

 
635

Net loss
$
(28,196
)
 
$
(27,070
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.74
)
 
$
(4.57
)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
38,312,835

 
5,923,858






FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Three Months Ended
March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(28,196
)
 
$
(27,070
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Stock-based compensation
13,590

 
4,218

Depreciation
1,607

 
1,381

Revaluation of warrant liabilities

 
392

Other
(148
)
 
90

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
9,906

 
27,961

Inventory
3,524

 
495

Deferred commission
411

 
382

Prepaid expenses and other current assets
(1,779
)
 
(1,791
)
Other assets
253

 
232

Accounts payable
(5,355
)
 
(4,172
)
Accrued compensation
(3,544
)
 
(2,034
)
Accrued expenses
(1,255
)
 
(1,412
)
Customer deposits
(34
)
 
11,524

Deferred revenue
34,332

 
2,501

Severance pay, net
123

 
179

Other liabilities
1,019

 
(107
)
Net cash provided by operating activities
24,454

 
12,769

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(2,313
)
 
(1,237
)
Purchases of marketable securities
(26,304
)
 

Proceeds from maturities of marketable securities
9,000

 

Net cash used in investing activities
(19,617
)
 
(1,237
)
Cash flows from financing activities:
 
 
 
Repayments of notes payable
(1,875
)
 
(1,874
)
Proceeds from exercise of stock options
3,627

 
122

Repurchase of unvested common stock
(5
)
 

Payments of deferred offering costs
(1,057
)
 
(1,479
)
Proceeds from public offerings, net
13,818

 

Net cash provided by (used in) financing activities
14,508

 
(3,231
)
Net change in cash, cash equivalents, and restricted cash for period
19,345

 
8,301

Cash, cash equivalents, and restricted cash at beginning of period
67,357

 
83,877

Cash, cash equivalents, and restricted cash at end of period
$
86,702

 
$
92,178






FORESCOUT TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(Unaudited, in thousands, except per share amounts)

Three Months Ended
March 31,

2018

2017






GAAP gross profit
$
43,211


$
29,653

Add:





     Stock-based compensation expense
826


346

Non-GAAP gross profit
$
44,037


$
29,999







GAAP operating expense:
$
70,698


$
55,207

Less:





     Stock-based compensation expense
12,764


3,872

Non-GAAP operating expense
$
57,934


$
51,335







GAAP operating loss
$
(27,487
)

$
(25,554
)
Add:





     Stock-based compensation expense
13,590


4,218

Non-GAAP operating loss
$
(13,897
)

$
(21,336
)






GAAP net loss per share
$
(0.74
)

$
(4.57
)
Add:





Effect on net loss per share from stock-based compensation expense
0.36


0.71

Effect on net loss per share from change in revaluation of warrant liabilities


0.07

Non-GAAP net loss per share
$
(0.38
)

$
(3.79
)






Net cash provided by operating activities
$
24,454


$
12,769

Less:





     Net purchases of property and equipment
(2,313
)

(1,237
)
Free cash flow (non-GAAP)
$
22,141


$
11,532

Free cash flow margin (non-GAAP)
37
%

27
%