GlobeNewswire Inc | Aug 5, 2020 04:05PM EDT

August 05, 2020

-- Total Revenue of $79.9 million, up 40% quarter-over-quarter -- On track to close pending transaction with Advent International Corporation

SAN JOSE, Calif., Aug. 05, 2020 (GLOBE NEWSWIRE) -- Forescout Technologies, Inc. (NASDAQ: FSCT), the leader in device visibility and control, today announced results for its second quarter ended June30, 2020.

Im proud of our strong execution during the second quarter, despite many uncertainties. We closed strategic deals with both new and existing customers, made continued progress in the market with our eyeSegment product, and improved profitability, said Michael DeCesare, CEO and President of Forescout Technologies. We look forward to completing our pending transaction with Advent International, and building upon our strategic cloud transformation and transition to a recurring subscription business model. As we move to our next chapter as a private company, I would like to thank our customers, partners, talented employees, and shareholders for their unwavering support.

Second Quarter 2020 Financial Highlights

-- Revenue: Total revenue was $79.9 million, an increase of 2% over the second quarter of 2019o License revenue was $37.6 million, a decrease of 3% over the second quarter of 2019o Subscription revenue was $37.6 million, an increase of 8% over the second quarter of 2019o Professional Services revenue was $4.7 million, an increase of 1% over the second quarter of 2019 -- Gross Profit: GAAP gross profit was $60.4 million, or 76% of total revenue, compared to $60.8 million in the second quarter of 2019, or 78% of total revenue. Non-GAAP gross profit was $61.8 million, or 77% of total revenue, compared to $62.3 million in the second quarter of 2019, or 80% of total revenue. -- Operating Loss: GAAP operating loss was $22.7 million, or 28% of total revenue, compared to a loss of $30.6 million in the second quarter of 2019, or 39% of total revenue. Non-GAAP operating income was $0.3 million, or 0% of total revenue, compared to operating loss of $14.7 million in the second quarter of 2019, or 19% of total revenue. -- Net Loss: GAAP net loss was $23.5 million, or $0.48 per share, compared to a loss of $30.8 million in the second quarter of 2019, or $0.68 per share. Non-GAAP net income was $0.2 million, or $0.00 per share, based on 51.5 million weighted average diluted shares outstanding, compared to a net loss of $15.1 million in the second quarter of 2019, or $0.33 per share, based on 45.5 million weighted average diluted shares outstanding. -- Cash Flow: Net cash used in operating activities was $30.3 million, or 38% of total revenue, compared to $25.2 million in the second quarter of 2019, or 32% of total revenue. Free cash flow was negative $30.8 million, or 39% of total revenue, compared to negative $27.0 million in the second quarter of 2019, or 34% 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 July 15, 2020, Forescout announced that it had entered into an amended and restated merger agreement to be acquired by entities affiliated with Advent International Corporation (Advent). Pursuant to the amended and restated merger agreement, Advent commenced a tender offer on July 20, 2020, to acquire all of Forescouts outstanding shares of common stock for $29.00 in cash per share. The tender offer is scheduled to expire at the end of the day, one minute after 11:59 p.m., Eastern time, on August 14, 2020, unless the offer is extended or earlier terminated. The closing of the tender offer is subject to certain limited customary conditions, including the tender by Forescout stockholders of at least one share more than 50% of Forescouts issued and outstanding shares. 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 demand for our products, and market opportunity; the benefits of our solution to customers; our pending transaction with Advent, including timing for closing, 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 and uncertainty as to how many of our stockholders will tender their shares in the tender offer; 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 related to the ability to realize the anticipated benefits of the pending transaction, including the possibility that the expected benefits will not be realized or will not be realized within the expected time periods; risks that the proposed transaction disrupts Forescouts current plans and operations; risks that the proposed transaction will affect Forescouts ability to retain or recruit employees; the risk that Forescouts stock price may decline significantly if the proposed transaction is not completed; 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, as well as our Quarterly Report on Form 10-Q for the quarter ended March 30, 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 June30, 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 Forescouts 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 Forescouts condensed consolidated financial statements prepared in accordance with GAAP. A reconciliation of Forescouts 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 relating to our acquisition of SecurityMatters B.V. and Bullguard Israel Ltd., 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 relating to our acquisition of SecurityMatters B.V. and Bullguard Israel Ltd., amortization of acquired intangible assets, merger-related expenses relating to our transaction with Advent, and restructuring expenses.

Non-GAAP Operating Loss. Forescout defines non-GAAP operating loss as operating loss excluding stock-based compensation expense, acquisition-related expenses relating to our acquisition of SecurityMatters B.V. and Bullguard Israel Ltd., amortization of acquired intangible assets, merger-related expenses relating to our transaction with Advent, and restructuring expenses.

Non-GAAP Net Loss. Forescout defines non-GAAP net loss as net loss excluding stock-based compensation expense, acquisition-related expenses relating to our acquisition of SecurityMatters B.V. and Bullguard Israel Ltd., amortization of acquired intangible assets, merger-related expenses relating to our transaction with Advent, 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 Beck408-721-5884 650-314-8705michelle.spolver@forescout.com katie.beck@forescout.com

FORESCOUT TECHNOLOGIES, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited, in thousands) June 30, December 31, 2020 2019Assets Current assets: Cash and cash equivalents $ 54,947 $ 69,030 Marketable securities 2,021 29,181 Accounts receivable 63,924 84,168 Inventory 1,418 372 Deferred commissions - current 13,350 12,843 Prepaid expenses and other current assets 11,383 17,024 Total current assets 147,043 212,618 Deferred commissions - non-current 20,848 23,036 Property and equipment, net 20,718 23,835 Operating lease right-of-use assets 27,265 29,626 Restricted cash - non-current 1,554 1,555 Intangible assets, net 17,339 19,367 Goodwill 98,018 98,018 Other assets 6,946 8,172 Total assets $ 339,731 $ 416,227 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 11,899 $ 10,692 Accrued compensation 29,770 34,007 Accrued expenses 16,381 16,279 Deferred revenue - current 104,191 112,232 Notes payable - current 4,550 8,248 Operating lease liabilities - current 5,812 5,840 Total current liabilities 172,603 187,298 Deferred revenue - non-current 67,274 75,366 Operating lease liabilities - non-current 29,211 32,125 Other liabilities 23,638 23,893 Total liabilities 292,726 318,682 Stockholders' equity: Common stock 50 48 Additional paid-in capital 762,187 727,922 Accumulated other comprehensive loss (678 ) (633 )Accumulated deficit (714,554 ) (629,792 )Total stockholders? equity 47,005 97,545 Total liabilities and stockholders' equity $ 339,731 $ 416,227

FORESCOUT TECHNOLOGIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited, in thousands, except per share amounts)

Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue: License $ 37,577 $ 38,831 $ 52,376 $ 76,511 Subscription 37,612 34,822 75,138 68,621 Professional services 4,687 4,627 9,515 8,716 Total revenue 79,876 78,280 137,029 153,848 Cost of revenue: License 6,282 5,622 11,701 13,229 Subscription 7,041 5,599 14,054 10,806 Professional services 6,148 6,235 13,313 12,421 Total cost of revenue 19,471 17,456 39,068 36,456 Total gross profit 60,405 60,824 97,961 117,392 Operating expenses: Research and 21,514 19,440 44,760 37,937 developmentSales and marketing 38,988 56,173 86,276 112,096 General and 21,733 15,838 46,214 32,051 administrativeRestructuring 859 - 3,371 - Total operating 83,094 91,451 180,621 182,084 expensesLoss from operations (22,689 ) (30627 ) (82,660 ) (64,692 )Interest expense (118 ) (142 ) (353 ) (235 )Other income (expense), 572 505 (29 ) 1,122 netLoss before income (22,235 ) (30264 ) (83,042 ) (63,805 )taxesIncome tax provision 1,288 496 1,720 1,207 Net loss $ (23,523 ) $ (30,760 ) $ (84,762 ) $ (65,012 )Net loss per share, $ (0.48 ) $ (0.68 ) $ (1.73 ) $ (1.45 )basic and dilutedWeighted-average sharesused to compute net 49,371 45,494 48,982 44,848 loss per share, basicand diluted

FORESCOUT TECHNOLOGIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited, in thousands) Six Months Ended June 30, 2020 2019Cash flows from operating activities: Net loss $ (84,762 ) $ (65,012 )Adjustments to reconcile net loss to net cash used in operating activitiesStock-based compensation 25,625 27,893 Depreciation and amortization 6,465 5,790 Other 655 (8 )Changes in operating assets and liabilities Accounts receivable 20,244 12,177 Inventory (1,293 ) (593 )Deferred commissions 1,681 1,809 Prepaid expenses and other current assets 5,142 318 Other assets 536 551 Accounts payable 1,297 (2,509 )Accrued compensation (4,237 ) (905 )Accrued expenses 152 407 Deferred revenue (16,133 ) 1,495 Other liabilities (143 ) (160 )Net cash used in operating activities (44,771 ) (18,747 )Cash flows from investing activities: Purchases of property and equipment (1,355 ) (3,402 )Purchases of marketable securities - (63,569 )Proceeds from maturities of marketable securities 27,000 53,354 Net cash provided by (used in) investing 25,645 (13,617 )activitiesCash flows from financing activities: Proceeds from revolving credit facility 16,000 - Repayment of revolving credit facility (16,000 ) - Repayments of notes payable (3,750 ) (3,749 )Proceeds from sales of shares through employee 11,583 20,726 equity incentive plansPayment related to shares withheld for taxes on (3,316 ) (4,302 )vesting of restricted stock unitsOthers 25 - Net cash provided by financing activities 4,542 12,675 Effect of exchange rate changes on cash and cash - (4 )equivalentsNet change in cash, cash equivalents, and (14,584 ) (19,693 )restricted cash for periodCash, cash equivalents, and restricted cash at 71,591 69,012 beginning of periodCash, cash equivalents, and restricted cash at end $ 57,007 $ 49,319 of period

FORESCOUT TECHNOLOGIES, INC.RECONCILIATION OF GAAP TO NON-GAAP MEASURES(Unaudited, in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 GAAP gross profit $ 60,405 $ 60,824 $ 97,961 $ 117,392 Add: Stock-based 897 980 2,059 1,907 compensation expenseAcquisition-related - 15 - 29 expensesAmortization ofacquired intangible 470 467 941 934 assetsNon-GAAP gross profit $ 61,772 $ 62,286 $ 100,961 $ 120,262 GAAP operating expense $ 83,094 $ 91,451 $ 180,621 $ 182,084 Less: Stock-based 10,870 13,085 23,566 25,986 compensation expenseAcquisition-related 775 1,043 1,550 2,667 expensesAmortization ofacquired intangible 543 304 1,087 608 assetsMerger-related expenses 8,588 - 19,009 - Restructuring expenses 859 - 3,371 - Non-GAAP operating $ 61,459 $ 77,019 $ 132,038 $ 152,823 expense GAAP operating loss $ (22,689 ) $ (30627 ) $ (82,660 ) $ (64,692 )Add: Stock-based 11,767 14,065 25,625 27,893 compensation expenseAcquisition-related 775 1,058 1,550 2,696 expensesAmortization ofacquired intangible 1,013 771 2,028 1,542 assetsMerger-related expenses 8,588 - 19,009 - Restructuring expenses 859 - 3,371 - Non-GAAP operating $ 313 $ (14,733 ) $ (31,077 ) $ (32,561 )income (loss) GAAP net loss $ (23,523 ) $ (30,760 ) $ (84,762 ) $ (65,012 )Add: Stock-based 11,767 14,065 25,625 27,893 compensation expenseAcquisition-related 775 1,058 1,550 2,696 expensesAmortization ofacquired intangible 1,013 771 2,028 1,542 assetsMerger-related expenses 8,588 - 19,009 - Restructuring expenses 859 - 3,371 - Tax effect of non-GAAP 753 (211 ) 907 (356 )adjustmentsNon-GAAP net income $ 232 $ (15,077 ) $ (32,272 ) $ (33,237 )(loss)Non-GAAP net income(loss) per share, $ - $ (0.33 ) $ (0.66 ) $ (0.74 )diluted Weighted-average sharesused in per share 49,371 45,494 48,982 44,848 calculation for GAAP,dilutedAdd: Weighted-average effectof potentially dilutive 2,082 - - - securitiesWeighted-average sharesused in per share 51,453 45,494 48,982 44,848 calculation fornon-GAAP, diluted Net cash used in $ (30,308 ) $ (25,186 ) $ (44,771 ) $ (18,747 )operating activitiesLess: Net purchases of 532 1,813 1,355 3,402 property and equipmentFree cash flow $ (30,840 ) $ (26,999 ) $ (46,126 ) $ (22,149 )(non-GAAP)Net cash provided by(used in) investing $ 13,468 $ (3,500 ) $ 25,645 $ (13,617 )activitiesNet cash (used in)provided by financing $ (12,484 ) $ 5,141 $ 4,542 $ 12,675 activitiesFree cash flow margin (39 )% (34 )% (34 )% (14 )%(non-GAAP)