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ForeScout Climbing Steadily

Posted on Wednesday, Sep 5th 2018

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The proliferation of devices in organization these days driven by cloud, mobility, Internet of Things (IoT), and Bring Your Own Device (BYOD) trends has exponentially increased the vulnerability points. The Cyber Security market is projected to grow at 11% CAGR to $231.94 billion by 2022. ForeScout (NASDAQ: FSCT) is a cyber security company that specializes in visibility for endpoint security. It went public about a year ago and since then has seen an uptick in its stock price and valuation.

ForeScout’s Financials

Founded in 2000 by Israeli entrepreneurs Oded Comay, Doron Shikmoni, Hezy Yeshurun, and Dror Comay, California-based ForeScout offers Global 2000 enterprises and government organizations agentless visibility and control of traditional as well as IoT devices and BYOD endpoints when they connect to the network. Its solution supports heterogeneous wired and wireless networks, virtual, and cloud infrastructures and can scale to meet the needs of globally distributed organizations. Click here for previous coverage.

In the recent second quarter results, ForeScout reported revenue of $67.6 million, up 35%. GAAP net loss was $20.4 million, or $0.50 per share increased slightly from $17.8 million, or $2.95 per share a year ago. Non-GAAP net loss was $7.5 million, or $0.18 per share, easily beating analyst estimates of a loss of $0.37 per share on revenue of $63.5 million.

Non-GAAP operating loss was $7.3 million, or 11% of total revenue, compared to $13.3 million or 27% of total revenue a year ago. GAAP gross profit was $52.9 million, or 78% of total revenue, compared to $35.9 million in or 72% of total revenue a year ago.

Net cash used in operating activities was $5.4 million, or 8% of total revenue, compared to $11.5 million or 23% of total revenue a year ago. Free cash flow was negative $7.9 million, or 12% of total revenue, compared to negative $13.1 million or 26% of total revenue a year ago.

By segment, Product revenue was $34.3 million, up 28% while Maintenance and Professional Services revenue was $33.3 million, up 44%.

For the third quarter, ForeScout expects revenue in the range of $77 to $80 million, representing 13% growth at the midpoint. It expects non-GAAP net loss per share in the range of $0.12 to $0.10. Non-GAAP operating loss is expected to be $4 – $3 million. Analysts expect loss of $0.11 on revenue of $78.8 million.

The company expects revenues for the full year 2018 to be in the range of $277 to $285 million, representing 25% growth at the midpoint. Non-GAAP net loss per share is expected to be in the range of $1.02 to $0.94 and non-GAAP operating loss is expected to be $39 – $35 million. Analysts expect loss of $1.03 on revenue of $277.65 million.

ForeScout reported revenue for 2017 at $220.9 million, up 32%. GAAP net loss for 2017 widened to $104 million, or $9.12 per share from $74.8 million, or $13.33 per share in 2016. Non-GAAP net loss for 2017 was $47.9 million, or $4.20 per share.

ForeScout’s New Partnerships

During the recent quarter, ForeScout announced a new integration with Carbon Black, a leader in next-generation endpoint security, to improve endpoint security hygiene and fortify threat defenses across the enterprise.

The company also announced partnerships with Indegy and SecurityMatters to integrate these technologies into ForeScout’s visibility platform and secure operational technology and industrial environments. Through these partnerships, ForeScout now offers deeper visibility into every layer of industrial control system environments, including SCADA systems, programmable logic controllers, and sensors.

Last year, when I spoke with ForeScout’s CEO Michael Decesare, he said ForeScout is different from its competitors by filling the gap created by the new devices that don’t make themselves identifiable in the traditional ways that Cyber Security vendors typically identify them. But ForeScout surely isn’t the only one addressing this problem. There are bigger players like Cisco, which offers a similar service through the Identity Services Engine. Cisco also benefits by being able to bundle the offering into its existing Cyber Security and networking options.

Qualys also is now a competitor in the mitigation and response at endpoints market with its acquisition of Pune-based Nevis Networks.

I would like to ask the users how ForeScout compares with its competitors. If you are a CISO who has evaluated the various players and made choices, it would be great to hear from you with perspective on why you made those choices.

Before it went public, ForeScout was venture funded with $121.6 million raised from investors including Wellington Management, Accel, Amadeus Capital Partners, Aspect Ventures, Cross Creek Advisors, Founders Circle Capital, ITOCHU Corporation, Meritech Capital Partners, and Pitango Venture Capital. It had raised $76 million in January 2017 in a round led by Wellington Management at a valuation of $1 billion. The company went public in October 2017 at a list price of $22 and raised $116 million at a valuation of $800 million. Its stock is currently trading at $36.07 with a market capitalization of $1.53 billion.

 

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