10-Q 1 forescout0331201910q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————————————
FORM 10-Q
———————————————
(Mark One)
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
            
Commission File Number 001-38253
———————————————
FORESCOUT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
———————————————
Delaware
51-0406800
(State or other jurisdiction of
incorporation or organization)
(I.R.S. 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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
 
 
Emerging growth company
¨
 
 
If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards providing pursuant to Section 7(a)(2)(B) of the Securities Act
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨   No   x
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
FSCT
The NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

The number of shares outstanding of the registrant’s common stock as of May 2, 2019 was 45,230,315.





TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
Page
 
 5
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 


2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “would,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

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 and related services;

our expectations regarding the size of our target market;

our ability to educate prospective end-customers about our technical capabilities and the use and benefits of our products, and to achieve increased market acceptance of our solution;

our beliefs and objectives regarding our prospects and our future results of operations and financial condition;

the effects of increased competition in our target markets and our ability to compete effectively;

our business plan and our ability to manage our growth effectively;

our investment in our sales force and our expectations concerning the productivity and efficiency of our expanding sales force as our sales representatives become more seasoned;

our growth strategy to maintain and extend our technology leadership, expand and diversify our end-customer base, deepen our existing end-customer relationships, and attract and retain highly skilled security professionals;

our ability to enhance our existing products and technologies and develop or acquire new products and technologies;

our plans to attract new end-customers, retain existing end-customers, and increase our annual revenue;

our expectations concerning renewal rates of support and maintenance contracts with end-customers;

our plans to expand our international operations;

our expectations regarding future acquisitions of, or investments in, complementary companies, services, or technologies;

our ability to continue to generate a significant portion of our revenue from public sector customers;

the effects on our business of evolving information security and data privacy laws and regulations, government export or import controls and any failure to comply with the U.S. Foreign Corrupt Practices Act and similar laws;


3


our ability to maintain, protect, and enhance our brand and intellectual property;

fluctuations in our quarterly results of operations and other operating measures;

our expectations regarding changes in our cost of revenue, gross margins, and operating costs and expenses;

our expectations regarding the portions of our revenue represented by license revenue, subscription revenue, and professional services revenue;

our expectations concerning the impact on our results of operations of development of our distribution programs and sales through our channel partners;

the impact on our revenue, gross margin, and profitability of future investments in the enhancement of Forescout eyeSight, Forescout eyeControl, Forescout eyeExtend, SilentDefense, and SilentDefense Command Center, and expansion of our sales and marketing programs;

the impact of the Tax Cuts and Jobs Act on our business;

our ability to successfully acquire and integrate companies and assets;

sufficiency of our existing liquidity sources to meet our cash needs; and

our potential use of foreign exchange forward contracts to hedge our foreign currency risk and our general use of our foreign currency.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, cash flows, or prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including, but not limited to, those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and, in particular, the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and those discussed in other documents we file with the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements. You should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.


4

PART I. FINANCIAL INFORMATION


ITEM 1.
FINANCIAL STATEMENTS
FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share amounts)

March 31, 2019
 
December 31, 2018
Assets
 
 

Current assets:

 

Cash and cash equivalents
$
70,663

 
$
66,895

Marketable securities
56,266

 
47,632

Accounts receivable
56,734

 
79,255

Inventory
1,248

 
1,501

Deferred commissions - current
11,707

 
12,543

Prepaid expenses and other current assets
13,477

 
13,353

Total current assets
210,095

 
221,179

Deferred commissions - non-current
22,143

 
22,831

Property and equipment, net
23,900

 
24,349

Operating lease right-of-use assets
20,704

 

Restricted cash - non-current
1,283

 
1,266

Intangible assets, net
17,873

 
19,002

Goodwill
90,641

 
92,482

Other assets
7,034

 
7,369

Total assets
$
393,673

 
$
388,478

 
 
 
 
Liabilities and stockholders' equity

 

Current liabilities:

 

Accounts payable
$
9,500

 
$
12,118

Accrued compensation
28,121

 
32,649

Accrued expenses
13,988

 
14,558

Deferred revenue - current
106,087

 
101,900

Notes payable - current
7,352

 
7,331

Operating lease liabilities - current
4,718

 

Total current liabilities
169,766

 
168,556

Deferred revenue - non-current
72,023

 
69,618

Notes payable - non-current
6,402

 
8,248

Operating lease liabilities - non-current
23,535

 

Other liabilities
7,018

 
14,335

Total liabilities
278,744

 
260,757

 
 
 
 
Stockholders' equity:

 

Common stock, $0.001 par value; 1,000,000 shares authorized;

 

45,133 and 43,403 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
45

 
43

Additional paid-in capital
662,674

 
639,237

Accumulated other comprehensive loss
(2,281
)
 
(302
)
Accumulated deficit
(545,509
)
 
(511,257
)
Total stockholders’ equity
114,929

 
127,721

Total liabilities and stockholders' equity
$
393,673

 
$
388,478

 

See Notes to Condensed Consolidated Financial Statements.

5


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

Three Months Ended
March 31,

2019

2018
Revenue:



License
$
37,680


$
29,780

Subscription
33,799

 
26,359

Professional services
4,089

 
3,558

Total revenue
75,568


59,697

Cost of revenue:
 
 
 
License
7,607


7,136

Subscription
5,207

 
3,801

Professional services
6,186


5,549

Total cost of revenue
19,000


16,486

Total gross profit
56,568


43,211

Operating expenses:
 
 
 
Research and development
18,497


14,687

Sales and marketing
55,923


42,279

General and administrative
16,213


13,732

Total operating expenses
90,633


70,698

Loss from operations
(34,065
)

(27,487
)
Interest expense
(93
)

(243
)
Other income, net 
617


662

Loss before income taxes
(33,541
)

(27,068
)
Income tax provision
711


1,128

Net loss
$
(34,252
)

$
(28,196
)
Net loss per share, basic
$
(0.78
)

$
(0.74
)
Weighted-average shares used to compute net loss per share, basic
44,196


38,313


See Notes to Condensed Consolidated Financial Statements.


6


FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
 
Three Months Ended
March 31,
 
2019

2018
Net loss
$
(34,252
)

$
(28,196
)
Other comprehensive loss, net of tax:
 
 
 
Change in unrealized gains (losses) on marketable securities
75


(246
)
Foreign currency translation adjustments
(2,054
)
 

Comprehensive loss
$
(36,231
)

$
(28,442
)

See Notes to Condensed Consolidated Financial Statements.


7



FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)

 
Three Months Ended March 31, 2019
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders' (Deficit) Equity
 
Shares
 
Amount
 
 
Balance as of December 31, 2018
43,403

 
$
43

 
$
639,237

 
$
(302
)
 
$
(511,257
)
 
$
127,721

Other comprehensive loss, net of tax

 

 

 
(1,979
)
 

 
(1,979
)
Stock-based compensation

 

 
13,828

 

 

 
13,828

Issuance of common stock in connection with employee equity incentive plans
1,706

 
2

 
9,407

 

 

 
9,409

Vesting of early exercised stock options
24

 

 
202

 

 

 
202

Net loss

 

 

 

 
(34,252
)
 
(34,252
)
Balance as of March 31, 2019
45,133

 
$
45

 
$
662,674

 
$
(2,281
)
 
$
(545,509
)
 
$
114,929


 
Three Months Ended March 31, 2018
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders' Equity
 
Shares
 
Amount
 
 
Balance as of December 31, 2017
38,122

 
$
38

 
$
551,986

 
$
(112
)
 
$
(436,421
)
 
$
115,491

Other comprehensive loss, net of tax

 

 

 
(246
)
 

 
(246
)
Stock-based compensation

 

 
13,590

 

 

 
13,590

Issuance of common stock in connection with employee equity incentive plans
567

 
1

 
3,621

 

 

 
3,622

Issuance of common stock in connection with public offering, net of underwriter discounts and commissions and offering costs
500

 

 
12,572

 

 

 
12,572

Vesting of early exercised stock options
25

 

 
219

 

 

 
219

Net loss

 

 

 

 
(28,196
)
 
(28,196
)
Balance as of March 31, 2018
39,214

 
$
39

 
$
581,988

 
$
(358
)
 
$
(464,617
)
 
$
117,052


See Notes to Condensed Consolidated Financial Statements.

8


FORESCOUT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

Three Months Ended
March 31,

2019

2018
Cash flows from operating activities:



Net loss
$
(34,252
)

$
(28,196
)
Adjustments to reconcile net loss to net cash provided by operating activities




Stock-based compensation
13,828


13,590

Depreciation and amortization
2,845


1,607

Other
(15
)

125

Changes in operating assets and liabilities, net of business acquisition




Accounts receivable
22,227


9,768

Inventory
253


3,534

Deferred commissions
1,520


411

Prepaid expenses and other current assets
(203
)

(1,779
)
Other assets
385


108

Accounts payable
(2,705
)

(5,355
)
Accrued compensation
(4,512
)

(3,544
)
Accrued expenses
549


(1,289
)
Deferred revenue
6,559


34,332

Other liabilities
(40
)

1,142

Net cash provided by operating activities
6,439


24,454

Cash flows from investing activities:



Purchases of property and equipment
(1,589
)

(2,313
)
Purchases of marketable securities
(37,651
)

(26,304
)
Proceeds from maturities of marketable securities
29,123


9,000

Net cash used in investing activities
(10,117
)

(19,617
)
Cash flows from financing activities:



Repayments of notes payable
(1,875
)

(1,875
)
Proceeds from sales of shares through employee equity incentive plans
12,173


3,622

Payment related to shares withheld for taxes on vesting of restricted stock units
(2,764
)
 

Proceeds from public offerings, net

 
13,818

Payments of deferred offering costs


(1,057
)
Net cash provided by financing activities
7,534


14,508

Effect of exchange rate changes on cash and cash equivalents
(70
)
 

Net change in cash, cash equivalents, and restricted cash for period
3,786


19,345

Cash, cash equivalents, and restricted cash at beginning of period
69,012


67,357

Cash, cash equivalents, and restricted cash at end of period
$
72,798


$
86,702



Reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets to the amounts shown in the statements of cash flows above:
 
 
 
Cash and cash equivalents
$
70,663

 
$
82,356

Restricted cash included in prepaid expenses and other current assets
852

 
202

Restricted cash - non-current
1,283

 
4,144

Total cash, cash equivalents, and restricted cash
$
72,798

 
$
86,702


See Notes to Condensed Consolidated Financial Statements.

9


FORESCOUT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies
Company and Background
Forescout Technologies, Inc. (the “Company”) was incorporated in the State of Delaware and commenced operations in April 2000. The Company designs, develops, and markets device visibility, control, and orchestration software that helps organizations to gain complete situational awareness of all devices in their interconnected environment and orchestrate actions to mitigate both their cyber and operational risk.
The Company offers its solution across two product groups: (i) products for visibility and control capabilities, and (ii) products for orchestration capabilities. The Company’s products for visibility and control capabilities consist of eyeSight, eyeControl, and SilentDefense. eyeSight and eyeControl provide for visibility and control capabilities across the extended enterprise, from campus to data center to hybrid cloud to operational technology (“OT”) devices, while SilentDefense product provides for visibility and control capabilities deeper within the OT portion of the network. The Company’s products for orchestration capabilities are comprised of its portfolio of eyeExtend family of products.
The Company offers its solution across two product types: (i) software products and (ii) hardware products. The Company’s software products include eyeSight, eyeControl, eyeExtend, SilentDefense, and SilentDefense Command Center (“Software Products”). The Company’s hardware products include hardware that is sold separately for use with the Company’s Software Products and appliances that are embedded with the Company’s software (“Hardware Products”).
The Company sells its Software Products, Hardware Products, support and maintenance contracts, and professional services to end-customers through distributors and resellers, who are supported by the Company’s sales and marketing organization, and to a lesser extent directly to end-customers.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) using accounting policies that are consistent with those used in the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted as permitted by the SEC's rules and regulations. The Company’s condensed consolidated financial statements include the results of Forescout Technologies, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements are unaudited and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s quarterly results, except for changes associated with the recent accounting standard for leases, as detailed in Note 5. The condensed consolidated balance sheet as of December 31, 2018 was derived from the audited consolidated financial statements at that date but does not include all the disclosures required by GAAP for the annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Prior to the first quarter of fiscal 2019, the Company presented revenue and cost of revenue on the condensed consolidated statements of operations as (i) product and (ii) maintenance and professional services. Under the new presentation of revenue and cost of revenue included in the condensed consolidated statements of operations, product has been retitled as license revenue, and maintenance and professional services is now presented as two separate line items on the condensed consolidated statements of operations as (i) subscription and (ii) professional services. The

10


related prior period financial data were adjusted to reflect the new presentation of the Company’s revenue and cost of revenue. There is no impact on total revenue and total cost of revenue.
The preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis of judgments made about carrying values of assets and liabilities, which are not readily apparent from other sources. The areas where management has made estimates requiring judgment include, but are not limited to, the best estimate of standalone selling prices for license and related support, the period over which deferred sales commissions are amortized to expense, accruals, stock-based compensation, provision for income taxes including related reserves, identified intangibles and goodwill, purchase price allocation of an acquired business, and incremental borrowing rate for operating leases. Actual results could differ materially from those estimates.
Summary of Significant Accounting Policies 
Effective January 1, 2019, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”), ASU No. 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”), and ASU No. 2018-11, Targeted Improvements (“ASU 2018-11”), (collectively “Topic 842”), as discussed in detail in Note 5. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q have been updated to comply with Topic 842. The Company adopted Topic 842 effective January 1, 2019 using the transition method to apply the new lease standards at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The adoption had a material impact on the total assets and total liabilities reported on the Company’s condensed consolidated balance sheets resulting in an increase in long-term assets and total liabilities of approximately $20.3 million as of January 1, 2019. The adoption of this standard did not have a material impact on the Company’s condensed consolidated statements of operations.
Except for the impact of the adoption of Topic 842, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1, 2019, that have had a material impact on the Company’s condensed consolidated financial statements and related notes.
Note 2. Revenue, Deferred Revenue and Deferred Commissions
Disaggregation of Revenue
The Company generates revenue from the sale of Software Products, Hardware Products, support and maintenance contracts, and professional services. All revenue recognized in the condensed consolidated statements of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to revenue type and is consistent with how the Company evaluates its financial performance (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Revenue:
 
 
 
License
 
 
 
Software Products
$
26,083

 
$
15,802

Hardware Products
11,597

 
13,978

Subscription
33,799

 
26,359

Professional services
4,089

 
3,558

Total revenue
$
75,568

 
$
59,697

License Revenue

11


License revenue consists of sales of Software Products and Hardware Products. Revenue is recognized at the time of transfer of control, which is generally upon delivery of access to software downloads or shipment, provided that all other revenue recognition criteria have been met.
Subscription Revenue
Subscription revenue is derived from support and maintenance contracts with terms that are generally either one or three years, but can be up to five years. Subscription revenue is recognized ratably over the term of the support and maintenance contract and any unearned subscription revenue is included in deferred revenue.
Professional Services Revenue
Professional services revenue is derived primarily from customer fees for optional installation of the Company’s products or training. Generally, the Company recognizes revenue for professional services as the services are rendered.
Revenue from Contracts with Customers
Contract Assets and Contract Liabilities
A contract asset is a right to consideration in exchange for products or services that the Company has transferred to a customer when that right is conditional and is not just subject to the passage of time. The Company’s payment terms typically range between 30 to 90 days. The Company has no material contract assets. A contract liability is an obligation to transfer products or services for which the Company has received consideration, or for which an amount of consideration is due from the customer. Contract liabilities include customer deposits under non-cancelable contracts included in accrued expenses, and current and non-current deferred revenue balances. The Company’s contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.
Significant changes in contract liabilities during the periods presented are as follows (in thousands):
 
Three Months Ended March 31, 2019
 
Contract Liabilities
Balance as of December 31, 2018
$
172,031

Additions
82,322

Gross revenue recognized
(75,568
)
Balance as of March 31, 2019
$
178,785

During the three months ended March 31, 2019, the Company recognized revenue of $31.5 million that was included in the contract liabilities balance as of December 31, 2018. During the three months ended March 31, 2018, the Company recognized revenue of $27.6 million that was included in the contract liabilities balance as of December 31, 2017.
Performance Obligations
Contracted not recognized revenue was $178.9 million as of March 31, 2019, of which the Company expects to recognize approximately 60% of the revenue over the next 12 months and the remainder thereafter.
Note 3. Fair Value Measurements
Financial assets are recorded at fair value on the condensed consolidated balance sheets and are categorized based upon the level of judgment associated with inputs used to measure their fair value.
The accounting guidance establishes a fair value hierarchy based on the independence of the source and objective evidence of the inputs used. There are three fair value hierarchies based upon the level of inputs that are significant to fair value measurement:
Level 1—Observable inputs that reflect quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs that reflect quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are

12


observable for the assets or liabilities, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3—Inputs that are generally unobservable and are supported by little or no market activity, and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
There have been no transfers between fair value measurement levels during the periods presented. The following table presents the fair value of the Company’s financial assets according to the fair value hierarchy (in thousands):
 
March 31, 2019
 
December 31, 2018
 
  Level 1
 
Level 2
 
Level 3
 
  Level 1
 
Level 2
 
Level 3
Financial Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
      Cash
$
57,955

 
$

 
$

 
$
46,017

 
$

 
$

      Money market accounts
12,708

 

 

 
20,878

 

 

Total cash and cash equivalents
70,663

 

 

 
66,895

 

 

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
      Commercial paper

 
13,872

 

 

 
3,991

 

      Corporate debt securities

 
30,468

 

 

 
35,640

 

      U.S. government securities

 
11,926

 

 

 
8,001

 

Total marketable securities

 
56,266

 

 

 
47,632

 

Restricted cash (current and non-current)
2,135

 

 

 
2,117

 

 

Total financial assets
$
72,798

 
$
56,266

 
$

 
$
69,012

 
$
47,632

 
$

Note 4. Marketable Securities
The following table summarizes the amortized cost, unrealized gains and losses, and fair value of the Company’s marketable securities as of March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper
$
13,872

 
$

 
$

 
$
13,872

 
$
3,991

 
$

 
$

 
$
3,991

Corporate debt securities
30,477

 
5

 
(14
)
 
30,468

 
35,730

 

 
(90
)
 
35,640

U.S. government securities
11,923

 
4

 
(1
)
 
11,926

 
8,012

 

 
(11
)
 
8,001

Total marketable securities
$
56,272

 
$
9

 
$
(15
)
 
$
56,266

 
$
47,733

 
$

 
$
(101
)
 
$
47,632

The following table summarizes the amortized cost and fair value of the Company’s available-for-sale securities as of March 31, 2019 and December 31, 2018 by the contractual maturity date (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due within one year
$
54,264

 
$
54,257

 
$
47,733

 
$
47,632

Due between one and five years
2,008

 
2,009

 

 

     Total
$
56,272

 
$
56,266

 
$
47,733

 
$
47,632

The Company had nine and 13 marketable securities in unrealized loss positions as of March 31, 2019 and December 31, 2018, respectively. For individual marketable securities that were in an unrealized loss position as of March 31, 2019 and December 31, 2018, the fair value and gross unrealized loss for these securities aggregated by

13


investment category and length of time in a continuous unrealized loss position are presented in the following tables (in thousands):
 
March 31, 2019
 
Less Than 12 Months
 
Greater Than 12 Months
 
Total
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Corporate debt securities
$
6,007

 
$
(1
)
 
$
18,445

 
$
(13
)
 
$
24,452

 
$
(14
)
U.S. government securities
3,002

 
(1
)
 

 

 
3,002

 
(1
)
Total
$
9,009

 
$
(2
)
 
$
18,445

 
$
(13
)
 
$
27,454

 
$
(15
)
 
December 31, 2018
 
Less Than 12 Months
 
Greater Than 12 Months
 
Total
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Corporate debt securities
$
4,020

 
$
(3
)
 
$
31,620

 
$
(87
)
 
$
35,640

 
$
(90
)
U.S. government securities

 

 
8,001

 
(11
)
 
8,001

 
(11
)
Total
$
4,020

 
$
(3
)
 
$
39,621

 
$
(98
)
 
$
43,641

 
$
(101
)
Unrealized losses related to these marketable securities are due to interest rate fluctuations as opposed to credit quality. In addition, the Company does not intend to sell and it is not likely that the Company would be required to sell these marketable securities before recovery of their amortized cost basis, which may be at maturity. As a result, there are no other-than-temporary impairments for these marketable securities as of March 31, 2019 or December 31, 2018.
Note 5. Leases
The Company has operating leases for corporate offices, vehicles, and office equipment. The leases have remaining lease terms of up to eight years, some of which may include options to extend the leases for up to five years.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company elected the practical expedients to combine the lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) and the non-lease components (e.g., common-area maintenance costs) for all classes of underlying assets, and to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and non-current operating lease liabilities on our condensed consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms may include options to extend the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.
Lease Cost (in thousands)
 
Three Months Ended March 31, 2019
Operating lease cost (1)
 
$
2,443

_____________________    
(1)    Includes short-term leases and variable lease costs, which are immaterial.


14


Maturities of lease liabilities as of March 31, 2019 were as follows (in thousands):
Years Ending December 31,
 
Operating Leases (a)
2019 (excluding the three months ended March 31, 2019)
 
$
5,071

2020
 
5,745

2021
 
4,854

2022
 
4,251

2023
 
4,216

Thereafter
 
11,407

Total lease payments
 
$
35,544

Less: Imputed interest
 
7,291

Present value of lease liabilities
 
$
28,253

_____________________    
(a)    Operating lease payments exclude $7.0 million of legally binding minimum lease payments for leases signed but not yet commenced.
Lease Term and Discount Rate
 
March 31, 2019
Operating leases
 
 
Weighted-average remaining lease term
 
6 years

Weighted-average discount rate
 
7.1
%
Other information (in thousands)
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
1,818

Leased assets obtained in exchange for new operating lease liabilities
 
$
1,617

Note 6. Equity Award Plans
Stock-Based Compensation
Stock-based compensation expense included in the accompanying condensed consolidated statements of operations is as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Cost of revenue:
 
 
 
License
$
83


$
53

Subscription
443

 
379

Professional services
401


394

Research and development
3,078


2,347

Sales and marketing
6,486


6,180

General and administrative
3,337


4,237

     Total
$
13,828


$
13,590


15


Stock Options
The following table summarizes option activity under the Company’s 2000 Stock Option and Incentive Plan and the Company’s 2017 Equity Incentive Plan, and related information (in thousands, except per share and contractual life amounts):
 
Options Outstanding
 
Number
of
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Balance—December 31, 2018
6,013

 
$
11.65

 
6.4
 
$
86,624

     Options exercised
(1,199
)
 
$
10.16

 

 

     Options forfeited
(97
)
 
$
17.53

 

 

Balance—March 31, 2019
4,717

 
$
11.91

 
6.3
 
$
141,527

Options vested and exercisable—March 31, 2019
3,723

 
$
10.59

 
6.1
 
$
116,621

As of March 31, 2019, the total unrecognized compensation cost related to unvested options was $8.1 million, which is expected to be amortized on a straight-line basis over a weighted-average period of approximately 1.3 years.
The fair value of stock option awards granted to employees is estimated using the Black-Scholes option-pricing model. No stock option awards were granted during the three months ended March 31, 2019. The assumptions used to determine the grant date fair value of employee stock options for the periods presented are as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Fair value of common stock
-
 
$29.92 – $30.97
Risk-free interest rate
-
 
2.4% – 2.8%
Expected term (in years)
-
 
6.1
Volatility
-
 
48%
Dividend yield
-
 
—%
Restricted Stock Units (“RSUs”)
The following table summarizes RSU activity under the Plans, and related information (in thousands, except per share and contractual life amounts):
 
RSUs Outstanding
 
Number
of
Shares
 
Weighted-
Average
Grant Date Fair Value Per Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Balance—December 31, 2018
5,709

 
$
28.01

 
1.8
 
$
148,389

     RSUs granted
512

 
$
36.77

 
 
 

     RSUs vested
(577
)
 
$
28.12

 
 
 


     RSUs forfeited
(175
)
 
$
29.12

 
 
 
 
Balance—March 31, 2019
5,469

 
$
28.79

 
1.8
 
$
229,228

As of March 31, 2019, the total unrecognized compensation cost related to unvested RSUs was $126.3 million, which is expected to be amortized over a weighted-average period of approximately 2.8 years.

16


Note 7. Income Taxes
The Company estimates its annual effective tax rate each quarter and specific events are discretely recognized as they occur under the provisions of ASC 740-270, Income Taxes: Interim Reporting. For the three months ended March 31, 2019 and 2018, the Company recorded a tax provision of $0.7 million and $1.1 million, respectively, representing an effective tax rate of (2.1)% and (4.2)%, respectively. The Company’s effective tax rates for these periods were negative as it has maintained a valuation allowance on the U.S. losses. The key components of the income tax provision primarily consist of foreign income taxes, unrecognized tax benefits, and U.S. state minimum taxes. The effective tax rate increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to an increase in worldwide loss before income taxes. The loss was primarily generated in the United States and does not impact the provision for income taxes as it was offset by a full valuation allowance.
Note 8. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by basic weighted-average shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by diluted weighted-average shares outstanding, including potentially dilutive securities, unless anti-dilutive.
The following table presents the computation of basic and diluted net loss per share (in thousands, except per share amounts):
 
Three Months Ended March 31,
 
2019
 
2018
Net loss
$
(34,252
)
 
$
(28,196
)
Weighted-average shares used to compute net loss per share, basic
44,196

 
38,313

Net loss per share, basic
$
(0.78
)
 
$
(0.74
)
The following securities were excluded from the computation of diluted net loss per share for the periods presented because their inclusion would reduce the net loss per share (in thousands):
 
As of March 31,
 
2019
 
2018
Options to purchase common stock
4,717

 
8,663

Unvested early exercised common shares
24

 
121

Unvested restricted stock units
5,470

 
5,128

Shares estimated under Employee Stock Purchase Plan
233

 
218

Warrants to purchase common stock

 
83


17


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our (1) unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) audited consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2018 included in our Annual Report on Form 10-K for the year ended December 31, 2018. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. See section titled “Special Note Regarding Forward-Looking Statements.”

Unless expressly indicated or the context requires otherwise, the terms “Forescout,” “we,” “us,” and “our” in this document refer to Forescout Technologies, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries.
Overview
We offer our solution across two product groups: (i) products for visibility and control capabilities, and (ii) products for orchestration capabilities. Our products for visibility and control capabilities consist of eyeSight, eyeControl, and SilentDefense. Our eyeSight and eyeControl provide for visibility and control capabilities across the extended enterprise, from campus to data center to hybrid cloud to OT devices, while our SilentDefense product provides for visibility and control capabilities deeper within the OT portion of the network. Our products for orchestration capabilities are comprised of our portfolio of eyeExtend family of products.
We offer our solution across two product types: (i) software products and (ii) hardware products. Our software products include eyeSight, eyeControl, eyeExtend, SilentDefense, and SilentDefense Command Center (“Software Products”). Our hardware products include hardware that is sold separately for use with our Software Products and appliances that are embedded with our software (“Hardware Products”).
We also offer our solution across license types and increments. Our software products are sold with a perpetual license or a subscription license. Customers can purchase in license increments of 100 devices, with hardware sold separately based on customer deployment requirements. Customers can manage their deployments of our products in its varying options that can scale and manage deployments of up to 2,000,000 devices under a single console. Customers can purchase our SilentDefense products in license increments that are on a per sensor basis.
We generate revenue from sales of Software Products, Hardware Products, support and maintenance contracts, and professional services.
First Quarter 2019 Financial Highlights
As of March 31, 2019, we have sold to nearly 3,400 end-customers in over 80 countries, including 23% of the Global 2000, since our inception. For the three months ended March 31, 2019 and 2018, we sold to 8% and 6% of the Global 2000, respectively. Our end-customers represent a broad range of industries, including government, financial services, healthcare, manufacturing, services, retail, energy, technology, entertainment, and education.

18


The following table summarizes our key financial highlights for the periods presented in dollars and as a percentage of our total revenue.
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(Dollars in thousands)
License revenue
$
37,680

 
$
29,780

License revenue year-over-year percentage growth
27
 %
 
47
 %
Subscription revenue
$
33,799

 
$
26,359

Subscription revenue year-over-year percentage growth
28
 %
 
40
 %
Professional services revenue
$
4,089

 
$
3,558

Professional services revenue year-over-year percentage growth
15
 %
 
19
 %
Total revenue
$
75,568

 
$
59,697

Total revenue year-over-year percentage growth
27
 %
 
42
 %
Gross profit
$
56,568

 
$
43,211

Gross margin
75
 %
 
72
 %
Loss from operations
$
(34,065
)
 
$
(27,487
)
Loss from operations as a percentage of total revenue
(45
)%
 
(46
)%
Net loss
$
(34,252
)
 
$
(28,196
)
Net cash provided by operating activities
$
6,439

 
$
24,454

Factors Affecting Our Performance
We believe that the growth of our business and our future success are dependent upon many factors, including our ability to continue to increase the efficiency by which our sales force engages our end-customers, to extend the reach of our sales force footprint to engage more end-customers, and to retain and increase sales to existing end-customers. While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must successfully address in order to sustain the growth of our business and improve our results of operations.
Increasing the Efficiency by which Our Sales Force Engages Our End-Customers
We are focused on increasing the efficiency of our sales force. Over the last 12 months, we have increased hiring in sales enablement and marketing, enhanced sales training activities, and implemented company-wide standards for product positioning in order to instill a culture of success and discipline in our sales organization. Our sales strategy depends on attracting top talent from security organizations, expanding our sales coverage, increasing our pipeline of business, and enhancing productivity. We focus on productivity per quota-carrying sales representative across different levels within the sales organization, and the time it takes our sales representatives to reach productivity. We manage our pipeline on a quarterly basis by sales representative to ensure sufficient coverage of our bookings targets. Our ability to manage our sales productivity and pipeline are important factors to the success of our business.
Extending the Reach of Our Sales Force Footprint
We have made substantial investments in our sales force in recent periods in order to address the significant opportunity created primarily by the increase in the attack surface within organizations driven by the influx of the Internet of Things in the campus and data centers, the digital transformation from data centers to third party hosted cloud providers, and the emergence of the critical need to secure OT networks. We expect to continue to make substantial investments in our sales force to capitalize on the market opportunity for device visibility and control.

19


Continued Retention and Sales to Existing End-Customers
We believe the net-recurring revenue retention rate over the trailing 12 month period on our subscription revenue is an important metric to measure our ability to retain and increase sales to our existing end-customers. We calculate the net-recurring revenue retention rate on subscription revenue using the following formula:
X = (A + B + C)/(B + D)
where:
X = net-recurring revenue retention rate on subscription revenue
A = annualized value of support and maintenance contracts renewed over the trailing 12 month period
B = trailing 12 month annualized value of support and maintenance contracts not subject to renewal because the scheduled expiration date of the multi-year support and maintenance contract falls outside of the 12 month period under measurement
C = trailing 12 month annualized value of new support and maintenance contracts from end-customers that have been end customers for more than one year
D = 12 months annualized value of support and maintenance contracts scheduled to terminate or renew during the 12 month period under measurement
We believe this metric is an indication of the continuing value we provide to our end-customers because it shows the renewal of their support and maintenance contracts on their existing IP-based devices and the expanded value to our end-customers demonstrated by increases in the number of their IP-based devices. Our net-recurring revenue retention rate on subscription revenue as of March 31, 2019 and December 31, 2018 were 111% and 117%, respectively. The 600 basis point decrease reflects a decreasing portion of our license revenue for the twelve months ended March 31, 2019 being generated from end-customer that have been end-customers for more than one year thus decreasing the associated new annualized value of the support and maintenance contracts that contributes to the numerator of the net-recurring revenue retention rate on subscription revenue calculation. A net retention rate over 100% indicates that our products are expanding within our end-customer base, whereas a rate less than 100% indicates that our products are constricting within our end-customer base. Additionally, this calculation includes all changes to the annualized value of the recurring revenue from support and maintenance contracts for the designated set of subscription revenue used in the calculation, which includes scheduled expiration periods, stub periods, changes in pricing, additional products purchased, lost end-customers, early renewals, and decreases in the number of devices licensed to be managed by our license under contract. This metric does not take into account license revenue or professional services revenue. The annualized value of our support and maintenance contracts is a legal and contractual determination made by assessing the contractual terms with our end-customers. The annualized value of our support and maintenance contracts is not determined by reference to historical revenue, deferred revenue, or any other GAAP financial measure over any period.
Key Financial Metrics
Non-GAAP Operating Loss and Free Cash Flow
In addition to our results determined in accordance with GAAP, we monitor the non-GAAP financial metrics described below to evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and measure and assess operational efficiencies.
We define non-GAAP operating loss as loss from operations excluding stock-based compensation expense, acquisition-related expenses, and amortization of acquired intangible assets. Acquisition-related expenses include transaction costs such as accounting and legal fees, and other employee retention expenses arising from the acquisition. We consider non-GAAP operating loss to be a useful metric for investors and other users of our financial information in evaluating our operating performance because it excludes the impact of stock-based compensation, a non-cash charge that can vary from period to period for reasons that are unrelated to our core operating performance, and non-recurring and non-operating acquisition-related expenses. This metric also provides investors and other users of our financial

20


information with an additional tool to compare business performance across companies and periods, while eliminating the effects of items that may vary for different companies for reasons unrelated to core operating performance.
We define free cash flow as net cash provided by operating activities less purchases of property and equipment. We consider free cash flow to be an important metric because it measures the amount of cash we use or generate and reflects changes in working capital.
A reconciliation of non-GAAP operating loss to loss from operations, the most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below:
 
Three Months Ended March 31,
 
2019

2018
 
 
 
 
 
(In thousands)
Non-GAAP operating loss:
 
 
 
Loss from operations
$
(34,065
)
 
$
(27,487
)
Add:
 
 
 
Stock-based compensation expense
13,828

 
13,590

Acquisition-related expenses
1,638

 

Amortization of acquired intangible assets
771

 

Non-GAAP operating loss
$
(17,828
)
 
$
(13,897
)
A reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP, is provided below:
 
Three Months Ended March 31,
 
2019

2018




 
(In thousands)
Free cash flow (non-GAAP):


 
Net cash provided by operating activities
$
6,439


$
24,454

Less: purchases of property and equipment
(1,589
)

(2,313
)
Free cash flow (non-GAAP)
$
4,850


$
22,141

Net cash used in investing activities
$
(10,117
)

$
(19,617
)
Net cash provided by financing activities
$
7,534


$
14,508

It is important to note that other companies, including companies in our industry, may not use non-GAAP operating loss or free cash flow, may calculate these metrics differently, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of these non-GAAP metrics as comparative measures.
As a result, our non-GAAP operating loss and free cash flow should be considered in addition to, not as substitutes for or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing investors and other users of our financial information, reconciliations of non-GAAP operating loss to the corresponding GAAP financial measure, operating loss, and reconciliations of free cash flow to the corresponding GAAP financial measure, cash flow provided by operating activities. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view non-GAAP operating loss and free cash flow in conjunction with the corresponding GAAP financial measure.

21


Components of Financial Performance
Revenue
We derive revenue from sales of our Software Products, Hardware Products, support and maintenance contracts, and professional services.
Our revenue is comprised of the following:
License Revenue. Our license revenue is derived from sales of Software Products and Hardware Products, and are recognized at the time of transfer of control, which is generally upon delivery of access to software downloads or shipment, provided that all other revenue recognition criteria have been met. As a percentage of total revenue, we expect our license revenue to vary from quarter to quarter based on seasonal and cyclical factors.
Subscription Revenue. Our subscription revenue is derived from support and maintenance contracts with terms that are generally either one or three years, but can be up to five years. We recognize revenue from subscription over the contractual service period. As a percentage of total revenue, we expect our subscription revenue to vary from quarter to quarter based on seasonal and cyclical factors.
Professional Services Revenue. Our professional services revenue is generally recognized over time as the services are rendered. As a percentage of total revenue, we expect our professional services revenue to vary from quarter to quarter based on seasonal and cyclical factors.
Cost of Revenue
Our cost of revenue is comprised of the following:
Cost of License Revenue. Cost of license revenue primarily consists of costs paid to our third-party contract manufacturer for our Hardware Products. Our cost of license revenue also includes allocated costs, shipping costs and personnel costs associated with logistics for our Hardware Products, and amortization of acquired developed technology. We expect our cost of license revenue to fluctuate from quarter to quarter based on product mix between Software Products and Hardware Products; however, over time, we expect our cost of license revenue to decline as a percentage of license revenue reflecting the continuing shift towards Software Products in our product mix.
Cost of Subscription Revenue. Cost of subscription revenue consists of personnel costs for our global customer support organization. We expect our cost of subscription revenue to increase slightly over time as we grow our customer support organization to accommodate our anticipated subscription revenue growth rate.
Cost of Professional Services Revenue. Cost of professional services revenue consists of personnel costs for our global professional services organization and costs paid to third-party contractors that deliver some of our services. We expect our cost of professional services revenue to decline over time as a percentage of our professional services revenue as we expect to scale our professional services organization at a lower growth rate than our anticipated professional services revenue growth rate.
Gross Margin
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the mix of products sold between Software Products and Hardware Products; the mix between high-margin and low-margin Hardware Products; the mix of revenue between license, subscription, and professional services; the average sales price of our Software Products, Hardware Products, support and maintenance contracts, and professional services; amortization of acquired developed technology; and manufacturing costs.
Margin on our Software Products was approximately 98% and 99% for the three months ended March 31, 2019 and 2018, respectively. Margin on our Hardware Products vary. The average margin on hardware sold separately for use with our Software Products was approximately 24% and 23% for the three months ended March 31, 2019 and 2018,

22


respectively. Margin on appliances, which are the hardware appliances that are embedded with our software, vary. The average margin on our high-end appliances was approximately 84% and 81%, and average margin on our low-end appliances was approximately 42% and 58%, for the three months ended March 31, 2019 and 2018, respectively. We expect our margins to fluctuate from quarter to quarter based on product mix; however, over time, we expect our margins to increase as a percentage of license revenue primarily due to a shift in product mix towards increased sales of Software Products.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, and with regard to sales and marketing expense, sales commissions.
Research and Development. Research and development expense consists primarily of personnel costs. Research and development expense also includes consulting expense and allocated costs including facilities and information technology related costs. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services; however, we expect our research and development expense to decline as a percentage of total revenue in the long term as we scale the business.
Sales and Marketing. Sales and marketing expense consists primarily of personnel costs. Sales and marketing expense also includes sales commissions, costs for market development programs, promotional and other marketing costs, travel costs, professional services, amortization of acquired customer relationships, and allocated costs including facilities and information technology related costs. Incremental commissions incurred to acquire customer contracts are deferred and recognized as we recognize the associated revenue or over the estimated customer life. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations; however, we expect our sales and marketing expense to decline as a percentage of total revenue in the long term as we scale the business.
General and Administrative. General and administrative expense consists of personnel costs, professional services, and allocated costs including facilities and information technology related costs. General and administrative personnel include our executive, finance, human resources, and legal organizations. Professional services consist primarily of legal, auditing, accounting, and other consulting costs. We expect general and administrative expense to increase in absolute dollars due to additional costs associated with accounting, compliance, insurance, and investor relations as we continue to support our growth; however, we expect our general and administrative expense to decline as a percentage of total revenue in the long term as we scale the business.
Interest Expense
Interest expense consists of interest on our outstanding indebtedness.
Other Income, Net
Other income, net consists primarily of interest income earned on our cash, cash equivalents, and marketable securities, sublease income, and foreign currency exchange gains (losses) related to transactions denominated in currencies other than the U.S. Dollar.
Provision for Income Taxes
Provision for income taxes consists primarily of foreign income taxes, unrecognized tax benefits, withholding taxes, and U.S. state income taxes. We maintain a full valuation allowance for domestic net deferred tax assets. Our foreign deferred tax assets are immaterial. 

23


Results of Operations
The following tables summarize our results of operations for the periods presented in dollars and as a percentage of our total revenue. The period-to-period comparison of results is not necessarily indicative of results for future periods.
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(In thousands)
Condensed Consolidated Statements of Operations Data:
 
 
 
Revenue:
 
 
 
License
$
37,680

 
$
29,780

Subscription
33,799

 
26,359

Professional services
4,089

 
3,558

Total revenue
75,568

 
59,697

Cost of revenue:
 
 
 
License (1)
7,607

 
7,136

Subscription (1)
5,207

 
3,801

Professional services (1)
6,186

 
5,549

Total cost of revenue
19,000

 
16,486

Total gross profit
56,568

 
43,211

Operating expenses:
 
 
 
Research and development (1)   
18,497

 
14,687

Sales and marketing (1)   
55,923

 
42,279

General and administrative (1)   
16,213

 
13,732

Total operating expenses
90,633

 
70,698

Loss from operations
(34,065
)
 
(27,487
)
Interest expense
(93
)
 
(243
)
Other income, net
617

 
662

Loss before income taxes
(33,541
)
 
(27,068
)
Income tax provision
711

 
1,128

Net loss
$
(34,252
)
 
$
(28,196
)

24


_____________________    
(1)    Includes stock-based compensation expense as follows:
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(In thousands)
Cost of revenue:
 
 
 
License
$
83

 
$
53

Subscription
443

 
379

Professional services
401

 
394

Research and development
3,078

 
2,347

Sales and marketing
6,486

 
6,180

General and administrative
3,337

 
4,237

     Total
$
13,828

 
$
13,590


 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(As a percentage of total revenue)
Condensed Consolidated Statements of Operations Data:
 
 
 
Revenue:
 
 
 
License
50
 %
 
50
 %
Subscription
45

 
44

Professional services
5

 
6

Total revenue
100

 
100

Cost of revenue:
 
 
 
License
10

 
12

Subscription
7

 
7

Professional services
8

 
9

Total cost of revenue
25

 
28

Total gross profit
75

 
72

Operating expenses:
 
 
 
Research and development
25

 
24

Sales and marketing
74

 
71

General and administrative
21

 
23

Total operating expenses
120

 
118

Loss from operations
(45
)
 
(46
)
Interest expense

 

Other income, net
1

 
1

Loss before income taxes
(44
)
 
(45
)
Income tax provision
1

 
2

Net loss
(45
)%
 
(47
)%


25


Comparison of the Three Months Ended March 31, 2019 and 2018
Revenue
 
Three Months Ended March 31,
 
 
 
 
 
2019
 
2018
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Revenue:
 
 
 
 
 
 
 
License
$
37,680

 
$
29,780

 
$
7,900

 
27
%
Subscription
33,799

 
26,359

 
7,440

 
28
%
Professional services
4,089

 
3,558

 
531

 
15
%
Total revenue
$
75,568

 
$
59,697

 
$
15,871

 
27
%

License revenue increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to a $10.3 million increase in Software Products revenue, which was partially offset by a $2.4 million decrease in Hardware Products revenue. The increase in Software Products revenue included a $5.5 million increase in the sale of eyeSight and eyeControl (functionalities generally purchased together), a $3.4 million increase in the sale of eyeExtend, and a $1.4 million increase in the sale of SilentDefense software.
Subscription revenue increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to $5.2 million increase attributed to support and maintenance contracts associated with initial product sales and a $2.3 million increase attributed to support and maintenance contracts that were renewals.
Professional services revenue increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to an increase in the sale of optional installation and training services.
Cost of Revenue
 
Three Months Ended March 31,
 
 
 
 
 
2019
 
2018
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Cost of revenue:
 
 
 
 
 
 
 
License
$
7,607

 
$
7,136

 
$
471

 
7
%
Subscription
5,207

 
3,801

 
1,406

 
37
%
Professional services
6,186

 
5,549

 
637

 
11
%
Total cost of revenue
$
19,000

 
$
16,486

 
$
2,514

 
15
%

Cost of license revenue increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to a $0.5 million in amortization of acquired developed technology and $0.4 million increase due to higher quantities of hardware sold separately for use with our Software Products, partially offset by a $0.6 million decrease due to lower quantities of appliances sold that are embedded with our software.
Cost of subscription revenue increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to increases in personnel costs related to a 49% increase in headcount in our customer support organization.

26


Cost of professional services revenue increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to increases in personnel costs related to a 4% increase in headcount in our professional services organization.
Gross Profit and Gross Margin
 
Three Months Ended March 31,
 
 
 
 
 
2019
 
2018
 
Change
 
Gross Profit (Loss)

Gross Margin
 
Gross Profit (Loss)
 
Gross Margin
 
Gross Profit (Loss)
 
Gross Margin %
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
License
$
30,073

 
80
 %
 
$
22,644

 
76
 %
 
$
7,429

 
4
 %
Subscription
28,592

 
85
 %
 
22,558

 
86
 %
 
$
6,034

 
(1
)%
Professional services
(2,097
)
 
(51
)%
 
(1,991
)
 
(56
)%
 
(106
)
 
5
 %
Total gross profit
$
56,568

 
75
 %
 
$
43,211

 
72
 %
 
$
13,357

 
3
 %

Gross profit increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase is consistent with the changes in our revenue and cost of revenue.
Gross margin increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.
The increase in margin on our license revenue was due to a higher concentration of Software Products revenue compared to Hardware Products revenue, which was principally driven by a shift in product mix towards increased sales of eyeSight, eyeControl, and eyeExtend. The mix between Software Products revenue and Hardware Products revenue shifted to 69:31 for the three months ended March 31, 2019, from 53:47 for the three months ended March 31, 2018. Within Hardware Products revenue, the mix among hardware sold separately for use with our Software Products, low-end appliances that are embedded with our software, and high-end appliances that are embedded with our software shifted to 57:22:21 for the three months ended March 31, 2019, from 43:30:27 for the three months ended March 31, 2018.
The decrease in margin on our subscription revenue was due to higher personnel costs related to increased headcount in our support organization, as compared to our subscription revenue growth.
The increase in margin on our professional services revenue was primarily driven by improvements made within professional services as we scale our professional services organizations at a lower growth rate than our anticipated professional services revenue growth rate.

27


Operating Expenses
 
Three Months Ended March 31,
 
 
 
 
 
2019
 
2018
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Operating expenses:
 
 
 
 
 
 
 
Research and development
$
18,497

 
$
14,687

 
$
3,810

 
26
%
Sales and marketing
55,923

 
42,279

 
13,644

 
32
%
General and administrative
16,213

 
13,732

 
2,481

 
18
%
Total operating expenses
$
90,633

 
$
70,698

 
$
19,935

 
28
%

Research and development expense increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to an increase in personnel costs of $2.6 million resulting from a 34% increase in headcount and includes an increase in stock compensation expense of $0.7 million.
Sales and marketing expense increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to an increase in personnel costs of $10.1 million resulting from a 33% increase in headcount and includes an increase in commissions expense of $1.9 million. The increase was further driven by an increase in other marketing activities costs of $2.2 million.
General and administrative expense increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to an increase in personnel costs of $2.0 million resulting from a 20% increase in headcount.
Interest Expense
 
Three Months Ended March 31,
 
 
 
 
 
2019
 
2018
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Interest expense
$
(93
)
 
$
(243
)
 
$
150

 
(62
)%
Interest expense decreased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018, primarily due to the decreasing notes payable balance associated with our amended and restated loan and security agreement entered into on December 22, 2016.
Other Income, Net
 
Three Months Ended March 31,
 
 
 
 
 
2019
 
2018
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Other income, net 
$
617

 
$
662

 
$
(45
)
 
(7
)%
Other income, net remained relatively flat for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

28


Provision for Income Taxes
 
Three Months Ended March 31,
 
 
 
 
 
2019
 
2018
 
Change
 
Amount
 
Amount
 
Amount
 
%
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Income tax provision
$
711

 
$
1,128

 
$
(417
)
 
(37
)%
Effective tax rate
(2.1
)%
 
(4.2
)%
 
 
 
 

We recorded an income tax provision for the three months ended March 31, 2019 due to foreign income taxes, unrecognized tax benefits, and U.S. state minimum taxes. The decrease in the provision for the three months ended March 31, 2019 was primarily due to a decrease in discrete tax expenses. The effective tax rate increased for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to an increase in worldwide loss before income taxes, which was largely generated in the United States and offset by a full valuation allowance.
Liquidity and Capital Resources
The following data should be read in conjunction with our condensed consolidated statements of cash flows.
 
 
As of
 
 
March 31, 2019
 
December 31, 2018
 
 
 
 
 
 
 
(In thousands)
Working capital
 
$
40,329

 
$
52,623

Cash, cash equivalents, and marketable securities:
 
 
 
 
Cash and cash equivalents
 
$
70,663

 
$
66,895

Marketable securities
 
56,266

 
47,632

         Total cash, cash equivalents, and marketable securities
 
126,929

 
114,527

Total notes payable
 
13,754

 
15,579

Net cash, cash equivalents, and marketable securities
 
$
113,175

 
$
98,948


Our liquidity and capital resources are derived from cash received from our initial public offering and follow-on offering, and cash flows from operations. Our cash equivalents are comprised of cash and money market accounts. Our marketable securities are comprised of commercial paper, corporate-debt securities, and U.S. government securities. We believe our existing cash, cash equivalents, and marketable securities will be sufficient to meet our projected operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and services offerings, and the continuing market acceptance of our products.
At March 31, 2019, our cash, cash equivalents, and marketable securities of $126.9 million were held for general corporate purposes, of which approximately $24.4 million was held outside of the United States. We will continue to reinvest our foreign cash outside of the United States. If we were to repatriate these earnings to the United States, any associated withholding tax would not be material.
The significant components of our working capital are cash and cash equivalents, marketable securities, accounts receivable, inventory, current deferred commissions, and prepaid expenses and other current assets, reduced by accounts payable, accrued compensation, accrued expenses, current deferred revenue, current notes payable, and current operating lease liabilities. Working capital decreased by $12.3 million during the three months ended March 31, 2019, primarily

29


due to a decrease in accounts receivable, an increase in current operating lease liabilities, and an increase in current deferred revenue, partially offset by an increase in marketable securities, a decrease in accrued compensation, an increase in cash and cash equivalents, and a decrease in accounts payable. The following table summarizes our cash flows for the three months ended March 31, 2019 and 2018.
 
 
Three Months Ended March 31,
2019
 
2018
 
 
 
 
 
 
 
(In thousands)
Net cash provided by operating activities
 
$
6,439

 
$
24,454

Net cash used in investing activities
 
(10,117
)
 
(19,617
)
Net cash provided by financing activities
 
7,534

 
14,508

Effect of exchange rate changes on cash and cash equivalents
 
(70
)
 

Net change in cash, cash equivalents, and restricted cash for period
 
$
3,786

 
$
19,345

Operating Activities
Our operating activities have consisted of net loss adjusted for certain non-cash items and changes in assets and liabilities.
Cash provided by operating activities was $6.4 million and $24.5 million for the three months ended March 31, 2019 and 2018, respectively, representing a decrease of $18.0 million as compared to the three months ended March 31, 2018. The decrease in generation of cash during the three months ended March 31, 2019 was due primarily to lower billings and higher operating expenses as we continue to invest in the long-term growth of our business, partially offset by proceeds from collections.
Investing Activities
Our investing activities have consisted of financial instrument purchases and capital expenditures. We expect to continue such activities as our business grows.
Cash used in investing activities during the three months ended March 31, 2019 was $10.1 million, primarily resulting from purchases of marketable securities of $37.7 million, and capital expenditures to purchase property and equipment of $1.6 million related to the continuing growth of our business, partially offset by proceeds from maturities of marketable securities of $29.1 million.
Cash used in investing activities during the three months ended March 31, 2018 was $19.6 million, primarily resulting from purchases of marketable securities of $26.3 million and capital expenditures to purchase property and equipment of $2.3 million related to the continuing growth of our business, partially offset by proceeds from maturities of marketable securities of $9.0 million.
Financing Activities
Our financing activities have consisted of proceeds from the issuance of common stock, issuance of shares through our employee equity incentive plans, and repayments of notes payable.
Cash provided by financing activities for the three months ended March 31, 2019 was $7.5 million, primarily from the proceeds from sales of shares through employee equity incentive plans of $12.2 million, partially offset by payments related to shares withheld for taxes on vesting of restricted stock units of $2.8 million, and the repayment of notes payable of $1.9 million.
Cash provided by financing activities for the three months ended March 31, 2018 was $14.5 million, primarily due to proceeds from the follow-on offering of $13.8 million and from exercise of employee stock options of $3.6 million, partially offset by the repayment of notes payable of $1.9 million and payments of $1.1 million for deferred offering costs related to the follow-on offering.

30


Contractual Obligations and Commitments
There were no material changes outside the ordinary course of business during the three months ended March 31, 2019 in our commitments under contractual obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
Off-Balance Sheet Arrangements
Through March 31, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2018.
Recent Accounting Pronouncements
See Note 1. Description of Business and Summary of Significant Accounting Policies of our Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our assessment of our exposures to market risk have not changed materially since the presentation set forth in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
 
 
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on our evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2019, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

31


Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

32


PART II. OTHER INFORMATION

 
 
ITEM 1.
LEGAL PROCEEDINGS
From time to time, we are involved in claims and legal proceedings that arise in the ordinary course of business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance.
To the extent there is a reasonable possibility that a loss exceeding amounts already recognized may be incurred, and the amount of such additional loss would be material, we will either disclose the estimated additional loss or state that such an estimate cannot be made. We do not currently believe that it is reasonably possible that additional losses in connection with litigation arising in the ordinary course of business would be material.
 
 
ITEM 1A.
RISK FACTORS
Refer to the description of the risk factors associated with our business in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. There have been no material changes from the risk factors described under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Before you buy our common stock, you should know that making such an investment involves some risks and uncertainties, including, but not limited to, the risks described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Additionally, any one of those risks could harm our business, financial condition and results of operations, which could cause our stock price to decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
 
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
 
 
ITEM 6.
EXHIBITS
The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are herein incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

33


EXHIBIT INDEX
Exhibit
Number
 
Description
10.1*
 
10.2
 
31.1
 
31.2
 
32.1†
 
32.2†
 
101.INS
 
XBRL Instance Document.
101.SCH
 
XBRL Taxonomy Schema Linkbase Document.
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document.
101.DEF
 
XBRL Taxonomy Definition Linkbase Document.
101.LAB
 
XBRL Taxonomy Labels Linkbase Document.
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document.
*
Indicates a management or compensatory plan.
This certification is deemed not filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Forescout Technologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10‑Q, irrespective of any general incorporation language contained in such filing.

34


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, thereunto duly authorized.

 
FORESCOUT TECHNOLOGIES, INC.
 
 
Dated: May 9, 2019
By: /s/ Darren J. Milliken
 
Darren J. Milliken
 
Senior Vice President, General Counsel, Corporate Secretary and Corporate Compliance Officer

 
 
Dated: May 9, 2019
By: /s/ Christopher Harms
 
Christopher Harms
 
Chief Financial Officer
 
Principal Financial Officer


35