Forescout Technologies (FCST) is a network security developer that has created and pioneered an agentless approach to protect organizations against the emerging threat that exploits the billions of devices connected to various networks. Particularly, hackers and cyber criminals are shifting their focus away from traditional devices and towards less secure devices, like those attached to the "Internet of Things".
FCST says that over the past ten years, it has developed proprietary technology that discovers and classifies IP-based devices in real time as they connect to the network and continuously monitors and assesses their security posture. Its offering supports heterogeneous wired and wireless networks, as well as both virtual and cloud infrastructures.
FCST's products are sold as either a physical or virtual appliance through a perpetual software license, with each appliance designed to manage a certain number of connected devices within an organization. It recently started offering its products, in limited quantities to a small number of large enterprises, as a software-only license with the enterprise license designed to manage a certain number of connected devices within an organization.
End-customers typically initially deploy its technology across a region or across their wired or wireless network, then expand their usage to cover additional regions and networks. After end-customers achieve enhanced visibility and control over their devices, they can deploy new use cases that leverage third-party integrations licensed as add-on modules.
FCST sells into all industries and into organizations of all sizes, with a focus on those that are highly regulated or with a large footprint of transient devices. As of June 30, 2017, it has sold to over 2,500 end-customers in over 70 countries, including 17% of the Global 2000, since its inception.
Taking a look at its most recent financials, revenue was up 32% for the six months ended June 30, 2017 to $90.6 million. However, product revenue was only up 17% for the period. A majority of the growth was driven by a 50% jump in maintenance and professional service revenue.
Total cost of revenue increased $7.3 million, or 38%, for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. Gross margin decreased by 2% compared to the six months ended June 30, 2016. The decline of 3% in product margin was driven by a shift in product revenue mix with increased sales of Hardware Products as compared to Software Products.
Total operating expenses climbed by 25% year/year, driven by a 56% spike in research and development costs to $21.6 million. This was mostly related to higher personnel costs as headcount increased by 24%.
The end result is FCST had an operating loss of ($45.7) million for the period, putting it on pace to lose more money than it did in FY16.