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Morning Report: ForeScout filed to go public yesterday. Here’s what you need to know.

The ForeScout , as , marking another step on its march to becoming a public firm.

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ForeScout, a security shop out of San Jose, during its tenure as private company, including an $80 million round in January of 2016.听That funding event gave ForeScout .

The company’s IPO currently lists a $100 million raise expectation, a traditional placeholder number that will be adjusted later.

So how is our unicorn doing? Here are its vitals, looking mostly at its performance in the first two quarters of this year (H1’17) compared to the first two quarters of 2016 (H1’16):

• Revenue of $90.6, up 31.9 percent from $68.7 million.
• Gross profit of $63.7 million, up 29.7 percent from $49.1 million.
• Net loss of $47.7 million, up 20.5 percent from $39.6 million.

In both the first half of 2016 and the first half of 2017, the firm spent more on sales and marketing operating expenses than it made in gross profit. That the firm is deeply unprofitable is therefore not a surprise.

ForeScout isn’t growing as quickly as we might have expected from a heavily venture-backed, still-scaling company. One element of that is the firm’s revenue mix, which in the first half of this year came in two nearly-perfect halves: “Product,” and “Maintenance and professional services.” Only the latter is treated by the firm as recurring.

From page 57 of its S-1, observe how those revenues are discussed:

“Our net-recurring revenue retention rate on support and maintenance contracts as of听December听31, 2014,听December听31, 2015,听December听31, 2016, and听June听30, 2017听were听120%,听116%,听127%, and 128%, respectively.”

The firm wants to show investors that its top line isn’t completely variable one-off hardware or software sales. ForeScout’s product revenue, as you might expect as non-recurring income, is described in the following way:

Our product revenue is derived from sales of our Physical Appliances, Virtual Appliances, Extended Modules, Enterprise License Software, and hardware sold separately, which is recognized either up-front or ratably depending on the terms of the agreement and the product composition. Hardware Product revenue is recognized at the time of delivery, provided that all other revenue recognition criteria have been met.

So some of its revenue is counted up front, and some of it over time. But it doesn’t read like ForeScout is driving lots of recurring product revenue. That matters. Product revenue is usually far higher-margin than service-derived top-line.

All that makes the ForeScout picture a bit more complicated. If its revenue is only half-recurring (in a sense), it may command a lower revenue multiple than what SaaS companies can currently expect. (Investors like revenue predictability, making recurring revenue worth more in some cases than non-recurring revenue on a per-dollar basis.)

Box, a classic SaaS play, for example, trades at around 5.5 times its trailing revenue. ForeScout’s last four quarters (as listed in its S-1, non-inclusive of calendar third quarter that just concluded) brought in revenue of $105.3 million. At Box’s revenue multiple, the firm is worth just over half its prior, privately-set valuation.

So what ForeScout is worth will be an interesting question. More when it prices.

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