{ "docId": "019dd923-622c-750b-8b98-f1acfdee233e", "docSlug": "a458f84d7f69", "documentTitle": "Forescout Technologies (FSCT)", "authorId": "54_Spruce_Point_Capital", "authorName": "Ben Axler", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2020-05-13 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 12, "pageCount": 55, "prevPage": 11, "nextPage": 13, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "dense", "nDataPoints": 14, "notes": "The slide uses a table to show historical margin trends and a quote from the 10-Q to contrast management's explanation with the activist's skepticism.", "elementsJson": [ "headline_text", "paragraph", "data_table", "callout_box" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-f1acfdee233e/12", "deckHref": "/decks/019dd923-622c-750b-8b98-f1acfdee233e", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-f1acfdee233e.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-f1acfdee233e#slide-12", "components": [ { "bbox": { "h": 0.15, "w": 0.9, "x": 0.05, "y": 0.7 }, "kind": "paragraph", "text": "Margin on our Software Products was approximately 94% and 98% for the three months ended March 31, 2020 and 2019, respectively. Margin on our Hardware Products varies. The average margin on hardware sold separately for use with our Software Products was approximately (8)% and 24% for the three months ended March 31, 2020 and 2019, respectively. The negative margin on hardware sold separately for use with our Software Products primarily reflects two large deals that were deeply discounted as a result of one off negotiations. Margin on appliances, which are the hardware appliances that are embedded with our software, varies. The average margin on our high-end appliances was approximately 71% and 84%, and the average margin on our low-end appliances was approximately 26% and 42%, for the three months ended March 31, 2020 and 2019, respectively.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "73c3b167-5d97-4eca-9cd0-abe2cc4f6312", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.96, "x": 0.02, "y": 0.18 }, "kind": "paragraph", "text": "Spruce Point observes that Forescout's gross margin on its hardware products plummeted into negative territory for the first time in Q1 FY20. Management attributed this downward trend to \"one off negotiations\" on \"deeply discounted\" deals. However, in light of the competitive struggles which the Company appears to be having in the marketplace, we wonder if such \"deep discounting\" on hardware products represents, a new normal for Forescout, or at worst evidence to suggest desperation to hit numbers or channel stuffing? If so, we believe that Forescout's growth potential and profitability profile have fundamentally turned for the worse. This could represent a material adverse effect per the language of the merger agreement with Advent?", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c8d23642-1fa1-411f-8324-e79f8225d358", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.15, "x": 0.05, "y": 0.91 }, "kind": "source-note", "text": "Source: Forescout 10-Q", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5e7e4ce4-96f1-40d4-92d8-70bd2f923427", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.2, "w": 0.9, "x": 0.05, "y": 0.37 }, "kind": "table", "text": "FSCT: Average Margin on Hardware Sold Separately", "attrs": null, "subkind": "data", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8ca3aba8-f4b0-49aa-943c-6f54e5f4fa8b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.48, "x": 0.26, "y": 0.65 }, "kind": "table", "text": "FSCT: Q1 FY20 10-Q", "attrs": null, "subkind": "data", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "cd5f9689-f2ff-451f-855c-0c5824b71045", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.65, "x": 0.308, "y": 0.025 }, "kind": "title", "text": "Do Negative Hardware Margins Suggest Declining Competitive Position, Desperation To Hit Numbers or Channel Stuffing?", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7442da90-7adb-45fe-ac6f-f9c7a46de8df", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "6c194f72-8bf8-46e9-9e54-23c5a427e8c6", "evidence": "Questioning management's explanation of negative margins as 'one-off' to suggest channel stuffing.", "confidence": 0.8 } ], "arcBeats": [ { "to": 12, "from": 4, "beatId": "552f664e-6037-4ed7-b893-26bd2a0dbb24", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Monster", "beatSlug": "overcoming-monster-the-monster", "evidence": "Spruce Point exposes contradictions in Forescout management's statements and actions.", "position": 0, "confidence": 0.8, "parentBeatName": "Hook", "parentBeatSlug": "hook" } ], "loops": [ { "to": 12, "from": 4, "name": "The Reveal", "slug": "05-the-reveal", "bestFor": "Product launches, strategic pivots, unexpected findings", "matchId": "5923425e-f040-421a-8531-f579da37241c", "evidence": "The deck presents a series of revelations about Forescout management's actions and statements.", "position": 0, "objective": "Reveal management's alleged inconsistencies and flaws", "structure": "Setup the Question -> Build Suspense -> The Big Reveal", "confidence": 0.8, "description": "Build mystery and anticipation, then deliver a surprising or powerful conclusion" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }