Tenable Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Tenable provides cybersecurity exposure solutions, sold primarily through subscriptions and channel partners. Financial statements are unaudited and prepared under U.S. GAAP.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $159.4 million | $123.2 million | Up 29% |
| Gross profit / margin | $124.4 million / 78% | $101.1 million / 82% | Margin down 4 percentage points |
| Operating loss | $17.5 million | $5.8 million | Loss widened |
| Net loss | $24.5 million | $7.7 million | Loss widened |
| Basic and diluted loss per share | $0.22 | $0.07 | Loss per share widened |
| Cash from operating activities | $32.9 million | $38.6 million | Down $5.8 million |
| Capital expenditures | $4.8 million | $1.1 million | Up $3.8 million |
| Free cash flow, non-GAAP | $28.1 million | $37.6 million | Down $9.5 million |
Subscription revenue rose 33% to $142.7 million; perpetual license and maintenance revenue increased 4% to $12.9 million. Recurring revenue was 95% of total revenue, versus 94% a year earlier. International revenue increased 40%, compared with 22% growth in the U.S. Non-GAAP operating income was $12.5 million (8% margin), versus $13.9 million (11% margin); non-GAAP net income was $7.0 million, or $0.06 per diluted share, versus $14.7 million, or $0.13. These non-GAAP measures exclude specified items, including stock-based compensation.
Financial position and liquidity
- At March 31, 2022, cash and cash equivalents were $287.5 million and short-term investments were $238.6 million, totaling $526.1 million. Total assets were $1.24 billion.
- Deferred revenue was $527.5 million, including $404.8 million current. Remaining performance obligations were $555.7 million; approximately 76% was expected to be recognized over the next 12 months.
- Term loan principal was $374.1 million; its net carrying amount was $366.7 million. The $50 million revolving facility was undrawn. The company reported covenant compliance.
- Cash from investing activities was negative $33.5 million, including the $23.0 million Cymptom acquisition. Financing activities provided $10.5 million, including employee stock plan proceeds and a $0.9 million term-loan payment.
Changes, outlook, and notable items
- Revenue grew 29%, led by subscriptions, while operating expenses increased 33% to $142.0 million. Cloud infrastructure expense rose $7.9 million, contributing to the lower gross margin.
- Interest expense, net increased to $3.3 million from $0.03 million, principally due to the term loan entered into in July 2021. The loan has a variable LIBOR-based rate; management estimated that a one-percentage-point rate increase would add $1.6 million to 2022 interest expense.
- Management expects near-term operating losses to continue and notes that positive operating cash flow may not be sustainable. It believes existing cash, cash equivalents, and short-term investments are sufficient for operating and capital needs for at least 12 months and the foreseeable future. No specific numerical revenue or earnings guidance is provided in the filing text.
- Management expects gross profit to rise in absolute dollars but gross margin to decline over time as cloud subscriptions become a larger share of revenue. It plans continued investment in sales, marketing, research and development, infrastructure, and acquisitions.
- The February acquisition of Cymptom cost $23.0 million net of acquired cash; purchase accounting was preliminary. In April, Tenable agreed to acquire Bit Discovery for $44.5 million in cash, with closing expected later in Q2 2022.
- Approximately $1.4 million of Q1 revenue was recognized early because Russia and Belarus customer contracts were terminated following sanctions and export restrictions. The company said it had not experienced a significant adverse business impact from COVID-19 or the Ukraine conflict as of quarter-end.
- Material exposures include channel concentration: 92% of revenue came through the channel, and one distributor accounted for 37% of revenue and 34% of accounts receivable at quarter-end. Tenable also committed to $140.6 million of AWS cloud services over three contract years; the first-year minimum had been met.
- Management identified risks including cybersecurity incidents or product detection errors, intense competition, customer renewal and expansion dependence, reliance on channel partners and AWS, data privacy regulation, variable-rate debt, and macroeconomic and geopolitical uncertainty. No current legal proceeding was identified as likely to have a material adverse effect; the filing notes that future litigation and intellectual-property claims remain possible.
Important facts for investors to verify
- Whether subscription growth, renewals, and customer expansion sustain revenue momentum; LTM dollar-based net expansion exceeded 110%, and customers with at least $100,000 in annual contract value rose 28% to 1,112.
- Whether cloud infrastructure costs and ongoing investment continue to pressure gross margin and operating results.
- Cash generation relative to capital expenditures, acquisition spending, and the company’s ability to sustain positive operating cash flow.
- Term-loan interest-rate exposure, LIBOR transition arrangements, repayment requirements, and continued compliance with debt covenants.
- Integration and final purchase accounting for Cymptom, and the closing, funding, and expected contribution of the Bit Discovery acquisition.
- Exposure to the leading distributor and AWS commitments, including any change in channel concentration or cloud-service costs.