Tenable Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Tenable provides cybersecurity exposure-management products, primarily through subscriptions. Financial figures below are in U.S. dollars; “Q2” refers to the three months ended June 30.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $164.3 million | $130.3 million | $323.7 million | $253.4 million |
| Gross profit / margin | $128.3 million / 78% | $103.8 million / 80% | $252.7 million / 78% | $205.0 million / 81% |
| Operating loss | $23.2 million | $11.9 million | $40.8 million | $17.7 million |
| Net loss | $27.5 million | $11.6 million | $52.0 million | $19.4 million |
| Operating cash flow | $30.5 million | $16.5 million | $63.4 million | $55.2 million |
| Free cash flow | $25.8 million | $15.0 million | $53.8 million | $52.6 million |
- Q2 revenue increased 26% year over year; six-month revenue increased 28%. Subscription revenue grew 29% in Q2 and 31% for the first half. Recurring revenue was 95% of revenue in both 2022 periods.
- Operating expenses rose 31% in Q2 to $151.5 million, led by sales and marketing, research and development, and general and administrative costs. Stock-based compensation was $31.9 million in Q2 and $57.3 million for the first half.
- GAAP basic and diluted loss per share was $0.25 in Q2 and $0.47 for the first half, versus $0.11 and $0.18 in the comparable 2021 periods.
- Management’s non-GAAP operating margin was 7% in Q2 and 8% for the first half, compared with 9% and 10%, respectively. Non-GAAP diluted EPS was $0.05 in Q2 and $0.11 for the first half.
Liquidity, debt, and balance sheet
- At June 30, 2022, cash and cash equivalents were $267.9 million and short-term investments were $243.0 million, totaling $510.9 million. The company reported $548.1 million of deferred revenue.
- Term-loan principal was $373.1 million; its carrying value, net of issuance costs and current portion, was $363.4 million. The loan matures in July 2028 and bears interest at 2.75% over LIBOR, subject to a 0.50% floor. The $50 million revolving facility had no borrowings outstanding.
- The first-lien net leverage ratio was below the 3.5 threshold for potential excess-cash-flow prepayments, and the company reported compliance with credit-agreement covenants.
- Six-month investing cash use was $87.3 million, including $67.0 million net cash paid for acquisitions and $9.6 million for property and equipment. Cash and cash equivalents and restricted cash decreased $10.2 million during the period.
Material changes and business developments
- Revenue growth was driven largely by subscriptions. New enterprise-platform customers contributed $12.4 million, or 36%, of Q2 revenue growth and $22.4 million, or 32%, of first-half growth.
- Gross margin declined to 78% from 80% in Q2 and to 78% from 81% for the first half. Management cited higher third-party cloud infrastructure costs, personnel expenses, and amortization of acquired intangibles.
- Interest expense increased substantially year over year, primarily because of the term loan entered into in July 2021. Foreign-exchange losses also increased.
- Tenable acquired Cymptom for approximately $23.0 million in February and Bit Discovery for approximately $44.0 million in June. Purchase-price allocations remained preliminary; the acquired businesses’ results were not material to reported operations.
- Dollar-based net expansion rate exceeded 110% on a last-twelve-month basis. Customers with annual contract value of at least $100,000 increased 28% year over year to 1,191.
Outlook, risks, and contingencies
- Management expects continued near-term operating losses and stated that existing cash, cash equivalents, and short-term investments should fund operating and capital needs for at least 12 months and the foreseeable future. No specific revenue or earnings guidance is provided in this filing.
- Management intends to continue investing in sales and marketing, research and development, cloud infrastructure, and acquisitions. It expects gross profit to rise in absolute dollars but gross margin to decline over time as cloud subscriptions become a greater share of revenue.
- The stronger U.S. dollar negatively affected international sales growth; further strength could make products more expensive abroad. Management reported no significant adverse impact from COVID-19, inflation, or the invasion of Ukraine as of June 30, 2022, while continuing to monitor these factors.
- Business risks include a history of losses, intense competition, uncertain renewals and customer expansion, reliance on channel partners, cybersecurity and service-reliability risks, privacy regulation, and potential macroeconomic pressure on customer budgets and sales cycles.
- One distributor generated 38% of Q2 revenue and represented 34% of accounts receivable at June 30. The company also committed to $140.6 million of AWS cloud spending over three contract years; it had met the first-year minimum by quarter-end.
- Operating lease payments total $73.3 million before imputed interest. The filing reports no legal proceeding expected to have a material adverse effect, while noting that future litigation and intellectual-property claims could entail costs and management distraction.
Important facts for investors to verify
- Whether subscription growth and customer expansion can continue to offset rising operating costs and the decline in gross margin.
- How much reported cash generation is sustainable: first-half free cash flow benefited from timing of certain prior-quarter payments, as disclosed by management.
- The impact of variable-rate debt, rising interest rates, and the transition away from LIBOR on interest expense and cash available for investment.
- Distributor concentration, AWS spending commitments, and the integration and final purchase-price accounting for Cymptom and Bit Discovery.
- The effect of stock-based compensation and potential share dilution: 13.6 million potentially dilutive securities were excluded from GAAP diluted EPS as antidilutive.