Tenable Holdings, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Tenable provides cybersecurity software and cloud-based Cyber Exposure solutions. All amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $85.4 | $63.6 | $165.7 | $122.7 |
| Gross profit / margin | $71.5 / 84% | $53.7 / 84% | $138.5 / 84% | $104.1 / 85% |
| Operating loss | $(22.2) | $(16.4) | $(44.9) | $(31.9) |
| Net loss | $(21.6) | $(17.2) | $(43.1) | $(33.0) |
| Operating cash flow | $(2.1) | $0.2 | $(3.0) | $0.7 |
| Free cash flow (non-GAAP) | $(5.2) | $(1.1) | $(8.3) | $(2.2) |
Q2 revenue grew 34% year over year; first-half revenue grew 35%. Subscription revenue drove most of the increase: Q2 subscription revenue was $69.4 million, up from $48.7 million, while perpetual license and maintenance revenue was broadly flat. Q2 GAAP operating margin was approximately negative 26%; non-GAAP operating margin was negative 13%, compared with negative 21% a year earlier. Non-GAAP measures exclude, among other items, stock-based compensation.
Liquidity, debt and cash flow
- At June 30, cash and cash equivalents were $185.7 million and short-term investments were $111.3 million, totaling approximately $297.0 million. Current assets were $411.1 million versus current liabilities of $270.2 million.
- Deferred revenue totaled $307.3 million, including $227.2 million current. Management said existing cash and investments should fund operating and capital needs for at least 12 months, while expecting near-term operating losses and negative operating cash flows.
- No borrowings were outstanding under the $25 million revolving credit facility, which runs through May 4, 2020. The filing reports no other long-term debt.
- Cash from financing was $21.3 million in the first half, primarily reflecting stock-option exercises and employee stock purchase plan proceeds. Capital expenditures were $5.3 million.
Material changes and management commentary
- Q2 operating expenses rose 34% year over year to $93.7 million. Sales and marketing increased 34%, R&D 22%, and general and administrative expense 52%. Management attributed the increases mainly to hiring and higher stock-based compensation.
- First-half stock-based compensation was $20.7 million, versus $5.4 million in the prior-year period. The increased expense contributed to the wider GAAP net loss.
- Trailing-twelve-month dollar-based net expansion rate was 117%. Management expected it to remain above 110%; including certain incremental perpetual-license and services payments would have raised the reported rate by 7 percentage points.
- Calculated current billings, a non-GAAP measure, were $98.1 million for Q2 versus $77.4 million, and $179.3 million for the first half versus $142.1 million.
- The company added 352 enterprise platform customers in Q2, up 25% year over year; 538 customers had annual contract value of at least $100,000, up 58%.
Outlook, risks and unusual items
- No formal revenue or earnings guidance is provided in the supplied filing text. Management expects continued investment in sales, marketing, R&D and infrastructure, and says these investments may increase near-term losses.
- The future headquarters lease had not commenced at quarter-end. Tenable expected to take possession in Q3 2019; future payments under the lease total $68.2 million and are expected to begin in Q1 2021.
- Revenue and receivables are concentrated in the channel: 90% of revenue came through channel partners, and one distributor represented 43% of Q2 revenue and 42% of receivables at June 30. The company also cites dependence on renewals, competition, cloud-service reliability, international expansion and privacy regulation as material risks.
- The filing reports no current legal proceedings expected to have a material adverse effect. Management stated disclosure controls were effective as of June 30, 2019, with no material change in internal control over financial reporting identified during the quarter.
Most important facts for investors to verify
- Whether subscription growth, renewals and the 117% net expansion rate remain strong, and whether growth translates into improved GAAP profitability and cash generation.
- How much of reported performance depends on upfront customer billings and deferred revenue, and how calculated current billings compare with recognized revenue.
- The trajectory and dilution impact of stock-based compensation, which increased substantially year over year.
- The exposure to the leading distributor and broader channel network, including any change in concentration or payment and renewal behavior.
- The cash-flow and expense implications of the new headquarters lease and continued investment plans.