Tenable Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are with the same 2022 periods. Tenable provides cybersecurity exposure-management products, primarily through subscriptions sold via channel partners.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $201.5M | $174.9M | $585.4M | $498.6M |
| Gross margin | 77% | 78% | 77% | 78% |
| Operating loss | $7.9M | $13.0M | $37.8M | $53.7M |
| Net loss | $15.6M | $18.7M | $56.6M | $70.7M |
| Net loss per diluted share | $0.13 | $0.17 | $0.49 | $0.64 |
| Operating cash flow | $42.4M | $35.9M | $111.4M | $99.2M |
| Free cash flow (non-GAAP) | $40.3M | $31.5M | $105.3M | $85.3M |
- Q3 revenue grew 15% year over year; nine-month revenue grew 17%. Subscription revenue rose 17% in Q3 and 19% year to date; it represented about 91% of revenue in both periods.
- Q3 non-GAAP operating income was $36.6M (18% margin), versus $23.1M (13%) a year earlier. Nine-month non-GAAP operating income was $84.9M (15%), versus $47.7M (10%). These measures exclude, among other items, stock-based compensation, which is a significant recurring expense.
- At September 30, cash and cash equivalents were $445.3M and short-term investments were $247.7M. Term-loan carrying value was $362.6M; the $50M revolving facility had no reported borrowings, though $0.2M of letters of credit were outstanding. The reported first-lien net leverage ratio was 1.21, and the company was covenant-compliant.
- Deferred revenue was $681.5M; remaining performance obligations were $697.2M, with $528.4M expected to be recognized within 12 months.
Changes, outlook, and notable items
- Revenue growth was driven primarily by existing customers: they contributed $30.6M of Q3 growth and $95.3M of nine-month growth, while new-customer contributions declined year over year in both comparisons. New enterprise-platform customer additions fell 24% in Q3 to 386; customers with at least $100,000 in annual contract value increased 22% to 1,565.
- Dollar-based net expansion rate declined to 111% from 118%. Gross margin fell one percentage point, with higher cloud-infrastructure and personnel costs among the cited drivers.
- Interest income increased with higher rates and cash/investment balances, while variable-rate term-loan interest expense also rose. Q3 other expense included a $5.0M impairment of a SAFE investment.
- In October 2023, after quarter-end, Tenable acquired Ermetic for approximately $244M, subject to customary adjustments, to expand cloud-security capabilities. Management said existing cash and investments were expected to fund operating and capital needs for at least 12 months and the foreseeable future, while noting the acquisition and other needs may affect capital requirements.
- Management reported longer sales-cycle purchasing and approval times beginning late in Q1 2023; the trend continued during 2023 and could continue into 2024. No numerical financial guidance is provided in the filing text. Management expects near-term operating losses and cautions that positive operating cash flow and free cash flow may not be sustained.
- Key risks include channel concentration (one distributor represented 36% of revenue), interest-rate exposure on variable-rate debt, acquisition integration and execution, and geopolitical risks affecting Israel-based research and development teams, including teams supporting Tenable OT Security and Ermetic. The filing reports no legal proceedings expected to have a material adverse effect.
Most important facts for investors to verify
- Whether customer expansion, renewals, and new-logo additions stabilize given the lower expansion rate and fewer new platform customers.
- Whether cloud and personnel costs continue to pressure gross margin, and how much reported profitability depends on non-GAAP exclusions, particularly stock compensation.
- Ermetic’s final purchase accounting, integration costs, performance, and effect on cash and liquidity after the $244M acquisition.
- Term-loan interest expense and covenant headroom as rates change, as well as the company’s ability to sustain operating cash flow.
- Whether distributor concentration and Israel-related operational risks affect revenue, product roadmaps, or service delivery.