Tenable Holdings, Inc. — Q1 2020 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2020, Tenable provided cybersecurity exposure-management software and services, principally through subscription offerings. Results are unaudited. Subscriptions represented most revenue, and customers generally pay in advance.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $102.6 million | $80.3 million | +28% |
| Gross profit / margin | $83.9 million / 82% | $67.1 million / 84% | Profit +25%; margin down 2 points |
| Operating loss | $21.7 million | $22.7 million | Loss narrowed |
| Net loss | $23.0 million | $21.4 million | Loss widened |
| Diluted loss per share | $0.23 | $0.23 | Unchanged |
| Cash from operations | $4.5 million | $(0.9) million | Turned positive |
| Free cash flow | $3.9 million | $(3.2) million | Turned positive |
Subscription revenue rose to $86.4 million from $64.7 million; perpetual license and maintenance revenue was $13.4 million versus $13.5 million. Sales and marketing, R&D, and G&A expenses increased 14%, 22%, and 25%, respectively. Stock-based compensation was $13.0 million, up from $9.3 million.
At March 31, 2020, cash and cash equivalents were $107.8 million and short-term investments were $118.9 million. Deferred revenue totaled $358.1 million, including $270.9 million current. Total liabilities were $449.2 million and stockholders’ equity was $100.4 million. No amounts were outstanding under the $25 million revolving credit facility; $2.5 million of capacity was reserved for a letter of credit. The filing reports no other long-term debt.
Material changes versus the prior comparable period
- Revenue increased $22.3 million, with $21.6 million of the increase from subscriptions. Management attributed 35% of revenue growth to existing customers and the rest to customers new since April 1, 2019.
- International revenue increased 37% to $33.3 million; it represented 38% of revenue, compared with 35% a year earlier.
- Gross margin declined from 84% to 82%, partly as cloud infrastructure costs rose $2.7 million with greater Tenable.io adoption and the launch of Tenable Lumin.
- Operating cash flow improved by $5.4 million, aided by customer collections. Operating cash flow included a $20.8 million reduction in accounts receivable, partly offset by lower accrued compensation and deferred revenue.
- Calculated current billings were $99.2 million, compared with $81.2 million, an increase of approximately 22%.
Outlook, management commentary, and risks
- Management said COVID-19 had not significantly affected Q1 results but could materially reduce revenue growth and affect financial results beginning in Q2, potentially continuing into Q3 and beyond. The extent remained uncertain. The company moved to remote work and suspended work travel and in-person customer interactions.
- Management was reducing non-critical and discretionary spending while preserving strategic investment in sales capacity and R&D. It warned of possible near-term reductions in billing and revenue growth. No specific quarterly or annual revenue or earnings guidance is provided in the filing.
- The company expects continued operating losses, but stated existing cash, cash equivalents, and short-term investments should fund operating and capital needs for at least 12 months. It expected approximately $17 million of 2020 headquarters capital expenditures and $12.5 million in tenant-improvement reimbursements.
- Future estimated revenue from unsatisfied performance obligations was $363.9 million; approximately 75% was expected to be recognized over the following 12 months, subject to applicable recognition criteria.
- Key risks include COVID-related customer spending delays and contract concessions, intense competition, dependence on channel partners, and distributor concentration: one distributor accounted for 43% of Q1 revenue and 41% of receivables at quarter-end. The company also cited reliance on renewals, cloud infrastructure, and successful product execution.
- The credit facility maturity was extended in April 2020 by 60 days to July 3, 2020, and the maximum permitted letters of credit increased from $5.0 million to $6.5 million. No legal proceeding was identified as likely to have a material adverse effect. Adoption of the new expected-credit-loss standard had no material financial-statement impact.
Important facts for investors to verify
- Whether COVID-19 affected billings, renewals, customer expansion, or collection trends after March 31, 2020.
- Whether the largest distributor’s share of revenue and receivables changes, and whether channel dependence affects sales.
- Whether subscription growth can sustain revenue expansion while gross margin faces cloud-cost pressure.
- Whether operating cash flow and free cash flow remain positive after working-capital timing effects and planned headquarters spending.
- How the April credit-facility amendment and its July 3, 2020 maturity affect available liquidity and financing plans.