Tenable Holdings, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Tenable sells cybersecurity exposure and vulnerability-management software, primarily through subscriptions, including SaaS Tenable.io and on-premises Tenable.sc.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $354.6 million | $267.4 million |
| Gross profit / margin | $293.8 million / 83% | $224.2 million / 84% |
| Operating loss | $90.8 million | $72.6 million |
| Net loss | $99.0 million | $73.5 million |
| Net loss per share | $1.03 | $1.38 |
| Cash used in operating activities | $10.7 million | $2.6 million |
| Free cash flow (non-GAAP) | $(31.4) million | $(8.3) million |
Revenue grew 33%; subscription revenue rose $84.7 million and accounted for most of the increase. Existing customers generated 84% of the revenue increase. International revenue grew 45% to $111.0 million, or 31% of total revenue. Stock-based compensation was $43.4 million, up from $22.9 million. Operating expenses rose 30%, led by sales and marketing, which increased 32%.
At December 31, 2019, cash and cash equivalents were $74.4 million and short-term investments were $137.9 million. Working capital was $35.3 million, down from $142.5 million. Deferred revenue totaled $363.1 million, including $274.3 million current. Total liabilities were $459.7 million, largely deferred revenue and lease liabilities; the company reported no borrowings under its $25 million revolving credit facility. Accumulated deficit was $565.1 million.
Quarterly performance and material changes
Fourth-quarter 2019 revenue was $97.0 million, versus $75.2 million in Q4 2018. Q4 2019 net loss was $38.3 million, versus $19.6 million a year earlier; the 2019 quarter included an $11.8 million income-tax provision. For the full year, net loss widened by $25.5 million even as revenue increased, reflecting continued investment and higher operating costs.
Operating cash use increased year over year. Customer prepayments contributed to a $72.8 million increase in deferred revenue, partly offset by higher receivables and deferred commissions. Capital expenditures were $20.7 million, including $11.4 million for the planned headquarters. FY2019 free cash flow included $13.1 million of non-recurring Indegy-related cash payments.
In December 2019, Tenable acquired Indegy, an operational-technology cybersecurity company, for $80.1 million cash consideration, including acquired cash. Net cash paid for the acquisition was $74.9 million. The acquisition added $53.9 million of goodwill and $15.7 million of acquired intangible assets; Indegy’s reported 2019 operating results were not material.
Outlook, risks and unusual items
- Management outlook: No numerical revenue or earnings guidance is provided in the filing. Management expected near-term operating losses and negative operating cash flows, but considered cash, cash equivalents and short-term investments sufficient for anticipated needs for at least 12 months.
- Margins and investment: Management expected gross profit to grow in absolute dollars but gross margin to decrease as cloud subscriptions become a larger share of revenue. Sales and marketing and R&D spending were expected to continue increasing in dollars.
- Acquisition tax charge: The transfer of Indegy intellectual property generated $6.3 million of current and $4.2 million of deferred tax expense in Israel. The transaction also drove acquisition-related expenses and cash outflows.
- Revenue and channel concentration: 90% of revenue came through channel partners; Ingram Micro accounted for 43% of revenue and 40% of year-end receivables. No single end customer represented more than 2% of revenue.
- Principal risks: Continued losses and uncertain path to profitability; intense competition; customer renewal and expansion dependence; reliance on channel partners and AWS; cybersecurity, service availability and product-detection risks; privacy and regulatory compliance; international operations; and execution and integration risks from acquisitions.
- Commitments and controls: Contractual obligations totaled $90.1 million, principally operating leases. The new headquarters lease has substantial long-term commitments. The auditor gave unqualified opinions on the financial statements and internal controls; Indegy was excluded from management’s and the auditor’s internal-control assessment.
Key investor verification points
- Check whether subscription growth and customer expansion can offset rising operating expenses and improve GAAP profitability and cash generation.
- Track gross margin as cloud adoption grows, and compare cash burn with management’s stated liquidity runway.
- Monitor dependence on Ingram Micro and other channel partners, including receivable concentration and any changes to distribution arrangements.
- Assess Indegy integration, acquired-asset valuation, and follow-on acquisition or intellectual-property-related costs and taxes.
- Review renewal and net expansion trends, deferred revenue, and the timing of revenue recognition; the filing states historical net expansion exceeded 110% but does not provide the actual FY2019 rate in the supplied text.
- Consider the headquarters lease commitments, planned 2020 capital spending of approximately $16.0 million, and expected $12.5 million tenant-improvement reimbursements.