Tenable Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with the three months ended March 31, 2022 unless noted. Tenable provides cybersecurity exposure-management solutions, including its Tenable One platform. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise stated.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $188.8 | $159.4 | +18% |
| Subscription revenue | $171.1 | $142.7 | +20% |
| Gross profit / margin | $143.3 / 76% | $124.4 / 78% | Profit +15%; margin down 2 percentage points |
| Operating loss | $(19.2) | $(17.5) | Loss increased |
| Net loss | $(25.1) | $(24.5) | Loss increased slightly |
| GAAP diluted loss per share | $(0.22) | $(0.22) | Unchanged |
| Cash provided by operations | $38.7 | $32.9 | Increased |
| Free cash flow (non-GAAP) | $37.3 | $28.1 | Increased |
Revenue growth was mainly from existing customers; management attributed $28.7 million of the $29.5 million increase to customers existing at April 1, 2022, and $0.8 million to new customers. Recurring revenue was 95% of revenue in both periods. The non-GAAP operating margin was 10%, versus 8%; non-GAAP net income was $13.1 million, versus $7.0 million. These measures exclude, among other items, stock-based compensation, which was a recurring expense of $34.1 million in Q1 2023.
Liquidity, debt and cash flows
At March 31, 2023, cash and cash equivalents were $360.4 million and short-term investments were $256.3 million, totaling $616.7 million. The term loan’s gross principal was $370.3 million (net carrying value, including issuance costs, was $364.0 million); the revolving facility was undrawn apart from $0.2 million of letters of credit. Deferred revenue totaled $642.1 million, including $490.1 million current. Operating cash flow was positive despite the GAAP net loss, with customer collections and noncash stock compensation among the relevant cash-flow items.
Cash and cash equivalents increased $59.6 million during the quarter. Investing cash flow was positive $11.1 million, principally reflecting net sales and maturities of short-term investments; financing cash flow was positive $9.8 million. The company said existing cash, cash equivalents and short-term investments should fund operating and capital needs for at least the next 12 months and the foreseeable future, while noting that future capital needs depend on business conditions and investment plans.
Material changes and operating indicators
- Revenue increased 18%, led by subscriptions; perpetual license and maintenance revenue declined 5% to $12.2 million, while professional services and other revenue rose 46% to $5.6 million.
- Gross margin declined from 78% to 76%, with cost of revenue up 30%, including higher personnel and cloud-infrastructure costs.
- Operating expenses rose 14% to $162.5 million. Sales and marketing increased 19%, research and development 11%, and general and administrative 4%.
- Interest income increased to $5.1 million from $0.3 million, while interest expense rose to $7.3 million from $3.6 million, primarily reflecting higher rates on the variable-rate term loan.
- Calculated current billings, a company-defined non-GAAP measure, increased to $176.8 million from $156.5 million. Dollar-based net expansion rate fell to 113% from 118%. New enterprise platform customer additions declined 17% to 379, while customers with at least $100,000 in annual contract value increased 30% to 1,444.
Outlook, risks and contingencies
- No formal quantitative revenue or earnings guidance is provided in the supplied filing text. Management expects operating losses to continue in the near term and plans further investment in sales and marketing, research and development, cloud infrastructure and customer support.
- Management reported longer sales-cycle times in purchasing and approval phases at quarter-end and expected the trend to continue during 2023. The company also describes seasonal contract activity, typically higher in the third and fourth quarters.
- The term loan bears variable interest. Its stated rate was 7.77% from April 28 through May 30, 2023; management estimated that a one-percentage-point rate increase would raise 2023 interest expense by $2.2 million. Borrowings were expected to transition from LIBOR to SOFR in the second half of 2023. The company was in compliance with credit-agreement covenants, and its first-lien net leverage ratio was below the threshold for potential excess-cash-flow prepayments.
- The company committed to $140.6 million of AWS cloud-service purchases over the contract years ending July 2024; it reported meeting the first two annual commitments. Higher cloud costs, foreign-exchange movements, and inflation in employee and cloud costs are identified as risks.
- One distributor accounted for 37% of revenue in both periods and 32% of receivables at March 31, 2023. The company reported no legal proceeding expected to have a material adverse effect, but noted possible future intellectual-property claims and litigation costs.
- Short-term investments had $0.7 million of net unrealized losses at quarter-end, attributed to market interest rates rather than credit losses; management said it did not expect to sell before recovery of amortized cost. The company reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether longer sales cycles persist and how customer additions, renewal activity, and the 113% expansion rate develop.
- Whether revenue growth can continue while gross margin remains pressured by cloud infrastructure and personnel costs.
- The effect of variable borrowing rates and the LIBOR-to-SOFR transition on interest expense and debt obligations.
- Distributor concentration, customer collections, and the conversion of $654.7 million of remaining performance obligations into revenue; approximately 76% was expected to be recognized over the succeeding 12 months.
- The assumptions and exclusions underlying non-GAAP results, particularly recurring stock-based compensation, and the sustainability of positive operating cash flow and free cash flow.