Tenable Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Tenable provides cybersecurity risk management solutions, with most offerings sold as subscriptions, typically prepaid. Results are unaudited.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $130.3M | $107.2M | $253.4M | $209.9M |
| Gross profit / margin | $103.8M / 80% | $88.1M / 82% | $205.0M / 81% | $172.0M / 82% |
| Operating loss / margin | $(11.9)M / (9)% | $(10.6)M / (10)% | $(17.7)M / (7)% | $(32.2)M / (15)% |
| Net loss | $(11.6)M | $(12.0)M | $(19.4)M | $(34.9)M |
| Operating cash flow | $16.5M | $17.0M | $55.2M | $21.5M |
| Free cash flow* | $15.0M | $6.6M | $52.6M | $10.5M |
Revenue grew 22% in Q2 and 21% year to date, led by subscription revenue, which rose 24% in both comparisons. Recurring revenue was 94% of revenue. Q2 GAAP diluted loss per share was $0.11, versus $0.12; six-month loss per share was $0.18, versus $0.35. Management reported non-GAAP operating income of $11.5M for Q2 and $25.4M for the first half; these measures exclude stock-based compensation, acquisition costs and acquired-intangible amortization.
Liquidity and debt: At June 30, cash and cash equivalents were $135.9M and short-term investments were $125.1M, totaling $261.0M. Current liabilities were $387.6M, including $334.1M of current deferred revenue. The company had no borrowings under its $45M credit facility at quarter-end and was covenant-compliant. In July, it entered a $375M secured term-loan facility and a $50M revolving facility; the filing reports no revolving borrowings since closing. The term-loan facility bears interest at LIBOR plus 2.75%, subject to a 0.50% floor. The company reported an accumulated deficit of $627.2M.
Material changes and notable items
- Gross margin declined to 80% in Q2 from 82%, primarily amid higher cloud infrastructure costs. Q2 cost of revenue increased 38%, faster than revenue growth of 22%.
- Operating loss improved substantially year to date, while Q2 operating loss widened modestly. Stock-based compensation was $20.5M in Q2 and $37.4M in the first half.
- In April, Tenable acquired Alsid for $98.5M net of cash acquired, adding Active Directory security capabilities. The preliminary allocation included $72.3M of goodwill and $31.4M of acquired intangible assets; purchase accounting remained subject to finalization. Acquisition-related costs were $3.7M year to date.
- Calculated current billings, a company-defined non-GAAP metric, were $136.8M in Q2 versus $111.2M, and $256.3M for the first half versus $210.5M. Remaining performance obligations were $461.6M; approximately 75% was expected to be recognized over the next 12 months.
- New enterprise platform customers added in Q2 rose 44% to 490, including 91 legacy Alsid customers. Customers with annual contract value of at least $100,000 increased 30% to 933. The reported dollar-based net expansion rate exceeded 110%.
Outlook, risks and contingencies
Management provided no specific revenue or earnings guidance in this filing. It expects to continue investing in sales and marketing, research and development, cloud infrastructure and international expansion, and expects operating losses in the near term. It believes cash, cash equivalents and short-term investments will fund operating and capital needs for at least 12 months, while cautioning that cash flow may not be sustained.
In July, the company committed to $140.6M of AWS cloud services spending from August 2021 through July 2024. Management expects costs associated with resumed travel and hybrid work. It reported no significant adverse business impact from COVID-19 to date, but noted continuing uncertainty and possible effects on customer spending and operations.
Principal disclosed risks include persistent losses and uncertain profitability; intense competition and the need to keep products effective as cyber threats evolve; customer renewal and expansion dependence; reliance on channel partners and a major distributor; cloud infrastructure and service reliability; data privacy, security and regulatory compliance; acquisition integration; and new secured debt, covenants and variable-rate exposure. One distributor accounted for 40% of Q2 and first-half revenue and 37% of quarter-end receivables. The company reported no legal proceedings expected to have a material adverse effect, while noting that intellectual-property claims may arise.
Important facts for investors to verify
- Whether subscription growth and customer expansion remain strong, and whether the reported expansion rate translates into durable renewals and revenue.
- Whether cloud infrastructure costs continue to pressure gross margin as cloud subscriptions grow.
- The final Alsid purchase-price allocation, integration results and contribution to revenue and expenses.
- The terms, actual outstanding balance, interest expense and covenant implications of the July term loan, alongside the $140.6M AWS commitment.
- The sustainability and composition of operating cash flow and free cash flow, including the effects of working-capital timing and stock-based compensation.
- The concentration of revenue and receivables in the largest distributor, and any material changes in that relationship.
*Free cash flow is defined by the company as operating cash flow less purchases of property and equipment; it is a non-GAAP measure.