Tenable Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual filing also presents unaudited fourth-quarter results; it is not a standalone Q4 filing. Tenable provides cybersecurity exposure management products, including cloud, on-premises and operational technology offerings, primarily through annual subscriptions.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $440.2 million | $354.6 million |
| Gross profit / gross margin | $362.7 million / 82% | $293.8 million / 83% |
| Operating loss / operating margin | $(36.4) million / (8)% | $(90.8) million / (26)% |
| Net loss | $(42.7) million | $(99.0) million |
| Operating cash flow | $64.2 million | $(10.7) million |
| Capital expenditures | $20.3 million | $20.7 million |
| Free cash flow (company-defined) | $44.0 million | $(31.4) million |
Revenue rose 24%, led by subscription revenue, up 30% to $377.4 million. Perpetual license and maintenance revenue fell 7% to $50.6 million; professional services and other revenue increased 24% to $12.3 million. Recurring revenue was 93.6% of total revenue, versus 91.8% in 2019. International revenue grew 33%, compared with 19% U.S. growth.
At year-end, cash and cash equivalents were $178.2 million and short-term investments were $113.6 million. Working capital was $108.9 million; deferred revenue totaled $434.5 million. The company reported no borrowings under its $45 million secured credit facility, which expires in July 2022, and was in compliance with its financial covenant. Accumulated deficit was $607.9 million. No single end customer represented more than 2% of revenue, but one distributor accounted for 43% of revenue and 41% of accounts receivable.
Fourth-quarter revenue was $118.1 million, versus $97.0 million a year earlier; quarterly net loss was $1.9 million, versus $38.3 million. The company reported no numerical forward guidance in the filing.
Changes, outlook and notable items
- Operating cash flow improved by $75.0 million year over year. The company attributed much of the inflow to customer prepayments and a $71.4 million increase in deferred revenue; free cash flow also benefited from the timing of payments.
- GAAP gross margin declined approximately one percentage point, partly reflecting higher cloud infrastructure and support costs. Management expects cloud subscriptions to grow as a share of revenue and says this may reduce gross margin over time.
- Dollar-based net expansion rate was approximately 110% for 2020, down from prior years, which management linked to more moderate customer expansion of IT assets and IP addresses in the economic environment.
- Management said COVID-19 had not caused a significant adverse impact on financial position, results or liquidity through year-end, but warned it could affect sales, renewals and growth. The company reduced discretionary costs while preserving sales-capacity and R&D investment; return-to-office and travel costs remained uncertain.
- The company expects continued near-term operating losses and ongoing investment in product development, sales and marketing, international expansion and infrastructure. It stated that available cash, cash equivalents and short-term investments should fund operating and capital needs for at least 12 months.
- On February 10, 2021, Tenable agreed to acquire Alsid SAS for $98 million in cash, subject to adjustments and closing conditions; completion was expected early in Q2 2021.
- Material risks include intense competition, reliance on subscription renewals and channel partners, distributor concentration, cybersecurity or service failures, cloud-provider dependence, COVID-19 uncertainty, privacy and export regulation, and continued losses. The filing identifies no pending legal proceeding expected to have a material adverse effect.
- Stock-based compensation was $59.6 million in 2020, up from $43.4 million, and is a significant recurring expense. Auditors issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether subscription growth and renewals can sustain revenue growth as customer expansion moderates.
- How much reported operating cash flow reflects durable operating performance versus advance billings and deferred-revenue growth.
- The effect of cloud infrastructure costs and product mix on gross margins.
- The business and cash impact of the $98 million Alsid acquisition and its integration.
- Exposure to the leading distributor, which generated 43% of revenue, and the terms and continuity of that relationship.
- Potential dilution and expense from equity compensation, including $59.6 million of 2020 stock-based compensation.