Tenable Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Tenable provides cybersecurity exposure management products, sold primarily through channel partners and on a subscription basis.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $138.7M (+23%) | $112.3M | $392.1M (+22%) | $322.1M |
| Gross profit / margin | $111.6M / 80% | $92.9M / 83% | $316.6M / 81% | $264.9M / 82% |
| Operating loss | $11.2M | $3.5M | $28.9M | $35.7M |
| Net loss | $16.2M | $5.9M | $35.6M | $40.8M |
| Operating cash flow | $19.6M | $24.8M | $74.8M | $46.3M |
Q3 diluted net loss per share was $0.15, versus $0.06 a year earlier; nine-month loss per share improved to $0.34 from $0.41. Recurring revenue was 95% of Q3 revenue, compared with 94% a year earlier. Subscription revenue grew 26% in Q3; perpetual license and maintenance revenue increased 2%.
Q3 non-GAAP operating income was $13.7M (10% margin), compared with $12.4M (11% margin). The company reported non-GAAP net income of $8.1M and diluted non-GAAP EPS of $0.07. These measures exclude, among other items, stock-based compensation; Q3 stock-based compensation was $20.9M.
Liquidity, cash flow and debt
At September 30, 2021, cash and cash equivalents were $435.9M and short-term investments were $216.0M, totaling $651.9M. Current liabilities were $420.4M, including $362.3M of current deferred revenue. Deferred revenue totaled $477.0M. Management said existing cash, cash equivalents and short-term investments should fund operating and capital needs for at least 12 months.
Nine-month free cash flow, defined by the company as operating cash flow less property and equipment purchases, was $71.0M, up from $27.2M. Cash flow included a $38.7M increase in deferred revenue. Cash used in investing was $205.0M, including the Alsid acquisition and purchases of short-term investments.
In July, Tenable borrowed $375.0M under a new senior secured term loan; its carrying value, net of issuance costs and current portion, was $365.4M. The loan bears interest at 2.75% over LIBOR, subject to a 0.50% floor, and matures in July 2028. A $50.0M revolving facility was undrawn at quarter-end. The company reported compliance with debt covenants.
Changes, outlook and notable items
- Revenue growth was accompanied by higher spending: Q3 cost of revenue rose 40%, sales and marketing 29%, research and development 22%, and general and administrative 31% year over year. Gross margin declined three percentage points, partly reflecting higher cloud infrastructure costs.
- For the nine months, operating loss narrowed while net loss improved. Operating cash flow increased, supported in part by deferred revenue growth and noncash stock-based compensation.
- Calculated current billings were $166.9M for Q3 (+25% year over year) and $423.1M for the nine months (+23%). The measure is non-GAAP and may fluctuate with billing timing. Dollar-based net expansion exceeded 110%; new enterprise platform customers increased 49% to 499.
- Alsid was acquired in April for $98.5M net of cash acquired, adding Active Directory security capabilities. Its results were not material; purchase-price allocation remained preliminary. In October, after quarter-end, Tenable acquired Accurics for approximately $160M in cash.
- Tenable committed to spend $140.6M on AWS cloud services over three contract years; shortfalls against annual minimums are payable. The company also expects ongoing operating losses in the near term and continued investment in sales, marketing, research and development, and cloud infrastructure. No specific numeric revenue or earnings guidance is provided in the filing text.
- Management reported no significant adverse business impact from COVID-19 to date, but cited uncertainty, potential customer spending delays and additional hybrid-work and travel costs. Other significant exposures include competition, reliance on channel partners and cloud providers, product reliability and cybersecurity risks, and customer renewals.
Key facts for investors to verify
- Whether subscription growth and customer expansion continue to offset the gross-margin pressure from cloud infrastructure spending.
- How stock-based compensation and acquisition-related costs affect GAAP profitability and the interpretation of non-GAAP results.
- Integration progress and financial contribution from Alsid and Accurics, including the final Alsid purchase-price allocation and Accurics funding impact.
- Debt interest costs, LIBOR replacement provisions, covenant compliance, and the effect of the AWS minimum-spend commitment on future cash flow.
- Exposure to the major distributor: it generated 40% of nine-month revenue and represented 43% of accounts receivable at September 30, 2021.