Tenable Holdings, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Tenable provides cybersecurity software and cloud-based Cyber Exposure solutions. Comparisons are against Q1 2018 unless noted. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $80.3 million | $59.1 million | +36% |
| Gross profit / margin | $67.1 million / 84% | $50.4 million / 85% | Margin down 1 percentage point |
| Operating loss | $22.7 million | $15.4 million | Loss widened |
| Net loss | $21.4 million | $15.9 million | Loss widened |
| Net loss per share, basic and diluted | $0.23 | $0.68 | Per-share comparison affected by IPO-related share count change |
| Cash from operating activities | $(0.9) million | $0.5 million | Declined |
| Free cash flow | $(3.2) million | $(1.1) million | More negative |
| Calculated current billings | $81.2 million | $64.7 million | +25% |
Subscription revenue was $64.7 million, up from $44.3 million; perpetual license and maintenance revenue was $13.5 million, roughly flat; professional services and other revenue was $2.0 million, up from $1.3 million. Stock-based compensation rose to $9.3 million from $2.4 million. Management’s non-GAAP operating loss was $13.2 million versus $12.9 million; non-GAAP operating margin improved to (16)% from (22)%. These non-GAAP measures exclude stock-based compensation and amortization of intangible assets.
Financial position and liquidity
- At March 31, 2019, cash and cash equivalents were $168.0 million and short-term investments were $131.0 million, totaling approximately $299.0 million. Total assets were $466.4 million.
- Deferred revenue totaled $291.9 million, including $214.5 million current. Remaining performance obligations were $295.3 million; 73% was expected to be recognized over the next 12 months.
- Accumulated deficit was $487.5 million. Total liabilities were $338.2 million, including operating lease liabilities of $11.4 million. The company reported no long-term debt borrowings and had not drawn on its $25 million revolving credit facility.
- Operating cash flow was negative despite customer prepayments; management cited cash inflows from receivable collections and deferred revenue, partly offset by compensation payments. Financing cash flow benefited from $9.9 million of option exercises and $8.6 million of employee stock purchases.
Changes, outlook, and risks
- Revenue growth was driven primarily by subscriptions. International revenue increased 48% to $24.2 million and represented 35% of revenue, versus 33% a year earlier.
- Operating expenses grew faster than revenue in general and administrative costs (+67%); sales and marketing rose 33% and research and development 28%. Management attributed increases largely to hiring and higher stock-based compensation.
- Management expects continued operating losses and negative operating cash flows in the near term, but believes available cash, cash equivalents, and investments can fund operating and capital needs for at least 12 months. No specific revenue or earnings guidance is provided in the filing.
- Management expects continued investment in sales and marketing, research and development, and international expansion. It expects gross profit to rise in absolute dollars but gross margin may decline as cloud subscriptions grow as a share of revenue.
- The future headquarters lease had not commenced at quarter-end. The company expected to take possession in mid-2019; disclosed future payments were $68.2 million, expected to begin in Q1 2021.
- Revenue and receivables are concentrated: channel partners generated 90% of revenue, and one distributor accounted for 44% of revenue and 45% of accounts receivable. The distributor agreement may be terminated on 30 days’ notice.
- Key risks include continued losses, competition, customer renewal and expansion, cloud-service reliability and security, regulatory and privacy compliance, and reliance on channel partners and third-party infrastructure. The company reported no legal proceedings expected to have a material adverse effect. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether subscription growth, renewals, and customer expansion sustain the 36% reported revenue growth; also monitor billings and deferred revenue trends.
- How operating expenses, stock-based compensation, and cash generation evolve relative to revenue growth.
- Exposure to the leading distributor, which represents a substantial share of both revenue and receivables, and any changes to that relationship.
- Costs and timing associated with the future headquarters lease and the company’s broader liquidity needs.
- Whether cloud adoption, competition, and security or regulatory risks affect margins, renewals, or customer demand.