Tenable Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Tenable provides cybersecurity exposure-management products, primarily through subscriptions. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $195.0 million | $164.3 million | $383.9 million | $323.7 million |
| Gross margin | 78% | 78% | 77% | 78% |
| Operating loss | $10.7 million | $23.2 million | $29.9 million | $40.8 million |
| Net loss | $16.0 million | $27.5 million | $41.1 million | $52.0 million |
| Net loss per share, diluted | $0.14 | $0.25 | $0.36 | $0.47 |
| Operating cash flow | $30.2 million | $30.5 million | $68.9 million | $63.4 million |
| Free cash flow (non-GAAP) | $27.7 million | $25.8 million | $65.0 million | $53.8 million |
- Revenue grew 19% year over year in both the quarter and first half. Subscription revenue rose 20% in each period; perpetual license and maintenance revenue declined 4% in Q2 and 5% year to date. Recurring revenue represented 95% of revenue.
- Q2 gross margin was unchanged year over year; first-half margin declined by about one percentage point, with higher cloud infrastructure and personnel costs among the drivers.
- Non-GAAP operating income was $30.2 million in Q2 and $48.4 million for the first half. These measures exclude stock-based compensation and other items; stock-based compensation was $37.9 million in Q2 and $72.0 million year to date.
- At June 30, cash and cash equivalents were $376.1 million and short-term investments were $269.5 million. Deferred revenue totaled $650.2 million. Current assets were $899.7 million versus current liabilities of $577.1 million.
- Term-loan carrying value was $363.3 million, including current portion; the remaining balance was due primarily at maturity in July 2028. The loan is variable-rate, at SOFR plus 2.75% subject to a 0.50% floor and applicable spread adjustment. The company reported a 1.25 first-lien net leverage ratio and compliance with credit covenants; the $50 million revolver had $0.2 million of letters of credit outstanding.
Material changes and operating trends
- Net loss narrowed versus the prior-year periods, while revenue and operating cash flow increased year to date. Q2 operating cash flow was approximately flat year over year.
- Calculated current billings, a non-GAAP measure, were $200.2 million for Q2 versus $174.1 million and $377.0 million for the first half versus $330.6 million.
- New enterprise-platform customer additions fell 21% year over year to 426 in Q2. Customers with at least $100,000 in annual contract value increased 27% to 1,507. Dollar-based net expansion rate declined to 111% from 118%.
- Investing cash outflow fell substantially year over year, largely because the prior-year period included $67.0 million for acquisitions. Six-month cash increased by $75.2 million.
- Interest expense rose to $7.8 million in Q2 from $3.6 million, and to $15.1 million for the first half from $7.2 million, primarily reflecting higher variable loan rates. The company transitioned its loan benchmark from LIBOR to SOFR on June 1, 2023.
Outlook, risks, and other disclosures
- The filing provides no specific quarterly or full-year revenue or earnings guidance. Management expects operating losses to continue in the near term, while stating that existing cash and short-term investments should fund operating and capital needs for at least the next 12 months and the foreseeable future. Management cautions that positive operating cash flow and free cash flow may not be sustainable.
- Management reported longer sales-cycle times in purchasing and approval phases beginning late in Q1 2023, which may continue. It expects seasonal increases in customer agreements in Q3 and Q4, while subscription revenue recognition makes that pattern less visible in reported revenue.
- Revenue is concentrated in the channel: 93% was generated through channel partners, and one distributor accounted for 36% of Q2 and first-half revenue. That distributor represented 31% of accounts receivable at June 30, 2023.
- The company has a $140.6 million AWS cloud-services commitment through July 2024 and reported meeting its first two contract-year minimums. It also disclosed $8.2 million of standby letters of credit related to grant agreements and leases.
- Other risks include sensitivity to variable interest rates, foreign-exchange exposure, possible inflation in employee and cloud costs, and the possibility that additional financing may not be available on acceptable terms. Management reported no pending legal proceeding expected to have a material adverse effect. Disclosure controls were assessed as effective.
- The filing identifies a new risk concerning complex accounting and evolving reporting requirements, including SEC cybersecurity-incident disclosure rules adopted in July 2023.
Important facts for investors to verify
- Whether slower new-logo additions and the lower expansion rate persist, and how much growth depends on existing customers versus new customers.
- Distributor concentration and the effect of channel ordering, renewals, and customer payment timing on billings and cash flow.
- Whether cloud infrastructure and personnel costs pressure gross margins as subscription and cloud revenue grow.
- The impact of SOFR-linked borrowing costs on interest expense, debt service, and liquidity; confirm the term-loan balance, maturity, and covenant headroom in subsequent filings.
- How much reported profitability depends on non-GAAP adjustments, particularly recurring stock-based compensation, and whether operating cash flow remains positive.