Tenable(TENB) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company's consolidated financial statements for the period ended June 30, 2024, show a 13.4% year-over-year increase in quarterly revenue to $221.2 million, with a reduced net loss of $14.6 million compared to $16.0 million in the prior year's quarter. Total assets slightly decreased to $1.58 billion, while total stockholders' equity grew to $363.6 million. Cash flow from operations for the first six months remained strong at $81.8 million Consolidated Balance Sheets Consolidated Balance Sheet Highlights (as of June 30, 2024) | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $774,889 | $805,473 | | Total Assets | $1,576,349 | $1,606,871 | | Total Current Liabilities | $638,242 | $675,838 | | Total Liabilities | $1,212,788 | $1,260,527 | | Total Stockholders' Equity | $363,561 | $346,344 | - Goodwill increased to $541.3 million from $518.5 million at year-end 2023, primarily due to the Eureka acquisition[5][39] - Deferred revenue, a key liability, stood at $725.8 million ($562.6 million current and $163.2 million non-current), compared to $750.5 million at the end of 2023[5] Consolidated Statements of Operations Statement of Operations Summary | Metric (in thousands, except per share data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $221,241 | $195,036 | $437,202 | $383,875 | | Gross Profit | $172,443 | $151,522 | $339,472 | $294,855 | | Loss from Operations | $(8,818) | $(10,745) | $(17,748) | $(29,901) | | Net Loss | $(14,572) | $(15,974) | $(28,958) | $(41,071) | | Net Loss Per Share | $(0.12) | $(0.14) | $(0.25) | $(0.36) | - Revenue for the second quarter grew 13.4% year-over-year, while the operating loss narrowed by 18%[6] - Restructuring charges of $4.7 million were recorded in Q2 2024, with no similar charges in the prior-year period[6] Consolidated Statements of Cash Flows Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $81,750 | $68,939 | | Net cash used in investing activities | $(44,485) | $(2,585) | | Net cash (used in) provided by financing activities | $(37,853) | $9,871 | - Cash used in investing activities increased significantly due to $29.2 million paid for a business combination (Eureka acquisition)[12][138] - Cash used in financing activities was driven by $50.0 million in treasury stock repurchases, a change from the prior year which saw net cash provided by financing activities[12][139] Notes to Consolidated Financial Statements - In June 2024, the company acquired Eureka Security, Inc., a provider of data security posture management (DSPM), for total cash consideration of $29.2 million[35][36] - The company entered into a new three-year contract with Amazon Web Services (AWS) in July 2024, committing to spend a total of $230.3 million from August 2024 to July 2027[50] - Subscription revenue constituted 91.5% of total revenue in Q2 2024. A single distributor accounted for 34% of revenue in the first half of 2024[21][22] - As of June 30, 2024, remaining performance obligations (RPO) totaled $747.5 million, with $572.0 million expected to be recognized as revenue in the next twelve months[24] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 14% year-over-year revenue growth for the first six months primarily to sales to existing customers. The company highlights key non-GAAP metrics, including a 10.5% increase in Q2 calculated current billings and a non-GAAP operating margin of 19% for the quarter. The discussion details the acquisition of Eureka Security for $29 million, a new $230.3 million commitment to AWS, and $50 million in stock repurchases. While operating losses persist, the company believes its liquidity, with $487 million in cash and short-term investments, is sufficient for at least the next 12 months Key Operating and Financial Metrics Key Metrics Comparison (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Calculated Current Billings | $221.1M | $200.2M | +10.5% | | Free Cash Flow | $28.7M | $27.7M | +3.6% | | Non-GAAP Operating Margin | 19% | 15% | +4 p.p. | | Non-GAAP EPS, diluted | $0.31 | $0.22 | +40.9% | - The number of customers with annual contract value of $100,000 or greater increased by 19% year-over-year to 1,793[82] - The dollar-based net expansion rate was 109% as of June 30, 2024, compared to 111% as of June 30, 2023[85] Results of Operations - Q2 2024 vs Q2 2023: - Revenue increased by $26.2 million (13%), driven by a $27.1 million increase from existing customers - Research and development expense rose 19% ($7.3 million), primarily due to a $5.1 million increase in personnel costs - A restructuring charge of $4.7 million was recorded, mainly from a non-cash impairment of leasehold improvements related to a headquarters sublease[110][113][114] - Six Months 2024 vs Six Months 2023: - Revenue grew by $53.3 million (14%), with U.S. revenue up 11% and international revenue up 18% - Gross margin improved from 77% to 78%, as revenue growth outpaced the 10% increase in cost of revenue - Total operating expenses increased by 10%, driven by higher R&D costs, G&A expenses, and restructuring charges[119][120][107] Liquidity and Capital Resources - As of June 30, 2024, the company had $233.5 million in cash and cash equivalents and $253.5 million in short-term investments[128] - A substantial source of cash is from customer prepayments, reflected in the $725.8 million deferred revenue balance as of June 30, 2024[129] - Under its $100 million stock repurchase plan authorized in November 2023, the company has purchased 1.5 million shares for $64.9 million through June 30, 2024[132] Quantitative and Qualitative Disclosures About Market Risk The company identifies its primary market risks as interest rate, foreign currency exchange, and inflation. Interest rate risk stems from its variable-rate Term Loan, where a 1% rate increase would raise annual interest expense by $1.2 million. Foreign currency risk is considered limited as most sales are in U.S. dollars. Inflation has not had a material effect to date but is monitored for its potential impact on employee and cloud infrastructure costs - The company's Term Loan has a variable interest rate. A one percentage point increase in the rate would increase 2024 interest expense by $1.2 million[144] - Foreign currency exchange risk is not considered material as substantially all sales contracts are denominated in U.S. dollars, though a portion of operating expenses are in foreign currencies[145] - Inflation has not had a material effect on the business through June 30, 2024, but the company notes that employee-related and third-party cloud infrastructure costs could face future inflationary pressures[146] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2024. No material changes to the internal control over financial reporting were identified during the quarter - Based on an evaluation as of the end of the reporting period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[148] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[150] PART II – OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any legal proceedings that would have a material adverse effect on its business, financial condition, or cash flows. It acknowledges that it may face intellectual property infringement claims in the ordinary course of business - As of the filing date, the company is not a party to any legal proceedings that would be expected to have a material adverse effect on its business[153] Risk Factors The company highlights updated and new risk factors, emphasizing its vulnerability as a cybersecurity provider to targeted cyberattacks, including those from nation-state actors. It discusses significant supply-chain risks from third-party providers, referencing recent industry events. A new section details risks associated with incorporating generative AI into its products, such as potential inaccuracies, regulatory challenges like the EU AI Act, and novel security threats. The company also notes increased compliance burdens from new climate and cybersecurity disclosure regulations - The company is at an increased risk of being a target of cyberattacks, including from sophisticated nation-state actors, due to its position in the cybersecurity industry[156] - A new risk factor was added concerning the incorporation of generative AI (e.g., ExposureAI) into products. This includes risks of inaccurate or flawed output, an emerging and uncertain legal/regulatory environment (e.g., EU's AI Act), and potential for novel cybersecurity threats[170][171][172] - The company faces risks from its reliance on third-party service providers (e.g., AWS), noting that supply-chain attacks have increased in frequency and severity, and referencing the July 2024 CrowdStrike software update outage as an example of third-party disruption[159][160] - The company notes increasing compliance costs and risks associated with new regulations, including climate disclosure rules (CSRD, California, SEC) and the SEC's new rules for disclosing material cybersecurity incidents on Form 8-K[179][180] Unregistered Sales of Equity Securities and Issuer Purchases of Equity Securities The company reported no unregistered sales of equity securities. Under its publicly announced stock repurchase program, the company purchased 589,000 shares for approximately $25 million during the second quarter of 2024. As of June 30, 2024, $35.1 million remained available for future repurchases under the plan Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased (in thousands) | Average Price Paid Per Share | Approx. Dollar Value (in thousands) | Value Remaining Under Plan (in thousands) | | :--- | :--- | :--- | :--- | :--- | | May 2024 | 321 | $43.58 | $13,989 | $46,100 | | June 2024 | 268 | $41.12 | $11,020 | $35,075 | | Q2 Total | 589 | $42.46 | $25,009 | $35,075 | - As of June 30, 2024, $35.1 million remains authorized for repurchase under the $100 million plan announced in November 2023[183] Other Information The company disclosed that a member of its Board of Directors, Raymond Vicks, Jr., entered into a prearranged stock trading plan under Rule 10b5-1 on May 8, 2024. The plan covers the sale of 809 shares of common stock, to be issued upon vesting of restricted stock units, in January 2025 - On May 8, 2024, board member Raymond Vicks, Jr. entered into a Rule 10b5-1 trading plan to sell 809 shares of common stock in January 2025[184] Exhibits This section lists the exhibits filed with the Form 10-Q, including the company's articles of incorporation, bylaws, officer certifications (pursuant to Sarbanes-Oxley Sections 302 and 906), and Inline XBRL data files