Tenable(TENB) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the company's unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls Financial Statements This section presents Tenable Holdings, Inc.'s unaudited consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes - The financial statements are unaudited and prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information[24] - The company completed its Initial Public Offering (IPO) on July 30, 2018, receiving net proceeds of $264.6 million after deducting underwriting discounts, commissions, and other offering expenses[26] Consolidated Balance Sheets Total assets increased to $532.2 million from $460.6 million, while total liabilities grew to $409.0 million from $338.8 million Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $532,212 | $460,612 | | Cash and cash equivalents | $171,303 | $165,116 | | Deferred revenue (Total) | $329,375 | $289,903 | | Total Liabilities | $409,024 | $338,849 | | Total Stockholders' Equity | $123,188 | $121,763 | Consolidated Statements of Operations Q3 2019 revenue grew 32% to $91.9 million, with net loss narrowing, while nine-month revenue grew 34% to $257.5 million, with net loss widening Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $91,852 | $69,440 | $257,537 | $192,139 | | Gross Profit | $76,607 | $57,279 | $215,148 | $161,371 | | Loss from Operations | $(18,327) | $(21,096) | $(63,246) | $(52,990) | | Net Loss | $(17,640) | $(20,869) | $(60,708) | $(53,907) | | Net Loss Per Share | $(0.18) | $(0.28) | $(0.64) | $(1.34) | Consolidated Statements of Cash Flows Net cash used in operating activities was $7.7 million, investing activities used $15.5 million, and financing activities provided $30.6 million, significantly lower due to prior year's IPO Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,672) | $(1,005) | | Net cash used in investing activities | $(15,480) | $(38,254) | | Net cash provided by financing activities | $30,565 | $265,750 | - The significant decrease in financing cash flow year-over-year is due to the $268.5 million in net IPO proceeds received in 2018, which was a one-time event[19][170] Notes to Consolidated Financial Statements This section details significant accounting policies, including revenue recognition, concentrations (one distributor 43% of revenue), deferred commissions, lease accounting, and geographic revenue Revenue Breakdown (in thousands) | Revenue Type | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Subscription revenue | $75,503 | $53,511 | $209,610 | $146,568 | | Perpetual license and maintenance | $13,797 | $13,864 | $40,877 | $40,753 | | Professional services and other | $2,552 | $2,065 | $7,050 | $4,818 | - A single distributor accounted for 43% of revenue in both the three and nine months ended September 30, 2019, and represented 40% of accounts receivable at the end of the period[37] - At September 30, 2019, remaining performance obligations were $333.4 million, with 74% expected to be recognized as revenue in the next twelve months[39] Revenue by Geography (Nine Months Ended Sep 30, in thousands) | Region | 2019 | 2018 | | :--- | :--- | :--- | | Americas | $177,392 | $137,868 | | Europe, Middle East and Africa | $56,123 | $38,218 | | Asia Pacific | $24,022 | $16,053 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting 32% Q3 2019 revenue growth, continued investment in growth leading to net loss, and key metrics like 28% calculated current billings growth and strong customer acquisition - The company identifies itself as the first and only provider of solutions for Cyber Exposure, a new category of cybersecurity[83] - Key factors affecting performance include product leadership, new enterprise customer acquisition, and retaining/expanding revenue from existing customers. The company expects its dollar-based net expansion rate to continue to exceed 110%[91][93][100] Calculated Current Billings (Non-GAAP, in thousands) | Period | 2019 | 2018 | Growth | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $110,610 | $86,741 | 28% | | Nine Months Ended Sep 30 | $289,878 | $228,819 | 27% | Enterprise Customer Growth | Metric | Q3 2019 vs Q3 2018 | As of Sep 30, 2019 vs 2018 | | :--- | :--- | :--- | | New enterprise platform customers added | 387 vs 258 (50% increase) | N/A | | Customers with >$100k ACV | N/A | 589 vs 387 (52% increase) | Results of Operations Detailed operating results show Q3 2019 revenue up 32% to $22.4 million, driven by subscription revenue, with gross margin at 83% and increased operating expenses - Q3 2019 revenue increased $22.4 million (32%) year-over-year, primarily from a $22.0 million increase in subscription revenue. Revenue from existing customers comprised 49% of the increase[144][145] - Q3 2019 sales and marketing expense increased by $12.1 million (27%) year-over-year, mainly due to a $5.6 million increase in personnel costs and a $3.5 million increase in sales commissions[146][148] - For the nine months ended Sep 30, 2019, revenue increased $65.4 million (34%) year-over-year. Revenue from existing customers comprised 62% of this increase[150] Liquidity and Capital Resources As of September 30, 2019, the company held $171.3 million in cash and $125.3 million in short-term investments, with $329.4 million in deferred revenue, sufficient for the next 12 months Key Liquidity Figures (as of Sep 30, 2019, in millions) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $171.3 | | Short-term investments | $125.3 | | Deferred revenue | $329.4 | - The company has a $25.0 million revolving credit facility which was undrawn as of September 30, 2019[163] - Management believes existing cash will be sufficient for at least the next 12 months. Capital expenditures for the new corporate headquarters are expected to be $5 million to $7 million in Q4 2019[161] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign currency, and inflation, with interest rate risk on its cash and investments deemed immaterial, and foreign currency risk limited as most sales are in USD - The primary market risks are interest rate, foreign currency exchange, and inflation[178] - Interest rate risk on the $171.3M cash and $125.3M investment portfolio is not considered material[179] - Foreign currency risk is limited as substantially all sales contracts are denominated in U.S. dollars, though some operating expenses are incurred in foreign currencies. The company does not currently hedge this exposure[181] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that as of September 30, 2019, the company's disclosure controls and procedures were effective[184] - No material changes were identified in the company's internal control over financial reporting during the quarter ended September 30, 2019[186] PART II – OTHER INFORMATION This section covers legal proceedings, key risk factors, equity securities sales and use of proceeds, and a list of exhibits and signatures Legal Proceedings The company is not currently a party to any legal proceedings that would have a material adverse effect on its business, though it may face ordinary claims - The company is not presently a party to any legal proceedings that, if determined adversely, would individually or in aggregate have a material adverse effect on its business, financial condition, or cash flows[190] Risk Factors Key risks include a history of losses, intense competition, reliance on revenue growth and customer renewals, channel partner dependency (one distributor 43% of revenue), and evolving data privacy regulations - The company has a history of net losses, including a $60.7 million loss for the nine months ended September 30, 2019, and an accumulated deficit of $526.8 million[192] - The market for cybersecurity solutions is intensely competitive, with competitors including vulnerability management vendors like Qualys and Rapid7, and diversified security vendors like IBM[207] - The company relies heavily on its channel partner network, which generated 90% of revenue in the first nine months of 2019. One distributor, Ingram Micro, accounted for 43% of revenue during this period[233][234] - The business is subject to complex and evolving data privacy regulations like GDPR and the California Consumer Privacy Act (CCPA), which could increase costs and create liability[228][230] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities and confirmed its July 2018 IPO raised $264.6 million in net proceeds, with no material change in use - There were no unregistered sales of equity securities during the reporting period[313] - The company confirms it received net proceeds of $264.6 million from its July 2018 IPO and that there has been no material change in the planned use of these proceeds[316][317] Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents and certifications from executive officers Signatures The report is duly signed and authorized by Amit Yoran, Chairman and CEO, and Stephen A. Vintz, CFO, on November 13, 2019