Tenable(TENB) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements The company presents its unaudited consolidated balance sheets, statements of operations, and cash flows for Q3 2020 Consolidated Balance Sheets Total assets grew to $623.8 million, driven by an increase in cash, while stockholders' equity rose to $131.1 million Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | September 30, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $420,976 | $362,962 | | Cash and cash equivalents | $141,387 | $74,363 | | Total Assets | $623,835 | $558,612 | | Total Current Liabilities | $338,290 | $327,643 | | Deferred revenue (current) | $296,360 | $274,348 | | Total Liabilities | $492,708 | $459,707 | | Total Stockholders' Equity | $131,127 | $98,905 | Consolidated Statements of Operations Q3 2020 revenue grew 22.2% year-over-year to $112.3 million, significantly narrowing the net loss to $5.9 million Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $112,282 | $91,852 | $322,139 | $257,537 | | Gross Profit | $92,888 | $76,607 | $264,902 | $215,148 | | Loss from Operations | ($3,465) | ($18,327) | ($35,702) | ($63,246) | | Net Loss | ($5,858) | ($17,640) | ($40,795) | ($60,708) | | Net Loss Per Share | ($0.06) | ($0.18) | ($0.41) | ($0.64) | Consolidated Statements of Cash Flows Net cash from operating activities for the nine-month period improved significantly to $46.3 million from a $7.7 million use in 2019 Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $46,298 | ($7,672) | | Net cash used in investing activities | ($8,455) | ($15,480) | | Net cash provided by financing activities | $30,478 | $30,565 | | Net increase in cash and cash equivalents | $66,962 | $6,187 | Notes to Consolidated Financial Statements Subscription revenue remains the primary driver, with a single distributor accounting for 43% of total revenue Revenue Disaggregation (in thousands) | Revenue Type | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Subscription revenue | $96,792 | $75,503 | $275,192 | $209,610 | | Perpetual license and maintenance | $12,448 | $13,797 | $38,046 | $40,877 | | Professional services and other | $3,042 | $2,552 | $8,901 | $7,050 | | Total Revenue | $112,282 | $91,852 | $322,139 | $257,537 | - A single distributor accounted for 43% of revenue in both the three and nine months ended September 30, 2020 and 2019[31] - At September 30, 2020, the company had $399.7 million in remaining performance obligations, with approximately 76% expected to be recognized as revenue over the next twelve months[33] Revenue by Geography (in thousands) | Region | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Americas | $74,569 | $62,413 | $215,829 | $177,392 | | Europe, Middle East and Africa | $26,193 | $19,968 | $74,385 | $56,123 | | Asia Pacific | $11,520 | $9,471 | $31,925 | $24,022 | | Total Revenue | $112,282 | $91,852 | $322,139 | $257,537 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 22% YoY revenue increase, improved cash flow, and a dollar-based net expansion rate of 110% Overview and Financial Highlights Q3 2020 revenue grew 22% YoY to $112.3 million, with recurring revenue comprising 94% of the total Q3 2020 Financial Highlights (in thousands) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Revenue | $112,282 | $91,852 | | Loss from operations | ($3,465) | ($18,327) | | Net loss | ($5,858) | ($17,640) | | Net cash provided by (used in) operating activities | $24,807 | ($4,675) | - Recurring revenue, which includes subscriptions and maintenance, represented 94% of total revenue in Q3 2020, up from 92% in Q3 2019[71] Key Operating and Financial Metrics Key non-GAAP metrics show positive free cash flow, a 110% net expansion rate, and 31% growth in large-contract customers - The dollar-based net expansion rate was approximately 110% for the three months ended September 30, 2020, impacted by a more moderate pace of IT asset expansion[82] Calculated Current Billings Reconciliation (in thousands) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Revenue | $112,282 | $91,852 | | Change in current deferred revenue | $21,407 | $18,758 | | Calculated current billings | $133,689 | $110,610 | Free Cash Flow Reconciliation (in thousands) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $24,807 | ($4,675) | | Purchases of property and equipment | ($8,069) | ($4,927) | | Free cash flow | $16,738 | ($9,602) | Enterprise Customer Growth | Metric | Q3 2020 | Q3 2019 | Change (%) | | :--- | :--- | :--- | :--- | | New enterprise platform customers added | 335 | 387 | (13)% | | Customers with >$100k ACV (at period end) | 771 | 589 | 31% | Results of Operations Revenue grew 22% YoY, driven by subscription increases, while sales and marketing expenses decreased by 6% - Q3 2020 revenue increased by $20.4 million (22%) YoY, with 25% of the increase from existing customers and the remainder from new customers[126][127] - Sales and marketing expense decreased by $3.7 million (6%) in Q3 2020 compared to Q3 2019, mainly due to a $2.4 million decrease in selling expenses and a $2.1 million decrease in marketing expenses[129][131] - Research and development expense increased by $4.4 million (21%) in Q3 2020, primarily due to a $4.9 million increase in personnel costs[129][132] Liquidity and Capital Resources The company holds sufficient liquidity with $141.4 million in cash, supported by customer prepayments and an undrawn credit facility - At September 30, 2020, the company had cash and cash equivalents of $141.4 million and short-term investments of $127.7 million[142] - A substantial source of cash is from customer prepayments, with a deferred revenue balance of $390.2 million at September 30, 2020[144] - In July 2020, the company entered a new $45.0 million senior secured credit facility, which was undrawn as of September 30, 2020[148] Quantitative and Qualitative Disclosures About Market Risk Primary market risks from interest rates, foreign currency, and inflation are considered to have no material impact - The company is exposed to interest rate, foreign currency exchange, and inflation risks[162] - A hypothetical 10% change in interest rates would not have had a material impact on the financial statements[163] - The impact of foreign currency exchange rates has not been material to historical operating results, as substantially all sales contracts are denominated in U.S. dollars[165] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of September 30, 2020, the company's disclosure controls and procedures were effective[168] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[170] PART II – OTHER INFORMATION Legal Proceedings The company is not party to any legal proceedings expected to have a material adverse effect on the business - The company is not presently a party to any legal proceedings that would individually or in aggregate have a material adverse effect on its business, results of operations, or financial condition[174] Risk Factors Key risks include the COVID-19 pandemic's impact, a history of net losses, intense competition, and reliance on channel partners - The COVID-19 pandemic could materially adversely affect business, operations, and financial performance, as customers may reduce or delay technology spending[176][178] - The company has a history of losses, with an accumulated deficit of $605.9 million as of September 30, 2020, and may not achieve or maintain profitability in the future[181] - The business depends substantially on customers renewing their subscriptions, and a decline in renewals would harm the business[208] - The company relies heavily on its channel partner network, with one distributor, Ingram Micro, Inc., accounting for 43% of revenue in the nine months ended September 30, 2020[228] - The company faces intense competition from vulnerability management vendors like Qualys and Rapid7, diversified security vendors like IBM, and endpoint security vendors[202] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity securities were sold, and the planned use of IPO proceeds remains materially unchanged - There were no unregistered sales of equity securities during the period[309] - The company received net proceeds of $264.6 million from its July 2018 IPO and confirms no material change in the planned use of these proceeds[312][313] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents and officer certifications