Tenable(TENB) - 2023 Q3 - Quarterly Report

PART I Financial Statements This section presents the unaudited consolidated financial statements for the period ended September 30, 2023, detailing financial position, operational performance, cash flows, and key accounting notes Consolidated Balance Sheets The balance sheet as of September 30, 2023, shows total assets increased to $1.52 billion, driven by higher cash, with equity rising to $343.7 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $445,316 | $300,866 | | Total current assets | $971,067 | $857,167 | | Total assets | $1,524,446 | $1,439,530 | | Liabilities & Equity | | | | Deferred revenue (current) | $518,372 | $502,115 | | Total liabilities | $1,180,773 | $1,168,664 | | Total stockholders' equity | $343,673 | $270,866 | | Total liabilities and stockholders' equity | $1,524,446 | $1,439,530 | Consolidated Statements of Operations Q3 2023 revenue increased 15% to $201.5 million, with net loss narrowing to $(15.6) million from $(18.7) million year-over-year Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $201,529 | $174,851 | $585,404 | $498,560 | | Gross Profit | $155,775 | $136,269 | $450,630 | $389,011 | | Loss from operations | $(7,913) | $(12,958) | $(37,814) | $(53,726) | | Net loss | $(15,565) | $(18,730) | $(56,636) | $(70,735) | | Net loss per share | $(0.13) | $(0.17) | $(0.49) | $(0.64) | Consolidated Statements of Cash Flows Net cash from operations for the nine months ended September 30, 2023, increased to $111.4 million, with a significant shift to positive investing cash flow Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $111,350 | $99,233 | | Net cash provided by (used in) investing activities | $19,619 | $(108,003) | | Net cash provided by financing activities | $16,043 | $23,195 | | Net increase in cash and cash equivalents | $144,450 | $10,149 | Notes to Consolidated Financial Statements Notes detail key accounting policies, significant revenue concentration, remaining performance obligations, and the $244 million acquisition of Ermetic Ltd - Subscription revenue is the primary revenue source, accounting for $183.3 million (91%) of the $201.5 million total revenue in Q3 2023[30] - The company has a significant concentration with one distributor, which accounted for 36% of revenue in the first nine months of 2023 and 37% of accounts receivable at September 30, 2023[31] - As of September 30, 2023, the company had $697.2 million in remaining performance obligations, with $528.4 million expected to be recognized as revenue over the next twelve months[33] - In October 2023, the company acquired Ermetic Ltd., a cloud infrastructure entitlement management provider, for a total purchase price of approximately $244 million[70] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 financial performance, highlighting 15% revenue growth, strong liquidity, and the impact of the $244 million Ermetic acquisition - Revenue for Q3 2023 was $201.5 million, a 15% year-over-year increase, with recurring revenue representing 95% of total revenue for the quarter[79][80] - The company experienced longer sales cycle times in the purchasing and approval phases starting in Q1 2023, a trend that has continued and may persist into 2024[110] - In October 2023, the company acquired Ermetic for approximately $244 million in cash to enhance its Tenable One Exposure Management Platform[148][70] Key Operating and Financial Metrics Key metrics for Q3 2023 show Calculated Current Billings up 8% to $224.7 million and Free Cash Flow increasing to $40.3 million Key Metrics Performance | Metric | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Calculated Current Billings (in millions) | $224.7 | $207.3 | 8% | | Free Cash Flow (in millions) | $40.3 | $31.5 | 28% | | Customers > $100k ACV | 1,565 | 1,280 | 22% | | Dollar-Based Net Expansion Rate | 111% | 118% | (7 p.p.) | Non-GAAP Income from Operations Reconciliation (in thousands) | Description | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Loss from operations (GAAP) | $(7,913) | $(12,958) | | Stock-based compensation | $36,835 | $32,643 | | Acquisition-related expenses | $4,598 | $322 | | Amortization of acquired intangible assets | $3,055 | $3,080 | | Non-GAAP income from operations | $36,575 | $23,087 | Results of Operations Q3 2023 revenue grew 15% driven by existing customers, while cost of revenue and general and administrative expenses increased due to cloud infrastructure and acquisition-related costs - Q3 2023 revenue increased by $26.7 million, with $30.6 million from existing customers offsetting a $3.9 million decrease from new customers[127] - Cost of revenue increased by 19% in Q3 2023, primarily due to a $3.4 million increase in third-party cloud infrastructure costs and a $2.6 million increase in personnel costs[128][129] - General and administrative expenses increased by 28% in Q3 2023, largely due to a $4.3 million increase in acquisition-related expenses[131][134] - Other expense, net increased by $4.4 million in Q3 2023, primarily due to a $5.0 million impairment loss on a SAFE investment[132] Liquidity and Capital Resources The company maintains a strong liquidity position with $445.3 million in cash and $247.7 million in short-term investments, sufficient for future needs including the Ermetic acquisition - At September 30, 2023, the company had $445.3 million in cash and cash equivalents and $247.7 million in short-term investments[144] - A substantial source of cash is from customer prepayments, with a deferred revenue balance of $681.5 million as of September 30, 2023[146] - The company's Term Loan interest rates have been between 7.16% and 8.20% from January to September 2023, and the company was in compliance with all debt covenants[151][152] Quantitative and Qualitative Disclosures About Market Risk The company identifies interest rate, foreign currency, and inflation as primary market risks, with a 1% interest rate increase potentially raising interest expense by $0.3 million - The company is exposed to interest rate risk on its $375.0 million variable-rate Term Loan, where a one percentage point increase would increase 2023 interest expense by $0.3 million[163] - Foreign currency exchange risk is limited as substantially all sales contracts are denominated in U.S. dollars, but a portion of operating expenses are incurred in foreign currencies like the Euro, British Pound, and Israeli New Shekel[164] - Inflation has not had a material effect but is a risk, particularly for employee-related and third-party cloud infrastructure costs[165] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[167] - There were no material changes in the company's internal control over financial reporting during the quarter[169] PART II Legal Proceedings The company is not currently involved in any legal proceedings that would have a material adverse effect on its business or financial condition - Tenable is not presently a party to any legal proceedings that would individually or collectively have a material adverse effect on the company[173] Risk Factors New risk factors include complex accounting rules, acquisition integration challenges, and geopolitical risks from the conflict in Israel impacting R&D operations - A new risk factor highlights that complex accounting rules and incorrect management estimates (e.g., for revenue recognition, deferred commissions) could adversely affect financial results[175][177] - Acquisitions, such as the recent purchase of Ermetic, introduce risks including integration difficulties, unforeseen liabilities, and potential disruption to business operations[182] - The company identifies a new geopolitical risk due to the conflict in Israel, as its R&D teams for Tenable OT Security and the newly acquired Ermetic are located in Tel Aviv, which could materially impact product roadmaps[185][186] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the reporting period - There were no unregistered sales of equity securities in the period[188] Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including the Ermetic Share Purchase Agreement and officer certifications - The exhibits filed with the report include the Ermetic Share Purchase Agreement, officer certifications (302 and 906), and XBRL files[191]