Tenable(TENB) - 2022 Q4 - Annual Report

Part I Business Tenable provides exposure management solutions, showing steady revenue growth to $683.2 million in 2022 despite net losses while serving 43,000 customers globally Financial Performance (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenue | $683.2 million | $541.1 million | $440.2 million | | Revenue Growth (YoY) | 26% | 23% | - | | Net Loss | ($92.2 million) | ($46.7 million) | ($42.7 million) | | Cash Flow from Operations | $131.2 million | $96.8 million | $64.2 million | - As of December 31, 2022, Tenable had approximately 43,000 customers in over 170 countries, including about 60% of the Fortune 500 and 40% of the Global 2000[27][28] - The company's growth strategy focuses on acquiring new enterprise customers, expanding asset coverage within the existing customer base, investing in its technology platform, and exploring acquisition opportunities[26] - Tenable's primary competitors include vulnerability management vendors like Qualys and Rapid7, diversified security vendors, endpoint security vendors such as CrowdStrike, and cloud security providers like Palo Alto Networks[37] Overview Tenable provides exposure management solutions to address the expanding modern attack surface by unifying data sources for a comprehensive view of cyber risk - The modern attack surface includes identity and access management systems, operational technology (OT), personal devices (IoT, shadow IT), and tools used by DevOps teams (virtual machines, containers)[15][18] - Tenable launched the Tenable One Exposure Management Platform in October 2022 to unify various data sources and provide a single exposure view[17] Our Solutions The company's core offering is the Tenable One platform, which integrates key products for vulnerability management, cloud security, and Active Directory security - The Tenable One platform incorporates several key products: Tenable.io (SaaS Vulnerability Management), Tenable.io Web Application Scanning, Tenable Lumin Exposure View, Tenable.cs (Cloud Security), Tenable.ad (Active Directory Security), and Tenable.asm (External Attack Surface Management)[21] - Standalone solutions include Tenable.sc (on-premises Vulnerability Management) and Tenable.ot (Operational Technology Security)[21] - In July 2022, the company introduced Nessus Expert, which adds Infrastructure as Code (IaC) scanning and external attack surface discovery capabilities[23] Sales and Marketing Tenable utilizes a dual sales strategy combining a direct-touch sales force with a two-tiered channel partner model to drive global market penetration - The company uses a two-tiered channel model, selling to distributors who sell to resellers, who then sell to end-user customers[26] - The sales team is geographically divided into the Americas; Europe, the Middle East and Africa (EMEA); and Asia Pacific and Japan[30] Human Capital The company's human capital strategy focuses on attracting and retaining talent in a diverse, hybrid workplace with robust compensation and development programs - At the end of 2022, the company had 1,900 employees, with 796 (approximately 42%) located outside the U.S[47] - The company promotes a hybrid workplace strategy and offers compensation packages that include base salary, annual bonuses, equity awards, and an Employee Stock Purchase Plan (ESPP)[49] - Tenable outsources its data center needs to Amazon Web Services (AWS), and its corporate headquarters is a LEED Certified Gold building[55] Risk Factors The company faces significant risks including a history of net losses, intense competition, reliance on renewals, and challenges in data privacy and talent retention Risks Related to Our Business and Industry Operational risks include a history of net losses, intense competition from established and larger vendors, and high dependence on customer subscription renewals - The company has a history of net losses, reporting losses of $92.2 million in 2022, $46.7 million in 2021, and $42.7 million in 2020, with an accumulated deficit of $746.8 million[64] - The cybersecurity market is intensely competitive, with rivals including Qualys, Rapid7, CrowdStrike, and Palo Alto Networks, and pricing pressure from larger competitors like Microsoft[66][67] - Business success depends heavily on customer subscription renewals and expansion, as a majority of contracts are for one year with no obligation to renew[98] - The company relies on third-party data centers, particularly Amazon Web Services (AWS), for its network infrastructure[100] Risks Related to Government Regulation, Data Collection and Intellectual Property The company is subject to complex data privacy laws like GDPR and CCPA, U.S. export controls, and challenges in protecting its intellectual property - The company is subject to numerous data privacy and security laws, including the EU GDPR, UK GDPR, and CCPA, which carry the risk of significant fines for non-compliance[105][107][108] - As of December 31, 2022, Tenable held 26 issued U.S. patents and had 25 pending applications, relying on a mix of IP protections[165] - The use of open-source software in Tenable's solutions carries risks, as non-compliance could lead to litigation or require releasing proprietary source code[173][174] Risks Related to An Investment in Our Common Stock Investment risks include stock price volatility, a no-dividend policy, and anti-takeover provisions that may limit stockholder influence - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, with its credit agreement also restricting payments[180] - Anti-takeover provisions, such as a classified Board of Directors, could delay or prevent a change in control[181][182] - The certificate of incorporation establishes exclusive forums for most stockholder disputes, which could limit stockholders' ability to bring claims in other jurisdictions[184] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[201] Properties The company's corporate headquarters is a 160,000 square foot leased facility in Columbia, Maryland, supplemented by various international offices - The corporate headquarters in Columbia, Maryland, consists of approximately 160,000 square feet with a lease expiring in February 2032[202] Legal Proceedings The company is not currently a party to 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 have a material adverse effect on the business[203] Mine Safety Disclosures This item is not applicable to the company - Not applicable[204] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Tenable's common stock trades on Nasdaq under "TENB," and the company has never paid dividends, retaining earnings for business expansion - Common stock trades on the Nasdaq Global Select Market under the ticker symbol "TENB"[207] - The company has never paid dividends and does not intend to in the foreseeable future, as it plans to retain earnings for business growth[208] Selected Financial Data This section presents key consolidated financial data from 2018 to 2022, including revenue, profit, loss, and balance sheet items Selected Consolidated Statements of Operations Data (in thousands) | | 2022 | 2021 | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $683,191 | $541,130 | $440,221 | $354,586 | $267,360 | | Gross profit | $528,402 | $434,734 | $362,667 | $293,768 | $224,193 | | Loss from operations | $(67,815) | $(41,768) | $(36,433) | $(90,799) | $(72,581) | | Net loss | $(92,222) | $(46,677) | $(42,731) | $(99,013) | $(73,521) | | Net loss per share, basic and diluted | $(0.83) | $(0.44) | $(0.42) | $(1.03) | $(1.38) | Selected Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $300,866 | $278,000 | $178,223 | $74,363 | $165,116 | | Total assets | $1,439,530 | $1,248,819 | $690,589 | $558,612 | $460,612 | | Deferred revenue, current and non-current | $664,602 | $530,885 | $434,510 | $363,127 | $289,903 | | Total stockholders' equity | $270,866 | $215,313 | $150,665 | $98,905 | $121,763 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting 26% revenue growth in 2022, ongoing net losses due to investment, and key non-GAAP performance metrics Key Operating and Financial Metrics The company tracks key metrics like Calculated Current Billings and Free Cash Flow to evaluate performance, showing strong growth in customer acquisition and expansion Key Metrics (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Calculated Current Billings | $776.9M | $617.2M | $494.7M | | Free Cash Flow | $112.0M | $90.2M | $44.0M | | New Enterprise Platform Customers | 2,078 | 1,882 | 1,455 | | Customers > $100k ACV | 1,420 | 1,095 | 837 | | Dollar-Based Net Expansion Rate | 117% | 117% | 110% | Reconciliation of GAAP Loss from Operations to Non-GAAP Income from Operations (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Loss from operations (GAAP) | $(67,815) | $(41,768) | $(36,433) | | Stock-based compensation | 120,633 | 79,405 | 59,573 | | Acquisition-related expenses | 2,642 | 6,901 | 339 | | Costs related to intra-entity asset transfers | 838 | — | — | | Amortization of acquired intangible assets | 11,372 | 6,447 | 2,314 | | Non-GAAP income from operations | $67,670 | $50,985 | $25,793 | Results of Operations Revenue increased 26% in 2022 driven by subscription sales, while operating expenses grew 25%, widening the operating and net losses from the prior year Revenue Comparison: 2022 vs 2021 (in thousands) | Revenue Type | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription | $612,510 | $476,023 | $136,487 | 29% | | Perpetual license and maintenance | $50,699 | $50,333 | $366 | 1% | | Professional services and other | $19,982 | $14,774 | $5,208 | 35% | | Total Revenue | $683,191 | $541,130 | $142,061 | 26% | - The $79.3 million (29%) increase in sales and marketing expense in 2022 was primarily due to a $52.5 million increase in personnel costs and a $14.2 million increase in sales commissions[276][277] - The $27.1 million (23%) increase in research and development expense in 2022 was mainly driven by a $19.8 million increase in personnel costs[280][282] Liquidity and Capital Resources The company maintains strong liquidity with $300.9 million in cash, funded primarily by customer prepayments and a $375.0 million term loan Cash Flow Summary (in thousands) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $131,151 | $96,765 | $64,232 | | Net cash (used in) provided by investing activities | $(128,039) | $(391,590) | $4,079 | | Net cash provided by financing activities | $23,318 | $397,646 | $36,403 | - The company entered into a credit agreement in July 2021, which includes a $375.0 million Term Loan and a $50.0 million Revolving Credit Facility[300] - At December 31, 2022, the company had a deferred revenue balance of $664.6 million, a substantial source of cash from customer prepayments[297] Critical Accounting Policies and Estimates Key accounting policies requiring significant management judgment include revenue recognition, deferred commissions, and the valuation of assets in business combinations - Revenue Recognition: For perpetual licenses, the company combines the license and maintenance into a single performance obligation and recognizes revenue over an estimated five-year economic life[315] - Deferred Commissions: Sales commissions are capitalized and amortized over an estimated period of benefit, ranging from three to five years[320] - Business Combinations: The company allocates the purchase price of acquisitions to tangible and intangible assets, with the excess recorded as goodwill, requiring significant valuation estimates[331] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from variable interest rates on its debt, foreign currency fluctuations, and potential inflationary pressures - The company's $375.0 million Term Loan has a variable interest rate; a one percentage point increase would raise 2023 interest expense by an estimated $2.5 million[339] - Foreign currency risk is present due to operating expenses in currencies like the Euro, British Pound, and Israeli New Shekel[341] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and the independent auditor's report for fiscal years 2020 through 2022 Consolidated Balance Sheet (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $857,167 | $749,438 | | Total Assets | $1,439,530 | $1,248,819 | | Total Current Liabilities | $584,160 | $483,882 | | Total Liabilities | $1,168,664 | $1,033,506 | | Total Stockholders' Equity | $270,866 | $215,313 | Consolidated Statement of Operations (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | $683,191 | $541,130 | $440,221 | | Gross Profit | $528,402 | $434,734 | $362,667 | | Loss from Operations | $(67,815) | $(41,768) | $(36,433) | | Net Loss | $(92,222) | $(46,677) | $(42,731) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[486] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[488] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[489] Other Information In February 2023, the Board of Directors designated Chief Operating Officer Mark Thurmond as an "executive officer" of the company - On February 23, 2023, Mark Thurmond, Chief Operating Officer, was designated as an "executive officer" of the company[493] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None[496] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[499] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[501] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[502] Certain Relationships and Related Transactions and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[503] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2023 Proxy Statement - Required information is incorporated by reference from the company's 2023 Proxy Statement[504] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including a schedule for valuation and qualifying accounts Valuation and Qualifying Accounts (Allowance for Doubtful Accounts, in thousands) | Year Ended Dec 31 | Beginning Balance | Additions Charged to Costs | Deductions | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | 2022 | $524 | $1,154 | $(278) | $1,400 | | 2021 | $261 | $349 | $(86) | $524 | | 2020 | $764 | $336 | $(839) | $261 | Form 10-K Summary The company reports that there is no Form 10-K summary - None[517]