Tenable Holdings Inc

Previous wording

Revenue in the three months ended March 31, 2024 and 2023 was $216.0 million and $188.8 million, respectively, representing year-over-year growth of 14%. Our recurring revenue, which includes revenue from subscription arrangements for software (both revenue recognized ratably over the subscription term and upon delivery) and cloud-based solutions and maintenance associated with perpetual licenses, represented 96% and 95% of revenue in the three months ended March 31, 2024 and 2023, respectively. Our net loss in the three months ended March 31, 2024 and 2023 was $14.4 million and $25.1 million, respectively, as we continue to invest in our business. Our cash flows from operating activities was $50.3 million and $38.7 million in the three months ended March 31, 2024 and 2023, respectively.

Current wording

Recurring revenue, which includes revenue from subscription arrangements for software (both recognized ratably over the subscription term and upon delivery) and cloud-based solutions and maintenance associated with perpetual licenses, represented 96% of revenue in the three and six months ended June 30, 2024 and 95% of revenue in the three and six months ended June 30, 2023.

Previous wording

Acquisition-related expenses include transaction and integration expenses, as well as costs related to the intercompany transfer of acquired intellectual property. Restructuring expenses include non-ordinary course severance, employee related benefits and other charges to reorganize business operations.

Current wording

Acquisition-related expenses include transaction and integration expenses, as well as costs related to the intercompany transfer of acquired intellectual property. Restructuring expenses include non-ordinary course severance, employee related benefits and other charges.

Previous wording

We have historically experienced, and expect in the future to experience, seasonality in entering into agreements with customers. We typically enter into a significantly higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the third and fourth quarters of the year. The increase in customer agreements in the third quarter is primarily attributable to U.S. government and related agencies, and the increase in the fourth quarter is primarily attributable to large enterprise account buying patterns typical in the software industry. The ratable nature of our subscription revenue makes this seasonality less apparent in our overall financial results. While sales cycles improved in the three months ended March 31, 2024, we continue to expect longer purchasing and approval phases of our sales cycle during 2024.

Current wording

We have historically experienced, and expect in the future to experience, seasonality in entering into agreements with customers. We typically enter into a significantly higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the third and fourth quarters of the year. The increase in customer agreements in the third quarter is primarily attributable to U.S. government and related agencies, and the increase in the fourth quarter is primarily attributable to large enterprise account buying patterns typical in the software industry. The ratable nature of our subscription revenue makes this seasonality less apparent in our overall financial results. We expect longer purchasing and approval phases of our sales cycle to continue throughout 2024.

Previous wording

Interest income consists of income earned on cash and cash equivalents and short-term investments. Interest expense consists primarily of interest expense in connection with our senior secured term loan facility, or Term Loan, unused commitment fees on our senior secured revolving credit facility, or Revolving Credit Facility, and letter of credit fees. Other expense, net consists primarily of foreign currency remeasurement and transaction gains and losses and any realized and unrealized gains and losses, including impairment losses related to our non-marketable simple agreements for future equity ("SAFE") investments.

Current wording

Interest income consists of income earned on cash and cash equivalents and short-term investments. Interest expense consists primarily of interest expense in connection with our Term Loan, unused commitment fees on our Revolving Credit Facility, and letter of credit fees. Other income (expense), net consists primarily of foreign currency remeasurement and transaction gains and losses and any realized and unrealized gains and losses, including impairment losses and gains related to our non-marketable investments.

Previous wording

Provision (benefit) for income taxes consists of income taxes in all foreign jurisdictions in which we conduct business and the related withholding taxes on sales with customers. We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses.

Current wording

Provision for income taxes consists of income taxes in all foreign jurisdictions in which we conduct business and the related withholding taxes on sales with customers. We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses.

Previous wording

The increase in cost of revenue of $3.4 million was primarily due to:

Current wording

The increase in cost of revenue of $5.3 million was primarily due to:

Previous wording

•a $1.6 million increase in amortization of acquired intangibles;

Current wording

•a $1.7 million increase in amortization of acquired intangibles;

Previous wording

•a $0.9 million increase in cloud costs;

Current wording

•a $0.9 million increase in professional fees; and

Previous wording

The increase in sales and marketing expense of $2.6 million was primarily due to:

Current wording

The increase in sales and marketing expense of $3.3 million was primarily due to:

Previous wording

•a $0.5 million increase in expenses for demand generation programs, including advertising, sponsorships and brand awareness efforts; and

Current wording

•a $3.5 million increase in expenses for demand generation programs, including advertising, sponsorships and brand awareness efforts;

Previous wording

•a $0.7 million increase in sales commissions;

Current wording

•a $1.2 million increase in sales commissions;

Previous wording

•a $0.4 million increase in selling expenses.

Current wording

•a $0.6 million increase in selling expenses; partially offset by

Previous wording

The increase in research and development expense of $5.5 million was primarily due to:

Current wording

The increase in research and development expense of $7.3 million was primarily due to:

Previous wording

•a $0.8 million increase in third-party cloud infrastructure costs;

Current wording

•a $0.8 million increase in allocated overhead.

Previous wording

The increase in general and administrative expense of $3.9 million was primarily due to:

Current wording

The increase in general and administrative expense of $3.7 million was primarily due to:

Previous wording

•a $0.1 million increase in acquisition-related expenses; partially offset by

Current wording

•a $0.7 million increase in acquisition-related expenses; and

Previous wording

•a $0.3 million increase in professional fees.

Current wording

•a $0.3 million increase in software subscriptions; partially offset by

Previous wording

•a $0.3 million decrease in allocated overhead.

Current wording

•a $0.7 million decrease in allocated overhead; and

Previous wording

The $0.5 million increase in interest income was due to higher interest rates on cash and cash equivalents and short-term investments. The $0.8 million increase in interest expense was primarily related to an increase in the variable rate of our Term Loan. The $0.8 million increase in other expense, net was primarily due to foreign exchange losses.

Current wording

The $0.6 million decrease in interest income was due to a decrease in short-term investments. The $0.3 million increase in interest expense was primarily related to an increase in the variable rate of our Term Loan. The $1.0 million increase in other income (expense), net was primarily due to a $1.5 million gain on conversion of our SAFE investment, partially offset by a $0.4 million increase in foreign exchange losses.

Previous wording

The increase in revenue of $27.1 million included $29.3 million from existing customers at April 1, 2023, net of a decrease from new customers of $2.2 million. U.S. revenue increased $12.0 million, or 11%. International revenue increased $15.1 million, or 18%.

Current wording

The increase in revenue of $53.3 million included $55.4 million from existing customers at July 1, 2023, net of a decrease from new customers of $2.1 million. U.S. revenue increased $23.3 million, or 11%. International revenue increased $30.0 million, or 18%.

Previous wording

•a $2.5 million increase in personnel costs, including $2.3 million increase in stock-based compensation expense, partially offset by a $2.0 million increase in capitalized wages;

Current wording

•a $2.0 million increase in allocated overhead;

Previous wording

•a $0.9 million decrease in tax credits;

Current wording

•a $0.8 million decrease in tax credits;

Previous wording

•a $3.3 million increase in personnel costs, including a $2.0 million increase in stock-based compensation expense;

Current wording

•a $5.6 million increase in personnel costs including a $3.3 million increase in stock-based compensation;

Previous wording

•a $0.4 million increase in personnel costs, primarily due to an increase in stock-based compensation; and

Current wording

Interest expense increased $1.1 million due to an increase in the interest rate on our Term Loan. Other expense, net decreased $0.3 million primarily due to a $1.5 million gain on conversion of our SAFE investment, partially offset by a $1.2 million increase in foreign exchange losses.

Previous wording

At March 31, 2024, we had $260.0 million of cash and cash equivalents, which consisted of bank deposits and money market funds, and $250.8 million of short-term investments, which consisted of commercial paper, asset backed securities, U.S. Treasury and agency obligations and corporate and Yankee bonds.

Current wording

At June 30, 2024, we had $233.5 million of cash and cash equivalents, which consisted of bank deposits and money market funds, and $253.5 million of short-term investments, which consisted of commercial paper, asset backed securities, U.S. Treasury and agency obligations and corporate and Yankee bonds.

Previous wording

Since our inception, we have primarily financed our operations through cash provided by operations, including payments received from customers using our software products and services. Prior to our IPO, we did not raise any primary institutional capital, and the proceeds of our Series A and Series B redeemable convertible preferred stock financings were used to repurchase shares of capital stock from former stockholders. We have generated significant operating losses as reflected by our accumulated deficit of $839.4 million at March 31, 2024.

Current wording

Since our inception, we have primarily financed our operations through cash provided by operations, including payments received from customers using our software products and services. Prior to our IPO, we did not raise any primary institutional capital, and the proceeds of our Series A and Series B redeemable convertible preferred stock financings were used to repurchase shares of capital stock from former stockholders. We have generated significant operating losses as reflected by our accumulated deficit of $854.0 million at June 30, 2024.

Previous wording

We typically invoice our customers annually in advance and, to a lesser extent, multi-years in advance. Therefore, a substantial source of our cash is from such prepayments, which are included in deferred revenue on our consolidated balance sheets. Deferred revenue consists primarily of the unearned portion of billed fees for our subscriptions and perpetual licenses, which is subsequently recognized as revenue in accordance with our revenue recognition policy. At March 31, 2024, we had deferred revenue of $722.7 million, of which $562.6 million was recorded as a current liability and is expected to be recognized as revenue in the next 12 months, provided all other revenue recognition criteria are met.

Current wording

We typically invoice our customers annually in advance and, to a lesser extent, multi-years in advance. Therefore, a substantial source of our cash is from such prepayments, which are included in deferred revenue on our consolidated balance sheets. Deferred revenue consists primarily of the unearned portion of billed fees for our subscriptions and perpetual licenses, which is subsequently recognized as revenue in accordance with our revenue recognition policy. At June 30, 2024, we had deferred revenue of $725.8 million, of which $562.6 million was recorded as a current liability and is expected to be recognized as revenue in the next 12 months, provided all other revenue recognition criteria are met.

Previous wording

Our principal uses of cash in recent periods have been funding our operations, expansion of our sales and marketing and research and development activities, investments in infrastructure, and acquiring complementary businesses and technology. In October 2023, we acquired Ermetic for approximately $244 million in cash. We may in the future enter into arrangements to acquire or invest in other complementary businesses, services and technologies, including intellectual property rights.

Current wording

Our principal uses of cash in recent periods have been funding our operations, expansion of our sales and marketing and research and development activities, investments in infrastructure, acquiring complementary businesses and technology, and repurchasing shares of our common stock. In June 2024, we acquired Eureka Security, Inc., or Eureka, for approximately $29 million in cash. We may in the future enter into arrangements to acquire or invest in other complementary businesses, services and technologies, including intellectual property rights.

Previous wording

We expect to continue incurring operating losses in the near term. Even though we generated positive cash flows from operations and free cash flow in the three months ended March 31, 2024, we may not be able to sustain these cash flows. We believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operating and capital needs for at least the next 12 months and for the foreseeable future. Our future capital requirements will depend on many factors, including our revenue growth rate, subscription renewal activity, the timing and extent of spending to support further infrastructure and research and development efforts, the timing and extent of additional capital expenditures to invest in new and existing office spaces, the expansion of sales and marketing and international operating activities, any acquisitions of complementary businesses and technologies, the timing of our introduction of new product capabilities and enhancements of our platform and the continuing market acceptance of our platform. It may be necessary to seek additional equity or debt financing to fund our operating and capital needs. In the event that financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected.

Current wording

We expect to continue incurring operating losses in the near term. Even though we generated positive cash flows from operations and free cash flow in the six months ended June 30, 2024, we may not be able to sustain these cash flows. We believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our operating and capital needs for at least the next 12 months and for the foreseeable future. Our future capital requirements will depend on many factors, including our revenue growth rate, subscription renewal activity, the timing and extent of spending to support further infrastructure and research and development efforts, the timing and extent of additional capital expenditures to invest in new and existing office spaces, the expansion of sales and marketing and international operating activities, any acquisitions of complementary businesses and technologies, the timing of our introduction of new product capabilities and enhancements of our platform and the continuing market acceptance of our platform. It may be necessary to seek additional equity or debt financing to fund our operating and capital needs. In the event that financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected.

Previous wording

In November 2023, our Board of Directors authorized the repurchase of up to $100 million of our common stock. In the three months ended March 31, 2024 we purchased 525,773 shares for $25.0 million. The remaining amount available to purchase stock under the stock repurchase program was $60.1 million at March 31, 2024.

Current wording

In November 2023, our Board of Directors authorized the repurchase of up to $100 million of our common stock. Through June 30, 2024, we have purchased a total of 1.5 million shares for $64.9 million.

Previous wording

From January to March 2024, interest rates on our Term Loan have been between 8.19% and 8.22%. The Term Loan is being amortized at 1% per annum in equal quarterly installments until the final payment of $350.6 million on the July 7, 2028 maturity date. We may be subject to mandatory Term Loan prepayments related to the excess cash provisions in the Credit Agreement if our first lien net leverage ratio (as defined in the Credit Agreement) exceeds 3.5. At March 31, 2024, our first lien net leverage ratio was 1.14.

Current wording

From January to June 2024, interest rates on our Term Loan have been between 8.18% and 8.22%. The Term Loan is being amortized at 1% per annum in equal quarterly installments until the final payment of $350.6 million on the July 7, 2028 maturity date. We may be subject to mandatory Term Loan prepayments related to the excess cash provisions in the Credit Agreement if our first lien net leverage ratio (as defined in the Credit Agreement) exceeds 3.5. At June 30, 2024, our first lien net leverage ratio was 1.08.

Previous wording

The Revolving Credit Facility bears interest at a rate, depending on first lien net leverage, ranging from 2.00% to 2.50% over SOFR and matures on July 7, 2026. We pay a commitment fee during the term ranging from 0.25% to 0.375% per annum of the average daily undrawn portion of the revolving commitments based on the first lien net leverage ratio. The Credit Agreement contains customary representations and warranties and affirmative and negative covenants. Additionally, if at least 35% of the Revolving Credit Facility is drawn on the last day of the quarter, the total net leverage ratio cannot be greater than 5.50 to 1.00. At March 31, 2024, we were in compliance with the covenants and had $0.2 million of standby letters of credit outstanding under the Revolving Credit Facility.

Current wording

The Revolving Credit Facility bears interest at a rate, depending on first lien net leverage, ranging from 2.00% to 2.50% over SOFR and matures on July 7, 2026. We pay a commitment fee during the term ranging from 0.25% to 0.375% per annum of the average daily undrawn portion of our Revolving Credit Facility. At June 30, 2024, we were in compliance with the covenants and had $0.2 million of standby letters of credit outstanding under the Revolving Credit Facility.

Previous wording

Net cash used in investing activities increased by $22.7 million, primarily due to a $24.4 million net increase in purchases of short-term investments, a $1.5 million increase in capitalized software development costs and a $0.3 million increase in purchases of property and equipment, partially offset by $3.5 million in proceeds from one of our SAFE investments in the three months ended March 31, 2024.

Current wording

Net cash used in investing activities increased by $41.9 million, primarily due to a $29.2 million increase in cash paid for acquisitions, a $14.0 million net increase in purchases of short-term investments and a $2.0 million increase in capitalized software development costs, partially offset by $3.5 million in proceeds from our SAFE investments in the six months ended June 30, 2024.

Previous wording

Net cash used in financing activities increased by $24.0 million, primarily due to the repurchase of common stock under our stock repurchase program of $25.0 million, partially offset by a $0.9 million increase in proceeds from the exercise of stock options.

Current wording

Net cash used in financing activities increased by $47.7 million, primarily due to the repurchase of common stock under our stock repurchase program of $50.0 million, partially offset by a $2.6 million increase in proceeds from the exercise of stock options.