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Tenable (NASDAQ:TENB) Reports Q2 In Line With Expectations But Stock Drops 10.5%


Kayode Omotosho /
2022/07/26 4:13 pm EDT
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Cybersecurity software maker Tenable (NASDAQ:TENB) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 26.1% year on year to $164.3 million. However, guidance for the next quarter was less impressive, coming in at $170 million at the midpoint, being 0.71% below analyst estimates. Tenable made a GAAP loss of $27.4 million, down on its loss of $11.6 million, in the same quarter last year.

Is now the time to buy Tenable? Access our full analysis of the earnings results here, it's free.

Tenable (TENB) Q2 FY2022 Highlights:

  • Revenue: $164.3 million vs analyst estimates of $163.2 million (small beat)
  • EPS (non-GAAP): $0.05 vs analyst estimates of $0.01 ($0.04 beat)
  • Revenue guidance for Q3 2022 is $170 million at the midpoint, below analyst estimates of $171.2 million
  • The company reconfirmed revenue guidance for the full year, at $676 million at the midpoint
  • Free cash flow of $25.7 million, roughly flat from previous quarter
  • Gross Margin (GAAP): 78%, down from 79.7% same quarter last year

"We are very pleased with results this quarter despite a difficult macro environment,” said Amit Yoran, Chairman and CEO of Tenable.

Founded in 2002 by three cybersecurity veterans, Tenable (NASDAQ:TENB) provides software as a service that helps companies understand where they are exposed to cyber security risk and how to reduce it.

The demand for cybersecurity is growing as more and more businesses are moving their data and processes into the cloud, which along with a major increase in employees working remotely, has increased their exposure to attacks and malware. Additionally, the growing array of corporate IT systems, applications and internet connected devices has increased the complexity of network security, all of which has substantially increased the demand for software meant to protect data breaches.

Sales Growth

As you can see below, Tenable's revenue growth has been strong over the last year, growing from quarterly revenue of $130.2 million, to $164.3 million.

Tenable Total Revenue

This quarter, Tenable's quarterly revenue was once again up a very solid 26.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $4.97 million in Q2, compared to $10.3 million in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Tenable is expecting revenue to grow 22.5% year on year to $170 million, in line with the 23.4% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 21.5% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Tenable's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 78% in Q2.

Tenable Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a good gross margin that allows companies like Tenable to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Tenable is doing a good job controlling costs and is not under pressure from competition to lower prices.

Key Takeaways from Tenable's Q2 Results

With a market capitalization of $5.32 billion Tenable is among smaller companies, but its more than $510.9 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

Tenable delivered solid revenue growth this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Tenable. The company is down 10.5% on the results and currently trades at $40 per share.

Tenable may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.