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Tenable (NASDAQ:TENB) Q1 Sales Beat Estimates, Provides Optimistic Full Year Guidance


Full Report / June 23, 2022
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Cybersecurity software maker Tenable (NASDAQ:TENB) beat analyst expectations in Q1 FY2022 quarter, with revenue up 29.3% year on year to $159.3 million. Guidance for next quarter's revenue was $163 million at the midpoint, which is 1.43% above the analyst consensus. Tenable made a GAAP loss of $24.5 million, down on its loss of $7.74 million, in the same quarter last year.

Tenable (TENB) Q1 FY2022 Highlights:

  • Revenue: $159.3 million vs analyst estimates of $153.4 million (3.82% beat)
  • EPS (non-GAAP): $0.06 vs analyst estimates of $0.05 (21.3% beat)
  • Revenue guidance for Q2 2022 is $163 million at the midpoint, above analyst estimates of $160.6 million
  • The company lifted revenue guidance for the full year, from $666 million to $676 million at the midpoint, a 1.5% increase
  • Free cash flow of $28 million, up 46.2% from previous quarter
  • Gross Margin (GAAP): 78%, down from 82% same quarter last year

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.

Tenable’s software scans all computers, servers and other devices on their customer’s network and finds vulnerabilities that can be exploited by malware or hackers, like computers that haven’t had patches installed or unsecured wifi. It then helps companies understand how severe the vulnerabilities are, alerts them if new ones appear and guides them through removing them.

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.

Cybersecurity is a competitive space and while Tenable is a leader in vulnerability assessment, it faces competition from companies like Qualys (NASDAQ:QLYS), Rapid7 (NASDAQ:RPD) and CrowdStrike (NASDAQ:CRWD).

Sales Growth

As you can see below, Tenable's revenue growth has been strong over the last year, growing from quarterly revenue of $123.1 million, to $159.3 million.

Tenable Total Revenue

This quarter, Tenable's quarterly revenue was once again up a very solid 29.3% year on year. Quarter on quarter the revenue increased by $10.3 million in Q1, which was in line with Q4 2021. This steady quarter-on-quarter growth shows the company is able to maintain its steady growth trajectory.

Guidance for the next quarter indicates Tenable is expecting revenue to grow 25.1% year on year to $163 million, improving on the 21.5% 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 21.1% over the next twelve months.

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 Q1.

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. Despite it going down over the last year, this is still 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.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Tenable's free cash flow came in at $28 million in Q1, down 25.3% year on year.

Tenable Free Cash Flow

Tenable has generated $80.6 million in free cash flow over the last twelve months, a solid 13.9% of revenues. This strong FCF margin is a result of Tenable asset lite business model and provides it plenty of cash to invest in the business.

Key Takeaways from Tenable's Q1 Results

With a market capitalization of $6.38 billion Tenable is among smaller companies, but its more than $526.1 million in cash and positive free cash flow over the last twelve months give us confidence that Tenable has the resources it needs to pursue a high growth business strategy.

It was good to see Tenable outperform Wall St’s revenue expectations this quarter. And we were also glad to see good revenue growth. On the other hand, there was a deterioration in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company currently trades at $46.9 per share.

Is Now The Time?

When considering Tenable, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Tenable is a solid business. Its revenue growth has been solid. On top of that, its impressive gross margins are indicative of excellent business economics, and its strong free cash flow generation gives it re-investment options.

Tenable's price to sales ratio based on the next twelve months is 8.7x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about Tenable and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $67.6 per share right before these results, implying that they saw upside in buying Tenable even in the short term.

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