Tenable's (NASDAQ:TENB) Q4 Sales Top Estimates But Full Year Guidance Underwhelms

Full Report / February 07, 2023
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Cybersecurity software maker Tenable (NASDAQ:TENB) reported results ahead of analyst expectations in the Q4 FY2022 quarter, with revenue up 23.8% year on year to $184.6 million. However, guidance for the next quarter was less impressive, coming in at $187 million at the midpoint, being 2.04% below analyst estimates. Tenable made a GAAP loss of $21.4 million, down on its loss of $11 million, in the same quarter last year.

Tenable (TENB) Q4 FY2022 Highlights:

  • Revenue: $184.6 million vs analyst estimates of $181.3 million (1.79% beat)
  • EPS (non-GAAP): $0.12 vs analyst estimates of $0.07 ($0.05 beat)
  • Revenue guidance for Q1 2023 is $187 million at the midpoint, below analyst estimates of $190.8 million
  • Management's revenue guidance for upcoming financial year 2023 is $805 million at the midpoint, missing analyst estimates by 1.32% and predicting 17.8% growth (vs 26.3% in FY2022)
  • Free cash flow of $26.6 million, down 15.3% from previous quarter
  • Gross Margin (GAAP): 75.4%, down from 79.3% 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 two years, growing from quarterly revenue of $118 million in Q4 FY2020, to $184.6 million.

Tenable Total Revenue

This quarter, Tenable's quarterly revenue was once again up a very solid 23.8% year on year. Quarter on quarter the revenue increased by $9.78 million in Q4, which was in line with Q3 2022. 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 17.3% year on year to $187 million, slowing down from the 29.3% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $805 million at the midpoint, growing 17.8% compared to 26.2% increase in FY2022.


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 75.4% in Q4.

Tenable Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 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 have followed 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 $26.6 million in Q4, up 39.1% year on year.

Tenable Free Cash Flow

Tenable has generated $112 million in free cash flow over the last twelve months, a solid 16.3% 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 Q4 Results

With a market capitalization of $4.8 billion Tenable is among smaller companies, but its more than $567.4 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.

Tenable topped analysts’ revenue expectations this quarter, even if just narrowly. And we were also glad to see good revenue growth. On the other hand, it was unfortunate to see that Tenable's revenue guidance for the full year missed analysts' expectations and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is up 4.9% on the results and currently trades at $45.55 per share.

Is Now The Time?

Tenable may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although we have other favorites, we understand the arguments that Tenable is not a bad business. We would expect growth rates to moderate from here, but its revenue growth has been solid, over the last two years. And on top of that, its strong gross margins suggest it can operate profitably and sustainably.

The market is certainly expecting long term growth from Tenable given its price to sales ratio based on the next twelve months is 6.0x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Tenable doesn't trade at a completely unreasonable price point.

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