Last evening, Tenable (TENB 32.84, +9.84, +42.78%) priced its upsized
10.9-mln share offering at $23.00, which was above the expected $20.00-$22.00
range. It is worth noting that the expected range was increased from
$17.00-$19.00 earlier this week. The stock began trading on the NASDAQ
today at $33.
Tenable is a developer and marketer of cyber-security software, a space not short on competitors. It's also an area that has seen plenty of recent activity in terms of IPOs. ZScaler (ZS), Carbon Black (CBLK), SailPoint (SAIL), and Rapid7 (RDP) are just a few cyber-security companies to launch IPOs. The good news for TENB is that each of those aforementioned IPOs have performed exceptionally well, highlighted by ZS' 150% surge and SAIL's 85% jump. The massive gains in these stocks certainly bode well for TENB as IPO investors will likely be chomping at the bit to get in on the next opportunity in the space.
From a business fundamental perspective, its software figures to remain in high demand as cyber crimes and hacking only become more prevalent and complex. There are competitors in the space that offer similar capabilities as TENB, but, its strong revenue and billings growth show that it is more than holding its own.
On top of that, the deal is led by a team of tier one firms and the float is light at just 9.2 mln shares -- all of which are being offered by the company.
The primary knock on the IPO is that the valuation figures to be fairly rich. At the mid-point of the proposed range, it would have a market cap of about $1.6 bln, giving it a trailing P/S of roughly 8.6x. Of course, should it price above expectations and open for trading with a sharp pop, the valuation metrics could escalate dramatically. Considering its strong growth and the performance of other recent cyber-security IPOs, investors might be willing to pay a hefty premium for TENB.
Tenable focuses on a category called "Cyber Exposure", which involves managing and measuring risk. As of December 31, 2017, the company served over 24,000 customers, up 14% from 2016. TENB is well-diversified in terms of its customer base, having clients in 160 countries, including 53% of the Fortune 500 and 29% of the Global 2,000.
Looking back, in 1998, one of its co-founders created "Nessus", one of the most widely used vulnerability assessment platforms in the cyber-security industry. Since the launch of that product, a very large base of users has built up. In fact, the free version of Nessus has had about 2 mln downloads since its inception. This has created a pool of potential customers, who are already familiar with its platform, for TENB to funnel to its current products.
Today, its core product is Tenable.io, software that assesses risk exposure across various IT assets like networking infrastructure, desktops, mobile phones, servers, containers, and Internet of Things.
In addition to identifying risk and vulnerabilities, Tenable.io helps organizations to eliminate blind spots across their IT systems and it translates vulnerability data into business metrics and insights that executives can use to make decisions. Furthermore, Tenable.io is able to provide visibility into internal and regulatory compliance violations.
In its IPO prospectus, TENB provided some preliminary results for the three months ended June 30, 2018. The company is forecasting revenue of $62.3-$63.3 mln, equating to solid year/year growth of 42% at the mid-point. From a demand standpoint, billings is probably a more important metric than revenue since it provides a view of the company's business pipeline going forward. For the period, billings also showed strong growth as TENB projects $76-$77 mln, up 37% year/year.
Underlying the strong topline growth is a set of encouraging business metrics, including:
- Number of new enterprise platform customers, up 30% year/year to 282.
- Number of customers with $100K or greater in annual contract value, up 88% to 340.
- Dollar-based net expansion rate, which came in at an impressive 121% for the 12 months ended June 30, 2018.
These figures show that not only is TENB gaining new customers at
a fast clip, but, it is also successfully generating more revenue per existing
However, TENB is still not profitable, and it is in fact expecting its Non-GAAP operating loss to widen to ($15.2)-($14.2) mln as compared to ($7.2) mln in the year ago quarter. Like most cloud software companies, TENB has been hitting the accelerator in terms of Sales & Marketing expense in order to drive adoption. Overall, its losses aren't out of control -- about ($40) mln last year -- and the company is close to break-even on a cash flow from operations standpoint at ($6.3) mln.
The company's balance sheet is in good shape with pro forma cash and equivalents of $176.7 mln and only $3 mln in long term debt.