Q4 2019 Earnings Call

Greetings and welcome to Tenable Q4, 2019 earnings conference call. At this time all participants are in listen only mode. A question. That's a session will follow the formal presentation. If anyone should require operators. This just on the conference. Please press star zero on your telephone keypad. Please note that this conference is being recorded I would now like turn the conference.

But your host Undrilled your Margo VP of Investor Relations. Thank you may begin.

Thank you operator, thank you all for joining us on today's conference call to discuss tenable fourth quarter full year 2018.

With me on the call today or meet brand Tenable, Chief Executive Officer Stevens, Chief Financial Officer.

Part of this call we issued a press release announcing our financial results you could find the press release on the Investor Relations website Tenable Dot com.

Before we begin let me remind you that we will be making forward looking statements. During the course of this call including statements relating to tenable guidance expectations for the first quarter at full year 2020 growth drivers untenable fitness changes in a threat landscape and security industry and our competitive position in the market.

Growth in our customer demand score and adoption of our solution.

<unk> expectations regarding the long term profitability.

As planned innovation and new products and services.

These forward looking statements involve risks and uncertainties some of which are beyond our control, which could cause actual results could differ materially from those anticipated by the statement.

You should not rely on forward looking statements other prediction of future events.

Forward looking statements represent management's beliefs assumptions only as of today should not be considered representative of our views as of any subsequent date, we disclaim any obligation to update any forward looking statements our outlook.

For further discussion of the material risks and other important factors that could affect our actual results. Please refer to those contained in our most recent quarterly reports on form 10-Q filed with the FCC on November 14, 2019, and subsequent reports that we filed with the FCC, which are available on the FCC web site at $50.

In addition, during today's call we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with gap. There are a number of limitations related to the use of these non-GAAP financial measures versus our closest GAAP equivalents.

Our earnings release that we issued today includes GAAP to non-GAAP reconciliations for these matters and is also available on the Investor Relations section of our websites. We look forward to seeing many of you would say later this month or at the Morgan Stanley Keybanc conferences in March I will now turn the call or to me.

Thank you Andrea.

Thank you all for joining the call today.

I'm pleased to report that we delivered strong financial results in the quarter.

And for the year and achieved a number of significant milestones that demonstrate our enemy <unk> leadership in the market.

For the fourth quarter calculated current billings grew 28% year over year and revenue grew 29%.

We're pleased with our growth and believe our scalable model allows us to attain attractive growth, while also delivering free cash flow.

During the call I'll provide commentary on our market momentum and ability to deliver a best of breed solution.

Also talk about how we broadened and enhanced our portfolio was part of our cyber exposure strategy.

Mandate to help our customers master and understand.

Their cyber security risk.

We operate in a sizable market with real world that them and the importance of what we do continues to increase.

The adoption of a broader set of technologies is elevated cyber security to one or the top challenges facing business.

And the Csos role has elevated from one focused on technology to one focused on business risk.

2019, we believe we elevated our leadership position in this market.

Our investments in research and product development have earned US number one position vulnerability coverage lab testing fell 20% more CB east covered that our next closest competitor.

In addition to broader coverage, we also benchmark ourselves to six sigma accuracy with lower false positive and false negative rates.

Her coverage and accuracy is fundamental to anyone interested in building a professional VM program.

Total also leads the industry in dealing with your days with more than 100 discovered in 2019 significantly more than our competitors have announced.

We added over 1500, new.

A lot from customers in 29th Street.

461 in the fourth quarter alone, which we believe is attributable in part to our leadership in the market and best of breed offerings.

We also added 188 net new six figure deals 52 in the fourth quarter, which we think demonstrate strong evidence of the increased important vulnerability management is our ability to transact larger deals.

Beyond differentiating ourselves in Vietnam, and 29 team, we enhanced our park portfolio across the entirety of.

Customer computed bargains cloud web application scanning container security and operational technologies.

We bolstered our cloud security capabilities with Microsoft Azure Security Center, if you I integration and new integrated offerings.

To secure cloud workloads with Golden Amazon machine image pipeline.

Well, if integrations represent a critical step ensuring that organizations of all sizes can build cyber security best practices directly into their multi or hybrid cloud strategies.

Read here for web application scanner added hundreds of new and improved detection, representing a five fold increase in the capabilities for our customers.

Our container security product is going further up the application level stock by detecting the vulnerabilities of commonly used open source components used by popular framework such as no jazz.

Ruby and several others.

Lastly, we acquired energy to expand or OTI capabilities.

In integrating the pioneer of adaptive industrial security directly into our enterprise platforms, we now deliver a unified risk based platform to the market.

We've also made great progress in the depth of our analytic offerings with the introduction of predictive prioritization and the release of lumen aggressive steps.

Forward and execution of our broader cyber exposure strategy.

With new off that's coming online across web Dev ops cloud to know GE environments prioritization of vulnerabilities has been a huge challenge, which tenable now addresses head on.

Predicted position determines the issue is most likely to be explicit about you know Isaac.

Vulnerability severity expandability exploit code availability threat intelligence with vulnerability contacts.

In simple terms, our customers get a head start to grow addressing the issues that mattered most.

As an example, a large telco carrier in South America up with a thousand building spread across the country, both internal and external clouds and a huge amount of network assets and servers to protect was looking to mature their VM program.

Within a large and complex environment, that's constantly expanding they found that it's not easy to identify what's most important or what's critical to mitigate first this customer purchase Jesse and they indicated that there were really compelled by the power of predictive privatization witness seek help them prototypes, which vulnerabilities to address.

The tables cyber exposure vision extends well beyond prioritization of vulnerabilities.

Moving rigs in the new era, the measurement of Cyberisk as a new management discipline.

In addition to vulnerability data and all the components of predicted privatization lumen also assessed as assets to determine their criticality.

With little bit tenable automates, the translation from vulnerabilities to risk.

We also delivered trending and benchmarks of cyber hygiene against industry peers and best practices.

Finally, lumen provides automated remediation work flow guidance to help our customers efficiently reduce their exposure.

When it became available for sale at the end of Q3, and we're very pleased with what we've seen so far.

Nobody our leadership position has been acknowledging forresters Q4 release of their wave on vulnerability risk management.

And in Q4, we further expanded lumens analytic capabilities with the first ever assessment maturity score, it's compelling to know your level of risk and that your program has granularity of visibility as well complete coverage of your environment.

I'm also pleased to report that we've delivered on our commitment to make lumen available for all platform customers, including Io and a C.

In short our product team has been very busy I, let there be no doubt, we're pleased with innovation and the results.

I'd like to share some examples bloomnet work within our customer base.

One of the largest telcos in Europe, and a long time Dusty customer, we're struggling to identify which vulnerabilities to target first this customer began using predictive privatization earlier in 2019 and wanted to extend more deeply interested.

Once we saw lumen first hand, they decided to elevate their view management efforts to better prioritize measure and articulate the state of their vulnerability program.

Another little bit example.

A new Io customer.

In the financial services industry purchase movement, and web application scanning to consolidate risk between web applications and all probably infrastructure.

This customer was looking to measure and track Cyberisk, while at the same time automate the manual assessment tasks.

It was specifically looking for participation features.

For their risk security program.

With audio lumen web application scanner this customer raised their view on programs maturity I was able to provide executive level information and benchmarking on their side the exposure to the board.

As organizations continue to become more technology dependent understanding cyber exposure has become more strategic in important.

We believe that there's lots of evidence that our strategy could be best of breed and be a is generating strong momentum in the market.

That's strategic opportunities continue to present themselves like the surface of your top continues to widen.

She is growing need organization to prioritize your exposure and understand what that means to enterprise risk.

And we believe the number of players able to compete in this new paradigm as quick was shrinking.

As an example of our leadership beyond Trust selected credible as the preferred vulnerability management platform for beyond Trust enterprise customers as the company exits the via market. We are excited about the opportunity to partner with them in this endeavor.

As we continue to increase our breadth of assets, we provide a unified data for all the devices customers have across their operating environments.

We capture how exposed those assets are and how valuable there are customers are increasingly turning to us for definitive answers, giving us a mandate to become their system of record for cyber risk management.

The compelling analytics, we provide or just the first few transformative steps in our ambitious plans.

Now before I turn the call over to Steve I would like to share that Mark Thurman has joined our team as Chief operating officer.

In this role Mark will report to me and Lee Global field operations, including sales professional services and technical support.

Box appointment adds another layer of debt to an already powerful badge executive talent.

Mark has a highly respected go to market executive with a proven track record of driving revenue growth and operational excellence were notable cloud and cyber security companies. We're excited to have them join our team.

With that I'd like to highlight our enthusiasm with what we've accomplished in 2019 indoor excitement about the opportunity still ahead of US now I'll turn it over to Steve.

Thanks, Amit as Hemi mentioned earlier, we're very pleased with our results for the quarter and are excited about our outlook for 2020.

Which calls for continued growth and significant operating margin leverage as we scale our business to address a major market opportunity in cyber exposure I.

I'll begin by reminding you that except for revenue all financial results. We will discuss today are non-GAAP financial measures unless otherwise stated.

As Andrew mentioned that the started this cog GAAP to non-GAAP reconciliations maybe found in our earnings release issued earlier today and posted on our website.

Before I discuss our fourth quarter results I'd like to also remind you that our results of operations reflect one month of activity for the energy acquisition.

Consequently in that she's revenue and calculate a current billings were immaterial given the formative stages or their go to market activity.

That said, our non-GAAP opex in the quarter reflects approximately 1.5 million and the impact of energy primarily related to R&D expense and to a lesser extent sales and marketing for head count related to S. East West specific on T. experience.

From a GAAP perspective, we did incur costs related to the transfer of acquired intellectual property as well as professional fees and the amortization of acquired intangible assets, which are detailed in the press release, we issued today as well.

Now onto our results for the quarter, which is highlighted by record revenue TCV and new enterprise customers.

Revenue for the quarter was 97 million, which represents 29% growth over the same quarter last year.

Revenue in the quarter exceeded the midpoint of our guided range by 3 million aided by strong execution, both domestically and abroad.

The upside and revenue as a result of solid sales at a healthy intra quarter flow due to some larger deals closing earlier than anticipated in the quarter.

It's also worth noting that the quality of revenue, it's very strong as 93% of revenue was recurring which is a benefit of our subscription model.

Calculate a current billings to find that the change in current deferred revenue plus total revenue recognized in the quarter grew 28% year over year 225 million.

Overall, we're very pleased with the positive trend line of CCB growth throughout the year.

Growth increased from 25% in Q1.

27% in Q2 to 28% in both Q3 and Q4.

One of the drivers and CCB growth is the strength, we're seeing in the enterprise market and our ability to transact larger deals.

We added 461, new enterprise platform customers this quarter, which is a record and a first time, you've got at more than 400 in a single quarter.

We attribute momentum here to the investments we've made in sales to grow our salesforce globally and in R&D to deliver continued innovation and differentiation.

Not only are we seeing an acceleration of customers. We are also having success closing larger deals as evidenced by the 52 net new six figure customers in Q4.

This brings the total number of customers.

Spending in excess of $100000 annually to 461 and a notable increase over the 453 at the end of 2018.

I'll now turn to expenses and profitability.

Gross margins were 82% down from 84% in Q3 and 85% in Q4 2018.

And just tracking in line with expectations.

Our gross margin for the quarter.

Reflects 1.6 million of additional costs related to the launch a woman.

Including predictive analytics and data science, and the amortization of capitalized software costs.

As a reminder, we expect our gross margin to be in the low eightys to the high 70% range long term.

Now, let's turn to operating expenses.

Sales and marketing expense was 57.7 million compared to 53.2 million last quarter and 44.5 million in the fourth quarter last year.

This represents 59% of revenue the corner and 60% for the full year, which is down from 62% in 2018.

It's also worth noting that the fourth quarter. It seems like our largest quarter in terms of cells and this quarter was no different.

That's a result, we incurred higher sales incentive compensation sequentially higher sales.

Overall, we're very pleased with the levers we demonstrated today, which we attribute to a healthy productivity levels and a maturing salesforce and continued progress is expected in 2020.

R&D expense was 20.4 million compared to 18.6 million last quarter.

And 19 million in the fourth quarter last year.

As a percent of revenue R&D was 21% compared to 25% and the same period last year.

The increase over Q3 is primarily related to not capitalizing in terms of ellman costs associated with woman and well see incremental cost from energy.

Gionee expense was 12.6 million compared to 13.3 million last quarter at 11.2 million in the fourth quarter last year I.

As a percent of revenue DNA was 13% this quarter, which is down from 14% last quarter and 15% in the same period last year.

Non-GAAP.

Loss from operations was 11.1 million compared to a loss of 7.7 million last quarter and 10.8 million in Q4 last year.

Non-GAAP operating margin was negative 11%.

Compared to negative, 8% last quarter and negative 14% of the fourth quarter last year.

Again to summarize our non-GAAP op lost in the fourth quarter include 1.5 million of additional opex related to energy and 1.6 might have incremental expense related to lumen as we are no longer capitalized internal development cost related to this product.

Overall, we're very pleased with the significant operating leverage we've achieved to date as our non-GAAP operating margin for the full year.

Greetings from negative a negative 18% last year to negative 12% this year.

Now all of this has translated positively to eat P.S., our pro forma non-GAAP net loss per share for the fourth quarter was 11 cents.

Which is two pennies better than the low end of our guided range as adjusted for the energy acquisition.

Now onto the balance sheet, we finished the fourth quarter 212 million in cash and cash equivalents and short term investments.

Our cash balance reflects the cash consideration paid for the acquisition of energy.

As part of the purchase accounting, we recorded 15.5 million of intangible assets associated with acquired technology, which will be amortized over seven years.

And 54 million of goodwill.

Turning to cash flow there are few discreet items impacting free cash flow this quarter.

Such as.

Non recurring payments related to the energy acquisition.

Primarily from income taxes, and other costs related to the IP transfer that's most capex for our new headquarters and the benefit from.

He asked P.P. activity that we highlighted in our press release in or our prior conference calls.

That said our free cash will burn was 13.5 million for the quarter. However, excluding these items our cash flow would have been positive for the core.

But the results for the quarter behind us I'd like to now discuss our 2020 outlook.

I'll start by echoing I made comments on balance growth.

Over 90% recurring revenue, 80% gross margins, increasing enterprise penetration and strong unit economics, we have confidence our ability to sustain attractive long term growth and are committed to becoming a role of 40 company.

Accordingly, our 2020 guidance reflects progress towards achieving this.

Recall, we previously stated that we intend to turn free cash flow positive by the time, we exit 2020.

Today I'm pleased to add that we expect to generate positive free cash flow for the whole year and expect our free cash flow margins to increase overtime.

In terms of expense flow and 2020, we expect total operating expenses to increase sequentially in Q1 due to the Tommy industry and other events as well as the inclusion of energy for a full quarter.

For the remainder of the year, we expect operating expenses to grow more modestly in the years past what she is contemplated in our annual guidance and reflects improved operating margins.

Essentially the energy acquisition allowed us to accelerate investments that otherwise would have made throughout the year.

With that as a backdrop, let's turn the guidance.

For the first quarter 2020, we currently expect revenue between the range of 100 million to a 101 million.

Non-GAAP loss from operations to be in the range of 18 million 17 million.

Non-GAAP net loss in the range of 19 million to 18 million.

And pro forma.

Non-GAAP net loss per share in the range of 19 cents to 18 cents, assuming weighted average common shares outstanding of 98.7 billion.

For the full year 2020, we currently expect revenue.

435 million to 440 million.

Calculate a current billions of 500 million to 510 million.

Non-GAAP loss from operations in the range of 38 million the 33 million.

Non-GAAP net loss in the range of 41 million to 36 million.

Pro forma non-GAAP net loss per share in the range of 41 cents, a 36 cents assuming weighted average common shares outstanding of 100.1 million.

For the whole year or CCB guidance reflects strengthen our core business with modest contribution from our newly launched lumen product and OTI offering.

We're seeing good early momentum from a more expansive product portfolio, but we expect the contribution from newer products to build overtime.

Non-GAAP net loss for the full year assumes a provision for income taxes of approximately six and a half million.

This amount is highly dependent on the allocation of income by jurisdiction as well as nonresident withholding taxes.

In summary, we are pleased with our Q4 and 2019 full year results I believe we are positioned well for continued success.

Now I'll turn the call back to a need for some closing comments.

Thanks, Steve we continue to be excited about the opportunity in front of us and to be recognized as a leader in this transformational and increasingly strategic market. We believe the combination of our differentiated technology, even stronger now with looming in energy and or data analytic capabilities position terminable to become the.

<unk> risk system of record, we'd now like to open the call up for questions.

Thank you at this time, we conducted a question answer session. If you like that's the question. Please press star one on your telephone keypad, a confirmation to indicate your line is and the question Q. You mean for started to view led to move your question from the Q for participants using speaker equipment and may be necessary to pick up you had said before person start keys one moment. Please.

I will be pull for questions.

Our first question comes a lot of Sterling Auty with JP Morgan. Please see the question.

Yeah. Thanks, guys. So I know, it's early days, but just kind of curious what we should be thinking about in terms. The uplift that you get from a customer adding movement to either Io or S. C.

Yeah I think.

Obviously, it's very early in the in a lifecycle for for lumen, but what we've seen is pretty consistent with the expectations that we've been talking about and a.

In line with the 30% to 50% higher radius piece for those customers, which are embracing lumen. In addition to their core P.M. work.

I see or kind of while.

Alright, Fantastic and then Steve one for fear side, just looking at the.

The gross margin in the quarter at coming into little bit lower than it would have expected was that just the yellow released the lumen and amortization of the capitalized R&D flowing through cost of revenue or was there anything else impacting it.

I was primarily that.

Look overall gross margins came in line with or expectations and.

Trending.

In line with where we said we expect to be long term, which is low 80% high 70% range and so.

The increase in cost of revenue. This quarter is a result of the launch of them and specifically data science and some additional public cloud costs.

But also more specifically if the amortization of capitalized software.

Which is you know the internal development costs, leading up to the launch alone.

Now I would just say here that a lot of these costs are semi fixed so we expect to absorb them over time, but overall gross margins will track in line with long term as as per our direction.

Great. Thank you.

Oh.

Our next question comes on line of Melissa Frenchie with Morgan Stanley. Please seem to question.

[noise] Oh, great. Thank you I mean, I'm wondering if you could just talk about how the integration as energy has proceeded thus far and I know, it's early but what are you seeing in terms of how this technology is changing the opportunity for you all around L. T.

Oh, that's what's the we're really excited about the opportunity with a energy in the broader opportunity for tenable in the O. T market is you know we've been a participant in New York Schumacher within our industrial security product.

And that's giving us great insight into what customers are looking for what their future requirements or a confidence that our existing buyers have great interest and requirements in the.

Oh Gee side of the market.

And also confidence that our sales team and our go to market promotions are very natural ways to acquire customers and Oh pick up opportunities Im not a key markets. So no. We're early in the days of integration, but we.

Now just on day, one that we've integrated.

Or released the integration of energy with our FC product and a lot of these customers have off premise solution. So we think it's a very natural pairing.

We're committed to you know the near term integration of.

Our roce solution with us and for our kinda bio customers and the integration really flows through so it's not just say we now give you the perspective, if I can you know ti, but it flows through all the analytic products me analytic capabilities. So as you would just be O.G. data along side I T V on day to things like furniture participation another rental.

Let it components work naturally.

So, it's really compelling and Russia down here at our sales kick off and there's lot of enthusiasm a lot of excitement in the sales team for the new capabilities of our Roce offerings.

Great that's great to hear one for Steve I'd just to follow up on your guide for a 21% to 22% current billings growth next year can you just detailed maybe what are some of your underlying assumptions around that growth, particularly around whether that's I'm coming crown expansion.

Then to your existing customer base through asset growth or even new use cases, like lumen versus being sent which is coming from new customer ads.

Sure. Thanks, Melissa well, let me I mentioned earlier, we're very excited about new products, we watch or at the end of last year. There's certainly a major opportunity here and also excited about the newly acquired on T. enterprise capability.

Early indications are positive, but it certainly in the year and so our TV guide largely reflect momentum in our core business.

And a modest contribution from lumen and energy.

And given enterprise sale cycles, new products take time to season.

But we certainly expect this to be about driver for us going forward.

As a reminder, protein in particular deal sizes tend to be somewhat larger until cycles.

Tend to be slightly longer longer so the two sector as a fairly early very early innings.

And we anticipated to grow over time.

In terms of expansion you know, we do expect healthy expansion rates and and expansion of the back so continued asset growth.

And to some extent some contribution from newer products overtime, we would expect more contribution from newer products. In addition to healthy expansion.

That's a in and our key customer accounts.

Great. Thank you.

Our next question comes a lot of girls help us with Stifel. Please state your question.

Sure. Thank you so I need you talked about being the best in terms of B.M. coverage I guess a broader question here do you think we're now in a best of breed market for B M. Within the enterprise you think that customers are what their existing or your own customers or other customers you didn't they recognize the differentiation of you had in terms of your functionality.

It appears that.

You know gorge quick question and one that we feel obviously very certain of if you rewind the clock back going yard.

Three years ago.

And you talk to you know garden or other industry analysts. They would've said Oh you know if he products are basically created equal your last year, we had gartner analyst telling us that we've we've really distance ourselves from the competition then that we've got a better opportunity to take market share and convert customer.

There's over the next two years than we had over the trailing three to five year. So I think they're starting to see that differentiation and not enough plays itself out in the market in the a in my comments earlier.

Talk a little bit about beyondtrust getting out of the enterprise via market and beyond cross coming in selecting tenable has the right lending platform for their costs enterprise customers with VM requirements and so you know that doesn't those types of selections are at random and the differentiation and growth rate, especially around.

Yeah, Mark or not random it a deliberate I think as a direct result of.

Superior product and superior level of investment a and you know what we talk about the 20% greater coverage in CV Eastern next closest competitor that's a 20% it's not 2% when you go into <unk>.

The network and when you're testing and environment and you're seeing a quantitative difference as well as you know higher.

Accuracy rate [noise], what's your false positive false negative.

That really stands out to people in enterprises, who are responsible for VM programs and for them coverage and accuracy independently of the product to do their job matter. So.

Yeah, we're firm believers that secured the security market has spoken time and again looking for best of breed.

Approaches, we think we bring not to the table with an open a p. itll be integrations with you know other major infrastructure components. So were.

We're a were firm believers and we think the data supporting our hypothesis.

But that's really helpful and actually a pretty good lead into my next question, which is about the entresto. So no insecurity, we've seen similar arrangements in the past than others I get it wouldn't spaces, whatever email security or either the how do you think about the opportunity here would be on trust exiting the space.

Maybe just some context or some back on how did this relates to ultimately of all thank you.

Yes, they the relationship of all.

Normally just from you know engagement with the beyond trust team and to be honest customer base out in the field and.

Having relationships with folks acting and.

The on trust over over the course of many years, so nothing really getting together with them in understanding their corporate strategies or corporate direction, you know, where they're making investments where they're seeing growth.

And ultimately the belief that will have a better customer outcome.

And better customer experience through integrating with tenable and for a best of breed provider for.

They're VM requirement so.

You know we're we're early in the relationship but the go to market activities between sales organizations are trying to come across an organized fashion for assumed an orderly transition are you on trusted customer specialty and enterprise segment, you up the timeline.

Thanks.

Our next question comes on line of Dantuono with William Blair. Please state your question.

Hi, Good afternoon, I, just wanted to maybe start with a little bit of additional color around enterprise sales cycles. I think you guys talked about some of the at the deals closing on what a bit earlier, but your kid Cuba's a sense of maybe where we stand I have all these issues been corrected at this point and then maybe I'll eat into that you know why the decision.

The higher Mark <unk>, what the see sort of beef up in this entire process. Thank you.

Hi, Jonathan this is Steve.

Take the first part of your question.

My first and foremost, we see a lot of momentum and traction the enterprise market.

I'll tell you on this call a record number of new enterprise customers over 400 for first time, we've done so.

In the second quarter and then we also announced over 50 net new six figure customers I think it's fair to say, we couldn't be happier with the size of the land type of expands that we're seeing and there's certainly underscores the growing importance of him, but it also coincides with the investment that we're making and sales to to win share.

Oh, you know we did talk about a couple of quarters ago that we are seeing more larger deals and sales cycles within certain categories are not necessarily extending we're just doing more deal with larger price points that come with longer sales cycles, they come with frankly more levels the complexity and.

Yeah.

I think we've navigated that very well and you can see here in the quarter you know the the upside revenue, which we attributed to strong intra quarter flow. So no and total in you know the takeaway here is I think we're very pleased with our progress to date and a yellow box going to add another level review and.

Because for us in an area, where we needed the guidance today is a half a billion in say 500 million over 500 million tell us we think we're offering good growth.

We see a major market opportunity ahead, and we look forward to updating you on our progress throughout the year.

Hi.

Our next question comes a lot of Dan Ives with Wedbush Securities. Please proceed with your question.

Yeah. Thanks.

So sums my question just on the large deal from I mean, you, obviously, you're seeing larger deals more strategic.

Especially with the women as well I mean, <unk> talk about going into next year in terms like pipe, Brian just composition of deals means our trend that you just continue.

Sure to accelerate in terms, just the composition or deals when you just think about the products up.

I think so I think well we.

Oh, I've said and continue to see use they you know worst.

There's a.

Very steady volume of predictable business in the traditional deals that weve been doing and I think we're seeing that trend continue we're also seeing where.

Our increased capabilities, Oh, Gee in conversations with and about lumen and how customers move from vulnerabilities to privatization and how they move from privatization to a real understanding of risk with lumen and and kind of benchmarking peers and what and how are you tracking your hygiene and how you.

Talking about it and presenting that risk to you know the board to the audit and risk committee to the CEO to the executive style.

Well, we're seeing those play themselves out anymore.

And your conversations and and you know, we announced lumen, but we continue to enhance the product or you know and just last 90 days we've added.

Assessment maturity.

To it so you're not only see how how your hygiene rates you don't get your programs. Okay. How matures the program how much coverage do I hopped what were the gaps and so those conversations are really enterprise conversation. So we're seeing consistency in the volume of you know or the deals that we've always done but now increasing.

Yeah.

Volume of enterprise conversations and enterprise fashions and obviously.

Yeah, we're we're excited with the trend.

Great.

And she should I, just think my nose asking for but just when you think about.

<unk> guidance for 2020 in terms of year in terms of.

That gruman is obviously factored in there, but it's not like from a composition restart it's still early days, it's gonna take time, so if that sort of accelerate some penetration it sounds from that you've really factored into numbers I'm trying to understand there because I got a few questions on it.

Sure Daniel I think that's fair, we said that our guidance reflects threat that our core business and we're pleased with the print in Q4 and our full year results I think it's fair to say that we have more confidence about 2020 now than we did 90 days ago, but our guidance also reflects contribution from newer products like we're making I small investments next.

Sure and that should not be lost we spent over $80 million an R&D last year and you know with with continued investments we have more products coming to market now than we ever had and our company's history with lumen with OTI will certainly a refresh of last in container security. So I think it just gives us a lot of confidence heading into 2020 now that's at it.

It is early in the year and you know where we're pleased with the guidance up we're providing today and or you know we look forward to keeping you updated on on on our progress.

Great. Thanks.

Our next question comes on one of the gecko with Cowen Please see with a question.

Great. Thanks, just wanted to ask a quick follow up on me Beyondtrust partnership just wondering if there's any contribution from that partnership factored into your your outlook for 2020.

There's not a lot.

And.

Look I think it's fair to say in a B T focus is really in another market you know Pam privileged access management, so they've had a competing PM offering for some time.

But I think they recognize that that you know we are the best partner for them and the basketball landing pad for for their customers and they thought they have hundreds of VM customers, they're largely a perpetual license company.

So there was a residual maintenance stream there so our expectations that we'll have some success or working with haven't caught your own combined go to market activities and we'll be able to successfully.

Migrate some customers over but you know to what degree yeah, We'll we'll say, but it's an opportunity, but just wanted to put it in contacts because.

Its you know, it's a more modest opportunity.

Okay makes sense and then then on free cash flow you guys mentioned, you now expect to generate positive free cash flow and 2021st prior expectations of maybe getting there and for Q any any point to leverage in the model that you would highlight or or or anything that's changed.

Yeah, well first I would say so not we're very committed to becoming a little 40 company, but we think that is something that naturally occurs in our model. We have 90% recurring revenue, 80% plus gross margins, we have great unit economics, and the ability to expand once we land with customers.

So you're seeing some natural leverage there and so one of things that we sat is that we expect to fee free cash flow positive for the full year not just in Q4.

Point that I want to make is just the operating margin leverage to if you look at our guidance for the full year. We're guiding you know a non-GAAP loss from operations up 38, the 33 million. If you look at the non-GAAP loss from operations. The same guy just for the quarter. It's 18. The 17, so that would seem to suggest over the next three quarters.

Oh that you'll still see some.

Fairly significant margin leverage however, we are investing I talked about the investment in R&D and I also want to make the point that we are investing in sales and marketing and we're investing aggressively or adding sales capacity.

And we're seeing great returns on the investments that we are making on sale, so you'll certainly see leverage and sales and marketing.

This year.

Just given the fact that you know we see we have a more mature salesforce more product to sell their expectation that we'll have more productive sales reps as a result.

Okay, great. Thank you.

And ladies and gentlemen, if you like to ask question. Please press star one on your telephone keypad once again, ladies and gentlemen, if you look that's question. Please press star one on your telephone keypad. Our next question comes on line of Josh itself with Bamberg. Please proceed with your question.

Yeah, Hi, Thanks for taking my questions or I, just wanted to touch on that'd be entresto, one more time. So I believe they go end of life a at the end of 2020. So when would you expect to see meaningful amounts of customers looking to move over to tenable and do you think there'll be an education phase getting them to pay subscription.

But you know just to put matters in contacts you know this is we're not talking about a $10 million plus opportunity would be on trust at something much less and so.

Were there are three the EMM vendors in the market all having success you know converting beyondtrust customers over and so what we're talking about as I've combined go to market activity here that we think will result in some success moving beyond trusts customers over to we think the leading.

The.

T platform, but its just a fair time that no I can tell I guess I would sector that saying that looked tenable has got a proven track record of converting our historic or security center and I see customers moving them through a subscription based.

Licensing model and has had great success.

Let me see about 15% of sales as perpetual license, but otherwise.

Faster, but majority of customers have already gone on that migration with us and I'd also say they are the excitement and enthusiasm for beyondtrust relationship is well, except one there's real opportunity in the existing customer basin and step two is what because they have a certain level of spend at a certain amount of account penetration with yeah.

It doesn't mean that with our enhanced products and enhance capabilities that we couldn't expect to see good.

Growth in those accounts for more asset coverage and cross sell of analytic products and other asset type. So you know we feel like looks like it's great relationship we're excited about it.

That's very helpful. Thanks, and then just a quick follow up I believe you mentioned a lumen automated remediation guidance or is this the first time that tenable offering remediation capabilities I know, there's some of your competitors already offer. It. So I was just curious as to what this in response to some customer demand you're trying to get ahead of customer demand.

If you could comment on that that'd be great sure sure and actually yeah. Thanks for the clock for asking is and the classification, we're not getting into the mediation business. We're not in the patching business, we don't want to.

So imply that we are.

Well, we've chosen to have a a tight integration platform with configuration management tools and enterprise infrastructure products that are enterprise customers have deployed as you know selected as best of breed solution and and have deployed and are already leveraging in their workflows. So what we're doing is a part of the.

Ltchs within lumen is looking at the vulnerabilities that exist and obviously all the context around that in terms of exploit ability and severity and all that sort of stuff, but also looking at the criticality Viasat and then looking at things like pack supersede hints to say hey, if I apply this patch.

It's going to fix seven vulnerabilities on this system and it when I look at the various combinations of patches or configuration changes various asset values and.

The number of instances across the environment. What we can do is provide very specific remediation guidance that says if you do these three things she will reduce your cyber exposure by score of why and then through our <unk> integrating with.

Those configuration management tools, so that we can really ought to me thought work flow, but we're not getting into the configuration patch management business, we haven't seen that request from our customers and and you know we like the sort of go to market ecosystem or partnerships that we do out.

That was very helpful. Thank you.

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