Q2 2020 Tenable Holdings Inc Earnings Call
[music].
Greetings and welcome to kind of both second quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
Question answer session will follow the formal presentation.
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As a reminder.
<unk> is being recorded.
It's now my pleasure considers your host agreed Demarco, Vice President Investor Relations and strategy.
Thank you you may begin. Thank you operator, thank you all for joining us on today's conference call to discuss Tenable second quarter 2020, <unk> financial results.
With me on the call today, our meet your untenable, Chief Executive Officer Stevens, Chief Financial Officer.
Part of this call we issued a press release announcing our second quarter financial results you can find the press release on the IR website tenable dotcom.
Before we begin let me remind you we will make forward looking statements. During the course of this call, including statements relating to kind of guidance expectations for the second quarter and full year 2020, gross and drivers untenable business changes in the threat landscape in the security industry and our competitive position in the market.
Growth in our customer demand for it and adoption of our solutions.
It was expectations regarding long term profitability impact of cobot 19, our business.
And on the global economy, unplanned 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 state.
You should not rely upon forward looking statements other prediction of future events.
Forward looking statements represent management's beliefs and assumptions only as of today and should not be considered representative of our views as of any subsequent date.
We disclaim any obligation to update any forward looking statements 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 report on form 10-Q, and subsequent reports that we filed with the FCC, which are available on the FCC web site at FCC dotcom.
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 uses 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 measures and is also available on the Investor Relations website.
I'll now turn the call over 200.
Thank you Andrea.
Thank you all for joining us today.
As you mentioned on our last call credible is an incredibly resilient organization I was very pleased to see how arching came together in the second quarter to support our customers. It is virtual environments and deliver on our mission.
He will discuss our financial performance in greater detail. There are few broader comments I would like to make.
Regarding our results for the quarter revenue grew 26% year over year in Q2 overall it was a strong quarter of top line growth in its uncertain macro environment.
I'm also excited to note that we delivered our first quarter of positive non-GAAP operating income as a public company. It continues to improve our free cash flow profile.
Oh underpinning these strong financial results are few key trends that I would like to highlights.
First enterprises continue to prioritize vulnerability management as a critical building blocks to understanding their cyber security risk.
Second Towables best of breed strategy continues to drive our success, leading the market or just the way to compete for cross sell opportunities and finally called appointed accelerating extension of the attack surface, where enterprises are looking to better assess and understand their cyber risk.
Let me walk you through each of these points.
First of digital initiatives accelerate customers continue to prioritize vulnerability management.
Vulnerability management certain foundational building block for enterprises.
Try to understand their cyber risk.
This quarter, we saw high customer engagement levels increased scanning and assessment frequency and even third party CIO, a chief security officer surveys highlighting via the top three security budget priorities.
At this tax refers Washington's with distributed Workforces, new assets coming online and accelerated shift to cloud list. There's vulnerability management is becoming increasingly critical.
Second.
Our dedication to best of breed young continues to drive significant differentiation and our results.
In Q4 of 19 were named a leader in vulnerability risk management. According to Forrester wave and now we are number one with respect to market driven vulnerability management. According to Ibcs market your analysis of 2019.
To put it simply coverage of significantly more vulnerabilities.
And doing so with greater accuracy really matters.
Lab testing has shown that we cover 20% more common vulnerabilities and exposures that are next closest competitor that's an old difference to any security professional using or testing our product.
We also deliver a lower false positive rate, what six sigma accuracy, according to our own testing.
He's doing more extensive work with vulnerabilities. Our research team also leads the industry and Jody discoveries with more than 149 zero days in 2019 and already more than 75 in 2020 states.
Significantly board that our main competitors have announced.
Credible is another one platform to the market for vulnerability and security consideration coverage. According to third party testing.
This investment and knowledge translate into helping our customers find and fixed security problems faster and more accurate.
Notably in the quarter, we're pleased to achieve several competitive takeaways that we attribute to our best of breed strategy.
An example, who wants to highlight was the merger between two large financial technology companies.
We're looking to consolidate to a single VM solution and Thunder. This is a fixed the multiyear deal the displacing the trench legacy vendor.
Well the larger surviving entity for years total emerged as a vendor of choice as the new enterprise standard.
Our mission to help our customers managing measure their cyber risk is especially relevant in these challenging times, where risk is elevated for the acceleration of digital transformation.
Aboard distribute your workforce.
Your time and again the customers are having problems getting accurate data struggling with false positive. It's been an inordinate amounts of time tracking down real data.
On a pause just come to carnival.
One understanding their cyber risk really matters.
The combination of our best of breed strategy, along with increasing surface of attack that's still more cross sell opportunities in our business, we saw more momentum in cross sells.
You too.
Notably customers are increasingly seeking to secure cloud applications using sample Io web application scanner and container security to support digital transformation initiatives.
We're also seeing continued momentum in Archie business.
What are the largest automotive manufacturers in the world was looking to minimize downtime.
We showed this customer futuristic full visibility and control with the converged I T.O.G. plot.
This customer told us they chose to low T because of our consideration control change management inactive query capabilities.
Very exciting Oh, Gee went for us with an opportunity to spend some more solvents globally overtime.
Would you expanding attached surfaces rapidly growing vulnerabilities accuracy batters even more.
Building on this foundation in via at a price is also need advanced analytics for participation and better decision making.
Federal offers on parallel participation and benchmarking analytics based on our proprietary research and data science.
When the leading health care diagnostics company needed to assess their tired box included cloud assets they purchased tableau.
Let's see it also added web application scanning container security.
In addition to improve the desk analytics with executive team. They also added lumen.
And then ultimately they also had a total okay.
This is an example of and excited cross sell opportunity that we see across our entire product portfolio.
In recent wins, we're seeing a market increase in customers purchasing tableau web application security a container security solutions, which we attribute to more of our customer workloads moving to the cloud.
Securing assets in the cloud has become a core part of our technology platform for the past few years cloud deployments are natural extension of the attack surface and not a separate bolt on tool.
Everything we do builds upon our core foundation and leadership in via.
Oh, no customers itself the secured the cloud environments. It amazes integrated fashion is no different.
We integrate with all the major public cloud vendors with native cloud conductors as many of our customers maintain hybrid environments across multiple cloud vendors.
Our customers use these cloud connectors to assess the vulnerability of though assets deployed in the crops.
The combination of our native cloud connectors comprehensive Webapp scanner <unk> Dunlops integrated container security provides extensive visibility into the security of our customers cloud deployments.
Exposed to hear a lot more about these capabilities in the coming months in quarters.
To secure called operating environments customers also need novel ways to identify missed configuration and our compliance.
We're excited about our ability to advance our cloud security platform to help our customers achieved a seamless level of visibility and integration while meeting their cloud specific expectations in terms of scale and type of assessments.
In addition to our product offering our cloud, Italy continues to grow collecting data from the rapidly increasing number of assets we assessed.
Identify seen leverages the state it to produce insights are being used to benefit our customers.
Some examples of this include participation refinements of our scoring a new types of insight insights that will be leveraging going forward.
Our platform Unifies August it across the attack surface across pure and hybrid cloud environments. It's one place help our customers assess cyberisk.
Going forward, we believed our best of breed the on strategy clots security enhancements once you get abilities and advanced analytics will continue to fuel attractive growth and profitability.
The dynamics that have been propelling our business remains strong and we believe we'll continue to strike that overtime.
Our recurring revenue and the natural leverage in our business provides a significant financial and operational strike.
We see a path to manage through the near term challenges of the macro environment and maintain focus on a long term opportunity, which we believe remains compelling.
This gives me exceptional confidence, we're well positioned for the future.
Now I'll turn the call over to Steve.
Thanks to me.
Let me comment earlier, we're very pleased with our results for the second quarter I remain excited about the opportunity to extend our leadership in this market by helping customers measure and manage their cyber exposure.
Let's talk about it was also the second quarter then turned the guidance.
First please note that with the exception to revenue.
<unk> financial results that we'll discuss today, our non-GAAP financial measures.
As Andrea mentioned at the start of this call GAAP to non-GAAP reconciliations maybe found in our earnings release issued earlier today and posted on our website.
Now onto our Q2 results.
Revenue for the quarter was 107 million, which represents 26% year over year growth.
Revenue in the quarter exceeded the midpoint of our guided range by approximately $5 million.
Revenue was aided by better than expected demand in both new and renewal business.
Overall healthy flow throughout the quarter.
Our percentage of recurring revenue continues to remain high 93%.
This is a testament to our annual pre paid subscription model.
In terms of demand.
And despite the backdrop of the challenging macro environment, we saw strength in winning new logos that included some sizable competitive takeaways.
Well, we added 341, new enterprise platform customers and 50 net new six figure customers. This quarter just over two X higher than the number of net new six figure customers, we added last quarter.
And that's one of our best ever.
This brings the total number of customer spending in excess of $100000 annually to 715.
It's also worth noting that we're seeing increased demand for securing cloud applications, which has resulted in accelerated adoption of 10 oil and cloud security modules, such as web application security that container security.
This trend is contributing to an overall higher percentage mix of new enterprise platform customers choosing our cloud platform.
To summarize we continue the at a healthy number up new customers and six figure customers in an uncertain macro environment on the backs up higher cloud adoption, which speaks to the growing importance of VM and our best of breed strategy.
That's the way the current don't defined as the change in current deferred revenue plus total revenue recognized in the quarter.
13% year over year to 111 million.
As I said one of the last call during a pen down.
GCB may not be a good leading indicator of future revenue growth as it is influenced by a number of factors such as deal timing early renewals and multiyear prepaid deals.
It's important to note, we're pleased with our overall level of cells in the quarter, although not all of this translated to calculate a current billings for reasons I just mentioned.
Oh, good indication of that it was our short term remaining performance obligations, which we disclosed in our quarterly filings and grew a little over 20% year over year.
I'll provide more commentary on CCB, when I discuss our outlook for the year.
As previously noted for knows were strong in the quarter and came in better than expected.
With larger initial lance and a more moderate pace of asset expansion in the current environment. We saw our dollar base net expansion rate tempers bed, although it continues to be healthy at over 110%.
I'll now turn to expenses or profitability, where we continue to demonstrate leverage in our financial model highlighted by a major milestone this quarter, which is our first quarter positive non-GAAP operating income.
I'll provide more color on profitability later, let's first turn to gross margin, which was 83% down from 85% in Q2 last year, but consistent with it and 3% last quarter.
Our gross margin continues to be very healthy and reflects increased demand for a cloud based kind of bio platform, partially offset by efficiencies and scaling our public cloud infrastructure.
Recently, we have also benefited from improved resource utilization as a result increase virtualization of training implementation and other professional services.
Let's turn to operating expenses.
Sales and marketing was 50.1 million compared to 51.892nd quarter last year, and 55.4 billion last quarter.
Sales and marketing as a percentage of revenue was 47%, which was down from 61% in Q2 last year and 54% last quarter.
Sales and marketing decrease sequentially, primarily due to our worldwide sales kick off.
Other industry events, such as ours say that took place in the first quarter of this year.
In addition, there were cobot related savings most notably in the areas a field marketing and travel, which we estimate to be approximately two to 3 million square.
Some of these savings are expected to indoor as they reflect the new reality of business today and the acceleration in digital transformation.
That said, we attribute a lot of the leverage were experiencing today to improve productivity.
Specifically the maturity of the sales organization has increased not only in terms of the percentage of reps that are fully ramped but also in terms of management the hard at new sales leadership last year and is now under rearview mirror.
We also continue to optimize spend.
Sales overhead in markets, where we have critical mass, which is something we discussed on prior calls.
R&D was 21.4 million compared to 19.3 million in the second quarter last year 23.9 billion last quarter.
As a percent of revenue R&D was 20% compared to 23%, both Q2 2019 and last quarter.
R&D expense decrease sequentially, primarily due to our companywide developers conference held in the first quarter this year.
DNA was 12.3 million compared to 12 money in the second quarter last year.
13.8 million Q1 2020.
As a percent of revenue DNA was 11% this quarter down from 30% last quarter and 14% in Q2 of 2019.
Non-GAAP op income from operations was 5.7 million.
Compared to a loss of 10.7 million in Q2 last year and a loss of 7.7 billion last quarter.
Non-GAAP op margin was positive five per cent compared to negative 13% for the second quarter last year, the negative 8% last quarter.
We're very excited to achieve this major milestone, which is our first quarter of non-GAAP operating income as a public company and very pleased with a significant progress we've made a moderating our annual non-GAAP loss from operations over the years from 49 million in 2018 to 43 million in 2019 and now expect.
To be profitable on a non-GAAP basis for the full year 2020 as reflected in our guidance today.
All this translated into significant EPS upside as our non-GAAP earnings.
Earnings per share was four cents.
Which was eight to 10 cents better than expected.
To summarize 46 cents the beat was attributed to better than expected revenue.
Approximately four cents resulted from improved operational efficiencies and expense management.
Now, let's turn to the balance sheet, we finished the quarter with 242 million in cash and cash equivalents in short term investments.
We also announced today that we entered into a new $45 billion credit facility with potential to upsize it onex.
This was done in connection with the maturity of our 25 million dollar credit facility will provide additional liquidity going forward.
Turning to cash flow.
<unk> 6.6 million a positive free cash flow in the quarter. This compares favorably for free cash flow burn of 5.2 billion in Q2 last year.
Net capex for a new headquarters was 3 million in the second quarter, we estimate approximately 2 million for the remainder of the year.
The results for the quarter behind us I like to discuss our outlook for the second half of the year.
Developed our guidance under the assumption there will be a slow and uneven reopening of the economy. The second half of the year.
Given the uncertainty and fluidity. The current environment, we will continue to manage the business and that doesn't put away, but also plan to make additional growth related investments in areas such as go to market and product innovation being onto two levels, which is reflected in our guidance.
With that it's the backdrop the third quarter, we currently expect.
Revenue to be in the range of 108 million to 110 million.
Non-GAAP operating income.
The range of three to 4 million.
Non-GAAP net income.
In the range of two to 3 million.
Non-GAAP diluted earnings per share due in the range of two to three cents a share assuming 111 million fully diluted weighted average shares outstanding.
Based on our outlet for the rest of year 2020, we currently expect.
Revenue to be the range of 428 million to 433 million.
Non-GAAP operating income to be the range of four to 7 million.
Non-GAAP net income to be the range of zero to 3 million.
And non-GAAP diluted earnings per share neither range of zero to three cents, assuming 110 million fully diluted weighted average shares outstanding.
Given our strong Q2 results and our annual pre paid subscription model. We believe we have the visibility today to reinstate annual revenue and EPS guidance.
However, taxable at current billings continues to be less visible given the current environment and consequently, we believe not a good leading indicator of future growth for reasons I mentioned earlier.
In summary, we're pleased with the results for the quarter, which gives us increasing confidence in our business tenable remains well positioned to deliver compelling growth and profitability over the long term.
Developed a comprehensive foundational cyber exposure platform that provides significant value to customers.
And we are actively managing through the current challenging macro environment, while continuing to execute and invest in the long term opportunity.
And now I'll turn the call back to meet for some closing comments.
Thanks, Steve regardless of the macro environment, we believe vulnerability management will continue to grow in priority for tenable, our courts strike Nvme has driven our success and aided in our natural expansion across the surface of attack into cloud I know two deployments are strengthening product portfolio positions.
For long term success.
Just see many of you virtually at the city and D.A. Davidson track conferences in September.
We'd now like to open the call up for questions.
Thank you ladies and gentlemen at this time, we won't be conducting a question and answer session.
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Our first question comes from one of Sterling Auty with JP Morgan. Please proceed with your question.
Hi, guys. This is Matt on for Sterling. Thanks for taking the question. So I had one question on one follow up. The first question is you know what direct impacts are you seeing the business given you know cobot environment on the positive and and the negative side. Thanks.
Yeah, I guess I'll comment, but thanks for the question I'll comment briefly.
I think there's both you know some some positive and negative aspects to it we certainly see a an acceleration of activity around our SaaS solution kind of bio we see acceleration of customers trying.
Trying to assess cloud environments are using our solution.
Most frequently kind of Y O web application scanning container security to help them assess cloud environments.
All you know as you might expect given me a the acceleration game of the digital transformation.
Oh and that you know that wins that are created as as part of the macro environment. Just you know like every other company in the world, we're viewing or operating expenses were viewing spending a changing procurement.
Practices and processes and so.
Yeah, just more scrutiny over.
Every purchase I think does just create a little bit of an natural natural headwind for bras and others.
Great. That's very helpful. And then just a follow up no wonder if you could give us an update on your channel strategy and improvements.
But you may have seen given these programs that you put into place in the last year. Thanks.
Hi, This is Steve.
You know where are the only at B.M. company in our space has made a commitment to the channel we sell through two tier just d.. So we sell through distributors, who in turn through sell through resellers and we transact, although we transact directly with the end customer we work closely with our fast network of partners.
To close new business, no I think having.
A cohesive channel strategy is particularly important even in a market like this we have over 30000 customers spending 160 countries and we have sellers and over 30, and 30 countries and it's important because.
The channel partners surface, a cost effective way to help bring you business and we've talked about this one on prior calls.
ER years ago, 4% of our business was in balance from the channel. We think two years ago, There's a little over 20 and today, it's much higher than that we think long term as much as 50 or even 60% of our total sales can come from the channel. So channels important part of our go to market strategy.
And especially for selling to the enterprise customers. They have relationships can can take you into markets that you otherwise.
Don't don't have critical mass so it's important and well continue to build greater intimacy with the channel and making sure that they're incentivized and the Numerate hit for us for the good work they do for us.
Great. Thanks, guys back that was very helpful. Thank you.
Our next question comes on line of Keith Weiss with Morgan Stanley. Please proceed with your question.
Okay. Thank you guys.
Maybe one question for Stephen One question for me the went on for Steve is like one congratulations on sort of I'd be really good job of accelerating profitability and getting to that milestone to a full your profitability.
Yes.
How much of this is gonna be durable like as we're thinking about heading into 2021 and beyond how much of this is it should we think about is the benefits of like nobody's traveling and somebody conferences aren't that's taking place in is going to come back and we should temper expectations for 21 versus how much is good.
Productivity gains that you've been talking about.
Oh, well I think it's a little bit evolving, but it's a lot of the latter which is operational efficiency.
We talked about the benefits of having a subscription model, but if you look at our business in particular, we have over 90% recurring revenue over 80% gross margins and very strong that's all I know it.
So it gives us a lot of confidence and the margin profile of the company. If you look at sales and marketing particular last year. This time, we're spending about 60% over 60% of our revenues in sales and marketing and today, we're putting something that has a four handle on it and one of the big drivers of growth. There's just a greater maturity we have more.
Perhaps you know at gold grade percentage of reps that are fully ramped versus.
Those that are not and we also had a lot of maturity and south I also named in April.
We have also been it's nice to.
Stretch sales overhead and a in markets, where you have critical mass. So all told there's a lot of leveraging business not just in sales and marketing, but also in R&D, we weren't click to call out some cobot related savings, which we estimate to be two to 3 million. It some of that came in a way traveling field marketing, but I'll I'll be honest with you I I'm not sure.
Sure.
What's normal and what's not certainly over the next couple of quarters. We expect a current environment will remain the same and we expect a slow and uneven ramping in the economy.
And we know that we can transact larger deals.
Oh without face to face contact with customers. So that also will yield some some greater efficiencies for us so.
The leverage in the business that you're seeing today, it's something we've talked about now for several quarters, it's playing out and there's just a lot of natural leverage in the business given given.
The dynamics at play here.
Got it that's super helpful and it's great to see that's flowing through and then then for for a meat.
You talked about kind of the higher priority for the and I bet that that you're seeing and we're picking up as well in recent surveys in channel conversation a lots of the sort of moving to the public cloud be <unk> threatened by it's been around for a while anything you could point too in terms of.
Like the near term environment that maybe causing guys to ramp up the priority of of the M. In particular.
[noise] I I think when the.
Wouldn't be pandemic first hits a people shifted very quickly your work from home environment and the top priority was very focused on on productivity. How do we keep our employees active how are we keep our employees.
Able to sustain the level of proficiency with they have when they were working together in the office.
As a organizations make that shift us I I think the next.
Priorities understanding how these changes in compute and these changes in technology, whether its work from home or the acceleration of cloud adoption, how do they change their risk profile and so.
In that natural place that people gravitate to is there be I'm solution.
You know when when she knows audit risk communities CDAI those ask questions about risk the foundational answer for many of those questions comes from the date of its providers in the PM solution. So I think it just becomes a very natural question, okay, well I now have this environment, how do I gain.
Insight and visibility into it and in many cases.
That was in some cases customers just use the cloud native connectors that we've developed over the years, that's continued to join Hanson and they work with all the major cloud providers.
Excellent Ah that's super helpful. Thank you so much for the time, yes.
Thanks Keith.
Our next question comes from the line of Girl Top has with Stifel. Please proceed with your question.
Okay, great. Thanks for taking my questions. I mean, you talked about some large displacements. This quarter can you talk about more broadly customer willingness to embark on more complex projects and then the current environment.
Yeah. Thanks words, its its gritty questioned and certainly you know we have as that's probably just about every other company.
Looked at some of the larger projects and customers and say and looking at their spend it scrutinizing their spend their operating expenses and saying. Okay is this critical or does this make sense do I want to prioritize it in our case, you know understanding cyberisk and understanding the new attack surface is getting our arms around.
Risk continues to be an absolute priority Oh, you're sitting in the survey results for CIO shows and see Isos and you hear about a consistently and surveys of.
Directors and a C.D. survey from earlier, this year and and others. So.
It's certainly a concern I think we'd certainly like others, we've seen some deals adversely affected.
By that but for the most part what people.
Have a desire to understand their risk they want understand it in a more granular way it matters more than it has before and that's really stuff that we can help them.
Oh, I understand that risk across.
Different factors in different forms of their computer environment, whether it's your desktop servers, and workstations and cloud environments and web applications.
I've often vitamins.
And help them, yeah, I think that that has bode well for us is as well just sort of like core differentiation in our VM capability we have.
20, plus percent more coverage of Cds, and and lower false positive false negative rates like for people, whose job. It is to understand risk like those steps of data points are incredibly kinda meaningful.
That's a that's that's helpful. Maybe one for you Steve you mentioned that current RP over it maybe a better proxy to gauge growth for the quarter I was hoping you could elaborate a bit on that and mitigate some more color there.
Sure I'm talking about its relations CCB, so first and foremost.
We're very pleased with our performance in the quarter and in particular sales and our ability to close deals in this environment. We all can discuss E Bay as an indicator of that effort and as a proxy of annual contract value.
And most quarter CCB, it's a close proximity to the underlying performance of the business. However, as I mentioned on our last call CCB during a pandemic.
And I'd be a good leading indicator of future revenue growth because it is as I as I called out on the call influenced by many factors such as deal timing multiyear prepaid deals early renewals, which can have more variability in a challenging market. So while CCB as most notably influenced by annual contract value Appeals invoice in the core.
Sure.
Sure charm RPL captures all of that plus additional contract customer commitments, yet invoice due to deal timing.
And in most quarters CCB growth and short term RPL growth are fairly tightly aligned this quarter, there's a clear separation and short term RPM growth for several points higher and more importantly closer approximation of the underlying ACB, we're off to the business. So we just wanted to called this out.
I think in terms of whether or not that's the best indicator going forward I think look we're in an uncertain market and.
Well just have to see you know well, they're not that that's a better indicator or there. There's another one but this quarter right now would just calling out ARPU growth has as a close approximation of underlying performance of the business.
Very helpful. Thanks.
Thank you.
Our next question comes with a line of Jonathan Ho with William Blair. Please proceed with your question.
Hi, Good afternoon, I, just wanted to maybe start out with the O T deal that you signed and maybe better understand your why this it potentially signals on either a change in maturity of the environment or higher prioritization I just wanted to understand why you said you thought it was so important and you know what what implications.
We should be thinking about relative to that deal.
Yeah, I think we I felt very strongly about the opportunity in front of us with Oh Gee you know just as you recall, we embarked on our journey with our tea.
Two years ago.
We saw.
Good leverage between by their use case or an opportunity and are still messenger unless it is our sales team was able to transact with our current buyers and user so.
So you're not giving us a lot of confidence going into make an acquisition a late last year.
Weve integrated a in many facets that technology into our analytics platform for unified reporting.
Privatization and things of that nature, and so it's nice to see just sort of the continued traction we're seeing.
With customers in those environments, where it's not just though t., but where they want the converged reported.
And probably realization and understanding of risk across these different types of of operating environment. So we think it really plays to our strength that we thought it was notable that a a global auto manufacturer.
In the current environment.
Yeah. It was prioritized prioritized and saw enough value this pull the trigger on a pretty sizeable.
Purchasing in the middle of all the.
Challenges that they're facing.
Got it that's helpful. And then yeah, just relative to the net retention on you know clearly there was an impact this quarter and you talked a little bit about you know the differences between you know CCP in our PEO. There can you really help us understand like are you seeing your net retention on your maybe start to slip here or do you think this is just sort of.
A short term effect and we should expect it to normalize over time. Thank you.
Hi, Jonathan This is Steve Yeah, Yeah, as I mentioned earlier renewals were strong in the quarter and so we wanted to called that out we came in better than expected but.
Ah with larger initial lands and.
And given the current environment, we're seeing a more moderate pace of asset expansion.
And so our net dollar expansion rate tempered a bit but it's still continues to track above 110%.
This quarter were pleased with a number of new logo ads.
And sometimes.
And there can be some natural variability quarter to quarter between.
I find opportunities with new logos and knocks out not somebody else [noise]. So we know optimize the company <unk>.
When authorized the company.
Drive any single make truck in any one quarter that can be some natural variability from quarter to quarter and this quarter. We were pleased with fee pace of new enterprise logos that we had it was over well over 300.
And the number of six figure deals.
And to larger lounge network.
Notwithstanding our seasonally strong Q4, this was our best quarter for adding six figure customers, which is very notable especially in the current environment, where are the new logos are certainly harder to win and for us to see.
A really strong number of new six figure deals and an acceleration of competitive takeaways, certainly worth calling out and so we wanted to <unk> to do that today.
Great. Thank you.
Yes.
Our next question comes from the line of Daniel Ives with Wedbush Securities. Please proceed with your question.
Yes things are getting great job in the profitability can you give some thoughts going into the federal fiscal year in terms of briefly what what are your thoughts in terms, what you're seeing especially many government workers going remote.
Yeah, we can all you do.
I think we continue.
Phil I'm very bullish about our federal business I think we have an exceptionally strong position in the federal marketplace.
You know as we said earlier you'd be hard pressed to find a single department or agency that doesn't use tenable as a core part or the core part of it.
Yeah, I'm program and understanding of Cyberisk and we maintain a you know very close finger on the pulse of that market, you're working with so many of our federal customers on somebody analytic applications were developed the developing I'm also a federal requirements around operational.
Technologies so.
Oh, Yeah, I think there can you know there remains a strong desire to.
Understand risk in this environment and feel like kind of bowls.
You know a technology that.
Has proven itself from a differentiation standpoint over the over the years and maintain a.
Oh, no close a close ties to that market.
Great and just the boom in.
Like how how's that seems conversations with customers and obviously.
There are many customers or just kind of doing the transformation right now, especially moving to cloud Hooman comes a great but can you talk about that just.
You know sorry, yeah, sure do and I think it's a great point, which is that as operating environments get more complex you have the shift to work from home you have people accelerating their cloud deployments moving a more things to cloud platforms to web applications. We see continued adoption of.
Oh, if a container environments devops environments and so as a.
These trends continue and to a luxury sort of accelerated in recent times.
It becomes more difficult to truly understand risk and you know how to calculate prioritize activities and certainly in this environment, where I T cycles are limited why your IP staff is completely.
You know any day to try and to to embrace these new technologies.
The security team can really you know go back to them with far fewer asks us and so they need to make sure. They are prioritizing their requests and at the request that they do make up the greatest impact to materially reducing risk for the enterprise. So you know products like room in a enhanced analytics privatization.
Understanding a brisk play play much larger role and can be a much more impactful for for customers.
Great. Thanks.
Our next question comes on the line of Josh what Tilton with Birenberg. Please proceed with your question.
Hi, guys. Thanks for taking my questions.
I just I wanted to touch on the I do see report that you called out in the prepared remarks.
The data would suggest that the smaller players are continuing to give up share. So how do you guys see the mix of business that shifted more towards the competitive replacement or do you continue to see meaningful greenfield opportunity.
No I think we get to you seem to be full greenfield opportunity, you know quarter on quarter out, sometimes a little bit higher sometimes a little bit lower but quarter to quarter out we look at our large larger enterprise transactions and you know more or less 30% of them consistently are coming from Greenfield accounts in the customer has no.
In house, VM technology or capability. So you know we look at it at the market. We said we have tremendous.
Growth potential within our existing customer base, we have the ability to sell new asset types into our existing customer base, we're consistently landing a lot of net new.
Logos onto our enterprise platforms 300, plus is an increasing number of six figure.
Transactions and and ultimately either you know in addition that there's you know ample evidence that there is plenty of greenfield and in the markets. So we feel we feel pretty pretty bullish about it we saw a lot of the I think Steve called out you know a number of far.
Take away is in the.
A in the quarter were coming from some of our larger more established a competitor. So as we continue to differentiate ourselves we think that trend will continue.
That was helpful. And then just a follow up I could how should we think about the gross margin going forward if customers continue to prioritize our I O C.
I think we said long term well first of all we have really healthy gross margins and it's been a source of pride for the company.
We said long term, we expect gross margins to kind of settled in the high 70% range low 80% range.
But what I will say is that.
We were initially we're expecting margins to moderate.
Maybe one or more quicker at the onset of here, but they haven't we've been able to drive a lot of operational efficiency and our cost of goods sold with regard to public cloud costs.
And so you know we believe that our gross margins will continue to remain healthy.
We're also seeing some efficiencies to in this work from anywhere environment with our delivery of professional services, which we're now able to do.
Virtually here.
Remotely suitability do training rotations other professional services, so that in concert with greater efficiency in public cloud costs.
And just given our points of presence that we have today you know we think that there so they'll be good margins going forward and.
We'll settle into that I, 70, or 80% range long term.
Thanks, guys. Thanks, that's helpful.
Thank you.
As a reminder, ladies and gentlemen, it is star one to ask a question. Our next question comes in the line of brine ethics with Goldman Sachs. Please proceed with your question.
Hi, Good afternoon. Thank you for taking the question I mean, I was wondering if maybe touch on a little bit around it. The process that you went through about thinking about your full year outlook is was you know next quarter. What is primarily changed from last quarter I know, there's a lot of uncertainty around pipeline build in sales execution and pipe.
Conversion you know what was the uncertainty last quarter and then what are you more comfortable with this quarter. If we could maybe understand where I guess the level of confidence you have in in that guidance and where opportunities for upside might lie whether it's you know.
You know better attach rates with tenable Io web security and container for example.
Hey, Brian This is Steve I'll I'll jump in here and I mean that door <unk> sorry.
Hi, Thanks.
Or are on our call last quarter, we provided an outlook for Q2, but pulled the guidance for the full year, just given the uncertainty and there's clear corollaries between the GDP growth and I T spend the good news is that security is.
Considered we believe our higher ground relative to other categories within listen I take I think viom in particular has remained.
You know an important part of a customer security program. So we're seeing increasing need for vulnerability management going into Q2, there's a lot of uncertain quite frankly, we didn't know what to expect so we provided guidance for <unk> for the quarter that was in revenue and EPS. We have an annual pre paid subscription model. So a lot of our revenue comes from different sources and they give us a lot of visit.
Really.
I think it's fair to say that there's more confidence in our business now than 90 days ago. Her we're very pleased with the results here and as a result will not only providing guidance for the third quarter in terms of revenue and he asks what we're also able to provide this for you know implicitly, but the fourth quarter and the full year.
Topic, just we have more confidence today and our business that we did last quarter, but we also are equipped to note that despite our success in Q2, we know that and we expect there will be a slow and uneven reopening of the economy and there will be they'll continue to be uncertainty and so.
Our guidance takes all that into consideration and and that's why you know that we're providing the today I will say, though that we're very pleased with.
Activity levels and pipeline that pipeline only in terms of coverage, but also maturity well continue to pipeline that at a healthy rate.
And continue to make good progress on those opportunities.
And have them progress. So we do know that yeah. We expect it to can you know they'd be more challenging in a pandemic than than even a more normal times, but we're delighted with our ability to execute against those opportunities and our ability to continue.
To to win deals and take share here.
Great that's super helpful and maybe could you touch on maybe the attach rates you know you called out Tenable I O Websecurity container as you know kind of being sold together or what are attach rates look like now relative to prior quarters and as in is that something that's kind of implicit in your expectations going forward.
So <unk>, so lumina something so I think we called out.
Ah more cross sell and in the quarter he talked about that right here and I think the work from anywhere environment and certainly the catalyst who catalysts for for for kind of I always wireless or other cloud based applications, including web security and we talked about container security.
So we're seeing certainly more pole and in that regard.
With regard to tell them and here, we talk directionally getting successful SaaS products, our expectation is that.
That the attach rates will continue to grow over time, we think they could be eventually 50% plus that'll take over the course of years and you know this is a new way of thinking for a lot of our customers and we believe it provides compelling value, especially in a market like this where there's a lot of uncertainty customers are stretched for resources and often have limited resources the ability to quickly prioritize phone.
Because of what's the most impactful in terms of risk you know, we think is really important so overall police the progress on our at all modules and specifically with with woman and we know it'll continue to grow <unk> and build overt overtime.
Okay, great. Thank you very much.
There are no further questions in the Q. This does conclude our call for today. Thank you all for your participation you may disconnect. Your lines at this time and have a wonderful day.