Q4 2020 Tenable Holdings Inc Earnings Call
Greetings and welcome each of the Tenable fourth quarter 2020 earnings conference call. At this time, all participants are in a listen only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder of this conference.
Being recorded average.
Now I'd like to turn the conference over to your host Andrew the Marco.
Thank you operator, and thank you all for joining us on today's conference call to discuss tenable, its fourth quarter and full year, 'twenty and 'twenty financial results.
With me on the call today are and meet your and Tenable, Chief Executive Officer, and she's been Chief Financial Officer. Prior to this call. We issued a press release announcing our financial results for the quarter and full year you can find the press release on the IR website at Tenable dotcom.
Before we begin let me remind you that we will make forward looking statements. During the course of this call, including statements relating to kind of of guidance and expectations for the first quarter and full year 2021 growth and drivers and kind of book business.
Changes and the threat landscape and security industry, and our competitive position and the market growth and our customer demand and adoption of our solutions.
And of those expectations regarding long term profitability.
The impact of COVID-19 on our business and on the global economy, and 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 to differ materially from those anticipated by these statements.
You should not rely upon forward looking statements of the prediction of future events.
Forward looking statements represent our 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 of our outlook.
For a further discussion of the material risks and other important factors that could affect the 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 SEC, which are available on the SEC website at SEC Gov.
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 GAAP Theres a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents.
Our earnings release that we issued today includes GAAP to non-GAAP reconciliations for these measures and is also available on Investor Relations section of our website I will now turn the call over to them.
Thank you Andrea and thank you all for joining us today I'd like to start off by saying I'm incredibly proud of how our employees continue to respond.
At the bottom.
Today I'll highlight our strong Q4 results of cloud security advancements and some exciting channel expansions, but before I get into Q4 I'd like to comment on the current vulnerability management market and.
And cyber security environment and found ourselves in.
So our dialog with customers and partners, we see the strategic importance of vulnerability management rising rapidly and.
Enterprises continues to prioritize the.
And the critical building blocks of understanding their cyber security risk.
This is underpinning the strong adoption of demand we saw from our customers throughout the year.
We added one of our highest number of new platform customers over this quarter 460, and one of our highest number of new six figure additions of 66.
We also continues to be a healthy number of competitive displacements and continued optimism about the large greenfield opportunity and be up about a third of our larger new platform adds came to us from Greenfield accounts, where they had no in house organic the M capability.
The solar wind and reach further highlights the importance of the and visibility across the entire environment for many of our customers tenable VM solution for the clinical critical role and helping them discover understand and respond to emerging threats identified and the solar ones bridge very quickly and we're able to identify.
<unk>, where they were running solar once Orion platform within hours of our customers and our entire tenable community could also identify where specific versions of solar winds were installed and.
The short our customers could rapidly shift from the fear and doubt of her.
The profile of headlines the clarity and confidence.
Knowing the security of your systems and the state of your user account base are foundational.
Of tenable, we believe that the continuous and complete understanding of asbestos exposures and risks are critical to good decision making.
Being prepared with accurate data and insights to help manage risk helps our customers constantly respond and time of crisis.
I wish the based approach prioritizes vulnerabilities and so customers know where to focus first.
And while we play a critical role and reducing risk for the vast majority of breaches caused by known vulnerabilities. We also provide critical agility for new and emerging threats, including new zero day.
And both situations our commitments the best of breed of yen.
It enables us to deliver value of a key differentiator and a key response mechanism for organizations and.
Being able to answer the fundamental questions such as how secure Ahmad how exposed and high.
And what can I do the most efficiently reduce risk has never been more critical to the executive leadership the.
And what vulnerability management solution strategically implemented provides continuous understanding for enterprises to effectively measure and manage cyber risks and respond with confidence.
Of crisis.
And tons of uncertainty enterprises know that you rely on tenable is focused and best of breed capabilities.
And with all of that said, we're very pleased with our results for the fourth quarter of revenue grew 22% year over year.
In addition, the strong topline growth of profitability continues to expand as we saw improvements and the operating margin and generating attractive levels of free cash flow.
These results reflect favorable demand dynamics the strikes the about product portfolio and the compelling nature of our business model.
And our enhanced product portfolio. We believe we're just getting started on the value that we can deliver to customers.
A great example of this is the new six figure of cross sell win.
Oh Gee, the global manufacturing company.
And this is an existing tenable Io and web application security customer. It was looking for of converged I T O T system to reduce cost improve visibility and improve security.
But running tenable Io along with the web security product and now Oh Gee. This customer is able to reduce cyber risk and protect the brand with a unified understanding the bridge.
And the fourth quarter, we saw momentum starting to build and the.
And the platform adoption across product lines.
With increasing demand for multiple products, we're exploring other more natural cross sell motions to make it easier for our customers to benefit from the full suite of capabilities with.
We continue to see strong demand among hybrid and cloud first customers increasingly turning to us to help them secure the cloud environments and excellent example of this is another six figure win from a global pharmaceutical company the purchased our entire cloud security suite kind.
Oh web application security.
10 of security and lumen.
This existing tenable Io customer completed and the acquisition of needed visibility across the entire organization.
The customer was originally of competitive displacement and over a year ago and now with this new acquisition became of competitive replacement for a second time.
And is a tribute to our long standing relationship with customers and the superior capabilities and customer experience we can deliver.
And our commitment to product innovation.
Focus on cloud and mature prioritization capabilities drove the win.
We also officially launched frictionless assessment globally and for the Tenable, Io and AWS marketplace and the fourth quarter friction.
Frictionless assessment continuously provides accurate visibility across all cloud based assets via and easy to use low risk approach the delivers quick time to value.
While it's very early we believe there are significant opportunities for the adoption of frictional secession of many of our customers want increased visibility into the state of their assets and the cloud due to the velocity of changes in these environments.
We're seeing customers starting to use frictionless and already discussing opportunities for significant growth.
These early indications of very positive and we view this as an exciting opportunity to expand out the coverage and continue to deliver more value to customers usually accountable to secure the cloud deployments.
In addition to our relentless focus on innovation and our commitment to our product portfolio will continue to make significant investments and our go to market.
While early and our development of MSP relationships, we've laid the groundwork and out and all of them.
Pete program. The we believe we will continue to fuel growth for years to come.
We're already seeing early returns on these investments last year, we added over 150, new MSP partnerships. We are an SSP partner count to over 350 globally, but more importantly, we're including many of the top global MSS piece and these numbers. We're excited about the momentum and this particular program.
And the broader progress, we're making with our channel partners.
We believe our best of breed strategy and vision and strong presence and capabilities to secure cloud environments, coupled with our go to market investments will continue to fuel attractive growth and profitability.
Heading into 'twenty and 'twenty, one we plan to continue to invest particularly in R&D and quota bearing resources to drive innovation and increase our market leadership and position tenable for continued growth and.
I'll now turn the call over to Steve.
Thanks, Amit and meet mentioned earlier, we are very pleased with our results for the fourth quarter highlighted by attractive topline growth and impressive bottom line results.
I'll discuss our results for the quarter momentarily, but please know that first of all financial results. We will discuss today are non-GAAP financial measures with the exception of revenue.
As Andrea mentioned the started this call GAAP to non-GAAP reconciliations may be found in our earnings release issued earlier today and posted on our website.
Now onto our results.
Revenue for the quarter was the $118 1 million, which represents 22% year over year growth.
Revenue in the quarter exceeded the midpoint of our guidance range by approximately $4 million.
The percentage of recurring revenue remains high at 94%, which is the result of our annual prepaid subscription model.
Revenue for the full year was $440 2 million, which represents 24% growth year over year.
Revenue in the quarter and was aided by strong demand for both new and renewal of business in terms of new business. We had one of our best quarters ever and we added 460, new enterprise platform customers and 66, new net new six figure customers and the quarter the.
This brings the total number of customers spending in excess of $100000 annually to 837.
Our investments and product innovation and go to market reach has continuously helped us deliver a healthy number of greenfield opportunities and competitive takeaways throughout the year. Despite the pandemic and this quarter was no different.
So we are delighted with the velocity and what you are adding new customers and in the quarter.
We're also very pleased to see upside and our expansion business as customers adopt the new modules and expand that asset coverage at a higher rate than what we saw earlier and the year.
I've noticed cross sell as lumen web application security and O T. Among others experienced significant growth and the quarter.
We attribute our success year to and increasingly complex threat environment and highlights the relevance of our cyber exposure offering specifically.
Specifically, our platform that delivers broad asset coverage accurate results and predictive analytics to help our customers understand and address the most critical vulnerabilities within their compute environments.
It's also benefited from no business, which was strong and the quarter.
This is reflected and our calculated current billings and PCB defined as the change in current deferred revenue plus revenue recognized in the quarter grew 20% year over year, the $155 million and overall, we are very pleased with our performance.
As a reminder, P. Phoebe is of close but not perfect proxy of the underlying performance of the business and can be influenced by such factors as deal timing early renewals and multiyear prepaid deals, which had been impacted and the current economic environment.
I'll now turn to of expenses, which reflect considerable investment this year offset by operational efficiencies and to a lesser extent some pandemic related savings.
I'll start with gross margin, which was 84 per cent this quarter consistent with last quarter and up from 82% last year.
Gross margin for the full year was 84%, which is consistent with 2019.
Our gross margin continues to be very healthy and reflects increased investment and a public cloud and infrastructure. We continue to realize the economies of scale related to the growing demand for our cloud based tenable Io platform.
In short investments and our public cloud platform have resulted in an increased spend on an absolute dollar basis, but with notably lower unit costs.
Given the uptake for the lumen and other cloud based offerings, we plan to the incremental investments that are expected to lower gross margins from 2021 by approximately 50 to 100 basis points.
Let's turn to operating expenses sales.
Sales and marketing was $50 8 million compared to $57 7 million and in the fourth quarter last year and $48 2 million last quarter.
And marketing expense as a percentage of revenue was 43%, which was consistent with last quarter and significantly improved from the 59% last year.
And as we've discussed on prior calls we're very pleased with the leverage we've demonstrated to date and sales and marketing, which we attribute to of maturing sales force higher mix of channel and business from our two tier distribution model and better overall efficiency related to sales overhead and markets, where we have critical mass.
It doesn't marketing expense increased sequentially due to higher commission expense and seasonally higher sales as well as incremental investment and <unk>.
Spending of our go to market and effort such as areas of including the channel, most notably ramping our MSP business, which represents a compelling long term opportunity for us.
Looking ahead in 2021 kind of.
And make continued investments to expand both the sales organization and our channel efforts, which we believe will position us well for continued growth and success.
R&D for the quarter was $20 4 million consistent with the same period last year and down slightly compared to $21 2 million last quarter. That's the.
Percentage of revenue R&D expense was 17% compared to 21% and Q4, 2019 and 19% last quarter.
The best of breed vendor innovation remains a top priority for us so additional investment to secure the increasingly complex attack surface via our cloud based predictive analytics approach isn't anticipated 2021 and extend our market leadership.
G&A expense was $12 5 million compared to $12 6 million and in the fourth quarter of last year was also consistent with last quarter.
And as a percentage of revenue G&A expense was 11% this quarter flat with last quarter and down from 13% and Q4 last year.
Flex our ability to more fully absorb public company costs and achieve greater efficiency and automation and many of our back office functions.
Income from operations was $15 4 million and Q4 compared to a loss of $11 1 million and Q4 last year.
Net income.
Of $12 4 million last quarter.
And the full year non-GAAP income from operations was $25 8 million compared to a loss of $42 8.002 million 19, which was a 69 million dollar improvement.
Operating margin was positive 13% for Q4.
And there the negative 11% from the fourth quarter of last year and positive 11% last quarter.
The operating margin was positive 6% from of full year compared to negative <unk> 12 per cent for the full year 2019.
All of this translated to significant EPS upside for the fourth quarter as our earnings per share was <unk> 13 cents, which was seven to eight cents better than expected.
Approximately half of the beat was due to better than expect the topline results and half was attributed to better cost management.
For the full year, we generated 19 cents of earnings per share versus the loss of 42 last year.
Now, let's turn to the balance sheet.
We finished the year with 291 8 million and cash cash equivalents and short term investments and.
And increase of approximately $80 million compared to December 31, 2019.
Total deferred revenue at December 31, 2020, and was $434 5 million.
And increase of 71 million from last year, giving us a lot of visibility into revenue heading into 2021.
Turning to cash flow, we achieved $16 7 million of positive free cash flow and of course.
This compared favorably to our free cash flow burn of $13 5 million and Q4 last year.
For the full year, we generated 44 million of free cash flow versus a burn of $31 million last year, which was a very notable 75 million dollar improvement.
The high recurring revenue high gross margins and high renewal rates, we are confident and our ability to generate attractive long term margin.
And despite the and investment and the business and and anticipate it returned to a more normal travel and spend environment.
We expect continued expansion and the free cash flow margin and 2021.
With the results of the quarter behind us I like to discuss our outlook for the first quarter and the full year 2021.
Our assumption is the health care crisis will continue to create uncertainty and macro headwinds as many geographies are experiencing and further restrictions and lockdowns.
Although we are of very balanced and diversified customer base of approximately 10 per cent of our business comes from industries that had been highly impacted by the pandemic such as transportation hospitality and retail.
As a result of our guidance assumes the crisis will continue to abate over the summer with modestly improving demand and the second half of the year.
With this uncertainty and mine, we believe our business will remain resilient given us the confidence to provide and initial full year outlook for calculated current billings can I.
It's just something we have not provided since our call in February of last year.
Recent security events, including cell the ones breach.
And the potential to create a more favorable spending and environment crossed this year, but the overall impact if any and timing are uncertain.
With that as the backdrop for the first quarter of 2021, we currently expect.
Revenue could be and the range of $118 million to $120 million.
Non-GAAP operating income to be and the range of $7 million to $9 million.
Non-GAAP net income to be and the range of $5 million to $7 million, assuming a provision for income taxes of $1 5 million and.
And non-GAAP diluted earnings per share at the B and the range of four to six cents per share, assuming 115 million and fully diluted weighted average shares outstanding.
And for the full year 2021, we currently expect calculated current billings to be and the range of $565 million to $575 million.
Revenue in the B and the range of $510 million to $515 million.
Non-GAAP operating income to be and the range of $40 million to $45 million.
Non-GAAP net income to be and the range of $30 million to $35 million, assuming a provision for income taxes of $6 million.
Non-GAAP diluted earnings per share to be in the range of 26 cents per 30 cents a share.
Assuming a 116 million and fully diluted weighted average shares outstanding.
In summary, we're very pleased with the results of the quarter, which gives us increasing confidence that we remain well positioned to deliver compelling growth and profitability over the long term.
And now I'll turn the call back to me for some closing comments.
Thanks, Steve as I stated earlier and the call recent security events have raised the profile of vulnerability management sort of wins shows the we can't rely on strong perimeter defenses and has highlighted the need for assessing devices across the entire enterprise.
Our message has been very consistent for tenable of court strikes and V has driven our success and aided in our natural expansion across the attack surface into improving the security posture of cloud and Ot deployments.
Our strikingly platform of capabilities positions us for long term success as our customers shift to hybrid and cloud environments.
We hope to see many of you virtually at the Goldman Sachs Morgan Stanley and choice Tech conferences, and the coming weeks, we'd now like to open the call up for questions.
At this time, we'll be conducting the question and answer session. If you'd like to ask a question. Please press star one and your telephone keypad.
Confirmation tone will indicate your line is and the question queue. You May press star two if you'd like to remove your question from the queue and for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
And our first question comes from Brian Essex with Goldman Sachs. Please state your question.
Great. Thank you and good afternoon and thank you. Thank you for taking the question guys a nice set of results.
And meet nice progress and the service provider market and and appreciate the color there and maybe could you provide a little bit of.
Incremental color in terms of the types of customers of your attracting and that market the gun.
And the mix of those deals and how meaningful you expect that segment of the business to be from a mix perspective.
Yeah.
And maybe some color and context I think the service provider market is incredibly strategic we see.
And that market really going after a diverse set of customers. So the the natural one which it.
It comes to mind and certainly the cause of the mid market, where a lot of organizations that don't have the in house expertise gravitate toward the gravitate toward the managed security providers and then we've also seen a noteworthy number of large enterprise customers, which choose to use managed service providers and they're secure.
And we provided as part of their.
Ongoing security operations, So we really see it as a pretty important pretty strategic route to market for us.
Both tracks and.
There were early and those relationships, but seeing some early results and and really excited about the opportunity of that both of them.
Represent for us.
Yeah.
Got it that's helpful and maybe to follow up and maybe talk about the OTC market and you can order the nice six figure out T win and given given the I guess growing concern of the state sponsored tax and how deep those might go from and operational perspective.
How are you gaining I guess, how does traction and that market look and how meaningful do you think that might be.
And over over the next year or so.
Yeah.
That is the market that we believe has very strong.
And it is very strong potential.
There's no doubt that some of the most critical business operations occur in and on and rely on Ot environments, and the Doe cheese, and an increasingly critical part of business efficiency and and fueling economic growth. So.
The awareness for Ot security and has grown rapidly in the last two to three years and we've seen it security programs and it security leadership play and increasingly critical role in product selection and solution selection.
And providing security into corporate Ot environments, which which historically have been managed by different teams. So we feel like we have of real position of strength and understanding risk across I T and O T and the convergence of.
Of security regimes across both of those both of those platforms and in terms of the potential for that market and.
And Steve can do some sort of analysis on.
Asset numbers and industries and.
The of industries that rely on I know of cheap, but I think you know, it's there's a pretty.
And substantial opportunity that we're going after there.
That's very helpful. Thank you very much.
And our next question comes from Joshua tightened with the bear and bird Kathryn.
Hey, guys. Thanks for taking my questions can you hear me.
We can.
And Josh Yes.
Hey, guys. How are you just two quick ones from me first I believe last quarter, you guys mentioned that the renewal rate was 110 per cent.
And just curious if you guys could comment on what it was and this quarter I think of the commentary in your prepared remarks kind of suggested it was positive.
And then also you know what of what numbers baked into the guidance that you gave for 'twenty and 'twenty one.
Hi, Josh This is Steve will force, we did comment in the call.
The upsell was notably strong this quarter really on the backs of higher asset coverage.
And as well as higher cross sell I was one of the best quarters ever for us in terms of cross sell.
And we're very pleased.
With the level of upsell of this quarter of this as a positive development after several quarters of moderation earlier and the year.
And we don't manage the business to a single metric, we know that in terms of opportunities pipeline can vary between.
And the opportunity from new customers as well as upsell opportunities from existing customers and the number that we disclose and the filing is on the LTM basis. So the good news is we saw a notable uptick and upsell this year, rather and the backs of high renewal rates.
A strong cross sell.
And we think that bodes well heading into 2021.
And I think in terms of 2021 of more broadly we're assuming the.
The demand environment is largely the same.
And with no notable changes from what we saw this year the.
The one thing that I that I will say is.
The takeaway here is.
Well, we're very pleased with our results from the fourth quarter, we saw outperformance and both the top line and the Bottomline GCB growth was 20% revenue growth was 22 better than expected.
Both of the topline and the Bottomline customer demand underpinning all of this was strong as I mentioned earlier and to my comments earlier.
And at 460, New enterprise platform customers and it's one of our best quarters ever and in fact, it was our best quarter ever for landing new large deals.
That said.
Looking ahead in 2021, there's still a lot of uncertainty out there with the Max.
Growth.
As we head into the year, many geos and countries are imposing for the Lockdowns and restrictions our guidance assumes just more broadly notwithstanding the renewal rates and expansion of rates.
The crisis will continue but abate over time sometime in the summer with modestly improving demand and the second half of the year.
And the overall, we're pleased with the results of the quarter and it gives us.
The conference as we head into 2021.
Yeah that was that was very helpful. And then I guess kind of just confirm a little bit on what you said for 'twenty and 'twenty, one you're baking and no change to the demand environment, but you also mentioned that the recent attack kind of bring the importance of the M into late so should we view the the billings guidance is conservative and without taking in and the incremental demand from the.
The recent attack.
Or is it just too early to see any meaningful change of venue.
It's more of the ladder and specifically in relation of CTV. It's important to note that first we haven't provided a full year guide the CCD and and over a year since February of our last call. We feel like today's guidance as appropriate and it certainly reflects the uncertainty of the macro.
And the fact that we're providing this guy now and <unk>.
Certainly a clear indication of our increasing confidence and the business.
And again, we're not we are factoring some of the uncertainty related to the macro but we're also not considering any tailwind from the recent seller won't breach which are difficult to predict we think of has the potential to lead to better spending environments and 2021, but we view of the guidance today for CCD really it's a good starting point the.
The fundamentals of our business are very strong and.
We look forward to updating you throughout the year.
Alright. Thank you very much of really appreciate the color.
And our next question is from Hamzah sort of Waller with Morgan Stanley.
Hey, guys. Thank you for taking my questions just a couple from me the first of.
And the solar winds.
Impact you know you're mentioning sort of the riders and priority of the M. Can you maybe talk a little bit about it for the you know for of meat to what degree.
Is it maybe starting to influence pipeline or perhaps.
I'm getting brought up and customer conversations.
And then out of it.
Yeah, it's definitely.
Become an important part of our customer conversations and and I think we saw that almost immediately as the news began.
Breaking.
Well.
And you even go back with the the Fireeye breach and even before the solo and you know as each data point comes out on one of the high profile breaches first question corporate leadership are asking is am I exposed are we at risk are we secure what are we doing about it and so being.
But to the.
So the I T security team to be able to do in near real time say.
And with all of the attack tools, which were part of the you know the red team kicked the debt.
Were stolen from from from Fireeye, we already check for those and here's where we stand from the exposure perspective or when the solar winds.
Twisted up reach came up being able to say, here's exactly where were running solar winds of.
Orion and within that here's the version of solar winds Orion and and.
And be able to have that.
Very.
Immediate <unk>.
Certainty.
To understand the level of exposure and or where the incident response teams can start.
And can start.
Swinging into action so.
It's an important part of risk management, and being proactive and proactively improving your security, but and time of crisis, having a mature of VM program.
<unk> provides the agility for for incident responders to move with much greater certainty and and much more rapidly and so it became intermediate part of the conversation right away.
And I think as Steve said, we're just early in the in the and the processing and the cycles to to be able to quantify and say here's how we believe it will impact.
Pipeline development and our expectations for four for 'twenty, one, but customer engagement around as it has been high.
Got it got it and then just a follow up for Steve. So you managed the business pretty well.
During the the worst of the pandemic right current billings has been accelerating.
You know 20 per cent plus over the past couple of quarter. You mentioned, you know sort of a record number of net new enterprise customer adds you know accelerated the pace of share gains.
I'm wondering how you kind of how's that kind of jives with the the deceleration implied and the 'twenty 'twenty one outlook because I I I respect that you know there still some conservatism around the pandemic, but and obviously the the those headwinds have been around and if anything you know should.
You know based on your commentary the improving and the back half of this year. So maybe is there anything else that that debt that you know, they're kind of being a little bit more conservative on the whether it be sales productivity or anything else. That's it for me.
Yes. Thanks.
Thanks for your question. So by every measure possible, we had a strong print and in the fourth quarter were delighted with our results as we talked about.
But that said you know we're not gonna chocolate the results for one quarter for entire year for this year keep in mind, we are of global business, we transact sales and over 160 countries, we have feet on the street and 30 countries.
We try not to look at the business Monolithically and instead.
Different segments of the countries.
And different sectors of the economy are different faces really of the pandemic. Some countries are imposing further lockdowns and restrictions, which does create a little more uncertainty and some of those deals and while others are a more steady state.
And so for US I think we take all of that into consideration when we provide a guide the good news as we have of business model. That's high recurring revenue high gross margins high renewal rates. So I guess, there's a lot of visibility going into the year, but it is really and the air and there still is a lot of uncertainty and we're not factoring any.
A V shape recovery or any changes.
You know here in a broader market dynamics that are you know that would change.
That would change the business short term and and then we talked about Tullow and and its potential impact from the company. Obviously has the has the potential to create some tailwind for us, but you know and with regard to the fourth quarter of particular, that's something that played out you know well wait.
Late in the quarter and a lot of the opportunities and the pipeline with delta and deals where especially that the close so we're actually having customer conversations from the customers and our partners. The determined what the opportunity is if any and what the potential impact is here in terms of the of.
Timing. So overall all of this is really factored into our calculus, when we give the guidance.
And again, reinstating CCP Guy and something that we haven't done and over a year and we feel this is a good guide for us and a good starting point and a low.
And it certainly gives us the strength of the Q4 results gives it gives us momentum.
On that headed into added into the year.
Thank you very much.
And our next question comes from Sterling Auty with JP Morgan.
Yeah, Thanks, Hi, guys, so coming into 'twenty, and 'twenty and the beginning of 2020.
It was pretty clear debt.
And at least the commentary and the results. Your margin performance was really good and you said you'd focus on that and we've seen really good margin results throughout 2020, but the growth rate has decelerated through the year.
And now it.
Reading it correct it sounds like with the commentary around investment for both R&D quota carrying and sales and marketing that perhaps now with the growth rate decelerating that the focus is shifting back to invest to hopefully stabilize or maybe reaccelerate growth, but it's going to take.
Couple of quarters to for those investments to pay off is that the right read or am I missing it.
Hi, Sterling this is Steve.
That is a.
Fair characterization and infant and our guide.
We have a lot of confidence and the market I think we have more conviction now and then.
The than we did certainly a couple of quarters ago, we weren't.
We weren't sure of what to expect headed into the pandemic.
I think PCB growth was like.
It was like 20% plus and Q1.
And then and Q2 I think it was like 13%, we talked about some timing differences of deals and how that played out and.
And then it was over 20% and Q3 and then we're delighted to report 20 per cent and the fourth quarter.
So we felt really good about the fundamentals of our business, we're adding customers at a very high rate transacting larger deals.
I think we'd be remiss, if we didn't highlight the investment opportunities and the opportunities for us really to generate.
Long term, our attractive topline graph, so the investments and go to market investments and product are all Paramount and we certainly want to run for growth.
And I have the opportunity for growth.
Right the uncertainty with the macro and we think the investments that we've talked about today not one until they give us the best chance for that at the same time.
We have and our guidance certainly implies and expanding operating margins.
You had a lot of leverage and the business this year.
Sales and marketing spend as a percentage of revenue came down from and close to 60 per cent from the full year 2019 to something below <unk> 40 per cent range and the fourth quarter of 2020.
And so theres a lot of leverage and the business.
We talked about the improvement in free cash flow, we even talked about in the call that despite these investments we expect the free cash flow margins to improve this year. So we're trying to strike the right balance we were certainly a big believer in the market and we think these investments gives us the opportunity.
And I tend to lean in on growth, but at the same time be efficient and continuing to drive leverage on the bottom line.
Okay, and then one follow up I mean, there's been news reports that maybe a couple of the cyber security vendors may have had either some sort of breach or exposure with all of the happening over the last month or so you know is that actually opens up opportunity to gain market share.
Or you know and increased opportunity for you guys or is that not part of the conversation you were saying.
I do know the.
And customers and prospects of should the market and more broadly.
Places greater emphasis on security and the vendor and supply chain worse from management.
Greater emphasis and value out of that but the half.
In previous periods, I think highlighted by solar winds and some of the high profile security company of breaches I you know I don't know that I would translate it directly into saying.
Theres an opportunity it represents a great opportunity for displacement for us, but certainly.
Our stance in terms of best of breed provider and the quality provider.
Places of tailwind and and obviously.
And there are no security program is perfect, but we do invest and our security and and and and have continued to do so.
Understood. Thank you.
And our next question comes from and food and the Winski with D. A Davidson.
Okay.
Great. Thank you for taking the questions and congrats on the nice quarter.
I just want to go back from one of your comments about the Greenfield opportunity I'm trying to better understand and really how nascent your market opportunity is and I know you said about a third of those 460, new adds were Greenfield this quarter, which I think is similar to what you said last quarter.
But do you think that's reflective of the broader market opportunity, meaning you know one third of the companies out there have nothing for for VM and how do you think that'll change at the end of calendar 'twenty, one because I think many people believe that after the equifax breach most interplay of enterprises deployed some sort of VM solution and therefore, you know the bear thesis suggest that.
Most of your growth and have to come from vendor displacements, just wondering how youre thinking about or how we should think about that needs and opportunities.
Yeah, I guess I'd be careful making assumptions about rational behavior and in the security community.
The one would assume and and you know coming into the tenable of about four years ago.
And when I first started getting exposed to the data was was shocked when the team would come back and say hey, this quarter or about a third sometimes its highest 40 per cent, sometimes as low as 25 per cent, but pretty consistently about a third of our new large enterprise transactions are coming to us from.
Greenfield, meaning they're not using tenable and they're not using any of our primary competitors, they're not even using it and.
And that's just they have no organic VM program capability, there literally relying on an annual audit or assessments of what Pete of the from.
The big four or some other security consultancy as their enterprise understanding of cyber risk which is.
Which I thought was a complete lunacy back then and as the market has continued to mature.
That continues to be the case, where we're seeing a lot of new adoption and about a third of the larger out of price transactions coming to us from organizations that still.
During 2021 or the world and fourth quarter of 2020.
And I've had no organic VM capability, so that Greenfield, we do talk about competitive displacements and growth through.
To increase the.
Asset coverage and our existing customer base, new asset types and and alike, but there is a very healthy amount of greenfield that remains in the market.
And we tried to highlight that through.
Calling out the amount of our of the Greenfield that we're landing through calling out the number of new enterprise new customers landing onto our enterprise platforms every quarter.
And try and be fairly transparent about it and this quarter of 460 of school one of our best quarters ever.
Okay. That's great. Thank you so much of that just the quick clarification as well all of your sales and marketing expenses modestly increased quarter over quarter and year over year in Q4 here and you demonstrated you know very good leverage operating leverage and calendar 'twenty I'm, just wondering how much the sore wins attack factored in.
And to your decision to increase investments for the coming year or if that's something you would you would plan regardless of the breach.
I think that's just one of many factors that goes into kind of us running the company.
And the broader market and competitive dynamics and we also look at.
Some of the attractive secular trends and the market. So I think our results more broadly and the fourth quarter give us confidence to invest.
And the rate and whats writing new customers, certainly underscores that our ability to transact larger deals so in the <unk>.
The grass so competitive takeaways are best of breed focus we have a lot of concentration of market gives us the confidence to invest.
More so certainly in 2021 and then what we did in 2020 and we believe there's a compelling long term opportunity here so yeah.
Yeah, I think it's a combination of of a lot of things not just any one thing specifically.
But just really reflects the broad enthusiasm and confidence we have not only our ability to execute but also and the backdrop of the broader market opportunity.
That's great keep up the good work guys. Thanks.
Thank you.
Okay.
And our next question comes from Jonathan Ho with William Blair.
Hi, Good afternoon, just wanted to start out I think you had some commentary around multi product cross sell motions and maybe reducing some of the friction. There can you talk about and maybe what you're doing with some of your programs and whether there's any significant opportunities that you see year round of further driving that cross sell motion.
Yeah, Jonathan Great Great question.
And the observation about the boat.
Some of the talk track earlier.
We believe that there are tremendous opportunities for the creation of value creation for our customers and some of the products specifically as you look at.
The container security as you look at Frictionless assessment as you look at Io and and some of the things that we're doing around cloud security and coming up with packaging and it makes more sense or lowers the web application, where the application security are all aspects of cloud security and making it easier for customers.
And to embrace cloud security capabilities or the or the things that we would've traditionally looked at and said Hey, we have to do of cross sell here between this product and that product.
And and and now saying you know what.
Can we create a value.
The value for customers and.
How these products work together, we identify something kind of automatically trigger a different method of assessment that makes more sense can give more detailed and.
Answers for customers as well as of the packaging.
That would go along with with with that and until the ease the.
The amount of work if you will that's required to move customers between <unk> and <unk>.
Across product lines.
So we're working on some of that with the with some of our some of our early access customers and and excited about the opportunity to do so.
Got it got it and just as a quick follow up and just given the change in administration and some you know early leanings towards and potentially interesting cyber security spend on the government side and can you talk about what you're seeing there in terms of government spending and and do you expect that to be I guess and above average growth vertical this year.
Or and given the 'twenty and 'twenty was the year of the vulnerability for U S fed and we will.
And it was some of that brought forward and I'm, just trying to get a sense of what you're thinking.
Yeah, well I think every year as of the year of increased vulnerability increased risk and increased exposure and certainly it was true and the federal market.
In 2020.
A lot of.
The confusion if you will in the final days of of the last of administration you saw a lot of changeover of lot of thrashing.
Senior leadership positions.
And especially you know not limited to but especially from our perspective and in the cyber domain and the sub ranks and so.
You know theres the opportunity I think for the incoming administration to place the priority.
And on cyber.
Bring in strong leadership and implement.
The increased or enhancements to program and potentially even launch new programs and new initiatives to reduce federal.
Cyber security risk and there certainly is the awareness and the administration and we know that.
There's already been a sort of 10 plus billion dollar proposal put out there.
And as well as you know.
Cyber being an important part of the.
Early administration of dialogue, so where it's at.
And Steve said, where we're in the early.
Periods here and and we'll wait to see how this plays out but there certainly is the potential for.
Good growth in the federal market as a result of.
Of that and and we have and exceptionally strong position and the federal cyber security market and.
2020 will continue to be a strong year for us and that market.
Great. Thank you.
And our next question comes from Rob of wins with Piper Sandler.
Yeah. Good afternoon, guys just one the relatively quick one from me I guess of me could you talk a little bit about where customer conversations are around containers and container security and we've got the C. S. P M market the cloud workload protection markets.
Are they looking for these technologies from a single vendor and with all of the noise out there and obviously, it's a big land grab of at this point, where our points of leverage in your mind in terms of who might win and these markets. Thanks.
Yeah, and and and.
And I don't think the you know unless I'm mistaken I would be shocked if there were any one particular winter in these markets and it depends on who the buyer is what the use case, what they're trying to achieve and the medications.
Yeah.
Enterprises are using cloud and very different ways, not only SaaS and and.
And and cloud based infrastructure Dev op environments, well out of the Theres just a whole lot of you know theres no one cloud there's a lot of different.
It uses.
She.
A lot of different ways customers engaging.
And the adoption of cloud from our perspective, we're not trying to go out and say, we're gonna be a soup to nuts.
Cloud security vendor and provider, we're gonna do every aspect of cloud security for you, we think and there's going to be a very rich ecosystem of solutions out there some coming from the attack detection and response company some of them coming from.
Infrastructure protection company, some coming from the cloud infrastructure vendors themselves embedded capability into the cloud and and so from our perspective.
We are where.
Engaging with our current users.
And the current use case that we help them solve and address and just expanding that into cloud and so by that I mean, we're helping them really.
And with this business of assessing the security of their cloud environment, we're not protecting cloud environments, we're not doing all of the attack detection.
And other aspects of and tightening down of of.
Ah configurations, and and other things, it's really about how do I assess the security of my cloud workload and of the assets that are and that cloud.
And we have a number of ways to do that whether it's.
Through I O and with Frictionless assessment through a cloud native connectors, whether it's through the web application capability through the container of inspection.
Capability and the number of and the number of other other techniques. So from our perspective. It's still this question how at risk of my how secure my and really expanding that visibility that they rely on us for into these.
These new cloud paradigms and and seem to be you know I think Q4 was a.
A quarter, where we saw increase the adoption.
Of those cloud security products and so we tried to call some of that out earlier and in the on the call.
Great. Thank you.
And the next question is from Daniel Ives with Wedbush Securities.
Yeah. Thanks.
Just sort of follow ups and some other questions and to summarize so when you say about the what we're seeing on the federal side with the non 10 billion of incremental.
Sure wins hack those tailwind could we see that that additional area in terms of cyber security spend that you're in.
Not factoring in to your guidance I guess just to be clear.
Yeah.
Yeah, I think that's a fair characterization.
Hum.
And certainly know that there is a compelling opportunity and fad doesn't mean, the called out earlier, obviously the potential for a better spending environment and more broadly for solar Lynch.
But the timing of that and the impact of that if any.
Hard to assess at this point.
So I think our guidance certainly reflects some broader uncertainty and and without the without those potential opportunities correct.
Okay, and then just the follow up to that too just given this.
Hi, there that's now there in terms of on the cyber security side, we specifically on the federal and then Bob I wanted to get approved but then also push solar winds are you doing anything differently internally from a block and tackling to make sure these opportunities, especially where you guys sit.
Within the beltway that you could capture or is it just the the traditional sort of of tenable execution model. Thanks.
Well, we're very focused on the execution model helping.
Customers in time of crisis being there for them interacting with them, giving them the insights that we have and two.
The challenge is that we're seeing you know, obviously, we help them and their environments, but what we're seeing more broadly across the the community.
Our important giving them the accuracy and the confidence.
So the when they're reporting issues or the there are no issues, there, but theyre doing so from a from a position of strength, so yeah, and first and foremost that traditional.
And.
Execution aspect of our customer relationship remains.
The.
And the most important thing and then we do engage with the with policymakers and others.
Trying to educate and inform them on hey, what are the key issues.
And what are the right approaches to dealing with these issues and so we have spoken with folks regarding.
The solar winds breach and continued.
Ways to help the government of SaaS, the state of cyber security and some of the challenges in front of it. So I'd say, it's sort of a two pronged approach first and foremost execution, but certainly also the more strategic dialogue with.
With the key government leaders and policymakers.
Thanks for the insight.
And the next question is from Gray Powell with E T I G.
And Mr. Paul are you there.
Alright, and then can you guys hear me okay.
Yes sure.
Sure Ken Okay, great great and it really helps when I turned the mute button of.
And thanks for taking the question and I really appreciate it yeah I just had another question on the soybeans breach and I know you've answered a bunch of and it already but just one more follow up if I could so do you see customers and just.
How do you see it playing out over the next six to 12 months do you see customers looking to increase the asset coverage and it does at the speed up the valuations of of things like lunar and or is it more of the lever to drive new customer wins, yeah, and it's just.
Any thoughts on that dynamic would be would be really helpful.
Yeah, it's the worst of all of my I'm extremely proud of how our team responded during the question in terms of you know.
Getting the information out to customers on a.
Near real time basis.
And the understanding of the breach and understanding how to use the technology to assess.
Where they may have potential exposures and chase goes the ground.
Which are which are again all critical.
When the security program is try and respond to corporate leadership that has a.
The visibility into the into a breach like the so.
You know I.
I think that is.
Is foundational and from there.
The natural.
Questions are okay, where do we have visibility where do we have coverage where don't we have coverage.
And making sure that organizations have whether it's through increased.
The asset coverage coverage across the enterprise coverage and too.
Unidentified assets.
As well as doing some of the prioritization activities. So the high risk vulnerabilities risks, which are more likely to be.
All of those which were more likely to be exploited or being exported out of the wild. The organizations can can get on top of those and be a little bit more proactive with their security. So.
I think the you know the short answer is and this could be cash.
The list floor and.
Kris levels of <unk>.
Risk sub security risk management, and we think we're the primary platform to help enterprises do that.
And so you know it could it could translate into.
And to increase a bit of call you know we're still in the early period. So it's hard to look at that and then translate into this is what it's gonna be and supports what the impact is going to look like.
We entered the year.
Understood. Okay. Thank you very much.
And this concludes today's question and answer session, ladies and gentlemen, and I'd like to turn the call back over to management for closing remarks.
Okay, and I like to just thank everybody for joining the call and insightful questions and look forward to.
Seeing you at the Investor conferences that we noted earlier.
And.
Thanks for your time.
Thank you all of this concludes Tonight's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great evening.