Q1 2023 Tenable Holdings Inc Earnings Call
Okay.
[music].
Greetings and welcome to <unk> first quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
And answer session will follow the formal presentation.
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As a reminder, this conference is being recorded it is now my pleasure to introduce your host Erin Karney, Vice President Investor Relations. Thank you you may begin.
You operator, and thank you all for joining us on today's conference call to discuss <unk> first quarter 2023 financial result.
With me on the call today are meet your Ann our Chief Executive Officer, and Defense, our Chief Financial Officer. Prior to this call we issued a press release announcing our financial results for the quarter you can find the press release on the IR website at Tenable Dot com before we begin let me remind you that we will make forward looking statements during the course of.
This call, including statements relating to our guidance and expectations for the second quarter and full year 2023 right.
Growth and drivers in our business changes on threat landscape in the security industry and our competitive position in the market growth in our customer demand for and adoption of our solution planned innovation and new products and services and our expectations regarding long term profitability and free cash flow.
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 as a 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 or outlook for further discussion of the material risks and other important factors that could affect our <unk>.
Actual results. Please refer to those contained in our most recent annual report on Form 10-K, and subsequent reports that we file with the SEC, which are available on the SEC website at SEC Doc Gus.
In addition, during today's call we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not as substitute for or superior to measures of financial performance prepared in accordance with GAAP.
There are 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 the Investor Relations section of our website I'll now turn the call over to Amit.
Today I'll provide some financial highlights on the quarter discuss the current state of the market and our momentum with Carnival one.
We delivered strong revenue operating income and cash flow during the quarter. This is particularly notable given the macro headwinds we experienced at the end of March.
Conversations with customers, we are confident that cyber security and specifically cyber exposure management remains a top strategic focus for organizations globally.
While we experienced some challenges in the quarter, we saw some incredibly positive signs for our business. Let me start by making a few comments about the broader market, which impacted current calculated billings.
The macro conditions, we've been discussing backend loaded quarters longer sales cycles, and more scrutiny of large deals, particularly new business continued during the quarter.
Well the last two weeks of March exacerbated these conditions as the banking crisis came to light.
Specifically, we saw longer lead times, and purchasing and approval phases of our sales cycle.
In the first quarter versus what we typically experienced.
As a direct result.
A number of highly qualified committed deals pushed out of the quarter, which is reflected in our net new enterprise and our six figure adds.
The deals push many we're in banking and financial services and technology and telecom traditionally strong sectors. For example, we expect these macro factors to continue to have an impact this year.
As we navigate the current macro environment. There are two points that are important to note.
First if the demand remains strong.
Newport, one generation added during the quarter exceeded our expectations and was a record for tenable customer.
Customers clearly want to understand and reduce their risk and they are increasingly using tenable one as the platform of choice to do so.
The second is that we believe are competitive dynamics have never been more favorable we're getting tech evaluation wins at a much faster rate in fact lead to check when phase of our sales cycle in the quarter was approximately 10% shorter than the same quarter last year, which was also aided by law for Jay.
And this market more enterprises are specifically looking to consolidate their investments with a platform first approach to cyber security. This trend is good news for us and one that we intend to use toward full advantage.
Carnival, one enables our customers to achieve greater return on their cyber security investment, while also providing the preventative security they desperately need.
Tenable, one continues to be an exciting area of growth for us and represents a mid teens percentage of new business and a high single digit percentage of our overall business.
It's also noteworthy that within kind of a one we continue to see a shift in allocation of licenses beyond vulnerability management.
Pardon analytics are key areas of growth with existing customers validating our investments.
High class security posture, and vulnerability management as well as our analytics, let approached your exposure management.
The strength, we're seeing in Carnival. One is a direct result of our pursuit to operationalize preventative security, which has been a driving force for our roadmap.
Well reactive cyber security is necessary it does little to nothing to address the root causes of a majority of breaches known vulnerabilities and Miss configurations.
We are leading the industry to change the way it thinks about managing risk with.
Exposure management capabilities of tenable, one organizations are rethinking their approach to risk leveraging vulnerability and risk data to proactively on earth weaknesses and prioritized vulnerability remediation.
And as I mentioned, we're getting tech wins faster, we believe the speed of our wins reflects a combination of our position as a technology leader our reputation as a company and the superiority of our exposure management platform. There's no doubt that security teams need to do more.
With less and are choosing to do so.
With a partner they trust.
We're committed to delivering more for our customers.
And we're updating carnival wanted to support on premise and hybrid environments via integration with tangible security Center. This enables tens of thousands of organizations and customers with regulatory and data privacy requirements to access tenable. Once features such as risk analytics attacked happened analytics benchmarking and after the inventory.
Someone streamlines exposure management for hybrid vulnerability management deployment and May help on Prem customers transition to the cloud more quickly.
Customers want to understand exposures and manage risk tenable. One provides the means to consistently enforced cloud security posture and compliance across multi cloud and hybrid environments through a single unified platform.
Our solution is more cost effective and scalable and using one off or silo tools.
While we are navigating some near term macro headwinds, which have led us to revise our topline guide we have a lot to be excited about we have an industry, leading technology and our expanding successfully to a platform, enabling our customers to consolidate vendors and increase operating efficiency both of which are critical in this environment.
We're building strong demand at the top end of the funnel, we're changing tech wounds faster and we believe we've never been better positioned competitively in short I believe the tenable is well positioned strategically for long term success and could not be more excited about our future.
Additionally, we remain committed to delivering on the operating and Unlevered free cash flow commitments, we made at the beginning of the year.
We look forward to updating you as the year progresses, I'll now turn the call over to Steve for further commentary on our financial results and outlook.
Thank you me.
Our ability to deliver better than expected profitability in the quarter due to stronger operating efficiency.
Certainly a notable accomplishment in this market.
I will provide more commentary momentarily, but first please note that all financial results. We discuss today are non-GAAP financial measures with the exception of revenue.
As Aaron mentioned at the start of this call GAAP to non-GAAP reconciliations may be found in our earnings release issued earlier today, which is posted on our website.
Now onto our results for the quarter.
Calculated current billings defined as the change in current deferred revenue plus revenue recognized in the quarter grew 13% year over year to $176 8 million.
As it meet discussed earlier, we experienced a more challenging selling environment in Q1.
Most notably during the final two weeks of the quarter, which historically is our busiest time.
This resulted in a higher percentage of large deals both in terms of new lands and expansion opportunities that pushed out of the quarter, particularly in North America, and specifically in the banking and financial services and the technology and telecom sectors.
It is important to note that banking and financial services and technology and telecom are frequently an area of strength for us given the sophisticated nature of these customers from cyber perspective, and their propensity to transact larger deals.
Despite the environment demand remains strong and exceeded our expectations as we generated more tight during the quarter than in any other time in our company's history.
In terms of key financial metrics.
We added 379, new enterprise platform customers and 24 net new six figure customers in Q1.
Our dollar based net expansion rate was 113% in the quarter.
As a reminder, the expansion rate can fluctuate on a quarterly basis.
Gross retention, it's worth noting was strong in the quarter.
Revenue.
It was $188 8 million, which represents 18% year over year growth.
Revenue in the quarter exceeded the midpoint of our guidance range by $1 8 million.
Our percentage of recurring revenue remains high.
It was 95% this quarter, which is consistent with prior periods.
I'll now turn to expenses, where we are demonstrating good cost control and operating leverage I'll start with gross margin, which was 79% this quarter and up from 78% last quarter.
We are pleased to see our gross margin expand over the prior quarter, primarily due to our ability to cost effectively provision and managed public cloud infrastructure as we absorbed the initial costs related to our newer exposure management offerings.
Sales and marketing expense was $82 8 million, which was up from $78 3 million last quarter.
Sales and marketing expense as a percentage of revenue was 44% compared to 42% last quarter.
Sales and marketing expense increased primarily due to the incremental costs associated with presuming are annual in person sales kickoff.
Wages are attributed to hiring additional sales personnel and quota carrying sales reps.
Set by lower commissions expense due to our large renewal base in Q4.
R&D expense was $29 3 million, which was up from $28 7 million last quarter.
R&D expense as a percentage of revenue was 16% this quarter and last quarter R&D.
R&D expense increased sequentially due to additional personnel costs.
Primarily payroll taxes and benefits and investments in software development and associated cloud resources.
G&A expense was $18 8 million.
Which was up from $17 9 million last quarter, primarily due to higher wages and payroll taxes as well as higher I E and professional fees to support our continued growth.
As a percentage of revenue G&A expense was 10% this quarter consistent with last quarter.
Income from operations was $18 1 million, which is very notably above the midpoint of our guidance range by $8 6 million.
Operating margin for the quarter was 10%, which was 500 basis points better than the midpoint of our guidance.
The takeaway here is even in a dynamic environment, we've been able to expand our operating margin as we scale our business by leveraging our VM market leadership.
Sizeable customer base and broad exposure management platform.
All of this resulted in earnings per share in the first quarter of 11 cents.
Which was eight and a half sounds better than the midpoint of our guided range.
Now, let's turn to the balance sheet.
We finished the quarter with $616 7 million cash and short term investments.
Accounts receivable was $123 9 million and total deferred revenue was $642 1 million, including $490 1 million of current deferred revenue, which gives us a lot of visibility into revenue over the next 12 months.
We generated $44 2 million of Unlevered free cash flow joined the quarter, which is up from $32 1 million last quarter.
With 95% recurring revenue high gross margins and high renewal rates, we felt confident that we can continue to expand our operating and free cash flow margins over the ensuing years.
With the results of the quarter behind us I'd like to discuss our outlook for the second quarter and full year 2023.
For the second quarter, we currently expect revenue to be in the range of $189 million to $191 million non.
non-GAAP income from operations to be in the range of 20.
$21 million.
non-GAAP net income to be in the range of $15 million to $16 million.
Assuming interest expense of $7 7 million interest income of $5 2 million and a provision for income taxes of $2 4 million.
non-GAAP diluted earnings per share to be in the range of 12 to 13.
Assuming 125 million fully diluted weighted average shares outstanding.
And for the full year. We currently expect calculated current billings to be in the range of $875 million to $885 million.
Revenue to be in the range of $775 million to $785 million.
non-GAAP income from operations to be in the range of $90 million to $95 million.
non-GAAP net income to be in the range of $69 million to $74 million, assuming interest expense of $31 6 million interest income of $20 8 million and a provision for income taxes of $9 9 million.
non-GAAP diluted earnings per share to be in the range of 57 to 61 cents.
Assuming $121 5 million fully diluted weighted average shares outstanding.
And unlevered free cash flow to be in the range of <unk>.
$175 million to $180 million.
There are a few comments I want to make that will provide important context to our guidance today first.
Our annual <unk> guide reflects a continuation of the selling environment that we experienced at the end of March.
While in April we closed a number of the deals that pushed out of Q1 and demand generation was strong in the quarter. Our guidance assumes that new business will take longer to close over the remainder of the year in light of the macro.
Our annual <unk> guidance also reflects.
A slightly shorter contract duration, which is what we experienced in Q1.
In terms of quarterly flow, we expect Q2 to be slightly lower than the 13% to 14% GCB growth.
Expect it for the full year.
Our revenue guidance also reflects the impact of all of these factors.
In terms of profitability, we are very pleased to raise our full year outlook for operating income given our outperformance in the first quarter and our confidence to drive continued leverage in the business.
Recall in February we laid out a plan to invest more aggressively this year and go to market and it's worth noting that we were able to execute on some of that hiring in Q1 that said our guidance calls for more select investment across the business for the remainder of the year.
In addition, our outlook reflects lower variable cost that dropped directly to the bottom line based on our revised top line guidance.
We're mindful of the macro was very fluid and highly dynamic. So we expect to remain agile and we'll reevaluate the ROI of future spend as we continuously strike the right balance between growth and profitability.
It's also important to note that we were able to reiterate our annual guidance for Unlevered free cash flow today based on the strength of our guide for full year op income.
This point I'd like to turn the call back over to Amit for some closing comments.
Thanks, Steve This is indeed, a very fluid environment, but we are well positioned strategically to help our customers solve their most important cyber challenges we have a ton of opportunity ahead of us and look forward to updating you throughout the year, we hope to see many of you at the JP Morgan conference in the upcoming weeks.
We'd now like to open the call up for questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
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In the interest of time, so we may get to everyone's questions. Please limit yourself to one question and one follow up only.
Our first question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.
Great. Thank you very much for taking my question. Good afternoon could you guys, specifically speak to the weakness that youre seeing in the tech and telecom vertical.
Head count related or some of the some of the reasoning behind the push deals and then I guess in addition states steps that you guys were taking from our pipeline management perspective to shepherd deals across the line. Thanks.
Yeah.
I don't think we've looked at.
Change.
Change in sale cycle is related specifically to head count in Tech and telecom.
I do acknowledge that.
There has been some impact.
From our perspective, it was much more of a procurement process than it was.
Count there were a number of assets types of issue. We saw deal actually we saw very healthy demand. The top end of the funnel a lot of our demand generation activities actually saw faster lead.
Two technical win.
But about 10% faster than we have in previous periods, So mark recyclables more deal delay.
The final phase waiting for negotiation and final approval from the <unk>.
Finance team. So I think that's kind of how I would characterize the change in buying behaviors.
Internally, we're doing a number of things with the sales team to go to market functions through certain we've got greater visibility.
Across the board in terms of looking above and beyond approval from the exposure management risk management teams, the Cfo's office and much more visibility into the financial side.
Close.
Okay.
Our next question comes from the line of Joel Fishbein with true Securities. Please proceed with your question.
Thanks for taking my question I.
I guess, one quick one for you.
A quick follow up for Steve I, just I'm curious you know you talked a little bit about the tenable one.
Getting some traction I really understand what the buyer reaction is to that in terms of pricing and how does that flow through of pricing is stable and maybe you could talk about an example, or two of some customers.
Adopting tenable one.
Yeah.
Yeah.
We're super excited about tenable, one every data point that we've seen shows us that we're achieving faster sales cycles, we are achieving a higher asps and from a customer perspective, we're seeing them allocate more of their licenses toward.
Things above and beyond yeah, So looking at cloud security looking at agenda.
There are aspects of their attack surface. So from our perspective faster sales cycles, larger asp's, which can deliver better and more compelling analytics from a customer perspective, yes, they're paying more but theyre actually able to consult do some vendor consolidation and reduce costs. So if you look at.
Tenable on the and some other solution for identity security identity or helping with the with cloud security.
That combination of activities and vendors ends up being substitute with more expensive debt.
Lourenco Carnival to deliver on all of those capabilities through it through a unified platform.
Which help save on license costs and ultimately helps you operationalize these securities activities through.
Integrated API and streamlined operations fewer interfaces and the like.
Okay.
Real quick just as a follow up on you reiterated the unlevered free cash flow for 'twenty. Three so can we assume that the unlevered free cash flow of 24 for $2 40 to 250 is still intact.
Hey, Joe This is Steve.
Now, let's talk about 2024 in February of next year, but what I will say is notwithstanding the current macro nothing changed here in our business.
We're excited about the opportunity we're committed to the cash flow targets that we set at the beginning of the year. So reaffirming op income and free cash flow and we're happy to talk about free cash flow more in 2024 in February .
Thank you.
Our next question comes from the line of Brian Essex with J P. Morgan. Please proceed with your question.
Hi, good afternoon, and thank you for taking the question, maybe if I could follow up to Rob's question a little bit.
Could you speak to weakness in the financial services vertical with regard to the size of the enterprises and then was there any specific focus in terms of the breadth of the deal. So are these you know for example, tenable one deals we had a lot greater attach rates in Europe , maybe more and more dollars at stake maybe just a little color there would be helpful.
Yeah, I think with respect to the banking and financial services sector. We saw as we started the.
The elongation of the deal approvals.
And the finance team at the very end of the sales cycle. It was certainly more toward the mid sized and regional banks, but I'd say also more heavily weighted in north America than any other GL.
Okay.
Okay, and then in terms of breadth of deals and in complexity.
Attach rates and so forth any any concentration there.
Yes, Brian this is Steve.
Say that.
What we call the last quarter.
More broadly across the board.
And we talked about greater percentage of pushed deals.
Banking and financial services, and Tech and Telecom and specifically North America those two sectors.
Pretty sizable for us represent approximately 30% right total sales historically has been very strong and they also tend to skew towards larger.
Transactions irrespective of whether they are now.
Even a reasonable back here so.
For us here.
We're seeing a lot of positive signs in the quarter, but obviously, we believe these are short term headwinds that we're working to overcome and feel good about the outlook that we're giving with regard to profitability and cash flow.
The good news here is that we've made a fair investment out of the gate here to start the first quarter and our expectation is that this is a good set up for success for the remainder of the year.
That makes sense. Thank you very much for the additional color I appreciate it.
Yeah.
Our next question comes from the line of Hamzah Feta Waller with Morgan Stanley . Please proceed with your question.
Good afternoon, and thanks for taking my question so.
So I got this straight last two weeks of the quarter.
Not great seems like a lot of that was due to the financials.
The sector has there been anything in the month of.
April should suggest to you that.
It was in fact, a pause from some of your banking customers as opposed to perhaps another leg down for Q2 versus Q1.
Hey, this is Steve.
Well April was strong for us we're tracking to our revised outlook.
We're encouraged by some of the data network.
In April .
Talked about earlier, we close towards the deals that we have.
Pushed out of Q2.
Closed specifically in April .
Month of the quarter is always our busiest so Jim we will certainly be determined here, but.
But initially off to a strong start and all of this is factored into our outlook for the year.
Got it so it sounds like too early to tell.
And then just roughly like could you help us size, what the banking and financial services revenue exposures accountable I know theres a lot that goes into financial services like different sector, but like just roughly.
Thank you.
Yeah, I'd say not not surprisingly when you look at banking and financial services and also tech telecom those are some of the more sophisticated.
Industries when it comes to cyber security so collectively those represent about 30% of the overall business.
On a global basis.
Thank you.
Yeah.
Yeah.
Our next question comes from the line of Soccer Calia with Barclays. Please proceed with your question.
Okay, Great Hey, guys. Thanks for taking my questions here.
Let me maybe maybe for you just to just to change it up a little bit on verticals. I was wondering if you can just talk a little bit about the federal business. How did that do here in the in the March quarter, and how does the pipeline look for the rest of the year.
Yes, we actually saw a reasonably strong quarter.
For our public sector business, including federal and maybe even more so on the state local side and we anticipate that to be a strong sector for us throughout the remainder of the year.
Got it got it and Steve maybe for you you talked about you talked about maybe seeing slightly shorter contract durations, but yet, but you were still able to reiterate the unlevered free cash flow guide. So kudos just maybe help us think about some of the puts and takes there.
Yes sure.
Well, we talked about you know in terms of <unk> reflects the continuation of the selling environment, we experienced in Q1.
We are assuming that new business there'll be it from new logos or even upsell will take longer to close for the remainder of the year.
So we're modeling.
Lower conversion rates and even lower net dollar expansion rate than what we were expecting on our last call in February and we think it's just prudent to do so.
I would play out here in the last couple of weeks.
Our guidance does reflect a slightly shorter contract duration.
Due to fewer than expected multiyear prepaid deals.
Ed.
<unk> on a strong we're getting into tech loans much faster. We're qualifying these opportunities working closely with our prospects and partners now on the other side of that the expense side. Our plan. This year costs were fairly significant investment and the good news.
We were able to execute on a lot of that in the first quarter beginning with played out the last couple of weeks of the quarter, we're moderating that level of investment.
I believe that was actually investing going forward and that allows us to achieve actually the same if not higher levels of op income with Scotty.
Thank you.
Due to the strong start in Q1, we're also able to get back to and reaffirmed our outlook for Unlevered free cash flow has always been a balance grow or we have a great business model with lots of recurring revenue high gross margins high renewal rates and each.
Each quarter is different in its own right and we're going to continue to balance investments with the opportunities that are there in front of us and with the desire to achieve comparable levels of cash flow.
Very helpful. Thanks, guys.
Our next question comes from the line of Brad Reback with Stifel. Please proceed with your question.
Thanks, very much Steve sorry, if I missed this but on the quota capacity do you still expect 23 to be larger from an AD perspective in 'twenty two.
We are mentioned some of the moderation in investment also in past quarter capacity.
Our focus here we've added good quota capacity in Q1, our focus here short term, it's going to be all achieving higher levels of productivity and so our expectation is that.
The investments we contemplate it across the board for the business at the onset of the year and specifically in sales will be more moderate.
Going forward here.
And then what we discussed on our February call.
Great and I meet.
Given the significant amount of free cash flow you guys are generating right now.
Do you need T C b to Reaccelerate before you would do an M&A transaction or does it not matter.
Oh, no I don't think we have to wait for <unk>.
Before.
Doing M&A transactions I think we're looking at it and in this market, especially where.
We anticipate a lot of companies struggling both from a sales perspective as well as from a.
Markets.
And we won't take advantage of that.
Perfect. Thanks very much.
Yeah.
Just as a reminder, it is star one to ask a question.
Our next question comes from the line of Mike <unk> with Needham <unk> Company. Please proceed with your question.
Hey, guys. Thanks for taking the question here wanted to circle back I know that we're talking about the moderation in investments to help you guys preserve that unlevered free cash flow guidance, we have for the year.
Like if we're moderating on the hiring side for quota carrying reps or the sales and marketing more broadly.
Beyond those hires are there other areas, where the company is looking to either become more efficient or to <unk>.
To reduce some of those variable expenses that you guys were initially looking to invest in them and can you give us some more concrete examples as far as where those I guess redeploy assets, where those savings are coming from.
Yeah, I guess I'd start by saying.
We did a tremendous amount of hiring in Q1 and believe that we have both the quota capacity as well as the head count necessary to drive the results that we provided through the remainder of the year.
What is contemplated is that we will be moderating the pace of new and additional investments throughout the year, while we're seeing.
These longer sales cycles, and changing the sales process and that enables us to deliver on the free cash flow commitments that we've made.
Understood and I guess for the follow up here, but I know tenable. One continues to be something that you guys are highlighting can you give us a better sense.
I guess, excluding some of the commentary that we have around those more difficult weeks in March, but where are you seeing the greatest success with tenable. One is with existing customers just landing new customers is it vertical specific any sense there would be would be helpful.
Yeah, I think not surprisingly the greatest momentum is occurring with our existing customers, where we're there already leveraging us for VM and it just becomes an easier on ramp to broadening their understanding of cyber exposure and in this market we do anticipate.
New new customer acquisition to be more difficult than it has been in previous periods. So we do land new logos, we think theres competitive differentiation with Senate Bill one, but we believe given the size of our customer base the sales motion and the market that we're operating in that you don't expect to see a lot of those sales coming from.
The existing customer base.
It makes a lot of sense. Thank you.
Our next question comes from the line of Andrew Nowinski with Wells Fargo. Please proceed with your question.
Okay. Thank you. Good afternoon. So you guys play across a number of different market segments, including like identity cloud.
Apt security et cetera, just wondering if you saw a change in sales cycles across all those different product.
Product segments or was it more concentrated in maybe an.
And one.
No we saw.
The change in buying behavior curves across all product segments.
More heavily weighted to you know again, the financial services banking.
Our telecom and technology sectors.
More heavily weighted in North America than other geos, but it wasn't.
Our weighted in any one.
Product or its pretty much a cost across all of them.
Okay got it and then I wanted to ask a follow up question on your comments about tenable one being.
Dated for on Prem and hybrid I was wondering do you still get the 70% price uplift with that form factor and are there any revenue recognition differences between the two when you saw that as an on Prem solution.
Yes, we have not.
I can't comment to the.
The actual price uplift because we're only now we're shortly going to be introducing the <unk>.
The hybrid with on Prem capabilities for Tenable one.
And then from a revenue recognition perspective.
Being separate purchases.
There's no change in revenue recognition you ever want to sell them.
Almost all the time is subscription and recurring revenue model.
And it will continue to be that way.
Okay. Thank you.
Yeah.
Our next question comes from the line of Joshua Tilton with Wolfe Research. Please proceed with your question.
Hey, guys. Thanks for taking my questions I have two actually from for my understanding the initial guidance for <unk> and the full year did assume that things got worse in the macro environment and I guess that was before the SBB fallout.
So my question is ex the weakness in banking and financial services was the rest of the business materially worst than the weakness you'd already baked into the guide.
And my second question is you said that the guidance assumes that new business remains pressured for the rest of the year are you assuming this for just the verticals that you saw weakness in this quarter or are you assuming this for all of the verticals that you sell to.
Yeah, I guess the way I would answer that is we saw.
A particular impact in the sectors that we had mentioned earlier.
But those also we believe that those.
The challenges experienced in Italy.
Financial services sector.
Flex into other companies in other sectors. So what we are modeling in.
Is basically more of the same or are those challenges that we saw at the very end of Q1.
Occurring and then playing themselves out for the remainder of the year.
Look actually reflects lower achievement rates and.
Although our net dollar expansion rate and we think that's the right thing to do.
And again, what we saw some of these headwinds the last few weeks of the quarter, which are typically kept their busiest time to work that out over the rest of the year and taken a more cautious outlook.
And just.
Steve is that is that lower D V N or that you're assuming is that lower than what you saw this quarter or is it lower than the midpoint of your expected range that you've previously communicated.
Our guidance reflects a lower net dollar expansion rate.
For the rest of the year than what we experienced and keep in mind too.
We don't net dollar expansion rate can vary from quarter to quarter, but if you look at the compare last year in Q1. It was exceptional as one of our strongest because a lot for Jay.
So our outlook reflects.
Moderating net dollar expansion rate.
Do.
Due to the factors that we experienced the last couple of weeks of Q1.
This is the this is the right approach.
Thanks Scott.
Our next question comes from the line of theory.
Scarpelli with SB and Securities. Please proceed with your question.
Thank you very much related to the last question.
Net of fashion rate declined by four points from 117% at 113% and you expect another decline.
How confident are you that you won't undercut the low end of the range, which is 110%.
Going forward.
Yeah.
Yeah, well, we instead of providing the historically we used to provide the range, saying that we expect the net dollar expansion rate to be between 110, 120%. That's what we were not disclosing the net dollar expansion rate now every quarter, but one of the few companies that do that we disclose the exact net dollar expansion rate. So there's a lot of digital.
Each of the business we also provide.
Investors with a number of new enterprise platform customers, we add the number of net new six figure customers. So it's important to note that there is.
Pipeline opportunities can vary from quarter to quarter between new logos and expansion opportunities and you're assuming some natural variation.
This quarter, we saw some moderation we expect it to moderate our expectations in the outlook for the full year, so that will be moderate lower.
And I think that's a good a good approach to take.
Right now so the takeaway, though is we have 40000 customers massive customer base, we have a broad product.
I Couldnt get momentum and we see a massive opportunity to sell back into our base.
In terms of long term nothing has changed here in terms of what our expectation is.
On the expansion rate, our ability to monetize our existing more profit back into the base.
Notwithstanding the current quarter.
Okay and my second question is the financial services vertical.
Some believe that.
The mess in the banking sector has stabilized a bit notwithstanding the fact that first Republic was down 20% today after the market.
There are some stuff that has stabilized.
Did you see any signs of stabilization in the month of April in that sector.
Yeah.
I would say.
Good news.
Talked about this earlier that some of the deals that pushed me close a good percentage of those.
In April that is certainly encouraging and we're not seeing customers cancel projects across the board I would make that very clear.
Said look at the seasonal flows of our business and kind of the intra quarter flow. The last month of a quarter as always and expect it to be our strongest of June will certainly be determined it but we're very pleased with our start to the quarter and specifically what we're seeing.
April but when you see something towards the end of the quarter.
Thank the right thing to do is kind of extrapolate that out.
Rest of the year.
And we'll be working hard and so on.
Quarters trying to capitalize on the opportunities that are right in front of us are seeing demand remained strong.
Competitive differentiation.
Talked about that and you know, we're getting detect with much faster so.
Do you think the opportunities are right in front of us and working with our prospects and customers to get to close.
Okay. Thank you.
Our next question comes.
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This does conclude today's teleconference. Thank you for your participation everyone. You may disconnect. Your lines at this time and have a wonderful day.