Q4 2023 Tenable Holdings Inc Earnings Call
Speaker Change: [music].
Operator: Greetings, welcome to the Tenable Q4 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the Tenable Q4, 2023 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: 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. I will now turn the conference over to your host, Aaron Carney, Vice President of Investment Relations. You may begin. Thank you, Operator, and thank you all for joining us on today's conference call to discuss Tenable's fourth quarter and full year 2023 financial results. With me on the call today are Amit Yoran, Chief Executive Officer, and Steve Vintz, 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 Investor Relations website at tenable.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 first quarter and full year 2024, growth and drivers in our business, and our future. Thank you.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Now I'll turn the conference over to your host Erin Karney, Vice President professional relations you may begin.
Erin Karney: Thank you operator, and thank you all for joining us on today's conference call to discuss carnivals fourth quarter and full year 2023 financial result.
Erin Karney: With me on the call today are.
Erin Karney: Chief Executive Officer, and Steven <unk>, Chief Financial Officer.
Erin Karney: 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 first quarter and full year 2024.
Erin Karney: Right and drivers in our business changes in the threat landscape and the security industry and our competitive position in the market right in our customer demand for and adoption of our solution, including tenable one.
Operator: Thank you, changes in the threat landscape in the security industry and our competitive position in the market, growth in our customer demand for and adoption of our solutions, including Tenable One, planned innovation and new products and services, the potential benefits and financial impact of our recent acquisition of Arametic, our expectations regarding the cost savings associated with optimizing our go-to-market efforts, and our expectations regarding long-term profitability and free cash flow. These forward 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 predictions 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 outlooks.
Erin Karney: Innovation, and new products and services, the potential benefits and financial impact of our recent acquisition of aromatic our expectations regarding the cost savings associated with optimizing our go to market efforts and our expectations regarding long term profitability and free cash flow.
Erin Karney: These 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.
Erin Karney: Forward looking statements represent our management's Dolby and assumptions only as of today and should not be considered representative of our views as of any subsequent date.
Erin Karney: Disclaim any obligation to update any forward looking statements or outlook.
Operator: For a further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our most recent annual report on Form 10-K, our quarterly report on Form 10-Q for the quarter ended September 30, 2023, and subsequent reports that we filed with the SBA, 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. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalent.
Erin Karney: For further discussion of the material risks and other important factors that could affect our actual results. Please refer to those contained in our most recent annual report on Form 10-K, our quarterly report on Form 10-Q for the quarter ended September 32023, and subsequent reports that we filed with the SEC.
Erin Karney: Which are available on the Sec's website at SEC I've got.
Erin Karney: In addition, during today's call, we'll discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with gap.
Erin Karney: There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents.
Operator: 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 Amita. Thank you, Aaron. Today, I'll touch on our financial performance in the quarter, discuss the evolution of the business, and the momentum we're seeing in our unified platform and broader exposure solution. We are very pleased with our results in Q4, which came in better than expected and included 14% CCP growth and 17% operating yield. For the full year, operating margin was 15%, and over 500 basis points of improvement year over year.
Erin Karney: Our earnings release that we issued today includes GAAP to non-GAAP reconciliation for these measures and is also available on the Investor Relations section of our website.
Speaker Change: I'll now turn the call over to me.
Speaker Change: Thank you Rod today I'll touch on our financial performance for the quarter discuss the evolution of the business animal nothing we're seeing in our unified platform and broader exposure solution.
Speaker Change: We're very pleased with our results in Q4, which came in better than expected and included 14% C. C P growth and 17% operating margin.
Speaker Change: For the full year operating margin was 15%.
Speaker Change: Over 500 basis point improvement year over year.
Amit Yoran: We continue to be focused on delivering balanced growth, and Q4 is a good example of what we can achieve. Underlying our strong results is healthy customer demand. In Q4, inclusive of Mermetic, we added 156 new six-figure customers, and we had another good quarter for seven-figure customers.
Speaker Change: We continue to be focused on delivering balanced growth in Q4 is a good example of what we can achieve.
Speaker Change: Underlying our strong result is healthy customer demand in.
Speaker Change: In Q4 inclusive of or another we added 156, new six figure customers. Yeah, we had another good quarter for seven figure customers.
Amit Yoran: The takeaway here is that we're increasingly landing larger customers and helping our customers secure additional asset types across their tax. This is a testament to the importance of exposure management, our market-leading products, and the vendor consolidation we can deliver to our customers. To that end, we continue to see great traction with Tenable One, OT, Cloud, and Identity, which collectively represent 50% of our new business in the quarter. This momentum gives us the confidence to make additional changes in the business. Since our IPO, we have successfully broadened our office.
Speaker Change: The takeaway here is that we're increasingly landing larger customers and helping our customers secure additional asset types across their taxes.
Speaker Change: This is a testament to the importance of exposure management our.
Speaker Change: Our market, leading products and the vendor consolidation, we can deliver to our customers.
Speaker Change: Does that and we continue to see great traction with tenable, one O G cloud and Afghanistan, which collectively represent 50% of our new business in the quarter.
Speaker Change: This momentum gives us the confidence to make additional changes in the business.
Speaker Change: Since our IPO, we have successfully broadened our offerings through a balance of organic and inorganic investments we have significantly scaled our business.
Amit Yoran: Through a balance of organic and inorganic investment, we have significantly scaled our business. Today, we are winning deals not just in VM but also in cloud, OT, and identity. Perhaps more exciting is that we are able to take all of this data across multiple products and asset types and bring it together in our unified platform. These individual products have proven themselves to be highly competitive or best in class technologies, and they are now core to our offerings and selling motion. This evolution has now put us in a position to begin optimizing our go-to-market efforts, including reducing our reliance on sales specialists, overlay teams, and streamlining layers of management. This is a natural maturation for Tenable, and we are making these changes with an eye toward driving higher levels of productivity and efficiency for our sellers. These changes to our go-to-market strategy and supporting functions resulted in a 5% reduction in our workforce, which is reflected in our guidance today.
Speaker Change: Today, we are winning deals not just in V N, but also in cloud O T and identity.
Speaker Change: Perhaps more exciting.
Speaker Change: Is that we're able to take all of this data across multiple products and asset types and bring it together in a unified platform.
Speaker Change: These individual products equivalent yourselves to be highly competitive or best in class technologies and they are now core to our offerings and selling motions.
Speaker Change: This evolution has now put us in a position to begin optimizing our go to market efforts, including reducing our reliance on sales specialist overlay teams and streamlining layers of management.
Speaker Change: This is a natural maturation for title and we're making these changes with an eye towards driving higher levels of productivity and efficiency for our sellers.
Speaker Change: These changes to our go to market and supporting functions resulted in a 5% reduction of our workforce, which is reflected in our guidance today.
Amit Yoran: We're striking the right balance between efficiently running a business and investing in areas that can drive future growth. With that in mind, I'll dive a little deeper into some of our products. I'll start with Tenable Cloud Security, a key area of focus for companies as more and more workloads move to the cloud.
Speaker Change: Striking the right balance.
Speaker Change: Between efficiently running the business and investing in areas that can drive future growth.
Speaker Change: With that I'll dive, a little deeper into some of our product candidates.
Speaker Change: I'll start with several cloud security is a key area of focus for companies as more and more workloads move to the cloud.
Amit Yoran: This represents one of our largest opportunities, over $16 billion in the total adjustable market. And it is growing faster than the overall cyber market. Specifically, we have been committed to delivering highly competitive SkiNet to simplify and efficiently cut through the complexity of cloud environments so that security teams can identify difficult-to-detect problems and remediate them. Tenable Cloud Security is helping organizations address some of the most difficult challenges in cybersecurity by enabling security professionals to understand the complex relationships across assets, identities, and their entitlements.
Speaker Change: This represents one of our largest opportunities over $16 billion in total addressable market is growing faster than the overall fiber market.
Speaker Change: Specifically.
Speaker Change: We have been committed to delivering highly competitive skew that simplify and efficiently cut through the complexity of cloud environments. So that security teams can identify difficult to detect problems and remediate them.
Speaker Change: Global Cloud security is helping organizations address some of the most difficult challenges and cyber security.
Speaker Change: Enabling security professionals to understand the complex relationships across assets identities and entitlements.
Amit Yoran: Customers are using Tenable Cloud Security to reduce risk associated with an explosion in the volume and permissions of users and machine identities in the cloud. Since the acquisition of Emetic, we have integrated platform capabilities and migrated over 1,000 customers onto our consolidated CNAP capability. Feedback from these customers has been incredibly positive. Customers are highlighting the ease of deployment and the seamlessly integrated experience they are having with our full CNAP solution. Additionally, we are hearing that the Tumble cloud is delivering value and critical insights that other vendors miss. Many of these customers are already increasing the number of cloud resources they are assessing. Another area where we're seeing strong demand and competitive differentiation is in OT. We're increasingly recognized as a key player in this market.
Speaker Change: Customers are using carnival cloud security to reduce risks associated with an explosion in the volume and permission of users and machine identities in the cloud.
Since the acquisition of a medicine, we have integrated platform capabilities.
Speaker Change: With over 1000 customers onto a consolidated so you have capability.
Speaker Change: Feedback from these customers has been incredibly positive.
Speaker Change: Customers are highlighting the ease of deployment and a seamlessly integrated experience they are happening without full snap solution.
Speaker Change: Additionally, we are hearing the trimble cloud is delivering value.
Speaker Change: Insights that other vendors ness.
Speaker Change: Many of these customers are already increasing the number of cloud resources they are assessing.
Speaker Change: Another area, where we're seeing strong demand and competitive differentiation as you know chi.
Speaker Change: We're increasingly recognized as a key player in this market.
Amit Yoran: We close deals with some of the largest global energy, healthcare, and manufacturing companies. We believe our success is a result of a number of factors, including the competitive capabilities of our product and our very large and global customers. These customers rely on us to help evaluate cyber risk, and our ability to provide that coverage and understanding across both OT and IT is a major strategic differentiator. Between our technology leadership and our significant customer base and distribution, we are winning and taking share in this critical market. We'll continue to be committed to providing market-leading, discreet products to customers. That said, over time, we expect to have more and more of our customer engagements driven by Tenable 1 as our platform matures and as the diversity of data and analytics continues to improve.
Speaker Change: We closed deals with some of the largest global energy health care, leading manufacturing companies. We believe our success is the result of a number of factors, including the competitive capabilities of our product and a very large and global customer base.
Speaker Change: These customers rely on us to help evaluate cyber risk and our ability to provide that coverage and understanding across both Oh Gee and I T is a major strategic differentiator.
Speaker Change: Between our technology leadership, and our significant customer base and distribution, we are winning and taking share in this critical market.
Speaker Change: We will continue to be committed to providing market, leading discrete products to customers that said overtime, we expect to have more and more of our customer engagements driven by tenable, one as a platform matures and as the diversity of data and analytics continue to improve.
Amit Yoran: When combined, these highly competitive products bring even more context and understanding through our unified platform. Tenable One continues to be one of our fastest growing products. Silent solutions, even those that are best-in-class, cannot deliver the insights customers need to efficiently and effectively secure their environment.
Speaker Change: When combined these highly competitive products, but even more contests and understanding through our unified platform.
Speaker Change: Tenable, one continues to be one of our fastest growing products.
Speaker Change: So I would say solutions, even those that are best in class cannot deliver the insights customers need to efficiently and effectively secure their environment.
Amit Yoran: Tenable One delivers differentiated analytics and critical attack path analysis. Customers are finding tremendous value in the clarity and analytics that we can deliver for some of their vulnerable and critical assets. Additionally, customers are able to leverage Tenable One to consolidate multiple use cases and products on a single platform to address a broader use case. As a result... Tenable won double this year and is over 20% of our new business and mid-teens in total sales. And we continue to see customers shifting to convert multiple asset types, as identity and cloud are two of the areas that drove outperformance in the quarter. Last quarter, we talked about using the next three quarters to execute on our product roadmap and integrate Hermetic. We are really pleased with our progress in optimizing the business, integrating our medical platform, and expanding the value proposition of our platform. As companies, regulators, and society as a whole continue to focus on cyber security, understanding and managing risk will remain an increasingly important area of focus.
Speaker Change: Number one delivers differentiated analytics and critical attack path analysis.
Speaker Change: Customers are finding tremendous value in the clarity and analytics. So we can deliver for some of them are vulnerable and critical assets.
Speaker Change: Additionally, customers are able to leverage tumble wants to consolidate multiple use cases and products on a single platform to address a broader use case.
Speaker Change: As a result.
Speaker Change: Talking about one's double this year and it was over 20% of our new business and mid teens in total sales.
Speaker Change: And we continue to see customers shifting to convert multiple asset types as the entity and cloud are actually areas that drove outperformance in the quarter.
Speaker Change: Last quarter, we talked about using the next few quarters to execute on our product roadmap and integrate or better.
We're really pleased with our progress in optimizing the business integrating dramatically expanding the value proposition of our platform.
As companies regulators and society as a whole continued to focus on cyber security understanding and managing risk will remain an increasingly important area of focus.
Stephen A. Vintz: We believe we help customers understand and manage risk better than anyone and will continue to be laser focused on delivering best-in-class products. We intend to do this with an approach that balances growth and margin. I'll now turn the call over to Steve for further commentary on our financial results and outlook. Thank you.
Speaker Change: We believe we help customers understand and manage risk better than anyone.
Speaker Change: We will continue to be laser focused on delivering best in class products.
Speaker Change: We intend to do this with an approach that balances growth and margin.
Speaker Change: I'll now turn the call over to Steve just for further commentary on our financial results and outlook.
Steve: Thank you as Hamid mentioned earlier, we are pleased to capped the year on a very positive note with strong topline growth and operating margin.
Stephen A. Vintz: As Amit mentioned earlier, we are pleased to cap the year on a very positive note with strong top-line growth and operating margins. I will provide more commentary momentarily, but first, please note that all operating 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.
Steve: I will provide more commentary momentarily, but first please note that all operating results. We discuss today are non-GAAP financial measures with the exception of revenue.
Steve: As Aaron mentioned at the start of this call GAAP to non-GAAP reconciliations may be found on our earnings release issued earlier today.
Stephen A. Vintz: As a reminder, our financial results reflect the results of operations from Rometic, which closed on October 2nd. Now, on to the results for the quarter. Calculated current billings, defined as revenue recognized in the quarter plus changing current deferred revenue, grew 14% year-over-year to $271.6 million and benefited from Tenable One, which was 22% of total new sales. Exposure solutions, which include Tenable One, as well as standalone sales of cloud security, identity security, and operational technology security, represented 50% of our total new enterprises. This reflects continued traction in our exposure management platform and our As expected, Armeta contributed minimally to CCB, as our primary focus was integrating the two cloud security product platforms in Q4.
Steve: As a reminder of our financial results reflect the results of operations from nomadic which closed October 2nd.
Steve: Now onto the results for the quarter.
Steve: Calculated current billings defined as revenue recognized in the quarter plus change in current deferred revenue.
Steve: Grew 14% and year over year to $271 6 million.
Steve: And benefited from Tenable, one which was 22% of total new sales.
Steve: Exposure solutions, which include tenable, one as well as Standalone sales of cloud security identity security and operational technology security represented 50% of our total new enterprise sales.
Steve: This reflects the continued traction in our exposure management platform and our ability to help customers translate asset vulnerability threat data across I T. N O T assets cloud resources web apps, and if you have any platforms into business insights and actionable intelligence.
Steve: As expected <unk> contributed minimally to C. C. P is our primary focus was integrated into two cloud security product platforms in Q4.
Stephen A. Vintz: As I've mentioned on prior calls, TCB is typically a close but not perfect proxy for sales in the quarter and is influenced by a number of factors such as mix of business, deal timing, including early renewals. Notably, CCB in the quarter was more closely correlated to current RPO growth of 16%. In terms of key metrics, we added 597 new enterprise platform customers in the quarter, inclusive of our meta customers, which is up sequentially from the 386 we added last quarter. Midmarket stabilized this quarter and produced modest CCB upside, helping them select new platform customers higher.
Steve: As I've mentioned on prior calls GCB is typically a close but not perfect proxy for sales in the quarter and is influenced by a number of factors such as mix of business deal timing, including early renewals.
Steve: Notably seafood beat in the quarter was more closely correlated to current RP O growth of 16%.
Steve: In terms of key metrics, we added 597, new enterprise platform customers in the quarter inclusive of our better customers, which is up sequentially from the 386, we added last quarter.
Steve: Market stabilized this quarter and produce modest E b outside all premium select new platform customers higher.
Stephen A. Vintz: In terms of large deals, we added 156 net new six-figure customers in Q4, and that number is more than two times higher than what we reported last quarter. Our dollar-based net expansion rate was 111% in the quarter, and it's consistent with last quarter. And as a reminder, the expansion rate is calculated on an LTM basis. Revenue was $213.3 million, which represents 16% year-over-year growth. Revenue in the quarter exceeded the midpoint of our guided range by $7.3 million.
Steve: In terms of large deals we added 156 net new six figure customers in Q4.
Steve: And is that number is more than two X higher than what we reported last quarter.
Steve: Our dollar based net expansion rate was 111% in the quarter and is consistent with last quarter.
Steve: As a reminder, the expansion rate is calculated on an LTM basis.
Revenue was $213 3 million, which represents 16% year over year growth.
Steve: Revenue in the quarter exceeded the midpoint of our guided range by $7.3 million.
Stephen A. Vintz: Revenue from Hermetic was less than 1% of total revenue in the quarter, which was derived primarily from the acquired deferred revenue. Our percentage of recurring revenue remains high at 95% this quarter, which is consistent with prior periods. Alternative Expansion. Let's start with gross margin, which was 81% this quarter compared to 80% last quarter and approximately 250 basis points better than expected. As previously discussed, we are integrating Nermetic's public cloud infrastructure into ours. While this process introduces some additional costs, the progress out of the gate has been strong and exceeded our initial expectations, and helped drive margins higher in the quarter. Gross margin for the full year was 80%, compared with last year. Looking ahead, we continue to expect gross margins to be in the high 70s to low 80% range as we add new intelligence and functionality to Tenable 1 and our standalone cloud security.
Steve: Revenue from our medical was less than 1% of total revenue in the quarter, which was derived primarily from the acquired deferred revenue.
Steve: Our percentage of recurring revenue remains high at 95% this quarter, which is consistent with prior periods.
Speaker Change: I'll turn too expensive now.
Speaker Change: Let's start with gross margin, which was 81% this quarter compared to 80% last quarter.
Speaker Change: 250 basis points better than expected.
Speaker Change: As previously discussed we are immigrating pneumatics public cloud infrastructure into ours.
Speaker Change: All this process introduces some additional cost of progress out of the gate has been strong and exceeded our initial expectations.
Speaker Change: And helped drive margins higher in the quarter gross margin for the full year was 80%.
Speaker Change: With last year looking.
Speaker Change: Looking ahead, we continue to expect gross margins to be in the high Seventy's low 80% range as we add new intelligence and functionality to tenable, one and our Standalone cloud security offerings.
Stephen A. Vintz: Sales and marketing expense was $88.5 million, which was up from $79 million last quarter. Sales and marketing expense as a percentage of revenue was 41% compared to 39% last quarter. Sales and marketing expense was seasonally higher in the fourth quarter and increased sequentially, primarily due to increased personnel costs, incremental investments in marketing to build our brand, and higher sales commissions and variable compensation attributed to our strong sales performance and Reynolds Basin. For the full year, sales and marketing expense as a percent of revenue was 42%, down from 44% last year, representing a 240 basis point improvement. R&D expense was $27.8 million, which was flat compared to last quarter.
Speaker Change: Sales and marketing expense was $88 5 million, which is up from 79 million last quarter.
Speaker Change: Sales and marketing expense as a percentage of revenue was 41% compared to 39% last quarter.
Speaker Change: Marketing expenses seasonally higher in the fourth quarter and increased sequentially, primarily due to increased personnel costs and incremental investments in marketing to build our brand and higher sales commissions and variable compensation attributed to our strong sales performance and renewal base in the quarter.
Speaker Change: For the full year sales and marketing expense as a percent of revenue was 42% down from 44% last year, representing a 240 basis point improvement.
Speaker Change: R&D expense was $27 8 million, which was up compared to last quarter.
Speaker Change: R&D expense as a percentage of revenue was 13% this quarter compared to 14% last quarter.
Stephen A. Vintz: R&D expense as a percentage of revenue was 13% this quarter, compared to 14% last quarter. R&D expense increased sequentially primarily due to increased personnel, public cloud costs, and hermetic facility costs, which were offset by a foreign R&D tax credit. For the full year, R&D expense as a percentage of revenue was 14%, compared to 16% last year. G&A expense was $19.5 million, which was up from $18.5 million last quarter. The P&A expense as a percentage of revenue was 9% this quarter and flat relative to last quarter. GNA expense was 9% for the full year, down from 10% in 2022.
Speaker Change: R&D expense increased sequentially, primarily due to increased personnel public cloud costs and facility costs and was offset by four and R&D tax credits for the full year R&D expense as a percentage of revenue was 14% compared to 16% last year.
Speaker Change: G&A expense was $19 5 million, which was up from $18 5 million last quarter.
Speaker Change: D&A expense as a percentage of revenue was 9% this quarter and flat relative to last quarter G&A.
Speaker Change: G&A expense was 9% for the full year down from 10% in 2022.
Speaker Change: We will continue to make investments in G&A on an absolute dollar basis to support the growth and scale of our business.
Speaker Change: Income from operations was $36 1 million, which was significantly better than expected and exceeded the midpoint of our guided range by $12 6 million.
Speaker Change: Operating margin for the quarter was 17%.
Stephen A. Vintz: We will continue to make investments in G&A on an absolute dollar basis to support the growth and scale of our business. Income from operations was $36.1 million, which was significantly better than expected and exceeded the midpoint of our guided range by $12.6 million. Operating margin for the quarter was 17%, which was 550 basis points better than the midpoint of our guidance.
Speaker Change: Which was 550 basis points better than the midpoint of our guidance.
Sizable upside in earnings this quarter reflects the strength of our business model and our ability to cost effectively acquire customers and expand those relationships over time.
Speaker Change: Operating margin for the full year was 15%, which was a 520 basis point increase from last year, and it's 400 basis points better than our expectations going into the year.
Stephen A. Vintz: Our sizable upside in earnings this quarter reflects the strength of our business model and our ability to cost-effectively acquire customers and expand those relationships over time. Operating margin for the full year was 15 percent, which was a 520 basis point increase from last year and is 400 basis points better than our expectations going into the year. This also represents a very significant increase from the 6% operating margin that we reported in 2020 and reflects our ability to effectively balance growth with profitability all while investing in expansionary TAM opportunities, including executing on a successful M&A strategy. All of this resulted in EPS of $0.25, which was approximately $0.115 better than the midpoint of our guided rate. Now, let's turn to the balance sheet.
Speaker Change: This also represents a very significant increase from the 6% operating margin that we reported in 2020 and reflects our ability to effectively balance growth with profitability, all while investing in expansionary tam opportunities, including executing on a successful M&A strategy.
Speaker Change: All of this resulted in EPS of 25 cents, which was approximately 11 and a half sounds better than the midpoint of our guided range.
Speaker Change: Now, let's turn to the balance sheet.
Speaker Change: After paying 243 million net cash for a metric we finished the quarter with 474 million in cash and short term investments.
Speaker Change: Accounts receivable was $220 1 million and total deferred revenue was $750 5 million, including 4 million of acquired deferred revenue from her back.
Speaker Change: Current deferred revenue was $588 million, which gives us a lot of visibility into revenue over the next 12 months.
Speaker Change: We generated $43 3 million of Unlevered free cash flow during the quarter and 175 4 million for the full year, which is up from $128 1 million last year.
Stephen A. Vintz: After paying $243 million in net cash for a medic, we finished the quarter with $474 million in cash and short-term investments. Accounts receivable was $220.1 million, and total deferred revenue was $750.5 million, including $4 million of acquired deferred revenue from our... Current deferred revenue was $580.8 million, which gives us a lot of visibility into revenue over the next 12 months. We generated $43.3 million of unlevered free cash flow during the quarter and $175.4 million through the full year, which is up from $128.1 million last year.
Speaker Change: 95% recurring revenue high gross margin and renewal rates, we feel confident that we can continue to expand our operating margins and free cash flow margins over the ensuing years.
Speaker Change: Also in November we announced a $100 million share repurchase program pursuant to which we repurchased 356000 shares of common stock with an aggregate purchase price of 14.9 million.
Speaker Change: We are taking a programmatic approach to partially offsetting our share creep and we'll continue to evaluate the size of the program going forward based on valuation of our common stock as well as other factors.
Speaker Change: With the results of the quarter behind us I like to discuss our 2020 for outlook.
Stephen A. Vintz: With 95% recurring revenue, high gross margins, and renewal rates, we feel confident that we can continue to expand our operating margins and free cash flow margins over the ensuing years. Also, in November, we announced a 100 million share repurchase program, pursuant to which we repurchase 356,000 shares of common stock with an aggregate purchase price of $14.9 million. We are taking a programmatic approach to partially offsetting our share creep and will continue to evaluate the size of the program going forward based on the evaluation of our common stock as well as other factors. With the results of the quarter behind us, I'd like to discuss our 2024 outlook for the first quarter we currently expect. Revenue to be in the range of $212 to $214 million, non-GAAP income from operations to be in the range of $27 to $29 million, non-GAAP net income to be in the range of $20 to $22 million, assuming interest expense of $8.2 million, interest income of $5.2 million, and a provision for income taxes of $3.9 million. Non-GAAP diluted earnings per share to be in the range of 16 to 18 cent Assuming $123 million, fully diluted, weighted average number of shares outstanding.
Speaker Change: For the first quarter, we currently expect revenue to be in the range of $212 million to $214 million.
Speaker Change: non-GAAP income from operations to be in the range of $27 million to $29 million non.
Speaker Change: non-GAAP net income to be in the range of $20 million to $22 million, assuming interest expense of $8 2 million interest income of $5 2 million and a provision for income taxes of $3 9 million.
Speaker Change: non-GAAP diluted earnings per share to be in the range of 16 to 18 cents, assuming 123 million fully diluted weighted average shares outstanding.
Speaker Change: And for the full year. We currently expect calculated current billings to be in the range of 982 to 992 million.
Speaker Change: Revenue to be in the range of $895 million to $905 million.
Speaker Change: non-GAAP income from operations to be in the range of $152 million to $160 million.
Speaker Change: non-GAAP net income to be in the range of 129 to 137 million assuming interest expense of $32 2 million.
Speaker Change: First income of $21 7 million and a provision for income taxes of $10 6 million.
Speaker Change: non-GAAP diluted earnings per share to be in the range of.
Speaker Change: $1 three to $1.10 a share assuming 125 million fully diluted weighted average shares outstanding.
Speaker Change: And unlevered free cash flow to be in the range of $220 million to $230 million.
Stephen A. Vintz: And for the full year, we currently calculated current billings to be in the range of $982 to $992 million. Revenue is expected to be in the range of $895 to $905 million. Non-GAAP, income from operations is expected to be in the range of $152 to $160 million. Now I've got net income expected to be in the range of $129 to $137 million, student interest expense of $32.2 million, interest income of $21.7 million, and a provision for income taxes of $10.6 million.
Speaker Change: Now I'd like to provide some commentary regarding our outlook today.
Speaker Change: Our CCP guide represents a range of 12% to 14% growth for the full year, which is consistent with the directional comments I made during our last call.
Speaker Change: In terms of quarterly flow, we expect growth to accelerate modestly during the course of the year as we finalize the aromatic product integration and continue to build pipeline opportunities for our more expansive seen that offering.
Speaker Change: Our guidance today also reflects an operating margin in the 17% to 18% range, which at the midpoint is at 220 basis point improvement over the prior year.
Stephen A. Vintz: Non-GAAP, diluted earnings per share are expected to be in the range of $1.03 to $1.10 a share, assuming 125 million fully diluted weighted average shares outstanding and unlevered free cash flow to be in the range of $220 to $230 million. And I'd like to provide some commentary regarding our outlook. Our CCB guide represents a range of 12% to 14% growth for the full year, which is consistent with the directional comments I made during our last call. In terms of quarterly flow, we expect growth to accelerate modestly during the course of the year as we finalize the aromatic product integration and continue to build pipeline opportunities for our more expansive CNAP all. Our guidance today also reflects an operating margin in the 17% to 18% range, which at the midpoint is a 220 basis point improvement over the prior year. We also expect to follow the same seasonal spending patterns as prior years, with incremental investment more weighted in the first half of the year, resulting in a higher operating margin in the second half.
Speaker Change: We also expect to follow the same seasonal spending patterns as prior years with incremental investment more weighted in the first half of the year, resulting in higher operating margin in the second half of the year.
Speaker Change: This is a strong initial guide for the year, which is benefited by the optimization plans meet spoke of earlier.
Speaker Change: Accordingly, I want to provide some clarifying remarks on the model impact the restructuring costs.
Speaker Change: It's worth noting that we recognized $4 5 million of these costs in the fourth quarter and expect to recognize an additional two to 3 million in the first quarter related to the reduction in force that took place in January.
Speaker Change: Further we are currently in negotiations to sublease, a portion of our real estate, which could result in a noncash impairment charge of six to 7 million, bringing total restructuring expenses of 12, and a half of 14 and a half a million.
Speaker Change: Please note that all restructuring expenses are excluded from our non-GAAP results.
Speaker Change: And in terms of cash flow for 2024, our guidance includes a $6 million to $7 million reduction for the cash outlay related to the restructuring charges.
Speaker Change: While these charges will not be giving a pro forma treatment for cash flow purposes, such amounts should be taken into consideration when determining the normalized cash flows of the vessels.
Stephen A. Vintz: This is a strong initial guide for the year, which is benefited by the optimization plan Nate spoke of earlier. Accordingly, I want to provide some clarifying remarks on the impact of the restructuring cost on the model. It's worth noting that we recognized $4.5 million of these costs in the fourth quarter and expect to recognize an additional $2 to $3 million in the first quarter related to the reduction in force that took place in January. Further, we are currently in negotiations to sublease a portion of our real estate, which could result in a non-cash impairment charge of $6 to $7 million, bringing total restructuring expenses to $12.5 to $14.5 million. Please note that all restructuring expenses are excluded from our non-GAAP results.
Speaker Change: It's also worth noting that our guidance of $220 million to $230 million of Unlevered free cash flow represents a doubling from the initial guide of 120 to 125 billion that I provided on our October 2022 call when considering the $10 million to $15 million of dilution associated with the air Medical acquisition.
Speaker Change: Looking ahead, we expect Unlevered free cash flow margin to generally ramp through.
Speaker Change: For the year with Q2 as the typical seasonal low point.
Speaker Change: Also as a reminder, we do not plan to update our free cash flow guide.
Speaker Change: Quarterly at the timing of collections and payments can vary from quarter to quarter. Our next update is expected to be mid year or Q2 call.
Stephen A. Vintz: And in terms of cash flow for 2024, our guidance includes a $6 to $7 million reduction in the cash outlay related to the restructuring charge. While these charges will not be given pro forma treatment for cash flow purposes, such amounts should be taken into consideration when determining the normalized cash flows of the business. It's also worth noting that our guidance of 220 to 230 million of unlevered free cash flow represents a doubling from the initial guidance of 120 to 125 million that I provided on our October 2022 call when considering the 10 to $15 million of dilution associated with the Armenic acquisition. Looking ahead, we expect a lever-free cash flow margin to generally ramp through the year with Q2 at the typical seasonal low point. Also, as a reminder, we do not plan to update our free cash flow guide quarterly, as the timing of collections and payments can vary from quarter to quarter.
Speaker Change: At this time I'd like to turn the call over to Amit for some closing comments.
Amit: Thanks, Steve in summary, Q4 was marked by a healthy balance of growth and margin. We're excited about where are we at the company and the opportunity in front of us.
Amit: As we take advantage of the investments we've made we look forward to updating you on our next call. Please.
Amit: See you at the Morgan Stanley Conference in the coming weeks. Additionally, we still expect to have our investor day in the first half of 'twenty 'twenty four.
Speaker Change: We'd now like to open the call up for questions.
Speaker Change: At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from Nick.
Speaker Change: Hugh for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: And our first question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.
Great. Good afternoon, Thanks for taking my question.
Amit Yoran: Our next update is expected to be mid-year on our Q2 call. At this time, I'd like to turn the call over to Amit for some closing comments. Thanks, Steve.
Rob Owens: I was hoping you could drill down a little bit into your snap offering.
Rob Owens: Much more holistic north of your medic acquisition that just the competitiveness, where you're seeing wins and why you're seeing wins.
Amit Yoran: In summary, Q4 was marked by a healthy balance of growth and margin. We're excited about where we are as a company and the opportunity in front of us. As we take advantage of the investments we have made, we look forward to updating you on our next call. We hope to see you at the Morgan Stanley Conference in the coming weeks. Additionally, we still expect to have our investor day in the first half of 2024.
Rob Owens: Yeah.
Speaker Change: Hey, Rob Thanks for the question Yeah, We're super excited about and your Maverick acquisition and candidly how the initial innings of integration between tenable.
Speaker Change: Cloud capabilities and an automatic bought to the table with a combined we've got a very elegantly integrated C not platform.
Speaker Change: And we're in the early innings of bringing it to market. We've got a lot of our early momentum we've talked about at least one or multiple six figure wins with our cloud security platform.
Operator: We'd now like to open the call up for questions. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: And a lot of a I'd say a lot of momentum around Povs, where we are taking down opportunities, we're getting technical windows against some of the market leading gene up.
Speaker Change: Providers out there, which many of you are familiar with and excited about how the competition will play out overtime.
Speaker Change: And when there's a competitive win.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. And our first question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question. Great. Good afternoon.
Speaker Change: Is there is there anything that people are honing in on when you talk about these these technical wins is there something drew.
Speaker Change: To your platform versus others that are you seeing customers migrate to thanks.
Rob Owens: Thanks for taking my question. I mean, I was hoping you could drill down a little bit into your CNAP offering, which is much more holistic now with your medic acquisition and just the competitiveness, where you're seeing wins and why you're seeing them. Hey, Rob. Thanks for the question.
Speaker Change: There's I think there's two key differentiators, which we hear about consistently the first is much greater insight into access, which Ah trials have access to our systems to which calls like the the level of detail and accuracy around entitlements that we can do.
Amit Yoran: Yeah, we're super excited about pneumatic acquisition and can we have the initial innings of the integration between Tenable's cloud capabilities and what is next brought to the table? We've combined, we've got a very elegantly integrated CNAP platform, and we're in the early innings of bringing it to market. We've got a lot of early momentum.
Speaker Change: Liver into cloud environments, even ones, which are using existing C. S. P. M has seen our platforms is is is compelling and the second as you know we hear consistently about how well integrated with the scene that platform. It is when you go to a Palo alto or some other solution you've got to look at multiple screens without doing it.
Amit Yoran: We talked about at least one or multiple six-figure wins with our cloud security platform. And a lot, I'd say a lot of momentum around POVs where we are taking down opportunities. We're getting technical wins against some of the market-leading CNAP providers out there, which many of you are familiar with and excited about how the competition will play out over time. And when there's a competitive win.
Speaker Change: Simple interfaces to try to piece together things, which like combined we're not combine you've got intuit. How these things will interact with one another to decide whether its a problem or not whereas you know we have very simple intuitive easy to use this as a toxic combination this is creating pain and elegant reporting which brings all of them.
Amit Yoran: Is there anything that people are honing in on when you talk about these technical wins? Is there something germane to your platform versus others that you're seeing customers migrate to? Yeah, there's, I think there are two.
Speaker Change: Data together into a single workflow. So I think those are the two.
Speaker Change: Differentiators, which seem to be consistently compelling P O views.
Speaker Change: Thanks for the color.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Joel Fishbein with Truth Securities. Please proceed with your question.
Amit Yoran: The first is much greater insight into access, which is a key differentiator that we hear: Accounts have access to which systems, to which calls. The level of detail and accuracy around entitlements that we can deliver into cloud environments, even ones which are using existing CSPM and CNAP platforms is compelling. And the second is, you know, we consistently talk about how well integrated the CNAP platform is. When you go to Apollo Alto or some other solution, you've got to look at multiple streams, you've got to go to multiple interfaces to try and piece together things which might combine or not combine, and you have to intuit how these things will interact with one another to decide whether it's a problem or not. Whereas, you know, we have a very simple, intuitive, and easy to use. This is a toxic combination that is creating pain.
Joel P. Fishbein: Sure. Thanks for taking the question and I have a similar question, but related to the Ot market can you can you discuss what's happening in the Ot market competitive dynamics are the same as in the C&I space a lot of funding and startups has been there and I'm really looking forward to hearing how that's shifting.
Joel P. Fishbein: Up and how the pricing is holding up in the Ot market.
Speaker Change: Yeah, we haven't seen a lot of pricing pressure on the Ot side, it's still an early early for market.
Speaker Change: I would describe it as moving from you know a nation state.
Speaker Change: I think we've got increased awareness, we've got people starting in an organization starting to shift from a trial initial pilot deployment to deployments that are more pervasive phase one phase two types of deployment, we've seen seven figure transactions, we're seeing them more consistently.
Amit Yoran: And elegant reporting, which brings all of the pertinent data together into a single workflow. So I think those are the two differentiators which seem to be consistently compelling from a POV. Thanks for the color.
Speaker Change: On the OTT side from a competitive standpoint, we feel like we're extremely well positioned if you look at some of the market analysts reports that have come out over the last quarter or two no tenable is very clearly position I would say is as you know top right leader for this is the top right Rina I feel like we've got the plan.
Joel P. Fishbein: Our next question comes from the line of Joel Fishbein with Truist Securities. Please proceed with your question. Sure.
Joel P. Fishbein: Um, thanks for taking the question. And I have a similar question but related to the OT market. Can you discuss what's happening, Amit, in the OT market? Competitive dynamics, same as in the CNAP space, a lot of funding, you know, in startups has been there. And I'm really looking forward to hearing how that's shaping up and how the pricing is holding up in the OT market. Yeah, we haven't seen a lot of pricing pressure on the OT side.
Speaker Change: Good for them.
Speaker Change: We've got the platform, we've got the customer base, we've got the coverage model and more.
Speaker Change: The only.
Speaker Change: Oh, Gee vendor, which can provide.
Speaker Change: Seamless visibility between converged Iot and Ot environment. When you look at the factory floor. When you looked at our pipeline when you looked at our manufacturing operation. They are never just O T components or Ot components combined with leveraging general purpose compute platform.
Amit Yoran: It's still an early forward market; I would describe it as moving from a nation stage. I think we've got increased awareness. We've got people starting and organizations starting to shift from a trial, initial pilot deployment to deployments that are more pervasive, phase one, phase two types of deployments. We've seen seven-figure transactions. We're seeing them more consistently on the OT side.
Speaker Change: As a general purpose computers, and operating systems and applications and so when you looked at that type of thing.
Speaker Change: To assess risk to your factory floor or to your operation we're really.
Speaker Change: They have a strategic advantage in our ability to provide that.
Amit Yoran: From a competitive standpoint, we feel like we're extremely well positioned. If you look at some of the market analyst reports that have come out over the last quarter or two, Tenable is very clearly positioned. I feel like we've got the platform, we've got the customer base, we've got the coverage model, and we're the only OT vendor that can provide the sort of seamless visibility between converged IT and OT environments. When you look at a factory floor, when you look at a pipeline, when you look at a manufacturing operation, they are never just OT components; they're OT components combined with and leveraged on General And so when you look at that type of project, you're trying to assess risk for the bank, and are able to accurately inventory and procure tools to accurately inventory their OT environment. So we think we're in the early innings of what could be a very, very large opportunity and feel like we're in pole position. Great, thank you.
Speaker Change: Converged view and the regulatory mandates for this are only starting to accelerate we saw this past quarter U S. Federal government mandating that departments and agencies.
Speaker Change: We're able to accurately inventory procure tools to accurately inventory their ot environment. So we think were the early innings of what could be a very very large opportunity and feel like we're in a pole position at this point.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from the line of Mike <unk> with Needham <unk> Company. Please proceed with your question.
Mike: Hey, Thanks for taking the questions guys, Steve I just wanted to revisit one of your early remarks, but I think one of the things that we've decided as far as the C. C. B outperformance. We saw this quarter was a with slight upside coming from mid market. So the question is can.
Steve: Can you discuss what the trends with mid market organizations is today what are your expectations for the durability of this Oh I guess quasi recovery just given some of the weakness we decided on the September quarter and then also how is this playing into your guidance construction, what's your outlook specific to mid market when we think about.
Mike Seacoast: Our next question comes from the line of Mike Seacoast with Needham & Company. Please proceed with your question. Hey, thanks for taking the questions, guys. Steve, I just wanted to revisit one of your earlier remarks, but I think one of the things that were cited as far as the CCB outperformance we saw this quarter was slight upside coming from the mid-market. So the question is:
Steve: The guidance that we haven't hit today.
Speaker Change: Hi, Mike Thanks for the question as we highlighted earlier.
Speaker Change: You noted mid market came in better than expected I would say the upside this quarter is due to our ability to close some deals that previously pushed but really more so due to shreds with large deals specifically, we closed several 100 K plus deals.
Stephen A. Vintz: Can you discuss what the trends with mid-market organizations are today or your expectation for the durability of this, I guess, quasi-recovery, just given some of the weakness we cited in the September quarter? And then also, how is this playing into your guidance construction? What's your outlook specific to the mid-market when we think about the guidance that we have in hand today? Hi Mike.
Speaker Change: And almost a dozen deals in the 80 to 100 K range and that was aided by tenable one the mid market as a cost effective selling motion for us.
Speaker Change: 10 years to be an area of focus and in terms of what we're reflecting in our outlook for the air I think it's fair to say that the spending environment. There is still very fluid and we're trying to take a cautious approach.
Speaker Change: Two our outlook. So we're not assuming the strength in the mid market in Q4 will be pervasive and continue.
Stephen A. Vintz: Thanks for the question. As we highlighted earlier, and you noted, mid-market came in better than expected. I would say the upside this quarter is due to our ability to close some deals that were previously pushed, but really more so due to strength with large deals. Specifically, we closed several $100K-plus deals, and almost a dozen deals in the 80 to 100K range. And that was aided by Tenable One.
Speaker Change: Into 2024.
Speaker Change: Thank you for that and maybe just two more quick ones, if I could but with respect to the guidance just wanted to see I think previously the company has noted that as expected or emetic to get to a breakeven and in <unk> calendar 'twenty four is that still the the underlying assumption there and then the second.
Speaker Change: You had called out some dynamics for full year Unlevered free cash flow with respect to the restructuring.
Stephen A. Vintz: The mid-market is a cost-effective selling motion for us, and it continues to be an area of focus. And in terms of what we're reflecting in our outlook for the year, I think it's fair to say that the spending environment there is still very fluid, and we're trying to take a cautious approach to our outlook. For example, we are not assuming that the strength in the mid-market in Q4 will be pervasive and continue into 2024. Thank you for that. And maybe just two more quick ones if I could, but with respect to the guidance, just wanted to see. I think previously the company noted that it expected Hermetic to get to break even in 4Q of calendar 24. Is that still the underlying assumption there?
Speaker Change: And I just wanted to make sure that the potential for the sublease sublease portion of real estate is not currently.
Speaker Change: Embedded in that Unlevered free cash flow guide correct.
Speaker Change: That is correct, but it will have no impact at all ever free cash flow because it's a non cash charge right right.
Speaker Change: Okay. Thank you for the reminder, and then your medic profitability Yep.
Speaker Change: Sure.
Speaker Change: Our expectation for <unk>, our outlook for <unk> in 2024, it has not changed since we announced the acquisition in September So I'll refer listeners to our press release, specifically the F. A queue that we included.
Speaker Change: In the press release announcing the acquisition.
Speaker Change: And yes, we do expect to be breakeven on a free cash flow basis in the fourth quarter of this year.
Stephen A. Vintz: And then the second, I know you had called out some dynamics for the full year on levered free cash flow with respect to the restructuring. And I just wanted to make sure the potential for the sublease portion of real estate is not currently embedded in that unlevered free cash flow guide, correct? Um, that is correct, but it will have no impact on lever-free cash flow because it's a non-cash charge.
Speaker Change: Terrific I'll turn it over to my colleagues to thank you for for helping me clean up my understanding there Steve much appreciated.
Speaker Change: Our next question comes from the line of Jonathan Ho with William Blair. Please proceed with your question.
Jonathan F. Ho: Hi, there good afternoon, one thing I wanted to start out with is can you help us understand a little bit better some of your decision around showing more margin versus balancing growth opportunities and you could even particular would give us a little bit more color on the opportunities that you saw to drive more efficiency in the model.
Stephen A. Vintz: Right, right. Okay, thank you for the reminder. And then your medic profitability? Yeah.
Stephen A. Vintz: Sure, in terms of our expectations for Emetic, our outlook for Emetic in 2024 has not changed since we announced the acquisition in September. So I'll refer listeners to our press release, specifically the FAQ that we included in the press release announcing the acquisition. And yes, we do expect to be break-even on a free cashflow basis in the fourth quarter of this year.
Jonathan Ho: Yeah.
Jonathan Ho: Yeah.
Speaker Change: Yeah, I think you know consistent with the philosophy that we operate under and I've talked about overtime.
Stephen A. Vintz: Terrific. I'll turn it over to my colleagues, but thank you for helping me clean up my understanding there, Steve. Much appreciated. Our next question comes from the line of Jonathan Ho with William Blair. Please proceed with your question. Hi, there. Good afternoon.
Speaker Change: As we have.
Speaker Change: We have seen growth moderate overtime and said, we're going to lean in a little bit more heavily on Boston I think we have the opportunity to do that you have tremendous leverage in the business and still invest.
Speaker Change: As required for for growth and we're seeing opportunities.
Jonathan F. Ho: One thing I wanted to start out with is could you help us understand a little bit better some of your decisions around showing more margin versus balancing growth opportunities? And could you, in particular, give us a little bit more color on the opportunities that you saw to drive more efficiency in the model? Yeah, I think it's consistent with the philosophy that we've operated under and have talked about over time. You know, as we have seen growth moderate over time, we said we were going to lean in a little bit more heavily on margin. I think we have the opportunity to do that.
Speaker Change: To create leverage so for instance, you know we saw great growth with a lot of our strategic priority products with success early momentum with our with cloud security momentum with O T. A definitely offering and certainly with tenable, one along with that we feel like the.
Speaker Change: Both product functionality.
Speaker Change: And competitiveness are now propelling we feel like he's a core product for us although not add on products for a company that historically has been very busy.
Speaker Change: I said a word at the point, where our core sales team is capable of picking up a lot of that load, though we're still providing them specialists were still providing you know oh.
Amit Yoran: You have tremendous leverage in the business and still invest, as required for growth, and we're seeing opportunities to create leverage. So, for instance, we saw great growth with a lot of our strategic priority products with, you know, success early momentum, with Cloud Security, Momentum, OT, Identity Offering, and certainly with Tenable One. Along with that, we feel like...
Speaker Change: Focused specialist S. He's an additional support we saw there is an opportunity that just drives additional efficiency on the go to market side and so we're taking advantage of that momentum.
Speaker Change: And.
Speaker Change: The module.
Speaker Change: Perfect and then in terms of the U S. Federal government opportunity can you talk about what your expectations are for 'twenty 'twenty, four and maybe what you're seeing with customers today. Thank you.
Amit Yoran: Both product functionality and competitiveness are now compelling. We feel like these are core products for us now; they're not add-on products for a company that historically has been very VM-oriented, and we're at the point where our core sales team is capable of picking up a lot of that load. Now, we're still providing them with specialists; we're still providing them, you know, focused specialist SEs and additional support. We saw there was an opportunity to just drive additional efficiency on the go-to-market side, and so we're taking advantage of that momentum. The Bulletproof Executive 2013, Perfect.
Speaker Change: Yeah, you know what we see.
Speaker Change: So that is quarter by quarter, but.
Speaker Change: If you look back at our business over time, it's been you know ballpark, 15% of our business coming from public sector. We do see tremendous opportunity continued opportunity in public sector. Historically, that's really calm.
Speaker Change: So very focused on the PR side of things lately, we've been talking a little bit more about success that we've seen with with O T a Saturday.
Speaker Change: Just you know we're just now at the point, where we can start bringing some cloud security capability to our to the federal marketplace. So we see a lot of opportunity for that to expand a lot of that market is completely untapped from our perspective outside of the us.
Amit Yoran: And then, in terms of the U.S. federal government opportunity, can you talk about what your expectations are for 2024 and maybe what you're seeing with customers today? Thank you. Yeah, I think, you know, look, we see some variance quarter by quarter, but, If you look back at our business over time, it's been in the ballpark, 15% of our business coming from the public sector. We do see tremendous opportunity, and continued opportunity, in the public sector. Historically, that's really come down...
Speaker Change: And so we'll see how all this plays out in the near term, we're viewing it as more of them.
Speaker Change: You know as our commercial business continues to grow.
Speaker Change: I think we're just in the public sector business will remain ballpark, 15%.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Matt Salzman with Morgan Stanley. Please proceed with your question.
Matt Salzman: Hey, guys. Thanks for taking the question just first one really quick on the 'twenty, one 'twenty 'twenty four C C D got Steve.
Amit Yoran: Very focused on the VM side of things. Lately, we've been talking a little bit more about the success that we've seen with OT, and identity. We're just now at the point where we can start bringing some cloud security capability to the federal marketplace, so we see a lot of opportunity for that to expand. A lot of that market is completely untapped from our perspective outside of VM, and so we'll see how all that plays out in the near term. We're viewing it as more of the same, and we'll expect it as our commercial business continues to grow. I think we're anticipating that the public sector business will remain ballpark. The Ultimate Parody Site!
Matt Salzman: Steve could you shed some light on the assumptions, you're making around the mix of new customer contribution versus existing expansion in the year ahead.
Steve: Sure I think some of the dynamics that we saw in two.
Steve: 2023 are flowing through our guide for the full year 'twenty four.
Steve: Our net dollar expansion rate for the quarters I'll start at 11% so when customers renew they spend incrementally more we're not expecting any more or any less than the expansion rates that we experienced in 'twenty three and of course, we continue to add a lot of new customers. This.
Steve: This quarter, we added almost 600, new enterprise platform customers, that's up sequentially from Q4 and for the year. We added a good pace of new customers to the markets in which we compete are greenfield the sizable opportunities to continue to take and win share. So we're reflecting kind of that pace of expansion with new customers.
Matt Saltzman: Our next question comes from the line of Matt Saltzman with Morgan Stanley; please proceed with your question. Hey, guys, thanks for taking the question. Just one really quick question on the 2024 CCP guide.
Stephen A. Vintz: Steve, could you shed some light on the assumptions you're making around the mix of new customer contribution versus existing expansion in the year ahead? Sure. I think some of the dynamics that we saw in 2023 are flowing through our guide for the full year 24. Our net dollar expansion rate for the quarter is 111%. So when customers renew, they spend incrementally more. We're not expecting any more or any less than the expansion rates that we experienced in 23.
Steve: So overall our outlook assumes more really more of the same in 2024 and we think this is a good initial guide for the year.
Speaker Change: Got it thanks, and just a quick one on product for you one of the key Differentiators that you guys talked about a lot.
Speaker Change: On the kind of a one platform is just the attack path analysis that you guys can do in just the overall level of analytics that you bring the platform I'm curious what are you guys doing on that front today that competitors can't or aren't doing yet.
Stephen A. Vintz: And, of course, we continue to add a lot of new customers. You know, this quarter, we added almost 600 new enterprise platform customers. That's up sequentially from Q4. And for the year, we added a good pace of new customers, the markets in which we compete, our greenfield, and sizable opportunities to continue to take and win share. So we're reflecting kind of that pace of expansion with new customers. So overall, our outlook assumes really more of the same in 2024. And we think this is a good initial guide for the year. Got it, thanks.
Speaker Change: And I guess like in other words, you know aside from breadth of asset coverage like what is the main differentiator, but a product from a capability standpoint versus peers.
Speaker Change: Yeah.
Speaker Change: I think there's a you know as you put it is it's it's.
Speaker Change: Its breadth of coverage so visibility not just into your cloud environments in the past that it might happen within cloud, but a recognition among security practitioners customers that even a preceding cloud environment, if it's being accessed by a dev ops person coming in from a wow.
Top or a system, which is which is vulnerable or which is compromised.
Amit Yoran: And Amit, just a quick one on the product for you. One of the key differentiators that you guys talk about a lot on the Tenable One platform is just the attack path analysis that you guys can do and just the overall level of analytics that you bring to the platform. I'm curious, what are you guys doing on that front today that competitors can't or aren't doing yet? And I guess, in other words, you know, aside from breadth of asset coverage, like what is the main differentiator of the product from a capability standpoint versus peers. Yeah, well, I think there's, you know, as you put it, visibility not just into your cloud environment and the attack paths that might happen within it, but a recognition among security practitioners and customers that even a pristine cloud environment, if it's being accessed And that's not a hypothetical.
Speaker Change: Results and it could result in the compromise of cloud based infrastructure, even though that cloud may be properly configured and that's not a hypothetical that's something that we've seen play itself out over time and even some very high profile breaches.
Speaker Change: So I think it's incredibly important to have the breadth of visibility we bring that to the table today tenable, one with our own products.
Speaker Change: That breadth of coverage and overtime through adjusting third party data.
Speaker Change: Data from other security products and platforms and infrastructure with which our customers like to use it.
Speaker Change: And the second is the.
Speaker Change: One of the analytics right and you mentioned two of them and and and the alumina exposure scorecards and and also would you talk patent analytics and we're constantly adding new applications new insights into the platform. So you know we're here. It is still a lot of the talk has been around the cyber.
Speaker Change: Asset management applications built on top of Tenable, one as we do that all of the data intolerable one.
Speaker Change: And all the insights from that asset management application.
Speaker Change: Made available to our travel one customers, but also.
Speaker Change: What can be leveraged by the.
Customers of other individual products that we use and so we think it's worth it.
Amit Yoran: That's something we've seen play itself out over time in even some very high-profile briefings. So I think it's incredibly important to have that breadth of visibility. We bring that to the table today, Tenable 1, with our own products, with that breadth of coverage, and over time, through ingesting third-party data, data from other security products, platforms, and infrastructure which our customers might be using. And the second is in the form of analytics, right? You mentioned two of them in the Lumen Exposure scorecards and also with the ATT&CK Path Analytics. And we're constantly adding new applications and new insights to our platform. So, you know, we're here at STL.
Speaker Change: Great differentiator and we think it's a great it accelerates to continued innovation.
Speaker Change: Great. Thank you guys.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Brian Essex with J P. Morgan. Please proceed with your question.
Brian Essex: Hi, good afternoon, and thank you for taking the question maybe.
Brian Essex: Maybe maybe for Steve I was wondering if we could.
Brian Essex: Back on cost rationalization, and I guess, just as you went through the court the thought process.
Brian Essex: Was there any process with regard to like benchmarking or evaluation of costs.
Speaker Change: Costs relative to peers that kind of drove that decision and then maybe to follow up on that I think particularly with regard to sales and marketing I know some have asked me what are the differences between you and others and you tend to have maybe a higher touch with sales and marketing efforts and customer success is there any.
Amit Yoran: A lot of the talk has been around the Cyber Asset Management application that we built on top of Tenable One. As we do that, all of the data in Tenable One and all the insights from that asset management application are then made available to our Tenable One customers, but also, can be leveraged by the customers of other individual products that we're using. So we think it's a great differentiator and we think it's a great accelerant to continued innovation. Thank you, guys. 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 time to answer me. Maybe for Steve, I was wondering if we could circle back on cost rationalization. And I guess as you went through the thought process, Was there any process with regard to benchmarking or evaluation of costs relative to peers that kind of drove that decision?
Brian Essex: Shifting to philosophy of I guess the the.
Brian Essex: Focus that you've put on sales and marketing to drive.
Brian Essex: Close rates and pipeline velocity nuclear good I'll leave it there and you're interested in your thoughts around that.
Speaker Change: Yeah. Thanks for the question Brian.
Speaker Change: What tenable has evolved quite a bit over the years has called out earlier, we have.
Speaker Change: These new products over the years, both organically and Inorganically in these newer products have become part of our mainstream selling motion. So some of the changes that I spoke of earlier in terms of go to market with really a natural evolution of go to market for us. So you know we look at our own business and say, Okay, where does what are the opportunities to create a more cohesive.
Brian Essex: And then maybe to follow up on that, I think, particularly with regard to sales and marketing. I know some have asked me, you know, what are the differences between you and others? And you tend to have, maybe, a higher touch with sales and marketing efforts and customer success. Is there any shift in the philosophy of, I guess, the focus that you put on sales and marketing to drive close rates and pipeline velocity? Maybe if we can, I'll leave it there.
Some go to market motion deliver a clear and consistent message to our customers. So some of this is just a natural consequence of some of the changes we made to the business.
Speaker Change: And not a result of any arbitrary a goal that we have so while our guidance today reflects continued expansion in the operating margin, we're expecting from a sales and marketing expected sales and marketing.
Stephen A. Vintz: Interesting your thoughts around that. Yeah, thanks for the question, Brian. Look, Tenable has evolved quite a bit over the years.
Stephen A. Vintz: As Amit called out earlier, we have introduced new products over the years, both organically and inorganically, and these newer products have become part of our mainstream selling motion. So some of the changes that Amit spoke of earlier in terms of going-to-market were just really a natural evolution of going-to-market for us. So we look at our own business and say, okay, what are the opportunities to create a more cohesive go-to-market strategy, and deliver a clear and consistent message to our customers? So some of this is just a natural consequence of some of the changes that we made to the business and not a result of any arbitrary goal that we have. So our guidance today reflects continued expansion in the operating margin.
Speaker Change: <unk> as a percent of revenue to improve by approximately 400 basis points on a year over year I think there is naturally a lot of natural leverage in the business.
Speaker Change: And overall, we feel good about the guide and clearly we're having success selling some of these newer products and these are in some of the biggest areas and all of cyber cloud O T identity and of course, the intersection of all those things that we call tenable one so for US it's part of a natural evolution of our ability to drive margins.
Speaker Change: Higher than the ability to continue to drive good sustainable growth and and as a result of harp, our ability to make this a core part of our selling motion.
Stephen A. Vintz: We're expecting, from a sales and marketing perspective, sales and marketing as a percent of revenue to improve by approximately 400 basis points year over year. I think there's a lot of natural leverage in the business. And overall, we feel good about the guide, and clearly, we're having success selling some of these newer products. And these are in some of the biggest areas in all of cyber, cloud, OT, identity, and, of course, the intersection of all those things that we call Tenable One. So for us, as part of our natural evolution, our ability to drive margins higher, and the ability to continue to drive good, sustainable growth, and as a result of our ability to make this a core part of our selling motion. That's super helpful.
Speaker Change: Got it that's super helpful. I will leave it at that but thank you so much.
Speaker Change: Thank you. Our next question comes from the line of Dan Ives with Wedbush Securities.
Daniel Ives: Proceed with your question.
Daniel Ives: Yeah. Thanks Congrats.
Daniel Ives: So.
Daniel Ives: Question for you like when you're talking to customers, but does it feel like there's a big shift if you look back six nine months. Good today in terms of just where tenable to view more strategic things.
Daniel Ives: Just even some of the individuals you're talking too within customers or potential customers can you kind of contrast that for US you know just from your perspective.
Speaker Change: Yes, Dan I agree with here for me I suppose there's been a shift if I rewind, maybe a little bit more than six to nine months. You know you go back a couple of years I think someone was very squarely had our sights on becoming the market leading VM company and then we went through this transition where it was.
Stephen A. Vintz: We'll leave it at that, but thank you so much. Thank you. Our next question comes from the line of Dan Ives with Wetbush Securities. Yeah, thanks. Congratulations. So, Amit, a question for you, like when you're talking to customers, does it feel like there's a big shift if you look back six, nine months ago to today in terms of just where Tenable's viewed more strategically? and just even some of the individuals you're talking to within customers or potential customers. Can you kind of contrast that for us, you know, just from your perspective?
Speaker Change: We're the market leader Young company, we've added a couple of additional products to the portfolio and some of those products have a market, leading other products, where technology, which we purchase which we're still you know earlier in its maturation earlier in terms of you know.
Speaker Change: Customer adoption and stuff like that and I think over the last for me the biggest.
Daniel Ives: Yeah Dan, great to hear from you. I think there's been a shift. If I rewind maybe a little bit more than six to nine months, you know, you go back a couple of years, I think Tenable was very... We each rarely, you know, had our sights on becoming the market-leading VM company. And then we went through this transition where it was, hey, we're the market-leading VM company. We've added a couple of additional products to our portfolio. And some of those products were market-leading. Other products were, you know, technology which we purchased which was still, you know, earlier in its maturation, earlier in terms of, you know, customer adoption and stuff like that. The biggest shift is that in the last..., you know, six to nine months, just the maturity of.
Speaker Change: The biggest shift is it in the last.
Speaker Change: Six to nine months, just the maturity of.
Speaker Change: Some of the newer product lines, where they're really now be able to go toe to toe with market leaders, they're highly competitive or best of breed.
Speaker Change: And we're able to win deals.
Speaker Change: When we're able to win deals in individual life.
Speaker Change: Each one of these product areas and then we have the platform.
Speaker Change: Capability that we can talk about how we can help them with vendor consolidation and be much more strategic than.
Speaker Change: And then I think you know it starts becoming a much more exciting conversation. So I think it's you know going from this hey, I really love you guys Onvia to now being a much more strategic partner to a lot of our systems.
Speaker Change: Yeah.
Speaker Change: And does that like weed.
Speaker Change: From a partner perspective, even just two different inbound in terms of more and more partners work with you.
Amit Yoran: Some of the newer product lines where they're really now able to go toe-to-toe with market leaders, and they're highly competitive or best of breed. And we're able to win deals. And when we're able to win deals in individual knife fights within each one of these product areas, and then we have the platform capability that we can talk about, and we can help them with vendor consolidation and be much more strategic, then I think it starts becoming a much more exciting conversation.
Speaker Change: It is and we've seen the.
Speaker Change: Inbound you know the channel and number continue to increase it's now you now.
Speaker Change: Wow.
Speaker Change: Basically sitting here at half of our business is not what we'd characterize as channel, which is up significantly from where it was in the quarters and years past, where we've just started embarking on this channel journeys. So.
Amit Yoran: So I think it's going from this, hey, I really love you guys on VM, to now being a much more strategic partner to a lot of our. Great, and does that, like, lead from a partner perspective, even just to different inbounds in terms of more and more partners working with you? It is, and we've seen the inbound, you know, the channel in number continue to increase. It's now, you know, now Basically, sitting at half of our business is now what we characterize as channel in, which is up significantly from where it was in quarters and years past when we just started embarking on this channel journey, so playing a more strategic role with our channel partners and able to play a more strategic role with our CISO customers. Great. Is Vin still wearing his Ravens jersey to the office?
Playing a more strategic channel partners.
Speaker Change: No one will play a more strategic role with our C. So customers.
Speaker Change: Great it's been still wearing as Ravens jersey into the office.
Speaker Change: Oh, you are a very nice my friends. This is still a sore subject, we don't talk about that.
Speaker Change: Thanks Gur.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Brad Reback with Stifel.
Brad Robert Reback: Stifel. Please proceed with your question.
Brad Robert Reback: Great and I'll try to staff the thin ice.
Steve your comment.
Brad Robert Reback: 400 basis point improvement.
Brad Reback: It was a marketing I'm assuming.
Steve: Is it right for Comscore.
Speaker Change: Hey, Brad your audio is up.
Speaker Change: At unclear, but sales and marketing in 2023 for.
Speaker Change: For the quarter and for the year was about 41% a little more 41 and change as a percent of revenue and.
Daniel Ives: Oh, you are on very thin ice, my friend. This is still a sore subject. We don't talk about that. Thanks. Good luck. Thank you. Our next question comes from the line of Brad Reback with Stifel. Please proceed with your question. Great, great. I'll try to stay off the thin ice.
Brad Robert Reback: Our guidance assumes for full year 'twenty five that there's 400 basis point improvement and of course sales marking.
Brad Robert Reback: Absolute dollars will increase on a year over year basis, but approximately a 400 basis point improvement in sales and marketing.
Brad Robert Reback: <unk> as a percent of revenue on a year over year basis is what we're assuming in our guidance.
Brad Robert Reback: Steve, your comment on... a 400 basis point improvement in sales and marketing. I'm assuming that's the exit rate for 2014. Hey, Brad, your audio is a bit unclear, but sales and marketing in 2023. For the quarter and for the year, it's about 41%, a little more, 41% and change as a percent of revenue.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you. Our next question comes from the line of Stefan Schwartz with Wells Fargo. Please proceed with your question.
Stefan Schwartz: Yeah. Thanks for taking my question I, just wanted to not tenable, one it looks like Youre seeing strong adoption there but.
Stefan Schwartz: How did those results compare to your internal expectations this quarter.
Stefan Schwartz: Tenable almost a source of upside in the quarter, so we'd be C. C b.
Stefan Schwartz: By a good margin, we're seeing strong demand added over 500, new customers almost 600, new enterprise customers. We did 150, approximately net new six figure customers. So tenable one continues to be a major.
Stephen A. Vintz: Our guidance assumes for a full year 25 that there's 400 basis points of improvement, and of course, there's marking. In terms of absolute dollars, we'll increase on a year-to-year basis, but approximately a 400-basis point improvement in sales and marketing. The Bulletproof Executive 2013, Great, thank you very much. Thank you. Our next question comes from the line of Stephanie Schwartz with Wells Fargo. Please proceed with your question. Hey, thanks for taking my question. Just one on Tenable One, it looks like you're seeing strong adoption there. But how did those results compare to your internal expectations this quarter? Tenable One was the source of upside in the quarter.
Stefan Schwartz: The source of attraction for us and one of the big reasons, why we're able to close large deals in the quarter.
Stefan Schwartz: So it came in better than expected.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line mm socket to Lea County with Barclays. Please proceed with your question.
Lea County: Okay, Great Hey, guys. Thanks for taking my questions here.
Lea County: Oh and sorry in advance if some of these questions were asked I was just trying to call late.
Steve maybe for you just a little bit of a housekeeping question within the 12% to 14% Cc B outlook for for 24 can you just remind us how much of that is from a medic versus organic.
Stephanie Schwartz: So we beat CCB by a good margin. We're seeing strong demand, and we added over 500 new customers, almost 600 new enterprise customers. We did 150, approximately, net new six-figure customers. So Tenable One continues to be a major source of attraction for us and one of the big reasons why we're able to close large deals in the quarter. So it came in better than expected.
Steve: Yes, Jack it our outlook for <unk> has not changed for 2024, so I would prefer.
Steve: Listeners to our press release announcing the acquisition of American September where we discuss it more formally but specifically with regard to C. C V. We're expecting dramatic to contribute approximately two points of growth in revenue, we expect dramatic to contribute one point of graph.
Stephen A. Vintz: Thank you. Thank you. Our next question comes from the line of Saket Kalia with Barclays. Please proceed with your question. Okay, great. Hey, guys, thanks for taking my questions here. And sorry in advance if some of these questions were asked already. I was just trying to call late.
Steve: And we expect to be cash flow positive in the fourth quarter of this year as well.
Speaker Change: Got it got it Super helpful. Maybe for my follow up for you I mean, a lot of good stuff to talk about just in the broader platform just to just to go go to sort of that foundational V. M. VM business can you just talk a little bit about the competitive backdrop. There I mean, you know I think the the.
Saket Kalia: Steve, maybe for you, just a little bit of a housekeeping question. Within the 12 to 14% CCB outlook for 24, can you just remind us how much of that is from hermetic versus organic? Yes, our outlook for a medic has not changed for 2024. So I would refer listeners to our press release announcing the acquisition of a medic in September, where we discuss it more formally, but specifically with regard to CCB, we're expecting our medic to contribute approximately two points of growth, and revenue; we expect our medic to contribute one point of growth. And we expect to be cashflow positive in the fourth quarter of this year as well. Got it, got it. Very helpful.
Speaker Change: Inscape here is well established every once in a while you hear some noise from some of the endpoint guys just kind of curious what you see if any changes at all.
Speaker Change: Yeah, I should know the competitive side, you know certainly on the VA from a VM perspective, there's.
Speaker Change: There's very little noise.
Speaker Change: It's a it's been remarkably consistent.
Speaker Change: Between ourselves flawless a rapid I think we've invested in are in the via market to different degrees and we continue to feel good about how we're positioned competitively do.
Stephen A. Vintz: Maybe for my follow-up, for you Amit, there's a lot of good stuff to talk about just on the broader platform. But to go to sort of that foundational VM business, can you just talk a little bit about the competitive backdrop there? I mean, I think the landscape here is well established.
Speaker Change: We feel like we're winning more than half their share.
Speaker Change: Both of those in the different market segments.
Speaker Change: Sorry to be.
Speaker Change: We're obviously seeing with Palo Alto a lot more on the cloud side as we bring our new cloud security capabilities in the market.
Saket Kalia: Every once in a while, you hear some noise from some of the endpoint guys. Just kind of curious what you see, if any changes at all. Yeah, I think on the competitive side, you know, certainly on the V8 from a VM perspective, there's, there's very little noise.
Speaker Change: So you know I'm a lot in <unk> and are excited about all that competition will play itself out.
Speaker Change: Got it very clear thanks, guys.
Speaker Change: Thank you. Our next question comes from the line of Rudy Cutsinger with D. A Davidson. Please proceed with your question.
Rudy Grayson Kessinger: Hey, Thanks for taking my question guys can you guys hear me okay.
Rudy Grayson Kessinger: We can.
Rudy Grayson Kessinger: Okay, great. So I just wanted to be clear again.
Amit Yoran: You know, it's been remarkably consistent between ourselves, Wallace, and Rapid, and I think we've each invested in The VMMarket to different degrees, and we continue to feel good about how we're positioned competitively. We continue to feel like we're winning our fair share against both of those in the different markets. I, You know, outside of VM, we're obviously seeing WIS and Palo Alto a lot more on the cloud side as we bring our new cloud security capabilities to market, seeing them a lot in POVs, and you know, excited about how that competition will play itself out.
Rudy Grayson Kessinger: That has joined the call a bit late I don't know if this was addressed but 40 basis points of improvement in sales and marketing spend next year. Just on this 5% Rick did you guys make cuts in sales and marketing did you reduce your sales capacity at all.
Rudy Grayson Kessinger: You just split out kind of where the cuts you made.
Rick: Yeah, that's what I mean commented on it earlier, but this is really.
Rick: Mainstreaming some of our specialty products and our course is making a part of our core selling motion.
Rick: Are the focus areas.
Rick: For the changes, we're making go to market our first on sales overlays and second is removing layers of management.
Saket Kalia: Very clear. Thanks, guys. Thank you. Our next question comes from the line of Rudy Kessinger with DA Davidson.
Rudy Grayson Kessinger: Please proceed with your question. Hey, thanks for taking my question, guys. Can you guys hear me okay?
Rick: Management, if you will so overall, we think it creates more cohesive go to market motion.
Rick: And a 5% reduction in force of about $20 million of savings a little more so on an annualized basis.
Rudy Grayson Kessinger: We can. Okay, great. So I just want to be clear again, some of those joined the call a bit late. I don't know if this was addressed, but you know, the 400 basis points of improvement on sales and marketing spend next year, just on this 5% riff, did you guys make cuts in sales and marketing? Did you reduce your sales capacity at all? Did you just split it out kind of where the cuts were made?
Rick: And.
Rick: And.
Rick: And that's pretty much the extent of it very little impact on quota capacity.
Speaker Change: Yeah I forgot it was okay are we.
Speaker Change: It's called specialty products are now highly competitive if not best of breed, we feel like we're winning.
Speaker Change: In those markets and are all integrated into one platform so to that end.
Stephen A. Vintz: Yeah, this was, Amit commented on it earlier, but this is really about mainstreaming some of our specialty products and our core, making it part of our core selling motion. So the focus areas for the changes we made in go-to-market are first on sales overlays, and second is removing layers of management, if you will. So overall, we think it creates a more cohesive go-to-market motion. It resulted in a 5% reduction in force, about $20 million of savings, a little more so on an annualized basis, and, um, and, uh... And that's pretty much the extent of it; very little impact on quota capacity.
Speaker Change: They're not really specialty products or products that are core team needs to be able and it's proven that we were able to sell so we'll continue to feed them with with specialists with us. These specialists are additional support but these are now of course sales promotions for us.
Speaker Change: And I guess, just if we think about the GCB guide kind of low teens versus the mid teens preliminary outlook. You gave last quarter is 5% risk how did that impact.
Speaker Change: Impact.
Stephen A. Vintz: Yeah, I think our, what we used to call specialty products, are now highly competitive; it's not best to breathe, we feel like we're... you know, in those markets, and they're all integrated into the Tenable One platform, so to that end... They're not really specialty products; they're products that a core team... and it's proven that they're able to sell, so we'll continue to feed them with SE specialists and additional support, but these are now core sales. And I guess just if we think about the CCB guide, kind of low teens versus the mid-teens preliminary outlook you did last quarter as 5% RIF, how did that kind of impact the outlook And when you consider, you know, the positive things you guys are saying about the VM market, win rates, tenable ones, et cetera, you know, investors will frequently ask to look at your growth rate. You know, 10 to 12% extermatic organic on CCB, and it's not that much higher than some of your VM peers.
The outlook you gave me today and win when you consider you know the positive things you guys are saying about the VM market win rates tend to be one et cetera.
Speaker Change: Investors frequently ask they looked at your growth rate.
Speaker Change: 10% to 12% extra meta organic I'm supposed to be and it's not that much higher than some of your peers and so what would you say to those investors who may be called into question as well.
Speaker Change: Well I think we're in short we.
Speaker Change: We had a good quarter and we delivered 14% CCP graph and it was better than expected as we look out into 2024.
Speaker Change: If you look at our guidance our range calls for 12% to 14% growth keep in mind, we have a we closed on the acquisition of romantic so.
Speaker Change: We expect dramatic to add two points of C. C P graph.
Speaker Change: So we're trying to take a cautious outlook, but we're also trying to reflect realities of our business. We think this is a really strong guide for the year. It comes with higher operating margins that comes with strong free cash flow.
Rudy Grayson Kessinger: And so what would you say to those investors who would maybe call that into question as well? Well, I think we're in short supply. We had a good quarter, we delivered 14% CCB growth, and it was better than expected. We lucked out in 2024.
Speaker Change: And we continued to see good outperformance and in in some of these are major areas of spend in cyber such as cloud identity and O. T. So we think the guidance is appropriate and certainly gives us the ability to execute well throughout the year and strike the right balance between.
Stephen A. Vintz: If you look at our guidance, our range calls for 12 to 14% growth. Keep in mind we have closed on the acquisition of Hermetic, so we expect Hermetic to add two points of CCB growth. So we're trying to take a cautious outlook, but we're also trying to reflect the realities of our business. We think this is a really strong guidance for the year, and it comes with higher operating margins.
Speaker Change: And profitability.
Speaker Change: Alright, thanks, guys.
Speaker Change: Thank you. Our next question comes from the line of Brian Colley with Stephens Inc. Please proceed with your question.
Brian Colley: Hey, guys. Thanks for taking my question.
Brian Colley: I mean, you've talked about how the new SEC reporting requirements could be a demand tailwind for the platform.
Brian Colley: I'm curious if you're seeing that.
Brian Colley: Chart to show up in the pipeline yet.
Stephen A. Vintz: It comes with strong free cashflow. And, you know, we continue to see good outperformance in some of these major areas of spend in cyber, such as cloud, identity, and OT. So we think the guidance is appropriate and certainly gives us the ability to execute well throughout the year and strike the right balance between growth and profitability. All right, thanks, guys. Thank you. Our next question comes from the line of Brian Coley with Stevens Inc.
Brian Colley: And kind of when we should expect to see that maybe starting to show up in the numbers here.
Speaker Change: Yeah, I don't know there was a point, where we can see specific pipeline, that's being driven by the D. C.
Speaker Change: Pointing requirements, but you know certainly the types of things the SEC asked me for not so much on the beef side, but more on the risk management side are absolutely. The types of things that we can deliver from a capital perspective, and then people would.
Speaker Change: More naturally turned to their VM program to help them identify and address so we feel like it's up.
Brian Coley: Please proceed with your question. Hey guys, thanks for taking my question. Amit, you've talked about how the new SEC reporting requirements could be a demand tailwind for the platform. I'm curious if you're seeing that start to show up in the pipeline yet, and kind of when we should expect to see that maybe start to show up in the numbers. Yeah, I don't know that we're at the point where we can see specific pipeline that's being driven by the FEC. I don't have reporting requirements, but certainly, the types of things the SEC is asking for, not so much on the breach side, but more on the risk management side, are absolutely the types of things that we can deliver from a Tenable perspective, more naturally turn to their VM program to help them identify and address. So, you know, we feel like it's... It could be a potential tailwind for us looking at 2024 and beyond.
Speaker Change: It's a it could be a potential tailwind for us looking at the 'twenty 'twenty four and beyond.
Speaker Change: Yeah.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Trevor Rambo with V. T. I G. Please proceed with your question.
Trevor Rambo: Great Hi, guys. This is Trevor on for Gray Powell P. T O G. Thanks for taking my question just a quick one I know it's early in the quarter, but how do you guys feel on visibility of your pipeline. So far and then how's your ability to call a the business today versus around this time last year.
Trevor Rambo: Overall I'd say.
Trevor Rambo: Strong top of the funnel in particular, so we continue to add new opportunities and we're pleased with the with what we're seeing obviously when we give our guidance on the earnings call. We take everything into consideration not just the results for the prior quarter, but also what we're seeing in the current monthly.
Amit Yoran: Got it. Thank you. Thank you. Our next question comes from the line of Trevor Rambo with BTIG. Please proceed with your question. Great. Hi, guys. This is Trevor Owen on behalf of Gray Powell with BTIG. Thanks for taking my question. Just a quick one.
Up until the quarter.
Trevor Rambo: So overall, we're pleased with top of the funnel and well expect to continue to expand our pipeline coverage and create opportunities with our more expansive seen that platform I think we.
Trevor Rambo: I know it's early in the quarter, but how do you guys feel about the visibility of your pipeline so far? And then how's your ability to call the business today versus around this time last year? Thanks. Overall, I'd say visibility is strong, top of the funnel in particular, so we continue to add new opportunities, and we're pleased with what we're seeing. Obviously, when we give our guidance on the earnings call, we take everything into consideration, not just the results for the prior quarter but also what we're seeing in the current month leading up to the quarter. So, overall, we're pleased with the top of the funnel, and we'll expect to continue to expand our pipeline coverage and create opportunities with our more expansive CNAP platform. I think we talked about that on the call. We expect our sellers to continue to drive pipeline, and we expect growth for Mermedec to kind of ramp throughout the year as our sellers look to create opportunities and identify needs within our customers.
Trevor Rambo: Talked about that <unk> talked about that on the call.
Trevor Rambo: We expect our our salaries to continue to drive pipeline and we expect growth from <unk> to kind of ramp throughout the year as our sellers.
Trevor Rambo: Look to create opportunities and identify certainly needs within our customer base.
Speaker Change: Great. Thanks for the color.
Speaker Change: Thank you and we have reached the end of the question and answer session and this also concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Yeah.
Okay.
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Speaker Change: Uh huh.
Speaker Change: Yeah.
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Speaker Change: Okay.
Stephen A. Vintz: Great, thanks for the call there. Thank you, and we have reached the end of the question and answer session, and this also concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. transcript Emily Beynon transcript Emily Beynon transcript Emily Beynon transcript Emily Beynon, Thanks for watching!
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