Q2 2024 Tenable Holdings Inc Earnings Call
Erin Karney: Thank you, operator. And thank you all for joining us on today's conference call to discuss Tenable's second quarter 2024 financial results. With me on the call today are Amit Yoran, our Chief Executive Officer, and Steve Vintz, our Chief Financial Officer. Prior to this call, we issued a press release announcing our financial results for the quarter. You can find the press release on our IR website at tenable.com. Thank you, Erin. We delivered mixed results for the quarter with lower than expected CCB but no performance in revenue and earnings. Excessive reliance on any one vendor reduces enterprise resilience, just as deviating from best-of-breed platforms increases exposure to risk.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Erin Karney, Senior Director, Invest Relations.
Speaker Change: Thank you, Ms. Karney. You may begin.
Amit Yoran: Second, and this is a positive trend for us, is that exposure management is gaining increasing momentum in the industry. And we'll talk more about that in a few minutes. These two dynamics were more pronounced in our vulnerability management business in Q2 than what we had seen historically. While VM is becoming more cyclical, we remain the clear leader. Our win rates continue to be very strong. Exposure management is becoming increasingly critical for customers.
Erin Karney: Thank you, Operator, and thank you all for joining us on today's conference call to discuss Tenable's second quarter 2024 financial results.
Speaker Change: With me on the call today are Amit Yoran, our Chief Executive Officer, and Steve Vintz, our Chief Financial Officer. Prior to this call, we issued a press release announcing our financial results for the quarter. You can find the press release on our IR website at tenable.com.
Speaker Change: We will make forward-looking statements during the course of this call, including statements related to our guidance and expectations for the third quarter and full year of 2024.
Speaker Change: Growth and Drivers in our Business, Changes in the Threat Landscape in the Security Industry and our Competitive Position in the Market.
Speaker Change: growth in our customer demand for and adoption of our solutions, including Tenable One.
Speaker Change: Planned Innovation and New Products and Services, the Potential Benefits and Financial Impact of our Recent Acquisition of Eureka, and our Expectations regarding Long-Term Profitability and Free Cash Flow.
Speaker Change: These four looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements.
Speaker Change: You should not rely upon forward-looking statements as a prediction of future events. Forward-looking statements represent our beliefs and assumptions only as of today and should not be considered representative of our views as of any subsequent date. And we disclaim any obligation to update any forward-looking statements or outlook.
Speaker Change: 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 and subsequent reports that we file with the SEC.
Speaker Change: In addition, all of our financial results we will discuss today are non-GAAP financial measures.
Speaker Change: with the exception of Revenue.
Speaker Change: 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.
Speaker Change: Our press release includes gap to non-gap reconciliations for these measures. I'll now turn the call over to Amit.
Amit Yoran: And there's also compelling ORI for customers who consolidate spend and reduce complexity in their security stack. We are expanding into budgets beyond Diem and broadening our reach within enterprises. Tenable has become a trusted source of truth for boards and executives needing to understand their business's exposure and risk. We are also seeing increased utilization with different asset types, which allows customers to leverage features such as the TACPAT analytic. We're excited to add enhanced VSPN to our CNAP offering, which we expect to happen this year. Second, we now provide runtime detection to identify AI software libraries and browser plug-ins that may be in use within the enterprise.
Amit: Thank you, Erin. We delivered mixed results for the quarter with lower than expected CCB but without performance in revenue and earnings.
Amit: Exposure management continues to generate demand, particularly for Tenable 1 and cloud security, as key priority areas for CISOs.
Amit: Before I get into the quarter, I'd like to first comment briefly on the recent CrowdStrike outage.
Amit: This incident highlights the importance of independent cybersecurity assessments and the negative global consequences of creating single points of failure with any one vendor.
Amit: Excessive reliance on any one vendor reduces enterprise resilience, just as deviating from best-of-breed platforms increases exposure to risk.
Amit: Boards have fiduciary responsibility to oversee cyber hygiene, and we expect that regulators will play an increasingly critical role in promoting resiliency and requiring transparency.
Amit: We believe the path forward for modern organizations lies in interoperable, best-of-breed platforms that empower enterprises to reduce risk and improve cyber hygiene.
Speaker Change: Now, on to the quarter.
Speaker Change: A few areas stood out as notable in Q2. First, customers continued to highly scrutinize their spend and rigorously prioritize their investments.
Speaker Change: Second, and this is a positive trend for us, is that exposure management is gaining increasing momentum in the industry among customers and analysts.
Speaker Change: Customers need and want to understand their level of risk across their attack surface. From their IT environment, to the cloud, to their critical infrastructure. And we believe that has resulted in strong traction for Tenable One.
Speaker Change: And third, as customers increasingly rely on cloud, we are seeing strong momentum for our cloud exposure solution. In fact, one of our largest deals for the quarter
Speaker Change: was for a cloud security product with a major financial services company.
Speaker Change: And we'll talk more about that in a few minutes.
Speaker Change: Let me dig deeper on that first point on spending patterns that we noticed in Q2.
Speaker Change: We continue to see a great deal of customer scrutiny around cyber spending.
Speaker Change: This makes it more difficult to transact and close new deals as new projects and procurements are getting the greatest scrutiny.
Speaker Change: This trend becomes more apparent as deal sizes get larger. These two dynamics were more pronounced in our vulnerability management business in Q2 than what we had seen historically.
Speaker Change: And while our mid-shift to our faster-growing exposure solutions is healthy, it is not enough to offset the cyclical impact of our traditional stand-alone VM business.
Speaker Change: While VM is becoming more cyclical, we remain the clear leader.
Speaker Change: VM continues to drive initial Tenable 1 adoption and lays the groundwork for future upsell opportunities.
Speaker Change: Our win rates continue to be very strong.
Speaker Change: Exposure management is becoming increasingly critical for customers.
Speaker Change: We pioneered this category knowing that point products leave customers with an incomplete view of actual risk in their environments. This is where Tenable shines.
Speaker Change: Tenable One, our exposure management platform, provides a unified approach and consolidates visibility across asset types to deliver insights that individual products alone cannot provide.
Speaker Change: And there's also compelling ORI to customers who consolidate spend and reduce complexity in their security stack.
Speaker Change: We are expanding into budgets beyond VM and broadening our reach within enterprises. Tenable has become a trusted source of truth for boards and executives needing to understand their businesses' exposure and risk.
Speaker Change: We're seeing this play out in our product mix as Tenable One represents 30% of new business in Q2.
Speaker Change: We are also seeing increased utilization with different asset types, which allows customers to leverage features such as attack path analytics, visualize the riskiest exposures and toxic combinations, and enables customers to quickly assess and safeguard their business.
Speaker Change: We're also seeing significant momentum in cloud security. Partnerization of cloud security spend coupled with our CNAP offering resulted in strong growth in our cloud security for the quarter.
Speaker Change: Tenable Cloud Security delivers immediate value as an exceptionally user-friendly multi-cloud solution. We're starting to land technical wins with large, sophisticated enterprises.
Speaker Change: In fact, this is the second quarter in a row that one of our largest deals included cloud security. As I mentioned, the Fortune 100 financial services company selected us this quarter for Keem, which is an integral piece to CNAP.
Speaker Change: Their other cloud security provider for CNAP was not able to deliver visibility in identity for cloud. We are the best provider to meet their needs.
Speaker Change: During the quarter, we acquired Eureka, a leading data security posture management company, adding discovering and security data to Tenable Cloud.
Speaker Change: We're excited to add enhanced VSPN to our CNAP offering, which we expect to happen this year.
Speaker Change: We're also expanding our generative AI capabilities to maximize customer value. Along with integrating AI into our products, we're also seeing rapid adoption of our exposure management platform to identify where and how AI is operating in customer environments.
Speaker Change: We introduce two new capabilities in Q2. First...
Speaker Change: an AI security posture management capability within our cloud security offering that detects AI misconfigurations in services like AWS Bedrock and Azure OpenAI, and ensures compliance with their organization's security policies.
Speaker Change: Second, we now provide runtime detection to identify AI software libraries and browser plug-ins that may be in use within the enterprise. We believe this is an innovative capability to alert security teams when the unauthorized use of AI may be taking place in their environments.
Amit Yoran: We believe this is an innovative capability to alert security teams where the unauthorized use of AI may be taking place in their environment. $280 to $290 million today. I am confident in our long-term strategy and our ability to grow over the ensuing years. I'll now turn the call over to Steve for further commentary on our financial results and outlook. Other areas of new business continue to get traction despite the selling. Tenable One grew to 30% of total new enterprise sales, which is up from 26% last quarter. Exposure.
Speaker Change: As we look ahead...
Speaker Change: We are going to focus on optimizing the business by investing in areas that matter most to our customers while continuing to drive profitability in the business.
Speaker Change: We will continue to enhance our CNAP offering, add additional features to Tenable 1, and leverage AI to drive efficiency in our products and to solve problems for our customers.
Speaker Change: On that note, Steve will go into more detail, but we are introducing our 2025 Unlevered Free Cash Flow Target of $280 to $290 million today.
Steve: We believe this is a strong initial target representing our commitment to deliver durable cash flow growth. And we look forward to updating you as we get through the second half of the year.
Steve: We'll continue to evaluate the appropriate level of investment and resources going forward to strike the right balance of growth and profitability.
Steve: This is an exciting time for Tenable. We're leveraging our leadership position in VM, seeing major momentum in cloud, and delivering broader exposure management platform.
Steve: Despite challenges for this quarter,
Steve: I am confident in our long-term strategy and our ability to grow over the ensuing years.
Steve: I'll now turn the call over to Steve for further commentary on our financial results and outlook.
Steve: Thanks, Amit.
Steve: Calculated current billings defined as revenue recognized in the quarter plus the change in current deferred revenue grew 10% year-over-year to $221.1 million.
Steve: While we only guide the CCB on an annual basis, I think it's fair to say CCB growth in the quarter fell short of our expectations, and accordingly, we are revising our outlook for the year to reflect a more challenging selling environment.
Steve: Now let's get into the results for the quarter as it will provide context to our outlook for the full year.
Steve: Recall, we went into the quarter with a healthy pipeline and a large number of six- and seven-figure opportunities.
Steve: We closed fewer deals than expected as customers deferred new projects in the face of a more challenging macro environment and tighter budgetary constraints.
Steve: This shortfall was specific to VM, particularly with large opportunities in North America, where we experience longer sales cycles and more modest growth in comparison to other geos.
Steve: Other areas of new business continue to get traction despite the selling environment. Tenable 1 grew to 30% of total new enterprise sales.
Stephen A. Vintz: Tenable One, Standalone Cloud, Identity, and Operational Technology Security Solutions, represented over 50% of our total new sales. As a point of comparison, Exposure Solutions was under 10% of total new enterprise sales in Q2 of 2020. So we've made a lot of progress. This healthy mix of new business demonstrates our ability to broaden the product portfolio and expand into new markets over the years and reflects the growing demand for exposure management and the actionable insights we deliver to CISOs and their security.
Steve: and is up from 26% last quarter. Exposure Solutions, which includes Tenable One, Standalone Cloud, Identity, and Operational Technology Security Solutions, represented over 50% of our total new sales in the quarter.
Steve: As a point of comparison, Exposure Solutions was under 10% of total new enterprise sales in Q2 of 2020. So we've made a lot of progress in this regard.
Steve: This healthy mix of new business demonstrates our ability to broaden the product portfolio and expand into new markets over the years and reflect the growing demand for exposure management and the actionable insights we deliver to CISOs and their security teams.
Stephen A. Vintz: As Amit commented earlier, cloud security was also a major highlight for us, with several sizable six-figure wins in the large market, including a global financial services and payments firm, a large defense contractor, and a multinational enterprise software company. We believe our success here is a clear indication that we will continue to take and win share in one of the faster growing areas of the cybersecurity market. Finally, I also want to note that current RPO growth in the quarter was 14%.
Steve: As Amit commented earlier, cloud security was also a major highlight for us with several sizable six-figure wins in the large market, including a global financial services and payments firm, a large defense contractor, and a multinational enterprise software company.
Speaker Change: We believe our success here is a clear indication that we will continue to take and win share in one of the faster-growing areas of the cybersecurity market.
Speaker Change: Finally, I also want to note that current RPO growth in the quarter was 14%.
Stephen A. Vintz: Turning to other highlights, we added 408 new enterprise platform customers and 76 net new six-figure customers during the quarter. Our net dollar expansion rate was 109% this quarter, consistent with last... Renewal Rates Remain Strong. The percentage of recurring revenue remains high at 96%.
Speaker Change: Turning to other highlights, we added 408 new enterprise platform customers and 76 net new six-figure customers during the quarter. Our net dollar expansion rate was 109% this quarter, consistent with last quarter. Our renewal rates remain strong.
Speaker Change: Now on to the P&L for the quarter. Revenue was $221.2 million, which represents 13% year-over-year growth. Revenue in the quarter exceeded the midpoint of our guided range by $3.2 million.
Speaker Change: Our percentage of recurring revenue remains high at 96% this quarter.
Stephen A. Vintz: I'll now turn to expenses. Let's start with gross margin, which was 82% this quarter, up 70 basis points from last quarter. Gross margin was better than expected due to our continued ability to cost-effectively scale our public cloud infrastructure for our exposure management platform and other cloud-based offerings, sales, and marketing. $84.8 million, down modestly from $84.5 million last year. And as the percentage of revenue was 38% compared to 39% last year, sales and marketing expense was higher sequentially on an absolute dollar basis, primarily due to greater marketing investments to promote our cloud security and exposure management offerings, as well as to build our global brand, partially offset by cost and Q1 related to our annual sales kickoff conference.
Speaker Change: I'll now turn to expenses. I'll start with gross margin, which was 82% this quarter, up 70 basis points from last quarter.
Speaker Change: Gross margin was better than expected due to our continued ability to cost-effectively scale our public cloud infrastructure for our exposure management platform and other cloud-based offerings.
Speaker Change: Sales and Marketing Expense
Speaker Change: was $84.8 million, modestly from $84.5 million last quarter. And that's a percentage of revenue was 38% compared to 39% last quarter.
Speaker Change: Sales and marketing expense was higher sequentially on an absolute dollar basis, primarily due to greater marketing investments to promote our cloud security and exposure management offerings, as well as to build our global brand, partially offset by cost and Q1 related to our annual sales kickoff conference.
Stephen A. Vintz: Overall, we are pleased with the improved efficiency in our go-to-market efforts this quarter and expect sales and marketing spend as a percentage of revenue to continue to trend lower over the remainder of the year and beyond. R&D expense was $33.4 million, which is up from $32.6 million last quarter. R&D expense as a percentage of revenue was 15% this quarter, flat compared to last quarter. However, wages were higher in the quarter related to the acquisition of Eureka. G&A expense was $19.6 million, down from $20.6 million last quarter, primarily due to lower payroll taxes, primarily related to the vesting of our shoes in Q1.
Speaker Change: Overall, we are pleased with the improved efficiency in our go-to-market efforts this quarter and expect sales and marketing spend as a percentage of revenue to continue to trend lower over the remainder of the year and beyond.
Speaker Change: R&D expense was $33.4 million, which is up from $32.6 million last quarter. R&D expense as a percentage of revenue was 15% this quarter, flat compared to last quarter. Wages were higher in the quarter related to the acquisition of Eureka.
Speaker Change: G&A expense was $19.6 million.
Speaker Change: which was down from $20.6 million last quarter primarily due to lower payroll taxes, primarily related to the vesting of RSUs in Q1.
Stephen A. Vintz: GNA expenses, the percent of revenue, was 9% this quarter compared to 10% last quarter. Income from operations was $42.8 million and exceeded the midpoint of our guided range by $7.8 million. Operating margins for the quarter were 19%, which was approximately 325 basis points better than the midpoint of our guided range.
Speaker Change: G&A expenses, the percent of revenue was 9% this quarter compared to 10% last quarter.
Speaker Change: Income from operations was $42.8 million and exceeded the midpoint of our guided range by $7.8 million.
Speaker Change: Operating margin for the quarter was 19%, which was approximately 325 basis points better than the midpoint of our guided range.
Stephen A. Vintz: The notable outperformance in earnings this quarter reflects our ability to continually drive leverage in our business while making investments to ensure cloud security and exposure management. The size will be, in our bank account, resulted in significant EPS upside. EPS for the quarter was $31.
Speaker Change: The notable outperformance in earnings this quarter reflects our ability to continually drive leverage in our business while making investments to ensure cloud security and the exposure management markets.
Speaker Change: The sizable beat in op income resulted in significant EPS upside. EPS for the quarter was $0.31, which was $0.08 better than the midpoint of our guided range.
Stephen A. Vintz: $0.08 better than the midpoint of our guidance. Let me briefly touch on the restructuring expense in the quarter, which is excluded from our non-GAAP results. You'll recall that in Q4 2023, we announced an optimization, including the potential sublease of a portion of our real estate. In Q2, we executed the sublease and recognized a $4.5 million impairment charge related to the leaseholds and furniture and fixtures.
Speaker Change: Let me briefly touch on the restructuring expense in the quarter, which is excluded from our non-GAAP results.
Speaker Change: You'll recall that in Q4 2023, we announced an optimization plan, including the potential sublease of a portion of our real estate.
Speaker Change: In Q2, we executed the sublease and recognized a $4.5 million dollar impairment charge related to the leaseholds and furniture and fixtures.
Stephen A. Vintz: Now, let's turn to the balance. We finished the quarter with $487 million in cash and short-term investments. Reflecting the $29.2 million of net cash used for the Eureka Act, Accounts receivable was $179.6 million, and total deferred revenue was $725.8 million. Current deferred revenue is $562.6 million, which gives us a lot of visibility into expected revenue over the next 12 months. We generated $36.5 million of uncovered free cash flow during the quarter, which reflects the seasonal pattern of billings during the year. To date, we have generated lever-free cash flow.
Speaker Change: Now, let's turn to the balance sheet. We finished the quarter with $487 million in cash and short-term investments.
Speaker Change: Reflecting the $29.2 million of net cash used for the Eureka acquisition.
Speaker Change: Accounts receivable was $179.6 million and total deferred revenue was $725.8 million.
Speaker Change: Current deferred revenue is $562.6 million, which gives us a lot of visibility into expected revenue over the next 12 months.
Speaker Change: We generated $36.5 million of uncovered free cash flow during the quarter, which reflects the seasonal pattern of billings during the year.
Stephen A. Vintz: 91.2 million and puts us well within reach to achieve our annual guide for the full year, which we are raising today. We feel confident that we can continue to expand our operating and free cash flow margin over the ensuing years as we have done so every year since our IPO. During the quarter, we repurchased 589,000 shares of common stock for an aggregate purchase price of $25 million.
Speaker Change: To date, on library free cash flow.
Speaker Change: was $91.2 million and puts us well within reach to achieve our annual guide for the full year, which we are raising today. We feel confident that we can continue to expand our operating and free cash flow margin over the ensuing years, as we have done so every year since our IPO.
Speaker Change: During the quarter, we repurchased 589,000 shares of common stock for an aggregate purchase price of $25 million.
Stephen A. Vintz: Thus far, we've repurchased almost 1.5 million shares and have $35.1 million of remaining authorization under our initial $100 million share repurchase program. With the results of the quarter behind us, I'd like to discuss our outlook for Q3 for the remainder of the year. For the third quarter, we currently expect revenue to be in the range of $222 million to $224 million, and non-GAAP income from operations to be in the range of $42 to $44 million. Non-GAAP net income could be in the range of $35 to $37 million.
Speaker Change: Thus far, we've repurchased almost 1.5 million shares and have $35.1 million of remaining authorization under our initial $100 million share repurchase program. With the results of the quarter behind us, I'd like to discuss our outlet for Q3 in the remainder of the year.
Speaker Change: For the third quarter, we currently expect revenue to be in the range of $222 million to $224 million.
Speaker Change: non-GAAP income from operations to be in the range of $42 to $44 million.
Speaker Change: Non-gap net income could be in the range of $35 to $37 million, assuming interest expense of $8.3 million, interest income of $5.7 million, and a provision for income taxes of $3.8 million.
Stephen A. Vintz: Assuming interest expense of $8.3 million, interest income of $5.7 million, and a provision for income taxes of $3.8 million, and Non-Gas Diluted Earnings Per Share to be in the range of $0.28 to $0.30 per share, assuming 123 million fully diluted weighted average shares outstanding, and for the full year, we currently expect Calculator Curve Billings to be in the range of $957 to $967 Revenue is expected to be in the range of $889 to $895 million.
Speaker Change: and Non-Gas Diluted Earnings Per Share to be in the range of $0.28 to $0.30 per share, assuming 123 million fully diluted weighted average shares outstanding.
Speaker Change: And for the full year, we currently expect...
Speaker Change: Calculator Current Billing to be in the range of $957 to $967 million. Revenue to be in the range of $889 to $895 million.
Stephen A. Vintz: Non-capital income from operations to be in the range of $167 to $171 million, non-net income to be in the range of $143 to $147 million, assuming interest expense of $32.7 million, interest income of $23.5 million, and a provision for income taxes of $12.8 million. Non-GAAP diluted earnings per share to be in the range of $1.16 to $1.19.
Speaker Change: Non-cash income from operations to be in the range of $167 to $171 million.
Speaker Change: non-GAAP net income to be in the range of $143 to $147 million, assuming interest expense of $32.7 million, interest income of $23.5 million, and a provision for income taxes of $12.8 million.
Speaker Change: non-GAAP diluted earnings per share to be in the range of $1.16 to $1.19, assuming 123.5 million fully diluted weighted average shares outstanding.
Stephen A. Vintz: Assuming $123.5 million in fully diluted weighted average shares, and an unlevered free cash flow in the range of $225 to $235 million. I would like to provide some commentary regarding our revised outlook today, reflecting lower CCB and revenue. As we think about the second half of the year, we are taking a more cautious approach to new business, not only with large VM opportunities but also with other pipeline opportunities. While demand generation remains healthy, the rate at which these opportunities are expected to progress through the funnel in the second half of the year is expected to be more moderate than previously anticipated, which will constrain our near-term results.
Speaker Change: and unlevered free cash flow in the range of $225 to $235 million.
Speaker Change: I would like to provide some commentary regarding our revised outlook today, which reflects lower CCB and revenue for the year.
Speaker Change: As we think about the second half of the year, we are taking a more cautious approach to new business. Not only with large VM opportunities, but also with other pipeline opportunities.
Speaker Change: Well, if demand generation remains healthy, the rate at which these opportunities are expected to progress through the funnel in the second half of the year is expected to be more moderate than previously anticipated, which will constrain our near-term results.
Stephen A. Vintz: Despite the reduction in our top line outlook, we remain committed to our margin targets and are pleased to be raising our operating income and unleveraged free cash flow outlook for the year. We're also providing an unleveraged free cash flow target today of $280 to $290 million for the full year 2025, which is 24% growth year-over-year at the midpoint and a major milestone toward achieving our updated long-term target unleveraged free cash flow margin of 35% plus.
Speaker Change: Despite the reduction in our top line outlook, we remain committed to our margin targets and are pleased to be raising our operating income and unlever-free cash flow outlook for the year.
Speaker Change: We're also providing an unleveraged free cash flow target today of $280 to $290 million for the full year 2025.
Speaker Change: which is 24% growth year-over-year at the midpoint.
Speaker Change: and a major milestone toward achieving our updated long-term target unleveraged free cash flow margin of 35% plus.
Amit Yoran: With over 95% recurring revenue, high gross margins, and high renewal rates, we have a lot of confidence in our ability to drive continued leverage in our business. It's important to note that we are committed to delivering this level of cash flow in 2025 based on a range of growth scenarios and will continually evaluate the appropriate level of investment and resourcing to achieve this target. We are a platform and cloud-first company. We will invest in areas where we see outsized growth, and we'll reprioritize spend in other areas where appropriate. I will now turn the call back to Amit for some closing comments. Thanks, Steve.
Speaker Change: With over 95% recurring revenue, high growth margins, and high renewal rates, we have a lot of confidence in our ability to drive continued leverage in our business.
Speaker Change: It's important to note that we are committed to delivering on this level of cash flow in 2025, based on a range of growth scenarios, and will continually evaluate the appropriate level of investment and resourcing to achieve this target.
Speaker Change: As a platform and cloud-first company, we will invest in areas where we see outsized growth, and we'll reprioritize spend in other areas where appropriate.
Amit Yoran: In summary, this market is very fluid, and we are taking a more cautious approach to our CCB and revenue outlook today. We are very encouraged by the momentum in exposure management and cloud security, and we are excited about where we are as a company and the opportunity in front of us. We hope to see you at the Cananda Accord, SCEFL, and Piper Sandler Conferences in the upcoming weeks. We would now like to open the call for questions.
Speaker Change: I will now turn the call back to Amit for some closing comments.
Amit: Thanks Steve. In summary, this market is very fluid and we're taking a more cautious approach to our CCB and revenue outlook today. We are very encouraged by the momentum in exposure management and cloud security and we are excited about where we are as a company and the opportunity in front of us.
Amit: We hope to see you at the Conanacord, Stiefel, and Piper Sandler Conferences in the upcoming weeks.
Amit Yoran: Thank you. We will now 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 area. You may press star 2 if you would like to remove your questions from the chat.
Speaker Change: We now like to open the call for questions.
Speaker Change: Thank you. We will now be conducting a question and answer session.
Speaker Change: 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 questions from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. As a reminder, please restrict yourself to one question and one follow-up. One moment, please, while we poll for questions. The first question comes from the line of Saket Kalia with Barclays. Okay, great. Hey, guys, thanks for taking my questions here. It's good to hear from you. I mean, maybe, maybe to start with you, you know, I thought it was interesting in your prepared remarks how you talked about sort of traditional VM becoming more.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, please restrict yourself to one question and one follow-up. One moment please while we poll for questions.
Speaker Change: The first question comes from the line of Saket Kalia with Barclays, please go ahead.
Saket Kalia: Okay, great. Hey guys, thanks for taking my questions here and good to hear from everyone.
Saket Kalia: I mean, maybe to start with you, you know, I thought it was interesting in your prepared remarks how you talked about sort of traditional VM becoming more cyclical.
Operator: Maybe to start us off, can you just talk about some of the market dynamics in VM and maybe why you think the demand for Tenable One feels just, you know, decently stronger right now than for traditional VM? Does that make sense?
Saket Kalia: Maybe to start us off, can you just talk about some of the market dynamics in VM, and maybe why you think the demand for Tenable 1 feels just decently stronger right now than traditional VM. Does that make sense?
Amit Yoran: It does, Saket, thank you for the question. With respect to VMLink, it's an established market, we're seeing some cyclical patterns in it, but we are, you know, the clear market leader in Q2. We saw greater scrutiny of transactions specifically in North America and in the large enterprise, Subject of the market. With respect to Tenable One, it's just a more modern infrastructure and a more strategic conversation that we're having with our customers.
Speaker Change: It does, Saket, thank you for the question. With respect to VMLINK, it's an established market, we're seeing some cyclical patterns in it, but we are, you know, the clear market leader in Q2.
Speaker Change: We saw greater scrutiny of transactions, specifically in North America and in the large enterprise segment of the market.
Speaker Change: With respect to Tenable One, it's just a more modern infrastructure and a more strategic conversation that we're having with our customers.
Amit Yoran: We continue to see strong demand for Tenable One, which accounted for 30% of our new sales in the quarter. And actually, even more broadly than T1, we saw attractive growth for our exposure solutions, including cloud, where we're proving ourselves to be highly competitive with market leaders, identity, and in OT.
Speaker Change: We continue to see strong demand for Tenable One, which accounted for 30% of our new sales.
Speaker Change: In the quarter, and I think even more broadly than T1, we saw attractive growth.
Speaker Change: For exposure solutions, including cloud, where we're proving ourselves to be highly competitive with market leaders, identity and in OT.
Stephen A. Vintz: That's helpful. Steve, for my follow up, and maybe for you. You know, despite the challenges in VM that we just spoke about, the focus on free cash flow definitely, definitely comes through, and I certainly appreciate the early look at how you're thinking about about 2025. Just understanding that it's still very early, can you just talk us through how you kind of think about the balance between growth and margins in setting that target, even anecdotally? Sure. Thanks, Saket. Well, we're very pleased to be providing an Unlevered Free Cash Flow target for 2025 of 280 to 290 million. That's for the full year.
Speaker Change: Got it. Got it. That's helpful. Steve, for my follow-up, maybe for you, you know, despite the challenges in VM that we just spoke about, the focus on free cash flow definitely comes through, and I certainly appreciate the early look at how you're thinking about 2025.
Speaker Change: Just understanding that it's still very early, can you just talk us through how you kind of think about the balance between growth and margins in setting that target, even anecdotally?
Steve: Sure. Thanks, Saket. Well, we're very pleased to be providing...
Speaker Change: Unlevered Free Cash Flow Target for 2025 of $280 to $290 million. That's for the full year. Next year, that's up 24% at the midpoint. And that's also a major milestone, by the way, towards achieving our updated long-term target for unlevered free cash flow.
Stephen A. Vintz: Next year, that's up 24% at the midpoint. And that's also a major milestone by the way towards achieving our updated long-term target for unlevered free cash flow of 35% plus. Previously, our long-term target for cash flow was 30%.
Speaker Change: of 35% plus. Previously, a long-term target for cash flow was 30%.
Stephen A. Vintz: So, I have a lot of confidence in our ability to continue to drive margin leverage. You know, in terms of growth for next year, look, I'm not going to comment on that. We're not through our planning process yet, and we have to see how the second half of the year plays out, but the one thing I will say is that we're firmly committed to delivering on our unlevered free cash flow targets. We're also raising our unlevered free cash flow outlook for the year, and we're going to continually evaluate the appropriate level of investment and resourcing to achieve these targets.
Speaker Change: So I have a lot of confidence in our ability to continue to drive margin leverage.
Speaker Change: You know, in terms of growth for next year, look, I'm not going to comment about that. We're not through our planning process yet.
Speaker Change: And we have to see how the second half of the year plays out. But the one thing I will say is that we're firmly committed to delivering on our unlevered free cash flow targets. We're also raising our unlevered free cash flow outlook for the year.
Speaker Change: And we're going to continually evaluate the appropriate level of investment and resourcing to achieve these targets. Some areas will continue to lean in and invest, and other areas will reprioritize where appropriate. So overall, we just have confidence in our ability to drive higher levels of cash flow.
Stephen A. Vintz: Some areas we'll continue to lean in and invest, and other areas we'll reprioritize where appropriate. So, overall, we just have confidence in our ability to drive higher levels of cash flow.
Amit Yoran: Thanks, guys. Thank you. The next question comes from the line of Brian Essex with J.P. Morgan. Great, thank you. Thank you for taking the question. And Amit, it's great to see you back in the chair. So congratulations to you.
Speaker Change: Very helpful. Thanks, guys.
Speaker Change: Thank you. Next question comes from the line of Brian Essex with J.P. Morgan. Please go ahead.
Brian Lee Essex: Great. Thank you. Thank you for taking the question. And, Amit, great to see you back in the seat, so congratulations to you.
Amit Yoran: I guess I wanted to touch on our medic and cloud security. You know, maybe if we can get an update on that, you know, where are you integrating it? Is it only the analytics portion of that business? Are you integrating with the rest of the company? And are you able to lead with cloud security? I know you talked about it as a point of strength there.
Brian Lee Essex: I guess I wanted to touch on Hermetic and cloud security. You know, maybe if we can get an update on that, you know, where are you integrating it? Is it only on the analytics portion of that business?
Brian Lee Essex: Are you integrating with the rest of the company, and are you able to lead with cloud security? I know you talked about seeing as a point of strength there, but we'd love to get more detail on where you're seeing success and plans for integration longer term. Thank you.
Amit Yoran: But we'd love to get more detail on where you're seeing success and plans for integration longer term. Thank you. Thank you, Brian. It's great to be back.
Amit Yoran: I'll start off talking a little bit about the strength we're seeing in our cloud security product. We're providing a full end-to-end, full CNAP solution, and that's responding with customers. A majority of our cloud sales are for that full CNAP capability. That said, on the very large enterprise side of the market, where they may already have a CNAP solution, we have market-leading capability and particular strength around identity and key functionality. I think it was our largest single transaction for the quarter came as a key win from a Fortune 500 company in the financial services sector, a very sophisticated consumer of technology where they were doing bake-offs.
Speaker Change: Thanks Brian , it's great to be back. I'll start off talking a little bit about the strength we're seeing in our cloud security product.
Speaker Change: We're providing a full end-to-end, full CNAP solution and that's resonating with customers.
Speaker Change: A majority of our cloud sales are for that full CNAP capability. That said, in the very large enterprise side of the market, where they may already have a CSPM solution, they already have a CNAP solution.
Speaker Change: We have market-leading capability and particular strength around identity and the keen functionality. So I think the large, I think it was our largest single transaction for the quarter came
Speaker Change: And it came in from a Fortune 500 company in the financial services sector. Very astute, very sophisticated consumer of technology where they were doing bake-offs.
Amit Yoran: In terms of our ability to generate leverage with our cloud security product, we have a lot of confidence. A majority of our cloud security sales, in fact, are procuring cloud security through Tenable One licensing. We're extremely excited that that is responding.
Speaker Change: In terms of...
Speaker Change: Thank you very much.
Speaker Change: We have a lot of confidence. The majority of our cloud security sales, in fact, are procuring cloud security through Tenable 1 licensing. So we're extremely excited that that is resonating. VM customers.
Amit Yoran: VM customers are choosing to move to the modern platform, the modern way to assess exposures, and then diversifying their asset types and recognizing that we've got market-leading cloud security that they can procure, and they can do that and get more leverage through an integrated Tenable One platform. We think the strategy makes sense. We think we're in the early days, but we think it's responding and driving early results. Great, thank you. And just maybe a quick follow-up for Steve.
Speaker Change: Choosing to move to the modern platform, modern way to assess exposures, and then diversifying the asset types.
Speaker Change: and recognizing that we've got market-leading cloud security that they can procure and they can do that and get more leverage through an integrated Tenable One platform. So we think the strategy makes sense. We think we're in the early days, but we think it's resonating and driving early results.
Stephen A. Vintz: Steve, could you comment on the Fed business or just the public sector in general? I know that, you know, I think last quarter you felt really good about it and called out some strength there. And I think we've heard about federal spending trickling down to SLED. Maybe just a comment on the mixed strength of the business there. And is that, you know, reacting to or behaving differently than the enterprise side of the business? Thanks.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: Great, thank you. And just maybe a quick follow-up for Steve. Steve, could you comment on the Fed business or just public sector in general? I know that
Speaker Change: You know, I think last quarter you felt really good about it and called out some strength there. And I think we've heard about, you know, federal spend trickling down to SLED. Maybe just a comment on, you know, mixed strength of the business there and is that, you know, reacting or behaving differently than the enterprise side of the business. Thanks.
Stephen A. Vintz: Our public sector business was good this quarter and in line with our expectations. You know, there are some very large, seven-figure agency-wide opportunities in our pipeline for the second half of the year. Some, due to its size, involve coordination and budgetary alignment. I'll say across a dozen sub-agencies for some deals, which can introduce some variability, but overall, we continue to see trends in the public sector, and we're set up for a good second half of the year with U.S. Federal. Great! Thank you so much.
Speaker Change: Our public sector business was good this quarter in line with our expectations.
Speaker Change: You know, there are some very large seven-figure agency-wide opportunities in our pipeline.
Speaker Change: for the second half of the year. Some, due to its size, involve coordination and budgetary alignment, I'll say, across a dozen sub-agencies for some deals.
Speaker Change: which can introduce some variability, but overall we continue to see strength in the public sector and we're set up for a good second half of the year with U.S. Federal.
Hamza Fodderwala: Thank you. The next question comes from the line of Hamza Fodderwala with Morgan Stanley. Please go ahead. Hey, good evening.
Speaker Change: Great, thank you so much.
Speaker Change: Thank you. Next question comes from the line of Hamza Fodderwala with Morgan Stanley . Please go ahead.
Amit Yoran: Thank you for taking my question and good to hear from everybody as well. Amit or Steve, I wanted to follow up on the public sector question. You know, you mentioned obviously good strength there.
Unknown Executive: Hey, good evening. Thank you for taking my question and good to hear from everybody as well.
Unknown Executive: Amit or Steve, I wanted to follow up on the public sector question. You know, you mentioned...
Amit Yoran: We have heard that there have been some delays in the Fed budget and perhaps some agencies who are, a bit uncertain given, I'm wondering if you're seeing... Yeah, I'll start off and say, you know, we saw in line delivery with our expectations for the public sector in Q2. Q2 obviously is a seasonally high quarter for the public sector because it is an election cycle.
Speaker Change: Obviously good strength there for Q2. We have heard that there have been some delays on the Fed budget and perhaps some agencies who are a bit uncertain given the potential change in administration.
Speaker Change: with the elections later this year. I'm wondering if you're seeing any of that impact elongate some of the sales cycles for you within that vertical and if that is reflected in your guidance. Thank you.
Speaker Change: Yeah, I'll start off and say, you know, we saw inline delivery with our expectations for the public sector in Q2. Q2 obviously is a seasonally high quarter for public sector. It is an election cycle.
Speaker Change: and the
Speaker Change: A significant number of six- and seven-figure opportunities in public sector. With that said, I think we're taking a cautious approach for the remainder of the year and trying to understand that there's a certain amount of unpredictability around public sector in the election cycle.
Amit Yoran: A significant number of six and seven-figure opportunities in the public sector. With that said, I think we're taking a cautious approach for the remainder of the year and trying... to understand that there's a certain amount of unpredictability around the public sector in the election cycle. Yeah. And the only thing I'd add there is, look, we're trying to take a more cautious approach here to new business, specifically with large deals, in the second half of the year.
Speaker Change: Yeah, and the only thing I'd add there is...
Amit Yoran: This is predominantly in VM, but we're also applying it more broadly across our business, which includes the public sector. And while demand generation remains healthy, the rate at which these opportunities are expected to remain through the funnel in the second half of the year is expected to be more moderate.
Speaker Change: Look, we're trying to take a more cautious approach here to new business, specifically with large deals the second half of the year.
Speaker Change: This is predominantly in VM, but we're also applying more broadly across our business, which is including public sector.
Speaker Change: And while demand generation remains healthy, the rate in which these opportunities are expected to remain through the funnel in the second half of the year is expected to be more moderate, so we're trying to factor that into the guidance and trying to be cautious.
Stephen A. Vintz: So we're trying to factor that into the guidance and trying to be cautious. Yeah, thank you for taking my question. Thank you, Amit.
Speaker Change: Thank you very much.
Speaker Change: Thank you. Next question comes from the line of Rob Owens with Piper Sandler. Please go ahead.
Amit Yoran: I appreciate your comments around the... Yeah, I'll start off by saying I've got a lot of confidence in the VM market, in the VM business. It's a strategic market, you know, as you and others who have been in this space for a long time recognize. It's one of those foundational tools that CISOs need and report regularly to audit and risk committees, sometimes cyber committees, and to the boards of directors. So, you know, it's a foundational market requirement within cyber. It's not one that we anticipate going away or even, you know, having a more secular downward trend.
Robbie David Owens: Yeah, thank you for taking my question. And Amit, I appreciate your comments around the VM business, but what can you say to assuage investor concerns that
Robbie David Owens: It's not secular that it is cyclical that you're seeing right here either in terms of pipelines or customer behavior. Thanks.
Amit: Yeah, I'll start off by saying I've got a lot of confidence in the VN market, in the VN business.
Speaker Change: and they're going to be talking about the strategic market, you know, as you and others have been in the space for a long time recognize, it's one of those foundational tools.
Speaker Change: that CISOs need and report regularly to audit and risk committees.
Speaker Change: Sometimes cyber committees and to the boards of directors, so, you know, it's a foundational market requirement within cyber. It's not one that we anticipate going away or even
Amit Yoran: In the immediate future, I think we're going to see an improved outlook in the VM market with improved macro conditions. We saw this specifically in North America and with large enterprises, and we're trying to take a more cautious approach to our guidance, make sure we're setting ourselves up for success from the beginning of the year. So I do think that there's opportunity for our performance in VM and growth over time. Thanks for the comment.
Speaker Change: you know, having a more secular downward trend. Instantly going, I think we're going to see an improved outlook in the GM market with improved macro conditions.
Speaker Change: We saw this specifically in North America and with large enterprises, and we're trying to take a more cautious approach to our guidance, make sure we're setting ourselves up for success from the beginning of the year. I do think that there's opportunity for our performance in VM and growth over time.
Speaker Change: Thanks for the color.
Speaker Change: Thank you. Next question comes from the line of Mike Cikos with Needham & Co. Please go ahead.
Stephen A. Vintz: Hey guys, thanks for taking the question here. Wanted to circle back, I think you guys had called out the Tenable One contributed. Well, thanks Mike for the question. You know, we have broadened our business over the years and expanded into adjacent markets, and, Of course, we have a portion of our business, most notably cloud security and platform, that is growing at a very high rate. And we expect that to continue, and that it will represent an increasing mix of our total business going forward.
Michael Joseph Cikos: Hey guys, thanks for taking the question here. I wanted to circle back, I think you guys had called out that Tenable One contributed 30% to new business in this quarter, if I had the metrics right.
Speaker Change: Can you just help us think about if it's contributing, I guess, that percentage, right, 30%, when can we start expecting Tenable One to start showing up in the revenue stream, just given the ASP uplift that management has historically spoken about for Tenable One?
Speaker Change: Well, thanks Mike for the question. You know, we have broadened our business over the years and expanded into adjacent markets and
Speaker Change: And one thing I will say is that VM is, as Amit commented earlier, is foundational. We're the core leader, but growth there, as we mentioned earlier, has become more moderate. But that said, we have confidence in that business to be able to drive growth higher in the ensuing years.
Speaker Change: And of course we have a portion of our business, most notably cloud security and platform, that is growing at
Speaker Change: a very high rate and we expect that to continue, and that will represent an increasing mix of our total business going forward. So, you know, our core market is seeing slower growth right now in this macro, and we have a portion of our business that's...
Stephen A. Vintz: So, you know, our core market is seeing slower growth right now in this macro, and we have a portion of our business that's expected to represent a greater percentage of our total business going forward that's seen outsized growth. Thanks for that, Steve. And I also just wanted to circle back on the new business to the extent that customers are showing increased cyber scrutiny on these new deals. Help us because I know Q1 was a very strong quarter for you guys.
Speaker Change: I expect it to represent a greater percentage of our total business going forward that's seen outsized growth.
Speaker Change: and you know obviously we expect going forward that we'll be able to be able to drive higher levels of cash flow regardless of the growth outcomes either the second half of the year or for next year.
Speaker Change: Thanks for that, Steve. And I also just wanted to circle up on the new business to the extent that customers are showing increased cyber scrutiny on these new deals.
Speaker Change: Can you just help us, because I know Q1 was a very strong quarter for you guys. You guys were citing the strength that you were seeing in new deals.
Speaker Change: In hindsight, is it fair to think that that one cue strength may have been more tied to the pause that we saw in March of last year with SVB and the easier comp? Or was there something that really...
Speaker Change: showed up that was different in Q2. And can you can you maybe clarify when that showed up in Q2? Was it in April , May, June , really the last couple of days of the quarter? How did that progress?
Amit Yoran: You guys were citing the strength that you were seeing in new deals in Q2, and can you maybe clarify when that showed up in Q2, was it in April, May, June, really the last couple of days of the quarter? How did that do? Thank you. Yeah, I'll start off by saying we're pleased with our Q1 results. We came into Q2 with a strong pipeline and a healthy number of 6 and 7-figure yields. Thanks for taking the question. Amit, it's good to hear your voice. Question on Eureka.
Speaker Change: Thank you.
Speaker Change: We came into Q2 with a strong pipe and a healthy number of 6 and 7 figure deals.
Speaker Change: Obviously, a large portion of that comes in North America. And as the quarter played itself out, we saw some of the softness in North America in the large enterprise, which has a disproportionately large impact on those larger transactions, which...
Speaker Change: You know, play a factor in our financials, you know, the size of the company.
Speaker Change: So, you know, I think...
Speaker Change: You've got a reputation for calling it like we see it and, you know, saw strength in the business in Q1 and felt good with ourselves in Q2 and obviously the quarter didn't play out that way.
Speaker Change: This is the operator. Mr. Cikos, are you done with the question?
Speaker Change: Since there is no reply from the line of Mr. Cikos, we'll go for the next participant.
Speaker Change: The next question comes from the line of Joel Fishbein with Swiss Securities. Please go ahead.
Amit Yoran: The DSPM market seems very crowded. Can you just help us through how that's going to fit in the product portfolio, when we would likely see revenue from it, and who the target customer is there? That would be really helpful.
Joel P. Fishbein: Thanks for taking the question, Amit, good to hear your voice.
Joel P. Fishbein: Question on Eureka. DSPM market seems very crowded. Can you just help us through how that's going to fit in the product portfolio, when we would likely see revenue from it, and what the target customer is there? That would be really helpful. Thank you.
Amit Yoran: Thank you. Thanks, Phil. It's great to be back.
Amit Yoran: You know, we're excited about the Eureka acquisition. DSPM is a strategic component of a CNAP platform. I anticipate that, over time, most organizations will procure unified CNAP solutions, and that will include a component or some licensing component of DSPM.
Amit: Thanks, Phil. It's great to be back. You know, we're excited about the Eureka acquisition. DSPM is a strategic component of the CNAP platform. I anticipate that over time,
Joel P. Fishbein: Most organizations will procure.
Joel P. Fishbein: Unified CNAP Solutions, and that will include a component, or some licensing component, of DSPI.
Amit Yoran: We have DSPM in our current CNAP offering. It's tightly integrated into a unified workflow, and that's really one of the strengths that are not brought to the table with Tenable's top security capability. With the re-acquisition, we're able to introduce next-generation features, next-generation DSPM capabilities into that CNAP offering, into our cloud security offering, and feel like we can now be highly competitive with the absolute market leaders in DSPM. Thank you. The next question comes from the line of Andrew Nowinski with Wells Fargo.
Joel P. Fishbein: We have DSPM in our current CNAP offering. It's tightly integrated in a unified workflow, and that's really one of the strengths that are met across the table with Tenable's cloud security capability.
Joel P. Fishbein: With the Reback position, we're able to introduce next-generation features, next-generation GSPM capabilities.
Joel P. Fishbein: into that CNAP offering and into our cloud security offering and feel like we can now be highly competitive with the absolute market leaders in DSPM.
Joel P. Fishbein: We can compete on the DSPM, you know, tote for tote. I think we can lead the market when it comes to Keen and when it comes to a unified CNAP workflow. You know, I think some of the early...
Joel P. Fishbein: and John C. We are excited to be able to provide you with a lot of great innings here with our cloud security offering. They are starting to build that out and we are excited to prove that out over time.
Speaker Change: Great. Thank you so much.
Speaker Change: Thank you. Next question comes from the line of Andrew Nowinski with Wells Fargo. Please go ahead.
Amit Yoran: Please go ahead. Great, thank you, and it is great to have you back, Amit. I wanted to ask you about, I guess, your... When we do operate with an agent, we can do it outside of kernel mode, which introduces a lot of safety valves for customers, and we don't force customer upgrades.
Andrew James Nowinski: Great thank you and it is great to have you back Amit. I wanted to ask about I guess your
Andrew James Nowinski: really your guidance.
Andrew James Nowinski: Do you think this outage might have maybe exacerbated the scrutiny that you're seeing on some of these larger deals at your customers and that they're maybe
Speaker Change: Just holding back spending now because of the outage in Q3. Do you factor that in, I guess, is what I'm asking? Is that a factor as part of your guidance?
Speaker Change: Yeah, I think we're certainly factoring in increased scrutiny from large enterprise transactions. And can't believe we're seeing that in what I would characterize as anecdotal instances at this point.
Speaker Change: Where customers which have been burned or which experienced significant outage, their procurement teams are very aware of that and asking very poignant questions. Luckily we have great answers for that. We can operate in an agentless fashion. We've been doing so for decades.
Speaker Change: When we do operate with an agent, we can do it outside of kernel mode, which introduces a lot of safety valves for customers.
Amit Yoran: So customers can select whether they want to operate with the latest and greatest agent, or whether they want to operate with agent N-1 or N-2 releases and make sure that what is experienced out in the wild doesn't disrupt operations. Thank you. Next question comes from the line of Jonathan Ho with William Blair. Please go ahead.
Speaker Change: And we don't force customer updates, so customers can select whether they want to operate with the latest and greatest agent or whether they want to operate with agent N-1 or N-2 releases and make sure that what is experienced out in the wild.
Speaker Change: Thank you.
Speaker Change: So, you know, we are seeing increased scrutiny of procurement. I think that's baked into the guidance that we're putting out in the conservatism for the second half of the year. And we think that we've got a lot of great answers for procurement teams as the crowd strike outage kind of plays itself out.
Speaker Change: Okay thank you and congrats on putting out the you know the fiscal 25 free cash flow guidance that was really impressive. I was just wondering
Speaker Change: You know given the news that we've or the rumors that we've seen can you confirm whether you hired advisors regarding a potential acquisition?
Speaker Change: Yeah, obviously, great question, but obviously we don't comment on rumors and speculation.
Speaker Change: All right, thank you.
Speaker Change: Thank you. Next question comes from the line of Jonathan Ho with William Blair. Please go ahead.
Jonathan Frank Ho: Hi. Good afternoon. With regards to your 2025 free cash flow guidance,
Jonathan Frank Ho: Can you give us a little bit more color on where you see the opportunity to drive this incremental leverage from, do we see additional rationalization, is there going to be, like any commentary would be helpful in terms of just understanding where you'll see the opportunity to drive this from. Thank you. Thank you. Thank you.
Stephen A. Vintz: Yeah, I would say, you know, first of all, we had a no-dewalt performance in the quarter. And that reflects our ability to continue to drive leverage in our business, while also making investments to continue to invest in wind sharing, cloud security, and the exposure management market. We're return-straightened, and part of our focus this year at Infonex is to be more efficient in our business, and specifically with regard to sales and marketing. It's something we talked about at the beginning of the year, and how it's played out this year has proven to be true. Like, for example, sales and marketing as a percentage of our revenue was 42% last year; this year, it's 38% this quarter.
Speaker Change: Yeah, I would say, you know, first...
Speaker Change: We had no-dewalt performance in the quarter.
Speaker Change: And that reflects our ability to continue to drive leverage in our business, while also making investments to continue to take...
Speaker Change: and Windshare and cloud security in the exposure management market.
Speaker Change: We're a return strategy, and part of our focus this year and into next is to be...
Speaker Change: More efficient in our business and, you know, and specifically with regard to sales and marketing is something we talked about the beginning of the year.
Speaker Change: And how it's played out this year has proven to be true, like for example, sales and marketing as a percentage of our revenue.
Speaker Change: [inaudible]
Stephen A. Vintz: And so we expect, you know, to continue to leverage in sales and marketing. Obviously, in terms of GNA, as we continue to grow and scale, we'll be able to more fully absorb some of those costs, which are some of the fix. We've expanded our free cash flows, and we've also increased our free cash flow margins, unlevered free cash flow margins.
Speaker Change: And so we expect, you know, continue to leverage in sales and marketing. Obviously, in terms of G&A, as we continue to grow and scale, we'll be able to more fully absorb some of those costs, which are something to fix.
Speaker Change: We're driving leverage in our gross margins as we scale our cloud security offerings and our unified exposure management platform.
Speaker Change: Every year, since we've been public, we've expanded our free cash flows.
Stephen A. Vintz: So we expect a continuation of that trend. And just given the confidence in our business and what we've demonstrated to date, as I mentioned earlier, we're also raising our long-term target for unlevered free cash flow from 30% previously to now 35% plus. And just very quickly, in terms of your ability to win on the CNAP side, clearly, there's a lot of competition in this space. You've got clear differentiation with your Kim product.
Speaker Change: And we've also increased our free cash flow margins, unlevered free cash flow margins. So we expect a continuation of that trend.
Speaker Change: And just given the confidence in our business and what we've demonstrated to date, as I mentioned earlier, we're also raising our long-term target for our level three cash flow from 30% previously to now 35% plus.
Speaker Change: Excellent and just very quickly in terms of your ability to win on the CNAP side clearly there's
Amit Yoran: Can you help us understand, you know, what percentage of the market you think you can take or, you know, how the competitive dynamics are really playing out in this space, just given how many players are sort of targeting this market? Thank you. We have a lot of confidence in the team; we have a market-leading team solution that can get a foot in the door and, I'd say, among the best CNAP experiences in the market today. Mr. Ho, are you done with the question?
Speaker Change: You know, a lot of competition in this space. You've got clear differentiation with your Kim product. Can you help us understand, you know, what percentage of the market you think you can take or, you know, how the competitive dynamics are really playing out in this in this space, just given how many players are sort of targeting this market? Thank you.
Speaker Change: Yeah, even there's, obviously it's a crowded market. There's a lot of players in broadly cloud security. I think when you look at tier one,
Speaker Change: Solutions are considered as a top five player today.
Speaker Change: and as we get into bake-offs with other, you know, top tier...
Speaker Change: Products, I think that's proving himself out.
Speaker Change: whether we're a 1, 2, or 3 player this year.
Speaker Change: I have a high degree of confidence that we've got the team to bet on and that we're proving ourselves out in the field with competitive win rates.
Jonathan Frank Ho: Yes, thank you. Thank you. Good afternoon, everybody.
Stephen A. Vintz: Great to hear Amit's voice on the call. Steve, actually, let me start with you. The short answer is yes. But, you know, what I will say is this is, in our experience. It would not be prudent to assume that for the upcoming quarter, or even the second half of the year, we'll continue to close what we expected, plus the deals that slip. Overall, we're just seeing longer sales cycles, specifically with large deals. The good news is that we are transacting and closing large deals, and we have lots of pipeline opportunities that are in the high six and seven figure range.
Speaker Change: The short answer is yes, but what I will say is this, is in our experience, when we see deals push out of the quarter,
Speaker Change: It would not be prudent to assume that for the upcoming quarter, or even the second half of the year, that we'll continue to close what we expected, plus the deals that push.
Speaker Change: Overall, we're just seeing longer sales cycles, specifically with large deals. The good news is we are transacting and closing large deals, and we have lots of pipeline opportunities.
Stephen A. Vintz: But we're just assuming a longer sales cycle. And a longer sales cycle means it impacts not only the current quarter but also the outlook for the second half of the year. And so that's what we're factoring into the guidance, as it needs to be more cautious. Got it. Thank you very much. Thank you. Hi Gray.
Speaker Change: [inaudible]
Speaker Change: Fair enough. And maybe for a meet-up.
Speaker Change: When you run a quick compare-contrast with the softness you've observed back at the beginning of the 1Q23, what would that compare-contrast look like? Is it strictly geographic? Is it product? Is it category-driven? Just curious.
Speaker Change: Yeah, well it's certainly product and category driven. So on the product side we specifically saw it in our VM business.
Speaker Change: with the
Speaker Change #101: apply that same level of scrutiny to our other theaters and make sure that we're taking a cautious approach to the mainland New York, setting ourselves up for success. What we are seeing is a healthy amount of engagement in strategic conversations with our customers, and that's what's really driving the...
Speaker Change #101: Impressive growth with Tenable One.
Speaker Change: Tenable One is an exposure management platform, and we're able to engage with them in our exposure solutions, specifically Strengthened Cloud, which we saw and expect to continue as that product is highly competitive, as well as with Identity and OT.
Speaker Change: Got it. Thank you very much.
Speaker Change: The next question comes from the line of Gray Powell with PTIG. Please go ahead.
Gray Wilson Powell: Okay, great. Thanks for taking the questions. Just a couple of quick ones on my side. So in terms of, I guess we'll call them new disclosures, you've called out 50% plus of new sales from exposure solutions.
Gray Wilson Powell: and then 30% of new sales from Tenable One.
Speaker Change: So, this might be a little basic, but does that mean that 20% of your new sales are standalone products like cloud security, identity, and OT?
Speaker Change #100: And then I just want to make sure that I'm correlating it correctly, like, like when you say new enterprise sales, like, like, what specifically is the definition there? Does that correlate more with something like current bookings? Or should we think of something else?
Stephen A. Vintz: Yes, this is Steve. So when we say that, and then we often talk about enterprise sales, right? We have two really go-to-market motions. We have, you know, a direct sales organization that stands shoulder to shoulder with partners that transact deals, and they have quotas. And so collectively, we refer to that business as our enterprise sales business because they're selling to either mid- or large-sized customers. And then also, part of our go-to-market is an unaided sale without the assistance of a sales rep, or we transact deals through DMRs or online via our e-commerce engine. So collectively, in total, new business refers to our enterprise direct sales organization and also refers to our unaided sales motion with a kind of lower ASPs, high velocity. That does not include the Nessus lower ASP products.
Speaker Change #100: Hi Gray, yes this is Steve. So when we said that 50% of our total sales in the quarter is exposure solutions, that is inclusive of Tenable One. It includes the 30%.
Speaker Change: Just as a clarification.
Speaker Change #104: And then we often talk about enterprise sales, right? We have two really go-to-market motions. We have direct sales organization that stands shoulder-to-shoulder with partners to transact deals.
Speaker Change #104: And they have quotas, and so collectively we refer to that business as our enterprise sales business. They're selling to either mid- or large-sized customers, and then also part of our go-to-market.
Speaker Change: is an unaided sale without the assistance of a sales rep or we transact deals through DMRs.
Speaker Change: or online via our e-commerce engine. So collectively, in total, New Business refers to our enterprise direct sales organization and also refers to our automated sales motion with kind of lower ASPs, high-velocity deals.
Speaker Change #105: Okay, so the metric's more like a subset of total ACV, it's the total enterprise and does not include commercial. Is that, you just want to make sure I have it correct?
Stephen A. Vintz: Yeah, yeah, all right. Got it. All right, great. I'll leave it there. Thank you very much.
Speaker Change: That does not include the Nessus lower ASP products. Yeah, yeah, all right, got it. All right, great. I'll leave it there. Thank you very much.
Brad Robert Reback: Thank you. The next question comes from the line of Brad Reback. Please go ahead.
Speaker Change: Thank you. Next question comes from the line of Brad Reback with Stiefel. Please go ahead.
Speaker Change: Hi, this is Rob on for Brad. Thanks for taking the question.
Robbie David Owens: Ahead of the federal fiscal year-end next quarter, I was wondering if you've seen any uptick in federal and public sector customers adopting Tenable 1 as opposed to the perpetual license VM and OT adoption trends from last Q3, and if we should expect the same CCB headwinds from last Q3 recurring next quarter. Thanks.
Speaker Change #109: Yeah, I think that what we're seeing out of the federal market is, you know, similar in buying patterns and behaviors to other market segments. So we're seeing some adoption of Tenable One, but obviously that's a multi-year given the...
Amit Yoran: Penetration in the account base we have in the federal market, that's going to be a multi-year account effort to transition and grow them into a tenable one. Great, thank you. Yeah, I think we're in the early innings of how customers are going to perceive this when you hear different responses and different approaches from CISOs around the world that have been impacted. You know, for us, we look at it and say, hey, there are certainly some characteristics that could serve as tailwinds.
Speaker Change #108: Penetration in the account base we have in the federal market, that's going to be a multi-year account effort to transition and grow that into Tenable 1.
Speaker Change #103: Great, thank you.
Speaker Change #106: Thank you. Next question comes from the line of Shrenik Kothari with Robert W. Baird. Please go ahead.
Unknown Executive: Hey, yeah, thanks for taking my question. Welcome back Amit. Just a follow-up to an earlier question and a commentary on the CrowdStrike outage driven
Speaker Change #112: Deal scrutiny being factored in the second half. At the very beginning, you highlighted the importance of best-of-breed solutions in promoting resilience and reducing risk associated with over-reliance on a single vendor.
Speaker Change #123: Can you elaborate on how you are positioning Tenable to address, and if you're already seeing some traction in the ongoing customer conversations, and I just had a follow-up for Steve after that.
Speaker Change #120: Yeah, I think we're in the early innings of how customers are going to perceive this and you hear different responses and different approaches from CISOs around the world that have been impacted.
Speaker Change #119: You know, for us, we look at it and say, hey, there's certainly some characteristics which could serve as tailwinds.
Amit Yoran: When you look at vendor consolidation on higher risk agents, you know, things like kernel level usage or even operating system diversification, so we think that there are significant... validation for having an independent audit, an independent exposure assessment from a vendor like Tenable. It's not also providing an operating system or other security functionality, and we think that message resonates.
Speaker Change #106: When you look at vendor consolidation on higher-risk agents, things like kernel-level usage, or even operating system diversification. So we think that there are significant...
Speaker Change #106: Validation for having an independent audit, an independent exposure assessment from a vendor like Tenable. It's not also providing an operating system or other security functionality. And we think that message resonates. We think it makes great...
Amit Yoran: We think it makes great sense in a high-resiliency architecture, so there's good arguments that we might see some tail end from this. Just as we spoke earlier in the call, there are good arguments where we may see some headwind, where we see increased scrutiny or might see increased scrutiny on a more consistent basis from large enterprises where the procurement teams have experienced outages and are being asked by their corporate leadership or by the security leadership for different levels of assurances and different terms around liabilities and assurances around failure. And I think, you know, as we said earlier in the call, I think we've got great Got it. Thanks for the call, Amit.
Speaker Change #106: and in high resources, the architecture.
Speaker Change #106: So there's good argument that we might see some tail end from this. Just as we spoke earlier on the call, there's good arguments where we may see some headwind. Where we see increased scrutiny or might see increased scrutiny on a more consistent basis from large enterprises, whether procurement teams.
Speaker Change #106: have experienced outages and are being asked by...
Speaker Change #106: Their corporate leadership or by the security leadership for different levels of assurances and different terms around liabilities and assurances around failure.
Speaker Change #106: And I think we said earlier in the call that we've got great answers for those teams.
Stephen A. Vintz: And Steve, a quick follow-up on the net dollar expansion rate remaining steady at 109. So just can you provide more insights into kind of how this stacks up against billing softness? Is it just the lagging indicator, that dynamic versus kind of real-time billing dynamic, or anything else that we're missing contributing to this? Well, obviously, there's a lot of interplay between new deals in the quarter, from new logos, and then expansion within existing customers.
Amit: Got it. Thanks for the call, Amit. And Steve, a quick follow-up on the net dollar expansion rate remaining steady at $109.
Speaker Change #111: So, just can you provide more insights into kind of how does this stack up against billing softness? Is it just the lagging indicator, that dynamic versus kind of real-time billing dynamic or anything else that we're missing contributing to this?
Stephen A. Vintz: And each quarter is different in its own right, and that mix between new business from Blue Logos and expansion from existing customers can vary. As you mentioned earlier, our net dollar expansion rate in the quarter was $109. It was $109 last quarter.
Steve: Well, obviously there's a lot of interplay between new deals in the quarter from new logos and then expansion within existing customers and each quarter is different in its own right and that mix between...
Speaker Change #113: New business from new logos and expansion from existing customers can vary. As you mentioned earlier, our net dollar expansion rate in the quarter was $109. It was $109 last quarter. It's good to see that stabilize.
Stephen A. Vintz: It's good to see that stabilize, and that reflects the customer's ability to expand and add Tenable 1. But also, we're acknowledging here in this market, specifically the large deals, and in particular VM, we're seeing customers moderate the rate of expansion within that product set. So, overall, we have a big customer base. We have confidence in our ability to sell a broader product portfolio back into that base, and we would expect the Net Seller Expansion Range over time to trend upward over the course of years. I got it.
Speaker Change #107: You know, that reflects the customer's ability to expand and add Tenable 1. But also, we're acknowledging here in this market, specifically the large deals, and in particular VM, we're seeing customers moderate the rate of expansion.
Speaker Change #106: [inaudible]
Joshua Tilton: Thank you. Thank you. The next question comes from the line of Joshua Tilton with Wolf Research. Please go ahead.
Speaker Change #110: Got it. Thank you.
Speaker Change #131: Thank you. Next question comes from the line of Joshua Tilton with Wolf Research. Please go ahead.
Rich Magnusson: Hey guys, this is Rich Magnusson for Josh Tilton. Coming back to the macro, some other software names you've reported are saying the macro is starting to stabilize, and your results and commentary suggests maybe
Speaker Change #114: Some potential softness there. Can you guys give any other points on inputs that may be driving that? Or some thoughts on the possible disconnect from others who have reported? So any additional color on things that changed quarter over quarter will be helpful. Thank you.
Stephen A. Vintz: Well, we reported a good Q1 and raised our outlook for the year, and that was due to strength specifically in new logos, new dollars from new logos. As I mentioned earlier, every quarter is different in its own right, and I think in Q1, that was at a time when others were reporting tougher macro and softness. This quarter, we saw certainly more levels of review and budgetary constraints with respect to large deals, and we reflect that in our outlook for the year.
Speaker Change #118: Well, we reported a good 2-1 and raised our outlook for the year, and that was due to strength specifically.
Speaker Change #121: New Dollars from New Logos. As I mentioned earlier, every quarter is different in its own right. And I think in Q1, that was at a time when others were reporting a tougher macro on softness. This quarter we saw, certainly, more levels of review on budgetary constraints with respect to large deals.
Stephen A. Vintz: So, again, each quarter is different in its own right. We're trying to be cautious in our outlook, and we're reflecting what we saw in Q2 for the second half of the year. Thank you. Next question comes from the line of Patrick Colville with Scotiabank. Please go ahead. Alright, thank you so much for taking my question. Steve, this one's for you, please.
Speaker Change #121: and reflecting that in our outlook for the year. So, again, each quarter is different in its own right. We're trying to be cautious in our outlook and we're reflecting what we saw in Q2 for the second half of the year.
Speaker Change #122: Thank you.
Speaker Change #117: Thank you. Next question comes from the line of Patrick Colville with Scotiabank. Please go ahead.
Patrick Edwin Ronald Colville: So current billings rose 10% this quarter, which I mean, given the tough comp is, you know, it's pretty respectable. But, The Guidance, um......implies quite a big fall-off in the back-off. I mean, I model an exit billings growth rate in 4Q of about 7%. So... I guess, am I thinking about it the right way?
Patrick Edwin Ronald Colville: Alright, thank you so much for taking my question. Steve, this one's for you, please. So current billings rose 10% this quarter, which, I mean, given the tough comp, it's pretty respectable.
Patrick Edwin Ronald Colville: The guidance implies quite a big fall-off in the back half. I mean, I model an exit billings growth rate in 4Q of about 7%. So...
Stephen A. Vintz: And then, are these trends you've been talking about, the shortfall of VM because of the stickiness, North America softness, and large enterprise softness, those trends going to get worse and worse through the year, you know, like what we saw in 2Q, kind of worse. Yeah, so why don't we take a look at our CCB guide a little bit? If you look at the second half of the year... You know, that suggests that we're expecting to grow, call it, 9-10% given the range that we've provided.
Patrick Edwin Ronald Colville: I guess, am I thinking about it the right way? And then...
Speaker Change #125: Is it these trends you've been talking about, shortfall of VM because of the stick locality, North America softness and large enterprise softness, are those trends going to get worse and worse through the year? You know, like what we see in 2Q kind of worsens.
Speaker Change #124: Yes, so while we take it, compacting our CCB guide a little bit.
Speaker Change #135: If you look at the second half of the year,
Speaker Change #127: You know, that suggests that we're expecting to grow, call it nine, ten percent, given the range that we provided.
Stephen A. Vintz: So, yes, we are expecting more moderate growth in the second half of the year relative to what we experienced in the first half. What we said, you know, specifically in Q2 is that we saw a Challenge of Giving Deals to Finish Lines, Specifically the V.M. and North America.
Speaker Change #128: So, yes, we are expecting more moderate growth the second half of the year relative to what we experienced in the first half.
Patrick Edwin Ronald Colville: What we said, you know, specifically in Q2 is that we saw...
Patrick Edwin Ronald Colville: You know, a challenge getting deals across the finish line, specifically the V.M. and North America, and so that's reflected in our outlook the second half of the year.
Stephen A. Vintz: And so that's reflected in our outlook for the second half of the year for large deals as a whole. It's, you know, more notably in our V.M. business. But we're also trying to hedge all of our large deals across our theaters, whether it's the public sector or otherwise.
Patrick Edwin Ronald Colville: Which, for large deals as a whole, it's more notably in our VM business, but we're also trying to match large deals across our feeders, whether it's public sector or otherwise.
Stephen A. Vintz: And we think that's the right thing to do. And so overall, we're trying to take a cautious approach in the second half of the year. The good news is that pipelines are full and the funnel remains strong, and our focus will be on executing and closing a lot of those large opportunities. Very helpful.
Patrick Edwin Ronald Colville: And we think that's, you know, the right thing to do. And so overall we're trying to take a cautious approach the second half of the year.
Patrick Edwin Ronald Colville: The good news is that pipelines are full and the funnel remains strong and our focus will be on executing and closing a lot of those large opportunities.
Stephen A. Vintz: And in an earlier question, you know, you highlighted the criticality of VM. It's a core discipline in every enterprise CISO's arsenal. I totally agree with that.
Speaker Change #129: That's very helpful. Thank you.
Speaker Change #130: In an earlier question you you know you highlighted the criticality of VM that you know it's a core discipline in every enterprise CISO's arsenal totally agree with that. The commentary you know you're given is that you know we're going through cyclical a cyclical trough.
Stephen A. Vintz: The commentary you're giving is that we're going through a cyclical trough, you know, given given price cycles and given what you're seeing right now, you know, when do you think this cycle might pause? Yeah, I think it's, you know, obviously, quite speculative to throw out a particular quarter. It's more just a recognition of the importance of the market and that, at some point, both from the macro perspective, but more specifically from a VM perspective, that, you know, it will come back into favor and have an increasing share of the budget over time the way it has in years past.
Speaker Change #130: You know, given prior cycles, and given what you're seeing right now, you know, when do you think...
Speaker Change #126: This cycle might pass here in VM.
Speaker Change #134: Yeah, I think it's, you know, obviously quite speculative to throw out a particular quarter. It's more just a recognition of the importance of the market and that at some point
Patrick Edwin Ronald Colville: Both from a macro perspective, but more specifically from a VM perspective, that it will come back in favor and have an increasing share of budget over time the way it has in years past.
Stephen A. Vintz: And it has been cyclical in years past as well. And we saw that a couple of years ago, it was the number one priority in some CIO and CISO surveys. And then a few years before that, it was the number, you know, five, number six priority. So, you know, these things are cyclical. We believe that it will come back.
Patrick Edwin Ronald Colville: And it has been cyclical in years past as well. We saw a couple of years ago it was the number one priority in some CIO, CISO surveys, and then a few years before that it was a number, you know, five, number six priority. So, you know, these things are cyclical and we believe that it will come back.
Stephen A. Vintz: And we're certainly not factoring that into our outlook for the year, but certainly, our expectation is that we would see growth, in fact, higher over the ensuing years. Crystal Clear. Thank you so much.
Patrick Edwin Ronald Colville: And we're certainly not factoring that into our outlook for the year, but certainly our expectation is that we would see growth in fact higher over the ensuing years.
Roger Foley Boyd: Thank you. The next question comes from the line of Roger Boyd with UBS. Please go ahead.
Speaker Change #138: Crystal Clear. Thank you so much.
Patrick Edwin Ronald Colville: Thank you. Next question comes from the line of Roger Boyd with UBS. Please go ahead.
Stephen A. Vintz: Great, thanks for taking the questions. Steve, I'm wondering if you could help bridge the CCB performance versus the CRPO performance and anything you're seeing from a billing duration or payment terms perspective, given the relatively better CRPO and current bookings growth. Yeah, so RPO, current RPO growth is 14%. And, look, we talk about CCB as a proxy for what we sell. And in some quarters, CCB can closely correlate to the underlying health and sales of the business.
Roger Foley Boyd: Great, thanks for taking the questions. Steve, I'm wondering if you could help bridge the CCB performance versus the CRPO performance and anything you're seeing from a billing's duration or payment terms perspective given the relatively better CRPO and current bookings growth?
Speaker Change #133: Yeah, so RPO, current RPO growth grew 14%.
Speaker Change #141: Look, we talk about CCB as a proxy of what we sell, and some quarters CCB can closely correlate to the underlying health and sales of the business. In other quarters, I think we talked about this in Q3 of last year, RPO is a better approximation. And I think it's fair to say, regardless of what metric,
Stephen A. Vintz: In other quarters, I think we talked about this in Q3 of last year, RPO is a better approximation. And I think it's fair to say, regardless of what metric you use, the top line came in later than expected, which we talked about. But, you know, there's not a perfect metric.
Patrick Edwin Ronald Colville: Topline came in later than expected, which we talked about, but there's not a perfect metric, and CCB here is also influenced by deal timing.
Stephen A. Vintz: And CCB here is also influenced by deal timing, early renewals, a number of other factors. But, you know, overall, it's a corollary to our performance in the quarter, which we discussed.
Patrick Edwin Ronald Colville: Early renewals, a number of other factors, but overall, it's a corollary to our performance in the quarter, which we've discussed.
Stephen A. Vintz: And then maybe a quick follow-up for me, approaching the cloud competition debate from another perspective, any color on is for cloud security in the broader CNAP solution. A lot of customers begin their CNAP journey with CSPM. We think we have highly competitive CSPM functionality, but really, that unified CNAP approach is an area where we really shine, especially vis-a-vis competition. And again, I think some of our early win rates are starting to prove themselves out, especially in large enterprises where they're doing takeoffs and doing testing.
Speaker Change #140: got it and then maybe a quick follow-up for me just approaching the cloud competition debate from another perspective any color on
Speaker Change #137: The contract durations or strategic nature of the deals you're seeing in cloud security, it seems like you're having a lot of success.
Speaker Change #139: With the Keem function in particular winning alongside existing CNAP solutions, can you just talk to your confidence in winning that broader cloud security budget over time and not the other way around as other CNAP vendors expand their own Keem offerings? Thanks.
Speaker Change #136: Yeah, sure. I'll start by saying most, you know, a vast supermajority of the transactions that we're pulling in on the cloud security side are for cloud security and the broader CNAP solution.
Speaker Change #136: A lot of customers begin their CNAP journey with CSPM, we think we have...
Speaker Change #132: Highly competitive CSPM functionality.
Speaker Change #132: Unified CNAP approach is an area where we really shine, especially vis-a-vis competition. And again, I think some of our early win rates are starting to prove themselves out, especially in large enterprises where they're doing take-offs and doing...
Stephen A. Vintz: That said, for organizations that have already deployed a CNAP or just deployed a CSPM, we don't have to go in and replace and do a rip and replace in order to pull down the budget. I think the great example we called out was a sophisticated customer that was able to differentiate our key functionality from what they were able to get with their existing vendor. It also enabled us to attractively tap into the identity and access management budget. It wasn't even coming from the cloud security budget.
Speaker Change #132: [inaudible]
Speaker Change #132: Which was able to differentiate our key functionality from what they were able to get with their existing vendor. It also enabled us to attractively tap into identity and access management budget. It wasn't even coming from the cloud security budget. So again, that opens up additional TAM to us.
Amit Yoran: So again, that opens up additional TAM to us, and one that I feel great we'll be able to continue expanding over time. Thank you. The next question comes from the line of Rudy Kessinger with DA Davidson. Please go ahead. Mr. Kessinger, please go ahead with the question. Yes. Since there are no questions at this point in time, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change #132: and one that I feel great we'll be able to continue expanding over time.
Speaker Change #132: Thank you. Next question comes from the line of Rudy Kessinger with DA Davidson. Please go ahead.
Speaker Change #142: Mr. Kessinger, please go ahead with the question.
Speaker Change #132: Yep.
Speaker Change #144: Since there is no questions at this point of time, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.