Tenable Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 5, 2025
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Operator

Greetings and welcome to the Tenable Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erin Carney.

Operator

Thank you. You may begin.

Aaron Carney
Aaron Carney
Vice President - IR at Tenable

Thank you, operator, and thank you all for joining us on today's conference call to discuss Tenable's fourth quarter twenty twenty four financial results. With me on the call today are Steve Vince, our Co Chief Executive Officer and Chief Financial Officer and Mark Thurman, our Co Chief Executive Officer and Chief Operating 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. We will make forward looking statements during the course of this call, including statements relating to our guidance and expectations for the first quarter and full year 2025, growth and drivers in our business, changes in the threat landscape in the security industry and our competitive position in the market, growth in customer demand for and adoption of our solutions, including Tenable One and cloud security the potential benefits and financial impact of our potential acquisition of Vulcan Cyber and our ability to successfully integrate Vulcan Cyber's operations planned innovation and new products and services, and our expectations regarding long term profitability and free cash flow.

Aaron Carney
Aaron Carney
Vice President - IR at Tenable

These forward looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements. You should not rely upon forward looking statements as a prediction of future events. Forward looking statements represent our 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. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our most recent annual report on Form 10 K and subsequent reports that we file with the SEC. In addition, all of the financial results we will discuss today are non GAAP financial measures, with the exception of revenue.

Aaron Carney
Aaron Carney
Vice President - IR at Tenable

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. Our press release includes GAAP to non GAAP reconciliations for these measures. Before I turn the call over to Steve, for those of you who may be interested, we have set up a tribute site for our late CEO, Amit Yurant. We welcome any of you that have stories to share to post them.

Aaron Carney
Aaron Carney
Vice President - IR at Tenable

You can find the site at www.tunable.com/rememberingamiduran. I'll now turn the call over to Steve.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Thank you, Erin. I'd like to take a moment to express our heartfelt gratitude for the outpouring of condolences and memories shared in honor of our late CEO, Amit Yoran. The messages we've received from the investment community as well as friends and colleagues, past and present, have been deeply moving and meaningful. Amit was a trailblazer whose independent and fun loving spirit shone brightly. His integrity and transparency were qualities many of you value deeply and his presence is irreplaceable.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Mark and I remain steadfast in our commitment to honoring his legacy by continuing to advance Tenable's mission of building a more secure digital future. That said, I'm pleased to join the call today alongside Mark Thurman as we host this call as co CEOs. We're excited to share our strong results for the quarter, outline our priorities for 2025 and discuss the strategic rationale behind our pending acquisition of Vulcan Cyber. This quarter, we delivered exceptional results, exceeding expectations on all of our guided metrics. We achieved 11% CCB growth, which exceeded the midpoint of our guidance by $7,500,000 Operating margin was 25%, which was significantly better than our expectations.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

We also generated $86,000,000 in unlevered free cash flow, which was also better than expected. In short, we saw strong performance across our business, primarily driven by continued demand for exposure management and cloud security. These results reflect our commitment to evolve our business to address adjacent high growth markets and deliver incremental value to our customers. As I mentioned earlier, one of the areas of outperformance in the quarter was exposure management, highlighted by Tenable One reaching a record 40% of new business sales. The compelling value that our unified exposure platform delivers is rooted in helping customers identify and focus on the exposures that matter most to their business.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Providing these actionable insights through enhanced analytics is the foundation for a holistic approach to risk management and is the driving force behind the strong adoption of Tenable One. In order for our customers to better understand and reduce risk, they need a comprehensive platform that not only contextualizes and prioritizes risk data from systems we assess, but also one that aggregates risk data from their other security providers. Extending our leadership in exposure management by adding third party data sources and associated remediation workflows across the security stack is a priority for us this year. This brings me to motivation behind our recent announcement of our agreement to acquire Vulcan Cyber. The acquisition of Vulcan will augment our existing data capabilities and accelerate our ability to deliver on the future of exposure management in two ways.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

First, it will enhance our ability to aggregate and consolidate vast amounts of data into a singular unified cyber risk data set within Tenable One. Specifically, Vulcan will allow us to integrate data from more than one hundred third party security products, such as endpoint security, cloud security, application security and vulnerability assessment. These extensive data aggregation capabilities, when combined with our own extensive risk data, will help customers consolidate all exposures across their security stack into a singular prioritized view from which they can remediate threats. By leveraging this unified risk data set, we believe Tenable will be positioned to advance AI driven exposure management to transform how customers predict, prioritize and mitigate risk across the security stack. This brings me to the second key motivator for the acquisition.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

We expect that Vulcan will accelerate our ability to deliver automated remediation capabilities, sometimes referred to as mobilization. CISOs and their security teams will be able to act faster and more efficiently resolving their exposures across their security environments with greater precision. With these enhanced remediation capabilities, Tenable One will help ensure that security issues along with corrective guidance get into the hands of the security team members to address exposures quickly wherever they may exist in their environment, whether it be the data center, in apps, in the cloud and so on. In short, this pending acquisition underscores our commitment to bring the most comprehensive exposure management platform in the market. Another theme for us this year is expanding our footprint in cloud security.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

This quarter, our cloud security sales more than doubled with significant wins across both public and private sectors. What differentiates Tenable in this space is our ease of use, pace of innovation and the ability to offer CNAP integrated with our exposure management platform. Tenable has the ability to assess hybrid environments that most organizations operate in. Few organizations exist solely on premise or just in the cloud. On premise data centers, private clouds and public clouds are all part of the equation and our exposure management approach integrates these disparate environments into a unified strategy.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

So in summary, we believe we have strong momentum in exposure management, including cloud security. Consistent with the commentary we provided last quarter on our growth drivers, we believe we will continue to see outsized growth in exposure management highlighted by our increasing scale and cloud security over the ensuing years. To continue to execute on this growth algorithm, in 2025, we plan to increase our investment in product development and go to market, all while continuing to expand our operating and free cash flow margins. We remain firmly committed to a balanced growth approach and returning capital to our shareholders through our share repurchase program, all of which is intended to create long term value to our shareholders. I'd like to turn the call now over to Mark Thurman.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

Thank you, Steve. For the last five years, as the Chief Operating Officer, I've had the privilege of working with thousands of customers worldwide, as well as partners and employees to understand their challenges firsthand and ensure we deliver solutions that make the biggest impact to their organizations. I'm incredibly proud of what we've accomplished together and excited to continue executing on our strategy as we move forward. A key area of focus for us and one I'm very passionate about is making sure we are delivering the solutions our customers need. This is the motivation behind our investment decisions and our long term strategy.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

This also requires us to work closely with customers and partners with feet on the street understanding purchasing behaviors and priorities. While we have historically added hundreds of new customers and even more expansion deals in past quarters, there are consistent themes among these deals. I'm going to take some time to highlight customer examples that encompass the broader theme we are experiencing. As Steve mentioned, we're seeing tremendous strength in Tenable One and cloud security, but it's also worth emphasizing that vulnerability management remains foundational to customer security programs. For many customers, VM continues to be the starting point for exposure management as it lays the groundwork for understanding and addressing an organization's risk.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

We believe this sets us apart from the competition. A great example is a major telecom provider that has relied on Tenable VM for years. They are working hand in hand with us to transform their entire approach to exposure management. This Fortune 100 company is leveraging Tenable One to help unify risk findings for more than 50 tools, including those for cloud, on prem, endpoints and OT systems. As part of this transformation, they've even created a dedicated exposure management team to support the initiative.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

While VM continues to be a great starting point with existing customers, we are seeing a shift in new customer interest and behavior. Increasingly, we are seeing new customers adopt Tenable One as their starting point with Tenable. This quarter alone, we closed multiple 6 figure Tenable 1 deals, including VM, across industries like healthcare, banking, retail and tech. As organizations of all kinds grapple with understanding risk in their fragmented hybrid environments, Tenable One resonated deeply with a major financial services company that needed a holistic view across multiple asset types, including external assets, cloud infrastructure, containers and active directory. The customer quickly recognized the power of Tenable One's visibility and risk prioritization, which provided them with actionable insight to reduce their exposure.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

As a result, this turned into a 7 figure expansion deal. As Steve alluded to, our exposure management value proposition is also driving significant traction in cloud security. One marquee win this quarter was with a major international healthcare agency. They needed a centralized view of their hybrid attack surface, including their cloud environment and a competitive bake off against the top cloud players we won because our unified platform approach, which delivered critical vendor consolidation, cost savings and operational efficiencies. Most importantly, we helped them meet their $1,000,000,000 cost cutting mandate while ensuring consistent risk prioritization across their entire attack surface at scale.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

These customer examples illustrate the trust we've earned and the opportunities we're seeing in the market. They also highlight the transformative potential of exposure management as organizations move toward a more holistic approach to managing cyber risk. We are extremely optimistic about the exposure management market opportunity and are excited about the long runway ahead of us as we continue to focus on organic and inorganic investments that align with our customer goals. Over the past year and a half, we have added key technology to our exposure management platform. Vulcan is no different.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

This acquisition will directly respond to the needs of our customers who are overwhelmed with scattered security products, siloed views and resource constrained teams. And it underscores our commitment to building the most comprehensive exposure management platform on the market. Importantly, we are executing in the market with a continued focus on sales efficiency. We have driven sales productivity higher over the last few years and we intend to continue to drive leverage in this while not sacrificing market opportunities. With that, I will turn it back over to Steve to dive into the financials.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Thanks, Mark. I will now turn to our results for the quarter. As I mentioned earlier, calculated current billings defined as revenue recognized in the quarter plus the current change in current deferred revenue grew 11 year over year to $302,200,000 This outperformance was largely driven by Tenable One and cloud security. Current RPO growth was 11% year over year consistent with CCB growth. During the quarter, we added four eighty five new enterprise platform customers and 135 net new 6 figure customers.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

This was a strong quarter for us and is indicative of our growing deal sizes. Our net dollar expansion rate was 108% this quarter. Our renewal rates remained strong. Now on to the P and L for the quarter. Revenue was $235,700,000 which represents 11% year over year growth.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Revenue in the quarter exceeded the midpoint of our guided range by $4,700,000 Our percentage of recurring revenue remained high at 95%. Gross margin was 82% this quarter, up from 81% last quarter and is in line with expectations. Gross margin for the full year was 81%, up from 80% last year. Going forward, we continue to expect gross margins to be in the high 70s to low 80% range. Sales and marketing expense was $80,100,000 down from $83,100,000 last quarter and as a percentage of revenue was 34% compared to 37% last quarter.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Sales and marketing expense was lower sequentially on an absolute dollar basis and percentage basis, primarily due to improved sales efficiency, partially offset by higher sales commissions attributed to our sales performance and seasonally high renewal base in the quarter. For the full year, sales and marketing expense as a percentage of revenue was 37%, down from 42% last year, representing a four fifty basis point improvement, reflecting the strength of our go to market model. Looking ahead, we plan to add capacity this year, but expect sales and marketing spend as a percentage of revenue will continue to trend lower in 2025. R and D expense was $32,500,000 which was down from $35,600,000 last quarter. R and D expense was lower this quarter in comparison to last quarter, primarily due to foreign tax credits received associated with investments and scaling our global engineering capabilities.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

R and D expense as a percentage of revenue was 14% this quarter, down from 16% last quarter. For the full year, R and D expense as a percentage of revenue was 15% compared to 14% last year. G and A expense was $20,500,000 which was down from $21,100,000 last quarter. G and A expense as a percentage of revenue was 9% this quarter and for the full year which was flat relative to last quarter as well as for the full year 2023. Income from operations was $59,400,000 and exceeded the midpoint of our guidance range by $11,400,000 Operating margin for the quarter was 25%, which was 400 basis points better than the midpoint of our guidance range.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Operating margin for the full year is 20%, representing a 500 basis point increase from the prior year. We're very pleased with our ability to continue to drive leverage in the business as operating margins have doubled 10% for 2022 to 20% in 2024. EPS for the quarter was $0.41 which was $0.07 better than the midpoint of our guidance range. Now let's turn to the balance sheet. We finished the quarter with $577,000,000 of cash and short term investments.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Accounts receivable was $259,000,000 and total deferred revenue was $833,000,000 Current deferred revenue was $650,000,000 which gives us a lot of visibility into expected revenue over the next twelve months. We generated a record $86,000,000 of unlevered free cash flow this quarter, which is up compared to $61,000,000 last quarter. For the full year 2024, we generated $238,000,000 of unlevered free cash flow, exceeding the guide from our Q2 earnings call. We feel confident that we can continue to expand our operating free cash flow margins over the ensuing years as we have done so for every year since our IPO. In October 2024, our Board of Directors increased the repurchase authorization under our share repurchase program by $200,000,000 During the quarter, we repurchased 1,200,000.0 shares of our common stock for an aggregate purchase price of $50,000,000 Thus far, we have repurchased almost 2,700,000.0 shares for $115,000,000 since November of twenty twenty three and have 185,000,000 of remaining authorizations.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

With the results of the quarter behind us, I'd like to discuss our outlook for Q1 and the full year 2025. Our guidance excludes the impact of the potential acquisition of Vulcan Cyber, which we expect to close shortly. For the first quarter, we currently expect revenue to be in the range of $232,000,000 to $234,000,000 non GAAP income from operations to be in the range of $42,000,000 to $44,000,000 non GAAP net income to be in the range of $35,000,000 to $37,000,000 assuming interest expense of $7,000,000 interest income of $5,200,000 and a provision for income taxes of $3,600,000 and non GAAP diluted earnings per share to be in the range of $0.28 to $0.3 per share, assuming 124,000,000 fully diluted weighted average shares outstanding. For the full year, we currently expect calculated current billings to be in the range of $1,040,000,000 to $1,055,000,000 revenue to be in the range of $971,000,000 to $981,000,000 non GAAP income from operations to be in the range of $213,000,000 to $223,000,000 non GAAP net income to be in the range of $189,000,000 to $199,000,000 assuming interest expense of $28,300,000 interest income of $21,000,000 and a provision for income taxes of $13,400,000 non GAAP diluted earnings per share to be in the range of $1.52 to $1.6 per share assuming 124,500,000.0 fully diluted weighted average shares outstanding and unlevered free cash flow to be in the range of $285,000,000 to $295,000,000 dollars Let me provide some context related to our tenable stand alone outlook.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

The TCB outlook we're providing today is consistent with the directional comments we provided last quarter. The one thing I would note is that our outlook is incrementally more cautious for U. S. Federal due to the transition of a new administration. It's early in the year, so we look forward to updating you on our progress throughout the year.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Our guidance for operating income reflects our emphasis on profitable growth. We typically front load our investments in sales and marketing and R and D early in the year. In terms of quarterly flow, we expect operating margin to generally increase throughout the year as some of these investments take hold. For the full year, our guide reflects a 200 basis point improvement over 2024. It's worth noting that on a standalone basis, we expect to deliver $285,000,000 to $295,000,000 of unlevered free cash flow in 2025, which is above the target that we previously provided.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Our long term expectation of 35% plus unlevered free cash flow margins over time is unchanged. Now separate from the outlook and related commentary I just provided, Vulcan is expected to contribute an additional 50 basis points of growth to CCB and revenue for the full year with a de minimis contribution to Q1. In terms of quarterly flow for the rest of the year, we expect the top line financial impact of Vulcan to occur largely in the second half of the year as we prioritize the product integration into Tenable One and go to market with the expansive remediation workflow ops in the second half of the year. Vulcan is also expected to add $11,000,000 to $13,000,000 of operating expenses and reduce unlevered free cash flow by $20,000,000 including transaction costs. We expect the transaction to be accretive in the first half of next year and for the full year 2026.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

So with that, Mark and I would like to thank everyone for joining us on the call today. We're very excited about the opportunity ahead and look forward to updating you throughout the year. We hope to see you at the Morgan Stanley, Susquehanna and Cantor Fitzgerald Conferences in the coming weeks. We'd now like to open the call for questions.

Operator

Great. Thank you. We'll now be conducting a question and answer session. First question is from Saket Kalia from Barclays. Please go ahead.

Saket Kalia
Saket Kalia
Analyst at Barclays Capital

Okay, great. Hey guys, thanks for taking my question here. And let me just start by saying, I know the team will continue to honor Amit's legacy of better security and I'm sure he'd be proud of these results today.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Thank you, Saket.

Saket Kalia
Saket Kalia
Analyst at Barclays Capital

Absolutely. Maybe on the business, Steve and Mark, there's a good bit of noise out in the VM space right now. Maybe the question is, how do you sort of feel Tenable is doing competitively? And do you think there's an opportunity to maybe extend your lead in VM and exposure management in 2025?

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Hey, Zach, a good question. I'll start here. First, we feel really good about the momentum we have in VM. We saw better than expected growth in VM. We beat CCB by $7,500,000 from the midpoint of the guided range.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

VM was certainly a contributing factor and it came in better than what we were expecting at the onset of the quarter. There are a lot of large wins and competitive displacements and VM continues to be a foundational starting point for exposure management. And notwithstanding the results for the quarter, our outlook for VM for the upcoming year and even beyond does not change from the growth algo I provided last quarter. We expect VM growth to be in the mid single digit range going forward. We think those are the right expectations to have.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

Yes. And I'll just add from a customer and field perspective, we're definitely very, very bullish on what we saw from the VM perspective. We had some of the highest win rates against the competition in Q4 from a VM perspective. And when you really are talking to customers and as we're separating ourselves from a Tenable One perspective and differentiating, we are seeing competitive displacements. The environment, I will also add, there was a threatening environment that was out there with SALT typhoon with some of the telcos, which were leading into even more displacements from a competitive perspective.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

So we were very optimistic. We really, really were positive about what we saw in Q4 in regard to competitive displacements and our differentiation from a VM and Tenable One perspective.

Saket Kalia
Saket Kalia
Analyst at Barclays Capital

Very helpful. Thanks guys.

Operator

Next question is from Brian Essex from JPMorgan. Please go ahead. I'm sorry, Brian, your line is live.

Brian Essex
Brian Essex
Executive Director at JP Morgan

Sorry about that. Yes, good afternoon. Thank you for taking the question and good to see

Brian Essex
Brian Essex
Executive Director at JP Morgan

a solid set of results here. Steve, maybe for you, could we unpack some of the comments that you made on the federal caution in the quarter related to guidance? I know you guys have a lot of government business, a lot of it's state and local. But on the federal side, what is it that you're seeing real time that's kind of giving you a little bit more caution? Obviously, you see new stories, but maybe if you could relate where you're seeing some softness, where you're seeing stability, just to gauge the level of caution that you see and kind of what's driving that caution around the guidance?

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

You bet. Hey, it's Mark. I'll kind of jump in on that one. So we actually found this a little bit in Q4 from a CR perspective with a bit of an overhang in Q4. And now as we have the new administration kind of taking hold, we are seeing a little bit of a distraction.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

We are not seeing any changes in budgets. We are not seeing any changes in projects being canceled. But there is a little bit of gray area as there's some moving seats and there are some freezes in hiring, where it's just putting a little bit of gray area in regard to timing of some of these transactions in the federal space. We have, I think, very strong pipeline and momentum in the fed space. We're just being a bit cautious based on all of the different factors and really the moving seats that are taking place, which we expect and anticipate to get cleaned up, but that is why we're taking the outlook in the fed space here in Q1.

Brian Essex
Brian Essex
Executive Director at JP Morgan

Great. And any appetite for disclosing maybe the federal exposure kind of disaggregate that from the state and local? I know you usually give a total government number, but just to get a better sense of the exposure there?

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

We typically about 15% of our total sales come from public sector. That includes U. S. Federal as well as state and local and a number of other agencies. We'll say here that what we're modeling

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

for a

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

full year is something slightly lower. Again, as Mark said, we're just taking a more cautious approach here given the new administration, given the overhead of continuing resolution. And we think that's the right expectation to set. It's still extremely bullish on the outlook and the opportunity. We have tremendous foothold in federal and civilian and intel, and we expect those will be tailwinds of growth for us.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

But certainly some cautionary remarks just given some of the change that's taking place.

Brian Essex
Brian Essex
Executive Director at JP Morgan

Very helpful. Thank you, Steve.

Operator

Next question is from Hamzah Satterwalla from Morgan Stanley. Please go ahead.

Hamza Fodderwala
Hamza Fodderwala
Analyst at Morgan Stanley

All right, great. Thank you for taking my question. And I'll echo my condolences on the passing of for me to his family and to the entire Tenable team.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

Thank you, Hamzah.

Hamza Fodderwala
Hamza Fodderwala
Analyst at Morgan Stanley

Steve, or excuse me, Mark, Steve talked about cloud security sales, I think doubling year on year. I'm wondering, we're seeing a lot of consolidation in the security market and in the cloud security market more recently as well. To what extent is that coming from your existing customers or net new customer lens? Thank you.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

Yes. So kind of what we're seeing and we highlighted with Tenable One, we actually saw a significant uptick in new customers actually joining Tenable, being part of the Tenable One platform. But we see a massive opportunity. We have huge one of the largest installed bases of any cyber company on the planet. And we are going out there with this Tenable One message.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

And cloud security is a huge part of that consolidation message. I highlighted one of the examples of a health agency, which was a 7 figure cloud deal. This was all about consolidation. It was all about a hybrid environment where they had on prem vulnerability needs and assets, they had cloud, they had operational technology. So what we are seeing with exposure management is getting that full visibility of that attack surface and cloud is a massive part of it.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

And that's why we're seeing that business double. That's why we're very optimistic about our cloud bookings and revenues in 2025. And I think you're going to continue to see that trend. Customers are definitely looking for that consolidation play and exposure management fits really, really nicely in that talk track.

Hamza Fodderwala
Hamza Fodderwala
Analyst at Morgan Stanley

Thank you.

Operator

Our next question is from Shaul Eyal from TD Cowen. Please go ahead.

Shaul Eyal
Shaul Eyal
Analyst at Cowen

Thank you. Good afternoon. Let me also offer my condolences. Steve, I had a question about your European, maybe international operations. How did they perform this quarter versus The U.

Shaul Eyal
Shaul Eyal
Analyst at Cowen

S. Operations? And maybe I know you've mentioned the competitive landscape, but maybe can you break it for us what you're seeing on the legacy front versus some of the maybe emerging private competitors front? Any color will be extremely helpful. Thank you.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Sure. Well, Sanibel is a global company. We sell in 160 countries and we have a presence in 40 different countries. And demand is not monolithic and it can change from quarter to quarter. This quarter, we saw particular demand on the international front, specifically in Europe and even in particular in The Middle East.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Continuous to be tailwinds of growth for us. Certainly, areas of Latin America, some of our largest deals came out of those two theaters. We're pleased to see that. And I think as a whole, as we look out into 2025, '1 of the things we mentioned early in the call was that we plan to add capacity plan to make investments. And so we're going to invest in those markets where we're seeing opportunity, where we're seeing growth.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Competitive dynamics really haven't changed that much from quarter to quarter. You see the traditional VM incumbents for vulnerability management. And in cloud security, we're seeing good traction there. Not only are we demonstrating an ability to sell cloud security standalone and win those deals outright, but we're also selling it as a part of the broader solution. And with regard to the latter, our strength is really selling into environments that where customers have hybrid needs.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Most customers don't have workloads that are completely on prem. They don't have workloads that are 100% in the cloud. So hybrid environments, the ability to secure both and be able to deliver insights with respect to those environments is certainly a big part of the value proposition we're delivering.

Shaul Eyal
Shaul Eyal
Analyst at Cowen

Thank you so much. Very helpful.

Operator

Our next question is from Gray Powell from BTIG. Please go ahead.

Gray Powell
Managing Director at BTIG

Okay, great. Thanks for taking my question. And before I ask, I just wanted to offer my condolences on Amit as well. I had a lot of respect for But yes, in terms of the question, just on the billings guidance, can you give us any color on how you're thinking about linearity for the year versus prior years? And is there any reason why maybe this year would be more backend loaded, particularly with some of the comments you made on U.

Gray Powell
Managing Director at BTIG

S. FET?

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

Sure. Well, with regard to our outlook for the full year,

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

the CTB outlook we're providing today is consistent with the directional comments we made last quarter. The one thing as we called out earlier is that we're incrementally more cautious than U. S. Federal. We also talked about the impact of the Vulcan acquisition.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

When closed, it will contribute roughly $0.5.00 dollars of CCB growth. That will be more towards the back half of the year in part because we're prioritizing the product integration first. We're building those capabilities natively into our 10.1 platform. We'll be in market with more expansive solution during the course of the year and we expect it to contribute more fully to CCV the second half of the year. So notwithstanding Fed and certainly the impact of the acquisition, we would expect our same seasonal flow.

Gray Powell
Managing Director at BTIG

Understood. Okay. Thank you very much.

Operator

The next question is from Rudy Kessinger from D. A. Davidson. Please go ahead.

Rudy Kessinger
Managing Director - Senior Equity Research Analyst at D.A. Davidson

Hey, thanks for taking my questions. I guess just kind of similar to Grace's question on TCB, but actually on the revenue. The guide kind of implies like a pretty modest acceleration in your revenue growth rate year over year throughout the year. I'm curious, any color you can provide there, is Q1 a tough compare or just what maybe is driving that in the guide, especially considering maybe some more conservative assumptions around Fed, which is more Q3 heavy?

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Yes. I mean, revenue

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

is really an output of sales and CCB is a good proxy of that. And there are a number of factors that go into our revenue forecast such as the mix between subscriptions and perpetual licenses services, things of that sort. So overall, we feel like the assumptions are appropriate given our outlook in sales. And I would say there's nothing here discrete that's skewing that higher more an extrapolation of what we're seeing in the current quarter for the full year.

Rudy Kessinger
Managing Director - Senior Equity Research Analyst at D.A. Davidson

Okay. That's helpful. That's it for me. Thank you.

Operator

Next question is from Roger Boyd from UBS. Please go ahead.

Roger Boyd
Roger Boyd
Director - Equity Research at UBS Group

Okay. Thanks for taking my questions. I'll add my condolences for Amit, the industry lost, just a great person. I wanted to ask about customer adds. The 100,000 plus ACV number looked pretty good.

Roger Boyd
Roger Boyd
Director - Equity Research at UBS Group

I think the overall enterprise customer adds maybe a little bit weaker. Any color on what you're seeing across the cohorts? I know you mentioned kind of better traction upmarket. What are you seeing with kind of mid market SMB? Thanks.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Yes. Well, first of all, this was a quarter of large deals. So yes, we added over 400 I think four eighty five new enterprise platform customers. We added 185 net new 6 figure customers. One of the things that Mark talked about earlier was the strength in large deals, the ability to transact 6 and even 7 figure deals.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Obviously, that corresponds with the broader product set. We're going to market with a very expansive cloud offering. We have an integrated platform. We're securing and assessing more areas of the attack surface for our customers. And consequently, we're covering more of those assets.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

So we're pleased to see these bigger bytes upfront, larger lands, and not only the ability to bring on new customers, but also expand relationships with existing customers. So certainly large deals figured prominently this quarter.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

Yes. And then I'll just add exactly what Steve just said. Not only did we see great big expansions coming out of our large installed base, but some of the largest competitive wins that we had were in Fortune 500 companies. So we were displacing competition in very, very large enterprise customers, which obviously helped us grow pretty significantly here in Q4. Also, we balanced that though with outstanding mid market growth.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

So we saw excellent global mid market growth. This was a very, very exciting trend that we had seen all the way through Q4. And it wasn't just a U. S. Based phenomenon, we saw across the globe in EMEA, Asia and LATAM.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

So not only were we able to win in these large enterprise accounts, getting expansion, getting big competitive displacement, but that mid market messaging truly resonates, right, from a Tenable One perspective and we saw great growth around the globe in mid market too. So, it was an exciting thing in regard to not only the size of the deals, but the growth rates that we saw.

Roger Boyd
Roger Boyd
Director - Equity Research at UBS Group

Really helpful color. Thanks guys.

Operator

Our next question is from Patrick Colville from Scotiabank. Please go ahead.

Joe Vandrick
Associate Director - Equity Research at Scotiabank

This is Joe Vandrick on for Patrick Colville. You touched on it a bit in the prepared remarks, but I'd love to hear a bit more about Vulcan Cyber. Why Vulcan? And I know you touched on data integration and automated remediation, but is there application security posture management a focus as well? Thanks.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Hi, very good question. I think the best way to think about Vulcan is twofold. First, Vulcan enhances, as you mentioned earlier, everything we do by bringing in and adjusting massive amounts of data from third party security products such as endpoint and cloud and application security and even vulnerability assessment. They have fairly robust data model for aggregation, deduplication, prioritization and even normalization of this vast amounts of data. Second, Vulcan enriches the data that we have and provides broader, more intelligent remediation capabilities.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

For example, you can automatically launch a web application scan of an external domain with our WaaS product and when that domain itself is discovered with our ASM offering, So they provide rich remediation workflow ops on the back end. So the final piece I would say here, notwithstanding the ability ingest data and notwithstanding the ability to drive more and deeper, richer remediation capabilities, it accelerates really our AI strategy. We'll have more expansive data, more expansive data sets allow us to solve critical challenges to our customers. AI certainly will be a multiyear cycle. It's a force multiplier on the kinds of insights that we can deliver with the risk data that we're managing for our customer.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

So really excited about the acquisition, certainly complements what we're doing today and certainly provides broader and richer capabilities on many levels for us. Makes sense. Thank you.

Operator

Next question is from Joshua Klabin from Wolfe Research. Please go ahead.

Patrick O'Neill
Equity Research Associate at Wolfe Research, LLC

Hey, this is Patrick on for Josh and just want to echo both of our condolences. Can you give us a sense for how you're thinking about the trend of NRR for 2025? It's good to see it stabilize this quarter, but how what's factored into the guidance from that perspective? Thanks.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

We don't disclose, we talk about we provide a guide

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

for CCP, we do it on an annual basis. And one of the things that we talked about earlier was there's no significant change to us to the seasonal quarterly flow that we experienced last year that we expect for this year with the exception of two things. Number one, we're expecting lower contribution from the Fed. We're taking a cautious tone there and approach given the new administration and the overhang of continuing resolution. So we're expecting it to contribute minimally in the first quarter and to some extent into Q2.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

The second thing is we have the acquisition of Vulcan and when closed, it will add 0.5 of CCB growth. And we said that will be more so in the back half of the year given the fact that we're prioritizing the product integration and building some of those capabilities natively into our cannibal one exposure management platform.

Operator

Next question is from Adam Borg from Stifel. Please go ahead.

Max Persico
Max Persico
Equity Research Associate at Stifel Financial Corp

Hey, thanks guys. You got Matt Persico on for Adam Borg. Just wanted to ask if you could give an update on what kind of traction you're seeing with the channel? And then as you look out into 2025, where is Tenable going to be investing most across SDIs, VARs, MSSPs and etcetera? And any color on that would be super helpful.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

You bet. So all of the above. We obviously one of the greatest differentiators Tenable has as a company is we are a 100% channel company. So we don't do direct business. So we get an enormous amount of leverage from our partner and ecosystem.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

And so Q4 was no different. And when you look at what we now are doing with Tenable One, with cloud security and now adding Vulcan, And it's really important to keep this in mind with Vulcan is we are going to our existing buyer. We are going to the folks that we have champions and coaches within the install base and talking to them about exposure management and now fulfilling exposure management from third party assets, ingesting that and by also doing this automated remediation workflow. The channel will benefit greatly because the channel all around the globe, right, over 5,000 partners, they have exposure management and VM practices. So now that we're able to integrate with Tenable One, Vulcan being able to go to the channel, the training, the enablement, the onboarding will be very quickly will very quickly happen almost seamlessly because it's the tenable one story.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

So we'll be investing in MSSPs, we'll be investing in resellers, we'll be investing in distribution. We saw a record quarter in regard to some of our channeling business in Q4 and we're expecting a phenomenal year coming out of the channel in 2025. And it's really going to be driven by Tenable One, cloud and exposure management now with Vulcan.

Operator

Next question is from Jonathan Hild from William Blair. Please go ahead.

Jonathan Ho
Research Analyst at William Blair

Hi. And let me also echo my condolences as well with Amit. Definitely a large loss here for the entire community and for his family. Just wanted to see if you could maybe give us a sense of where we are in terms of executive search and perhaps some thoughts on what you're looking for. This is definitely tough shoes to fill and so any color would definitely be appreciated.

Jonathan Ho
Research Analyst at William Blair

Thank you.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Hi, Jonathan. This is Steve. The Board is running a search and evaluating internal and external candidates, but there's no designated timeline and they're focused on ensuring we, of course, have the right leadership at this company going forward. In the interim, the Board has expressed complete confidence in me and Mark to be able to lead this company going forward.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

I can't speak for the main criteria, but certainly someone who has the ability to continue to execute on the vision and continue to refine and enhance the vision over the course of time. And the one thing I will say is that Amit was certainly the driving force behind the strategy and vision for Tenable, but collectively, the management team had a very heavy hand in shaping it, influencing it, refining it and evolving it. And so that's something we plan to continue going forward.

Jonathan Ho
Research Analyst at William Blair

Thank you.

Operator

Next question is from Mike Stecos from Needham and Company. Please go ahead.

Mike Cikos
Senior Analyst at Needham & Company

Hey, thanks for taking the questions guys and I apologize if there's any background noise on my side. I think the first question if I could, I just wanted to check, I know we've centered some of the commentary on this incremental caution that's being introduced with respect to U. S. Fed versus the CCV guide being relatively maintained versus where we were a quarter ago, despite that Q4 upside. So is it fair to assume that were it not for this incremental portion around U.

Mike Cikos
Senior Analyst at Needham & Company

S. Fed, you guys could be lifting the CCB guide for this coming year by that 4Q beat? Or is there any way to kind of quantify that incremental portion that's being introduced here today?

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

No, I think that's certainly a fair characterization. Look, the quarter came in better than expected. It's early in the year. Our outlook for the full year reflects some of the directional comments we made last quarter. The difference here is that we're modeling in lower contribution from Fed.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Fed historically has been strong for us. Long term, we expect it to continue

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

to do so. It's fair

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

to say there's a little more uncertainty given the transition of the new administration and other things that we talked about here. So I think that's a fair characterization of the outlook.

Mike Cikos
Senior Analyst at Needham & Company

Terrific. And then as a follow-up, I know that we've spoken about this additional capacity that's coming online as well. Is it fair to think that again, you guys are talking about the strength in Q4 with these large six and seven figure deals. Is that capacity really to help you land with these larger deals? Or can you help us again provide some additional context for where that capacity is expected to go?

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Yes. In In terms of the capacity we're adding, given how the second half of the year has played out, we have confidence to add capacity. I think we're very pleased with the level of productivity that we're seeing in the sales organization. It's inflected higher during the course of the year. We discussed at the beginning of the year that we expect sales and marketing as a percent of revenue to trend lower during the course of the year and it certainly did so.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

We're putting more product in the hands of our sellers. And so the investment here really reflects the strength that we're seeing. One One thing I want to make clear is that we're not capacity constrained. We have the ability to not only deliver hit and exceed the guide that we provided today, but certainly be able to drive significant upside. So the capacity wording thing really speaks to opportunity maybe perhaps the second half of the year more so in 2026.

Mike Cikos
Senior Analyst at Needham & Company

Very good. Thank you very much guys. Good luck.

Operator

Our next question is from Spernick Thothari from Robert Baird. Please go ahead.

Shrenik Kothari
Senior Research Analyst at Robert W. Baird & Co

Again, thanks for taking my question. Again, a

Shrenik Kothari
Senior Research Analyst at Robert W. Baird & Co

little echo, condolences for Amit as well as his family and some votes of support for the entire team. They're accountable. Just on the federal note, you just got public sector. Of course, there are notable events, you and as other segments, you started to pass, being or is undergoing administration related uncertainty. Just curious looking ahead, right, as you are favoring your approach to not only address the unique procurement cycles and compliance requirements of public sector, which you anyways have worked over years now.

Shrenik Kothari
Senior Research Analyst at Robert W. Baird & Co

But it's still early days, but I understand today if you're trying to sort of feel to the new kind of tools or cost conscious and mindset framework which are moving

Shrenik Kothari
Senior Research Analyst at Robert W. Baird & Co

towards. Sorry.

Shrenik Kothari
Senior Research Analyst at Robert W. Baird & Co

I know you guys have discussed.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Yes. Sorry. You're a bit inaudible right now. I'm having a tough time hearing you. Yes.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

But when we go into the next question, then maybe if it clears up, we can come back. Operator, let's go to the next question.

Operator

Sure. No problem. Once again, it's Paul, I want to join the queue. After no further questions, I have to turn the floor back to management for closing comments.

Steve Vintz
Steve Vintz
Co-CEO & CFO at Tenable

Well, Greg, thank you for joining us today. We're excited to be here on updates with our progress for the fourth quarter as well as share our outlook for a full year 2025. And we hope to see you at the Morgan Stanley, Susquehanna and even Canner Fitzgerald conferences in the coming weeks. Thank you.

Mark Thurmond
Mark Thurmond
Co-CEO & COO at Tenable

Thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

Executives
    • Aaron Carney
      Aaron Carney
      Vice President - IR
    • Steve Vintz
      Steve Vintz
      Co-CEO & CFO
    • Mark Thurmond
      Mark Thurmond
      Co-CEO & COO
Analysts
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Earnings Conference Call
Tenable Q4 2024
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