Tenable Holdings Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Saket Kalia - Barclays - Analyst : Good to hear from everyone and on the team. Steve, maybe for you just to start with you. It was great to hear that exposure management makes up about 35% of total revenue. Could you just maybe touch on how fast that grew this quarter? And maybe how you think about that growth going forward, broad brush? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 8:30PM, TENB.OQ - Q3 2024 Tenable Holdings Inc Earnings Call

Question: Saket Kalia - Barclays - Analyst : Yes, absolutely. Much faster growth in those non-VM, for sure. I mean, maybe that's a natural segue for you. Cloud security just feels like a very clear rising tide. Maybe the question for you is, how do you feel about breadth of Tenable's offering here? And where do you think your cloud security portfolio goes in the future?

Question: Hamza Fodderwala - Morgan Stanley - Analyst : Steve, I wanted to just understand a little bit related to your guidance philosophy around Q4 and 2025. So by my math, it sounds like you're guiding to about implied 8% to 9% CCB growth for Q4. Is that roughly how we should consider 2025? And related to that guidance, I'm just curious what you're assuming around budget flush in Q4, what you're seeing in your pipeline. Is it more or less conservatism or something that you're seeing in the business that makes you a bit more concerned. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 8:30PM, TENB.OQ - Q3 2024 Tenable Holdings Inc Earnings Call

Question: Brian Essex - JPMorgan - Analyst : Maybe for me, I think you previously noted that you may have changed some of the incentives that you had for the federal business. I know this time last year, there were some revenue recognition kind of issues that played into that. Could you perhaps shed a little color on how those changes played out and -- or to federal execution this quarter? And what should we expect over the next year or so?

Question: Brian Essex - JPMorgan - Analyst : Got it. And then maybe a quick follow-up for Steve. As you're kind of pretty much at 20% operating margins, you've delivered certainly some pretty healthy operating margin expansion consistently over the past few years. In light of the growth outlook, can you maybe help us understand how you think about the guardrails of margin expansion versus growth and how we might expect margin expansion to progress going forward given the growth outlook that you have?

Question: Joel Fishbein - Truist Securities - Analyst : You talked about early traction. I know it's early days with AI Posture Management and AI Aware. I'd love to hear and understand how you're pricing these products and what the competition looks like in those markets?

Question: Joel Fishbein - Truist Securities - Analyst : And the competitive environment around that, if anything?

Question: Michael Cikos - Needham & Company - Analyst : And I just wanted to continue on that thread that Joel was teasing at. But do we similarly talk about the pricing dynamics for Enclave Security? I know that's a newer piece of the portfolio here. I just wanted to make sure I was checking up on the pricing and competitive dynamics for that product as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 8:30PM, TENB.OQ - Q3 2024 Tenable Holdings Inc Earnings Call

Question: Michael Cikos - Needham & Company - Analyst : Got it. And maybe more for Steve here. But if I just cycle back to last quarter's guidance, one of the things that was implied is that you guys were seeing these headwinds specific to new business, particularly vulnerability management in North America. But the guidance cut was explained as being more cautious in its stance, i.e., that trend for the new business with VM was kind of painted across the board for new business across all of Tenable. And one of the things I'm trying to tease out is with where we stand today, how has the new business trended for Tenable, both for VM and then outside of VM, just to make sure that we're getting a sanity check on those two pieces there.

Question: Jonathan Ho - William Blair - Analyst : Congrats on the strong results. Just wanted to follow up a little bit on the Tenable One platform. And can you help us understand. Do you typically get a lot of the benefits from new asset types upfront? Or does it take a little bit of time for that to translate? And maybe can you help us understand how Tenable One maybe affects your ASPs as well?

Question: Jonathan Ho - William Blair - Analyst : Makes a ton of sense. And then just in terms of your stabilization comments, can you talk to maybe the pricing environment and the competitive environment? And whether you've seen some of these newer competitors start to gain any traction or whether things are relatively stable. Just want to get a sense around that stabilization from these angles.

Question: Patrick Colville - Scotiabank - Analyst : Hey, Amit and [Chris]. I guess I just want to ask one about stock repurchase. I don't think there was any stock repurchase this quarter. But you guys announced an expansion of the repurchase authorization. So just I guess, talk me through why no repurchase this quarter. And then what's the philosophy around buybacks?

Question: Patrick Colville - Scotiabank - Analyst : And I guess my second question, if I may. Thank you for providing that kind of early look into 2025 of 8% to 9% current billings growth. I mean, there's a lot of kind of wind in Tenable sales with exposure management, with cloud, with kind of ITDR, OT security. I guess, when will these tailwinds be more reflected in numbers? If you could provide any color there, that would be super helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 8:30PM, TENB.OQ - Q3 2024 Tenable Holdings Inc Earnings Call

Question: Gray Powell - BTIG - Analyst : Congrats on the results. It's good to see the stabilization. So maybe just to start off high level, have you seen any uncertainty around the elections in the US, caused any just impact on deal discussions or just have any impact on how customers are thinking about their security budgets? It doesn't look like it just from the results, but I'm curious if that came up at all this past quarter.

Question: Gray Powell - BTIG - Analyst : Okay. Great. And then just more of like a housekeeping question for Steve. I just want to make sure I understand the disclosures correctly. When you call an exposure management at 35% of total sales, is that a revenue number? Or is that more related to something like billings or bookings? I guess there's sort of a loose definition of sales when disclosing these metrics. I just want to make sure I'm thinking of it correctly.

Question: Gray Powell - BTIG - Analyst : Okay. All right. Perfect. Thank you very much.

Question: Shaul Eyal - TD Cowen - Analyst : Thank you. Good afternoon, everybody. My question, Amit or Steve, I know maybe it's a little too early given where we stand in the fourth quarter. But from where you sit, when you compare the seasonal budget flush, how would you characterize for (technical difficulty) current time?

Question: Shaul Eyal - TD Cowen - Analyst : Sure. I was asking about seasonality in the fourth quarter. Again, a little too early at this point, given we're in the end of the first month of the quarter. But how would you characterize the seasonal budget flush this year versus last year?

Question: Shaul Eyal - TD Cowen - Analyst : Understood. And maybe a follow-up from a geographic perspective, anything outstanding this quarter one way or the other?

Question: Shaul Eyal - TD Cowen - Analyst : I apologize. It's pretty much [my line], but anything unusual or pretty much a consistent quarter from a geographic performance perspective?

Question: Shrenik Kothari - Robert Baird - Analyst : This is Shrenik from Baird. So starting with Steve, just following from what you mentioned on outperforming mid-market and closing the first sale of the deal in the segment, you touched upon the net dollar expansion rate. I just wanted to -- if you can help us get a sense of how to unpack that gain 108% was than just like a point lower than last quarter. If you can help kind of elaborate and provide some color on compactors there in the context of new low expansion within these cohorts that you highlighted mid-market which, of course, are larger organizations and enterprise. If that is a factor and any color on product segments with exposure and cloud securtiy offerings also growing strongly. And then I have a follow-up.

Question: Shrenik Kothari - Robert Baird - Analyst : Got it. Super helpful, Steve. And just a follow-up, and Amit, feel free to chime in. On this traction in the mid-market, right, as you highlighted, these are big opportunities. And considering for upsell the dynamics around their purchasing behaviors, just curious in terms of any trends that you observe with these customers in terms of how they're looking to consolidate the security vendors and how you guys are positioned. You pronounced the one-stop shop there. And anyways, how you might be adopting your sales, [motion], the pricing or customer success. Just wanted to understand how you approach mid-market.

Question: William Crane - Canaccord Genuity - Analyst : Great. Congrats on the quarter, and this is sort of similar to Jonathan's question earlier. You talked about Tenable One garnering 20% to 25% premium per asset, also a much higher ASP on the back of more pervasive deployments. So the question is, as you add in more asset types like OT and more functionality to [your metric], how should we think about the growth in both price per asset as well as asset counting? Is there room for that premium per asset to increase? Or is this really a asset growth play?

Question: Roger Boyd - UBS - Analyst : Amit, you talked last quarter about VM being cyclically challenged, and it seems like you're still expecting to see that in the fourth quarter and presumably a broader cyclical recovery is not embedded in your initial counter '25 outlook. But with that in mind, what would give you more confidence that the cyclical headwinds are lifting? Is it really just a continuation of macro uncertainty in sales cycles? Or is it more specifically tied to some of the license capacity dynamics you've talked about in the past?