Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tenable Holdings Inc (TENB, Financial) reported outperformance in revenue and earnings for Q2 2024.
- Exposure management, particularly Tenable One and cloud security, continues to generate strong demand.
- Tenable One represented 30% of new business in Q2, indicating strong traction.
- The company is seeing significant momentum in cloud security, with several large deals closed.
- Tenable Holdings Inc (TENB) introduced new AI capabilities to enhance customer value and security posture management.
Negative Points
- Calculated current billings (CCB) growth fell short of expectations, leading to a revised outlook for the year.
- Customers are highly scrutinizing their spending, making it more difficult to close new deals.
- The vulnerability management (VM) business is experiencing cyclical challenges, particularly in North America.
- Longer sales cycles and tighter budgetary constraints are impacting large opportunities, especially in the VM segment.
- The macroeconomic environment remains challenging, affecting the rate of new business and deal closures.
Q & A Highlights
Q: Amit, maybe to start with you, I thought it was interesting in your prepared remarks that you talked about sort of traditional VM becoming more cyclical. Can you just talk about some of the market dynamics in VM and maybe why you think the demand for Tenable One feels just decently stronger right now than traditional VM?
A: With respect to VM, it's an established market. We're seeing some cyclical patterns in it, but we are the clear market leader. In Q2, we saw greater scrutiny of transactions, specifically in North America and in the large enterprise segment 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. We continue to see strong demand for Tenable One, which accounted for 30% of our new sales in the quarter.
Q: Steve, for my follow-up, maybe for you. Despite the challenges in VM that we just spoke about, the focus on free cash flow definitely comes through, and certainly appreciate the early look at how you're thinking about 2025. Can you just talk us through how you kind of think about the balance between growth and margins in setting that target even anecdotally?
A: We're very pleased to be providing an initial unlevered free cash flow target today for 2025 of $280 million to $290 million. That's up 24% at the midpoint. And that's also a major milestone towards achieving our updated long-term target for unlevered free cash flow of 35% plus. In terms of growth for next year, I'm not going to comment about that. We're not through our planning process yet. But the one thing I will say is that we're firmly committed to delivering on our unlevered free cash flow targets.
Q: Amit, great to see you back in the seat. I guess I wanted to touch on our [medic] and cloud security. Maybe if we can get an update on that, where are you integrating it? Is it only on the analytics portion of that business? Are you integrating with the rest of the company? And are you able to lead with cloud security?
A: We're providing a full, end-to-end, full CNAPP solution, and that's resonated with customers. A majority of our cloud sales are for that full CNAPP capability. That said, in the very large enterprise side of the market, where they may already have a CSPM solution, they already have a CNAPP solution, we have market-leading capability, in particular, strength around identity and the keen functionality. The majority of our cloud security sales are procured through Tenable One licensing.
Q: Steve, could you comment on the Fed business or just public sector in general? I know that I think last quarter, you felt really good about it and called out some strength there. And I think we've heard about federal spend trickling down to SLED. Maybe just a comment on mix strength of the business there. And is that reacting or behaving differently than the enterprise side of the business?
A: Our public sector business was good this quarter and in line with our expectations. There are some very large seven-figure agency-wide opportunities in our pipeline for the second half of the year. Some of these involve coordination and budgetary alignment across dozens of sub-agencies for some deals, 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 US federal.
Q: Amit or Steve, I wanted to follow up on the public sector question. You mentioned 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 potential change in administration 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.
A: We saw in line delivery with our expectations for product sector in Q2. Q3 obviously is a seasonally high quarter for public sector. It is an election cycle. And we have a significant number of six- and seven-figure opportunities in public sector. 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 and in the election cycle.
Q: Amit, appreciate your comments around the VM business, but what can you say to assuage investor concerns that it's not secular that it is cyclical that you're seeing right here either in terms of pipelines or customer behavior?
A: I've got a lot of confidence in the VM market, in the VM business. It's a strategic market as you and others have been in the space for a long time recognized. It's one of those foundational tools that CISOs need and report regularly to audit risk committees, sometimes cyber committees and to the Boards of Directors. So it's a foundational market requirement within cyber. It's not one that we anticipate going away or even having a more secular downward trend. It is cyclical, and I think we're going to see an improved outlook in the VM market with improved macro conditions.
Q: 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. 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?
A: We have broadened our business over the years and expanded into adjacent markets. VM is foundational. We're the clear leader, but growth here has become more moderate. But that said, we have confidence in that business to be able to drive growth higher in the ensuing years. 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 will represent an increasing mix of our total business going forward.
Q: A question on Eureka. 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 what the target customer is there?
A: We're excited about the Eureka acquisition. DSPM is a strategic component of the CNAPP platform. I anticipate that over time, most organizations will procure unified CNAPP solutions, and that will include a component or some licensing component of DSPM. We have DSPM in our current CNAPP offering that's tightly integrated in a unified workflow. With the Eureka acquisition, we're able to introduce the next-generation features, the next
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
