Tenable - Q2 2023
July 25, 2023
Transcript
Operator (participant)
Greetings. Welcome to Tenable's second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Erin Karney, Vice President, Investor Relations. Ms. Karney, you may now begin.
Erin Karney (VP, Investor Relations)
Thank you, Operator, thank you all for joining us on today's conference call to discuss Tenable's second quarter 2023 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 the IR website at tenable.com.
Before we begin, let me remind you that we will make forward-looking statements during the course of this call, including statements relating to our guidance and expectations for the third quarter and full year 2023, growth and drivers in our business, changes in the threat landscape in the security industry and our competitive position in the market, growth in our customer demand for and adoption of our solutions, including Tenable One, planned innovation and new products and services, and our expectations regarding long-term profitability and free cash flow. 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 management's beliefs and assumptions only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or 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, which are available on the SEC website at sec.gov. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalent.
Our earnings release that we issued today includes GAAP to non-GAAP reconciliations for these measures and is also available on the investor relations section of our website. I will now turn the call over to Amit.
Amit Yoran (CEO)
Thank you, Erin. Today, I'll cover some context on our financial performance in the quarter, discuss the accelerating momentum we're seeing with our platform, including strong demand in cloud, and also touch on some exciting product updates. Q2 surpassed expectations on every metric, outperforming on both the top and bottom lines. Our results for the quarter are a testament to the growing importance of exposure management and our ability to pivot in a difficult market. Tenable solutions are enabling customers to secure critical areas of their attack surface while doing more with less. This is incredibly relevant at a time when customers are focused on ROI. Our sellers executed incredibly well during the quarter by combining our strong business use case with our industry-leading technology. In Q2, we added 426 new enterprise customers and 63 net new six-figure customers, signaling a return to our typical quarterly adds.
The upside to our results was driven by demand for Tenable One, where we continue to exceed expectation with record levels of deals closing and strong pipeline generation. We also saw a high volume of large deals as customers look to reduce risk, consolidate spend, and security tool sprawl with Tenable One. Our OT business also delivered strong results, with notable traction in public sector. Last quarter, we highlighted our competitive differentiation. We continue to experience a shorter time to tech win and very strong win rates. We believe this is a direct result of our strategy to broaden the use cases for our technologies and enable our customers to discover and secure the proliferation of assets in an increasingly complex environments, including hybrid, multi-cloud, OT, identity, and beyond.
As we increase the Tenable One customer base, we continue to experience larger ASPs and adoption of more platform use cases such as identity and cloud security. During the quarter, we saw Tenable One increase from a teens% of new bookings to over 20% and now comprises low double-digit% of new and renewal business. We're also seeing increased Tenable One growth from our on-prem customers, driven by the need to expand coverage of their attack surface, coupled with new advanced analytics provided by Tenable One. For all customers, securing the cloud is a critical objective. The speed and scale of cloud often leave environments with undetected and unremediated exposures, such as misconfigurations, system vulnerabilities, and excess privileges. In many cases, customers do not even know what assets they have and what access has been granted to those assets.
With cloud security as part of Tenable One platform, we can bring greater context to a customer's overall preventative security program so that they can better understand risk and prioritize mitigating actions. Most organizations operate multi-cloud and hybrid environments. We can consistently enforce cloud security posture and compliance across their operating environments. With our unified platform, we're helping organizations better measure and communicate improvements in security posture, which has become a board-level issue.... During the quarter, we announced our Identity Risk Score. Identity Risk Score uses mature AI and machine learning models to quantify risk. Using modern AI techniques with conceptual exposure data, Tenable solutions can quickly identify and prioritize identity and entitlement-related problems on-prem and in cloud environments. We believe cybersecurity and exposure management, in particular, are big data problems, and that we are best suited to address them.
Through our analytics and artificial intelligence, we're helping security teams quickly identify issues and prioritize remediations across the modern attack surface. We've recently expanded Tenable One to allow customers to ingest vulnerability and misconfiguration data from their other security tools. This, combined with our expansive coverage across the attack surface and vulnerabilities, misconfigurations, and identities, allows us to deliver deeper analytics and more insights into customer risk. In short, we believe that our data lake is the largest repository of contextual exposure data in the world. This data repository helps to power mature and next-gen AI technologies for exposure management. Stay tuned for further announcements and demos at Black Hat. In addition to Tenable One, we saw strength in both the public sector and OT.
Cybersecurity is increasingly a focal point for public policy, including CISA's operational directives for operational technology, presidential decision directives, and Defense Authorization Act, all of which mandate improvements in cybersecurity for OT. As customers in the public sector and broader cyber industry face more rules and regulations, they frequently mature their risk management practices. We have both market-leading product in this area and a deep understanding of both OT and IT converged environments. This combination is necessary as CISOs are increasingly becoming a critical part of the OT security purchasing process. This year, we plan to integrate OT into Tenable One, another milestone for our platform that will further enrich the data and differentiate our offering. We're incredibly excited about our performance, where we are today, and where we are going. We have industry-leading technologies unified in a differentiated platform.
We're seeing demand at the top end of the funnel, particularly in cloud and identity, and we're achieving tech validation wins at a faster rate. We're doing all this with our balanced growth strategy and continuing to invest for growth and expanding margins. I'm particularly proud of our ability to successfully navigate the ongoing uncertainty in the macro environment. We had a great quarter, and we are confident in our strategy and in our ability to execute. I'll now turn the call over to Steve for further commentary on our financial results and outlook.
Steve Vintz (CFO)
Thanks, Amit. Overall, we are very pleased with our execution this quarter, highlighted by better-than-expected CCB, revenue, and earnings, attributed to continued traction with our exposure management platform. I will provide more commentary momentarily, but first, please note that all financial results we discuss today are non-GAAP measures, with the exception of revenue. As Erin mentioned at the start of this call, GAAP to non-GAAP reconciliations may be found in our earnings release issued earlier today. Now, on to our results for the quarter. Calculated current billings, defined as the change in current deferred revenue plus revenue recognized in the quarter, grew 15% year-over-year to $200.2 million. A few things to note with regard to our strong results for the quarter. First, we saw stabilization in banking and financial services, as well as tech and telecom sectors in comparison to Q1.
We attribute our success this quarter to a return to a more predictable selling environment, including increased visibility with large deals, which was benefited by a continued focus on lead qualification and an ability to navigate a more rigorous contract approval process. Second, Tenable One continues to gain momentum and is creating tailwinds with customers seeking to consolidate vendor spend and more broadly understand risk across their attack surface. Just to put matters in perspective, Tenable One grew to over 20% of total new enterprise sales and is helping us inflect ASPs and pipeline higher and achieve tech validation wins faster. It's also worth noting that we recently integrated Tenable One with Security Center, which allows our on-premise customers to access enhanced capabilities and analytics in Tenable One through a flexible hybrid deployment model.
This created some tailwinds in the quarter and we believe represents a sizable opportunity for us going forward to upsell our exposure analytics and identity and cloud security solutions to our SC customers. Third, CCB also reflects better than expected early renewals, most notably from our Q3 renewal base. This timing of billings contributed approximately $2 million of upside in the quarter. As I have mentioned in the past, CCB is a close but not perfect proxy of sales, and it's influenced by a number of other factors, such as deal timing, including renewals. In summary, CCB was stronger than expected. Consequently, we are raising the midpoint of our CCB outlook for the full year today by $3 million, which is the portion of the beat we attribute to our outperformance in the quarter.
In terms of key financial metrics, we continue to take and win share, as reflected by our 426 new enterprise platform customers we added in the quarter. Large deals was also strong, as we added 63 net new six-figure customers in Q2. Our dollar-based net expansion rate was 111% in the quarter, compared to 113% last quarter. As a reminder, the expansion rate is calculated on an LTM basis and reflects improvement during Q2 in comparison to what we experienced during Q1. Revenue was $195 million, which represents 19% year-over-year growth. Revenue in the quarter exceeded the midpoint of our guided range by $5 million. Our percentage of recurring revenue remains high at 95% this quarter, which is consistent with prior periods.
I'll now turn to expenses, where we continue to demonstrate good cost control and operating leverage. I'll start with gross margin, which was 81% this quarter, up from 79% last quarter. We are pleased to see our gross margin expand over the prior quarter, primarily due to the scalability of our public cloud infrastructure. Looking ahead to the second half of the year, we expect gross margins to be modestly lower as we absorb the initial costs related to the upcoming introduction of new exposure management functionality, such as Cyber Asset Management and AI-powered analytics. Sales and marketing expense was $81.4 million, which was down from $82.8 million last quarter. Sales and marketing expense as a percentage of revenue was 42%, compared to 44% last quarter.
Sales and marketing expense decreased sequentially, primarily due to the timing of our sales kickoff conference in Q1, offset by incremental investments in demand generation programs and higher wages and commission expense. R&D expense was $28.1 million, which was down from $29.3 million last quarter. R&D expense as a percentage of revenue was 14% this quarter, compared to 16% last quarter. R&D expense decreased sequentially, primarily due to lower personnel costs, namely payroll taxes related to RSU vestings and benefits increased by capitalized software development costs related to innovations in our unified exposure management platform and efficiency in our public cloud development environment. G&A expense was $17.8 million, which was down slightly from $18.8 million last quarter.
G&A expense as a percentage of revenue was 9% this quarter, compared to 10% last quarter, reflecting a greater focus on cost containment and efficiencies as we scale our business. Income from operations was $30.2 million, which was significantly better than expected, as we exceeded the midpoint of our guided range by $9.7 million. Operating margin for the quarter was 15%, which was 470 basis points better than the midpoint of our guidance. The strong beat in earnings this quarter allows us to raise our outlook for the full year and reinvest a portion of the upside in go-to-market and product development in the second half of the year to better position us for future growth and success.
It's also worth noting that our operating margin improved over the same period last year by approximately 800 basis points, of which 400 basis points of improvement is related to sales and marketing. All of this resulted in EPS of $0.22, which was approximately $0.09 better than the midpoint of our guided range. Now, let's turn to the balance sheet. We finished the quarter with $645.5 million in cash and short-term investments. Accounts receivable was $154.4 million, and total deferred revenue was $650.2 million, including $495.2 million of current deferred revenue, which gives us a lot of visibility into revenue over the next 12 months.
We generated approximately $40 million of unlevered free cash flow during the quarter, which exceeded our expectations and reflects the seasonal pattern of billings year-over-year. We generated approximately $40 million of unlevered free cash flow during the quarter, which exceeded our expectations and reflects the seasonal pattern of billings during the year. Year-to-date, unlevered free cash flow was $84 million, which puts us well within reach to achieve our annual unlevered free cash flow target for the full year, which we are raising today. With 95% recurring revenue, high gross margins, and high renewal rates, we feel confident that we can continue to expand our operating margin and free cash flow margin over the ensuing years. With the results of the quarter behind us, I'd like to discuss our outlook for the third quarter and full year 2023.
For the third quarter, we currently expect revenue to be in the range of $197 million-$199 million. Non-GAAP income from operations to be in the range of $26 million-$27 million. Non-GAAP net income to be in the range of $22 million-$23 million, assuming interest expense of $8.1 million, interest income of $6.5 million, and a provision for income taxes of $2.4 million. Non-GAAP diluted earnings per share to be in the range of $0.18-$0.19, assuming 122.5 million fully diluted weighted average shares outstanding. For the full year, we currently expect calculated current billings to be in the range of $879 million-$887 million.
Revenue to be in the range of $783 million-$791 million. Non-GAAP income from operations to be in the range of $96 million-$100 million. Non-GAAP net income to be in the range of $79 million-$83 million, assuming interest expense of $31.5 million, interest income of $25 million, and a provision for income taxes of $8.6 million. Non-GAAP diluted earnings per share to be in the range of $0.65-$0.69. assuming 121 million fully diluted weighted average shares outstanding, and unlevered free cash flow to be in the range of $180 million-$185 million. We're very pleased to be raising our full year outlook for top line growth and profitability.
We believe our outperformance in Q2 and upward revision to our guidance today reflects the balanced growth approach that we've been taking. We're raising our outlook for CCB, revenue, and earnings for the full year. Specifically, we're raising op income guidance by $5 million for the full year, while also increasing our investment in go-to-market and product in the second half of the year to better position us for success in 2024. The takeaway here is, even in a dynamic environment, we have been able to expand our operating margin as we scale our business by leveraging our market leadership, sizable customer base, and broad exposure and management platform. At this point, I'd like to turn the call back over to Amit for some closing comments.
Amit Yoran (CEO)
Thanks, Steve. In summary, Q2 was very successful. We delivered better than expected growth, a sizable beat in earnings, and we believe we are well positioned for success in the second half of the year with tailwinds from Tenable One. We have a ton of opportunity ahead of us, and look forward to updating you throughout the year. We hope to see many of you at the upcoming Piper conference. I'd like to open the call up for questions.
Operator (participant)
Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question today, please press star one from your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question comes from the line of Brian Essex with JPMorgan. Please proceed with your questions.
Brian Essex (Equity Research Analyst)
Hi, good afternoon, and thank you for taking the question, and congrats on a much better quarter this quarter. I guess, you know, Amit, you pointed to your pipeline, you know, better pipeline growth and better execution this quarter and accelerated tech wins. I guess, if you were to compare it to last quarter, maybe could you highlight what you're seeing in terms of approval to close rate, and maybe frame out some of the measures that you took to improve the performance on the back end of that sales cycle?
Amit Yoran (CEO)
Listen, obviously, we're pleased with the results. We saw what I would characterize as a return to normalcy in many senses of the word. You know, we said last quarter, demand, you know, was strong. We saw a lot of deals entering the pipeline. We saw deals moving through, but we saw, especially at the end of the quarter, and we're back end loaded in our quarters, as many enterprise software companies are, there was significant disruption in the market, regional banking crisis and a number of other factors. You know, this quarter, we saw a return to normalcy in terms of the number of net new customer adds, that we've been able to add to our enterprise platforms in terms of the resumption of significant 6-figure deals and being able to transact business.
We continue to maintain, you know, very close eye on the sales process, including much tighter engagement with the finance teams within the buyer. Targeting conversations with CFOs earlier in the process and making sure we've got line of sight into those conversations.
Brian Essex (Equity Research Analyst)
Got it. That's helpful. If I could just follow up on the Federal, I think you noted some traction there, as we enter the third quarter, any sense on, you know, initiatives that were maybe kicked off or emphasized last year and how traction with those initiatives are tracking this year? That'll do it for me.
Amit Yoran (CEO)
Obviously, in the federal space, you know, the engagement, the sales cycles are much longer. The planning process for customers is significantly longer. A lot of the activity that we're seeing is a result of groundwork that has been laid last year and over previous years and periods. In the federal space, you know, we're really pleased. We saw very strong demand. We outperformed plan in both Q2 and the first half of the year, and we feel like we've got significant pipe and the opportunity to outperform in federal here, going into big federal Q3. We're also seeing, I'd say, significant traction in state and local governments.
Many of those programs, both funded by federal grant dollars and federal programs, as well as kind of drafting off a lot of the technology choices which the U.S. federal government has made. We saw really good strength in state and local and are optimistic that that will continue going forward.
Brian Essex (Equity Research Analyst)
Great, helpful. Thank you very much.
Operator (participant)
Our next question comes from the line of Andrew Nowinski with Wells Fargo. Please proceed with your questions.
Andrew Nowinski (Senior Research Analyst)
Great, thank you, and congrats on a nice quarter. you know, Amit, we saw a lot of your interviews at the end of the quarter regarding the MOVEit vulnerability, and there were reports out this week, I think, talking about how 400 plus companies, you know, were impacted by that vulnerability. I know it was only discovered in the last two weeks of the quarter, but did you see an impact to your calculated billings in Q2 from that, similar to what you saw from Log4j?
Steve Vintz (CFO)
Yeah, I would say it's probably not quite as energetic as what we saw from Log4j, which I think the, you know, the impact to financial performance and, you know, to procurements was just very notable. What we did see was increased engagement with customers. Customers, you know, leveraging products, and I think this is probably a more typical of a high-profile.
... vulnerability and just points to why there's strong demand environment. There are obviously compliance and regulatory drivers for managing risk, managing and understanding cyber exposures and vulnerabilities in particular. I think beyond that, strong engagement from security operations, recognizing that when issues like MOVEit, you know, manifest themselves, they have to really understand what's happening in their environment, what it means from a risk perspective, and where they need to prioritize, mitigating actions. I'd say this is probably, you know, we didn't see the same type of procurement impact, but more just part of the rationale behind why we see broadly strong demand.
Andrew Nowinski (Senior Research Analyst)
Okay, very good. Thank you for that. Just maybe a quick follow-up. You talked about I think you mentioned in your prepared remarks, how your SC installed base or on-prem installed base, you know, could be converting up to the Tenable One platform. I'm just wondering if you could quantify for us or give us some parameters around how big that SC installed base might be. Thank you.
Amit Yoran (CEO)
Yeah, Steve, I don't know if you want to start off talking about the size of the SC install base?
Steve Vintz (CFO)
We have 40,000+ customers, and that includes a sizable SC customer base, and we would quantify it as a several hundred million dollar opportunity to sell Tenable One, the expansionary functionality, whether it's identity, cloud security, or even the more expansive analytics back into our SC customer base. SC customers, you know, usually, you know, they have a choice, right? Either on-prem or cloud, and overwhelmingly, our SC customers want, you know, have an on-premise environment. You know, we're one of the few companies in our space that can address the needs of customers who want both on-prem, but also want additional capabilities in the cloud. Tenable One certainly has been a catalyst to help us better serve the needs of our on-premise customers.
Amit Yoran (CEO)
I guess I would just add to that slightly saying we only released the ability for SC customers to leverage Tenable One, you know, just a short period, a short bit before the end of quarter. Really, sales team and customers, with, I think, what I would characterize as pent-up demand and excitement for the convergence and the ability to operate in hybrid mode. Keep their SC deployment, but start leveraging the enhanced analytics and the capabilities of Tenable One to the point where it did have a little bit of a lift on what we saw with One. As you saw in heard on the call, the, you know, as a percentage of new sales, Tenable One has now gone from what was mid-teens growth to now over 20%.
Andrew Nowinski (Senior Research Analyst)
That's great. Keep up the good work, guys. Thanks.
Steve Vintz (CFO)
Thank you.
Operator (participant)
Our next question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.
Rob Owens (Managing Director, Senior Research Analyst)
Great. Thanks for taking my question. Amit, obviously, a lot of optimism around the OT opportunity. Maybe you could just highlight for us what you're seeing, what competition looks like, and the sense of urgency from the buyer.
Steve Vintz (CFO)
Yeah, I'm extremely bullish about our OT business. We don't talk about it every quarter. I think we're now at the point where, you know, I believe we have market-leading technology. I think we can go toe-to-toe and, you know, win more than our fair share of competitive at-bats against, you know, even the notable names in the space. I think in this market, being, you know, a more sizable company, being public, having the growth, having the stability, provides customers extra assurance. On the technology side, we're seeing that start to play itself out in terms of larger lands, larger OT transactions, in terms of seeing more consistency in follow-on procurements once they get past initial deployments. I think significant line of sight into continued pipeline growth as those procurements and those initial deployments continue to grow.
I believe, you know, significant opportunity and upside for us in the OT business, and I expect to hear more over the coming quarters.
Rob Owens (Managing Director, Senior Research Analyst)
Great. I want to sneak one in for Steve real quick on the $2 million in early renewal. Little unusual in this environment, given everyone's kind of clutching dollars. Help us understand where customers incented to do this. You know, you talked about getting back to more normalcy. Is there typically a few million dollars in early renewals, and how are you thinking about that moving forward? Thank you.
Steve Vintz (CFO)
Sure, Rob, good question, and, you know, just to clarify, consensus CCB growth coming into the quarter was 12%, and we're reporting 15% today, so we're very pleased with the quarter. It's a $5 million better than expectations. We did say approximately $2 million of the beat is due to timing, specifically billing related to early renewals. As we said in the past, CCB is a close but not perfect proxy of the underlying sales of the business, and it's influenced by a number of factors, such as deal timing, including early renewals. This quarter, we saw a higher than expected percentage of renewals that came in early. We didn't do anything structural or structurally different.
We just saw a couple of large deals, early Q3 renewals come in early in the quarter. That gives us good backlog and visibility, obviously, as we head into the second half of the year. You know, part of the reason why we guide the CCB on a full year basis and not quarterly, is that there can be natural fluctuations like this. We're pleased to be raising our full year CCB outlook, and this will modestly impact CCB growth in the third quarter.
Rob Owens (Managing Director, Senior Research Analyst)
Great. Thank you very much.
Operator (participant)
Our next question is from the line of Saket Kalia with Barclays. Please proceed with your question.
Saket Kalia (Senior Equity Research Analyst)
Okay, great. Hey, guys. Thanks for taking my questions here. I mean, maybe just to start with you, great to see that higher mix of Tenable One. I think we said 20% plus of new business. That's a nice increase from prior quarters. Maybe the question is: what modules within Tenable One or maybe what asset coverage are you finding customers are opting for most outside of maybe what I'll call traditional VM?
Amit Yoran (CEO)
Yeah, I think, you know, outside of traditional-- First of all, you know, thank you for the compliment. We're extremely excited, and we believe that, you know, again, we're still in the early innings of Tenable One. Believe that there's significant opportunity to continue to advance the percentage of transactions and customers that operate on that platform, especially as we continue to innovate and release new product, new capability, new analytic methods on it, and, you know, happy to chat more about that. In terms of asset types, we also continue to see a diversity of new asset types. I think in prior periods, and historically have been, you know, very VM-centric.
I think in particular, we saw a lot of demand around cloud, in particular, with cloud assets coming online and people looking at us as a best-of-breed ability to assess for vulnerability in cloud environments with the same type of consistency and rigor as they're accustomed to in their, in their on-prem world.
Steve Vintz (CFO)
This is Steve Vintz. The only thing I'll add there is that, as a reminder, the ASPs are notably higher with Tenable One than they are with selling standalone VM, 70% higher. We're continuing to get good traction and good uplift. It's also inflecting large deals higher. Today, we're reporting 63 net new six-figure customers. That's up almost 3x from what we reported sequentially in Q1. Because we're covering more areas of the attack surface and helping customers better understand their risk, we're quickly evolving to become a platform-first company, and obviously, results today certainly are indication of that.
Saket Kalia (Senior Equity Research Analyst)
Yeah, absolutely. Steve, maybe maybe on that point, maybe for my follow-up for you. Great to see the stabilization in CCB growth this quarter. You know, one of the things you mentioned in your prepared remarks, I think, was just having a little bit more of a higher visibility into some of the bigger deals, right, in the second half. Maybe the question is: how are you thinking about big deal close rates in the second half, or just sort of the levers of upside for CCB in the second half, now that we can sort of put some of the one-time finance and telco stuff behind us?
Steve Vintz (CFO)
Yes, as you know, we're delighted with our results in Q2. As we head into the second half of the year, pipeline remains strong, and one of the things that we've been emphatic about is our ability to generate demand. I think we have a lot of 6-figure opportunities. The third quarter, as we all know, is the seasonally strong quarter for us. We are the clear leader in US fed and public sector more broadly, and we have a ton of opportunity in front of us, both in terms of funded deals and unfunded opportunities. We certainly expect continued traction with public sector, and that was an area of outperformance in Q2.
You know, I would say, you know, if you kind of widen the aperture here, I would say that Tenable One is another catalyst of growth for us. Again, just having a lot of success, creating demand, for Tenable One, and it now represents, I would say, most of our six-figure opportunities. As we look at the second half of the year, Tenable One is well over 50% of that. Overall, I think we're pleased with certainly the print in Q2, the pipeline as we head into the second half of the year. This is still a tough selling environment, but we're demonstrating real value in a market where customers are more discerning about their purchases, and there's more levels of review and certainty.
I think we're navigating the current environment very well and obviously have a great value prop, with the platform as we consolidate vendor spend and help customers better understand risk.
Saket Kalia (Senior Equity Research Analyst)
Got it. Very helpful. Thanks, you guys.
Operator (participant)
Our next question is coming from the line of Jonathan Ho with William Blair. Please proceed with your questions.
Jonathan Ho (Partner, Technology Analyst)
Hi, good afternoon. Just wanted to maybe start out with, you know, some of your comments around the AI-powered solutions. Can you help us understand, you know, what some of these AI applications will look like, sort of the value proposition, and maybe how this translates into a revenue opportunity?
Amit Yoran (CEO)
Yeah. I like to start off every conversation with AI by talking first about the demand environment. I think, you know, we see significant opportunities for AI to be leveraged by threat actors, an acceleration of weaponization of vulnerabilities, and increased activity, which I think will translate directly into strong market demand for more cybersecurity products, including, and in particular, the ability to identify where you have vulnerabilities, where you have exposures, and to address them in a timely fashion. From a Tenable use of AI perspective, I'd say there's, you know, 2 main categories that we would bucket them into. The first is leveraging AI to make the product smarter.
We have, for instance, you know, we've talked about AI, a number of times, in terms of understanding, which vulnerabilities can be exploited, in terms of understanding the criticality of assets, in terms of, helping us determine the prioritization of vulnerabilities and what to work on. We've now, expanded the use of that AI to also
Steve Vintz (CFO)
from an identity risk perspective. Obviously, we've been doing a lot of work in the identity space, Active Directory, Azure AD, and other identity stores, to be able to look at that, to look at the privilege level, look at the access types, and make determinations about the risks that particular identities pose. We think as you're looking at overall enterprise risk, it's incredibly important to understand the data, the vulnerabilities, and how high and privileged access accounts engage with systems which may have exposures. In the second category of the use of AI, we're also using generative AIs to make the products smarter and more usable for customers.
For instance, when we highlight a particular issue, a particular exposure, we can provide a lot of research right at the customer's fingertips to understand what it means, what it means in their environments, how they should go about remediating it, and really condense their workflow and enhance their experience. I think both of those methods are ones which we expect to monetize.
Jonathan Ho (Partner, Technology Analyst)
Great. Thank you.
Operator (participant)
Our next questions are coming from the line of Matt Salzman with Morgan Stanley. Please proceed with your questions.
Matt Salzman (Equity Research Analyst)
Hey, team, thanks for taking the question. Just first question on a clarification around the ASP uplift. You mentioned that you're still seeing, you know, the upwards of 70% ASP uplift on Tenable One sales. I'm curious if that applies to only net new business demand, or if that also applies to renewal. Have a question about the renewal piece after.
Steve Vintz (CFO)
It applies to both, just as a matter of clarification.
Matt Salzman (Equity Research Analyst)
Got it. Okay. When you think about the Tenable One platform for existing customers, so customers have now had ample time to evaluate it, where, you know, maybe on the, on the big renewal cycle in the back half of last year, you know, there just wasn't enough time for them to really sink their teeth in and see the benefits. Kinda as you lap, one year of having the product in the market, are you assuming any increased level of contribution from Tenable One on renewals in the updated CCB guide?
Steve Vintz (CFO)
Yes. We have an asset-based pricing model, so as customers renew, they often look to us to help secure more of their assets. There's 2 ways we get uplift and drive selling prices higher when it comes to Tenable One. Number 1 is covering more assets within their current environment, and then number 2 would be addressing different asset types. Amit specifically talked about earlier in the call, the momentum we're having with identity and even cloud security, more broadly. Our expectation as we go into the 2nd half of the year is that when customers renew, that we'll see expansion. I will say in this market, right, growth is tougher to transact. We're doing a good job executing. We're delivering upside here in the quarter, and we're raising our outlook.
We know that when it comes to both, you know, expansionary opportunities, while there's a huge opportunity, that expansion can be more moderate in an environment like this in comparison to prior years. The good news is, we have a huge opportunity to sell Tenable One and other products back into our base. Those represent larger TAMs and, you know, and high growth opportunities for us, and we'll be working hard to do that in the second half of the year.
Matt Salzman (Equity Research Analyst)
Got it. Very helpful. Thank you.
Operator (participant)
Our next question is from the line of Mike Cikos with Needham & Company. Please proceed with your questions.
Mike Cikos (Senior Analyst)
Hey, guys. Thanks for taking the questions here. Just wanted to cycle back to the pipeline gen, just because I know we've mentioned it a couple of times on this call. I believe last quarter, the company discussed how it was a record quarter for the company as far as pipeline gen. The question that I have here first, was 2Q also a record quarter as far as that pipeline gen? Building on that, can you help us think about these initiatives that you have in place? What is it the company is doing specifically to help build out that pipeline today versus what it was doing maybe a year ago, to help ensure that that pipeline is growing at this healthy pace that you guys are talking to today?
Steve Vintz (CFO)
Yeah, Mike, this is Steve. Yes, so Q2 is up sequentially in comparison to Q1, so demand gen continues to remain strong. More importantly, right, as the company grows, you would expect pipeline to continue to grow with it. While pipeline is growing, and we see strong demand, it's exceeding our expectations overall in aggregate. I think I want to remain clear about that. Exceeding the expectations on a plan that we developed at the beginning of the year. I think it's a confluence of a number of factors. Number one, distribution's really important. We've built an expansive network of distributors and partners over the years. Years ago, a low percentage of inbound opportunities came from the channel. Today, it's, you know, we said it's well over 40%.
The channel is really working for us, opening doors, right? Security market is very fragmented, and we have a great relationship with a lot of our channel partners. Also, we're investing a lot in go-to-market. We're in more countries. We transact sales in 160 countries. We have feet on the street in 35, so distribution matters in a market, especially in cyber. Obviously, we continue to get great success doing a number of events and creating inbound opportunities. Overall, we're pleased with the demand that we're seeing. There's a lot of opportunity in front of us. We'll be focused on executing against those opportunities and conversion rates remain healthy. It's taking longer to close some of those opportunities in a market like this, just as we've discussed before.
Overall, we're really pleased with what we're seeing with the pipeline.
Mike Cikos (Senior Analyst)
Got it. Thank you. If I could just tack on for a follow-up, just I know you were talking about conversion rates, which feeds nicely into my second question here. As far as the guidance construction, happy to see the raise that we're seeing, above and beyond some of the 1Q beat for revenue, and then you called out the timing on the billings and the reinvestment of, I guess, some of the upside in 2Q, when thinking about that operating profit guide, right? Maybe from a top-down level, how is management viewing macro, and sales cycles?
Like, what are your assumptions for the remainder of the year versus the quarter that we just finished, as a way to help us frame out, this guidance construction process that you guys went through? Thank you.
Steve Vintz (CFO)
Well, with regard to the guide, that, and our outlook that we're raising today, we're not assuming that there's any improvement in conversion rates. We're not assuming that there's changes in sales cycles. You know, we're looking at the data that's right in front of us, and our outlook reflects a continuation of what we're doing today. We think we're doing some things really well, and, there's certainly an opportunity to even improve on all of those things I just mentioned. I would characterize our outlook really as a reflection of what we're doing today, and no change.
Amit Yoran (CEO)
I guess I would just add, you know, pleased with the return of predictability from a sales process perspective. As Steve said, you know, in this, in a, in a difficult macro, you do see elongated sales cycles, but we're, you know, extremely pleased with our competitive win rates. We're extremely pleased with the number of, you know, six and seven-figure deals and opportunities in pipe. I feel like we're and especially with what we're seeing with Tenable One, so I feel like we're really well positioned to deliver on the second half of the year.
Mike Cikos (Senior Analyst)
Terrific. Thank you very much, guys.
Operator (participant)
Our next questions are from the line of Brad Reback with Stifel. Please proceed with your questions.
Brad Reback (Managing Director)
Great. Thanks very much. As related to the slipped deals from 1Q that you guys had mentioned were beginning to close in April, a couple of months ago, was there any meaningful CCB benefit from that?
Amit Yoran (CEO)
I'll start off with it, Steve, you know, jump in. I've been doing this for 30 years. I've never seen deals that slipped in 1 quarter just be additive to your performance and your delivery in the following quarter, and that's true across every business that I've been involved in. You know, we did close a significant percentage of those slipped Q1 deals. I'm pleased that none of those projects have gotten canceled, none of those initiatives have been deprioritized, but just simply in industries and in a challenging macro, you see greater scrutiny of procurement practices, specifically from CFOs. I think we've gotten our arms around that. We have our sales teams trained up and engaged with the finance teams of our customers, so we have more visibility and greater predictability.
I don't think there was any, you know, bump in Q2 CCB as a result of slipped deals from, or pushed deals from Q1. It's just good demand environment and good execution.
Brad Reback (Managing Director)
That's great. Thanks very much.
Operator (participant)
Our next question is coming from the line of Joshua Tilton with Wolfe Research. Please proceed with your questions.
Joshua Tilton (SVP)
Hey, guys, congrats on the results, and thanks for sneaking me in here. I guess I kind of want to follow up on the last question. Amit, I totally understand where you're coming from with the change in performance on slipped deals, but let's forget about, like, bumping the performance. I guess if we have some deals slip into this quarter and some deals pulled in from the next quarter, just high level, what gives you guys the confidence that what you saw in two Q, broadly, is what you would characterize as a return to normalcy?
Amit Yoran (CEO)
I guess the way the deals flow and the, and the number and size and impact of those pushed deals from Q1 did not materially impact Q2. A lot of it was typical deal forecasted for Q2, closing in Q2. We feel confident looking at, you know, the remainder of the year, we'll be able to deliver on the guidance.
Joshua Tilton (SVP)
Super helpful. Just a quick follow-up. Steve, I know you mentioned kind of a little bit on what's baked into the guidance for the rest of the year. Maybe just how has that changed, and specifically with regard to the macro, how has what you're baking into the guidance for the rest of the year changed relative to what you guys or the assumptions that you baked in when you updated the full year guidance for us last quarter? Thanks.
Steve Vintz (CFO)
Sure. Well, you know, we're raising our outlook for CCB, as I mentioned earlier, to the $2 million-$3 million. We're guiding it to 13%-14%. For us, we're flowing through, you know, flowing through, you know, part of the beat year. I think our assumptions as we head into the second half of the year, we're trying to take a cautious approach. That's one thing I want to be very clear about. We're trying to be pragmatic here. This is still a tough selling environment. You know, we're taking conversion rates against the pipeline opportunities we have, and, you know, we're getting you look at growth the second half of the year, and we feel like we can certainly deliver on that, and based on the pipeline opportunities we have.
We're not assuming that conversion rates, you know, change significantly. We're not assuming any major changes in sales cycles, as well as renewal rates here. We feel like we have good visibility as we enter the second half of the year. We expect a seasonally strong U.S. federal. And, you know, and I think we're excited about what lies ahead for us, and certainly, Tenable One is a big catalyst of that. We talked about the large six-figure deals that are in the pipeline, and most of those deals are related to Tenable One. For us, you know, that is an investment that we've made over the years, and we think it positions us well, and we'll update you over the ensuing quarters.
Joshua Tilton (SVP)
Super helpful, and again, congrats on an awesome quarter.
Steve Vintz (CFO)
Thank you.
Operator (participant)
Our next questions are from the line of Mike Walkley with Canaccord Genuity. Please proceed with your questions.
Mike Walkley (Managing Director)
Great, thanks, and my congrats also. Amit, just with you highlighting faster deal wins due to Tenable One, I assume this is mostly weighted to upselling your large customer base. How are you seeing the longer-term opportunity to land larger customers, you know, migrating from competitors, given your differentiated approach in a market where, you know, customers are trying to conserve, spend, and consolidate vendors?
Steve Vintz (CFO)
I think Tenable One really plays to the latter comment. Certainly, I believe we can improve and increase we're already compelling win rates against customers because Tenable One is a differentiated platform. We can deliver analytics. We can do all sorts of benchmarking and capabilities on Tenable One that aren't available in competitive VM products. We also have the ability to consolidate significant spend. Looking at assets, cloud-based assets, looking at money someone might spend on products to help secure Active Directory, cloud security, and even here in the second half of the year, as we expect to integrate OT into Tenable One, we have the ability to consolidate vendor, consolidate spend, and reduce overall expense for our customers. We think it's a great position to be in this market.
Mike Walkley (Managing Director)
Thanks. Just a quick follow-up. Given the vendor consolidation and the strong cash flows your company is generating, you know, what's the appetite for M&A versus investing in the platform? Are you seeing any change in, like, private company valuations, given, you know, some are struggling with financing in this market?
Steve Vintz (CFO)
Great question. Obviously, we're pleased with the, you know, with the cash flows of the business, and, you know, natural use for some of that would be to look at investment opportunity, you know, both organically, as we've called out, some investments that we will be making into the business as well as inorganically. I can tell you we're seeing a lot more at bats, and we're seeing a lot more at bats with a very attractive, forward-leaning, you know, market-leading technologies, which if you rewind the clock, you know, a year or two years ago, were priced in an unrealistic and, unattainable, fashion. Today, you know, you look at every report, the venture capital going in, follow-on funding rounds are extremely difficult.
we have seen an inflection of private company valuations and a willingness to engage in conversations that wouldn't have happened a year or two ago.
Mike Walkley (Managing Director)
Great. Thanks for taking my questions.
Operator (participant)
Our next question is from the line of Rudy Kessinger with D.A. Davidson. Please proceed with your questions.
Rudy Kessinger (Senior Research Analyst)
Hey, guys. Thanks for taking my questions. Steve, you're taking the, you know, revenue guide. Look, it's nice to see you guys taking the numbers up. I mean, you're taking the revenue guide up for the full year by $7 million. You're only taking up current calculated billings by $3 million for the year. Just help explain that variance. Did you close deals earlier in the quarter than you expected, and therefore you got more revenue recognition? Or why aren't you taking up CCB more for the year?
Steve Vintz (CFO)
Yeah, with regard to CCB, I think we talked about that. We beat by $5 million, right? We grew 15% relative to the 12 in terms of what the consensus was. Some of that was timing. You know, some of that was outperformance, clearly, which we're reflecting in our outlook for the year for CCB, but we said about $2 million of that is timing. You know, timing in specifically in the way of early renewals. Look, we guide to CCB on a full year basis, not on a quarterly basis. We know that there can be some natural variability from quarter to quarter. CCB is a close but not perfect proxy of what we sell. It's influenced by a number of factors.
So let's, you know, dollar for dollar, you know, increments higher or even lower of CCB relative to revenue. Revenue, there's a lot of things that influence revenue, right? You know, most of it's recurring revenue and ratable. We do have some professional service engagements, so, you know, there's a number of factors that influence revenue growth. Overall, raising our outlook for both. We have a lot of confidence in our ability to execute, yeah, I think it reflects just better execution and improved visibility in the business.
Rudy Kessinger (Senior Research Analyst)
Okay. I know you said you're reinvesting some of that upside, on operating income in the quarter. What does your sales capacity additions this year now look like? I know a couple of quarters ago, you initially said you wanted to add more capacity this year than last year. You backed off that a little bit last year. How much sales capacity are you looking to add this year at this point?
Steve Vintz (CFO)
Well, and our goal is each and every year is add sales capacity. We have a massive market opportunity, you know, our expectations, we're gonna continue to expand our sales force, expand our network of partners, and add quota capacity and feet on the street. This year is no different. What we talked about on the last call was really hitting the, you know, the incremental investments we were gonna make. We added a lot in Q1. We said we were gonna moderate that over the ensuing quarters. I think our results today give us confidence to go out and invest. We know that when you invest, right, more investment comes with higher expectation, and we certainly understand that. But we have a massive market opportunity here.
We are planning to invest more the second half of the year now than what we were assuming, 90 days ago. We'll, you know, we'll be working hard to add quota capacity. Investments also of note here, it's not just quota capacity, which we're adding, but investments in partnerships and new routes to market, such as MSSP and some of the other things.
... marketplace. There's a lots of routes to market for us to continue to sustain and even accelerate growth. The investments that we're making today, we think will position us well for success, not only in the second half of the year, but also in 2024.
Rudy Kessinger (Senior Research Analyst)
That's helpful. Thanks for taking my questions, and congrats again on the bounce back quarter here.
Amit Yoran (CEO)
Thank you.
Operator (participant)
The next questions are from the line of Roger Boyd with UBS. Please proceed with your question.
Roger Boyd (Analyst)
Great, thanks for taking the question. Just on the customer addition side, I think you added 426 new enterprise customers, kind of consistent with 1Q on a year-over-year basis. Generally good result in the environment. Would just appreciate any additional color on the mix of wins you're seeing. If we think about additions coming from brownfield replacements versus infill opportunities as customers kind of move from treating VM as a compliance service or a DIY approach. We just love any color on that mix of greenfield, brownfield. Thanks.
Amit Yoran (CEO)
Yeah, I think we're still, we're, you know, we're seeing fairly consistent results to what we've seen in previous periods in terms of, you know, ballpark called 25%-30% of our new enterprise, you know, larger logos coming to us from what we have characterized as greenfield. Either, you know, do-it-yourself approaches or relying on annual assessments from a, you know, an auditor or security consultancy, which obviously isn't a practical or defensible approach to security in this environment. We continue to see significant, you know, competitive win rates. Those remain exceptionally healthy. I think our sales team would tell you, if we're going into VM opportunities, they're ours to lose.
A lot of the engagement with customers is showing them what the power and capability of the platform is, and trying to, you know, educate them on that and deliver higher lands, with expand opportunity as they cross over to new and modern asset types. You know, as I said earlier, significant traction now with cloud security.
Roger Boyd (Analyst)
Very helpful. Thank you.
Operator (participant)
Thank you. At this time, we have reached the end of our question-and-answer session. This will also conclude today's conference. You may disconnect your lines at this time. We do thank you for your participation.