Q3 2024 Earnings Summary
- Strong performance in mid-market segment, with Tenable noting that this area has been an area of outperformance. The company closed a million-dollar deal in the mid-market, which includes companies with 500 to 5,000 employees, indicating significant opportunity and traction going forward.
- Exposure management solutions now constitute over 50% of new sales and over 35% of total sales, reflecting robust growth beyond vulnerability management (VM). Non-VM solutions are growing at 30% and represent 20% of total sales, highlighting strong adoption of Tenable's broader offerings.
- Early and strong adoption of AI Aware and AI Security Posture Management, with Tenable seeing tremendous adoption and enthusiasm from a large number of customers actively using AI Aware. This positions Tenable ahead of competitors who lack similar capabilities, indicating a competitive advantage in emerging technologies.
- Tenable is not expecting a significant budget flush in Q4, indicating potential limited upside in demand growth for the upcoming quarter. CFO Stephen Vintz stated: "we're not expecting any significant seasonal budget flush. Obviously, if that comes, there would be upside. And in terms of familiarity within the quarter, we're off to a good start in October. I would characterize the flow that we've experienced so far is unremarkable and consistent...with prior quarters this year." ,
- New business remains challenging in the current macro environment, with only modest improvement over the previous quarter. CFO Stephen Vintz mentioned: "New business is tougher to transact in this macro...I would just describe it as modestly better than what we experienced in the last quarter."
- Uncertainty in federal spending is causing the company to take a cautious approach to Q4 guidance, which may impact growth prospects due to reliance on federal contracts. CEO Amit Yoran noted: "Obviously, there's a lot of uncertainty in the federal space, and so we're taking that sort of cautious approach to our guide in the fourth quarter."
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Guidance and Growth Outlook
Q: Is the implied 8%-9% CCB growth for Q4 indicative for 2025?
A: Management confirms the full-year CCB guidance of $957 million to $967 million, implying an 8%-9% growth in Q4. They suggest this is a fair expectation for 2025, highlighting strong growth in exposure solutions and a moderated growth in VM. They will provide detailed guidance in February but maintain that pipeline is healthy with many large late-stage opportunities. -
Operating Margins vs Growth
Q: How do you balance margin expansion with growth given the outlook?
A: They have consistently expanded operating margins, reaching approximately 20% this quarter. They aim to continue gradual margin expansion by several hundred basis points annually while investing in innovation, particularly in R&D, which grew 30% this quarter. Free cash flow margins are projected to increase to 35%+. -
Stock Repurchase Strategy
Q: Why no stock repurchase this quarter despite expanding authorization?
A: Although no stock was repurchased this quarter, they increased the buyback authorization by $200 million. The company plans to repurchase shares opportunistically going forward, reflecting a commitment to reduce share count and return capital to shareholders. -
Exposure Management Revenue Growth
Q: How fast did exposure management revenue grow, and future expectations?
A: Exposure solutions now constitute over 50% of new sales and over 35% of total sales. On an asset basis, non-VM solutions are growing at 30% and represent 20% of total sales. Management expects this outsized growth to continue, driven by Tenable One and stand-alone non-VM products. -
Cloud Security Positioning
Q: How confident are you in your cloud security offering's breadth and future?
A: They are very excited about their cloud security offering, noting it's a large and rapidly growing market. They've broadened to a full CNAPP capability, adding data security posture management and AI security posture management. They are competitive against market leaders and see strong customer adoption without resorting to aggressive discounting. -
VM Business Stabilization
Q: Are you seeing stabilization in VM sales and competitive environment?
A: Management describes VM as stable, with competitive dynamics exceptionally stable. They maintain strong win rates against both legacy and newer entrants, noting that enterprise customers recognize the qualitative differences in coverage. They do not expect significant changes in sales cycles and note that VM remains foundational for customers. -
AI Posture Management Pricing
Q: How are AI Posture Management and AI Aware priced and what's the competition?
A: AI Aware sees tremendous early adoption, monetized primarily through increased usage and asset counts. AI Security Posture Management is similarly priced. Competitively, a small number of market-leading CNAPPs offer similar capabilities, but they believe they are on the leading edge with these offerings. -
Enclave Security Pricing
Q: Can you discuss the pricing and competition for Enclave Security?
A: Enclave Security is priced similarly to previous on-prem offerings, licensed on a per IP address basis. Customers select the number of addresses to cover. While competition wasn't detailed, the pricing aligns with traditional models. -
Net Dollar Expansion Rate
Q: Why did the net dollar expansion rate dip to 108%?
A: The modest decrease is attributed to timing and budgets on some large deals. Management emphasizes they do not optimize around a single metric and that fluctuations are natural quarter-to-quarter. They also highlight strong new business with nearly 400 new logos added and success with larger deals. -
Mid-Market Traction
Q: What trends are you seeing in the mid-market, and how are you approaching it?
A: The mid-market has been an area of outperformance, with notable strength and the closing of a $1 million deal. Customers are interested in consolidating security vendors, and Tenable One is resonating due to its integrated offering. They're focusing on delivering greater insights and capitalizing on opportunities in companies ranging from 500 to 5,000 employees.
Research analysts covering Tenable Holdings.