Q4 2023 Earnings Summary
- Robust customer growth and retention, with a net dollar expansion rate of 111% and addition of almost 600 new enterprise platform customers in the quarter, up sequentially, highlighting the company's ability to gain market share and drive revenue growth.
- Strong momentum with strategic products, particularly Tenable One, contributing to approximately 150 net new six-figure customers and exceeding internal expectations, showcasing the company's capability to close larger deals and expand within its customer base.
- Successful integration and early momentum with the Ermetic acquisition, resulting in an elegantly integrated CNAPP platform and achieving multiple six-figure wins, positioning the company competitively in the growing cloud security market.
- Tenable's organic Calculated Current Billings (CCB) growth is projected at only 10% to 12% for 2024, excluding the Ermetic acquisition, which is not significantly higher than some of its VM peers. This suggests that Tenable's growth rate is slowing, and it may struggle to outperform competitors.
- The company's guidance projects 12% to 14% CCB growth for 2024, which is lower than the mid-teens preliminary outlook given last quarter, indicating a potential slowdown in growth expectations. This conservative outlook may reflect challenges in the market or in the company's performance.
- Tenable implemented a 5% reduction in workforce, aiming to optimize costs and improve operating margins. However, this cost rationalization, including reduced reliance on sales specialists and overlay teams, could impact sales and marketing efforts, potentially hindering revenue growth and new customer acquisition.
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Margin vs Growth Strategy
Q: Why focus more on margin versus growth opportunities?
A: Amit explained that Tenable is leveraging efficiencies to invest for growth while improving margins. As strategic products mature and become core to their sales motion, they're driving additional efficiency, particularly in go-to-market areas. -
Cost Rationalization and Sales Focus
Q: Any shift in sales and marketing focus due to cost cuts?
A: Steve stated that Tenable's evolution includes integrating new products into the core selling motion, resulting in a 5% reduction in force focusing on sales overlays and removing management layers. This creates a cohesive go-to-market strategy without arbitrary cost-cutting goals. -
Mid-Market Trends and Guidance
Q: What are the trends and outlook for mid-market organizations?
A: Steve noted that mid-market performed better than expected due to closing deals that previously pushed and strength with large deals, including several over $100,000. However, they're cautious and not assuming this strength will continue into 2024. -
Ermetic Breakeven and Cash Flow Guidance
Q: Is Ermetic still expected to breakeven in Q4 2024?
A: Steve confirmed that expectations for Ermetic haven't changed, and they expect it to be breakeven on free cash flow in the fourth quarter of this year. The sublease of real estate will have no impact on unlevered free cash flow, as it is a non-cash charge. -
U.S. Federal Government Opportunity
Q: What are expectations for U.S. federal government in 2024?
A: Amit expressed that they expect the federal business to remain around 15% of revenue. They see growth opportunities in OT, Identity, and cloud security, which are largely untapped in the federal market. -
2024 CCB Guidance Assumptions
Q: What are the assumptions on new vs existing customer contributions?
A: Steve explained that they expect similar net dollar expansion rates as in 2023, which was 111% this quarter, with continued addition of new customers in greenfield markets, reflecting more of the same in 2024. -
Tenable One Differentiators
Q: What sets Tenable One apart from competitors?
A: Amit emphasized that Tenable One provides breadth of visibility across IT and cloud environments, offering attack path analytics and intuitive applications like cyber asset management, which are differentiators compared to competitors. -
OT Market Dynamics and Pricing
Q: What's happening in the OT market and pricing trends?
A: Amit noted that the OT market is moving from nascent to increased awareness, with customers moving to more pervasive deployments, including several seven-figure transactions. They haven't seen pricing pressure and feel extremely well positioned competitively. -
CNAPP Offering Wins
Q: Where are you seeing wins with your CNAPP offering?
A: Amit stated they have an elegantly integrated CNAPP platform after acquiring Ermetic, with early momentum including multiple six-figure wins. They are getting technical wins against market-leading CNAPP providers. -
CNAPP Competitive Advantages
Q: What differentiates your CNAPP platform in competitive wins?
A: Amit highlighted two key differentiators: greater insight into access and entitlements in cloud environments, and a well-integrated, intuitive CNAPP platform that simplifies workflows.
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