Tenable Holdings, Inc.

Greetings and welcome to Tenable's third quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. At that time, we ask that you please limit to one question. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Aaron Carney. Thank you. You may begin.

Thank you, Operator, and thank you all for joining us on today's conference call to discuss Tenable's third quarter 2024 financial results. With me on the call today are Amit Yuran, our Chief Executive Officer, and Steve Vince, 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 our IR website at tenable.com. We will make forward-looking statements during the course of this call, including statements related to our guidance and expectations for the fourth quarter and full year, 2024 and 2025, growth in 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, Cloud Security, and AI Aware. 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 beliefs and assumptions only as of today and should not be considered representative of our views of any subsequent date. and we disclaim any obligation to update any forward-looking statements or outlook. For 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 FTC. In addition, all of the financial results we discuss today are non-GAAP financial measures, with the exception of revenues. 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 equivalents. Our press release includes GAAP to non-GAAP reconciliations for these measures. I'll now turn the call over to Amit.

Thank you, Erin. We delivered strong results for the quarter, surpassing expectations of both the top and bottom line, including a record quarter for unlevered free cash flow. Tenable One and cloud security continue to drive strong demand as customers increasingly adopt our exposure solutions and are laser focused on exposure management. Many of the trends we saw across our business in Q2 continue to play out in Q3. Tenable One, our exposure management platform, and cloud security were top spending priorities for customers in the quarter. We've closed many deals for both offerings across GOs and a wide range of industries. A healthy percentage of our customers are evolving onto Tenable One and embarking on the exposure management journey with us. We believe this adoption of our platform is a precursor to a follow-on sale and a broader, more strategic relationship with Tenable. Within Tenable One, identity and cloud security continue to be top areas of adoption for our customers as they look for analytics they can't find elsewhere. As a result, Tenable One is growing well in excess of our overall grade three and accounted for approximately 30% of new sales in Q3. Other areas of strength in the quarter included public sector and mid-market. We anticipated Q3 to be a stronger year end for Fed business on historical experience, and that played itself out as expected. In addition to a strong Fed quarter, we closed some cloud deals in the broader public sector. This speaks to both the diversification of product and customer base that we can leverage in this theater. As mentioned, another area of strength for the quarter was mid-market. We have a fairly broad definition of mid-market customers, and we're seeing meaningful traction in the higher end of that range, specifically companies approaching 5,000 employees. In fact, we closed our first seven-figure mid-market deal in Q3. This deal was primarily a tenable one with multiple asset types licensed, unlocking the power of the platform. Similar to our enterprise counterparts, these customers have complex environments that benefit from the visibility and actionable insights our products deliver. This is resulting in good demand for Tenable One as more of these companies look to a single vendor to consolidate their stack while remaining a sophisticated approach to security. Conversely, some of the headwinds we previously called out, including longer sales cycles with additional scrutiny in new business and large VM deals, persisted. However, we did see some stabilization in VM relative to Q2. Importantly, pipe build, particularly among large deals, continues to see solid traction, which we believe indicates a lot of opportunity. In addition to traction with Tenable One, we're seeing consistent demand for cloud security product. Tenable Cloud Security continues to be our fastest growing product and has ASPs coming in twice as high as in our other products. Customers need to monitor the health of cloud native applications as a whole rather than individually monitoring cloud infrastructure. Our unified cloud offering brings an overall view to our customers. Further, it identifies priority risks and provides immediate insights into where they should focus remediation efforts. We are winning landmark deals, often against some of the most predominant players in the space, which validates our ability to compete and win in the cloud market. As customers' cloud environments expand and get more complex, we continue to innovate at an aggressive pace, We recently released new data security posture management and artificial intelligence security posture management capabilities for Tenable Cloud Security. By extending exposure capabilities to cloud data and AI resources, Tenable's cloud security D-NAP offering expands into some of our customers' greatest areas of concern. With the rapid rise of AI adoption, many organizations have jumped on board without fully considering essential safeguards around cybersecurity, privacy, and compliance. To address that challenge, we've begun rolling out AI Aware in Q3. AI Aware detects misconfigurations and unauthorized AI software, libraries, and plugins, all without interrupting customers' daily operations. In the eight weeks since its launch, Many of our customers have already started using AI Aware. With AI Aware, our customers can confidently and securely use AI in their business, knowing they have a better handle on AI-related risks. AI Aware is another example of how Tenable One enables customers to quickly and easily assess new and evolving areas of the attack surface. Most organizations operate in a hybrid environment. with data and applications spread across multiple systems, both on-premise and in the cloud. When a customer wants to understand where an exposure might reside in their systems, they can turn to Tenable to determine areas that are at risk, and most importantly, uncover risks as they traverse between these environments. We believe this is a huge competitive advantage for us, Whether a customer is on-prem using private or public cloud, or in some cases, even looking to repatriate some of their workloads, they need to feel confident that they have solutions that both cut across silos and can track and mitigate risks across these heterogeneous environments. And we're not slowing down. We are continuing to lean in on the areas that matter most to our customers. Our focus on the entire hybrid threat differentiates Tenable and is key to how we win against large and formidable competitors across the business. I'd like to spend a few minutes talking about an underlying transformation as we move from a primarily VM-focused business to our broader exposure management offerings. Exposure solutions now constitute over 50% of new sales and over 35% of total sales. We also looked at our business in terms of total assets license to better understand how customers are deploying Tenable One and for what use cases. At this point, non-VM exposure solutions represent 20% of our total licensed assets. Non-VM exposure solutions are growing at nearly 30%, led by cloud security, which is growing at approximately 100%. There are two key takeaways that we believe validate our strategy and set us up for continued success going forward. First, Sunbullet has become our flagship product and is the primary way our customers want to consume licenses for all asset types, including VM with enhanced analytics. The second key takeaway is that cloud and identity are primary growth drivers, are growing at very healthy rates, and are increasingly meaningful portions of our business. We are effectively deploying capital by investing in key areas of innovation, to help our customers solve some of the toughest problems they're facing. We're doing this while also balancing growth with profitability and delivering strong cash flow. Given the efficiency of our model, we're happy to announce that our board has approved an additional $200 million to our share buyback program. We believe in the incredible opportunity in front of us and look forward to continue to execute on our vision. I'd now like to turn the call over to Steve.