Greetings and welcome to the Tenable First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Andrea DiMarco, Vice President, Investor Relations and Strategy. Thank you, you may now begin.

Thank you, operator, and thank you all for joining us on today's conference call to discuss Tenable's first quarter 2020 financial results. With me on the call today are, Amit Yoran, Tenable's Chief Executive Officer; and Steve Vintz, Chief Financial Officer. Prior to this call, we issued a press release announcing our first quarter financial results. You could 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 Tenable's guidance and expectations for the second quarter, growth and drivers in Tenable's business, changes in the threat landscape and security industry, and our competitive position in the market, growth in our customer demand for and adoption of our solutions, Tenable’s expectations regarding the long-term profitability, the impact of COVID-19 on our business and on the global economy, and planned innovation and new products and services. 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 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 annual report on Form 10-K filed with the SEC, February 28th, 2020 and subsequent reports that we file with the SEC, which are available on the SEC's 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'll now turn the call over to Amit.

Thank you, Andrea and thank you all for joining us today. Our thoughts are with those who have been affected by the COVID-19 pandemic and we hope everyone is staying safe. Our top priority is ensuring the health and safety of our employees, partners, and customers around the world. We have a lot of ground to cover today. But I'd like to take a moment to share what I've seen at Tenable over the past five to six weeks. In this unprecedented time Tenable has had an incredibly resilient team. Many employees were already working remotely. So, as a team, we're able to adapt quickly and continue to deliver on our mission. We have an amazing company and I'd like to personally thank all the employees of Tenable for their unwavering dedication to helping our customers manage and measure their cyber risk through this environment. We're proud of what we have accomplished. Our multifaceted go-to-market approach helps us maintain dialogue with customers. With the quick shift to work from home, enterprises must now manage a more distributed network and a broader attack surface. Our customer engagement has remained very high as they attempt to understand risk in this new operating paradigm. Our customers have to automate and prioritize how they assess and secure remote laptops, while the entire workforce is distributed. And when employees enter return remote systems to the office reassessing risk will be an ongoing activity. We continue to see customers focus on robust vulnerability management programs, with an increased attention on web applications, storefront websites, and cloud environments. To further assist our customers with the remote workforce transition, we immediately extended Tenable I/O licenses for additional coverage of assets through June 15th. For Tenable SC and Nessus professional customers, we offered a Tenable I/O license with our…

Thanks Amit. As Amit mentioned, we're pleased with our results for the first quarter and remain excited about our long-term opportunity for cyber exposure. However, we're currently cautious around the near-term environment and macro uncertainty created by the COVID-19 pandemic. Let's talk about our results for the quarter, then turn our attention to guidance. First, please note that with the exception of revenue, all financial results we will discuss today are non-GAAP financial measures, unless otherwise stated. As Andrea mentioned at the start of this call, GAAP to non-GAAP reconciliations may be found in our earnings release issued earlier today and posted on our website. Now, onto our results for the quarter. Revenue for the quarter was $102.6 million, which represents 20% growth over the same period last year. Revenue in the quarter exceeded the midpoint of our guidance range by approximately $2 million. Revenue was aided by strong execution across the globe, notably in EMEA and some large deals in APAC. As a reminder, Tenable has a very sizeable international footprint with operations in over 30 countries and customers in over 160. This gives us a very broad go-to-market capability that is not dependent upon closing a few large individual transactions in the quarter to achieve growth. Over time, we've been able to achieve growth on our customer base to over 30,000 by selling annual prepaid subscriptions, which has resulted in 93% recurring revenue. Calculated current billings defined as the change in current deferred revenue plus total revenue recognized in the quarter grew 22% year-over-year to $99.2 million. We added 319 new enterprise platform customers this quarter and 24 net new six-figure customers. This brings the total number of customers spending in excess of $100,000 annually to 665. The takeaway here is we achieved solid growth in new enterprise…

Thanks Steve. It was tough decision to withdraw guidance, but we believe it's appropriate given the circumstances. There's a difference between the ability to accurately predict CCB, annual revenue, or earnings per share, and the confidence that we have in our business over the longer term. I continue to have great confidence in our business. We believe our cyber exposure platform will become even more critical as enterprises consider the cyber risk in combination with business context as a critical piece of their business risk management. Regardless of the macro environment, we believe the combination of our differentiated technology, strengthening product portfolio, data integration capabilities, and best of breed strategy positioned us for long-term success. We hope to see many of you virtually at the JPMorgan Conference on May 14th and the William Blair Growth Stock Conference on June 10th. We now like to open the call up for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question.

Hey guys, this is Sahil on for Sterling. Thank you for taking my question. So, given that the margins were so much better in the current quarter and even in the outlook, what has changed in the capital structure? Are we seeing the change in pace of filing or are there any other factor behind that?

Hi, this is Steve. Thanks for your question. We -- and this is something we mentioned on the call and specifically, in areas such as sales and marketing. We had a quarter carrying reps in the quarter. It's something that we plan to continue to do throughout the year. But I also think it's fair to say the pace in which we hire those reps will probably be more moderate, moderate than initially expected. We're going to wait and see how the global crisis unfolds. We'll remain nimble and quick and reevaluate, but continuing to hire is really important to us. I think the other side of that is, while we plan to make investments, I think we want to do so in a very efficient way and so we're going to continue to evaluate non-quota-related investments and costs and evaluate what we call to detail ratios and with emphasis on more toot [ph], which are quarter carrying sales reps and driving greater efficiency in the rest of the areas of the sales and marketing organization.

Thank you. That's helpful. And one follow-up. So, what are hearing from -- what are you hearing from the customers in terms of prioritization of VM in this environment? Are you seeing any pull forward of demand in the scenario?

I think it's premature to say there's a pull-forward demand. We're actually very pleased with the print the quarter. Hopefully that is apparent, we added a good number of new enterprise customers, as well as a number of new net new six-figure customers. So, overall, we're pleased what we saw in Q1. But the global crisis really started the last three weeks of the quarter; they happen to be the busiest times for our software company, last few weeks of the quarter are always very busy. We're dealing with us for a full quarter in Q2. So, for us, I don't know -- I wouldn't characterize it as saying that we saw a pull-forward of demand. We were busy at the end of the quarter, busy closing deals, we're pleased with the rate in which we did sell. But we obviously have a cautious outlook the rest of the year just given some of the uncertainty surrounding it.

That's very helpful. Thanks a lot guys.

Thank you. Our next question comes from the line of Melissa Franchi with Morgan Stanley. Please proceed with your question.

Thank you and hope you all are doing well. I understand why you would pull the guidance for the full year just given the uncertainty, which is not unique to Tenable. But -- I mean, you have a lot of conversations; I'm sure, with customers. And so I'm wondering if you could maybe just provide a little bit more color around what you're hearing from those customer conversations, particularly, how CSOs are viewing vulnerability management, and they're spending incrementally on VM for the rest of the year, just recognizing there still is a lot of uncertainty, but what are the conversations today suggesting?

Yes, great question Melissa. Thank you. I think we have not seen a significant shift from a security prioritization standpoint. So, security remains -- I would say sacrosanct, but it remains high priority for enterprises. And we see that within the security budget -- within security spend that VM understanding risk and how to more efficiently managed risk remains a key high priority for the CSOs that we talked to. I think what is reflected in our decision to pull guidance is an increased sort of uncertainty, if you will, in the process for close. We know that budget is going to be shifting, budgets are going to be changing, there'd being more closely scrutinized in the process to close transactions, will be more closely scrutinized and that may cause for some delays, and in certain segments and market uncertainty around what those budgets will look like and how they'll shift. So, I think with that we're trying to just say, look, the pipeline is healthy. It continues to grow at a healthy click, we just want to -- we just don't have that type of -- the precise visibility into the closed process that we've had taken in previous quarters.

Okay, that makes a lot of sense. And and Steve, you talked about upsell activity, you're anticipating upsell activity to be healthy, but maybe not as robust. When we spoke to you all a quarter ago, you were very enthusiastic and bullish, I guess, on the on the Lumin, early adoption, just wondering what you saw in Q1 and whether this current environment maybe puts a little bit of a pause on the momentum that you were seeing in the early days?

I think with regard to momentum overall, I think we're happy with how the quarter played out, we acknowledge we would like to close a few more deals. Specifically, a few more larger deals that may be what we've seen in quarters past. But adding over 300 new enterprise platform customers, 24 net new six-figure customers, and to be able to continue to do that, especially in a market like this, I think it's certainly notable. We launched Lumin in Q4 of last year and International is a product -- and we sell primarily to enterprise customers. So, given enterprise sales cycles, our expectation is that Lumin will be more of a contributor to the second half of the year, but the first half. But we're very pleased with the pipeline for Lumin and very pleased with the pipeline just more broadly. I think it's fair to say that the size and the maturity of the pipeline are very strong. And there's really good customer engagement and we're continuing to move deals throughout the pipeline. The big question mark is the yield against those opportunities in a market like this, but overall, we're pleased with what we see, but we're obviously taking a more cautious outlook. And we think the value prop of VM and cyber exposure more broadly, and Lumin in particular, remains strong even in a market like this.

That's good. Thank you.

Thank you. Our next question comes from the line of Gur Talpaz with Stifel. Please proceed with your question.

Okay, great. Thanks for taking my question. Amit outside of core VM, you mentioned the handful of pretty interesting OT and Lumin wins. Can you talk about the view on appetite for these solutions recognizing the term uncertainty? And looking well beyond that, just the nature of the conversations you're having and how you think about just the build maybe looking into 2021?

Yes, Gur. Great to hear from you. We continue to see very healthy pipeline build in OT and Lumin. And I think in addition to the comments that Steve was making about, sort of Lumin’s relevance, you know, the more complex the environment, the more distributed and complex the attack surface, the more of an opportunity to exist for Lumin to come in and help CISO and enterprises really understand risk and understand the prioritization of how they can most efficiently reduce risk. So I think, as we've seen the changes and attack surface more from CISO’s are trying to figure out okay, what does this mean to me now, I got a bunch of remote workstations and I have some changes in compute behaviors. What does that mean from a risk perspective? I think Lumin can help them get, get their arms around that, and really the, the fundamental requirement to understand cyber risk in core business processes, whether it's, you know, sort of manufacturing, critical infrastructure, retail inventory management, all of these things remain absolutely critical. And so, you know, the timing of deals is certainly challenging to understand in this environment, but, you know, we've seen no change -- no notable change in ability to add pipeline, add opportunities to the pipeline and I think the sales teams you know, a that, you know that these are the types of transactions that we've been closed, just need to get our arms around what -- what the macro environment means from a transaction timing perspective.

That's helpful. Maybe one for you Steve, you made it a point that the stresses are going to be FCF positive for the year. Is there anything here that can happen over the next few quarters that could ultimately leads your you're pretty to hear to say that you're going to be FCF positive despite the uncertainty?

No. Not that we anticipate, Gur. For a matter of fact, we made a point to call that out. We talked about becoming cash flow positive on our last call, even with some of the uncertainty surrounding it. We remain committed to becoming cash flow positive. There's a lot of natural leverage in the business. And I think you're starting to see that given the EPS given the fact that we are returning cash flow positive, almost three to four quarters earlier than expected when we talked about when we went public. We said our intention was to become free cash flow positive by the time we exit 2020 and here we are doing it really in the first quarter. So, we're pleased to see it. We think through a lot of leverage in the business. We're excited about the long term opportunity, and we're going to continue to invest, but balance those investments in a way that also creates operational efficiency for us as a whole.

That's great. Thank you.

Thank you. Our next question comes from the line of Jonathan Ho with William Blair. Please proceed with your question.

Good afternoon. Can you maybe quantify for us, you know, some of the benefits that you saw, I guess from organizations that maybe accelerated some of their buying activity, and were maybe addressing things like work from home technologies, buying new laptops and outfitting them and how you think about that that opportunity, particularly with regard to how recurring it is, are you seeing that persistent to April, and it could just be a new normal that that adds to your opportunities at?

You know, I didn't know that I would characterize it as sort of an acceleration of business. I think that there's, you know, the change in compute environments and the way enterprises are supporting their employees has evolved. And I think that to some, some extent plays to our strengths, or we've always, you know, touted the you know that we bring the sort of greatest flexibility of how to assess for risk. And so in this environment where there's more work from home, I think there's various methods and techniques, including, you know, aging to cloud based deployments, you know, that we've seen, customers adopt, and we've made, some more flexible licensing schemes available to them. So, they can leverage this part of our technology. So, it's really, we've seen a little bit of a morphing of the business more so than in acceleration. In terms of how -- whether or not we anticipate this to, you know, to sort of sustain itself going forward. I think the macro environment will largely dictate that and, you know, we've seen all sorts of different approaches from different states, in fact, around the globe, to the return to work from home, and, you know, we think that'll sort of create another wave of security requirements for enterprises as these remote systems. Now, come back into enterprise environments with all the applications and the downloads, and the potential malware and everything else. So we think it is going to mean that assessing vulnerability, assessing risk, assessing exposure to the enterprise, is just going to have to be done in a more mature fashion than it has historically and you think that, I think that could be -- that could bode well for business that said, the macro environment is, is can also dictate the pace of business as well.

Got it. And can you talk a little bit about your exposure based on industry vertical, I mean, clearly, you guys have, large U.S. government business, and we would assume that's less impacted on, but there's other industry that potentially are more, can you -- can you maybe give us a little bit of color around maybe what you're seeing and assuming around the industry piece of this?

Hi, Jonathan, this is Steve. Yes, the good news here is that, we're fairly diversified. We have over 30,000 customers I think one of the largest customer bases of any public security company. And we transact sales in 160 different countries with offices and an over 30. So we have a sizeable and very diverse customer base. If you've looked at areas such as retail, hospitality, transportation/travel, in aggregate is less than 10% of our total sales. So the good news is we'll have significant vertical concentrations. With the exception of the U.S. cover, we talked about how it's on average, about 15% of our total sales and we think that's actually a good place to be and a market like this. Overall, we feel like we're pretty broad and pretty diversified and with no significant concentrations and we think that's that -- that's good in the market like this.

Great. Thank you. Operator: Thank you. Our next question comes from the line of Dan Ives with Wedbush. Please proceed with your question

This is Victor [ph] on for Dan. Can you just talk about what you're seeing on the federal spending front? And then what are your views on the deal environment during this pandemic? And then, what are the opportunities as well as challenges that this may present at Tenable? Thanks.

We haven't seen any notable change in the federal environment updates was really consistent with what we've seen in terms of buying behaviors from years past as you know, we have a very strong position in the -- in the federal government and now believe that that will continue to be the case, or servicing those customers and helping them make the adjustment to work from home capability. In terms of how this is impacting or changing, the broader market or deal flow. You know, as I said earlier, I think your security remains high, top of the priority list for folks and, within that your I think vulnerability management to understand your level of exposure in cyber risk remains fairly high. So, while we have some uncertainty around the process to deal close and what how customer buying behaviors are going to change. We continue to have a high level of engagement with our customers, both federal and in the private sector, and we're seeing good customer engagement and continued pipeline creation. There seems to be a lot of demand out there, just trying to understand what causes will look like relative to the macro environment and how company purchasing practices will evolve.

Thank you.

Thank you. Our next question comes from the line of Nick Yako with Cowen and Company. Please proceed with your question.

Hey, guys. Thanks for taking my question. Just wanted to ask about the decision to extend the licenses to cover additional assets coming online into June is the plan to go back to those customers in June and convert those into up-sells? And then just how confident are you feeling in the ability to do that?

I think the initial outreach here was to make sure that we're engaging with our customers and we're assisting them in whatever fashion we can during something that's ultimately, you know, a crisis for them to manage through. They're dealing with massive shifts in how they operate and work from home environments. This is one of those things where we could draw a line and restrict our customers use our technology. But we wanted to make sure that they feel like we've got a great partnership with them, like, we're strategic partners, helping them with technology when they’re in a jam and helping them strategically assess and understand the data that's coming out of those technologies and what it means for their business from a risk perspective. So, yeah, ultimately, will we extend that beyond June, I think, it depends on a number of factors will we be able to convert some of those extended licenses into sales, I think will depend on a number of factors and I think this is one of those times in life where you want to ask, show what you're made of as a company and as a partner, and our intent is not to jam people up, but make sure that we provide them capability and believe also that they'll be with us for the -term and they'll expand their deployment with us as they see us as a strategic and good company to do business with.

Right. Okay, helpful. And then maybe just a follow-up around Lumin. Any color around the contribution from Lumin in the quarter? And then just looking forward, does this environment change how you guys are thinking about the opportunity for Lumin going forward?

Hey, Nick, this is Steve. No, we don't provide sales by product, but what we did say is that we're pleased with the strong start for Lumin another in Q4, but also in Q1, so out of gate, we think we're coming out really strong pipeline activities are very healthy and are continuing to build. And in a market like this the value prop for VM and cyber exposure and Lumin in particular, we think is strong. So we'll continue to keep you updated throughout the year. And keep in mind, we're an enterprise software company. So the expectation is that you’ll see more contribution from some of these newer products in the second half of the year versus really the first half.

Thanks, guys.

Thank you. Our next question comes from the line of Brian Essex with Goldman Sachs. Please proceed with your question.

Hi, good afternoon. And thank you for taking the question and hope everyone is well. Amit, I just wanted to follow-up on some of the commentary that you had with regard to it sounds like things in the demand environment still are, I guess, relatively reasonably healthy. Is there anything that, I guess, one is that a fair assessment to make? And it seems as though the conservatism is mostly around the demand environment? And then are there anything -- is there anything that we need to consider from a business process perspective? So internally inside your company, how you're managing the situation? Or is anything materially changed over the course of the past few months with the remote workforce and how you need to remain engaged with your customers? Maybe a little bit of color there could be helpful.

Yeah. Thanks, Brian. So I think, I would -- I like the way you differentiate those. I think the demand environment remains healthy. We continue to see opportunities, new opportunities be identified, pipeline created things under the forecast and feel like there's absolutely no indication at this point that vulnerability management is lessening from a priority perspective, from a budget perspective, from any number of different fronts. What we have seen, I think what we're trying to call out on the call is that there's just more uncertainty. We don't have, I guess, the visibility or the certainty and visibility into the past and what's required to close transactions within the customer base that we've had historically and that we have come to rely on from a guidance perspective. So many -- in many engagements, we're having active conversations with our customers, and even our customers don't exactly know what's required to move purchases forward with the degree of certainty that they've had in previous quarters in a more normal operating environment. So I think it's important to differentiate those two and it does -- it caused me to remain extremely confident in the long-term business opportunity in front of us in the fundamentals of Tenable as a business, while there might be a little bit of turbulence here, until we understand exactly what the buying behaviors look like in the COVID time. In terms of how we're engaging with our customers, we have a largely remote workforce already about two-thirds of our staff were working from home, prior to recent times. And so it's certainly embedded into the culture. Many of our sales reps are reporting that they have just as high a level of engagement less than person engagement, but in many cases, it's easier to get customers to agree to a 15 or 30 minutes Zoom than it is to take an hour or 90 minute type of type of meeting. So we do see continued healthy engagement from the sales force. We continue to see new opportunities identified from marketing and turn into sales opportunities, as sales qualified leads in the sales force enter the pipeline. And so we feel good about the overall business, again, recognizing that there's this uncertainty and what's required to close transactions as customer budgets continue to evolve and procurement processes evolve.

Got it. That's really helpful and maybe just a follow-up for Steve. Steve on the cash flow, do you have levers at your disposal where you could -- you think you can remain sustainably cash flow positive or should we anticipate a little bit of movement around cash flow breakeven until you go through maybe the stronger back end of the year?

Yeah. So yeah, we're delighted that we’re cash flow positive this quarter. And of course, we expect to be so for the full year. The cash flow characteristics of the business are very strong. So we see real leverage in the business. Cash Flow quarter-to-quarter is always a tricky thing, because specifically, if you look at our -- we continue to work on the construction of our new headquarters, that will be completed in Q3. So we are actively paying contractors and getting reimbursed. And so notwithstanding that, we feel really good about cash flow on a yearly basis. And how it moves throughout the year on a quarter-to-quarter basis may vary, but we'll keep you posted. But overall, we're very pleased with the cash flow characteristics of the business. These were the significant leverage that we're demonstrating here not only in the first quarter, but we're also showing in our Q2 guide as well.

All right, very helpful. Thank you very much.

Thank you. We have reached the end of our question-and-answer session and the conclusion of today's call. Thank you for your participation. You may now disconnect your lines and have a wonderful day.