Greetings and welcome to the Tenable Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, 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 second 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 second 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 and full-year 2020. 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 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 most recent quarterly report on Form 10-Q 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 will now turn the call over to Amit.

Thank you, Andrea, and thank you all for joining us today. As you mentioned on our last call, Tenable is an incredibly resilient organization. I was very pleased with how our team came together in the second quarter to support our customers in this virtual environment and deliver on our mission. Steve will discuss our financial performance in greater detail, but there are a few broader comments I would like to make regarding our results for the quarter. Revenue grew 26% year-over-year in Q2, overall it was a strong quarter of top-line growth in this uncertain macro environment. I’m also excited to note that we delivered our first quarter of positive non-GAAP operating income as a public company and continued to improve our free cash flow profile. Underpinning these strong financial results are a few key trends that I would like to highlight. First, enterprises continue to prioritize vulnerability management as a critical building block to understanding their cybersecurity risk. Second, Tenable’s best-of-breed strategy continues to drive our success. Leading the VM market earns us the right to compete for cross-sell opportunities. And finally, power deployments are accelerating the expansion of the attack surface, where enterprises are looking to better assess and understand their cybersecurity risk. Let me walk you through each of these points. First, as digital initiatives accelerate, customers continue to prioritize vulnerability management. Vulnerability management serves as a foundational building block for enterprises as they try to understand their cyber risk. This quarter, we saw high customer engagement levels, increased scanning and assessment frequency, and even third-party CIOs and Chief Security Officers highlighting VM as a top three security budget priority. As the attack surface widens with distributed workforces, new assets coming online, and a shift to cloud-based vulnerability management, this is becoming increasingly critical. Second, our dedication to best-of-breed VM continues to drive significant differentiation in our results. In Q4 of 2019, we were named a leader in vulnerability risk management according to Forrester Wave. And now we are number one regarding market share in vulnerability management, according to IDC’s market share analysis of 2019. To put it simply, we cover significantly more vulnerabilities and do so with greater accuracy. Lab testing has shown that we cover 20% more common vulnerabilities and exposures than our next closest competitor. And that is a significant differentiator for any security professional using or testing our products. We also deliver a lower false positive rate with six sigma accuracy, according to our own testing. In doing more extensive work with vulnerabilities, our research team also leads the industry in zero-day discovery, with more than 149 zero-days in 2019, and already more than 75 in 2020, significantly more than our main competitors have announced. Tenable is the number one platform in the market for vulnerability security configuration coverage according to third-party testing. This investment in knowledge translates into helping our customers find and fix security problems faster and more accurately. Notably, in the quarter, we are pleased to achieve several competitive takeaways that we have turned into our best-of-breed strategy. An example we wanted to highlight was a merger between two large financial technology companies. They were looking to consolidate to a single VM solution and vendor. This is a six-figure, multi-year deal that displaced the entrenched legacy vendor of the larger surviving entity for years. Tenable emerged as the vendor of choice as the new enterprise standard. Our mission to help our customers manage and measure their cybersecurity risk is especially relevant in these challenging times where risk is elevated by the acceleration of digital transformation and a more distributed workforce. We hear time and again that customers are having problems getting accurate data, struggling with false positives, and spending inordinate amounts of time tracking down real data. Enterprises come to Tenable when understanding their cyber risks really matters. The combination of our best-of-breed strategy along with the increasing surface of attack has fueled more cross-sell opportunities in our business. We saw more momentum to cross-sell in Q2. Notably, customers are increasingly seeking to secure cloud applications, using Tenable IO, web application scanners, and container security to support digital transformation initiatives. We are also seeing continued momentum in our OT business. One of the largest automotive manufacturers in the world was looking to minimize downtime. We showed this customer a future state of full visibility and control with a converged IT/OT platform. This customer told us they chose Tenable OT because of our control, change management, and active query capabilities. This is a very exciting OT win for us with an opportunity to expand globally over time. With the expanding attack surface and rapidly growing vulnerabilities, accuracy matters even more. Building on this foundation in VM, enterprises also need advanced analytics for prioritization and better decision-making. Tenable offers unparalleled prioritization and benchmarking analytics based on our proprietary research and data science. When a leading healthcare diagnostics company needed to assess their entire environment, including cloud assets, they purchased Tenable IO, Tenable SD, and also added web application scanner and container security. In addition to enhanced advanced analytics for the executive team, they also added Lumin. And then ultimately they also added Tenable OT. This is an example of an exciting cross-sell opportunity that we see across our entire product portfolio. In recent wins, we are seeing a marked increase in customers purchasing Tenable IO, web application security, and container security solutions, which we attribute to a greater share of our customer workloads moving to the cloud. Securing assets in the cloud has become a core part of our technology platform for the past few years. Cloud deployments are a natural extension of the attack surface, and not a separate bolt-on tool. Everything we do builds upon our core foundation and leadership in VM, helping our customers assess the security of their cloud environments in a native and integrated fashion is no different. We integrate with all of the major public cloud vendors with native pod connectors, as many of our customers maintain hybrid environments across multiple cloud vendors. Our customers use these cloud connectors to assess the vulnerabilities of assets deployed. The combination of our native cloud connectors, comprehensive web application scanner, and DevOps integrated container security provides extensive visibility into the security of our customers' cloud deployments. Expect to hear a lot more about these capabilities in the coming months and quarters. To secure cloud operating environments, customers also need novel ways to identify misconfigurations and ensure compliance. We are excited about our ability to advance our cloud security platform to help our customers achieve this timely level of visibility and integration while meeting their cloud-specific expectations in terms of scale and type of assessment. In addition to our product offerings, our cloud data lake continues to grow, collecting data from a rapidly increasing number of assets we assess. Our data science team leverages this data to produce insights that are being used to benefit our customers. Some examples of this include prioritization, refinements of our scoring, and new test insights that we will be leveraging going forward. Our platform unifies all this data across the attack surface of hybrid cloud environments into one place, helping our customers assess cyber risk. Going forward, we believe that our best-of-breed VM strategy, cloud security enhancements, OT capabilities, and advanced analytics will continue to fuel attractive growth and profitability. The dynamics propelling our business remain strong, and we believe will continue to strengthen over time. Our recurring revenue and the natural leverage in our business provide significant financial and operational strength. We see a path to manage through the near-term challenges of the macro environment and maintain focus on our long-term opportunity, which we believe remains compelling. This gives me confidence that we are well positioned for the future. Now, I will turn the call over to Steve.

Thanks, Amit. As Amit commented earlier, we are very pleased with our results for the second quarter and remain excited about the opportunity to extend our leadership in this market by helping customers measure and manage their cyber exposure. Let’s talk about our results for the second quarter and then turn to guidance. First, please note that with the exception of revenue, all financial results that we will discuss today are non-GAAP financial measures. 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, on to our Q2 results. Revenue for the quarter was $107 million, which represents 26% year-over-year growth. Revenue in the quarter exceeded the midpoint of our guided range by approximately $5 million. Revenue was aided by better than expected demand in both new and renewal business and overall healthy flow throughout the quarter. Our percentage of recurring revenue continues to remain high at 93%, which is a testament to our annual prepaid subscription model. In terms of demand, and despite the backdrop of the challenging macro environment, we saw strength in winning new logos that included some sizable competitive takeaways. We added 341 new enterprise platform customers and 50 net new six-figure customers this quarter, just over twice as high as the number of net new six-figure customers we added last quarter, and it is one of our best ever. This brings the total number of customers spending in excess of $100,000 annually to 715. It is also worth noting that we are seeing increased demand for securing cloud applications, which has resulted in accelerating adoption of Tenable IO and our cloud security model, which includes web application security and container security. This trend is contributing to an overall higher percentage mix of new enterprise platform customers choosing our cloud platform. To summarize, we continue to add a healthy number of new customers and six-figure customers in an uncertain macro environment, from the back of higher cloud adoption that speaks to the growing importance of VM and our best-of-breed strategy. Calculated current billings, defined as the change in current deferred revenue plus total revenue recognized in the quarter, grew 13% year-over-year to $111 million. As I said on the last call, during the pandemic, calculated current billings may not be a good leading indicator of future revenue growth, as it is influenced by a number of factors such as deal timing, early renewals, and multi-year prepaid deals. It is important to note that we are pleased with our overall level of sales in the quarter, although not all of it translated to calculated current billings for reasons I just mentioned. A good indication of this is our short-term remaining performance obligations, which we disclosed in our quarterly filings and grew a little over 20% year-over-year. I will provide more commentary on calculated current billings when I discuss our outlook for the year. As previously noted, renewals were strong in the quarter and came in better than expected, but with larger initial land and a more moderate pace of asset expansion in the current environment, our dollar-based net expansion rate tempers, although it continues to be healthy at over 110%. I will now turn to expenses and profitability, where we continue to demonstrate leverage in our financial model, highlighted by a major milestone—it is our first quarter of positive non-GAAP operating income. I will provide more color on profitability later. But let’s first turn to gross margin, which was 83%, down from 85% in Q2 last year and consistent with the 83% last quarter. Our gross margin continues to be very healthy and reflect increased demand for our cloud-based and Tenable IO platform, partially offset by efficiencies in scaling our public cloud infrastructure. Recently, we have also benefited from improved resource utilization as a result of increased virtualization training, implementation, and other professional services. Let’s turn to operating expenses. Sales and marketing was $50.1 million compared to $51.8 million in the second quarter last year and $55.4 million last quarter. Sales and marketing as a percent of revenue was 47%, which was down from 61% in Q2 last year and 54% last quarter. Sales and marketing decreased sequentially, primarily due to our worldwide sales kickoff and other industry events such as RSA that took place in the first quarter of this year. In addition, there were COVID-related savings, most notably in the areas of marketing and travel, which we estimate to be approximately $2 to $3 million this quarter. Some of these savings are expected to endure, as they reflect the new reality of business today and the acceleration in digital transformation. That said, we attribute a lot of the leverage we are experiencing today to improved productivity. Specifically, the maturity of the sales organization has increased, not only in terms of the percentage of reps that are fully ramped, but also in terms of management. The hiring of new sales leadership last year is now in the rearview mirror. We also can see optimized spend on sales overhead in markets where we have critical mass, which is something we have discussed on prior calls. R&D was $21.4 million compared to $19.3 million in the second quarter of last year and $23.9 million last quarter. As a percent of revenue, R&D was 20% compared to 23% in both Q2 2019 and last quarter. R&D expense decreased sequentially, primarily due to our company-wide developers conference held in the first quarter of this year. G&A was $12.3 million compared to $12 million in the second quarter last year and $13.8 million in Q1 2020. As a percent of revenue, G&A was 11% this quarter, down from 13% last quarter and 14% in Q2 of 2019. Non-GAAP income from operations was $5.7 million compared to a loss of $10.7 million in Q2 last year and a loss of $7.7 million last quarter. Non-GAAP operating margin was positive 5% compared to negative 13% for the second quarter last year and negative 8% last quarter. We are very excited to achieve this major milestone, which is our first quarter of non-GAAP operating income as a public company. We are very pleased with the significant progress we have made in moderating our annual non-GAAP loss from operations over the years from $49 million in 2018 to $43 million in 2019 and now expect to be profitable on a non-GAAP basis for the full-year 2020, as reflected in our guidance today. All this translated to significant EPS upside, as non-GAAP operating earnings per share was $0.04, which was $0.08 to $0.10 better than expected. To summarize, our revenue was better than expected while our EPS was also from improved operational efficiencies in expense management. Now let’s turn to the balance sheet. We finished the quarter with $242 million in cash and cash equivalents and short-term investments. We also announced today that we entered into a new $45 million credit facility, potential to upsize at 1x. This was done in connection with the maturity of our $25 million credit facility, and we will provide additional liquidity going forward. Turning to cash flow, we achieved $6.6 million of positive free cash flow in the quarter. This compares favorably to a free cash flow burn of $5.2 million in Q2 last year. Net CapEx for our new headquarters was $3 million in the second quarter, and we estimate approximately $2 million for the remainder of the year. The results of the quarter behind us, I would like to discuss our outlook for the second half of the year. We developed our guidance under the assumption that we will see a slow and uneven reopening of the economy in the second half of the year. Given the uncertainty and fluidity of the current environment, we will continue to manage the business in a disciplined way but also plan to make additional growth-related investments in areas such as go-to-market and product innovation seen on Q2 levels, which is reflected in our guide. With that backdrop, in the third quarter, we currently expect revenue to be in the range of $108 million to $110 million, non-GAAP operating income in the range of $3 million to $4 million, non-GAAP net income in the range of $2 million to $3 million, and non-GAAP diluted earnings per share to be in the range of $0.02 to $0.03 per share, assuming $111 million fully diluted, weighted average shares outstanding. Based on our outlook for the rest of the year, we currently expect revenue to be in the range of $428 million to $433 million, non-GAAP operating income in the range of $4 million to $7 million, non-GAAP net income to be in the range of $0 to $3 million, and non-GAAP diluted earnings per share in the range of $0 to $0.03, assuming 110 million fully diluted, weighted average shares outstanding. Given our strong Q2 results and our annual prepaid subscription model, we believe we have the visibility today to reinstate annual revenue and EPS guidance. However, calculated current billings continue to be less visible given the current environment and consequently we believe it is not a good leading indicator of future growth for reasons I mentioned earlier. In summary, we are pleased with the results for the quarter, which gives us increasing confidence in our business. Tenable remains well positioned to deliver compelling growth and profitability over the long term. We have developed a comprehensive foundational cyber exposure platform that provides significant value to customers. And we are actively managing through the current challenging macro environment while continuing to execute and invest in the long-term opportunity. And now I will turn the call back to Amit for some closing comments.

Thanks, Steve. Regardless of the macro environment, we believe vulnerability management will continue to grow in priority. For Tenable, our core strength in VM has driven our success and aided in our natural expansion across the surface of attack into cloud and OT deployments. Our second-line product portfolio positions us for long-term success. We hope to see many of you virtually at the city and DA Davidson conferences in September. We would now like to open the call up for questions.

Thank you. Our first question comes from the line of Sterling Auty with JP Morgan. Please proceed with your question.

Hi, guys, this is Matt on for Sterling. Thanks for taking the question. So I had one question and one follow-up. The first question is, what direct impact are you seeing from business given the COVID environment on the positive and the negative side?

Yes, I guess I will comment. Thanks for the question. I will comment briefly. I think there are both some positive and negative aspects to it. We certainly see an acceleration of activity around our SaaS solution, Tenable IO. We see an acceleration of customers trying to assess cloud environments using our solution, most frequently Tenable IO, web application scanning, and container security to help them assess cloud environments— all as you might expect, given the acceleration of digital transformation. On the wins that are created as part of the macro environment, just like every other company in the world reviewing operating expenses, reviewing spending, and changing procurement practices and processes, just more scrutiny over every purchase does create a little bit of a natural headwind for us and others.

Great, that is very helpful. And then just a follow-up. I was wondering if you can give us an update on your channel strategy and any improvements that you may have seen given these programs that you have put into place in the last year. Thanks.

Hi, this is Steve. We are the only VM company in our space that has made the commitment to the channel. We sell through two tiers—so we sell to distributors, who in turn sell through resellers and we transact directly with the end customer; however, we work closely with our vast network of partners to close new business. I think having a cohesive channel strategy is particularly important even in a market like this. We have over 30,000 customers spanning 160 countries, and we have sellers in over 30 countries. It is important because the channel partners serve as a cost-effective way to help bring in new business. I think we have talked about this on prior calls. Years ago, 4% of our business was inbound from the channel, years ago, there was a little over 20%, and today it is much higher than that. We think long-term, as much as 50% or even 60% of our total sales can come from the channel. So, the channel is an important part of our go-to-market strategy, especially for selling to enterprise customers, as they have relationships and can take you into markets where you don't have critical mass. So, it is important, and we are continuing to build greater intimacy with the channel and ensuring that they are incentivized and compensated for the good work they do for us.

Great. Thanks, guys, that is very helpful. Thank you.

Our next question comes from the line of Keith Weiss with Morgan Stanley. Please proceed with your question.

Excellent, thank you guys. Maybe one question for Steve, and one question for Amit. The question for Steve is, congratulations on sort of the really good job of accelerating profitability and getting to that milestone as a full-year profitability. And how much of this is going to be durable? As we are thinking about heading into 2021 and beyond, how much should we think about as the benefits of no one traveling and some of the conferences not taking place, and is it going to come back, and should we temper expectations for 2021 versus how much are the productivity gains that you have been talking about?

Well, I think it is a lot of the latter, which is operational efficiency. We talked about the benefits of having a subscription model. If you look at our business in particular, we have over 90% recurring revenue, over 80% gross margins, and very strong net dollars, and all that gives us a lot of confidence in the margin profile of the company. If you look at sales and marketing in particular, last year this time, we were spending about 60%—over 60% of our revenues on sales and marketing, and today we are reporting something that has a four handle on it. One of the big drivers for growth there is just a greater maturity; we have a higher percentage of reps that are fully ramped versus those that are not. And we also have had a lot of maturity in sales. We have also been able to stretch sales overhead in markets where we have critical mass. So, I will tell you, there is a lot of leverage in the business—not just in sales and marketing, but also in R&D. We were quick to call out some COVID-related savings, which we estimate to be $2 to $3 million. Some of that came in the way of traveling through marketing. But I will be honest with you, I’m not sure what is normal and what is not. Certainly, over the next couple of quarters, we expect the current environment will remain the same. We expect a slow and uneven reopening of the economy. And we know that we can transact larger deals without face-to-face contact with customers. So, that also would yield greater efficiencies for ourselves. But this leverage in the business that you are seeing today is something we have talked about now for several quarters. It is playing out, and there is just a lot of natural leverage in the business, given the dynamics that are at play here.

Got it. That is super helpful. And it is great to see that flowing through. And then for Amit, you talked about kind of the higher priority for VM that you are seeing, and we are picking up as well in recent surveys and channel conversations. A lot of the sort of moving to the public cloud initiatives has been around for a while. Do you think you could point to in terms of the near-term environment that may be causing that to ramp up the priority of VM in particular?

I think when the pandemic first hit, people shifted very quickly to a work-from-home environment and the top priority was very focused on productivity. How do we keep our employees active? How do we keep our employees able to sustain the level of proficiency that they have when they were working together in the office? As organizations make that shift, I think the next priority is understanding how these changes in computers and these changes in technology, whether it is work-from-home or the acceleration of cloud adoption, how do they change their risk profile? And so, in that, the natural place that people gravitate to is their VM solution. When CEOs, audit risk committees, and CIOs ask questions about risk, the foundational answer for many of those questions comes from the data that is provided in the VM solution. So, I think it just becomes a very natural question: okay, well, I now have this environment, how do I gain insight and visibility into it? In many cases, in thousands of cases, customers just use the cloud-native connectors that we have developed over the years and continue to enhance and then work with all the major cloud providers.

Excellent. That is super helpful. Thank you so much for the time, guys.

Thanks, Keith.

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

Okay. Great. Thanks for taking my questions. Amit, you talked about some large displacements this quarter. Can you talk about more broadly customer willingness to embark on more complex projects in the current environment?

Yes. Thanks, Gur. It is a great question. Certainly, we have, as part just about any other company, looked at some of the larger projects and customers and scrutinized their spend, their operating expenses, and asked, okay, is this critical? Does this make sense? Do I want to prioritize it? In our case, understanding cyber risk and understanding the new attack surface and getting their arms around risk continues to be an absolute priority. You are seeing in the survey results for CEOs and CISOs, and you hear about it consistently in surveys of directors, NACD survey, earlier this year, and others, it is certainly a concern. I think, like others, we have seen some deals adversely affected by that. But for the most part, people have a desire to understand their risks. They want to understand it in a more granular way. It matters more than it has before, and to the extent that we could help them understand that risk across different factors and forms of their computer environment—whether it is just servers and workstations and cloud environments, web applications, or dev ops—environments—I think that has bode well for us, as well as just sort of like core differentiation in our VM capabilities. We have a 20% plus coverage of CDEs and a lower false positive, false negative rate for people whose job it is to understand risks. Those data points are incredibly meaningful.

That is helpful. Maybe one for you, Steve. You mentioned that current RPO growth may be a better proxy to gauge growth within the quarter. I was hoping you could elaborate a bit on that and maybe give some more color there.

Sure. I will talk about it in relation to calculated current billings. First and foremost, we are very pleased with our performance in the quarter and particularly sales and our ability to close deals in this environment. We often discuss calculated current billings as an indicator of that effort and as a proxy for annual contract value. In most quarters, calculated current billings is our close proxy to the underlying performance of the business. However, as I mentioned on our last call, calculated current billings during a pandemic may not be a good leading indicator of future revenue growth, because it is, as I call it on the call, influenced by many factors, such as deal timing, multi-year prepaid deals, and everything else, which can have more variability in a challenging market. So while calculated current billings is most notably influenced by the annual contract value of deals invoiced in the quarter, short-term remaining performance obligations capture all of that plus additional customer commitments yet to invoice due to deal timing. And in most quarters, calculated current billings growth and short-term remaining performance obligations growth are fairly tightly aligned. This quarter there was clear separation and short-term remaining performance obligations growth with several points higher and, more importantly, a closer approximation of the underlying annual contract value growth for the business. We just wanted to call this out. I think in terms of whether or not that is the best indicator going forward, we are in an uncertain market and we will just have to see whether or not that is a better indicator or if there is another one, but this quarter right now, we are just calling out remaining performance obligations growth as a close approximation of the underlying performance of the business.

Very helpful. Thanks, Steve.

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

Hi, good afternoon. I just wanted to maybe start out with the OT deal that you signed and maybe better understand why this potentially signals a change in maturity of the environment or higher prioritization. I want to understand why you thought it was so important and what implications we should be thinking about relative to that deal.

Yes, I think we have felt very strongly about the opportunity in front of us with OT. As you recall, we embarked on our journey with OT years ago. We saw good leverage between buyer use case and opportunity, and our messaging resonated; our sales teams are able to transact with our current buyers and users. So, that gives us a lot of confidence going into making an acquisition late last year. We have integrated many facets of that technology into our analytics platform for unified reporting, prioritization, and things of that nature. It is nice to see the continued traction we are seeing with customers in those environments where it is not just OT but where they want the converged reporting and prioritization and understanding of risks across these different types of operating environments. We think it really plays to our strengths, and we thought it was notable that a global auto manufacturer, in the current environment, prioritized and saw enough value to pull the trigger on a pretty sizable purchase in the middle of all the challenges they are facing.

Got it, that is helpful. And then just relative to the net retention, clearly, there was an impact this quarter, and you talked a little bit about the differences between TCP and RPO. Can you maybe help us understand, are you seeing your net retention maybe start to slip here, or do you think this is just sort of a short-term effect and we should expect it to normalize over time? Thank you.

Hey Jonathan, this is Steve. As I mentioned earlier, renewals were strong in the quarter and came in better than expected, but with larger initial land and given the current environment, we are seeing a more moderate pace of asset expansion. Our net dollar expansion rate tempered a bit, but it still continues to track above 110%. This quarter, we are pleased with the number of new logos we added. Sometimes there can be some natural variability quarter-to-quarter between pipeline opportunities with new logos and also deals. So, we don’t optimize the company to drive any one specific metric in any one quarter. There can be some natural variability from quarter to quarter. This quarter, we were pleased with the pace of new enterprise logos that we added—over well over 300—and the number of six-figure deals and larger land. Notwithstanding our seasonally strong Q4, this was our best quarter for adding six-figure customers, which is very notable, especially in the current environment where new logos are harder to win. For us to see a strong number of new six-figure deals and an acceleration of competitive takeaways is certainly worth calling out.

Great. Thank you.

Our next question comes from the line of Daniel Ives with Wedbush. Please proceed with your question.

Can you give some thoughts going into federal fiscal year in terms of Q3? What are your thoughts on what you are seeing, especially with many government workers going remote?

Yes, I think we continue to feel very bullish about our federal business. I think we have an exceptionally strong position in the federal marketplace, as we have said earlier. You would be hard pressed to find a single department or agency that doesn’t use Tenable as a core part of its VM program and understanding of cyber risk. We maintain a very close finger on the pulse of that market, working with many of our federal customers on some of the analytic applications we are developing and also federal requirements around operational technologies. There remains a strong desire to understand risk in this environment, and I feel like Tenable is a technology that has proven itself from a differentiation standpoint over the years and maintaining close ties to that market.

Great. And just, how has that changed conversations with customers? Many customers are just kind of doing the transformation right now, especially moving to cloud movement. Can you just talk about that intersect?

Yes, sure Dan. I think it is a great point, which is that as operating environments get more complex, you have a shift to work-from-home. You have people accelerating their cloud deployments, moving more things to cloud platforms, to web applications. We see continued adoption of container environments and DevOps environments. As these trends continue and, to a large extent, have accelerated in recent times, it becomes more difficult to truly understand risk and how to calculate and prioritize activities. In this environment where IT cycles are limited—your IT staff is completely inundated trying to embrace these new technologies—the security team can really go back to them with far fewer asks. They need to ensure that they are prioritizing their requests and that the requests they do make have the greatest impact on materially reducing risks for the enterprise. Products like Lumin, enhanced analytics, prioritization, and understanding of risk play a much larger role and can be much more impactful for customers.

Great. Thanks.

Our next question comes from Joshua Tilton with Berenberg. Please go ahead with your question.

Hey, guys. Thanks for taking my question. I wanted to touch on the IDC report that you called out in the prepared remarks. The data would suggest that the smaller players are continuing to give up share. How do you guys see the mix of business these days? Has it shifted more towards these competitive replacements or do you continue to see a meaningful Greenfield opportunity?

I think we continue to see meaningful Greenfield opportunity, quarter in and quarter out. Sometimes a little bit higher, sometimes a little bit lower. But quarter in and quarter out, we look at our larger enterprise transactions and more or less 30% of them consistently come from a Greenfield account. I mean the customer has no in-house VM technology or capability. So, we look at the market and say we have tremendous growth potential within our existing customer base. We have the ability to sell you asset types into our existing customer base. We are consistently landing a lot of net new logos onto our enterprise platforms—300 plus—and we are increasing the number of six-figure transactions. Ultimately, in addition to that, there is ample evidence that there is plenty of Greenfield in the market. We feel pretty bullish about it and we saw a lot of the, I think Steve called out, the number of our takeaways in the quarter are coming from some of our larger, more established competitors. As we continue to differentiate ourselves, we think that trend will continue.

That was helpful. And then just to follow up, how should we think about gross margin going forward if customers continue to prioritize I/O at least?

I think we said long-term. First of all, we have really healthy gross margins, and that has been a source of pride for the company. We said long-term, we expect gross margin to settle in the high 70% range, low 80% range. But what I will say is that we are expecting margins to moderate perhaps more quickly; at the onset here, they have and we have been able to drive a lot of operational efficiency in our cost of goods sold with regard to public cloud costs. We believe that our gross margins will continue to remain healthy. We are also seeing some efficiencies too, with our delivery of professional services, which we are now able to do virtually and remotely. The ability to do training, implementations, and other professional services, along with greater efficiency in public cloud costs and just given our points of presence that we have today, we think there will be good margins going forward. We will settle into that high 70%, low 80% range long-term.

Thanks guys. That was helpful.

Thank you.

Our next question comes from Brian Essex with Goldman Sachs. Please proceed with your question.

Hi, good afternoon. Thank you for taking the question. I was wondering if you could touch on a little bit around the process that you went through about thinking about your full-year outlook as well as next quarter. What has primarily changed from last quarter? I know there was a lot of uncertainty around pipeline build and sales execution and pipeline conversion. Where was the uncertainty last quarter, and what are you more comfortable with this quarter? If we could maybe understand where the level of confidence that you have in that guidance is and where opportunities for upside might lie, whether it is better attach rates with Tenable I/O, web security, and container security, for example?

Hey Brian, this is Steve. I will jump in here—I think on our call last quarter, we provided an outlook for Q2 but pulled the guidance for the full-year, just given the uncertainty and the clear corollaries between GDP growth and IT spending. The good news is that security is considered, we believe, a higher ground knowledge into other categories within IT. I think vulnerability management, in particular, has remained an important part of a customer security program. We are seeing an increasing need for vulnerability management. Going into Q2, there was a lot of uncertainty. You didn’t know what to expect. So, we provided guidance for the quarter on revenue and EPS. We have an annual fee paid subscription model, so a lot of our revenue comes from different sources. That gives us a lot of visibility. I think it is fair to say that there is more confidence in our business now than 90 days ago. We are very pleased with the results here, and as a result, we are not only providing guidance for the third quarter in terms of revenue and EPS, but we are also able to provide this for the fourth quarter and the full-year. Our guidance takes all of that into consideration. I will say though, we are very pleased with activity levels and pipeline—our pipeline not only in terms of coverage but also maturity. We continue to pipeline at a healthy rate and make good progress on those opportunities as they progress. We do know that we expect there to be more challenges in the pandemic than in more normal times, but we are delighted with our ability to execute against those opportunities and our ability to continue to win deals and market share.

Great, that is super helpful. And maybe could you touch on the tax rates? You called out Tenable I/O web security and containers as being sold together. What do the tax rates look like now relative to prior quarters, and is that something that is kind of implicit in your expectations going forward?

So, Lumin is something—I think we call out more cross-sell in the quarter, and we talked about that earlier. I think the work-from-anywhere environment has certainly been a catalyst for Tenable I/O, as well as our other cloud-based applications—including web app security and container security. We are seeing certainly more pull in that regard; regarding Lumin, we have talked directionally about it being a successful SaaS product. Our expectation is that tax rates will continue to grow over time; you think they could be as high as 50% plus, and that will take place over the course of years. This is a new way of thinking for a lot of our customers. We believe it provides compelling value, especially in a market like this, where there is a lot of uncertainty. Customers are stretched for resources and often have limited resources. The ability to quickly prioritize focusing on what is most impactful in terms of risk, we think, is really important. So, overall, we are pleased with the progress of our add-on modules, and specifically with Lumin, and it will continue to grow and build over time.

Okay, great. Thank you very much.

There are no further questions in the queue. This does conclude our call for today. Thank you all for your participation. You may disconnect your lines at this time and have a wonderful day.