Greetings and welcome to Tenable Quarter Two of 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I will now turn the conference over to your host, Erin Karney, Senior Director, Investor Relations. Please go ahead.

Thank you, operator, and thank you all for joining us on today's conference call to discuss Tenable's first quarter 2022 financial results. With me on the call today are Amit Yoran, our Chief Executive Officer; and Steve Vintz, 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 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 our guidance and expectations for the third quarter and full year 2022, growth and 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; the potential benefits and financial impact of our acquisitions, including our recent acquisition of Cymptom and Bit Discovery; planned innovation and new products and services; our expectations regarding long-term profitability and our ability to attract and retain employees and its impact on our business. 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 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 annual report on Form 10-K and subsequent reports that we file with the SEC, which are available on the SEC website. 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, Erin. Today I will discuss our strong financial performance in Q2, strong demand, and the continued progress of our Cyber Exposure management platform. With that, let me first touch on our Q2 results. We delivered strong CCB growth for the quarter at 27%, which we achieved despite the macro environment. We believe cybersecurity and specifically, Cyber Exposure management remains a top strategic focus for organizations and will continue to be a spending priority. Against this backdrop, we're also very pleased to deliver compelling top and bottom-line results and EPS and unlevered free cash flow were both notably above expectations for the quarter. Our business navigated a number of ebbs and flows during the quarter that we believe are a direct result of the complicated environment our customers are operating in. We saw a few dynamics play out during the quarter, North America delivered above expectations led by Tenable.ep platform sales. Conversely, international business in most regions did not grow as fast as we expected going into the quarter, which Steve will cover in more detail. As far as the business as a whole, deals are going through more scrutiny than they typically do. Overall demand remains strong even with increased inspection on a customer-by-customer basis. Coming out of the quarter, there were a number of things that substantiated our conviction around our business even in the short-term. Security remains a key budget priority and a defensible spend for our customers. Customers continue to face an expanding attack surface and need to properly identify their exposure and their understanding of risk. EP is an incredibly efficient way to consume our product as customers look to a more comprehensive assessment of risks. We have seen this with the strengthening EP adoption and exposure solutions more broadly. A great example of this was a seven-figure EP competitive takeout deal with a large international financial institution. We had another strong quarter for both large six-figure deals and overall enterprise customer adds. We continue to see large deals entering and moving through our pipeline and our confidence in the fundamentals of our business has never been stronger. Our ability to take advantage of this demand is a direct result of meaningful and critical investments. We have made organic and inorganic to help our customers identify and manage their cyber exposure. Continuing to enhance our platform, we closed the acquisition of Bit Discovery, a provider of external attack surface management, enabling us to cover and assess Internet-facing assets such as web applications, cloud resources, and open gateways. Following the closing of the acquisition, we delivered a new version of Nessus, Nessus Expert that includes external asset discovery. External asset discovery will be included at no additional cost for our enterprise platform customers, and separately sold context aware external attack surface management offering for continuous discovery and ongoing monitoring is also available today. Cyber Exposure management as a discipline is attracting attention from industry analysts and customers alike. It is an incredibly important approach to managing cyber risk and it is an approach we've pioneered over the last several years. We believe delivering on a successful Cyber Exposure management platform requires a unified, best-in-class approach across vulnerability management, cloud security, active directory security, OT security, and other parts of the attack surface, which we are successfully executing on. We believe our roots and laser focus position is incredibly well to be a market leader. As we continue to execute on our own vision, we're excited to see industry acknowledgement and the importance of this discipline. Continued coverage by Gartner, talking about exposure management as a discipline amplifies this point, in particular, the importance of advancing Cyber Exposure management program as critical to developing actionable posture improvement plans that can be understood by executives. As Boards and Executives are pressured to understand their cybersecurity posture, having a clearer view of risk is increasingly critical. Preventing cyberattacks requires full visibility into all assets and exposures. Sensitive context into potential security threats and clear metrics to objectively measure cyber risk. Tenable Cyber Exposure management platform delivers visibility across the modern attack surface with intelligent analytics to prioritize preventative actions and communicate risks to all levels of the organization. We are building the broadest understanding of cyber exposure spending IP assets, cloud resources, containers, web applications and identity services. We're delivering unifying analytics prioritized actions and benchmarking to help our customers truly manage risk more effectively and that's a compelling capability. I will now turn the call over to Steve for further commentary on our financial results.

Thanks Amit. As Amit mentioned earlier, we are pleased with our results for the second quarter, highlighted by good topline growth, a sizable EPS beat, and strong unlevered free cash flow. There are a confluence of factors related to the broader market that impacted our results, but we are pleased with our execution in the quarter despite a more cautious spend environment. I will provide more commentary momentarily. But first, please note that all financial results we discussed today are non-GAAP financial measures with the exception of revenue. As Erin mentioned at the start of this call, GAAP to non-GAAP reconciliations may be found in our earnings release issued earlier today, which is posted on our website. Now, on to the results for our quarter. Calculated current billings to find this the changing current deferred revenue plus revenue recognized in the quarter grew 27% year-over-year to $174.1 million and benefited from our continued investment in our platform strategy and go-to-market efforts. The fundamentals of our business remain very strong and we are pleased with the demand overall in the quarter. But it was mixed across geographies as North America exceeded our expectations, while our international theaters encountered headwinds and fell short of expectations. As a reminder, we go to market using a two-tier channel model with our customer contracts denominated in U.S. dollars. During the quarter, the U.S. dollar strengthened compared to other currencies, which made our products more expensive and that combined with other macro considerations impacted our international sales. In addition, on a global basis, we experienced deeper levels of inspection and more approvals with some customers. Despite that, we are pleased with our CCB growth and had one of our best quarters in terms of adding new customers and transacting large deals. Specifically, we added 540 new enterprise platform customers and 79 net new six-figure customers in Q2, which represents 35 and 28% year-over-year growth respectively. Underpinning our customer momentum is EP, Tenable.ep which continues to see strong demand in both the large and mid-markets and has resulted in more meaningful deal sizes amplified by the addition of cloud and identity security to our unified exposure platform. Tenable.ep also creates a more compelling upsell path for our existing customers and benefited our dollar-based net expansion rate in the quarter, which remains elevated in comparison to prior years, and it's well above our 110% threshold. Revenue for the quarter was $164.3 million, growth in Q2 last year. Revenue in the quarter exceeded the midpoint of our guidance range by $1.3 million. As discussed earlier, we experienced less than expected international sales which typically have a higher mix of standalone Active Directory on-premise deployments, which is our only software solution with upfront revenue recognition. Consequently, product mix limited our upside and revenue this quarter. That said visibility remains high as our percentage of recurring revenue was 95%, which is consistent with prior periods. I'll now turn to expenses, which include incremental investments in growth and the operating expenses related to the Bit Discovery acquisition that we closed in the quarter. I'll start with gross margin, which was 81% this quarter, and essentially flat compared to last quarter. Despite increased usage of our cloud products, our public cloud costs decreased sequentially as a result of efforts to optimize the efficiency of our product delivery infrastructure, along with our procurement strategy, which resulted in credits in the quarter that reduced our compute costs. These savings were offset primarily by increased personnel costs for support of our products. In connection with a closing a Bit Discovery, we launched a new external attack surface management offering in July that we will continue to integrate throughout our product portfolio. Also, as a reminder, we plan to release a more expansive set of cyber exposure analytics in the second half of the year. This will include attack path analysis, enhanced the unified analytics, and improve benchmarking and contextualization of vulnerabilities. All of which will help customers better visualize and efficiently manage risks across their hybrid environments. We expect the incremental investments for Bit Discovery and Cymptom, a portion of which are upfront costs to modestly impact gross margins in the second half of the year, but provide runway to support future growth. As I've indicated in the past long-term, we still expect gross margins to be in the high 70% to low 80% range. Sales and marketing expense for the quarter was $75.6 million, which was up from $71.5 million last quarter. Sales and marketing expense increased sequentially due to higher wages and benefits related to hiring more quota carrying sales reps, and associated headcount as well as higher marketing spend related to industry and other events. Sales and marketing expense as a percentage of revenue was 46% in Q2 compared to 45% last quarter. R&D expense for the quarter was $28.1 million, which was virtually flat compared to $27.8 million last quarter. It should be noted that we added incremental engineering headcount in support of unifying our product architecture and enhancing our platform, and capitalized $2.9 million of software development costs. R&D expense as a percent of revenue was 17% in Q2, which was consistent with last quarter. G&A expense was $17.3 million compared to $16.6 million last quarter. We continue to make investments in our back office functions and systems to support the growth and scale of our business. As a percentage of revenue, G&A expense was 11% this quarter compared to 10% last quarter. Income from operations was $12.2 million, essentially flat compared to last quarter, but $5.7 million better than the midpoint of our guided range, which had contemplated incremental COGS for our public cloud infrastructure, increased spend for industry events, and higher headcount related costs. However, in response to the changing business climate, we were able to achieve greater operational efficiency through more focused efforts on spend optimization, which resulted in upside to operating income in the quarter. It's also worth noting that a stronger U.S. dollar contributed approximately $1 million of outperformance as approximately 40% of our employees are based outside of the U.S. In short, we incurred less expense in our international locations due to a stronger dollar. Operating margin was 7% for Q2 compared to 8% last quarter. EPS in the second quarter was $0.05, which was $0.035 better than the midpoint of our guided range due to the same expense trends I just mentioned. EPS also includes $0.02 or $1.8 million of FX remeasurement losses included in the other expense net. As a matter of clarity, this FX activity is due to the remeasurement of our non-U.S. dollar denominated cash and other monetary assets and liabilities. The FX remeasurement losses more than offset the $1 million of OpEx savings from FX that previously discussed. Now, let's turn to the balance sheet. We finished the quarter with $510.9 million in cash and short-term investments. Accounts receivable was $109.4 million and total deferred revenue was $548.1 million, including $415.4 million of current deferred revenue, which gives us a lot of visibility into revenue over the next 12 months. Now, I would like to discuss cash flow. We paid $3.3 million of cash interest on our credit facility in the quarter. Looking ahead, we are assuming a higher interest rate environment with our floating rate debt facility when it resets at the end of July. Consequently, our full year guidance reflects $17.9 million of interest expense, which is $2.2 million higher than our previously provided guidance. That said, our term loan B continues to provide a very low cost of capital which has allowed us to fund acquisitions without equity dilution to our shareholders. Earnings on our cash and investment balance provides a partial natural hedge to interest rate expense. As such, we expect the full year EPS impact on interest expense, net interest income to be $0.01 as yields on our cash and investments also rise. We generate $29.1 million of unlevered free cash flow which is an 18% margin. With 95% recurring revenue, high gross margins, and renewal rates, we feel confident that we can continue to generate attractive levels of cash flow, while continuing to invest in the business. Striking the right balance between growth and profitability has always been and will continue to be an area of focus for us. Last year, we became a rule of 40 company and we are confident we are well on our way to becoming a rule of 50 company. With the results of the quarter behind us, I'd like to discuss our outlook for the third quarter and full year 2022. In terms of the topline growth, our guidance reflects a continuation of the trends we experienced in the back half of the second quarter. Specifically, we expect the fundamentals of our business and the demand for our cyber exposure solutions to remain strong. However, given the current macro environment, we think it's prudent to expect a similar level of review and scrutiny on some deals that we experienced in Q2. Our guidance also contemplates approximately $4 million to $5 million of less contributions from upfront AD on-prem revenue and higher levels of adoption of AD and Tenable.ep, our unified exposure platform. Now, in terms of expenses, our outlook reflects the expected impact of inflationary costs, most notably on wages, the absorption of Bit Discovery, and higher interest expense on our floating rate debt. With that in mind, here are the specifics. For the third quarter, we currently expect revenue to be in the range of $169 million to $171 million. Non-GAAP income from operations to be in the range of $9 million to $10 million. Non-GAAP net income to be in the range of $3.2 million to $4.2 million, assuming interest expense of $5 million and a provision for income taxes of $2.3 million. Non-GAAP diluted earnings per share to be in the range of $0.03 to $0.04, assuming $119.5 million fully diluted weighted average shares outstanding. And for the full year, we currently expect calculated current billings to be in the range of $768 million to $776 million, which reflects a $4 million increase from the midpoint of our prior guidance, including $2 million of the Q2 outperformance and $2 million of contribution for Bit Discovery, primarily in Q4. Revenue to be in the range of $673 million to $679 million, which remains unchanged. Non-GAAP income from operations to be in the range of $45 million to 49 million, which is a $1 million increase from the midpoint of our prior guidance, reflecting a $6 million beat over the midpoint of our Q2 guidance offset by $3 million of operating losses from Bit Discovery and $2 million of higher inflationary costs. Non-GAAP net income to be in the range of $19.7 million to $23.7 million, assuming interest expense of $17.9 million and a provision for income taxes of $7.6 million. Non-GAAP diluted earnings per share to be in the range of $0.17 to $0.20, reflecting the $0.035 beat from the midpoint of our Q2 guidance offset by approximately $0.03 related to Bit Discovery and $0.01 of higher net interest expense. Our EPS guidance assumes $119 million fully diluted weighted average shares outstanding. In summary, we're very pleased with the results for the quarter, feel good about the fundamentals of our business, and believe we are thoughtfully navigating the current climate to deliver continued growth and profitability. I'll now turn the call back to Amit for some closing comments.

Thanks Steve. We hope to see many of you at the Canaccord and Piper Conferences in the coming weeks. We now like to open the call up for questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. The first question comes from Hamza Fodderwala of Morgan Stanley.

Hey guys. Good evening. Thank you for taking my question. Steve, for you, I just want to be really specific. So, it seems like just the negatives and the quarter were international sounds like Europe coming in slower than expected, the higher scrutinization of deals that was exclusively to Europe, and then FX basically making the products more expensive. Was there anything in North America or other regions that you saw that was driving that scrutinization, as well as or was it just concentrated in Europe?

Overall, we are pleased with our performance for the quarter, achieving a 27% growth in CCB. We added 540 new enterprise platform customers and executed several large deals, marking one of our best quarters in terms of momentum. However, the performance was mixed. In North America, which is our largest market, we saw strong trends, while international results did not meet our expectations for some of the reasons you mentioned. Generally, there has been increased scrutiny during reviews, but we managed to navigate this challenge due to the strength of our enterprise business. I should clarify that my reference to international challenges mainly pertains to EMEA, as you noted. It's important to mention that these challenges are not widespread across all countries; the situation varies on a customer-by-customer basis, influenced by specific company budget dynamics and industries. We did observe strength in major sectors in Europe. In summary, we are satisfied with our quarterly results, are raising our CCB guidance for the year, and believe we are well-positioned for success in the second half of the year.

Just one quick follow-up on that. When it comes to international, are you increasing the level of discounting for your products? And is that something that's reflected in the back half guide?

No, we're not. We did not see that in the second quarter levels of discounting increase. We're mindful of that as we enter the second half of the year. But we're spending a lot of time looking at pipelines. We feel really good about our pipelines as we head into the second half of the year, not just the size, but also the shape and maturity of it. Activity levels are high. And we're looking at all forecasts lenses, say a lot of time qualifying opportunities. We feel good about the second half of the year, and we're at our setup.

The next question comes from Rob Owens of Piper Sandler.

Great, thank you guys for taking my question. Maybe like Hamza, I'll sneak in one as well. We'd love to better understand this higher levels of scrutinization I guess juxtapose what you're seeing with your enterprise customers in large deals, the success on that front? And as we enter the third quarter, just any broad brushes around government. Thanks.

Yes, thanks. Great. Great question. I'll chime in and I'll say, listen, it's just a tough macro environment and as a result, many customers and it's on a region-by-region basis on a customer-by-customer basis. Many customers are looking at their spend, at their expense basis and they're scrutinizing every contract every opportunity. Security remains top of list. We are not seeing a high level of customers abandoning their position in the pipeline. Deals continue to move forward in the pipeline, there's just additional signatures to get in the process that companies are putting in place on a customer-by-customer basis. But again, pipeline continues to build at a healthy rate, has never been stronger than it is today, deals continue to move forward in the pipeline, and we feel exceptionally confident in how we're set up going into the third quarter and going into the year. You asked specifically about public sector. We had a good quarter in the public sector, I'd say kind of in line with expectations, including a seven-figure transaction at the state level. Globally, public sector did really well and we continue to invest with a high degree of confidence in the public sector, seeing strong opportunity in our pipe, seeing more transactions, and seeing longer transactions than we've seen at any point in recent history. So, again, we feel as well set up as we can going into the third quarter.

The next question comes from Saket Kalia - Barclays.

Excellent. Hey, guys. Thanks for taking my question here. Steve, I'll keep it to one and maybe just for you. Can you just dig into the dynamic that you mentioned on AD a little bit for upfront revenue? I think you said it's about $4 million or $5 million less contribution this year. Can you just flush that out a little bit? Is that on revenue? Is it on CCB? And why the change?

The $4 million to $5 million is for AD on premise in the second half of the year. We are removing that amount from our guidance and observing a slightly different mix. Overall, we are very pleased with our success in selling identity security as a standalone offering to our customer base. We have shown success in doing this, which is now part of a broader offering, Tenable.ep. It's important to note that we have integrated AD security into EP and cloud security. Historically, we saw a 60% uplift in Tenable.ep, our unified exposure management platform, compared to our core VM offering, and now we are seeing a 70% uplift. We are successfully transacting larger deals specifically because of EP, with AD being an important part of that. However, our guidance reflects a lower contribution due to lower expected AD on premise revenue.

Yes, Saket just to clarify the AD on prem revenue is all recognized upfront, so it has a disproportionate impact on the quarter and our expectations for maybe the year.

Okay, so just to be clear, just to put a bow on this topic. It doesn't sound like all the CCB expectation for AD is going down in totality, just the mix of what is cloud versus on prem. Is that right or are we getting the expectation?

Exactly.

Next question comes from Mike Cikos of Needham & Co.

Hey, guys, thanks for getting me on the line here. I just wanted to circle back to that increased scrutiny that you guys are seeing. Can you help us think through when that dynamic really started to come into play for the international markets that increased scrutiny? And maybe it'd be helpful to talk through how that trended through the quarter through July like you'll seeing that as a result of the scrutiny, are those deals extending with more constituents sitting around the table? Has that deteriorated further as we've gone from May to June to July or I think has been relatively stable when we start thinking through that scrutiny that you guys were talking to earlier?

Yes, we saw that scrutiny really kick in in June and things have been relatively consistent since then. Again, the sales team has a lot of confidence they continue to enter deals into the pipe deals continue to move through the pipeline, there's just more signatures to get in order to close transactions. I don't think it's specific to Tenable. I don't think it's specific to security. I think largely speaking we do not hear the sales team tell us the budgets are going away. We don't hear them telling us that deals are going away. It's just a matter of some transactions on a customer-by-customer basis require additional signatures. And as you note, in certain instances that can prolong the sales cycle. But we feel exceptionally confident given the pipe and the progress through the pipe in the second half of the year and that's reflected in the increase in CCB.

That's very helpful. Thank you. And if I could just squeeze one more in, when looking at the strength of the new enterprise platform customers added or even the customers over $100,000 in ACV at period end, you guys had some strong numbers when looking at those metrics. And I just think it would be helpful to frame out for the investment community here. But can you help us think through the segments that you guys are working through? If I think about like enterprise versus mid-market versus SMB, if I stratify your customer base according to those different parameters, we're starting to see a different behavior coming out of enterprise versus maybe mid-market. And maybe remind the two as far as your exposure to each of those different stratifications would be helpful as well. Thank you.

Yes, we had one of our best quarters in terms of customer demand, particularly with new enterprise platform customers and large deals. We saw significant contributions from both enterprise and commercial sectors, which are performing well globally. The mid-market, which we categorize as commercial, offers us substantial opportunities. We are expanding our commercial team in APAC, and we are seeing strong performance there. Overall, we experienced strength in both large and mid-market segments, including commercial and enterprise. Additionally, there was exceptional strength in North America, with EP playing a significant role. We are executing larger deals that cover more areas of the attack surface and achieving a 70% increase compared to our core VM offering.

Thank you for the color. The next question comes from Brad Reback of Stifel.

Thank you very much. Steve, regarding the second half guidance, how should we interpret your projections for both international and domestic markets? You mentioned that there are areas of weakness internationally. Are you suggesting that these will be the only issues going forward? Domestically, performance has been very strong. Do you anticipate that strength to persist in your guidance? It would be helpful to clarify any moderation you've factored in. Thank you.

Yes. I think some of the trends that we saw in the second quarter were expecting to play out for the second half of the year. I will say, the secular trends of our business are very strong and we're seeing healthy levels of demand. Now, North America was strong, and we expect it to continue to be this second half of the year. Our guidance reflects not only what we experienced in Q2, but what we also saw in July. And so we're taking everything into account. We have a lot of confidence in our ability to execute. And so it's really a continuation of trends.

The next question comes from Brian Essex of Goldman Sachs.

Great. Thank you and thank you for taking the question. I was wondering if you could dig in a little bit on the sales side. I mean, I think you guys, last quarter, talked about elevated hiring in the front half of the year. How does that pan out? Is there any way you can parse that out by geography and level of success attracting and retaining talent where you need it? And are we looking at maybe an elevated spend in the front half of the year with better leverage in the back half of the year? Or given the current macro situation has any of that changed at all?

This is Steve. I'll start. Our hiring is an area we've addressed before. We are continuing to hire and invest. We had significant hiring in the first half of the year, particularly in Q2, which is increasing our quota capacity both domestically and internationally, which is very important. At the beginning of the year, we raised quotas. Productivity levels remain strong globally, so I expect to see leverage in the business in the second half of the year, and our guidance supports this view. Overall, we believe we are maintaining the right balance between growth and investment. We don't want to reduce our level of investment, especially considering the outperformance we're seeing in CCB and sales. While performance has been mixed globally across various regions, we have a lot of confidence in our business, and we anticipate ongoing success in the second half of the year. Therefore, we are still committed to investing in both sales and engineering.

The next question comes from Jonathan Ho of William Blair.

Hi. Good afternoon. Can you maybe help us understand or quantify the FX impact and international underperformance on the business this quarter? And maybe what your assumptions are around guidance on the magnitude of that impact going forward?

Sure. So I think Jonathan's question's around FX. I'll start and feel free to interject. So as a reminder, our customer contracts are denominated in US dollars. In terms of operating expenses, there was a $1 million benefit sequentially from the stronger dollar impacting expenses in local currency, the impact was primarily due to fluctuations in the euro and the British pound. Further, the re-measurement of cash and other monetary balances in local currency that means outside of the US resulted in a $1.8 million loss, which is reflected in other income so below the line. Average rate in Q2 was like $1.07 for the euro, $1.26 for the pound. We're expecting something similar for the second half of the year.

Yes. I guess, the only thing I would add to that is, broadly speaking, strong demand, including in international markets, and that's reflected in the increase in CCB and confidence in the business that you're hearing on the call, the primary discrepancy is probably the recognition of AD on-prem revenue. And so for that reason, not raising the revenue guide here but more broadly speaking, we feel really good about the business, the rate of growth, the deals entering the pipeline and our ability to continue to move deals through the pipeline and increase CCB guide as a result.

The next question comes from Gray Powell of BTIG.

Thank you for addressing my question. Before I proceed, I appreciate your openness regarding the challenges in the international business. I may be repeating something you've mentioned before, but could you provide some insight into how the slowdown in international markets affected billings in the second quarter? Was it a minor setback or a significant one? Any guidance on this would be greatly appreciated.

I think it's fair to say that we would have seen a couple of points of additional growth in the second quarter. We're not talking about something significant, just different from what we've experienced in previous quarters. That's why we're highlighting it. Additionally, their preference for upfront revenue had an impact on revenue, which is why we're being transparent about it.

Hey, guys. Thanks for taking my question. Assuming that you had some deals slip in EMEA this quarter, have you been able to close them since the quarter closed?

Yes, we have closed some of those deals. However, it's still early in the quarter, which is one reason we feel confident about our guidance for the second half of the year and why we're reporting our performance above expectations and also increasing our outlook. We recognize that there are more deals to finalize. We've discussed the quality and size of our pipeline, and there are numerous large deals as we approach the third quarter. Therefore, we will keep focusing on advancing these deals and closing them. We believe we are well-positioned for success.

I have one more question. You mentioned that you don't believe it's specific to Tenable, but I would like to ask it another way. In your discussions with customers, do you think it’s an issue related to virtual machines, or is it more about general scrutiny?

No. I think it's just a broader scrutiny issue. Again, I don't believe it has anything to do with VM or security. Customers are altering their procurement processes as they reassess their operating expenses. I’ve spoken with several CISOs recently, and while security budgets remain unchanged, the procurement process demands additional steps, which has caused delays in some ongoing transactions. Therefore, we don’t see this as specific to VM or security. While I won’t claim we are immune to it, it largely seems to be related to the deal process rather than a shift in budget.

The next question comes from Rudy Kessinger of D.A. Davidson.

Hi, guys. Thanks for taking my question. I guess I'm curious, if you look at the increased level of scrutiny, obviously, North America outperformed relative to EMEA in the quarter. But is the increased level of scrutiny kind of similar across geographies and just more deals are getting pushed across the finish line in North America? Or just what's the dynamic there? And then secondly, if you look at the new deals in the quarter, did you have maybe some customers that started the quarter were considering maybe going with EP and then maybe the downsize their deal to maybe just going with IO. I'm curious, if you saw any of that as well.

No. We certainly haven't seen that. EP continues to do very well for us. It's double-digit percentage of new sales. It's higher this quarter than it was last quarter. Penetration back into our customer base has been strong. But it's still modest in terms of the opportunity, single digit penetration, and we're getting even more of an uplift. So, absolutely not on the EP side. And you broke up a little bit the first part of your question. I would like to emphasize that the performance of deals varies significantly. North America has clearly surpassed our expectations and is experiencing strong momentum. However, there are more layers of review across the board. The positive aspect is that we were able to navigate this successfully. We must focus on the bigger picture, which is that we had a remarkable outcome for CCB, achieving a 27% growth. Customer momentum has never been better, making this one of our best quarters for closing deals and securing new enterprise customers, as well as closing large deals. We're seeing an uplift from EP, and many areas of our business remain robust. We're providing additional insights into how performance varied because it did impact revenue. Nonetheless, we have a lot of confidence in our business, and I hope our guidance today conveys that. We are sharing this extra information because we believe it is important.

The next question comes from Mike Walkley of Canaccord Genuity.

Great. Thanks for taking my question. Just a follow up to that with EP on single-digit penetration, how should we think about the dollar-based net retention should remain above your 110% threshold for quite some time? Or are you seeing any kind of slowdown in terms of larger deal momentum with the increased scrutiny?

No, let me add to that. In terms of our dollar-based expansion rate, it remains very healthy, well above the 110% threshold and, as mentioned earlier, it's elevated. EP is certainly contributing significantly to that as we see success in selling it back to our existing customers along with other products. So, yes, the expansion within our customer base is absolutely healthy.

Yes. I would like to add to what Steve mentioned regarding the 70% higher average selling price. The differentiation in average selling prices as customers transition to EP is actually increasing, which is a remarkable indicator. Regarding new customer growth, it's a double-digit percentage, while Steve noted that only a single-digit percentage of our existing customers are on EP. Therefore, when considering the significant increase in average selling price and our success in upselling existing customers to EP, it highlights the opportunity for net dollar expansion as we move from individual products to EP, along with asset expansion.

The next question comes from Andrew Nowinski of Wells Fargo.

Okay. Thank you for squeezing me in. I don't think you guys mentioned Log4j in the prepared remarks this quarter. And I know last quarter, you talked about it potentially only having an impact in Q1, but then a few weeks ago, I think DHS put out a report that said Log4j would remain a risk to organizations for the next decade. Do you think it may have pulled in any deals into Q1? And what impact you did have in Q2? And then how are you thinking about it as it relates to your pipeline going forward? Thanks.

Yes. There's no doubt that Log4j was top of mind for customers and prospects at the end of Q4 and as we moved into Q1. Log4j will remain relevant for many years. Over time, people will start integrating Log4j activities into their regular operations, rather than treating it as an emergency issue. While it's possible that some new issue may arise in the current or next quarter that could prompt similar buying behavior, it's reasonable to say that vulnerability management is strategic and will remain so. However, the urgency around procuring Log4j solutions that we experienced late last year and early this year seems to have diminished.

The next question comes from Shebly Seyrafi of FBN Securities.

Yes. Thank you very much. Do you expect your federal and public segment business to outgrow your overall business by a larger margin in this current fiscal Q3 than, say, last year's fiscal Q3 because of the funding? And just can you provide us with an update on roughly what your current federal and public percentage of revenue is? Thank you.

It's approximately 15% of our total sales and that's public sector as a whole. Going into Q3, which we think our pipeline has been strong. There's a lot of opportunity. So we feel good about public sector. And as Amit commented earlier, we saw areas of strength globally within public sector and specifically at the state and local level has been an area of investment for us. In our guidance, we didn't really break out growth rates by theater and what we're expecting. But I will say, we're expecting certainly a sequential uptick in sales or CCB from our public sector theater.

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. This concludes today's conference. Thank you for your participation and you may now disconnect your lines.