Earnings Call Transcript - TENB Q2 2025

Operator, Operator

Greetings, and welcome to the Tenable Second Quarter 2025 Earnings Conference Call. This conference is being recorded. It is now my pleasure to introduce your host, Erin Karney, Vice President of Investor Relations. Thank you. You may begin.

Erin Karney, Vice President, Investor Relations

Thank you, operator, and thank you all for joining us on today's conference call to discuss Tenable's second quarter 2025 financial results. With me on the call today are Co-Chief Executive Officers, Steve Vintz and Mark Thurmond. Prior to this call, we issued a press release announcing our financial results for the quarter. You can find the press release on our IR website at tenable.com. We will make forward-looking statements during the course of this call, including statements relating to our guidance and expectations for the third quarter and full year 2025, growth and drivers in our business, changes in the threat landscape in the security industry and our competitive position in the market; growth in customer demand for and adoption of our solutions, including Tenable One, Cloud Security and exposure management, our ability to expand integrations with third-party tools and data sources, planned innovation and new products and services, including new capabilities from our acquisition of Apex and our expectations regarding long-term profitability and free cash flow. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements. You should not rely upon forward-looking statements as a prediction of future events. Forward-looking statements represent our beliefs and assumptions only as of today and should not be considered representative of our views as of any subsequent date, and 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. In addition, all of the financial results we will discuss today are non-GAAP financial measures with the exception of revenue. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents. Our press release includes GAAP to non-GAAP reconciliations for these measures. I'll now turn the call over to Steve.

Stephen A. Vintz, Co-Chief Executive Officer

Thank you, Erin. We're excited to share our strong results for the quarter, discuss momentum and recent enhancements to our exposure management platform, including recent investments in AI and highlight some key customer wins for the quarter. In Q2, we beat all of our guided metrics, delivering 12% revenue year-over-year growth and 19% operating margin. We attribute our performance in the quarter to the growing adoption of our exposure management platform, Tenable One, which was 40% of total new sales this quarter. Exposure management is about providing the unified risk-based and business contextualized view of an organization's cyber risk, enabling them to continuously prioritize and remediate the most critical exposures before they can be exploited. The benefit of exposure management to our customers is clear: unified visibility, smarter data-driven decisions and faster, more effective risk reduction. For Tenable, this important secular shift in the market to preemptive security is resulting in broader asset coverage and larger deal sizes, including a growing number of 6- and 7-figure deals. Mark will delve into our customer wins in the quarter as we are seeing more customers consolidate on Tenable One. Now, with the acquisition of Apex Security, which closed during the quarter, we are expanding our AI Aware and AI SPM capabilities in the platform to secure the rapidly expanding AI attack surface. Continuing further into the specific areas of traction in the quarter, cloud and VM continue to be critical priorities for our customers within Tenable One. We also saw strong adoption with OT. As you recall, in April, we highlighted public sector as an area where we were expecting to experience some pressure. The quarter played out slightly better than expected in PubSec, driven largely by strong platform sales in our SLED business, which was aided by their June fiscal year-end. Specifically with regard to U.S. Federal, we feel incrementally more positive as we head into the second half of the year, particularly in our renewal base, where visibility is improving despite a spending environment with heightened levels of review and scrutiny. Momentum we're experiencing with our platform is a reflection of the importance our customers are placing on preemptive security, which is the practice of reducing risk before a breach occurs rather than solely detecting and responding after an attacker has already gained access. We are building on that momentum by continuing to advance our product roadmap and extend our leadership in this category. Exposure management as a discipline is built on three foundational pillars: unifying visibility to discover and monitor every asset, unifying insight to contextualize and prioritize risk and unifying action to mobilize remediation and measure impact. These pillars are essential to reducing cyber risk at scale and Tenable is leading the way across all three. First, unifying visibility: effective risk reduction starts with comprehensive visibility; that's why broad, continuous discovery is foundational to exposure management. Tenable continues to make strong progress here, particularly in expanding third-party integrations across the security stack. We recently surpassed 300 validated integrations spanning cloud, application security, identity and more, making Tenable One the most open and interconnected exposure management platform in the market. These connections not only expand visibility, but also lay the groundwork for deeper insight and smarter action. AI is also enhancing visibility by helping customers discover and classify assets that might otherwise remain hidden from misconfigured cloud workloads to unmanaged devices and ephemeral containers. By analyzing network traffic, configuration drift and usage patterns, our AI reduces blind spots and ensures customers a more accurate and comprehensive view of their attack surface. Second, unifying insight. Once assets and exposures are discovered, the next challenge is understanding what matters and what needs to be prioritized. That's where context comes in, and it’s where Tenable sets itself apart. Our integrated dataset, enriched with over two decades of exposure telemetry and real-time threat intelligence, powers a suite of AI capabilities purpose-built for exposure management. Tenable's AI doesn't just detect known risk; it's evolving to proactively identify emerging threats, map likely attack paths and surface exposures that are most likely to be exploited in our customer-specific environment. It's being designed to use predictive modeling to assess the blast radius of vulnerabilities, analyze attacker behavior to anticipate their next move and continuously update prioritization and conditions as they change. This isn't just a smarter way to triage alerts; it's a more strategic way to understand interconnected risk across hybrid environments and focus on what truly matters. Finally, unifying action. Insight is only valuable if it drives results. That's why we're transforming Tenable One from a system of record into a system of action. Our AI now delivers intelligent, environment-specific remediation guidance designed to help security teams reduce mean time to remediate and focus on what matters most. The majority of breach victims are compromised by known vulnerabilities that went unaddressed, not because the risks weren't identified, but because they weren't acted upon. It's a clear example of the last-mile problem, which is getting the right exposure data into the right teams with the right context to drive resolution. Remediation isn't just patching; it's adjusting configurations, disabling risky accounts, tightening access controls and more. Exposure management demands a broader, more adaptive response than traditional vulnerability management. That's why we're embedding automation, analytics and decision support directly into customer workflows, closing the gap between insight and action. The result here is faster remediation, broader adoption, and we believe a stronger position for Tenable as a leader in exposure management. In this new AI-powered world, we're seeing more frequent pervasive attacks leveraging AI, resulting in shorter time from known vulnerabilities to exploitation, which demands faster remediation. While understanding, contextualizing and prioritizing risk is critical, preemptive security increasingly means leveraging that visibility and insight to empower customers to act in real time and seamlessly integrate remediation into their process. I’d like to turn the call over to Mark.

Mark Thurmond, Co-Chief Executive Officer

Thanks, Steve. Our customers consistently face the same challenges: complex hybrid systems to secure, interconnected systems with siloed views and new technologies evolving faster than they can be secured. Our mandate is to help our customers identify and address the risk these problems introduce, and that's precisely what we're doing. Our deep roots in VM are the foundation of our EM leadership, enabling Tenable One to provide a profound understanding of hybrid environments, and our expansion into other areas of the attack surface uniquely positions us to break down silos. This is why we're seeing constant traction with Tenable One. This quarter, that partnership was on full display with major Tenable One expansions across industries. We secured strong wins against major players in VM, EM, and in cloud, directly resulting from not just extending our leadership, but also shaping what exposure management looks like. During the quarter, we had several notable wins spanning products, theaters, and industries. I'd like to highlight a few that reflect what we're seeing broadly across the business and what we've highlighted in our prepared remarks today. We kicked off the quarter with a major win at the state level, one of two significant public sector victories this quarter, which started as a straightforward VM expansion and quickly evolved into full Tenable One adoption. The customer expanded beyond VM to include cloud, identity, and web app security, consolidating multiple capabilities into a single unified platform. It's a great example of a growing trend. Organizations are turning to Tenable One to streamline and strengthen their preemptive security strategies. That momentum carried into the private sector as well. A standout example is a major entertainment company that turned to Tenable One to secure its OT environments and gain a more complete view of risk. What began as a search for better OT coverage quickly led to consolidation on Tenable One with a focus on both VM and OT. This is where we shine. Tenable's ability to span IT and OT environments with unified visibility gives us a competitive edge. Not every customer is looking to rip and replace, and that's where our flexibility truly stands out. A European global luxury brand with a mature security program wanted deeper risk insights and stronger preemptive security without disrupting their existing stack. They chose Tenable to expand their third-party asset and risk management program, tapping into the power of Tenable while maintaining the tools they already rely on. It's a great example of how we meet customers where they are, delivering value without forcing a full consolidation. What is increasingly clear from all these customer examples is that as cyber threats become more frequent and sophisticated, customers are shifting their focus toward preemptive strategies. Industry analysts and others are following suit, placing greater emphasis on exposure management and the platforms that enable it. This growing momentum was reinforced by two key pieces of industry research that were recently released. Last week, Forrester named Tenable a leader in unified vulnerability management, awarding us the highest score for the strength of our strategy. In fact, Tenable received the highest possible scores in seven different categories, more than any other vendor, including vision and roadmap. Additionally, Tenable was recognized as a major player in IDC's inaugural CNAPP MarketScape. We were chosen from a substantial list of vendors for our ability to enable customers to reduce their risk by reducing noise and prioritizing remediation through clear, actionable insights. We see this recognition as validation of our strategy and further evidence that exposure management is becoming central to modern cybersecurity. Finally, Gartner now predicts that by 2028, investments in technologies that reduce threat exposure will grow twice as fast as those focused on detection and response. The takeaway is that customers recognize the value of a unified exposure management platform, and Tenable is leading the shift to exposure management. As organizations modernize with cloud, AI, and hybrid IT/OT environments, they're turning to us to unify and simplify their security strategy. Our platform is the foundation for how forward-looking teams manage risk. Looking forward, as Steve highlighted, we are investing in areas that are tackling our customers' largest pain points. Knowing how to secure AI is one of the greatest frustrations facing customers today. With our acquisition of Apex, we plan to offer a holistic approach to understanding their AI risk. By providing visibility into AI usage, detecting AI-related vulnerabilities, securing AI resources and data configurations, and integrating AI security into our broader exposure management platform, we believe we will be able to make AI security a key part of our customers' preemptive security program. With that, I'll turn the call back over to Steve to dive deeper into our results for the quarter. Thank you.

Stephen A. Vintz, Co-Chief Executive Officer

Thanks, Mark. As a reminder, our results include the impact of the Apex Security acquisition, which closed on June 6. Calculated current billings, defined as revenue recognized in the quarter plus the change in current deferred revenue grew 8% year-over-year to $238.6 million. Our growing momentum with Tenable One is inflecting deal sizes higher as we added 76 net new six-figure customers during the quarter on an LTM basis. We also added 367 new enterprise platform customers, and our net dollar expansion rate was 107% this quarter. We continue to have strong gross dollar renewal rates. We’re also pleased to continue to see our backlog accelerate significantly during the quarter. Current RPO grew 12% year-over-year, 400 basis points ahead of CCB growth, while total RPO growth was 19%, reflecting over 40% year-over-year growth in long-term RPO. RPO reflects the increasing momentum with our Tenable One platform as more customers are making multiyear commitments to more fully deploy exposure management solutions given the strategic importance of understanding and reducing risk holistically across the enterprise. Now, on to the P&L for the quarter. Revenue was $247.3 million, which represents 12% year-over-year growth. Revenue in the quarter exceeded the midpoint of our guided range by $5.3 million. This level of outperformance was driven in part by a more favorable mix of business with upfront revenue recognition that we were not anticipating in the second half of the year. Our percentage of recurring revenue remains high at 96%. Gross margin was 82% this quarter, flat relative to last quarter. Looking at the second half of the year, we expect gross margins to be flat to modestly lower due to the launch of third-party data, remediation automation workflows, and new AI security capabilities. Sales and marketing expense was $85.5 million, up from $80 million last quarter, and as a percentage of revenue was 36%, flat relative to last quarter. Sales and marketing expense was higher sequentially primarily due to industry events and incremental investments in sales capacity, partially offset by costs in Q1 related to our annual sales kickoff conference. Looking ahead, we expect sales and marketing as a percent of revenue to trend somewhat lower, reflecting higher levels of sales productivity and greater efficiency in our go-to-market organization. R&D expense was $43.4 million, which is up from $39 million last quarter. As a result, R&D expense as a percentage of revenue was 18% this quarter, up from 16% last quarter. This increase on both a dollar basis and as a percentage of revenue was primarily related to the continued investment in R&D, including additional personnel costs related to our acquisitions of Vulcan and Apex. G&A expense was $22.7 million, which was flat relative to last quarter on an absolute dollar basis and as a percentage of revenue. Income from continuing operations was $47.7 million and exceeded the midpoint of our guided range by nearly $4 million. Operating margin for the quarter was 19%, which is approximately 100 basis points better than the midpoint of our guided range. We are very pleased with our ability to drive continued leverage in the business while investing for growth and absorbing the additional operating expenses related to our acquisitions completed in the first half of the year. EPS for the quarter was $0.34, which was $0.04 better than the midpoint of our guided range. Now let's turn to the balance sheet. We finished the quarter with $387 million in cash and short-term investments. Accounts receivable was $181 million and total deferred revenue was $798 million. Current deferred revenue was $625 million, which gives us a lot of visibility into expected revenue over the next 12 months. We generated $44 million of unlevered free cash flow during the quarter, bringing year-to-date unlevered free cash flow to $131 million, positioning our annual guidance within reach. During the quarter, we utilized $48 million of net cash for the Apex acquisition, as well as $65 million to repurchase 2 million shares. In total, we've now repurchased 6.3 million shares for approximately $240 million since November of '23 and have $60 million remaining from the previous repurchase authorization. With our strong operating leverage and increasing free cash flow generation, we are very pleased to announce today an additional $250 million increase to our share repurchase program, which demonstrates our continued commitment to effectively deploy and return capital to shareholders. We have confidence in our ability to drive continued leverage in the business while investing for growth and delivering compelling unlevered free cash flow margins over time. With the results of the quarter behind us, I'd like to discuss our outlook for Q3 and the full year 2025. For the third quarter, we currently expect revenue to be in the range of $246 million to $248 million; non-GAAP income from operations to be in the range of $52 million to $54 million; non-GAAP net income to be in the range of $44 million to $46 million, assuming interest expense of $7.2 million, interest income of $3.3 million, and a provision for income taxes of $3.4 million; and non-GAAP diluted earnings per share to be in the range of $0.36 to $0.37, assuming 123 million fully diluted weighted average shares outstanding. For the full year, we currently expect calculated current billings to be in the range of $1.038 billion to $1.048 billion; revenue to be in the range of $981 million to $987 million; non-GAAP income from operations to be in the range of $205 million to $215 million; non-GAAP net income to be in the range of $179 million to $189 million, assuming interest expense of $28.5 million, interest income of $15.6 million, and a provision for income taxes of $12.8 million; non-GAAP diluted earnings per share to be in the range of $1.45 to $1.53, assuming 123.5 million fully diluted weighted average shares outstanding; and unlevered free cash flow to be in the range of $265 million to $275 million. Since our last earnings call in April, we continue to gain traction with our Tenable One platform, and visibility into the spending environment in the public sector has improved, specifically concerning renewals. As a result, we raised the midpoint of our guided range by $8 million and the high end by $3 million. This improved outlook will modestly benefit Q3 and Q4 to a greater degree. The outlook today reflects our strong outperformance in the second quarter as well as the improved outlook for the rest of the year, offset by the incremental operating expenses related to the Apex acquisition. We are pleased to reiterate our expectations for the full year. Similarly, we reiterated our unlevered free cash flow guidance of $265 million to $275 million while absorbing approximately $6.5 million of expected impact from Apex. The takeaway here is that we are pleased with the results of the quarter, balancing growth with profitability while expanding our market opportunities. Moreover, we're excited for the second half of the year. That said, Mark and I would like to thank everyone for joining us today on the call. We're excited about the opportunity ahead and look forward to updating you throughout the year. We also hope to see you at the Stifel and Piper Sandler conferences in the coming weeks. We'd now like to open the call for questions.

Operator, Operator

Our first question comes from Rob Owens with Piper Sandler.

Robbie David Owens, Analyst

Would love for you to compare and contrast a little bit this quarter with, I guess, where you were 90 days ago. I mean, clearly, we're a little closer to the Fed fiscal year-end. And Steve, you talked about U.S. Fed, how you're getting incrementally more positive. It does feel like we're getting cross currents from other vendors out there talking about potential truncation of deals, things going maybe even less than one year. So I'd love to better understand how your visibility is better here and your confidence is better. And on the commercial front, maybe just help us understand; it seems like you're seeing a nice upsell relative to Tenable One and consolidation. Just what's driving some of those underlying trends and strength there?

Stephen A. Vintz, Co-Chief Executive Officer

Rob, this is Steve. I'll talk about what's different now versus 90 days ago. First, we're delighted to deliver upside in the quarter. We beat our expectations for CCB, and consequently, we're raising the guide by $8 million at the midpoint and $3 million at the high end of the range. As we commented earlier, visibility, particularly with our federal business, where we provided some cautionary comments on our last call, seems to be improving, most notably in our renewal base. We have a major leadership position in U.S. federal, specifically concerning VM, and we have a sizable customer base as we head into the second half of the year. We have a strong pipeline, lots of opportunities. We do recognize that some of those opportunities will take longer to transact, perhaps more so on the civilian side, but more broadly across U.S. Federal. We have greater visibility into our renewal base, and that's reflected in the outlook today. In short, we have a lot of confidence in our ability to continue to drive momentum in the business. We're getting a lot of traction with Tenable One; it’s now 40% of our total new sales, and we’re seeing some of the highest selling prices and renewal rates with the platform.

Operator, Operator

Our next question comes from Brian Essex with JPMorgan.

Brian Lee Essex, Analyst

Maybe to pivot on that last point, Steve, on Tenable One penetration. Great to see the call out in the press release and the strength that you're seeing across the platform. But I guess, what's embedded in your expectations maybe for the remainder of the year? And how meaningful can Tenable One and non-VM exposure solutions penetration be within the installed base? And maybe what might it take to get a little better acceleration there?

Stephen A. Vintz, Co-Chief Executive Officer

Sure. We often talk about our business in the context of this growth algo, which is exposure solutions and the underlying growth and mix of business relative to VM, vulnerability management. Exposure solutions represent over 20% of our total sales. So the mix continues to inflect higher there, and we're getting great traction and seeing outsized growth while maintaining good durable growth in vulnerability management. The big opportunity for us is really with the platform as we’re seeing significant demand. It's clear that customers want to unify visibility, insights, and actions. That's a real challenge for many of our customers today. We’re one of the few providers able to consolidate both world-class first-party assessment data as well as rich data from other security providers into a single correlated view of risk across cloud, OT, and the network and SaaS. This is critical for us and our customers, and that's why we're finding success with our platform. We're focusing a significant portion of our go-to-market and engineering efforts around the platform, leveraging AI to deliver incremental capabilities to customers.

Brian Lee Essex, Analyst

Is there a level of penetration that you're targeting that could get you to double-digit growth rates from a billings perspective?

Stephen A. Vintz, Co-Chief Executive Officer

It wouldn't take much to inflect higher, just looking at that mix of business. Tenable One is roughly 40% of our total new sales and 30% of total sales. It takes modest movement to increase growth rates. We’re also going to see good stability in the federal market; while there’s uncertainty, we have confidence in our ability to deliver growth. Mark and I are focused on that and investing to accelerate growth.

Operator, Operator

Our next question comes from Saket Kalia with Barclays.

Saket Kalia, Analyst

A nice quarter. Mark, maybe for you, just to tie together some of the details that have been talked about. You had some nice examples of customer wins in your prepared remarks. Can you talk about the competitive landscape a little bit in the exposure space? And maybe touch on how Tenable One is helping you differentiate versus traditional VM players or other point players in other spaces?

Mark Thurmond, Co-Chief Executive Officer

Yes. No, totally makes sense. I love the question because it is truly the biggest differentiator we have. As Steve highlighted, we have pivoted this company to be laser-focused on driving Tenable One. And that's why you're seeing some of these results and success on this platform play. When you look at some of those customer examples, all were competitive deals, meaning we were against either traditional competitors or nontraditional players. We were able to beat them, including multiple 7-figure deals. Our hybrid approach allows us to address these complex organizations and governments effectively. Furthermore, when we engage customers about improved and unified visibility, insights, and actions, it enables consolidation. When we look at some of our largest deals, they often involve multiple asset types as part of the Tenable One transaction. You're not just discussing core VM but cloud security, web application scanning, OT, identity, attack surface management. We are the one player capable of delivering a unified platform that brings it all together, and we observe that in our impressive win rates this quarter. Moreover, the analysts have recognized our efforts, positioning us as leaders in exposure management, unified vulnerability management, and a major player in CNAPP. This recognition is further validating our strategy and the work we've put in is paying off.

Operator, Operator

Our next question comes from Andy Nowinski with Wells Fargo.

Andrew James Nowinski, Analyst

Wells Fargo Securities, LLC, Research Division. So nice job on the quarter. You noted you're seeing these larger deal sizes, the 6- and 7-figure deals. Are those coming more from new logos versus renewals? I’m really wondering if your net retention rate went down a little bit sequentially. That said, I'm assuming that’s coming from stronger new logo growth, but would love to hear your thoughts on that and kind of where you see net retention bottoming out here.

Stephen A. Vintz, Co-Chief Executive Officer

Sure. Let's unpack this a little bit. Our gross dollar renewal rate continues to demonstrate strength in our customer base. As you pointed out, our expansion rate did moderate to 107% this quarter. A notable factor here is the constrained spending environment in U.S. Federal. We believe that this will improve over time. Looking at our broader business, we have provided investors with metrics to understand overall health and momentum. The strength in new business from new logos remains healthy, especially with larger deals due to the growing adoption of Tenable One. Our CCB growth in this quarter was 8%, while long-term RPO growth was about 40%. Customers are making longer-term commitments; they’re not only spending more, but our platform converts better and delivers the highest renewal rates. We are also cultivating deeper, longer relationships with our customers due to our platform, all of which translates to significant new logos and growth opportunities.

Operator, Operator

Our next question comes from Patrick Colville with Scotiabank.

William Joseph Vandrick, Analyst

This is Joe Vandrick on for Patrick Colville. Can you talk to us about your strategy to help secure the use of generative AI in the enterprise? With Apex and AI Aware, it seems like it's something that you're thinking about deeply. So maybe go over that and why Tenable has the right to win here.

Stephen A. Vintz, Co-Chief Executive Officer

Certainly, let's talk about APEX in the context of our broader AI strategy. We're transforming our customer security programs and making Tenable One more intelligent through AI. In this environment, hackers are leveraging AI for advanced attacks. We need to use AI to fortify our customers' defenses. Apex accelerates our investment in AI by adding a governance and enforcement layer. Prior to the acquisition, what we brought to market included AI Aware, which focuses on discovery and awareness by identifying what AI resources customers have and their vulnerabilities. We also have AI SPM for cloud posture and configurations. Apex deepens our AI capabilities by monitoring prompts and interactions for misuse, offering governance and enforcement to our customers. More broadly, AI serves as a force multiplier for the insights we can deliver to our customers across our extensive data infrastructure built over 20 years. We continue to leverage AI to drive higher levels of remediation and optimize orchestration for our customers to reduce risks.

Mark Thurmond, Co-Chief Executive Officer

I'd like to add that customer demand has been significant following the Apex acquisition. We've observed impressive interest from our customers regarding our AI offerings. We’ve been embedding Apex into our Tenable One platform. This acquisition addresses a real-world problem that customers need resolution on, and we've seen a positive reaction, giving us confidence. With other players weighing in as competitors, our solution and differentiation are more evident.

Operator, Operator

Our next question comes from Roger Boyd with UBS.

Roger Foley Boyd, Analyst

Maybe to expand on that; I think last quarter, you provided some metrics around adoption of AI Aware and it's nice to see that pop post the Apex acquisition. But in addition to that, could you remind us what you've said about monetization of AI Aware?

Stephen A. Vintz, Co-Chief Executive Officer

Yes. We mentioned previously that we have over 6,000 customers using AI Aware to detect shadow AI applications and plug-ins. Regarding monetization, the capabilities we acquired from Apex will not be sold separately, but as part of the platform. We view AI through the asset type lens, and we offer it in Tenable One to help our customers secure the AI attack surface similarly to VM or cloud or OT. We're already seeing significant initial traction with this integration.

Operator, Operator

Our next question comes from Rudy Kessinger with D.A. Davidson.

Andres Bernabe Miranda Lopez, Analyst

This is Andres Paroli for Rudy. Great quarter. I hear you about the level of outperformance in Q2 being driven by a more favorable mix and upfront revenue recognition. But could you unpack what products and verticals did outperform your expectations in Q2? Also, any data points around the core VM market and what you’re seeing there would be helpful.

Stephen A. Vintz, Co-Chief Executive Officer

Just to clarify, the upfront revenue recognition has no connection to CCB. We exceeded expectations for CCB this quarter due to the strong performance of the platform. As I mentioned earlier, Tenable One constitutes 40% of our new sales and 30% of total sales, with OT also performing strongly. The takeaway is that our highest selling prices are accompanied by great traction; it's a large, growing market opportunity for exposure management that the analysts are now acknowledging. This will be a growth catalyst for us moving forward. The mix of business within revenue can vary quarter to quarter, and this quarter, the mix was slightly higher for products with upfront revenue recognition, which we don’t expect to sustain in the second half of the year, reflected in our outlook for the full year.

Mark Thurmond, Co-Chief Executive Officer

VM was strong this quarter. We hit expected targets for VM. While it didn’t show massive overperformance, it aligned with our forecasts. The overachievement this quarter was mostly about driving Tenable One, focusing on multiple asset types and obtaining the premium when selling the platform. That’s where we saw the beat in Q2, and we are very happy with our core VM business.

Operator, Operator

Our next question comes from Jonathan Ho with William Blair.

Jonathan Frank Ho, Analyst

Let me echo my congratulations as well. You mentioned strength in the OT and hybrid IT/OT environments. Can you talk about where you're seeing more opportunities and what’s driving the resurgence on the OT side?

Mark Thurmond, Co-Chief Executive Officer

Yes. It was a great quarter for OT, and our Q3 for OT also looks promising. We're experiencing strong growth in certain verticals, including data center build-outs, food processing, manufacturing, and entertainment venues. The convergence here is significant—these sectors recognize the need for both OT and exposure management. One deal originated from an OT initiative and evolved when the CISO saw the value of exposure management alongside VM and other asset types. This crossover appeal is leading to strong adoption rates for Tenable One. We are optimistic about the outlook.

Operator, Operator

Our next question comes from Mike Cikos with Needham & Co. Our next question is from Jonathan Ruykhaver with Cantor Fitzgerald.

Jonathan Blake Ruykhaver, Analyst

So the 360 new enterprise platform customers and the 76 net new six-figure customers were impressive. Can you talk about that sales motion? Are there any incentives, both direct or through the channel that might be influencing that success? Looking ahead, how should we consider new platform additions versus expansions? It appears that with Apex, OT exposure management, and your broadening product portfolio, expansion remains compelling.

Mark Thurmond, Co-Chief Executive Officer

I totally agree; it is a compelling opportunity. However, regarding new logos, we didn’t implement any significant changes. What you're seeing is the basic adoption of Tenable One and our platform approach. As everyone here is aware, we operate as a 100% channel company, and we have a loyal partner network. They have become more comfortable positioning Tenable One. Our channel checks provide positive feedback, indicating their comfort level and training with Tenable One. No major structural changes have taken place—it's about higher activity levels. Pipeline growth is strong, and our marketing efforts are paying off. Analyst validation also plays a role; it's not just Tenable stating we're the best EM solution—there’s external recognition, which is driving positive forward momentum.

Operator, Operator

Our next question comes from Junaid Siddiqui with Truist Securities.

Junaid Hamid Siddiqui, Analyst

I just wanted to ask about your cloud strategy around CNAPP. You mentioned last quarter that Wiz being acquired by Google could be a net benefit for you. Are you seeing additional RFPs? Has that contributed to growth in your cloud security business?

Mark Thurmond, Co-Chief Executive Officer

Yes. We had strong cloud security in Q2, and the pipeline looks good for Q3 and Q4. We did see an increase in inbound inquiries regarding RFPs since the Wiz acquisition announcement. While no one is shifting away from Wiz, the discussions at the CISO level around dual vendor strategies have opened opportunities for us. Our sales of CNAPP mainly occur as part of the Tenable One platform. When we leverage our platform to differentiate ourselves, we achieve success in cloud sales. We’re optimistic about Q3 and Q4, as the acquisition of Wiz is a net positive for us.

Operator, Operator

Our next question comes from Shaul Eyal with TD Cowen.

Shaul Eyal, Analyst

Congrats on your quarterly performance and improved outlook. Mark or Steve, I wanted to ask specifically about your July performance, which is coming to an end tomorrow. I'm beginning to hear that July has been trending ahead of historical seasonality trends, maybe anecdotally. What are you seeing out there as the first month of your third quarter comes to an end?

Stephen A. Vintz, Co-Chief Executive Officer

Good question. As we conclude July, we consider numerous factors when providing our annual guidance. We examine our business flow; much of our new business is typically closed in the last month of the quarter. This quarter, we’re entering what’s often a strong quarter for federal business, and we’re working hard to close several sizable opportunities. All focused on VM and the platform.

Operator, Operator

Our next question is from Shrenik Kothari with Baird.

Shrenik Kothari, Analyst

Congrats, Steve, Mark, and team. Just a follow-up to Andrew's earlier question regarding federal scrutiny and net retention. With improved visibility in your federal renewals, can you comment on whether these renewals skew more toward tactical VM or if there are opportunities for platform consolidation, like Tenable One?

Stephen A. Vintz, Co-Chief Executive Officer

Sure. The increased visibility we have around our renewal base in federal relates to the renewal itself. We have several large 6- and 7-figure expansion opportunities within U.S. Federal. While we’re cautiously optimistic about these opportunities, we'll be working hard to close them. Expansion opportunities span not just VM, but also cloud, OT, and broader platform opportunities.

Mark Thurmond, Co-Chief Executive Officer

I agree; we’re seeing better visibility regarding our renewal base, but we must still micromanage new business due to existing challenges. We are optimistic that Tenable One will gain traction in the federal sector, especially now that it has received FedRAMP authorization, allowing us to engage effectively in that installed base.

Operator, Operator

We have reached the end of our Q&A session, which concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.