Tenable Holdings, Inc. (NASDAQ:TENB) Q1 2024 Earnings Call Transcript

Tenable Holdings, Inc. (NASDAQ:TENB) Q1 2024 Earnings Call Transcript May 1, 2024

Tenable Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.12239 EPS, expectations were $0.18. Tenable Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to Tenable Q1 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Erin Karney, Vice President, Investor Relations. Thank you, Ms. Karney. You may begin.

Erin Karney: Thank you, operator and thank you all for joining us on today’s conference call to discuss Tenable First Quarter 2024 Financial Results. With me on the call today are Amit Yoran, our Chief Executive Officer; Steve Vintz, our Chief Financial Officer; and Jason Merrick, Senior Vice President, Products. 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 second quarter and full year 2024; 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; including Tenable One, planned innovation and new products, and services; the potential benefits and financial impact of our recent acquisition of Ermetic, our expectations regarding the cost savings associated with optimizing our go-to-market efforts, 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 earnings release includes GAAP to non-GAAP reconciliations for these measures. I’ll now turn the call over to Amit.

Amit Yoran: Thank you, Erin. We’re very pleased with our results in the quarter. CCB, revenue, operating income, and cash flow all came in better than expected. Our leadership and exposure management resulted in strong momentum in Tenable One. In short, we’re off to a good start for the year. There are two clear takeaways this quarter. First, exposure management, the category we pioneered over five years ago is increasingly recognized as a crucial practice for security teams. Tenable is uniquely positioned to identify and mitigate risks across the attack service, including cloud, identities, operational technology, applications, and IT assets. And second, that the convergence of these categories onto a single platform is the most efficient way to truly understand and reduce risk and we believe we are the only security vendor in the market providing these capabilities with Tenable One.

Let me go deeper on the first point. Exposure management is gaining widespread attention and validation from security practitioners, industry analysts, and vendors. In fact, Gartner predicts by 2026 organizations prioritizing their security investments based on an exposure management program will suffer two-thirds fewer breaches. We believe there is no company better positioned than Tenable to seize this opportunity, thanks to our early focus and ongoing commitment to delivering innovative exposure management solutions. And our focus is paying off with these solutions now representing approximately half of our total new sales in the quarter, inclusive of Tenable One. This momentum is a result of customers realizing that managing risks in cyber programs is failing them.

Security products for identifying and closing exposures of different types are still very disjointed, forcing security teams to work in isolation just like their tools. This approach to security makes it extremely difficult to defend against advanced threats or more sophisticated campaigns to leverage multiple attack methods and complex tool sets. For example, an attacker may gain access from an end point vulnerability, move laterally to an over permission identity for privileged access and from there, exploit misconfigured service running in the cloud. Point solutions simply are not able to identify and remediate these risks across domains. A unified approach that consolidates visibility from assets, identities and risk configurations, spanning across amines, from on-prem to the cloud to critical infrastructure creates leverage and insights previously stope pipe.

This is exactly what Tenable One is designed to deliver. A great example of Tenable One’s impact involves a multibillion-dollar automotive parts company that selected Tenable One in Q1. They’re looking to gain a unified understanding of risk across their tax circus. Recognizing the limitations of separate solutions, they replaced a key incumbent in vulnerability management with Tenable. While also adopting Tenable OT and cloud security to extend their visibility and remediation capabilities. Notably, the customer opted for our cloud security solution because it outperformed several well-known pure-play CNAPP competitors and uncovering exposures in the cloud and the fact that it integrates with the rest of their stack using Tenable One. We repeatedly encounter scenarios that underscore this new way of thinking.

Conversations with customers and prospects often lead them to realize the dangerous limitations of using separate products to manage risk, like using a specific control system security product that has no connection to the rest of their environment. Customers are coming to grips with the fundamental truth. You cannot fully understand the risk of an interconnected environment when your risk management practice is compartmentalized. These scenarios are the reasons why solutions like our OT and our CNAPP capabilities are gaining traction with our customers. Given the scope of our coverage, Tenable stands out in our capacity to identify and prioritize risk. We leverage the data lake built around exposure information that encompasses hundreds of billions of aspects of threat, vulnerability, entitlement, and configuration data.

This robust foundation underpins all of our products from CNAPP to vulnerability management to identity to OT. Each product is strengthened by the deep insights gleaned from our entire portfolio. Last quarter, we continued to innovate aggressively in exposure management along many funds, including the integration of more generative AI capabilities into Tenable One. These new advancements bring to life interactive attack path visualizations and offer an AI assistance that answers queries and delivers specific mitigation advice. This tool gives our customers real-time access to the latest exposure data tailored to their specific environment. In addition, it provides customized guidance for fixing these issues. In an era marked by huge cybersecurity talent shortages, our generative AI-driven enhancements help streamline workflows, enhance security insights, and boost productivity, and once again, positioned Tenable at the forefront of exposure to management innovation.

We have demonstrated an ability to differentiate our core products as well as with our broader exposure management platform. Whether it’s in identity, OT, cloud security, or our unified platform, we are delivering solutions that enable our customers to better understand and remediate risk, and we are doing it in a way that has delivered impressive margin expansion. Finally, on a personal note, thanks to everyone for the well wishes regarding my recent diagnosis. My treatment is going well, but my voice has been temporarily impacted. As a result, I will not be able to fully participate in the Q&A session today and apologize in advance for subjecting you to even more time with Steve. But I do look forward to speaking with you in the upcoming investor events in the near future.

I’ll now turn the call over to Steve for further commentary on our financial results and outlook.

Steve Vintz: Thanks Amit. I’m glad to see that you have not lost your sense of humor. Now, on to our results for the quarter, which reflect better-than-expected top line growth and operating income. Calculated current billings defined as revenue recognized in the quarter plus change in current deferred revenue grew 12% year-over-year to $197.8 million. CCB exceeded expectations for the quarter and accordingly, we are increasing our annual CCB outlook today. As Amit commented earlier, Tenable One was a major highlight in the quarter and grew to 26% of total new enterprise sales, up from 22% last quarter. Exposure solutions, which includes Tenable One and stand-alone cloud security, identity security, and operational technology security represented approximately 50% of our total new enterprise sales in the quarter.

We believe this reflects the growing demand for our exposure management solutions and the actionable insights it delivers to CISOs and their security teams. Turning to other highlights. Sales to new customers were exceptionally strong for us. During the quarter, we added 410 new enterprise platform customers, including a healthy number of six-figure lands. The strength in new logos resulted in nearly 30% year-over-year ACV growth from our newly acquired customers. To put matters in perspective, this was one of our best quarters for year-over-year ACV growth to new customers since 2022. This dynamic impacted our net dollar expansion rate, which was 109% this quarter compared to 111% and last quarter, which we believe is a result of the natural variance in the mix of pipeline opportunities between new and expansion.

The takeaway here is that we saw strength in new logo sales and large lands, and we believe, it’s enabling us to win share in the exposure management market. Pipeline generation was also strong for us and is very encouraging. Our net new six-figure customers decreased by 4% in the quarter. This is a result of a higher-than-usual number of customers who dropped below the $100,000 threshold in Q1 of 2023, which impacts this metric now because these customers dropped out of the LTM count this quarter. This was concentrated primarily in the financial services and tech and telecom verticals that were impacted by the regional banking crisis in March of last year. This dynamic more than offset the strong number of new six-figure logo lands in the quarter.

I would note that we always have some number of customers who dip below the $100,000 threshold in any given quarter. Q1 of 2023 was an outlier last year. And consequently, we do not expect this to be a headwind to the net new six-figure customer calculation for the remainder of this year. Now, on to the P&L for the quarter. Revenue was $216 million, which represents 14% year-over-year growth. Revenue in the quarter exceeded the midpoint of our guided range by $3 million. Our percentage of recurring revenue remains high at 96% this quarter. I will now turn to expenses. I’ll start with gross margin, which was 81% this quarter and last quarter and higher than our expectations. Gross margin benefited this quarter from the successful integration of Ermetic public cloud infrastructure and the overall efficiency with which we have been able to scale our exposure management platform.

Sales and marketing expense was $84.5 million, which was down from $88.5 million last quarter. Sales and marketing expense as a percentage of revenue was 39% compared to 41% last quarter. Sales and marketing expense was lower sequentially, primarily due to reduced headcount from our cost optimization efforts, seasonally lower program spend and commission expense and was partially offset by the cost associated with our annual sales kickoff conference in February. Overall, we are pleased with the improved efficiency in our go-to-market efforts this quarter and expect sales and marketing spend as a percentage of revenue to trend lower over the remainder of the year. R&D expense was $32.6 million, which was up from $27.8 million last quarter. R&D expense as a percentage of revenue was 15% this quarter compared to 13% last quarter.

R&D expense increased sequentially primarily due to increased personnel costs and other costs, largely in cloud analytics, and VM, as well as the foreign R&D tax credits that we received last quarter. G&A expense was $20.6 million, which was up from $19.5 million last quarter, primarily due to higher payroll taxes, which reset at the beginning of the year. G&A expense as a percentage of revenue was 10% this quarter compared to 9% last quarter. Income from operations was $37 million, which was significantly better than expected and exceeded the midpoint of our guided range by $9 million. Operating margin for the quarter was 17%, which was 400 basis points better than the midpoint of our guidance. The outperformance in earnings this quarter reflects the timing of certain expenses and our ability to deliver profitable growth and drive leverage in the business, while continuing to invest in our largest market opportunities.

The sizable beat in op income resulted in significant EPS upside. EPS for the quarter was $0.25, which is $0.08 better than the midpoint of our guided range. Now, let’s turn to the balance sheet. We finished the quarter with $510.8 million in cash and short-term investments, accounts receivable was $156.8 million, and total deferred revenue was $722.7 million. Current deferred revenue was $562.6 million, which gives us a lot of visibility into expected revenue over the next 12 months. We generated $54.7 million of unlevered free cash flow during the quarter, which is up from $43.3 million last quarter. With high recurring revenue, gross margins, and renewal rates, we feel confident that we can continue to expand our operating and free cash flow margins over the ensuing years.

Our higher margin profile has also caught the attention of the rating agencies as Moody’s recently upgraded our issuer credit rating to Ba3 as well as S&P’s upgrade to BB minus in late November. During the quarter, we repurchased 526,000 shares of our common stock for an aggregate purchase price of $25 million. That leaves $60.1 million of remaining authorization under our share repurchase program. We continue to take a programmatic approach to partially offsetting our share creep, and we’ll continue to evaluate the size of the program going forward based on evaluation of our common stock as well as other factors. With the results of the quarter behind us, I’d like to discuss our outlook for Q2 and the remainder of the year. For the second quarter, we currently expect revenue to be in the range of $217 million to $219 million.

Non-GAAP income from operations to be in the range of $34 million to $36 million. Non-GAAP net income to be in the range of $28 million to $30 million, assuming interest expense of $8.2 million, interest income of $5.9 million, and a provision for income taxes of $3.1 million. Non-GAAP diluted earnings per share to be in the range of $0.22 to $0.24, assuming 124.5 million fully diluted weighted average shares outstanding. And for the full year, we currently expect calculated current billings to be in the range of $986 million and $994 million, revenue to be in the range of $900 million to $908 million. Non-GAAP income from operations to be in the range of $158 million to $163 million. Non-GAAP net income to be in the range of $135 million to $140 million, assuming interest expense of $32.8 million, interest income of $24.2 million, and a provision for income taxes of $12.3 million.

Non-GAAP diluted earnings per share to be in the range of $1.08 to $1.12, assuming 125 million fully diluted weighted average shares outstanding and unlevered free cash flow to be in the range of $220 million to $230 million. I would like to provide some commentary regarding our increased outlook today. Our CCB guide represents a range of 13% to 14% growth for the full year and reflects a $2 million beat in our expectations in Q1 and a $1 million raise at the midpoint. Similarly, revenue reflects a $3 million beat and a $1 million raise at the midpoint of the range. Consistent with the directional comments I provided on our last call, we expect CCB growth to accelerate modestly in the second half of the year as we continue to build pipeline opportunities in the first half of the year in connection with our more expansive CNAP offering and some of the newly acquired capabilities from Ermetic.

Our guidance today also reflects a full year operating margin of 18% at the midpoint, which is a 50 basis point improvement over our prior guidance and is a terrific start to the year for us. We continue to expect to follow the similar seasonal spending patterns as prior years with incremental investment more weighted in the first half of the year, resulting in higher operating margins in the second half. I also want to provide an update on the restructuring costs that we discussed in February. We incurred $1.4 million of restructuring costs in Q1 associated with one-time severance benefits related to the reduction in force that took place in January, which was better than the $2 million to $3 million range that we previously provided. Further, we are still in negotiations to sublease a portion of our real estate, which is expected to result in a non-cash impairment charge of $6 million to $7 million in Q2.

Please note that restructuring expenses are excluded from our non-GAAP results. And finally, as a reminder, our next update to unlevered free cash flow will be on our Q2 call.

Amit Yoran: Thanks Steve. In summary, Q1 was marked by a healthy balance of growth and margin expansion. We are excited about where we are as a company and the opportunity in front of us. We hope to see you at the Morgan Stanley conference in the coming weeks. We now like to open the call up for questions for Steve. Also Jason Merrick, our Senior Vice President, Products is here today to participate in the Q&A session.

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Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question comes from the line of Joel Fishbein with Truist Securities. Please go ahead. Mr. Fishbein–

Joel Fishbein: Okay. Hi, thanks for taking the question and congrats on the good quarter. Jason, I had one for you and a quick follow-up for Steve. Amit mentioned on the call, Ermetic win the automotive company and that’s obviously great. I’m curious about the competitive dynamics around about Ermetic. Obviously, the space is fairly crowed and what differentiated that offering that you have in the marketplace and talk about maybe the competitive dynamics of why you won? That would be helpful. Thank you.

Jason Merrick: Joel, thank you very much for the question. So, we could not be more excited with the competitive capabilities across the Tenable portfolio and even more so with our class security solution that Ermetic brings with their more expansive CNAPP capabilities, it gives our customers the ability to leverage the entire platform, but we also have the flexibility for customers to choose specific components within our cloud security offering. So, customers can choose infrastructure’s code, CSPM, CWPP. But we also believe that we’ve got the industry-leading cloud infrastructure entitlement management capabilities, the acronym is called CIEM. This gives organizations the ability to have visibility into the entitlements of the workloads that are working in the cloud.

And this is a differentiator for us in the market. Even customers that have made a cloud security solution today with other competitors are choosing to add our CIEM capability in. Now, the other major competitive dynamic is Tenable One and being able to bring the cloud security data into Tenable One.

Joel Fishbein: Great. Thank you so much.

Operator: Thank you. The next question comes from the line of Brian Essex with JP Morgan. Please go ahead.

Brian Essex: Hi, good afternoon and thank you for taking the question. I was wondering maybe either Jason or Steve, could you talk about the spending environment in macro? I know last year, Q1 was a bit unusual. What are you seeing so far, you’re a bit early in the earnings season, so it would be great to get your insight around how you see the spending environment unfolding so far this year? Are enterprises willing to spend, maybe compare that to the environment last year? And where you’re seeing any strength or weakness, whether that’s selling enterprise side, recovery in the small bank credit union side after the disruption last year. Maybe give us a sense of that and how the pipeline is looking as we head into Q2? Thank you.

Steve Vintz: Sure. This is Steve. I’ll say first, I think we’re executing very well, certainly, within the confines of the current market. Overall security spend remains healthy and a top priority. And as — earlier, exposure management category that we pioneered continues to gain widespread adoption and validation. Not only from security practitioners, but also partners and industry analysts, Gartner, as you heard earlier, is now taking are talking about cyber exposure as a critical means to reducing breaches. We’re seeing large enterprise organizations create exposed management departments. We’re seeing our partners, too, starting to go exposure management practices and higher exposure management engineers. Clearly, there’s a lot of momentum in the space and specifically with our platform.

So, one of the major areas of strength for us, what with Tenable One, our unified platform and exposure management offering, it represented 26% of our total new sales this quarter, it’s up from 22% last quarter. We also saw strength in our core VM business, where we continue to enjoy high win rates. And out of the gate here, we’re very pleased with the demand that we’re generating, specifically cloud. Top of the funnel there remains very strong. We’re seeing some terrific engagement on both the customer and the partner front. So, overall, we’re seeing good spending across the board, good start to the year, and we think we’re providing a good outlook as a result.

Brian Essex: Got it. Helpful. Congrats on the results and we’ll keep to one. Thank you.

Operator: Thank you. Next question comes from the line of Saket Kalia with Barclays. Please go ahead.

Saket Kalia: Okay, great. Hey guys, thanks for taking my questions here and great to hear to everybody’s voice. Steve, maybe just to start with you. Just on that last point, great to see just that growing mix of Tenable One as a percentage of new sales. Do you have any data or just even anecdotes on what exposure management modules outside of core VM customers are most gravitating towards? Because you get a nice uplift there on Tenable One versus sort of kind of buying à la carte. What are the modules that are sort of driving that most often?

Steve Vintz: Yes. Well, a good example of that is our largest win within the quarter, a seven-figure win with a European manufacturer. We specifically — Tenable One, we won the cloud security mandate. So, that was the tip of the spear for us. And then along with that purchase, we displaced an incumbent VM vendor, and we also sold all OT security, which we now have more recently integrated into Tenable One. So, Tenable One is a means for customers to now understand the risk posture across the attack surface, but also is allowing us to consolidate many categories of security, not only VM, but also cloud and OT, as I just mentioned. Web App was also one of those modules that continues to get good traction for us. And I would say not only in terms of the breadth that we offer in Tenable One of the areas of the attack surface that we secure, but it’s also the insights and the analytics.

It’s connecting all of the vaults and all the threats with the identities and the entitlements and those who can make lateral movement. So, we could not be more pleased with the momentum we’re getting in Tenable One. And again, there’s just a lot of traction with exposure management as I mentioned earlier. And certainly, it’s resonating well not only with customers but also partners.

Saket Kalia: That’s great. And maybe for my follow-up and it’s maybe something for both you and Jason, and maybe it’s also related to that answer that you gave. But one thing that sort of stood out to me was just the better new logo ACV in the quarter. I think that’s one that you typically called out, Steve. Maybe some of the things that you just talked about, but what do you feel like is driving that success, particularly with new logos? And as I just think about some reasons, maybe it’s a better VM market. Maybe that sort of momentum and exposure, maybe it’s market share gains. Any thoughts on sort of what’s driving that — it’s good performance all around, but particularly with new logos. Any thoughts there would be helpful.

Jason Merrick: Yes, that’s a great question. And I think it’s — the market is starting to dictate this. I can tell you that at Tenable, we’re having more conversations with CISOs that are looking for more than a single solution vendor. And with Tenable, we have the portfolio of products to help an organization be able to deal with the ever-growing attack surface. And maybe this is an area that I can explain a little bit more about Tenable One, and what it does for our customers. It starts with we build an inventory for a customer. We bring in assets from the cloud, from OT. We bring in identities, human and non-human. We can even bring in third-party data assets. So, being able to bring in all of this information an organization has the ability to understand what assets they’re responsible for.

The second piece is we then analyze that inventory. We look for findings. We look for risk. We look for toxic combinations, and we contextualize and normalize this information. And then the third step is we help with prioritization. We give business contacts from a business organization what the associated risk is, and why it’s important. But just as importantly, we also give the technical prioritization details, what assets need to be remediated. This helps with clients. This helps with regulation and drives remediation. And then lastly, and really truly the power of Tenable One is we bring all these things together is the analytics, the ability to optimize the ability to share this information with executive management, with Boards and with peer groups to be able to drive actionability.

And if you think about it, it’s circular. So, that continually the inventory constantly changes, and the power of Tenable One is we build that inventory. We analyze the inventory for risk and toxic commination. We help with the prioritization, and we help with the optimization.

Saket Kalia: Super helpful. Thanks guys.

Operator: Thank you. Next question comes from the line of Hamza Fodderwala with Morgan Stanley. Please go ahead.

Hamza Fodderwala: Great. Good afternoon. Thank you for taking my questions. Steve, a lot of macro uncertainty out there. I’m wondering, just on the spending environment again, how would you characterize the environment relative to when you last gave guidance 90 days ago? And could you give any commentary on early pipeline trends for Q2 as it relates to your guidance for Q2 and for the full year? Thank you.

Steve Vintz: Well, specifically with regard to Q2, pipeline remains healthy and this is the first time we’re setting expectations for the quarter and providing an outlook and the outlook we’re providing, we think, is strong, not only for Q2, but also for the year. And as a reminder, in Q1, we beat CCB, we beat revenue. We’re flowing through the beat for both CCP and revenue. We’re also raising in both of those areas. So, the outlook for Q2, we believe, is absolutely strong. The outlook for the year is more improved than 90 days ago. And I would say certainly some areas of strength, as we talked about earlier with regard to Tenable One and even in our core VM business where there’s lots of opportunity for us, and we were continuing to remain strong there.

Some of the areas that have been more fluid for us over the past year were strong for us, specifically mid-market. We’re off to a good start. Spending environment was again healthy this quarter. The deal sizes continue to be favorable. We’re making a lot of progress with cloud there, transacting large six-figure deals. OT continues to resonate only in the enterprise market, but also in the mid-market. So, certainly, mid-market was another area of strength. And I would also say the Fed in Q1, defense and critical infrastructure was an interest run for us in the public sector. We also saw good traction in state and local and higher end. Pipeline and Fed remains exceptionally strong. And we did have the opportunity to see a little bit of upside in the quarter from U.S. Federal, but CR continuing resolution influencing cap some of the upside for us in the quarter.

That said, the selling environment, I would say, is stronger now than last year, and we had a great year last year’s Fed and we expect to have another strong year this year. Funds are starting to open and slow down the different agencies, activity around customers is as strong as we’ve ever seen in Federal. So, we’re certainly excited and we think we’re providing a bullish outlook on the year and certainly a good start to it with regard to our results for the quarter.

Hamza Fodderwala: Very good. Thank you, Steve.

Operator: Thank you. Next question comes from the line of Andrew Nowinski with Wells Fargo. Please go ahead.

Andrew Nowinski: Great. Thank you for taking the questions and great to hear that Amit’s recovering — is going well. I wanted to ask, Steve, maybe just a follow-up on the Fed side, as it relates to the Ivanti vulnerability that seems pretty widespread in the industry. I guess was that one of the drivers of Fed demand? And how much of an impact did it have on the quarter or your pipeline going forward?

Steve Vintz: Things like that, they kind of bubble up pretty fast, don’t have a big impact in the current quarter. We can see some upside there. But as I commented earlier, what drove the results in Fed in Q1 was defense and critical infrastructure. And I would say, Tenable One is certainly an area that continues to resonate well, certainly within at the Federal level. But we’re also seeing a ton of strength at state and local and higher Ed, where OT also remains a tailwind for us. So, overall spending environment is very strong for Fed. I’m super excited about not only Q2, what’s ahead for us there, but also headed into the strong Fed year-end in September quarter.

Andrew Nowinski: Okay. And then it looks like the net retention rate dipped down to about 109% this quarter. I guess when do you think that will bottom out? And how are you thinking about it going forward?

Steve Vintz: Sure. Yes. Well, the net dollar expense rate in the quarter, as I mentioned earlier in the call, was really a consequence of the mix of business, but more skewed towards new versus expansion. By the way, that is a very good thing for us. And the one thing I will say is that, we provide a lot of color on our business with regards to the metrics that we provide. We’ve disclosed a number of new customers. We disclosed the number of large deals. And the rate of expansion with customers in the current quarter. It’s important to note that we do not optimize our business around a single metric and these metrics can fluctuate naturally from quarter-to-quarter. And I’ll say that all of our KPIs are meant to be evaluated in aggregate.

So, you have a better appreciation of the factors that influence our results for the quarter. And with respect to the expansion rate, it is possible that we could see fluctuations going forward. That said, we feel good about our outlook for the year, which reflects modestly higher growth in the second half of the year, consistent with our top track last quarter, and that would indeed be driven by an improvement in one or more of those metrics.

Andrew Nowinski:

Operator: Thank you. Next question comes from the line of Brad Reback with Stifel. Please go ahead.

Brad Reback: Great. Thanks very much. Steve, I know during the prepared remarks, you talked about an acceleration in CCP growth in the back half of the year, consistent with last quarter. What are things that need to get better for that to happen? Thanks.

Steve Vintz: Sure. I would say a couple of things. First, again, this is very consistent with the top track that we offered up on our last call. [Indiscernible] we acquired Ermetic in October of last year. And our mandates were very clear. Number one, integrate the current capabilities of [Indiscernible] the Ermetic platform, which we have done and we’ll certainly continue to do. Number two, work to build pipeline opportunities. So, the guide that we gave last quarter, which was 12% to 14% growth, we said directionally expect slightly lower growth in the first half of the year, in particular to Q1. We’re delighted to deliver outperformance relative to those expectations that we set in the first quarter today. And then we also said honestly higher growth with regard to cloud security in the second half of the year, as we complete the product integration as we build pipeline opportunities, and we start to have — work towards closing those opportunities over the course of the ensuing months.

The other thing I’ll tell you is certainly fact that’s going to be a catalyst to growth. We could not be more bullish about Fed, the pipeline that we have, the mandates that we’re getting and certainly the engagement with our customers. So, nothing’s really changed in our outlook for the year this quarter relative to last.

Brad Reback: Great. Thank you very much.

Operator: Thank you. Next question comes from the line of Jonathan Ho with William Blair. Please go ahead.

Jonathan Ho: Hi, good afternoon. Just wanted to also echo my thoughts and prayers with Amit as he continues to improve as well. Just wanted to get a sense from you in terms of the OT markets, you’ve mentioned this a number of times in the discussions, but what’s maybe changed there? And what’s — where are we in terms of the adoption curve around these OT solutions? Thank you.

Jason Merrick: Yes, absolutely. Great question. So, what you’re seeing in the industry is quite interesting. With the role of the CISO, more CISOs are having to accept the risk to be able to take over the OT security requirements. So, not only are we seeing this in manufacturing and industrial controls, but we’re also setting them in building management systems. The CISOs are now having to take on responsibility of this. Just recently, I was with a CISO in the financial services sector, who has just gotten a mandate from his board that he is now responsible for the building management system. So, — and we’re seeing this trend across the board, where CISOs are now having to take on more and more responsibility. So, by being able to give the visibility not only from cloud, but being able to bring an identity and OT and bring that data together, we really do find that we have a unique opportunity, and we are seeing a significant number of opportunities in the OT space.

Jonathan Ho: Great. Thank you.

Operator: Thank you. Next question comes from the line of Mike Cikos with Needham & Co. Please go ahead.

Mike Cikos: Great. Thanks for taking the questions here guys. I think the first one for Steve. I just want to make sure I better understand the guidance that we have here today. So, I know 2Q coming in slightly below on the top line versus where consensus was, but you guys are taking up full year above and beyond just this 1Q be, right? And I just wanted to get a better understanding that second half acceleration that we’re looking for. Is that really a function what you’re seeing in pipe related to Fed? Is it part of the outperformance for 1Q here? Any change in assumptions around mid-market. Can you better flush that out for us?