Saket Kalia: Got it. Got it. That makes a lot of sense. Steve, maybe for my follow-up for you. Again, apologies if this was talked about, but can we just talk a little bit about gross margins for 2023 that was down sequentially in Q4? I’m guessing that’s from hosting costs, but curious how you think about that here in 2023 as Tenable One presumably becomes a bigger part of the business?
Steve Vintz: Sure. Great question, Saket. The gross margin in the fourth quarter came in as expected and is impacted by the recent launch of some new products for us. One is ASM, which is a new use case. The cost of domain attribution is something we can leverage over time as we see higher penetration rates. Also with Tenable One, we have a more robust cyber asset inventory which is critical to supporting functionality such as Attack Path Analysis and Lumin Exposure View. So, these are new areas of innovation come with some initial semi-fixed costs that we expect to fully absorb over time. and that’s certainly impacting gross margins. Overall, very pleased with gross margins, and we’ve said on the call that we expect gross margins to kind of stay in the high 70% range for 2023, and we expect gross margins to improve during the course of the year.
Saket Kalia: Very helpful. Thanks guys.
Operator: Our next question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.
Mike Walkley: Great. Thanks. My congratulations also on the strong close to the year. Amit, when you study your customer base, what percent do you believe will ultimately upgrade to Tenable One, while it’s high single-digits of the base currently, where could that penetration go over the next couple of years had that should be a strong source of sustained growth?
Amit Yoran: Yes, it’s a great question. And I think, obviously, there’s tremendous potential. We’re putting a lot of focus on it as a company. The leading indicator for that would be our new sales. And what we’re seeing is high teens percentage of new sales coming in on Tenable One. So, over time, as long as that continues to remain healthy, we would see a larger and larger percentage of customers moving to Tenable One, where it could go long-term remains to be seen, but we’re pretty excited about the potential.
Mike Walkley: Okay, great. And just a quick follow-up question. Any changes in the competitive environment entering 2023, whether your competitors potentially putting themselves up for sale? And you guys certainly have a lot of momentum with Tenable One. Just any change in the competitive environment that seems more favorable as you enter 2023?
Amit Yoran: Yes, I mean, obviously, we wouldn’t speculate about that, but I feel really good about the competitive environment. We are pretty consistent saying that we have exceptionally strong win rates especially in this market against our primary competitors. That remains — those win rates remain exceptionally strong. And while we don’t have a specific update to that, I’d say anecdotally, continues to climb in the sales team feels exceptionally confident going into any VM opportunity, but those are really ours to lose. And candidly, they feel like Tenable One gives them a very significant value differentiated capability to talk about as well.
Mike Walkley: Great. I hope your in-person event goes well and thanks for taking my questions.
Amit Yoran: Great. Thank you.
Operator: Our next question comes from the line of Jonathan Ho with William Blair. Please proceed with your question.
Jonathan Ho: Hi, good afternoon and let me echo my congratulations as well. I wanted to maybe dig in a little bit into the Active Directory and identity products. Can you talk a little bit about what you’re seeing in terms of demand there and maybe the potential for that to be a larger product set over time as well?
Amit Yoran: Well, we think it’s — there’s tremendous market potential there. As you know, Jonathan, Active Directory is target number one for hackers, whether it’s a nation state adversary as we saw on the Mandiant breach or whether it’s ransomware, where over 90% of ransomware is going directly after domain controllers and Active Directory. Active Directory is a trick and mess to deploy in any large environment and almost impossible to keep clean when you look at the number of pieces of software and the complexity of Active Directory, the number of pieces of software we should modify as they get installed into an enterprise environments. So, having a solution — and most organizations don’t have a solution in this area. The security teams know it’s a big problem.
They maybe do a consultant and an annual audit or assessment of their Active Directory environments, which is clearly not enough. So, we feel like there’s tremendous market opportunity. The sales team has a lot of confidence in the Active Directory product and bringing it into customers. We had a great quarter with Active Directory in Q4. So, excited about the potential, both in 2023 as well as Active Directory playing an increasingly large role in Tenable One and some of the analytics that we’re unlocking with Active Directory and identities.
Jonathan Ho: Great. And just as a follow-up for Steve. I think there was a small reduction in force. Can you maybe give us a little bit more detail on the risk and maybe what that means in terms of your margins, maybe where some of the cuts came from? Thank you.
Steve Vintz: Yes, it was fairly broad across many functional departments, really with an eye with the improving operational efficiency and better aligning our cost base with the market opportunity that’s in front of us. And we feel like we’re in a great position this year to make investments, as Amit talked about earlier. Making investments in terms of product and adding lots of quota capacity. And then one of the comments I made earlier was our expectation is that we’re going to have more quota capacity in 2023 than we did in 2022. Obviously, the demand environment remains highly dynamic, but we’ve done a good job over the years, balancing growth with profitability, driving margin leverage and achieving sustainable levels of growth.
Jonathan Ho: Thank you.
Operator: Our next question comes from the line of Joshua Tilton with Wolfe Research. Please proceed with your question.
Joshua Tilton: Hey guys. Thanks for taking my question. My first one is kind of high level. But the feedback from the channel, I guess, throughout last year on VM, I would say, has gotten incrementally worse each quarter. But if we look at your guys results, it sounds like you guys have almost gotten incrementally better, especially in regards to your six-figure adds. Could you maybe kind of just help us reconcile those data points?
Amit Yoran: Yes, in terms of the channel checks, we don’t — I think this for you. We don’t see it. Our channel partners remain very bullish on VM and very bullish about their ability to differentiate Tenable as the leading VM vendor and provider and feel bullish that their customers are looking to expand their VM capabilities and more — as more and more executive questions are asked of security programs. Are we vulnerable, — where are we vulnerable, are we exercising good standard of care? Are we patching our systems quickly enough? Are we being negligent, I think those — answering those types of executive questions really comes from your VM program, not from your firewall, not from your endpoint or your logging solution.
So, as more executives are asking questions of cyber, we feel like it bodes well for VM. We’re seeing that in our results. We’re seeing that in our conversations with customers. And Tenable One allows us to have even more strategic conversations across a broader set of asset types. So, we’ve remain committed to the VM and Cyber Exposure market. And I think given both our results and our confidence in what we’re seeing in our own conversations with customers and channel partners, we will remain committed to and increasingly invest in that strategy.
Steve Vintz: Yes. And the one thing that I’ll add is, keep in mind that we transact sales in 160 countries. We have hundreds of channel partners and — so I can’t speak to the channel checks, but sometimes if you’re talking to a partner or a contact that may only have a very specific view into our business or maybe even to the VM market. And also, our exposure solutions collectively represent about 50% of our total sales. So, over the years, we’ve done a really good job becoming more strategically relevant to our customers, broadening the focus and we’re having success selling a platform and playing in larger market opportunities such as cloud security and even identity and security analytics, which are top spending priorities and pain points for our customers this year.
Joshua Tilton: Makes sense. And then just a quick follow-up. It sounds like you guys are definitely communicating that the initial CCB guidance for 2023 is in your opinion, de-risked I think you talked about that it assumes the macro actually gets worse. Is there anything else outside of that, that you can just quantify or take one level deeper in terms of what exactly inside the guide is more de-risked? Maybe expansion versus new business, where you expect NRR to kind of shake out? Anything else you can kind of talk to in the 2023 guide that should help us feel like those numbers are de-risked?
Steve Vintz: Yes, we think our CCB guide for the year is good, but we described it as cautious. And we think that’s the right approach to have in a market like this, that’s highly dynamic, right? Each quarter is different in its own right. And our expectation going into 2023 is that the macro will remain challenged and perhaps will even worsen the first half of the year. So, we want to be prepared for whatever comes our way. We’ve done a good job over the past several quarters. Really identifying opportunities where we have success, larger closing larger deals and some verticals are stronger than others, as we’ve talked about earlier, and tech was particularly strong for us, financial services, all of those. So, we have a good sense of what’s working really well for us.
I think with regard to the guide, I think we’re just taking a more cautious approach, and we’re assuming that the macro could potentially impact close rates. And maybe even renewal rates. But what I will say is that our renewal rates continue remain strong. Upsell was very strong in the quarter. We did add lots of large deals. But our expectation is that new lands, for new logos could be tougher to transact in 2023.
Joshua Tilton: Thanks guys. Appreciate the update.
