Tenable Announces Agreement To Acquire CNAPP Vendor Ermetic

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Why is Tenable making this investment?
  • Following completion, this acquisition will augment and accelerate our end-to-end CNAPP capabilities for multi-cloud environments to Tenable’s capabilities.
  • This is a customer demand driven acquisition. As we have grown our standalone cloud and Tenable One cloud customer base we have developed deep relationships and an understanding of what their ongoing needs are.
  • The highly-intuitive user interface, and elegant integration across the different CNAPP use cases, enables our customers to better understand, prioritize and reduce risk. This unified cloud view will make it easy for security professionals of all cloud expertise levels to spot and quickly address risks.
  • To bring state of the art cloud infrastructure entitlement management “CIEM” technology to our cloud solution.
  • Mindshare: Ermetic’s strong team has extensive cloud security experience. We look forward to working with them to expand our offering even further.
What does Ermetic do?
  • Ermetic’s CNAPP is a unified and agentless solution that automates asset discovery, risk analysis, accelerated remediation and compliance. Elegant user experience minimizes complexity and speeds adoption.
  • Ermetic solved one of the toughest problems in cloud security - identity and entitlements - first. It provides a comprehensive solution for managing human and service identities for cloud infrastructure.
  • Ermetic visualizes all identities and entitlements and reveals toxic combinations, such as privileged access to publicly-exposed vulnerable workloads and uses automated analysis to reveal and prioritize risks.
Why is this solution important to Tenable?
  • Identity based threats are a major issue. Cloud complexity – including identity sprawl and layers of policies that often change – makes understanding access risk and permissions extremely difficult.
  • Following completion, we expect the acquisition of Ermetic will accelerate Tenable’s ability to address these complex issues and increase Tenable’s leadership position in the Cloud Security market
    • Ermetic provides extensive CNAPP capabilities, significantly enhancing Tenable’s offering specifically in Cloud Infrastructure Entitlement Management (CIEM) where Ermetic excels and is a leading vendor.
How does this accelerate your cloud roadmap?
  • We intend to combine the best technology from Ermetic and our existing Tenable Cloud Security product going forward to maximize value for our customers.
  • Our cloud security product has strong agentless assessment and infrastructure as code, some CSPM and container registry scanning. Ermetic adds unified, elegantly integrated CNAPP, market-leading CIEM, strong CSPM and integrated workflows.
Why is Tenable uniquely positioned to win in the cloud security market?
  • Unified CNAPP - a unified and agentless solution that automates asset discovery, risk analysis, accelerated remediation and compliance. From shift-left infrastructure as code security to agent-based and agentless assessment for runtime environments, broad CNAPP capabilities will be delivered via an elegant user experience that minimizes complexity and speeds adoption.
  • Powerful CIEM - a comprehensive solution for managing human and service identities for cloud infrastructure. It visualizes all identities and entitlements, using automated analysis to reveal and prioritize risks.
  • Context-aware risk prioritization - context across all cloud and on-premises resources, including workloads, identities and data. Enhanced exposure management will extend visibility across the hybrid, multi-cloud attack surface.
  • Simplified remediation - guidance on and automation of the remediation process that enables organizations to make rapid improvements in their security posture.
Will Ermetic be integrated into the broader Tenable One offering?
  • Yes, we expect it will accelerate our cloud security roadmap both on a standalone basis and for Tenable One.
  • The unified data model we have been building makes integrating 3rd parties easier which should make this acquisition a more seamless integration into Tenable One.
Is it the same buyer? What is your go-to-market strategy?
  • Yes, the same buyer that is currently purchasing our standalone cloud security offering and our unified exposure management offering, Tenable One.
  • This acquisition provides an elegantly unified CNAPP platform with powerful CIEM functionality for our global sales organization and distribution partners. Further, this acquisition creates a compelling upsell opportunity across our 40,000+ customers.
What is the TAM?
  • This acquisition expands our total addressable market to over $30 billion and accelerates our ability to address the $45 billion+ cloud security market. We will discuss our TAM in greater detail in December at our investor day.
What are the terms of the agreement?
  • Tenable will acquire Ermetic for approximately $240 million in cash and $25 million in restricted stock and RSUs, subject to customary purchase price adjustments.
  • The acquisition is expected to close early in the fourth quarter 2023, subject to customary closing conditions.
  • Tenable expects to fund the cash portion of the purchase price with existing cash.
What is the impact on your 2023 outlook?
  • Ermetic’s financial results in the fourth quarter of 2023 are not expected to be material to revenue and calculated current billings. Non-Gaap operating expenses are expected to increase by $4-$6 million and EPS is expected to decrease by 6 to 8 cents, assuming the issuance of 1.4 million shares of restricted stock and restricted stock units for a portion of the purchase price consideration as well as retention related awards. Consistent with prior practice, we exclude acquisition-related expenses from our non-GAAP results. Unlevered free cash flow in the fourth quarter is expected to be reduced by $14-$16 million, which includes $10-$12 million of acquisition-related expenses and forgone interest income.
What do you expect the impact to be for 2024?
  • For 2024, Ermetic is expected to contribute approximately two percentage points of growth to calculated current billings and approximately one point of revenue growth. For the full year, non-GAAP income from operations is expected to decrease by $5 to $10 million. Unlevered free cash flow in 2024 is expected to decrease by $10-$15 million. We expect the transaction to be breakeven in Q4’24 for both non-GAAP income from operations and unlevered free cash flow.

Forward Looking Statements

This Q&A contains forward-looking information related to Tenable, Ermetic and the potential acquisition that involves substantial risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied by such statements. You can generally identify forward-looking statements by the use of forward-looking terminology such as the words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “explore,” “evaluate,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” or “will,” or the negative thereof or other variations thereon or comparable terminology. The forward-looking statements in this Q&A are based on each of the companies’ current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties, many of which are beyond Ermetic’s or Tenable’s control. Forward-looking statements in this Q&A include, among other things, statements about the potential benefits of the acquisition and product developments and other possible or assumed business strategies, anticipated financial impact of the acquisition, potential growth opportunities, new products and potential market opportunities and the anticipated timing of the closing of the acquisition. Risks and uncertainties include, among other things, our ability to successfully integrate Ermetic’s operations; our ability to implement our plans, forecasts and other expectations with respect to Ermetic’s business; our ability to realize the anticipated benefits of the acquisition, including the possibility that the expected benefits from the acquisition will not be realized or will not be realized within the expected time period; our ability to consummate the transaction pursuant to the terms and in accordance with the timing described in this press release; disruption from the acquisition making it more difficult to maintain business and operational relationships; the inability to retain key employees; the negative effects of the consummation of the acquisition on the market price of our common stock or on our operating results; unknown liabilities; attracting new customers and maintaining and expanding our existing customer base; our ability to scale and update our platform to respond to customers’ needs and rapid technological change; increased competition on our market and our ability to compete effectively; and expansion of our operations and increased adoption of our platform internationally.

Additional risks and uncertainties that could affect our financial results are included in the section titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and other filings that we make from time to time with the Securities and Exchange Commission (SEC) which are available on the SEC’s website at www.sec.gov. In addition, any forward-looking statements contained in this Q&A are based on assumptions that we believe to be reasonable as of this date. Except as required by law, Tenable assumes no obligation to update these forward-looking statements, or to update the reasons if actual results differ materially from those anticipated in the forward-looking statements. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, many of these costs and expenses that may be incurred in the future.