“For the full year, we continue to expect free cash flow in the range of $40 million to $45 million.”

In context

“Tim Adams (CFO): Thank you, Corey, and good afternoon to everyone. Thank you for joining us on the call today. Before I turn to the results, just a quick reminder that except for revenue, all financial results we discuss today are non-GAAP financial measures unless otherwise stated. Additionally, reconciliations between our GAAP and non-GAAP results can be found in our earnings press release. Rapid7 had an excellent start to the year, ending the first quarter with ARR of $627 million, which represents 38% year-over-year growth. Our sustained growth highlights the strong momentum we are seeing, as customers transform their security operations programs around the cloud. In particular, customers are expanding their usage of our platform to more effectively analyze risk across both their traditional and modern IT environments and improve security outcomes. The compelling value proposition of our Insight platform is driving robust cross-sell and upsell activity with first-quarter ARR per customer growing 18% year-over-year to $60,000 at the same time we continue to see a healthy balance of ARR growth from new customers as we ended the quarter with over 10,400 customers globally, which represents 16% growth from the prior year. Security transformation solutions made up over 60% of new ARR in the quarter and continue to grow at a strong pace. This speaks to the success of our land motion across multiple products, as well as our commitment to providing a best-in-suite experience across our Insight platform. First quarter revenue of $157 million grew 34% over the prior year and exceeded the high end of our guidance range. This outperformance was driven by broad-based demand for both our security transformation and vulnerability management solutions, which drove product revenue of $149 million, representing 36% year-over-year growth and acceleration over the prior quarter. We continue to execute well on our international growth strategy with international revenue growing 54% year-over-year to 21% of total revenue while North America grew 30% year-over-year. Turning to our operating and profitability measures for the quarter. Product gross margin was 75% in the first quarter, while total gross margin was approximately 72%, both within our range of expectations. Given the strong momentum we see in the business, we continue to invest in driving durable growth while remaining focused on delivering full-year operating margin expansion consistent with our growth and profitability framework. Our Q1 investments position us to execute against the strong demand backdrop we see and despite competitive talent environment, we have seen strong success expanding our workforce. During the first quarter, sales and marketing expenses represented 43% of revenue compared to 42% in the prior year. And R&D and G&A expenses were 23% and 9% of revenue, respectively, compared to 22% and 8% in Q1 of last year. First-quarter operating loss of $5.6 million was consistent with our guidance range and net loss per share was $0.16, also consistent with our expectations. Now moving to our balance sheet and cash flow statement. We ended the quarter with cash, cash equivalents, and investments of $263 million. Our strong first quarter ARR growth and collection efforts drove Q1 operating cash flow of $10 million and free cash flow of $4 million. This brings us to our guidance for the remainder of the year. We delivered strong first quarter results and see a durable demand backdrop ahead of cyber risk continues to escalate, driving increased prioritization of security spending for organizations of all sizes. Our expanded market leadership across our Insight platform positions us to help many of these organizations as they look to consolidate to fewer strategic security vendors in search of better outcomes. As a result, we remain confident in our ability to execute against the strong year-over-year ARR growth guidance of 24% to 25% that we shared at the beginning of this year. As we noted during our last call, we will share any relevant updates to this ARR guidance in the second half of the year. Given our Q1 revenue outperformance, we now expect full-year revenue to be in the range of $686 million to $692 million, growth of approximately 28% year-over-year. For our profitability measures, we remain on track to deliver non-GAAP operating income in the range of $17 million to $24 million for the full year with net income per share in the range of $0.05 to $0.16. This is based on an estimated 60.9 million diluted weighted average shares outstanding. For the full year, we continue to expect free cash flow in the range of $40 million to $45 million. Now turning to quarterly guidance. For the second quarter of 2022, we expect revenue in the range of $163 million to $165 million, which represents growth of 29% to 31% over the prior year. We expect operating income to be in the range of zero to $2 million and non-GAAP loss of $0.07 to $0.03 per share, which is based on an estimated 58.8 million basic weighted average shares. We continue to focus on delivering strong growth with consistent annual improvement in operating margin and free cash flow in alignment with our growth and profitability framework. As we look at the profitability dynamics for this year, we continue to expect the majority of our operating income and free cash flow to be driven in the second half of the year. This reflects first half investments in durable growth and underscores our strong confidence in the underlying demand trends and outlook for the year. In summary, we are pleased with our first quarter results and believe they give us a solid foundation for achieving our goals in 2022. As the threat landscape intensifies, we are committed to delivering market-leading security operations technology to enable better security outcomes for our customers.”