“Our free cash flow outlook is maintained at $40 million to $45 million, and we remain confident in our ability to ramp free cash flow in the second half of the year.”

In context

“Timothy Adams (CFO): Thank you, Corey. Good afternoon, everyone, and thank you for joining us on the call today. Before I turn to the results, a quick reminder that except for revenue, all financial results we will 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 ended the second quarter with ARR of $658 million, representing 35% year-over-year growth. This reflects continued momentum in our high-growth security transformation solutions as customers prioritize areas like detection and response and cloud security coupled with durable double-digit VM growth. The breadth of our Insight platform continues to resonate with customers who are increasingly tasked with detecting and assessing risks across both traditional and cloud environments. Many of the customers we engage with are looking to consolidate a fragmented set of security tools. Our value proposition stands out in uncertain macroeconomic environments given our time to value and ease of use amidst persistent resource constraints on security teams. These dynamics drove healthy growth in both new customer ASPs and expansion business during the second quarter as we saw ARR per customer grow 18% year-over-year to $62,000. Our customer count grew 14% year-over-year as we ended the quarter with over 10,600 customers globally. This was driven by strong growth of over 20% in higher-value platform customers, which now represent over 80% of our customer base, while we continue to defocus on lower-value legacy transactional customers who represent a small minority of our ARR. Second quarter revenue of $167 million grew 32% over the prior year and exceeded the high end of our guidance range on the strength of our security transformation solutions. Revenue outperformance was driven by product revenue of $159 million. International revenue saw growth of 52% year-over-year and now represents 21% of total revenue driven by continued strong momentum in security transformation. North America revenue grew 28% over the prior year and comprised 79% of total revenue in the quarter. Turning to operating and profitability measures for the second quarter. Product gross margin was 75%, and total gross margin was 72%, both in line with our range of expectations. Sales and marketing expenses represented 41% of revenue compared to 40% in the prior year period, while R&D and G&A expenses were 21% and 8% of revenue, respectively, compared to 20% and 8% in the second quarter of last year. We generated over $3 million of operating income in Q2, coming in ahead of our guidance range due largely to revenue overperformance. This underscores both the natural leverage in our business model and our ongoing commitment to balancing growth and profitability within our stated framework. Our second quarter adjusted EBITDA was $8 million. Net loss per share was $0.01 and better than our guidance range on higher operating income. Moving to the balance sheet and cash flow statement. We ended the quarter with cash, cash equivalents, and investments of $254 million. Operating cash flow was $7 million, and free cash flow was just under breakeven. This brings us to our guidance. As Corey detailed earlier, we saw robust growth in our security transformation business driven by the scope and quality of our Insight platform and our ability to enable better outcomes for customers on their most urgent security challenges. This is being counterbalanced by macroeconomic uncertainty and the associated impact of increased budget scrutiny for customers, which mitigates upside potential to our prior expectations. Given these dynamics, we are reiterating our full year 2022 ARR guidance of $740 million to $750 million, year-over-year growth of 24% to 25%. Our ARR outlook now embeds approximately $5 million of FX translation headwinds for the full year given recent foreign exchange volatility and anticipates sustained but moderated VM growth in the current macroeconomic climate. We are optimistic about our unique opportunity to increasingly attach VM alongside higher-priority security transformation solutions while helping customers consolidate their security budgets to drive better efficiency of their spending. In terms of ARR linearity in the back half of the year, we now anticipate third quarter net new ARR dollars to be down modestly over the prior year period on an organic basis before returning to net new ARR growth in the fourth quarter. Turning to revenue. We are narrowing our full-year revenue outlook to a range of $686 million to $690 million driven predominantly by a decline of approximately $3 million in our services revenue outlook. We now expect our full-year operating income to be $20 million to $24 million in the upper end of our prior guidance range as we remain committed to executing against our growth and profitability framework. We expect net income per share to be in the range of $0.08 to $0.15 based on an estimated 60.2 million diluted weighted average shares outstanding. Our free cash flow outlook is maintained at $40 million to $45 million, and we remain confident in our ability to ramp free cash flow in the second half of the year. Turning to quarterly guidance. For the third quarter of 2022, we expect revenue in the range of $175 million to $177 million, which represents growth of 25% to 27% over the prior year. We expect operating income to be in the range of $6 million to $8 million and non-GAAP net income of $0.03 to $0.06 per share, which is based on an estimated 66.2 million diluted weighted average shares outstanding. We expect the new convertible debt accounting rules, which require the use of the if-converted accounting method, to impact EPS for the first time in the third quarter, adding roughly 6 million shares to our share count while also adding back cash interest expense associated with the debt in order to calculate earnings per share. In closing, we started 2022 with a strong outlook and maintain confidence in our ability to deliver within our guidance ranges as we navigate the evolving macroeconomic climate. We continue to balance high-return investments and growth with our focus on delivering consistent annual improvement in operating margin and free cash flow. And we remain committed to our profitability framework and medium- to long-term financial targets. Thank you for joining us on the call today, and we will now open the line for questions.”