“As Corey emphasized, we continue to see a pathway to 20% ARR growth CAGR as we work towards our goal of becoming a rule of 40 company by 2025.”

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 third quarter with ARR of $684 million, growing 24% year-over-year. ARR growth continues to be led by security transformation solutions, which sustained 40% ARR growth during the third quarter despite the macroeconomic challenges and sales productivity issues mentioned by Corey. New ARR was driven by our detection and response, cloud security, and threat intelligence solutions as customers prioritize around these crucial categories. The value proposition of our platform resonates with security teams looking to consolidate their spending. Larger new customer deals and expansion with existing customers drove ARR per customer to $63,000, marking a growth of 14% year-over-year. The total customer count benefited from healthy growth in platform customers; however, we did see a modest impact from the macroeconomic dynamics previously discussed. We ended the quarter with approximately 10,800 global customers, growing 9% over the prior year, achieving the upper end of our previously stated long-term growth range of 5% to 10%. Our third-quarter revenue of $176 million grew 26% year-over-year, falling within our guidance range. Product revenue grew 27% to $166 million due to momentum in our security transformation offerings. International revenue grew 36% year-over-year, comprising 21% of total revenue, while North American revenue increased by 23% over the prior year. Regarding operating and profitability measures for the third quarter, our product gross margin sat at 76%, with total gross margin at 73%, both within our expected ranges and improved modestly from the last quarter. Sales and marketing expenses accounted for 38% of revenue, compared to 40% in the previous year, while R&D and G&A expenses were 20% and 8% of revenue respectively compared to 21% and 8% last year. Broad-based and disciplined expense management resulted in an operating income of $13 million in the third quarter, reflecting a 7% operating margin as we proactively focused on achieving our profitability targets amid macroeconomic uncertainty. Our third-quarter adjusted EBITDA stood at $18 million, with a non-GAAP earnings per share of $0.14. Turning to our balance sheet and cash flow, we ended Q3 with cash, cash equivalents, and investments of $268 million. Our solid operating income and working capital management drove third-quarter operating cash flow of $20 million and free cash flow of $10 million. Moving to our guidance for the remainder of the year, as Corey mentioned, we expect that the optimizations we are making to our platform go-to-market strategy will gain traction over the next few quarters, providing meaningful growth support starting in the second half of 2023. However, it's prudent to maintain a moderate level of near-term performance disruption, exacerbated by ongoing macroeconomic pressures. Given these dynamics, we now expect full-year 2022 ARR to range between $711 to $717 million, representing a growth of 19% to 20% over the prior year. In terms of revenue, we are narrowing and lowering our full-year 2022 outlook to between $680 million and $682 million or 27% year-over-year growth, driven by our revised ARR expectations for the year. We remain committed to scaling profitability in our business moving forward and have multiple levers to achieve that. Therefore, we are raising our full-year operating income outlook to between $25 million and $27 million, reflecting our third-quarter profitability strength that we expect to carry on. Non-GAAP earnings per share is expected to fall between $0.17 and $0.20 for the year, based on an anticipated diluted weighted average of 59.9 million shares outstanding. For free cash flow, we are adjusting our full-year outlook slightly lower to a range of $36 million to $40 million, just below the lower end of our previous range. This new range represents our continued focus on cash generation and profit expansion, partially offset by lower billing expectations associated with reduced ARR estimates for the year. Our outlook for the fourth quarter of 2022 indicates revenue will range between $179 to $181 million with operating income between $14 million to $16 million. Non-GAAP earnings per share are expected to be between $0.17 to $0.20, based on an anticipated diluted average of 66 million shares outstanding. We are confident in navigating the macroeconomic backdrop and successfully transitioning our sales force to a more focused and streamlined platform-selling motion. As Corey emphasized, we continue to see a pathway to 20% ARR growth CAGR as we work towards our goal of becoming a rule of 40 company by 2025. Moving towards this goal, we expect steady improvement in free cash flow margins, ramping up by at least 400 basis points yearly over the next few years, which aligns with our vision from our previous investor day. We have the right strategy in place to meet these targets. Thank you for joining us on the call today. We will now open the line for questions.”