“We expect to incur charges of approximately $24 million to $32 million related to the restructuring plan throughout the third and fourth quarters of 2023, of which the majority are expected to be cash expenditures and weighted towards the third quarter.”

In context

“Tim Adams (CFO): Thank you, Corey, and good afternoon to everyone on today's call. Thank you for joining us. 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 of 2023 with $751 million in ARR, consistent with our expectations and growing 14% over the prior year, reflecting continued demand for our Insight platform, with the strongest growth contribution coming from the high-priority areas of detection and response and cloud security. We continue to see threat and cloud risk complete offerings tracking ahead of our expectations at over one-third of new ARR in the second quarter, with the benefit coming from both landing new customers and driving upgrades and expansion within our base. We also saw balanced contributions from new and existing customers in our overall business during the quarter, with ARR per customer that grew 7% year-over-year to $66,500 as existing customers leverage more capabilities on our platform. We saw a nice improvement in total net customer additions, ending the second quarter with nearly 11,300 customers, representing growth of 6% year-over-year. Second quarter revenue of $190 million grew 14% over the prior year and exceeded the high end of our guidance range. Product revenue grew 14% year-over-year to $182 million and was better than expected on favorable linearity in the quarter. International revenue grew 17% over the prior year and represented 21% of total revenue, while North America revenue grew 13% year-over-year. Now turning to our operating and profitability measures for the quarter. Product gross margin was 76% in the second quarter and overall gross margin was 74%, both in line with our expectations. Sales and marketing expenses represented 39% of revenue in the quarter, down from 41% in the prior year. R&D expenses were 21% of revenue, unchanged from the prior year, and G&A expenses were 7% of revenue compared to 8% in the prior year. Higher revenue, combined with slower hiring in the quarter drove stronger-than-anticipated operating income of $13 million in the second quarter. Our adjusted EBITDA was $19 million in the quarter and diluted net income per share was $0.18, better than our guided range on higher operating income. There are two additional items from the second quarter I want to mention that are non-cash and do not affect our non-GAAP results. First, our GAAP net income reflects a $13 million noncash charge related to a capped call transaction from our 2023 convertible bonds. These bonds were retired as part of a refinancing nearly two years ago, but the associated capped calls require us to record a mark-to-market adjustment at the end of the second quarter. This capped call transaction was settled in early August, resulting in a cash receipt of slightly over $17 million. Second, as part of the restructuring plan, we will be consolidating our global real estate footprint. As a result, we incurred a noncash charge of $27 million in the second quarter related to real estate assets that we determined are not necessary to support our strategic growth objectives. Moving to the balance sheet and cash flow statement, we ended the second quarter with cash, cash equivalents, and investments of $296 million. This is before the $17 million we collected in August related to the capped call transaction on our 2023 convertible bonds. Operating cash flow was $31 million, and we generated $26 million of free cash flow in the second quarter, driven by stronger profitability and more favorable collection trends. Now turning to our outlook for the remainder of the year. The restructuring plan we announced today is a focused effort to align our organization and our investments around the areas of business that are driving the most value for our customers. This was not a decision we made lightly, and we believe these actions will enable stronger and more profitable growth as we invest to meet customer demand for consolidated SecOps solutions. We expect to incur charges of approximately $24 million to $32 million related to the restructuring plan throughout the third and fourth quarters of 2023, of which the majority are expected to be cash expenditures and weighted towards the third quarter. We also expect to incur $3 million to $4 million in non-cash impairment charges from the consolidation of our real estate footprint throughout the second half of 2023. These restructuring charges will be excluded from our non-GAAP operating income and non-GAAP net income results, though the cash expenditures will be reflected in our operating cash flow and free cash flow. As such, the cash benefit of reduced headcount will be offset by the associated severance-related cash charges. As a result, we are maintaining our expectation of approximately $80 million in free cash flow for the full year. As Corey mentioned, we are updating our full-year ARR outlook range to $800 million to $805 million or approximately 12% to 13% in growth over the prior year. This is roughly a 2% reduction in year-over-year growth at the midpoint, which despite healthy year-to-date momentum in our business, we believe is appropriate to account for modest disruption risk in the business as we make these important strategic changes. We are adjusting our total revenue guidance for the full year to $771 million to $775 million or roughly 13% growth. The $3 million reduction at the midpoint is wholly driven by lower professional services revenue tied specifically to our restructuring cost actions, which we now expect should be approximately flat compared to last year. We are raising our full-year operating income guidance to a range of $86 million to $90 million, which represents approximately 700 basis points of operating margin expansion over the prior year. We expect full-year net income per share to be in the range of $1.23 to $1.29 based on an estimated 67.5 million diluted weighted average shares outstanding. Turning to quarterly guidance, for the third quarter of 2023, we expect revenue in the range of $196 million to $198 million, which represents growth of roughly 12% year-over-year. We expect operating income for the third quarter in the range of $29 million to $31 million and non-GAAP net income per share of $0.41 to $0.44, which is based on 71.7 million diluted weighted average shares outstanding. As we look out at next year, we expect to generate at least $160 million in free cash flow in 2024, doubling from our current 2023 guidance of $80 million. We feel good about our results year-to-date and about our ability to pursue the strategic opportunities ahead of us as a leaner, more agile company.”