“For the second quarter, we anticipate a high single-digit sequential increase in millions of net new ARR dollars, with further sequential improvements in net new ARR in the back half of the year as we improve our execution.”

In context

“Timothy Adams (CFO): Thank you, Corey, and good afternoon to everyone on today's call. Thank you for joining us. Before I turn to our 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 first quarter of 2024 with $807 million in ARR, representing growth of 11% year-over-year. Revenue was at the high end of our guidance range, and we delivered strong operating income that exceeded expectations despite our ending ARR being below expectations for the quarter. We saw healthy traction in our detection and response business, particularly for our Threat Complete consolidation offers. However, our total ARR was impacted by a lower-than-anticipated contribution during the first quarter from the transition to integrated risk management offers. We saw ARR growth in the first quarter coming from both new and existing customers, with ARR per customer that grew 7% over the prior year to $70,000, and a global customer base that grew 4% year-over-year to end the quarter with over 11,000 customers. As it relates to our sequential change in customers, moderate positive sequential growth in our platform customer base was more than offset by a sequential decline in our non-platform customer base, as we saw slower-than-anticipated traction in our integrated risk offering, Cloud Risk Complete. First quarter revenue of $205 million grew 12% over the prior year and was at the high end of our guidance range. Our recurring product subscription revenue grew 13% over the prior year to $197 million. International revenue grew 22% year-over-year and represented 23% of total revenue, while North America revenue grew 9% and represented 77% of total revenue. Turning to our operating and profitability measures for the quarter. Product subscriptions gross margin was 76% in the first quarter and overall gross margin was 74%, both in line with the prior year. Sales and marketing expenses represented 32% of revenue, down from 39% in the first quarter of last year. R&D and G&A expenses were 16% and 6% of revenue, respectively, compared to 20% and 8% in the prior year. We delivered first quarter operating income of $40 million, above the high end of our guidance range, and representing an operating margin of 20%. Our adjusted EBITDA was $47 million in the quarter. GAAP net income per share was $0.03 and non-GAAP diluted net income per share was $0.55. Moving to our balance sheet and cash flow. We ended the first quarter with cash, cash equivalents and investments of $464 million compared to $439 million at the end of 2023. Cash from operations during the first quarter reflects a benefit from stronger-than-expected cash collections, helping drive $28 million of free cash flow in the quarter. This brings us to our outlook for the rest of the year. As Corey shared in his remarks, we are revising our guidance ranges to incorporate our slower-than-expected start to 2024. Specifically, we are derisking our expectations for contributions from integrated risk offerings throughout the middle of the year and now anticipate only a modest contribution in Q4 from our upcoming summer launch of our improved Cloud Risk Complete offering. As a result, for the full year 2024, we now expect ending ARR of $850 million to $860 million, which represents growth of 6% to 7% over the prior year. While we are disappointed in this range of growth, we remain confident that we have the right long-term strategy to deliver the best value, outcomes and economics for our customers and to ultimately reaccelerate this growth rate. While we do not customarily provide quarterly commentary on ARR, given the slow start to the year and as we work through the executional dynamics that Corey detailed, we feel it would be prudent to share some forward direction today. For the second quarter, we anticipate a high single-digit sequential increase in millions of net new ARR dollars, with further sequential improvements in net new ARR in the back half of the year as we improve our execution. We are revising our revenue guidance range to reflect our new ARR growth outlook and now expect total revenue for 2024 in the range of $830 million to $836 million, representing growth of 7% to 8%. Turning to full year profitability. I am pleased to share that we are maintaining our full year profitability targets for both operating income and free cash flow. Despite a lower top line outlook for the year, we believe we have sufficient flexibility and expense levers to maintain our original profitability targets. As such, we continue to expect 2024 operating income of $150 million to $158 million and net income per share in the range of $2.10 to $2.21, based on an estimated 75 million diluted weighted average shares outstanding. We remain committed to scaling free cash flow in our business, so we are also maintaining our expectation to generate at least $160 million of free cash flow for full year 2024. Moving to quarterly guidance. For the second quarter of 2024, we expect total revenue in the range of $203 million to $205 million, representing growth of 7% to 8%. We expect non-GAAP operating income for the second quarter in the range of $35 million to $37 million and non-GAAP net income per share of $0.50 to $0.53, which is based on 74.6 million diluted weighted average shares outstanding. Thank you for taking the time to join us on the call today. And with that, we will open the call for questions. Operator?”