“Recurring product revenue growth will outpace total revenue growth, offset partially by a year-over-year decline in professional services.”

In context

“Tim Adams (CFO): Thank you, Corey, and good afternoon to everyone. We appreciate you taking the time to join us on today's call. 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 first quarter of 2025 with $837 million in ARR, representing growth of 4% over the prior year. ARR results came in below our expectations and reflect continued healthy growth in our Detection and Response business, offset by both macroeconomic headwinds and continued pressure in our Risk and Exposure Management business. Softness in our standalone vulnerability management business and a few delayed new deals were the primary headwinds, combined with an incrementally more cautious customer spending environment, which muted potential upside drivers in the first quarter. Amid this, we delivered revenue and profitability that exceeded our guided ranges, and we continued to demonstrate strong operational discipline and free cash flow generation. Now turning to the rest of our financial results for the quarter. Year-over-year ARR growth in the first quarter was split fairly evenly between new and existing customers. ARR per customer grew 2% year-over-year to approximately $72,000 and our total customer base grew 2% year-over-year to 11,685 customers globally. Revenue of $210 million for the first quarter grew 3% year-over-year and was above our guided range. Product revenue grew 4% year-over-year to $204 million. Professional services declined year-over-year, consistent with our decision to deemphasize certain lower-margin service engagements. International revenue represented 25% of total revenue and grew 10% over the prior year. On operating and profitability measures, our product gross margin was 76% and total gross margin was 75%. Sales and marketing expenses were 34% of revenue, reflecting disciplined investments in growth initiatives. R&D and G&A expenses were 18% and 8% of revenue, respectively, and consistent with our plan to prioritize targeted investments behind our core security operations platform and scaling our India innovation center. Operating income for the first quarter was $32 million and above our guided range due to the timing of certain hiring and G&A expenses. We now expect these costs will be reflected in the later quarters. Adjusted EBITDA was $39 million in the quarter, and non-GAAP net income per share was $0.49. Turning to our balance sheet and cash flow statement. We ended the first quarter with cash, cash equivalents, and investments of $593 million. In early May, we fully repaid the remaining $46 million balance of our 2025 convertible notes, further simplifying our capital structure. Our existing convertible debt is attractively priced, and we plan to meet these obligations through a combination of cash on hand and free cash flow generated from the business. We believe this financial flexibility positions us well to continue investing in growth while maintaining a strong capital structure. Free cash flow for the quarter was $25 million. This brings us to our outlook for the remainder of the year. For the full year 2025, we are adjusting our ARR guidance to reflect the slower start to our year, along with increased uncertainty we're seeing in the market. While Detection and Response remains a consistent performer, the softness in our Risk and Exposure Management business and lengthening sales cycles, particularly in March, have created more variability than we anticipated at the start of the year. As a result, we are lowering and widening our full year ARR range to $850 million to $880 million, growth of 1% to 5% over the prior year in order to better account for these dynamics. We continue to monitor the macro environment closely and are staying agile in our planning and execution. Given the changes in the ARR outlook, we now expect full year revenue of $853 million to $863 million, representing growth of 1% to 2% over 2024. Recurring product revenue growth will outpace total revenue growth, offset partially by a year-over-year decline in professional services. On operating profitability, we are reiterating our full year operating income outlook of $125 million to $135 million. We are adjusting our full year free cash flow guidance to a range of $125 million to $135 million to reflect billings and collection dynamics associated with our lower ARR outlook. Non-GAAP net income per share is expected to be between $1.78 and $1.91 based on approximately 76.7 million diluted weighted average shares. For the second quarter, we expect revenue in the range of $211 million to $213 million, representing year-over-year growth of 1% to 2%. We expect non-GAAP operating income between $30 million and $32 million and non-GAAP net income per share of $0.43 to $0.46 based on approximately 75.3 million diluted weighted average shares outstanding. In closing, while the broader environment remains cautious, we are confident that the steps we are taking, driving innovation in our product portfolio, deepening customer relationships, and operating with financial discipline position us well to drive improved execution through the balance of 2025 and beyond. To close, I'd like to thank our teams for their hard work and continued focus as we execute against our long-term strategy. We remain committed to driving sustainable growth, expanding profitability over time, and reinforcing Rapid7's leadership in security operations. Thank you again for joining us today. Operator, we will now open the line for questions.”