“We continue to generate strong free cash flow and are reiterating our full year free cash flow target range of $125 million to $135 million.”

In context

“Timothy 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 third quarter of 2025 with $838 million in ARR, representing a 2% increase year-over-year. Revenue and profitability were above our guided ranges and as in prior quarters, we continue to see promising signs for future growth in detection and response and progress in Exposure Command adoption. While in general, we've seen the customer spending environment challenged by additional scrutiny, particularly in large deals, we have been focused on enhancing our product capabilities to address a challenged threat environment driven by escalating AI-enhanced threats and cloud migration demand. Turning to our financial results for the third quarter. Year-over-year ARR growth in the third quarter was driven predominantly by 2% in ARR per customer. And we ended the third quarter with over 11,600 customers globally and average ARR per customer of over $72,000. Third quarter revenue of $218 million grew 2% year-over-year and exceeded our guided range. Product subscription revenue also grew 2% year-over-year to $210 million. Professional services continued to decline year-over-year consistent with our expectations and decision to deemphasize certain lower-margin services. International revenue represented 25% of total revenue and grew 8% over the prior year. On profitability measures, our product gross margin was 75% and total gross margin was 73%. Sales and marketing expenses were 33% of revenue, slightly above the prior year at 31%. R&D and G&A expenses were 17% and 6% of revenue, respectively, compared to 16% and 6% in the prior year. Operating income for the third quarter was $37 million and above our guidance range, driven by natural leverage in the business as well as timing of spend as we continue to focus on making targeted growth investments and scaling our India capability center during the second half. Adjusted EBITDA was $44 million in the quarter, and non-GAAP net income per share was $0.57. Shifting to our balance sheet and cash flow statement. We ended the third quarter with cash, cash equivalents and investments of $635 million compared to $600 million at the end of the second quarter. We generated free cash flow of $30 million in the third quarter, bringing our year-to-date free cash flow to $98 million, and we remain well on track to achieve our full year free cash flow targets. This brings us to our outlook for the remainder of the year. As Corey referenced, we believe we are well positioned to help customers and prospects integrate our leading AI capabilities and experiences into their SOC as we look ahead. At the same time, we are managing active change during the fourth quarter, both from a leadership perspective as well as we accelerate our focus and operational alignment toward our fastest growth opportunities as we look ahead to 2026. We have factored these dynamics into our fourth quarter ARR outlook, which now calls for ARR to end Q4 approximately flat quarter-over-quarter. Turning to our other guidance metrics. We are tightening our full year revenue guidance range to $856 million to $858 million, representing year-over-year revenue growth of 1% to 2%. Full year recurring product revenue growth will continue to outpace total revenue growth, partially offset by year-over-year declines in professional services. Moving to profitability. We are raising our full year operating income guidance to the upper half of our prior range and now expect to deliver $130 million to $135 million in operating income for the year, representing an operating margin of 15% to 16%. We continue to generate strong free cash flow and are reiterating our full year free cash flow target range of $125 million to $135 million. Finally, we now expect non-GAAP net income per share for the full year of $2.02 to $2.09 based on approximately 75.9 million diluted weighted average shares outstanding. Turning to fourth quarter guidance. We expect revenue in the range of $214 million to $216 million. We expect non-GAAP operating income of between $25 million and $30 million and non-GAAP net income per share of $0.37 to $0.44 based on approximately 76.6 million diluted weighted average shares outstanding. In closing, I'd like to thank everyone for their support during my time as Rapid7 CFO, including our Board, our investors and analysts, and most importantly, our team here at Rapid7. I would also like to welcome Rafe Brown to the team and wish him the best. Thanks for everything, and I look forward to continuing our relationships in the future. With that, I want to thank you for joining us on the call today, and I will now turn the call back to the operator to open the line for questions.”