Rapid7, Inc.

to welcome everyone to the Rapid7 Q4 2022 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your touchtone keypad. If you'd like to withdraw your question, press star one once again. Sunil Shah, Vice President of the Investor Relations, you may begin your conference.

Thank you, Operator, and good afternoon, everyone. We appreciate you joining us today to discuss Rapid7's fourth quarter and full year 2022 financial and operating results, in addition to our financial outlook for the first quarter and full fiscal year 2023. With me on the call today are Corey Thomas, our CEO, and Tim Adams, our CFO. We've distributed our earnings press release over the wire and is now posted on our website at investors.rapid7.com, along with the updated company presentation and financial metrics file. This call is being broadcast live via webcast, and following the call, an audio replay will be available at investors.rapid7.com. During this call, we may make statements related to our business that are considered forward-looking under federal securities laws. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements related to the company's positioning, strategy, business plans, and financial guidance for the first quarter and full year 2023 and the assumptions underlying such goals and guidance. These forward-looking statements are based on our current expectations and beliefs and on information currently available to us. Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q, filed on November 3, 2022, and in subsequent reports that we filed with the SEC. The information provided on this conference call should be considered in light of such risks. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Rapid7 does not assume any obligation to update the information presented on this conference call, except to the extent required by applicable law. Our commentary today will be primarily in non-GAAP terms, and reconciliations between our historical GAAP and non-GAAP results and guidance can be found in today's earnings press release and on our website at investors.rapid7.com. At times, in our prepared remarks or in response to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or quarterly results. Please be advised that this additional detail may be one time in nature, and we may or may not update these metrics in the future. With that, I'd like to turn the call over to our CEO, Corey Thomas.

Corey? Thank you, Sunil, and good afternoon, everyone, on today's call. Thank you for joining us. Rapid7 finished 2022 with $714 million in ARR, consistent with our expectations, going 19% over the prior year. Revenue exceeded our expectations, and we delivered better than expected operating profit and free cash flow as we continued to drive operational efficiencies in our business. ASP and ARR per customer continue to rise during Q4 as customers are using more of the Insight platform, reflecting Rapid7's growing value as a platform consolidator. And while it's still early days for our new platform consolidation offerings, the early results are positive. Over 10% of new ARR in the fourth quarter was generated either by a threat-complete or cloud-risk-complete consolidation offerings. We are pleased with the early traction we're seeing in key areas of our business as we look to improve execution, even as certain economic headwinds escalated during the fourth quarter. Consistent with the range of scenarios embedded in our outlook, we saw greater economic pressure during the fourth quarter in our mid-market segment, which represents roughly half of our total ARR. The net result was that positive traction in key parts of our business was offset by macro dynamics bringing us to the midpoint of our ARR outlook to end the year. A few comments on the current spending environment. Customers continue to face an evolving and complex threat landscape, and there remains broad-based executive and board-level support for cybersecurity projects. Despite this fundamental demand, the ability to obtain incremental budgets for these projects has gotten more difficult in the current environment. As a result, CISOs are being forced to scrutinize and prioritize their budgets, driving longer deal cycles and more uncertainty around deal timing as contracts take longer to push through procurement. This dynamic is exacerbated by the increasing size of our deal opportunities as we gain traction as a platform consolidator. Despite a challenged budget environment, we're seeing certain tailwinds gain traction. Constrained security budgets are accelerating customers' focus on security vendor consolidations. with greater value being placed on the efficiency and impact of integrated platform technology in a fragmented IT landscape. We're seeing solid engagement with enterprise customers as they look to consolidate vendors and gain better security outcomes from their budget dollars. Our Insight platform is positioned to benefit from this shift by empowering security teams to more effectively and efficiently manage the expanding scope of their security operations. Rapid7 is resonating with security teams looking to manage and consolidate their vendors. As CISOs and security practitioners evaluate their SecOps stack, Rapid7's platform stands out for a few important reasons. We have built the breadth of critical capabilities on our platform that customers require to run a best-in-class security operations program. These capabilities are deeply integrated to deliver a highly productive, automation-centric platform and experience. And our platform is built for security practitioners by security practitioners, further enabling us to offer on-demand security expertise as part of our direct and partner managed offerings to help customers scale their security operations efficiently and effectively. The breadth and value of our Insight platform is illustrated by an $800,000 deal during the fourth quarter with a high growth software company. This existing customer had a small VM footprint and was going through an RFP to replace their existing detection and response solution with a mandate to gain visibility into their expansive cloud environment. Rapid7 stood out during the technical evaluation as one of a few partners who could address their comprehensive set of use cases. As part of the deal, the customer standardized on Rapid7's SecOps platform by consolidating VM and DNR through our direct complete offering while adding cloud security automation, and threat intelligence. In addition to offering a compelling platform technology, Rapid7's new ThreatComplete and Cloud RiskComplete consolidation offerings are refining how our Salesforce goes to market. These solutions lean into vendor consolidation as well as the prioritization of security budgets around critical spending areas that include detection and response and cloud security. As a reminder, ThreatComplete enables customers to consolidate our best-of-breed, expert-driven threat detection and response solution, along with unlimited coverage of our market-leading VM through a single subscription offering. And Cloud Risk Complete is our cloud-centered risk visibility offering, which consolidates unlimited visibility across customers' on-prem, cloud, and external environments at various stages of transition to the cloud. It enables customers use of cloud and application security with unlimited VM coverage together in one platform subscription. These solutions are part of the realignment of our sales strategy and an important step in advancing our platform selling motion. The strong value proposition of Rapid7's leading platform technology and compelling new go-to-market offering are evident in a multi-year seven-figure deal with a Fortune 500 manufacturing company in the fourth quarter. As an existing vulnerability management customer, We knew their security team was looking for a better way to manage, detect, and respond to threats across their organization. After a robust and competitive process, our managed threat complete offering was chosen to replace their existing SIEM solution and managed service provider based on the quality of both our technology and the support that we can offer around it. Their decision was reinforced by the compelling economic value of consolidating multiple features across our platform, and speaks to the early traction we're seeing in the market for our new consolidation offerings. As we look to build upon this early traction, we're cognizant of the need to balance our execution optimism with the current macroeconomic and budgetary headwinds as we frame our forward outlook for 2023. Tim will discuss these dynamics in greater detail, but at a high level, I will point to three critical areas of focus that I expect will have the largest impact on our performance this year. The first two are under our control and related to the executional challenges we spoke about on the last call. The introduction of our risk and threat complete consolidation offerings and the training enablement of our Salesforce as they master a platform selling motion. We see positive early traction in these areas exiting 2022. And we believe we remain on track to see improvements, support growth in the second half of 2023. The third key area is a broader macroeconomic environment. Looking ahead, we expect a continuation of the customer budget pressure we saw in the fourth quarter and are incrementally more cautious in the near term on the mid-market customer segment, which slowed as we exited 2022. We assume moderate ongoing deterioration in this segment as we enter the year and have accounted for elongated sales cycles and large deal timing uncertainty, particularly as we begin to drive more growth from our platforms and solidation offerings. All in all, we're taking a prudent view of our full-year outlook to account for a more uncertain economic backdrop. With that said, we remain confident in the mid- to long-term sustainable growth profile of our business, while acknowledging the timeline for reacceleration will depend on the severity and duration of the macroeconomic pressure we're currently seeing. And lastly, I want to reinforce our commitment to scaling profitably by executing against our margin expansion targets for this year. This is a dedicated focus area for me as we look to drive continued operational efficiency and increase rigor around how we invest for growth. The work we're doing to make our business more efficient will support our commitment to profitability, both in the current environment and as the economy recovers. Our strong focus on cost optimization across the business gives us confidence in meeting our 300 basis point operating margin expansion target while doubling free cash flow this year. With that, thank you for joining us on the call today. I will now turn the call over to our CFO, Tim Adams, to share additional detail on our financial results and outlook.