Q3 2022 Rapid7 Inc Earnings Call
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[music].
Hello, My name is Lisa and I will be your conference operator today at this time I would like to welcome everyone to the rapid seven Q3 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
I ask that you limit your questions to one.
I would now like to turn the call over to Mr. So Neal Shah Vice President Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone. We appreciate you joining us today to discuss rapid Seven's third quarter 2022 financial and operating results. In addition to our financial outlook for the fourth quarter and full fiscal year 2022.
With me on the call today are Corey Thomas our CEO and Tim Adams, our CFO .
We have distributed our earnings press release over the wire and is now posted on our website at investors darn rapid seven dot 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 <unk> 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 and business plans and financial guidance for the fourth quarter and full year 2022, and the assumption.
Underlying such calls and guidance. These forward looking statements are based on our current expectations based on information currently available to us.
Actual outcomes and results may differ materially from future results expressed or implied in these statements.
A number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q filed on August four 2022.
And the subsequent reports we file with the SEC.
The information provided on this conference call should be considered in light of such risks.
Actual results or 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 rapid seven 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 primarily be 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 not rapid seven dot 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 our quarterly results.
Please be advised that this additional detail maybe onetime in nature, and we may or may not provide an update in the future on these metrics.
With that I'd like to turn the call over to our CEO Corey Thomas Cory.
Thank you Sunil and Hello to everyone on the call today. Thank you for joining us on our third quarter 2022 earnings call.
We ended the third quarter with $684 million.
Representing 24% year over year growth, while revenue was within our guided range.
And operating income exceeded our expectation.
Our results came in below our expectations for the quarter.
Growth was moderated by two key dynamics.
First the impact of ongoing global macroeconomic uncertainty on customer specials.
And secondly, followed by anticipated sales productivity as.
As we evolve our model towards a consolidated platform sales approach.
I'll speak to this in detail on today's call, but first let's discuss.
We spoke on our last earnings call about how the macroeconomic environment is affecting the pace of the mentioned driving higher levels of the inspection as customers and prospects manage recommendations and increased economic uncertainty.
These persistent youll continue to affect us broadly what the dominant pressure coming from our international regions.
Customers continued to squint got budgets and timing of new projects and in some cases are taking a more measured approach to scaling their security investments.
While we have limited visibility into the macroeconomic trajectory, we continue to factor and this headwind as we look ahead to the fourth quarter and next year.
Now, let me turn to the internal dynamics affecting our performance.
As we successfully expanded from selling a single product to a best of suite platform. A number of years ago. You may recall that we rely on product specific sales teams.
The business.
In the back half of last year, we began to mature our sales motion towards a generalist sales force, enabling all of our salespeople to sell the full suite of our insight product.
Well the key step in the evolution of our sales force towards a platform selling motion.
While we expected laptops for multiple products to take slightly longer as we scale. Our teams. This year. We did anticipate an increase in sales productivity. During the second half of this year has been gained mastery of our full product suite.
Actually in third quarter, it became clear that our salesforce is taking longer but we expect it to effectively sell a wider set of solutions on our insight platform.
Let me highlight two predominant recent level.
First our audience extension.
Given the breadth of our platform, our sellers are increasingly engaging and seasonal level discussion.
This requires more robust seller enable especially far more reps this shift from selling point products and features to selling platform solutions and outcomes.
Second this platform selling motion requires more focused packaging model compared to the land anywhere approach, particularly in an environment where customers have budgetary pressures.
As you might expect lapping itself and Kim across multiple products, while entering a recessionary spending environment further exacerbated the challenges during the quarter.
In hindsight, our measured transition from APM centric salesforce towards the charity transformation with salesforce that moves slower than expected.
The estimated laptop enablement support and focus necessary for our teams to drive efficient platform adoption.
We have responded quickly.
Question and here's what we're doing today it gives us confidence in our path toward to improve execution.
We maintain strong confidence in our mid to long term business to become the platform of choice for consolidated SEC ops management to resource constrained organizations.
Amidst a complex and highly fragmented security tool the ecosystem security teams of all sizes are struggling more than ever to deliver the right level of security efficacy for their fans.
And the bar is higher today at <unk>.
<unk> on the increased budgetary pressure.
A recent survey of T cells are the highlight at 75% of organizations are looking to consolidate security vendors from.
From this 20 odd percent of organization or a few years ago.
We believe the platform investments we've made in recent years position us well to help customers achieve more consolidated risk and threat visibility response and automation across their expanding digital footprint and calling cloud environment.
A great example of how we're delivering on this consolidation value proposition at scale.
Seven figure <unk> deal signed in the third quarter with an enterprise health care for a bottle.
This customer was struggling to effectively and efficiently manage their expansive secured environment with a leading.
<unk> managed by a large global consulting firm cleaning powerpoints and many levels throughout the organization.
Rapid protects our partnership with embedded automation stood out among the competition for rigs detection capabilities. However.
However, a huge differentiator for this customer with our ability to consolidate their setups back on a single platform.
By leveraging our DNR complete package this customer was able to solve their most urgent threat response challenge, while also displacing existing VM provider.
And a better overall economic value there.
<unk> ability to consolidate parts of their security ecosystem on our insight platform not only solidified rapid seven stops platform of choice.
The value of the relationship.
In an increasingly powerful turning to treated landscape our offerings continue to resonate with customers of all sizes.
Including our growing enterprise customer base.
Customers are turning to rapid detection and response offering.
And this dynamic threat landscape for its excellent driven intelligence and extensive extra library that delivers market leading pod volume.
And rapid step as much visibility platform is resonating for customers expanding rapidly into the cloud as we deliver more consolidated risk, we're developing across cloud and on Prem environment.
This underpins the sustained growth we've seen in our security transformation solution.
Saw another quarter of 40% year over year, our globe let.
Let me share how we are optimizing our go forward sales approach buy operationalize, our threat around Adidas channels specific customer opportunities.
As we look to the fourth quarter and early 2012.
We're activating more focused customer centric sales motions that are organized around customer needs.
This will simplify and consolidate the selling motion that our team's efforts to land customers.
We began this effort in Q3 as we started to attacks.
A lot of that security transformation project. However, we're accelerating this path in the fourth quarter as we plan to increasingly anchor our customer engagement around their most critical needs tied to detection response and cloud with visibility.
This is the obvious next step for two distinct.
One is we engage with customers today, we continue to see the strongest and most urgent customer challenges centered around the text box and coffee Jeremy.
As customers prioritize enterprise with visibility in the cloud, we see I'll probably be M. As a critical component of that facility.
Number two this step directly aligns with the natural progression, we've seen in our business and security transformation has scale to represent over 70% of our year to date land muscle.
We're 50% of our land.
Coming from detection and response to technical.
Given this momentum we.
Expect to focus sales efforts around two core platform packages that are optimized to address customers' most pressing security needs on our platform.
DNR direct complete enabling customers to consolidate our best in class expert driven threat detection and response offering along with our limited coverage of our market, leading VM on a single platform.
Cloud with complete is that cloud center risk visibility whats consolidates unlimited visibility across customers ultra cloud and <unk> environments at all stages of transition to the cloud and enables the use of cloud and application security with unlimited VM coverage together in one platform subscription.
More complete coverage of their cloud and traditional infrastructure environments.
In addition to the simplified pricing and packaging over the next quarter, we intend to sharpen our enablement and drive a focused marketing efforts around threat and with complete value proposition as we lean into our opportunity to help customers manage and respond to threats in their model and cloud environments.
We expect these actions to gain traction over the next few quarters with improvements in growth starting in the second half of 2023.
We will be paying close attention to sales productivity.
<unk> of our packaging efforts with both new and existing customers.
Over the past two years, we've assembled and best in class suite of products across our platform.
We firmly believe that the fundamentals of our business are healthy and our opportunity for growth remains strong.
And operationalize it our pricing packaging and overall go to market strategy will drive the next leg of our growth.
We've had success thoughtful potential changes to our sales force in the past and this gives us confidence in our forward trajectory towards a more effective and efficient platform centric sales motion.
These changes are moderately disruptive in the short term, we believe they will set us up better for growth in the back half of 2023 and beyond.
Rapid semi continues to benefit from strong secular tailwind and underlying travelers of digital transformation and prioritization of security spending.
Very much intact.
Our plans to improve sales execution, while navigating macroeconomic uncertainty are aligned with our overall strategy to provide a strong value proposition for customers as.
As we work to enable organization to close the gaps in their security environments. We remain hyper focused on solving critical customer challenges.
Thank you Cort.
The outlook assumes near term macro and productivity related headwinds.
The latter of which we expect to begin to normalize over the next few quarters as we see gradual benefits from the changes that we're putting in place.
This should translate to a modest sales execution tailwind in the later part of 2023 and enter 2024.
In early 2021, we shared our expectation to becoming a rule of 40 company with over $1 billion.
By 2020.
We remain confident in reaching those targets however, our expected path to get that shifted.
Sure. Some brief context on how we think about that today.
Despite the execution challenges, which we are actively interesting we continue to see a durable multiyear path for a 20% <unk> CAGR in our business through 2025.
Though we expect that 2023, maybe up modestly below 20% as we navigate the short term impact to our sales optimization efforts.
Ultimately this means we now expect the relative mix of growth and profitability to achieve our rule of 40 status will be more balanced towards profitability.
Obviously anticipated.
Our strong Q3 profitability mail and ways to full year non-GAAP operating income demonstrates our deliberate focus on margin expansion and underpinned our confidence in delivering our mid term targets, which Tim will provide more color.
We remain committed to our long term strategic goal to enable customers to securely transition to the cloud to.
To expand the capabilities and value proposition of our best in class insight platform and to balance our dual mandate of scaling profitably, while strategically investing to dropdown will go.
With that thank you again for joining us on the call today I will now turn the call over to our CFO Tim Adams.
Share additional detail on our financial results and outlook Tim.
Thank you Cory good afternoon, everyone and thank you for joining us on the call today.
Before I turn to the results a quick reminder, that except for revenue all.
Our financial results, we will discuss today are non-GAAP financial measures.
Otherwise stated.
Additionally, reconciliations between our GAAP and non-GAAP results can be found in our earnings press release.
Rapid seven ended third quarter with <unk>.
<unk> of $684 million growing 24% year over year.
<unk> growth continues to be led by security transformation solutions, which sustained 40% <unk> growth during the third quarter, even as we lapped last year's threat intelligence acquisition.
And despite the macroeconomic and sales productivity challenges.
Larry highlighted earlier.
New <unk> was driven by our detection and response cloud security and threat intelligence solutions as customers continue to prioritize around these critical categories.
The value proposition of our platform is resonating with security teams looking to consolidate their spending.
As larger new customer deals and expansion with existing customers drove ALR per customer just $63000 growth of 14% year over year.
Total customer count benefitted from healthy growth in platform customers. However, we did see a modest impact from the macroeconomic and sales productivity dynamics that Cory spoke about earlier.
We ended the quarter with approximately 10800 global customers growth of 9% over the prior year as we lap the insights acquisition and at the upper end of our previously stated long term range of 5% to 10% growth.
Third quarter revenue of $176 million grew 26% over the prior year and was at the midpoint of our guidance range.
Products revenue grew 27% to $166 million.
On momentum in our security transformation offerings.
International revenue grew 36% year over year, representing 21% of total revenue, while North American revenue grew 23% over the prior year.
Moving to operating and profitability measures for.
For the third quarter, our product gross margin of 76% and total gross margin of 73% were each within our expected ranges and improved modestly from last quarter.
Sales and marketing expenses represented 38% of revenue compared to 40% in the prior year period.
While R&D and G&A expenses were 20% and 8% of revenue, respectively, compared to 21% and 8% in the third quarter of last year.
Broad based and disciplined expense management drove operating income of $13 million in the third quarter, representing over 7% operating margin as we proactively.
Actively focus on achieving our profitability targets and an uncertain macroeconomic environment.
Our third quarter, adjusted EBITDA was $18 million and non-GAAP earnings per share were <unk> 14.
Turning to the balance sheet and cash flow statement.
We ended Q3 with cash cash equivalents and investments of $268 million.
Our strong operating income and working capital management drove third quarter operating cash flow of $20 million.
And free cash flow of $10 million.
This brings us to our guidance for the remainder of the year.
As Cory said, we expect the optimizations, we are making to our platform go to market strategy will gain traction over the next few quarters can we expect them to provide meaningful support to growth starting in the second half of 2023.
With that said, we believe it is prudent to account for a moderate level of near term performance disruption.
Zastrow baited by ongoing macroeconomic pressures.
Given these dynamics, we now expect full year 2022.
There are to be in the range of $711 million to $717 million growth of 19% to 20% over the prior year.
For revenue, we are narrowing and lowering our full year 2022 outlook to $680 to $682 million or 27% year over year growth.
Driven by our lowered expectations for the year.
We remain committed to scaling profitability in our business as we look ahead and have multiple levers to achieve that.
And as a result, we are raising our full year operating income outlook to 25% to $27 million.
Selecting the strength in our third quarter profitability that we expect to continue.
non-GAAP earnings per share is expected to be 17 to 20.
For the year based on an anticipated $59 9 million diluted weighted average shares outstanding.
Turning to free cash flow.
We are adjusting our full year outlook modestly lower to a range of $36 million to $40 million just below the low end of our prior range the.
The new range reflects our continued strong focus on cash generation and profit expansion.
Offset by lower billing expectations associated with our reduced.
Our estimates for the full year.
As implied by our full year guidance for the fourth quarter of 2022.
We expect revenue in the range of 179% to $181 million.
And operating income between $14 million to $16 million.
non-GAAP earnings per share is expected to be 17% to 20.
Based on an anticipated 66 million diluted weighted average shares outstanding.
We are confident in our ability to navigate through the macroeconomic backdrop and to successfully transition our sales force trained more focused and streamlined platform selling motion.
As Corey mentioned, we continue to see a path for 20% IRR growth CAGR as we March towards our target of being a rule of 40 company by 2025.
And as we focus on scaling our profitability to achieve the rule of 40, we expect a steady improvement in free cash flow margins, which we anticipate should ramp by at least 400 basis points per year over the next few years.
This is aligned with the vision from our previous Investor day, and we have the right strategy in place to date to meet these targets.
Thank you for joining us on the call today, and we will open the line for questions operator.
At this time I would like to remind everyone. If you'd like to ask a question. Please press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Matt Hedberg with RBC capital markets.
Great. Thanks for taking my question guys Cory for you I guess on the on the sales execution or the sales productivity.
It sounds like you guys are looking at a variety of ways to improve that and obviously it makes sense longer term as a platform sale.
So as you look at the composition of the sales force today is at the right people in the play in place.
Or is it more of a process improvement that needs to happen.
Thanks, Matt that's a good questions. We think we have the right people I think there's really two core things that we are exposed on one we actually have to make it more direct and easy for people to sell the backend sale.
You look at what we've been doing is we have a platform that our sales team was enabled and selling packages that involve individual products and done a platform packages of products. So that's the first thing that we are correcting and adjusting and thats already underway and that has a good momentum. The second thing is actually more of a process and I'll say training and enablement.
Nicely, we've actually seen more momentum actually selling higher and organization, which is not something rapid seven has traditionally done so we're training and enabling our sales team to really be able to sell at the CIO in payroll direct level.
As a core benefit and be able to sell platform capabilities.
At that level across the organization. So those are our two main focus areas. When we think about Salesforce enablement up both of those things, we anticipate actually occurring over the course.
The end of this year and the first part of next year.
We think that will normalize.
Thanks, a lot Cory.
You bet.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Ask that you please limit your questions to one.
Your next question comes from the line of Jonathan Ho with William Blair.
Hi, good afternoon.
Wanted to maybe understand a little bit better in terms of number one the guidance can you talk a little bit about the additional conservatism that you've baked in.
If there is any and how we should sort of think about that.
As we contemplate 2023.
How much.
I guess what are your assumptions around the macro what are your assumptions around sort of your ability to improve that sales productivity that are sort of embedded in the guidance. Thank you.
Yes.
There is two factors to consider the first is that.
Our changes are really based on customer demand and we think this is the best time.
Efforts actually do consolidation with customers, having a constrained budget environment and also having a platform capability.
We're accelerating our entire effort to make sure that we are well positioned to respond to where customers. Currently are so that's the first thing that we are seeing customer demand around the area, but we will ask that we were not fully optimized around now because of that there is two factors that we actually have in minus one.
It was time to accelerate the optimization around the consolidation sales cycle on our platform and the second is that we really wanted to derisk. The macro in this environment. So far the way you think about sort of like those two and how they intersect together is that we have in my view de risks sort of like the fourth quarter, specifically as it relates to the mid market because we do that.
There's going to be more pressure in the mid market as you actually enter a potentially recessionary environment and also internationally. So those are the two areas that we want to make sure we actually de risked from a forward guidance perspective.
I would say our macro assumptions going into next year is that there is some likelihood that we'll see ourselves in a recessionary environment. So we would expect the overall.
Macro to actually have a potential headwind going into next year and that's in our baseline planning assumption.
Secondly that we actually are really focused on is accelerating when I talked about earlier is our optimization around the pumpkin selling motion.
That's something that we're really looking at this quarter and the first half of next year, we expect to come out of that very specific cell to optimization and go to market optimization effort in the second half of next year.
Hey, Jonathan It's Tim I would just add Cory his comments and you were talking maybe a little bit longer term as well Cory and I both reiterated in the <unk>.
Prepared comments.
Our commitment to being a rule of 40 company by the year 2025, and we still feel confident in a 20% growth CAGR for.
Over that time period.
Leave Cory didn't mentioned that it may dip moderately below 20% next year I would say call that a point or so and we see it recovering in the second half of next year based on all the improvements Cory has talked about.
Got it thank you I'll get back in the queue.
Thanks, John .
Next question comes from the line of Rob Owens with Piper Sandler.
Hey, guys. This is Justin <unk> on for Rob I, just wanted to ask on the cloud security side. Just given this is a pretty big priority for you guys. Moving forward would you guys characterize this as primarily a greenfield opportunity where you guys are seeing success or are you guys displacing other platform a point vendors at this point and what are the primary different differentiators between your platform and say your largest competitors.
Yes, so we see this as most of the Greenfield because cloud while at the increasingly urgent priority.
Is there is a lot of opportunity, that's untapped and the opportunities growing everyday and it will accelerate over the last couple of years.
Zoom out we've always been.
The visibility of risk analytics platform and focused company.
<unk> World that was born ability management the platform that we've been building and our approach has been to make sure that we're actually building the platform or customers are deploying and managing their technology. If you look at what's happened is there's been a critical ship from one crim being the primary driver or one of the critical assets to increasingly that's more and more in the cloud.
And as the year progressed over the last two years, we've got higher urgency because youre now seeing the most critical assets in any enterprise now be centered more on the file.
And so our view and our goal is to be the default and the leading platform for visibility and risk analytics and that means you have to be able to do it on prem.
In the cloud and across the external effects now.
One thing that we're really focused around an optimized right now leading up to this point, we've had a relatively fragmented sales motion, where we actually sold those separately as we introduce risk complete this quarter one of the value propositions that we actually saw resonating quite strongly is that many customers are not static they are actually migrating they're sort of like <unk>.
Restructure from on Prem to the cloud and so the ability to have unconstrained and unlimited visibility across <unk> and the cloud is more valuable than ever and so our core value proposition is that we will give you your visibility and your write downs no matter, where it sits and you can actually move that around without hasnt been constrained about $8 a locked up into BMO on Prem.
Are these dogs, a lack of a new outlook now to get to the other part of your question around competition that does put us in new competition, but other than post like Palo Alto is mostly point competition, and it's mostly greenfield and what I would say is that in this environment more than ever customers are looking at how do they solve their problems at the best economic value.
So our platform our risk complete and a cloud first unlimited visibility platform is one that we're already seeing evidence is resonating well with customers and we just have the operational nozzles, our packaging and our sales enablement around that strategy.
Got it thanks Cory.
You very much.
Question comes from the line of Mark cash with Raymond James.
Yes, thanks for the question I'm on for Adam.
I was just wondering if you could talk about for the or our outlook is lowered by $31 million is kind of bucket as high as I think about it.
How much does that productivity versus customers, maybe required an extra signature versus FX headwinds.
Yes, I mean, Tim and I will tag team it.
An estimate of if there is a number of moving parts I would say, it's roughly half and half, but we think that half of our <unk>.
Half of the gains that we can actually make it productivity.
Just ensuring that our sales force as a simpler more efficient selling motions no. One did we see that we're actually doing a very good job of generating demand from the general from the traditional VM salesforce and the new security transformation.
Areas, but theyre not as efficient at selling that as they were beyond that was intentional to take a little while longer but we can improve that and we can actually simplify that and we can make that better now what I would also say is that when you look at the macro which would be the other half of the story is there.
If you look up to this point in the year you saw a little bit of pressure. We are assuming right now that we are seeing more like presented once a recessionary environment and we thought it was prudent right now to accident derisked, especially mid market going forward, and especially Europe going forward. So our estimated roughly half and half in my mind the champion talk about anymore.
Cory I agree I think it is roughly 50 50, we've acknowledged hey, we can perform better and we're very focused on that and there are things outside of our control with macroeconomic and we're seeing that certainly in EMEA, we're seeing it in the mid market segment.
<unk> in the macroeconomic we do have FX and it's approximately $7 million for the year as a whole that's putting a headwind pressure against IRR for this year.
Thank you for the question.
Okay. Thank you.
Your next question comes from the line of Michael <unk> with Keybanc capital markets.
Hi, This is Ashley Owens on for Michael just a quick one from me last quarter, you guys mentioned, new GM are slowing to the mid teens. Just curious if you saw it hold steady there or if there was any further slowing this quarter. Thanks.
Yes, that's a good question look clearly we missed our expectation. So there was some pressure on.
I would say that as we look at our outlook going forward, we think about it.
A key feature of our broader visibility on risk enablement platform. So it gets harder and harder to break out because we are selling it as part of our platform packages and sales.
Think it's critical that customers will have on prem for a long time and customers will be transitioning for a long time one of our Differentiators is the fact that we cannot allow customers to actually transition without locking up their spend in either bucket and so.
On the past I would say that yes, we were a little bit it was less than we expected on the go forward are.
Our belief is we're going to be gaining unit share in the vulnerability management market.
We are delivering a more complete solution to customer delivery.
Okay.
Great. Thanks for taking my questions.
Your next question comes from the line of Hamzah final Leila with Morgan Stanley .
Hey, guys its Matt thoughts on for Hamzah Tonight. Thanks for taking the question just wanted to get a clear clarification on guidance. So it looks like a nice beat on Q3 operating income you guys raised the full year operating income guide, but it looks like it's slightly less than the Q3 beat.
So I'm just I'm, just wondering is that related to more fixed costs hitting in the fourth quarter is that directly related to some of the investments youre, making in sales force productivity.
Just trying to understand the juxtaposition between that and kind of the growth versus profitability outlook.
Yes, Matt and Tim It's a good question look we remain very focused on how we find the leverage in the business and investing appropriately across the business and we're certainly willing to rebalance investments from one area to another as we see fit we stayed committed to the growth and profitability free.
<unk> and <unk>.
The guide overall falls within that we did bring down the full year revenue guide and that does put a little bit of pressure on the operating income.
I am sure Youre thinking the full $6 million should roll through we wrote most of it through on operating income, but there is a headwind from revenue coming down a little bit as well.
Thanks for the question got it that makes sense. Thank you.
Your next question comes from the line of <unk> <unk>.
Alright. This is Joel on for <unk>. This evening so.
Just a quick one on the discounting levels could you speak to anything you've seen on discounting and customer pushback.
From last quarter, especially on the core VF side, and then maybe going forward and looking at the macro just.
Your propensity for concessions and how much flexibility you have.
We're looking at having on the pricing side. Thank you.
Yes, it's a good question of customers' budgets are clearly constrained at some level and we see lots of customers just storm recessionary planning like they're just trying to figure out.
Deals that were actually moving last quarter, they slow down a bit they close at the start this one and so we expect more than that I would say those are two things fundamentally post. So it's one when we think about our outlook in our guide and other things, we actually did increase our coverage ratios and our expectation of how much coverage you actually to both that's a relatively straightforward, but the second part of that instead of actually tackling that went off.
Well, we're really focused on is how do we actually.
Address customers' underlying need to make sure they have a well managed security operations environment.
Without actually just having to resort to discounting and so for us the quarter that is our direct complete package, which is sort of like how do you actually get the most efficacy from your solution.
If you think about what we're talking about with the risk complete cloud offering.
The offerings that is really why that actually said listen instead of actually bifurcated in locking up your spin across two or three areas across threat intelligence for the external attack surface. The on Prem World and the cloud World. We will actually give you a world class capabilities at the best possible economics, and we're just building that in.
That does let me just be clear that does three things that were standalone as components and features.
Underlying platforms, while we expect that to do is raise our asps.
ARPA customer overall, but that up actually not shriek being a standalone market. So we are targeting how do you deliver the most value to customers, which means that we're not optimize on how do you actually maximize value and vulnerability management.
Or an external attack surface or in the cloud we're looking at how do we actually maximize value to customers, while youre raising our customer economics. They are with us that will put pressure on the traditional I would say isolated and fragmented approaches to doing security operations of ability.
Okay. Thank you.
<unk>.
Your next question comes from the line of Robert Galvin with Stifel.
Hi, This is Bob Galvin on for <unk>. Thanks for taking the question.
Wondering if you could review how VM will be priced in these new packages bundles I thought I heard commentary during the prepared remarks that would be on the minivan.
Sure if that was a correct understanding part thank.
Thank you.
Yes.
Ill just talk about the customer dynamics as ester most important customers.
Customers are actively moving their environments around it and.
The one is theres low appetite for locking up dollars.
In one environment versus another.
Second one is customers don't want to be nickel and dime.
And we've seen this others, what we've actually done this with our detection and response.
Direct complete scenario with unlimited, but its actually what thats really about is that having a model where customers don't have to be nickel and dime, along the way and so customers need visibility into their complete environment, our packaging and processing approach with our risk complete allows customers to actually have limited visibility and then true up is.
Actually hit certain milestones.
In terms of their company size.
<unk> gross usage, but it's not sort of like big sort of like nickel and diming, along the way, which is frustrated about the customers and given the feedback that lots of Airbus. So that's the approach that we're actually taking this how do you actually make it simpler and by the way that value proposition is simpler to sell for our sales team.
But it also makes it much easier for customers to actually playing out their expenses over time.
Thanks for the question.
Mmm.
At this time there are no further questions. This concludes today's conference you may now disconnect.
Please wait the conference will begin shortly.
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