Q1 2023 Rapid7 Inc Earnings Call
Please wait the conference will begin shortly.
[music].
Good afternoon, and welcome Tomorrow to rapid Seven's first quarter 2023 earnings call.
All participants are in a listen only mode. After the speaker's presentation, we will conduct a question answer session.
To ask a question you will need to press star followed by the number one on your telephone keypad.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to Sunil Shah Vice President Investor Relations. Thank you. Please go ahead.
Thank you operator, and good afternoon, everyone. We appreciate you joining us today to discuss rapid Seven's first quarter 2023 financial and operating results. In addition to our financial outlook for the second 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 it's now posted on our website at investors to our reps have been dot com along with the updated company presentation and financial metrics on.
This call is being broadcast live via webcast and following the call an audio replay will be available at investors don't rapid seven dot 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 second quarter and full year 2023, and the assumptions underlying such.
Goals and guidance.
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 annual report on Form 10-K filed on February 24, 2023, and in subsequent reports that we file with the SEC.
The information provided on this conference call should be considered in light of such risks actual results and 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 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 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 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.
Hello to everyone on the call today. Thank you for joining US this afternoon on our first quarter 2023 earnings call.
I am pleased to report that rapid start the year with strong momentum as we work to deliver customers a comprehensive security operations platform at the most compelling economic value.
Faster than expected traction from our threat complete and cloud with complete consolidation offerings, which together represented over 20% of new <unk> in the first quarter supported steady customer demand for our insight platform driving 16% year over year growth in <unk> is separate.
And $28 million Rep.
Revenue and operating income both exceeded our expectations as customers gravitate towards our security operations solutions and as we manage the business for profitable growth.
The customer spending environment in the first quarter was broadly in line with our expectations shared on the February earnings call.
Oh boy complexity in customer budgets, including elevated levels until inspection, we saw strong underlying demand for our insight platform to start the year.
Our solutions solve a critical set of needs for security teams, who are working through a complex threat landscape constraints on talent and worsening consequences from cyber security incidents.
While overall demand trends were consistent with our expectations I am pleased to share that our teams are demonstrating the ability to execute the environment with higher budget scrutiny and ongoing macroeconomic uncertainty.
A few positive themes continue to resonate in our business throughout the first quarter.
The first is that we are benefiting from a clear customer preference for consolidated security offerings.
There is a persistent and crucial need to gain visibility and assess risks across traditional and cloud environments. Our security teams are laser focused on improving both the effectiveness and efficiency of their programs, while maximizing their budget dollars.
Our solutions lean into this dynamic by offering best in class automated capabilities across cloud security detection response, and want ability management, while being delivered through new and differentiated pricing and packaging models.
As a result of this approach we are at times seen less competition for critical capabilities, given the unique scope of our offerings, which in many cases customers aren't able to consolidate on a single platform with other vendors.
These dynamics highlight our unique competitive position as we look to capture greater wallet share in a consolidating security operations market.
As customers gravitate towards vendor consolidation and our sales team ramps up on the new offerings, we are seeing a clear benefit in asps.
For our threat complete and cloud with complete deals, which averaged more than two times, our overall asps in the first quarter.
Our marketing enablement efforts around these offerings were largely competed in the first quarter and so far over one third of our sellers have sold at least one of our consolidation offerings.
Another theme that continued in the first quarter was a growing traction with our differentiated cloud security solutions.
Insight cloud provider customers real time visibility into their cloud environment with a breadth of features including posture management agent.
<unk> cloud portability assessment workload protection cloud detection response and automated remediation.
The ability to bring these capabilities onto a cohesive platform offering is increasingly resonating with customers, particularly as usability and time to value have long been core differentiators for <unk>.
Cloud security has evolved over the last few years from a niche complex market into the one we see today, where mainstream enterprises show increasing demand for solutions that can solve their cloud challenges.
Vessel efficient and automated fashion.
Our approach to the market through a consolidated platform focus our accessibility and ease of use is making cloud security more accessible to a broader customer base.
In addition, cloud risk complete packages, the breadth and depth of our top ranked cloud technology, alongside our enterprise, great vulnerability management, which provides visibility to traditional environments.
This comprehensive risk visibility across cloud and hybrid environments combined with a compelling package pricing structure, it's driving a strong value proposition for organizations of all sizes.
A great example of the value, we're bringing to customers through cloud was complete.
<unk> six figure <unk> deal with a mid cap technology company.
Customers are unhappy with their vulnerability me as a provider and searching for a replacement Standalone VM solution.
Our sellers were able to expand the conversation to include cloud security and application security as part of our new cloud with complete packaged offering.
Rapid seven's robust product features combined with a real time event driven data harvesting stood out as competitive differentiators as well as our ability to unite vulnerability data with cloud security data for more actual alerts and more automated remediation.
Ultimately, our sellers were able to bring together the customers' on premise and cloud security teams to win this deal by combining three siloed solutions into a unified platform with a single cost efficient contract.
Another first quarter example of our expanding value proposition for customers is a six figure <unk> deal with a retail healthcare company.
The customer was struggling to use a legacy Sim solution managed by MSP due to the complexity of the data and reports as well as the quality of the alerts.
They needed a way to identify user behavior in one unified way.
And defined automated solutions that reduce manual work our.
EMEA is detection response offerings combined with insight connect automation allowed us to win the deal based on strong underlying technology amplified by the security expertise of our best in class stock analysts.
As part of our continued focus and commitment to customers.
To welcome Hilarity Angelo to rapid seven as our chief customer officer.
This is a newly created role that oversees our sales organization and all of our customer success teams across advisory Onboarding and support.
Larry has extensive background at various software companies and private equity firms and some of you may remember it that he served as chief sales officer for logging in for over eight years, helping the company scale from $100 million to $1 4 billion in revenue.
We're excited to have Larry on our team and believe that customers will benefit from having a cohesive customer organization to support their growth throughout the end to end customer lifecycle.
As we look out over the remainder of the year. We are encouraged by the underlying demand for our cloud native insight platform.
Our ability to execute in a tighter budgetary environment.
Unique position in the customer driven consolidation wave for security operation solutions.
We are on track to meet our growth and profitability targets for 2023 and believe we are well positioned for long term growth as we execute on our strategic vision to bring rapid seven to the center of customer security operations programs.
As we refine our go to market strategy and invest to support innovation. We are focused on delivering better security outcomes to the large mark to market opportunity in front of us while maintaining a deliberate focus on expanding the efficiency and profitability of our business.
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 Tim.
Thank you Corey and good afternoon to everyone on today's call. Thank you for joining us.
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.
Rapid seven ended the first quarter of 2023 with $728 million in <unk>.
<unk> representing growth of 16% year over year and consistent with our expectations.
We continued to see year over year growth driven in large part by our anchor offerings of detection and response cloud.
Cloud security and vulnerability management.
Which represent the foundational capabilities of our threat complete and cloud risk complete consolidation offerings.
The breadth and effectiveness of our insight platform.
Along with our ability to drive value with our complete offerings are resonating with customers as they continue to navigate an evolving budgetary environment.
We see IRR growth coming from both new and existing customers with.
With our per customer that grew 9% over the prior year to $66000.
While our global customer base grew 6% year over year to over 11000 customers.
As Corey mentioned earlier over 20% of our new <unk> in the first quarter.
Was driven either by a threat complete our cloud risk complete offering.
We see traction here, both with landing new customers and expanding with our current customers with new <unk> for a complete deal seeing healthy contributions from each type of customer.
First quarter revenue of $183 million grew 16% over the prior year and exceeded the high end of our guidance range over.
Over 95% of revenue in the quarter was recurring and product revenue grew 17% over the prior year to $174 million.
International revenue grew 21% year over year and represented 21% of total revenue, while North America grew 15% over the prior year.
Turning to our operating and profitability measures for the quarter.
Product gross margin was 76% in the first quarter and overall gross margin was 73%.
Both were within our stated range of expectations, which is mid seventy's for product gross margin and low seventy's for overall gross margin.
Sales and marketing expenses represented 39% of revenue compared to 43% in the prior period.
R&D and G&A expenses were 20% and 8% of revenue respectively.
Paired to 23% and 9% in the first quarter of last year.
We delivered strong first quarter operating income of $11 million above the high end of our guided range our.
Our adjusted EBITDA was $17 million in the quarter.
And diluted net income per share was <unk> 16.
Moving to our balance sheet and cash flow statement.
We ended the first quarter with cash cash equivalents and investments of $270 million.
Cash flow from operations was $6 million and free cash flow was ahead of our expectations and just below breakeven.
This brings us to our outlook.
We continue to believe that the largest drivers of AOR growth performance. This year will be related to execution improvement, including continued momentum for our consolidated offerings as well as the impact of the broader macroeconomic environment on customer buying behavior.
We are pleased that our first quarter results track to the plan across all metrics, despite a noisy environment.
Therefore, we are reiterating our full year 2023, AOR guidance of $815 million to $825 million.
Representing year over year growth of 14% to 16%.
We are raising total revenue guidance for the full year to $773 million to $779 million.
<unk> outperformance in the first quarter.
This range represents growth of 13% to 14% with high single digit growth contribution from our professional services revenue.
Unprofitability, we are also raising our operating income guidance of $59 million to $63 million for the full year, which represents operating margin expansion of at least 300 basis points.
The increase reflects the portion of the first quarter outperformance that was unrelated to timing of spend.
We expect full year net income per share in the range of 83 to 89.
Based on an estimated 67 6 million diluted weighted average shares outstanding.
And for free cash flow, we continue to expect approximately $80 million for the full year, which is approximately double our 2022 level and reflects over 400 basis points, our free cash flow margin expansion.
Moving to our outlook for the second quarter of 2023.
We expect total revenue in the range of $187 million to a $189 million.
We expect non-GAAP operating income for the second quarter in the range of $7 million to $9 million and non-GAAP net income per share of nine to 12.
Which is based on 67 4 million diluted weighted average shares outstanding.
For taking time to join us on the call today and with that we will open the line for questions operator.
If you'd like to ask a question. Please press star followed by one on your telephone keypad and the interest of time, we ask that you. Please limit yourself to one question. If you have any additional questions. Please rejoin the queue. Thank you.
Our first question comes from Matt Hedberg from RBC capital markets. Please go ahead. Your line is open.
Great. Thanks for taking my question Keith.
To keep it to one here.
I guess maybe for Corey.
Success on the complete offerings is really great to see obviously there is there is clearly I think a security efficacy benefit there when customers.
One of those bundled offerings, but I'm wondering if you could talk to the ROI element from a customer perspective, when they consolidate our opinion seems to be a big part of the narrative here.
I Wonder if you could talk to that part.
Yes, Youre right, Matt I think Theres two things one customers are mortgage and consolidations that we have to do more with less budget growth I'll remind you that budgets are still growing business growing at a slower rate than they were in the past with a little bit more uncertainty and so our customers are trying to figure out by and large its really two separate things is one they wanted.
Figure out how do they actually continue the security improvements they've committed to them that are necessary that are critical.
More I would say tighter budgetary environment going forward.
So importantly want to figure out how to boost the productivity of their teams because remember it's not just the budget that we talked about it's also their teams and their teams effectiveness as a team productivity.
Value proposition around our both the direct completed with complete is really focused on how do you actually solve the problem of either managing threats are managing risks, but really doing that at high levels of efficacy and high levels of productivity.
And one of the side benefits of that is there's also cost effective delivery speed on a common platform, but the primary benefit that we're driving productivity and efficiency in the way that we actually do that with threat complete it providing a complete stock stack solution around how people collect all the data across 100% of the environment to protect attacks.
Then the analytics to respond and then the automation to make sure that that response is robust.
And on the call with complete its really that integration of looking at the best in class across both the traditional VM, but also increasingly people are migrating to the cloud and they want to find a way to actually manage the risk of their cloud environments. Holistically. So again, it's a productivity boost and about how do they get more out of their talent and their staff, but also by consolidating our platform. They can have direct <unk>.
Economic boost that gives them scale by investing with us.
Thanks Corey.
Thank you very much.
Our next question comes from Seth <unk> from Barclays. Please go ahead. Your line is open.
Okay, Great Hey, guys. Thanks, Thanks for taking my question here.
Corey just.
To ensure that this question is asked publicly I was wondering if you can comment at all on just.
The public headlines earlier this year around a sale process and of course. The same question I asked last quarter, but also maybe as part of that comment on whether that is a process that's still ongoing.
Got it.
Sorry, you broke up a little bit there towards the end, but I believe that you were.
Sure.
[music].
Sure.
Apologies, we had a little technical difficulty little technical difficulty talking I believe you broke up for at the end, but I believe you were asking about the rumors that I addressed on our last call and I would just say, it's still obtain comment not really comment on rumors that said, we have a pretty exciting opportunity in front of us we have momentum there I think as demonstrated by our results this quarter and so we understand.
Dan why people would actually.
<unk> about that.
And that lands, but we're squarely focused on continuing to drive our performance in the business deliver results for our customers and we think that's going to deliver a great return for shareholders.
Got it fair enough. Thank you.
Thank you.
Our next question comes from Rob Owens from Piper Sandler. Please go ahead. Your line is open.
Yes. Good afternoon. Thanks for taking my question wanted to focus in a little bit around net new IRR and obviously, it's been under pressure.
For the last year, and I think given you're holding guidance for the year. It does require some acceleration.
In the back half so is that a function of sales productivity is that a function of where the pipeline sits up at this point just some color would be appreciated. Thanks.
Ladies and gentlemen.
We are experiencing technical difficulties. Please stay on the line.
Okay.
Okay.
Okay.
Okay.
I'm, sorry, I might have been we have a couple of technical difficulties.
Rob can you hear me okay.
I can hear you Corey can you hear me yes.
And now we can yes, I apologize for that.
Did you hear the answer that I gave.
I did not it went chemical lately dark after my question. So I don't think I stumped you. So go ahead and maybe.
Sales productivity net new IRR, just put into context for us. Thanks.
Policy that makes it.
So the look our outlook was presented was.
Really based all too common things is one is execution of the Salesforce transformation, which I think look we're well underway I would just say we're ahead of schedule and that's going to trend exactly as we expected in the second thing is could we actually build the critical pipe in the platform consolidation areas that we were looking for which we are ahead of schedule and the pipeline built Canadian space.
The darkening is are the conversion rates for those areas, where we expected them to be and again the conversion rates are quite strong in those areas. So as we sit here today, what the pipeline build the salesforce adoption being not just deep, but also brought and the conversion rates continue to be strong we're set up well for the second half of the year and it's really predicated on those.
Trends continue so not really a shift in the trend is just a continuation of those trends that's based into our core model.
Thank you.
And thank you very much.
Our next question comes from Sean <unk> from Robert Baird. Please go ahead. Your line is open.
<unk> go ahead, we cannot hear you.
Operator.
Okay, sorry, I understand you guys hear me now.
Yes.
Yes.
Great great. Thanks, a lot yeah. So.
Very quickly on the cracks and that you guys highlighted on insight D. R and cloud security is kind of driving multi product adoption for you guys.
And you guys also highlighted kind of there's gravitation towards vendor consolidation.
This is something which we have been hearing from your peers and rivals as well.
And the benefit that Youre seeing and ESB. So can you just comment quickly on the on the win rates on the competitive environment.
There you are seeing right now I know theres a lot of noise out there about would appreciate some commentary.
Yes, I mean look I think we're well positioned if you think about consolidation of security operation space.
There are few folks that actually sprang cover the span of unsecured operations you look at US we're at B M.
Our cloud security multiple aspects of cloud security <unk> popcorn ability management.
Workload protection, we also have a quite impressive stem technology that forms the core of our security operations platform for mass detection response, along with security automation. So if you look across security operations.
I think we're set up better than anyone else I can make up actually really drive consolidation in.
In that space. So we don't have lots of direct competition. When you think about end to end security operations, how do you manage risk across both the cloud on Prem endpoint environment from a risk visibility management perspective, and how you detect and respond to attacks across the environment.
From a security analytics and automation and orchestration perspective.
So that the win rate is extraordinarily high and what our sales force.
It's really because theyre not challenge in that space and what our sales force is actually learned is frankly to actually make that the primary focus without consolidation offerings, because when we actually shifted to how do you actually think about accelerating your security operations momentum at the best efficacy and the lowest possible long term costs.
That really differentiates the dynamic for our sales team and so thats what were seeing in the space. What we see competition is primarily in the point solution space not the consolidation space of security operations.
I would just add we know it's still early with our consolidated offerings, but in Q1 over 20% of the new <unk> came from the new packages and we're seeing more and more of our sellers engaged and be successful getting that sales. So that's up from what we saw in Q4. So it's two data points that are looking very positive, but as you.
<unk> said this was always intended to really gain full momentum towards the second half of the year.
Thank you for the question.
Thanks Corey.
Our next question comes from Michael tourists from Gucci Bank Capital markets. Please go ahead. Your line is open.
Hey, guys. This is Eric Heath on for Michael just wanted to make sure I understand just kind of high level. Just curious it sounds like go to market execution is progressing better than expected and then on the macro it sounds like maybe it got a bit worse in the quarter, but no more than you were kind of already factoring in 90 days ago. So just curious.
Curious if that's if that's right and then.
And then secondarily to that it kind of gives you some more confidence in that guide for the year.
Yes, I mean, I think thats the right descriptor I would say we factored in.
A little bit of pressure this year and I would say the pressure materialized largely in line with what we expected and so that's why I say the market expectations are in line with our expectations.
Which frankly, we feel good about at this stage and then to your question is about the sales force the two things to actually give us confidence as we actually look out to the year I want that breadth of participation on salesforce.
The retention of the sales force, but also look.
Sales forces live and breathe on confidence and the fact that we actually have people both building the pipe and the pipeline converting while it's still early because of the pipes relatively fresh in the cycle that actually give the broader team confidence and it also gives us better visibility and more predictability as we go forward. So I would say incrementally because we've executed against the plan.
<unk>.
So far this year that yes, boosts our confidence do you have a plan.
Hi, Palpitate plan when you start off but you want to see that you're executing against that plan and we made steady execution against that plan as we've gone forward.
Great. Thanks Corey.
Thank you.
Our next question comes from Gregg Moskowitz from Mizuho. Please go ahead. Your line is open.
Hey, Thank you for taking the question.
Great to hear about the traction with <unk> complete and cloud risk complete including that Asp's had been showing more than a two X uplift is it fair to assume that you are seeing more of an uptake for these packages from enterprises as opposed to mid market and secondly, now that you have a few more months of data do you have a sense of whether or not this strong ASP uplift could be sustainable.
Yes, it's a.
Great question as you would expect yes, we do see early one.
A bit more of a bias around the consolidation offerings come from more enterprise oriented or larger customers in the mix that said, we do expect that to change we have high resident and excitement on our mid soft team from expectations.
Perspective.
That market is in line with what we expected, but our team has lots of excitement about the pipeline that they are actually building there the conversion rates, while very early are healthy there. So we do expect that the span and we actually think the case for consolidation is extraordinarily strong not just in the enterprise, but also in the mid market space.
Okay. That's helpful. Thanks Corey.
Thank you.
Our next question comes from Brian Essex from J P. Morgan. Please go ahead. Your line is open.
Hi, good afternoon, and thank you for taking the question, maybe maybe Corey just maybe if we can dig in and understand the setup for the second half of the year.
Periodically new offering the offerings are competitive the conversion rates are stable and so from a sales force set up we feel extraordinarily strong about the setup for the back out for the ear, there's work to do but both on a comparative basis and an outlet basis, we actually feel relatively good there you know the second part of the assumption for the first the second half of the year is was predicated.
First off of here that we can actually build the right pipe down once it was still building the pipe, but the pipeline build that we're actually doing it's actually increasing at the rate that we actually have and so we think will have nothing even in this pressured environment for the back half of the year and we expect the conversion rates to say consistent with what we've seen in the recent quarter.
All that cheese up to our expectations for the back half of the year is a continues to be oppression environment, we're not expecting the economic outlook to actually get better we're still expecting volatility we're still a second pressure and what gives me confidence that our sales team has shown that they can actually deal with that environment, that's a little bit of while we actually are having higher pipeline.
Acquirements, because we expect you know more things to be noisy and cycle, it's a little bit while ourselves seemed to have to learn how to navigate I would say changing deal cycles uhm, we expect longer sales cycles, but all that's baked into our assumptions and so I would say our trenches were set up today or for what were seen to continue forward, but what we saw in Q1 and continue for.
<unk> two two inches reach you for court, it's worth underscoring that point cause our sellers are really adapting to this environment. We know there's budget scrutiny across customers across the board and I think they really appreciate your understanding how to sell better in that environment absolutely.
Thanks for the question.
Super helpful color. Thank you.
Thanks.
My next question comes from battery back from Steve <unk>. Please go ahead. Your line is open.
Great. Thanks, very much Corey last quarter, you talked about international retention rates being a bit of a headwind maybe you can talk to where they were this quarter and what the expectations are for the rest of the year. Thanks.
Yeah, I'll talk to him that with Tim, but what I would say is that in general from our expectations are the international team is performing in lots, even slightly better than what I expected. It's also pretty good about the outlook for the ear going forward. Unfortunately natural things go yeah, no Corey that's right, let's see we've made that investment internationally, we're starting.
See signs that it is paying off internationally. The retention has improved let me say modestly Q1 overall retention is in line with our expectations and continues to be stable in North America, but something that's very important we put a lot of effort into it and pay a lot of attention to it.
Great. Thanks.
Mmm.
And next question comes from <unk> Morgan Stanley . Please go ahead. Your line is open.
Good afternoon, and thanks for taking my question.
So it's totally appreciate the <unk> the the key top line that trick that we want to focus on here a bunch of some thinking about had it off list of the model.
Can't help but notice the buildings were a little bit later than expected in Q1. So I'm curious what was the <unk> with the driver that was and kind of where you expect to make that up you know over the course of the year to still achieve the updated revenue got thanks.
Hey Man I appreciate the question <unk> a R. R is the core metrics that we share with everyone, which is an embed so a lot of different things to get to that number of the new the expand retention et cetera. I think you do have to be a little careful when you're looking at a quarterly billings number we do look at that but I do.
Do think a better way to look at it is on the last 12 months worth of billing and if you do that you'll see that that growth rate is more in line with the growth rate that we're seeing in a R. R.
Can be some anomalies, there's not a lot of those in terms of timing of billings with certain customers, but I I would encourage you remember to take that longer term view and I think it's probably the more indicative view, that's gonna link to a R. R.
Thank you for the question.
Our next question comes from Adam can tell from Raymond James. Please my head to your line is open.
Okay. Thanks, good afternoon, Hickory coming off of RSA Cloud security was certainly a big theme in on one hand, you know kind of viewed as a hidden asset within the rapid seven model on the other hand, there was some private companies with very healthy funding, suggesting that they're taking share in Saint cloud security and coming out with hybrid and runtime capability in the back.
For this year that'll go after some of the more traditional vulnerability management players like rap at seven so I just wanted to give you. The floor you know the truth behind some of the those fears and competing with with and how you're thinking about potentially defending that threat in the back half of this year. Thanks.
So first of all I was actually think it'll be great it'll help market for customers that the way they should think about costa complete environment.
And when you have customers to stay I Wanna look at risk across <unk> and point and the cloud we will actually dominated that space and there's a couple different reasons as one I think with or any other player will find it incredibly long tail and want to do any management you can do some of the easy windows pieces, but when you think about what customers are looking for for enterprise great vulnerability miasma.
You have to be able to collect all the data look at all the content assessed that and with your cough that that's not a 12 month engineering effort. If it was just mark it would've been disrupted a long time ago. Most importantly, we've been investing in the maturity of the cross security, we've been under marketing and selling some of my hip hip respective we actually have.
Have a quite a compelling capability and cloud and now we've been wrapping up in our focus on the sales and marketing of that now when you combine all that together it benefits us to actually have the market I think about the way that we think about it is that you shouldn't manager risk holistically, whether it's hybrid whether its own trim, whether it's at the insulin and what does that the cloud.
And the faster that the market thinks about that the easier it will be for rapid 70 to actually execute a strategy in that in that model I think that we will be anyone hit hit it from a technology comparison basis. So we welcome any competitor in the market, helping us frame the way the customer should think about it holistically from an Indian perspective, because these get get that benefit.
And we're certainly going to be invested in helping customers understand that I should be investing in those and in risk management platform.
Great. Thank you.
<unk>.
Our next question comes from <unk> from Trust. Please go ahead. Your line is open.
Thanks for taking my question Corey one for you just I know it was a small acquisition, but minerva.
You did a little while ago <unk> I know it wasn't very big but I love to understand how that fits into your overall.
Theme going forward, what the weather will be fully integrated and you know whether you know how it will be sold going for thanks I appreciate it.
Great question, it's a tech a team deal and it really enables us to unlock are a threat complete strategy you know.
As you're aware is that we have lots of demand for customers to actually help them manage from the important to the cloud the ability to detect respond an immediate threat.
No one of the things that our customers asked us for is that they had a wide range of important technologies and anti virus.
The ones that can actually sort of like a four two or focus or had had advanced important protection technologies, we integrate with those will continue to integrate with those and we're happy with a partnership or Coopetition approach uhm, but for those that actually truly just have supple a V and they rely on us to provide their into and detection in response capability.
Uhm Minerva allows us to actually do advanced in memory protection on those in points that allows us to make sure that when we detect a threat those customers aren't power to stop the same we are automation dinosaur technology allows them to actually orchestrate the cross the environment and stop the same way that we actually are able to stop process.
S is isolate resources contain users that same mentality is what actually has actually helping our customers respond to their need for cost effective detection response, and frankly customers should how to make this trade off between spending lots of money to actually have a highly effective and efficient Indian detection response.
So again, our focus is meeting customers, where they are in point to the cloud and providing the capability, who they're asking for to deliver a robust detection response platform.
Great. Thank you.
Thank you.
Our next question comes from grape how often P. T. I G. Please go ahead your line is open.
Great. Thanks for taking my question. So yeah. It was good to see the the increase in the complete next to 20 per cent of not new a R. R. I I think that number was 10 per cent last quarter and then can you maybe just what was that more on the cloud security side or is that more of the <unk> complete products just be curious.
What what drove that improve next.
Now we got traction on both sides of the equation there in a in a pipeline build has been healthy for both and so we'll continue to focus on both we don't actually ever call. We don't do the line item recording here on it, but we actually I've gotten traction across both of those portfolios.
Yeah, Greg and you're right. It was 10% of new a R Q4, so it's up significantly in Q1.
Got it alright, thank you very much.
Thank you.
Our next question comes from Jonathan how often William Blair. Please go ahead. Your line is open.
Hi, Thanks for taking my question and this is gharib recommend for Jonathan how so you mentioned the sounds transition is ahead of schedule out of your expectations. So can you just expand on that a little bit maybe what specifically is progressing while there and maybe where there's still room for improvement. Thanks.
Yeah, well I I think there's room for improvement and that's what we have to hit the plan. So we're ahead of schedule the plan, but because we're ahead of schedule you still have to manage to the plan and so that's <unk>, there's no big gap on sort of like where we expect it to be and then specifically you know what's ahead and what's the next step in the plan is there's a couple of elements that we've actually emphasize one.
Is that could you do the transition entertainment <unk> and check we've actually got a very good job of actually doing the transition and retaining the sales team with with confidence. The second part is could you actually get pipeline bill not just across the few people, but across a broad base of people and nicely. We're seeing pipeline build a continually starting to actually lamp increase across the.
Broader and broader selection of the sales force and then let me see him highlighted this in his remarks is that is.
Is not just a few reps, but as a larger and larger cross section of reps landing deal. This is why that sort of moving from 10% to 20 per cent over 20 per cent matters is cause you need to success actually follow it and so I chew one we actually saw that progress that was ahead of where you want it to be and we need to continue to see that progress and you do know our outlook for two two.
Two presumes that the progress continues because that's the setup that we have both in the pipeline in the conversion rates that we've seen but those are the elements of the sales force is are they you know are they there are they motivated are they building a pipe in the right areas are they converting that pipe or are they close the deal and so far versus plan. It's at are better than what we.
Expected across all those metrics.
Thank you for the questions got it thank you yep.
Our next question comes from Joshua <unk> from off Research. Please go ahead. Your line is open.
Hey, guys. Thanks for for taking my question I know, there's been a lot on it but I kind of just want to come back to the guidance. It does imply that you guys have the kind of Tripoli or in that new era by four Q.
So assuming that this all those go to plan and you achieve that.
What percentage of net new era by the end of the year is gonna come from these complete consolidated offerings and I'm only asking because it does feel like in addition to just these bundles ramping you sort of see needs to see a pretty meaningful improvement and the rest of the business to one am I looking at this the right way and two can you maybe just unpack for us the other 80 per cent of net new way.
There are you know, what's driving that and how will that trend for the rest of the year.
Yeah. So I won the primary drivers of the other part of the business is what you would expect it to be it is our traditional detection with spots that doesn't have the complete consolidated packages around it and think about that the <unk> same category vulnerability management and as Standalone clout and really what you actually have there is I would say.
It's less efficient you can clearly see that from the a a fee dynamic.
Then the packages so you'll get efficiency as you actually feel about the package.
To clarify a couple of things where you want to know why do we expect it to be 100 per cent of our <unk> that are in the final Validations. We don't assume it's not in our base model is not remotely close to it we still have to execute on ensuring that we actually are successful and landing in closing the traditional Sam M D. Our vulnerability management cloud security.
Uhm those elements, we still sell in crossville. So we have to add <unk> intelligence. All we have to add sorum all of those things are a port or the business. So the way that I would actually just think about sort of like the back half of the year is one I would just think about the backdrop for the setup is not just how it relates to this year. It's also what to compare to face the last year keep in mind, we actually have.
Had we talked about sort of like the tells you the in the last year, but we actually have those you over your comparable with a much stronger sales team, that's actually more mature and and process with a stronger product portfolio. So one if you just think about the setup, it's actually a much more favorable setup indie hit line analysis that you actually game would indicate the second.
Thing is that we have to have a robust pipe. We're building that were trade it towards the pipe that we actually need for the back half of the year and then we have the extra on the packages, it's clearly going to be about 20 per cent, but we still have to execute on the other aspects of the business, but we are executing of those other aspects of the business cloud is actually our performances cloud is actually getting better.
Uhm, we even though b M is where we expected it to be and I think we're in line with the market. There Uhm, we still will cause business, but most importantly, we're still gonna be extra chili on the crosstown upsell. So the expansion any install base, which again is still immaterial far the business will be executed on that so did you take that total set the set up the.
The packages the upsell in the Crossrail and then executing one right against the parts of the business that we have already been executed yes, I think we're set up quite well for the second half of the ear Ache you for so I agree with the analysis that you're actually gay from an American perspective.
Yeah, correct I would just underscore window the market opportunities that's over 30 billion. So it's huge we know the demand is environment is there. Yes. There are some challenges from macro economic budgets being tightened security is still critically strategic for all of our customers and our prospects we see the Python.
See the conversion rates, we have the mature sellers and we have the breath of products and we have the packages and now it just comes down to execution, which we said will be heavily oriented toward the second half of the year, we're off to a good start but we have more work to do absolutely. Thank you for the question.
Our next question comes from Alex Henderson from Needham and company. Please go ahead.
<unk>.
Great actually a pretty good follow up to the question that was just ask and I thought that was a good question as well but.
I was hoping you could give us some sense of what a success trajectory would look like for the new way are from these packages, if it's 10% going to 20 is it.
35, or 40 next quarter and 50 60 per cent in the period what portion they are new way or should be coming from it to hit your model as we go through two Q3, two and then the four Q.
Yeah. So.
It's a good question Mister <unk>.
We're not going to provide a specific number at this time and at this stage go out with US we would expect it to continue to expand.
And most importantly keep in mind, it's not just the packages. We also expect to continue to be doing cross selling selling and someone we think about our air aren't expansion. There's a number of different elements. They're involved there, but I would say we absolutely directly expect it to continue to expand it's too premature to provide you a specific number what it's gonna be like per quarter.
Uhm my quarter right now.
Well, if you're not going to answer that one maybe I could ask another one can you give us any sense of whether there was any disruption associated with the financial debacle impacting the CFO behavior of your customers.
And late March was linearity.
Consultation.
Yes, I'll I'll give you a very quick <unk>. The one what I would say, it's just like the whole world <unk> lots of people took a moment in a breath to actually say like what does this mean, so we definitely saw some impact with some customers actually slowed down a little bit to say like what does it mean this is sort of an indicator of my future. So like banking crisis <unk>, what I would say, it's both of them are.
They all seem prospective and our customer perspective that was only like a breath. It was a moment and they got back to the business and we actually had a fairly strong close to the quarter overall, but there was a breath that actually happened there alright. Thank you for the questions.
And that's <unk>.
Our next question comes from my <unk> from <unk>. Please go ahead and let your cell phone.
Good afternoon, it's standard <unk>, thanks for taking the question.
Yeah, I guess, so I just wanted to.
If you actually provide some details on how the productivity of your shows where I'm searching trembling, especially if they're not showing the two completely bundles. There's this I guess sort of in line with what you had previously been expecting or nobody ever heard of progress.
It's in line with what we were expecting and I would just say the progress that goes a little bit to the earlier questions about the mix shift in the pipeline Bill, but that's what we're actually ahead and frankly this sales on the new packages Uhm Inbond. Those that's what we're here, but I would say the overall productivity within like the explication our expectations.
Soon there was gonna be on ramp based on training, which were stand and we're expecting we're delivering I get and you know we are seeing some of the larger deals that we actually talked about earlier, which do have slightly along with your cycles. In addition to the environment. So I'll say productivity is exactly what we expect it to be it says we look forward they actually gives us a confidence that we.
We are building high tech actually close at the productivity rates, we expect in the back out of the year.
Our last question will <unk> F. P. M Securities. Please go ahead your line is open.
Yes. Thank you very much. So your 10-K show that your <unk> marketing employee headcount grew by 60% in 2022.
What what kind of pet camp roof in Effingham do you expect in twenty-three.
Yeah, I think it's it's Tim sort of like a mated earlier I think we are looking for pretty modest growth. There I think we expect more productivity increases we have the benefit of actually having the people in place it was allowing them to get more tenure to get the training the enablement in the wrapping so I would expect modest and that's really to focus on the productivity.
And I think we're training while there.
<unk> as you know we doubled our profitability guidance from a year over year in free cash flow and we are certainly very committed to that we got in front of the headcount hiring her over a year ago and it's something that we're just going to watch very carefully along with all of your expenses that way, we invest in the business absolutely.
Thank you for the question.
We have no further questions I would like to turn the call back over to Cory Thomas for closing remarks.
Well. Thank you all for spending time with US This evening and I Hope you all have a great rest of the day and I <unk>.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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