Q2 2025 Rapid7 Inc Earnings Call

Good day, everyone. My name is Ila and I will be your conference operator. Today at this time, I would like to welcome you to the Q2 2025 rapid 7 earnings call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer session.

If you would like to ask a question during this time and if you have joined via the webinar, please use the raise hand icon which can be found at the bottom of your webinar application.

At this time, I would like to turn the call over to Elizabeth schwoch, vice president of investor relations.

Thank you, operator and good afternoon everyone. We appreciate you joining us today to discuss rapid 7, second quarter, 2025 financial and operating results. In addition to our financial outlook for the third quarter and full fiscal year. 2025 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 it is now posted on our website at investors.com rapid7.com along with the updated company presentation and financial metrics file.

This call is being broadcast live via webcast, and the audio replay will be available following the call 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 financial guidance for the third quarter and full year 2025, as well as 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. 10q filed on May 12th 2025 and in the 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 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 7 does not assume any obligation to update the information presented on this conference call, except 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 can be found in today's earnings, press release and on our website at investors.the 7.com.

Results. Please be advised that this additional detail may be 1 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, Elizabeth and welcome to everyone joining us on the call today.

Rapid 7 in the second quarter with 841 million in ARR in line with our expectations and going 3% year-over-year.

Revenue and profitability or ahead of our Outlook and our business generated, strong free cash flow of 42 million.

While customers spending scrutiny. Persist our detection response business continues to be a core growth driver which now represents over half of our ARR and continues to grow in the mid teens year-over-year.

We also saw encouraging pipeline growth and exposure management and response to product Investments. We have made in our Command platform strategy.

The key message. I want to leave you with today is that we're uniquely positioned to capitalize on the escalating customer demand to bring AI tools and capabilities into the socks.

We have years of experience operating in security operations centers with our skilled software and services MDR business. And this gives us a tremendous head start with proprietary data and experience. We're taking focused action to enhance. Our go to market capabilities including today's announcement of our new Chief commercial officer.

As we will discuss we today, have the products and the capabilities to win accelerating our organizational Focus to capitalize on this and match. Our product capabilities with faster Revenue. Growth is our top organizational priority

First, let's recap the most recent quarter.

We experienced a solid second quarter that reflects strong performance globally, particularly in our larger deal segments.

We want a number of meaningful consolidation opportunities at higher asps.

This validates, our strategic position in the market.

Deal Cycles, remain extended but we're seeing strong adoption among Enterprises willing to make larger investments in comprehensive Security Solutions.

And we have a number of signature 7 figure wins this quarter that are highly validating both of our product capabilities and the value of our integrated offerings.

While these higher volume, consolidation deals naturally have longer cycle times, the quality and scale of opportunities were pursuing. And in particular, the ones that we have won demonstrate clear Market, validation of our approach.

We're optimistic about our strategy while maintaining realistic expectations around the extended deal cycles, that naturally, accompany these substantial commitments.

I'm excited to share that ahead of black hat. This week, we announced a significant milestone in our journey to deliver truly Integrated Security operations. They give customers command of their, in the end of tax purpose.

We built the command platform to unify all customer data, not just the data that we collect. So that organizations get the facts from the beginning and reduce their time to action.

Our new nextg sim incident, command has the power to scale the text and response operations with expertise from our Decades of sock expertise and ajik, AI integrated directly within the workflows that customers use every day.

We launched the first phase of the command platform last year with surface command and exposure command. And now with incident command, we have delivered a fully integrated platform for security operations and management.

This enables our partners, and our MBR team to fully leverage a unified ai-driven platform. That provides complete visibility in the customers, environments with the ability to leverage data on demand to minimize the attack surface and respond to threats in real time.

Rapid 7 is the only cyber security vendor with years of learning from operating a managed stock offering including the past year activating and developing, our own proprietary AI agents and our unique capabilities and experience to give us a huge advantage in this growing Market.

Incident command. Now provides customers with the easy packaging and platform integration to activate this.

Coming out of the second quarter, 1 beam is clear.

Customers are increasingly focused on collecting more of their security data and leveraging AI in the sock to drive measurable outcomes.

Security teams need platforms, that provide a more comprehensive view of their risk surface while delivering more efficient. Transparent and accelerated decision-making and response.

We see growing demand for unified attack surface visibility to simplify risk management. And the mounting regulatory pressure is reinforcing the need for integrated compliance and Reporting.

These priorities aligned directly with our platform strategy.

And providing strong Roi for customers.

We benefit from the Head Start. We have given the years of operating our own security operations center and all the learnings that accompanied making us uniquely positioned in this market.

our long-term strategy continues to focus on scaling, our leading AI driven security, operations platform,

At the center of this strategy is the command platform.

Which integrates Native Telemetry open data ingestion, curated intelligence and automation into a single system of record for risk and response.

It's built on 3, core differences.

First, our open platform with over 500 integration, it solves a fundamental challenge for security teams.

Fragmented and conflicting views of the attack service.

The command platform brings together diverse data sources into a single de conflicted and contextualized view, giving customers a holistic understanding of their environment and the risk. It represents,

Second, our expert trained, agentic AI workflows are built on years of soft expertise, trained online, playbooks and refined through real world, analyst feedback.

These are not generic models. They are proprietary and purpose-built engines that improve outcomes in real time.

And these agentic AI workflows are fully embedded in our MBR offering.

Third.

Customers are looking for automated measurable progress.

And we don't just surface alerts. We drive outcomes whether that's releasing noise through, AI informed active response. Prioritizing, toxic misconfigurations to maximize, remediation or coordinating faster. Incident response. Our platform helps security teams, reduce mean, time to detect, respond and remediate.

These Innovations, continue to drive our leadership position in the growing detection and response Market, our largest product segment.

Led by our managed offerings during the second quarter we Advanced our Enterprise MDR. Roll out with the addition of co-manage detection, expanded support for operational, Cloud environments, and new. Sock capacity in India.

These Investments strengthen our ability to support. Larger Enterprise use cases that demand hybrid visibility AI powered Automation and human expertise.

We're starting to see our Enterprise MDR Investments begin to pay off and we think we're just getting started. For example during the second quarter we signed a multi-year. Multi-million dollar agreement with a major uk-based retailer. That Consolidated, a security operations stacked on rapid 7's command platform.

After years of managing fragmented, tools across multiple vendors, with limited visibility, this customer selected, our MDR Le solution to unify detection response and exposure management. Our ability to deliver deep coverage, asset level contacts and expert. Chained, AI resonated throughout a highly competitive process. The decision to replace multiple incumbent vendors at a large Enterprise with our Command platform. Underscores the growing demand for Rapid 7's, integrated AI driven security operations,

Shifting to our exposure management business.

As we've discussed, a key pillar of our platform strategy is helping customers. Move from siloed Standalone tools to an integrated outcome-driven security operations model.

An exposure management. That means upgrading customers from traditional vulnerability management products, to our unified risk and exposure management solution.

Exposure command.

Built directly into the command platform exposure, command provides. A single contextualized view of risk across both on premise and Cloud environments enabling faster more precise, polarization and Remediation.

By eliminating fragmented, tools and manual integration and giving customers a more complete AI, powered understanding of their risk surface rapid 7, is firmly positioned as a strategic consolidation platform for modern security operations.

before I turn the call over to Tim, I want to briefly address our updated Outlook

We're nearing our 4 year. Our guidance range to 850 million to 865 million.

As you know, budget dollars and new commitments are subject to normal seasonality and are typically concentrated in Q4, giving a number of macro factors impacting our customers and the back-end loaded nature of our new business cadence. We think it's prudent to provide this updated color.

That said, we internally continue to Target better pipelines, conversion. As we firmly believe our product offerings. Give us the right to win more business in the market. Accelerating our Revenue growth rate to match the underlying spent of our product. Portfolio is a core Focus.

Our team's ability to execute against it.

We have a clear path forward with ai7, managed attacks and response as it continues to drop Healthy Growth and our differentiated command platform, rooted in automation integration and expert. Guided AI is more relevant than ever.

We're seeing early proof points. We're doing the hard work and we remain focused on delivering meaningful outcomes for our customers, our shareholders, and our team.

Thank you for joining us on the call today. I appreciate your support and I will now turn the call over to Tim to walk through the results in more detail.

Thank you, Cory and good afternoon to everyone. We appreciate you taking the time to join us on today's call.

Before I turn to the results, a quick reminder that except for Revenue all Financial results we will discuss today. Are non-gaap Financial measures unless otherwise stated

Additionally, reconciliations between our gaap and non-gaap results can be found in our earnings press release.

Rapid 7 ended. The second quarter of 2025 with 840 million in ARR representing growth of 3% over the prior year.

Revenue and profitability were above our guided ranges, and we continue to see Healthy Growth in detection and response and early progress and exposure command adoption.

While the customer spending environment remains mixed particularly in North American, mid-market the operating discipline and flexibility. We built into our business model continues to serve us well and we remain focused on executing against our long-term strategy to deliver durable growth and expand free cash flow over time.

Turning to our financial results for the second quarter.

Year-over-year ARR growth in the second quarter was split fairly evenly between new and existing customers and ending. The second quarter with 11,643 customers globally and average ARR per customer of 72,000.

Second quarter revenue of 214 million grew 3%, year-over-year and exceeded our guided range.

Product subscription Revenue, grew 4% year-over-year to 208 million supported by favorable. Bookings linearity in the quarter.

Professional Services declined year-over-year, consistent, with our decision to de-emphasize certain lower margins services,

International Revenue represented, 25% of total revenue and grew 10% over the prior year.

On profitability measures our product, gross margin was 76% and total gross margin was 74%.

Sales and marketing expenses. Were 33% of Revenue in line with the prior year.

R&D and GNA expenses were 17% and 6% of Revenue respectively compared to 15% and 7% in the prior year.

Operating income for the second quarter was 36 million and above our guidance range driven by timing of spending. As we continue to focus on making targeted growth Investments as well as scaling our India Innovation Center during the second half.

Adjusted ebit da was 43 million in the quarter and non-gaap. Net income per share was 58 cents.

Turning to our balance sheet and cash flow statement.

We ended the second quarter with cash, cash, equivalents and Investments of 600 million compared to 592 million. At the end of the first quarter,

In may, we fully repaid, the remaining 46 million balance of our 2025 convertible notes.

We generated free cash flow of $42 million in the second quarter, bringing our year-to-date free cash flow to $67 million.

Additionally, we entered into a new $200 million revolving credit facility.

While we have no immediate plans to draw on it, the facility adds incremental flexibility and reinforces our already strong liquidity position.

This brings us to our outlook for the remainder of the year.

For the full year 2025, we are narrowing our full year. ARR guidance range to 850 to 865 million compared, to our prior range of 850, to 880 million.

Additionally, we expect Q3 ending ARR of approximately $840 million, with net new ARR for the year weighted heavily to the fourth quarter.

We believe it's prudent to provide this additional context given ongoing macro uncertainty and the seasonal waiting of Q4.

We are maintaining our full year Revenue. Guidance range of 853 to 863 million representing Revenue growth of 1 to 2%.

Recurring product, Revenue growth will continue to outpace total revenue growth, partially offset by year-over-year declines in Professional Services. We are also reiterating our full year. Operating income range of 125 to 135 million as well as our full year. Free cash flow range of 125 to 135 million.

We now expect non-GAAP net income per share of $1.90 to $2.33, based on approximately 75.8 million diluted weighted average shares outstanding.

For the third quarter, we expect Revenue in the range of 215 million to 217 million up roughly 1% from the prior year.

we expect non-gaap operating income between 29 to 31 million and non-gaap net income per share of 44 to 47 cents based on approximately 75.8 million diluted weighted, average shares, outstanding

To close we remain focused on discipline execution. As we managed through a dynamic environment, we continue to see a resilient detection and response business growing customer interest in our platform strategy and a durable model that supports both Innovation and strong, free, cash flow generation. We believe these fundamentals position us well for long-term value creation.

With that, I will turn the call back over to Corey.

Thank you, Tim.

Before we open up the call for questions, I want to address 2 important organizational, updates that position rapid 7 for continued success as we execute our strategy.

First, I want to share that Tim Adams intends to retire from his role as Chief Financial Officer.

Tim has been an exceptional partner over the past 3 years. Got us some significant transformation while maintaining strong financial discipline and operational excellence. His leadership has been instrumental in navigating both growth Investments and strategies for realignments, including our previous restructure efforts that helped position us support profitable growth.

Tim has committed to remaining in Rapid 7 until we identify and onboard a successful to ensure a seamless transition. We've engaged a leading executive Search firm to conduct a comprehensive search process. I want to thank Tim for his continued dedication to Rapid 7, and his commitment to seeing us through this important transition, his contributions have been invaluable.

And we wish them all the best as he approaches his next chapter.

Second.

I'm 30 to announce that we've appointed Allan Peters as our new Chief commercial officer.

This newly created role. Underscores our commitment to driving our go to market capabilities to accelerate Revenue growth.

We have spent the past year significantly investing in our product capabilities, particularly MBR and in exposure command.

We believe that our product offer today are industry-leading with highly duplicated capabilities, Alan joins us as we enter the next group of phase of delivering on this driving, the acceleration of our go to market efforts to capitalize on our unique product offerings.

With detection response. Now, representing over half of our business and demonstrating strong growth opportunities. We have both an expanding product portfolio and significant upgrade opportunity ahead of us.

Our Command platform provides a straightforward of cell motion across our entire portfolio. From VM to Cloud to exposure management, Sim and MDR.

We seek customer validation combined with the now. Complete integration of our Technologies on our Command platform create significant opportunities.

Our focus is now on growth and market adoption and how we operationalize our go to market engine, which is what matters most at this time.

Alan brings the exact expertise we need. He has deep expertise in our core market and, importantly, is an exceptional operator who knows how to scale commercial organizations through periods of transformation. With over 25 years of experience, Alan has a proven track record of scaling go-to-market motions, accelerating revenue growth, and software, specifically in cybersecurity businesses.

Strategy.

Alan will oversee our Global sales organization partner, ecosystem and revenue operations. Ensuring we execute with a precision as we capture, the significant opportunities in front of us.

His operational rigor and deep, understanding of our markets became an ideal leader to help us maximize our commercial potential.

As we continue to drive Innovation and capture market, share, having world-class operational leadership will be critical to delivering value to our customers and drivers sustainable profitable growth, for our shareholders, we remain confident in our strategy, our team, and our ability to be the platform of choice for the modern sock. Thank you for joining us on the call today. And with that, we will now open up the call for questions, operator.

We will now move to our question and answer session. If you have joined via the webinar, please use the raise hand icon which can be found at the bottom of your webinar application.

When you are called on, please unmute your line and ask your question. We will now pause a moment to assemble the queue.

Our first question will come from Matt. Hedberg with RBC your line is now open.

Great. Uh thanks for taking my questions guys. Um,

I wanted to so, you know uh DNR continues to do well and you know, I'm curious. I wonder if you double click on that and and asked specifically about MDR in there. I I know it's a pretty significant portion of that business and it had been seeing some strong demand Trend, just curious. If if you know, if you give us a bit more of an update on on MDR,

Yeah. Um, we can see it to see some of the management, you know, our modules that we start at the MDR, uh, expansion. A few years ago and it's been a core growth in the business DNR and total is over half of our overall business, but even with the success we've seen, we were only really addressing part of the overall customer Market. Earlier this year, we launched our customization and expansion offering that we just call having to call Enterprise in the yard. But really what it was about was accepting all data and all workloads from customers uh and able being able to manage that at quality and at scale we couldn't have done it without the Investments that we had been doing behind the scenes on our own AI technology that we had been rolling out steadily which we are continuing to invest in and so we look at detection response as a major growth area. If you just take a step back and look at the fundamentals, is every organization is under increasing pressure to actually manage their entire data set and their entire security operations on a 24x 7 basis. Um, the regular

Regulatory pressures, increasing the amount of their environments becoming more complex, especially if you consider not just fast. But also the fact that you now having lots of custom AI driven applications and so the ability to be able to monitor that complexity people need people that are not just deploying technology but they're also actually have the active ability to actually manage and separate the signal from the noise and that's what we've been focused on. But our whole goal was to actually make sure we could do that at quality so that's a continuing expansion area. We're investing both in the team um and these services around that and the AI to support that but that's a big investment area for us.

Got it. Thanks and then maybe you know you you mentioned uh Corey you know Q Net new are is weighted towards Q4 um you know recognizing it was a good quarter relative to expectations and you did temporary for your just you know, can you can you just underscore uh you know the confidence that you see kind of specifically in 4 q which you know, seemingly hits a good foundation for for 26?

Yeah, I mean, if you look at what we had and and uh 22, we saw that higher concentration of larger more strategic deals. Um, and so frankly, what we're looking at is really, we have a great mix of strategic deals that will win it and converting the deal Cycles are longer because we're seeing larger more strategic concentration. Uh, and so, we're always paying attention to, like, not actually trying to estimate timing to precisely. But when we look at over the course of the year, when you look across 2 324, um,

We see many different paths, actually, achieve the range, which is why we actually tighten up the range. Some um, we also fit frankly, like, if you look at 23, we don't want to actually estimate timing to precisely. We got burned on that early in the year, even though many of those deals closed. Uh, and we had a healthy momentum exit in Q2, um, but we see more than enough pipeline to actually be in the guided range. We always are a little bit more back and load. If you look at every year, um, last year we had a very robust Q4. Um, we probably are in great shape to actually have a healthy Q4 this year or healthy back in part of the year. Um, but what we really look at is the fundamentals of like, what's the pipeline, how are we doing on conversion, and how are we setting ourselves up? But we want to make sure that we are um, in a Range that we actually have confidence that we can achieve and that's why we tighten the range uh and made it a bit more focused.

Point of the guide Q4 of this year, is expected to be very similar to what we saw a year ago in Q4. So we've done that before.

Got it. Thanks and Tim best of luck in the next chapter of your life.

Matt, thank you. I appreciate it.

Your next question.

Will come from Janet sadiki with truist. Your line is now open.

Great. Thank you for taking my question. Um Corey uh, could you comment on the progress of some of the various sales and channels enabled and initiatives you've undertaken to drive adoption of your exposure command platform and how they're tracking. Thank you.

Yes, absolutely. Uh, I think what you're alluding to is the fact that we actually shifted, um, last year to take more investments in our partner Channel, ecosystem, and we walked this 1. Well, we're getting good feedback from our partners. Um, we're starting to scale that business. As I talked about earlier in the year is that that was going to be a ramp overall. You know, 1 thing that we're finding that is, I would say good in the midterm, um, but with somewhat different than what we expected originally is, when we originally launched exposure, command, we expected it to be a smaller dollar, you know, 10 to 20% uplift, upgrade cycle. Uh, and we've continued to develop robust pipeline around that. What we're actually finding is that it is actually a more strategic choice and we're finding that we're willing larger deals, but the deal Cycles are longer.

But also the asps are significantly higher um, than we estimate it. Um which is, I think positive in the midterm. Um but we're not necessarily getting the 10 to 20% upgrades that we originally expected between us and our partners but our partners are excited um by the ability to actually win larger workloads for customers. So we have readjusted in our guidance, our expectation. Uh again having customers can solve that I gave 1 case study but we have several different case studies. Where customers with the full attack service management view, have a larger assets under management than they had with vulnerability management. It's been a great on Trend to started to upgrade the cloud workloads. But again, those are much much larger deals, much larger aspects.

Great. Thank you.

Thank you very much.

Your next question will come from Eric Heath with KeyBank

Hey, thanks for taking the question and Corey. Great to hear that focus on accelerating growth. I guess, what are, what are some of the near-term and medium-term priorities to execute on that and maybe some of the internal metrics. Uh, you're measuring to understand how you're tracking towards those goals.

No, that's a great question. Look, I think our team has actually, and we'll continue to invest in the product and the service. Look at the end of the day, having robust Investments, and products, and services is key investment, a big focus of the time, um, and our Sellers and our customers, people have better than focused on both serving the customers and starting to get the story out about what we're doing. Um, because there's been lots of changes and investments in our

Technology stack over the last few years. As we think about operationalizing platform, it's a big deal. Now, to have our full technology stack on the platform to have some of the proof points in the evidence and MDR the DNR space and to continue to expand our exposure to our exposure offering

Part a big part of what we're doing is moving to really operationalize. Our expansion motion, if you think about sort of like the 2, big things that we actually have not nailed, and we actually have to have Improvement on that. We're working with both our customer teams and our new. CCO on is 1, we have to educate the market that the traction and the momentum that we have in the detection and response space. You know, we are 1 of the larger and more successful companies. Um, we have outstanding markets from our customers, we just had an exciting new release with incident command, but we have to actually do a good job of educating the market that we've successfully expanded. Um, beyond the traditional vulnerability management Roots, uh, and that we're actually taking data and workloads of all sizes in. So that's 1 is making sure we actually educate the market. So that's a clear focus and doing that cost, effectively, by the way, the second thing that we're sort of like are really focused on is we have to really build the operational engine for our expansion. Um, we do it today but we have a bunch of hard work and

People that are actually going in and frankly doing it much more manually. And so, really building the rigor and the process around that expansion engine, uh, is a big Focus that I actually have going forward. But you know, it is a big deal that we can actually do it off of a fully integrated platform. That's all upgraded and just in data across the environment uh on the command platform, which was a big milestone. Um for me and a big focus of both myself and the company over the last year.

Sort of customer migration activity. That's needed to get us to that platform.

The upgrade is going to be very straightforward and easy and it is a lot that's actually incremental. So like if you look at the um core fundamentals is, we've actually made it easy to actually assume both more, the raw data and more alert data and Telemetry into the platform. So it's just like the rest of the command platform. It's about both the data that we collect, but it's also is actually rationalizing. The massive system record data. The second thing that it actually has is, its core is it has, um, a fully built in threat intelligence platform. That actually takes a lot of the noise that you get in, and helps to make sense, but also helps correlate your data about real world threats and attacks are, um, we're seeing in the environment and probably the biggest single piece of the upgrade is, we've been training and working, um, with incident command, um, as part of our MBR offering and training and optimizing it. And so customers out of the box, get a full authentic experience where it actually um, expenses alerts.

Organized it puts it directly into the minor framework and allows customers to actually not have to actually go through and do their own research. It provides a clear point of view about what's the duplicated, what's not, what's likely a threat? What's not a threat? And it actually starts to work for all of our customers in the sock. Again, this is trained on the data. That's actually helped our own MDR team scale and our customers and our partners MDR team scale and their environments. Keep in mind our management.

Process both us but we have a lot of partners that do that and and we've been making these Technologies available studies. Those partners.

That was very helpful. Thank you, Corey.

Thank you very much.

Your next question will come from Mike zikos with nem.

Hi. This is uh, Jeff Hopsin on from Mike, thanks for taking the question. Um, we we've seen companies that had deals slip from q1 to Q2, uh, from Liberation day. And then now, Q2 to Q3

Um, in some cases, is this something you guys are seeing, uh, that could end up pushing, uh, even more to Q4, uh, even more than last year.

Yeah. It's a, it's a great question. So 1 is, we definitely saw it into to, I mean, if you won, you know, in in a 2, 2 2, we were more prepared for it. So we actually felt like things ended up quite healthy in Q2. But, I mean to be clear, there's some things that came in and there's some things that actually, um, were delayed and stuff, but we felt overall felt quite healthy. We are not just to be clear, our Baseline assumption right now, is that deals will move around. Um, this is why we gave you, what we consider approving Outlook, um, that Tim gave in the Outlook and look deals with 1, we have more larger deals, they're more strategic, they're more concentrated. They actually have more scrutiny. Um, and so there's a range of a couple million dollars that actually happens. We don't think that's a big deal which is why we really focus on the outlook for the overall year.

Um, but I would say Q2 we've got good about the mix Q3. Um, we assume that it's stable. A few deals May slip. That could actually add some incremental pressure, but that's why we're managing to the 4 year outlook. Not really focused on sort of like the q224 timing because we found that that wasn't as big a deal once we actually got the rifle.

Got it. Thank you. And could you just give an update on the timeline of the Investments uh, in the uh, India sock.

Um the sockets come up a lot in discussions and just curious of you know, how that's uh been going. Thank you. Yeah that's a good question. It's it's a ramping. You know what what I would say is that we're ramping capacity but just as importantly we're adding capacity and frankly accelerating and and we're going to continue to accelerate the capacity of what our AI engine can do. Um, we have a global 24 by 700 to talk around the world that actually operates in the US operates in Europe operates, um, in the Pacific Asia Pacific region. Um, and so adding India is another region because we do believe that AI gets a scale, but we think people matter, um, we think security, uh, is an Ever evolving thing. And so, this is an ideal area where you actually take Ai and you actually push it. The fact of the matter is we love the fact that our security operations team pushes, our engineering team aggressively um and is actually helped push the bar not just on the success. We have

Is Al pushed us aggressively to actually do even more from where we are today. Uh and we think that's a very healthy Dynamic and I think the customers of incident commands are going to be able to see that value directly in the product,

Q4 of this year.

Thank you. Thank you for the question.

Your next question will come from Joshua Tilton with Wolfe research.

Hey, can you guys hear me?

Yes, awesome. Uh, thanks for thanks. For squeezing me in and congrats on the, on the results. Um, I I have 2, uh, the first 1, you guys kind of sort of addressed it, but I guess I'm still a little unsure as to why you guys are lowering the high end of the our guys. Um I think you said that the are this quarter was in line with your expectations, you know, there was better. Bookings linearity. It sounds like there's still deal scrutiny but it hasn't gotten worse than last quarter. So I'm just trying to understand why exactly uh is the high end of the guide uh coming down. That's my first 1.

Yeah, no, it's a great question. So the core of it is, if you look at what's happening on a fundamental spaces, we're continuing with the bill total pipe. We are seeing a larger concentration of more strategic deals, um, that are at best and, you know, our history. But that's actually a new thing that we're actually going through, and we actually think it's proven not to be out of our skis. So we have high confidence in the guidance range. Could we do better than that? Yes, but our focus is actually given investors a high quality range that we actually feel good on, uh, especially when you actually have a back-end load a year, and you actually understand a higher concentration of large and more strategic deals. We actually go,

Okay, about the economy in general. Um, we are seeing a deal mixed shift up, um, but we also don't want to, in a world that is volatile, let's just put it that way. Um, we don't want to put all of our eggs in the basket of everything is going to actually be fine across the rest of the year. Uh, so we gave you what we actually got is a range that we actually feel good about, especially if you look at sort of like the remainder of the year. And we can actually land the time and however it lands, but we have a good pipe, uh, and it's more robust there. But that's the focus. We want to make sure that investors have a clear sense of where we are, um, where we actually have confidence and what we're seeing.

Okay, uh, make sense then maybe just just my follow-up. Um, you know, you announce new Chief commercial officer. I believe that's the title of the role. Uh, Corey, I think the word you used were drive. Go to market capabilities, and accelerate Revenue growth. Uh, clearly half the business is still doing pretty well. Uh, the other half of the business obviously kind of lagging, uh, day 1, new Chief commercial officer, like you know, what are his expectations like like when when when when when when would Corey like to see him start to really make an improvement to the half of the business? That's been kind of overshadowing the strong growth and DNR.

Yeah, so um, so 1, I think that steady wins the race so we have a high sense of urgency but we want to focus on fundamentals. Uh I expect to actually see continued success in DNR. Uh and we don't want to sacrifice that because that's a robust Market that's healthy. That has healthy Trends. Overall, the biggest thing that we actually are going to focus on when it comes to the uh other parts of the business is really operationalizing. The customer go, to Market expansion and the engine. I think we have some efficiency gains to do. I think there's some things that actually make it easier for our sellers, to actually get momentum. Um, there's some Market things that we have to do to actually, make sure um, people actually are aware of where we are and that we're actually selling in a platform motion. And so, I'm really expecting the leader to actually work with our teams on making things easier for our sellers to actually go not just tell the story but be able to cross sell and up some more efficiently and effectively. If we do that everything will actually follow and actually grow will follow my expectation is to see improvements. Um, as we actually

Move into next year and we'll continue to actually talk about that and educate you about where we are along the way. Um, but I think we're doing an off of a stronger base of a more integrated platform, um, but we don't want to lose the momentum that we actually have in DNR. What we really want to do is make these selling motion easier for our sellers.

Also more excited to see it. Thanks.

Thank you very much.

Your next question will come from Aiden.

Yes.

This is Aiden author. Rob Owens, and thanks for taking my question. It was, uh, great to see the recent fed ramp achievement and I understand it might still be early. But how are you thinking about the federal opportunity and longer term and your right to win in this area versus other competitive Solutions?

Longer. Uh, it's an impact that we expect to start seeing in 26. Um, we've got the certification, uh, our teams are out in the market now, where frankly scaling, the teams that are actually addressing the federal government workloads. Um, but it's a benefit that we start to expect to start seeing in 26. The federal government is 1 of the largest and most stable Spenders on security, uh, and we haven't been participating in the market, and I'm thrilled that we're actually doing it now. But we have to build up our capacity, um, to actually do that well, and not just in the narrow way that we've been doing it but in a more expansive way. And so it provides a good opportunity in front of us.

Great, thank you for the caller.

Thanks, I appreciate the question.

Your next question will come from grey Powell with btig.

Star 6 will allow you to unmute Grey.

Okay, great. Can you guys hear me, okay?

Okay, that's fine. How are you?

All right. Awesome. I was a little slow on the trigger there. Um, thanks for taking the question, uh, greatly. Appreciate it. Um, so so yeah. Look, I, I, I know that the, uh, uh, the MDR space is, uh, is pretty fragmented. Um, but I, I guess I'd be curious like, you know, how, how does zscaler acquisition of Red Canary. Um, change the competitive landscape there. Uh, if at all, do you see any potential um discussions resulting from that uh, that acquisition or any particular talents?

Um, you know, there could be some Tailwinds. You know who look these scales are incredibly talented company. I have a lot of respect for J. Um, and the team there, I don't think it changed anything mostly because the MDR Market is a highly fragmented market. So you know, our focus is doing what we think we actually do best, which is offering a high value solution to manage because all the customer security data with a high quality level of service. And I think we make great strides there. But frankly, we're we're ambitious, we plan to make even greater strides there. Um, having a high bar for some, you know, our goal and we have to, you know, we have this history of RA 7 around security and security Focus. We want to be the best home in the world for security practitioners. Um but then also marries that with some of the latest advances in artificial intelligence to actually give customers a trusted provider of Security Solutions. I think if we do that we'll be wildly successful. And I also think the market will be a highly fragmented Market. Um, and so, I think because of that it doesn't really

Change the Dynamics overall, it's a noisy Market. Frankly, I think we have not been the most effective that we could be telling our story and making sure people know how impactful and successful are every time we meet customers and they actually look at it or they get references from other customers. They're constantly surprised about how impactful and how successful we are and the quality of service that we actually have. So we have to actually do a better job of telling our story and that's frankly got a manner more than anything, you know that's happening in the

About a different environment. Again, it's a big Market if you just zoom out. Um, my estimate is that over 90% of the world will not have the capacity to do what's required from a security operations perspective, which is to manage and monitor all their data. All their Telemetry on a 24 by 7 worldwide basis, and Incredibly technology, fragmented and highly regulatory environment. That's a massive opportunity. Um, not just for us, not just for C scalar, uh but for the world and we have to compete effectively. But we're doing that from a skilled position from an Innovative position, uh and frankly from a position where we actually are able to attract great cyber security Talent.

Understood that that's very helpful. Uh thank you thank you thank you very much. Thank you.

Your next question will come from Adam Borg with Staple.

Awesome. Can you hear me? Okay.

Hey, just fine. Hey, hey Adam! Hey guys, thanks so much for. Taking the question, maybe just for Corey. So as we think about the command platform and the various pieces coming into place now with incident command, how do we think about just overall pricing and packaging? You just spent a few minutes ago, you talked a little bit about trying to make the selling motion easier for Sellers and just thinking, when, you know, Allen joines what the opportunity around pricing and packaging, given what I just mentioned, thanks so much.

Our quality is versus where our platform, it's actually very clear that we're actually taking in large complicated chunks. And the biggest drag on growth is we actually don't have the continuous uh, expansion engine and and we we own doing that and we actually own doing that. Well so that's a relatively large area of focus that gives us steady. Frankly better predictability over time um because well I love having some of the success that we're seeing in larger deals. I don't love not having the volume of transactions there. Uh so to give us both more predictability but it also materially actually assists in the revenue growth piece because we have 11,000 customers. We have a good story, we have to tell them the story but we have to provide the right bite fast checks for people to buy it off and so that will actually both helped us both but it also helped the overall customer experience.

That's great. And maybe just as a quick follow-up, you know, number of customers, you know, modestly fell for 2 quarter Street. When should we get the entity? That's stabilizing. Thanks so much.

Yeah. So I think what you're seeing is that we're doing quite well at adding strategic customers. Look, we have some what I'll consider a legacy customers and trade-offs, we owe you a measure to actually think about about think about quality overall. It's not something I'm focused on at all, is the customer account. I really want to shift it to be. How many customers do we actually have, uh, how far on the Journey of customers fully leveraging the platform, how many coverage is our AI managed stock, um, managing, how many workloads are we managing and leveraging, um, through Ai, and that will represent

Significant growth.

Will grow customers. The and so but, like losing transactional, customers, right? And strategic customers. That's going to be noise for a little while. I won't even call it a hit when it's just noise for a little while. We do owe you some better measures about how to actually see that equality. So you know, I'll have the team we'll work together on that. Um but it's not a big factor right now because it's a little bit noisy. Yeah, but still a lot of room to grow that ARR per customer. It will be quality platform customer too but we have significant room on our our customer and that's the focus that we all are. So adding new customers in a quality way but we are having like again. Um, you know, sets of small dollars, customers fall off, that are more transactional as we have larger, um, more strategic customers.

Very helpful. Thanks again.

Thank you very much.

Your final question will come from Rudy kassinger with da Davidson.

Hey great. Uh, can you guys hear me, okay?

Yeah, yeah. Hey Rudy. Okay great. Um so I I want to kind of go back to Josh's question about lowering the uh error guy by 15 million on the top end. Um you know, I think last 4 of you guys said, the Outlook kind of relied on some stabilization the declines, you're seeing in your VM business. I'm curious how that traded in the quarter and, you know, because when I look at your airr, if DNR is continued to grow in the mid teams and make up an increase of mix while your overall rate of our growth is slowed,

Obviously that Matt suggests that the declines in the rest of the business are actually worsening. So, um, curious if you could just give any cover on that. But anyway,

Yeah, no. It's it's a great question. So you know, the first thing is um, we are seeing very healthy, both Pipeline and conversion. It is much chunkier this year, so it's larger more strategic deals and frankly, we are getting better and better at forecasting those. Um, but we don't want to be out over our skis. We saw exactly what we hope to see in Q2. And so, we feel good about the overall Q2 Dynamic, um, but we want to have a range that we actually have high confidence in to answer. Your core question is, you know, I'll answer the 2 ways 1. We have a massive data opportunity and we expect both the work that we've done on the product side. But frankly, the work that we're investing on the sales side. We think that we are actually have more growth capacity in the overall DNR business, and it's a larger and more strategic market. So we have laser sights and focused, uh, on that overall. The second thing that I would say is we are invested in the technology around both vulnerability management and exposure at the core level. Uh, but we think about that as an upgrade Motion in the install base and business. Um, and we're frankly

Happy with what we're, it's not what we expected to see. So I don't want any of that, you know, we expected to see a bunch of smaller dollar transactions. Um, that would have given us higher predictability and concentration on growth and what we're seeing is robust pipeline build, but customers make it strategic platform decisions and again frequently they're choosing up.

Indicate studies early on. Um but those are a little bit trickier to actually forecast the timing of and So based on where we are and the concentration of larger deals and pipeline, we actually adjust to our guidance to where we want to be, and that's really the um, dynamics that you're talking about. About sounds like, Q2 was fine and you saw what you need to see? Absolutely. It was actually absolutely. It was actually fine. What's not what we wanted to see is the volume of smaller dollar upgrades. Some of that we have to actually tune the engine on. Um, but frankly if you zoom out, we're fine with that because we're seeing the consolidation and the winds on the large dollar and we actually have a path to that. Um, and we don't want to distract ourselves too much from the really large DNR opportunities that's required

So, I know that was a lot, but I really wanted to get to the core of the core of that question.

All right, thank you all very, very much look as we close out today. I just want to thank him again, um, for his work commitment and service, um, to the company, uh, I'm deeply appreciative of his commitment and what he's helped us achieve here. Uh, as we go through, frankly, radically reforming the company to be something that's equipped to actually invest in and actually tackle the future opportunities that we see in the world around us today. So, thank you so much, Tim and thank you for joining all for joining us on the call today.