Q2 2019 Earnings Call
I'll be happy to assist you as a reminder, this conference call may be recorded for replay purposes.
It is now my pleasure hand, the conference over to Niraj Mahajan, Vice President Investor Relations you may begin.
Thank you operator, and good morning, everyone. We appreciate you joining us today to discuss Rapidseven second quarter financial and operating results. In addition to our financial outlook for the third quarter and full fiscal year 2019 with me on the call today are Corey Thomas as CEO and Chip Clark CFO , we've distributed our earnings press release over the wire and it is now posted on our website at investors start Rapidseven dotcom, along with the updated company presentation and financial metrics for this call is being broadcast live via webcast and following the call an audio replay will be available at investors aren't rapidseven dot com until August eight 2019.
As a reminder, our discussion today contains forward looking statements about events and circumstances that have not yet occurred including without limitation statements regarding our objectives for future operations and future financial and business performance. 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 expectations contained in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q , and subsequent reports that we filed with Securities and Exchange Commission.
The information provided on this conference call should be considered in light of such risks actual results or the timing of certain events may differ materially from the results or timing protected or implied by such forward looking statements and reported results should not be considered as an indication of future performance.
Rapidseven does not assume any obligation to update the information presented on this conference call except to the extent required by applicable law. Our commentary today will be primarily in non-GAAP terms and reconciliations between our GAAP and non-GAAP results and guidance can be found in today's earnings press release at times in our prepared comments are in response to your questions. We may offer incremental metrics to provide greater insights into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be onetime in nature, and we may not may or may not provide an update in the future on these metrics with that I'd like to turn the call over to Corey.
Thank you Ross and good morning, everyone. Thank you all for joining us today on our second quarter 2019 earnings call.
Rapid segment had another strong quarter driven by the strength of our insight platform products.
We again exceeded the high end of our guidance.
Year over year revenue grew by 35% and we generated non-GAAP operating profit.
We once again demonstrated strong ARR growth of 46% and remain confident of delivering over 30% our growth for the full year 2019.
Our organic customer growth accelerated to 14% one of the strongest quarters ever in customer additions with net ports. We ended Q2 with 8400 customers a growth rate of 16%.
In addition, our customer economics remain strong as our platform strategy is working.
Average air our per customer increased by 25% year over year to over $34000 and recurring revenue expanded to 87% in the second quarter.
We are again, raising our full year 2019 guidance for total revenue based on the strength of our cloud based product business.
We expect to generate leverage across our business and as we discussed in the last quarterly earnings call. We have increased investments in our business to achieve higher long term growth and sustainable profitability.
These investments are well underway and we are focused on continued execution on these in the second half of this year.
Therefore, we continue to expect non-GAAP operating income to be break even in 2019.
We are especially pleased with the momentum in our international business.
Where our investments are bearing fruit.
We are seeing greenfield opportunities in regions like EMEA, and APAC, where customers are increasingly start to appreciate the ease of use breadth of analytics and automated remediation capabilities of our insight platform products.
Our business is also benefiting from the investments we have been making to improve channel partnerships.
Our partners are embracing our insight platform and regional partners are increasingly driving expansion in North America.
Now.
Let's review the quarter in the context of our 20 Nightengale's.
Our first goal was continue to focus on growth.
We delivered strong growth in the second quarter with air our go to 46% and revenue growth of 35%.
Our updated guidance for 2019 revenue growth reflects our confidence in the business and strategic initiatives.
We are winning and retaining customers because of the investments were making in our business. Our big focus this year was on new customer additions in our sales incentives were aligned with this.
We believe customer growth is the key to our long term sustainable growth because every customer we have today generates significant expansion opportunities over time.
In addition, as we have expanded both the number of customers and they are all per customer our team has done a good job of maintaining strong renewal rates.
Additionally, our product roadmap resonate with customers with more and more organizations adopting cloud technologies, the breadth of our insight cloud offerings and the integration with cloud providers differentiator.
Our focus on cost the innovation was evident at ADW asked his inaugural Cyber security conference reinforce where we had the opportunity to be a key presenter.
Here, we announced the integration of our insight cloud platform with AAMC New security.
We also announced our cloud configuration assessment capability.
As organizations migrate their infrastructure to the cloud they need to understand the vulnerability risk as well as the configuration risk.
Many solutions provide silo views and our customers have expressed dissatisfaction with such a non integrated approach.
Now our customers with one solution to get visibility into traditional and cloud environments for vulnerability risk and configuration risks that can be an automated response to remediate.
It is exactly this innovation and product roadmap that has helped us gain share in our key vulnerability management market as our customers appreciate rapidseven technology differentiation and deeper integration with a broader security ecosystem.
Our results also reflect strong performance across other products on our insight platform, especially in certain IDR as our second vision resonates with the resource constraint organizations of all sizes. It is helping us and when customers.
One such example, as our recent win of a large local government customer.
This customer was looking to replace its legacy Sim solution because of higher nor costs fatigue due to false positive alerts and the time it took to invest the actual events.
They're testers were impressed with I'd ours user behavior analytics, its ability to interrogate endpoints during other investigations and response and predictability and pricing.
But were really resonated with this customer was a seamless integration of BM, an IDR solutions, allowing them to collect data more efficiently and drive overall productivity improvements.
As a result, we won not just assume business, but also the vulnerability management business.
Our second goal is to continue to make it easier for our customers to adapt our platform and optimize our customer economics.
This requires multi year investment in systems and packaging to make it easier for customers to adopt renew and expand usage of rapid seven product portfolio and are a key part of our growth strategy.
As I mentioned before these investments are well underway and are already yielding results. This year to set us up to deliver durable growth and sustainable profitability.
Our third goal is to continue to drive leverage in our business in the second quarter, we generated a non-GAAP operating profit of approximately $500000.
Jeff will talk about this in more detail, but while we feel confident about the path to profitability, we intend to continue investing for durable growth and profitability.
Overall, the second quarter was another strong quarter for Rapidseven and we look forward to executing during the remainder of the year with that let me turn the call over to our CFO , Jeff Koloski Jeff.
Thanks, Corey and good morning, everyone.
We're very pleased with our strong performance in the second quarter with results that exceeded our guidance on all metrics.
Total revenue for the second quarter was $79 million above the high end of our guidance and an increase of 35% year over year.
The strong revenue growth was driven by better than expected product revenue growth offset by a further decline in professional services revenue.
In Q2, we also benefited from an existing customer expanding scope of their term license, which resulted in approximately $1 million of upfront revenue recognized in Q2.
Total air our grew to $290 million at the end of the second quarter of 46% increase year over year.
Air our growth was primarily driven by strong new customer growth.
Our customer count increased by 16% year over year, and we ended Q2 with 8400 customers globally. This includes a benefit from an airport acquisition that we closed in April of this year without network, our organic customer growth rate accelerates from 12% to 14% in Q2.
The quality of our customer base continues to improve as higher growth in our product customers more than offset the decline in service on the customers our customer economics remain strong with average air per customer increasing to over $34000 up 25% year over year.
Strong growth in air are over the past year drove 50% growth in recurring revenue recurring revenue now constitutes 87% of total revenue compared to 79% a year ago.
Our focus on recurring revenue drove a 62% increase in our product revenue year over year. This was partially offset by decline in maintenance and support revenue as nexpose customers migrate to the insight platform, resulting in reclassification of maintenance revenue to product revenue.
Therefore, it makes sense to look at product and maintenance and support revenue together, which collectively grew at 46% year over year.
Our professional services business experienced a further slowdown in revenue declined by 27% year over year.
This decline is primarily driven by the continued churn of transactional services only customers as our sales team gains momentum with our insight platform.
For the remainder of 2019, we expect professional services revenue to continue declining on a year over year basis.
Looking at the business geographically revenue from North America grew by 34% year over year and comprised 84% of total revenue.
International revenue grew by 42% year over year and comprised 16% of total revenue in the second quarter.
Contract length for Q2, 2019 was 14 months down from 17 months, a year ago and it in a decline from an average contract length of 15 months, we reported in Q1 2019.
Our overall renewal rate was 116% in Q2 2019 and has projected decline from last quarter, our retention rate remains strong and the decline in this rate is the result of a lower forecasted air our growth rate from 53% last year. Additionally, our increased focus towards new customer growth also contributed to the decline as Corey mentioned, we are incentivizing, our salesforce and adding new customers and we plan to continue with the strategy as it maximizes our long term sustainable growth.
As a result, we expect the overall renewal rate to stabilize around 110% by the end of 2019.
Turning to margins total non-GAAP gross margin in Q2, 2019 improved to 75% up from 73% last year.
We continue to benefit from a shift towards a more favorable mix of higher margin product revenue.
Our product non-GAAP gross margin was 80% up from 78% last year.
Professional services non-GAAP gross margins declined to 19% when compared to a margin of 38% in Q2 2018 due to lower revenue as part of our continued focus on air arc and more strategic professional services.
During the second quarter sales and marketing expense decreased to 45% of revenue when compared to Q2 2018 expense of 50%.
This improvement reflects the operating leverage inherent in our business model.
R&D expenses were 20% of revenue in Q2, 2019 as compared to 23% in Q2 2018. This lower percentage of revenue partially reflects an increase in capitalized software to account for increased investments in our insight platform.
Gene a expenses in Q2 2019 were stable at 10% of revenue compared to Q2 last year.
For Q2, 2019, we generated non-GAAP operating profit of approximately $500000 well ahead of our guidance non-GAAP operating margin was 0.6% compared to a margin of negative 10% in Q2 2018.
This improvement is primarily driven by the over performance in revenue.
Adjusted EBITDA for the second quarter was 2.7 million and diluted non-GAAP net income per share was two cents also well ahead of our guidance.
We ended Q2 with cash cash equivalents and investments of $264.4 million compared to 285.1 million as of Q1 2019.
The reduction from Q1, primarily reflects the cash outflow related to our acquisition of net for which we acquired in April for approximately $15 million in cash.
During the quarter operating cash flow was two and a half million as compared to negative $9.1 million in the prior year driven by strong collections, which brought our days billings outstanding back to normal level.
Given the decline in contract length and decline in professional services billing, we're projecting operating cash flow for the full year 2019 to be approximately breakeven.
In Q2, our assets and liabilities increased $58.6 million as a result of our new corporate headquarters lease in our property plant equipment increase increased 25.8 million due to the build out of the corporate headquarters, while we moved into our new corporate headquarters in July the Buildout will continue to impact our free cash flow in Q3.
Now moving on to the guidance.
For Q3, 2019, we anticipate total revenue to be in the range of 79.2 million to $80.8 million. This guidance reflects the strength of our product revenue growth, which is offset by a decline in professional services revenue.
We anticipate non-GAAP operating loss in Q3 2019 to be in the range of two and a half million to one and a half million.
We anticipate non-GAAP net loss per share for Q3 to be in the range of four cents to two cents, which is based on an anticipated 49.2 million weighted average shares outstanding.
For the full year 2019, we are raising our guidance and now anticipate total revenue to be in the range of 318 million to $321 million, which is 31% growth over 2018 at the midpoint.
While we are again pleased to report non-GAAP operating income for the second quarter, we still continue to see plenty of investment opportunities.
As we stated before we will invest any upside back into the business and as a result, we're still guiding to breakeven non-GAAP operating income for 2019.
We anticipate non-GAAP net income per share to be five cents, which is based on an estimated 52.3 million diluted weighted average shares outstanding.
The weighted average shares outstanding for the third quarter of 2019 represent basic shares outstanding given our projected non-GAAP net loss.
The weighted average shares outstanding for the full year 2019 represented diluted shares outstanding given our projected non-GAAP net income.
non-GAAP net income for the full year 2019, largely represents interest income on projected cash and investments.
On a GAAP basis, we expect the full year net loss for 2019.
As a reminder, we recently moved our global headquarters and our consolidating facilities this year and hence in Q3 and for the full year 2019, our free cash flow will be negative as a result of significant capital improvements, but these expenditures will decline substantially in 2020.
In conclusion rapid seven had a strong second quarter and we look forward to delivering a ARR and revenue growth of over 30%, while significantly improving non-GAAP operating margin compared to last year.
With that I want to turn the call back over to Corey for a few closing comments.
Thank you Jeff.
Before I open up the call for questions I want to take a minute to welcome our newest board member.
We are pleased to announce that Christina kosmetsky with the global head of customer success and services Aflac has joined Rapidseven board of directors.
Christina has an impressive track record of operational excellence and has helped high growth software companies scale to the next level.
With that we appreciate your time and support and we'll open the call for any questions operator.
Ladies and gentlemen at this time.
I would like to ask a question over the phone.
Please press Star then one on your telephone keypad.
My questions have been answered your question.
Sure.
We kindly limit yourself to one question.
One follow up.
Our first question will come from.
From Keybanc capital markets. Your line is now open.
Great and good morning, guys.
I wanted to hone in a little bit on the strength in customer acquisition and you mentioned the insight.
I'd R&D as we look at the same space overall, it's become noisier so.
What's helping you cut through that.
What's driving this and maybe an update on the inside VM as it relates to customer acquisition as well.
Yes, I mean, we're really hit our stride you can make about us is being roughly four years in we have a compelling product capability with inside Ivy are that we can.
Van.
We're getting very comfortable on our go to market motion. So we know how to target our customers and at the core of it we actually have a solution that is fairly unique in the market and that most of the film products are designed for customers that have unconstrained resources. What we find is if you think about most of the market whether you think about the mid enterprise or even what I think about the margin constrain large enterprise companies retail companies your healthcare companies they have to figure out how they actually have the most productivity and the most impact with limited resources and for US, we really deliver a strong solution for that market and thats allowed us to continue to actually aggressively grow and gain share in the overall market and more and more our strategy and our value and our success.
Customers have feed on itself what customers are telling other customers and even in the shale side gardens, and others are recognizing the value and the leadership that we're providing.
Great and then for Mike completely unrelated follow up question.
Given we're entering the third quarter here in what is typically a strong federal quarter, maybe an update or a reminder, as to where you guys are relative to the us opportunity.
And.
Percentage of sales things of that nature.
Yeah, we're still very early stage and the overall both opportunity.
And it's a relatively small percentage of our overall sales the way that we think about federal is massive upside. If you look over the next five to 10 years and we will be a major player in the overall federal market.
At the same time is that when you think about us having lost a pervasive cloud platform for security a few years ago and the federal government is still being in the earlier stages of their adoption. Our strategy is really to continue to grow our overall commercial presence we are aggressively going on in the overall state and local and education market.
That are highly receptive to our cloud based platform strategy and as the federal government Standardizes approach. The cloud you will see US played at cliffs enrolled there in the future.
But again, our expectations are that federal is not a major contributor this year or frankly, even for the next few years.
Great. Thank you.
Thank you very much I appreciate it.
Thank you.
Next question will come from Keith.
With Barclays Capital. Your line is now open.
Hey, guys. Thanks for taking my questions here.
Hey, first.
Maybe first for you Jeff.
Obviously, another another nice quarter.
On the renewal rates, you mentioned that they ticked down from from I think 120% down to 116%.
And we said that maybe they will stabilize as we get into the.
Into the back half at around 110% you talk to some of the drivers there around customer acquisition.
And such but could you just go little bit deeper into those and talk about.
How the expiring renewal rates are doing how the upsell cross sell component of is doing just to understand that dynamic a little bit better.
Sure. It's a good question Bob So first off on the expiring lease renewal rate those are still strong and they were in the 90% range. So there is no change there I think as you heard Corey talk about.
Our focus this year is really on acquiring customers, so while upsell and cross sell is still healthy.
We've had a shift towards more new news, which drives the rate down.
Also we are forecasting.
And our our growth rate from 53% to over 30 over 30% plus right. So you can't assume that that rate will stay the same.
Given that given that the decline thats just not the way the math works so.
Overall, our rates are strong so theres nothing negative in that expiring rural renewal rate whatsoever.
Okay got it Thats really helpful.
Cory.
Maybe a little bit of a higher class a higher level question.
Yes.
A lot of success here so far in the first half 19, I know it's early to start talking about 2020, but just given the the error upside that weve seen pretty consistently over the last few quarters. How do you think about that that 2020 framework that you provided that at the last analyst day.
It's a good question and one that we actually get a lot of course, it's actually too early to actually give guidance for 2020.
But if you think about that backdrop in analyst day, we actually talked about a three year CAGR of 20% revenue growth.
And 30% ARR growth, we clearly performed well in excess.
Of that so far and we actually have started off this overall year on a strong base. The thing that I think is the most important thing is we are extraordinarily both optimistic about the market and the performance of our teams and so while it's too early for us to actually give specific guidance, what I will say that were very.
We are confident in the fact that we will continue to be a growth company, we will be growing revenue over 20% next year, we'll be going they are over that amount also and I think about that as it were a company a senate own the large opportunity thats in front of US we have a strong and healthy team and we're going to be pursuing that aggressively that said, we are going to come back with actually guidance. Later, it's just way too early to actually provide any guidance at the fate.
Got it that's really helpful. Thanks, guys.
Thank you and our next question will come from Matt Hedberg with RBC capital markets. Your line is now open.
Hey, guys, thanks, well done on the quarter Corey even backing out a net four acquisition you guys still had a big quarter of new customer additions, obviously, you talked about that.
When you think about the sort of the focus on on land I think you said you guys feel confident that you can expand longer term how do you think about adding the right number of sales head count to support that level of customer growth.
Yes, it's a very good question. So the simple way that we think about it the reason that we're focusing on land right. Now is that in my mind, it's always easy to expand its always easier to monetize the base.
So as long as possible you want to have a sales team focused on actually acquiring new customers.
When we think about how we grow our self.
Our sales engine overall.
The thing that we're in a good position right now, especially as we go into 2020 and forward is that we have the ability to actually add salespeople and still grow our leverage and profitability in the overall business and so if you think about what we're really optimizing around is how do we how sustainable growth, which you hear us talk repeatedly about.
While still expanding the leverage and the overall business and we actually make our sales leadership and our operations team has done a good job and setting us up for that.
Got it and then maybe as a follow up obviously the capital one breaches and was in the news this week and it looks like it was perhaps I missed configured laugh can you talk about that as an issue and I believe you have a product called the figure cloud configuration assessment.
That may help prevent a similar situation could you could you talk a bit more about that as an issue.
Yes, absolutely.
I think that being about cloud environment. So the first thing I'd say is capital one is well regarded and how the extraordinarily talented fiber security teams I would say.
More than had been an issue for FICC with them. It just shows the complexity of managing cloud based infrastructure that secondly, as we think about hobbies infrastructure cloud based infrastructure is extraordinarily complex with a massive number of permutations, which is why you have to automate your ability to really understand what you have in your environment.
And how its configured and Thats why we have such a massive investment.
And cloud configuration assessment, and the analytics of understanding People's cloud exposure, which is different than traditional vulnerability exposure.
This is clearly a problem said, we're targeting aggressively we believe our fee to our offering.
Is relevant and will be more and more relevant in the future. We just introduced the first version of that it's on an aggressive expansion path in terms of capability at a capital ones as demonstrated more than anything the complexity of today's technology and bonds.
Super helpful well done guys.
Thank you very much.
Thank you and our next question will come from the line of girl.
With Stifel. Your line is now.
Hi, This is actually Chris spear is on for Gore.
Congratulations on another great quarter guys for Corey.
When you acquired that for you noted that it provides you with the technology to better service enterprise use cases can you speak to the degree to which the acquisition has better enabled you to push up market.
Yes, it's a great question. So when we acquired it we talked about really three things the.
First focus we set up the gates is going to be focusing on enabling a higher level of enterprises business them and then we talked about a the Albany, the VM visibility and then I have a few long term.
For all of them, we are in the technology integration phase and so it had no material impact on our go to market engine.
And even in that context, our go to market engine for IDR has continued to expand and we think that this will just be additional capability that makes it easier and easier for us to expand.
In the out years.
But as of today, we're still in the technology integration phase.
Okay, that's great and as a follow up again for you Corey Your international business grew quite nicely in Q2, how should we think about your long term international opportunity and the degree to which this market currently remains greenfield.
Yes, so the way, we think about international as having a massive opportunity. We all know the it's lagged the us in terms of both the awareness and the willingness to invest heavily.
And in Maine, and Maine.
And the main capabilities of cyber security and what we're seeing is a pickup in both interest and awareness some of its driven by.
Regulations and compliance.
Some of its driven by the international the connection is the companies have around the world, but we are seeing a steady pickup.
The way that I think about our international business performing is it could should continue to actually increase as a percentage of our business. If you think about what's happened recently is going from 15% to 16%.
Overall, Rob as as we expect does it continue to go up over time, what I'd say is our international team has done a very good job I think the hard thing is that our largest business from a geography perspective is North America, and that's continued to grow well.
Which just makes that a slower path that actually international becomes a larger larger show the business, but we expect those numbers to continue to go up steadily over time.
Great Thanks, guys and congrats again.
Thank you very much.
Thank you and our next question will come from Michael Turtis with Raymond James Your line is now open.
Hey, guys good afternoon, Michael Turits.
I would like to focus on.
Vulnerability management market first.
Not exactly clean quarters from.
Key competitors here, how would you characterize the level of demand and growth in end up.
Well the management right now.
Any slowing there and are you is your focus on net customer adds.
An increased.
Increasingly aggressive attempt to gain share there.
Yes, it's a great question. So both questions. The first one is we see the portability management market is overall healthy.
And we believe that we're both growing our share of the market and so to your second question. Yes, we absolutely are focused on.
Both short term and long term being the share taker in the overall vulnerability management market and all the evidence and data. We have suggests that we are doing an effective job of that on your question on the overall market. We believe it's a healthy market and it's a fairly healthy market backdrop I'll actually provided at our analyst day, we said that the long term growth rate.
A roughly 15% CAGR for the long term, we still believe that we're clearly going on well above that rate.
Today, but we think about the vulnerability management market as a strategically long term healthy market.
Okay, and then can you comment.
On.
Right.
As a percentage of new A.R., you've talked about that in the past.
Non VM as a percentage.
Yes, Michael So we have commented on IDR in its again over 30% of the new air our that we added in Q2.
We what we said is we're not going to comment on specific product lines, but with IDR. It is becoming a bigger portion of the total air our revenue mix. So when it was 20%. We said we'd tell you when it's 30% is still over 30% and we'll update when it gets over 40% so.
It's still very healthy.
Great. Thanks, a lot guys.
Thank you.
Thank you and our next question will come from Jonathan Ho.
Blair Your line is now open.
Good morning, I, just wanted to see if you could give us a little bit more color on maybe what's driving the increase in our ARPU per customer I, just wanted to get a sense of it.
You guys are going after larger deals or is this more multi product.
Any additional color would definitely be helpful.
Are you happy fast.
Transition period. The primary driver is just the overall potential one way to think about it is that if customers are fully deployed and they have all of our products. We've said before there's roughly a 200000 dollar.
Our core customer opportunity.
The focus that we actually have internally is really a deep effect. Our biggest investment this year was on customer adoption and customer incentives and our fundamental belief is that if customers have a victory.
If they are adopting the technology they will expand the technology, because we have plenty of natural expansion opportunities and what we're seeing that the increases are a combination of customers adopting more of our products, that's and that's indicative of our overall.
Insight IDR inside FX the offerings that we actually have available.
Today, they are adopting more of our product offerings at the same time to actually I'm covering a broader range of their environments with those overall offerings and that combination of things about whats the percentage of the environment's covered overall and how many of the products are people using.
That's actually driving.
Overall expansion in our per customer.
Got it and then just regarding the competitive landscape in the same space like are you guys starting to see Microsoft Sentinel or Chronicle show up.
And I guess more on the competitive side.
We're not in any material way I mean, we've seen snippets of it my expectation is it will show more with some market.
Think about the fair market, it's a competitive market. It always has been a competitive market and always will be a competitive market.
We think we're extraordinarily well positioned in the market.
But we will see increased competition, especially from Microsoft there, while we still partner with Microsoft.
Thank you.
Thank you and our next question will come from the line of Gregg Moskowitz with Mizuho. Your line is now open.
Okay. Thank you good morning, guys and I'll add my congratulations as well so.
Industry analysts have been talking more frequently about risk based VM and Gardner.
Actually says that only 1% of enterprise will have adopted a risk based approach to vulnerability management by the end of this year, but I guess my question is can it really be that low end. So Cory I'd love your perspective on this as well as how customers are now approaching risk mitigation through VM.
Yes, so what I don't believe its that low today and I don't think it will be that low we see you think about the primary driver of customers by inside it is to operationalize.
VM, so while I may not fit into Gartner is a model of it customers are becoming more and more both risk and remediation sensors over time I think the trick in one of the Misnomers there is that risk.
Today does not mean that you cannot actually remediate key parts of your environment and so the way that we actually sort of engaged with our customers is just to understand your risk. So that your media in the right order, but you have to remediate all material issues and risk in your environment. You cannot have say like I just got to be the most critical risk in any environment ACA leave auto moderates and I'm fine in fact, that's been proven that basically you're going to be a highly likely be compromised. There. So what we're seeing is our mature customers are taking a risk centric approach to making sure they're making the right investments in the right order, but they are also taking a comprehensive approach is how do I actually try remediation overall and the velocity and remediation and that feedback from our customers is what's really pushed our investments and integrations and automations and alignment with IP teams to actually drive the pace of remediation overall.
Also when we see companies step up investment level to drive more growth. It's typically a multi quarter event before we see margins normalize and yet you have reiterated your full year operating margin and EPS targets. What gives you the confidence that you can fill that we'll achieve this.
Yes, so as we said in our prepared comments and in prior quarters that we continue to reinvest the overperformance in revenue.
Skews and systems to accommodate to make it easier for them to order and we feel pretty good it's not it's not short term, it's going to be over the course of.
Year or a year or two but we are making good progress in the thing that I would add is the reason that we are.
Confident that you will see those investments show up in the PNM and while we'll still be break even for the year is that most of those programs and most of the people were successfully hired and launched in Q2.
And so they are turned on as you go into Q3 and Q4 and so we have a good deal of visibility overall into.
Great. Thank you very much I was good.
Let me add a little bit between what you're seeing in the middle market and what you're seeing in the small or large enterprise market. If that's not a jumbo shrimp comment.
No problem in some cases may not even have a c. So can you talk a little bit about the.
The rate of growth between those two segments.
And delineate some of the go to market the differential there.
Yes, I would say both.
Onto the long term rate of growth in the markets, we expect to be pretty aligned and pretty similar I mean, one thing to think about us is that because we have a broad product portfolio.
And if you look and you think about the.
Mid market customer is lots of them are starting cyber security programs around vulnerability management incident effects from softer application security for the first time.
And so thats its own motion there, but there's lots of people that are starting programs. If you think about the enterprise motion. There's really two dominant things they have something that lasted for either upgrading their programs are overhauling their programs and so like I have something that actually need to actually extend and do more and you can think about up actually adding a bunch of capability to complement so like we can go into with our inside effect. We can go in.
In the enterprise space, because it's complex it's expensive.
So you have a lot of failed projects and the global 2000 companies and.
One more question if I could just did a survey and we were surprised to see crowd strike show up in the VM space with reasonable.
Penetration.
Could you talk a little bit about whether you're seeing crowd striking.
How they impact the competitive dynamics when you do.
Thanks.
Cover vulnerability management on the endpoint to provide visibility of vulnerability on the endpoint and Thats a source of vulnerability data.
But we're not seeing cloud strike as they.
Do is be able to actually know whats managed to unmanaged, which scan it tends to be a more effective mechanism to actually do that but also you actually cover more than just the desktop you have a massive long tail. So like most companies that are starting new enterprise mobility management projects are putting the cloud in the context of what they're doing which is why.
Our customer adoption CA got off to a furious and fast start with lots of momentum obligate and so we're not seeing them there.
But they do just like others, just like Microsoft if I focus than others. They do provide vulnerability information and context on the endpoint, but thats different than select participating in the enterprise mobility market and Rps.
Thank you very much.
As a reminder, if you would like to ask a question that is star then one.
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Keith.
Stanley Your line is now open.
All right. Thank you guys also.
Yes, absolutely we've been spending a lot of time and we will be spending more time in the overall market. We really think about it in two separate ways. One is that we have to have good relationships just to make sure that our technology not just works, but is productive and efficient for our customers one of the things about cloud environments. It's it's primarily all apart model.
So the barriers so moving on to our car model with low barriers to entry where that tends to lead to is extraordinarily extraordinarily high management complexity and our role in the ecosystem is actually how do we actually reduced manage the complexity and allow people to manage large complex environment from a cyber security perspective, So we spend a lot of time with cloud players.
Both.
Heavily with ABS, but also with Microsoft on how do we make sure our technology is productive for managing the complexity of cloud environments.
And especially if you think about hybrid environments, because we still see this as a hybrid world for very long time.
The second thing that we are actually doing is they're spending more time on the go to market side.
You saw that reflects that we talked about.
Our time with ADW office, and the reinforced conference where.
We spent both time not just as a sponsor, but also time planning and talking about how we align and how it everyone is aligned with us and how we're aligned with them.
And also said the topic about how we actually work with eight of US is an image. The Microsoft go to market teams to make sure that we're helping companies will transition to the cloud and managed cloud hybrid environments and so we look at Israel technology and go to market.
And we're still in the early innings on the go to market, but we are starting to actually make some public.
Inroads, there, which you clearly saying.
And the technology, we've been working on for a while and going to keep working that.
Excellent and then maybe just one follow up on you guys are doing really well in international markets, We haven't some murmuring of.
Weaker demand trends anything on the macro that equation.
Internationally that worries you guys at all.
Not now the thing that I would say is that we're probably not a good barometer for the broader market internationally just because we started later, it's a lower percentage of our business that you will see a more typical software company. So we just have lots of room to actually grow in scale. So we still see international at 16% of our revenue as a continued growth and expansion opportunity.
But that doesn't necessarily have to reflect the broader market.
Yes.
Thank you very much.
Thank you and our next question will come from Joshua.
Berg Your line is now open.
Hi, guys. Thanks for taking my questions.
First one in the past you would provide us with the with the breakout of potential average subscription ARR for each product have your views on these numbers changed Jim maybe increasing wallet share with your clients and could you, possibly remind us of your expectation for interconnect.
It's a good question. So I don't think we've made any material change in assumption of the average a are for.
Products. So there's been no change there and second that this is too early.
Really you can think about applicant insight after the insights and that could have the dynamic is there a buy and extend the model. So I buy a set of workloads and I have more flows over time.
And so you're you're we're still estimating what the average initial buy and then what's the expansion rate and that just takes time and thats part of sort of like things that we'll update as we go through.
Our overall process.
We sort of next year, but it's still too early to tell what that specifically going to be.
Yes that was helpful. And then I guess just a follow up that would be then so.
So or being viewed more and more is highly complementary to stem and obviously some product is growing really great.
So what needs to happen to just drive improved adoption for solar, especially from the customer base, that's already buying IDR.
Yeah for US we believe exists.
Focus I mean, we focused the last few years on the technology scale ends of use and we are now we talked about now this year, we actually put into limited release.
Our next phase our cycle is next year, we expect to go into a broader release with more go to market resources aligned behind it. We think we have a good strategy and a good approach there, but it's mostly timing of how we actually go through our.
Launch and market introduction strategy, we are fairly rigorous a fairly disciplined about how we approach these things, but we will be making significant investments in the overall score area.
And we have.
Strong confidence that it will yield the fruit.
All right, thanks, guys and congrats.
Thank you. Thank you very much.
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