Rapid7(US:RPD)2025-05-12 21:32Financial Data and Key Metrics Changes - Rapid7 ended Q1 2025 with an ARR of $837 million, reflecting a 4% year-over-year growth, which was below expectations [6][22][23] - Revenue for Q1 2025 was $210 million, growing 3% year-over-year and exceeding guided ranges [24][27] - Product revenue increased by 4% year-over-year, while professional services revenue declined due to a strategic shift away from lower-margin engagements [24][25] - Operating income for the quarter was $32 million, above the guided range, with an adjusted EBITDA of $39 million [25][26] Business Line Data and Key Metrics Changes - The detection and response (DNR) business continued to be the core growth driver, representing over half of total ARR and maintaining mid-teens growth [8][10] - The risk and exposure management business faced challenges, with growth deceleration and missed expectations, particularly in traditional vulnerability management offerings [8][9][15] - ARR per customer grew by 2% year-over-year to approximately $72,000, with a total customer base of 11,685, also reflecting a 2% year-over-year increase [22][24] Market Data and Key Metrics Changes - International revenue accounted for 25% of total revenue and grew by 10% year-over-year, indicating strong performance outside the U.S. [24] - The North American mid-market enterprise segment experienced slower deal cycles and tighter budget controls, impacting overall performance [9][10] Company Strategy and Development Direction - The company aims to reaccelerate long-term growth and expand free cash flow, focusing on three strategic pillars: enhancing detection and response capabilities, upgrading the vulnerability management customer base to the exposure management platform, and improving cost structure [7][18][19] - Rapid7 is transitioning from a traditional standalone vulnerability management business to a more integrated risk and exposure management approach, which is expected to stabilize performance [15][16] Management's Comments on Operating Environment and Future Outlook - Management noted a more challenging macro environment than anticipated, with customers becoming increasingly cautious about investments and extended deal cycles becoming common [9][10] - The company adjusted its ARR guidance for the full year 2025 to a range of $850 million to $880 million, reflecting slower growth expectations [27][28] - Despite the cautious environment, management remains confident in the DNR business and its ability to drive growth, while also focusing on stabilizing the risk and exposure management segment [18][19] Other Important Information - The company fully repaid the remaining balance of its 2025 convertible notes, simplifying its capital structure [26] - Free cash flow for the quarter was $25 million, indicating strong operational discipline [26] Q&A Session Summary Question: Why is the upgrade cycle on Exposure Command taking longer than expected? - Management indicated that complexity in customer environments and budget constraints are primary factors affecting the upgrade cycle [34][35] Question: What needs to happen to reaccelerate ARR growth? - Management highlighted strong demand for DNR and the need to successfully upgrade the installed base as key drivers for reacceleration [41][43] Question: What is the timeline for stabilization in the risk and exposure management business? - Management expects moderate stabilization over the course of the year, with reacceleration anticipated moving forward [48][49] Question: Are there resilient customer segments amidst macro pressures? - Management noted that highly regulated industries and larger customers tend to be more resilient, while sectors like healthcare and education are experiencing more pressure [55][59] Question: How is the company addressing competition in the vulnerability management space? - Management emphasized the importance of upgrading the install base to integrated solutions to maintain competitiveness and customer retention [75][76] Question: What is the outlook for the DNR business independent of the VM dynamics? - Management expressed confidence in the DNR business's growth potential, citing strong demand and opportunities for new customer acquisition [83][84]