Rapid7, Inc. Q3 FY2024 earnings call

• Threat Detection Response: Continues to drive healthy momentum, with InsightIDR positioned as a market leader in SIEM solutions for SMB and enterprise.
• Partner Ecosystem: 90% of new ARR bookings in Q3 were sold through partners. Introduced the Rapid7 Partner Academy and enhanced the channel partner portal to support partner engagement.
• Cloud Security Adoption: Command platform, including Exposure Command, has gained traction, with over 70% more risk management pipelines sequentially. Highlights include improved workflows, integration of third-party data, and better cloud risk prioritization tools.

Rapid7 ended the third quarter of 2024 with $823 million in ARR. The Threat Detection Response business drove the majority of growth. Recurring product subscription revenue was $206 million, up 8% year-over-year. International revenue grew 17% year-over-year and now represents nearly 1/4 of total revenue. The Risk Management business, including the recently launched Exposure Command, generated over 70% more pipelines for the overall risk management business compared to the second quarter, with early success like a six-figure ARR deal closed during the quarter.

• Full year ARR outlook: $835 million to $845 million (4%-5% growth over prior year).
• Full year revenue outlook: $839 million to $841 million (8% growth, updated from prior guidance).
• Full year operating income outlook: $157 million to $159 million (implied 19% margin).
• Q4 2024 revenue outlook: $211 million to $213 million (3%-4% growth over prior year).
• Q4 non-GAAP operating income outlook: $33 million to $35 million (implied 16% margin).

• Elongated deal cycles, particularly for large deals in North America, putting pressure on new ARR.
• Uncertainty in converting early pipeline traction for Exposure Command into material new ARR.
• Macro pressures on customer budgets and the duration of budget approval processes for larger deals.

Q: Fatima Boolani asked about internal organizational streamlining and proof points of success.

A: Corey Thomas discussed rigorous processes for forecasting and delivering consistently, the launch of the Command platform, and focus on larger deals and upsells in the installed base.

Q: Saket Kalia inquired about ARR per customer for consolidated offerings and percentage of base on such offerings.

A: Corey Thomas stated average ARR per customer for consolidated offerings is ~$150,000, with over 10% of the base on one of the consolidated offerings.

Q: Matt Hedberg asked about go-to-market strategies to combat elongated deal cycles.

A: Corey Thomas mentioned focusing on larger deals, increasing share of wallet in the installed base, and testing Exposure Command for velocity deals.

Q: Joe Gallo asked about deal cycle elongation breadth and gross retention rates.

A: Corey Thomas said deal cycle elongation is primarily for large deals, D&R growth rates remain strong, and gross retention rates are bottoming out with positive early indicators.

Q: Hamza Fodderwala asked about balance between growth and profitability.

A: Corey Thomas stated focus on reaccelerating growth of the product base while maintaining profitability, expecting more free cash flow as growth reaccelerates.

Q: Rob Owens inquired about shifts in business model and pricing.

A: Corey Thomas discussed monetizing share of wallet in risk management with an integrated value proposition, making offerings stickier and upgrading the installed base.

Q: Gray Powell asked about pipeline growth for risk visibility and exposure.

A: Corey Thomas explained retooling of risk management strategy led to pipeline recovery, with risk management pipeline rising and early conversion rates positive.

Q: Gregg Moskowitz asked about confidence in being a long-term winner as a security consolidator.

A: Corey Thomas emphasized being a focused consolidator in security operations, with comprehensive data integration and better value proposition resonating with customers.

Q: Jonathan Ho asked about MDR space and InsightIDR consolidation.

A: Corey Thomas discussed strong MDR service with high retention rates, designed as a product stack to monitor 100% of the attack surface, and how InsightIDR benefits from MDR analytics for productivity.

Q: Patrick on for Josh Tilton asked about competitive environment and win rates.

A: Corey Thomas stated D&R has high win rates, retooling risk management strategy is early but shows promise, and win rates expected to be positive with healthy pipeline.

Q: Brian Essex asked about partner ecosystem mix and elongated deal cycles.

A: Corey Thomas attributed elongated deal cycles to deal size and environment, not primarily to partners, who are contributing to pipeline.

Q: Joel Fishbein asked about Fed business and pipeline.

A: Corey Thomas mentioned strategic Fed business with upcoming momentum but not material for current year's new business.

Q: Shrenik Kothari asked about adjustments to go-to-market for elongated deal cycles.

A: Corey Thomas stated active discussions around flexible financing and value-based selling, but no broad-based program in place yet.

Q: Eric Heath asked about SIEM market M&A and shot on goal.

A: Corey Thomas stated D&R business is healthy and competitive, with strong competitive position and investment in R&D.

Q: Patrick Colville from Scotiabank asked about 2025 outlook and demand trends.

A: Corey Thomas and Tim Adams discussed assuming elongated deal cycles and larger deals into 2025, with focus on stability and monitoring Exposure Command conversion rates.

Q: Mark Cash from Raymond James asked about partner buy-in and AWS impact.

A: Corey Thomas mentioned top strategic partners driving pipeline, with growth expected from investments in partner ecosystem and Exposure Command.

Q: Mark on for Adam asked about partner pipeline and AWS relationship.

A: Corey Thomas stated top strategic partners are the main driver of pipeline growth, with no material impact from AWS mentioned yet.