Rapid7, Inc. Q4 FY2024 earnings call

Key Points - 2024 saw foundational work across three strategic priorities:

• First, innovation in the detection response offering by expanding third party alert coverage and leveraging AI for alert triaging and detection accuracy.
• Second, scaling the partner ecosystem with 80%-90% of new ARR booked through the channel.
• Third, achieving a cloud security milestone with the release of Exposure Command in Q3, showing early traction.
• Detection response business had double digit growth in 2024, ending at over $400 million in ARR, with average ARR per DNR customer at approximately $100,000.
• Full year revenue was $844 million, exceeding guidance range, operating income was $164 million with 19% operating margin, and free cash flow was $154 million.

Rapid7 ended 2024 with $840 million in ARR, growing 4% over the prior year. The detection response business remained a key pillar of strength, delivering double digit growth in 2024, ending the year at over $400 million in ARR. The risk and exposure management business saw over 20% year-over-year growth in total pipeline generation during the fourth quarter. Full year revenue was $844 million, growing 9% over the prior year and exceeding the high end of the guidance range. Fourth quarter total revenue was $216 million, up 5% over the prior year and above the high end of the guidance. International revenue grew 14% year-over-year, accounting for 25% of total revenue, while North America grew 3% and accounted for 75% of the mix.

2025 Guidance - ARR: Expected ending total ARR of $870 million to $890 million, growth of 4%-6%.

• Revenue: Expected total revenue of $860 million to $870 million, growth of 2%-3%, with recurring product revenue growing faster and professional services revenue down ~$10 million year-over-year.
• Profitability: Operating income expected in the range of $125 million to $135 million, free cash flow ~$135 million, net income per share ~$1.72 to $1.85.
• First quarter 2025: Expected total revenue $207 million to $209 million, growth of 1%-2%, non-GAAP operating income $23 million to $25 million, non-GAAP net income per share $0.33 to $0.36.

Risks - Actual outcomes may differ materially from forward-looking statements due to risks in SEC filings.

• Competitive environment changes, such as intense competition in the vulnerability management space and cloud migration accelerating secular pressure in standalone VM.

Q: Saket Kalia asked about the composition of the detection response business and growth in 2025.

A: Corey Thomas responded that the remainder of ARR is a mix of cloud, VM, etc., has confidence in D&R growth, and integrated exposure management market is a growth driver with early momentum.

Q: Matt Hedberg inquired about investment in Managed D&R and margin at scale.

A: Tim Adams replied that product gross margins will remain in the mid-70s range, managed service has lower gross margin but AI and efficiencies will bring tailwind.

Q: Matthew Hedberg asked about sustainability of cloud security success and margin improvement in 2026.

A: Corey Thomas said cloud security is greenfield opportunity, Tim Adams mentioned confidence in investments and expected benefits in 2026 and beyond.

Q: Fatima Boolani asked about vulnerability management decline timing and trajectory in 2025.

A: Corey Thomas stated traditional vulnerability management has secular decline, greenfield organizations are growth areas, pipeline building well with early conversion rates.

Q: Fatima Boolani asked about sales productivity, capacity in 2025 and impact on ARR growth.

A: Corey Thomas said adding modest sales headcount, expecting productivity gains as sellers have more products to sell, full year selling of Exposure Command in 2025.

Q: Joseph Gallo asked about competitive and pricing environment and potential upside drivers for ARR growth in 2025.

A: Corey Thomas responded traditional VM has competition pressure, Exposure Command pipeline good with early conversion, growth drivers include MDR expansion and Exposure Command pipeline.

Q: Patrick Coleville asked about net new ARR improvement and competitors in new areas in 2025.

A: Corey Thomas said net new ARR based on D&R strength and pipeline, Q3 and Q4 expected stronger, competition in NVR and Exposure management markets is fragmented.

Q: Hamza Fodderwala asked about churn or downsell pressure in VM part and stability.

A: Corey Thomas replied new growth stabilized this year, retention factored in as stable, upgrading install base to Exposure Command makes customers stickier.

Q: Adam Tindle asked about strategic options for VM part and pros and cons.

A: Corey Thomas said considers all options, Exposure Command is for growth-oriented market with great opportunities.

Q: Adam Tindle asked about difference in 2025 guidance from previous years.

A: Tim Adams mentioned strength of D&R, MDR, pipeline success and investment in Exposure Command, Corey Thomas added hyperfocus on forward-looking and seasonal range communication.

Q: Jonathan Ho asked about net retention and new customer contribution opportunity.

A: Corey Thomas said there is opportunity to upgrade install base, product expansion brings more cross sell and upsell opportunities.

Q: Roger Boyd asked about impact of M&A in detection response space.

A: Corey Thomas said NVR market is fragmented, company focuses on providing comprehensive monitoring and has core value proposition.

Q: Gregg Moskowitz asked about acceleration in 2026.

A: Corey Thomas said expects acceleration in 2025 over 2024 and 2026 over 2025, Analyst Day later this year to lay out mid-range plans.

Q: Brian Essex asked about North America vs rest of world growth and preferred region.

A: Corey Thomas said North America will improve this year due to product suite availability, international region has idiosyncratic trends, product suite availability drives North America's productivity this year.