Rapid7, Inc. Q1 FY2025 earnings call

Corey Thomas outlined the company's strategy with three pillars: building on Detection and Response growth, upgrading VM customers to the Exposure Management platform, and improving cost structure. In Detection and Response, there was continued strength with mid-teens growth, and investments in the Intelligence Hub and SOC innovation center in India. The Risk and Exposure Management business is transitioning to an integrated approach but faced macro challenges with customer caution and extended deal cycles, particularly in the North American mid-market enterprise segment. Management emphasized focusing on product innovation, customer success, and driving growth and cash generation.

Rapid7's Detection and Response business was the core growth driver, representing over half of total ARR and growing in the mid-teens year-over-year. The Risk and Exposure Management business faced challenges with continued deceleration in growth; traditional vulnerability management showed negative growth while Exposure Command gained traction but overall remained pressured. ARR for the first quarter was $837 million, with 4% year-over-year growth, but ARR results were below expectations due to macroeconomic headwinds and pressure in the Risk and Exposure Management business.

Rapid7 adjusted its ARR guidance, lowering and widening the range to account for budgetary uncertainty. It maintained operating income outlook of $125 million to $135 million. For the second quarter, revenue is expected in the range of $211 million to $213 million, with non-GAAP operating income between $30 million and $32 million. Full year 2025 revenue is expected $853 million to $863 million, free cash flow range $125 million to $135 million, and non-GAAP net income per share between $1.78 and $1.91.

Macro environment challenges including customers being increasingly cautious and measured in investments, extended deal cycles across multiple sectors, budget reprioritization and tighter spending controls, particularly affecting the North American mid-market enterprise segment and the Risk and Exposure Management products.

Q: How do you think about competing against a new entrant in the VM space?

A: Corey Thomas said Rapid7's unique approach is integrated risk management, consolidating risk across the environment, remediating across the environment, and building automated workflows. Rapid7 is focused on upgrading the installed base to its integrated offering, which provides stickier value, and has open APIs to support integration. While catching up on some cloud capabilities, it sees itself as highly differentiated in integrated risk management for its core installed base.

Q: What's the outlook for ARR in Q2 and guardrails?

A: Tim Adams mentioned that Q2 ARR is anticipated to have a modest increase from Q1 end, and the company is expecting a modest increase from Q1 end with the full year guide being more second half weighted.