Rapid7, Inc. Q2 FY2025 earnings call

• Rapid7 ended Q2 with $841 million ARR, in line with expectations, growing 3% year-over-year. Revenue and profitability ahead of outlook, with strong free cash flow of $42 million. • Detection and response business is a core growth driver, over half of ARR and growing mid-teens year-over-year. • Announced Command platform's Incident Command, unifying data and integrating Agentic AI for security operations. Launched first phase of Command platform last year, now with fully integrated platform. • Advanced enterprise MDR rollout, signed multiyear, multimillion dollar agreement with a major U.K.-based retailer. • Exposure management business upgrading customers to unified risk and exposure management solution Exposure Command, built into Command platform for single risk view.

Rapid7 ended the second quarter with $841 million in ARR, growing 3% year-over-year. Detection and response business now represents over half of ARR and continues to grow in the mid-teens year-over-year. Revenue in Q2 was $214 million, up 3% year-over-year and exceeding guidance range. Product subscription revenue grew 4% year-over-year to $208 million. International revenue was 25% of total revenue, growing 10% year-over-year. Product gross margin was 76%, total gross margin 74%. Operating income in Q2 was $36 million, above guidance range, with adjusted EBITDA $43 million and non-GAAP net income per share $0.58.

• Narrowed full year ARR guidance range to $850 million to $865 million from prior $850 million to $880 million. • Expect Q3 ending ARR of approximately $840 million, net new ARR weighted heavily to Q4. • Maintained full year revenue guidance range of $853 million to $863 million, revenue growth 1%-2%. • Reiterated full year operating income range $125 million to $135 million and full year free cash flow range $125 million to $135 million. • Expected Q3 revenue $215 million to $217 million, non-GAAP operating income $29 million to $31 million, non-GAAP net income per share $0.44 to $0.47.

• Deal cycles remain extended. • Ongoing macro uncertainty impacting customers. • Competitive environment changes, e.g., Zscaler's acquisition of Red Canary could impact dynamics but market remains fragmented.

Q: Matt Hedberg from RBC asked about MDR.

A: Corey Thomas said they continue to see strong demand trends, detection and response is a major growth area, investing in team, services, and AI to manage complexity.

Q: Junaid Siddiqui from Truist asked about progress of Exposure Command platform sales and channel enablement.

A: Corey Thomas said they shifted investment in partner channel ecosystem, found deals are larger with longer cycles but higher ASPs, readjusted guidance accordingly.

Q: Eric Heath from KeyBank asked about Incident Command platform increment and customer migration.

A: Corey Thomas said upgrade is straightforward, Incident Command has easier data consumption, raw data, alert data, telemetry intake, built-in threat intelligence platform, and integrated with MDR offering.

Q: John Jeffrey Hopson from Needham asked about India SOC investment timeline.

A: Corey Thomas said it's ramping, adding capacity and accelerating, with investment ramping in the second half.

Q: Joshua Tilton from Wolfe Research asked about lowering ARR guide and new CCO's expectations.

A: Corey Thomas said it's due to larger and more strategic deals with longer cycles, new CCO will focus on operationalizing customer go-to-market and expansion engine.

Q: Aidan Perry from Piper Sandler asked about federal opportunity and Zscaler's acquisition impact.

A: Corey Thomas said excited about federal opportunity, Zscaler's acquisition may have some tailwinds but market remains fragmented.

Q: Gray Powell from BTIG asked about customer count stabilization.

A: Corey Thomas said focusing on strategic customers, losing transactional customers while adding strategic ones is noise, will focus on quality platform customers and ARR per customer growth.

Q: Adam Borg from Stifel asked about pricing packaging and customer count.

A: Corey Thomas said work needed on pricing packaging for easier selling motion, customer count losing transactional ones while adding strategic is noise for now.

Q: Rudy Kessinger from D.A. Davidson asked about ARR guide dynamic.

A: Corey Thomas said it's due to larger strategic deals with longer cycles, happy with consolidation and upgrade motions despite trickier timing, focusing on large D&R opportunity.