• ARR (Annual Recurring Revenue): $823 million, representing 6% growth over the prior year.
• Revenue: $215 million for Q3, an 8% increase over the prior year.
• Recurring Product Subscription Revenue: $206 million, up 8% year-over-year.
• International Revenue Growth: 17% year-over-year, now nearly a quarter of total revenue.
• Product Gross Margin: 76% for the quarter.
• Total Gross Margin: 74% for the quarter.
• Operating Income: $44 million, representing a 21% operating margin.
• Adjusted EBITDA: $50 million for the quarter.
• Net Income per Diluted Share: $0.66.
• Free Cash Flow: $39 million for the quarter.
• Cash, Cash Equivalents, and Investments: Over $500 million at the end of Q3.
• Full Year ARR Outlook: $835 million to $845 million, growth of 4% to 5% over the prior year.
• Full Year Revenue Outlook: $839 million to $841 million, representing 8% growth.
• Full Year Operating Income Outlook: $157 million to $159 million, with an implied operating margin of 19%.
• Full Year Net Income per Share Outlook: $2.28 to $2.31.
• Full Year Free Cash Flow Outlook: $145 million to $155 million.
• Q4 Revenue Guidance: $211 million to $213 million, growth of 3% to 4% over the prior year.
• Q4 Non-GAAP Operating Income Guidance: $33 million to $35 million, with an implied operating margin of 16%.
• Q4 Non-GAAP Net Income per Share Guidance: $0.48 to $0.51.

• Warning! GuruFocus has detected 5 Warning Signs with RPD.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Rapid7 Inc (NASDAQ:RPD) ended the third quarter of 2024 with $823 million in ARR, showing growth in their Threat Detection Response business.
• The company exceeded revenue and operating income expectations, with third-quarter revenue of $215 million, an 8% increase over the prior year.
• Rapid7 Inc (NASDAQ:RPD) has seen strong demand for its consolidated offerings, with over $175 million in ARR from threat detection and risk management.
• The launch of the Command Platform, including Exposure Command, has been well-received, increasing the pipeline for risk management by over 70% compared to the previous quarter.
• The company has made significant progress in expanding its partner ecosystem, with 90% of new ARR bookings sold through partners, marking a milestone in collaboration efforts.

Negative Points

• Rapid7 Inc (NASDAQ:RPD) experienced elongated deal cycles, particularly for larger deals in North America, impacting ARR results.
• The company's ARR growth rate for 2024 is expected to be modest, with a range of $835 million to $845 million, reflecting only a 4% to 5% increase over the prior year.
• Customer budgets remain in flux, leading to longer approval processes and impacting new ARR in the third quarter.
• Despite strong pipeline growth, the conversion of this pipeline into material ARR contributions remains uncertain, with expectations for 2025 being cautious.
• The company has faced challenges in achieving significant upgrades and upsells within its installed base, particularly in risk management offerings.

Q & A Highlights

Q: Corey, you talked about improved customer feedback and receptivity to the Command portfolio launch. Can you discuss the internal dynamics and proof points of success following your organizational streamlining? A: Corey Thomas, CEO: Internally, we focused on rigorous processes for consistent forecasting and delivering, and executing the launch of the Command Platform and Exposure Command. We've built a pipeline exceeding targets, but with a higher mix of larger deals, sales cycles have elongated. Over half of our Q4 pipeline deals are over $100,000, which impacts sales cycle timing.

Q: Can you elaborate on the higher ARR per customer for those buying consolidated offerings and the percentage of the base on such offerings? A: Corey Thomas, CEO: The average ARR per customer for consolidated offerings is roughly $150,000, primarily driven by Detection and Response (D&R). About 10% of our base is on consolidated offerings, and we see steady adoption and pipeline growth, though these deals are larger and take longer to close.

Q: How do you balance growth and profitability, especially with the focus on accelerating growth in 2025? A: Corey Thomas, CEO: Our focus is on reaccelerating growth, particularly in risk management. We've invested in products and offerings while expanding profitability. We expect to see more free cash flow dollars, but the core focus is on growth acceleration with our current product base.

Q: Can you discuss the competitive environment and any changes in win rates over the year? A: Corey Thomas, CEO: Win rates haven't materially changed, but pipeline composition has shifted. We're building back the risk business with Exposure Command, which is early but promising. In Detection and Response, we have a competitive solution with high win rates, focusing on monitoring 100% of the environment.

Q: How is the shift to a regional sales model progressing, and are there any changes in go-to-market incentives for sales reps? A: Corey Thomas, CEO: The regional sales model is progressing well, with focused execution driving pipeline acceleration. Sales teams have built and converted pipelines effectively. The next focus is on deal cycles and conversion velocity for Exposure Command to drive sales productivity in 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.