RPD - Earnings call 4 2023

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Operator

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Rapid7 Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Elizabeth Chwalk Director of Investor Relations. Elizabeth, you may begin.

Elizabeth Chwalk

good and operator, you, afternoon, everyone. Thank first you quarter our and appreciate in on to for the joining XXXX. With are fiscal and CEO; us fourth RapidX's addition and the outlook financial Thomas, discuss call to our and full me CFO. results full year today operating We quarter Corey year our today financial XXXX Adams, Tim

with earnings it website broadcast our following distributed call press updated along is at investors.rapidX.com. replay audio posted have the This and call, be release the and We wire, live presentation available our now on investors.rapidX.com, file. and financial at the company over an will via metrics webcast, being is

in to results and first from or beliefs forward-looking guidance. These Actual are made statements future assumptions the such underlying under on statements the XXXX reports we events SEC. in provided currently should filed certain the recent Litigation and in conference report uncertainties, implied and on risks be the materially assume considered statements on laws. results the full from required and for the of those most strategy, These performance. During Private to are subsequent of XXXX The of pursuant the securities Form including risks. Actual information as available any statements, XX-Q that and materially forward-looking and November not not include related and XXXX, this timing financial related implied of law. RapidX and the on an call, such indication on this a results these quarterly future may current such with light information by that outcomes results number call this expectations goals predicted make contained or reported federal based are and our presented in considered and filed may X, our and conference to differ of the update we timing statements safe Act extent year guidance considered results of expressed information applicable Securities and except statements business us. the by in does to the differ on harbor or the Reform plans, provisions to restructuring obligation positioning, quarter should business to to may forward-looking company's be call, our due the

our not insight onetime that, may I'd and like may or the commentary our press terms our provide be non-GAAP Our to GAAP will may Thomas. nature, dynamics turn metrics to results. website additional between questions, Please on greater metrics of and we or and the can in into today our quarterly this be in offer investors.rapidX.com. At incremental that release call non-GAAP results and times these at our Corey update detail earnings your CEO, Corey? business to responses in today's in over advised primarily to historical remarks or may in be we in be reconciliations found our the prepared future. With

Corey Thomas

platform detection exceeding streamlining basis operating margin nearly our reflecting over ranges. Sustained and income response close improvements the over to growing our flow and efficiency the thank a line year our and and expansion and a in the solutions our focus you on the for ended drove flow had target of to guided strong joining year. At anchored prior to delivering prior flow RapidX call. year. security demand us and the strong $XX million while afternoon, cloud customer ARR, in free free offerings XX% with Good structure year free everyone revenue, XXX cost today's same in by supported of points million time, top cash our execution finish the above year, cash operating $XXX XXXX, our on and cash

As back out. year, that there last few stand are highlights a at the we look

our continue advancements our the their areas anomaly workloads innovation value we and elevated to with CNAP that management. proposition customer covering First, operations surface, expands year drive response, product cloud cloud compelling in scaled across We like platform. AI-driven Insight detection with vulnerability or attack detection. We security platform security capabilities across market-leading and our exited fragmented a over further strategic native

pressing needs, successfully rates that longer cycles our solutions larger our towards and meet as customers' reoriented force sales consolidation improved the went deal on. with while Secondly, to conversion platform navigating most year

constitute new $XXX customers steady throughout by from and existing and driven ARR a traction in XXXX healthy roughly contribution customers. upgrading Our gained million package landing now offerings both

X that We business the publicly program win company's large XXXX or mature have build to quarter. A digital a drive foundation be mix over positions new into for and stock. conversion center seasonality was evaluating capabilities across looking our extensively direct the growing endpoint traded well platform, great new $X.X to structure multiyear consolidator displaced our the market few ability leading work of given dynamics our stand to ARR. and consolidate their our against to competitor reflected value other SIM over securing main complete in or their across up security us complex operations adoption the customer we worth us in fourth package lastly, ability multiple by critical and customer in footprint share, years. with security cost competitors. This A ease with and combined believe our with VM. And company team, vendors managed of proposition. And lean our to the XCR and together the its media example for able we accelerate reasons: expectations integrations onboard initial of native efficient be to a of platform rightsized RapidX legacy growth and growth. breadth cloud lastly, in security to consolidated next nature security progress SIM including The and critical vendors. in SecOps consolidate categories, step offering, of illustrated RapidX's of multiple made time. our XXXX win solutions consolidation better was in a forward We us success our sets a progress a out the provider our deal with made deal a This their and chose million size our We efficient and is with for a growth

differentiation going efficient see forward. a and deliver to our by adoption, partner XXXX year our drive Looking service lead as focused AI, security forward, mainstream driving to cloud extend we in with ecosystem accelerate to investments productivity platform critical growth sustainable and security

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As We doing platform. market higher the position opportunity rest drive out for same efficient generate the believe least our the and work on on million that flow previous year, more across Consistent durable our focused RapidX build free has will medium to remain flow. scaling long optimizing XXXX. cash to free at commentary, cash compelling over we at to to growth a growth of we're customer look connected the share we experiences time, foundational we're and $XXX better, expect us the in term. At with in laser-focused gains

we overall XXXX, range outlook, a demand in XXXX our the for backdrop, our a healthy towards remarks. as to high for we recent expectation his year process financial confidence balanced which Tim continuation detail Looking will on of a with finish outlook providing for stable focused remain the our financial

focused reaccelerate durable on and are services and drive to making platform long-term deliberate investments growth. We

today. and that, we now us us to outlook. share Adams, our the additional on on technology you our over channels, growth best detail our the which thank CFO, will around position will for the multiyear to I outlook. With and results optimizing are call call Tim We for turn financial distribution believe joining

Timothy Adams

us call you Thank Good everyone, on today. you, joining and Corey. the thank afternoon, for

the stated. today will are results, for that a unless results reminder quick non-GAAP to financial turn I all except otherwise Before measures we financial revenue, discuss

our between reconciliations solutions prior the release. RapidX the balanced from of in capabilities. We contributions as in security resonate GAAP new with XX% conversion security year. package non-GAAP and mainstream in innovation expansion benefited our efficacy customers. ASPs increased offerings. detection to throughout the sales growing of results from our saw existing tied as operations our and larger over and with value strong roughly and Growth we and our by for increasingly earnings our integrated deals our we combined enterprise and year And effectiveness traction customers saw cloud led technology press found be Additionally, our existing ramp healthy ARR consolidate rates by consolidated improving our offerings the in the was as and as to $XXX demand response These throughout with the Insight proposition can cross-selling customer supported year million strong ended speak year, with our dynamics customers particular across platform. strength and our base. to value platform

per over and Our million grew ARR with prior over Product grew range. customer year-end. guidance base of over $XXX year full year the XX,XXX prior over $XX,XXX the end customer year to our revenue to the globally. exceeded year-over-year year XX% $XXX of million. XX% grew to customers also a prior high total approximately at X% X% Full revenue XXXX grew of year the end

cash our operating Our flow, metrics changes exceeded expansion made to in delivered the commitment the the cash free meaningful to margin free cash August, our in flow, basis flow generated free year drove profitable on cost million $XXX we which we both income for an year. structure represents which for XXX year. million ranges income operating and $XX of expansion guided reflects we XX% growth, and of And including over of margin full We points.

was the we quarter Total high our deemphasize grew over year-over-year million actively of lower-value to year the above certain services prior $XX guidance. declined million to turning XX% revenue Now as and our QX to XX% professional revenue Product results. end $XXX $XXX million, of services. fourth XX% up while

prior from for and represented revenue year. Operating lower quarter line expenses the represented and and structure of reflect to revenue, year Sales year-over-year down cost quarter in the XX% starting America margin Product year. R&D grew grew North the international total the gross in and the slightly was prior the margin declined of total while in and XX% revenue. quarter marketing down quarter X% revenue the XX%, XXXX. XX% XX% third prior changes with revenue for in the both than and of XX% fourth revenue, the and over expense XX%. of year represented the fourth expense gross X% total of XX% was Our represented from was XX% quarter, prior in

all, revenue, operating year. guidance million of X% a All operating and exiting represented better prior the fourth margin was in X% represented the year. G&A income our in $XX quarter from of down than While XX%

$XX and Our EBITDA net the per million income adjusted share $X.XX. was in quarter was

flow. year. our quarter drive cash million higher QX over to cash profitability, cash equivalents operations our cash, cash the of on delivered brings compared balance and to helped We flow from end fourth of ended $XXX flow year sheet of Moving at We guidance better-than-expected the $XX operating million and the us in $XXX which for this free million quarter. This to investments with XXXX.

high-confidence our environment, year. outlook we with As stable the assume consistent of back ARR we XXXX, enter for relatively This customer and this backdrop informs spending half XXXX. a growth assumption macroeconomic

expect $XXX ARR we growth XX%. XX% represents total XXXX, of which ending year million full million, the of to $XXX to For

reflects shared growth. earlier, focus medium- durable year deliberate range our Corey for this investments strategy more to to this As efficient, on long-term

the In contribution year in get and seasonality sizes a our assumptions and ARR packaged the as a deals, first reflect lower our for reflects linearity full new quarter. seasonality, of contribution stronger the slightly terms of platform naturally success larger with deal from scaling

the to Turning income statement.

X% for the total expect million to growth $XXX revenue representing in We range to the $XXX be of year full million, XX%. to of

revenue of these profitability basis As full for $XX expect professional points. we range, in implying our areas we year, on product to than in slightly million in offset the income to to approximately $XXX expansion the be revenues grow expect strong growth expect measures, continue we faster focus to the to business, for decline to we million range which operating part of services roughly year. On this anticipate $XXX we million operating XXX by strategic of full margin which

be estimated to We outstanding. income in on based per diluted to share $X.XX $X.XX a expect million of net shares range XX.X an average weighted

expansion. at year full expect in cash free we margin free points generate XXXX, basis flow. million of roughly to This implies For least flow $XXX XXX cash

seasonality, the and are including flow in free cash in in number FY quarter. payments. of year, by of a would In first expenses then anticipate free ramp tax second contribution terms we concentrated cash a flow payments 'XX quarter, We of the early cash a expect the driven timing the modest notable that in bonus

quarterly Moving guidance. to

$XXX total $XXX of in of to growth For to million, revenue representing XXXX, first the quarter we XX% year-over-year expect of XX%. the range million

we taking the on open for our will share We questions. ourselves and $XX for the $X.XX, range time go-to-market non-GAAP shares structure. that in This Operator? now on across position outstanding. We innovation, progress have rightsizing the average you diluted cost on join gains to for the call And made call operating expect million non-GAAP compelling weighted income to we build quarter based foundation first income a which and to product for million the of $X.XX year, to opportunity $XX in per important reacceleration today. and XXXX to is in few net share improvements us years. Thank of XX.X next the million

Operator

Morgan [Operator Fodderwala question of Your Instructions] is line first Hamza Stanley. the from from

Hamza Fodderwala

you're help offering for your well what to that of talk of [indiscernible] to to? perhaps working about within services services security base. can consolidation how some complement your customer curious, and your little your partners bit of a and how operations some own are partners I'm you consolidation you're drive as with offering among strategic some augment more

Corey Thomas

talked deal talent security out factors to for have demand on projects point, it that twin to about that improved. great they to We need backlog security customers enhancing be fact figure the of now the right do the have Most budget. Hamza. for are and how the to a with It's trying programs

to And is a so partners one more And both we're of efficiency. it to do drive the consolidate things their that. that but that to talent and looking programs, way on in security to do requires

part out ecosystem. building actively managed services our are We

sort focus, along also programs provide security that of can Our partner but our of ecosystem upgrade way. area which partners their a the actually that cost-effective to in them to allow services general, is like big customers

attractive and across as at incredibly and are allow to the SIM well actually the look cloud we vulnerability management. additional XDR partners We landscape to security the because as them

overall response side So and as the surface both and they the the side look of well risk can equation equation. attack at detection of as the

And of come that other so the that's and ability and more partners. We're this to more our from attracted in also partners products. security dear heart the near process working on to to alerts is

so And just services of focus we that it's to offering RapidX. that NDR an have tackling ecosystem services our internally would approach our demanding. with actually are problem partners and I is We both a have, But and customers ourselves. very say with do focus inside big this

Operator

question Matt next RBC Capital Your Hedberg Markets. from of line from comes the

Unknown Analyst

is more This XXXX embedded talk net to guidance assumptions as a pipeline bit conversion macro Matt from as you Hedberg. as Anisha the environment? Can little about the the well it rates, new in relates the

Corey Thomas

Yes.

and flow see expansion. as well share we ARR as be we share have to to again, driving we stable. at overall actually drop free cash factors in is say, actually around growth, remind a oriented growth the you X how So of fairly the of the long-term share level, of cash really optimistic. sort want high you the free are the growth, over that the and as ARR do our environment deliver I which, is medium flow I'll Those did we leader think is intersection a macro growth, What win margin which last as we strategy. term and restructuring best We're year, that

also about course, actually have noisy, question to up of the don't that actually saying outlined, bit we is very exceed of little the the confidence we're your to conviction and about to actually to that in alignment, think really hamstrung hit targets. In as dominant half a ourselves can setting want targets this that a But where market that actually do of outlined we to so on setup on we can very, make we strategy market we are year sure growth. hit that. about second a we have focus love but of be by also how would the more and high that, As we guidance or that approach that think and X we ARR

Our take focus and then gets expansion, expansion. on that's actually go way bit a flow can to is if a market actually the and that little noisy, we incrementally market just drive fine cash

market. we think between can have guidance set to we really take cash margin a both hit to So sure with the being the different up but actually deliver We to trade-off that actually free control and and about on the to setup flow growth. go want circumstances under we expansion better don't share, make we to

Operator

Your comes Kalia from next from line the question Saket Barclays. of

Saket Kalia

we contributors know Tim, lot expense thoughts equation. that is the on free you, question ARR of maybe for are next is, as how great there any Maybe flow part billings that control model you year flow? billings to that a my I a focus, free thinking ARR but cash guide cash there. the free first to be as growth think But flow one about and vis-a-vis for drive those seems cash to confidence about of how to guide. --

Timothy Adams

exception similar billings Generally, a of minor for thanks XXXX, think prepared Yes. growth you in for which my ARR question. being I mentioned comments. very, the rates Saket, and very would

we to Our be in 'XX expect modestly to revenue, professional down 'XX. compared services that

billings tightly they're to with X to a pretty So that headwind you ARR that gives but aligned growth, exception. relative minor

Saket Kalia

Really that most ARR scale if between to that are I 'XX products customer follow-up packages? of and the which is, it's customer. customer it. that the find ARR you. growth here you Got focus and the could the as the ARR lot part success per Corey, in a some the you're balanced in one just products packages. Maybe want on of it. with you're squeeze the using latter in are and offered growth I per most. a finding are seeing they Got for they're But those that adopt that products using just those customers question of Obviously, get non-VM they as what packages, the

Corey Thomas

detection about or of business. last year, rates, Yes. Look, has also that driver must said valuable. but People is big set the their very drivers, is has always late not a say, It response, which just saying in not then to would it that able we or attacks I it the it's is the is to do, business. think lot must-have value, shared a must-have growth X environment. we've like exposure It's -- not scale the healthy customer we have that is business. of be demands. It incredibly biggest we a management It monitor tax actually but

customers overall. But or the dollars management perspective, it's on broad texture leader spots raw Even detection to we're focused focus overall In our value market like some vulnerability if exposure that though be fact, make strategy the though, response, sets clearly really us generating it's a risk look up management we're exposure ways, well we're that continuing frankly, the the service having really sure at is, distribution solutions. our adoption on to to a and dollars. in share because on tax management from a growth. In areas you providing unit of to

Operator

William of next line the Your comes Ho Jonathan Blair. from question from

Jonathan Ho

side break on to and for Saket's maybe XXXX. wanted your way question bit for at VM rates guidance little expect us terms the a I cloud deeper just things high out just delve response detection for well. growth of you to maybe into directionally as you what follow a and well traditional there of up or Is as level the a in for as

Corey Thomas

take we way I is really X It's like -- them, feature a of a the every is, offering have, it the say, I maybe would think actually say that that's VM seeing is very in actually that multiple just over it's high more We just guidance a we not I that upsides. have That's easiest as offerings, years. question. the on, we're very something we overall. actually a think What very that reasonable would confidence levels. I growth looking anchored trends we're platform something way say, big at to consolidation our It's just driver solutions way at about cloud factoring our this would do for the on as out we're actually to again, platform continuing for mainstream. growth break year. So very, because, thanks not security multi reasonable

see to on but to our something we fairly that guidance in specialists continued a on the how your cloud mainstream the actually upside. about course delivering question And we linchpin actually without that talked actually factored this actually and to discloses type expect solid We from working big same one, the of we're the to year, that our see have center that into in have as was of of have the sort sort saw, seen, consistent. over I upside visibility, progress it but bit see other just which some really we that say progress And we security drop confidence really But be this is expect of see think assumptions. When high given in in. years. It about a over we goes about areas, what we I niche last guidance, year. upside a of that little just market doubt. cloud think the it's multiple growth into We emerging to about is earlier. a response, baseline they're core would the not a we solid could detection we and the providers, and like we security think big about be from

Timothy Adams

is you adopt market customers. these ARR, $XXX would with thing about prepared resonating seeing comments the It's really roughly and the and really year they in add, million introduced were as packages it's I ago. a Corey, mentioned only your we're of over

really traction. ASP a customer. starting we're that That larger per to So see you gives

Operator

Your . next question of from from line Owens Piper Rob comes the Stanley.

Robbie Owens

want in cloud customer about drill new you're the And hoping kind count into just years commentary counts security but in what that more Corey, me I and have maybe could XX,XXX, customer at looking was a either down of declining year-over-year get and at Is growth, force the going you to platform? scheme Is I Just the to big going not to sales What's maturation things. however guess, in selling relative number, look network? partner in #X you moving of the moving? that a that terms over terms is really of it take? it catalyst obviously, environment of mainstream it. What's Because that to around for seen net the it's again? of it what's the of the or implying couple of last driving exactly there. get

Corey Thomas

Yes.

I of there. think of like those very sort both are

your the second for, take first on I'll was one. So question -- the what question first

Timothy Adams

cloud. Mainstream

Robbie Owens

does cloud exactly. what Yes, mainstream mean

Timothy Adams

Yes.

we access. So keep got the the way are part that we've seen market so far, in mind, we when direct

at a have cloud growing very a cloud healthy business. business we so And

is our specialist the you actually technologies very main security special in the security, we've cloud because early obviously adopters they of nothing teams. have were that what not we found were market. on explicit accelerating the focused world cloud that participating that investment cloud were quite We teams not are There the that that people in teams And security were the we've been get doing see of Wizards and but well. cloud that. And security like is

security. They like there, part folks highly other of enterprise, still operations that X So the think have are context program. Lots about cloud those easy out all cloud integrated middle security actually as has are in. be if it those property as as actually see now to the security we of in It you those vending. their about the to use, keep to functional, But just of not go for overall though, have customers results. be think about have -- to to their to accessible equivalent their to we out, mainstream Russell when what has of have core companies and to the has It be the has like XXXX going and that we people actually think XX adopted security.

very cloud originally, and into we is similar at market. when Rob, market it's it a and the functional very as been are in to complex and just a and response things efficiency. We part we and have assess is not enterprises be little they think a ease security way the is why detection program. no, that you complex, things use, that SIM security for right operations for to a the view do don't on how of look now to forever, actually market, untapped because and mainstream environment, risk we no, are There's doing we about that actually massively large, tapped mainstream So actually that SIM went complicated cloud. cloud in a mass-market environments A dynamics designed do We have Most like, texted that investing you SIMs said, way, are how enterprises. people see that efficacy allow bit of same around only largely and most designed risk market. about

large for sort price solutions. of going mainstream to companies But actually that at do the and enterprise. it cloud have that million we of of are traditional that's purchased of at tags about the talk It's security those when we're types majority the plus core looking $X.X what not not of

actually think years. And we We're that. set I to count, which out see could plenty around next the grow which we're I but we playing count, the grow into, have for have big adoption of question, year think to is to progress again, of few so up Again, go early over customer up we think I customer seeing other the is would think set well we're about I I the that. your say opportunity customer And that. opportunity lots it the want that's strategically. just where make what of all space And it. To we for count, this

that truly us us a actually that to much what shared think it. The lot I've made customers we our transactional I continue customer, of ARR we truly more past before is about that our I count from allows expect base volume customer was had [indiscernible] sales in years per achieve material strategic like to a allows and thing get to increase. to and TAM

grow the base. customer will We

sales consolidation Our we're and that efforts. of a fact with the sales lot success the is having

needs of that hit targets. to is though partner Rob, this so do we what the ARR productivity ecosystem. sales that, mean in on your to order actually year. Part how point sales the continue to and fewer we have does per And Even that expect sales actually we to your customers improve big focus average it reps, rep ARR a is

you about think and past the talked I are critical. I in have

ready of lot a We equipped. questions asked and that we think that. You've are about

capabilities, I say is still still upside We're would tuning -- smaller partners. for year and we're set we're We have portfolio. I have an on say, that of seeing we're lots distribution that drop partners focusing as actually a and that, massive momentum. the compelling would the of a onloading year.

think your there. I questions both So I of got

Operator

of comes Moskowitz the question Gregg next line from from Your Mizuho.

Unknown Analyst

Mike on for a follow-up to This is Rob. Gregg. And perhaps

quarter? the quarter Or You mentioned you in last back zeroed zeroed sort to Did continue respect with logo your focus have to approach base, same of this that new really on in and the intensity really your business. following with traditional recalibrated that expansion you installed right? you restructuring,

Corey Thomas

growing that's It's relationships, are we're actually and looking our markets. has partnerships. to because look, question I to distribution thoughtful are package of say have Rob consolidation your contracts, the is But to that it, about instead say, ASPs think say we and changed. base. just don't tighten the that previous being trying to how would Well, installed we I we question actually we noisy drive just, and we base. I bias think, on had the straightforward expand very you force have because actually really existing existing distribution would in installed I What focusing is in have more the generally actually are vehicles. I achieving our actually would existing and successful,

more And term, drive take investments goal this so we we're and scale this very partnership to think allows the also that investment actually us us distribution of term our the year thing be but actually need more I in growth to direct adds, a we're and and actually actually than near the gives new year, that, intentional it at that's into medium -- strong -- because very investments care. you our that explicit force. And very is and a our customers sales want again, the actually who opening a to grower we investments growth more to rate net be if have growing in ask, customer higher our a service in putting strategy share

Operator

next comes James. the from question Your line Tindle of Adam Raymond from

Adam Tindle

out is I and about to at on the up 'XX fiscal wanted it, increasing Okay. be $XX just Tim, profitability. revenue impressive $XX look over EBIT I If year-over-year. start going million year-over-year million is guidance, with to really which

contribution that. XX% call on So it so or margin a

with If during you'd up fiscal 'XX, a or analysis of come think you revenue to did contribution drop-through EBIT. similar margin same that I

stuff cost the it. I've as that, and because 'XX leverage follow-up guess had you logistics about and fiscal would and in thought I question to fiscal drive like similar So a 'XX be, got for buildup fiscal leverage, the Corey. control operating behind how the And 'XX risk

Timothy Adams

thoughtful try we when very to we planning Adam, Yes, the be go session. into

actions in move prepared and tried the took restructuring. that department our investments. Corey we stems be make in deliberate we're really ago bit a of into we lot of very a early some from to little And the level mentioned XXXX, going where to with As innovation. at the this remarks, X that about investment we a months

cash think base, we a in So board we of at G&A, way I I tick we and as free would still when and to the we make revenue. in and look into plan sales of go and the that a percentage can for we And on as up XXXX. R&D across built all across next do the areas. year double sure I the see we the to this million $XXX we're flow go least that as to year want little leverage bit marketing into nice based expect we appropriate think But investing

Adam Tindle

wonder quickly, And is profitability how this impact reflect but would on improved growth. Corey, I impressive, you the obvious on Okay.

think new around this you level it on push new level you next above profitability? would could year, implies holding down. What added like function ARR looks to year. guidance maybe ARR And growth? so take of net You while net do It a of ARR this flat of million do $XX $XX to million slightly step net so new this a level to new

Corey Thomas

that we in a good capabilities the have very new we look partners momentum at stable, actually the consistency say that or we plenty the our see whether market, bring What same and you we is look I business, of that it's growth when whether levers So question. online. When the market healthier would you just fact distribution it that healthier. and plan actually a and products gets one, you see but at you at to look not even

there's things catalysts we ones. I growth we're doing would business. There's say, market our ecosystem. partner have, distribution our in So in and drivers just own that

So growth our say I'll we that's is we have a guidance material think into put just from drivers. Well, actually to assumptions. a guidance baseline number just of perspective, and catalysts don't

strong can cash I always growth. finance look growth, growth. do. to very to come flow a we're market that So tighter what focus committed model, which from is our going the come is just team Tim which my But that at -- our to pursue or and pursuing am expansion, delivering and of for we're thrilled then up free has clearing tougher, in actually easily to ARR But margin higher higher is if from

Operator

Citi. of Your Fatima question next comes from from Boolani the line

Fatima Boolani

and question read the a ask angle. different ARR outlook question, Corey, wanted I maybe from to a you this or

force that that you're into sort So coin side frankly things stack Perhaps, deal of a you goodness on going when the up and to out of the these some selling here? conservatism, and what of existing there of baking of stronger, outlook of equipped ASP is a well better and to on though the us compression net sizes, X larger ARR? the all just entering spend. I coin respect some with new increases a even the better we the in maybe commensurate your implied lot the the momentum, see package like year with seeing sales are flip give of cannibalization serve in understand much frankly, really your some that. Why side you're would elements I are packages. can and deceleration If you're of enabled other that the

Corey Thomas

No, a and fair very question, it's Fatima. good

I I So first we the to expect the thing market would say noisy. that be is just do think

I if like would stay look things if factors will is, some just not getting just say those healthy, and rates best and first assume just at QX be we very we like -- signals not And of are hikes. that, actually upper actually that I overall so like, stay inappropriate and do and there. from that, rates It don't very consistent, has is we're was that's that other all the we've sort a conversion And to conversion -- while and stay That's a would then actually conversion challenges perspective. But market deals stays perspective very consistent. thing, thing my would if say to something say, great. going noisiness for high. that upside problem. couple good positive the was of biggest just the look, consistent the from about I'm have -- do in funded, X be point, healthy. Look, probably just a high rates we to That's that's have you going that's record I are so I it to assume market that even That's we consider. of That's fundamental what then our I'll the seeing seen. I a explicit like actually room. of saw record been they've great. stable, that if though if quarters. We're record momentum planning your

that, that at our investing partner in perspective, distribution building we've actually and look back say we're RIF, this thing happens into later really is you what turn we're doing sort heavily on sort actually may that's pipeline of like but and year from actually just actually early If turns that of a that as like assumption that the and out our a ecosystem. I'll year, sooner, there. great from come next

be of point, good. outlook sort that market see not going in we'll stay be above. definitely, your able exceptions factor to things things of then so We actually just that actually that to into in the And the noisy perform if all positive business baseline continue, sort the like do to a we to and are

just restructuring that that that along somewhere like we're we if the is noisy health is coming going to the expansion. But up ourselves actually we've of more our year setting market if saw exceed is are the and good out actually something have then very coming feel we'll actually hey, of be going is that committed and this we we instituted take. last What cash stably I seen we the of it and last year consistency line continued in that's actually the growth goes is on like, we end to setup. And I flip free the of stronger. that actually year things, then delivering about margin expectations and strong we'll this up, commitment the approach that throughout to and side, medium-term at a think flow and committed to sort make

Timothy Adams

the would way backlog slow bit demand I gotten a of strong projects. to down have have CFOs CISOs And the things release. from we're little just they a because to add, seeing in

Corey Thomas

those like our do a The they sort coming that last those would of have are to -- pace see the have of demand in don't to security, something get lot have on. of saw keeping aspirations in customers projects a problem. year. of to have the an fund eye CISOs want that I And love backlog funded do. nicely keep funding We our like stuff actually to that out that We to funded we see that is we continue and

Operator

Your line . BTIG. comes next from Gray from of the Powell question

Gray Powell

Yes.

X was follow-up like last just but and I have question. thorough, that really Adam's to did So answer Fatima

of QX net just like that look add new think is back could Or more the implies year? back XXXX results of that guidance is I Obviously, you if second bounced into that's new at something net trends, the net linearity, positive at the in you guess event? ARR I'm happen in terms really XXXX. that growth ARR like in we half territory some point, QX. I XXXX we positive curious, do in that get the a of down. had just So additions to

Corey Thomas

have chance Well, the the framework is know the that that starting we to the The the look, basically capacity grow question, not I a, framework. I grow you if and say think as we're with yes, you're cash going we're to you start is a think higher. out market to is That to asking, faster. more have good, with. do framework similar I actually out free abling last flow

First and that is doubt, without actually grow is actually definitive happens, that taking will If a market completely stable. view will actually faster. the grow --

Gray Powell

there. much the risk like to to QX? on anything was appreciate I be? Really I go productivity side, want rates helpful. my last have that. just from you And Or or pretty Okay. expected QX did then conversion it outsized one in or on exactly August any impact

Corey Thomas

much actually I net they customers would lot was we we QX saw funded customers I budget things again, conversion was spending saw been a strong flush projects It on -- pretty funding incredibly mean on projects. better waiting expected. We slightly projects. was saw say rates. that we QX of to like like not than -- even those clear. have like There not be new was

actually this have well. in of of sales momentum Our we what QX, lot year. the executed saw we we team and liked extraordinarily We in a a lot that like here

Operator

Baird. question comes the from next Kothari Shrenik Your line . Robert of from

Shrenik Kothari

Yes.

the ecosystem. AWS. mentioned in And deepening leverage So parter course, investments also about, Corey, we of marketplaces highlighted you like

new as the the a percent strategy. Can the AWS is are Marketplace CSPM into the about AWS see you and with earlier like that to purposes follow-up mitigating about the talk reducing ecosystem, as potential a offer do your growth looks traction customer and we of that question you integrated just attach cloud products So how already much an but cloud growth.

be would color any here. yes, So helpful

Corey Thomas

in don't in last year. sales the we would down. traction won't growth off probably them break we Yes, good I I marketplace numbers saw just AWS say have

our there, partnership. healthy just just but say is and growth to it's strategy We are growth in of This distribution I demand momentum, upside that continued our that part seen and expecting, I continue. would marketplace have we say through would we've AWS in through engine. And

they AWS. a beneficial it's the strategic more we partner it's been into. partner are and investing to and They've are something We a for side, good sales been customer the on that and

Operator

from from Your the of Alex next question Company. Henderson & Needham comes line

Alex Henderson

A gaining comments know that you I plan couple seemed of what to think made you're difficult little just don't the call said you against. to but growth And is on rate market analyze. really share the you share gain a

parse the talk wondering the that intermediate near on adds both was in if you new could larger and about is still it give a growth in smaller you're customers of context, just seems So that rate term the the us time market some and say, the I frame. And what of to to and do shifting the customers. shedding -- of customer mix you some lot sort me

number. a So it's bimodal somewhat of

look great. little If be pie. give growth you could a versus bit the us of the what would the more the bottom fallout at like quantification customer on larger That rates

Corey Thomas

Yes.

that overall our questions. give misremember X- But that window. I is is largely, to acceleration not probably what just plan Alex, given growth -- and rate see to assumption would market because to to [indiscernible]. like midterm, my is try say our I'm the about about that can good over X-year think comment you going the do Gartner So I the thing growth IDC rates.

the arbitrator. we but is plan for the at capacity. And that rates rotated strategy be our to they actually plan specific, year, and see distribution expansion. probably is to can product this do is to certainly investment their the is look is. we see of best market we And be for analysts to what the So I market growth very actual, acceleration. where and It's our something we that just And differentiation have growth like in actually and that products think ahead that,

leverage getting then both and a dollars a we're are ARR very grower about flow taking investments. We investments response, AI in strong SoC putting our very us very, think high-growth extending X areas, the grower partnership the our total So over especially can we're cloud detection book years, like think actually our more our for setup through focused be next partners on free in what because and different that security, will cash mainstream of that and the That's the a our top customer ecosystem, but be entered and actually differentiated that more have the at demand investments also market I we overall about us the go-to-market service I guide to line won't comment in address more talked that the managed to like what motion guy and actually more think the with and I we with cost-efficient distribution actual space. We and the see allow motion. have we structure we year. investment. end last those

the this I've of not about So talked that we like and the sort is that fully extensively. even think But the totality see midterm just of term how I actually year. long or

you strategic say shift just I that, that some and accounts, for smaller with just and a question all know Alex, customer higher about see you both sales, sales security of absolutely a that in RapidX where provider can -- say you're is I customers, would is to dominant it's the a smaller makes to other it expansion want mix customers on yes, actually from growth transactional is that. right. opportunity We customers Your think what and XXX% who

mix our in So shift a there. real ARR you're reflected as per by customer in seeing

lower I to dollar I to the transactional that on sort customers, like And say, executing size like it is as screen. of transactional So sort focus, strategic. more say, think we're really it's of an more you would intentional, shedding not strategic actually being great

a stat focused. So to that point, we're not that's

what's the Your like rate. question on growth

I growth and metric hand on rate to we the go. I ready think like don't a provided have that platform while ago,

Timothy Adams

disclosed. faster That we break out. a overall It's than number few growing higher customer is we what didn't the points base. [indiscernible] it than

Operator

comes Your from of Michael Markets. KeyBanc Capital next the question Turits from line

Michael Turits

where quarter. destiny mean, guess your you two, best just just the acceleration? questions can control X. I'll asked, I that what the of I curious business ARR That's along similar just when kind to have comes are but it ask the performance guess been areas in the of Corey, own then of #X. And I

anything if from you. there curious demand anything and it's or if international, call Just was out, versus team, whether whether Americas message just out execution called to it's there's the trends

Corey Thomas

I stands actually in. good from I stands whether a solid anything that don't thought nothing out, know you That's I fairly question. that my perspective. might was that Look, team out There's about and... Tim. tag think

Timothy Adams

performed new very in EMEA terms In strong of QX bookings. in

Corey Thomas

year. which improvement over prior an is Yes, the

healthy. say was But healthy that general. was I very So that in overall would QX just

would think the I we taking on disciplined mid-term I our just distribution we're investments. very control control, Look, that ecosystem. stuff [indiscernible], we say can can

As I've said before, the are partner. in investing we

new we ever how in well things bring about at growth about you on to of factor-in done anchor talked year in like we're or just doing don't response completed. But and tenant. are optimistic assumptions. we're being it. successful the factor control. As to sort going want you right hit why markets. detection like that in those. We of are distribution, don't we're that a just you we're of not if of have things we security, We things parts actually the they're approach just motion even the that's quite play, already out could a and in like way and baseline figure I sort in in That's it. lot Look, are talk

have up We rates. position. market We're well. change We conversion don't our set have incredible to

stable, is we've setup it the we're around the and gave a drive we independent capacity market. just noisy. So just the we grow for we I a what actually great have that market top if we of can have I what think control. What safe, in happened to is the line the a is to markets of then if say well But of overall, said I'll And growth. the in actually like I'll say what think, setup stay market flow is capacity reiterate communicating, say you the do market. little well that's market. would one that that's free actually is and I'll plenty we And actually that actually bit flip cash

Operator

next Wolfe Research. Tilton Joshua Your line comes of question from from the

Unknown Analyst

Josh. you've that is on a noisy now. mentioned environment times This for Patrick the few Corey, was

your competitors Curious any mid-market Just And mentioned you of that then strength little wondering X in you could fourth further. maybe strong mid-market increased outsized was the unpack in saw a the bit if that that if also, quarter. the space competition. of or

Corey Thomas

for it healthy. Yes, Midmarket and without just us, say I'll and was the second first. stable do one consistent

adjustments made we think I earlier.

the think question with at And year. different would a about your not expectations, people we again? think the We and their of and mid-market. first I'm of exceeded I And driver So the say processed then at it's observations healthy questions. our start processing our I contributor. good reminder last or

Michael Turits

mentioned you the was that So noisy. environment

Corey Thomas

Yes, yes.

different over funded of versus in projects were you getting was we demand. So been What's points times noisy those see plenty [indiscernible], trouble talk go. to we what's a where When if look, by having is look here's we to plenty talk I of demand, the course last When not. people security what there CCILs mean noisy. like and of there teams, is year,

problem funded, And but we security what's getting a not actually so I'm those going in they're see teams to those get funded. all and If security question don't are those we great, been can demand. The see That's things are an feel great we they posts get going security projects is, actually funded. noisy. basically the amidine actually projects to that take

different seeing seeing last we're would hope of told that what asking you wise I my security were some that's from of periods the say what are they teams and had a of fund have their environment to course going to and we're slow actually be had CSOs down the that that where security But the that Over to default also not is it year, will regulatory presumption, time going is case. broadly more to actually people to their their encourage the teams be something projects for. it's investments.

Operator

Your next of question Stifel. comes from Galvin from Rob the line

Robert Galvin

same year-over-year. are for Corey, your this And growing of you've QX last XXXX average duration deal quarter, and on with spoke the you up what trend expectations XX% I'm into of seen weighted front? if contracts number wondering a longer-term persist

Corey Thomas

in still, again QX. But strong it was Yes.

renewal So new X-year those the we're out side. both pleased on really contracts, beyond with We're seeing lot being a extended really and contracts seeing the contracts. X-year of

Timothy Adams

goes most the well do very a provider our years, X that provider, that become that is team both our strong Yes. of And of a ARR ASPs over contracts what just I see becoming of like I and strategic as consolidation customers duration security. the as the mint that and reflect and as well the you would to proud offerings us. to if on with want in being say we as talked about think look last you strategic us the we have

think So fair. that's I yes,

Operator

And that's I Corey closing now all the Thomas to remarks. turn time call for for the questions. will over back we have

Corey Thomas

and joining Thanks. the all evening. us Well, a thank I on you good wish all you call today, for

Operator

This concludes conference you may disconnect. call. and for today's participation, now Thank you your

Rapid7 (RPD) 7 Feb 242023 Q4 Earnings call transcript