Rapid7, Inc.

Good day and thank you for standing by. Welcome to the Rapid7 Second Quarter 2021 Earnings Conference Call. At this time, all participants are into listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Sunil Shah, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Operator, and good afternoon, everyone. We appreciate you joining us today to discuss Rapid7's second quarter 2021 financial and operating results, in addition to our financial outlook for the third quarter and full fiscal year 2021. With me on the call today are Corey Thomas, our CEO, and Jeff Kalowski, our CFO. We've distributed our earnings press release over the wire and it is now posted on our website at investors.rapid7.com along with the updated company presentation and financial metrics file. This call is being broadcast live via webcast and following the call, an audio replay will be available at investors.rapid7.com until August 11, 2021. During this call, we may make statements related to our business that are forward-looking under federal securities laws. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements related to the company's positioning, our future goals, and financial guidance for the third quarter and full year 2021, and the assumptions underlying such goals and guidance. These forward-looking statements are based on our current expectations and beliefs and on information currently available to us. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10Q and in the subsequent reports that we filed with the OTC. The information provided on this conference call should be considered in light of such risks. Actual results and the timing of certain events may differ materially from the results or timing predicted or applied by such public statements, and reported results should now be considered as an indication of future performance. Rapid7 does not assume any obligation to update the information presented on this conference call, except to the extent required by applicable law. Our commentary today will primarily be in non-GAAP terms, and reconciliations between our historical GAAP and non-GAAP and guidance can be found in today's earnings press release. At times, in our prepared comments or in response to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or quarterly results. Please be advised that this additional detail may be one time in nature, and we may or may not provide an update in the future on these metrics. With that, I'd like to turn the call over to our CEO, Corey Thomas. Corey?

Thank you, Sunil, and good afternoon, everyone. Thank you all for joining us for our second quarter 2021 earnings results call. I'm pleased to once again report sustained outperformance and our business as Rapid7 delivered strong second quarter results, exceeding both our growth and profitability goals for the quarter. Strong demand across our Insight platform drove year-over-year ARR growth of 29% into the quarter at approximately $489 million. As we shared a few weeks ago, this strong organic growth is a validation of both our strategy and our execution as we continue our journey to make the best in security operations accessible, and achievable for all. Our ability to meet customers where they are in their SecOps journey with leading capabilities across vulnerability risk management, detection response, and cloud security is resonating. It's evidenced by two consecutive quarters of accelerated customer growth to start 2021. I'll share more on this momentum and our customer growth engine shortly, but I'd like to start today with some perspective on the security landscape and what we're hearing from our customers. If you think back to our investor day in March, I share with you how we are in a fundamentally new dynamic right now when it comes to the pace of technology adoption. Companies of all sizes across industries and regions are dramatically increasing their focus on delivering world-class digital and remote experiences for their customers and employees as they look to keep up with the pace of innovation. However, alongside this rapid expansion of their technology footprint, Customers are experiencing an evolving threat landscape. We are in an environment where the accelerated investment in digital transformation is turning every company into a technology company, driving an explosion in the service area that customers must monitor and protect. This is being met by a shift in the attacker landscape over the past year, with escalating risk driven by a clear increase in both the scope and the impact of attacker activity. Against this backdrop, our strong 2021 performance to date is a clear indication that customers are recognizing how Rapid7's integrated insight platform portfolio is designed to address the challenges of today's threat landscape. Let me take a moment to level set you on why we believe our strategy to build a unified SecOps platform experience in the cloud is well positioned to address multiple aspects of this shifting threat landscape. Rapid7's vulnerability management solution remains a critical component of our customer security hygiene. Accelerating technology adoption is opening even more vectors of attack. Managing risk visibility is more important than ever for our customers. Many of today's threats continue to leverage known vulnerabilities, so having a best-in-class VM program remains foundational to protecting against pervasive threats such as ransomware. This is demonstrated by the durable growth we continue to deliver in VM, which saw an acceleration in ARR during the second quarter. However, a strong VM program is just a part of the equation. Remediating vulnerabilities takes time, and an increasing trend with recent attacks is that people don't know about them until after the attack occurs. This is where customers increasingly need best-in-class detection response capabilities to alert them to suspicious activity. For the second year in a row, Rapid7's Insight IDR has been recognized as a leader in the Gartner Magic Quadrant for SIEM. But we believe this is just one component of the IDR story. If we reflect back on the roots of IDR six years ago, we had a strong point of view that driving alerts off traditional logs like most SIEMs did then, and many continue to do today, was insufficient. This drove us to build a differentiated capability for SIEM. one that began with behavioral analytics and has since expanded to include logs, import telemetry, network traffic visibility, attacker analytics, and cloud visibility, among other market-leading capabilities. The best validation of our winning formula with IDR beyond its sustained high growth at scale has been the emergence of the extended detection and response market, which exposes this view of comprehensive detection and response that spans across SIEM, EDR, SOAR, and now Threat Intelligence. Our recent addition of Insights positions Rapid7 to lead the XDR movement, enabling our customers to drive comprehensive security transformation alongside their digital investments. But as these digital transformation initiatives accelerate, businesses are increasingly leveraging the cloud to drive more innovation. As a result, cloud infrastructure usage is skyrocketing, and so too is the need for security teams to gain visibility and understand risk across these environments. Rapid7's newly released Insight CloudSec is leading the charge to provide customers a single cloud security solution that natively integrates cloud posture management, cloud identity management, infrastructure as code, and Kubernetes workload protection. This fully integrated cloud-native security platform enables broad visibility across multiple cloud environments, enhancing cloud security programs by automating continuous security and compliance. We remain focused on innovating to help security and DevOps teams shift to the left, reducing noise and complexity, and protecting their container environments and automating workflows to drive better security outcomes as customers scale into the cloud. Each one of these mandates to provide foundational VR invisibility, to deliver comprehensive extended detection and response, and to enable continuous protection of complex cloud environments is top of mind for our team here at Rapid7. In fact, Rapid7 is one of the only vendors in the market today that can offer best-in-class products across each of these three critical security vectors. As the attack surface expands, RapidSupport's platform is increasingly relevant because security teams are struggling to manage a myriad of independent security tools. Resource constraints and vendor sprawl are a critical concern in today's fast-moving threat environment as customers are tasked with minimizing the visibility gaps that exist between their disparate products. Rapid7 is addressing this challenge by investing not just in building market leading products in their respective categories, but natively integrating these solutions into our Insight platform and delivering them via a single unified experience in the cloud. This is why our strategy to build a unified SecOps platform in the cloud that reduces these gaps through an integrated automation driven experience is resonating with customers today. customers are increasingly looking to consolidate to help to a smaller number of critical security partners without sacrificing best-in-class security capabilities. As security teams look to minimize coverage gaps and respond faster to emerging threats, Rapid7's integrated platform experience is increasingly more relevant. You see this reflected in our business momentum to date in 2021. We continue to deliver strong ARR growth in our business, driven in part for our accelerating customer growth engine, which saw 13% year-over-year growth in customers during the second quarter. This is led by two fundamental drivers. First, we continue to add more new customers more efficiently, led by our ability to meet customers where they are in their SecOps journey, by landing across any of our core platform pillars, while demonstrating ease of expansion over time. Second, our aggressive investments in technology innovation are driving compelling customer value realization, enabling us to deliver ongoing strong and improving growth retention in our business as our platform scales. This is coupled with a compelling cross and upsell opportunity in our existing install base, which is a core driver of our sustained mid-teens growth in ARR per customer during the quarter. As our platform story increasingly resonates with customers, we have expanded the ability for more of our sales teams to sell more of our product which should support durable growth in ARR per customer as we look ahead. A great example of this platform value realization was the competitive six-figure InsightOne deal during the quarter with a new international customer. As a brief reminder, InsightOne is an example of how we are looking to lower the barriers to platform adoption by making it easier for customers to purchase multiple Insight products, in this case, InsightVM, Insight IDR, Insight AppSec, and Insight Connect to deliver a unified SecOps experience. In this particular case, Insight One's unified approach not only separated Rapid7 competitively versus other point products, but our platform value proposition accelerated the customer's future projects to leverage this broad set of Insight capabilities. Our single agent and one platform story resonated with the customer who was looking for a leading security partner within their business. We're excited about the opportunity to continue partnering with customers like this to minimize their security coverage gaps as we further enable these platform-centric go-to-market motions during the second half of the year. Turning now to a brief update on the recent progress towards our enduring goals. First, we remain focused on leading the charge to enable customers to transform their security operations practices around the cloud. This is clearly demonstrated by our investments. In addition to accelerating our XDR vision and capabilities, the addition of Insight will deliver a differentiated SecOps experience in the cloud by elevating the capabilities across our Insight platform. We've already begun to see strong customer interest and momentum in this capability. We continue to work on accelerating our platform distribution engine. The recent launch of Insight CloudSec, which brings together the cloud and workload security capabilities of DiviCloud and OwlSeed into a seamless and integrated cloud security experience on an Insight platform is a key milestone. This further accelerates our ability to drop sales leverage across our portfolio, particularly as we enable more of our sales team to sell the platform value proposition. We will continue to deliver on this both from a product innovation standpoint as well as from a commercialization and customer perspective. And third, we are committed to driving long-term operating leverage in our business while investing for growth. A great validation point is that during the first half of 2021, we have delivered over 300 basis points of non-GAAP operating margin expansion over the first half of 2021. alongside improving free cash flow. This strong year-to-date operating profit performance, our solid growth execution, and our disciplined investment approach position us well to absorb the incremental expenses of the Insights acquisition while delivering on our prior operating profit expectations. Notwithstanding the Insights deferred revenue write-down, Jeff will share more details on this in his remarks. So in summary, we're addressing the challenges of today's escalating threat landscape by delivering a unified SecOps experience in the cloud that helps to minimize visibility gaps, detect threats faster, and deliver automated responses. I could not be more proud of our team for their ongoing commitment to our customers as we work to deliver on our goals by making the best in security accessible and achievable to all. And finally, As I'm sure many of you saw from our press release, our CFO, Jeff Galowski, has announced his intent to retire in 2022 once his successor is appointed. On behalf of the entire team, I want to thank Jeff for his outstanding leadership in helping us scale Rapid7 for the past five years. Jeff has been instrumental in our effort to transition and scale our recurring revenue business while also building a world-class culture and finance bench. He has served as a true partner to myself and the entire leadership team here at Rapid7. And I look forward to that continued partnership into the next year. With that, thank you, Jeff, and I will turn the call over to you.