Rapid7, Inc.

Hello, greetings, and welcome to the Rapid7 third quarter 2024 earnings conference call. All participants are currently in a listen-only mode. Later, we will conduct a question and answer session. To ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, just press star one. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Elizabeth Schwach, Senior Director of Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. We appreciate you joining us today to discuss Rapid7's third quarter 2024 financial and operating results, in addition to our financial outlook for the fourth quarter and full fiscal year 2024. With me on the call today are Corey Thomas, our CEO, and Tim Adams, 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. During this call, we may make statements related to our business that are considered 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, strategy, business plans, investments, growth drivers, financial guidance for the fourth quarter and full year 2024, and the assumptions underlying such goals and guidance and our expectations regarding 2025. 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 material from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q, filed on August 7, 2024, and our most recent annual report on Form 10-K on February 26, 2024, and in the subsequent reports that we file with the SEC. 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 implied by such forward-looking statements, and reported results should not 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 results can be found in today's earnings press release and on our website at investors.rapid7.com. At times, in our prepared comments or in responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be one time in nature, and we may or may not update these metrics in the future. With that, I'd like to turn the call over to our CEO, Corey Thomas. Corey?

Thank you, Elizabeth, and welcome to everyone joining us on the call today. Rapid7 ended the third quarter of 2024 with $823 million in ARR, while delivering revenue and operating income above our guided ranges. Our threat detection and response business, which remains an area of strength and durable double-digit growth, continue to drive the majority of our growth in the third quarter, as our robust capabilities, deep expertise, and investment innovation continue to support a proven world-class detection and response experience for our customers. There's positive momentum across our business, and this is a key pillar that undermines our compelling opportunity to re-accelerate growth. Our Q3 ARR results also reflect customer budgets that remain in flux, especially around the time it has been. We saw deal cycles continue to elongate with additional levels of approval for the release of budget dollars, particularly for larger deals in North America. These longer deal cycles remain broad-based across mid-market and large enterprise customers. This change put modest pressure on new AR in the third quarter, driving AR results slightly below our expectations. We have extrapolated these dynamics into the fourth quarter and coupled with the growing mix of large deals that we expect towards the end of the year, we're lowering our 2024 AR outlook to a range of $835 to $845 million. Now, I'd like to give a broader overview of where our business is and the great progress we've made this year on product and service experience for our customers. Vendor consolidation continues to be a strong secular theme across software, especially in security operations where the market remains fragmented. Our consolidated offerings are addressing this market-wide customer pain point as security teams look for better outcomes and stronger value propositions. We continue to see strong demand for our consolidated offerings across both threat detection and risk management, which together have scaled to make up over $175 million of ARR. Additionally, the average ARR per customer for customers who own one of our consolidated offerings is roughly $150,000, highlighting the meaningful revenue opportunity for both new and existing customers that expand across our broader SecOps platform. Exposure Command, our recently launched consolidated risk management solution, has also shown encouraging early progress. We introduced the command platform at Black Hat Conference in early August, and with less than two months in the market, we have generated over 70% more pipeline for the overall risk management business compared to the second quarter of this year. When I refer to the risk management business, that includes our full suite of cloud security, vulnerability management, and attack surface management solutions, including Exposure Command, that help customers manage and prioritize risk across their attack surface. As expected, Exposure Command is gaining steady traction as customers seek to improve visibility across their attack surface while consolidating on an integrated platform at a compelling price point. Over time, we expect the average ARR from risk management customers to grow, driven by product expansion within the category, as well as expanding scope of coverage of their environments. As an example of the early success we're seeing in Exposure Command is a six-figure ARR deal that we closed during the quarter with a technology company looking to track all of their cloud assets in a centralized, automated way. RAPID 7.1 against three well-known cloud security players based on our proven use cases, added business context for the customer's attack surface, and the ease of use of the command platform's user experience. Rapid7 was able to offer the customer multi-cloud data in one place, and the single source of truth is critical in removing constant manual workload for an under-resourced security team. We started 2024 with a clear set of priorities and three primary focus areas. Innovating to deliver world-class detection response experience to our customers, expanding our partner ecosystem for scale and efficient demand generation, and accelerating cloud security adoption. We knew This will be a product investment year for us and an opportunity to establish leadership in future growth markets for security operations. We made the decision to prioritize our investments in customers' product and services experience while being more measured on investments in sales and marketing. As we near the end of the year, I am pleased with what we accomplished in these areas. The work we have done this year provides a critical foundation to our success, and we continue to believe these investments will position us for better long-term and durable growth. First, our detection response business continues to drive healthy momentum, particularly for customers looking to extend their SecOps capabilities with our managed services. Our commitment to driving innovation within Insight IDR is creating a stronger value proposition for our customers who increasingly need a centralized, actionable view of their environment. There are a number of specific reasons that security teams are choosing Rapid7. To better pinpoint threats driven by our embedded and expanded detection library, which provides relevant and timely insights from Rapid7 Security Operations Center, open source community, and threat intelligence teams. For better ability to scale and reduce manual attacks with embedded automation and AI for SOC efficiency, particularly during the alert lifecycle. And for the ease of use of our integrated platform with growing coverage and ability to ingest and analyze third-party security data. Additionally, the breadth and depth of the Rapid7 platform continues to be a competitive differentiator in a market that is still quite fragmented. Our leadership in the space was validated by recent vendor assessments by IDC, which positioned Rapid7's Insight IDR solution as a market leader in SIEM solutions for both SMB and enterprise. Security teams of all sizes are leveraging our core SIEM capabilities as part of our broader detection response platform to gain comprehensive and contextualized view of threats across the environment. The second major area of focus for this year has been on expanding our partner ecosystem for scale and efficient demand generation. We made substantial progress and there's still a long runway of opportunity here. In the third quarter, 90% of new ARR bookings were sold through our partner ecosystem. This achievement marks a significant milestone and underscores our dedication to collaborating with our partner community, aligning with purchasing channels many customers already use to source their security solutions. As we remain committed to advancing our partner programs and experience, this quarter we introduced the Rapid7 Partner Academy, which equips our partners with technical expertise around the command platform. This program is designed to educate our partners quickly as we innovate, and it's particularly beneficial as we recently delivered a series of important launches. We're also enhancing the partner experience through the recent launch of our channel partner portal, which supports streamlined engagement and a smoother sales process. Overall, the progress in this area demonstrates our dedication to seamless interaction, collaboration, and business growth for our Rapid7 partners. Lastly, our push to accelerate cloud security adoption is well underway. Our strategy is resonating strongly with customers by bringing cloud security capabilities into a broader platform that provides customers a high quality integrated view of their broader attack surface. The launch of our command platform, including exposure command, has been extremely well received. As I mentioned earlier, We increased our quarterly pipeline creation by over 70% on a sequential basis for risk visibility and exposure management. The positive early feedback we're hearing from the market is concentrated around a few major themes. The command workflows and user experience stand out from the current market offerings, particularly by our ability to aggregate diverse range of third party security data into a single source of truth. This integrated platform experience for cost effective management of an organization's attack service is a clear differentiator for Rapid7. Second, customers like our improved cloud risk prioritization and visualization tools, which allow them to assess risk in the context of prevention gaps, including allowing security teams to monitor toxic combinations, provide guardrails for secure AI development, and view executive-level risk reporting. And thirdly, Many customers lack a firm grasp of the assets across their hybrid IT environments, with Gartner estimating that less than 20% of organizations can clearly identify and inventory a majority of their assets. Our integrated asset discovery capabilities bring crucial visibility for attack surface management and speak to a common pain point for customers of all sizes. Additionally, our MSSP partners which have historically been focused mainly on detection response, have shown strong interest in our new exposure management offerings. Though we had a slow start to 2024, we've since taken the right steps to focus on our strategic priorities. I am proud of how our team has executed over the last six months to improve the foundational aspects of our business. And we see clear signs of progress and momentum, particularly around the command platform. As we look out to the next year, there are plenty of promising indicators on the horizon. The investments and focus areas of this year have made a meaningful impact in our ability to go to customers with the best possible security operations platform. And we are already seeing tangible proof points of this traction. We expect to start 2025 with a stronger pipeline than last year based on how the man generation is currently trending. And we continue to believe that our risk visibility and exposure management offerings will be meaningful long-term drivers of growth for us. We also have more work to do to successfully convert positive customer feedback and early pipeline traction for the command platform into material contributor of new ARR. As we look ahead to the next year, we're taking a measured approach with respect to both the timing of when that contribution materializes and when we will see customer budget stability and consistent deal cycle timing. While we expect to provide formal guidance on our February earnings column, our early expectation for 2025 is that our total ARR growth rate for the year should show flat to mild acceleration in growth from our 2024 exit growth rate of ARR. That view assumes continued longer deal cycles, particularly for large deals in managed detection response and relatively stable demand environment. The strong fundamentals of our business are intact, and we are creating a broad-based platform of integrated security operations solutions that will have long-term product relevance in a dynamic market environment. In the meantime, we plan to continue making shifts in our business model amidst slower near-term growth by evolving our products to be leaders in their specific categories, by evolving our pricing model to align to customers' priorities and budget capacity in these areas, and by remaining focused on scaling free cash flow across our business. Thank you for joining us on the call today. I will now turn the call over to our CFO, Tim Adams, to share additional detail on our financial results and outlook.