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01/11 19:30
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reflects mixed signals: the company shows strong product development and strategic initiatives, particularly in AI and partnerships, which are positive indicators. However, the lowered ARR guidance, despite a healthy pipeline and Q2 results, introduces uncertainty. The cautious approach to guidance reflects strategic deal cycles, but vague responses in the Q&A, especially regarding the India SOC and ARR adjustments, suggest potential execution risks. Given the market cap of $2.66 billion, the stock is likely to experience a neutral reaction, with minor fluctuations within the -2% to 2% range.
Annual Recurring Revenue (ARR) $841 million, growing 3% year-over-year. The growth was attributed to strong performance in detection and response business, which represents over half of ARR and continues to grow in the mid-teens year-over-year.
Revenue $214 million for Q2 2025, growing 3% year-over-year. Product subscription revenue grew 4% year-over-year to $208 million, supported by favorable bookings linearity in the quarter. Professional services revenue declined year-over-year due to a strategic decision to deemphasize certain lower-margin services.
Free Cash Flow $42 million for Q2 2025, contributing to a year-to-date free cash flow of $67 million. This was supported by strong operating discipline and flexibility in the business model.
Product Gross Margin 76% for Q2 2025, consistent with the prior year, reflecting stable profitability in product offerings.
Total Gross Margin 74% for Q2 2025, consistent with the prior year, indicating stable overall profitability.
Operating Income $36 million for Q2 2025, above the guidance range, driven by timing of spending and targeted growth investments.
Adjusted EBITDA $43 million for Q2 2025, reflecting strong operational performance.
Non-GAAP Net Income Per Share $0.58 for Q2 2025, indicating profitability above expectations.
International Revenue 25% of total revenue, growing 10% year-over-year, showing strong performance in international markets.
Command platform: Rapid7 announced the launch of Incident Command, completing its Command platform. This platform integrates security operations and management, providing a unified AI-driven system for detection, response, and exposure management. It includes features like Agentic AI workflows and open platform integration with over 500 tools.
Detection and Response: This segment represents over half of Rapid7's ARR and continues to grow in the mid-teens year-over-year. Investments in enterprise MDR (Managed Detection and Response) have expanded capabilities, including co-managed detection and new SOC capacity in India.
Enterprise adoption: Rapid7 secured several large enterprise deals, including a multiyear, multimillion-dollar agreement with a major UK retailer. This reflects growing demand for integrated AI-driven security solutions.
International revenue: International revenue grew 10% year-over-year, representing 25% of total revenue.
Financial performance: Rapid7 achieved $841 million in ARR, a 3% year-over-year growth, and generated $42 million in free cash flow for Q2 2025. Revenue for the quarter was $214 million, exceeding guidance.
Cost management: The company maintained strong operating discipline, with product gross margin at 76% and total gross margin at 74%. Sales and marketing expenses were 33% of revenue.
AI-driven strategy: Rapid7 is focusing on scaling its AI-driven security operations platform, emphasizing automation, integration, and expert-guided AI. The company aims to capitalize on its proprietary AI capabilities and years of SOC expertise.
Leadership changes: Tim Adams, CFO, announced his retirement, and a new Chief Commercial Officer was appointed to drive go-to-market capabilities and accelerate revenue growth.
Customer Spending Scrutiny: Persistent scrutiny on customer spending, particularly in North American mid-market, could limit growth opportunities and impact revenue.
Extended Deal Cycles: Longer deal cycles, especially for higher-value consolidation deals, may delay revenue recognition and create uncertainty in financial forecasting.
Macro Factors and Seasonality: Macroeconomic uncertainties and the seasonal nature of Q4 business concentration could impact pipeline conversion and revenue realization.
Regulatory Pressure: Mounting regulatory requirements necessitate integrated compliance and reporting, which could increase operational complexity and costs.
Competitive Pressures: The need to differentiate in a competitive cybersecurity market, especially with AI-driven solutions, poses challenges to market share and customer retention.
Operational Challenges: The transition to a new Chief Commercial Officer and the upcoming retirement of the CFO could disrupt operational continuity and strategic execution.
Product Adoption Risks: Adoption of new products like the Command platform and Exposure Command may face resistance or slower uptake, impacting revenue growth.
ARR Guidance: Narrowed full year ARR guidance range to $850 million to $865 million, compared to the prior range of $850 million to $880 million. Q3 ending ARR is expected to be approximately $840 million, with net new ARR for the year heavily weighted to Q4.
Revenue Guidance: Maintaining full year revenue guidance range of $853 million to $863 million, representing revenue growth of 1% to 2%. Q3 revenue is expected to be in the range of $215 million to $217 million, up roughly 1% from the prior year.
Profitability Guidance: Reiterating full year operating income range of $125 million to $135 million and full year free cash flow range of $125 million to $135 million. Non-GAAP net income per share is expected to be $1.90 to $2.03 for the full year.
Q3 Profitability Guidance: Non-GAAP operating income for Q3 is expected to be between $29 million to $31 million, and non-GAAP net income per share is expected to be $0.44 to $0.47.
Market Trends and Strategic Focus: Growing demand for unified attack surface visibility and AI-driven security operations. Focus on scaling AI-driven security operations platform, particularly the Command platform, to drive growth and market adoption.
Product and Market Strategy: Continued investment in MDR and Exposure Command to support larger enterprise use cases. Emphasis on AI-powered automation, hybrid visibility, and human expertise to drive outcomes.
The selected topic was not discussed during the call.
The earnings call reflects a positive outlook with strong gross margins, strategic investments in AI and international markets, and a promising partnership with Microsoft. Despite conservative guidance, the company shows potential for growth, particularly in MDR and Exposure Command. The Q&A highlights management's confidence in their strategic direction, though cautious about forecasting due to deal variability. The market cap suggests moderate volatility, but the positive elements likely outweigh concerns, forecasting a positive stock price movement (2% to 8%) over the next two weeks.
The earnings call reflects mixed signals: the company shows strong product development and strategic initiatives, particularly in AI and partnerships, which are positive indicators. However, the lowered ARR guidance, despite a healthy pipeline and Q2 results, introduces uncertainty. The cautious approach to guidance reflects strategic deal cycles, but vague responses in the Q&A, especially regarding the India SOC and ARR adjustments, suggest potential execution risks. Given the market cap of $2.66 billion, the stock is likely to experience a neutral reaction, with minor fluctuations within the -2% to 2% range.
The earnings call reveals challenges in risk and exposure management, competitive pressures, and economic uncertainties. Despite exceeding revenue guidance and achieving strong operational performance, the company lowered its ARR guidance and acknowledged growth deceleration. The Q&A highlighted concerns about the upgrade cycle, competitive pressure, and macroeconomic effects. While there is some optimism about future stabilization, the lack of a share repurchase program and unclear management responses further contribute to a negative sentiment. Given the market cap, a stock price movement in the -2% to -8% range is expected.
The earnings call summary presents a mixed picture. Financial performance shows positive revenue growth, but there are concerns like missed EPS expectations and declining professional services revenue. The Q&A reveals uncertainties in the vulnerability management market and competitive pressures, offset by optimism in D&R growth and pipeline. Despite solid cash flow and operating income, the cautious ARR guidance and unclear management responses contribute to a neutral sentiment, especially given the market cap. The predicted stock movement is likely within the neutral range (-2% to 2%).
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