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01/11 18:29
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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%).
Annual Recurring Revenue (ARR) $840 million, growing 4% year-over-year. This growth reflects stable customer spending patterns and increased deal sizes.
Total Revenue $844 million, growing 9% year-over-year, exceeding the high end of guidance. This growth was driven by strong performance in recurring product revenue.
Recurring Product Revenue $809 million, growing 9% year-over-year. This growth aligns with the overall revenue increase.
Professional Services Revenue Declined 6% year-over-year as the company actively deemphasizes lower value services.
Operating Income $164 million, representing a 19% operating margin, an expansion of over 600 basis points from the prior year, driven by operational efficiency.
Free Cash Flow $154 million, representing an 18% free cash flow margin, an expansion of over 800 basis points from the prior year.
Fourth Quarter Total Revenue $216 million, up 5% year-over-year, above the high end of guidance.
Fourth Quarter Recurring Product Revenue $206 million, growing 6% year-over-year.
Fourth Quarter Professional Services Revenue Declined 5% year-over-year.
International Revenue Grew 14% year-over-year, now accounting for 25% of total revenue.
North America Revenue Grew 3% year-over-year, accounting for 75% of total revenue.
Product Gross Margin 75% in the quarter, slightly below the prior year due to higher hosting costs.
Total Gross Margin 73% for the quarter.
Fourth Quarter Operating Income $40 million, representing an 18% operating margin, driven by revenue outperformance and disciplined expense management.
Adjusted EBITDA $46 million in the fourth quarter.
Net Income per Share $0.48, which missed expectations of $0.50.
Cash, Cash Equivalents and Investments $559 million at the end of the year, compared to $439 million at the end of 2023.
Fourth Quarter Free Cash Flow $59 million, contributing to the overall strong cash flow performance.
Exposure Command: The launch of Exposure Command has exceeded early expectations, driving over 20% year-over-year growth in total risk and exposure management pipeline generation during Q4.
Managed Detection and Response (MDR): MDR contributes over three quarters of the detection and response business, which generates over $400 million in ARR and is growing in the mid-teens.
Market Positioning: Rapid7 is shifting towards sustainable growth markets of consolidated exposure management and managed detection response, responding to intense competition in the vulnerability management landscape.
Customer Engagement: Just under 15% of customers have adopted a consolidated offering, indicating a significant opportunity for expansion.
Operational Efficiency: Operating income of $164 million represents a 19% full year operating margin, an expansion of over 600 basis points from the prior year.
Free Cash Flow: Generated over $150 million in free cash flow for the year, with a free cash flow margin of 18%.
Strategic Investments: Rapid7 plans to reinvest up to $30 million in 2025 to support strategic growth initiatives, including extending MDR service capabilities and establishing a new innovation center in India.
Sales and Marketing Initiatives: Investments in sales and marketing initiatives are aimed at supporting expansion opportunities and enhancing customer engagement.
Earnings Expectations: Rapid7 missed earnings expectations with reported EPS of $0.48 against expectations of $0.50.
Competitive Pressures: The vulnerability management landscape has seen intense competition and accelerating cloud migration, leading to secular pressure in standalone VM.
Regulatory Issues: There is uncertainty and disruption with certain state, local educational, and health care customers, which may impact revenue.
Supply Chain Challenges: The company faces challenges related to higher hosting costs, which slightly impacted product gross margin.
Economic Factors: The company anticipates a stable customer spending environment, but acknowledges potential uncertainties in the market.
Investment Risks: Rapid7 is reinvesting up to $30 million into growth opportunities, which carries inherent risks associated with new initiatives.
Customer Engagement: Longer deal cycles due to expanding deal sizes and longer contract durations may affect revenue recognition and cash flow.
Annual Recurring Revenue (ARR): Rapid7 ended 2024 with $840 million in ARR, growing 4% over the prior year.
Detection and Response Business: The detection response business delivered double-digit growth in 2024, ending the year at over $400 million in ARR.
Exposure Command: The launch of Exposure Command has exceeded early expectations, driving over 20% year-over-year growth in total risk and exposure management pipeline generation.
Strategic Priorities: In 2024, Rapid7 focused on innovation in detection response, scaling the partner ecosystem, and cloud security adoption.
Investment in Innovation: Rapid7 is establishing a new SOC and innovation center in India to accelerate investments in MDR and exposure management.
2025 ARR Growth: Rapid7 expects ARR growth of 4% to 6% for 2025.
2025 Revenue Guidance: Total revenue for 2025 is expected to be in the range of $860 million to $870 million, representing growth of 2% to 3%.
Operating Income Guidance: For 2025, operating income is expected to be in the range of $125 million to $135 million.
Free Cash Flow Guidance: Rapid7 expects to generate roughly $135 million in free cash flow for 2025.
Q1 2025 Revenue Guidance: For Q1 2025, total revenue is expected in the range of $207 million to $209 million, representing year-over-year growth of 1% to 2%.
Shareholder Return Plan: Rapid7 plans to reinvest up to $30 million into strategic growth initiatives, including extending MDR service capabilities and offerings, accelerating exposure management roadmap, and establishing a new innovation center in India.
Free Cash Flow: Rapid7 generated $154 million in free cash flow for 2024, with a free cash flow margin of 18%.
Expected Free Cash Flow for 2025: Rapid7 expects to generate roughly $135 million in free cash flow for 2025.
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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