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01/11 18:30
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Annual Recurring Revenue (ARR) $837 million, 4% year-over-year growth; growth was below expectations due to macroeconomic headwinds and pressure in Risk and Exposure Management.
Revenue $210 million, 3% year-over-year growth; exceeded guidance due to strong operational discipline.
Product Revenue $204 million, 4% year-over-year growth; driven by healthy growth in Detection and Response.
Professional Services Revenue Declined year-over-year; consistent with the decision to deemphasize lower-margin service engagements.
International Revenue 25% of total revenue, grew 10% year-over-year; reflects strong demand in international markets.
Operating Income $32 million; above guidance due to timing of certain hiring and G&A expenses.
Adjusted EBITDA $39 million; reflects strong operational performance.
Non-GAAP Net Income per Share $0.49; indicates profitability amid challenging market conditions.
Free Cash Flow $25 million; demonstrates strong cash generation capabilities.
Gross Margin Product gross margin at 76%, total gross margin at 75%; reflects operational efficiency.
Customer Base 11,685 customers, 2% year-over-year growth; indicates stable customer acquisition.
ARR per Customer Approximately $72,000, 2% year-over-year growth; reflects stable revenue per customer.
Detection and Response: Detection and Response continues to be the core growth driver, representing over half of total ARR with mid-teens growth in Q1.
Intelligence Hub: Recently announced Intelligence Hub integrates threat intelligence into the command platform experience.
SOC Innovation Center: Opened a new SOC innovation center in India to enhance service delivery and operational efficiency.
ARR Guidance: Adjusted ARR guidance for 2025 to $850 million to $880 million, reflecting a slower start and increased market uncertainty.
Customer Spending Environment: Customers are becoming more cautious, leading to extended deal cycles and tighter budget controls, particularly in the North American mid-market enterprise segment.
Cost Structure Improvement: Investments to improve cost structure are on track, aiming for profitability reacceleration in 2026.
Free Cash Flow: Generated $25 million in free cash flow for Q1.
Strategic Focus: Focus on three strategic priorities: product innovation, customer outcomes, and operational efficiency.
Board of Directors: Welcomed new board members to enhance guidance and strategic direction.
Annual Recurring Revenue (ARR) Performance: ARR ended at $837 million, reflecting a 4% year-over-year growth, but fell short of expectations due to macroeconomic headwinds and pressure in the Risk and Exposure Management business.
Customer Spending Environment: Customers are becoming increasingly cautious, leading to extended deal cycles and tighter budget controls, particularly in the North American mid-market enterprise segment.
Risk and Exposure Management Challenges: The Risk and Exposure Management business is experiencing growth deceleration, with ongoing negative growth in traditional vulnerability management offerings.
Competitive Pressures: The company faces increased competition in the Risk and Exposure Management space, impacting the velocity of the upgrade cycle and customer decision-making.
Economic Factors: The broader economic environment is more dynamic and fluid than anticipated, leading to increased variability in customer decision cycles and budgetary implementations.
Guidance Adjustments: Due to the slower start to the year and increased uncertainty, the company is lowering and widening its ARR guidance for 2025 to $850 million to $880 million.
Strategic Pillars: 1. Building on scale and success in Detection and Response, which has strong customer demand. 2. Upgrading the vulnerability management customer base to the Exposure Management platform to increase retention and provide a pathway to Detection and Response. 3. Improving the cost structure while continuing to innovate through the new operations center in India.
Detection and Response Growth: Detection and Response remains the core growth driver, representing over half of total ARR with mid-teens growth.
Risk and Exposure Management Strategy: Transitioning from standalone vulnerability management to a unified Risk and Exposure Management approach, focusing on driving adoption of the Exposure Command platform.
Board of Directors: Welcoming new board members to leverage their expertise for growth and industry leadership.
ARR Guidance: Adjusted ARR guidance for 2025 is now $850 million to $880 million, reflecting a growth of 1% to 5% year-over-year.
Revenue Guidance: Full year revenue expected to be between $853 million and $863 million, representing growth of 1% to 2% over 2024.
Operating Income Guidance: Reiterating full year operating income outlook of $125 million to $135 million.
Free Cash Flow Guidance: Adjusted free cash flow guidance to a range of $125 million to $135 million.
Q2 Revenue Guidance: Expected revenue for Q2 is between $211 million and $213 million, with year-over-year growth of 1% to 2%.
Q2 Operating Income Guidance: Expected non-GAAP operating income for Q2 is between $30 million and $32 million.
Q2 Net Income Guidance: Expected non-GAAP net income per share for Q2 is between $0.43 and $0.46.
Share Repurchase Program: Rapid7 has not announced any share buyback program 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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