Rapid7, Inc. (RPD) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals. While there are positive aspects like the focus on AI-powered operations and a strong position to address debt maturity, the lack of full-year ARR guidance and unclear management responses on certain issues introduce uncertainties. The company's strategic focus areas and potential growth in MDR and exposure management are promising, but the ongoing churn and ARR decline concerns offset these positives. Given the market cap, the stock is likely to see a neutral reaction, with a possible slight tilt towards positive if growth strategies gain traction.
Key Financial Performance
Annual Recurring Revenue (ARR) $839.9 million, approximately flat year-over-year. The business is digesting a mix shift towards the faster-growing detection and response business, which constitutes just over 50% of the ending ARR. The managed detection and response (MD&R) portion grew in the high-single digits.
Total Revenue $859.8 million for the full year 2025, growing 1.9% year-over-year. Q4 revenue was $217.4 million, growing 0.5% year-over-year. Growth was driven by sustained new deal activity and strategic investments in AI-enabled security operations.
Product Revenue $209.1 million in Q4, growing 1.4% year-over-year. Growth reflects the company's focus on core offerings and AI-driven enhancements.
Professional Services Revenue $8.2 million in Q4, compared to $9.9 million in Q4 2024. The decline reflects a shift in the operating model towards greater utilization of partners for professional service delivery.
Operating Income $135.7 million for the full year 2025, with a Q4 operating income of $30.1 million (13.9% margin). The sequential downtick in margin reflects ramped-up investments in global capacity centers, go-to-market teams, and product teams.
Free Cash Flow $130 million for the full year 2025, with Q4 free cash flow of $32.3 million. This reflects strong cash generation despite increased investments.
Customer Base Over 11,500 customers with an average ARR per customer of approximately $72,000. Growth in customer base and ARR per customer reflects the adoption of AI-enhanced services and solutions.
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Operating Highlights
AI-enabled security operations: Strategic investments were made to strengthen Rapid7's position as a leader in AI-enabled security operations, enhancing security offerings with AI and machine learning capabilities.
Exposure Command platform: Encouraging growth was observed within the Exposure Command platform, which integrates AI tools, native telemetry, and open data integration for risk remediation.
MDR for Microsoft: Launched closer integrations with Microsoft, including MDR for Microsoft, providing 24/7 expert monitoring and native response across the Microsoft Defender suite.
Global expansion: Investments were made to scale operations globally, including expanding MDR coverage to manage third-party alerts and leveraging AI-powered services to target larger enterprises.
Partnership with Microsoft: Strengthened partnership with Microsoft to unify Microsoft telemetry with Rapid7's Command platform, enhancing security gap identification and resolution.
Operational efficiencies: Shifted repetitive SOC tasks to AI workflows, freeing security professionals for higher-value customer engagement and improving unit economics.
Sales and marketing alignment: Refined sales and marketing alignment to improve demand quality and conversion, with a focus on net-new growth, renewals, and cross-sell.
AI-driven transformation: Focused on integrating advanced AI models into core offerings, prioritizing innovation over legacy systems to maintain cutting-edge efficiency and performance.
Outcome-driven services: Emphasized delivering measurable business outcomes through a combination of data, AI innovation, and expert services, differentiating Rapid7 in the cybersecurity market.
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Risk or Challenges
AI-driven attacks: AI-driven attacks are escalating in pace and sophistication, stretching security teams thinner than ever. This creates a significant challenge for Rapid7 to keep up with the evolving threat landscape.
Regulatory requirements: Regulatory requirements are expanding and fragmenting globally, including new compliance mandates across regions like the EU, Asia Pacific, and U.S. states. This adds complexity and operational challenges for Rapid7 and its customers.
Competitive pressures: Rapid7 faces competitive pressures from other cybersecurity vendors, particularly in areas like managed detection and response (MDR) and exposure management. The company must continuously innovate to maintain its market position.
Operational efficiency: The company is transitioning repetitive tasks to AI workflows to improve efficiency, but this shift requires careful management to ensure service quality and customer satisfaction are not compromised.
Economic uncertainties: Economic uncertainties and potential budget constraints among customers could impact Rapid7's revenue growth and ARR, particularly as the company navigates a mix shift towards faster-growing detection and response business.
Portfolio focus: Rapid7 is strategically redefining its portfolio, prioritizing high-growth, future-ready product areas. This shift may create near-term headwinds in parts of the portfolio facing structural pressure.
Leadership and execution: Recent leadership changes and organizational restructuring aim to improve execution, but these initiatives are still in early stages and may take time to yield tangible results.
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Guidance & Outlook
ARR (Annual Recurring Revenue): Expected to be approximately $830 million in Q1 2026, representing a 1% year-over-year decline. Full-year ARR guidance is not provided due to ongoing leadership changes and improvement initiatives.
Revenue: Total revenue for Q1 2026 is expected to range between $207 million and $209 million, reflecting a 1% year-over-year decline at the midpoint. Full-year 2026 revenue is projected to be between $835 million and $843 million, a 2% year-over-year decline at the midpoint.
Non-GAAP Operating Income: For Q1 2026, expected to range between $19 million and $21 million, with a non-GAAP operating margin of 9.6% at the midpoint. For the full year 2026, expected to range between $108 million and $116 million, with a non-GAAP operating margin of 13.3% at the midpoint.
Non-GAAP Earnings Per Share: For Q1 2026, expected to range between $0.29 and $0.32 per share. For the full year 2026, expected to range between $1.50 and $1.60 per share.
Free Cash Flow: Expected to range between $125 million and $135 million for the full year 2026, flat with prior-year performance at the midpoint, with a margin of approximately 15.5%.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What changes are being made in marketing, sales, and customer success, and how will their impact be measured?
A:Corey Thomas, CEO, mentioned that the company is focusing on increased sales and marketing productivity and efficacy, aiming to grow faster and more efficiently. On the customer side, the focus is on scaling services and customization using both technology and expertise to meet customer demands for more services and engagement while maintaining or improving gross margins.
Q:What are the core growth businesses and areas of focus for driving acceleration?
A:Corey Thomas highlighted detection and response (D&R) as the biggest growth area, with a focus on the midsize or mainstream enterprise market (1,000 to 20,000 employees). The company aims to unlock the full addressable market while maintaining quality service and gross margin. Exposure management is also a core focus, integrated with security operations and detection response. Legacy on-prem solutions are being upgraded to the Command platform.
Q:Why is the company not offering full-year ARR guidance, and what needs to happen for it to return?
A:Rafeal Brown, CFO, explained that the decision was due to ongoing changes in sales, marketing, customer success, and support. The company wants to provide meetable and clear guidance and focus on revenue as the best metric for now. As trends stabilize and investments bear fruit, the company will reconsider providing full-year ARR guidance.
Q:What is the rationale behind the Q1 ARR guidance and the expected churn?
A:Corey Thomas stated that D&R is a positive contributor but needs to grow faster to offset pressures in other parts of the business, such as the traditional VM segment. The company is focused on aligning growth with gross margin expectations and unlocking the addressable market. Improvements in D&R and exposure management are expected over the course of the year.
Q:What are customers asking for regarding AI and its potential threat?
A:Corey Thomas noted that customers want providers to help them do more with less, leveraging AI to tackle complex environments. Customers demand transparency and trust in AI solutions and are looking for providers to take on more operational workloads. Rapid7 is investing in AI and expertise to meet these demands.
Q:How are customer consolidation trends impacting win rates and deal sizes?
A:Corey Thomas mentioned that Rapid7 is benefiting from consolidation trends but needs to improve how it simplifies and delivers the consolidation story. The company is focusing on integrating security operations and forming partnerships to enhance its offerings. No material improvement from consolidation is assumed in the initial guidance.
Q:When will MDR (Managed Detection and Response) drive growth acceleration?
A:Corey Thomas stated that MDR is close to driving growth acceleration and is expected to unlock this year. The company is focused on delivering high-quality, profitable MDR services and leveraging technology and AI to scale.
Q:What is driving the ARR decline in Q1, and what strategies are in place to reverse it?
A:Corey Thomas explained that D&R growth is not enough to offset declines in other areas. The company is addressing churn dynamics and focusing on operational improvements, such as upgrades in exposure management and expanding the addressable market for D&R.
Q:What is the company's approach to net debt and cash balance?
A:Rafeal Brown stated that the company is in a strong position to address the March 2027 debt maturity with cash and investments. The focus is on maintaining liquidity to fund the business and take advantage of opportunities while ensuring the debt maturity is managed effectively.
Q:What is the status of Exposure Command and Incident Command monetization?
A:Corey Thomas noted that Incident Command is in its early stages and not a current priority for the sales team. Exposure Command saw improvements in Q4, and the company is optimistic about its potential for growth and retention over the year.
Q:How does the company evaluate pipeline quality and its impact on growth?
A:Corey Thomas acknowledged that last year's pipeline assumptions were off, particularly in deal cycles. The company is focusing on balancing larger deals with smaller transactions (singles and doubles) to drive growth acceleration. Learnings from last year are being applied to improve pipeline evaluation and planning.
Q:What is the mix of enterprise versus mid-market deals, and how is it expected to change?
A:Corey Thomas stated that the pipeline last year shifted towards larger ASP deals, which created pressure. This year, the company aims for a more balanced mix of enterprise and mid-market deals, focusing on both larger deals and smaller transactions to improve execution.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about when full-year ARR guidance might return, citing ongoing changes and the need for trends to stabilize. Additionally, while discussing the Q1 ARR decline, the responses lacked specific details on the exact drivers of churn and the timeline for reversing the decline.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI capability
AI efficiency
AI expertise
AI machine
AI model
AI productivity
AI service
AI transformation
AISOC
Brown CFO
Command platform
MTC
Microsoft
Relations website
attacker
capability world
change
combination AI
competitor
cybersecurity
detection response
engine
expert service
filing SEC
foundation market
industry
investment product
judgment
offering AI
pace
period
platform security
posture
reevaluation
security team
service layer
software
sophistication
threat environment
RPD Transcript
Rapid7, Inc. (RPD) Q4 2025 Earnings Call Transcript
Unknown2-10
The earnings call presents mixed signals. While there are positive aspects like the focus on AI-powered operations and a strong position to address debt maturity, the lack of full-year ARR guidance and unclear management responses on certain issues introduce uncertainties. The company's strategic focus areas and potential growth in MDR and exposure management are promising, but the ongoing churn and ARR decline concerns offset these positives. Given the market cap, the stock is likely to see a neutral reaction, with a possible slight tilt towards positive if growth strategies gain traction.
Rapid7, Inc. (RPD) Q3 2025 Earnings Call Transcript
Positive11-4
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.
Rapid7, Inc. (RPD) Q2 2025 Earnings Call Transcript
Unknown8-7
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.
Rapid7, Inc. (RPD) Q1 2025 Earnings Call Transcript
Unknown5-13
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.
RPD Slides
Rapid7 Q4 2025 slides: Flat growth and conservative 2026 outlook despite margin gains2026-02-10
Rapid7 Q3 2025 slides: Margin expansion continues amid slowing growth2025-11-04
Rapid7 Q2 2025 slides: Margin expansion offsets slowing growth in security market2025-08-07
Rapid7 Q1 2025 slides reveal margin expansion amid moderating growth2025-05-12
RPD Report
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