RI
Rapid7, Inc. (RPD)·Q1 2025 Earnings Summary
Executive Summary
- Q1 2025 revenue and non-GAAP operating income exceeded prior guidance, while ARR growth slowed to 4% YoY to $837.2M; management cited lengthening sales cycles and budget caution, especially in U.S. mid-market, and expects ARR to improve in 2H 2025 .
- Detection & Response (D&R) remains the growth engine (now >50% of ARR, mid-teens growth), offset by pressure in traditional vulnerability management; several seven‑figure D&R deals slipped from March into April but largely closed thereafter .
- Guidance reset: FY25 ARR lowered/widened to $850–$880M, FY25 revenue to $853–$863M; FY25 non‑GAAP operating income maintained at $125–$135M; FY25 FCF cut to $125–$135M; Q2 revenue guided to $211–$213M and EPS $0.43–$0.46 .
- Strategic catalysts: launch of MDR for Enterprise (customizable for complex environments), Intelligence Hub in Command Platform, and India SOC/innovation center expansion to improve scale and efficiency .
What Went Well and What Went Wrong
What Went Well
- D&R momentum: Over half of ARR now from D&R with mid‑teens growth; persistent demand and managed MDR representing >75% of D&R .
- Operational discipline: Non‑GAAP operating income of $32.4M and adjusted EBITDA of $38.9M; total non‑GAAP gross margin expanded to 75% .
- International strength: Rest of world revenue grew 10% YoY to $52.3M (25% mix), supporting resiliency and diversification .
- Management quote: “We are executing with increased focus and urgency… We believe these steps position us for improved ARR in the second half of the year and beyond.” — Corey Thomas, CEO .
What Went Wrong
- ARR below plan: Ending ARR $837.2M (+4% YoY) missed internal expectations due to VM pressure and delayed new deals amid cautious spending .
- North America softness: NA revenue flat YoY in Q1; pressure pronounced in U.S. mid‑market and sectors like healthcare, education, and state/local .
- Risk & exposure management headwinds: Ongoing negative growth in traditional VM and slower-than-expected upgrade velocity to Exposure Command .
Financial Results
P&L, Profitability, Cash Flow (quarterly comparisons)
Revenue Mix by Geography (quarterly)
KPIs (ARR and customer metrics)
Actuals vs Wall Street Consensus and Guidance (Q1 2025)
Values with asterisk (*) retrieved from S&P Global.
Guidance Changes
Management rationale: lower ARR from slower upgrade velocity and macro caution; profitability intact due to cost discipline; FCF adjusted for billings/collections under lower ARR outlook .
Earnings Call Themes & Trends
Management Commentary
- “Detection and response continued as the core growth driver of our business… This business now represents over half of our total ARR and maintained mid-teens growth” — Corey Thomas .
- “Our risk and exposure management business… missed our expectations with continued growth deceleration” — Corey Thomas .
- “Operating income for the first quarter was $32 million and above our guided range… Adjusted EBITDA was $39 million… non‑GAAP EPS was $0.49” — Tim Adams .
- “We are lowering and widening our full year ARR range to $850 million to $880 million… and adjusting our full year free cash flow guidance to $125 million to $135 million” — Tim Adams .
- “We launched MDR for Enterprise… delivering broad visibility and coverage with deep customization” — Rapid7 product announcement .
Q&A Highlights
- Upgrade cycle pacing: Exposure Command upgrades constrained by mid‑market budgets; focus on packaging/pricing and partner enablement to accelerate migrations .
- D&R deal slippage: Several large Q1 D&R deals in education/retail slipped into April and largely closed; Q2 ARR expected to be modestly up, with 2H weighting for FY25 .
- Competitive landscape: Integrated exposure management strategy vs traditional VM; aim to make customers stickier via platform consolidation and MDR cross‑sell .
- Regional/sector color: Strength in larger enterprises and Europe; pressure in healthcare, education, state/local; D&R projects still closing despite scrutiny .
- India SOC efficiency: AI and automation in SOC are primary margin drivers; India expansion also supports time‑zone coverage and international growth .
Estimates Context
- Q1 2025 beats: Revenue $210.253M vs $207.929M*; non‑GAAP diluted EPS $0.49 vs $0.344* — both above consensus. Management also said revenue and operating income were above guided ranges .
- Q2 2025 guidance vs Street: Revenue $211–$213M vs $212.058M*; EPS $0.43–$0.46 vs $0.443* — essentially in‑line at midpoints .
- FY 2025 Street vs guidance: Revenue consensus $857.561M* vs guidance $853–$863; EPS consensus $2.053* vs guidance $1.78–$1.91 — Street slightly above management’s updated range .
Values with asterisk (*) retrieved from S&P Global.
Key Takeaways for Investors
- D&R resilience and platform stickiness remain the cornerstone; prioritize evidence of continued mid‑teens D&R growth and conversion of slipped large deals as near‑term support for the stock .
- Watch upgrade velocity in risk/exposure: faster migrations to Exposure Command are the swing factor for ARR reacceleration in 2H; monitor packaging/pricing changes and partner‑led motion .
- Profitability intact: Non‑GAAP OI guidance maintained despite ARR reset; FCF range modestly reduced — supports medium‑term thesis around leverage from AI and India SOC .
- International mix rising: ROW growth outpaces NA; continued strength in Europe/APAC and enterprise customers can offset U.S. mid‑market caution .
- New MDR for Enterprise and Intelligence Hub are catalysts to expand TAM and deal sizes; track enterprise wins and attach of AI capabilities across Command .
- Valuation sensitivity to ARR narrative: Given Street’s FY25 consensus above guidance, estimate revisions may drift lower unless upgrade velocity improves; focus on 2H milestones and ARR trajectory .
- Near‑term trading: Expect volatility around ARR commentary and macro headlines; upside scenarios tied to demonstrated Exposure Command upgrades and incremental MDR enterprise wins .