Rapid7, Inc. (NASDAQ:RPD) Q4 2018 Earnings Conference Call Transcript

Feb 07, 2019 • 04:30 pm ET

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Rapid7, Inc. (NASDAQ:RPD) Q4 2018 Earnings Conference Call Transcript

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Executive
Corey E. Thomas

lower churn and the success of our platform strategy. We, again, exceeded our growth targets and look forward to another year of ARR growth of over 30% with improving operating leverage.

A few years ago, Rapid7 undertook the challenge of transforming the company. At that point, Rapid7 was primarily an on-premise perpetual revenue company with one main product, vulnerability management. Our vision was to build the leading cloud-based SecOps platform to address a world, where IT and security teams are stretched and complexity is increasing. And to do so in a way to make our solutions easy to deploy and easy to adopt in order to drive up-sell and crosssell. To do this, three years ago, we introduced Insight

platform with InsightVM and InsightIDR. Since then, we have launched InsightAppSec and InsightConnect, creating a true multiproduct platform.

Along with this, we transitioned our salesforce and more importantly, the entire organization to think and operate in terms of ARR. Today, we are a leading SecOps company with four major cloud-based pillars for growth.

We ended 2018 with more than 7,800 customers, an 11% increase. But more importantly, our product customers grew at a much higher rate. Over half of our customers are now taking advantage of the Insight platform, up from 37% last year. Recurring revenue, as a percentage of total revenue has grown over the last two years from 67% to 83%. Under ASC 605, ARR per customer has grown from less than $20,000 to over $32,000 in the last two years, and nearly 40% of our new ARR in Q4 came from products other than VM.

Rapid7 has been successfully transformed, and we did all of this, while consistently improving our operating margins for five years running, highlighting the leverage inherent in our operating model. This would not have been possible without the tireless effort of our highly committed and driven teams, who delivered in this complex transition.

Now before we talk about 2019 goals, let's do a quick recap of our 2018 goals. At the Analyst Day 2017 and during our Q4 2017 earnings call, we outlined a set of ambitious goals for the company in 2018, and I'm very proud that our team exceeded these goals. Our first goal in 2018 was to grow ARR by 30%-plus, and we delivered an exceptional growth number of 53%. Our second goal was to continue to expand our customer base. Last year, our customer base, again, grew by double digits, proving that we still have a large opportunity to expand our footprint and the products to win in the marketplace. Our third goal was to improve our operating profitability, which we did, while also making investments to drive growth. Our non-GAAP operating margin improved by almost 500 basis points under ASC 605.

While we feel very good about what we achieved thus far, we are not resting on our laurels and frankly, we're just getting started. With the business model and the cloud-based transition largely behind us, we're completely focused