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Edited Transcript of RPD earnings conference call or presentation 10-Feb-20 9:30pm GMT

Q4 2019 Rapid7 Inc Earnings Call

Boston Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Rapid7 Inc earnings conference call or presentation Monday, February 10, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Corey E. Thomas

Rapid7, Inc. - Chairman & CEO

* Jeffrey A. Kalowski

Rapid7, Inc. - CFO

* Neeraj Mahajan

Rapid7, Inc. - VP of IR

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Conference Call Participants

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* Gregg Steven Moskowitz

Mizuho Securities USA LLC, Research Division - MD of Americas Research

* Gur Yehudah Talpaz

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Jonathan Frank Ho

William Blair & Company L.L.C., Research Division - Technology Analyst

* Matthew George Hedberg

RBC Capital Markets, Research Division - Analyst

* Melissa A. Franchi

Morgan Stanley, Research Division - VP and Research Analyst

* Michael Turits

Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst

* Nicholas Andrew Yako

Cowen and Company, LLC, Research Division - VP & Senior Analyst

* Robbie David Owens

Piper Sandler & Co., Research Division - MD and Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2019 Rapid7 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Neeraj Mahajan, Vice President of Investor Relations. Please go ahead, sir.

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Neeraj Mahajan, Rapid7, Inc. - VP of IR [2]

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Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss Rapid7's fourth quarter and full year 2019 financial and operating results in addition to our financial outlook for the first quarter and full fiscal year 2020.

With me on call today are Corey Thomas, our CEO; and Jeff Kalowski, our CFO. We've distributed our earnings press release over the wire and it is now posted on our website at investors.rapid7.com along with the updated company presentation, financial metrics file. This call is being broadcast live via webcast and following the call, an audio replay will be available at investors.rapid7.com until February 18, 2020.

As a reminder, our discussion today contains forward-looking statements about events and circumstances that have not yet occurred, including, without limitation, statements regarding our objectives for future operations and future financial and business performance. These forward-looking statements are based on our current expectations and beliefs and on information currently available to us. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q and subsequent reports that we filed with the SEC.

The information provided on this conference call should be considered in light of such risks. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Rapid7 does not assume any obligation to update information presented on this conference call, except to the extent required by applicable law.

Our commentary today will primarily be non-GAAP terms, and reconciliations between our GAAP and non-GAAP results and guidance can be found in today's earnings press release.

At times in our prepared remarks or in responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be onetime in nature, and we may or may not provide an update in the future on these metrics.

With that, I would like to turn the call over to our CEO, Corey Thomas. Corey?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [3]

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Thank you, Neeraj, and good afternoon, everyone. Thank you all for joining us today on our fourth quarter and full year 2019 earnings call. Rapid7 capped off another great year in 2019 with strong full year operating results. Our ARR grew by 35%, and we again exceeded the high end of our guidance, with revenue growth of 34% while delivering a 9-point improvement in non-GAAP operating margin year-over-year. We grew customers by 16% and ended 2019 with more than 9,000 customers, and average ARR per customer increased by 16% to over $37,500. These results, again, reflect a healthy demand environment and consistent execution. With a leading and a well-diversified product portfolio, we see a large opportunity in front of us and believe we are well positioned for future growth.

As a result, for 2020, we expect strong ARR growth of 25% at the midpoint, while continuing to deliver operating leverage. Two years ago at our Investor Day, we outlined a set of ambitious goals for Rapid7 through 2020. We guided to revenue and ARR of $350 million by 2020 and breakeven non-GAAP profitability in 2019. We comfortably met our profitability targets in 2019, and we are on pace to exceed our revenue and ARR target for 2020.

Now before we talk about 2020 goals, let's quickly review our 2019 goals. Our first goal was to grow ARR by 30%-plus in 2019, and we delivered strong growth of 35%. Our second goal was to make it easier for our customers to adopt our platform and optimize on our customer economics. Our ARR per customer grew by 16% last year and by 60% from 2 years ago. But with ARR per customer currently at $37,500 against a potential of $200,000, we have plenty of room to grow.

Our third goal was to achieve non-GAAP operating profitability in 2019. As we mentioned before, we continue to invest in our business over the course of last year. And even with these investments, we delivered significant operating margin improvement while delivering strong ARR growth in 2019, setting ourselves up for continued growth in 2020.

We have strong momentum in early 2020. Our results reflect that the markets we operate in are healthy and our platform strategy is working, with all 4 product pillars driving growth. These products are at different stages of maturity, but each represents a significant opportunity, and together, they provide us with the foundation for meaningful levels of long-term growth.

InsightVM remains our flagship product, and we expect the vulnerability management market to grow at a healthy rate, but slower than the growth experienced in the last few years. Our investments in InsightVM are primarily focused on helping customers increase their productivity by improving prioritization, remediation and automation. It is this focus on customer satisfaction and productivity that is best highlighted through the Forrester Total Economic Impact study of InsightVM, which is a recent commissioned study conducted by Forrester Consulting on behalf of Rapid7.

Forrester highlights that with InsightVM, customers could potentially realize more than 300% ROI over a 3-year period, over 20% reduction in false positives and 60% reduction in patching efforts when compared to their incumbent VM solution. But it is the success in winning new customers and recognition by our existing customers that really matters. A great example of how our platform strategy is resonating with customers is our recent expansion deal with one of the world's largest accounting bodies with operations in more than 150 countries.

We initially engaged them in early 2019 to help secure their applications with InsightAppSec. But over time, we also began to understand the challenges they faced with their legacy vulnerability management and SIEM solutions. As they realized the impact and value of our Insight platform, they ended up adopting our complete platform, leading to a 6x multiple of the original deal in terms of ARR. InsightIDR, our SIEM solution, continues to grow at an exceptional rate. With our knife of focus on providing a simple yet powerful cloud-only solution, we are well positioned to gain market share in this critical segment of the cybersecurity market. We have momentum not just with our established products, but also with our emerging products.

Over the last few years, we have developed and refined both on workflows and automation capabilities for InsightConnect. This year, we will be increasing our investments to accelerate growth. The market opportunity for SOAR is huge, and we believe we're uniquely positioned to be the oxygen in the space. It is this dedication to focusing on the needs of resource-constrained enterprises that led Frost & Sullivan to recognize Rapid7 with the 2019 Global SOAR Company of the year award. These recognitions by customers and industry experts give us the confidence that we are on track to build a durable growth company.

Now let's turn to our 3 main goals for 2020. Our first goal is to continue to drive sustainable top line growth. We are forecasting ARR growth of 24% to 26% and revenue growth of 21% to 24% for 2020.

Our second goal is to continue to optimize our customer economic engine. We are focused on delivering strong customer growth, and we'll be investing heavily and improving our existing customer economics. While our customer acquisition cost is stable, the real improvement will be significant increases in customer lifetime value, driven by 3 key factors: increase in customers who are on our Insight platform, which we are paying at a higher rate; increasing upsell and cross-sell efficiencies; and introducing our emerging products to our broad customer base. We're already seeing evidence of this for our Insight platform customers, which have substantially higher achievement of ARR per customer, driven by higher products per customer and a more efficient cross-sell engine.

Our third goal is to continue to drive leverage in our business. We are guiding for a non-GAAP operating income of $7 million to $11 million for full year 2020, a 1% to 2% margin improvement over 2019.

Before I hand it over to Jeff, I would like to close out by sharing a perspective of how we think about our long-term process. First and foremost, our SecOps division is resonating with customers, and we will continue to be focused on scaling and delivering the vision that we already set forth.

Secondly, we've seen the benefits of our platform engine, and we believe that we will be able to deliver sustainable growth with continued leverage and profitability. Specifically, we have confidence today that we can deliver a 3-year revenue CAGR of at least 20% through 2022.

Additionally, you should expect us to deliver operating margin improvement of 2% to 3% if we grow ARR in the low to mid-20s; expect an operating margin improvement of 1% to 2% for ARR growth of mid to high 20s; and expect an operating margin improvement of less than 1% for over 30% ARR growth. This model and our operational focus allows us to aggressively pursue customer value creation while delivering all more value to our shareholders as well.

In conclusion, Rapid7 is very well positioned to help solve cybersecurity challenges for enterprises of all sizes and needs. Our customers are embracing our platform and our multiproduct strategy puts us on a path to sustainable growth and profitability. We look forward to delivering on our 2020 targets.

With that, let me turn the call over to our CFO, Jeff Kalowski. Jeff?

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Jeffrey A. Kalowski, Rapid7, Inc. - CFO [4]

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Thanks, Corey, and good afternoon, everyone. We're pleased with our strong performance in the fourth quarter and full year 2019, with results that again exceeded our guidance on all metrics.

Before I begin, I want to remind everyone that except for revenue, all financial results we will discuss today are non-GAAP financial measures, unless otherwise stated. Reconciliations between our GAAP and non-GAAP results and guidance can be found in today's earnings press release.

Total ARR grew to $338.7 million, a 35% increase year-over-year. We ended 2019 with revenue of $326.9 million, a growth of 34%, exceeding the high end of our guidance. Our recurring revenue grew by 45% in 2019 and constituted 87% of total revenue in 2019 as compared to 81% in 2018. Strong top line performance helped us deliver a significant beat on our operating income guidance as well, and we reported non-GAAP operating income of $2.4 million for 2019, a 9-point margin improvement over 2018.

Our customer count increased by 16% to approximately 9,000, a result of our continued focus on new customer acquisition while maintaining our traditionally high retention rates. In 2019, we also started a program to accelerate the migration of our Logentries customers to the Insight platform. During this transition, we have successfully migrated about 600 customers so far, which are not included in our customer count today as their contract value is less than $2,400 per year.

Let's turn to our fourth quarter results. Total revenue for the fourth quarter was $91.6 million, an increase of 33% year-over-year and above the high end of our guidance. This strong growth was primarily driven by better-than-expected product revenue. Average ARR per customer increased to approximately $37,500, up 16% year-over-year. As Corey mentioned, one of our goals for 2020 is to continue to optimize our customer economic engine. We'll significantly increase our investments to improve cross-sell and upsell efficiencies, bringing us closer to our ARR per customer potential.

Our focus on recurring revenue drove a 47% increase in our product revenue year-over-year. This was partially offset by a decline in maintenance and support revenue as Nexpose's customers continue to migrate to the Insight platform, resulting in reclassification of maintenance revenue to product revenue. Therefore, similar to prior quarters, we believe it's more useful to look at product and maintenance and support revenues together, which collectively grew 37% year-over-year. In fact, from 2020 onwards, we will be reporting product and maintenance and support revenue together.

Looking at the business geographically. In the fourth quarter, revenue from North America grew by 30% year-over-year and comprised 83% of total revenue. Rest of the world revenue grew by 50% year-over-year and comprised 17% of total revenue.

Turning to margins. Total non-GAAP gross margin was 75%, slightly better than Q4 last year and was primarily driven by a mix shift towards higher gross margin product revenue. During the fourth quarter, our sales and marketing expense remained flat at 45% of revenue when compared to Q4 2018.

As we've mentioned in our previous earnings calls, we increased our spending to not only expand our market share in our core markets, but also ramped up investments in our hyper growth businesses to meet the 2020 goals that Corey mentioned.

R&D expenses were 19% of revenue in Q4 2019, down compared to 22% in Q4 2018, but similar to that of Q3 2019. We expect R&D spending, excluding the effect of capitalization of internally developed software, to be in the range of 20% to 22%. G&A expenses in Q4 2019 were 10% of revenue, down from last year's level of 11%.

For Q4 2019, we generated non-GAAP operating profit of $0.8 million, well ahead of our guidance. Operating margin was approximately 1% compared to a margin of negative 4% in Q4 2018. Adjusted EBITDA for the fourth quarter was $3.7 million and diluted non-GAAP net income per share was $0.03, also well ahead of our guidance. We ended Q4 with cash, cash equivalents and investments of $262.5 million compared to $257.7 million as of Q3 2019.

Contract length for Q4 2019 was 16 months, a slight increase from 15 months last quarter. We expect contract length to stabilize around these levels.

During the quarter, operating cash flow was $7.8 million as compared to $11.9 million in the prior year. For the full year 2019, operating cash flow was negative $1.4 million. We exceeded our guidance from last quarter of negative $5 million due to strong Q4 collections, which drove a significant decline in our days billing outstanding.

Now moving on to the guidance. First, the annual guidance. For the full year, we expect ARR to be in the range of $420 million to $427 million, which is 25% growth at the midpoint. We anticipate total revenue to be in the range of $396 million to $404 million, which is 22% growth at the midpoint. We expect non-GAAP operating income to be between $7 million to $11 million for 2020. As Corey mentioned, at the higher end of ARR growth, we'll be investing back in the business to drive growth on a sustainable basis.

We expect cash flow from operations to be approximately $10 million for 2020. We anticipate non-GAAP net income per share to be in the range of $0.11 to $0.18, which is based on an estimated 55 million diluted weighted average shares outstanding. The weighted average shares outstanding for full year 2020 represent the diluted shares outstanding, given our projected non-GAAP net income.

Now moving on to the quarterly guidance. For Q1 2020, we anticipate total revenue to be in the range of $91.6 million to $93.2 million. We anticipate non-GAAP operating loss in Q1 2020 to be in the range of negative $6.3 million to negative $5.3 million, which reflects front-loading of certain onetime expenses. We anticipate non-GAAP net loss per share for Q1 2020 to be in the range of $0.13 to $0.11, which is based on an anticipated 50.2 million basic weighted average shares outstanding. The weighted average shares outstanding for the first quarter of 2020 represent basic shares outstanding, given our projected non-GAAP net loss.

In conclusion, 2019 was another strong year for Rapid7 where we delivered 35% ARR growth and non-GAAP profitability. We look forward to delivering another strong year in 2020.

With that, we appreciate your time and support, and we'll now open the call for any questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Rob Owens with Piper Sandler.

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Robbie David Owens, Piper Sandler & Co., Research Division - MD and Senior Research Analyst [2]

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Corey, I wanted to get a bit of a broader view on kind of your go-forward cloud strategy. And while you have a lot of capabilities to support workloads in the cloud, just how you plan on expanding that? And then to dovetail that question a little bit, and Jeff, thanks for all the guidance that you gave. But how does M&A fit into the picture, I know you guys have done tuck-ins in the past. Does that current guidance include any potential transactions? Or could we see some dilution if you guys were to get acquisitive this year?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [3]

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Yes, it's a great question, Rob. One, first and foremost, as you indicated, we have a very strong starting position when we think about the cloud. All of our core technologies include the ability to consume data from cloud workloads. We have a strong and strengthening partnership with both Amazon and Microsoft Azure. And secondly, we actually are going deeper in the cloud in some areas. When you think about our tCell product, it's already looking at applications designed for the cloud, which enables us not just to have a stand-alone RASP solution but that capability enables us to do detection for IDR file and it also enables our broader AppSec, SOAR. So we'll start with a very small thought.

But as you indicated, we have to continue to strip it and evolve it because cloud is one of the most relevant areas as we continue to grow over time. That is definitely heavily focused on organic investments, which we already have in plan and we already plan to make, and that's part of our long-term outlook. But it could also include strategic M&A if the right opportunities come along for the right price.

That said, our current plan, when we think about long-term growth and sustainable growth and that CAGR over the next few years of over 20%, it does not factor in M&A being a significant part of that. Without doubt, I'm sure we'll do some tuck-ins. But we may do other things if they make sense and follow our strategy at the time. But right now, we're heavily, heavily focused on executing on our strategy that we've already laid out. We have an organic plan to do that, and we're very disciplined around looking for the right opportunities at the right point -- price point that fits into our long-term strategy.

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Operator [4]

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Our next question comes from Matt Hedberg with RBC.

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Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [5]

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I wanted to follow up on the 2022 guide. Obviously, there's -- you've got some smaller products, IDR, RASP, fast AppSec and Connect, well above the corporate averages. But just wanted to kind of get your thoughts, Corey, on how -- sort of your core VM business should trend over the next several years. I think you guys have been growing above market rates. But what are the components there that allow you to continue to deliver that kind of core growth?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [6]

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Yes. I mean -- so one thing came in mind, we look at VM as one of the healthiest sectors, if you think about the overall technology market and the security market. We said for a while now that we believe the sustainable growth rate in the VM market is in the low to mid-teens. We continue to have that view. And we think it's driven by a couple of fundamentals. The most important fundamental is there's still lots of companies around the world that don't have VM coverage. And that's our heavy focus in expanding that midmarket in that global base of customers.

Secondly, the number of assets that customers have in the environment continues to grow and expand. So even in established customers, that still adds a couple of points of growth every year. And then we still have companies that are underpenetrated overall. And so our long-term view is that you have periods along the way where you have really high rates of you think about upgrade cycles or expansion cycles where customers drastically enhance or grow the number of assets under management. But we think the steady-state growth rate still supports one of the best technology sectors in that low to mid-teens for the vulnerability management market. And we think that's a great core position, especially when you look at that in the context of our other hyper growth businesses around IDR and SOAR.

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Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [7]

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That's great. And then maybe a follow-up to that, sort of building up to that growth profile. Obviously, you guys have been methodical in how you add sales headcount on an annual basis and obviously count on cross-sell and upsell to aid growth well. But when we're looking out several years, should the cadence of quota reps continue, I think, kind of low double digits?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [8]

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Yes, you can think about the sales being tightly tied to our OpEx expansion over time. And we'll continue to get leverage in sales and marketing, but you can expect it to grow roughly in line with our total OpEx growth. And so when you think about the model that we outlined earlier, if it is lower ARR growth, you're going to see faster margin expansion, which I think is reasonable and people would expect. But a higher growth, you'll still see some expansion, but it will be expanding at a slower rate of growth. And what that really means at the end of the day is our sales expansion, our sales cost really is tied to growth. But regardless, we're looking to expand the leverage that we get in the business year-over-year.

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Operator [9]

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And our next question comes from Michael Turits with Raymond James.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [10]

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Corey and Jeff, you gave a couple of ranges of ARR growth, which you were tying to where margins would be. But some of them were -- the latter ones, the higher ones were above the current range of guidance for next year. So what are the things that you see that are the toggles that could catch you to ARR above the 2020 guide?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [11]

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Yes. I mean consistent with our past, we tend to think about businesses that actually have scale to be more predictable. So specifically, if you look at it, both our SOAR business, especially, is a business that we are, frankly, starting to accelerate the investment this year. We've got amazing customer feedback. There's a great fundamental demand in the market. But our 3-year plan that we actually laid out has some of the cost of the SOAR, but doesn't fully have the benefits of it because that would not be reasonable and that's not our approach to fully bake in things that aren't scaled, that are unknown.

So to the extent that, that business takes off as expected, that actually gives us upside to the current plan that's there. And you can really think about the current plan really heavily focused on the stable growth that we have in the VM business and the continued strength that we see and that we continue to see in the overall IDR business augmented by a healthy AppSec business and an emerging SOAR business, and we'll continue, per the previous question, to make investments in the cloud, which allows to have ongoing upside over time, but that's the core way we think about the overall business.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [12]

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And then Jeff for you, the guide for cash flow from operations this year is pretty much in line with the operating income guide. So now considering that, I would assume that you said that, that duration should be about stable. So I would imagine billing should be a contributor to working capital. What is that's keeping cash flow from ops pretty much that same level as EBIT?

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Jeffrey A. Kalowski, Rapid7, Inc. - CFO [13]

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We're forecasting about $10 million in operating cash flow, which is -- if you look at our -- it's not really about duration, but we're now normalized. So if you really -- if you take our last year's billings and you adjust for services and you apply the growth rate at the midpoint of 25% to that billings number, you're going to get to our approximate billings number for -- it'll be directionally correct for that billings number for this year in 2020. And based on our net income -- I'm sorry, our operating income guidance, this is $7 million to $11 million, that should get you to that $10 million number.

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Operator [14]

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Our next question comes from Gur Talpaz with Stifel.

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Gur Yehudah Talpaz, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [15]

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Corey, if I look at the presentation, you kept ARR per customer potential at about $200,000. But if I think about all the recent endeavors you made to Connect and the ability to push upstream here into the enterprise, could this number ultimately prove conservative as you think about the push out into 2022?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [16]

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Yes, absolutely. We tend to take a more conservative approach for things that are unknown. And so if you think about both the application security and InsightConnect, we've taken a fairly modest approach when we actually think about those businesses. And then there are some businesses that we are partially in, we still have organic investments focused on, like our cloud businesses. But again, we've taken a fairly measured view when we look at it overall. We think that's the right thing.

One of the things that we talked about before is, while we're starting to approach the $40,000 mark, we have line of sight and visibility with fairly good confidence to the $60,000. And then we think about it as a steady margin expansion of what's the addressable line of sight, we can actually get there. At the same time, how do we grow the overall potential? And so what should -- what I hope you'll see over time is us continuing to show progress of having a path the line of sight to grow the actual current ARR per customer, but has also expanded the potential ARR per customer steadily over time. Because really, what I focus on and what I look at, just like we did 3 years ago, is what's the overall character of the company, the organization and the customer base as we exit the next 3-year period? And when we exit that next 3-year period, we want to make sure that we have a good growth opportunity with healthy economics in front of us, just like we have today.

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Gur Yehudah Talpaz, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [17]

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Definitely that's really helpful. And then if you look at IDR specifically, as the product matures, have you seen any shift within the potential customer set here as you sort of make a broader push upstream and as the product itself gets better? And then I think beyond that, have you seen any shift in the competitive space as well within that market?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [18]

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Yes. Look, similar to how wrap it up and approach is that we always tend to focus on a narrow set of customers early in our market evolution. And then we just steadily add more and more customer segments. With the IDR that's been happening on an ongoing basis. I talked about last year when we acquired NetFort that in 2020 and 2021, you just expect us to see starting to move deeper into the larger accounts in Fortune 1000 segment. We've already slowly started that move. And we're seeing some success there. We also are starting to expand around the world, so some of the pickup that we start to see last year was IDR being addressable in more markets around the world. And I think that, that will continue as we go forward. Again, for context, while IDR has been successful, we still have relatively small market share of the overall market, but we have great momentum. And so we look at this as lots of potential in front of us.

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Operator [19]

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Our next question comes from Jonathan Ho with William Blair.

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Jonathan Frank Ho, William Blair & Company L.L.C., Research Division - Technology Analyst [20]

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I just wanted to touch on the 108% renewal rates. I think you guys said that you're expecting it to sort of plateau around these levels. Can you just maybe give us an updated view on maybe what you're expecting here? And if there's been any change in underlying churn?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [21]

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Yes, Jonathan. So last year ended roughly where we expected it to end. Or overall, if you think about the renewal rates sort of really being comprised of sort of 2 core things is one of them is the retention rate of how well we retain dollars of all of our customers. And we continue to perform quite strong there, and we're seeing healthy improvements there.

The second thing is how much do we actually focus on upsell or cross-sell versus adding net new customers. As you are familiar, last year, we had a heavy focus on adding net new customers, and that was widely successful as reflected by our 16% customer growth in the last quarter. So overall, we ended where we thought we would last year, and we're set up well for this year. Because it's not a primary metric, it's not something that we're actually forecasting or targeting for this year, we're really focused on our overall ARR targets. But when we have our Analyst Day, we are going to spend some time talking about the overall economic model and how we continue to actually grow in the segments of growth as we actually move forward.

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Jonathan Frank Ho, William Blair & Company L.L.C., Research Division - Technology Analyst [22]

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Got it. Got it. And then just in terms of your ARR outlook for 2020, I know you guys have shown some conservatism at the beginning of the year in the past. Just given, I guess, there's lots of a focus right now on showing the same degree of operating leverage, should we expect there to be sort of similar levels of outperformance? Or has there been any shift in terms of that guidance strategy?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [23]

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Yes, I think you'll expect to see, as we've actually moved to a more normalized model where we don't have to shift from subscription, which is frankly unknown. If you think about why we had some of the conservatism in the finance, we just had more unknowns. We were actually going from single product to multiproduct, we were shifting from perpetual to subscription. You just have to be more thoughtful and more conservative in your approach when you actually have more unknowns. The good thing is today we actually sit with a much, much higher degree of veins that are known and are at scale. And so what I would expect is much more typical or aligned. So not as big a gap as we actually had in the past. And in fact, we even saw that last year, and we told people last year, like when we started, listen, you expect 30% plus, we ended at 35%, which we considered extraordinarily strong performance. We gave this year, not a plus range but we gave a tighter range of 24% to 26% because we expect this year to actually be much more normalized versus past years, where we had a much higher degree of unknowns.

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Operator [24]

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Our next question comes from Gregg Moskowsky with Mizuho.

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Gregg Steven Moskowitz, Mizuho Securities USA LLC, Research Division - MD of Americas Research [25]

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Gregg Moskowitz. So Corey, I think, if I heard correctly, you mentioned that IDR continues to grow at an exceptional rate. Approximately, I guess, what was IDR as a percentage of net new bookings this quarter? And I'm curious if you're having more success landing like IDR today as compared with 6, 12 months ago?

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Jeffrey A. Kalowski, Rapid7, Inc. - CFO [26]

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Gregg, it's Jeff. It was, again, over 30% of the new bookings. We started out disclosing when it was over 10 of the new and there's over 20. And the next data point is we'll be -- if it gets over 40%. And with respect to the ARR growth in total was about 75% for the year.

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Gregg Steven Moskowitz, Mizuho Securities USA LLC, Research Division - MD of Americas Research [27]

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Okay. Fantastic.

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [28]

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And to your question is that, yes, we are very successful in landing new customers in new accounts, it's one of our stronger land engines within the company, which is part of what gives us confidence as we go forward.

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Gregg Steven Moskowitz, Mizuho Securities USA LLC, Research Division - MD of Americas Research [29]

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Terrific. And then just a clarification, a follow-up to Mike Turits' question. And by the way, very helpful to kind of get the fiscal '22 outlook, so appreciate that. And I did want to just confirm because 2 out of the 3 scenarios do reflect an acceleration and the third scenario contemplates maintaining an ARR growth rate in the mid-20s. But this does not -- even if you look at the higher end assumptions on growth, it does not include any sort of heroic assumption for SOAR and other emerging products. Is that correct?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [30]

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Yes. So if you think about like our growth this year, you can think about the growth this year is sort of a 24% to 26% to be an area where we feel comfortable, but that's primarily driven off the IDR and VM. The reason that we actually communicated because we have parts of applications, cloud and SOAR, that we're starting to invest in, but there are unknowns. And so one of the main thing that we want to be clear on is that if we're seeing the return of the performance, we will be investing in those things because they actually have the potential, but because they're unknowns, they're not deeply baked into the revenue and ARR guidance that we have over the next 3 years. But if we see good performance, they do represent upside but it will be also not correct to say that it's upside that we should bank on today because it's an unknown. But if we see the performance, then we are communicating that we'll continue to invest behind performance that we see.

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Operator [31]

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Our next question comes from Melissa Franchi with Morgan Stanley.

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Melissa A. Franchi, Morgan Stanley, Research Division - VP and Research Analyst [32]

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Corey, wondering if you could talk a little bit more about the AppSec product, particularly the investments you're making moving forward in that portfolio? And then how it's performing relative to your expectations?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [33]

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Yes. So InsightAppSec is a dominant product in the market. That's our cloud-based DAST solution, and it's performing extraordinarily well in comparison to expectations. As you know, the AppSec market has great potential, but it's a massively fragmented market. So we have to be very thoughtful about our expansion. We have both organic investments especially, if you think about that market and the cloud market together. And it also has the opportunity for M&A, but we also have to be very thoughtful to make sure that M&A makes sense for us.

So you saw us acquire tCell a few years ago. We're seeing good demand. That's an area that we will continue to land, and that's an area that we'll continue to expand upon over the coming year, and we're having good customer momentum, but it's very, very early on for the RASP market. And I would say AppSec also represents a market that has potential for M&A, but you'll find us fairly consistently thoughtful, strategic and patient when it comes to long-term M&A. And -- so AppSec is an area of opportunity. We're seeing great success in the parts of the market that we participate into today, but we're going to continue to expand our efforts there over time.

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Melissa A. Franchi, Morgan Stanley, Research Division - VP and Research Analyst [34]

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Okay. Helpful. And then a quick one for Jeff. As we're thinking about ARR growth next year relative to revenue growth, the difference, I would assume, is just a slower services revenue growth next year. Just wondering if that's correct. And then how we should think about the services business in terms of the mix moving forward?

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Jeffrey A. Kalowski, Rapid7, Inc. - CFO [35]

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That's correct. That's -- the difference is solely due to the services. I would assume that the services will be about flattish from this year. And if you combine -- if you take the product revenues and the maintenance and support revenues and combine them together, those will be directionally in the same area as the ARR growth. That 25% of the midpoint, that would be about that -- the same. It's closely related to the ARR growth.

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Operator [36]

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(Operator Instructions) And we have a question from Nick Yako with Cowen and Company.

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Nicholas Andrew Yako, Cowen and Company, LLC, Research Division - VP & Senior Analyst [37]

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I wanted to ask about international. And I was just wondering if you could discuss some of the key investments you're making on the international front. And then any of those investments that you would highlight that, that could cause that international business to inflect over the next year or so?

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [38]

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So I would say there's 2 core things. One, we're still scaling our data centers around the world, and we continue to add more data centers in more countries, and that's at steady pace. But as we add those, it allows us to actually fully address the market. As you know, one of the unfortunate things at the cloud company is that more and more countries require their data to exist within the country's boundaries. And so we've steadily expanded in a number of countries that we actually have data centers and around the world.

The second thing to keep in mind is, one of the things that you'll see for some of the momentum last year and as we enter this year around international, is that typically, when we have new products, we do start selling them in the U.S. because it's easier to actually target a customer segment in a local market. But as we get momentum, we actually start selling in more and more markets. So you saw that dynamic, especially with IDR last year as it for the first year really became much more of a global business. And we think there's lots of growth in IDR over the next couple of years, and that's a catalyst.

Likewise, with SOAR, it's heavily focused right now in the early stages in North America. But over the next several years, we do expect some momentum if we continue to see progress on a global basis there. And so those are 2 catalysts as we actually think about the overall international expansion as we go forward.

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Nicholas Andrew Yako, Cowen and Company, LLC, Research Division - VP & Senior Analyst [39]

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Okay. That's helpful. And then, Jeff, I do want to ask if there's any additional color you can provide around just the mix of ARR by product finishing in 2019?

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Jeffrey A. Kalowski, Rapid7, Inc. - CFO [40]

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Yes. Well, the ARR is still over 50% of the total ARR, but it's becoming a less percentage as...

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Corey E. Thomas, Rapid7, Inc. - Chairman & CEO [41]

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VM.

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Jeffrey A. Kalowski, Rapid7, Inc. - CFO [42]

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I'm sorry, VM is over 50%, but it's becoming a less of a percentage as the IDR grows. IDR is now over 20% of the business and of the total ARR. And then AppSec and others make up the difference.

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Operator [43]

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Thank you. And I'm showing no further questions at this time. This concludes today's conference call, and thank you for participating. You may now disconnect. Everyone, have a great day.