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CST: 21/07/2019 03:50:54   

Rapid7 Announces First Quarter 2019 Financial Results

79 Days ago

  • Annualized recurring revenue (ARR) of $268.2 million, an increase of 51% year-over-year

  • Revenue of $73.2 million, 34% growth year-over-year

  • GAAP loss from operations of $(9.7) million and non-GAAP income from operations of $0.6 million

  • Raising 2019 revenue growth guidance to 28% to 30% and guiding 2019 ARR growth of greater than 30%

BOSTON, May 02, 2019 (GLOBE NEWSWIRE) -- Rapid7, Inc. (Nasdaq: RPD), powering SecOps through its visibility, analytics and automation, today announced its financial results for the first quarter of 2019.

“Rapid7 had a strong start to 2019. Our results were driven by consistent performance across our product lines and we are seeing robust performance in our broader SecOps portfolio. Security professionals are hyper focused on tools that will not only help manage risks but also make them more productive. Rapid7 has built the Insight platform with this exact concern in mind and our focus on delivering improved outcomes to customers is what truly differentiates our strategy.” said Corey Thomas, Chairman and CEO of Rapid7.

“Rapid7 has been successfully transformed to a high growth, multi-product, cloud software company, on a path to higher long-term profitability. Based on the strength of our business so far this year, we are raising our full-year 2019 revenue guidance and are maintaining our guidance for non-GAAP income from operations of breakeven as we see opportunities to invest in our business to drive long-term growth and sustainable profitability.”

First Quarter 2019 Financial Results  
  Three Months Ended March 31,
  2019   2018   % Change
   
  (in thousands)
Annualized recurring revenue $ 268,194     $ 177,792     51 %
Number of customers 7,934     7,113     12 %
ARR per customer $ 33.8     $ 25.0     35 %
Recurring revenue as a percentage of revenue 85 %   77 %    
Renewal rate 120 %   120 %    


  Three Months Ended March 31,
  2019   2018   % Change
   
  (in thousands, except per share data)
Products revenue $ 56,288     $ 35,279     60 %
Maintenance and support revenue 9,557     10,753     (11 )%
Professional services revenue 7,340     8,483     (13 )%
Total revenue $ 73,185     $ 54,515     34 %
           
North America revenue $ 62,039     $ 46,377     34 %
Rest of world revenue 11,146     8,138     37 %
Total revenue $ 73,185     $ 54,515      
           
GAAP gross profit $ 53,212     $ 37,921      
GAAP gross margin 73 %   70 %    
Non-GAAP gross profit $ 55,143     $ 39,203      
Non-GAAP gross margin 75 %   72 %    
           
GAAP loss from operations $ (9,744 )   $ (16,585 )    
GAAP operating margin (13 )%   (30 )%    
Non-GAAP income (loss) from operations $ 577     $ (8,872 )    
Non-GAAP operating margin 1 %   (16 )%    
           
GAAP net loss $ (11,673 )   $ (16,361 )    
GAAP net loss per share, basic and diluted $ (0.24 )   $ (0.36 )    
Non-GAAP net income (loss) $ 1,158     $ (8,648 )    
Non-GAAP net income (loss) per share, basic $ 0.02     $ (0.19 )    
Non-GAAP net income (loss) per share, diluted $ 0.02     $ (0.19 )    
           
Adjusted EBITDA $ 2,607     $ (7,421 )    
           
Cash (used in) provided by operating activities $ (13,566 )   $ 7,296      

Recent Business Highlights

  • In April, we acquired NetFort Technologies Limited, a provider of end-to-end network traffic visibility and analytics cloud, virtual and physical platforms, for a total cash consideration of $15.0 million.

  • In January, Bloomberg selected Rapid7 as one of 230 companies for the 2019 Bloomberg Gender-Equality Index, which recognizes companies committed to transparency in gender reporting and advancing women’s equality.

  • Please see investors.rapid7.com for our Financial Metrics spreadsheet.

  • For additional details on the reconciliation of non-GAAP measures to their nearest comparable GAAP measures, please refer to the accompanying financial data tables contained in this press release.

Second Quarter and Full-Year 2019 Guidance

Rapid7 anticipates total revenue, non-GAAP income (loss) from operations, and non-GAAP net income (loss) per share to be in the following ranges:

Second Quarter and Full-Year 2019 Guidance (in millions, except per share data)
           
  Second Quarter 2019   Full-Year 2019
Revenue $ 74.3   to $ 75.9     $ 312.0   to $ 318.0  
Year-over-year growth 27 % to 30 %     28 % to 30 %
Non-GAAP (loss) income from operations $ (4.7 ) to $ (3.7 )   Breakeven
Non-GAAP net (loss) income per share $ (0.08 ) to $ (0.06 )   $ 0.05
Weighted average shares outstanding     48.4         52.3

Guidance for the second quarter and full-year 2019 does not include any potential impact of foreign exchange gains or losses. The weighted average shares outstanding for the second quarter of 2019 represent basic shares outstanding given our projected non-GAAP net loss. The weighted average shares outstanding for full year 2019 represent diluted shares outstanding given our projected non-GAAP net income. Non-GAAP net income for full year 2019 largely represents interest income on projected cash and investments.

Non-GAAP guidance excludes estimates for stock-based compensation expense, amortization of acquired intangible assets, amortization of debt discount and issuance costs, and certain other items. Rapid7 has provided a reconciliation of historical non-GAAP financial measures to the most comparable GAAP measures in the financial statement tables included in this press release. A reconciliation of non-GAAP guidance measures to the most comparable GAAP measures is not available on a forward-looking basis without unreasonable efforts due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures.

Conference Call and Webcast Information

Rapid7 will host a conference call today, May 2, 2019, to discuss its results at 4:30 p.m. Eastern Time. The call will be accessible by telephone at 877-357-4230 (domestic) or 629-228-0721 (international). The call will also be available live via webcast on the Company’s website at https://investors.rapid7.com. A telephone replay of the conference call will be available at 855-859-2056 or 404-537-3406 (access code 8792807) until May 9, 2019. A webcast replay will be available at https://investors.rapid7.com.

About Rapid7

Organizations around the globe rely on Rapid7 (Nasdaq: RPD) technology, services, and research to securely advance. The visibility, analytics, and automation delivered through our Insight cloud simplifies the complex and helps security teams reduce vulnerabilities, monitor for malicious behavior, investigate and shut down attacks, and automate routine tasks. Over 7,900 customers rely on Rapid7 technology, services, and research to improve security outcomes and securely advance their organizations. For more information, visit our website, check out our blog, or follow us on Twitter.

Non-GAAP Financial Measures and Other Metrics

To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with certain non-GAAP financial measures and other  metrics, which we believe are helpful to our investors. We use these non-GAAP financial measures and other metrics for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We also use certain non-GAAP financial measures as performance measures under our executive bonus plan. We believe that these non-GAAP financial measures and other metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making. While our non-GAAP financial measures are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, you should review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not rely on any single financial measure to evaluate our business.

Non-GAAP Financial Measures
We disclose the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP income (loss) from operations, non-GAAP net income (loss), non-GAAP net income (loss) per share and adjusted EBITDA.

We define non-GAAP gross profit, non-GAAP income (loss) from operations, non-GAAP net income (loss) and non-GAAP net income (loss) per share as the respective GAAP balances excluding the effect of stock-based compensation expense, amortization of acquired intangible assets, amortization of debt discount and issuance costs and certain other items such as acquisition-related expenses, follow-on public offering costs, and litigation-related expenses.  Non-GAAP net income (loss) per basic and dilutive share is calculated as Non-GAAP net income (loss) divided by the weighted average shares used to compute net income (loss) per share, with the number of weighted average shares decreased to reflect the anti-dilutive impact of the capped call transactions entered into in connection with the 1.25% convertible senior note issued in August 2018.

We believe these non-GAAP financial measures are useful to investors in assessing our operating performance due to the following factors:

Stock-based compensation expense. We exclude stock-based compensation expense because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact our non-cash expense. We believe that providing non-GAAP financial measures that exclude stock-based compensation expense allows for more meaningful comparisons between our operating results from period to period.

Amortization of acquired intangible assets. We believe that excluding the impact of amortization of acquired intangible assets allows for more meaningful comparisons between operating results from period to period as the intangible assets are valued at the time of acquisition and are amortized over several years after the acquisition.

Amortization of debt discount and issuance costs. In August 2018, we issued $230 million of convertible senior notes, which bear interest at an annual fixed rate of 1.25%. The imputed interest rate of the convertible senior notes was approximately 7.37%. This is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity, and debt issuance costs, which reduce the carrying value of the convertible debt instrument. The debt discount is amortized as interest expense together with the issuance costs of the debt. The expense for the amortization of debt discount and debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense provides a more useful comparison of our operational performance in different periods.

Litigation-related expenses. We exclude certain litigation-related expenses consisting of professional fees and related costs incurred by us related to significant litigation outside the ordinary course of business. We believe it is useful to exclude such expenses because we do not consider such amounts to be part of our ongoing operations.

Acquisition-related expenses and follow-on public offering costs. We exclude acquisition-related expenses and follow-on public offering costs as costs that are unrelated to the current operations and neither are comparable to the prior period nor predictive of future results.

Anti-dilutive impact of capped call transaction. In connection with the issuance of our convertible senior notes, we entered into capped call transactions to offset potential dilution from the embedded conversion feature in the notes. Although we cannot reflect the anti-dilutive impact of the capped call transactions under GAAP, we do reflect the anti-dilutive impact of the capped call transactions in non-GAAP net income (loss) per basic and diluted share to provide investors with useful information in evaluating the financial performance of the company on a per share basis.

Adjusted EBITDA (non-GAAP). Adjusted EBITDA is a non-GAAP measure that we define as net loss before (1) interest income, (2) interest expense, (3) other income (expense), net, (4) provision for income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, and (8) certain other items.  We believe that the use of adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. There are limitations to using this non-GAAP financial measure, including that other companies may calculate this measure differently than we do, that it does not reflect our capital expenditures or future requirements for capital expenditures and that it does not reflect changes in, or cash requirements for, our working capital and excludes some items that are cash based.

Other Metrics
Annualized Recurring Revenue (ARR). ARR is defined as the annual value of all recurring revenue related contracts in place at the end of the period. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or replace these items. ARR is not a forecast of future revenue and can be impacted by contract start and end dates and renewal rates, and does not include revenue reported as perpetual license or professional services revenue in our consolidated statement of operations.

ARR per Customer. We define ARR per customer as ARR divided by the number of customers at the end of the period.

Recurring Revenue. We define recurring revenue as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support.

Renewal Rate. We calculate our renewal rate by dividing the dollar value of renewed customer agreements, including upsells and cross-sells of additional products, but excluding professional services, in a trailing 12-month period by the dollar value of the corresponding customer agreements.

Cautionary Language Concerning Forward-Looking Statements

This press release includes forward-looking statements. All statements contained in this press release other than statements of historical facts, including, without limitation, statements regarding our anticipated total revenue and our future financial and business performance for the second quarter and full-year 2019 are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “will” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, risks related to our rapid growth and ability to sustain our revenue growth rate, our transition to a subscription business model, the ability of our products and professional services to correctly detect vulnerabilities, competition in the markets in which we operate, market growth, our ability to innovate and manage our growth, our ability to integrate acquired operations, our ability to operate in compliance with applicable laws as well as other risks and uncertainties set forth in the “Risk Factors” section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2018 filed with the Securities and Exchange Commission on February 28, 2019, and subsequent reports that we file with the Securities and Exchange Commission.  Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after the date of this press release to conform these statements to actual results or revised expectations, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this press release.

Neeraj Mahajan, CFA
Vice President, Investor Relations
investors@rapid7.com
(857) 990-4074

Press contact:

Caitlin Doherty
press@rapid7.com
(857) 990-4240

         
RAPID7, INC.
Consolidated Balance Sheets (Unaudited)
(in thousands)   
         
    March 31, 2019   December 31, 2018
Assets        
Current assets:        
Cash and cash equivalents   $ 89,869     $ 99,565  
Short-term investments   161,600     159,210  
Accounts receivable, net   59,707     74,935  
Deferred contract acquisition and fulfillment costs, current portion   12,994     12,321  
Prepaid expenses and other current assets   15,773     9,746  
Total current assets   339,943     355,777  
Long-term investments   33,613     44,892  
Property and equipment, net   32,771     17,523  
Operating lease right-of-use assets   15,888      
Deferred contract acquisition and fulfillment costs, non-current portion   28,054     27,634  
Goodwill   88,420     88,420  
Intangible assets, net   23,979     23,955  
Other assets   1,238     1,168  
Total assets   $ 563,906     $ 559,369  
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable   $ 6,297     $ 7,048  
Accrued expenses   25,062     37,376  
Operating lease liabilities, current portion   5,231      
Deferred revenue, current portion   184,453     189,855  
Other current liabilities   7,385     707  
Total current liabilities   228,428     234,986  
Convertible senior notes, net   177,198     174,688  
Operating lease liabilities, non-current portion   16,394      
Deferred revenue, non-current portion   52,014     58,716  
Other long-term liabilities   1,021     3,660  
Total liabilities   475,055     472,050  
Stockholders’ equity:        
Common stock   482     476  
Treasury stock   (4,764 )   (4,764 )
Additional paid-in-capital   569,229     556,223  
Accumulated other comprehensive gain (loss)   162     (31 )
Accumulated deficit   (476,258 )   (464,585 )
Total stockholders’ equity   88,851     87,319  
Total liabilities and stockholders’ equity   $ 563,906     $ 559,369  


     
RAPID7, INC.
Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
     
    Three Months Ended March 31,
    2019     2018
Revenue:          
Products   $ 56,288       $ 35,279  
Maintenance and support   9,557       10,753  
Professional services   7,340       8,483  
Total revenue   73,185       54,515  
Cost of revenue:          
Products   12,485       8,436  
Maintenance and support   1,884       1,849  
Professional services   5,604       6,309  
Total cost of revenue   19,973       16,594  
Total gross profit   53,212       37,921  
Operating expenses:          
Research and development   17,865       16,722  
Sales and marketing   35,138       29,052  
General and administrative   9,953       8,732  
Total operating expenses   62,956       54,506  
Loss from operations   (9,744 )     (16,585 )
Other income (expense), net:          
Interest income   1,731       243  
Interest expense   (3,229 )     (2 )
Other income (expense), net   (206 )     78  
Loss before income taxes   (11,448 )     (16,266 )
Provision for income taxes   225       95  
Net loss   $ (11,673 )     $ (16,361 )
Net loss per share, basic and diluted   $ (0.24 )     $ (0.36 )
Weighted-average common shares outstanding, basic and diluted   47,827,939       45,210,250  


     
RAPID7, INC.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
     
    Three Months Ended March 31,
    2019   2018
Cash flows from operating activities:        
Net loss   $ (11,673 )   $ (16,361 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation and amortization   3,427     2,399  
Amortization of debt discount and issuance costs   2,510      
Stock-based compensation expense   8,634     6,225  
Provision for doubtful accounts   437     156  
Foreign currency re-measurement loss   249     147  
Other non-cash (income) expense   (722 )   (52 )
Changes in operating assets and liabilities:        
Accounts receivable   14,729     34,722  
Deferred contract acquisition and fulfillment costs   (1,094 )   (1,713 )
Prepaid expenses and other assets   (5,940 )   (3,190 )
Accounts payable   66     3,219  
Accrued expenses   (13,690 )   (11,317 )
Deferred revenue   (12,104 )   (6,495 )
Other liabilities   1,605     (444 )
Net cash (used in) provided by operating activities   (13,566 )   7,296  
Cash flows from investing activities:        
Purchases of property and equipment   (8,463 )   (2,147 )
Capitalization of internal-use software costs   (1,601 )   (693 )
Purchases of investments   (63,029 )   (4,460 )
Sales/maturities of investments   72,738     14,062  
Net cash (used in) provided by investing activities   (355 )   6,762  
Cash flows from financing activities:        
Proceeds from follow-on public offering, net of offering costs of $608       31,231  
Taxes paid related to net share settlement of equity awards   (979 )   (462 )
Proceeds from employee stock purchase plan   2,634     1,632  
Proceeds from stock option exercises   2,718     1,961  
Net cash provided by financing activities   4,373     34,362  
Effect of exchange rate changes on cash, cash equivalents and restricted cash   (148 )   (36 )
Net (decrease) increase in cash, cash equivalents and restricted cash   (9,696 )   48,384  
Cash, cash equivalents and restricted cash, beginning of period   99,565     51,762  
Cash, cash equivalents and restricted cash, end of period   $ 89,869     $ 100,146  


     
RAPID7, INC.
GAAP to Non-GAAP Reconciliation (Unaudited)
(in thousands, except share and per share data)
     
    Three Months Ended March 31,
    2019   2018
GAAP gross profit   $ 53,212     $ 37,921  
Add: Stock-based compensation expense1   573     374  
Add: Amortization of acquired intangible assets2   1,358     908  
Non-GAAP gross profit   $ 55,143     $ 39,203  
Non-GAAP gross margin   75.3 %   71.9 %
         
GAAP gross profit - Products   $ 43,803     $ 26,843  
Add: Stock-based compensation expense   157     125  
Add: Amortization of acquired intangible assets   1,358     908  
Non-GAAP gross profit - Products   $ 45,318     $ 27,876  
Non-GAAP gross margin - Products   80.5 %   79.0 %
         
GAAP gross profit - Maintenance and support   $ 7,673     $ 8,904  
Add: Stock-based compensation expense   120     28  
Non-GAAP gross profit - Maintenance and support   $ 7,793     $ 8,932  
Non-GAAP gross margin - Maintenance and support   81.5 %   83.1 %
         
GAAP gross profit - Professional services   $ 1,736     $ 2,174  
Add: Stock-based compensation expense   296     221  
Non-GAAP gross profit - Professional services   $ 2,032     $ 2,395  
Non-GAAP gross margin - Professional services   27.7 %   28.2 %
         
GAAP Loss from operations   $ (9,744 )   $ (16,585 )
Add: Stock-based compensation expense1   8,634     6,225  
Add: Amortization of acquired intangible assets2   1,397     948  
Add: Acquisition-related expenses3   217      
Add: Follow-on public offering costs4       140  
Add: Litigation-related expenses5   73     400  
Non-GAAP Income (loss) from operations   $ 577     $ (8,872 )
         
GAAP Net loss   $ (11,673 )   $ (16,361 )
Add: Stock-based compensation expense1   8,634     6,225  
Add: Amortization of acquired intangible assets2   1,397     948  
Add: Acquisition-related expenses3   217      
Add: Follow-on public offering costs4       140  
Add: Litigation-related expenses5   73     400  
Add: Amortization of debt discount and issuance costs   2,510      
Non-GAAP Net income (loss)   $ 1,158     $ (8,648 )
         
Reconciliation of net income (loss) per share, basic        
GAAP net loss per share, basic   $ (0.24 )   $ (0.36 )
Non-GAAP adjustments to net loss   0.26     0.17  
Non-GAAP net income (loss) per share, basic   $ 0.02     $ (0.19 )
         
Reconciliation of net income (loss) per share, diluted        
GAAP net loss per share, diluted   $ (0.24 )   $ (0.36 )
Non-GAAP adjustments to net loss   0.26     0.17  
Non-GAAP net income (loss) per share, diluted   $ 0.02     $ (0.19 )
         
Weighted average shares used in GAAP per share calculation, basic and diluted   47,827,939     45,210,250  
         
Weighted average shares used in non-GAAP per share calculation:        
Basic   47,827,939     45,210,250  
Diluted   51,184,402     45,210,250  
         
1 Includes stock-based compensation expense as follows:        
Cost of revenue   $ 573     $ 374  
Research and development   3,174     2,566  
Sales and marketing   2,464     1,563  
General and administrative   2,423     1,722  
         
2 Includes amortization of acquired intangible assets as follows:        
Cost of revenue   $ 1,358     $ 908  
Sales and marketing   38     39  
General and administrative   1     1  
         
3 Includes acquisition-related expenses as follows:        
General and administrative   $ 217     $  
         
4 Includes follow-on public offering costs as follows:        
General and administrative   $     $ 140  
         
5 Includes litigation-related expenses as follows:        
General and administrative   $ 73     $ 400  


     
RAPID7, INC.
Reconciliation of Net Loss to Adjusted EBITDA (Unaudited)
(in thousands)
     
    Three Months Ended March 31,
    2019   2018
Net loss   $ (11,673 )   $ (16,361 )
Interest income   (1,731 )   (243 )
Interest expense   3,229     2  
Other (income) expense, net   206     (78 )
Provision for income taxes   225     95  
Depreciation expense   1,850     1,383  
Amortization of intangible assets   1,577     1,016  
Stock-based compensation expense   8,634     6,225  
Acquisition-related expenses   217      
Follow-on public offering costs       140  
Litigation-related expenses   73     400  
Adjusted EBITDA   $ 2,607     $ (7,421 )

 

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