“Our recurring product revenue is expected to grow faster than this range, offset by a year-over-year reduction in professional services revenue of approximately $10 million for the full year.”

In context

“Tim Adams (CFO): Thank you, Corey. Good afternoon, everyone. And thank you for joining us on the call today. Before I turn to the results, a quick reminder that, except for revenue, all financial results we will discuss today are non-GAAP financial measures unless otherwise stated. Additionally, reconciliations between our GAAP and non-GAAP results can be found in our earnings press release. Rapid7 ended the year with $840 million in ARR, growing 4% over the prior year. We ended 2024 with solid double-digit growth momentum in our detection and response business and with promising early traction in efforts to stabilize and accelerate growth in risk and exposure management. As Corey shared, fourth quarter deal activity tracked as expected, reflecting stable customer spending patterns. Our larger deal sizes and longer contract durations reflect strengthening customer partnerships and will support expansion opportunities over time. Our total customer base grew 2% year-over-year to end 2024 with over 11,700 customers globally. Just under 15% of these customers have adopted a consolidated offering, which reflects the sizable opportunity to drive expansion in our customer base. ARR per customer grew 2% year-over-year to approximately $72,000, reflecting continued customer expansion within our platform. Full year revenue of $844 million grew 9% over the prior year and exceeded the high end of our guidance range. Recurring product revenue also grew 9% over the prior year to a full year total of $809 million, while professional services declined 6% as we actively deemphasize certain lower-value services. Operating income of $164 million was above our guided range for the year as well. This represents a 19% full-year operating margin, an expansion of over 600 basis points from the prior year, demonstrating our ability to drive operational efficiency alongside our 2024 investments in innovation and growth. We generated $154 million of free cash flow in 2024 towards the high end of our outlook range. This represents a full-year free cash flow margin of 18%, expansion of over 800 basis points from the prior year. Now turning to our fourth quarter results, total revenue of $216 million was up 5% over the prior year and above the high end of our guidance. Recurring product revenue grew 6% year-over-year to $206 million, while professional services declined 5% over the prior year. International revenue grew 14% year-over-year increasing to 25% of total revenue, while North America grew 3% and accounted for 75% of the mix. Product gross margin was 75% in the quarter, slightly below the prior year on higher hosting costs. Total gross margin for the quarter was 73%. Sales and marketing expense represented 30% of revenue, down from 32% in the prior year. R&D expense was in line with the prior year at 16% of revenue, while G&A expense ticked up to 8% of revenue. All in all, fourth quarter operating income of $40 million was above the high end of our guided range, driven by revenue outperformance and disciplined expense management and represented an operating margin of 18%. Our adjusted EBITDA was $46 million in the quarter, and net income per share was $0.48. Moving to our balance sheet and cash flow statement. We ended the year with cash, cash equivalents and investments of $559 million compared to $439 million at the end of 2023. Higher operating profitability contributed to strong fourth quarter free cash flow of $59 million. This brings us to our 2025 guidance. For the full year, we expect ending total ARR of $870 million to $890 million, which represents growth of 4% to 6%. This range assumes a stable customer spending environment to what we're seeing today, which includes some uncertainty and disruption with certain state, local educational and healthcare customers. In addition, we expect more pronounced seasonality that reflects larger deal sizes and longer deal cycles associated with traction in our broader security operations platform. Similar to 2024, we expect net new ARR seasonality to be skewed to the second half of the year with a first-quarter ending ARR that is flat to modestly up from the end of 2024. Turning to revenue, we expect total revenue for the year to be in the range of $860 million to $870 million, representing growth of 2% to 3%. Our recurring product revenue is expected to grow faster than this range, offset by a year-over-year reduction in professional services revenue of approximately $10 million for the full year. We continue to deemphasize certain professional services, and this is reflected in our guidance range. Moving to profitability measures for 2025. As Corey mentioned, we are reinvesting in our business to prioritize growth reacceleration. We remain strongly committed to expanding profitability over time, and this year we are making targeted investments to improve our cost structure and ability to scale efficiently in 2026, particularly in investments in R&D and the opening of our innovation center in India. For operating income, we expect to be in the range of $125 million to $135 million for the full year, and we expect to generate roughly $135 million in free cash flow. Net income per share is expected to be in the range of $1.72 to $1.85 based on an estimated 77.3 million diluted weighted average shares outstanding. Moving to our quarterly guidance. For the first quarter of 2025, we expect total revenue in the range of $207 million to $209 million, representing year-over-year growth of 1% to 2%. We expect non-GAAP operating income for the first quarter in the range of $23 million to $25 million and non-GAAP net income per share of $0.33 to $0.36 based on an estimated 75.6 million diluted weighted average shares outstanding. One accounting item I want to mention. During our financial close process for the fourth quarter, we identified and corrected a stock-based compensation error which resulted in an understatement of stock-based compensation expense in 2023 and the first three quarters of 2024. While this required an immaterial correction of our historical financials, it does not affect our ARR, reported revenue, free cash flow or non-GAAP profitability metrics. For those interested, we've provided additional details in the footnotes of our earnings press release. I'd like to once again thank our team for the dedication and execution as we continue strengthening our platform and positioning Rapid7 for long-term success. We are encouraged by the momentum in our detection and response business, the deepening impact of our partner ecosystem, and the continued adoption of exposure command. As we close out the year, we remain committed to driving sustainable growth, expanding profitability over time and reinforcing our leadership in security operations, helping customers navigate an increasingly complex threat landscape while delivering strong value for our shareholders. With that, thank you for taking the time to join our call today. We will now open the call for questions.”