Rapid7

Investor Relations

PRESS RELEASE

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November 07, 2017
Rapid7 Announces Third Quarter 2017 Financial Results
  • Total revenue was $50.5 million, an increase of 25% year-over-year
  • GAAP loss from operations was ($13.0) million, non-GAAP loss from operations was ($6.8) million
  • Deferred revenue of $188.6 million, an increase of 26% year-over-year
  • Calculated billings were $58.7 million, an increase of 31% year-over-year
  • Raises full year 2017 guidance

BOSTON, Nov. 07, 2017 (GLOBE NEWSWIRE) -- Rapid7, Inc. (NASDAQ:RPD), a leading provider of analytics solutions for security and IT operations, today announced its financial results for the third quarter of 2017.

“This quarter we continued to see broad-based demand for our solutions and we are executing well against our plan,” said Corey Thomas, CEO of Rapid7.  “We believe our results validate that Rapid7 has the right strategy across our markets.  Our approach of providing multiple high-impact analytics solutions based on the Rapid7 Insight platform is resonating with customers and driving consolidation of spending with Rapid7, as lean IT and security teams strive to leverage their scarce resources and improve their effectiveness.   Additionally, as we evolve our product set on our cloud-based platform, our recurring revenue is showing strong growth.”

Third Quarter 2017 Financial Results

  • Total revenue was $50.5 million, an increase of 25% year-over-year. 
     
  • Deferred revenue as of September 30, 2017 was $188.6 million, an increase of 26% year-over-year.
     
  • Calculated billings were $58.7 million, an increase of 31% year-over-year.
     
  • GAAP loss from operations was ($13.0) million, compared to GAAP loss from operations of ($10.2) million in the third quarter of 2016. For the third quarter of 2017, non-GAAP loss from operations was ($6.8) million, compared to non-GAAP loss from operations of ($5.3) million in the third quarter of 2016.
     
  • Adjusted EBITDA was ($5.6) million in the third quarter of 2017, compared to an adjusted EBITDA of ($4.1) million in the third quarter of 2016. 
     
  • GAAP net loss was ($10.3) million or a GAAP loss per share of ($0.24), compared to a GAAP net loss of ($10.2) million or a GAAP loss per share of ($0.25) for the third quarter of 2016.  Non-GAAP net loss was ($6.6) million or a non-GAAP net loss per share of ($0.15), compared to a non-GAAP net loss of ($5.2) million or a non-GAAP net loss per share of ($0.13) for the third quarter of 2016.
     
  • Cash provided by operating activities was $5.7 million for the third quarter of 2017, compared to $1.8 million for the third quarter of 2016.

Year to Date 2017 Financial Results

  • Total revenue for the nine months ended September 30, 2017 was $143.2 million, an increase of 27% year-over-year. 
     
  • For the nine months ended September 30, 2017, GAAP loss from operations was ($35.4) million, compared to GAAP loss from operations of ($39.1) million for the same period in 2016. For the nine months ended September 30, 2017, non-GAAP loss from operations was ($18.6) million, an improvement compared to non-GAAP loss from operations of ($23.8) million for the same period in 2016.
     
  • Adjusted EBITDA was ($15.2) million for the nine months ended September 30, 2017, an improvement compared to adjusted EBITDA of ($20.4) million in the same period in 2016.
     
  • Cash provided by operating activities was $5.1 million in the nine months ended September 30, 2017, compared to $2.1 million in 2016.

Recent Business Metrics and Highlights

  • Our renewal rate for the third quarter of 2017, which includes upsells and cross-sells of additional products and services, was 119%. The expiring renewal rate, which excludes upsells and cross-sells of additional products and services, was 89% in the third quarter of 2017.
     
  • 70.5% of total revenue in the third quarter of 2017 was recurring revenue, which is comprised of content subscriptions, maintenance and support, cloud-based subscriptions, managed services subscriptions, and term licenses, up from 67.7% in the third quarter of 2016.  
     
  • 86% of total revenue for the third quarter of 2017 came from deferred revenue on the balance sheet at the beginning of the quarter.  Recurring revenues increased over 30% year-over-year.
     
  • For the third quarter of 2017, total revenue from North America increased 24% year-over-year to $42.9 million and comprised 85% of total revenue. Total revenue from international increased 30% year-over-year to $7.6 million and comprised 15% of total revenue for the third quarter of 2017.
     
  • Ended the third quarter of 2017 with over 6,700 customers, an increase of 15% year-over-year.
     
  • Celebrated industry excellence with customer awards at UNITED Summit. The awards showcase individuals working to drive their organizations, industry, and security community forward.
     
  • For additional details on the reconciliations of non-GAAP measures and certain other business metrics to their nearest comparable GAAP measures, please refer to the financial data tables posted on our website at http://investors.rapid7.com.

Fourth Quarter and Full-Year 2017 Guidance

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

Fourth Quarter 2017:
     
Total revenue   $53.9 to $55.3 million
Non-GAAP Loss from Operations   $(7.9) to $(7.1) million
Net loss per share (non-GAAP)   $(0.18) to $(0.16)

The fourth quarter 2017 net loss per share calculation assumes 43.5 million basic and diluted weighted average common shares outstanding.

Updated Full-Year 2017:
     
Total revenue   $197.1 to $198.5 million
Non-GAAP Loss from Operations   $(26.5) to $(25.7) million
Net loss per share (non-GAAP)   $(0.62) to $(0.60)
Calculated Billings (non-GAAP)   $236.5 to $239.5 million

The full-year net loss per share calculation assumes 43.0 million basic and diluted weighted average common shares outstanding. Guidance for the fourth quarter and full-year 2017 does not include any potential impact of foreign exchange gains or losses.

Non-GAAP guidance excludes estimates for stock-based compensation expense, amortization of acquired intangible assets, acquisition-related expenses and certain non-recurring 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.

Conference Call and Webcast Information
Rapid7 will host a conference call today, November 7, 2017, to discuss its results at 4:30 p.m. Eastern Time. The call will be accessible by telephone at 800-676-6259 (domestic) or 303-223-2682 (international). The call will also be available live via webcast on the Company’s website at http://investors.rapid7.com. A telephone replay of the conference call will be available at 800-633-8284 or 402-977-9140 (access code 21860058) until November 8, 2017. A webcast replay will be available at http://investors.rapid7.com.  

About Rapid7
Rapid7 (NASDAQ:RPD) is trusted by IT and security professionals around the world to manage risk, simplify modern IT complexity, and drive innovation. Rapid7 analytics transform today’s vast amounts of security and IT data into the answers needed to securely develop and operate sophisticated IT networks and applications. Rapid7 research, technology, and services drive vulnerability management, penetration testing, application security, incident detection and response, and log management for more than 6,700 organizations across 125 countries, including 39% of the Fortune 1000. To learn more about Rapid7 or join our threat research, visit www.rapid7.com.

Non-GAAP Financial Measures and Other Business 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 business metrics, which we believe are helpful to our investors. We use these non-GAAP financial measures and other business 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 business 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.

The presentation of non-GAAP financial information and other business metrics is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.  While our non-GAAP financial measures and other business metrics are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, we urge investors to review the reconciliation of these financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

Adjusted EBITDA. We define adjusted EBITDA as net loss before (1) interest income (expense), net, (2) other income (expense), net, (3) provision for (benefit from) income taxes, (4) depreciation expense, (5) amortization of intangible assets, (6) stock-based compensation expense, and (7) certain acquisition-related expenses.  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.

We also monitor operating measures of non-GAAP gross profit, non-GAAP operating loss, non-GAAP net loss and non-GAAP net loss per share.  These non-GAAP financial measures exclude the effect of stock-based compensation expense, amortization of acquired intangible assets, certain acquisition-related expenses, and certain non-recurring items.  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.

Calculated Billings (non-GAAP). Calculated billings is a non-GAAP measure that we define as total revenue recognized in accordance with GAAP plus the change in deferred revenue from the beginning to the end of the period. We consider calculated billings to be a useful metric for management and investors, as a supplement to the corresponding GAAP measure of total revenue, because billings drive deferred revenue, which is an important indicator of the health and visibility of trends in our business, and represents a significant percentage of future revenue. We regularly monitor calculated billings because we believe the measure offers valuable information regarding the performance of our business and will help investors better understand the sales activity and performance of our business for a particular period. With the expansion of our subscription, cloud-based product offerings (InsightVM, InsightIDR, InsightAppSec, and InsightOps) on the Insight platform, we may realize a shortening of our average contract duration, which should be taken into consideration when evaluating calculated billings. Our use of calculated billings has limitations as an analytical tool and should not be considered in isolation or as a substitute for revenue recognition or revenue measurement, or an analysis of our results as reported under GAAP. Also, it is important to note that other companies, including companies in our industry, may not use calculated billings as a measure of their business, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of calculated billings as a comparative measure.

While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis as a result of the uncertainty regarding, and the potential variability of, many of these costs and expenses that we may incur in the future, we have provided a reconciliation of non-GAAP financial measures and other business metrics to the nearest comparable GAAP measures in the accompanying financial statement tables included in this press release.

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 market opportunity, demand for our product and service offerings, expectations regarding our reoccurring revenue and our future financial and business performance for the fourth quarter and full-year 2017, 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, 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 operate in compliance with applicable laws as well as other risks and uncertainties set forth in the “Risk Factors” section of our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarterly period ended June 30, 2017 filed with the Securities and Exchange Commission on August 8, 2017, 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.

Investor contact:
Jeff Bray, CFA
Vice President, Investor Relations
investors@rapid7.com
(857) 990-4074

Press contact:
Rachel E. Adam
Rapid7, Senior PR Manager
press@rapid7.com
(857) 990-4136

 
RAPID7, INC.
Consolidated Balance Sheets (Unaudited)
(in thousands)
                     
                September 30, 2017   December 31, 2016
Assets        
Current assets:        
  Cash and cash equivalents   $ 49,055     $ 53,148  
  Short-term investments     34,825       18,779  
  Accounts receivable, net     48,690       49,154  
  Prepaid expenses and other current assets     8,747       9,152  
          Total current assets     141,317       130,233  
Long-term investments     1,110       20,162  
Property and equipment, net     7,995       8,088  
Goodwill      83,170       75,110  
Intangible assets, net     17,208       8,946  
Other assets       640       764  
          Total assets   $ 251,440     $ 243,303  
Liabilities and Stockholders’ Equity        
Current liabilities:        
  Accounts payable   $ 3,567     $ 4,012  
  Accrued expenses     23,737       23,499  
  Deferred revenue, current portion     133,117       116,903  
  Other current liabilities     1,394       1,195  
          Total current liabilities     161,815       145,609  
                     
Deferred revenue, non-current portion     55,526       52,160  
Other long-term liabilities     2,333       3,496  
          Total liabilities     219,674       201,265  
Stockholders' equity:        
  Common stock     439       426  
  Treasury stock     (4,645 )     (4,391 )
  Additional paid-in-capital     457,904       435,360  
  Accumulated other comprehensive loss     (23 )     (19 )
  Accumulated deficit     (421,909 )     (389,338 )
          Total stockholders' equity     31,766       42,038  
          Total liabilities and stockholders' equity   $ 251,440     $ 243,303  
                           


 
RAPID7, INC.
Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
                     
        Three Months Ended   Nine Months Ended
        September 30,
2017
September 30,
2016
September 30,
2017
September 30,
2016
Revenue:                 
  Products   $ 29,626     $ 23,108     $ 82,736     $ 64,709  
  Maintenance and support     11,654       9,694       33,794       27,037  
  Professional services     9,241       7,537       26,679       20,657  
    Total revenue     50,521       40,339       143,209       112,403  
Cost of revenue:                
  Products     6,888       3,415       17,155       8,700  
  Maintenance and support     1,739       1,801       5,467       5,240  
  Professional services     5,740       4,822       17,088       14,103  
    Total cost of revenue     14,367       10,038       39,710       28,043  
    Total gross profit     36,154       30,301       103,499       84,360  
Operating expenses:                
  Research and development     13,570       11,616       36,836       36,890  
  Sales and marketing     28,224       21,284       80,166       65,732  
  General and administrative     7,402       7,605       21,906       20,842  
    Total operating expenses     49,196       40,505       138,908       123,464  
Loss from operations     (13,042 )     (10,204 )     (35,409 )     (39,104 )
Other income (expense), net:                
  Interest income (expense), net     198       44       585       55  
  Other income (expense), net     235       36       349       184  
Loss before income taxes     (12,609 )     (10,124 )     (34,475 )     (38,865 )
  Provision for (benefit from) income taxes     (2,325 )     70       (2,009 )     361  
Net loss    $ (10,284 )   $ (10,194 )   $ (32,466 )   $ (39,226 )
                     
Net loss per share, basic and diluted   $ (0.24 )   $ (0.25 )   $ (0.76 )   $ (0.96 )
                     
Weighted-average common shares outstanding, basic and diluted

    43,279,025       41,482,173       42,693,212       41,033,080  
                                     


 
RAPID7, INC.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
                   
            Three Months Ended   Nine Months Ended
            September 30,
2017
  September 30,
2016
  September 30,
2017
  September 30,
2016
Cash flows from operating activities:                
  Net loss   $ (10,284 )   $ (10,194 )   $ (32,466 )   $ (39,226 )
  Adjustments to reconcile net loss to cash provided by operating activities:                
    Depreciation and amortization     2,067       1,911       5,304       5,330  
    Stock-based compensation expense     5,288       4,177       14,738       13,337  
    Provision for doubtful accounts     31       110       509       504  
    Deferred income taxes     (2,632 )     -       (2,632 )     -  
    Foreign currency re-measurement gain     (172 )     (47 )     (410 )     (166 )
    Other non-cash expenses     39       38       214       168  
    Change in operating assets and liabilities:                
      Accounts receivable     (1,110 )     189       130       5,134  
      Prepaid expenses and other assets     189       325       601       (1,076 )
      Accounts payable     1,335       (1,355 )     (322 )     549  
      Accrued expenses     2,925       1,855       803       (1,607 )
      Deferred revenue     8,214       4,543       19,580       18,948  
      Other liabilities     (146 )     238       (965 )     166  
        Net cash provided by operating activities     5,744       1,790       5,084       2,061  
Cash flows from investing activities:                
  Business acquisition, net of cash acquired     (14,717 )     -       (14,717 )     -  
  Purchases of property and equipment     (928 )     (1,465 )     (3,506 )     (3,307 )
  Capitalization of internal-use software costs     (440 )     -       (756 )     -  
  Purchases of investments     (5,856 )     -       (21,684 )     -  
  Sale and maturities of investments     9,917       -       24,522       -  
        Net cash used in investing activities     (12,024 )     (1,465 )     (16,141 )     (3,307 )
Cash flows from financing activities:                
  Deferred business acquisition payment     -       -       (796 )     -  
  Payments of capital lease obligations     -       -       -       (68 )
  Taxes paid related to net share settlement of equity awards     (207 )     (66 )     (468 )     (3,826 )
  Proceeds from employee stock purchase plan     1,415       1,628       2,914       3,724  
  Proceeds from stock option exercises     884       1,087       4,995       2,518  
        Net cash provided by financing activities     2,092       2,649       6,645       2,348  
Effects of exchange rates on cash and cash equivalents     175       (14 )     319       60  
        Net (decrease) increase in cash and cash equivalents     (4,013 )     2,960       (4,093 )     1,162  
Cash and cash equivalents, beginning of period     53,068       84,755       53,148       86,553  
Cash and cash equivalents, end of period   $ 49,055     $ 87,715     $ 49,055     $ 87,715  
                                 


                       
RAPID7, INC.
GAAP to Non-GAAP Reconciliation (Unaudited)
(in thousands, except share and per share data)
                       
          Three Months Ended     Nine Months Ended  
          September 30,
2017
  September 30,
2016
  September 30,
2017
  September 30,
2016
                       
Total gross profit (GAAP)   $ 36,154     $ 30,301     $ 103,499     $ 84,360  
  Add: Stock-based compensation expense1     305       166       815       445  
  Add: Amortization of acquired intangible assets2     853       447       1,731       1,338  
Total gross profit (non-GAAP)   $ 37,312     $ 30,914     $ 106,045     $ 86,143  
  Gross margin (non-GAAP)     74 %     77 %     74 %     77 %
                       
    Gross profit (GAAP) - Products   $ 22,738     $ 19,693     $ 65,581     $ 56,009  
      Add: Stock-based compensation expense     92       11       242       42  
      Add: Amortization of acquired intangible assets     853       447       1,731       1,338  
    Total gross profit (non-GAAP) - Products   $ 23,683     $ 20,151     $ 67,554     $ 57,389  
      Gross margin (non-GAAP) - Products     80 %     87 %     82 %     89 %
                       
    Gross profit (GAAP) - Maintenance and support   $ 9,915     $ 7,893     $ 28,327     $ 21,797  
      Add: Stock-based compensation expense     71       41       212       154  
    Total gross profit (non-GAAP) - Maintenance and support   $ 9,986     $ 7,934     $ 28,539     $ 21,951  
      Gross margin (non-GAAP) - Maintenance and support     86 %     82 %     84 %     81 %
                       
    Gross profit (GAAP) - Professional services   $ 3,501     $ 2,715     $ 9,591     $ 6,554  
      Add: Stock-based compensation expense     142       114       361       249  
    Total gross profit (non-GAAP) - Professional services   $ 3,643     $ 2,829     $ 9,952     $ 6,803  
      Gross margin (non-GAAP) - Professional services     39 %     38 %     37 %     33 %
                       
Loss from operations (GAAP)   $ (13,042 )   $ (10,204 )   $ (35,409 )   $ (39,104 )
  Add: Stock-based compensation expense1     5,288       4,177       14,738       13,337  
  Add: Amortization of acquired intangible assets2     894       769       1,863       1,935  
  Add: Acquisition-related expenses3     87       -       167       -  
Loss from operations (non-GAAP)   $ (6,773 )   $ (5,258 )   $ (18,641 )   $ (23,832 )
                       
Net loss (GAAP)   $ (10,284 )   $ (10,194 )   $ (32,466 )   $ (39,226 )
  Add: Stock-based compensation expense1     5,288       4,177       14,738       13,337  
  Add: Amortization of acquired intangible assets2     894       769       1,863       1,935  
  Add: Acquisition-related expenses3     87       -       167       -  
  Add: Release of valuation allowance, acquisition-related     (2,632 )     -       (2,632 )     -  
Net loss (non-GAAP)   $ (6,647 )   $ (5,248 )   $ (18,330 )   $ (23,954 )
                       
Net loss per share, basic and diluted (non-GAAP)   $ (0.15 )   $ (0.13 )   $ (0.43 )   $ (0.58 )
                       
Weighted-average common shares outstanding, basic and diluted     43,279,025       41,482,173       42,693,212       41,033,080  
                       
1 Includes stock-based compensation expense as follows:                
  Cost of revenue   $ 305     $ 166     $ 815     $ 445  
  Research and development     1,986       1,600       5,188       4,617  
  Sales and marketing     1,512       1,328       4,694       5,453  
  General and administrative     1,485       1,083       4,041       2,822  
                       
2 Includes amortization of acquired intangible assets as follows:                
  Cost of revenue   $ 853     $ 447     $ 1,731     $ 1,338  
  Sales and marketing     37       38       114       115  
  General and administrative     4       284       18       482  
                       
3 Includes acquisition-related expenses as follows:                 
  General and administrative   $ 87     $ -     $ 167     $ -  
                       


 

 
RAPID7, INC.
Reconciliation of Total Revenue to Calculated Billings (Unaudited)
(in thousands)
                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2017   2016   2017   2016
                 
Total revenue   $ 50,521     $ 40,339     $ 143,209     $ 112,403  
Add: Deferred revenue, end of period     188,643       149,264       188,643       149,264  
Less: Deferred revenue, beginning of period     180,429       144,722       169,063       130,317  
Calculated billings   $ 58,735     $ 44,881     $ 162,789     $ 131,350  
                 
                 
                 
                 
Reconciliation of Net Loss to Adjusted EBITDA (Unaudited)
(in thousands)
                 
    Three Months Ended September 30, Nine Months Ended September 30,
    2017   2016   2017   2016
                 
Net loss   $ (10,284 )   $ (10,194 )   $ (32,466 )   $ (39,226 )
Interest (income) expense, net     (198 )     (44 )     (585 )     (55 )
Other (income) expense, net     (235 )     (36 )     (349 )     (184 )
Provision for (benefit from) income taxes     (2,325 )     70       (2,009 )     361  
Depreciation expense     1,173       1,142       3,441       3,395  
Amortization of intangible assets     894       769       1,863       1,935  
Acquisition-related expenses     87       -       167       -  
Stock-based compensation expense     5,288       4,177       14,738       13,337  
Adjusted EBITDA   $ (5,600 )   $ (4,116 )   $ (15,200 )   $ (20,437 )
                                 


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