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Rapid7 Announces First Quarter 2018 Financial Results

May 8, 2018 4:06 PM

BOSTON, May 08, 2018 (GLOBE NEWSWIRE) -- Rapid7, Inc. (NASDAQ: RPD), a leading provider of analytics solutions for security and IT operations, today announced its financial results for the first quarter of 2018.

“Rapid7 had a strong start to 2018, putting us in a great position to achieve our 2018 goals, our long term aspirations and our overall SecOps vision," said Corey Thomas, President and CEO of Rapid7. "Enterprises are prioritizing cyber security in their IT budgets, and products that provide visibility, analytics and automation continue to outgrow the overall market for security software. With a broad set of solutions, our SecOps portfolio and platform are resonating with our customers and the broader market."

"The highlight of our first quarter was our Annualized Recurring Revenue, which accelerated to 38% year over year growth, which is evidence that our shift to subscription is gaining traction. Based on the strength of our business so far this year, we are raising our guidance for growth in both ARR and revenue for 2018, maintaining our guidance for 2018 non-GAAP operating loss, as we continue to invest in the business to drive meaningful growth, and reiterating our goal of achieving non-GAAP profitability in 2019."

First Quarter 2018 Financial Results (under ASC 606)

First Quarter 2018 Financial Results (under ASC 605)

For the first quarter of 2018, we recognized revenue under ASC 606. For the first quarter of 2017, however, we recognized revenue under ASC 605. Therefore, the periods are not directly comparable. In addition, since we adopted ASC 606 using the modified retrospective method, we have presented in the table below, for the first quarter of 2018, a summary of certain consolidated financial statement line items impacted by the adoption of ASC 606 with a comparison of these line items to ASC 605.

Three Months Ended March 31, 2018
Under ASC 606 Under ASC 605 Difference
(in thousands)
Products $35,279 $37,766 $(2,487)
Maintenance and support 10,753 11,682 (929)
Professional services 8,483 8,753 (270)
Total revenue 54,515 58,201 (3,686)
Cost of revenue - GAAP 16,594 16,616 (22)
Gross margin - GAAP 70.0% 71.4%
Cost of revenue - non-GAAP 15,312 15,334 (22)
Gross margin - non-GAAP 71.9% 73.7%
Sales and marketing - GAAP 29,052 30,743 (1,691)
Sales and marketing - non-GAAP 27,450 29,141 (1,691)
GAAP loss from operations (16,585) (14,612) (1,973)
Non-GAAP loss from operations (8,872) (6,899) (1,973)
Deferred revenue, current portion 140,448 152,336 (11,888)
Deferred revenue, non-current portion 78,450 61,730 16,720
Total deferred revenue 218,898 214,066 4,832

Recent Business Metrics and Highlights

Second Quarter and Full-Year 2018 Guidance

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

Second Quarter 2018 Guidance (in millions, except per share data)
Impact of Adoption
Under ASC 606 Under ASC 605 of ASC 606
Revenue $54.3 to$55.7 $57.6 to$59.0 $(3.3)to$(3.3)
Year-over-year growth 21%to24%
Non-GAAP loss from operations $(9.8)to$(8.4) $(8.7)to$(7.8) $(1.1)to$(0.6)
Non-GAAP net loss per share$(0.21)to$(0.18)
Weighted average shares outstanding 46.5
Full-Year 2018 Guidance (in millions, except per share data)
Impact of Adoption
Under ASC 606 Under ASC 605 of ASC 606
Revenue $231.0 to$236.5 $244.5 to$249.0 $(13.5)to$(12.5)
Year-over-year growth 22%to24%
Non-GAAP loss from operations $(26.0)to$(20.0) $(25.0)to$(21.0) $(1.0)to$1.0
Non-GAAP net loss per share$(0.55)to$(0.42)
Weighted average shares outstanding 46.7

Guidance for the second quarter and full-year 2018 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, May 8, 2018, to discuss its results at 4:30 p.m. Eastern Time. The call will be accessible by telephone at 888-223-6884 (domestic) or 303-223-4373 (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 21886771) until May 15, 2018. A webcast replay will be available at http://investors.rapid7.com.

About Rapid7

Rapid7 (NASDAQ: RPD) powers the practice of SecOps by delivering shared visibility, analytics, and automation that unites security, IT, and DevOps teams. The Rapid7 Insight platform empowers these teams to jointly manage and reduce risk, detect and contain attackers, and analyze and optimize operations. Rapid7 technology, services, and research drive vulnerability management, application security, incident detection and response (SIEM), orchestration and automation, and log management for more than 7,100 organizations across more than 120 countries, including 55% of the Fortune 100. 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 income taxes, (4) depreciation expense, (5) amortization of intangible assets, (6) stock-based compensation expense, and (7) certain non-recurring 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.

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, and certain non-recurring items such as secondary public offering costs and litigation-related expenses. 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.

Annualized Recurring Revenue (ARR). ARR is a non-GAAP measure that we define as the annual value of all recurring revenue related contracts in place at the end of the quarter. ARR should be viewed independently of revenue and deferred revenue as ARR is a performance metric and is not intended to be combined with any of these items.

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. Historically, we have considered 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. With the expansion of our subscription, cloud-based product offerings (InsightVM, InsightIDR, InsightAppSec, and InsightOps) on the Insight platform, the shift of our other products to subscription pricing, and the shift of our sales compensation plans to Annualized Recurring Revenue, we believe calculated billings will be a less meaningful metric for our operations. 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 historical 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 second quarter and full-year 2018, 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2017 filed with the Securities and Exchange Commission on March 8, 2018, 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, CFAVice President, Investor Relations[email protected](857) 990-4074

Press contact:

Caitlin Doherty[email protected](857) 990-4136

RAPID7, INC.
Consolidated Balance Sheets (Unaudited)
(in thousands)
March 31, 2018 December 31,2017
Under ASC 606 Under ASC 605 Under ASC 605
Assets
Current assets:
Cash and cash equivalents $99,646 $99,646 $51,562
Short-term investments 29,630 29,630 39,178
Accounts receivable, net 38,718 38,718 73,661
Deferred contract acquisition and fulfillment costs, current portion 8,583 — —
Prepaid expenses and other current assets 12,232 11,949 8,877
Total current assets 188,809 179,943 173,278
Long-term investments 1,096 1,096 1,102
Property and equipment, net 9,238 9,238 8,589
Goodwill 83,164 83,164 83,164
Intangible assets, net 16,316 16,316 16,640
Deferred contract acquisition and fulfillment costs, non-current portion 20,295 — —
Other assets 1,552 1,552 1,363
Total assets $320,470 $291,309 $284,136
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $5,669 $5,669 $2,240
Accrued expenses 18,372 18,372 29,728
Deferred revenue, current portion 140,448 152,336 155,811
Other current liabilities 1,702 1,702 1,706
Total current liabilities 166,191 178,079 189,485
Deferred revenue, non-current portion 78,450 61,730 68,689
Other long-term liabilities 1,907 1,478 1,809
Total liabilities 246,548 241,287 259,983
Stockholders’ equity:
Common stock 462 462 441
Treasury stock (4,764) (4,764) (4,764)
Additional paid-in-capital 503,669 503,669 463,428
Accumulated other comprehensive loss (44) (44) (39)
Accumulated deficit (425,401) (449,301) (434,913)
Total stockholders’ equity 73,922 50,022 24,153
Total liabilities and stockholders’ equity $320,470 $291,309 $284,136

RAPID7, INC.
Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
Three Months Ended March 31,
2018 2018 2017
Under ASC 606 Under ASC 605 Under ASC 605
Revenue:
Products $35,279 $37,766 $25,942
Maintenance and support 10,753 11,682 10,802
Professional services 8,483 8,753 8,501
Total revenue 54,515 58,201 45,245
Cost of revenue:
Products 8,436 8,464 4,710
Maintenance and support 1,849 1,849 1,878
Professional services 6,309 6,303 5,676
Total cost of revenue 16,594 16,616 12,264
Total gross profit 37,921 41,585 32,981
Operating expenses:
Research and development 16,722 16,722 11,393
Sales and marketing 29,052 30,743 24,810
General and administrative 8,732 8,732 7,248
Total operating expenses 54,506 56,197 43,451
Loss from operations (16,585) (14,612) (10,470)
Other income (expense), net:
Interest income (expense), net 241 241 169
Other income (expense), net 78 78 (115)
Loss before income taxes (16,266) (14,293) (10,416)
Provision for income taxes 95 95 129
Net loss $(16,361) $(14,388) $(10,545)
Net loss per share, basic and diluted $(0.36) $(0.32) $(0.25)
Weighted-average common shares outstanding, basic and diluted 45,210,250 45,210,250 42,016,831

RAPID7, INC.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended March 31,
2018 2018 2017
Under ASC 606 Under ASC 605 Under ASC 605
Cash flows from operating activities:
Net loss $(16,361) $(14,388) $(10,545)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization 2,399 2,399 1,624
Stock-based compensation expense 6,225 6,225 4,279
Provision for doubtful accounts 156 156 316
Foreign currency re-measurement loss 147 147 44
Other non-cash (income) expense (52) (52) 97
Changes in operating assets and liabilities:
Accounts receivable 34,722 34,722 15,182
Deferred contract acquisition and fulfillment costs (1,713) — —
Prepaid expenses and other assets (3,190) (2,936) 1,466
Accounts payable 3,219 3,219 (244)
Accrued expenses (11,317) (11,317) (7,216)
Deferred revenue (6,495) (10,435) (1,416)
Other liabilities (444) (444) (266)
Net cash provided by operating activities 7,296 7,296 3,321
Cash flows from investing activities:
Purchases of property and equipment (2,147) (2,147) (1,335)
Capitalization of internal-use software costs (693) (693) —
Purchases of investments (4,460) (4,460) (7,401)
Sale and maturities of investments 14,062 14,062 900
Net cash provided by (used in) investing activities 6,762 6,762 (7,836)
Cash flows from financing activities:
Proceeds from secondary public offering, net of offering costs paid of $284 31,231 31,231 —
Taxes paid related to net share settlement of equity awards (462) (462) (169)
Proceeds from employee stock purchase plan 1,632 1,632 1,499
Proceeds from stock option exercises 1,961 1,961 775
Net cash provided by financing activities 34,362 34,362 2,105
Effects of exchange rates on cash, cash equivalents and restricted cash (36) (36) (76)
Net increase (decrease) in cash, cash equivalents and restricted cash 48,384 48,384 (2,486)
Cash, cash equivalents and restricted cash, beginning of period 51,762 51,762 53,148
Cash, cash equivalents and restricted cash, end of period $100,146 $100,146 $50,662

RAPID7, INC.
GAAP to Non-GAAP Reconciliation (Unaudited)
(in thousands, except share and per share data)
Three Months Ended March 31,
2018 2018 2017
Under ASC 606 Under ASC 605 Under ASC 605
Total gross profit (GAAP) $37,921 $41,585 $32,981
Add: Stock-based compensation expense1 374 374 202
Add: Amortization of acquired intangible assets2 908 908 439
Total gross profit (non-GAAP) $39,203 $42,867 $33,622
Gross margin (non-GAAP) 72% 74% 74%
Gross profit (GAAP) - Products $26,843 $29,302 $21,232
Add: Stock-based compensation expense 125 125 60
Add: Amortization of acquired intangible assets 908 908 439
Total gross profit (non-GAAP) - Products $27,876 $30,335 $21,731
Gross margin (non-GAAP) - Products 79% 80% 84%
Gross profit (GAAP) - Maintenance and support $8,904 $9,833 $8,924
Add: Stock-based compensation expense 28 28 60
Total gross profit (non-GAAP) - Maintenance and support $8,932 $9,861 $8,984
Gross margin (non-GAAP) - Maintenance and support 83% 84% 83%
Gross profit (GAAP) - Professional services $2,174 $2,450 $2,825
Add: Stock-based compensation expense 221 221 82
Total gross profit (non-GAAP) - Professional services $2,395 $2,671 $2,907
Gross margin (non-GAAP) - Professional services 28% 31% 34%
Loss from operations (GAAP) $(16,585) $(14,612) $(10,470)
Add: Stock-based compensation expense1 6,225 6,225 4,279
Add: Amortization of acquired intangible assets2 948 948 486
Add: Secondary public offering costs3 140 140 —
Add: Litigation-related expenses4 400 400 —
Loss from operations (non-GAAP) $(8,872) $(6,899) $(5,705)
Net loss (GAAP) $(16,361) $(14,388) $(10,545)
Add: Stock-based compensation expense1 6,225 6,225 4,279
Add: Amortization of acquired intangible assets2 948 948 486
Add: Secondary public offering costs3 140 140 —
Add: Litigation-related expenses4 400 400 —
Net loss (non-GAAP) $(8,648) $(6,675) $(5,780)
Net loss per share, basic and diluted (non-GAAP) $(0.19) $(0.15) $(0.14)
Weighted-average common shares outstanding, basic and diluted 45,210,250 45,210,250 42,016,831
1 Includes stock-based compensation expense as follows:
Cost of revenue $374 $374 $202
Research and development 2,566 2,566 1,513
Sales and marketing 1,563 1,563 1,403
General and administrative 1,722 1,722 1,161
2 Includes amortization of acquired intangible assets as follows:
Cost of revenue $908 $908 $439
Sales and marketing 39 39 38
General and administrative 1 1 9
3 Includes secondary public offering costs as follows:
General and administrative $140 $140 $—
4 Includes litigation-related expenses as follows:
General and administrative $400 $400 $—

RAPID7, INC.
Reconciliation of Total Revenue to Calculated Billings (Unaudited)
(in thousands)
Three Months Ended March 31,
2018 2018 2017
Under ASC 606 Under ASC 605 Under ASC 605
Total revenue $54,515 $58,201 $45,245
Add: Deferred revenue, end of period 218,898 214,066 167,647
Less: Deferred revenue, beginning of period 225,393 224,500 169,063
Calculated billings $48,020 $47,767 $43,829

Reconciliation of Net Loss to Adjusted EBITDA (Unaudited)
(in thousands)
Three Months Ended March 31,
2018 2018 2017
Under ASC 606 Under ASC 605 Under ASC 605
Net loss $(16,361) $(14,388) $(10,545)
Interest (income) expense, net (241) (241) (169)
Other (income) expense, net (78) (78) 115
Provision for income taxes 95 95 129
Depreciation expense 1,383 1,383 1,138
Amortization of intangible assets 1,016 1,016 486
Stock-based compensation expense 6,225 6,225 4,279
Secondary public offering costs 140 140 —
Litigation-related expenses 400 400 —
Adjusted EBITDA $(7,421) $(5,448) $(4,567)

RAPID7, INC.
Adjusted Opening Consolidated Balance Sheet Under ASC 606 (Unaudited)
(in thousands)
Adjusted underASC 606
January 1, 2018
Cash and cash equivalents$51,562
Short-term investments39,178
Accounts receivable, net73,661
Deferred contract acquisition and fulfillment costs, current portion7,844
Prepaid expenses and other current assets 8,907
Long-term investments 1,102
Property and equipment, net8,589
Goodwill 83,164
Intangible assets, net16,640
Deferred contract acquisition and fulfillment costs, non-current portion19,321
Other assets 1,363
Total assets$311,331
Accounts payable $2,240
Accrued expenses29,728
Deferred revenue, current portion142,020
Other current liabilities1,706
Deferred revenue, non-current portion83,373
Other long-term liabilities2,238
Total liabilities261,305
Common stock 441
Treasury stock(4,764)
Additional paid-in-capital463,428
Accumulated other comprehensive loss (39)
Accumulated deficit (409,040)
Total stockholders’ equity50,026
Total liabilities and stockholders’ equity$311,331

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