Rapid7 Stabilizing Margins Amid Flat ARR Growth

Date of Call: Feb 10, 2026

Financials Results

• Revenue: Q4: $217.4M, up 0.5% YOY; Full Year: $859.8M, up 1.9% YOY
• EPS: Q4: $0.44 per diluted share (non-GAAP); Full Year: $2.08 per diluted share (non-GAAP)
• Operating Margin: Q4: 13.9% (non-GAAP), down sequentially; Full Year: 15.8% (non-GAAP)

Guidance:

• Q1 2026 ARR: ~$830M, down 1% YOY.
• Q1 2026 revenue: $207M to $209M, down 1% YOY at midpoint.
• Q1 2026 operating income: $19M to $21M (margin 9.6% at midpoint).
• Q1 2026 EPS: $0.29 to $0.32 per share.
• Full Year 2026 revenue: $835M to $843M, down 2% YOY at midpoint.
• Full Year 2026 operating income: $108M to $116M (margin 13.3% at midpoint).
• Full Year 2026 EPS: $1.50 to $1.60 per share.
• Full Year 2026 free cash flow: $125M to $135M.

Business Commentary:

Revenue and ARR Performance:

• Rapid7 reported total revenue of $217.4 million for Q4, growing 0.5% year-over-year, resulting in $859.8 million for the full year 2025, growing 1.9% year-over-year. The ending ARR was $839.9 million, approximately flat year-over-year.
• The growth was driven by sustained new deal activity for MDR offerings and investments in AI-enabled security operations.

Detection and Response Segment Growth:

• Detection and response ARR grew approximately 7% year-over-year, with MDR ARR growth in the high-single digits.
• This growth was driven by the company's strategic investments to enhance and scale its MDR solutions, as well as the evolution of AI capabilities to improve detection and response processes.

Exposure Management and Product Modernization:

• Exposure Command saw rapid adoption in Q4, with new features such as AI-generated vulnerability scoring and attack path analysis.
• The company's focus on modernizing its exposure management offerings contributed to this growth, addressing customer needs for more integrated and automated risk remediation solutions.

Operational Investments and Margin Outlook:

• Q4 non-GAAP operating income was $30.1 million, reflecting a margin of 13.9%. Operating margins are expected to expand in 2026 as investments in AI capabilities and global capacity take effect.
• The sequential downtick in margin was due to strategic investments in product growth initiatives and organizational leadership in the second half of 2025.

Customer Focus and Market Strategy:

• Rapid7 is prioritizing the midsize and mainstream enterprise market, aiming to unlock its full addressable market potential with a focus on quality service and sustainable growth.
• The company is enhancing customer engagement through strategic partnerships and refining its go-to-market strategy to improve demand quality and conversion rates.

Sentiment Analysis:

Overall Tone: Positive

• Management stated they 'exceeded our guidance across revenue, annual recurring revenue, ARR, and operating income' and highlighted 'sustained new deal activity' and 'encouraging growth.' They expressed confidence in the strategy, noting 'we are confident in this strategy' and 'we believe this plays directly into Rapid7's strengths.'

Q&A:

• Question from Meta Marshall (Morgan Stanley): How would you measure or expect where some of the changes in marketing, sales, customer success, and incentives should be seen first? What milestones are you holding yourselves to?
  Response: CEO expects increased sales/marketing productivity and efficacy, and improved ability to scale services while maintaining gross margins, with focus on delivering more customer engagement and customizations.

• Question from Jonathan Ho (William Blair & Company): What are the core growth businesses going forward and what changes will drive acceleration?
  Response: Core growth is in detection & response (MDR), with focus on unlocking the full mainstream enterprise addressable market and integrating exposure management, while deprioritizing legacy on-prem offerings.

• Question from Jonathan Ho (William Blair & Company): Why did you decide not to offer full year ARR guidance, and what would make you comfortable bringing it back?
  Response: CFO and CEO cited the need for meetable guidance and the fact that many changes (sales, marketing, customer success) are underway with new leadership; they will reconsider providing full-year ARR guidance once trends establish and improvements are visible.

• Question from Robbie Owens (Piper Sandler & Co.): When do you expect the investments to start bearing fruit to stabilize the ARR decline in Q1 guidance?
  Response: CEO stated that MDR growth should improve over the year, with a mid-year check-in; exposure management saw Q4 unit uptick but was slow last year, and they do not want to straight-line that improvement into the full-year outlook.

• Question from Robbie Owens (Piper Sandler & Co.): What are customers asking of Rapid7 regarding AI, and what are conversations like around the potential threat of AI?
  Response: Customers are asking Rapid7 to leverage AI to help them do more with less, including taking on more operational workloads, while demanding transparency and trust in AI solutions.

• Question from Grant Darling (Jefferies LLC): How are customer consolidation trends impacting win rates and deal sizes, and what is most important for you to be a beneficiary?
  Response: Rapid7 benefits from consolidation but needs to improve storytelling and delivery; a key focus is expanding partnerships to integrate best-of-breed technology into their stack to capture more share of wallet, though no material improvement is assumed in initial guidance.

• Question from Grant Darling (Jefferies LLC): When does the MDR business get big enough to drive growth acceleration?
  Response: CEO believes MDR is already big enough and they are on track to unlock it this year with the right technology and service shifts, which should improve growth and margin profile.

• Question from Adam Tindle (Raymond James & Associates): What is driving the ARR decline in Q1 guidance, and how are you investing to reverse it?
  Response: The decline is driven by D&R growth not compensating for negative pressures in other business segments; churn dynamics are stable in exposure but D&R is the focus for improvement, with confidence that investments will help unlock growth.

• Question from Adam Tindle (Raymond James & Associates): What is driving the improvement in EBIT dollars on a declining revenue base?
  Response: CFO stated that investments made in 2025 (e.g., product, India team) start to bear fruit, improving efficiency and margins as the year progresses.

• Question from Zachary Schneider (Robert W. Baird & Co.): Where are you in the monetization curve for Exposure Command and Incident Command, and which levers offer highest probability of lifting net retention?
  Response: Incident Command is in 'first inning' and not a sales priority currently; Exposure Command is in 'fourth or fifth inning,' with a unit uptick in Q4 and early Q1, offering upside but not baked into core assumptions.

• Question from William Kingsley Crane (Canaccord Genuity Corp.): How did the pipeline quality heading into 2025 compare to expectations, and what is the outlook for 2026?
  Response: Last year's pipeline assumptions were off, especially in D&R, where a backlog of larger deals built faster than they could be delivered; this year they are taking a more conservative, thoughtful approach and focusing on balancing deal sizes (singles/doubles) for growth acceleration.

• Question from William Kingsley Crane (Canaccord Genuity Corp.): How are you thinking about the net debt balance and philosophy on cash use?
  Response: CFO stated they are in a strong position to settle the March 2027 convertible debt maturity with cash and investments; beyond that, they aim to maintain liquidity to fund the business and seize opportunities.

• Question from Rudy Kessinger (D.A. Davidson & Co.): Should gross margin tick lower for the full year, and how do you get to the operating income ramp?
  Response: CFO noted Q1 has extra expenses (e.g., sales kickoff) and the MDR mix shift carries lower margins, but planned investment benefits will drive efficiency gains through the year; CEO confirmed the investment profile was planned last year and they are on track.

• Question from Trevor Rambo (BTIG, LLC): What was the mix of enterprise versus mid-market deals in the quarter and where is the most traction heading into 2026?
  Response: In 2025 pipeline, there was a significant shift towards larger, more complex deals ahead of delivery capacity; for 2026, the goal is a more balanced mix, focusing on both larger deals and the 'singles and doubles' of mid-market opportunities.

Contradiction Point 1

Outlook on Full-Year ARR Guidance

Guidance provision timeline shifts from immediate to uncertain future.

Why wasn't full-year ARR guidance provided, and under what conditions would it resume? - Jonathan Ho (William Blair & Company L.L.C.)

2025Q4: As trends become clear and new teams are situated, full-year ARR guidance will be reconsidered and provided. - Rafeal Brown(CFO) and Corey Thomas(CEO)

Are you still on track for the prior ARR guidance, and what is the underlying business momentum outside of the conservative guidance? - Joshua Tilton (Wolfe Research)

20251105-2025 Q3: The decision to provide a conservative, range-based forecast was to establish a clean baseline with the new leadership before rebuilding forecasting cadence... for next year. - Corey Thomas(CEO)

Contradiction Point 2

Growth Expectations for Exposure Command

Exposure Command's stage and contribution outlook shift from early focus to showing promise but not yet in guidance.

Where are Exposure Command and Incident Command in their monetization curves, and what upsell levers can boost net retention without broad pricing increases? - Zachary Schneider (Robert W. Baird & Co. Incorporated) [on behalf of Shrenik Kothari]

2025Q4: Exposure Command: Further along ("fourth or fifth inning"); saw unit uptick in Q4, positive feedback; not yet in guidance but shows promise for growth and retention. - Corey Thomas(CEO)

What does the data show for exposure command, including net new customer performance, ASP uplift, and ramp timeline? - Zachary Schneider (Baird)

20251105-2025 Q3: The focus this year has been on upgrades from VM to exposure command, resulting in deals with ASPs over double the previous expectation... The pipeline is smaller in volume but consists of larger deals. - Corey Thomas(CEO)

Contradiction Point 3

Primary Driver of ARR Decline

Explanation shifts from process-related pipeline issues to specific product area underperformance.

What factors are driving the Q1 net new ARR decline of ~$10M, and what strategies are being implemented to reverse this? - Adam Tindle (Raymond James & Associates, Inc.)

2025Q4: Primary Driver: D&R growth is insufficient to offset negative contributions from other business areas (e.g., legacy VM pressure). - Corey Thomas(CEO)

How was the large deal pipeline factored into the Q4 outlook? - Matthew Hedberg (RBC)

20251105-2025 Q3: The Q4 ARR outlook is intentionally conservative, reflecting the longer, more complex sales cycles associated with larger platform deals. - Timothy Adams(CRO)

Contradiction Point 4

ARR Guidance Precision and Visibility

Contradiction on the company's ability and intent to provide precise full-year ARR guidance.

What caused the absence of full-year ARR guidance, and what would lead to its reinstatement? - Jonathan Ho (William Blair & Company L.L.C.)

2025Q4: As trends become clear and new teams are situated, full-year ARR guidance will be reconsidered and provided. - Rafeal Brown(CFO) and Corey Thomas(CEO)

How did the large deal pipeline influence the Q4 outlook? - Matthew Hedberg (RBC Capital Markets)

2025Q3: The Q4 outlook reflects a high-confidence view after carefully analyzing the pipeline, conversion rates, and deal cycle times. - Timothy Adams(CFO)

Contradiction Point 5

MDR Maturity and Growth Contribution

Contradiction on whether MDR is already a major, established growth driver or still in the process of scaling.

When will MDR significantly drive growth acceleration? - Grant Darling (Jefferies LLC) [on behalf of Joseph Gallo]

2025Q4: MDR is already significant; need to be 'ungated' in sales and drive it more aggressively. On track to unlock this year, which should improve growth profile. - Corey Thomas(CEO)

1) Does MDR's growth with flat sequential ARR per customer signal pricing pressure or competition? 2) How should we balance growth and profitability through efficient reinvestment in 2026? - Fatima Boolani (Citigroup Inc.)

2025Q3: The competitive position is based on delivering high-quality, AI-driven SOC outsourcing. Value comes from combining AI with human expertise, leading to high retention. The company is focused on scaling profitability by investing in the right opportunities now to set up momentum for next year. - Corey Thomas(CEO)