RPD Q1 Earnings Call: Detection and Response Growth Offset by Exposure Management Pressures

Cybersecurity software maker Rapid7 (NASDAQ: RPD) fell short of the market’s revenue expectations in Q1 CY2025 as sales rose 2.5% year on year to $210.3 million. Its non-GAAP EPS of $0.49 per share was 42.2% above analysts’ consensus estimates.

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StockStory’s Take

Rapid7’s first quarter results were shaped by continued momentum in its Detection and Response (D&R) business and ongoing challenges in its Risk and Exposure Management segment. CEO Corey Thomas highlighted that D&R now represents more than half of the company’s annual recurring revenue, with mid-teens growth driven by customer demand for integrated threat detection and response solutions. Investments in automation and operational efficiency, including the new operations center in India, contributed to improved cost discipline. However, Thomas acknowledged that the Risk and Exposure Management business faced headwinds from a cautious spending environment, particularly among mid-market clients, and from delayed upgrade cycles in vulnerability management. The overall customer base remained stable, but the pace of upgrades and new deal closures in the risk segment lagged initial expectations, reflecting broader macroeconomic uncertainty.

Looking forward, Rapid7’s guidance reflects optimism in D&R’s growth prospects but also caution due to variability in customer spending patterns. Management expects the D&R segment to remain the primary growth engine, supported by ongoing product innovation and expanded service offerings, especially for larger enterprise clients. However, Thomas warned that upgrades in the Risk and Exposure Management business could take longer to materialize, given current budget constraints in the mid-market segment. The company’s revised outlook assumes continued resilience in D&R but incorporates a wider range of potential outcomes due to uncertain macroeconomic conditions. As Thomas stated, "We are seeing even though it may take a little bit longer, the D&R projects are closing. Now people want to make sure they get great value for what they're getting, but those D&R deals are closing and moving forward."

Key Insights from Management’s Remarks

Management attributed first quarter performance to strong demand in Detection and Response, while acknowledging delayed upgrades and spending caution in Risk and Exposure Management.

• Detection and Response drives growth: The company’s Detection and Response platform, including Managed Detection and Response (MDR) and XDR capabilities, remained the largest and fastest-growing segment. Management cited persistent demand for integrated security solutions as organizations seek to manage complex and expanding threat landscapes more efficiently.

• Exposure Management upgrade cycle slow: The transition from standalone vulnerability management to the integrated Exposure Management platform progressed slower than anticipated. Management explained that many mid-market customers faced budget constraints, resulting in longer deal cycles and delayed upgrades. The company is refining packaging and pricing and working closely with partners to accelerate adoption.

• Operational efficiency initiatives: Rapid7 continued to invest in cost optimization, highlighting the ramp-up of its new operations center in India. This facility is intended to enhance service delivery at lower cost, particularly as international demand grows. CFO Tim Adams noted these efficiency measures helped deliver profitability above the guided range for the quarter.

• Macroeconomic headwinds: Management emphasized that budget scrutiny and delayed decision-making were particularly pronounced among mid-market and resource-constrained customers in sectors such as healthcare, education, and state and local government. In contrast, larger enterprise and regulated industries showed more stable demand.

• Product innovation and integration: The launch of the Intelligence Hub and enhancements to cloud security capabilities (CNAPP) were positioned as key differentiators. Management believes these investments will help drive future growth in both core D&R and Exposure Management businesses by offering unified risk insights and streamlined remediation workflows.

Drivers of Future Performance

Rapid7’s updated outlook centers on ongoing D&R momentum, while recognizing that risk platform upgrades and macroeconomic pressures may limit near-term growth.

• D&R as primary growth engine: Management expects continued demand for Detection and Response services, especially among large enterprises seeking scalable managed security. The recently launched enterprise MDR (Managed Detection and Response) solution is anticipated to expand the company’s reach into complex customer environments.

• Upgrade cycle in Exposure Management: The pace of migrating customers from legacy vulnerability management to the Exposure Management platform remains a central variable. Management noted that accelerating this transition could drive upside, but acknowledged that mid-market budget limitations and elongated sales cycles may continue to dampen progress in the near term.

• Operational discipline and international expansion: The company plans to prioritize investments in areas with higher growth potential, such as international markets and automation. The operations center in India is expected to contribute to both service delivery efficiency and improved margins, while investments in AI and automation are intended to support scalable, profitable growth even as market conditions remain uncertain.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace and scale of upgrades from vulnerability management to the integrated Exposure Management platform; (2) continued momentum and customer wins in Detection and Response, especially among larger enterprises; and (3) the impact of operational initiatives, including the India operations center, on cost structure and service delivery. Additionally, we will watch for evidence that new product launches and international expansion contribute meaningfully to growth.

Rapid7 currently trades at a forward price-to-sales ratio of 1.8×. Should you double down or take your chips? See for yourself in our full research report (it’s free).

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