Q3 2021 Rapid7 Inc Earnings Call
Good day and thank you for standing by welcome to the rapid seven third quarter of 2021 earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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I'd now like to hand, the conference over to your speaker today Sunil.
Uh Huh, Vice President of Investor Relations.
Please go ahead.
Thank you operator, and good afternoon, everyone. We appreciate you joining us today to discuss rapid second third quarter 2021 financial and operating results. In addition to our financial outlook for the fourth quarter and full fiscal year 2021.
Yeah.
With me on the call today are Corey Thomas our CEO and Jeff <unk> our CFO.
We distributed our earnings press release over the wire and is now posted on our website at investors that rapid seven dot com along with the updated company presentation and financial metrics file.
This call is being broadcast live via webcast and following the call an audio replay will be available at investors that rapid seven dotcom until November 10 2021.
During this call we may make statements related to our business that are forward looking at the federal Securities laws.
These statements are made pursuant to the safe Harbor provisions of the private private Securities Litigation Reform Act of 1995.
And include statements related to the company's positioning our future goals and financial guidance for the fourth quarter and full year 2021, and the assumptions underlying such goals and guidance. These forward looking statements are based on our current expectations and beliefs.
Information currently available to us.
Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on Form 10-Q and in subsequent reports that we file with the SEC.
The information provided on this conference call should be considered in light of such risks.
Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward looking statements and reported results should not be considered as an indication of future performance.
Rapid seven does not assume any obligation to update the information presented on this conference call except to the extent required by applicable law.
Our commentary today will primarily be in non-GAAP terms and reconciliations between our historical GAAP and non-GAAP results and guidance can be found in today's earnings press release.
At times in our prepared comments or in response to your questions. We may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results.
Please be advised that this additional detail maybe onetime in nature, and we may or may not provide an update in the future on these metrics.
With that I'd like to turn the call over to our CEO Corey Thomas Corey.
Thank you Camille and good afternoon, everyone. Thank you all for joining us for our third quarter 2021 earnings results call.
Throughout the report the rapid seven delivery milestone quarter exceeding $500 million in <unk>.
The first time.
Demand for security transformation solutions, coupled with sustained growth in vulnerability management.
And our recent acquisition, so Q3, ending AR $550 million growth of 38% year over the prior year and growth of over 30% organically driven by strong contribution from both our land and expand is in the quarter.
Our business was driven by strong customer interest for the expanding set of capabilities are in fact platform and solid execution on the part of our record 17.
Moreover, we have been pleased with the early reception from our customers to the recent addition of insider threat intelligence offering.
Our third quarter results also demonstrate how we're delivering on our customer mission, while balancing our dual mandate to drive durable growth and expand profitability and free cash flow.
Alongside our accelerating growth, we delivered over 150 basis points of year over year operating margin expansion during the third quarter, even as we absorbed our largest ever acquisition to date.
Jeff will share more details on our strong operating results in his remarks, and how it positions us to continue investing behind our growth engine, while delivering on our growth and profitability framework.
But before we step into those details I'd like to spend a few moments to share with you a rapid seven is working to help customers achieve better security outcomes.
Happily evolving threat landscape.
Organizations of all sizes are invested in breadth and scale in the digital experiences they must deliver to their customers employees and partners and today's distribute economy. However, they embraced these broad digital initiatives.
Faced with a critical challenge of managing a dynamic cyber risk profile across the internal and external footprint.
As we speak with customers and prospects on a day to day basis.
Many are struggling with the same set of questions.
How do I gain visibility to the threat of an ability to my environment and better manage our risk profile.
How do I identify and respond to what's happening.
And how do I improve my security teams productivity to drive better security efficacy and an increasingly tight cyber security talent market.
These questions are at the core of todays pre operational challenge.
And the expanded feature the achievement gap that I spoke with you about earlier this year.
To solve this challenge many customers we engage are seeking a more holistic approach to marketing the threat and vulnerability within their environments as well as detecting and responding to attacks across their internal and external digital footprints.
As I shared at our Investor day in March.
<unk> seven is leading that charge by delivering some of the most advanced capabilities around security analytics and automation unified on an integrated platform.
Also massively festival to a wider audience of enterprise and mid market organizations.
This is how we are disrupting the market by enabling customers to marry capabilities high efficacy and productivity to achieve better security outcomes for their stakeholders.
A great example of how customers are leveraging this value.
In the quarter with a multimillion dollar general contract.
This customer was looking to build a more effective detection and response program after experiencing a security incident with their existing solution.
They wanted a comprehensive solution, but one that would also drive improved efficiency for their modest sized securities.
There is an existing <unk> customer.
We're excited about how quickly and easily standup and integrate additional insight platform solutions.
When coupled with the depth of our detection and response capability.
And the critical value our automation offering brought to their team it became clear to them that few competitors can match, the combined efficiency and efficacy of our platform.
As a result, this customer chose to expand their relationship with record seven as a trusted security partner and in fact, with our enhanced endpoint telemetry and network traffic analysis analysts as well as inside connect for automation to provide a more comprehensive visibility across their environment and the ability to more quick.
They respond to it.
This is a great validation of rapid submission and approach towards our extended detection response strategy, which.
Just to help customers minimized the themes and gaps that exist in their technology environments through our natively integrated insight.
Our approach is built on the premise that the half effectively charity you had to have profitability across your remark.
This is why we have invested aggressively over the years to become a leader in enabling that visibility.
The core wet rapid seven.
Collect fragmented data across the technology environment endpoint data deep cloud data portability data API evolves network data.
Fast data all collected in aggregate it natively on our insight platform.
This allowed us to look at risks more holistically across the environment.
Not just detect attacks, but to perform different risks and analysis across the environment and ultimately drive remediation with our automation framework.
Increasingly today's the Packers are exploiting the data gaps and themes.
Customers fragmented security ecosystem.
This has led to an increasing focus on an extended approach the tech and respond to the threat environment to reduce visibility get introduced.
Rapid seventh core differentiation is this pervasive end to end data collection that allow us to deliver leading security analytics automation and enables customers to more effectively assessments detect attacks drive remediation cost their environments.
We're seeing this focus on more holistic visibility reflective in our engagement with customers. A good example of this was in international enterprise customer, who had an interesting platform journey with them.
Up to their purchase of our recently introduced <unk> Ultimate practice package let.
Let me take a moment to step you through their journey.
Despite having a market leading solution this customer what was lacking full coverage of their environment. So they engage with us early in the year in an effort to achieve the detection response value. They were seeking at the same time they were preparing to replace their existing systems.
Our cohesive platform vision.
I am a single trusted security partner resonated with them and so they actually ended up purchasing insight first demonstrating.
Our ability to meet them, where they were in their <unk>.
Around this time they were also beginning their cloud security journey exploring leading solutions for this.
The combination of our best in class cloud capability, and our native integration with <unk> on our platform put US ahead of the pack and so they purchased insight cloud early in Q3.
By the time, they were ready to make a detection and response decision later in Q3, the integrated platform of experience.
<unk> positioned <unk> as the clear frontrunner with ICR ultimate.
<unk> they were able to gain more full coverage of their environments.
While also reducing daily counts by tapping into our <unk>.
Indeed capability, including enhanced endpoints.
Peter for more comprehensive Olympics analysis, and automation for increased efficiency and accelerated response over time.
And it's part of this customer journey, our complete platform vision was a key value driver for the customer not to mention a competitive differentiator.
And they are now leveraging a large portion of our insight platform as they approach seven patients in total.
Over time, we believe the winners in this space will be those that can provide this type of visit approach to reducing fragmentation and increasing visibility and our customers' technology environment as we continue to invest in delivering this on.
On our insight platform.
Most recently, our acquisition of insight amplifier to our platform and Xdr vision, while layering on external attack surface visibility further minimizing dean and elevating each of our vulnerability management detection and response and cloud security capabilities across our insight platform.
Turning now to a brief update on progress towards our enduring goals.
First we continue to lead the charge in enabling customers to transform their practices around the cloud.
You've seen us successfully extend the core capabilities of our insight platform, both organically and through strategic acquisitions to help customers effectively scaled as three operations.
Our strong and accelerating customer growth as we approach 10000 customers is a great validation of our progress to meeting customers, where they are in their pickup journey with an expanded set of market leading capabilities.
Second we're investing to accelerate our platform distribution engine through enhanced pricing and packaging for products like <unk>.
But also by making it easier for customers to seamlessly expand on.
On the insight platform through natively integrated experiences.
This success is delivering a best in class platform experience and teams to drive ongoing expansion and customer wallet share as demonstrated by our pro customer, which grew 18% year over year to over $55000.
And third we remain focused on driving long term operating leverage and cash flow scale, while investing for growth. This is evidenced by our strong cash generation and operating margin expansion, even as we continue to invest in innovation and absorb our recent insights acquisition.
In closing, it's clear that organizations across the world are undergoing significant digital transformation amidst escalating cyber threat landscape.
Our team is investing to delivering a highly differentiated and more holistic approach to security analytics and automation that better enables customers to breakthrough truly transformation alongside digital investments.
We believe this will remain a long term demand driver for our business as we continue on our mission to make the best of security operations achievable fall with that thank you all and now I will turn the call over to our CFO, Jeff go out.
Thank you Corey and Hello to everyone on the call. This afternoon.
Before I begin a reminder, that except for revenue all financial results. We will discuss today are non-GAAP financial measures unless otherwise stated and reconciliations between our GAAP and non-GAAP results can be found in today's earnings press release.
Turning to results. We are pleased to report strong performance as we ended the third quarter was $560 million of annualized.
Recurring revenue.
<unk> grew 38% over the prior year driven by organic acceleration in our security transformation solutions and sustained growth in vulnerability management as well as the contribution from our newly acquired threat intelligence software.
Third quarter revenue of $139 9 million.
33% over the prior year and exceeded the high end of our guidance range on strong underlying demand trends for our insight platform.
Revenue over performance was led by upside in products revenue, which grew 33% to $131 2 million.
It was also modest outperformance on the professional services side, which naturally varies quarter to quarter.
We continue to execute well on our international growth strategy, which when combined with a higher mix of insights customers outside North America drove 58% year over year growth.
International to 20% of total revenue in the quarter.
North America revenue grew by 28% year over year and comprised 80% of total revenue in the quarter.
We ended the third quarter with over 9900 customers globally, which represents 17% growth from the prior year.
The customer count includes slightly over 300, net new customers acquired as part of the insight acquisition.
We continue to see strong upsell and cross sell activity on our insight platform with just over 50% of our new <unk> coming from existing customers in the quarter.
This drove ongoing strong expansion in <unk> per customer during the quarter, which grew 18% to $55500.
Strong secular tailwind across the security operations market are fueling our ability to land new customers and expand within our existing base and third quarter <unk> growth was driven by a healthy balance of growth between these land versus expand dynamics.
Turning to operating and profitability measures for the third quarter. We came in ahead of our guidance on these metrics primarily due to revenue over achievement most of that incremental revenue flowed through directly to profitability highlighting the strong leverage profile of our subscription software business.
As has been our typical cadence this positions us well to reinvest the over performance in future quarters to support our goal of driving durable growth over the long term.
We continue to balance high return investments in growth with our focus on delivering consistent annual improvement in operating margin and free cash flow.
Total gross margin for the quarter was approximately 74% consistent with the prior year and in line with our range of expectations as.
As we've shared before we expect gross margin to vary within the mid seventies at the product gross margin level and in the low seventies at the consolidated level.
Sales and marketing expenses grew 27% year over year, reflecting continued growth in head count and improved to 40% of revenue compared to 42% in the third quarter of 2020.
R&D expenses grew 35% over the prior year driven in part by the acquisition of insights and represented 21% of revenue consistent with the prior year.
G&A expenses grew 24% and were approximately 8% of revenue down slightly from 9% in the prior year period.
All in all we delivered strong operating profit for the third quarter with operating income of $5 7 million well above our prior guidance and.
And we generated $9 9 million of adjusted EBITDA and <unk> of net income per share also above our guidance.
Moving to our balance sheet, we ended Q3 with cash cash equivalents and investments of $310 million compared to $613 million at the end of Q2 2021.
The reduction was primarily driven by July insights acquisition with a net amount of $306 million paid at closing.
Turning to the cash flow statement, you can see we benefited from outperformance and strong operating results in the quarter.
These dynamics, coupled with stronger than expected collections trends drove third quarter cash from operations of $19 million, and we generated $14 million and free cash flow.
This brings us to our guidance for the remainder of the year.
We delivered strong third quarter results and feel confident about demand trends and our ability continue to execute on these opportunities.
As we succeed in meeting customers, where they are and your security Qunar journey, we continue to expect that organic security transformation solutions.
We'll grow over 40% year over year 2021, with vulnerability management continuing to grow over 10%.
Given these dynamics, we are raising our outlook for the year. We now expect full year <unk> to be approximately $586 million growth of 35% over the prior year up two points from our prior expectation of 33% growth.
We also expect higher revenue for the full year in the range of $528 $7 million to $533 million or 29% growth over the prior year at the midpoint up from our prior expectation of 27% growth at the midpoint.
Our full year operating income outlook remains unchanged at $7 million, our strong year to date performance combined with high visibility and confidence in the demand environment.
Port a reinvestment of year to date upside and a compelling growth opportunities in front of us.
And we plan to do this while remaining committed to our growth and profitability framework.
We expect non-GAAP loss per share for the full year to be a loss of approximately <unk> <unk> per share, which is based on an anticipated $55 2 million basic weighted average shares outstanding.
I am pleased to report that we are once again, raising our free cash flow expectations and now anticipate full year free cash flow of approximately $25 billion.
An increase from our prior expectation of approximately $20 million driven by a strong <unk> performance.
As we've said we remain focused on investing durable growth, while maintaining our commitment to delivering consistent free cash flow and operating margin improvement on an annual basis.
Now turning to quarterly guidance.
For the fourth quarter of 2021, we expect revenue in the range of 144 nine to $146 5 million.
<unk> of 28% to 29% over the prior year.
We expect an operating loss of approximately $6 7 million.
And non-GAAP loss of <unk> 18 per share, which is based on an anticipated 57 million basic weighted average shares.
In summary, our third quarter results highlight the strong demand for our best in class security transformation and vulnerability management solutions as well as our ability to execute on our strategy and unique set of opportunities.
Thank you for taking the time to join our call today and now I'll open the line for any questions operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press the pound key.
While we compile the Q&A roster.
Our first question comes from Rob Owens with Piper Sandler Your line is open.
Great. Thanks for taking my question. This afternoon I wanted to unpack the <unk> guide for the year and just.
Contemplating the net new <unk>.
About $36 million and comparing it with last year.
I think youre up kind of mid single digits. So was there anything in the comp from a year ago or anything in that number that we should be aware of.
No.
Nothing unusual.
Remember that we we have raised the guidance from 33% to 35%.
No unusual activity.
It is possible that the consensus seasonality may have been off for the quarter.
Great and then.
As you look at another successful quarter here with your third quarter prints, maybe help paint what the environment looks like relative to security demand and then kind of thought process for fourth quarter and anything you want to give us into next year do you think these heightened spending levels will persist as we think about and contemplate 2022.
Thanks.
Yes.
Good question.
I look at the demand environment, both on the customer directly in front of our team.
Bob.
We continue to see.
People are shifting more to technology and upgrading their technology transformation and we continue to get security of priority I mean, its hard not passenger you as a priority around that.
Can you dig into what's happening.
In the world, but we continue to actually have the.
Ports.
Not just.
Customers, who wanted to do it but the boards and Ceos, who are now prioritizing security more than ever.
The thing that I would actually say as we go forward is that as.
As we solve the durability of the demand environment.
One of the things that we started doing the biggest share that we were actually set up to ensure that with the most service customers and continue to meet demand where it is.
We focus on making sure that we have the staffing levels to support the more sustained demand environment.
On that point my biggest focus in the biggest thing.
Environment right now customers have the appetite.
For silver by security projects, but they are saying the same thing that everyone. All over the world and see them right now they have to staff up.
So we're watching that closely as you know our strategy is.
Long term, we want to make sure that customers are buying at the pace that they can consume and get value from it. This is how we execute growing while we expand that.
Our core focus.
As we go forward lapping up if we just think about our business your ability on both the Vms and its journey of transformation at that.
And we're continuing.
To make investments to support that.
Great. Thank you very much.
Thank you. Our next question comes from Matt Hedberg with RBC capital markets.
Your line is open.
Great. Thanks for taking my questions guys. Congrats on a really strong quarter.
Corey you guys have done a really good job of expanding our platform, obviously well beyond just the broader.
Broader Deb Zack ops I'm curious now as the platform matures.
To touch things like automation and orchestration, how do you see the competitive environment. These days I have to imagine youre able to consolidate perhaps some fragment fragmentation out there with maybe some point solutions and the customers increasingly see you got this is is that consolidator across this kind of a desert like ups landscape.
Yes.
So I'll take I'll tackle that one.
First and foremost we are definitely seeing the.
The platform strategy that we've articulated multiple times working well and that is that if you actually lead across all of the year and you providing common platform that delivers productivity.
Efficacy efficiency at a consistent user experience customers like that.
And you saw that in some of the customer examples that I used in the call.
The other thing that I would highlight is that we have the benefit of multiple places to land.
If you look at <unk>, specifically, the vulnerability risk management.
But now that we've actually gotten a lot smarter about what traveled is effective and valuable.
I personally im a believer in the power culture, which is why I think that we.
Have such an impressive team.
With relatively to 10 years and so we do believe that the hybrid world works, where employees can have the flexibility that they need they can travel to see customers in value added ways I do that gets valued actually spending time with customers and prospects that fit all the ways that we actually know about that we need to spend time with customers.
Perfect.
All of that with value add and so we are definitely looking at sort of like a reconciliation of what's truly value add and what's not and so it will be more but we're not also going back to the world. The way that it was in 2018 in 2019.
It's not coming back.
Got it thanks, a lot best of luck guys.
Okay.
Our next question comes from <unk> <unk> with Barclays. Your line is open.
Okay, Great Hey, guys. Thanks for taking my questions here.
Sure.
Corey maybe let me just start with you.
In your prepared commentary you talked a good bit about.
Hence the pricing and packaging and also talked about meeting the customer where they are can you just maybe give us some broad brushes and some of the new packages that maybe have worked particularly well.
And maybe how you sort of see that pricing and packaging sort of strategy evolving as we go into next year.
Yeah, and then I think like bright intelligence those type of package is really resume from customers because they solve a holistic solution to customer. So are deeply integrated in that immigration provides for activities deep integration and trials productivity, but you have a best in class product capabilities, which actually tried to Africa.
Which is really the name of the game professors. So that's the that's the first thing.
The second thing that I want to highlight just as importantly, though is that for both our customers and our sales team. So I'm, hoping to get my package someone's gonna upgrade packages, but some of them just want us to prove the value since actually great and so the one the customer examples that I gave up the customer they came in and said Hey look I have these problems solved whatever.
First parliament they thought we don't gotta be IR and if it no problem that actually have first and foremost and by the way. They went down to Baltimore, if they had not had a great experience and so we came in we gave them a great experience and they said Oh, you really deliberated on that experience and then add it's horrible to cloud.
Eventually the itr and so while we have one order here my customer had a completely different order that they want to prove off the value that we have that ability to not just self packages to help customers understand how they can have frictionless expansion and we can prove that we meet their needs is core to both.
Are sustained growth, but also give me a customer's experience what they want.
Got it got it that's really helpful.
Jeff made me for my follow up for you I think you mentioned in the prepared remarks, but could you just remind US you know how big is is V. M. As a percent of total ear are roughly and can you just remind us sort of how that's growing versus security transformation.
Sure.
So.
Both BMA of security transformation had a good quarter of course said the prepared remarks right now security transmissions. Obviously are high growth engine VM is just under it's below 50% now of the total so as you can imagine security transformation is growing faster so it's gaining as a <unk>.
Percent of the total.
VF is still growing over 10%, a year and and and security transformation over 40%.
Got it very helpful. Thanks, guys.
Thank you. Our next question comes from Coulter with Keybanc. Your line is open.
Hi, This is Keith out for Michael Congrats on the really strong results.
It looks like another strong quarter for customer add 600, and again given organically. So maybe you could just give some color in mind, what's trying unsuccessfully to strengthening macro better when rates or even if it's being driven by a particular products.
Yeah at the court the combination.
Demanding environment is Susan marketing, so I wanted to see about that is our new ads are healthy because there's lots of demand and the environment.
And we see that across the products will be closely suggested talked about and then I mentioned earlier and clear that security transformation.
Is doing quite well, but also.
Keep our momentum.
In.
What really matters.
Happy with San ability and health.
Of that business.
That could make a good application by our team.
Frightening that our customer engagement teams because another core driver of that is where do a really really good job.
Retaining more customers.
So our ability to actually retain more customers are a more revenue customers. That's continuing to improve your one year and that also drive the net customer at.
Great and then if I could I mean call you earlier talked about kind of the need for customers to staff up so I wanted to ask Usher in your your M. D are offering it seems like an area of the market that same stronger demand and maybe spared by the increasingly difficult iron environment and growing complexity of attack. So could you just talk about how do you think about this market strategically as part of the broader and.
Type platform.
Uh-huh.
Leaving and we've got this for a long time that man's attention and the class is quite strategic within.
Our entire strategy one way to think about it it's designs around the presumption is that customers would have to be highly effective.
Highly efficient and that they're going to always be talented strained and so we make products that address that you state and we actually looked at and we look at things like in the R. That actually address that you guys are strategy is really twofold is why do we have some of our old if you're offering but again, our biggest part of our strategy as to what was our main services.
Partners to deliver that and we have a massive demand in the managed services ecosystem for rapid several solutions to solve demand services.
Challenge now part of our goal is we are only interested in providing high quality services. So there's a lot of managed services organizations.
But let's just say more focused on the their own margin standing customer experience a customer effectiveness and so what we've been really bill it beeping of our ability to find and mostly right now select partners that share our view quality customers are willing to pay for quality, we've proven that out ourselves.
So we're a big believer in the market long term will continue to work with our partners to address their market opportunities.
Great.
Congrats again.
Thank you.
Our next question comes from Jonathan How William Blacky online is okay.
Hi, good afternoon, and congrats on the strong results Uhm I just wanted to start out with the 40% organic <unk> here expecting for a security transformation is there a way for you to maybe unpack for us on like the grocery it are they all fairly similar are there certain products that are growing much more quickly just some additional color in terms of.
Of how you are thinking about that the S T side.
Great questions. So we don't break it out it just has a lot to do with our packaging strategy that we talked about earlier, especially if you'd looked more the experimentation.
And we frankly to do a better job of selling.
Both are joining deliver packages to customers may become somewhat arbitrary about how you allocate some like just much value to this product resistant. So our primary way that the reason would break out B M is good.
You all in our investors are interested in understanding and put up like housing but via perform.
And sort of are sort of like security saturation solutions. So we try to give you enough visibility, but also without just in the two months of where the business is actually lending an operating and the way that we operate the business is really focusing on always solve the customer's problem and they're always drive its share of wallet, so the customers or a trustee more of their security.
Operations spend budget with us.
And increasingly the allocations when you have lots of our packets somewhat arbitrary so we'll continue to sort of articulate.
Security transformation solutions with the high level to to get some of the growth rates, but breaking out within that becomes increasingly arbitrary overtime.
Got it and then just in terms of the contribution from insights Uhm I may have missed this but can you give us an I guess the numbers in terms of the contribution as well as they are coming from inside thank you.
Yeah, Yeah. So.
A false start working at when we acquired them we brought on $27 million <unk>. There were about 200 employees and they were growing over 40% in the quarter contributed about.
$3.8 million of revenue.
In the quarter.
And and that was that was net of deferred revenue here Cook that we took the purchase account.
Great. Thank you.
Thank you. Our next question comes from prior sex with Goldman Sachs. Your line is okay.
Hey, good afternoon. Thank you for taking the question.
Okay, I just wanted to dig into vulnerability management, a little bit and I guess, maybe quarter. If he could help us understand how you're thinking about that business given its growth rate relative to the rest of the business.
And the rate of growth has some it appears is that just a steady kind of growth business and maybe that I guess, maybe if you can compare and contrast, the sales incentives from the salesforce on that side of their business versus security transformation, and then I have a follow up.
Yeah, I think I'll, just reiterate where you want to listen to what we still maintain would be our expectations of the corporate point of view and the management.
And when he could have durability there were.
We also are exempt from a long term respectively still picture in the market.
Raul and we expect to take significant usage share in the market feeling about people using a vulnerability and solutions part of the reason that we continue to invest heavily in a market leading PM solution from an R&D perspective, and we think it's strategic to our customers.
And so while we have parts of the business specifically, our security transformation third <unk>.
Pasture.
We think vulnerability, they're incredibly both strategic and healthy part of our business.
Long term so we have to be treated like that we invested it continues to innovation and enhancement around it.
What I would say you will see over time again, we are indifferent to the line I'm distributional allocation, what we're really really focused on is how customers can soon.
And then maximize your wireless that we talked about earlier and so again as we move forward I would say our goal is to make sure that will leave, especially if you sit around vulnerability management.
Actually be continuing to gain share in the overall market and to grow our AOR per customer and is sure wallet strategically and waiting all of those are self reinforcing with one of them.
Got it got it that's helpful and maybe just as a follow up I don't know if you saw that the bite administration issued an operational interactive to federal agencies. This afternoon to reduce known vulnerabilities and I guess the question is.
How much exposure to have on the federal side.
From your experience wins when these kinds of announcements are made how how long did it take the trickle down to state local and that's M. B and then large enterprise as maybe that's kind of a lake leadership by example type issue.
What's a good progress on the federal level, but to be clear, we're still early and we have both our families are expected and our standard.
Sales and customer engagement.
The public sector that we expect to expand significantly over the next five years.
But that's it we've seen great progress.
Today as far as how the mandates.
Quote unquote trickle down to the broader environment, we think it's positive look but today you actually have most.
Both CEO and boards of directors that are aware of that.
Add anything incremental.
So I think it actually increases our confidence in our public sector investors.
And I think it definitely has some application for installed state and local budgets, which I think is extraordinary.
<unk> for for the corporate sector, we've been really really good what we hear from our customers.
Really good engagement with both the biggest seemed to the board of directors, we provide lots of the air cover in support of our long term health environment.
Got it that's helpful. Thank you very much.
Thank you and our next question comes from regular with Eric.
Yeah, Hey, guys. Congrats on eight on the strong performance.
It's nice to see that organic acceleration.
So I want to talk about cloud sack, it's been quite a quite a.
Few days does the acquisition of Debbie cloud, obviously, bringing you see SPN I'll bet I'm I'm wondering if you can provide some customer interest maybe adoption trends around some of the newer parts of that that product the cloud workloads protection cloud identity and access management and and then so maybe you could comment on how you see customers by.
Right that that solution said is it is it the whole portfolio or is it more of a land didn't expand type of sales motion.
Within the clouds tech portfolio of furniture and of course.
Yeah.
<unk> portfolio, including CSP cloud workloads protection clouded that any.
Yeah, I would say one was still it was a very.
Very very healthy demand.
Four cloud in general what you would expect with the digital transformation.
So we have a lot of confidence both near term and long term about do you.
Opportunity and clouds, especially if you have digital transformation as far as the process.
The packaging, it's early days, we definitely see black people, starting with some like what part of the solution of expanding.
Positive that we started out with the crowd Street Foster attitude is that typically how lots of customer start their journey.
But if you look at about the I am in cloud workloads section with a lot the customers. If I ate just give you the solution unplug the doctor won't look at <unk>.
I don't have a determination right now nor am I. The only concern so it's like about a discussion on price effected earlier as we really let the customer preferences drive it now we don't give them an early.
An overwhelming number of choices that will just call so like struggling body.
Hi to give them concrete choices that they listen you can control your rolled out of the journey and the path to best suit you and so when they purchase it all at once but we have some customer to do.
Or whether they actually sort of like by it as they actually use the capabilities.
We have customers or both of those things today, and we have not steer customers it either way.
Yeah that makes sense.
And then I think I'll just I'll, just looking for with Corey would love to hear your thoughts on how you see that that cloud second portfolio of all of the where do you think that might be holes that would be a natural fill in for the company over time.
So I think that well I can't answer the question about the hold that but that has more to do with the early NIST of the cloud market, Joe I don't really think about so like.
Cloud security cloud applications is something that's been around it look this is really sort of like if you have mainstream adoption, if we could five year being.
And so if you look at the massive shifts and how we would actually manage and deploy technology in the cloud over the last five years, there's been some big shifts and there'll be even bigger ships.
So this is the one area that we're going to be invested in and we have the capacity to invest it.
Organically inorganically to make sure that we stay relevant but if you had asked me three years ago.
I had no clue that identity will be such a big big big opportunity.
But we actually notice 18 months ago or two years ago that I did is a really significant opportunity and we allocated the resources organically build out that identity solution.
And so that's kind of the approach cloud is still early stages, we have a great portfolio.
<unk> and our portfolio, absolutely will evolve because the clouds.
Market itself involved.
Very helpful. Thanks Corie.
Thank you.
Our next question comes from France back with Stifel.
Okay.
A great Corey may be following up on those last comments. It when you are walking into an existing customer net new and you're selling them will say the entire platform.
It is most of the the net new products acres selling them greenfield opportunity as opposed to the customer, replacing a legacy too.
Okay.
Great question.
We see Greenfield and legacy more up market you go on larger out.
More replacements.
I would say is that by and large the majority of what we're seeing is replacements of being sort of unhappy inefficient or greenfield as so many that like it's not that way.
Our sales team very.
Does not very often go track a bit customers to actually go replace something that the customer is happy with or satisfied with most of the time. The customer has some level of satisfaction either of us have a great product, they're just like.
Too hard to use or.
They're too expensive or the or they have gaps so like the fragmentation causes me to actually not be able to train on my team of vision and so by and large were active Wednesday goodbye is worth felony to either waynesville or dissatisfied customers.
And what I hear from our safety is that that's not sort of like opportunity.
Lots of people.
The satisfy that's mostly because the market is not focus on productivity user experience or how to make sure that customers can actually have the results. They want at a reasonable cost and those are all pumped that we're tackling installments.
That's great. Thanks very much thank.
Thank you.
Our next question comes from animals with framing.
Frame and changed your line or something.
I think this is Alan calm for Adam.
Curious with the number of monitoring vendors moving into App sack recently over the last few months, how do you think the competitive dynamic may shift and with so many vendors do you think there's any risk that application security becomes commoditized any point in the future.
It's a great question.
Why do we are <unk> took the page.
But aspect of a highly fragmented marketing sarnoff and so I would say that yes is more business, but application security out of all of the market.
The small is a smaller part of this very healthy but.
All of our business. It is also the most fragmented ecosystem and part.
Business.
What would become commoditize is I don't think so and the primary reason is that if you look at the foundation is people are building more apps than ever before and by the way. If you think about the other side of the equation is that we had a really difficult global cyber security ecosystem when it was prefer.
Sure.
ISP building applications now we have a bunch of professional Isps and a whole bunch of organization towards new that stability commercial great applications.
We're building, it's sort of escape it faster than ever that should be a robust opportunity for security that said would be some of the big about period of the clouds.
And we did it backwards.
And so I think the application security market is highly fragmented.
Like the cloud I talked about will evolve over time, but I don't see near term commoditization, even with the competition and EBIT seen players coming in from other markets, who actually have great relationships.
Yes.
Join it.
I see many of those figures joined it is to actually participate in the upside that just taxi drivers zero, but we'll see where it goes.
Perfect. Thanks, and then in case I missed it just a housekeeping question can you speak to.
Retention rate or any changes in gross retention rate.
Yeah.
Right up.
We haven't been disclosing it net retention rate, but what we will say is that is it has improved sequentially over the past few quarters and and we've done a very good job with.
With that area of customer retention, we've invested in it but we we aren't aren't disclosing the specific metric anymore.
Perfect. That's helpful. Thank you.
Our next question comes from Grandmaster correct.
Okay.
[noise]. Okay. Thank you good afternoon, guys. So the 58% the rest of the world revenue growth is pretty remarkable I think it's been five years since we've seen that type of grow with them.
Compared to your first quarter was actually the top of the first of all year. Okay recorded.
Were there any regions that were particularly strong for rabbits, hoping that you would have it.
Yeah. The growth internationally song it was not sort of like specifics with me movies and we saw I would think bra by itself wasn't the same cough apart without broad based health.
And growth and.
Palm growth.
Across the board across languages, I think a big part of that was I think I've talked about this dynamic or is that internationally.
Got more work to actually get especially if you have new offerings to get both the channel the branding and a sales team sort of like selling the platform I think our international leadership team and sales team to go to marketing and customer services team I've done a very very good job.
Shifting to the platform from some of our traditional transactional offerings like.
Which is great and highly strategic highly valuable, but as they shifted over.
To the platform that's helped drive the growth and frankly, they're also improve the customer retention. That's also has driven growth.
Alright, perfect. So then just as a file.
How is the labor market from your vantage point.
Yeah, let me suggest to have any follow up comments on the last question.
Yeah, Yeah, I just wanted to mentioned Greg that we we did benefit there was a tailwind for the insights acquisition, which wasn't in the prior year numbers. So they have a greater percentage of of international revenue, so that that contributed to the 58% but international.
Revenue was very strong and grew.
In excess of our overall ER are right. This court.
Okay.
And then Ah accordingly thoughts on the on the Labour Myrtia, Yes.
Yeah. So V. As quick question Labor market look we're experiencing the same thing that everyone else experience.
The labor market is definitely tighten.
From my perspective, I think we're probably a net beneficiary and what I mean by that is that if you look at our hiring plan, we perform well against our hiring plan. If you look at attrition.
Especially a isn't that is good that was in 2020 people really create jobs stability.
It's normalized from what it wasn't 19 photos of the period. So it's more normalized versus some of these super high Crazy attrition.
I think that some organization dizzying, Ed and we're seeing that we are our employer brand.
And are focused on culture has been able to attract talent noon now what are the biggest challenges that we have frankly as we go court is that as we've seen greater growth and the demand environment.
We've actually invested in hiring support that growth and so we open up that capacity to make sure that we're supporting the customers and support the calls as we go out next year, and so and that's a lot and discount market right now is actually expand your hiring.
And his talent market, but that's it we're having success, but it's something I watch and we talk about on an ongoing basis.
Very helpful. Thank you guys.
Thank you our next question comes from.
Uh-huh.
Morgan Stanley.
And.
Hey, guys. Good afternoon, and thank you for taking my question Cory maybe just one question for you.
Really strong growth and new customers I was wondering just given the the the rising threat environment to what extent are is the growth and into idea are being influenced by more deals around incident response is that something that you're seeing contribute more to larger cup.
Tomorrow Lance in particular, thank you.
Yeah, I think you mean, they're not incident without service has been a customers haven't incident, and therefore any furniture for your fast service yeah, Yeah yeah.
So it's.
I would say service is not a materials off of it.
I mean, we haven't services businesses eagerly web services business for us the most about.
Having a capacity to serve our customers and giving intelligence about what's happening.
So services and that way and the sponsors and save that one of the drivers is is customers have have incident, and then decide to upgrade their market capability and that's quite driver for for us.
I don't have statistics on it because as you can imagine that every customer the upgrades tells us that they have an estimate.
What I'll talk to them or.
Or actually sure that but they don't always show that would tell people.
And so I would say, we don't have a statistical answer around that but I would say that we definitely know the desktop.
Thank you.
Okay.
Thank you our next question comes from.
S B insecurities from anytime.
Oh, yes. Thank you very much is there a reason why the professional services revenue growth Spike the three 4% from like 12% in Q2 was that insights as well.
No just overall, we had a stronger bookings in the quarter, which led to delivering more revenue this quarter, but it was it was nothing unusual in that other than the volume increase this quarter.
So with that strength that you're saying you expect services revenue growth to be elevated compared to the past for the next several horse.
You know, it's not a big part of our business as you can tell we.
Of course said it does lead to product product revenues I think the way you should look at our professional services going forward. It will be in that mid to high single digits growth over over the next four quarters over the next year.
Okay. Thank you.
Thank you and I'm showing no further quite at this time I like to turn the call back over the Korean Thomas for closing remarks.
Thank you all so much for joining us stay on our earnings call and I hope that all of you are healthy.
And I look forward to speaking with you all later on this call.
This concludes today's conference call. Thank you for participating you may know.
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