Earnings Call
Rapid7, Inc. (RPD)
Earnings Call Transcript - RPD Q1 2021
Operator, Operator
Good day and thank you for joining us for the Q1 2021 Rapid7 Earnings Conference Call. I would now like to introduce your host, Sunil Shah, VP of Investor Relations. You may begin.
Sunil Shah, VP of Investor Relations
Thank you, operator, and good afternoon everyone. We appreciate you joining us today to discuss Rapid7's first quarter 2021 financial and operating results, in addition to our financial outlook for the second quarter and full fiscal year 2021. With me on the call today are Corey Thomas, our CEO, and Jeff Kalowski, our CFO. We've distributed our earnings press release over the wire, and it is now posted on our website at investors.rapid7.com, along with the updated company presentation and financial metrics. This call is being broadcast live via webcast. Following the call, an audio replay will be available at investors.rapid7.com until May 13, 2021. During this call, we may make statements related to our business that are forward-looking under federal securities laws. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements related to the company's positioning, our future goals, and financial guidance for the second quarter and full year 2021, as well as the assumptions underlying such rules and guidance. These forward-looking statements are based on our current expectations and beliefs and on 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-K and 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 the timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Rapid7 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 remarks 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 the additional detail may be one-time 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?
Corey Thomas, CEO
Thank you, Sunil, and good afternoon everyone. Thank you all for joining us for our first quarter 2021 earnings results call. I'm thrilled to report a strong start to the year for Rapid7. As we accelerated year-over-year ARR growth to 30%, while demonstrating strong free cash flow dynamics in our business. We continue to execute against our goal of delivering best-in-class security that meets customers where they are in their SecOps journey. Our performance in the quarter was driven by accelerated momentum in security transformation solutions, coupled with durable growth in our vulnerability management offering. These results are a great validation of the vision we laid out at our recent Investor Day and demonstrate ongoing progress in our effort to help customers close the security achievement gap. Our strong start to the year also positioned us to deliver a notable raise to our full-year ARR outlook, which Jeff will cover in his remarks. I'll begin today with some perspective on how we're executing against our core strategy to drive durable growth while scaling profitability. Then I will share a brief update on our innovation and goals before turning it to Jeff, to detail our financial results and guidance. In March, we shared with you the incredibly exciting journey about how Rapid7 Insight Platform is helping customers all over the world accelerate their pace of innovation securely. Customers are facing a fundamentally new dynamic as COVID exacerbates what was already a rapid pace of adoption for digital and remote experiences, cloud technologies, and SaaS consumption. Amidst this technology acceleration, we're finding that customers are challenged to manage a growing risk footprint across the enterprise. In fact, many are seeing a widening gap between the risk that they can effectively manage and the risks borne from this rapid pace of innovation. As a result, customers are turning to Rapid7’s Insight Platform to help close the security achievement gap. We're delivering for our customers with a focus not just on industry-leading and forward-leaning capabilities, but with a unique focus on world-class accessibility for our technology platform. This combination of best-in-class capability and accessibility is the magic formula that makes Rapid7 so successful and enables us to continually disrupt the market. The accelerating demand we've seen for our detection and response offering in recent quarters demonstrates our success in disrupting the market. Customers are increasingly turning to IDR because of its ability to deliver market-leading technology, coupled with best-in-class usability and time to value that ultimately helps them achieve better security outcomes. I'm pleased to report that this vision is resonating with customers, not just within our Insight Platform pillars of detection response, vulnerability risk management, and cloud security, but also across them. In March, our Chief Innovation Officer, Lee Weiner spoke about our focus on delivering a unified SecOps experience in the cloud. It's clear that customers are beginning to see the better together value of our integrated best-in-class platform suite and experience. We continue to grow our mix of multiproduct customers. In fact, seven of our top 10 deals this quarter included multiple platform customers. A great validation of this trend was a six-figure deal in the quarter with an enterprise consumer goods company who purchased our Insight One Platform. Insight One is one way we're lowering barriers to broad-based platform adoption by making it easier for customers to purchase all of our Insight products, including InsightVM, InsightIDR, InsightAppSec, and InsightConnect to deliver a unified SecOps experience. This customer initially came to us looking for detection-based SIM with advanced user behavior analytics capabilities, but upon seeing how seamlessly our Insight products work together, they chose to unify on InsightOne, displacing existing point vendors in the process. We remain in the early days for this platform opportunity, but are excited about our progress to date and see a sustainable path to execute against the four durable growth drivers that Jeff shared with you at our Investor Day. Let me take a moment to update you on how our first quarter results demonstrate progress across all four of these growth drivers. First, our platform opportunity, the growing urgency to secure cloud and digital investments is driving strong demand for the Insight Platform today. Our COO, Andrew Burton, spoke in March about how we're working to make it easier for customers to consume more capabilities across our Insight Platform. This is highlighted by a recent six-figure deal with one of the largest domestic energy suppliers in the UK. This existing Rapid7 customer was lacking security visibility and coverage across their total infrastructure footprint as they expanded into the cloud. After recognizing what was possible from a small InsightConnect deployment, they wanted to automate everything they could. As a result, this customer grew into a larger platform deal adding on DivvyCloud while expanding their existing VM, D&R, and automation coverage positioning Rapid7 as one of their most critical security partners. This is yet another example of how our expanded product set is driving deeper engagement with our customers, which leads to our second growth driver, our land and expand engine. We remain very early in penetrating our $420,000 average size customer opportunity. During the first quarter, we saw strong execution with accelerated growth in our upsell and cross-sell motions as we expand within our existing customer base. This drove ongoing strength in our ARR per customer, which grew 17% year-over-year to eclipse the $50,000 milestone for the first time. Our platform value is resonating with the customers, and we see a long runway for growth here. Third, our focus on growing high-value customers resulted in a great start to the year that saw us accelerate customer growth during Q1. We added over 200 net new customers in the quarter and ended with over 8,900 customers globally, still early as it relates to penetrating our overall customer market opportunity. Moreover, total customer growth is only part of our story as our high-value platform customers grew faster than total customers and continue to grow as a percentage of the base. Finally, our international growth opportunity, we have a long runway for international growth given our best-in-class products, our focus on accessibility, and more greenfield opportunities internationally. VM remains a core growth driver during the first quarter, and we saw an accelerating trend in our security transformation solutions internationally. We continue to invest in our international teams, and growth in international ARR once again outpaced total ARR growth. So as you can see, we have multiple paths to deliver our long-term growth objectives, and I'm pleased to share strong execution across the board as we begin 2021. Of note, we’re executing on these growth drivers while also managing profitability and scaling free cash flow. We remain on track to deliver on our growth and profitability framework this year. I’d like to highlight that these strong results are rooted in Rapid7’s longstanding commitment to technology investment and innovation. We are investing aggressively to remain on the leading edge of making the best security operations available to all. Let me share a brief update of some of our current initiatives. We continue to invest in scaling enterprise readiness and detection response, building upon recent enhancements to network and endpoint visibility with newer capabilities that enhance role-based access and improve alert customization and tuning for sophisticated security teams. Innovation is not a siloed effort. At Rapid7, we have always valued the collective wisdom of the security research community. I’m so excited to welcome the Velociraptor team and the open-source community to the Rapid7 family. What we've learned in the SIM market is that it's not enough just to collect data and detect threats; rather, response is increasingly more important in today's dynamic threat landscape. Our recently announced acquisition of Velociraptor moves us another step forward in helping customers better respond to threats and attacks by leveraging Velociraptor’s leading community-driven digital forensics and incident response technology to monitor malicious activity across endpoints. We continue to push the envelope in VM with our recent integration to Kubernetes container environments that allow customers to aggregate container and traditional asset information and enable live container visibility. Looking ahead, we're also advancing our cloud capabilities as we unify traditional VM asset risk visibility with cloud configuration insights from DivvyCloud to provide more holistic infrastructure risk visibility that improves risk intelligence for better remediation outcomes. Turning to cloud security, our ongoing effort to integrate Alcide’s Kubernetes central container security technology accelerates our path to delivering an integrated cloud-native security platform that combines best-in-class CSPM, cloud identity management, and now cloud workload protection. Combining risk assessments, run-time monitoring, and threat detection in the cloud is a critical component for ourselves and our customers' security roadmaps, which is why we continue to invest heavily in cloud security. Overall, we're excited about our Insight Platform innovation pipeline as we work to make the best security operations accessible to all. I'll conclude my remarks today with a brief review of our enduring goals. Our ongoing investment in delivering a unified SecOps experience in the cloud resonates with customers, driving progress on our first goal to be the leader in enabling customers to transform their security operations around the cloud. Second, our effort to lower barriers to broad-based Insight Platform adoption is delivering on our goal of accelerating our platform distribution engine. This can be seen by our strong results in ARR growth, customer growth, and ARR per customer during the first quarter. Finally, our balanced execution demonstrated by strong top-line growth coupled with underlying leverage in our business is enabling us to deliver on our third goal of scaling profitably while investing for growth. In closing, Rapid7 remains focused on securing the digital experience on behalf of our customers, meeting them where they are in their SecOps journey by delivering a unified platform experience with best-in-class capabilities alongside world-class accessibility. I want to thank our entire team for all of their contributions in working to help our customers close the security achievement gap. Thank you all. I will now turn the call over to our CFO, Jeff Kalowski. Jeff?
Jeff Kalowski, CFO
Thanks, Corey, and good afternoon everyone. Before I begin, a brief 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. Rapid7 had an outstanding start to the year with ARR acceleration driven by strong execution across our business, while underlying leverage drove upside to Q1 profitability. Total ARR ended the quarter at $455.8 million, a growth of 30% year-over-year driven by accelerating demand for security transformation solutions and sustained growth in our vulnerability management offering. This strong ARR performance and our associated billing strength also drove strong free cash flow generation to start the year. The massive market opportunity we see ahead of us, coupled with ongoing strength in our business fuels our confidence in continuing to invest for durable growth and margin expansion ahead. As Corey shared in his remarks, we're executing well against the growth initiatives we laid out in March as we work to close the security achievement gap on behalf of our customers. Let me briefly review the three fundamental financial goals we shared at our Investor Day and how our strong start to 2021 positions us to deliver on these objectives over time. The first goal we spoke about was multiple paths for Rapid7 to drive durable growth on the back of a large and expanding market opportunity. Strong Q1 results and ARR growth, ARR per customer, customer growth, and our international business demonstrated progress across all four of these growth paths. Our multiproduct platform opportunity is resonating, as security transformation solutions represent over 40% of our total ARR mix, growing over 40%. We saw continued success in our land-to-expand engine with strong cross and up-sell performance, driving Q1 ARR per customer up 17% year-over-year to $51,000. Our customer-centric innovation focus is paying off as we ended the quarter with over 8,900 customers, an acceleration to 11% year-over-year growth. As a quick reminder, this is based on the updated customer count methodology we presented at our Investor Day, which better aligns our quarter-end customer count with our quarter-end ARR metric. Finally, we continue to execute well across geographies. During Q1, North America revenue grew 22% year-over-year and represented 82% of revenue, while the rest of the world grew 35% year-over-year, increasing to 18% of revenue. The multitude of growth drivers gives us confidence in executing against our durable growth strategy as we look ahead. However, we recognize the importance of also delivering value to the bottom line over time, as we continue to grow our business. This leads me to our second financial goal: to scale profitability and free cash flow over time. Rapid7's first quarter results once again demonstrated our ability to scale efficiently. Non-GAAP operating profits, which included a partial quarter of Alcide expenses exceeded the midpoint of our guidance range by approximately $2 million, as top-line overperformance flowed to the bottom line. As is our typical approach, we will look to reinvest this overperformance throughout the year to support long-term growth in the business, which leads to our third financial goal: to become a $1 billion Rule of 40 business, which we define as ARR growth plus free cash flow margin. We see a huge long-term opportunity to scale our business, and we believe we're well positioned to execute on the mid and long-term targets we set out at our Investor Day. Turning now to some specifics on our Q1 financial results, first quarter revenue of $117.5 million was above the high end of guidance and included 24% year-over-year growth. Strong demand across our Insight Platform drove upside to product revenue, which grew 25% year-over-year to $109.3 million. Total gross margin for the quarter was 73%, consistent with Q4 as well as the year-ago period. Sales and marketing expenses improved to 42% of revenue compared to 47% of revenue in Q1 2020 and benefited from improving sales efficiency combined with lower annual kickoff and TD costs. R&D expenses for the quarter were 22% of revenue, up modestly from 21% in the prior year as we continue to invest in innovation. G&A expenses in the first quarter were 8% of revenue, down from 10% in the prior year. First quarter operating profit of $1.9 million is ahead of our guidance range-driven predominantly by overachievement on revenues. Adjusted EBITDA for the first quarter was $5.8 million, and net income per share was a loss of $0.03, also ahead of guidance. Shifting to our balance sheet and cash flows, we ended Q1 with cash, cash equivalents, and investments of $616.9 million compared to $322.6 million at the end of Q4 2020. The increase from Q4 predominantly reflects the net proceeds of approximately $511 million related to our convertible notes offering and cap call transactions, offset by the repurchase of approximately $183 million aggregate principal amount of our 2023 convertible notes. The cash outflow was approximately $50 million related to our acquisition of Alcide. I will also note that our ending debt balance for Q1 reflects early adoption of the new accounting standard ASU 2020-06, which, as we shared last quarter, results in a reclassification of our debt discount from shareholders' equity back to debt. We delivered strong cash flow results to start the year with free cash flow of approximately $18 million in the first quarter, driven by strong billings and collections activity in the period. Moving now to our updated guidance for the year, our strong start to 2021 reflects ongoing momentum with the growth and innovation strategy we laid out at our Investor Day in March. Our investments in building a unified SecOps platform in the cloud are clearly resonating with customers, enabling us to meet them where they are in the SecOps journey. As customers purchase more of our Insight Platform products, we're well positioned to drive durable growth in ARR over time. Additionally, the dynamic nature of today's cyber risk landscape has once again put security investments squarely back in focus for boards and leadership teams. While it remains early in the year, these trends fuel our confidence in operating margin, raising our full-year ARR expectations for 2021. As a result, we now expect to deliver full-year ARR of approximately $530 million, a growth of 22% compared to our prior guidance or approximately 20% growth just a quarter ago. This guidance accounts for the solid momentum we see in our business today while contemplating ongoing uncertainty as it relates to the timeframe for broad-based resolution to the current global health challenges and the associated economic risks. Building off of our strong start to the year, we're raising our full-year revenue guidance by $11 million at midpoint and anticipate revenue to be in the range of $500 million to $506 million, or growth of 22% to 23%. Consistent with our typical methodology and given the multitude of growth drivers we see ahead of us, we plan to reinvest our year-to-date operating profit overperformance to support our long-term growth objectives. As a result, we continue to anticipate non-GAAP operating income for 2021 to be in the range of $12 million to $16 million for the full year. We anticipate non-GAAP net income per share for the full year to be in the range of a loss of $0.03 to positive $0.04 per share, which is based on an estimated 55.2 million basic and 57.4 million diluted weighted average shares outstanding. Turning to cash flow, we remain focused on investing for growth and scaling free cash flow generation over time. I'm pleased to report that we're raising our full-year free cash flow expectations to approximately $15 million from our prior expectation of approximately $10 million. This is driven by strong free cash flow performance in Q1, offset in part by an upcoming IP transfer tax payment related to the recent acquisition of Alcide. Moreover, we experienced very strong collections activity in Q1 and are not forecasting that this will continue at the same pace for the balance of the year. Closing now with our quarterly guidance, for the second quarter of 2021, we anticipate total revenue to be in the range of $121.7 million to $123.3 million, growth of 23% to 25%. We anticipate non-GAAP operating income in the second quarter to be in the range of $4.3 million to $5.3 million and expect the timing of incremental investments tied to our Q1 overperformance to be more back-half weighted. We anticipate non-GAAP net income per share for the second quarter to be in the range of $0.02 to $0.03, which is based on our anticipated 57.7 million diluted weighted average shares outstanding. Note that our second-quarter and full-year 2021 guidance includes the impact of the recently announced acquisition of Velociraptor, which is expected to be immaterial to our financials. So in summary, our strong start to 2021 demonstrates continued execution against our fundamental goals to drive durable growth in our business while scaling profitability and free cash flow to become a $1 billion Rule of 40 company over time. With that, we appreciate your time and support, and we'll now open the call for any questions. Operator?
Operator, Operator
Our first question comes from Rob Owens with Piper Sandler.
Rob Owens, Analyst
Great. Thanks for taking my questions. I want to drill in a little bit around the ARR acceleration that you saw and also new customer acquisition. First-off, with Alcide, was there any contribution there even minimal that kind of aided that? Maybe you can drill down a little bit more than to what you're seeing from a new customer perspective, especially given since we still have COVID kind of running rampant.
Jeff Kalowski, CFO
Yeah. Rob, I'll start out. With respect to Alcide, that was immaterial; there was no material contribution to ARR in the quarter, for that matter for the year. It's not significant.
Corey Thomas, CEO
Yeah. I’ll just follow up. I would say the ARR performance that we saw was really just based on both strong demand and strong execution by our teams across the overall portfolio. We saw both new customers coming in, which was healthy. But we also saw good performance across customer segments. We had one of our strongest quarters in large deal strength, over 50% there. So we feel very good about that. I think it just validates our investment strategy and the path that we've been on for the last few years.
Rob Owens, Analyst
Great. Corey, I also wanted to ask about XDR compared to next-generation SIM and what value propositions are being discussed. Is that in line with your previous offerings? With RSA approaching in a few weeks, which is a major event in security, are you noticing any overlap between the XDR proposition, particularly from the unnamed companies, and your offerings, or do you view them as separate opportunities?
Corey Thomas, CEO
Yeah, I would say what people are talking about XDR today is sort of a trend that we observed years ago, and one of our core thesis areas around our InsightIDR platform, which was the idea that you could not tackle security, and especially security monitoring in silos. We were a pioneer in bringing User Behavior Analytics, log analysis, attacker-based analytics, and also endpoint visibility into the fold. We accelerate that with our Velociraptor acquisition in this quarter. When we look at it holistically, we think, do you actually need a holistic, very advanced, and sophisticated but easy to deploy strategy for monitoring and managing your environment? Absolutely. Is our strategy overlapping? Are there great areas of XDR? Sure, but there are still distinct needs. What you get with a platform like InsightIDR and SIM is a complete log and forensic platform, especially with our extensions that allow you to fully monitor and extend into the cloud and have visibility of what's going on in cloud environments and monitor those environments and automate remediation. The strategy about how you manage your model aligns absolutely with the XDR theme. That’s why your guard and others talk about it, but there are still some rather unique needs that you need logging platforms and SIM solutions to address.
Sunil Shah, VP of Investor Relations
Operator, we'll take the next question.
Operator, Operator
Okay. Thank you. Your next question comes from Matt Hedberg with RBC Capital Markets.
Matt Hedberg, Analyst
Hi, guys. Thanks for taking my questions. Congrats on the acceleration; it's great to see. Corey, I think this idea of closing the security achievement gap is one of the most interesting aspects of Rapid7, due to the automation of the platform. How much of this do you attribute to the accelerated growth this quarter? But I think also, secondarily, how does it help with your renewals of your existing base?
Corey Thomas, CEO
Yeah, it's two very good questions. So one on the ads, look our value proposition is resonating with customers. We had the thesis early on that customers would need to do a significant upgrade of their security infrastructure to keep up with digital transformation, and that is playing out quite well. Our thesis was that they would want best of breed and best of suite capabilities. They wouldn't want to compromise on the quality, efficacy, and raw capabilities but would want a package that gave them economic scale leverage, and most importantly productivity. Our focus on accessibility drives that. Yes, we're seeing very healthy demand overall. We think that promise in that value proposition resonates quite well. Regarding existing customers, we are seeing them continue to renew at very favorable rates, and we have growth in ARR per customer.
Matt Hedberg, Analyst
That's great. And I think the other compelling part of the story is international; it seems like a huge opportunity as well. I guess, how do you approach thoughtful investments overseas? I’m assuming all of the issues that we see domestically are going on internationally, but how do you sort of allocate your resources to go after that in a thoughtful manner?
Corey Thomas, CEO
You are absolutely right about the international opportunity. One of the benefits is that, as you recall, we started investing last year as we saw the momentum and the response to demand, which set us up well for this year. We're going to continue to drive for a model of growth and profitability, and with that, we'll continue to invest as we see fit. International is a different story in each region of the world. Overall, we see very, very good demand from our international regions, especially we see growing demand for our security transformation solutions.
Operator, Operator
Our next question comes from Saket Kalia with Barclays.
Saket Kalia, Analyst
Hey guys, thanks for taking my questions here. Corey, maybe first for you. Could you just talk a little bit about the overall customer demand environment, mainly in the vulnerability management market? Whether you feel like some of the breach activity from last quarter, even as recent as this quarter, is maybe starting to drive some more pipeline or more deal activity?
Corey Thomas, CEO
I would say, to your specific question, we are seeing very healthy demand across the board. Vulnerability management is one of those areas that see consistent demand, and we saw improvement in demand this quarter. We have confidence that growth will be over 10% this year. Most importantly, what you see is the total value proposition and the strength of our security transformation solutions. Customers are looking to enhance and upgrade their security, and we are incredibly well positioned to do that with the investments and execution we’ve made over the last few years.
Saket Kalia, Analyst
Got it. Got it, that makes sense. Jeff, maybe for you. That 17% growth in ARR per customer has been very consistent, but it's really nice to see. I think we've touched on a few of the drivers here kind of through the call, but can you just maybe summarize what some of the most meaningful drivers are in that ARR per customer? I imagine some of it is mix shift in the business, but anything else that you would sort of point to that's driving that consistent growth in ARR per customer?
Jeff Kalowski, CFO
Yes, sure. First off, with respect to mix shift, clearly our security transformation solutions are a significant driver. Again, they grew over 40% again this quarter and represented over 50% of our new ARR. You've heard Corey talk about seven of our ten largest deals having multiple products on the platform. We had very strong cross-sells and upsells this quarter. I'll also point out that we had modest improvement sequentially in our net retention rate. Overall, all the four growth drivers we laid out at Analyst Day have been executed on, including customer growth, growth in platform customers, and strategic customers. So, I would say overall it was a very strong quarter.
Saket Kalia, Analyst
Got it. Thanks very much, guys.
Jeff Kalowski, CFO
Thank you.
Operator, Operator
Our next question comes from Brian Essex with Goldman Sachs.
Brian Essex, Analyst
Hi, good afternoon. Thanks for taking the question. Maybe Corey or Jeff, whichever wants to take this one. You took your guidance up by greater magnitude than the level it would be relative to the midpoint of the Q1 guide. So maybe if you could talk to what's driving that confidence. Is it pipeline? Maybe the economy is opening up better than expected? Or is it just old-fashioned execution? How would you kind of grade the increased confidence in a higher level of growth this year?
Jeff Kalowski, CFO
Well, I mean, clearly, when we look at guidance, our pipeline is a major factor. Pipeline was a significant factor overall. We’ve been in periods of uncertainty with what we're expecting. But most importantly, what we're hearing from our customers in terms of their certainty and confidence in their budgeting processes has improved. In the last year, we haven't lacked a pipeline; we’ve lacked clear confidence from lots of our customers regarding their budgetary processes. We're not implying that there’s no uncertainty, but we are seeing customers with more clarity into their processes, which is translating to our ability to better forecast timing when it comes to our pipeline and guidance.
Brian Essex, Analyst
Got it. And maybe just to follow up on that, where do you anticipate to reinvest the upside? You are leaving operating performance relatively flat in spite of the revenue raise. What are your key priorities, and how do you prioritize where that spending will go?
Corey Thomas, CEO
Yes. A couple of things. If you think about our strategic framework for driving leverage and scale, the first thing is related. We will continue to invest in our innovation platform and our technology and R&D because that offers a long-term return to our customers and to our investors. Secondly, we’ll continue to make near-term investments that provide us long-term scale. You could call it our investment analysis. They would talk about the work we are doing on both packaging and pricing and how we position and scale the platform, allowing for land and expand as we go forward. We still have near-term investment opportunities, and we believe that we can invest and achieve our balanced view of growth and profitability this year, making us more scalable and efficient over time.
Brian Essex, Analyst
Got it. Very helpful. Congrats for me as well on the results; nice quarter.
Corey Thomas, CEO
Thank you.
Operator, Operator
Our next question comes from Jonathan Ho with William Blair.
Jonathan Ho, Analyst
Hi, good afternoon. I just wanted to start with one of your comments on what you said about making it easier for your consumers or customers to consume your products. Can you talk a little bit about how you’re making it easier? Is this a bundling approach? In terms of the technical integrations, I’m just trying to understand a little bit better what you mean by making it easier to consume?
Corey Thomas, CEO
Yes, it’s a great question, Jon. There are a couple of different dynamics. To your point about technology, we’re doing lots of things as customers start looking at us more for their platform-level security. We’re making it seamless to move from one problem to another without having to think about the context of what package they purchased. For example, I have a cloud security offering that I want to monitor what’s happening in my environment, and we want to make that seamless without having to think, do I need to go get another SIM? I may also have a SIM in place, but I might want to monitor this area and focus more on specific regions. There’s lots of work that our teams are doing on improving the ability for customers to dynamically expand their security and response capabilities. The other aspect we’ve talked a lot about is our research and pilots on packaging and pricing, determining what helps ease the consumption barrier for customers. We talked about Insight One this quarter, which has been extraordinarily well received. We also previously discussed our modern stack that allows clients to not just get InsightIDR, but Enhanced Endpoint Telemetry, network stack analysis, and storage together; that’s been extraordinarily popular. These are the items that allow customers to upgrade or purchase logically and efficiently, and that has resonated well.
Jonathan Ho, Analyst
Got it. Got it. And can you also talk a little bit about the demand you're seeing on the cloud side and potentially how that impacts your upsell or ARR potential? Thank you.
Corey Thomas, CEO
Yes. The cloud is a hot area right now. It’s early stages for the market overall, but we’re seeing extraordinarily strong demand from customers for both near-term and longer-term plans. We’re collecting lots of validation from customers that these are strategic focus areas they’ll be concentrated on over time. From an execution and outlook perspective, we’re very confident and bullish about what’s happening across the security market.
Operator, Operator
Our next question comes from Adam Tindle with Raymond James.
Alex Frankiewicz, Analyst
Hi, thanks. This is Alex on for Adam. I’m just kind of curious how the adoption of the good, better, best strategy is going and just how the channels are reacting to that. Also, is it formulaic? That is to say, once you identify a customer and the good bracket, do you have a kind of roadmap for how long it will take them to get to the better and best bucket?
Corey Thomas, CEO
Alex, it’s way too early. That’s a great question, but it’s just way too early to have conclusive results. The feedback we’ve gotten from customers so far is positive, but it’s early. I wouldn’t expect any deterministic feedback until late this year at the earliest because we’re talking about getting enough quantitative feedback to optimize it. The good, better, best notions are popular; they’re out there. You just have to ensure that you have the exact piping levels and balance of what’s in each bucket correct. We need much more volume of engagement to nail those down.
Alex Frankiewicz, Analyst
Okay, perfect. Thanks. And then secondly, when you go into a bake-off, is there a driving product? Do you lead with VM or SIM? Or are customers meeting to evaluate Rapid7 as a platform in adopting a broad portfolio? Can you also speak to the number of new logo wins that are taking multiple products at once versus just a point solution?
Corey Thomas, CEO
Yes. Part of our strategy is we believe that customers will not compromise on quality. This best-of-suite concept means that we can lead, and we do today successfully, with any of our products. Our sales team now has the confidence and competence to engage in bake-offs in cloud, in VM, in the SIM category, and win. We have a range of deals; some are competitive, and some are not, because people are coming to us talking about our platform. We’re starting to see fewer deals occur in that vein; it’s still early days.
Jeff Kalowski, CFO
As we talked about at Analyst Day, it's not a key metric we're managing to, but what we did say is that it improved sequentially. But we're not disclosing that metric going forward.
Alex Frankiewicz, Analyst
Okay. Perfect. Thank you.
Operator, Operator
Our next question comes from Hamza Fodderwala with Morgan Stanley.
Hamza Fodderwala, Analyst
Hey guys, thank you so much for taking my questions. Corey, I had a question for you on the Velociraptor acquisition, cool name by the way. Just as far as how you see it, is this a data lake play in that this is an open-source tool that's bringing in a lot of third-party data? Is it more about enhancing automation on the incident response side? Can you maybe dig into that a little bit? Also, how do you integrate that acquisition, given that the partners at Velociraptor might also include competitors of yours?
Corey Thomas, CEO
We think about Velociraptor; it’s built a brand in the open-source community, cycling companies all over the world as the leading endpoint into the cloud platform. When you think about what we're doing in the IDR space, or if you look at the context of XDR, having leading open-source technology embedded into our InsightIDR platform gives our customers more capabilities in response, especially combined with our automation platform. That’s the focus – incident response and automation at the center of the endpoint, which remains a primary attack vector. The response capabilities you require are different than what you get in many other platforms. It’s a simplified solution for us, enabling customers to have advanced capabilities that are easy to use. The Velociraptor ecosystem includes companies worldwide; they can utilize Velociraptor for internal use. We’re not focused on OEMing our core technology, but we’ve seen significant demand in the managed service space, which presents opportunities for managed services partners to use the technology.
Operator, Operator
Our next question comes from Alex Henderson with Needham & Company.
Unidentified Analyst, Analyst
Hey team, thanks for taking the questions. I wanted to talk about the ARR acceleration and the strong demand environment you mentioned. Can you share how much of this might be due to budgets returning to the market now that some time has passed since the SolarWinds and Microsoft Exchange Server hack? Is it reasonable to think that the SolarWinds hack showed mid-market and SMB companies that no one is too small to be concerned about hacking? Are these market segments possibly gravitating toward you more than before?
Corey Thomas, CEO
It’s a good question. We had good performance; I would say the mid-enterprise where we are focused performed well, but our best performance was strong in large deal strength, with over 50% growth in deals over $100,000. It was balanced; one characterization for this quarter is that we had sound performance across product categories. Of course, security transformation solutions performed higher. We had good performance across segments. I think, in general, breaches raise awareness of security and focus within companies’ leadership. But organizations are getting a better handle on their finances, which allows them to finance priorities. I believe all of those factors are coming together; it’s not perfect, as we’re still not seeing companies 12-month budgets as they had pre-pandemic, but they have more visibility into budgets overall.
Unidentified Analyst, Analyst
That’s very helpful. Thank you for that. And one more, if I could on the competitive front, just interested in whether you guys are seeing any changes in the market. I know you’re making these investments in the platform to make it easier for customers to consume. In terms of competitors like Qualys and Tenable, how often are you guys actually seeing them in the market when it comes to competitive offers?
Corey Thomas, CEO
For VM specifically, we’re in the market. Keep in mind, we have deals that are some competitive while some are not because people approach us about our platform. While the competitive dynamics in the VM market have not changed significantly for a long time, you still see the same trends.
Operator, Operator
Our next question comes from Joshua Tilton with Berenberg Capital Markets.
Joshua Tilton, Analyst
Hey guys, thanks for taking my question. For my first one, when you guys talk about the growth of security transformation solutions growing north of 40%, can you just give us some color on the growth? Is this growth accelerating? Is the demand for these solutions picking up? How should we think about the pace of growth throughout the remainder of the year?
Corey Thomas, CEO
Yes. We’ve only talked about the growth rate being about 40%. What I would say is that we have very, very healthy demand overall, and I would say we have increasing confidence and visibility into this, which is part of the reason we were able to get the guidance increase we did. However, we’re not providing detailed breakdowns on numbers for each part of the portfolio. We emphasize that we do expect growth to be over 40% this year and we expect VM growth to surpass 10%. We’ll give you that high-level characterization, as we have some visibility.
Joshua Tilton, Analyst
That was helpful. When you mentioned that deal for Insight One, you had a customer that purchased the entire Insight platform. Can you give us any insight into which vendors you replaced with that deal?
Corey Thomas, CEO
I don’t have the specific vendors that we replaced off the top of my head, but if the proposition is simple: If you can upgrade your security without having to make trade-offs, getting best-in-class technology along with economics and a great support experience is compelling. We did replace some competitors, but I can’t recall what specific ones right now.
Sunil Shah, VP of Investor Relations
Well, thank you all for joining us today on the call. We wish you all a good weekend coming up.
Operator, Operator
Ladies and gentlemen, this concludes today’s presentation. You may now disconnect and have a wonderful day.