Earnings Call: Q4 2019

Feb 10, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the 4th Quarter 2019 Rapid7 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Neeraj Mahajan, Vice President of Investor Relations. Please go ahead, sir. Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss Rapitan's 4th quarter full year 2019 financial and operating results in addition to our financial outlook for the Q1 and full fiscal year 2020. With me on call today are Corey Thomas, our CEO and Jed Telosky at Sierra Vol. We have distributed our earnings press release over the wire and it is now posted on our website at investors. Rapidserver.com along with the updated company presentation financial metrics file. This call is being broadcast live via webcast. In following the call, an audio replay will be available at investors. Rapid7.com until February 18, 2020. As a reminder, our discussion today contains forward looking statements about events and circumstances that have not yet occurred, including, without limitation, statements regarding objectives of future operations and future financial and business performance. 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 Q and subsequent reports that we filed with the SEC. The information provided on this conference call should be considered in light such risks. Actual results for the timing of certain events may differ materially from the results or timing projected or implied by such forward looking statements and reported results should not be considered as an indication of future performance. Rapid7 does not resume 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 non GAAP terms and reconciliations between our GAAP and non GAAP results and guidance can be found in today's earnings press release. At times, in our prepared remarks or in responses to our 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 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? Thank you, Niraj, and good afternoon, everyone. Thank you all for joining us today on our Q4 and full year 2019 earnings call. Rapid7 capped off another great year in 2019 with strong full year operating results. Our ARR grew by 35% and we again exceeded the high end of our guidance with revenue growth of 34%, while delivering a 9 point improvement in non GAAP operating margin year over year. We grew customers by 16% and ended 2019 with more than 9,000 customers and average ARR per customer increased by 16% to over 37,500. These results again reflect a healthy demand environment and consistent execution. With a leading and well diversified product portfolio, we see a large opportunity in front of us and believe we are well positioned for future growth. As a result, for 2020, we expect strong ARR growth of 25% at the midpoint, while continuing to deliver operating leverage. 2 years ago at our Investor Day, we outlined a set of ambitious goals for Rapid7 through 2020. We guided to revenue and ARR of $350,000,000 by 2020 and breakeven non GAAP profitability in 2019. We comfortably met our profitability targets in 2019 and we are on pace to exceed our revenue and ARR targets for 2020. Now before we talk about 2020 goals, let's quickly review our 2019 goals. Our first goal was to grow ARR by 30% plus in 2019 and we delivered strong growth of 35%. Our second goal was to make it easier for our customers to adopt our platform and optimize our customer economics. Our ARR per customer grew by 16% last year and by 60% from 2 years ago, but with ARR per customer currently at $37,500 against a potential of $200,000 we have plenty of room to grow. Our third goal was to achieve non GAAP operating profitability in 2019. As we mentioned before, we continued to invest in our business over the course of last year. And even with these investments, we delivered significant operating margin improvement while delivering strong ARR growth in 2019, setting ourselves up for continued growth in 2020. We have strong momentum entering 2020. Our results reflect that the markets we operate in are healthy and our platform strategy is working with all 4 product pillars driving growth. These products are at different stages of maturity, but each represents a significant opportunity and together they provide us with the foundation for meaningful levels of long term growth. InsightVM remains our flagship product and we expect the vulnerability management market to grow at a healthy rate, but slower than the growth experienced in the last few years. Our investments in InsightVM are primarily focused on helping customers increase their productivity by improving prioritization, remediation and automation. It is this focus on customer satisfaction and productivity that is best highlighted through the Forrester Total Economic Impact Study of MidSideVM, which is a recent commissioned study conducted by Forrester Consulting on behalf of Rapid7. Forrester highlights that with InsightVM, customers could potentially realize more than 300% ROI over a 3 year period, over 20% reduction in false positives and 60% reduction in patching efforts when compared to their incumbent VM solution. But it's the success in winning new customers and recognition by our existing customers that really matters. A great example of how our platform strategy is resonating with customers is our recent expansion deal with 1 of the world's largest accounting bodies with operations in more than 150 countries. We initially engaged them in early 2019 to help secure their applications with InsightAppSec. But over time, we also began to understand the challenges they faced with their legacy vulnerability management and stem solutions. As they realized the impact and value of our Insight platform, they ended up adopting our complete platform, leading to a 6x multiple of the original deal in terms of ARR. InsightIDR, our SIEM solution continues to grow in an exceptional rate With our remarkable focus on providing a simple yet powerful cloud only solution, we are well positioned to gain market share in this critical segment of the cybersecurity market. We have momentum not just with our established products, but also with our emerging products. Over the last few years, we have developed and refined built in workflows and automation capabilities for InsightConnect. This year, we will be increasing our investments to accelerate growth. The market opportunity for SOAR is huge and we believe we are uniquely positioned to be the occupant in the space. It is this dedication to focusing on the needs of resource constrained enterprises that led Falcon SolarWinds to recognize Rapid7 with the 2019 Global SOAR Company of the Year Award. These recognitions by customers and industry experts give us the confidence that we are on track to build a durable growth company. Now, let's turn to our 3 main goals for 2020. Our first goal is to continue to drive sustainable top line growth. We are forecasting ARR growth of 24% to 26% and revenue growth of 21% to 24% for 2020. Our second goal is to continue to optimize our customer economic engine. We are focused on delivering strong customer growth and we'll be investing heavily in improving our existing customer economics. While our customer acquisition costs are stable, the real improvement will be significant increases in customer lifetime value, driven by 3 key factors: increasing customers who are on our Insight platform, which we retain at a higher rate increasing upsell and cost of efficiencies and introducing our emerging products to our broad customer base. We're already seeing evidence of this for our Insight platform customers, which have substantially higher achievement of ARR per customer, driven by higher products per customer and a more efficient cross sell engine. Our 3rd goal is to continue to drive leverage in our business. We are guiding for a non GAAP operating income of $7,000,000 to $11,000,000 for full year 2020, a 1% to 2% margin improvement over 2019. Before I hand it over to Jeff, I would like to close out by sharing a perspective of how we think about our long term prospects. 1st and foremost, our SecOps vision is resonating with customers and we will continue to be focused on scaling and delivering the vision that we already set forth. Secondly, we're seeing the benefits of our platform engine and we believe that we will be able to deliver sustainable growth with continued leverage and profitability. Specifically, we have confidence today that we can deliver a 3 year revenue CAGR of at least 20% through 2022. Additionally, you should expect us to deliver operating margin improvement of 2% to 3% if we grow ARR in the low to mid-20s, expect an operating margin improvement of 1% to 2% for ARR growth of mid to high 20s and expect an operating margin improvement of less than 1% for over 30% ARR growth. This model and our operational focus allows us to aggressively pursue customer value creation while delivering ongoing value to our shareholders as well. In conclusion, Rapid7 is very well positioned to help solve cybersecurity challenges for enterprises of all sizes and needs. Our customers are embracing our platform and our multiproduct strategy puts us on a path to sustainable growth and profitability. We look forward to delivering on our 2020 targets. With that, let me turn the call over to our CFO, Jeff Zalowski. Jeff? Thanks, Corey, and good afternoon, everyone. We're pleased with our strong performance in the Q4 and full year 2019, with results that again exceeded our guidance on all metrics. Before I begin, I want to remind everyone that except for revenue, all financial results we will discuss today are non GAAP financial measures unless otherwise stated. Reconciliations between our GAAP and non GAAP results and guidance can be found in today's earnings press release. Total ARR grew to $338,700,000 a 35% increase year over year. We ended 2019 with revenue of $326,900,000 a growth of 34%, exceeding the high end of our guidance. Our recurring revenue grew by 45% in 2019 and constituted 87% of total revenue in 2019 as compared to 81% in 2018. Strong top line performance helped us deliver a significant beat on our operating income guidance as well, and we reported non GAAP operating income of $2,400,000 for 2019, a 9 point margin improvement over 2018. Our customer count increased by 16% to approximately 9,000, a result of our continued focus on new customer acquisition, while maintaining our traditionally high retention rates. In 2019, we also started our program to accelerate the migration of our log entries customers to the Insight platform. During this transition, we have successfully migrated about 600 customers so far, which are not included in our customer count today as their contract value is less than $2,400 per year. Let's turn to our 4th quarter results. Total revenue for the Q4 was $91,600,000 an increase of 33% year over year and above the high end of our guidance. This strong growth was primarily driven by better than expected product revenue. Average ARR per customer increased to approximately 37,500, up 16% year over year. As Corey mentioned, one of our goals for 2020 is to continue to optimize our customer economic engine. We'll significantly increase our investments to improve cross sell and up sell efficiencies, bringing us closer to our ARR per customer potential. Our focus on recurring revenue drove a 47% increase in our product revenue year over year. This was partially offset by a decline in maintenance and support revenue as NEXPO's customers continue to migrate to the Insight platform, resulting in reclassification of maintenance revenue to product revenue. Therefore, similar to prior quarters, we believe it's more useful to look at product and maintenance and support revenue together, which collectively grew 37% year over year. In fact, from 2020 onwards, we will be reporting product and maintenance and support revenue together. Looking at the business geographically, in the Q4, revenue from North America grew by 30% year over year and comprised 83% of total revenue. Rest of the world revenue grew by 50% year over year and comprised 17% of total revenue. Turning to margins, total non GAAP gross margin was 75%, slightly better than Q4 last year and was primarily driven by a mix shift towards higher gross margin product revenue. During the Q4, our sales and marketing expense remained flat at 45% of revenue when compared to Q4 2018. As we've mentioned in our previous earnings calls, we increased our spending to not only expand our market share in our core markets, but also ramped up investments in our hypergrowth businesses to meet the 2020 goals that Corey mentioned. R and D expenses were 19% of revenue in Q4 twenty nineteen, down compared to 22% in Q4 twenty eighteen, but similar to that of Q3 twenty nineteen. We expect R and D spending excluding the effect of capitalization of internally developed software to be in the range of 20% to 22%. G and A expenses in Q4 twenty nineteen were 10% of revenue, down from last year's level of 11%. For Q4 2019, we generated non GAAP operating profit of $800,000 well ahead of our guidance. Operating margin was approximately 1% compared to a margin of negative 4% in Q4 2018. Adjusted EBITDA for the Q4 was $3,700,000 and diluted non GAAP net income per share was $0.03 also well ahead of our guidance. We ended Q4 with cash, cash equivalents and investments of $262,500,000 compared to $257,700,000 as of Q3 2019. Contract length for Q4 2019 was 16 months, a slight increase from 15 months last quarter. We expect contract lengths to stabilize around these levels. During the quarter, operating cash flow was $7,800,000 as compared to $11,900,000 in the prior year. For the full year 2019, operating cash flow was negative $1,400,000 We exceeded our guidance from last quarter of negative $5,000,000 due to strong Q4 collections, which drove a significant decline in our days billing outstanding. Now moving on to the guidance. First, the annual guidance. For the full year, we expect ARR to be in the range of $420,000,000 to $427,000,000 which is 25% growth at the midpoint. We anticipate total revenue to be in the range of $396,000,000 to $404,000,000 which is 22% growth at the midpoint. We expect non GAAP operating income to be between $7,000,000 to $11,000,000 for 2020. As Cory mentioned, at the higher end of ARR growth, we'll be investing back in the business to drive growth on a sustainable basis. We expect cash flow from operations to be approximately $10,000,000 for 2020. We anticipate non GAAP net income per share to be in the range of $0.11 to $0.18 which is based on an estimated $55,000,000 diluted weighted average shares outstanding. The weighted average shares outstanding for full year 2020 represent the diluted shares outstanding given our projected non GAAP net income. Now moving on to the quarterly guidance. For Q1 2020, we anticipate total revenue to be in the range of $91,600,000 to $93,200,000 We anticipate non GAAP operating loss in Q1 2020 to be in the range of negative $6,300,000 to negative $5,300,000 which reflects front loading of certain onetime expenses. We anticipate non GAAP net loss per share for Q1 2020 to be in the range of $0.13 to $0.11 which is based on an anticipated 50,200,000 basic weighted average shares outstanding. The weighted average shares outstanding for the Q1 of 2020 represent basic shares outstanding given our projected non GAAP net loss. In conclusion, 2019 was another strong year for Rapid7, where we delivered 35% ARR growth and non GAAP profitability. We look forward to delivering another strong year in 2020. With that, we appreciate your time and support, and we'll now open the call for any questions. Operator? Thank And our first question comes from Rob Owens with Piper Sandler. Your line is open. Great. Good afternoon. Thanks for taking my question. Corey, I wanted to get a bit of a broader view on kind of your go forward cloud strategy. And while you have a lot of capabilities to support workloads in the cloud, just how you plan on expanding that? And then to dovetail that question a little bit, and Jeff, thanks for all the guidance that you gave, but how does M and A fit into the picture? I know you guys have done tuck ins in the past. Does that current guidance include any potential transactions? Or could we see some dilution if you guys were to get acquisitive this year? Thanks. Yes, it's a great question, Rob. 1st and foremost, as you indicated, we have a very strong starting position when we think about the cloud. All of our core technologies include the ability to consume data from cloud workloads. We have a strong and strengthening partnership with both Amazon and Microsoft Azure. And secondly, we actually are going deeper in the cloud in some areas. When you think about our T Cell product, it's already looking at applications designed for the cloud, which enables us not just to have a standalone RaaS solution, but that capability enables us to do detection for IDR in cloud. It also enables our broader AppSec story. So we'll start with a very small cloud. But as you indicated, we have to continue to strengthen and evolve it as cloud is one of the most relevant areas as we continue to grow over time. That is definitely heavily focused on organic investments, which we already have in plan and we already plan to make and that's part of our long term outlook. But it could also include strategic M and A if the right opportunities come along for the right price. That said, our current plan when we think about long term growth and sustainable growth and that CAGR over the next few years of over 20%, it does not factor in M and A being a significant part of that. Without a doubt, I'm sure we'll do some tuck ins, but we may do other things if they make sense and follow our strategy at the time. But right now, we're heavily, heavily focused on executing our strategy that we've already laid out. We have an organic plan to do that and we're very disciplined around looking for the right opportunities at the right price point if it fits into our long term strategy. Great. Thanks. Thank you, Rob. Thank you. Our next question comes from Matt Hedberg with RBC. Your line is open. Hey, great. Thanks, guys. I wanted to follow-up on the 2022 guide. Obviously, there's you've got some smaller products, IDRQs real fast, AppSec and Connect well above the corporate averages. But just wanted to kind of get your thoughts, Corey, on how sort of your core VM business should trend over the next several years. I think you guys have been growing above market rates. But what are the components there that allow you to continue to deliver that kind of core growth? Yes. I mean, so one of these, DMI, we look at VM as one of the healthiest sectors if you think about the overall technology market and the security market. We said for a while now that we believe the sustainable growth rate in the VM market is in the low to mid teens. We continue to have that view. And we think it's driven by a couple of fundamentals. The most important fundamental is that there's still lots of companies around the world that don't have VM coverage and that's our heavy focus in expanding that mid market and that global base of customers. Secondly, the number of assets that customers have in their environment continues to grow and expand. So even in established customers that still adds a couple of points of growth every year. And then we still have companies that are underpenetrated overall. And so our long term view is that you have periods along the way where you have really high rates, you can think about upgrade cycles or expansion cycles where customers drastically enhance or grow the number of assets under management. But we think the steady state growth rate still supports one of the best technology sectors in that low to mid teens for the vulnerability management market. And we think that's a great core position, especially when you look at that in the context of our other hyper growth businesses around IDR and SOAR. That's great. And then maybe a follow-up to that sort of building up to that growth profile. Obviously, you guys have been methodical in how you add sales headcount on an annual basis and obviously count on cross sell and upsell to 8 growth as well. But when we're looking out several years, should the cadence of quarter reps continue, I think, kind of low double digits? Yes, I mean, you can think about the sales being tightly tied to our OpEx expansion over time and we'll continue to get leverage in sales and marketing, but you can expect it to grow roughly in line with our total OpEx growth. And so when you think about the model that we outlined earlier is that there's lower ARR growth, you're going to see faster margin expansion, which I think is reasonable and people would expect. But at higher growth, you'll still see some expansion, but it will be expanding at the lower rate of growth. And what that really means at the end of the day is our sales expansion, our sales cost really is tied to growth, but regardless we're looking to expand the leverage that we get in the business year over year. Thanks. Well done this year guys. Thank you very much. Appreciate it. Thank you. And our next question comes from Michael Turits with Raymond James. Your line is open. Hey, Corey and Jeff. You gave a couple of ranges of ARR growth at which you were tying to where margins would be. But some of them were the latter ones, the higher ones were above the current range of guidance for next year. So what are the things that you see that are the toggles that could get you to ARR above the 2020 guide? Yes. I mean consistent with our past, we tend to think about businesses that actually have scale to be more predictable. So specifically if you look at it, both our SOAR business especially is a business that we are frankly starting to accelerate the investment this year. We've got amazing customer feedback. There's a great fundamental demand in the market. But our 3 year plan that we actually laid out, has some of the cost of the store, but doesn't fully have the benefits of it because that would not be reasonable and that's not our approach to fully bake in things that aren't scaled and are unknown. So to the extent that that business takes off as expected, that actually gives us upside to the current plan that's there. You can really think about the current plan really heavily focused on the stable growth that we have in the VM business and the continued strength that we see and that we continue to see in the overall IDR business augmented by a healthy AppSec business and an emerging store business. And we'll continue for the previous question to make investments in the cloud, which allow us to have ongoing upside over time. But that's the core way we think about the overall business. Thanks, Corey. And then Jeff for you, the guide for cash flow from ops for this year is pretty much in line with the operating income guide. So considering that I assume that you said that duration should be about stable, so I would imagine billing should be a contributor to working capital. What is it that's keeping cash flow from ops pretty much that same level as EBIT? Excuse me. We're forecasting about $10,000,000,000 in operating cash flow, which is if you look at our it's not really about duration, but we're now normalized. So if you really if you take our last year's billings and you adjust for services and you apply the growth rate at the midpoint of 25% to that billings number, you're going to get to our approximate billings number for you'll be directionally correct for that billings number for this year in 2020. And based on our net income guidance, I'm sorry, our operating income guidance is $7.11 that should get you to that $10,000,000 number. Okay. Thanks, Jeff. Thank you. Thank you. Our next question comes from Gur Phelps with Stifel. Your line is open. Okay, great. Thanks for taking my question. Corey, if I look at the presentation, you've kept ARR per customer potential at about 200 ks. But if I think about all the recent endeavors you've made to connect and the ability to push upstream here into the enterprise, could this number ultimately prove conservative as you think about the push out into 2022? Yes, absolutely. We tend to take a more conservative approach for things that are unknown. And so if you think about both the application security and InsightConnect, we've taken a fairly modest approach when we actually think about those businesses. And then there's some businesses that we are partially in, we still have organic investments focused on like our cloud businesses. But again, we've taken a fairly measured view when we look at it overall. We think that's the right thing. One of the things that we've talked about before is while we're starting to approach the $40,000 mark, we have line of sight and visibility with fairly good confidence to the $60,000 And then we think about it as a steady margin expansion of what's the addressable line of sight we can actually get there, at the same time how do we grow the overall potential. And so what I hope you'll see over time is us continuing to show progress, us having to pass the line of sight to grow the actual current ARR per customer, but also expanding the potential ARR per customer steadily over time. Because really what I focus on and what I look at, just like we did 3 years ago, is what's the overall character of the company, the organization, the customer base as we exit the next 3 year period. And when we exit that next 3 year period, we want to make sure that we have a good growth opportunity with healthy economics in front of us, just like we have today. That's really helpful. And then if you look at IDR specifically, as the product matures, have you seen any shifts within the potential customer set here as you sort of make a broader push up stream and as the product itself gets better? And then I think beyond that, have you seen any shifts in the competitive space as well within that market? Yes. Look, similar to how wrapping up an approach is that we always take a focus on a narrow set of customers early in our market evolution, and then we just steadily add more and more customer segments. With the IDR that's been happening on an ongoing basis, I talked about last year when we acquired NetFort that in 2020 2021, you should expect us to see us starting to move deeper into the larger accounts, enterprise Fortune 1,000 segments. We've already slowly started that move and we're seeing some success there. We also are starting to expand around the world. So some of the pickup that we started to see last year was IDR being addressable in more markets around the world. And I think that that will continue as we go forward. Again, for context, while IDR has been successful, we still have relatively small market share of the overall market, but we have great momentum. And so we look at this as lots of potential economists. That's helpful. Thanks again. Congrats on the results. Thank you very much. Thank you. Our next question comes from Jonathan Ho with William Blair. Your line is open. Hi, good afternoon. I just wanted to touch on the 108% renewal rates. I think you guys said that you expected it to sort of plateau around these levels. Can you just maybe give us an updated view on maybe what you're expecting here and if there's been any change in underlying churn? Thanks. Yes, Jonathan. So last year ended roughly where we expected it to end. Our overall, if you think about the renewal rates sort of really being composite sort of 2 core things is one of them is the retention rate of how well we retain dollars of our overall customers and we continue to perform quite strong there and we're seeing healthy improvements there. The second thing is how much do we actually focus on upsell or cross sell versus adding net new customers. As you were familiar last year, we had a heavy focus on adding net new customers and that was wildly successful as reflected by our 16% customer growth in the last quarter. So overall, we ended where we thought we would last year, and we're set up well for this year. Because it's not a primary metric, it's not something that we're actually forecasting or targeting for this year. We're really focused on our overall ARR targets. But when we have our Analyst Day, we are going to spend some time talking about the overall economic model and how we continue to actually grow, in the segments of growth as we actually move forward. Got it, got it. And then just in terms of your ARR outlook for 2020, I know you guys have shown some conservatism at the beginning of the year in the past. Just given, I guess, there's less of a focus right now on showing the same degree of operating leverage. Should we expect there to be sort of similar levels of outperformance or has there been any shift in terms of that guidance strategy? Yes. I think you'll expect to see as we've actually moved to a more normalized model where we don't have the shift from subscription, which is frankly unknown. If you think about why we had some of the conservatism in the past, we just had more unknowns. We were actually going from single product to multiproduct. We're shifting from perpetual to subscription. You just have to be more thoughtful and more conservative in your approach when you actually have more unknowns. The good thing is today we actually sit with a much, much higher degree of things that are known and are at scale. And so what I would expect is much more typical or aligned. So not as big as gap as we actually had in the past. And in fact, we even saw that last year. And we told people last year, we like, when we start off the year, we said, listen, you expect 30% plus, we ended at 35%, which we considered extraordinarily strong performance. We gave this year not a plus range, but we gave a tighter range of 24% to 26%, because we expect this year to actually be much more normalized versus past year, so we had a much higher than we have unknowns. Thank you. Thank you. Our next question comes from Greg McCarthy with Mizuho. Your line is open. Hi, guys. Greg Mokowski. How are you? Hi, Greg. Hi, Niko. So Corey, I think if I heard correctly, you mentioned that IDR continues to grow at an exceptional rate. Approximately, I guess, what was IDR as a percentage of net new bookings this quarter? And I'm curious if you're having more success landing with IDR today as compared with 12 months ago? Greg, this is Jeff. It was again over 30% of the new bookings. We started out disclosing when it was over 10% of the new and it was over 20% and the next data point is will be if it gets over 40%. And with respect to the ARR growth in total, it was about 75% for the year. Okay. That's fantastic. And to your question is that, yes, we are very successfully landing new customers into account. It's one of our stronger land engines within the company, which is part of what gives us confidence as we go forward. Terrific. And then just a clarification, a follow-up to Mike Turs' question. And by the way, very helpful to kind of get the fiscal 'twenty two outlook, so appreciate that. And I did want to just confirm, because 2 out of the 3 scenarios do reflect acceleration and the 3rd scenario contemplates maintaining an ARR growth rate in the mid-20s. But this does not even if you look at the higher end assumptions on growth, it does not include any sort of heroic assumption for store and other emerging products. Is that correct? Yes. So if you think about like our growth this year, you can think about the growth this year as sort of that 24% to 26% to be an area where we feel comfortable, but that's primarily driven off the IDR and VM. The reason that we actually communicated because we have parts of applications, cloud and SOAR, that we're starting to invest in, but they're unknowns. And so one of the things that we want to be clear on is that if we're seeing the return of the performance, we will be investing in those things because they actually have good potential. But because they're unknowns, they're not deeply baked into the revenue and ARR guidance that we have over the next 3 years. But if we see good performance, they do represent upside. But it would be also not correct to say that it's upside that we should bank on today because it's an unknown. But if we see the performance, then we are communicating that we'll continue to invest behind performance that we see. Okay. Makes a lot of sense. Thanks, guys. Thank you. Thank you. Our next question comes from Melissa Franchi with Morgan Stanley. Your line is open. Thanks for taking my question. Corey, I'm wondering if you could talk a little bit more about the AppSec product, particularly the investments you're making moving forward in that portfolio and then how it's performing relative to your expectations? Yes. So InsightAppSec is the dominant product in the market. That's our cloud based DaaS solution and it's performing extraordinarily well in comparison to expectations. As you know, the AppSec market has great potential, but it's a massively fragmented market. So we have to be very thoughtful about our expansion. We have both organic investments, especially thinking about that market and the cloud market together. And then it also has the opportunity for M and A, but we also have to be very thoughtful to make sure that M and A makes sense for us. So you saw us acquire T Cell a few years ago. We're seeing good demand. That's an area that we will continue to land and that's an area that we'll continue to expand upon over the coming year. And we're having good customer momentum, but it's very, very early on for the RASP market. And I would say AppSec also represents a market that has potential for M and A, but you'll find us fairly consistently thoughtful, strategic and patient when it comes to long term M and A. And so AppSec is an area of opportunity. We're seeing great success in the parts of the market that we participate into today, and we're going to continue to expand our efforts there over time. Okay, helpful. Thank you. And then a quick one for Jeff. If we're thinking about AOR growth next year relative to revenue growth, The difference, I would assume, is just a slower services revenue growth next year. Just wondering if that's correct. And then how we should think about the services business in terms of the mix moving forward? That's correct. That's the difference is solely due to the services. I would assume that the services will be about flattish from this year. And if you combine if you take the product revenues and the maintenance and support revenues and combine them together, those will be directionally in the same area as the ARR growth. Okay. Thank you. At 25% of the midpoint, that would be about that, the same it's closely related to the ARR growth. Right. Okay. That's helpful. Thank you. Thank you, Melissa. Thank you. And we have a question from Nick Yackel with Cowen and Company. Your line is open. Hey, guys. Thanks for taking my questions. I wanted to ask about international. And I was just wondering if you could discuss some of the key investments you're I wanted to ask about international. And I was just wondering if you could discuss some of the key investments you're making on the international front. And then any of those investments that you would highlight that could cause that international business to inflect over the next year or so? Our our data centers around the world. We continue to add more data centers in more countries, and that's a steady pace. But as we add those, it allows us to actually fully address the market. As you know, one of the unfortunate things as a cloud company is that more and more countries require their data to exist within the country's boundaries. And so we've been steadily expanding the number of countries that we actually have data centers in around the world. The second thing to keep in mind is one of the things that you will see for some of the momentum last year and as we enter this year around international is that typically when we have new products, we do start selling them in the U. S. Because it's easier to actually target a customer segment in a local market. But as we get momentum, we actually start selling in more and more markets. So you saw that dynamic, especially with IDR last year, as it for the 1st year really became much more of a global business. And we think there's lots of growth in IDR over the next couple of years, and that's a catalyst. Likewise, with SOAR, it's heavily focused right now on the early stages in North America. But over the next several years, we do expect some momentum if we continue to see progress on a global basis there. And so those are 2 catalysts as we actually think about the overall international expansion as we go forward. That's helpful and then Jeff I do want to ask if there is any additional color you can provide around just the mix of ARR by products finishing 2019? Thank you. Yes. Well, the ARR is still over 50% of the total ARR, but it's becoming a less percentage as I'm sorry, the VM is over 50%, but it's becoming less of a percentage as the IDR grows. IDR is now over 20% of the business and of the total ARR and then AppSec and others make up the difference. Okay, helpful. Thank you. Thank you very much. Thank you. And I'm showing no further questions at this time. This concludes today's conference call and thank you for participating. You may now disconnect. Everyone have a great day.