Jeff Bray - VP, IR Corey Thomas - President and CEO Jeff Kalowski - CFO.

Saket Kalia - Barclays Capital Michael Turits - Raymond James Gregg Moskowitz - Cowen & Co. Matthew Hedberg - RBC Capital Markets Jonathan Ho - William Blair Melissa Gorham - Morgan Stanley Robert Breza - Northland Capital Markets.

[Starts Abruptly] Thank you, operator, and good afternoon, everyone. We appreciate you joining us to discuss Rapid7's Q2, 2017 financial and operating results in addition to our financial outlook for the third quarter and the full fiscal year 2017.

I'm Jeff Bray, VP of Investor Relations and I'm here today with Corey Thomas, our President and CEO; and Jeff Kalowski, our CFO. We distributed our Q2 2017 earnings press release over the wire and have posted it on our website at investors.rapid7.com.

We have also posted our updated company presentation and financial metrics file on our Investor Relations website. This call is being webcast and can be accessed at investors.rapid7.com. The webcast of this call will be archived and a telephone replay will be available on our website until August 11, 2017.

We would like to bring the following to your attention. The date of this call is August 7, 2017. Our discussion today contains forward-looking statements about events and circumstances that have not yet occurred, including without limitations, statements regarding our objectives for 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. Statements containing words such as anticipate, believe, continue, estimate, expect, intend, may, will, and other similar statements, are intended to identify such forward-looking statements.

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 the risk factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission and subsequent reports that we file with the Securities and Exchange Commission.

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.

Rapid7 does not assume any obligation to update the information presented on this conference call except to the extent required by applicable law. On this call, we will provide and talk about our results using non-GAAP financial measures and provide non-GAAP guidance.

We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in understanding company performance and trends, but note that the presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

We have provided a reconciliation of the historical non-GAAP financial measures to the most comparable GAAP measures in the financial statement tables included in the press release issued today announcing our results. The press release announcing our financial results is available on our website at investors.rapid7.com.

At times in our prepared comments or in responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or quarterly results. Please be advised that this additional detail maybe one-time in nature and we may or may not provide an update in the future on these matters.

With that, I'd like to turn the call over to Corey..

Thanks, Jeff. And good afternoon everyone. Thank you all for joining us today on our second quarter 2017 earnings call. Q2 was further evidenced Rapid7 has a live strategy as we continue to take share in the strong market. We delivered revenue growth of 27%, grew recurring revenues by over 30%, improved our operating loss and grew billings by 20%.

Once again we saw consistent performance in our Threat Exposure Management, our TEM business and continued strong contribution from our Incident Detection and Response business or IDR.

As customers recognize the value of our solutions, they are consolidating their spend with Rapid7 by covering more of the environments, which is leading to higher adoption and usage and larger deal sizes.

Additionally, as they recognize the breadth and strength of our product portfolio and the value of having a single source for all of their critical IT and security data, we are seeing cross-selling of over 60% over the last year.

Q2 was a landmark quarter for our product development, as we launched InsightVM, InsightAppSec and InsightOps making Rapid7's Insight platform the first to offer all three major pillars of IT and security analytics, vulnerability management, UBA powered SIEM, and IT log analytics, all operating on a shared cloud and data collection infrastructure.

Our platform uses the same lightweight agent, data collectors and scan engines across all of its solutions to aggregate data from endpoints, machine logs, cloud asset applications and other sources.

We continue to expand globally by deploying the Rapid7 Insight platform to a third region adding Japan to better access the needs and demand of customers' in the APAC's region.

Instead of trying to manually integrate a variety of overlapping point products, IT and security professionals can collect data once and use that single source of data across a range of solutions that leverage our threat intelligence and analytics to make their team smarter, more secure and more productive.

The Rapid7 Insight platform dramatically reduces complexity with one consistent simple view of a company's IT activity taking place inside the organization helping IT and security quickly solve their most critical issues with a reduced total cost of ownership.

We've already seen our IDR customers recognize this value as almost half of them are getting their vulnerability management coverage from our platform and two thirds of our IDR customers have at least one of other Rapid7 product.

We're also expanding our product platform with a recent acquisition of Komand, which built an excellent orchestration and automation product that they launched earlier this year, allowing us to accelerate our entrance into this strategic product adjacency.

Komand use a modern technology stake that will easily migrate to and integrate with the Rapid7 Insight platform. We believe the combination of our comprehensive analytics with their automation will enable major leads in the IT and security productivity and effectiveness.

Komand has an elegant user friendly solution that provides advanced automation workflows that interact with critical applications across our customers' IT environment, allowing them to reduce their alliance on home-grown scripts and other labor intensive manual processors helping to solve the core challenge facing organizations today, too much work and too few skilled resources.

IT and security teams are finally able to quickly and effectively compete, complete critical task like email phishing investigations, containment of compromised credentials and user provisioning and de-provisioning.

These are just some of the examples of how we expect to empower lean IT and security teams to leverage their scares resources and improve their effectiveness and to speed their time to response. We intend to integrate this strategic product into our existing set of solutions as well as continue to operate as a standalone product.

And we believe this greatly increases our strategic value to customers and the stickiness of our products overall.

Our focused strategy and investment is beginning to pay off as the breadth of the Rapid7 Insight platform truly differentiates us in the analytics market and we strongly believe it will drive both new customer growth and consolidation of our customers' analytics spending with Rapid7.

Looking at the performance of our go-to-market teams our mid-market performance continues to be strong. Our enterprise teams continue to show more consistency and we expect to see additional productivity improvements from those teams throughout the year. As it relates to the America specifically, Eric Erston our SVP of Americas has left Rapid7.

Eric helped to improve our sales processes and we thank him for his contributions. As you can see by the momentum that we have built this year in sales the go-to-market organization is healthy and improving. We're confident in our existing sales team and our COO Andrew Burton will be leading the search for new Head of U.S.

Sales to complete our go-to-market team. Now let's review the business in the context of our 2017 goals. Looking at our first goal, this quarter we added over 200 net new customers as we continue to broaden our product set and expand our subscription offering across our portfolio.

We're confident we can add more customers in 2017 than in 2016, especially higher quality recurring revenue customers. In April, we launched InsightVM, our cloud based vulnerability management product, which built upon the strengths of Nexpose and fully leverages our Rapid7 Insight platform.

InsightVM brings more features, better usability and a reduced total cost of ownership making it even more accessible to the resource constraint mass market. Combined with our launch of InsightAppSec we believe we're well positioned to continue to gain market share in Threat Exposure Management.

In the first few months, InsightVM has gotten off to great start. We are pleased with the initial reaction both from our sales team and our customers. We are seeing both new deals and migrations and continued healthy pipeline built. During Q2, about half of our VM pipeline was for InsightVM and we expect that ratio to increase going forward.

While we expect that some of our Nexpose pipeline will continue to convert to InsightVM sales a significant portion of our existing pipeline was booked for Nexpose so will take several quarters for this transition to be complete.

In Q2, a great example of the power of our platform was when a Fortune 500 consumer goods retailer selected InsightVM to cover their environment, which includes their corporate headquarters as well as hundreds of stores.

This retailer has been a mega [ph] support customer for several years and when their frustrated mounted with their existing vulnerability management provider they turned to Rapid7. We have just launched InsightVM and doing their evaluation the customer appreciated the strength of our technology and our platform approach.

They also discovered that our remediation and analytics capabilities will allow them to replace another product above and beyond their original specifications further improving time to value for the customer.

Now on to our second goal, which is disruptive SIEM and IT log analytics market, IDR had a great first half of 2017 with IDR bookings more than doubling from last year.

Our IDR customers recognize the value of a simple easy to use solution that can help them quickly detect anomalies in their environment and then rapidly conduct forensic investigations. All at a reasonable cost of ownership. As a result, we're quickly reaching scale and earning recognition in the SIEM market.

For example, in Q2, a Fortune 500 food company that was an existing Nexpose customer was evaluating replacing their legacy SIEM product. With their small security team they were looking for a 24x7 spot coverage which Rapid7 can deliver with our manage detection and response service.

But they also one of the ability to directly log into their SIEM to perform their own evaluations when necessary. During the evaluation not only did InsightIDR proved its ease of installation and ease of use, but the customer who was also alerted to an unauthorized attempted login from Russia helping to seal the deal.

As for our final goal, we showed strong margin improvement this quarter as we continue to take advantage of our scale while making disciplined investments in our business. We are continuing to guide to better operating margins for 2017 over 2016, while absorbing some cost related to the Komand acquisition.

With that, I'll like to turn the call over to our CFO, Jeff Kalowski to discuss our financial results.

Jeff?.

Thanks Corey. We are pleased with our strong performance in the second quarter. Total Q2 revenue was $47.4 million, an increase of 27% year-over-year and above the high end of our guidance. Product revenue was $27.2 million increasing 27% year-over-year, driven by strength in both TEM and IDR with expanding recurring revenue.

Maintenance and support revenue was $11.3 million increasing 27% and our professional services revenue was $8.9 million, an increase of 30% year-over-year. We continue to have very high visibility into our revenue forecast with 88% of Q2's revenue having been on the balance sheet as of the first day of the quarter.

70% of our revenue was subscription based recurring revenue versus 67% in Q2 of last year, and our recurring revenue grew 31% year-over-year. In Q2, 2017 80% of our product revenue was recurring, up from 75% last year and we are pleased with the continued uptick in recurring revenue.

Total deferred revenue grew 25% year-over-year to $180.4 million at the end of Q2. Calculated billings for the second quarter were $60.2 million, or up 20% year-over-year, driven by another strong quarter from IDR, good initial uptake of our InsightVM offering, ongoing strength across mid-market and improving momentum in our enterprise segment.

Average contract lengths were 23 months for total billings, consisting with the prior-year period.

With the evolution of the Rapid7 Insight Platform and the availability of our two new cloud-based subscription products, InsightVM and InsightAppSec; we continue to expect that more of our billings will come from our new subscription products, which tend to have shorter contract lengths.

As mentioned in our previous calls, we believe that our average contract duration will begin to shorten in the back half of the year. Looking at the business geographically, North America revenue was $40.2 million, an increase of 25% year-over-year and comprised 85% of revenues.

Rest of world revenue increased 45% year-over-year and contributed 15% of total revenue in the second quarter compared to 13% in Q2 2016.

We are benefiting from the investments we have made to grow our sales and go-to-market presence internationally and we will continue to enhance our infrastructure globally to drive the momentum in this under penetrated market. Our customer account increased by approximately 70% year-over-year, we ended Q2 with more than 6,500 customers globally.

In Q2, we experienced higher APSs through better customer penetration and more multi-product sales. As Corey mentioned with the expansion of our new product offerings, we expect customer acquisition to increase in the second half.

Our renewal rate was 119% in our expiring renewal rate, which measures the renewal of the prior-year's revenue run rate was 88% in the second quarter. Turning back to the P&L, non-GAAP total gross margin for Q2 2016 was 74%.

Non-GAAP product gross margins were 81%, and as expected were down from 90% last year due to increased usage of our platform in managed services offerings. As our mixed of SaaS products increases and we gained scale, we do expect to achieve cost efficiencies in the cloud.

With that said we expect product gross margins in the second half to decrease slightly from the Q2 level.

Our non-GAAP maintenance and support gross margin increased to 84% from 81% in the year-ago period and our non-GAAP professional services gross margin increased to 38% in Q2 compared to 30% in the year-ago period due to higher utilization as well as delivering a higher percentage of stand-alone services.

We continue to expect our services margin to be in the mid-30% range. Net-net, we expect our total gross margin to decrease slightly from the Q2 level for the rest of 2017.

Reviewing our Q2 non-GAAP operating expenses, R&D expenses were $10.2 million or 21% of total revenue, a meaningful improvement from 31% in the prior-year period as we continue to thoughtfully investment for growth. In Q2 2016, we incurred incentive expenses of approximately $600,000 related to the NT OBJECTives acquisition.

Additionally in Q2 of this year, R&D expenses were reduced by approximately $300,000 due to capitalized internally used software cost relating to our SaaS product development. Going forward most of the OpEx from the Komand acquisition will show up in R&D.

Non-GAAP sales and marketing expenses were $25.3 million, or 53% of revenue in Q2, an improvement from 55% in the prior-year period.

The increase in expenses was driven mainly by higher headcount and higher commission expenses, but we are pleased to be realizing leverage in sales and marketing, while we continue to make investments to drive our growth.

G&A expense in Q2 2017 was $5.8 million, or 12% of revenue in Q2, an improvement compared to 16% of revenue in the year-ago period. As a result, Q2 non-GAAP operating loss was $6.2 million or a margin of negative 13%, an improvement compared to a non-GAAP operating loss of $9.1 million or a margin of negative 24% in Q2 2016.

During the second quarter, adjusted EBITDA loss was $5 million in the quarter, an improvement compared to a loss of $7.9 million in the second quarter of 2016. Non-GAAP net loss per share was $0.14 in Q2 2017, a meaningful improvement from a non-GAAP net loss per share of $0.22 in Q2 2016 and ahead of our guidance.

We ended Q2 with total cash and investments of $93.1 million compared with $92.1 million as of December 31, 2016. Please note that we paid $14.8 million in cash for the acquisition of Komand which closed on July 12th.

And in addition Komand employees going to earn up to $5 million in retention and $5 million in incentive payments over the next four years. We're absorbing 16 employees from Komand however we don't expect a meaningful revenue contribution in 2017.

Our operating cash flow for Q2 was negative $4 million and free cash flow after CapEx in capitalizes software was negative $5.5 million. I want to provide an update on prior discussions and information communicated on our estimated impact of Topic 606.

In the past month, there have been some new developments and interpretations discussed by financial statement issuers in the accounting firms regarding a treatment of perpetual licenses when the perpetual license cannot be separated from the associated content subscriptions.

Based on this new development, we expect to recognize value scribed to these perpetual licenses rapidly over the customer's economic life as oppose to the actual contract term. This will result in this revenue being ratably recognized over longer period of time.

The issuer community and the accounting firms continue to evaluate this particular aspect of the new standard and we'll update you when this matter is finalized. This potential change would only affect the perpetual revenue that we report by spreading that revenue into future years.

Moving to our third quarter and full year guidance, for Q3 2017, we anticipate total revenue to be in the range of $48.9 million to $50.3 million. This equates to year-over-year growth of 21% to 25%. We anticipate non-GAAP operating loss for Q3 to be in the range of $7.8 million to $7 million.

We anticipate non-GAAP net loss per share for Q3 2017 to be in the range of $0.18 to $0.16. This is based on an anticipated 43.3 million weighted average shares outstanding. For the full year 2017, we are raising our billings guidance to be in the range of $231 million to $237 million, representing 18% to 21% year-over-year growth.

We are updating our revenue range to $195 million to $198 million, representing 24% to 26% year-over-year growth. We are updating our range for non-GAAP operating loss for the full year 2017 to $27.5 million to $25.9 million. Note that this includes the increased expense that we're absorbing due to the Komand acquisition.

And we anticipate non-GAAP net loss per share for the full year 2017 to be in the range of $0.64 to $0.61. This is based on an anticipated 43 million weighted average shares outstanding for the full year 2017. We also continue to estimate the shift in product mix will impact our growth in operating cash flow.

And as a result, we continue to expect 2017 operating cash flow to approximate 2016 levels. In summary, we had a strong growth quarter and continue to expect improving operating margins for 2017. With that, we appreciate your time and support, and now I'll turn the call back to Corey for closing comments..

Thank you, Jeff. Our second quarter results are a great validation that Rapid7 has the right strategy across our markets.

Our approach of providing multiple high-impact analytics solutions based on the Rapid7 Insight platform is resonating with customers and driving consolidation of spending with Rapid7, as lean IT and security teams strive to leverage their scarce resources and improve their effectiveness.

Our customers are also responding with higher usage and broader adoption of our platform-based products. With that, I'll turn the call over to the operator for Q&A.

Operator?.

Thank you. [Operator Instructions] Our first question comes from the line of Saket Kalia with Barclays Capital. Please go ahead..

Excellent. Hey thanks very much for taking my questions here guys..

Thank you..

Hey, Corey or actually maybe Jeff, I will start with you. Can you just talk a little bit more about the billings growth this quarter? Especially with the comparable that you had. I think billings were up about 45% year-on-year in last Q2.

Were there any areas that surprised you to the upside this quarter? And if so what were they?.

Yes Saket, So there is a combination of couple of things. The contract duration for overall was 23 months. And our IVM business a lot of that pipeline converted from Nexpose perpetual to the IVM. So there were more multi-year deals in that segment.

We also had a lot more cross-sellers Corey mentioned in his comments this quarter, which contribute to that as well. And also, what we did see is there is more penetration, more IPs on the initial buy. So it was really a combination of all three factors that contributed to the performance this quarter..

And let me just take a step back, I mean one of the things we saw and as part of the feedback that we got from our sales team is we see a pretty robust demand environment. And we see our strategy of consolidation is working and that come through both in to what we saw in the cross-sell performance.

But also and what we saw in the usage for customer which increased. So we feel pretty good about the overall dynamic that we're seeing..

Got it. Maybe for my follow-up for you Corey. You talked about the change in sales leadership in the U.S. I believe Eric just joined early this year.

So to the extent that you can, can you share anything on what changed? And just as importantly, looking forward, do you feel like you've adequately accounted for any potential disruption from that change in the guide for the rest of the year?.

We always take a deep look at the business. And we feel very good about the fundamentals especially as it relates to our guidance, as we look out over the rest of the year. We have good insight visibility on multi-sales team, on the customer demand environment.

So from a guidance perspective, we feel very comfortable with the guidance that we actually gave. As far as the path forward, we think this is a great opportunity for us to actually bring in someone for the U.S.

that has SaaS back on the experience that's reflecting the rapid adoption of our SaaS and platform technologies that we're already seeing today. And that we believe is going to be indicative of our business as we go forward..

Got it. That's very helpful, thanks very much guys..

Thank you, appreciate it..

Our next question comes from the line of Michael Turits with Raymond James. Please go ahead with your question..

Hey guys. Thanks for taking my question, congrats on the quarter. Keep going with Corey, you said that the demand environment is robust. Can you maybe comment on if there is any measurable impact from the various ransom ware incidence and or GDPR or actually some people even said that there is a pause because of that.

So what's been the impact?.

For us, we continue to see a robust demand environment. It's driven by several different factors. One, I think you've had a shift we've talked about this before where people really are figuring out how do I get more done with fewer resources.

And the answer to that is they got to make sure that those resources are focused on the right things, which is where analytics come on. And increasingly one of the reasons that we made the investment in Komand is that looking at how do they actually drive the productivity of their teams.

We think we're well positioned to solve the underlying problem is that people have too much to do and too few resources to do with. And we continue to see that resonate and we continue to see consolidation around that.

As far as the other drivers in the market, you do see some benefits from the awareness this generated by the attacks that go on in the newspapers. And they tend to show up a couple of different ways, one is you have deals that have been in the pipe for a whole, those are catalysts but those to free up. And so we definitely see some effect of that.

As far as GDPR we think we're incredibly well positioned for that opportunity. We think there will be huge opportunity overtime the things that were not quite sustaining when we talked about some of the people in the industry is exactly what's the time and enforcement around that.

But we think that there is lots of drivers in the market that are marketing enterprise wide analytics more strategic that makes the perspective of automation more attractive to customers. And then generally the markets that we play in much more strategic to our customer base..

And then just a follow-up on the number side.

First of all, Jeff since the cash flow did miss all these consensus I know you don't guide there, but it wasn't seem like it was owing to the subscription patch because programming and billings were strong so, what was the issue there and then also maybe why any thoughts on the slight guide below 3Q?.

Yes, so, couple of comments on the cash flow. Number one, we're still saying we're going to come in around where we were last year. We have a bit of a touch comparable, because if you go back a year ago, our DSO and AR was around 76 days or so and has been consistently now around 70.

So, in the quarter prior you had more cash coming in, which gave us a bit of a tough comp. So, we are also spending more and is still investing in growth.

And I think those factors created this touch comp, but we're not - cash flow can vary quarter-over-quarter we're not really guiding to that other than we'll come in where we through at the end of the year, right around last year's number..

And to add [ph] a bit while of course we're focus on the quarterly metrics we look and see what the strengths indicate, our clear focus on the business is achieving both growth which we believe we're on track to achieve and scale and leverage we're focused on profitability over time.

And we feel very good about our path on those and our target performance for the year..

But I guess my the last thing I'd ask a little bit about 3Q just not much, but just a slight guide below on both rev and EPS, any thoughts or anything going on?.

Mike, just repeat that question again, I'm sorry..

With the slight guide below on both rev and EPS for third quarter.

So, any reason we're seeing any kind of a pause there at all obviously the year was great?.

Yes, the contract lengths for the Q2 bookings came at a little higher than we have projected. So, that - there was a slight change for the second half. But overall we stayed in line with our annual guidance..

I think, if you look at the net takeaway, I think we - from an annual perspective which is what we've focus on, we're more confident on our annual billings, which is why we raised that. If you look at the midpoint of revenue we feel more confident about that. And we - those are sort of puts and takes.

But we feel that we're actually continuing to actually gain scale and leverage in the business and are focused on profitability over time. As I know the things can actually vary especially by falling out quarter-to-quarter but again we continue to manage to ongoing growth and scale the business. And we're achieving it..

Thanks Corey, thanks Jeff..

Thank you..

Our next question comes from the line of Gregg Moskowitz with Cowen & Co. Please go ahead with your question..

Okay. Thank you very much and good afternoon guys. Congrats on a solid quarter.

So, we're only one quarter, actually less than one quarter in with InsightVM and InsightAppSec of course but Corey, how would you characterize the uptake relative to our initial expectations as well as what you are seeing in the pipe?.

Yes, I mean, well the real comparison on our initial expectation the reception has been much higher than we expected, we see that both in reflection of the existing Nexpose pipe that converted to InsightVM, as well as the build of the InsightVM pipe itself.

So, the performance both to-date though we're still early I will give that caveat it's still early is much better than we expected..

Okay, great.

And then with InsightOps given and you're primarily selling to a different buyer, when do you think that realistically speaking you will begin to close deals and perhaps start to see a contribution from that product?.

Yes, we think it's still early there again InsightOps is the different position as you mentioned it's a different market for us. And it's a different position that we're in.

But our expectation that over the tail end of this year and into 2018 we'll start to continue to actually have that as a growth driver for our overall business targeting IT segment..

Okay, perfect. And if I could ask one last one, just with respect to your federal business, can you update us on the status of those federal deals that had slipped out of the Q3 from last year and if they are still out there on the table et cetera? Thank you..

We're seeing - when you look on annual basis, we're seeing increasing confidence that federal will be a stronger business this year than it was last year. And so we think significantly less risk to the overall federal business from an annual prospective this year versus our visibility and confidence last year..

Terrific, thanks very much..

Thank you..

Our next question comes from the line of Matthew Hedberg with RBC Capital Markets. Please proceed with your question..

Hi, guys, thanks for taking my questions. Corey, I'm wondering if you continue to rollout the Insight platform.

Can you talk about how you expect ASPs to trend maybe just the general idea of cross-selling this expanded line maybe just illustrate with that?.

It's a good question especially since we actually saw higher ASPs in the last quarter due to both cross-selling and customers consolidating their workloads on us.

My expectations which really is on the balance sheet if you think about our economic model one we want to add new customers in some way that's harder when you actually have an environment where your sales force can actually get a higher dollar from a customer which is a positive thing from our strategic perspective.

And so we're very happy that we're seeing some of that strategic benefit there. That's primarily driven by what we see as customers looking to consolidate by customers now they're trying to figure out how to really charge high their limited resources actually looking at analytics over a larger share of the environment.

And so really the balance that we are striking is that customers that are actually having deeper engagements with you overtimes versus customers that actually come in and get started. So I'd say our land versus our expanded ASP and how much of your business in any given quarter is on the land versus the expand.

All things being equal, I would like to see ASPs consistent to slightly up, because I think that demonstrates the balance of - you have lower dollar deals from customers coming to the partnership with you. And you see that expand significantly overtime with higher dollar deals. And we constantly strive to achieve that balance of customer growth.

The thing that I would say if you look at our market especially around VM, I think we from all the reported numbers I have seen are leading the customer expansion. And I think that's something that we want to continue to do overtime even while we're actually getting larger share of wallet for a customer..

That's great, thanks Corey. And then maybe as you continue - your mix of ratable is impressive and it continues to move higher. As you continue on that trajectory, how do you think about maybe additional incentives whether it be sales force incentive or customer incentives to maybe even drive that behavior even further.

And I guess from a license and maintenance perspective is there a point where the license option is no longer available?.

It's good question. We're very focused on driving recurring revenue and especially product repairing revenue in the business. And we look at a mix of both how do we actually incentivize customers as you say but also how do we actually set comp and incentivize our sales force.

And I would say all things are on the table, as well as at the end of the day customer friendly, which is a huge focus area for us too. But we're continuing to incentivize and drive and focus on recurring revenue growth. If you look at our total recurring revenue growth it was over 30% for the first half of the year we feel very good about that.

And it is going to be an ongoing area of focus for us. And it's something that Jeff and myself and the rest of our leadership team look at on a weekly basis..

Great guys. Well done on the quarter..

Thank you very much..

Our next question comes from the line of Jonathan Ho with William Blair. Please proceed..

Good afternoon, I just wanted to start with Komand, can you talk a little bit about the opportunity there as a standalone product.

And is this have the potential to be another chip of a spear for your portfolio solution?.

It's great question. So I do think it has some potential. And frankly Jonathan I would have expected a [ph] couple of weeks ago as we saw lots of early interest in Komand in new customer basis.

I think about in two ways so one, is that we've done a great job of consolidating enterprise wide of data and helping customers understand the things that are most important for their business and how they get benefit from their limited resources.

And now we're in natural position with our recommendation engine, with our analytics to actually help customers do more.

And if you think about the fundamental value of Komand and its orchestration and automation, we can take our data and we can do data driven automation which allows our customers to actually do more and make their people more productive. And by the way productive teams have productive people is something that resonates really well today.

The second aspect though is that if customers have other analytics solutions whether it'd be VM or whether it'd be SIEM in their environment meaning of those customers are also looking and how they can actually drive productive improvements. And Komand is an open platform that integrates with lots of solutions.

So it allows us to go into other customer environments where we're not yet with our analytic solutions and provide automation and orchestration against our existing data sets. We like that one two products that allows us to continue to grow and expand the business while achieving our overall vision..

Got it.

And then relative to the AVA percent renewal rate, is this pretty much where we should expect to stay or you guys looking at maybe some steps to raise over time?.

Yes, I would say that the we've been between how far back you go to 87%, 89% renewal rate for a little bit and I'd say really what we have is the multiple factors that are actually coming in there. You have mature products like Nexpose which of course have much higher renewal rates, you have enterprise customers which have much higher renewal rates.

And then you also have new products you have lower end customers as to beat customers that have lower renewal rate. And so really what you see in the average renewal rate is a factor of us executing well across multiple customer environments.

And so I think it's a safe assumption that it will be in that range as we grow and expand and continue to execute on multiple frontiers at once..

Great, thank you..

Thank you..

[Operator Instructions] Our next question comes from the line of Melissa Frances [ph] with Morgan Stanley. Please proceed with your question..

Great, thanks for taking my question.

Corey in the prepared remarks, you talked about strong mid-market results and you talked a little bit about enterprise seeing it stable, but I'm just hoping you can maybe elaborate on what you're seeing in the enterprise space? Is it performing better than what you expected or do you feel like there is still more work to be done?.

Yes, over the first half of the year, we feel very good about it, it performed better, we have a stronger, better team in place. If you think about Q2, that were a very tough comparable for the enterprise team and it was very solid performance.

And so it's all are relative thing the mid-market performance was exceptional but we're approaching 40% of Fortune 1000 companies, customers of Rapid7 continue to see growth, we continue to see healthy team. So, we feel very, very good about the enterprise business in total.

We also are pragmatic and know that build out is a long-term build out and it's something that we continue to focus on and we continue to see progress also. While we feel good, it's something that we keep our eye on and something that we continue to focus on..

Okay, got it. And then a follow-up on the billings guide for Jeff. So, if I just look at the full year, the second half billings growth is expected to slow down relative to what we've seen in the first half.

I am just wondering if that's largely just to the contract duration challenge that you noted before, is there anything else that we should be aware of?.

No, it's consistent with what we said, we are expecting contract durations slow down as we sell more of our subscription based products. So, that's really all the risk to that, we still raise the overall billings guidance, but that's it in a nutshell it's just a contract duration..

Okay, that's helpful. Thank you..

Thank you..

Our next question comes from the line of Robert Breza with Northland Capital Markets. Please proceed with your question..

Hi, thanks for taking my questions. Corey, just maybe with the Head of U.S. Sales changing out here, have you seen any additional sales force turnover meaning more than maybe in the bottom 5% which we typically see.

Or just curious to make sure that coverage ratio that you normally look forward in terms of your overall sales force and business plan are kind of working together?.

It is the question we're excessively focused around both our coverage ratios and business plan.

What I would say is that when we look out over both the course of the year and the second half of the year, we're in a great position on our plan, our model, our sales coverage and that includes better performance this year versus last year from the sales force and the number of people in the account and segmentation.

When you have any change you always factor in some, but even with that factor in we feel very good about the position that we are in..

Great.

Maybe just a quick follow-up for Jeff, as you think about the change in the contract duration, how do you think about let's say billings starting to grow faster than revenue or how should we think about or if you could try to help us with a range of when that kind of crosses over or we start to see the overall calculated billings growing actual than revenue?.

I think you have to focus on the annual recurring revenue portion that is growing faster than the billings growth, it's growing over 30%. So, you are moving away from TCV, the total contract value billings growth to more recurring revenue. So, that's really the way you have to look at it.

And this year is kind of a mix bag, but when we finish the year as we get a higher concentration of the subscription based products, we'll be able to provide better metrics for that going into next year..

Sounds great. Thank you, guys..

Thank you..

There are no further questions at this time. I'll now turn the call back to the Presenters..

Thank you all for joining us today on our conference call. We look forward to talk to you in the next call..

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..