Corey Thomas - Chairman & Chief Executive Officer Jeff Kalowski - Chief Financial Officer Neeraj Mahajan - Vice President of Investor Relations.

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2019, Rapid7 Earnings Conference Call. At this time all participants lines are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

[Operator Instructions] 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 Rapid7’s fourth quarter and full year 2019 financial and operating results in addition to our financial outlook for the first quarter and full fiscal year 2019. With me on 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 filed. This call is being broadcast live via webcast and 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 our objectives and 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 of such risks. Actual results and the timing of certain events may differ materially from the results or the 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 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 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 comments or in response to your questions, we may offer incremental metrics to provide greater insights into the dynamics of our business or our quarterly results. Please be advised that those additional detail maybe 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, Neeraj, and good afternoon everyone. Thank you all for joining us today on a fourth quarter and full year 2019 earnings call. Rapid7 caps 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 15% and into 2019 was more than 9,000 customers and average ARR per customer increased by 15% 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 mid-point, while continuing to deliver operating leverage. Two years ago at our Investor Day we outlined a set of ambitious goals for Rapid7 through 2020. We guided to revenue an ARR of $350 million by 2020 and breakeven non-GAAP profitability by 2019.

We comfortably met our profitability targets in 2019 and we are on pace to exceed our revenue and ARR target 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% and by 16% from two 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 continue 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 four product pillars driving growth.

These products are at different stages of maturity, but each represent a significant opportunity and together they provide us with a foundation for meaningful levels of long term growth. .

increase in customers who are on our Insight platform, which we are paying at a higher rate, increase in up-sale across our efficiencies, and introducing our emerging products to our broad customer base.

We are already seeing evidence of this for our Insight platform customers, which have a substantially higher achievement of ARR per customers, driven by higher products per customer and a more efficient cross-sell engine. Our third goal is to continue to drive leverage in our business.

We are guiding for a non-GAAP operating income of $7 million to $11 million for full-year 2020, a 1% to 2% market 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 process.

First and foremost, our set-top provision is resonating with customers and we will continue to be focused on scaling and delivering the mission that we already set forth. Second, we are seeing the benefits of our platform engine and we believe that we will able to deliver sustainable growth with continued leverage and profitability.

Specifically, we are confident today that we can deliver a three year revenue CAGR of at least 20% through 2022. Additionally, you should expect us to deliver operating margin improvement of 2% to 3% that will grow ARR in the low to mid-20s. .

In conclusion, Rapid7 is very well positioned to help solve cyber security challenges for enterprises of all sizes and needs. Our customers are embracing our platform and our multi-product 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 Kalowski.

Jeff?.

Thanks Corey and good afternoon everyone. We are pleased with our strong performance in the fourth quarter 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 $338.7 million, a 35% increase year-over-year.

We ended 2019 with revenue of $326.9 million, 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 significant beat on our operating income guidance as well, and we reported non-GAAP operating income of $2.4 million 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 a program to accelerate the migration of our Logentries' customers to the Insight platform.

During this transition we have successfully migrated about 600 customers so far, which are not included in our customer account today, as our contract value is less than $2,400 per year. Let’s turn to our fourth quarter results.

Total revenue for the fourth quarter was $91.6 million, 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, bring 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 next post customers continue to not 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 revenues 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 fourth quarter, 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 mix shift towards higher gross margin product revenue. During the fourth quarter, 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 hyper growth businesses to meet the 2020 goals that Corey mentioned. R&D expenses were 19% of revenue in Q4 2019, down compared to 22% in Q4 2018, but similar to that of Q3 2019.

We expect R&D spending, excluding the effect of capitalization of internally developed software to be in the range of 20% to 22%. G&A expenses in Q4 2019 were 10% of revenue, down from last year's level of 11%. For Q4 2019 we generated non-GAAP operating profit of $0.8 million, well ahead of our guidance.

Operating margin was approximately 1% compared to a margin of negative 4% in Q4 2018. Adjusted EBITDA for the fourth quarter was $3.7 million 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 $262.5 million compared to $257.7 million as of Q3, 2019.

Contract length for Q4 2019 was 16 months, a slight increase from 15 months last quarter. We expect contact lengths to stabilize around these levels. During the quarter, operating cash flow was $7.8 million as compared to $11.9 million in the prior year. For the full year 2019 operating cash flow was negative $1.4 million.

We exceeded our guidance from last quarter of negative $5 million due to strong Q4 collections, which drove the 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 million to $427 million, which is 25% growth at the mid-point.

We anticipate total revenue to be in the range of $396 million to $404 million, which is 22% growth at the mid-point. We expect non-GAAP operating income to be between $7 million to $11 million for 2020. As Corey 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 million 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 million diluted weighted average shares outstanding.

The weighted average shares outstanding for full year 2020 represented diluted shares outstanding, given or 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 $91.6 million to $93.2 million.

We anticipate non-GAAP operating loss in Q1 2020 to be in the range of negative $6.3 million to negative $5.3 million, 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 anticipated $50.2 million basic weighted average shares outstanding. The weighted average shares outstanding for the first quarter of 2020 represent basic shares outstanding given a 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 you. [Operator Instructions]. 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 want to get a bit of a broader view one 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 little bit, Jeff thanks for all the guidance you gave, but how does M&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.

.

Yeah, it’s a great question Rob. First 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 key sell products, it is always looking at applications designed for the cloud, which enables us not just to have a standalone mass [ph] solution, but that capability enables us to do detection for IDR already filed, and it also enables our broader AppSec store, so we are starting with a very small one.

But as you indicated, we have to continue to strengthen and evolve it. The cloud is one of the most relative 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 longer term outlook, but it could also include strategic M&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 two years of over 20%, it does not factor in M&A being a significant part of that. Without a doubt I’m sure we’ll do tuck-ins, but we may do other things if they make sense and follow our strategy at the time.

But right now we are heavily, heavily focused on executing our strategy that we’ve already laid out. We have an organic plan to do that and we are very disciplined around this about this right opportunity 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 Matthew Hedberg with RBC. Your line is open. .

Hey, great. Thanks guys. You know I wanted to follow up on the 2022 guide. Obviously you know there's - you've got some smaller products, IDR queues for a 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 know 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?.

Yeah, I mean so one of the key – 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 that 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 and there is still lots of companies around that don’t have VM coverage and that’s our heavy focus in understanding that VM market in that global base of customers. Secondly, the number of assets that customers have in the environment continues to grow and expand to even established customers.

That still adds a couple of points of growth every year. And then we still have companies that are under penetrated overall. And so our long term view is that, you know you have periods along the way where you have really high rates.

You 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 rates still supports one of the best technology sectors in that low to mid-teens for the one billion management market.

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 so on. .

That’s great! And then maybe a follow-up to that, sort of building up to that growth portfolio. Obviously you guys have been methodical in how you add sales headcount on an annual basis and obviously calling on cross-sell and up-sell to take growth as well.

But you know when we are looking out several years, should the cadence of quarter reps continue, I think you know low double digits?.

Yeah you can think about the sales being tightly tied to our OpEx substantially 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. So when you think about the model that we outlined earlier, if it is lower AR growth you’re going to see faster margin expansion.

I think it is reasonable than people would expect. With a higher growth you will see some expansion, but it will be expanding at a slower rate of growth.

And what the really means at the end of the day is our sales expansion, our sales cost really is tied to growth that regardless we are looking to expand the leverage that we get in the business year-over-year. .

Thanks.

Well done this year guys!.

Thank you very much. I appreciate it. .

Thank you. And our next question comes from Michael Turits with Raymond James. Your line is now open..

Hey Corey and Jeff. You gave a couple of ranges of ARR growth which you were tying to where margins would be. But some of them were, you know the latter ones were above the current range of guidance for next year.

So what are the things that you see that or that toggled it, that could catch you to ARR above the 2020 guide?.

Yeah, 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, it’s a business that we have frankly started to accelerate the investment this year.

We’ve got a major customer feedback, there’s great fundamental demand in the market, but our three year plan that we actually laid out has some of the cost of the SOAR, 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 in our 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 healthy AppSec business and the emerging SOAR business and will continue to sort of pre-discuss and to make investments in the cloud, which allows us to have ongoing upside at the 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 option this year is pretty much in-line with the operating income guide. So considering that I would assume that you know you said that duration should be about stable, so I would imagine billing should be a contributor to working capital.

You know what is it that’s keeping cash flow from Ops pretty much at that same level as EBIT?.

We're forecasting about $10 million in operating cash flow, which is you know, 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 numbers for – you'll be directionally correct to that billings number for this year in 2020, and based on our net income –I’m sorry, our operating income guidance at 7/11, that should get you to that $10 million number..

Okay, thanks Jeff. .

Thank you. .

Thank you. Our next question comes from Gur Talpaz with Stifel. Your line is open..

Okay, great, thanks for taking my question. Corey if I look at the presentation, you kept ARR per customer potential at about 200K. But if I think about all the recent endeavors you made to connect and the ability to push up stream here into the enterprise, could this number ultimately [inaudible] as you think about the push out into 2022. .

Yeah, absolutely.

We tend to take a more conservative approach for things that are unknown, and so as you think about both, the application security and impact to net, we’re taking a fairly modest approach when we actually think about both businesses and there are something that we are partially in and we saw 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.

You know one of the things that we talked about before is while we're starting to approach the 40K mark, we have live assignment visibility with fairly good confidence to the 50K 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 of having to pass the line of sight to grow the actual current ARR per customer, whereas also expanding the potentially ARR per customer steadily over time.

Because really what I focus on and what I look at, just like we did three years ago is what's the overall character of the company, the organization, the customer rate as we exit the next three year period.

And when we exit that next three 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 good, that's really helpful. And then if you look IDR specifically, as the product matures, have you seen any shift within that central customer set, sort of like a broader push upstream and then the product itself gets better.

And then I think beyond that, have you seen any shift in the competitive space as well as within that market?.

Yeah look, so I’m going to tell you how we wrap it up and approach this. We always tend to focus on a narrow set of customs earlier in the market evolution and then we just steadily add more and more custom segments.

With the IDR that's been happening on an ongoing basis, I talked about last year when we acquired NetFort that in 2020 and 2021 you should expect us to see starting to move deeper into the larger accounts in the flat portion about the 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 pick-up that we started to see last year was IDR being addressed in more markets around the world and I think that that will continue as we go forward.

Again for context, while IDRs are 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 in front of us. .

That's all I got. Well, 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're expected it to like sort of plateau you know 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 terms. Thanks. .

Yeah Jonathan. So last year roughly where we expected it to end, our overall if you think about the moral rate sort of really being composite, sort of two quarter thing, is one of them is the retention rate of how well we retain dollars of all of our 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 are familiar last year, we had a heavy focus on adding net new customers and that was while we were successful as was reflected by our 16% customer growth in the last quarter.

So overall we ended what we thought we were at last year and we are set up well for this year. Because it's not a primary metric, it's not something that were actually forecasting or targeting for this year.

We're really focused on our overall ARR target, 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, you know just given you know I guess there's less of a focus right now on showing you know the same degree of operating leverage, should we expect there to be you know sort of similar levels of out performance or has there been any shift in terms of that guidance strategy.

.

I think you will expect to see as we’ve actually moved to a more normalized model where we don't have to shift from subscription, which is quite the unknown. If you think about why we had some of the conservatives in the past, we could have more unknowns.

We were actually going from single product to multi product and we’re shipping from perpetual to subscription. You just have to be more thoughtful and more conservative in your approach when you accept more unknowns.

The good thing is today we actually fit 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 line. So not as big a gap as we actually had in the past and in fact we even saw that last year, and we told people last year.

It was like, we saw people and said listen, you clicked 30% plus, we ended at 35%, which we considered extraordinarily strong performance. We gave this year not a plus or minus, but we gave a tighter range of 24% to 26%, because we expect this year to actually be much more normalized versus past years. We had a much higher than we have unknowns. .

Thank you, that's very helpful. .

Thank you. .

Thank you. Our next question comes from Gregg Moskowitz with Mizuho. Your line is open. .

Hi guys, Gregg Moskowitz, how are you?.

Hi Gregg..

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 to with 6 to 12 months ago. .

Gregg, this is Jeff. It was again over 30% of the new bookings. You know we started out disclosing when it’s over 10 of the new, and then it’s over 20, and you know the next data point will be you know if it gets over 40%. And with respect to the ARR growth in total, it was about 75% for the year. .

Okay, that’s pretty fantastic. .

Yeah, and to your question it’s a yes, we're very successfully in landing new customers into accounts. It’s one of our stronger land engines within the company, which is part of what gives us confidence as a whole. .

Terrific! And then just a clarification, a follow up to Mike Turits’s question – and by the way, very helpful to kind of get the fiscal ‘22 outlook, so I appreciate that, and I did want to just confirm, because two out of the three scenarios do reflect an acceleration and the third scenario contemplates maintaining an ARR growth rate in the mid-20’s, 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 SOAR and other emerging products; is that correct?.

Yeah, so if you think about like our growth this year, you can think about the growth this year at sort of a 24% to 26% to be in an area where we feel comfortable, but that is 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 into the unknown, and so one of the things that we want to be clear on is that if we’re stating the return of the performance, we will be invested in those things, because they actually have the potential, but because they are unknowns, they are not deeply baked into the revenue and ARR guidance that we have over the next three years, but if we see good performance, they do represent upside.

But it will be also not correct to say that, it's upside that we should bank off today because it's an unknown, but if you 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 wonder if you could talk a little bit more about the AppSec product, particularly the investments you're making in moving forward in that portfolio and then how its performing relative to your expectations. .

Yes, so InsightAppSec is a dominant process in our market, that’s our cloud base SaaS solutions. It is performing extraordinary well in comparison to expectations. As you know, the AppSec market has a great potential, but is a massively fragmented market. So we have to be very thoughtful about our expansion.

We have both organic investments, especially when you think about that market and the cloud market together, and it also has the opportunity for M&A, but we also have to be very thoughtful to make sure that M&A makes sense for us.

So you saw a Part II sale a few years, we are seeing good demand, that’s an area that we’ll continue to land and that’s an area that we’ll continue to expand upon over the coming year and we’ll have a good customer momentum, but it’s very, very early for the rest of the market.

And I would say AppSec also represents the market has the potential for M&A, but you’ll find us fairly consistently thoughtful, strategic and patient when it comes to long term M&A, and so AppSec is an area of opportunity.

We are seeing great success in the parts of the market that we participate into today, but we are going to continue to expand our efforts there over time. .

Okay, helpful, thank you. And then a quick one for Jeff. We are thinking about ARR 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; the difference is solely due to the services. I would assume that the services will be about flattish from this year, and if you combined, 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..

That would be 5% of the mix, but that would be above that, the same – it’s closely related to the ARR growth. .

Right. Okay, that’s helpful. Thank you..

Thank you, Melissa..

Thank you [Operator Instructions]. And we have a question from Nick Yako with Cowen & 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 are making on the international front. And then any of those investments that you’d highlight that could cause that international business to inflect over the next year or so. .

I would say there’s two core things. One, we are still scaling data centers around the world and 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 pull the adjusted 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 countries boundaries and so we have steadily expanded the number of countries that we actually have data centers in and around the world.

The second thing to keep in mind is you know 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 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 first year that really became much more of a global businesses and we think there is lots of growth in IDR over the next couple of years and that’s a catalyst.

Likewise with SOAR, its heavily focused right now in the early stages in North America, where 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 two catalysts as we actually think about the overall international expansion as we go forward. .

Okay, that’s helpful. And then Jeff, I do want to ask if there is any additional color you can provide around just a mix of ARR by products finishing in 2019. Thank you..

Yeah, well the ARR is still over 50% of the total ARR, but it’s becoming a less percentage – 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!.