Summary
Rapid7 reported first quarter fiscal 2023 revenue of $183.17 million, up 16.4% from the prior-year quarter. Gross profit rose 19.9% to $127.18 million, and gross margin reached 69.4%, up 2.0 percentage points. The company still posted a GAAP operating loss of $23.96 million, but that loss narrowed from the prior-year quarter, and operating margin improved to -13.1%, up 12.6 percentage points. GAAP net loss was $25.92 million, also a narrowed loss, and diluted EPS was -$0.43. On a non-GAAP basis, Rapid7 generated $11.0 million of operating income and a 6% operating margin, while adjusted EBITDA was $16.8 million. The gap between GAAP and non-GAAP results remains large, largely because of stock-based compensation and amortization, but the direction of travel on profitability is clear.
Cash flow was weaker. Operating cash flow fell 43.8% to $5.84 million. Free cash flow, a non-GAAP measure, was negative $1.2 million. Capital expenditures declined 25.2% to $2.28 million. Deferred revenue, current portion, rose 9.4% to $413.99 million. Annualized recurring revenue was $727.853 million, up 16% year over year. The customer count passed 11,000 and stood at 11,034, up 6%, while ARR per customer rose 9% to $66.0. Management said consolidated offerings Threat Complete and Cloud Risk Complete made up over 20% of new business in the quarter. Rapid7 also acquired Minerva Labs for $35.0 million in cash and issued 73,846 shares with a fair value of $3.6 million. It invested $1.5 million through its foundation in a cyber threat intelligence lab with the University of South Florida.
Guidance points to continued growth but a step down in sequential profitability. For the second quarter of 2023, management guided revenue to $187 million to $189 million and non-GAAP income from operations to $7 million to $9 million. Non-GAAP net income per share is expected to be $0.09 to $0.12. For the full year 2023, revenue guidance is $773 million to $779 million, non-GAAP income from operations is $59 million to $63 million, and non-GAAP net income per share is $0.83 to $0.89. Full-year free cash flow is targeted at approximately $80 million. The full-year revenue growth outlook is 13% to 14%, while second quarter revenue growth is guided to 12% to 13%. The guidance excludes any potential foreign exchange gains or losses.
The main risks are familiar for a growing software company. Rapid7 cites macroeconomic uncertainty, unstable market and economic conditions, and fluctuations in quarterly results. It also flags the possibility of failing to meet publicly announced guidance, the challenge of sustaining its revenue growth rate, product detection failures, renewal of customer subscriptions, competition, market growth, and its ability to innovate and manage growth. Sales cycles and integration of acquired companies are additional concerns. The MD&A notes that Rapid7 has generated significant losses and expects to continue generating losses for the foreseeable future. It maintains a full valuation allowance on domestic and certain foreign deferred tax assets and may need to raise additional capital on acceptable terms. Foreign currency losses, primarily tied to the euro and British pound sterling, added another swing factor.
The quarter showed solid top-line growth and better GAAP loss levels. ARR and customer metrics support the growth story. The weaker operating cash flow and negative free cash flow are the counterweight. With full-year free cash flow guided to approximately $80 million, execution on collections, renewals, and spending discipline will matter. The company also has to manage integration risk from Minerva Labs and a macro backdrop that could pressure customer budgets.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $183.2M | $184.5M | -0.7% | $157.4M | +16.4% |
| Gross profit | $127.2M | $129.5M | -1.8% | $106.1M | +19.9% |
| Gross margin | 69.4% | 70.2% | -0.8 pp | 67.4% | +2.0 pp |
| Research & development | $46.3M | $42.6M | +8.7% | $49.8M | -7.0% |
| Sales & marketing | $80.6M | $78.3M | +3.0% | $75.1M | +7.2% |
| General & administrative | $24.2M | $22.0M | +10.0% | $21.5M | +12.5% |
| Total operating expenses | $151.1M | $142.9M | +5.8% | $146.5M | +3.2% |
| Operating income (loss) | -$24.0M | -$13.3M | -79.5% | -$40.4M | +40.6% |
| Operating margin | -13.1% | -7.2% | -5.8 pp | -25.7% | +12.6 pp |
| Net income (loss) | -$25.9M | -$11.4M | -127.6% | -$45.0M | +42.4% |
| Net margin | -14.2% | -6.2% | -8.0 pp | -28.6% | +14.4 pp |
| Diluted EPS | -$0.43 | -$0.19 | -$0.24 | -$0.78 | +$0.35 |
Risks
Prolonged economic uncertainty, inflation, higher interest rates and global events may cause customers to delay or cancel security spending, seek payment deferrals or pricing and bundling concessions, and reduce information technology budgets. MD&A shows year-over-year revenue growth of 16.4% in the three months ended March 31, 2023, compared with 34.0% growth in the prior-year period.
The length and unpredictability of the sales cycle, particularly with large enterprises and certain products, has increased complexity and prolonged customer evaluation, negotiation and budgeting. MD&A reports ARR growth of 16.1% and customer growth of 6.0% for the quarter, compared with 37.6% and 16.0%, respectively, in the prior-year period.
Growth depends substantially on customers renewing and expanding subscriptions, and customers have no obligation to renew. Renewal rates may decline due to economic conditions, competitive offerings, pricing, or dissatisfaction, and any decline or less favorable renewal terms could adversely affect future revenue.
The SecOps market is highly fragmented and intensely competitive, with competitors including CrowdStrike, Microsoft, Splunk, Palo Alto Networks, Wiz, Qualys and Tenable. Larger competitors have greater resources and can bundle competing products at lower prices, increasing pricing pressure and potentially reducing renewals, revenue and gross margins.
Approximately half of revenue was attributable to InsightVM, Nexpose and Metasploit for the year ended December 31, 2022. A decline in demand, failure to renew or increase sales, or introduction of substitute products for these vulnerability management offerings would harm results more seriously than if revenue were more diversified.
The company has significant indebtedness, including $230.0 million aggregate principal amount of 2025 Notes and $600.0 million aggregate principal amount of 2027 Notes. It may not generate sufficient cash flow to pay debt when due, and the revolving credit facility contains restrictive covenants and is secured by substantially all assets.
On March 14, 2023, Rapid7 acquired Minerva Labs Ltd. for $35.0 million in cash and issued 73,846 shares with a fair value of $3.6 million. Integration may be difficult due to geographic separation, differing cultures and systems, and may fail to realize anticipated benefits or result in unforeseen liabilities.
Revenue from channel partners was approximately 57%, 52% and 47% for the years ended December 31, 2022, 2021 and 2020, respectively, and may increase in future periods. Channel agreements are non-exclusive, and partners may emphasize their own products or competitors' products, potentially harming growth in key international markets.
Operations outside North America generated 21% of revenue for both the three months ended March 31, 2023 and 2022. International expansion adds complexity, including foreign currency fluctuations, regulatory compliance, geopolitical instability and risks from the Russia-Ukraine war.
The company depends on its sales force and research and development personnel, and recruiting and retaining cybersecurity employees has become increasingly difficult. It faces intense competition for these employees and has historically had high turnover in sales and marketing and research and development positions.
Rapid7 is currently involved in legal proceedings with Finjan, Inc., which alleges patent infringement against the company and Rapid7 LLC. Patent and intellectual property disputes are common in the industry and could result in substantial costs, diversion of management attention and unfavorable outcomes.
Market conditions could impair access to cash, and on March 10, 2023, Silicon Valley Bank was placed into receivership, temporarily making funds held at SVB inaccessible to customers. Any delay in accessing cash or losing funds could force the company to seek additional capital sooner than planned and at a higher cost.
SaaS KPIs
All quarters →Free Cash Flow
ARR per Customer
Number of Customers
Annualized Recurring Revenue (ARR)
Non-GAAP Operating Margin
Non-GAAP Income from Operations
Non-GAAP gross margin
Adjusted EBITDA
Recurring revenue (% of total revenue)
Summary, forecast, risks and KPIs are extracted from Rapid7, Inc.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.