Rapid7, Inc. Q1 FY2024 earnings

Rapid7 reported first-quarter fiscal 2024 revenue of $205.1 million, up 12.0% from the prior-year quarter. Annualized recurring revenue was $807 million, an increase of 11% year over year. The customer count was 11,462, up 4%, and ARR per customer was $70.4, up 7%. The company has more than 11,000 customers in 148 countries, including 47% of the Fortune 100. Management said the ARR trajectory reflected a slower shift of the vulnerability management base into Cloud Risk Complete. Rapid7 continues to see consolidation of cloud security and risk management as the right long-term direction, but the transition is affecting near-term recurring revenue growth. The quarter also marked the conclusion of the restructuring plan announced in August 2023.

On profitability, GAAP gross profit was $144.2 million, up 13.4%, and gross margin was 70.3%, up 0.9 percentage points. GAAP operating income was $10.6 million, a swing to a profit from a prior-year operating loss. Operating margin was 5.2%, up 18.2 percentage points. GAAP net income was $2.3 million, also a swing to a profit, and diluted EPS was $0.03, up $0.46. The improvement came as research and development, sales and marketing, and general and administrative expenses all declined. Rapid7 tied those reductions to lower headcount following the restructuring plan. The company also said the professional services gross margin benefited from lower personnel costs.

Non-GAAP results showed a similar pattern. Non-GAAP income from operations was $40.3 million, with a non-GAAP operating margin of 20%. Non-GAAP net income was $39.4 million, and non-GAAP diluted EPS was $0.55. Adjusted EBITDA was $46.6 million. Non-GAAP gross profit was $151.1 million, and non-GAAP gross margin was 74%. These measures exclude stock-based compensation, amortization of acquired intangible assets, amortization of debt issuance costs, and certain other items. Rapid7 uses these figures for internal decision-making and to evaluate period-to-period comparisons.

Cash generation was strong. Net cash provided by operating activities was $31.1 million, up 431.8% from the prior-year quarter. Capital expenditures were $0.6 million, down 72.9%. Free cash flow, a non-GAAP measure, was $27.5 million, compared with negative $1.2 million a year earlier. The company defines free cash flow as cash provided by operating activities less purchases of property and equipment and capitalization of internal-use software costs. Deferred revenue, current portion, was $437.7 million, up 5.7% year over year.

Guidance covers the second quarter and full-year 2024. For the second quarter, Rapid7 guided annualized recurring revenue to $850 million to $860 million, non-GAAP income from operations to $35 million to $37 million, and non-GAAP net income per diluted share to $0.50 to $0.53. For the full year, the company guided non-GAAP income from operations to $150 million to $158 million, non-GAAP net income per diluted share to $2.10 to $2.21, and free cash flow to at least $160 million. The guidance excludes foreign exchange gains or losses and does not reflect unknown items such as non-ordinary course litigation-related expenses. Risks include macroeconomic uncertainty, unstable market and economic conditions, competition, the ability to sustain revenue growth, sales cycles, integration of acquisitions, and compliance with laws. The risk list also includes fluctuations in quarterly results, the effectiveness of the restructuring plan, and the ability to innovate and manage growth. Renewal of customer subscriptions and market growth also remain important variables.