Summary
Rapid7 paired its preliminary second quarter 2021 results with a sizable acquisition. The company closed the purchase of IntSights Cyber Intelligence Ltd., a provider of contextualized external threat intelligence, on July 16, 2021. Consideration was roughly $321.0 million, plus 206,608 shares of common stock to be issued to IntSights founders in three installments over thirty months and $5.6 million in deferred cash. Rapid7 acquired $12.7 million in cash with the target, leaving a net cash outflow of $308.3 million at closing. The 8-K headlined the deal at approximately $335 million in cash and stock. Management framed IntSights as a way to fold external threat detection into InsightIDR, the company's extended detection and response product, and to sell a standalone threat intelligence offering. Two smaller deals closed earlier in the year, Alcide on January 28, 2021 for $50.5 million and Velocidex on April 12, 2021 for $3.0 million.
Revenue for the quarter ended June 30, 2021 was $126.4 million, up 27.8% from $98.9 million in the prior-year quarter. Year-to-date revenue of $243.9 million was up 26.2% from $193.3 million. Gross profit of $87.1 million rose 24.7%, but gross margin slipped to 68.9% from 70.6% as cloud-based subscriptions and managed services, which carry lower margins than licensed software, took a bigger share of the mix. Operating loss widened to $21.9 million from $15.7 million, and operating margin fell to -17.3% from -15.9%. Net loss widened to $34.2 million from $21.5 million, and GAAP diluted loss per share widened to -$0.62 from -$0.42. The quarter absorbed a tax charge tied to an intercompany sale of intellectual property from the Alcide purchase, along with higher stock-based compensation and amortization of acquired intangibles.
The six-month numbers tell the same story. Operating loss widened to $45.0 million from $35.6 million, net loss widened to $64.0 million from $44.4 million, and diluted loss per share widened to -$1.18 from -$0.88.
Cash generation was the bright spot. Operating cash flow was $9.2 million in the quarter, against $0.4 million a year earlier. Year to date it was $29.8 million, compared with $6.8 million used in the prior-year period. Free cash flow, a non-GAAP measure, was $5.0 million for the quarter versus negative $2.2 million a year ago, and $22.9 million for the six months. Capital expenditures were $1.7 million in the quarter, up from $1.2 million, and $2.7 million year to date, down from $4.0 million.
The recurring base kept expanding. Annualized recurring revenue finished June 30, 2021 at $488.9 million, up 28.7% from $379.9 million a year earlier. The 8-K put preliminary ARR at approximately $489 million, or 29% growth. Customer count reached 9,315, up 13% from 8,223, and recurring revenue was 93% of total revenue in the quarter, up from 91%. Deferred revenue, current portion only, was $302.2 million, up 32.9% from $227.3 million. Non-GAAP income from operations was $6.1 million for the quarter compared with $4.3 million a year earlier, and $8.0 million for the six months.
Rapid7 did not issue full-year guidance in these documents. The 8-K carried preliminary second quarter numbers and said revenue and non-GAAP income from operations for the second quarter of 2021 would exceed the high end of the guidance provided on May 6, 2021, with complete results due on the August 4, 2021 call. The risks named in the filing include the uncertain duration and business impact of COVID-19, competition and the pace of product innovation, the work of integrating IntSights, Alcide and Velocidex, rising cloud computing costs, and a loss history that keeps a full valuation allowance on domestic deferred tax assets. Liquidity is solid: $493.6 million in cash and cash equivalents and $119.7 million in short- and long-term investments at June 30, 2021, against an accumulated deficit of $653.7 million and $45.4 million of 1.25% convertible notes due 2023 that management expects to repay within a year.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $126.4M | $117.5M | +7.6% | $98.9M | +27.8% |
| Gross profit | $87.1M | $81.2M | +7.3% | $69.8M | +24.7% |
| Gross margin | 68.9% | 69.1% | -0.2 pp | 70.6% | -1.7 pp |
| Research & development | $35.3M | $33.1M | +6.7% | $26.1M | +35.2% |
| Sales & marketing | $56.2M | $55.0M | +2.3% | $45.0M | +25.1% |
| General & administrative | $17.5M | $16.2M | +7.8% | $14.5M | +20.7% |
| Total operating expenses | $109.0M | $104.3M | +4.6% | $85.6M | +27.4% |
| Operating income (loss) | -$21.9M | -$23.1M | +5.1% | -$15.7M | -39.4% |
| Operating margin | -17.3% | -19.7% | +2.3 pp | -15.9% | -1.4 pp |
| Net income (loss) | -$34.2M | -$29.8M | -14.5% | -$21.5M | -59.2% |
| Net margin | -27.0% | -25.4% | -1.6 pp | -21.7% | -5.3 pp |
| Diluted EPS | -$0.62 | — | — | — | — |
Risks
Rapid7 issued $600.0 million aggregate principal amount of 0.25% convertible senior notes due 2027 in March 2021, and the conditional conversion features of the 2023 Notes and 2025 Notes were triggered as of June 30, 2021, making them convertible at holder option between July 1, 2021 and September 30, 2021. Cash settlement of conversions or reclassification of principal as a current liability could reduce liquidity and net working capital.
Rapid7 acquired IntSights on July 16, 2021 for approximately $321.0 million and Alcide on January 28, 2021 for $50.5 million, and integration may be difficult due to geographically separate organizations and different corporate cultures. Acquisition-related tax expense of $9.0 million from an intercompany sale of intellectual property related to Alcide increased the provision for income taxes in the three months ended June 30, 2021.
The COVID-19 pandemic continues to create uncertainty, and Rapid7 may see delays in its sales cycle, customers failing to renew at the anticipated scope, requests for payment term deferrals, and pricing or bundling concessions. While no significant disruptions occurred in the six months ended June 30, 2021, the duration and resurgence of the pandemic remain unpredictable.
Greater than half of Rapid7's revenue was attributable to vulnerability management offerings InsightVM, Nexpose and Metasploit in each of the last three fiscal years. A decline in demand for, or failure of, those offerings would harm results more seriously than if revenue were diversified.
The SecOps market is highly fragmented and intensely competitive, with competitors including Qualys, Tenable, Splunk, Microsoft, Palo Alto Networks and IBM. Larger competitors with broader product offerings can bundle competing products, which may increase pricing pressure and cause average sales prices for Rapid7's offerings to decline.
Total gross margin decreased to 68.9% in the three months ended June 30, 2021 from 70.6% in the three months ended June 30, 2020, and products gross margin decreased to 72.2% from 75.0%, primarily due to an increase in revenue from cloud-based subscriptions and managed services, which have lower gross margins than licensed software products.
Rapid7 depends on its sales and research and development personnel and on senior management, particularly CEO Corey Thomas. It faces intense competition for employees and has historically had high turnover in sales and marketing and R&D positions, which could impede product development and revenue growth.
Rapid7 derived approximately 47% of revenue from sales through channel partners in 2020, and its agreements with them are non-exclusive. Channel partners may emphasize their own or competitors' products or fail to market and sell Rapid7's offerings effectively, particularly in international markets.
SaaS KPIs
All quarters →Free Cash Flow
Annualized Recurring Revenue (ARR)
Non-GAAP Income from Operations
Recurring revenue (% of total revenue)
Summary, forecast, risks and KPIs are extracted from Rapid7, Inc.'s SEC filings for Q2 FY2021 (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.