Summary
Rapid7 reported a mixed second quarter of 2022. Revenue was $167.5 million, up 32.5% from the prior-year quarter. Gross profit rose 29.9% to $113.2 million. Gross margin slipped to 67.6%, down 1.3 percentage points from the prior-year quarter. Operating loss was $34.7 million, wider than the prior-year quarter, and operating margin was -20.7%, down 3.3 percentage points. The net loss was $39.6 million, wider than the prior-year quarter. Diluted EPS loss was $0.68, wider than the prior-year quarter. For the first six months of 2022, revenue was $324.8 million, up 33.2% from the prior-year period. Gross profit was $219.3 million, up 30.3%. Gross margin was 67.5%, down 1.5 percentage points. Operating loss was $75.0 million, wider than the prior-year period. Net loss was $84.6 million, wider than the prior-year period. Diluted EPS loss was $1.46, wider than the prior-year period. Operating margin was -23.1%, down 4.6 percentage points.
Operational metrics were strong. Annualized recurring revenue was $658 million, up 35% year-over-year. The customer count was 10,624, up 14%. ARR per customer was $62.0, up 18%. Deferred revenue, current portion, was $395.2 million, up 30.8% from the prior-year quarter. Non-GAAP gross profit was $120.8 million versus $91.8 million. Non-GAAP gross margin was 72% versus 73%. Non-GAAP income from operations was $3.5 million versus $6.1 million. Non-GAAP operating margin was 2% versus 5%. Non-GAAP net loss was $0.5 million versus non-GAAP net income of $3.9 million. Non-GAAP net loss per share was $0.01 versus non-GAAP net income per share of $0.07. Adjusted EBITDA was $8.0 million versus $10.0 million. This shows the company's GAAP losses include large non-cash charges, especially stock-based compensation and amortization of acquired intangible assets.
Cash flow weakened. Net cash provided by operating activities was $7.45 million in the second quarter of 2022, down 18.9% from the prior-year quarter. For the first six months, operating cash flow was $17.85 million, down 40.1%. Capital expenditures were $4.17 million in the quarter, up 145.5% from the prior-year quarter. For the first six months, capital expenditures were $7.22 million, up 170.5%. Free cash flow, a non-GAAP measure, was negative $1.258 million in the quarter versus $5.040 million in the prior-year quarter. For the first six months, free cash flow was $2.570 million versus $22.905 million. Operating cash flow and free cash flow are different measures. The free cash flow decline reflects lower operating cash flow and higher purchases of property and equipment and capitalized internal-use software costs.
Management issued third-quarter and full-year 2022 guidance. The company guided third-quarter ARR to $740 million to $750 million, which implies year-over-year growth of 24% to 25%. Third-quarter revenue is guided to grow 25% to 27% year-over-year, and full-year 2022 revenue is guided to grow 28% to 29%. Non-GAAP income from operations is guided to $6 million to $8 million for the third quarter and $20 million to $24 million for the full year. Non-GAAP net income per share is guided to $0.03 to $0.06 for the third quarter and $0.08 to $0.15 for the full year. Full-year free cash flow is guided to $40 million to $45 million. The guidance excludes any potential impact from foreign exchange gains or losses. Management also expects GAAP losses in both periods, with stock-based compensation and amortization of acquired intangible assets as the main reconciling items.
Risks remain significant. The press release cites growing macroeconomic uncertainty, unstable market and economic conditions, and the ongoing COVID-19 pandemic. It also points to fluctuations in quarterly results, failure to meet publicly announced guidance, the challenge of sustaining revenue growth, customer renewals, competition, market growth, and the company's ability to innovate and manage growth. Sales cycles and the integration of acquired companies are additional named risks, along with compliance with applicable laws. The MD&A highlights gross margin pressure from amortization of acquired intangible assets tied to the IntSights acquisition and from higher personnel costs. Foreign currency losses, primarily related to the euro and British pound sterling, also weighed on other income and expense. Rapid7's second quarter showed healthy demand and ARR growth, but profitability and cash flow trends moved in the wrong direction.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $167.5M | $157.4M | +6.4% | $126.4M | +32.5% |
| Gross profit | $113.2M | $106.1M | +6.7% | $87.1M | +29.9% |
| Gross margin | 67.6% | 67.4% | +0.2 pp | 68.9% | -1.3 pp |
| Research & development | $48.9M | $49.8M | -1.8% | $35.3M | +38.5% |
| Sales & marketing | $78.0M | $75.1M | +3.8% | $56.2M | +38.7% |
| General & administrative | $20.9M | $21.5M | -2.9% | $17.5M | +19.5% |
| Total operating expenses | $147.8M | $146.5M | +0.9% | $109.0M | +35.6% |
| Operating income (loss) | -$34.7M | -$40.4M | +14.2% | -$21.9M | -58.0% |
| Operating margin | -20.7% | -25.7% | +5.0 pp | -17.3% | -3.4 pp |
| Net income (loss) | -$39.6M | -$45.0M | +12.0% | -$34.2M | -15.9% |
| Net margin | -23.6% | -28.6% | +4.9 pp | -27.0% | +3.4 pp |
| Diluted EPS | -$0.68 | -$0.78 | +$0.10 | -$0.62 | -$0.06 |
Risks
Inflation, foreign currency movements, and the Russia-Ukraine conflict are affecting results and demand. In FY2022 Q2, other income (expense), net changed to $2.4 million of expense from $0.1 million of income in the prior-year quarter due to foreign currency losses, primarily the euro and British pound sterling.
The sales cycle is long and unpredictable, particularly for large enterprises, and COVID-19 has caused delays, renewal failures, and requests for payment term deferrals or pricing concessions. Management states that the full COVID-19 impact on the sales cycle and sales execution remains uncertain and may not be fully reflected until future periods due to the subscription model.
The SecOps market is highly fragmented and intensely competitive, and larger competitors can bundle products and exert pricing pressure. In FY2022 Q2, gross margin decreased to 67.6% from 68.9% in the prior-year quarter, down 1.3 pp, and operating margin decreased to -20.7% from -17.3%, down 3.3 pp.
A significant amount of revenue depends on vulnerability management offerings InsightVM, Nexpose, and Metasploit, which accounted for approximately half of revenue for the year ended December 31, 2021. A decline in demand, renewals, or pricing for these offerings would harm results more than if revenue were diversified.
Growth depends on hiring and retaining sales, marketing, and R&D employees, and competition for cybersecurity talent is intense with historically high turnover in some roles. MD&A reports personnel cost increases across cost of revenue, research and development, sales and marketing, and general and administrative expenses, including higher stock-based compensation, reflecting headcount growth and retention needs.
Rapid7 has substantial indebtedness from $230.0 million of 2025 Notes and $600.0 million of 2027 Notes and may not generate sufficient cash flow to service debt. The 2025 Notes were convertible at the option of holders during part of the six months ended June 30, 2022, and conversion or required repurchase could adversely affect liquidity and dilute stockholders.
Free cash flow decreased to negative $1.3 million in FY2022 Q2 from $5.0 million in the prior-year quarter, and operating cash flow was $7.45 million in FY2022 Q2, down 18.9% from the prior-year quarter. If access to capital is restricted or borrowing costs increase, operations and financial condition could be adversely impacted.
The July 2021 IntSights acquisition adds integration complexity and may not achieve expected benefits, and retaining key personnel may be difficult. MD&A attributes $8.1 million of FY2022 Q2 revenue growth to IntSights but also cites additional personnel costs and amortization from the acquisition.
Revenue is significantly dependent on channel partners, with approximately 52%, 47%, and 43% of revenue from channel partners for the years ended December 31, 2021, 2020, and 2019. Agreements with channel partners are non-exclusive, so they may emphasize competing products or fail to market Rapid7 offerings effectively.
International expansion increases exposure to foreign regulatory, tax, trade, and geopolitical risks, including the armed conflict between Russia and Ukraine. For each of the six-month periods ended June 30, 2022 and 2021, operations outside North America generated 18% of revenue, and management cannot predict the conflict's broader consequences.
Rapid7 provides guidance and key metrics such as ARR, and failure to meet expectations or a downward revision could cause the stock price to decline. MD&A reports ARR of $658.2 million as of June 30, 2022, with year-over-year ARR growth of 34.6%, and guidance assumptions remain subject to significant uncertainty.
Rapid7 entered a new 36-month AWS cloud infrastructure services agreement in March 2022 with a total commitment of $300.0 million. Cloud computing costs increased $3.6 million in FY2022 Q2 and $8.5 million in the six months ended June 30, 2022, and reliance on third-party infrastructure could increase expenses if demand or pricing changes.
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 Q2 FY2022 (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.