Summary
Rapid7 posted $190.4 million of total revenue for the fiscal second quarter ended June 30, 2023, up 13.7% from the prior-year quarter. Products revenue of $181.7 million rose 14%, while professional services revenue of $8.7 million grew 5%. Year-to-date revenue of $373.6 million was up 15.0%. The company ended the quarter with annualized recurring revenue of $750.9 million, up 14%, and 11,287 customers, up 6%. ARR per customer came in at $66.5, up 7%. Products carried the quarter, and professional services stayed a small slice of the total. Highlights included general availability of Executive Risk View in July and support for AWS AppFabric in June, plus a second annual Social Good Report with a pledge to reach 50% carbon neutrality by 2027 and 100% by 2030. Chairman and CEO Corey Thomas tied demand to customers consolidating onto an integrated security operations platform.
GAAP profitability looks worse, mostly because of a one-time charge. Gross profit was $132.3 million, up 16.9%, and gross margin reached 69.5%, up 1.9 percentage points. GAAP operating loss widened to $51.7 million from the prior-year quarter, and operating margin fell 6.4 percentage points to negative 27.1%. A $27.2 million impairment of long-lived assets drove most of that gap; the charge followed a trigger tied to idle office space at the Boston headquarters. GAAP net loss widened to $66.8 million, or $1.10 per diluted share, in a quarter that also carried a negative $13.3 million in other income (expense), net, largely from a $12.7 million non-cash change in the fair value of derivative assets tied to the 2023 capped call settlement.
Non-GAAP results and cash flow tell a different story. Non-GAAP income from operations was $13.0 million, a 6.8% margin, and adjusted EBITDA was $19.1 million. GAAP operating cash flow for the quarter was $31.3 million, up 320.3%, and free cash flow was $25.6 million. For the six months, operating cash flow was $37.1 million, up 108.1%, and free cash flow was $24.4 million. Capital expenditures fell 66.0% to $1.4 million. Current deferred revenue of $429.3 million was up 8.6% from a year earlier, a sign that contracted work keeps building.
Guidance covers the third quarter and the full fiscal year. For the third quarter, Rapid7 guided annualized recurring revenue to $800 million to $805 million, growth of 12% to 13%, non-GAAP income from operations of $29 million to $31 million, and non-GAAP net income per share of $0.41 to $0.44 on 71.7 million weighted average shares. For the full fiscal year, it guided non-GAAP income from operations of $86 million to $90 million, non-GAAP net income per share of $1.23 to $1.29 on 67.5 million shares, and free cash flow of approximately $80 million. Revenue ranges were also given for both periods. The guidance excludes any potential foreign exchange gains or losses, and a reconciliation of non-GAAP guidance to the closest GAAP measures is not available on a forward-looking basis without unreasonable efforts.
The August 2023 restructuring plan is the other moving piece. It pairs a workforce reduction with office space cuts in certain markets and is expected to be completed by the end of fiscal 2023, subject to local law and consultation requirements. Management argues the changes should support growth while letting free cash flow double in 2024. Execution risk is real. Rapid7 flags macroeconomic uncertainty, unstable market and economic conditions, competition, subscription renewals, its ability to sustain its revenue growth rate, integration of acquired companies, and the possibility of failing to meet its publicly announced guidance. The company also expects to keep a full valuation allowance on domestic deferred tax assets given its loss history.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $190.4M | $183.2M | +4.0% | $167.5M | +13.7% |
| Gross profit | $132.3M | $127.2M | +4.0% | $113.2M | +16.9% |
| Gross margin | 69.5% | 69.4% | +0.0 pp | 67.6% | +1.9 pp |
| Research & development | $50.8M | $46.3M | +9.5% | $48.9M | +3.8% |
| Sales & marketing | $83.0M | $80.6M | +3.0% | $78.0M | +6.4% |
| General & administrative | $22.9M | $24.2M | -5.4% | $20.9M | +9.6% |
| Total operating expenses | $183.9M | $151.1M | +21.7% | $147.8M | +24.4% |
| Operating income (loss) | -$51.7M | -$24.0M | -115.6% | -$34.7M | -49.1% |
| Operating margin | -27.1% | -13.1% | -14.0 pp | -20.7% | -6.4 pp |
| Net income (loss) | -$66.8M | -$25.9M | -157.7% | -$39.6M | -68.6% |
| Net margin | -35.1% | -14.2% | -20.9 pp | -23.6% | -11.4 pp |
| Diluted EPS | -$1.10 | -$0.43 | -$0.67 | -$0.68 | -$0.42 |
Risks
Rapid7 announced a Restructuring Plan in August 2023 that includes an approximately 18% workforce reduction and office space reductions, expected to be completed by the end of fiscal 2023. The company may incur additional cash and non-cash costs, including an approximately $4 million impairment from office closures, and may face unintended attrition, reputational harm, and failure to achieve intended cost savings.
Prolonged economic uncertainty, inflation, and geopolitical events such as the Russia-Ukraine war could reduce corporate spending on security offerings. Rapid7 has seen delays in its sales cycle, failures to renew at anticipated scope, requests for payment term deferrals, and pricing or bundling concessions, and MD&A states that software spending volatility and inflation may adversely affect results.
The SecOps market is highly fragmented and intensely competitive, with competitors including CrowdStrike, Microsoft, Splunk, and Palo Alto Networks. Some competitors have greater resources, broader product offerings, and the ability to bundle competing products at lower prices, which could pressure Rapid7's pricing, renewals, revenue, and gross margins.
Q2 2023 GAAP operating loss widened to $51.66 million from $34.65 million in the prior-year quarter, and net loss widened to $66.78 million from $39.61 million, partly due to a $27.2 million impairment of long-lived assets from idle Boston office space. Future office closures or worsened assumptions could result in additional impairment charges.
Rapid7's sales cycle is long and unpredictable, especially for large enterprises, and has been prolonged by complex customer requirements and macro pressure. The company may devote substantial time and effort to unsuccessful sales efforts without offsetting revenue, and MD&A notes that revenue growth depends on new and existing customer purchases.
Approximately half of Rapid7's revenue was attributable to InsightVM, Nexpose, and Metasploit for the year ended December 31, 2022. A decline in demand for these vulnerability management offerings or failure of newer non-VM products to gain market acceptance would harm results more than if revenue were diversified.
Recruiting, hiring, and retaining cybersecurity personnel has become increasingly difficult, and Rapid7's sales and marketing and research and development positions have historically had high turnover. The Restructuring Plan may also lead to employee attrition beyond the intended workforce reduction, damage employee morale, and impair the company's ability to execute.
As of June 30, 2023, Rapid7 had $230.0 million aggregate principal amount of 2025 Notes and $600.0 million aggregate principal amount of 2027 Notes outstanding. This debt may limit business flexibility and access to capital, and the conditional conversion feature of the Notes could require cash settlement and reduce liquidity.
For the years ended December 31, 2022, 2021, and 2020, approximately 57%, 52%, and 47% of revenue came from sales through channel partners. The agreements are non-exclusive, and partners may favor competitors or fail to market Rapid7's products effectively, which could impair international growth and results.
Q2 2023 other income (expense), net increased by $10.9 million compared with the prior-year quarter due to a $12.7 million expense for the change in fair value of derivative assets related to the 2023 capped calls settlement. Counterparty risk remains under the capped call transactions and could result in dilution or adverse tax consequences.
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
Summary, forecast, risks and KPIs are extracted from Rapid7, Inc.'s SEC filings for Q2 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.