Summary
Rapid7 reported total revenue of $175.8 million for the third quarter of fiscal 2022, up 25.6% from the prior-year quarter. Annualized recurring revenue was $683.8 million, up 24% year-over-year, and the customer count reached 10,791, up 9%. ARR per customer was $63.4, up 14%. Recurring revenue accounted for 94% of total revenue in the quarter, according to the MD&A. The $35.9 million revenue increase split into $4.7 million from new customers and $31.2 million from existing customers, with renewals, upsells and cross-sells doing the heavy lifting. Management pointed to customer demand for better value and higher efficacy in security spending. On the product side, InsightIDR was named a Challenger in Gartner's security information and event management report in October 2022, the fifth year of recognition, and Rapid7 announced a multi-year partnership with the Boston Bruins in September 2022.
Profitability on a GAAP basis improved. Gross profit rose 26.4% to $121.9 million and gross margin was 69.4%, up 0.4 percentage points. The GAAP operating loss narrowed to $23.2 million from $34.3 million, and the operating margin moved to negative 13.2% from negative 24.5%. The GAAP net loss narrowed to $28.7 million from $37.7 million, and the diluted EPS loss narrowed to $0.49 from $0.67. Non-GAAP income from operations was $13.0 million, up from $5.7 million, with non-GAAP net income of $8.6 million and adjusted EBITDA of $17.9 million. Operating cash flow was $20.1 million, up 3.4% from the prior-year quarter. Free cash flow, a separate measure that also subtracts capital spending and capitalized software, was $9.7 million, down from $14.3 million. Capital expenditures were $5.9 million, up 170.9%. Current deferred revenue was $391.8 million, up 24.0%.
Through the first nine months of fiscal 2022, revenue was $500.6 million, up 30.4%. Gross margin slipped to 68.2% from 69.0%. The operating loss widened to $98.3 million and the net loss widened to $113.3 million. Diluted EPS loss widened to $1.95 from $1.86. Operating cash flow was $38.0 million, down 22.9%, and capital expenditures were $13.1 million, up 170.7%. The MD&A tied part of the revenue gain to $101.8 million of organic growth plus $15.0 million from the IntSights acquisition.
For the fourth quarter of fiscal 2022, Rapid7 guided ARR to $711 million to $717 million, up 19% to 20% year-over-year, and revenue to $179 million to $181 million, up 18% to 19%. Fourth-quarter non-GAAP income from operations is guided to $14 million to $16 million and fourth-quarter non-GAAP net income per share to $0.17 to $0.20. For the full fiscal year 2022, guidance calls for non-GAAP income from operations of $25 million to $27 million, non-GAAP net income per share of $0.17 to $0.20, and free cash flow of $36 million to $40 million. Guidance for both periods excludes any potential impact from foreign exchange gains or losses.
Macro risk sits at the top of the list. Management flagged growing macroeconomic uncertainty and unstable market and economic conditions, and it named competition, customer renewals, the ability to sustain revenue growth, sales cycles, integration of acquired companies, and the ongoing COVID-19 pandemic as factors that could move results. Foreign currency losses tied mainly to the euro and British pound sterling also pressured the quarter. Rapid7 carries a $300.0 million commitment with AWS for cloud infrastructure services over 36 months beginning April 1, 2022. The balance sheet held $168.4 million in cash and cash equivalents and $99.9 million in short- and long-term investments as of September 30, 2022, alongside an accumulated deficit of $849.4 million.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $175.8M | $167.5M | +5.0% | $139.9M | +25.6% |
| Gross profit | $121.9M | $113.2M | +7.7% | $96.4M | +26.4% |
| Gross margin | 69.4% | 67.6% | +1.8 pp | 68.9% | +0.4 pp |
| Research & development | $48.6M | $48.9M | -0.6% | $43.9M | +10.8% |
| Sales & marketing | $76.0M | $78.0M | -2.6% | $63.0M | +20.5% |
| General & administrative | $20.6M | $20.9M | -1.6% | $23.8M | -13.7% |
| Total operating expenses | $145.2M | $147.8M | -1.8% | $130.7M | +11.0% |
| Operating income (loss) | -$23.2M | -$34.7M | +32.9% | -$34.3M | +32.3% |
| Operating margin | -13.2% | -20.7% | +7.5 pp | -24.5% | +11.3 pp |
| Net income (loss) | -$28.7M | -$39.6M | +27.5% | -$37.7M | +23.8% |
| Net margin | -16.3% | -23.6% | +7.3 pp | -26.9% | +10.6 pp |
| Diluted EPS | -$0.49 | -$0.68 | +$0.19 | -$0.67 | +$0.18 |
Risks
Inflation, foreign currency pressure, the Russia-Ukraine war, and COVID-19 uncertainty could reduce customer spending, renewals, and subscription scope. MD&A reports other income (expense), net increased by $4.0 million in the nine months ended September 30, 2022 due to realized and unrealized foreign currency losses, primarily related to the euro and British pound sterling.
The timing of sales is difficult to forecast, especially for large enterprises, and COVID-19 has caused sales cycle delays and customer requests for payment term deferrals or pricing concessions. A lengthened or delayed sales cycle could cause revenue to miss expectations.
MD&A reports year-over-year revenue growth of 25.6% in the three months ended September 30, 2022 versus 33.1% in the prior-year period, ARR growth of 24.3% versus 38.0%, and customer growth of 9% versus 17%. Failure to meet guidance or key metrics, including ARR, could cause the stock price to decline.
The SecOps market is highly fragmented and intensely competitive, with competitors such as Qualys, Tenable, Splunk, Microsoft, Palo Alto Networks, and IBM. Larger competitors can bundle products and offer lower prices, which may pressure Rapid7's pricing, renewals, revenue, and gross margins.
Approximately half of revenue for the year ended December 31, 2021 was attributable to InsightVM, Nexpose, and Metasploit, and non-VM products such as InsightAppSec, InsightConnect, InsightCloudSec, and Threat Intelligence are relatively new. A decline in demand for vulnerability management offerings would harm results more than if revenue were diversified.
The business depends on sales, marketing, and research and development personnel, and cybersecurity hiring has become increasingly difficult. Rapid7 also cites dependence on CEO Corey Thomas and other key employees, and high turnover in sales and marketing and research and development positions could impair execution.
Rapid7 has $230.0 million aggregate principal amount of 2025 Notes and $600.0 million aggregate principal amount of 2027 Notes. The debt may limit flexibility and access to capital, and if the conditional conversion feature of the Notes is triggered, holders could convert and require cash settlement, adversely affecting liquidity.
Growth depends substantially on customers renewing subscriptions and expanding use; customers have no obligation to renew and renewal rates may decline due to economic conditions, inflation, foreign currency fluctuations, or competitive offerings. A decline in renewals or upsells would adversely affect future revenue.
Rapid7 derived approximately 52% of revenue for the year ended December 31, 2021 through channel partners, whose agreements are non-exclusive and do not prohibit them from selling competitors' solutions. Failure to maintain or grow these relationships could reduce sales, especially internationally.
MD&A reports free cash flow decreased to $12.2 million in the nine months ended September 30, 2022 from $37.2 million in the prior-year period. Operating cash flow also decreased 22.9% year to date, while capital expenditures increased 170.7%, and the company entered a $300.0 million AWS cloud infrastructure commitment.
Total gross margin decreased to 68.2% in the nine months ended September 30, 2022 from 69.0% in the prior-year period, primarily due to an increase in revenue from cloud-based subscriptions and managed services, which have lower margins than licensed software products.
Operations outside North America generated 21% of revenue for the nine months ended September 30, 2022 versus 19% for the prior-year period, increasing exposure to foreign exchange, regulatory, geopolitical, and compliance risks, including the Russia-Ukraine war.
The IntSights acquisition and any future acquisitions require integrating geographically separate organizations, personnel, systems, and controls. Integration difficulties, failure to retain key personnel, or unforeseen liabilities could prevent anticipated benefits and harm financial condition.
Products collect and store user information, subjecting Rapid7 to domestic and international privacy and cybersecurity laws, and government customers may require certifications and standards. Failure to comply or adapt could disqualify sales or cause liability.
The ongoing COVID-19 pandemic could materially and adversely affect business, results of operations, and financial condition, including delays in sales cycle, renewals, and customer requests for payment deferrals or pricing concessions. The duration and impact remain uncertain.
SaaS KPIs
All quarters →Free Cash Flow
ARR per Customer
Number of Customers
Annualized Recurring Revenue (ARR)
Non-GAAP Operating Margin
Non-GAAP gross margin
Recurring revenue as % of total revenue
Summary, forecast, risks and KPIs are extracted from Rapid7, Inc.'s SEC filings for Q3 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.