Summary
Rapid7 reported third-quarter fiscal 2023 revenue of $198.8 million, up 13.1% year over year. Year-to-date revenue reached $572.4 million, up 14.3%. The company attributed the increase in total revenue primarily to existing customers, renewals, upsells and cross-sells. Annualized recurring revenue was $777 million, up 14% year over year. Rapid7 ended the quarter with 11,412 customers, up 6%, and ARR per customer of $68.1, up 7%. The company said its consolidated risk and threat management offerings contributed over 40% of new business during the quarter.
Margins improved. GAAP gross margin was 70.9% for the quarter, up 1.6 percentage points year over year. Year to date, gross margin was 70.0%, up 1.8 percentage points. GAAP operating loss narrowed to $16.0 million, a 31.0% improvement. Operating margin improved to -8.1%, up 5.2 percentage points. On a non-GAAP basis, operating income was $37 million, with non-GAAP operating margin of 18%. Adjusted EBITDA was $42.9 million, compared with $17.9 million. Net loss, however, widened to $76.6 million, a 166.7% increase in the loss. Diluted GAAP loss per share was -$1.25, down 155.1% year over year. Non-GAAP net income was $34.0 million, or $0.50 per diluted share, compared with $8.6 million, or $0.14 per diluted share. The gap between GAAP and non-GAAP results reflects large non-cash and non-operating charges, including costs tied to the company's convertible note transactions.
Cash generation weakened in the quarter. Operating cash flow was $3.7 million, down 81.8% year over year. Year-to-date operating cash flow was $40.8 million, up 7.5%. Free cash flow, a non-GAAP measure, was negative $0.6 million for the quarter, compared with $9.7 million. Capital expenditures were $0.3 million for the quarter, down 95.0%, and $4.0 million year to date, down 69.4%. Deferred revenue, current portion, was $421.9 million, up 7.7% year over year. The company reiterated its full-year 2023 free cash flow target of approximately $80 million and said it continues to expect to double free cash flow in 2024.
Guidance for the fourth quarter of fiscal 2023 includes ARR of $800 to $805 million, non-GAAP income from operations of $33 to $35 million, and non-GAAP net income per share of $0.47 to $0.49. For full-year fiscal 2023, guidance includes non-GAAP income from operations of $94 to $96 million, non-GAAP net income per share of $1.26 to $1.29, and free cash flow of approximately $80 million. The fourth-quarter revenue growth guidance is 8% to 10%, while full-year revenue growth guidance is 13%. The fourth-quarter ARR growth guidance is 12% to 13%.
Risks remain material. Rapid7 cites growing macroeconomic uncertainty, unstable market and economic conditions, and fluctuations in quarterly results as factors that could affect performance. The company also points to the effectiveness of its restructuring plan, its ability to sustain revenue growth, renewal of customer subscriptions, competition, market growth, product innovation, sales cycles, integration of acquired companies, and compliance with applicable laws. In September, Rapid7 issued $300.0 million of 1.25% convertible senior notes due 2029 and used proceeds to repurchase $184.0 million of its 2.25% convertible senior notes due 2025. Those transactions add financing complexity and non-cash charges, which weigh on GAAP results. Execution on cost controls and durable ARR growth will determine whether the company can meet its guidance and improve profitability.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $198.8M | $190.4M | +4.4% | $175.8M | +13.1% |
| Gross profit | $141.0M | $132.3M | +6.6% | $121.9M | +15.7% |
| Gross margin | 70.9% | 69.5% | +1.5 pp | 69.4% | +1.6 pp |
| Research & development | $39.9M | $50.8M | -21.3% | $48.6M | -17.9% |
| Sales & marketing | $75.7M | $83.0M | -8.8% | $76.0M | -0.4% |
| General & administrative | $17.9M | $22.9M | -21.9% | $20.6M | -13.1% |
| Total operating expenses | $157.1M | $183.9M | -14.6% | $145.2M | +8.2% |
| Operating income (loss) | -$16.0M | -$51.7M | +68.9% | -$23.2M | +31.0% |
| Operating margin | -8.1% | -27.1% | +19.1 pp | -13.2% | +5.2 pp |
| Net income (loss) | -$76.6M | -$66.8M | -14.7% | -$28.7M | -166.7% |
| Net margin | -38.5% | -35.1% | -3.5 pp | -16.3% | -22.2 pp |
| Diluted EPS | -$1.25 | -$1.10 | -$0.15 | -$0.49 | -$0.76 |
Risks
In August 2023 the Board approved a Restructuring Plan reducing workforce by approximately 17% and closing offices in Plano, Texas, Los Angeles, California and Toronto, Canada. The company incurred $20.0 million of restructuring expense in FY2023 Q3 and $30.8 million of long-lived asset impairment in FY2023 year to date, and the plan may not achieve intended benefits or could cause employee attrition beyond the intended reduction.
In September 2023, Rapid7 issued $300.0 million of 1.25% Convertible Senior Notes due 2029 and used $201.5 million of net proceeds to repurchase $184.0 million of 2025 Notes. The partial repurchase drove a $53.9 million non-cash induced conversion expense, interest expense up 1,955.8% to $56.5 million, and net loss widened to $76.6 million from $28.7 million for FY2023 Q3 versus prior-year quarter.
Prolonged economic uncertainty or downturn could reduce corporate spending on security offerings. The filing notes continued delays in sales cycle, failures of customers to renew at all or to renew anticipated scope, requests for payment term deferrals, and pricing or bundling concessions.
Business and growth depend substantially on customers renewing and expanding subscriptions, which are sold on a term basis with no obligation to renew. Declines in renewal rates or failure to cross-sell and upsell could adversely affect future operating results.
The SecOps market is highly fragmented and intensely competitive, with competitors including CrowdStrike, Microsoft, Splunk (Cisco), Palo Alto Networks and Wiz. Larger competitors can bundle products, offer lower prices and better withstand spending reductions, which may cause price reductions, fewer orders, reduced renewals and loss of market share.
The August 2023 Restructuring Plan cut approximately 17% of the workforce and may cause attrition beyond the intended reduction, lower morale and make hiring more difficult. Rapid7 remains dependent on sales, marketing and research and development personnel in a tight cybersecurity labor market.
Sales timing is difficult to forecast because of the length and unpredictability of the sales cycle, particularly with large enterprises. Increased complexity of customer requirements has prolonged the sales cycle, and unsuccessful sales efforts may not be offset by revenue increases.
Operations outside North America generated 22% of revenue for the nine months ended September 30, 2023 and 21% for the prior-year period. International expansion adds FX, regulatory, political instability and geopolitical risks including the Russia-Ukraine war and the evolving situation in Israel and Gaza.
Approximately half of revenue was attributable to InsightVM, Nexpose and Metasploit for the year ended December 31, 2022. A decline in demand, failure to renew or increase sales, or pricing pressure on these vulnerability management offerings could disproportionately harm operating results.
Rapid7 may require additional capital to support business growth. If raised through equity or convertible debt securities, existing stockholders could suffer significant dilution, and debt financing could impose restrictive covenants on capital raising and other financial and operational matters.
SaaS KPIs
All quarters →Free Cash Flow
ARR per Customer
Number of Customers
Annualized Recurring Revenue (ARR)
Non-GAAP Operating Margin
Recurring revenue as % of total revenue
Summary, forecast, risks and KPIs are extracted from Rapid7, Inc.'s SEC filings for Q3 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.