Summary
Rapid7 closed fiscal 2022 with fourth-quarter revenue of $184.5 million, up 21.7% from the prior-year quarter. Full-year revenue reached $685.1 million, up 28.0%. The growth came with better profitability. Fourth-quarter gross profit was $129.5 million and gross margin was 70.2%, up 3.1 percentage points from the prior-year quarter. Full-year gross margin was 68.7%, up 0.3 percentage points. Operating loss in the quarter narrowed to $13.3 million, and operating margin was -7.2%, up 19.6 percentage points from the prior-year quarter. Full-year operating margin was -16.3%, up 6.1 percentage points. Net loss for the quarter narrowed to $11.4 million. Full-year net loss was $124.7 million. Full-year diluted EPS was a loss of $2.13.
The top-line engine remains recurring revenue. Annualized recurring revenue ended the year at $714.2 million, up 19% year over year. Rapid7 had 10,929 customers, up 6% from 10,283 a year earlier. ARR per customer was $65.4, up 12% from $58.3. In the 10-K, management said recurring revenue was 94% of total revenue in 2022, 92% in 2021 and 90% in 2020. That mix supports the gross margin profile. Products revenue carried the quarter, but the company still leans on professional services for deployment, incident response, and advisory work.
Cash generation improved sharply. Fourth-quarter operating cash flow was $40.2 million, up 758.4% from the prior-year quarter. Full-year operating cash flow was $78.2 million, up 45.0%. Capital expenditures were $7.3 million in the quarter, up 74.7%, and $20.4 million for the full year, up 126.2%. Free cash flow, a non-GAAP measure, was $28.45 million in the quarter and $40.7 million for the full year. Deferred revenue, current portion, stood at $426.6 million at December 31, 2022, up 14.7% from a year earlier. The balance sheet shows the company still carries a convertible note balance, but liquidity is supported by positive operating cash flow.
Guidance points to a profitability push. For the first quarter of 2023, Rapid7 guided ARR to $815 million to $825 million, with year-over-year growth of 14% to 16%. First-quarter non-GAAP income from operations is targeted at $5 million to $7 million, and non-GAAP net income per share is $0.07 to $0.10. For full-year 2023, non-GAAP income from operations is $57 million to $62 million, and non-GAAP net income per share is $0.81 to $0.88. Management expects full-year free cash flow of approximately $80 million, which it says would double from the prior year. The company did not include foreign exchange gains or losses in its guidance.
Operational highlights were steady rather than transformational. In January 2023, Rapid7 was added to the Bloomberg Gender-Equality Index. In November, the company announced results from the 2022 MITRE Engenuity ATT&CK Evaluations, where Managed Detection and Response showed early threat detection and coverage across the cyber-attack chain. It also showcased new cloud security capabilities at AWS re:Invent, including agentless vulnerability assessment and cloud detection and response. In October, Rapid7 achieved ISO 27001 certification for information security management. These items support the platform story, but they do not change the near-term financial picture.
Risks are familiar for a high-growth security vendor. Management flags growing macroeconomic uncertainty, unstable market and economic conditions, and fluctuations in quarterly results. The pandemic remains a risk. The company also cites its ability to sustain revenue growth, customer renewals, competition, market growth, innovation, sales cycles, integration of acquisitions, and compliance with laws. The 10-K points to the Risk Factors section of the quarterly report filed on November 3, 2022. The main tension is that full-year 2022 revenue grew 28.0%, while management is pushing profitability and free cash flow for 2023. Execution on renewals, ARR per customer, and cost discipline will determine whether that trade-off works.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2022 | Q3 FY2022 | QoQ | Q4 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $184.5M | $175.8M | +5.0% | $151.6M | +21.7% |
| Gross profit | $129.5M | $121.9M | +6.3% | $101.8M | +27.3% |
| Gross margin | 70.2% | 69.4% | +0.9 pp | 67.1% | +3.1 pp |
| Research & development | $42.6M | $48.6M | -12.3% | $48.5M | -12.1% |
| Sales & marketing | $78.3M | $76.0M | +3.0% | $73.2M | +6.9% |
| General & administrative | $22.0M | $20.6M | +7.0% | $20.8M | +6.0% |
| Total operating expenses | $142.9M | $145.2M | -1.6% | $142.5M | +0.3% |
| Operating income (loss) | -$13.3M | -$23.2M | +42.6% | -$40.7M | +67.2% |
| Operating margin | -7.2% | -13.2% | +6.0 pp | -26.8% | +19.6 pp |
| Net income (loss) | -$11.4M | -$28.7M | +60.4% | -$44.6M | +74.5% |
| Net margin | -6.2% | -16.3% | +10.2 pp | -29.4% | +23.3 pp |
| Diluted EPS | -$0.19 | -$0.49 | +$0.30 | -$0.81 | +$0.62 |
| Customers | 10,000 | — | — | 10,000 | ±0.0% |
Risks
Prolonged economic uncertainty, inflation, and geopolitical events may reduce security spending and have caused delays in the sales cycle, failures to renew at anticipated scope, payment term deferrals, and pricing or bundling concessions. MD&A shows FY2022 year-to-date revenue up 28.0% to $685.08M, but ARR year-over-year growth slowed to 19.2% from 38.4% and customer growth slowed to 6.3% from 18.0%.
The SecOps market is highly fragmented and intensely competitive, with larger competitors such as Microsoft, CrowdStrike, Palo Alto Networks, and Splunk able to bundle competing offerings and pressure pricing. Competitive pressure may lead to price reductions, fewer orders, reduced renewals, and loss of market share.
Approximately half of revenue was attributable to InsightVM, Nexpose, and Metasploit for the year ended December 31, 2022, so a decline in demand for these vulnerability management offerings or failure to renew or increase sales would harm results more than if revenue were diversified.
For the years ended December 31, 2022, 2021, and 2020, the company derived approximately 57%, 52%, and 47% of revenue through channel partners, and those agreements are non-exclusive. If partners favor competing products or do not effectively market Rapid7 offerings, growth, particularly internationally, could be adversely affected.
Sales timing is difficult to forecast, particularly with large enterprises, and customer requirements have increased the complexity and length of the sales cycle. A prolonged unsuccessful sales effort can consume resources without offsetting revenue.
Recruiting and retaining cybersecurity personnel, especially in sales, marketing, and research and development, has become increasingly difficult, and Rapid7 has historically had high turnover in those roles. Failure to attract or retain qualified employees could impede product development and sales execution.
The company issued $230.0 million aggregate principal amount of 2025 Notes in May 2020 and $600.0 million aggregate principal amount of 2027 Notes in March 2021. This debt may limit flexibility and access to capital, and the convertible notes create potential dilution and counterparty risk under capped call transactions.
Rapid7 is currently involved in legal proceedings with Finjan, Inc., which filed a patent infringement complaint against Rapid7 and its wholly-owned subsidiary Rapid7 LLC in the U.S. District Court for the District of Delaware. A material adverse outcome could require significant defense costs or damages.
The business substantially depends on the Insight Platform and the success of newer offerings such as Cloud Security and Threat Intelligence, as well as the shift to a consolidated platform sales approach. If these offerings or the sales model do not achieve sufficient market acceptance, financial results and competitive position could suffer.
Operations outside North America generated 21%, 19%, and 17% of revenue for the years ended December 31, 2022, 2021, and 2020, and continued expansion exposes Rapid7 to foreign exchange, regulatory, political instability, and Russia-Ukraine war risks.
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
Total revenue
Summary, forecast, risks and KPIs are extracted from Rapid7, Inc.'s SEC filings for Q4 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.