Rapid7(RPD) - 2025 Q2 - Quarterly Results

Executive Summary Rapid7 reported 3% YoY growth in Q2 2025 ARR and total revenue, alongside strong cash flow and strategic focus on its Detection and Response business and Command Platform Second Quarter 2025 Highlights Rapid7 reported a 3% year-over-year increase in both Annualized Recurring Revenue (ARR) and total revenue for Q2 2025, reaching $841 million and $214 million respectively, with product subscriptions revenue growing 4% to $208 million, and generating $48 million in net cash from operating activities and $42 million in free cash flow Q2 2025 Key Financial Highlights | Metric | Q2 2025 (in millions) | YoY Change | Source | | :-------------------------------- | :-------------------- | :--------- | :----- | | Annualized Recurring Revenue (ARR) | $841 | 3% | chunk_num: [3] | | Total Revenue | $214 | 3% | chunk_num: [3] | | Product Subscriptions Revenue | $208 | 4% | chunk_num: [3] | | GAAP Operating Income | $3.5 | - | chunk_num: [3] | | Non-GAAP Operating Income | $36 | - | chunk_num: [3] | | Net Cash Provided by Operating Activities | $48 | - | chunk_num: [3] | | Free Cash Flow | $42 | - | chunk_num: [3] | CEO Commentary CEO Corey Thomas highlighted the consistent growth of the Detection and Response business and increasing customer interest in the Command Platform strategy, emphasizing the company's focus on delivering integrated solutions with unified visibility, expert-guided AI, and improved security outcomes to address increasing complexity for security teams - Rapid7's Detection and Response business is a consistent growth engine, with growing customer interest in the Command Platform strategy. The company focuses on integrated solutions providing unified visibility, expert-guided AI, and better security outcomes for complex security environments[2] Second Quarter 2025 Financial Performance Rapid7's Q2 2025 financial performance shows 3% ARR and total revenue growth, driven by product subscriptions, alongside stable gross margins, increased net income, and strong cash flow, despite a slight decline in operating income Key Financial and Operational Metrics Rapid7's Annualized Recurring Revenue (ARR) grew 3% year-over-year to $840.6 million, while the number of customers increased by 1% to 11,643, and ARR per customer saw a slight decrease of 2% year-over-year Q2 2025 Key Metrics | Metric | As of June 30, 2025 | As of June 30, 2024 | % Change | | :---------------- | :------------------ | :------------------ | :------- | | ARR (in thousands) | $840,610 | $815,630 | 3% | | Number of customers | 11,643 | 11,484 | 1% | | ARR per customer (in thousands) | $71.0 | $72.2 | (2%) | Detailed Revenue Breakdown Total revenue for Q2 2025 increased by 3% year-over-year to $214.2 million, with product subscriptions revenue growing 4% to $208.1 million, professional services revenue declining 23% to $6.1 million, North America revenue growing 1%, and Rest of World revenue increasing 10% Q2 2025 Revenue Breakdown (Three Months Ended June 30, in thousands) | Revenue Category | 2025 (in thousands) | 2024 (in thousands) | % Change | | :----------------------- | :------------------ | :------------------ | :------- | | Product subscriptions revenue | $208,097 | $200,067 | 4% | | Professional services revenue | $6,096 | $7,924 | (23%) | | Total revenue | $214,193 | $207,991 | 3% | | North America revenue | $160,622 | $159,322 | 1% | | Rest of world revenue | $53,571 | $48,669 | 10% | Profitability and Cash Flow GAAP gross profit for Q2 2025 was $151.1 million with a 71% margin, consistent with the prior year, while GAAP income from operations decreased to $3.5 million (2% margin), GAAP net income increased to $8.3 million (diluted EPS of $0.13), and net cash provided by operating activities significantly increased to $47.5 million, with free cash flow rising to $42.3 million Q2 2025 Profitability and Cash Flow (Three Months Ended June 30, in thousands) | Metric | 2025 (in thousands) | 2024 (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :------- | | GAAP gross profit | $151,134 | $146,999 | - | | GAAP gross margin | 71% | 71% | - | | Non-GAAP gross profit | $158,137 | $154,281 | - | | Non-GAAP gross margin | 74% | 74% | - | | GAAP income from operations | $3,494 | $5,223 | - | | GAAP operating margin | 2% | 3% | - | | Non-GAAP income from operations | $36,348 | $39,276 | - | | Non-GAAP operating margin | 17% | 19% | - | | GAAP net income | $8,338 | $6,538 | - | | GAAP net income per share, diluted | $0.13 | $0.09 | - | | Non-GAAP net income | $42,191 | $41,646 | - | | Non-GAAP net income per share, diluted | $0.58 | $0.58 | - | | Adjusted EBITDA | $42,648 | $45,438 | - | | Net cash provided by operating activities | $47,542 | $32,858 | - | | Free cash flow | $42,280 | $29,205 | - | Business Developments & Leadership Rapid7 introduced new AI-native security products and achieved FedRAMP authorization, while its CFO announced retirement, prompting a search for a successor Recent Business Highlights Rapid7 launched several new products and achieved significant milestones in July and June 2025, including an AI-native SIEM called Incident Command, FedRAMP Authorization for its InsightGovCloud Platform, and the introduction of Active Patching, while also being recognized as a Leader in the 2025 Frost Radar™ for Managed Detection and Response (MDR) and embedding agentic AI workflows into its SIEM and XDR platform - In July, Rapid7 launched Incident Command, an AI-native SIEM for detection, automation, attack surface context, and threat intelligence[6] - Rapid7's InsightGovCloud Platform achieved Federal Risk and Authorization Management Program (FedRAMP®) Authorization in July, strengthening its position for U.S. federal agencies[6] - Rapid7 introduced Active Patching, powered by Automox, a fully automated patching and remediation solution integrated into Exposure Command, and announced InsightCloudSec and InsightAppSec availability in the new AWS Marketplace AI Agents and Tools category in July[11] - Rapid7 was named a Leader in the 2025 Frost Radar™ for Managed Detection and Response (MDR) in July, recognized for deep integration between MDR and Exposure Management, and AI-powered SOC innovation[11] - In June, Rapid7 embedded agentic AI workflows into its next-gen SIEM and XDR platform, enhancing threat investigation in MDR customer environments[11] CFO Retirement Announcement Tim Adams, Rapid7's Chief Financial Officer since January 2022, announced his intent to retire, with the company initiating a search for a successor and Adams remaining in his role to ensure a smooth transition - Tim Adams, Rapid7's CFO since January 2022, plans to retire. A search for a new CFO is underway, and Adams will stay until a successor is named to facilitate a smooth transition[5] Financial Outlook & Guidance Rapid7 provided Q3 and full-year 2025 guidance, projecting modest revenue and ARR growth, along with anticipated non-GAAP income from operations and free cash flow Third Quarter 2025 Guidance For the third quarter of 2025, Rapid7 anticipates revenue between $215 million and $217 million, representing 0% to 1% year-over-year growth, with non-GAAP income from operations projected to be $29 million to $31 million, and non-GAAP net income per share between $0.44 and $0.47 Third Quarter 2025 Guidance | Metric | Range (in millions, except per share data) | | :-------------------------- | :--------------------------------------- | | Revenue | $215 to $217 | | Year-over-year growth | 0% to 1% | | Non-GAAP income from operations | $29 to $31 | | Non-GAAP net income per share | $0.44 to $0.47 | Full Year 2025 Guidance Rapid7's full-year 2025 guidance includes ARR of $850 million to $865 million (1% to 3% YoY growth) and total revenue of $853 million to $863 million (1% to 2% YoY growth), with non-GAAP income from operations expected to be $125 million to $135 million, non-GAAP net income per share ranging from $1.90 to $2.03, and free cash flow projected to be $125 million to $135 million Full-Year 2025 Guidance | Metric | Range (in millions, except per share data) | | :-------------------------- | :--------------------------------------- | | ARR | $850 to $865 | | Year-over-year growth (ARR) | 1% to 3% | | Revenue | $853 to $863 | | Year-over-year growth (Revenue) | 1% to 2% | | Non-GAAP income from operations | $125 to $135 | | Non-GAAP net income per share | $1.90 to $2.03 | | Free cash flow | $125 to $135 | Company Overview Rapid7, Inc. (NASDAQ: RPD) simplifies cybersecurity for over 11,000 global customers through comprehensive solutions, technology, and expertise About Rapid7 Rapid7, Inc. (NASDAQ: RPD) aims to simplify cybersecurity and make it more accessible, providing comprehensive security solutions, including best-in-class technology, leading-edge research, and strategic expertise, to help over 11,000 global customers manage modern attack surfaces, unite cloud risk management with threat detection and response, and eliminate threats efficiently - Rapid7's mission is to create a safer digital world by making cybersecurity simpler and more accessible[10] - The company empowers security professionals to manage modern attack surfaces through best-in-class technology, leading-edge research, and strategic expertise[10] - Rapid7 serves over 11,000 global customers with solutions that unite cloud risk management with threat detection and response[10] Non-GAAP Financial Measures & Other Metrics Rapid7 utilizes non-GAAP financial measures to provide clearer insights into core operating performance, excluding specific non-cash and non-recurring items, and defines key operating metrics like ARR and customer count Purpose and Definitions of Non-GAAP Measures Rapid7 uses non-GAAP financial measures to supplement GAAP statements, believing they offer useful insights into operating results, enhance understanding of financial performance, and provide transparency for management's decision-making, with these measures, including non-GAAP gross profit, income from operations, net income, and EPS, excluding specific items like stock-based compensation and amortization of acquired intangibles - Non-GAAP financial measures are used to supplement GAAP statements, providing investors with helpful information for financial and operational decision-making and period-to-period comparisons[12] - Rapid7 discloses non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income, non-GAAP net income per share, adjusted EBITDA, and free cash flow, along with derived non-GAAP gross and operating margins[14] - Non-GAAP gross profit, income from operations, net income, and net income per share exclude stock-based compensation, amortization of acquired intangible assets, amortization of debt issuance costs, and certain other items[15] Rationale for Non-GAAP Adjustments Rapid7 excludes various items from its non-GAAP measures to provide a clearer view of core operating performance and facilitate meaningful period-to-period comparisons, including non-cash expenses like stock-based compensation and amortization of acquired intangibles, as well as non-recurring or non-ordinary course items such as induced conversion expense, non-ordinary course litigation, acquisition-related expenses, impairment of long-lived assets, restructuring expense, and discrete tax items - Stock-based compensation expense is excluded due to varying valuation methodologies and subjective assumptions, allowing for more meaningful comparisons of operating results[16] - Amortization of acquired intangible assets is excluded to enable more meaningful comparisons, as these assets are valued at acquisition and amortized over several years[17] - Non-ordinary course litigation-related expenses, acquisition-related expenses, impairment of long-lived assets, and restructuring expenses are excluded as they are not indicative of core operating performance or comparable to prior periods[20][21][24][25] - Adjusted EBITDA is defined as net income (loss) before interest income/expense, other (income) expense, provision for income taxes, depreciation, amortization of intangibles, stock-based compensation, acquisition-related expenses, and restructuring expense[28] - Free cash flow is defined as cash provided by operating activities less purchases of property and equipment and capitalization of internal-use software costs[29] Other Key Operating Metrics Definitions Rapid7 defines Annualized Recurring Revenue (ARR) as the annual value of all recurring revenue contracts at period-end, distinct from GAAP revenue, with a customer defined as an entity with an active recurring revenue contract (excluding small InsightOps and Logentries customers), and ARR per customer calculated by dividing total ARR by the number of customers - ARR (Annualized Recurring Revenue) is the annual value of all recurring revenue related to contracts in place at the end of the period, viewed independently of revenue and deferred revenue[32] - A customer is defined as any entity with an active Rapid7 recurring revenue contract as of the measurement date, excluding InsightOps and Logentries customers with contract values under $2,400 per year[33] - ARR per customer is calculated by dividing ARR by the number of customers at the end of the period[33] Forward-Looking Statements & Contacts This section provides cautionary language regarding forward-looking statements and lists contact information for investor relations and press inquiries Cautionary Language Regarding Forward-Looking Statements This section highlights that the press release contains forward-looking statements, particularly concerning financial guidance for Q3 and full-year 2025, warning that actual results may differ materially due to various risks and uncertainties, including macroeconomic conditions, market fluctuations, sales growth, product effectiveness, competition, and other factors detailed in SEC filings, with Rapid7 disclaiming any obligation to update these statements - The press release includes forward-looking statements, such as financial guidance for Q3 and full-year 2025, which are subject to risks and uncertainties[34] - Actual results may differ materially due to factors like macroeconomic uncertainty, market conditions, sales growth, product effectiveness, competition, and other risks outlined in SEC filings[34] - Rapid7 undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of the statements[34] Investor and Press Contact Information Contact details for investor relations and global corporate communications are provided for inquiries regarding Rapid7's financial results and company information - Investor contact: Elizabeth Chwalk, Vice President, Investor Relations, investors@rapid7.com, (617) 865-4277[35] - Press contact: Alice Randall, Director, Global Corporate Communications, press@rapid7.com, (214) 693-4727[35] Consolidated Financial Statements (Unaudited) This section presents Rapid7's unaudited consolidated balance sheets, statements of operations, and cash flows, detailing assets, liabilities, equity, revenue, profitability, and cash movements for Q2 2025 Consolidated Balance Sheets As of June 30, 2025, Rapid7 reported total assets of $1,648.7 million, a slight decrease from $1,652.0 million at December 31, 2024, with total liabilities also decreasing to $1,558.3 million from $1,634.3 million primarily due to a reduction in current convertible senior notes, and total stockholders' equity significantly increasing to $90.4 million from $17.7 million Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :-------------- | :---------------- | | Cash and cash equivalents | $261,327 | $334,686 | | Total current assets | $754,517 | $786,111 | | Total assets | $1,648,740 | $1,652,034 | | Total current liabilities | $555,941 | $630,216 | | Convertible senior notes, current portion, net | — | $45,895 | | Total liabilities | $1,558,293 | $1,634,323 | | Total stockholders' equity | $90,447 | $17,711 | Consolidated Statements of Operations For the three months ended June 30, 2025, total revenue was $214.2 million, up from $208.0 million in the prior year, GAAP gross profit increased to $151.1 million, income from operations decreased to $3.5 million from $5.2 million, and net income for the quarter was $8.3 million, up from $6.5 million, resulting in diluted EPS of $0.13 Consolidated Statements of Operations Highlights (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Total revenue | $214,193 | $207,991 | | Total gross profit | $151,134 | $146,999 | | Income from operations | $3,494 | $5,223 | | Net income | $8,338 | $6,538 | | Net income per share, diluted | $0.13 | $0.09 | Consolidated Statements of Operations Highlights (Six Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Total revenue | $424,446 | $413,092 | | Total gross profit | $301,907 | $291,106 | | Income from operations | $3,393 | $14,939 | | Net income | $10,443 | $7,944 | | Net income per share, diluted | $0.16 | $0.11 | Consolidated Statements of Cash Flows For the three months ended June 30, 2025, net cash provided by operating activities increased to $47.5 million from $32.9 million in the prior year, net cash used in investing activities was $41.3 million primarily due to purchases of investments, and net cash used in financing activities was $47.1 million largely due to payments for maturity of convertible senior notes Consolidated Statements of Cash Flows Highlights (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $47,542 | $32,858 | | Net cash (used in) provided by investing activities | $(41,317) | $6,899 | | Net cash (used in) provided by financing activities | $(47,122) | $(1,001) | | Net (decrease) increase in cash | $(37,384) | $38,173 | | Cash, cash equivalents and restricted cash, end of period | $261,327 | $244,548 | Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $77,299 | $63,928 | | Net cash (used in) provided by investing activities | $(120,530) | $(34,795) | | Net cash (used in) provided by financing activities | $(42,390) | $3,361 | | Net (decrease) increase in cash | $(80,774) | $30,418 | | Cash, cash equivalents and restricted cash, end of period | $261,327 | $244,548 | GAAP to Non-GAAP Reconciliations (Unaudited) This section provides detailed reconciliations from GAAP to non-GAAP financial measures, including gross profit, income from operations, net income, EPS, Adjusted EBITDA, and free cash flow, along with guidance reconciliations Gross Profit Reconciliation The reconciliation shows adjustments from GAAP to Non-GAAP gross profit, primarily by adding back stock-based compensation expense and amortization of acquired intangible assets, with Q2 2025 Non-GAAP gross profit at $158.1 million (73.8% margin) compared to GAAP gross profit of $151.1 million (71% margin) GAAP to Non-GAAP Gross Profit Reconciliation (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :---------------------------------- | :----- | :----- | | GAAP gross profit | $151,134 | $146,999 | | Add: Stock-based compensation expense | $2,580 | $3,270 | | Add: Amortization of acquired intangible assets | $4,423 | $4,012 | | Non-GAAP gross profit | $158,137 | $154,281 | | Non-GAAP gross margin | 73.8% | 74.2% | Income from Operations Reconciliation Non-GAAP income from operations is derived from GAAP income by adding back stock-based compensation expense, amortization of acquired intangible assets, acquisition-related expenses, and restructuring expense, resulting in Q2 2025 Non-GAAP income from operations of $36.3 million compared to GAAP income from operations of $3.5 million GAAP to Non-GAAP Income from Operations Reconciliation (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :---------------------------------- | :----- | :----- | | GAAP income from operations | $3,494 | $5,223 | | Add: Stock-based compensation expense | $27,581 | $29,066 | | Add: Amortization of acquired intangible assets | $5,090 | $4,709 | | Add: Acquisition-related expenses | $183 | $278 | | Add: Restructuring expense | — | — | | Non-GAAP income from operations | $36,348 | $39,276 | Net Income and EPS Reconciliation Non-GAAP net income and EPS are reconciled from their GAAP counterparts by adjusting for stock-based compensation, amortization of acquired intangibles, amortization of debt issuance costs, acquisition-related expenses, restructuring expense, and discrete tax items, resulting in Q2 2025 Non-GAAP net income of $42.2 million and diluted EPS of $0.58, compared to GAAP net income of $8.3 million and diluted EPS of $0.13 GAAP to Non-GAAP Net Income Reconciliation (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :---------------------------------- | :----- | :----- | | GAAP net income | $8,338 | $6,538 | | Add: Stock-based compensation expense | $27,581 | $29,066 | | Add: Amortization of acquired intangible assets | $5,090 | $4,709 | | Add: Amortization of debt issuance costs | $999 | $1,055 | | Add: Acquisition-related expenses | $183 | $278 | | Add: Restructuring expense | — | — | | Add: Discrete tax items | — | — | | Non-GAAP net income | $42,191 | $41,646 | Non-GAAP Net Income Per Share (Three Months Ended June 30) | Item | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Basic | $0.65 | $0.67 | | Diluted | $0.58 | $0.58 | Adjusted EBITDA Reconciliation Adjusted EBITDA is reconciled from GAAP net income by adding back interest income/expense, other (income) expense, provision for income taxes, depreciation, amortization of intangible assets, stock-based compensation expense, acquisition-related expenses, and restructuring expense, resulting in Q2 2025 Adjusted EBITDA of $42.6 million, down from $45.4 million in Q2 2024 Net Income to Adjusted EBITDA Reconciliation (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :---------------------------------- | :----- | :----- | | GAAP net income | $8,338 | $6,538 | | Interest income | $(5,514) | $(5,221) | | Interest expense | $2,627 | $2,673 | | Other (income) expense, net | $(3,957) | $695 | | Provision for income taxes | $2,000 | $538 | | Depreciation expense | $2,349 | $2,775 | | Amortization of intangible assets | $9,041 | $8,096 | | Stock-based compensation expense | $27,581 | $29,066 | | Acquisition-related expenses | $183 | $278 | | Restructuring expense | — | — | | Adjusted EBITDA | $42,648 | $45,438 | Free Cash Flow Reconciliation Free cash flow is calculated by subtracting purchases of property and equipment and capitalized internal-use software costs from net cash provided by operating activities, resulting in Q2 2025 free cash flow of $42.3 million, a significant increase from $29.2 million in Q2 2024 Net Cash Provided by Operating Activities to Free Cash Flow Reconciliation (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $47,542 | $32,858 | | Less: Purchases of property and equipment | $(948) | $(280) | | Less: Capitalized internal-use software costs | $(4,314) | $(3,373) | | Free cash flow | $42,280 | $29,205 | Guidance Reconciliations Rapid7 provides reconciliations for its Q3 and full-year 2025 guidance, showing the adjustments from anticipated GAAP figures to non-GAAP income from operations, net income, and free cash flow, with these adjustments primarily involving adding back anticipated stock-based compensation expense, amortization of acquired intangible assets, and amortization of debt issuance costs Q3 2025 Guidance Reconciliation (in millions) | Item | Range | | :------------------------------------------ | :---------- | | Anticipated GAAP (loss) income from operations | $(4) to $(2) | | Add: Anticipated stock-based compensation expense | $28 to $28 | | Add: Anticipated amortization of acquired intangible assets | $5 to $5 | | Anticipated non-GAAP income from operations | $29 to $31 | | Anticipated GAAP net (loss) income | $(2) to $0 | | Add: Anticipated stock-based compensation expense | $28 to $28 | | Add: Anticipated amortization of acquired intangible assets | $5 to $5 | | Add: Anticipated amortization of debt issuance costs | $1 to $1 | | Anticipated non-GAAP net income | $32 to $34 | Full-Year 2025 Guidance Reconciliation (in millions) | Item | Range | | :------------------------------------------ | :---------- | | Anticipated GAAP (loss) income from operations | $(5) to $5 | | Add: Anticipated stock-based compensation expense | $110 to $110 | | Add: Anticipated amortization of acquired intangible assets | $20 to $20 | | Anticipated non-GAAP income from operations | $125 to $135 | | Anticipated GAAP net (loss) income | $4 to $14 | | Add: Anticipated stock-based compensation expense | $110 to $110 | | Add: Anticipated amortization of acquired intangible assets | $20 to $20 | | Add: Anticipated amortization of debt issuance costs | $4 to $4 | | Anticipated non-GAAP net income | $138 to $148 | | Anticipated net cash provided by operating activities | $148 to $158 | | Less: Anticipated purchases of property and equipment | $(7) to $(7) | | Less: Anticipated capitalized internal-use software costs | $(16) to $(16) | | Anticipated free cash flow | $125 to $135 |