0001560327-25-000062
SEC filingRevenue growth slowed to 1.5% YoY in Q3 2025, driven by renewals/upsells but partially offset by lower new customer revenue; gross margin contracted 40bps to 70.2%.
Rapid7's Q3 2025 total revenue reached $218.0M, a modest 1.5% increase year-over-year, decelerating from 8.0% growth in the prior-year quarter. Product subscriptions grew 2.2% to $210.1M, while professional services declined 13.8% to $7.8M, reflecting a shift toward bundled offerings. Cost of revenue rose 2.9%, outpacing revenue growth, leading to a 40-basis-point contraction in gross margin to 70.2%. The decline was concentrated in professional services, where gross margin plummeted from 29.6% to 14.0%, driven by higher delivery costs. Operating expenses increased 6.1%, with R&D (+4.3%), sales & marketing (+6.0%), and G&A (+10.5%) all rising. Consequently, GAAP operating income fell sharply from $12.8M to $5.9M, and net income declined 36.4% to $9.8M. Non-GAAP income from operations dropped 16% to $36.9M, as stock-based compensation and amortization remained elevated.
Product subscriptions, accounting for 96% of revenue, grew primarily through existing customer renewals and cross-sell, which contributed $19.6M in incremental revenue year-to-date. However, new customer revenue fell $8.5M, indicating slower acquisition. Professional services revenue declined due to reduced project-based engagements and a strategic pivot toward integrated managed services. Segment gross margins diverged: product subscriptions held nearly flat at 72.3%, while professional services margin more than halved to 14.0%, reflecting higher personnel and third-party costs.
Management highlighted a customer-driven consolidation trend toward integrated security platforms, aiming to capitalize with its Command Platform. Key priorities include driving innovation in exposure management and threat detection, and expanding managed services. The company noted continued investment in R&D and sales headcount to accelerate growth. While no formal guidance was provided, the weak ARR growth (1.8% YoY) and flat customer count suggest near-term revenue headwinds. The recent $200M revolving credit facility and $660M cloud services commitment indicate significant future capital requirements. The non-GAAP operating margin of 16.9% signals management's focus on profitability, but the GAAP net income decline may pressure near-term margins.
As of September 30, 2025, Rapid7 held $130.6 million in cash and cash equivalents and $503.9 million in available-for-sale investments (U.S. government agencies), totaling $634.5 million in liquid assets. Total debt stood at $891.3 million, consisting of $596.3 million in 0.25% convertible senior notes due 2027 and $295.0 million in 1.25% convertible senior notes due 2029, net of unamortized issuance costs. The 2025 Notes ($46.0 million principal) were fully repaid at maturity on May 1, 2025. Stockholders' equity improved to $127.2 million from $17.7 million at year-end 2024, driven by net income and stock-based compensation. Deferred revenue totaled $451.3 million ($422.9 million current, $28.4 million non-current).
In January 2025, Rapid7 amended its cloud services contract, increasing the total purchase obligation to $660 million. This includes a minimum purchase commitment of $125.0 million in each of 2025, 2026, 2027, 2028, and 2029, plus an additional $35.0 million over the five-year period. The company also disclosed a contingent consideration liability of $13.0 million related to the Noetic Cyber acquisition, with $7.2 million classified as current and $5.8 million as non-current. An income tax assessment from the Israel Tax Authority of approximately 324 million Israeli New Shekels (about $97 million) for fiscal year 2021 remains unresolved; no liability has been recorded.
No share repurchases or dividends were disclosed. Capital expenditures totaled $18.4 million (2.9% of revenue), comprising $6.4 million in property and equipment and $12.0 million in capitalized internal-use software. The company repaid $46.0 million in convertible notes upon maturity. A new $200.0 million revolving credit facility was entered into on June 25, 2025, with no outstanding borrowings as of September 30, 2025. The company also paid $1.7 million in debt issuance costs related to the credit facility.
Rapid7 operates as a single reportable segment. The CODM uses consolidated net income to assess performance. Geographic revenue for the nine months ended September 30, 2025: United States $458.5 million (71.4%), Rest of World $183.9 million (28.6%). Property and equipment by geography: United States $19.3 million, Rest of World $12.6 million.
Rapid7's operating cash flow (CFO) of $116.3M for the nine months ended September 30, 2025, represents a 7.7% increase from $107.9M in the prior year. CFO exceeds net income ($20.3M) by a large margin, indicating strong cash conversion due to non-cash charges (depreciation, stock-based compensation) and favorable working capital movements. Depreciation and amortization totaled $34.3M, and stock-based compensation was $81.1M. Working capital provided a net source of cash: accounts receivable decreased by $25.9M, partially offset by declines in deferred revenue (-$36.9M) and accrued expenses (-$11.6M).
Capital expenditures (including software capitalization) rose to $18.4M from $12.7M, reflecting increased investment. Free cash flow (CFO minus capex) was $97.8M, covering no capital returns as the company did not repurchase shares or pay dividends. Financing cash flow was negative $40.8M due to $46.0M paid for convertible notes maturity, partially offset by stock plan proceeds. Overall, cash flow quality remains robust with ample headroom for debt service and strategic investments.