0001560327-25-000050
SEC filingRapid7's Q2 2025 revenue grew 3% YoY driven by product subscriptions, but professional services declined; non-GAAP operating margin contracted while free cash flow improved.
Rapid7's total revenue for the three months ended June 30, 2025 was $214.2 million, a 3.0% increase compared to $208.0 million in the same period of 2024. The growth was primarily driven by a 4.0% increase in product subscriptions revenue, partially offset by a 23.1% decline in professional services revenue. The increase in product subscriptions was attributed to higher revenue from existing customers ($9.1 million) partially offset by a $2.9 million decline from new customers. Geographically, rest of world contributed $4.9 million of the increase versus $1.2 million from North America.
Gross margin remained relatively stable at 70.6% versus 70.7% in the prior-year quarter. Product subscriptions gross margin held at 72.5%, while professional services gross margin deteriorated significantly to 4.5% from 25.7%, due to lower revenue and higher relative cost. Non-GAAP income from operations decreased to $36.3 million from $39.3 million, and non-GAAP operating margin contracted to 17.0% from 18.9%. Net income improved to $8.3 million from $6.5 million, aided by a $4.0 million swing in other income (net) from a loss of $0.7 million to a gain of $4.0 million, primarily from foreign exchange gains.
Product subscriptions revenue was $208.1 million, up 4.0% year-over-year, and represented 97.2% of total revenue. The segment's gross margin was flat at 72.5% as higher cloud computing costs and amortization of capitalized software were offset by lower personnel costs. Professional services revenue declined to $6.1 million (-23.1%), with gross margin falling to 4.5% from 25.7%, reflecting the loss of scale and higher relative costs. Operating expenses increased 4.1% overall, with research and development up 16.8% due to higher headcount and cloud infrastructure costs, while general and administrative expenses decreased 8.8% driven by lower charitable contributions and taxes.
The MD&A provides no explicit forward guidance for revenue or earnings. Management's outlook focuses on strategic priorities: consolidating security platforms, driving innovation in core products, and expanding integrated cloud security and threat management. Key near-term investments include research and development and sales/marketing, with operating expenses expected to increase as a percentage of revenue. Liquidity remains strong with $261.3 million in cash and equivalents and a new $200 million revolving credit facility (undrawn as of June 30, 2025). The company also noted a $660 million minimum spend commitment under a five-year cloud services agreement. The new U.S. tax legislation (OBBBA) signed in July 2025 is being evaluated for impact.
As of June 30, 2025, Rapid7 held $261.3M in cash and cash equivalents and $338.4M in short- and long-term investments (U.S. government agencies), totaling $599.7M in liquid assets. Total debt stood at $890.3M (net of issuance costs), comprising $595.7M of 0.25% convertible notes due 2027 and $294.6M of 1.25% convertible notes due 2029. The 2025 Notes ($46.0M principal) were fully repaid at maturity on May 1, 2025. Stockholders' equity improved to $90.4M from $17.7M at year-end 2024, driven by net income and other comprehensive income. The company also entered a new $200M revolving credit facility on June 25, 2025, with no borrowings outstanding at quarter end.
Rapid7 disclosed a significant purchase commitment: a $660M amended contract with a cloud services provider, including a minimum purchase commitment of $125M in each of 2025, 2026, 2027, 2028, and 2029, plus an additional $35M over the five-year period. This represents a substantial increase from prior obligations. Additionally, the company has $6.0M in letters of credit outstanding as collateral for office leases, reducing availability under the credit facility. A contingent consideration liability of $12.8M (Level 3 fair value) relates to the Noetic Cyber acquisition earnout.
No share repurchases or dividends were reported. Capital expenditures totaled $10.3M (2.4% of sales), including $8.0M in capitalized internal-use software. Debt activity was limited to the maturity of the 2025 Notes ($46.0M repaid). The company paid $1.3M in debt issuance costs for the new credit facility. Stock-based compensation was $54.7M for the six months.
Rapid7 operates as a single reportable segment. The CODM uses consolidated net income to assess performance. Geographic revenue for the six months ended June 30, 2025: United States $303.8M (71.6% of total), Rest of World $120.7M (28.4%). Property and equipment, net: U.S. $20.5M, Rest of World $9.1M.