0001560327-26-000033
SEC filingRevenue slightly declined 0.3% YoY to $209.7M, with flat product subscriptions offset by lower professional services.
For the three months ended March 31, 2026, Rapid7 reported total revenue of $209.7 million, a slight decline of 0.3% compared to $210.3 million in the same period last year. The decrease was driven by a 10.7% drop in professional services revenue to $5.6 million, reflecting less consulting testing performed in the quarter. Product subscriptions revenue was essentially flat at $204.0 million.
Gross margin contracted 260 basis points to 69.1%, with product subscription gross margin declining 230 bps to 71.0% and professional services gross margin plummeting to 0.8% from 19.1%. The product subscription margin decline was primarily due to a $3.1 million increase in personnel costs supporting product delivery, a $0.9 million increase in cloud computing costs, and a $0.6 million increase in amortization of capitalized internally-developed software.
Operating expenses decreased 3.6% to $145.5 million, driven by a 22.8% reduction in general and administrative expenses to $18.2 million, which included lower stock-based compensation and professional fees. Research and development expenses increased 1.0% to $48.4 million, while sales and marketing expenses declined 0.6% to $78.9 million. The company reported a loss from operations of $0.6 million, compared to a $0.1 million loss in the prior year.
Net income fell 46.3% to $1.1 million, impacted by a $2.5 million swing in other expense/income driven by unrealized foreign currency losses. Non-GAAP income from operations decreased 24.5% to $24.4 million, with non-GAAP operating margin declining 370 bps to 11.7%.
Product subscriptions, representing 97.3% of total revenue, remained the core growth driver but showed stagnation with 0.1% YoY growth. The segment's gross margin compression reflects rising cloud infrastructure and personnel costs. Professional services revenue declined sharply, and its gross margin nearly vanished, indicating lower utilization or pricing pressure on consulting engagements.
Key operating metrics showed weakness: ARR declined 0.6% YoY to $832.1 million, customer count fell 0.5% to 11,629, and ARR per customer was flat at $71.6 thousand. These trends suggest challenges in customer acquisition and retention, though free cash flow improved 35.4% to $33.4 million, supported by strong accounts receivable collections.
Management highlighted strategic priorities including advancing AI-driven security operations and expanding managed services, particularly following the March 2026 acquisition of Kenzo Security for $25.5 million. The company is focused on SecOps consolidation trends and expects operating expenses to increase as a percentage of revenue in the near term as it prioritizes growth investments.
Liquidity remains strong with $343.3 million in cash and cash equivalents and $327.0 million in short-term investments. The company has a $200 million revolving credit facility and is preparing for the March 2027 maturity of its 2027 convertible notes through liquidity management and revised investment policies. A significant cloud services commitment of $660 million over five years represents a notable future cash obligation. No specific revenue or earnings guidance was provided for upcoming periods.
As of March 31, 2026, Rapid7 held $343.3 million in cash and cash equivalents and $327.0 million in short-term investments, totaling $670.3 million in liquidity. The company had total debt (net carrying amount) of $893.2 million from its convertible senior notes (0.25% due 2027 and 1.25% due 2029), with principal unchanged during the quarter. Stockholders' equity stood at $174.8 million, reflecting a slight increase from $154.7 million at year-end 2025 due to net income and stock issuances. Deferred revenue, representing contractual obligations, was $470.7 million, while remaining performance obligations (RPO) were $844.6 million, indicating a healthy revenue backlog.
Note 13 confirms no material changes to purchase commitments or contractual obligations outside the ordinary course of business compared to the prior 10-K. The only notable liability is the contingent consideration for the Noetic acquisition, carried at $8.9 million (Level 3 fair value). The company also has letters of credit totaling $5.6 million under its credit facility, which remained undrawn.
No share repurchases or dividends were conducted during the quarter. Capital expenditures totaled $6.4 million (3.1% of revenue), comprising $2.1 million in property and equipment and $4.3 million in capitalized internal-use software. The convertible debt structure remained unchanged, with total interest expense of $2.3 million. The capped call transactions (2027 and 2029) continue to be outstanding to mitigate potential dilution.
The company operates as a single reportable segment. For the three months ended March 31, 2026, total revenue was $209.7 million, a slight decline of 0.3% year-over-year. Geographically, the United States contributed $147.0 million (70.1% of revenue) and the rest of the world accounted for $62.7 million (29.9%). The CODM uses consolidated net income as the primary profit measure, which was $1.1 million for the quarter.
Net cash provided by operating activities (CFO) amounted to $39.8 million, well above net income of $1.1 million, reflecting strong non-cash add-backs (depreciation & amortization: $11.2 million; stock-based compensation: $19.9 million) and favorable working capital movements, particularly a $31.4 million reduction in accounts receivable. This represents a 34% increase from the prior-year CFO of $29.8 million.
Capital expenditures (purchases of property and equipment plus capitalization of internal-use software) totaled $6.4 million, up from $5.1 million a year ago. The capex intensity (capex / CFO) remained low at approximately 16%, indicating the company generates substantial free cash flow relative to its capital spending. While the filing does not explicitly state free cash flow, the CFO minus capex would be approximately $33.4 million.
Working capital swings drove the majority of CFO growth, with accounts receivable and deferred contract costs providing $33.9 million in cash inflows. Accrued expenses and deferred revenue consumed $25.9 million, as is typical for a subscription-based business. No dividends or share repurchases were recorded during the period. Overall, the cash flow profile remains healthy, supported by improving collections and disciplined capital allocation.