Key Highlights

  • Shares rose 12.97% pre-market today to $16.99, versus Wednesday's close of $15.04.
  • Third-quarter non-GAAP EPS of $0.60 topped estimates of roughly $0.46.
  • Revenue of $212.4 million beat estimates, and ARR of $820 million came in $8 million above guidance.
  • Full-year non-GAAP EPS guidance was raised to $1.94 to $1.96.
  • Free Cash Flow guidance is about $130 million, with plans to repay $600 million of convertible notes.

Rapid7 (NASDAQ:RPD) shares rose 12.97% in pre-market today to $16.99 after the Cybersecurity company beat every guided metric in its third quarter and raised its full-year EPS outlook. The stock closed Wednesday at $15.04. Management cautioned that stability is not yet growth.

Based in Boston and founded in 2000, Rapid7 sells a cloud-based platform that combines exposure management with detection and response, along with managed services. It serves more than 11,500 customers in about 150 countries and employs about 2,600 people.

Beat on Every Guided Metric, but ARR Still Declines 2%

Total ARR of $820 million was $8 million above guidance but down about 2% year over year. Revenue of $212.4 million fell about 3%, while non-GAAP Operating Income was $46.2 million, a 21.7% margin. Free cash flow was $26.4 million, and cash and short-term investments totaled $732 million.

Core platform solutions account for about 85% of ARR and grew 1% year over year. Detection and response, above 55% of ARR, grew about 5% for a second straight quarter, while exposure management fell 6%. Non-core ARR, about 15% of the total, fell 19% and remains the drag.

Fourth-Quarter Guide Points to Lower ARR as Hosting and AI Costs Rise

For the fourth quarter, Rapid7 guided ARR to about $812 million and revenue to $208 million to $210 million, down about 4% at the midpoint. Non-GAAP operating income is expected at $40 million to $42 million, with EPS of $0.53 to $0.55 on about 82.1 million diluted shares. Gross Margin is expected to moderate as hosting and AI costs ramp.

Full-year revenue is guided to $841 million to $843 million, down about 2%, with non-GAAP operating income of $140 million to $142 million, about a 17% margin. Management expects to exit 2026 near a 20% non-GAAP operating margin, and 2027 guidance was deferred to the next call.

Convertible Repayment Plan and Product Pruning Shape the Next Phase

Rapid7 plans to repay the $600 million of convertible notes due March 2027 with cash on hand, backed by a $200 million undrawn Credit facility. Some non-core products are now end-of-sale, with a decision on the best path for the rest expected soon. A first general release of its AI-first service model and autonomous security operations center is targeted around 2027.

The stock has a market Capitalization of about $1.01 billion, a forward P/E of 8.04 and a 52-week range of $4.97 to $18.56.