Rapid7 Inc (RPD) Q3 2025 Earnings Call Highlights: Surpassing Revenue Expectations and ...

This article first appeared on GuruFocus.

Release Date: November 04, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Rapid7 Inc (NASDAQ:RPD) reported revenue of $218 million and operating income of $37 million, both exceeding their outlook. The company generated strong free cash flow of $30 million in the third quarter. Rapid7 Inc (NASDAQ:RPD) is making significant organizational changes to accelerate growth, including new leadership appointments. The company's AI-powered security operations platform is gaining traction, with notable wins such as a six-figure deal with a large public university. Rapid7 Inc (NASDAQ:RPD) has expanded its partnership with Microsoft, integrating its MDR solution with Microsoft Defender to enhance detection and response capabilities.

Negative Points

Rapid7 Inc (NASDAQ:RPD) reduced its 2025 ARR target due to higher near-term forecasting variance and operational changes. The company acknowledged falling short of ARR guidance in recent history, impacting investor confidence. There is timing variability within the large-scale pipeline, affecting deal closure rates. The customer spending environment is challenged by additional scrutiny, particularly in large deals. Professional services revenue continues to decline year over year, consistent with the company's decision to deemphasize certain lower-margin services.

Q & A Highlights

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Q: Can you discuss the economic model of the MDR business and its impact on margins? Also, how is the international growth compared to domestic growth? A: Corey Thomas, CEO: Our MDR business operates at a higher gross margin and overall profitability than typical MDR companies due to our investments in automation and AI. This allows us to run managed services with better efficacy and higher margins. Internationally, our revenue represents 25% of total revenue and is growing faster than domestic revenue. We've been investing more internationally and see opportunities for growth in both regions.

Q: With MDR being a significant part of your business, how do you address potential pricing pressures and competition? A: Corey Thomas, CEO: We are growing our MDR business double-digits and have been cautious about growth to ensure high gross margins. Our competitive advantage lies in providing AI-driven SOC services that combine technology and human expertise, offering high-quality, scalable solutions that are economically better than competitors.

Story Continues

Q: How should we think about growth versus profitability in 2026, considering the operational changes and new sales processes? A: Corey Thomas, CEO: We aim to build on our efficient business model and continue the trend of growth and profitability. We're making investments now to capitalize on opportunities, such as our partnership with Microsoft, to drive momentum in 2026. Our focus is on scaling profitability while leveraging our innovation center in India.

Q: Can you elaborate on the large deal pipeline and how it factors into your Q4 outlook? A: Tim Adams, CFO: We've taken a hard look at the pipeline, focusing on conversion rates and deal cycle times. While larger deals offer significant opportunities, they take longer to close. We've provided a high-confidence outlook for Q4, acknowledging a range of outcomes but not attempting to be overly precise.

Q: What are the key criteria for selecting the new CFO, and what changes is the team excited for him to drive? A: Corey Thomas, CEO: We sought a CFO with financial and operational acumen to partner with our go-to-market teams. The new CFO will focus on scaling processes, pricing, and packaging to drive predictable growth. We're excited about his ability to align sales and business models with product strategy for sustained growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

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