What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 198 added, 73 removed, 380 unchanged (42% of the section changed)

50 unchanged sentences

Our customers span a wide variety of industries such as technology, energy, financial services, healthcare and life sciences, manufacturing, media and entertainment, retail, education, real estate, transportation, government and professional services.

As of March 31, 2024, we had over 11,000 customers in 148 countries, including 47% of the Fortune 100.

Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for the three months ended March 31, 2024 or 2023.

As of June 30, 2024, we had over 11,000 customers in 147 countries, including 46% of the Fortune 100.

Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for three and six months ended June 30, 2024 or 2023.

Recent Developments

On July 3, 2024, the we acquired Noetic Cyber, Inc, (“Noetic”) a provider of cyber asset attack surface management, for consideration of approximately $39.2 million subject to customary working capital adjustments as set forth in the merger agreement, including an aggregate value of $2.3 million of our common stock to be issued to two key employees of Noetic in three installments over a 36-month period following the closing date of the transaction, subject to continued employment requirements (the “Closing Consideration”).

In addition, subject to the terms of the merger agreement, we may also be required to pay additional contingent consideration of up to $20.0 million based on the achievement of certain performance targets (the “Earnout Consideration”), measured annually upon the first, second and third anniversaries of the closing date of the transaction (the “Earnout Period”).

If the full $20.0 million is realized, approximately $6.9 million of the Earnout Consideration will be issued in the form of shares of our common stock subject to continued employment requirements over the Earnout Period, and the remainder will be paid in cash.

Our Business Model

11 unchanged sentences

Our Managed Threat Complete Offering is offered on a managed service basis, generally pursuant to one or multi-year agreements.

For the three months ended March 31, 2024 and 2023, recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 96% , and 95%, respectively, of total revenue.

For the three and six months ended June 30, 2024 and 2023, recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 96% , and 95%, respectively, of total revenue.

We monitor the following key metrics to help us measure and evaluate the effectiveness of our operations and as a means to evaluate period-to-period comparisons.

2 unchanged sentences

We believe these key metrics are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and also because they are used by institutional investors and the analyst community to help evaluate the health of our business:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(dollars in thousands)

4 unchanged sentences

Free cash flow $ 29,205 $ 25,581 $ 56,739 $ 24,362

As of March 31,

As of June 30,

(dollars in thousands)

33 unchanged sentences

While our non-GAAP financial measures are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, you should review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not rely on any single financial measure to evaluate our business.

We define non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share as the respective GAAP balances excluding the effect of stock-based compensation expense, amortization of acquired intangible assets, amortization of debt issuance costs and certain other items such as acquisition-related expenses, restructuring expense and discrete tax items.

Non-GAAP net income per basic and diluted share is calculated as non-GAAP net income divided by the weighted average shares used to compute net income per share, with the number of weighted average shares decreased, when applicable, to reflect the anti-dilutive impact of the capped call transactions entered into in connection with our convertible senior notes.

5 unchanged sentences

We believe that excluding the impact of amortization of acquired intangible assets allows for more meaningful comparisons between operating results from period to period as the intangible assets are valued at the time of acquisition and are amortized over several years after the acquisition.

• Amortization of debt issuance costs.

The expense for the amortization of debt issuance costs related to our convertible senior notes and revolving credit facility is a non-cash item and we believe the exclusion of this interest expense provides a more useful comparison of our operational performance in different periods.

• Acquisition-related expenses.

We exclude acquisition-related expenses that are unrelated to the current operations and neither are comparable to the prior period nor predictive of future results.

• Discrete tax items.

We exclude certain discrete tax items such as income tax expenses or benefits that are not related to ongoing business operations in the current year and adjustments to uncertain tax position reserves as these charges are not indicative of our ongoing operating results, and they are not considered when we are forecasting our future results.

• Amortization of debt issuance costs.

• Change in fair value of derivative assets.

The change in fair value of derivative assets related to our capped calls settlement is a non-cash item and we believe the exclusion of this other income (expense) provides a more useful comparison of our operational performance in different periods.

• Impairment of long-lived assets.

Impairment of long-lived assets consists of impairment charges allocated to the carrying amount of certain operating right-of-use assets and the associated leasehold improvements when the carrying amounts exceed their respective fair values and we believe the exclusion of the impairment charges provides a more useful comparison of our operational performance in different periods.

• Restructuring expense.

1 unchanged sentence

For further information see Note 15, Restructuring , in the Notes to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

• Discrete tax items.

• Anti-dilutive impact of capped call transaction.

1 unchanged sentence

Although we cannot reflect the anti-dilutive impact of the capped call transactions under GAAP, we do reflect the anti-dilutive impact of the capped call transactions in non-GAAP net income (loss) per diluted share, when applicable, to provide investors with useful information in evaluating our financial performance on a per share basis.

We define adjusted EBITDA as net income before (1) interest income, (2) interest expense, (3) other income (expense), net, (4) provision for income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, (8) acquisition-related expenses and (9) restructuring expense.

We define adjusted EBITDA as net income before (1) interest income, (2) interest expense, (3) other (income) expense, net, (4) provision for income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, (8) acquisition-related expenses, (9) impairment of long-lived assets and (10) restructuring expense.

We believe that the use of adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods.

2 unchanged sentences

Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees.

The following tables reconcile GAAP gross profit to non-GAAP gross profit for the three months ended March 31, 2024, and 2023:

Three Months Ended March 31,

The following tables reconcile GAAP gross profit to non-GAAP gross profit for the three and six months ended June 30, 2024, and 2023:

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

3 unchanged sentences

Non-GAAP total gross profit $ 154,281 $ 140,085 $ 305,376 $ 274,472

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

3 unchanged sentences

Non-GAAP gross profit – product subscriptions $ 151,774 $ 137,665 $ 300,573 $ 269,747

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

2 unchanged sentences

Non-GAAP gross profit – professional services $ 2,507 $ 2,420 $ 4,803 $ 4,725

The following table reconciles GAAP income (loss) from operations to non-GAAP income from operations for the three months ended March 31, 2024, and 2023:

Three Months Ended March 31,

The following table reconciles GAAP income (loss) from operations to non-GAAP income from operations for the three and six months ended June 30, 2024, and 2023:

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

3 unchanged sentences

Acquisition-related expenses 278 — 278 363

Impairment of long-lived assets — 27,231 — 27,231

Restructuring expense (1)

Non-GAAP income from operations $ 39,276 $ 12,957 $ 79,561 $ 23,950

(1) For the three months ended March 31, 2024, restructuring expense was recorded within general and administrative expense in our condensed consolidated statement of operations.

The following table reconciles GAAP net income (loss) to non-GAAP net income for the three months ended March 31, 2024, and 2023:

Three Months Ended March 31,

(1) For the six months ended June 30, 2024, restructuring expense was recorded within general and administrative expense in our condensed consolidated statement of operations.

The following table reconciles GAAP net income (loss) to non-GAAP net income for the three and six months ended June 30, 2024, and 2023:

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands, except share and per share data)

4 unchanged sentences

Amortization of debt issuance costs 1,055 1,026 2,108 2,020

Change in fair value of derivative assets — 12,660 — 12,660

Impairment of long-lived assets — 27,231 — 27,231

Restructuring expense — — (190) —

12 unchanged sentences

There was no add-back of interest expense or additional dilutive shares related to the Notes where the effect was anti-dilutive.

On an if-converted basis, for the three months ended March 31, 2024, the 2025 Notes, the 2027 Notes and the 2029 Notes were dilutive.

On an if-converted basis, for the three months ended March 31, 2023, the 2027 Notes were dilutive and the 2025 Notes were anti-dilutive.

On an if-converted basis, for the three and six months ended June 30, 2024, the 2025 Notes, the 2027 Notes and the 2029 Notes were dilutive.

On an if-converted basis, for the three and six months ended June 30, 2023, the 2027 Notes were dilutive and the 2025 Notes were anti-dilutive.

(2) We use the treasury method to compute the dilutive effect of employee equity incentive plan awards.

The following table reconciles GAAP net income (loss) to adjusted EBITDA for the three months ended March 31, 2024, and 2023:

Three Months Ended March 31,

The following table reconciles GAAP net income (loss) to adjusted EBITDA for the three and six months ended June 30, 2024, and 2023:

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

2 unchanged sentences

Interest expense 2,673 2,773 5,343 5,490

Other (income) expense, net 1,435 307

Other expense, net 695 13,268 2,130 13,575

Provision for income taxes 538 869 9,463 1,463

3 unchanged sentences

Acquisition-related expenses 278 278 363

Impairment of long-lived assets — 27,231 — 27,231

Restructuring expense — — (190) —

Adjusted EBITDA $ 45,438 $ 19,096 $ 92,057 $ 35,917

The following table reconciles net cash provided by operating activities to free cash flow for the three months ended March 31, 2024, and 2023:

Three Months Ended March 31,

The following table reconciles net cash provided by operating activities to free cash flow for the three and six months ended June 30, 2024, and 2023:

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

12 unchanged sentences

Cost of Revenue

Our total cost of revenue consists of the costs of products and professional services, as noted below.

Our total cost of revenue consists of the costs of product subscriptions and professional services, as noted below.

In addition, cost of revenue includes overhead costs for depreciation, facilities, IT, information security, and recruiting.

38 unchanged sentences

Results of Operations

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

11 unchanged sentences

General and administrative 22,412 22,888 42,247 47,095

Impairment of long-lived assets — 27,231 — 27,231

Total operating expenses 140,263 183,917 273,893 335,057

2 unchanged sentences

Interest expense (2,673) (2,773) (5,343) (5,490)

Other income (expense), net (1,435) (307)

Other expense, net (695) (13,268) (2,130) (13,575)

Income (loss) before income taxes 8,733 (65,913) 19,916 (91,234)

2 unchanged sentences

(1) Cost of revenue and operating expenses include stock-based compensation expense and depreciation and amortization expense as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

5 unchanged sentences

Total stock-based compensation expense $ 27,409 $ 31,695 $ 52,302 $ 61,068

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

(in thousands)

6 unchanged sentences

The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of revenue:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Condensed Consolidated Statement of Operations Data:

10 unchanged sentences

General and administrative 10.8 12.0 10.2 12.6

Impairment of long-lived assets — 14.3 — 7.3

Total operating expenses 67.4 96.6 66.3 89.7

2 unchanged sentences

Interest expense (1.3) (1.5) (1.3) (1.5)

Other income (expense), net (0.7) (0.1)

Other expense, net (0.3) (7.0) (0.5) (3.6)

Income (loss) before income taxes 4.2 (34.6) 4.9 (24.4)

1 unchanged sentence

Net income (loss) 3.9 % (35.1) % 2.6 % (24.8) %

Comparison of the Three Months Ended March 31, 2024 and 2023

Three Months Ended March 31, Change

Comparison of the Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30, Change

2024 2023 $ %

3 unchanged sentences

Total revenue $ 207,991 $ 190,422 $ 17,569 9.2 %

Total revenue increased by $21.9 million in the three months ended March 31, 2024 compared to the same period in 2023.

Total revenue increased by $17.6 million in the three months ended June 30, 2024 compared to the same period in 2023.

The $17.6 million increase in revenue consisted of a $1.6 million increase in revenue from new customers and a $16.0 million increase in revenue from existing customers.

1 unchanged sentence

Revenue from new customers represents the revenue recognized from the customer's initial purchase.

The increase in total revenue in the three months ended March 31, 2024 compared to the same period in 2023 was comprised of $13.4 million generated from sales in North America and $8.5 million generated from sales from the rest of the world.

The increase in total revenue in the three months ended June 30, 2024 compared to the same period in 2023 was comprised of $9.6 million generated from sales in North America and $8.0 million generated from sales from the rest of the world.

Cost of Revenue

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

8 unchanged sentences

Total gross margin % 70.7 % 69.4 %

Total cost of revenue increased by $4.9 million in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a $6.1 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue, a $1.4 million increase in amortization expense for capitalized internally-developed software and a $0.5 million increase in other expenses.

These increases were partially offset by a $3.1 million decrease in personnel costs, inclusive of a $0.3 million decrease in stock-based compensation expense, resulting from a decrease in headcount due to our Restructuring Plan.

Total gross margin percentage increased for the three months ended March 31, 2024 compared to the same period in 2023.

The products subscriptions gross margin was consistent year-over-year.

The increase in professional services gross margin for the three months ended March 31, 2024 was primarily due to a decrease in personnel costs.

Total cost of revenue increased by $2.7 million in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $5.0 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue and a $1.0 million increase in amortization expense for capitalized internally-developed software.

These increases were partially offset by a $3.0 million decrease in personnel costs, inclusive of a $0.1 million decrease in stock-based compensation expense, resulting from a decrease in headcount due to our Restructuring Plan, and a $1.0 million decrease in other expenses.

Total gross margin percentage increased for the three months ended June 30, 2024 compared to the same period in 2023.

The increase in product subscriptions gross margin for the three months ended June 30, 2024 was driven by our ability to scale as our revenue continues to grow.

The increase in professional services gross margin for the three months ended June 30, 2024 was primarily due to a decrease in personnel costs.

Operating Expenses

Research and Development Expense

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

2 unchanged sentences

% of revenue 19.3 % 26.7 %

Research and development expense decreased by $5.4 million in the three months ended three months ended March 31, 2024 compared to the same period in 2023, primarily due to a $5.4 million decrease in personnel costs, inclusive of a $2.9 million decrease in stock-based compensation expense, resulting from a decrease in headcount due to our Restructuring Plan.

Research and development expense decreased by $10.7 million in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $7.7 million decrease in personnel costs, inclusive of a $3.0 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to our Restructuring Plan, and a $3.0 million decrease due to a write-off of a capitalized internal-use software project in the prior period.

Sales and Marketing Expense

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

2 unchanged sentences

% of revenue 37.3 % 43.6 %

Sales and marketing expense decreased by $7.8 million in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a $6.3 million decrease in personnel costs, inclusive of a $1.0 million decrease in stock-based compensation expense, resulting from a decrease in headcount due to our Restructuring Plan and a $1.5 million decrease in marketing and advertising expenses.

Sales and marketing expense decreased by $5.2 million in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $6.2 million decrease in personnel costs, inclusive of a $0.6 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to our Restructuring Plan, and a $0.5 million decrease in marketing and advertising expenses.

These decreases were partially offset by a $1.1 million increase in other expenses.

General and Administrative Expense

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

2 unchanged sentences

% of revenue 10.8 % 12.0 %

General and administrative expense decreased by $4.4 million in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a $2.9 million decrease in personnel costs, inclusive of a $0.3 million decrease in stock-based compensation expense, resulting from a decrease in headcount due to our Restructuring Plan, as well as a $1.5 million decrease in other expenses.

General and administrative expense decreased by $0.5 million in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $0.5 million decrease in stock-based compensation expense.

Impairment of Long-Lived Assets

Three Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Impairment of long-lived assets $ — 27,231 $ (27,231) (100.0) %

% of revenue — % 14.3 %

Impairment of long-lived assets expense of $27.2 million in the three months ended June 30, 2023 was recorded after a triggering event related to a change in usage of certain idle office space at our corporate headquarters in Boston, Massachusetts indicated that the carrying value of our right of use and other lease-related assets may not be fully recoverable.

Interest Income

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

2 unchanged sentences

% of revenue 2.5 % 0.9 %

Interest income increased by $3.1 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to an increase in interest rates.

Interest income increased by $3.4 million in the three months ended June 30, 2024 compared to the same period in 2023 primarily due to an increase in interest rates.

Interest Expense

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

2 unchanged sentences

% of revenue (1.3) % (1.5) %

Interest expense was consistent in the three months ended March 31, 2024 compared to the same period in 2023.

Other Income (Expense), Net

Three Months Ended March 31, Change

Interest expense was consistent in the three months ended June 30, 2024 compared to the same period in 2023.

Other Expense, Net

Three Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Other income (expense), net $ (1,435) $ (307) $ (1,128) 367.4 %

Other expense, net $ (695) $ (13,268) $ 12,573 (94.8) %

% of revenue (0.3) % (0.2) %

Other income (expense), net increased by $1.1 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to increases in realized and unrealized foreign currency losses, primarily related to the euro and British pound sterling.

Other expense, net decreased by $12.6 million in the three months ended June 30, 2024 compared to the same period in 2023 primarily due to a $12.7 million expense for the change in fair value on derivative assets related to our 2023 capped calls settlement in the prior period as well as increases in realized and unrealized foreign currency gains, primarily related to the euro and British pound sterling.

Provision for Income Taxes

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2024 2023 $ %

2 unchanged sentences

% of revenue 4.4 % 0.5 %

Provision for income taxes increased by $8.3 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to $6.4 million of tax expense recorded for an intercompany sale of intellectual property as part of post-acquisition strategy related to the acquisition of Minerva Lab Ltd.

Provision for income taxes decreased by $0.3 million in the three months ended June 30, 2024 compared to the same period in 2023 primarily due to a decrease in taxes associated with our international operations.

Comparison of the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Product subscriptions $ 396,985 $ 355,473 $ 41,512 11.7 %

Professional services 16,107 18,123 (2,016) (11.1) %

Total revenue $ 413,092 $ 373,596 $ 39,496 10.6 %

Total revenue increased by $39.5 million in the six months ended June 30, 2024 compared to the same period in 2023 and consisted of a $3.5 million increase in revenue from new customers and a $36.0 million increase in revenue from existing customers.

The $36.0 million increase in revenue from existing customers was due to an increase in revenue from renewals, upsells and cross-sells as a result of the continued growth of our existing customer base.

Revenue from new customers represents the revenue recognized from the customer's initial purchase.

The increase in total revenue in the six months ended June 30, 2024 compared to the same period in 2023 was comprised of $23.1 million generated from sales in North America and $16.4 million generated from sales from the rest of the world.

Cost of Revenue

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Cost of revenue:

Product subscriptions $ 109,637 $ 99,336 $ 10,301 10.4 %

Professional services 12,114 14,827 (2,713) (18.3) %

Total cost of revenue $ 121,751 $ 114,163 $ 7,588 6.6 %

Gross margin %:

Products 72.4 % 72.1 %

Professional services 24.8 % 18.2 %

Total gross margin % 70.5 % 69.4 %

Total cost of revenue increased by $7.6 million in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $11.1 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue and a $2.4 million increase in amortization expense for capitalized internally-developed software.

These increases were partially offset by a $6.1 million decrease in personnel costs, inclusive of a $0.1 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to our Restructuring Plan, and a $1.2 million decrease in other expenses.

Total gross margin percentage increased in the six months ended June 30, 2024 compared to the same period in 2023.

The increase in product subscriptions gross margin in the six months ended June 30, 2024 was driven by our ability to scale as our

revenue continues to grow.

The increase in professional services gross margin in the six months ended June 30, 2024 was primarily due to a decrease in personnel costs.

Operating Expenses

Research and Development Expense

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Research and development $ 81,046 $ 97,108 $ (16,062) (16.5) %

% of revenue 19.6 % 26.0 %

Research and development expense decreased by $16.1 million in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $13.1 million decrease in personnel costs, inclusive of a $6.0 million decrease in stock-based compensation expense, resulting from a decrease in headcount, primarily due to our Restructuring Plan, and a $3.0 million decrease due to a write-off of a capitalized internal-use software project in the prior period.

Sales and Marketing Expense

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Sales and marketing $ 150,600 $ 163,623 $ (13,023) (8.0) %

% of revenue 36.5 % 43.8 %

Sales and marketing expense decreased by $13.0 million in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $12.4 million decrease in personnel costs, inclusive of a $1.6 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to our Restructuring Plan, and a $2.1 million decrease in marketing and advertising expenses.

These decreases were partially offset by a $1.5 million increase in other expenses.

General and Administrative Expense

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

General and administrative $ 42,247 $ 47,095 $ (4,848) (10.3) %

% of revenue 10.2 % 12.6 %

General and administrative expense decreased by $4.8 million in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $3.3 million decrease in personnel costs, inclusive of a $1.1 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to our Restructuring Plan, and a $2.4 million decrease in professional fees.

These decreases were partially offset by a $0.9 million increase in other expenses.

Impairment of Long-Lived Assets

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Impairment of long-lived assets $ — $ 27,231 $ (27,231) 100.0 %

% of revenue — % 7.3 %

Impairment of long-lived assets expense of $27.2 million in the six months ended June 30, 2023 was recorded after a triggering event related to a change in usage of certain idle office space at our corporate headquarters in Boston, Massachusetts indicated that the carrying value of our right of use and other lease-related assets may not be fully recoverable.

Interest Income

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Interest income $ 9,941 $ 3,455 $ 6,486 187.7 %

% of revenue 2.4 % 0.9 %

Interest income increased by $6.5 million in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to an increase in interest rates.

Interest Expense

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Interest expense $ (5,343) $ (5,490) $ 147 (2.7) %

% of revenue (1.3) % (1.5) %

Interest expense was consistent in the six months ended June 30, 2024 compared to the same period in 2023.

Other Expense, Net

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Other expense, net $ (2,130) $ (13,575) $ 11,445 (84.3) %

% of revenue (0.5) % (3.6) %

Other expense, net decreased by $11.4 million in the six months ended June 30, 2024 compared to the same period in 2023, primarily due to a $12.7 million expense for the change in fair value on derivative assets related to our 2023 capped calls settlement in the prior period as well as increases in realized and unrealized foreign currency gains, primarily related to the euro and British pound sterling.

Provision for Income Taxes

Six Months Ended June 30, Change

2024 2023 $ %

(dollars in thousands)

Provision for income taxes $ 9,463 $ 1,463 $ 8,000 546.8 %

% of revenue 2.3 % 0.4 %

Provision for income taxes increased by $8.0 million in the six months ended June 30, 2024 compared to the same period in 2023 primarily due to $6.4 million of tax expense recorded for an intercompany sale of intellectual property as part of post-acquisition strategy related to the acquisition of Minerva Lab Ltd.

and an increase in domestic taxes.

Liquidity and Capital Resources

As of March 31, 2024, we had $198.7 million in cash and cash equivalents, $265.5 million in investments that have maturities ranging from one to sixteen months and an accumulated deficit of $1.0 billion.

As of June 30, 2024, we had $237.0 million in cash and cash equivalents, $257.1 million in investments that have maturities ranging from one to fifteen months and an accumulated deficit of $1.0 billion.

Since our inception, we have generated significant losses and we may generate losses for the foreseeable future.

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We believe that our existing cash and cash equivalents, our investments, our available borrowings under our Credit Agreement and cash generated by operating activities will be sufficient to meet our operating and capital requirements for at least the next 12 months.

Our foreseeable cash needs, in addition to our recurring operating expenses, include our expected capital expenditures to support expansion of our infrastructure and workforce, office facilities lease obligations, purchase commitments, including our cloud infrastructure services (including with Amazon Web Services (“AWS”)), potential future acquisitions of technology businesses and any election we make to redeem our convertible senior notes.

commitments, including our cloud infrastructure services (including with Amazon Web Services (“AWS”)), potential future acquisitions of technology businesses and any election we make to redeem our convertible senior notes.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, the introduction of new and enhanced products and service offerings, the cost of any future acquisitions of technology or businesses and any election we make to redeem our convertible senior notes.

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If we are unable to raise additional capital on terms satisfactory to us when we require it, our business, operating results and financial condition could be adversely affected.

The following table shows a summary of our cash flows for the years ended March 31, 2024 and 2023:

Three Months Ended March 31,

The following table shows a summary of our cash flows for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

(in thousands)

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Operating Activities

Operating activities provided $31.1 million of cash and cash equivalents in the three months ended March 31, 2024, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments.

Operating activities provided $63.9 million of cash and cash equivalents in the six months ended June 30, 2024, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments.

Cash provided by operating activities reflected our net income of $10.5 million and a decrease in our net operating assets and liabilities of $23.6 million, offset by non-cash charges of $77.1 million related primarily to depreciation and amortization, stock-based compensation expense, deferred income taxes, amortization of debt issuance costs and other non-cash charges.

The change in our net operating assets and liabilities was primarily due to a decrease in deferred revenue and the timing of payments of operating expenses, including payout of annual bonuses and year-end commissions and other compensation costs and accounts payable, partially offset by a decrease in accounts receivable due to an increase in cash collections from our customers.

Operating activities provided $5.8 million of cash and cash equivalents in the three months ended March 31, 2023, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments.

Cash provided by operating activities reflected our net loss of $25.9 million and a decrease in our net operating assets and liabilities of $10.7 million, offset by non-cash charges of $42.4 million related primarily to depreciation and amortization, stock-based compensation expense, amortization of debt issuance costs and other non-cash charges.

change in our net operating assets and liabilities was primarily due to a decrease in deferred revenue and the timing of payments of operating expenses, including payout of annual bonuses and year-end commissions and other compensation costs and accounts payable, partially offset by a decrease in accounts receivable due to an increase in cash collections from our customers.

Operating activities provided $37.1 million of cash and cash equivalents in the six months ended June 30, 2023, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments.

Cash provided by operating activities reflected our net loss of $92.7 million and a decrease in our net operating assets and liabilities of $0.4 million, offset by non-cash charges of $130.3 million related primarily to depreciation and amortization, stock-based compensation expense, impairment of long-lived assets, change in fair value of derivative assets, amortization of debt issuance costs and other non-cash charges.

The change in our net operating assets and liabilities was primarily due to a $12.0 million decrease in accrued expenses, primarily as a result of the payout of annual bonuses and year-end commissions, a $1.3 million decrease in accounts payable and a $6.0 million increase in deferred contract acquisition and fulfillment costs, which each had a negative impact on operating cash flow.

These factors were offset by a $15.1 million decrease in accounts receivable due to an increase in collections, a $1.4 million decrease in prepaid expenses, a $1.8 million

increase in deferred revenue and a $0.5 million increase in other liabilities, which each had a positive impact on operating cash flow.

Investing Activities

Investing activities used $41.7 million of cash in the three months ended March 31, 2024, consisting of $38.2 million in purchases of investments, net of sales/maturities, $2.9 million for capitalization of internal-use software costs and $0.6 million in capital expenditures to purchase computer equipment and leasehold improvements.

Investing activities used $10.2 million of cash in the three months ended March 31, 2023, consisting of $34.0 million of cash paid for the acquisition of Minerva, $4.8 million for capitalization of internal-use software costs, $2.3 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by $30.9 million of investment sales and maturities, net of purchases.

Investing activities used $34.8 million of cash in the six months ended June 30, 2024, consisting of $28.0 million in purchases of investments, net of sales/maturities, $6.3 million for capitalization of internal-use software costs, and $0.9 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by proceeds of $0.4 million for other investing activities.

Investing activities used $62.2 million of cash in the six months ended June 30, 2023, consisting of $34.8 million of cash paid for the acquisition of Minerva, $9.1 million for capitalization of internal-use software costs, and $3.7 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by $14.6 million in purchases of investments, net of sales and maturities.

Financing Activities

Financing activities provided $4.4 million of cash in the three months ended March 31, 2024, which consisted primarily of $5.0 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc.

Financing activities provided $3.4 million of cash in the six months ended June 30, 2024, which consisted primarily of $5.0 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc.

2015 Employee Stock Purchase Plan (“ESPP”) and $1.4 million in proceeds from the exercise of stock options, partially offset by $3.1 million in withholding taxes paid for the net share settlement of equity awards.

Financing activities provided $2.8 million of cash in the three months ended March 31, 2023, which consisted primarily of $6.2 million in proceeds from the issuance of common stock purchased by employees under the ESPP and $0.2 million in proceeds from the exercise of stock options, partially offset by $2.3 million in payments related to the acquisition of IntSights and $1.3 million in withholding taxes paid for the net share settlement of equity awards.

Financing activities provided $4.0 million of cash in the six months ended June 30, 2023, which consisted primarily of $6.2 million in proceeds from the issuance of common stock purchased by employees under the ESPP and $2.7 million in proceeds from the exercise of stock options, partially offset by $2.3 million in payments related to the acquisition of IntSights and $2.6 million in withholding taxes paid for the net share settlement of equity awards.

Contractual Obligations and Commitments

As of March 31, 2024, there were no additional material changes from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 26, 2024 (the “Annual Report”).

As of June 30, 2024, there were no additional material changes from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 26, 2024 (the “Annual Report”).

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis