What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-26 · 139 added, 138 removed, 381 unchanged (42% of the section changed)

4 unchanged sentences

Factors that could cause or contribute to these differences include those under “Risk Factors” included in Part I, Item 1A or in other parts of this Annual Report on Form 10-K.

Rapid7 is a global cybersecurity software and services provider on a mission to offer customers greater clarity and control of their attack surface through our comprehensive and consolidated security offerings.

Rapid7 is a global cybersecurity software and service provider on a mission to create a safer digital world by making cybersecurity simpler and more accessible.

For more than twenty years, Rapid7 has partnered with customers across the globe representing a diverse range of industries and sizes to improve the efficacy and productivity of their security operations (“SecOps”).

In today's rapidly evolving IT environment, customers are encountering escalating challenges due to the proliferation of cyberattacks leveraging artificial intelligence (“AI”), targeted automation, and a widening spectrum of attackers and techniques.

To fortify their security posture, organizations will require greater visibility, advanced capabilities leveraging increased expertise, and integrated data to effectively anticipate, identify, and respond to exposure-led threats.

In today's rapidly evolving IT environment, customers are encountering escalating challenges due to the widening spectrum of attackers and techniques, including the proliferation of cyberattacks leveraging artificial intelligence (“AI”) and targeted automation.

We empower security professionals to manage a modern attack surface through our best-in-class AI infused technology, leading-edge research, and broad, strategic expertise.

Rapid7’s comprehensive security solutions help our global customers unite exposure management with threat detection and response to reduce attack surfaces and eliminate threats with speed and precision.

Through our security operations platform, anchored on our cloud security, security information and event management (“SIEM”), advanced detection and response, and vulnerability management offerings, we believe that Rapid7 is poised to expand the capabilities of today's SecOps teams.

Rapid7 extends and expands the expertise of the Security Operations Center (“SOC") across information security, cloud operations, development, and IT teams, enabling them to better understand the attacker and leverage that information to take control of their fragmented attack surface.

Rapid7 enables the Security Operations Center (“SOC”) to understand their fragmented attack surface with attacker perspective, allowing them to proactively secure their attack surface and better detect and respond to threats.

Enriched by years of managed services expertise, our integrated security operations platform enables SecOps teams to move away from a reactive approach, reduce their attack surface, and enhance response efficiency with a deep contextual understanding of their environment.

4 unchanged sentences

As the threat landscape continues to grow in complexity, customers are demonstrating demand for integrated expertise to support them in effectively managing their security technologies.

The convergence of these key trends – security consolidation, integrated cloud security, and expertise driven outcomes – are the foundation of what we view as the new extended SOC.

Our focus is to be the leading provider of integrated security solutions for the extended SOC by providing risk and threat management within the context of overall security.

The convergence of these key trends – security consolidation, integrated cloud security, and expertise driven outcomes – are the foundation of what our customers require for the modern SOC.

Our focus is to be the leading provider of integrated security operations solutions by providing exposure and threat management that leverages our ability to give customers command of their attack surface.

We market and sell our products and professional services to organizations of all sizes globally, including mid-market businesses, enterprises, non-profits, educational institutions and government agencies.

2 unchanged sentences

Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for the years ended December 31, 2024, 2023 or 2022.

Recent Developments

Restructuring Plan

In August 2023, we announced a restructuring plan designed to improve operational efficiencies, reduce operating costs and better align the Company’s workforce with current business needs, top strategic priorities, and key growth opportunities (the “Restructuring Plan”).

The Restructuring Plan included a reduction of our workforce and office space reductions within certain markets.

The execution of the Restructuring Plan was substantially complete by December 31, 2023.

For further information, refer to Note 19, Restructuring , in the Notes to our Consolidated Financial Statements.

Our Business Model

We offer our products through a variety of delivery models to meet the needs of our diverse customer base, including:

Ta ble of Contents

• Cloud-based subscriptions, which provide our software capabilities to our customers through cloud access and on a subscription basis.

2 unchanged sentences

Our Managed Vulnerability Management, Managed Detection and Response, and Managed Application Security products are offered on a managed service basis, pursuant to one or multi-year agreements.

• Licensed on-premise software consists of term licenses.

• Licensed on-premise software, which consists of term licenses.

When licensed on-premise software is purchased, maintenance and support and content subscriptions, as applicable, are bundled with the license for the term period.

Our Nexpose and Metasploit products are offered through term software licenses.

Our Nexpose and Metasploit products are offered through term software licenses with an option for one or multi-year terms.

Our maintenance and support provides our customers with telephone and web-based support and ongoing bug fixes and repairs during the term of the maintenance and support agreement, and our customers who purchase our Nexpose and Metasploit products also purchase content subscriptions, which provide them with real-time access to the latest vulnerabilities and exploits.

3 unchanged sentences

In the years ended December 31, 2024, 2023 and 2022, recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 96%, 95% and 94%, respectively, of total revenue.

Immaterial Correction of an Error

During the fourth quarter of 2024, we identified an immaterial error related to stock-based compensation expense associated with certain restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted during fiscal years 2023 and 2024 attributable to an improper valuation of the underlying awards, resulting in an understatement of stock-based compensation expense in 2023 and 2024.

In accordance with Staff Accounting Bulletin (“SAB”) No.

99, Materiality , and SAB No.

108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements , we evaluated the errors and determined that the related impact was not material to results of operations or financial position for any historical annual or interim period.

As a result, we are correcting the errors by adjusting prior period financial statements in certain of the periods shown below.

Refer to Note 20, Immaterial Correction of an Error , in the notes to our Consolidated Financial Statements for further information.

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.

22 unchanged sentences

Non-GAAP Income from Operations and Non-GAAP Operating Margin .

We monitor non-GAAP income from operations and non-GAAP operating margin, non-GAAP financial measures, to analyze our financial results.

We monitor non-GAAP income from operations and non-GAAP operating margin, which are both non-GAAP financial measures, to analyze our financial results.

We believe non-GAAP income from operations and non-GAAP operating margin are useful to investors, as supplements to U.S.

Ta ble of Contents

measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance and allowing for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance and allowing for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

See “Non-GAAP Financial Results” below for further information on non-GAAP income from operations and a reconciliation of non-GAAP income from operations to the comparable GAAP financial measure.

4 unchanged sentences

Annualized Recurring Revenue and Growth.

Annualized Recurring Revenue (“ARR”) is defined as the annual value of all recurring revenue related to contracts in place at the end of the period.

Annualized Recurring Revenue (“ARR”) is defined as the annual value of all recurring revenue related to contracts in place at the end of the quarter.

ARR should be viewed independently of revenue and deferred revenue, as ARR is an operating metric and is not intended to be combined with or replace these items.

ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates and does not include revenue reported as perpetual license or professional services revenue in our consolidated statement of operations.

ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates and does not include revenue reported as professional services revenue in our consolidated statement of operations.

We use ARR and believe it is useful to investors as a measure of the overall success of our business.

1 unchanged sentence

We believe that the size of our customer base is an indicator of our global market penetration and that our net customer additions are an indicator of the growth of our business.

We define a customer as any entity that has an active Rapid7 recurring revenue contract as of the specified measurement date, excluding only InsightOps and Logentries customers with a contract value less than $2,400 per year.

We define a customer as any entity that has an active Rapid7 recurring revenue contract as of the specified measurement date, excluding customers of only InsightOps or Logentries that have a contract value of less than $2,400 per year.

ARR per Customer .

1 unchanged sentence

Non-GAAP Financial Results

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, adjusted EBITDA and free cash flow.

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, adjusted EBITDA and free cash flow.

The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

2 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 (loss) and non-GAAP net income (loss) 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, impairment of long-lived assets, Restructuring Expense, induced conversion expense, change in the fair value of derivative assets and litigation-related expenses.

Non-GAAP net income (loss) per basic and diluted share is calculated as non-GAAP net income (loss) divided by the weighted average shares used to compute net income (loss) 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.

We define non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income (loss) 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, litigation-related expenses, impairment of long-lived assets, induced conversion expense, change in the fair value of derivative assets, 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.

We believe these non-GAAP financial measures are useful to investors in assessing our operating performance due to the following factors:

4 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.

Ta ble of Contents

• 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.

The expense for the amortization of debt issuance costs related to our convertible senior notes and our former 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.

• Induced conversion expense.

In conjunction with the third quarter of 2023 partial repurchase of our 2025 Notes, we incurred a non-cash induced conversion expense of $53.9 million.

In conjunction with the partial repurchase of our 2025 Notes in the third quarter of 2023, we incurred a non-cash induced conversion expense of $53.9 million.

We exclude induced conversion expense because this amount is not indicative of the performance of or trends in, our business and neither is comparable to the prior period nor predictive of future results.

3 unchanged sentences

• 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.

We exclude acquisition-related expenses, including accretion expense associated with contingent consideration, as costs that are unrelated to the current operations and are neither comparable to the prior period nor predictive of future results.

• Change in fair value of derivative assets.

3 unchanged sentences

• Restructuring expense.

We exclude non-ordinary course restructuring expenses related to the Restructuring Plan because we do not believe these charges are indicative of our core operating performance and we believe the exclusion of the restructuring expense provides a more useful comparison of our performance in different periods.

• Anti-dilutive impact of capped call transaction.

Our capped calls transactions are intended to offset potential dilution from the conversion features in our convertible senior notes.

We exclude non-ordinary course restructuring expenses related to the Restructuring Plan, which we completed during fiscal year 2024, because we do not believe these charges are indicative of our core operating performance and we believe the exclusion of the restructuring expense provides a more useful comparison of our performance in different periods.

• 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.

• Anti-dilutive impact of capped call transactions.

Our capped call transactions are intended to offset potential dilution from the conversion features in our convertible senior notes.

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 loss 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) litigation-related expenses, (10) impairment of long-lived assets and (11) restructuring expense.

We define adjusted EBITDA as net income (loss) before (1) interest income, (2) interest expense, (3) other (income) expense, net, (4) provision for (benefit from) income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, (8) acquisition-related expenses, (9) litigation-related expenses, (10) impairment of long-lived assets and (11) 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.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items.

In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact upon our reported financial results.

In addition, there are limitations in using non-GAAP financial measures

because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact upon our reported financial results.

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.

Ta ble of Contents

The following tables reconcile GAAP gross profit to non-GAAP gross profit for the years ended December 31, 2024, 2023 and 2022:

9 unchanged sentences

(in thousands)

GAAP gross profit – products $ 537,264 $ 465,323 $ 360,070

GAAP gross profit – product subscriptions $ 583,359 $ 537,028 $ 465,323

Stock-based compensation expense 10,376 8,439 7,562

Amortization of acquired intangible assets 17,163 18,386 18,493

Non-GAAP gross profit – products $ 563,852 $ 491,378 $ 379,800

Non-GAAP gross profit – product subscriptions $ 610,898 $ 563,853 $ 491,378

Year Ended December 31,

4 unchanged sentences

Non-GAAP gross profit – professional services $ 11,445 $ 11,199 $ 8,216

The following table reconciles GAAP loss from operations to non-GAAP income from operations for the years ended December 31, 2023, 2022 and 2021:

The following table reconciles GAAP income (loss) from operations to non-GAAP income from operations for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

1 unchanged sentence

(in thousands)

GAAP loss from operations $ (80,733) $ (111,614) $ (120,065)

GAAP income (loss) from operations $ 35,035 $ (84,288) $ (111,614)

Stock-based compensation expense 107,961 111,636 119,902

4 unchanged sentences

Restructuring expense (2)

(190) 22,227 —

Non-GAAP income from operations $ 163,508 $ 102,221 $ 30,386

Ta ble of Contents

The following table reconciles GAAP net loss to non-GAAP net (loss) income for the years ended December 31, 2023, 2022 and 2021:

(1) For the year ended December 31, 2024, acquisition-related expenses included $0.4 million of accretion expense related to contingent consideration recorded in connection with our July 2024 acquisition of Noetic.

(2) For the year ended December 31, 2024, restructuring expense was recorded within general and administrative expense in our consolidated statement of operations.

The following table reconciles GAAP net income (loss) to non-GAAP net income for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

1 unchanged sentence

(in thousands, except share and per share data)

GAAP net loss $ (149,260) $ (124,717) $ (146,334)

GAAP net income (loss) $ 25,526 $ (152,815) $ (124,717)

Stock-based compensation expense 107,961 111,636 119,902

7 unchanged sentences

Restructuring expense (190) 22,227 —

Non-GAAP net (loss) income $ 107,232 $ 21,368 $ (2,983)

Discrete tax items 4,692 — —

Non-GAAP net income $ 163,138 $ 107,232 $ 21,368

Interest expense of convertible senior notes (1) 6,285 2,667 1,500

4 unchanged sentences

Weighted average shares used in non-GAAP earnings per share calculation, diluted 74,367,262 72,102,112 65,607,621

Non-GAAP net income (loss) per share:

Non-GAAP net income per share:

Basic $ 2.61 $ 1.76 $ 0.36

2 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 year ended December 31, 2023, the 2029 Notes and 2027 Notes were dilutive and the 2025 Notes were anti-dilutive and for the year ended December 31, 2022, the 2025 Notes were dilutive and the 2027 Notes were anti-dilutive.

Adjustments for interest expense, if applicable, on our convertible notes for purposes of calculating non-GAAP earnings per share are made gross of any tax impact.

On an if-converted basis, for the year ended December 31, 2024, the 2029 Notes, 2027 Notes and 2025 Notes were dilutive, for the year ended December 31, 2023, the 2029 Notes and 2027 Notes were dilutive and the 2025 Notes were anti-dilutive, and for the year ended December 31, 2022, the 2025 Notes were dilutive and the 2027 Notes were anti-dilutive.

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

Ta ble of Contents

The following table reconciles GAAP net loss to adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021:

The following table reconciles GAAP net income (loss) to adjusted EBITDA for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

1 unchanged sentence

(in thousands)

Net loss $ (149,260) $ (124,717) $ (146,334)

GAAP net income (loss) $ 25,526 $ (152,815) $ (124,717)

Interest income (21,063) (10,177) (1,813)

Interest expense 10,963 64,700 10,982

Other (income) expense, net 14,522 1,522 1,921

(Benefit from) provision for income taxes (518) 2,412 10,421

Other expense, net 3,680 14,522 1,522

Provision for (benefit from) income taxes 15,929 (518) 2,412

Depreciation expense 11,059 14,047 13,571

16 unchanged sentences

We generate revenue primarily from selling products and professional services through a variety of delivery models to meet the needs of our diverse customer base.

We generate products revenue from the sale of (1) cloud-based subscriptions, (2) managed services offerings, which utilize our products and (3) software licenses with related maintenance and support and content subscription, as applicable.

Product Subscriptions

We generate product subscriptions revenue from the sale of (1) cloud-based subscriptions, (2) managed services offerings, which utilize our products and (3) software licenses with related maintenance and support and content subscription, as applicable.

Software license revenue consists of revenues from term licenses.

When software licenses are purchased, maintenance and support and content subscription, as applicable, is bundled with the license for the term period.

When software licenses are purchased, maintenance and support and content subscription, as applicable, are bundled with the license for the term period.

Professional Services

1 unchanged sentence

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.

1 unchanged sentence

All overhead costs are allocated based on relative headcount.

Ta ble of Contents

Cost of Products

Cost of products consists of personnel and related costs for our content, support, managed service and cloud operations teams, including salaries and other payroll related costs, bonuses, stock-based compensation and allocated overhead costs.

Also included in cost of products are software license fees, cloud computing costs and internet connectivity expenses directly related to delivering our products, amortization of contract fulfillment costs, as well as amortization of certain intangible assets including internally developed software.

Cost of Product Subscriptions

Cost of product subscriptions consists of personnel and related costs for our content, support, managed service and cloud operations teams, including salaries and other payroll related costs, bonuses, stock-based compensation and allocated overhead costs.

Also included in cost of product subscriptions are software license fees, cloud computing costs and internet connectivity expenses directly related to delivering our products, amortization of contract fulfillment costs, as well as amortization of certain intangible assets including internally developed software.

Cost of Professional Services

4 unchanged sentences

Operating Expenses

Operating expenses consist of research and development, sales and marketing, general and administrative expenses, impairment of long-lived assets and restructuring.

Operating expenses consist of research and development, sales and marketing, general and administrative expenses, and restructuring.

Operating expenses include overhead costs for depreciation, facilities, IT, information security and recruiting.

1 unchanged sentence

All overhead costs are allocated based on relative headcount.

In the near term, we expect our operating expenses to increase as a percentage of revenue as we prioritize investments to drive growth.

Research and Development Expense

1 unchanged sentence

Additional expenses include third-party infrastructure costs, travel and entertainment, consulting and professional fees for third-party development resources as well as allocated overhead costs.

We expect research and development expense to decrease as a percentage of total revenue in the near term.

Sales and Marketing Expense

Sales and marketing expense consists of personnel costs for our sales and marketing team, including salaries and other payroll related costs, commissions, including amortization of deferred commissions, bonuses and stock-based compensation.

Sales and marketing expense consists of personnel costs for our sales and marketing team, including salaries and other payroll related costs, commissions, including amortization of capitalized commissions, bonuses and stock-based compensation.

Additional expenses include marketing activities and promotional events, travel and entertainment, training costs, amortization of certain intangible assets and allocated overhead costs.

We expect sales and marketing expense to decrease as a percentage of total revenue in the near term.

General and Administrative Expense

1 unchanged sentence

Additional expenses include travel and entertainment, professional fees, litigation-related expenses, insurance, acquisition-related expenses, amortization of certain intangible assets and allocated overhead costs.

We expect general and administrative expense to decrease as a percentage of total revenue in the near term.

Ta ble of Contents

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.

Restructuring Expense

Restructuring expense consist of charges related to the Restructuring Plan such as employee transition, notice period and severance payments and employee benefits and related facilitation costs.

For further information, refer to Note 19, Restructuring , in the Notes to our Consolidated Financial Statements.

Interest Income

1 unchanged sentence

Interest Expense

Interest expense consists primarily of contractual interest expense, amortization of debt issuance costs related to our convertible senior notes and revolving credit facility and induced conversion expense.

We expect interest expense in the near term to represent contractual interest expense and amortization of debt issuance costs related to our convertible senior notes and revolving credit facility.

Interest expense consists primarily of contractual interest expense, amortization of debt issuance costs related to our convertible senior notes and our former revolving credit facility, and induced conversion expense.

We expect interest expense in the near term to represent contractual interest expense and amortization of debt issuance costs related to our convertible senior notes.

Other Income (Expense), Net

Other income (expense), net consists primarily of the change in fair value of derivative assets and unrealized and realized gains and losses related to changes in foreign currency exchange rates.

Provision for Income Taxes

Provision for income taxes consists of domestic and foreign taxes on income and withholding taxes.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes consists of domestic and foreign taxes on income and withholding taxes.

We maintain a substantially full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards and tax credits.

Based on our history of losses, we expect to maintain this substantially full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized.

Ta ble of Contents

We determined as of December 31, 2024 that it was more likely than not that these deferred tax assets will not be realized.

However, we may release some of these valuation allowances in future periods if objective negative evidence of cumulative losses is no longer present and positive evidence, such as projection of future growth, supports the realization of such deferred tax assets.

Release of all or a portion of these valuation allowances would result in a decrease in the provision for income taxes in the period of the release.

See Note 14, Income Taxes, in the accompanying consolidated financial statements for more information.

Results of Operations

3 unchanged sentences

Consolidated Statement of Operations Data:

Products $ 740,168 $ 647,535 $ 500,843

Product subscriptions $ 808,906 $ 740,168 $ 647,535

Professional services 35,101 37,539 37,548

1 unchanged sentence

Cost of revenue:

Products 202,904 182,212 140,773

Product subscriptions 225,547 203,140 182,212

Professional services 25,488 28,906 32,137

7 unchanged sentences

Total operating expenses 557,937 629,949 582,348

Loss from operations (80,733) (111,614) (120,065)

Income (loss) from operations 35,035 (84,288) (111,614)

Interest income 21,063 10,177 1,813

Interest expense (10,963) (64,700) (10,982)

Other income (expense), net (14,522) (1,522) (1,921)

Loss before income taxes (149,778) (122,305) (135,913)

(Benefit from) provision for income taxes (518) 2,412 10,421

Net loss $ (149,260) $ (124,717) (146,334)

Other expense, net (3,680) (14,522) (1,522)

Income (loss) before income taxes 41,455 (153,333) (122,305)

Provision for (benefit from) income taxes 15,929 (518) 2,412

Net income (loss) $ 25,526 $ (152,815) (124,717)

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

17 unchanged sentences

Total depreciation and amortization expense $ 44,893 $ 45,939 $ 41,038

Ta ble of Contents

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

2 unchanged sentences

Consolidated Statement of Operations Data:

Products 95.2 % 94.5 % 93.5 %

Product subscriptions 95.8 % 95.2 % 94.5 %

Professional services 4.2 4.8 5.5

1 unchanged sentence

Cost of revenue:

Products 26.1 26.6 26.3

Product subscriptions 26.7 26.1 26.6

Professional services 3.0 3.7 4.7

7 unchanged sentences

Total operating expenses 66.1 81.1 85.0

Loss from operations (10.4) (16.3) (22.4)

Income (loss) from operations 4.2 (10.9) (16.3)

Interest income 2.5 1.3 0.3

Interest expense (1.3) (8.3) (1.6)

Other income (expense), net (1.9) (0.2) (0.4)

Loss before income taxes (19.3) (17.8) (25.4)

Provision for income taxes (0.1) 0.4 1.9

Net loss (19.2) % (18.2) % (27.3) %

Other expense, net (0.4) (1.9) (0.2)

Income (loss) before income taxes 5.0 (19.7) (17.8)

Provision for (benefit from) income taxes 1.9 (0.1) 0.4

Net income (loss) 3.1 % (19.6) % (18.2) %

Comparison of the Year Ended December 31, 2024 and 2023

2 unchanged sentences

(dollars in thousands)

Products $ 740,168 $ 647,535 $ 92,633 14.3 %

Product subscriptions $ 808,906 $ 740,168 $ 68,738 9.3 %

Professional services 35,101 37,539 (2,438) (6.5) %

1 unchanged sentence

Total revenue increased by $66.3 million in 2024 compared to 2023 and consisted of a $6.1 million increase in revenue from new customers and a $60.2 million increase in revenue from existing customers.

The $90.4 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.

The $60.2 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 2024 compared to 2023 was comprised of $36.0 million generated from sales in North America and $30.3 million generated from sales from the rest of the world.

Ta ble of Contents

Cost of Revenue

3 unchanged sentences

Cost of revenue:

Products $ 202,904 $ 182,212 $ 20,692 11.4 %

Product subscriptions $ 225,547 $ 203,140 $ 22,407 11.0 %

Professional services 25,488 28,906 (3,418) (11.8) %

4 unchanged sentences

Total gross margin % 70.3 % 70.2 %

Total cost of revenue increased by $17.4 million in 2023 compared to 2022, primarily due to a $10.0 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue, a $4.9 million increase in amortization expense for capitalized internally-developed software, a $2.3 million increase in personnel costs, inclusive of a $0.3 million increase in stock-based compensation expense, and a $0.1 million increase in other expenses.

Total gross margin percentage increased in 2023 compared to 2022.

The increase in products gross margin was driven by our ability to scale as our revenue continues to grow.

The increase in professional services gross margin in 2023 compared to 2022 was primarily due to a decrease in personnel costs.

Total cost of revenue increased by $19.0 million in 2024 compared to 2023, primarily due to a $21.7 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue, and a $3.5 million increase in amortization expense for capitalized internally-developed software.

These increases were partially offset by a $5.4 million decrease in personnel costs resulting from a decrease in headcount primarily due to our Restructuring Plan and a $0.8 million decrease in other expenses.

Total gross margin percentage increased in 2024 compared to 2023 primarily due to an increase in professional services gross margin due to a decrease in personnel costs.

Product subscriptions gross margin percentage was consistent in 2024 compared to 2023.

Operating Expenses

5 unchanged sentences

% of revenue 20.5 % 22.9 %

Research and development expense decreased by $13.2 million in 2023 compared to 2022, primarily due to a $14.2 million decrease in personnel costs, inclusive of a $11.9 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to the Restructuring Plan, and a $2.5 million decrease in other expenses.

These decreases were partially offset by a $3.5 million write-off of capitalized internal-use software projects.

Research and development expense decreased by $4.8 million in 2024 compared to 2023, primarily due to a $6.1 million decrease in personnel costs, inclusive of a $1.6 million decrease in stock-based compensation expense, resulting from an overall decrease in headcount primarily due to the Restructuring Plan, and a $3.0 million decrease due to a write-off of a capitalized internal-use software project in the prior period.

These decreases were partially offset by a $3.0 million increase in third-party infrastructure costs and $1.3 million increase in other expenses.

Sales and Marketing Expense

4 unchanged sentences

% of revenue 35.4 % 40.3 %

Sales and marketing expense increased by $5.2 million in 2023 compared to 2022, primarily due to a $7.6 million increase in personnel costs, net of a $1.7 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to the Restructuring Plan.

This increase was partially offset by a decrease of $1.7 million in marketing and advertising expenses and a $0.7 million decrease in other expenses.

Ta ble of Contents

Sales and marketing expense decreased by $14.9 million in 2024 compared to 2023, primarily due to a $15.9 million decrease in personnel costs, inclusive of a $1.6 million decrease in stock-based compensation expense, resulting from an overall decrease in headcount primarily due to the Restructuring Plan, a decrease of $1.8 million in advertising expenses, a $1.4 million decrease

in professional fees and a $4.0 million decrease in other expenses.

These decreases were partially offset by a $8.2 million increase in commission expense.

General and Administrative Expense

4 unchanged sentences

% of revenue 10.2 % 11.0 %

General and administrative expense decreased by $0.7 million in 2023 compared to 2022, primarily due to a $2.8 million increase in professional fees, partially offset by a $1.9 million decrease in other expenses.

General and administrative expense increased by $0.7 million in 2024 compared to 2023, primarily due to a $1.2 million increase in professional fees related to legal and corporate advisory services, partially offset by a $0.5 million decrease in other expenses.

Impairment of Long-Lived Assets

4 unchanged sentences

% of revenue — % 4.0 %

Impairment of long-lived assets expense increased by $30.8 million in 2023 compared to 2022, due to an impairment charge recorded after a triggering event related to a change in usage of certain idle office space at our corporate headquarters in Boston, Massachusetts as well as idle office spaces located in Plano, Texas, Los Angeles, California and Toronto, Canada indicated that the carrying value of our right of use and other lease-related assets may not be fully recoverable.

Restructuring Expense

Impairment of long-lived assets expense of $30.8 million was recorded in the year ended 2023 after a triggering event related to a change in usage of certain idle office space at our corporate headquarters in Boston, Massachusetts as well as idle office spaces located in Plano, Texas;

Los Angeles, California;

and Toronto, Canada indicated that the carrying value of our right of use and other lease-related assets may not be fully recoverable.

Restructuring

Year Ended December 31, Change

3 unchanged sentences

% of revenue — % 2.9 %

Restructuring expense increased by $22.2 million in 2023 compared to 2022, due to restructuring charges consisting of employee transition, notice period and severance payments and employee benefits and related facilitation costs related to our Restructuring Plan.

Refer to Note 19, Restructuring , in the Notes to our Consolidated Financial Statements for further details on our Restructuring Plan.

Restructuring expense of $22.2 million was recorded in the year ended 2023 as a result of restructuring charges consisting of employee transition, notice period and severance payments and employee benefits and related facilitation costs related to our Restructuring Plan.

Refer to Note 19, Restructuring , in the Notes to our condensed consolidated financial statements for further details on our Restructuring Plan.

Interest Income

4 unchanged sentences

% of revenue 2.5 % 1.3 %

Interest income increased by $8.4 million in 2023 compared to 2022, primarily due to an increase in interest rates.

Interest income increased by $10.9 million in 2024 compared to 2023, primarily due to higher interest income as a result of an increase in cash and cash equivalents and investments.

Interest Expense

4 unchanged sentences

% of revenue (1.3) % (8.3) %

Interest expense increased by $53.7 million in 2023 compared to 2022, primarily due to $53.9 million of induced conversion expense incurred in conjunction with the partial repurchase of the 2025 Notes.

Ta ble of Contents

Other Income (Expense), Net

Interest expense decreased by $53.7 million in 2024 compared to 2023, primarily due to a $53.9 million induced conversion charge recorded in fiscal year 2023 associated with the partial repurchase of the 2025 Notes.

Other Expense, Net

Year Ended December 31, Change

1 unchanged sentence

(dollars in thousands)

Other income (expense), net $ (14,522) $ (1,522) $ (13,000) 854.1 %

Other expense, net $ (3,680) $ (14,522) $ 10,842 (74.7) %

% of revenue (0.4) % (1.9) %

Other income (expense), net increased by $13.0 million in 2023 compared to 2022, due to a $15.5 million expense for the change in fair value of derivative assets related to our 2023 Capped Calls settlement and a decrease in realized and unrealized foreign currency gains, primarily related to the euro and British pound sterling.

(Benefit From) Provision for Income Taxes

Other expense, net decreased by $10.8 million in 2024 compared to 2023, due to a $15.5 million expense in the prior period for the change in fair value of derivative assets related to our settlement of the capped call transactions that we entered into in connection with the issuance of our 1.25% convertible senior notes due 2023 (“the 2023 Capped Calls”) and a decrease in realized and unrealized foreign currency gains, primarily related to the Euro and British Pound Sterling.

Provision for (Benefit from) Income Taxes

Year Ended December 31, Change

1 unchanged sentence

(dollars in thousands)

(Benefit from) provision for income taxes $ (518) $ 2,412 $ (2,930) (121.5) %

Provision for (benefit from) income taxes $ 15,929 $ (518) $ 16,447 NM

% of revenue 1.9 % (0.1) %

In 2023, the benefit from income taxes was $0.5 million, primarily due to changes in valuation allowance related to foreign entity deferred tax assets, compared to a provision for income taxes of $2.4 million in 2022.

Provision for (benefit from) income taxes increased by $16.4 million in 2024 compared to 2023.

This increase was driven by a $3.4 million increase in the domestic provision and a $13.0 million increase in the international provision, both driven in part by the increase in operating income.

The increase in the international provision was also due to $6.4 million of tax expense recorded in fiscal year 2024 associated with an intercompany sale of intellectual property.

Comparison of the Year Ended December 31, 2023 and 2022

2 unchanged sentences

Liquidity and Capital Resources

As of December 31, 2023, we had $213.6 million in cash and cash equivalents, $225.7 million in investments that have maturities ranging from one to thirteen 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.

Our principal sources of liquidity are cash and cash equivalents, investments and our Credit and Security Agreement (the “Credit Agreement”).

As of December 31, 2024, we had $334.7 million in cash and cash equivalents, $224.3 million in investments that have maturities ranging from one to seventeen months and an accumulated deficit of $988.0 million.

Our principal sources of liquidity are cash and cash equivalents, investments and cash flow provided by operating activities.

To date, we have financed our operations primarily through private and public equity financings, issuance of convertible senior notes and through cash generated by operating activities.

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.

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

Additionally, as noted in Note 11, Debt , in the Notes to our Consolidated Financial Statements, our credit facility matured on December 22, 2024.

As of the date of filing this Annual Report on Form 10-K, we intend to execute a credit facility which will enhance our liquidity and capital resources for the foreseeable future.

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, potential future acquisitions of technology businesses and any election we make to redeem our convertible senior notes, including our 2025 Notes which mature on May 1, 2025.

in January 2025, we entered into a cloud-services agreement with a cloud services provider that contains minimum spend commitments.

The agreement provides for an annual commitment of $125.0 million per year over the next five years, with an additional $35.0 million obligation over the five-year period of the agreement, for an aggregate total commitment of $660.0 million.

See Note 16, Commitments and Contingencies , in the Notes to our Consolidated Financial Statements for more information regarding this commitment.

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.

1 unchanged sentence

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.

Ta ble of Contents

The following table shows a summary of our cash flows for the years ended December 31, 2024, 2023 and 2022:

12 unchanged sentences

Operating activities provided $171.7 million of cash and cash equivalents for the year ended December 31, 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 $25.5 million and a decrease in our net operating assets and liabilities of $10.4 million, offset by non-cash charges of $156.6 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 $9.8 million decrease in accrued expenses, a $5.5 million increase in accounts receivable, a $0.8 million decrease in deferred revenue and a $4.2 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 $4.3 million increase in other liabilities, a $2.8 million decrease in prepaid expenses and a $2.8 million increase in accounts payable, which each had a positive impact on operating cash flow.

Operating activities provided $104.3 million of cash and cash equivalents for the year ended December 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 $149.3 million and an increase in our net operating assets and liabilities of $0.4 million, offset by non-cash charges of $253.2 million related primarily to depreciation and amortization, stock-based compensation expense, deferred income taxes, 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 $30.5 million increase in deferred revenue due to increased billings and a $5.4 million increase in accounts payable and a $2.4 million increase in accrued expenses, which each had a positive impact on operating cash flow.

These factors were offset by an $18.5 million increase in deferred contract acquisition and fulfillment costs, a $14.0 million increase in accounts receivable, a $4.1 million increase in prepaid expenses and a $1.3 million decrease in other liabilities , which each had a negative impact on operating cash flow.

Operating activities provided $78.2 million of cash in 2022, which reflects continued growth in revenue partially offset by our continued investments in our operations and a net benefit from changes in working capital items.

Cash provided by operating activities reflected our net loss of $124.7 million, offset by a decrease in our net operating assets of $39.5 million and non-cash charges of $163.4 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 decrease in our net operating assets was primarily due to a $52.5 million increase in deferred revenue due to increased billings, a $8.0 million increase in accounts payable, an increase in accrued expenses of $3.7 million and a $2.4 million increase in other liabilities, which each had a positive impact on operating cash flow.

These factors were partially offset by a $15.9 million increase in deferred contract acquisition and fulfillment costs, a $9.0 million increase in accounts receivable and a $2.2 million increase in prepaid expenses and other assets, which each had a negative impact on operating cash flow.

These factors were offset by an $18.5 million increase in deferred contract acquisition and fulfillment costs, a $14.0 million

increase in accounts receivable, a $4.1 million increase in prepaid expenses and a $1.3 million decrease in other liabilities, which each had a negative impact on operating cash flow.

Investing Activities

Investing activities used $178.8 million of cash for the year ended December 31, 2023, consisting of $126.4 million in purchases of investments, net of sales and maturities, $34.8 million of cash paid for the acquisition of Minerva, $15.9 million for capitalization of internal-use software costs, $4.4 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by $2.7 million in proceeds from other investments.

Investing activities used $40.0 million of cash in 2022, consisting of $20.4 million in capital expenditures to purchase computer equipment and leasehold improvements, $17.1 million for capitalization of internal-use software costs, $1.5 million of investment purchases, net of sales and maturities, and $1.0 million of other investments.

Investing activities used $46.5 million of cash for the year ended December 31, 2024, consisting of $37.3 million of cash paid for the acquisition of Noetic, $14.2 million for capitalization of internal-use software costs, and $3.4 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by $8.0 million in sales and maturities of investments, net of purchases and $0.4 million in proceeds from other investments.

Investing activities used $178.8 million of cash for the year ended December 31, 2023, consisting of $126.4 million in purchases of investments, net of sales and maturities, $34.8 million of cash paid for the acquisition of Minerva, $15.9 million for capitalization of internal-use software costs, and $4.4 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by $2.7 million in proceeds from other investments.

Financing Activities

Ta ble of Contents

settlement of the 2023 Capped Calls, $11.3 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc.

2015 Employee Stock Purchase Plan (“ESPP”) and $3.1 million in proceeds from the exercise of stock options, partially offset by $200.0 million for the repurchase and conversion of the 2025 Notes, $36.6 million for the purchase of the 2029 Capped Calls, $5.6 million in withholding taxes paid for the net share settlement of equity awards and $2.3 million in payments related to the acquisition of IntSights.

Financing activities provided $7.4 million of cash in 2022, which consisted primarily of $11.9 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc.

2015 Employee Stock Purchase Plan (“ESPP”) and $3.3 million in proceeds from the exercise of stock options, partially offset by $7.5 million in withholding taxes paid for the net share settlement of equity awards and $0.3 million in payments related to the acquisition of Velocidex.

Financing activities provided $5.6 million for the year ended December 31, 2024, which consisted primarily of $9.2 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc.

2015 Employee Stock Purchase Plan (“ESPP”) and $1.6 million in proceeds from the exercise of stock options, partially offset by $4.7 million in withholding taxes paid for the net share settlement of equity awards and $0.5 million in payments related to the acquisition of Noetic.

Financing activities provided $79.6 million for the year ended December 31, 2023, which consisted primarily of $292.1 million in proceeds from the issuance of the 2029 Notes, net of issuance costs paid of $7.9 million, $17.5 million in proceeds from the settlement of the 2023 Capped Calls, $11.3 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc.

2015 ESPP and $3.1 million in proceeds from the exercise of stock options, partially offset by $200.0 million for the repurchase and conversion of the 2025 Notes, $36.6 million for the purchase of the 2029 Capped Calls, $5.6 million in withholding taxes paid for the net share settlement of equity awards and $2.3 million in payments related to the acquisition of IntSights.

Off-Balance Sheet Arrangements

16 unchanged sentences

The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis.

We determine SSP of our products and services based on our overall pricing objectives using all information reasonably available to us, taking into consideration market conditions and other factors, including the geographic locations of our customers, negotiated discounts from price lists and selling method (i.e., partner or direct).

partner or direct).

When available, we use directly observable stand-alone transactions to determine SSP.

9 unchanged sentences

Contract costs for professional services arrangements are expensed as incurred in accordance with the practical expedient as the contractual period of our professional services arrangements is one year or less.

We periodically review the carrying amount of

Ta ble of Contents

deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

Recent Accounting Pronouncements

1 unchanged sentence

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-K

Item 7. Management’s Discussion and Analysis