Rapid7, Inc. 10-Q

Item 1. Financial Statements. RAPID7, INC. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share and per share data) March 31, 2025 December 31, 2024 Assets Current assets: Cash and cash equivalents $ 291,462 $ 334,686 Short-term investments 202,011 187,025 Accounts receivable, net of allowance for credit losses of $ 2,942 and $ 1,833 at March 31, 2025 and December 31, 2024, respectively 140,541 168,242 Deferred contract acquisition and fulfillment costs, current portion 50,667 52,134 Prepaid expenses and other current assets 47,964 44,024 Total current assets 732,645 786,111 Long-term investments 99,136 37,274 Property and equipment, net 31,659 32,245 Operating lease right-of-use assets 46,404 48,877 Deferred contract acquisition and fulfillment costs, non-current portion 69,843 73,672 Goodwill 575,268 575,268 Intangible assets, net 79,763 85,719 Other assets 10,092 12,868 Total assets $ 1,644,810 $ 1,652,034 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 12,318 $ 18,908 Accrued expenses and other current liabilities 69,458 88,802 Convertible senior notes, current portion, net 45,967 45,895 Operating lease liabilities, current portion 13,614 15,493 Deferred revenue, current portion 447,798 461,118 Total current liabilities 589,155 630,216 Convertible senior notes non-current portion, net 889,303 888,356 Operating lease liabilities, non-current portion 65,484 68,430 Deferred revenue, non-current portion 27,524 27,078 Other long-term liabilities 20,622 20,243 Total liabilities $ 1,592,088 $ 1,634,323 Stockholders’ equity: Preferred stock, $ 0.01 par value per share; 10,000,000 shares authorized at March 31, 2025 and December 31, 2024; 0 shares issued and outstanding at March 31, 2025 and December 31, 2024 $ — $ — Common stock, $ 0.01 par value per share; 100,000,000 shares authorized at March 31, 2025 and December 31, 2024; 64,752,047 and 64,067,220 shares issued at March 31, 2025 and December 31, 2024, respectively; 64,181,792 and 63,496,965 shares outstanding at March 31, 2025 and December 31, 2024, respectively 642 635 Treasury stock, at cost, 570,255 shares at March 31, 2025 and December 31, 2024 ( 4,765 ) ( 4,765 ) Additional paid-in-capital 1,042,355 1,011,080 Accumulated other comprehensive income (loss) 419 ( 1,205 ) Accumulated deficit ( 985,929 ) ( 988,034 ) Total stockholders’ equity 52,722 17,711 Total liabilities and stockholders’ equity $ 1,644,810 $ 1,652,034 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 1 Table of Content s RAPID7, INC. Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share data) Three Months Ended March 31, 2025 2024 Revenue: Product subscriptions $ 203,935 $ 196,918 Professional services 6,318 8,183 Total revenue 210,253 205,101 Cost of revenue: Product subscriptions 54,368 54,734 Professional services 5,112 6,260 Total cost of revenue 59,480 60,994 Total gross profit 150,773 144,107 Operating expenses: Research and development 47,888 41,368 Sales and marketing 79,400 73,095 General and administrative 23,586 19,928 Total operating expenses 150,874 134,391 Income (loss) from operations ( 101 ) 9,716 Other (income) expense, net: Interest income 5,758 4,720 Interest expense ( 2,654 ) ( 2,670 ) Other income (expense), net 1,802 ( 1,435 ) Income before income taxes 4,805 10,331 Provision for income taxes 2,700 8,925 Net income $ 2,105 $ 1,406 Net income per share, basic $ 0.03 $ 0.02 Net income per share, diluted $ 0.03 $ 0.02 Weighted-average common shares outstanding, basic 63,835,945 61,907,808 Weighted-average common shares outstanding, diluted 64,224,415 74,021,704 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 Table of Content s RAPID7, INC. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (in thousands) Three Months Ended March 31, 2025 2024 Net income $ 2,105 $ 1,406 Other comprehensive income (loss): Change in fair value of cash flow hedges 1,815 ( 629 ) Adjustment for net (gains)/ losses realized on cash flow hedges and included in net income, net of taxes ( 325 ) ( 381 ) Total change in unrealized gains (losses) on cash flow hedges 1,490 ( 1,010 ) Change in unrealized gains (losses) on investments 134 ( 555 ) Total other comprehensive income (loss) 1,624 ( 1,565 ) Comprehensive income (loss) $ 3,729 $ ( 159 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Content s RAPID7, INC. Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited) Three Months Ended March 31, 2025 and 2024 (in thousands) Common stock Treasury stock Additional paid-in-capital Accumulated other comprehensive loss Accumulated deficit Total stockholders’ equity Shares Amount Shares Amount Balance, December 31, 2024 63,497 $ 635 571 $ ( 4,765 ) $ 1,011,080 $ ( 1,205 ) $ ( 988,034 ) $ 17,711 Stock-based compensation expense — — — — 25,773 — — 25,773 Issuance of common stock under employee stock purchase plan 187 2 — — 4,444 — — 4,446 Vesting of restricted stock units 356 4 — — ( 4 ) — — — Shares withheld for employee taxes ( 37 ) — — — ( 1,303 ) — — ( 1,303 ) Vesting of equity awards previously classified as liabilities 22 — — — 777 — — 777 Issuance of common stock upon exercise of stock options 157 1 — — 1,588 — — 1,589 Other comprehensive gain — — — — — 1,624 — 1,624 Net income — — — — — — 2,105 2,105 Balance, March 31, 2025 64,182 $ 642 571 $ ( 4,765 ) $ 1,042,355 $ 419 $ ( 985,929 ) $ 52,722 Common stock Treasury stock Additional paid-in-capital Accumulated other comprehensive loss Accumulated deficit Total stockholders’ deficit Shares Amount Shares Amount Balance, December 31, 2023 61,714 $ 617 570 $ ( 4,765 ) $ 898,185 $ 1,344 $ ( 1,013,560 ) $ ( 118,179 ) Stock-based compensation expense — — — — 25,745 — — 25,745 Issuance of common stock under employee stock purchase plan 148 2 — — 5,044 — — 5,046 Vesting of restricted stock units 325 3 — — ( 3 ) — — — Shares withheld for employee taxes ( 29 ) — — — ( 1,764 ) — — ( 1,764 ) Vesting of equity awards previously classified as liabilities 27 — — — 1,652 — — 1,652 Issuance of common stock upon exercise of stock options 111 1 — — 1,267 — — 1,268 Other comprehensive loss — — — — — ( 1,565 ) — ( 1,565 ) Net income — — — — — — 1,406 1,406 Balance, March 31, 2024 62,296 $ 623 570 $ ( 4,765 ) $ 930,126 $ ( 221 ) $ ( 1,012,154 ) $ ( 86,391 ) The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Table of Content s RAPID7, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31, 2025 2024 Cash flows from operating activities: Net income $ 2,105 $ 1,406 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,665 11,348 Amortization of debt issuance costs 1,019 1,053 Stock-based compensation expense 27,151 25,745 Deferred income taxes — 1,840 Other ( 1,153 ) ( 203 ) Changes in assets and liabilities: Accounts receivable 27,668 39,529 Deferred contract acquisition and fulfillment costs 5,295 ( 679 ) Prepaid expenses and other assets ( 1,995 ) ( 1,223 ) Accounts payable ( 6,555 ) ( 4,190 ) Accrued expenses ( 20,325 ) ( 24,890 ) Deferred revenue ( 12,874 ) ( 21,186 ) Other liabilities ( 2,244 ) 2,520 Net cash provided by operating activities 29,757 31,070 Cash flows from investing activities: Purchases of property and equipment ( 1,361 ) ( 620 ) Capitalization of internal-use software ( 3,719 ) ( 2,916 ) Purchases of investments ( 144,461 ) ( 93,158 ) Sales and maturities of investments 69,000 55,000 Other investing activities 1,328 — Net cash used in investing activities ( 79,213 ) ( 41,694 ) Cash flows from financing activities: Taxes paid related to net share settlement of equity awards ( 1,303 ) ( 1,764 ) Proceeds from employee stock purchase plan 4,446 5,046 Proceeds from stock option exercises 1,589 1,080 Net cash provided by financing activities 4,732 4,362 Effect of exchange rate changes on cash ,cash equivalents and restricted cash 1,334 ( 1,493 ) Net decrease in cash, cash equivalents and restricted cash ( 43,390 ) ( 7,755 ) Cash, cash equivalents and restricted cash, beginning of period 342,101 214,130 Cash, cash equivalents and restricted cash, end of period $ 298,711 $ 206,375 Supplemental cash flow information: Cash paid for interest on convertible senior notes $ 1,571 $ 2,698 Cash paid for income taxes, net of refund 992 2,352 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 291,462 $ 198,716 Restricted cash included in other assets and prepaid expenses and other current assets 7,249 7,659 Total cash, cash equivalents and restricted cash $ 298,711 $ 206,375 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Content s RAPID7, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies Description of Business Rapid7, Inc. and subsidiaries (“we,” “us” or “our”) are advancing security with visibility, analytics, and automation delivered through our platform solutions. Our solutions simplify the complex, allowing security teams to work more effectively with IT and development to reduce vulnerabilities, monitor for malicious behavior, investigate and shut down attacks, and automate routine tasks. 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. Based on an analysis of quantitative and qualitative factors 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, and as described further in Note 16, Immaterial Correction of an Error, we evaluated the errors and determined the related impacts were not material to our consolidated financial statements for the prior periods when they occurred, but that correcting the cumulative errors in the period detected would have been material to our results of operations for that period. Accordingly, we revised previously reported comparative financial information presented herein for such immaterial errors . Basis of Presentation and Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as well as pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), regarding interim financial reporting. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 28, 2025. The condensed consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The management estimates include, but are not limited to the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition costs, the useful lives and recoverability of long-lived assets, the valuation for credit losses, the valuation of stock-based compensation, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of contingent consideration, the incremental borrowing rate for operating leases and the valuation for deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable. Actual results could differ from those estimates. Significant Accounting Policies Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no changes to the significant accounting policies during the three-month period ended March 31, 2025. 6 Table of Content s Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09"). This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures. The amendments of this update are related to the rate reconciliation and income taxes paid, requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU. Note 2. Revenue from Contracts with Customers We generate revenue primarily from: (1) product subscriptions from the sale of cloud-based subscriptions, managed services, term software licenses, content subscriptions and maintenance and support associated with our software licenses and (2) professional services from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services. Product Subscriptions Product subscriptions consists primarily of revenue from our cloud-based subscription, managed services offerings, term software licenses, content subscriptions and maintenance and support associated with our software licenses. • We generate cloud-based subscription revenue primarily from sales of subscriptions to access our cloud platform, together with related support services to our customers. These arrangements do not provide the customer with the right to take possession of our software operating on our cloud platform at any time. Instead, customers are granted continuous access to our cloud platform over the contractual period. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our cloud-based subscription contracts generally have annual or multi-year contractual terms which are billed in advance of the annual subscription period and are non-cancellable. • Managed services offerings consist of fees generated when we operate our software and provide our capabilities on behalf of our customers. Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our managed services offerings generally have annual or multi-year contractual terms which are billed in advance of the annual subscription period and are non-cancellable. • For our term software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, we recognize the license revenue over the contractual term of the content subscription. • Content subscriptions and our maintenance and support services are sold with our term software licenses. Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period. Professional Services All of our professional services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For the majority of these contracts, revenue is recognized over time based upon the proportion of work performed to date. Contract Balances Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period consistent with the above methodology. For the three months ended March 31, 2025 and 2024, we recognized revenue of $ 185.6 million and $ 179.3 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current. We receive payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced. If the right to 7 Table of Content s consideration is based on satisfaction of another performance obligation in the contract other than the passage of time, we record a contract asset. As of March 31, 2025 and December 31, 2024, unbilled receivables of $ 2.4 million and $ 2.5 million , respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet. As of March 31, 2025 and December 31, 2024, we had no contract assets recorded on our unaudited condensed consolidated balance sheet. Transaction Price Allocated to the Remaining Performance Obligations The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2025. The estimated revenues do not include unexercised contract renewals. Next Twelve Months Thereafter (in thousands) Product subscriptions $ 575,473 $ 282,354 Professional services 14,591 4,756 Total $ 590,064 $ 287,110 Note 3. Business Combinations Noetic Cyber, Inc. On July 3, 2024, we acquired Noetic Cyber, Inc, (“Noetic”) a provider of cyber asset attack surface management, to extend Rapid7’s security operations platform by unlocking more accessible and accurate asset inventory in order to provide customers more comprehensive visibility to their attack surface, for a purchase price with an aggregate fair value of $ 51.2 million . The purchase consideration consisted of $ 38.6 million in cash paid at closing, $ 12.1 million of contingent consideration and $ 0.5 million of deferred cash payments. The deferred cash payments were held by Rapid7 to satisfy certain post-closing purchase price adjustments and payment was made during the fourth quarter of 2024. Subject to the terms of the merger agreement, we are required to pay consideration of up to $ 20.0 million to Noetic shareholders 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 all performance targets are achieved, approximately $ 13.1 million of Earnout Consideration will be paid in cash, and the remaining $ 6.9 million of Earnout Consideration will be issued to certain employees in the form of shares of our common stock subject to continued employment requirements over the Earnout Period. The approximate $ 6.9 million of the Earnout Consideration that is subject to continued employment will be recognized as stock-based compensation expense over the required employment period. The fair value of the portion of the Earnout Consideration that is not subject to continued employment is included as part of purchase consideration at the date of the acquisition. As of July 3, 2024, we determined the fair value of the contingent purchase consideration to be $ 12.1 million. The fair value of the contingent purchase consideration will be reassessed each reporting period and any required adjustment will be recorded to general and administrative expense. As of March 31, 2025, the fair value of the contingent purchase consideration was $ 12.6 million of which $ 7.0 million was recorded within accrued expenses and other current liabilities and $ 5.6 million w as recorded within other liabilities in our unaudited condensed consolidated balance sheet. In the three months ended March 31, 2025, we recorded approximately $ 0.2 million of accretion expense related to the contingent purchase consideration to general and administrative expense. In connection with the acquisition, we expect to issue an aggregate value of $ 2.3 million of our common stock 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 “Key Employee Consideration”), which therefore will be recognized as stock-based compensation expense over the required employment period. The number of shares to be issued at each issuance date for both the Earnout Consideration and the Key Employee Consideration will be determined by dividing the aggregate value by the fair market value of our common stock on the issuance date, and therefore will be liability-classified until the final issuance dates. In the three months ended March 31, 2025, we recognized stock-based compensation expense related to such shares in the amount of $ 1.0 million . 8 Table of Content s The following table summarizes the preliminary allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands): Consideration: Cash $ 38,597 Deferred cash consideration 500 Contingent consideration 12,055 Fair value of total consideration transferred $ 51,152 Recognized amount of identifiable assets acquired and liabilities assumed: Cash and cash equivalents $ 1,296 Accounts receivable 510 Prepaid and other current assets 102 Property and equipment, net 19 Accrued expenses and other current liabilities ( 220 ) Deferred revenue ( 910 ) Other long-term liabilities ( 62 ) Intangible asset 11,500 Total identifiable net assets assumed $ 12,235 Goodwill 38,917 Total purchase price allocation $ 51,152 We identified developed technology as the sole acquired intangible asset. The estimated fair value of the developed technology intangible asset was $ 11.5 million which was based on a valuation using a probability weighted expected return model (“PWERM”). The estimated useful life of the developed technology is 7 years. The excess of the purchase price over the tangible assets acquired, identifiable intangible asset acquired and assumed liabilities was recorded as goodwill. We believe that the amount of goodwill reflects the expected synergistic benefits of being able to leverage the integration of the technology acquired with our existing product offerings and being able to successfully market and sell these new features to our customer base. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible asset were not deductible for tax purposes. Our revenue and net loss attributable to the Noetic business for the three months ended March 31, 2025 were not material. Note 4. Investments Our investments, which are all classified as available-for-sale, consisted of the following: As of March 31, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) Description: U.S government agencies $ 300,900 $ 351 $ ( 104 ) $ 301,147 Total $ 300,900 $ 351 $ ( 104 ) $ 301,147 As of December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) Description: U.S government agencies $ 224,187 $ 328 $ ( 216 ) $ 224,299 Total $ 224,187 $ 328 $ ( 216 ) $ 224,299 9 Table of Content s As of March 31, 2025 and December 31, 2024, our available-for-sale investments had maturities ranging from 1 to 17 months. For all of our investments for which the amortized cost basis was greater than the fair value at March 31, 2025 and December 31, 2024, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity. In making the determination as to whether the unrealized loss is other-than-temporary, we considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity. Note 5. Fair Value Measurements We measure certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows: • Level 1 : Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2 : Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 : Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability. We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. 10 Table of Content s The following table presents our financial assets and liabilities measured and recorded at fair value on a recurring basis using the above input categories: As of March 31, 2025 Level 1 Level 2 Level 3 Total (in thousands) Description: Assets: U.S. government agencies $ 301,147 $ — $ — $ 301,147 Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets) — 611 — 611 Total assets $ 301,147 $ 611 $ — $ 301,758 Liabilities: Contingent consideration (other current liabilities and other long-term liabilities) — — 12,605 12,605 Foreign currency forward contracts designated as cash flow hedges (other current and long-term liabilities) — 440 — 440 Total liabilities $ — $ 440 $ 12,605 $ 13,045 As of December 31, 2024 Level 1 Level 2 Level 3 Total (in thousands) Description: Assets: U.S. government agencies $ 224,299 $ — $ — $ 224,299 Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets and other assets) — 96 — 96 Total assets $ 224,299 $ 96 $ — $ 224,395 Liabilities: Contingent consideration (other current liabilities and other long-term liabilities) $ — $ — $ 12,422 $ 12,422 Foreign currency forward contracts designated as cash flow hedges (other current liabilities) — 1,415 — 1,415 Total liabilities $ — $ 1,415 $ 12,422 $ 13,837 Cash and cash equivalents are excluded from the table above as carrying amounts reported in our unaudited condensed consolidated balance sheet equal or approximate fair value. As of March 31, 2025, the fair value of our 2.25 %, 0.25 % and 1.25 % convertible senior notes due 2025, 2027 and 2029, as further described in Note 10, Debt , was $ 45.8 million, $ 548.6 million and $ 257.1 million, respectively, based upon quoted market prices. We consider the fair value of the Notes (as defined in Note 10, Debt ) to be a Level 2 measurement due to limited trading activity of the Notes. As of March 31, 2025, the fair value of our contingent consideration, as further described in Note 3, Business Combinations, was $ 12.6 million and is classified as a Level 3 measurement based on inputs not observable in the market. 11 Table of Content s Note 6. Property and Equipment Property and equipment are recorded at cost and consist of the following: March 31, December 31, 2025 2024 (in thousands) Computer equipment and software $ 29,584 $ 28,789 Furniture and fixtures 11,168 10,960 Leasehold improvements 58,138 57,051 Total 98,890 96,800 Less accumulated depreciation ( 67,231 ) ( 64,555 ) Property and equipment, net $ 31,659 $ 32,245 We recorded depreciation expense of $ 2.8 million and $ 2.9 million for the three months ended March 31, 2025 and 2024, respectively. Note 7. Goodwill and Intangibles Goodwill was $ 575.3 million as of March 31, 2025 and December 31, 2024. The following table presents details of our intangible assets which include acquired identifiable intangible assets and capitalized internal-use software costs: Weighted- Average Estimated Useful Life (years) As of March 31, 2025 As of December 31, 2024 Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value (in thousands) Intangible assets subject to amortization: Developed technology 6.3 $ 146,855 $ ( 98,616 ) $ 48,239 $ 146,855 $ ( 94,193 ) $ 52,662 Customer relationships 4.3 12,000 ( 11,015 ) 985 12,000 ( 10,363 ) 1,637 Trade names 5.0 2,619 ( 2,604 ) 15 2,619 ( 2,559 ) 60 Total acquired intangible assets $ 161,474 $ ( 112,235 ) $ 49,239 $ 161,474 $ ( 107,115 ) $ 54,359 Internal-use software 3.0 71,797 ( 41,273 ) 30,524 68,878 ( 37,518 ) 31,360 Total intangible assets $ 233,271 $ ( 153,508 ) $ 79,763 $ 230,352 $ ( 144,633 ) $ 85,719 Intangible assets are expensed on a straight-line basis over the useful life of the asset. Amortization expense was $ 8.9 million and $ 8.4 million for the three months ended March 31, 2025 and 2024, respectively. Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of March 31, 2025 was as follows (in thousands): 2025 (for the remaining nine months) $ 24,437 2026 23,783 2027 11,397 2028 3,366 2029 3,243 2030 and thereafter 4,409 Total $ 70,635 The table above excludes the impact of $ 9.1 million of capitalized internal-use software costs for projects that have not been completed as of March 31, 2025, and therefore, all the costs associated with these projects have not been incurred. 12 Table of Content s Note 8. Deferred Contract Acquisitions and Fulfillment Costs The following table summarizes the activity of the deferred contract acquisition and fulfillment costs, which primarily consist of capitalized sales commissions, for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 (in thousands) Beginning balance $ 125,806 $ 121,609 Capitalization of contract acquisition and fulfillment costs 9,273 12,967 Amortization of deferred contract acquisition and fulfillment costs ( 14,569 ) ( 12,287 ) Ending balance $ 120,510 $ 122,289 Note 9. Derivative and Hedging Activities To mitigate our exposure to foreign currency fluctuations resulting from certain expenses denominated in certain foreign currencies, we enter into forward contracts that are designated as cash flow hedging instruments. These forward contracts have contractual maturities of eighteen months or less, and as of March 31, 2025 and December 31, 2024, outstanding forward contracts had a total notional value of $ 61.0 million and $ 50.4 million, respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract. During the three months ended March 31, 2025 and 2024, all cash flow hedges were considered effective. Refer to Note 5, Fair Value Measurements , for the fair values of our outstanding derivative instruments. Note 10. Debt Convertible Senior Notes In May 2020, we issued $ 230.0 million aggregate principal amount of convertible senior notes due May 1, 2025 (the “2025 Notes”), in March 2021, we issued $ 600.0 million aggregate principal amount of convertible senior notes due March 15, 2027 (the “2027 Notes”), and in September 2023, we issued $ 300.0 million aggregate principal amount of convertible senior notes due March 15, 2029 (the “2029 Notes”) (collectively, the “Notes”). In September 2023, we used $ 201.0 million of the proceeds from the issuance of the 2029 Notes to repurchase and retire $ 184.0 million aggregate principal amount of the 2025 Notes and paid accrued and unpaid interest thereon. Further details of the Notes are as follows: Issuance Maturity Date Interest Rate First Interest Payment Date Effective Interest Rate Semi-Annual Interest Payment Dates Initial Conversion Rate per $1,000 Principal Initial Conversion Price Number of Shares (in millions) 2025 Notes May 1, 2025 2.25 % November 1, 2020 2.88 % May 1 and November 1 16.3875 $ 61.02 0.8 2027 Notes March 15, 2027 0.25 % September 15, 2021 0.67 % March 15 and September 15 9.6734 $ 103.38 5.8 2029 Notes March 15, 2029 1.25 % March 15, 2024 1.69 % March 15 and September 15 15.4213 $ 64.85 4.6 The 2025 Notes, the 2027 Notes and the 2029 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures between the Company, as issuer, and U.S. Trust Company, Bank National Association, as trustee (the “Indentures”). The total net proceeds from the 2025 Notes, the 2027 Notes and the 2029 Notes offerings, after deducting initial purchase discounts and debt issuance costs, were $ 222.8 million, $ 585.0 million and $ 292.0 million, respectively. For additional details on the terms of our Notes, see Note 11, Debt , to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024. As of March 31, 2025, the 2027 Notes and the 2029 Notes were not convertible at the option of the holders. The 2025 Notes became convertible at the option of the holders effective November 1, 2024. The holders may convert the 2025 Notes, the 2027 Notes and the 2029 Notes at any time on or after November 1, 2024, December 15, 2026 and December 15, 2028, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the circumstances set forth above. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in the manner and subject to the terms and conditions provided in the Indentures. 13 Table of Content s If we undergo a fundamental change (as set forth in the Indentures) at any time prior to the maturity date, holders of the Notes will have the right, at their option, to require us to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, in each case as described in the Indentures, we will increase the conversion rate for a holder of the Notes who elects to convert its Notes in connection with such a corporate event or during the related redemption period in certain circumstances. Subsequent to the balance sheet date, on May 1, 2025, the Company paid $ 46.5 million to redeem the outstanding portion of the 2025 Notes, including the outstanding principal amount and accrued interest through the maturity date of the 2025 Notes. Accounting for the Notes In accounting for the issuance of the Notes, the principal less debt issuance costs are recorded as debt on our unaudited condensed consolidated balance sheet. The debt issuance costs are amortized to interest expense using the effective interest method over the contractual term of the Notes. The net carrying amount of the Notes as of March 31, 2025 and December 31, 2024 was as follows (in thousands): 2025 Notes 2027 Notes 2029 Notes Principal Unamortized debt issuance costs Total Principal Unamortized debt issuance costs Total Principal Unamortized debt issuance costs Total Balance at December 31, 2024 $ 45,992 $ ( 97 ) $ 45,895 $ 600,000 $ ( 5,564 ) $ 594,436 $ 300,000 $ ( 6,080 ) $ 293,920 Amortization of debt issuance costs — 72 72 — 615 615 — 332 332 Balance at March 31, 2025 $ 45,992 $ ( 25 ) $ 45,967 $ 600,000 $ ( 4,949 ) $ 595,051 $ 300,000 $ ( 5,748 ) $ 294,252 Interest expense related to the Notes was as follows (in thousands): Three Months Ended March 31, 2025 2024 2025 Notes 2027 Notes 2029 Notes Total 2025 Notes 2027 Notes 2029 Notes Total Contractual interest expense $ 259 $ 375 $ 937 $ 1,571 $ 259 $ 375 $ 937 $ 1,571 Amortization of debt issuance costs 72 615 332 1,019 75 620 310 1,005 Total interest expense $ 331 $ 990 $ 1,269 $ 2,590 $ 334 $ 995 $ 1,247 $ 2,576 Capped Calls In connection with the offering of the 2025 Notes, the 2027 Notes and the 2029 Notes, we entered into privately negotiated capped call transactions with certain counterparties (the “2025 Capped Calls”, “2027 Capped Calls” and “2029 Capped Calls”) (collectively, the “Capped Calls”). The Capped Calls are expected to reduce potential dilution to our common stock upon conversion of a given series of notes and/or offset any cash payments that we are required to make in excess of the principal amount of converted notes of such series, as the case may be, with such reduction and/or offset subject to a cap. The Capped Calls are subject to adjustment upon the occurrence of certain specified extraordinary events affecting us, including merger events, tender offers and announcement events. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions. 14 Table of Content s The following table sets forth other key terms and premiums paid for the Capped Calls related to each series of Notes: Capped Calls Entered into in Connection with the Issuance of the 2025 Notes Capped Calls Entered into in Connection with the Issuance of the 2027 Notes Capped Calls Entered into in Connection with the Issuance of the 2029 Notes Initial strike price, subject to certain adjustments $ 61.02 $ 103.38 $ 64.85 Cap price, subject to certain adjustments $ 93.88 $ 159.04 $ 97.88 Total premium paid (in thousands) $ 27,255 $ 76,020 $ 36,570 Expiration dates March 4, 2025 - April 29, 2025 January 1, 2027 - March 11, 2027 February 13, 2029 - March 13, 2029 Subsequent to the balance sheet date, the 2025 Capped Calls expired in full on April 29, 2025. The Company did not elect to exercise any portion of the 2025 Capped Calls prior to expiration. For additional details on the terms of our Capped Calls, see Note 11, Debt, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024. For accounting purposes, the 2025 Capped Calls, the 2027 Capped Calls and the 2029 Capped Calls are separate transactions, and not part of the terms of the 2025 Notes, the 2027 Notes and the 2029 Notes. The 2025 Capped Calls, 2027 Capped Calls and 2029 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. 15 Table of Content s Note 11. Stock-Based Compensation ( a) General Stock-based compensation expense for restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), stock options and purchase rights issued under our employee stock purchase plan was classified in the accompanying unaudited condensed consolidated statements of operations as follows: Three Months Ended March 31, 2025 2024 (in thousands) Stock-based compensation expense: Cost of revenue $ 2,264 $ 2,671 Research and development 10,386 7,944 Sales and marketing 7,241 7,137 General and administrative 7,260 7,993 Total stock-based compensation expense $ 27,151 $ 25,745 We recognize compensation cost of all awards on a straight-line basis over the applicable vesting period, which is generally three to four years . Our Compensation Committee adopted and approved the performance goals, targets and payout formulas for our 2025 and 2024 bonus plans, including permitting our executive officers and certain other employees the opportunity to receive payment of their earned bonuses in the form of common stock (in lieu of cash). During the three months ended March 31, 2025 and 2024, we recognized stock-based compensation expense related to such bonuses in the amount of $ 0.3 million and $ 0.1 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of March 31, 2025 and 2024. For employees, including executive officers, who elect to receive their bonuses in the form of common stock (in lieu of cash), the payouts are expected to be made in the form of fully vested stock awards in the first quarter of the following year pursuant to our 2015 Equity Incentive Plan, as amended. The number of shares underlying such awards is determined by dividing the dollar value of the actual bonus award payment by the closing price per share of our common stock on the date of grant. (b) Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units RSUs and PSUs activity during the three months ended March 31, 2025 was as follows: Shares Weighted- Average Grant Date Fair Value Unvested balance as of December 31, 2024 2,853,235 $ 57.25 Granted 2,063,251 $ 35.17 Vested ( 377,353 ) $ 61.55 Forfeited ( 260,257 ) $ 56.20 Unvested balance as of March 31, 2025 4,278,876 $ 46.29 As of March 31, 2025, the unrecognized compensation expense related to our unvested RSUs and PSUs was $ 113.4 million. This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 1.21 years. In January 2025, our Compensation Committee awarded 181,067 PSUs that required the achievement of net annualized recurring revenue (“Net ARR”) and Adjusted EBITDA targets for the 2025 fiscal-year to earn any payout. Net ARR is defined as the change in the annual value of all recurring revenue related to contracts in place at year end. In addition, the portion of the PSUs that are earned would be capped at a maximum of 200 % of the target level payout and if certain net ARR or Adjusted EBITDA goals were not met, no PSUs will be earned. The PSUs have a performance period of one year and the earned PSUs will vest in three equal installments following each of the first, second and third anniversary of the vesting commencement date, subject to the participant’s continuous service as of each such date. In the three months ended March 31, 2025, we recorded $ 0.5 million of stock-based compensation expense related to these PSUs based on estimated achievement of the performance criteria. 16 Table of Content s (c) Stock Options The following tables summarizes information about stock option activity during the reporting periods: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2024 582,638 12.38 $ 16,225 Granted — Exercised ( 157,317 ) $ 10.10 $ 4,541 Forfeited/cancelled — Outstanding as of March 31, 2025 425,321 $ 13.23 1.3 $ 5,649 Vested and exercisable as of March 31, 2025 425,321 $ 13.23 1.3 $ 5,649 (d) Employee Stock Purchase Plan Under the Rapid7, Inc. 2015 Employee Stock Purchase Plan ("ESPP"), employees may set aside up to 15 % of their gross earnings, on an after-tax basis, to purchase our common shares at a discounted price, which is calculated at 85 % of the lesser of: (i) the market value of our common stock at the beginning of each offering period and (ii) the market value of our common stock on the applicable purchase date. On March 14, 2025, we issued 186,793 sha res of common stock to employees, with a purchase price of $ 23.79 per share, for aggregate proceeds of $ 4.4 million. 17 Table of Content s Note 12. Income Taxes We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Our effective tax rates for the three months ended March 31, 2025 and 2024 are as follows: Three Months Ended March 31, 2025 2024 (in thousands, except share and per share data) Effective Tax Rate 56.2 % 86.4 % The primary reconciling items between the Federal statutory tax rate of 21% and our overall effective rate for the three months ended March 31, 2025 were due to foreign taxes on our international operations, state income taxes, and the impact of valuation allowance on deferred tax assets. The primary reconciling items between the Federal statutory tax rate of 21% and our overall effective rate for the three months ended March 31, 2024 were due to foreign taxes on our international operations, state income taxes, the impact of valuation allowance on deferred tax assets, and certain discrete items. Note 13. Net Income per Share The following table summarizes the computation of basic and diluted net income per share of our common stock for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 (in thousands, except share and per share data) Numerator: Net income used to calculate net income, basic $ 2,105 $ 1,406 Denominator: Weighted-average common shares outstanding, basic 63,835,945 61,907,808 Weighted-average effect of dilutive shares: Dilutive effect of equity incentive plans 388,471 $ 930,195 Dilutive effect of convertible senior notes — $ 11,183,611 Weighted-average common shares outstanding, diluted 64,224,415 $ 74,021,704 Net income per share, basic $ 0.03 $ 0.02 Net income per share, diluted $ 0.03 $ 0.02 We intend to settle any conversion of our 2025 Notes, 2027 Notes and 2029 Notes in cash, shares, or a combination thereof. The dilutive impact of the Notes for our calculation of diluted net income per share is considered using the if-converted method. For the three months ended March 31, 2025 and 2024, the shares underlying the Notes were not considered in the calculation of diluted net income per share as the effect would have been anti-dilutive. In connection with the issuance of the 2025 Notes, the 2027 Notes and the 2029 Notes, we entered into the 2025 Capped Calls, 2027 Capped Calls and 2029 Capped Calls, which were not included for the purpose of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive. As of March 31, 2025, the 2025 Notes were convertible at the option of the holder; however, the 2027 Notes and the 2029 Notes were not convertible at the option of the holder. As of March 31, 2024, the 2025 Notes, the 2027 Notes and the 2029 Notes were not convertible at the option of the holder. We had not received any conversion notices through the issuance date of our unaudited condensed consolidated financial statements. For disclosure purposes, we have calculated the potentially dilutive effect of the conversion spread, which is included in the table below. The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive: 18 Table of Content s Three Months Ended March 31, 2025 2024 Options to purchase common stock — 604,786 Unvested restricted stock units — 3,984,134 Common stock issued in conjunction to acquisitions 309,561 36,923 Shares to be issued under ESPP 18,620 15,902 Convertible senior notes 11,183,611 11,183,611 Total 11,511,792 15,825,356 Note 14. Commitments and Contingencies (a) Purchase Obligations In January 2025, we amended our contract with a cloud services provider which increased our total purchase obligation to $ 660 million, including a minimum purchase commitment of $ 125.0 million in 2025, 2026, 2027, 2028 and 2029, and an additional $ 35.0 million obligation over the five-year period. (b) Warranty We provide limited product warranties. Historically, any payments made under these provisions have been immaterial. (c) Litigation and Claims From time to time, we may be a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. (d) Indemnification Obligations We agree to standard indemnification provisions in the ordinary course of business. Pursuant to these provisions, we agree to indemnify, hold harmless and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our customers, in connection with any United States patent, copyright or other intellectual property infringement claim by any third party arising from the use of our products or services in accordance with the agreement or arising from our gross negligence, willful misconduct or violation of the law (provided that there is not gross or willful misconduct on the part of the other party) with respect to our products or services. The term of these indemnification provisions is generally perpetual from the time of execution of the agreement. We carry insurance that covers certain third-party claims relating to our services and limits our exposure. We have never incurred costs to defend lawsuits or settle claims related to these indemnification provisions. As permitted under Delaware law, we have entered into indemnification agreements with our officers and directors, indemnifying them for certain events or occurrences while they serve as officers or directors of the company. (d) Income Taxes From time to time, we may receive income tax assessments from taxing authorities asserting additional tax liabilities owed by the Company. During the quarter ended June 30, 2024, we received an initial assessment from the Israel Tax Authority (“ITA”) of approximately 324 million Israeli New Shekels (approximately $ 88 million, based upon current exchange rates between the Israeli New Shekel and the US Dollar) related to fiscal year 2021. Based on our interpretation of the regulations and available case law, we believe that the tax positions we have taken on our filed tax return in Israel are sustainable and we intend to defend our position through all available means. As such, we have not recorded any impact of the ITA assessment in our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2025. We are continuing to monitor developments related to this matter and its impact on our existing income tax reserves for all open years. If we are unsuccessful in sustaining our tax position in this matter, our financial condition and results of operations would be adversely affected. Note 15. Segment Information and Information about Geographic Areas We operate in a single reportable segment, providing product subscriptions and professional services to our customers. The segment’s accounting policies are consistent with those described in Note 1, Summary of Significant Accounting Policies . Our 19 Table of Content s chief operating decision maker (“CODM”) is our Chief Executive Officer. One of the measures of profit or loss that is used by our CODM to assess performance and allocate resources is consolidated net income, as reported in the consolidated statements of operations. Consolidated net income is used by our CODM in monitoring actual versus budgeted results as well as in benchmarking against our competitors, which are used in assessing performance of the segment. The following table includes segment revenue, segment profit or loss, significant segment expenses and other segment expenses for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 (in thousands) Total revenue $ 210,253 $ 205,101 Adjusted total cost of revenue 1 52,793 53,989 Adjusted research and development 1 37,502 33,440 Adjusted sales and marketing 1 71,507 65,305 Adjusted general and administrative 1 16,098 12,082 Other segment expenses 2 30,248 38,879 Net income $ 2,105 $ 1,406 1 Adjusted total cost of revenue excludes the impact of stock-based compensation expense and amortization of acquired intangible assets. Adjusted research and development excludes the impact of stock-based compensation expense. Adjusted sales and marketing excludes the impact of stock-based compensation and amortization of acquired intangible assets. Adjusted general and administrative excludes the impact of stock-based compensation, amortization of acquired intangible assets and acquisition-related expenses. 2 Other segment expenses include stock-based compensation expense, amortization of acquired intangible assets, acquisition-related expenses, restructuring expense, interest income, interest expense, other income (expense) and provision for (benefit from) income taxes. See the unaudited condensed consolidated financial statements for other financial information regarding our operating segment. Net revenues by geographic area presented based upon the location of the customer are as follows: Three Months Ended March 31, 2025 2024 (in thousands) North America $ 157,945 $ 157,340 Rest of world 52,308 47,761 Total $ 210,253 $ 205,101 Property and equipment, net by geographic area was as follows: As of March 31, 2025 As of December 31, 2024 (in thousands) North America $ 22,411 $ 22,613 Rest of world 9,248 9,632 Total $ 31,659 $ 32,245 Note 16. 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 RSUs and 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, the Company 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 have corrected the errors by adjusting prior period financial statements as of and for the three months ended March 31, 2024. Refer to the consolidated financial statements included in our Annual Report on Form 20 Table of Content s 10-K for the year ended December 31, 2024 for detailed tables showing the effect of the immaterial error corrections to certain line items of our unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the interim period ended March 31, 2024. 21 Table of Content s