Rapid7, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2024 included in our Annual Report on Form 10-K, filed with the SEC on February 28, 2025. Forward-looking statements in this review are qualified by the cautionary statement included under the next sub-heading, “Special Note Regarding Forward-Looking Statements”. Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q, including the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Statements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following: • our ability to continue to add new customers, maintain existing customers and sell new products and professional services to new and existing customers; • uncertain impacts that prolonged economic uncertainty may have on our business, strategy, operating results, financial condition and cash flows, as well as changes in overall level of software spending and volatility in the global economy; • the effects of increased competition as well as innovations by new and existing competitors in our market; • our ability to effectively restructure our business in alignment with our strategic priorities; • our ability to adapt to technological change and effectively enhance, innovate and scale our solutions, including our Command Platform; • our ability to effectively manage or sustain our growth and to sustain profitability; • our ability to diversify our sources of revenue; • potential acquisitions and integration of complementary business and technologies; • our expected use of proceeds from future issuances of equity or convertible debt securities; • our ability to maintain, or strengthen awareness of, our brand; • perceived or actual security, integrity, reliability, quality or compatibility problems with our solutions, including problems related to systems, unscheduled downtime, outages or security breaches in our customers; • statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance; • our ability to meet publicly announced guidance or other expectations about our business, key metrics and future operating results; • our ability to maintain an adequate annualized recurring revenue growth; • our ability to attract and retain qualified employees and key personnel and further expand our overall headcount; • our ability to grow, both domestically and internationally; • our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally; • our ability to maintain, protect and enhance our intellectual property; • the outcomes of our initiatives that use artificial intelligence (“AI”); • costs associated with defending intellectual property infringement and other claims; and • the future trading prices of our common stock and the impact of securities analysts’ reports on these prices. These statements represent the beliefs and assumptions of our management based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the 23 Table of Contents timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part I, Item 1A. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report. As used in this report, the terms “Rapid7,” the “company,” “we,” “us,” and “our” mean Rapid7, Inc. and its subsidiaries unless the context indicates otherwise. Overview 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 enterprises across the globe representing a diverse range of industries 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 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 trusted 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. Our Command Platform is anchored on our cloud security, security information and event management (“SIEM”), advanced detection and response, and vulnerability management offerings. 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. In the past few years, we have observed the industry undergoing a customer-driven shift to consolidated security platforms. As part of this transition, customers are moving away from cloud security as a specialized function towards cloud security as an integrated capability for SecOps teams. We view this as a demand driver for integrated SecOps, and believe that we have an opportunity to be a leader in delivering integrated risk and threat management across on-premise, cloud, and external attack surfaces. As we have shifted our strategic focus to SecOps consolidation, we are focused on continuing to drive innovation across our core products and capabilities to accelerate customer value and provide a frictionless and integrated cloud security experience. 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 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. Our customers span a wide variety of industries such as technology, energy, financial services, healthcare and life sciences, manufacturing, media and entertainment, retail, education, real estate, transportation, government and professional services. As of June 30, 2025, we had over 11,000 customers in 151 countries, including 40% of the Fortune 100. Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for the three and six months ended June 30, 2025 or 2024. Recent Developments Credit Agreement On June 25, 2025 (the "Closing Date"), we entered into a credit agreement (the "Credit Agreement"), by and among the Company, Rapid7 LLC, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, that provides for a $ 200.0 million revolving credit facility with a letter of credit sublimit of $20.0 million. The Credit Agreement allows for incremental facilities up to the greater of $141 million or 75% of Consolidated EBITDA (as defined in the Credit Agreement). Additional incremental facilities may be incurred, subject to certain conditions. We incurred fees of $1.6 million in connection with entering into the Credit Agreement. The fees are recorded as other current assets on the consolidated balance sheet and are amortized on a straight-line basis over the contractual term of the arrangement. Under the terms of the Credit Agreement, we are required to pay a commitment fee on the unused portion of the credit facility. The commitment fee rate is determined by the total net leverage ratio of the Company and its subsidiaries, ranging from 0.20% to 0.25% per annum on the unused portion of 24 Table of Contents the credit facility. The commitment fee is expensed as incurred and included within interest expense on the consolidated statement of operations. The Credit Agreement matures on the fifth-anniversary of the Closing Date or, if certain specified liquidity conditions are note satisfied, 91 days prior to the earliest maturity date of either the 2027 or the 2029 Notes. The Credit Agreement also contains certain affirmative and negative covenants, including a requirement to maintain a minimum interest coverage ratio for the duration of the Credit Agreement and a maximum net leverage ratio. The borrowings under the Credit Agreement bear interest at a variable annual rate based on either the Secured Overnight Financing Rate (SOFR) subject to a floor of zero or alternate base rate plus, in each case, a fixed margin, which varies depending on the Company’s net leverage ratio. As of June 30, 2025, we did not have any outstanding borrowings under the Credit Agreement. As of June 30, 2025, we had a total of $6.0 million in letters of credit outstanding as collateral for certain office space leases and corporate credit card programs which reduce the amount of borrowing availability under our Credit Agreement. New U.S. Federal Tax Legislation On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act ("OBBBA"). The OBBBA changes the current tax law related to both corporate income taxes and deferred tax assets and liabilities, which we currently accounts for under ASC 740, Income taxes ("ASC 740") . The income tax effects of a change in tax law on current taxes related to current year ordinary income and changes to deferred taxes arising subsequent to the date of enactment are included in the annual effective tax rate, beginning in the period of enactment. We are currently evaluating the impact of the OBBBA on its business, financial condition, and results of operations under ASC 740. Our Business Model We offer our products through a variety of delivery models to meet the needs of our diverse customer base, including: • Cloud-based subscriptions, which provide our software capabilities to our customers through cloud access and on a subscription basis. Our InsightIDR, InsightCloudSec, InsightVM, InsightAppSec, InsightConnect and Threat Command products are offered as cloud-based subscriptions, with an option for a one or multi-year term. • Managed services, through which we operate our products and provide our capabilities on behalf of our customers. 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. 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 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. Additionally, we offer our products through our consolidation offerings, which unify our products and services to our customers in a single package. Our Threat Complete and Cloud Risk Complete packages are offered as cloud based subscriptions, with an option for a one or multi-year term. Our Managed Threat Complete Offering is offered on a managed service basis, generally pursuant to one or multi-year agreements. For the three and six months ended June 30, 2025 and 2024, recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 97%, and 96%, 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, C onsidering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements , we evaluated the errors and determined the related impacts were not material to our unaudited 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 . Refer to Note 16, Immaterial Correction of an Error , in the notes to our unaudited condensed consolidated financial statements for further information. 25 Table of Contents Components of Results of Operations Revenue 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. 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, are bundled with the license for the term period. Professional Services We generate professional service revenue from the sale of deployment and training services related to our products, incident response services and security advisory services. Cost of Revenue 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. Our IT overhead costs include IT personnel compensation costs and costs associated with our IT infrastructure. All overhead costs are allocated based on relative headcount. 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 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 Professional Services Cost of professional services consists of personnel and related costs for our professional services team, including salaries and other payroll related costs, bonuses, stock-based compensation, costs of contracted third-party vendors, travel and entertainment expenses and allocated overhead costs. We expect our cost of revenue to increase on an absolute dollar basis as we continue to grow our revenue. Gross Margin Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our products and services, transaction volume growth, the mix of revenue between software licenses, cloud-based subscriptions, managed services and professional services and changes in cloud computing costs. We expect our gross margins to fluctuate over time depending on the factors described above. Operating Expenses 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. Our IT overhead costs include IT personnel compensation costs and costs associated with our IT infrastructure. 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 Research and development expense consists of personnel costs for our research and development team, including salaries and other payroll related costs, bonuses and stock-based compensation. Additional expenses include third-party infrastructure costs, 26 Table of Contents travel and entertainment, consulting and professional fees for third-party development resources as well as allocated overhead costs. 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. Additional expenses include marketing activities and promotional events, travel and entertainment, training costs, amortization of certain intangible assets and allocated overhead costs. General and Administrative Expense General and administrative expense consists of personnel costs for our executive, legal, human resources, and finance and accounting departments, including salaries and other payroll related costs, bonuses and stock-based compensation. Additional expenses include travel and entertainment, professional fees, litigation-related expenses, insurance, acquisition-related expenses, amortization of certain intangible assets and allocated overhead costs. Interest Income Interest income consists primarily of interest income on our cash and cash equivalents and our short and long-term investments. 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. 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. We maintain a substantially full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards and tax credits. We determined as of June 30, 2025 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. 27 Table of Contents Results of Operations Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) Consolidated Statement of Operations Data: Revenue: Product subscriptions $ 208,097 $ 200,067 $ 412,032 $ 396,985 Professional services 6,096 7,924 12,414 16,107 Total revenue 214,193 207,991 424,446 413,092 Cost of revenue: (1) Product subscriptions 57,236 55,107 111,604 109,841 Professional services 5,823 5,885 10,935 12,145 Total cost of revenue 63,059 60,992 122,539 121,986 Operating expenses: (1) Research and development 47,227 40,448 95,115 81,816 Sales and marketing 79,247 78,126 158,647 151,221 General and administrative 21,166 23,202 44,752 43,130 Total operating expenses 147,640 141,776 298,514 276,167 Income from operations 3,494 5,223 3,393 14,939 Interest income 5,514 5,221 11,272 9,941 Interest expense (2,627) (2,673) (5,281) (5,343) Other income (loss), net 3,957 (695) 5,759 (2,130) Income before income taxes 10,338 7,076 15,143 17,407 Provision for income taxes 2,000 538 4,700 9,463 Net income $ 8,338 $ 6,538 $ 10,443 $ 7,944 (1) Cost of revenue and operating expenses include stock-based compensation expense and depreciation and amortization expense as follows: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) Stock-based compensation expense: Cost of revenue $ 2,580 $ 3,270 $ 4,844 $ 5,941 Research and development 10,250 8,989 20,636 16,933 Sales and marketing 7,451 7,843 14,692 14,980 General and administrative 7,300 8,964 14,560 16,957 Total stock-based compensation expense $ 27,581 $ 29,066 $ 54,732 $ 54,811 Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) Depreciation and amortization expense: Cost of revenue $ 8,832 $ 7,926 $ 17,506 $ 16,226 Research and development 648 839 1,558 1,698 Sales and marketing 1,557 1,669 3,223 3,402 General and administrative 353 437 768 893 Total depreciation and amortization expense $ 11,390 $ 10,871 $ 23,055 $ 22,219 28 Table of Contents The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Consolidated Statement of Operations Data: Revenue: Product subscriptions 97.2 % 96.2 % 97.1 % 96.1 % Professional services 2.8 3.8 2.9 3.9 Total revenue 100.0 100.0 100.0 100.0 Cost of revenue: Product subscriptions 26.7 26.5 26.3 26.6 Professional services 2.7 2.8 2.6 2.9 Total cost of revenue 29.4 29.3 28.9 29.5 Operating expenses: Research and development 22.0 19.4 22.4 19.8 Sales and marketing 37.0 37.6 37.4 36.6 General and administrative 9.9 11.2 10.5 10.4 Total operating expenses 68.9 68.2 70.3 66.8 Income from operations 1.6 2.5 0.8 3.7 Interest income 2.6 2.5 2.7 2.4 Interest expense (1.2) (1.3) (1.2) (1.3) Other income (loss), net 1.8 (0.3) 1.4 (0.5) Income before income taxes 4.8 3.4 3.7 4.3 Provision for income taxes 0.9 0.3 1.1 2.3 Net income 3.9 % 3.1 % 2.6 % 2.0 % Comparison of the Three and Six Months Ended June 30, 2025 and 2024 Revenue Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) Revenue: Product subscriptions $ 208,097 $ 200,067 $ 8,030 4.0 % $ 412,032 $ 396,985 $ 15,047 3.8 % Professional services 6,096 7,924 (1,828) (23.1) % 12,414 16,107 (3,693) (22.9) % Total revenue 214,193 $ 207,991 $ 6,202 3.0 % $ 424,446 $ 413,092 $ 11,354 2.7 % Total revenue increased by $6.2 million in the three months ended June 30, 2025 compared to the same period in 2024, due to a $9.1 million increase in revenue from existing customers, partially offset by a $2.9 million decrease in revenue from new customers. Total revenue increased by $11.4 million in the six months ended June 30, 2025 compared to the same period in 2024, due to an $17.2 million increase in revenue from existing customers, partially offset by a $5.8 million decrease in revenue from new customers. The increase in revenue from existing customers was due to an increase in revenue from renewals, upsells and cross-sells as a result of the continued growth of our existing customer base. Revenue from new customers represents the revenue recognized from the customer's initial purchase. The increase in total revenue in the three months ended June 30, 2025 compared to the same period in 2024 was comprised of $1.2 million generated from sales in North America and $4.9 million generated from sales from the rest of the world. The increase in total revenue in the six months ended June 30, 2025 compared to the same period in 2024 was comprised of $1.9 million generated from sales in North America and $9.4 million generated from sales from the rest of the world. 29 Table of Contents Cost of Revenue Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) Cost of revenue: Product subscriptions $ 57,236 $ 55,107 $ 2,129 3.9 % $ 111,604 $ 109,841 $ 1,763 1.6 % Professional services 5,823 5,885 (62) (1.1) % 10,935 12,145 (1,210) (10.0) % Total cost of revenue 63,059 $ 60,992 $ 2,067 3.4 % $ 122,539 $ 121,986 $ 553 0.5 % Gross margin %: Products 72.5 % 72.5 % 72.9 % 72.3 % Professional services 4.5 % 25.7 % 11.9 % 24.6 % Total gross margin % 70.6 % 70.7 % 71.1 % 70.5 % Total cost of revenue increased by $2.1 million in the three months ended June 30, 2025 compared to the same period in 2024, due to a $1.6 million increase in cloud computing costs, a $0.6 increase in amortization expense for capitalized internally-developed software, a $0.4 million increase in royalties and subscriptions and a $0.6 million increase in other expenses. These increases were partially offset by a $1.1 million decrease in personnel costs, inclusive of a $3.8 million decrease due to a shift in the nature of certain roles and responsibilities between product delivery and sales support functions which were partially offset by a $2.7 million increase due to an increase in headcount excluding the aforementioned shift in roles. Total cost of revenue increased by $0.6 million in the six months ended June 30, 2025 compared to the same period in 2024, due to a $3.1 million increase in cloud computing costs, a $0.9 million increase in amortization expense for capitalized internally-developed software, a $0.9 million increase in royalties and subscriptions and a $0.8 million increase in other expenses. These increases were partially offset by a $3.2 million decrease in personnel costs, inclusive of a $6.0 million decrease due to a shift in the nature of certain roles and responsibilities between product delivery and sales support functions which were partially offset by a $2.8 million increase due to an increase in headcount excluding the aforementioned shift in roles, a $1.0 million decrease on third-party professional services consulting spend primarily driven by a related decrease in professional services revenue, and a $0.9 million decrease in allocated overhead costs. Total gross margin percentage increased for the three and six months ended June 30, 2025 compared to the same period in 2024, primarily due to an increase in products gross margin due to the decrease in personnel costs described above. Operating Expenses Research and Development Expense Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) Research and development $ 47,227 $ 40,448 $ 6,779 16.8 % $ 95,115 $ 81,816 $ 13,299 16.3 % % of revenue 22.0 % 19.4 % 22.4 % 19.8 % Research and development expense increased by $6.8 million in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to a $4.7 million increase in personnel costs, inclusive of a $1.3 million increase in stock-based compensation expense resulting from an increase in headcount, a $1.3 million increase in third-party cloud infrastructure costs related to new product development and a $0.8 million increase in other expenses. Research and development expense increased by $13.3 million in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to a $9.0 million increase in personnel costs, inclusive of a $3.7 million increase in stock-based compensation expense resulting from an increase in headcount, a $2.2 million increase in third-party cloud infrastructure costs related to new product development, a $0.8 million increase in allocated overhead costs and a $1.3 million increase in other expenses. 30 Table of Contents Sales and Marketing Expense Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) Sales and marketing $ 79,247 $ 78,126 $ 1,121 1.4 % $ 158,647 $ 151,221 $ 7,426 4.9 % % of revenue 37.0 % 37.6 % 37.4 % 36.6 % Sales and marketing expense increased by $1.1 million in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to a $0.7 million increase in personnel costs, inclusive of a $3.8 million increase driven by a shift in the nature of certain roles and responsibilities between product delivery and sales support functions partially offset by a $3.1 million decrease due to decreased headcount excluding the aforementioned shift in roles, a $0.7 million increase in allocated overhead expenses and a $0.4 million increase in commissions expense. These increases were partially offset by a $0.7 million decrease in other expenses. Sales and marketing expense increased by $7.4 million in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to a $2.1 million increase in personnel costs, inclusive of a $6.0 million increase driven by a shift in the nature of certain roles and responsibilities between product delivery and sales support functions partially offset by a $3.9 million decrease due to decreased headcount excluding the aforementioned shift in roles, a $2.7 million increase in commissions expense, a $1.1 million increase in office related expenses driven by higher costs related to corporate events and related activities, a $0.7 million increase in marketing and advertising expense and a $0.7 million increase in other expenses. General and Administrative Expense Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) General and administrative $ 21,166 $ 23,202 $ (2,036) (8.8) % $ 44,752 $ 43,130 $ 1,622 3.8 % % of revenue 9.9 % 11.2 % 10.5 % 10.4 % General and administrative expense decreased by $2.0 million in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to a $1.3 million decrease in charitable contributions and taxes, a $0.8 million decrease in personnel costs and a $0.5 million decrease in operating expenses largely related to bad debt expense. These decreases were partially offset by a $0.5 million increase in professional fees. General and administrative expense increased by $1.6 million in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to a $2.3 million increase in professional fees related to accounting, legal and corporate advisory services and a $0.7 million increase in operating expenses largely related to bad debt expense. These increases were partially offset by a $1.0 million decrease related to charitable contributions and taxes and a $0.7 million decrease in personnel cost. Interest Income Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) Interest income $ 5,514 $ 5,221 $ 293 5.6 % $ 11,272 $ 9,941 $ 1,331 13.4 % % of revenue 2.6 % 2.5 % 2.7 % 2.4 % Interest income increased by $0.3 million in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to higher interest income as a result of an increase in cash and cash equivalents and investments as well as favorable market conditions. 31 Table of Contents Interest income increased by $1.3 million in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to higher interest income as a result of an increase in cash and cash equivalents and investments as well as favorable market conditions. Interest Expense Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) Interest expense $ (2,627) $ (2,673) $ 46 (1.7) % $ (5,281) $ (5,343) $ 62 (1.2) % % of revenue (1.2) % (1.3) % (1.2) % (1.3) % Interest expense remained consistent in the three and six months ended June 30, 2025 compared to the same period in 2024. Other Income (Expense), Net Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) Other income (expense), net $ 3,957 $ (695) $ 4,652 (669.4) % $ 5,759 $ (2,130) $ 7,889 (370.4) % % of revenue 1.8 % (0.3) % 1.4 % (0.5) % Other income (expense), net increased by $7.9 million in the six months ended June 30, 2025 compared to the same period in 2024, due to favorable market conditions resulting in an increase in unrealized gains primarily related to the British Pound Sterling and recognition of realized gains during the period. Provision for Income Taxes Three Months Ended June 30, Change Six Months Ended June 30, Change 2025 2024 $ % 2025 2024 $ % (dollars in thousands) Provision for income taxes $ 2,000 $ 538 $ 1,462 271.7 % $ 4,700 $ 9,463 $ (4,763) (50.3) % % of revenue 0.9 % 0.3 % 1.1 % 2.3 % Provision for income taxes increased by $1.5 million in the three months ended June 30, 2025 compared to the same period in 2024 primarily due to increased pre-tax earnings in the current period, resulting in an increase in domestic and international taxes. Provision for income taxes decreased by $4.8 million in the six months ended June 30, 2025 compared to the same period in 2024 primarily due to $6.4 million of tax expense recorded in the prior period for an intercompany sale of intellectual property as part of post-acquisition strategy related to the acquisition of Minerva Lab Ltd., partially offset by an increase in domestic and international taxes in the current period. Key Metrics 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. We believe that both management and investors benefit from referring to these key metrics as supplemental information in assessing our performance and when planning, forecasting, and analyzing future periods. These key metrics also facilitate management's internal comparisons to our historical performance as well as comparisons to certain competitors' operating results. We believe these key metrics are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and also because they are used by institutional investors and the analyst community to help evaluate the health of our business: 32 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (dollars in thousands) Total revenue $ 214,193 $ 207,991 $ 424,446 $ 413,092 Year-over-year growth 3.0 % 9.2 % 2.7 % 10.6 % Non-GAAP income from operations $ 36,348 $ 39,276 $ 68,701 $ 79,561 Non-GAAP operating margin 17.0 % 18.9 % 16.2 % 19.3 % Free cash flow $ 42,280 $ 29,205 $ 66,957 $ 56,739 As of June 30, 2025 2024 (dollars in thousands) Annualized recurring revenue (“ARR”) $ 840,610 $ 815,630 Year-over-year growth 3.1 % 8.6 % Number of customers 11,643 11,484 Year-over-year growth 1.4 % 1.7 % ARR per customer $ 72.2 $ 71.0 Year-over-year growth 1.7 % 6.8 % Total Revenue and Growth . We are focused on driving continued revenue growth through increased sales of our products and professional services to new and existing customers. We monitor total revenue and believe it is useful to investors as a measure of the overall success of our business. 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 believe non-GAAP income from operations and non-GAAP operating margin are useful to investors, as supplements to U.S. 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. Free Cash Flow . Free cash flow is a non-GAAP measure that we define as cash provided by operating activities less purchases of property and equipment and capitalization of internal-use software costs. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. See "Non-GAAP Financial Results" below for a reconciliation of non-GAAP free cash flow to the comparable GAAP financial measure. Annualized Recurring Revenue and Growth. 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 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. Number of Customers . 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. ARR per Customer . ARR per customer is defined as ARR divided by the number of customers at the end of the period. 33 Table of Contents Non-GAAP Financial Results To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we may provide investors with certain non-GAAP financial measures from time to time, 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. We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons, and use certain non-GAAP financial measures as performance measures under our executive bonus plan. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making. While our non-GAAP financial measures are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, you should review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not rely on any single financial measure to evaluate our business. We define non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share as the respective GAAP balances excluding the effect of stock-based compensation expense, amortization of acquired intangible assets, amortization of debt issuance costs and certain other items such as acquisition-related expenses, non-ordinary course litigation-related expenses, impairment of long-lived assets, 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: • Stock-based compensation expense. We exclude stock-based compensation expense because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact our non-cash expense. We believe that providing non-GAAP financial measures that exclude stock-based compensation expense allows for more meaningful comparisons between our operating results from period to period. • Amortization of acquired intangible assets. We believe that excluding the impact of amortization of acquired intangible assets allows for more meaningful comparisons between operating results from period to period as the intangible assets are valued at the time of acquisition and are amortized over several years after the acquisition. • Amortization of debt issuance costs. The expense for the amortization of debt issuance costs related to our convertible senior notes and revolving credit facility is a non-cash item and we believe the exclusion of this interest expense provides a more useful comparison of our operational performance in different periods. • Induced conversion expense. In conjunction with the third quarter of 2023 partial repurchase of our 2.25% convertible senior notes due 2025, 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. • Non-ordinary course litigation-related expenses. We exclude non-ordinary course litigation expense because we do not consider legal costs and settlement fees incurred in litigation and litigation-related matters of non-ordinary course lawsuits and other disputes to be indicative of our core operating performance. We do not adjust for ordinary course legal expenses, including legal costs and settlement fees resulting from maintaining and enforcing our intellectual property portfolio and license agreements. • 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. • Change in fair value of derivative assets. The change in fair value of derivative assets related to our capped calls settlement is a non-cash item and we believe the exclusion of this other income (expense) provides a more useful comparison of our operational performance in different periods. • Impairment of long-lived assets. Impairment of long-lived assets consists of impairment charges allocated to the carrying amount of certain operating right-of-use assets and the associated leasehold improvements when the carrying 34 Table of Contents amounts exceed their respective fair values and we believe the exclusion of the impairment charges provides a more useful comparison of our operational performance in different periods. • Restructuring expense. 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. • 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 transaction. Our capped calls 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 include all non-GAAP financial measures in the current year or any comparative year that will be included in the non-GAAP reconciliation during the current fiscal year annual Form 10-K. As such, not all non-GAAP financial measures listed above may be included in the current reporting period non-GAAP financial metrics presented with this Form 10-Q. We define adjusted EBITDA as net income before (1) interest income, (2) interest expense, (3) other (income) expense, net, (4) provision for income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, (8) acquisition-related expenses, and (9) restructuring expense. We 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. 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. 35 Table of Contents The following tables reconcile GAAP gross profit to non-GAAP gross profit for the three and six months ended June 30, 2025 and 2024 : Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) GAAP total gross profit $ 151,134 $ 146,999 $ 301,907 $ 291,106 Stock-based compensation expense 2,580 3,270 4,844 5,941 Amortization of acquired intangible assets 4,423 4,012 8,846 8,329 Non-GAAP total gross profit $ 158,137 $ 154,281 $ 315,597 $ 305,376 Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) GAAP gross profit – product subscriptions $ 150,861 $ 144,960 $ 300,428 $ 287,144 Stock-based compensation expense 2,054 2,802 3,785 5,100 Amortization of acquired intangible assets 4,423 4,012 8,846 8,329 Non-GAAP gross profit – product subscriptions $ 157,338 $ 151,774 $ 313,059 $ 300,573 Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) GAAP gross profit – professional services $ 273 $ 2,039 $ 1,479 $ 3,962 Stock-based compensation expense 526 468 1,059 841 Non-GAAP gross profit – professional services $ 799 $ 2,507 $ 2,538 $ 4,803 The following table reconciles GAAP income from operations to non-GAAP income from operations for the three and six months ended June 30, 2025 and 2024: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) GAAP income from operations $ 3,494 $ 5,223 $ 3,393 $ 14,939 Stock-based compensation expense 27,581 29,066 54,732 54,811 Amortization of acquired intangible assets 5,090 4,709 10,210 9,723 Acquisition-related expenses (1) 183 278 366 278 Restructuring expense (2) — — — (190) Non-GAAP income from operations $ 36,348 $ 39,276 $ 68,701 $ 79,561 (1) For the three and six months ended June 30, 2025, acquisition-related expenses included $0.2 million and $0.4 million, respectively of accretion expense related to contingent consideration recorded in connection with our July 2024 acquisition of Noetic. (2 For the three and six months ended June 30, 2024, restructuring expense was recorded within general and administrative expense in our consolidated statement of operations. 36 Table of Contents The following table reconciles GAAP net income to non-GAAP net income for the three and six months ended June 30, 2025 and 2024: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands, except share and per share data) GAAP net income $ 8,338 $ 6,538 $ 10,443 $ 7,944 Stock-based compensation expense 27,581 29,066 54,732 54,811 Amortization of acquired intangible assets 5,090 4,709 10,210 9,723 Acquisition-related expenses 183 278 366 278 Amortization of debt issuance costs 999 1,055 2,018 2,108 Restructuring expense — — — (190) Discrete tax items — — — 6,360 Non-GAAP net income $ 42,191 $ 41,646 $ 77,769 $ 81,034 Interest expense of convertible senior notes (1) 1,399 1,571 2,625 3,142 Numerator for non-GAAP earnings per share calculation $ 43,590 $ 43,217 $ 80,394 $ 84,176 Weighted average shares used in GAAP earnings per share calculation, basic 64,441,000 62,496,289 64,140,087 62,201,182 Dilutive effect of convertible senior notes (1) 10,686,653 11,183,611 10,429,891 11,183,611 Dilutive effect of employee equity incentive plans (2) 255,992 570,460 322,231 750,328 Weighted average shares used in non-GAAP earnings per share calculation, diluted 75,383,645 74,250,360 74,892,209 74,135,121 Non-GAAP net income per share: Basic $ 0.65 $ 0.67 $ 1.21 $ 1.30 Diluted $ 0.58 $ 0.58 $ 1.07 $ 1.14 (1) We use the if-converted method to compute diluted earnings per share with respect to our Notes. There was no add-back of interest expense or additional dilutive shares related to the Notes where the effect was anti-dilutive. On an if converted basis, for the three and six months ended June 30, 2025 and 2024, the 2029 Notes, 2027 Notes and 2025 Notes were dilutive. (2) We use the treasury method to compute the dilutive effect of employee equity incentive plan awards. 37 Table of Contents The following table reconciles GAAP net income to adjusted EBITDA for the three and six months ended June 30, 2025 and 2024: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) GAAP net income $ 8,338 $ 6,538 $ 10,443 $ 7,944 Interest income (5,514) (5,221) (11,272) (9,941) Interest expense 2,627 2,673 5,281 5,343 Other (income) expense, net (3,957) 695 (5,759) 2,130 Provision for income taxes 2,000 538 4,700 9,463 Depreciation expense 2,349 2,775 5,140 5,683 Amortization of intangible assets 9,041 8,096 17,915 16,536 Stock-based compensation expense 27,581 29,066 54,732 54,811 Acquisition-related expenses 183 278 366 278 Restructuring expense — — — (190) Adjusted EBITDA $ 42,648 $ 45,438 $ 81,546 $ 92,057 The following table reconciles net cash provided by operating activities to free cash flow for the three and six months ended June 30, 2025 and 2024: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (in thousands) Net cash provided by operating activities $ 47,542 $ 32,858 $ 77,299 $ 63,928 Less: Purchases of property and equipment (948) (280) (2,309) (900) Less: Capitalized internal-use software costs (4,314) (3,373) (8,033) (6,289) Free cash flow $ 42,280 $ 29,205 $ 66,957 $ 56,739 Liquidity and Capital Resources As of June 30, 2025, we had $261.3 million in cash and cash equivalents, $338.4 million in investments that have maturities ranging from one to eighteen months and an accumulated deficit of $1.0 billion. Our principal sources of liquidity are cash and cash equivalents, investments, cash flow provided by operating activities and our Credit Agreement. 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. On June 25, 2025 we entered into a credit agreement (the "Credit Agreement") that establishes a senior secured revolving credit facility and provides for borrowings in an aggregate principal amount of up to $200 million (the “Revolving Facility”, the loans thereunder, the “Revolving Loans” and the commitments thereunder, the “Revolving Commitments”).The Credit Agreement allows for incremental facilities up to the greater of $141 million or 75% of Consolidated EBITDA (as defined in the Credit Agreement). Additional incremental facilities may be incurred, subject to certain conditions. The proceeds of the Revolving Facility can be used to finance working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes. Refer to Note 10, Debt , for additional information related to the credit agreement. We believe that our existing cash and cash equivalents, our investments, our cash generated by operating activities and our available borrowings under our Credit Agreement 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, potential future acquisitions of technology businesses and any election we make to redeem our convertible senior notes. Further, 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 14, Commitments and Contingencies, in the Notes to our unaudited condensed consolidated financial statements for more information regarding this commitment. 38 Table of Contents 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. In the event that additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms, if at all. 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. Cash Flows The following table shows a summary of our cash flows for the six months ended June 30, 2025 and 2024: Six Months Ended June 30, 2025 2024 (in thousands) Cash, cash equivalents and restricted cash at beginning of period $ 342,101 $ 214,130 Net cash provided by operating activities 77,299 63,928 Net cash used in investing activities (120,530) (34,795) Net cash (used in) provided by financing activities (42,390) 3,361 Effects of exchange rates on cash, cash equivalents and restricted cash 4,847 (2,076) Cash, cash equivalents and restricted cash at end of period $ 261,327 $ 244,548 Uses of Funds Our historical uses of cash have primarily consisted of cash used for operating activities such as expansion of our sales and marketing operations, research and development activities and other working capital needs, as well as cash used for business acquisitions and purchases of property and equipment, including leasehold improvements for our facilities. Operating Activities Operating activities provided $77.3 million of cash and cash equivalents for the six months ended June 30, 2025, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments. Cash provided by operating activities reflected our net income of $10.4 million and a decrease in our net operating assets and liabilities of $8.3 million, offset by non-cash charges of $75.1 million related primarily to depreciation and amortization, stock-based compensation expense, amortization of debt issuance costs and other non-cash charges. The change in our net operating assets and liabilities was primarily due to a $13.2 million decrease in accrued expenses, a $12.3 million decrease in deferred revenue, a $5.8 million increase in prepaid expenses, a $1.2 million decrease in other liabilities and a $3.0 million decrease in accounts payable, which each had a negative impact on operating cash flow. These factors were offset by a $17.5 million decrease in accounts receivable and a $9.8 million decrease in deferred contract acquisition and fulfillment costs, which each had a positive impact on operating cash flow. Operating activities provided $63.9 million of cash and cash equivalents in the six months ended June 30, 2024, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments. Cash provided by operating activities reflected our net income of $10.5 million and a decrease in our net operating assets and liabilities of $23.6 million, offset by non-cash charges of $77.1 million related primarily to depreciation and amortization, stock-based compensation expense, deferred income taxes, amortization of debt issuance costs and other non-cash charges. The change in our net operating assets and liabilities was primarily due to a decrease in deferred revenue and the timing of payments of operating expenses, including payout of annual bonuses and year-end commissions and other compensation costs and accounts payable, partially offset by a decrease in accounts receivable due to an increase in cash collections from our customers. Investing Activities Investing activities used $120.5 million of cash for the six months ended June 30, 2025, consisting of $111.5 million in purchases of investments, net of sales/maturities, $8.0 million for capitalization of internal-use software costs, and $2.3 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by $1.3 million in proceeds from other investments. Investing activities used $34.8 million of cash in the six months ended June 30, 2024, consisting of $28.0 million in purchases of investments, net of sales/maturities, $6.3 million for capitalization of internal-use software costs, and $0.9 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by proceeds of $0.4 million from other investing activities. 39 Table of Contents Financing Activities Financing activities used $42.4 million for the six months ended June 30, 2025, which consisted primarily of $46.0 million in conversion of convertible senior notes, $1.9 million in withholding taxes paid for the net share settlement of equity awards, and $1.3 million in debt issuance costs, partially offset by $4.4 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. Financing activities provided $3.4 million of cash in the six months ended June 30, 2024, which consisted primarily of $5.0 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc. 2015 Employee Stock Purchase Plan (“ESPP”) and $1.4 million in proceeds from the exercise of stock options, partially offset by $3.1 million in withholding taxes paid for the net share settlement of equity awards. Contractual Obligations and Commitments As of June 30, 2025, there were no additional material changes from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025 (the “Annual Report”) other than the cloud services agreement discussed in Note 14, Commitments and Contingencies , in the notes to our unaudited condensed consolidated financial statements. Off-Balance Sheet Arrangements We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. Critical Accounting Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. There have been no material changes in our critical accounting policies from those disclosed in our Annual Report.