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Item 7. Management’s Discussion and Analysis

2026-02-19 compared with 2025-02-28 · 246 added, 284 removed, 236 unchanged (69% of the section changed)

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

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

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

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

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”).

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.

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

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.

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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 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.

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• 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.

Our Incident Command, Exposure Command, 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, which consists of term licenses.

• 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.

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

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

For the years ended December 31, 2025, 2024 and 2023, recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 96%, 96%, and 95% respectively, of total revenue.

Immaterial Correction of an Error

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99, Materiality , and SAB No.

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

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

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 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 19, Immaterial Correction of an Error , in the notes to our consolidated financial statements for further information.

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

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:

Year Ended December 31,

2024 2023 2022

(dollars in thousands)

Total revenue $ 844,007 $ 777,707 $ 685,083

Year-over-year growth 8.5 % 13.5 % 28.0 %

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

Non-GAAP operating margin 19.4 % 13.1 % 4.4 %

Free cash flow $ 154,083 $ 84,034 $ 40,677

As of December 31,

(dollars in thousands)

Annualized recurring revenue (“ARR”) $ 839,819 $ 805,670

Year-over-year growth 4.2 % 12.8 %

Number of customers 11,727 11,526

Year-over-year growth 1.7 % 5.5 %

ARR per customer $ 71.6 $ 69.9

Year-over-year growth 2.5 % 7.0 %

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, which are both non-GAAP financial measures, to analyze our financial results.

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

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.

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

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

ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates and does not include revenue reported as 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 customers of only InsightOps or Logentries that have a contract value of 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.

Non-GAAP Financial Results

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, 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 (loss) and non-GAAP net income per share as the respective GAAP balances excluding the effect of stock-based compensation expense, amortization of acquired intangible assets, amortization of debt issuance costs and certain other items such as acquisition-related expenses, litigation-related expenses, impairment of long-lived assets, induced conversion expense, change in the fair value of derivative assets, restructuring expense and discrete tax items.

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

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

• 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 our former revolving credit facility is a non-cash item and we believe the exclusion of this interest expense provides a more useful comparison of our operational performance in different periods.

• Induced conversion expense.

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

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

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

• Change in fair value of derivative assets.

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

• Impairment of long-lived assets.

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

• Restructuring expense.

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

• Discrete tax items.

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

• Anti-dilutive impact of capped call transactions.

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

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

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

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

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

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

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

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

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

Year Ended December 31,

2024 2023 2022

(in thousands)

GAAP total gross profit $ 592,972 $ 545,661 $ 470,734

Stock-based compensation expense 12,208 11,005 10,367

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

Non-GAAP total gross profit $ 622,343 $ 575,052 $ 499,594

Year Ended December 31,

2024 2023 2022

(in thousands)

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

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

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

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

Year Ended December 31,

2024 2023 2022

(in thousands)

GAAP gross profit – professional services $ 9,613 $ 8,633 $ 5,411

Stock-based compensation expense 1,832 2,566 2,805

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

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

Year Ended December 31,

2024 2023 2022

(in thousands)

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

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

Amortization of acquired intangible assets 19,951 21,499 21,983

Acquisition-related expenses (1)

Litigation-related expenses — — 115

Impairment of long-lived assets — 30,784 —

Restructuring expense (2)

(190) 22,227 —

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

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

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

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

Year Ended December 31,

2024 2023 2022

(in thousands, except share and per share data)

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

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

Amortization of acquired intangible assets 19,951 21,499 21,983

Acquisition-related expenses 751 363 —

Litigation-related expenses — — 115

Amortization of debt issuance costs 4,447 4,138 4,085

Induced conversion expense — 53,889 —

Change in fair value of derivative assets — 15,511 —

Impairment of long-lived assets — 30,784 —

Restructuring expense (190) 22,227 —

Discrete tax items 4,692 — —

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

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

Numerator for non-GAAP earnings per share calculation $ 169,423 $ 109,899 $ 22,868

Weighted average shares used in GAAP earnings per share calculation, basic 62,607,583 60,756,087 58,552,065

Dilutive effect of convertible senior notes (1) 11,183,611 10,429,891 5,803,831

Dilutive effect of employee equity incentive plans (2) 576,068 916,134 1,251,725

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

Non-GAAP net income per share:

Basic $ 2.61 $ 1.76 $ 0.36

Diluted $ 2.28 $ 1.52 $ 0.35

(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.

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

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

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

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

Year Ended December 31,

2024 2023 2022

(in thousands)

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

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

Interest expense 10,963 64,700 10,982

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

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

Depreciation expense 11,059 14,047 13,571

Amortization of intangible assets 33,834 31,892 27,467

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

Acquisition-related expenses 751 363 —

Litigation-related expenses — — 115

Impairment of long-lived assets — 30,784 —

Restructuring expense (190) 22,227 —

Adjusted EBITDA $ 188,450 $ 126,661 $ 49,441

The following table reconciles net cash provided by operating activities to free cash flow for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

2024 2023 2022

(in thousands)

Net cash provided by operating activities $ 171,670 $ 104,278 $ 78,204

Purchases of property and equipment (3,425) (4,366) (20,382)

Capitalized internal-use software costs (14,162) (15,878) (17,145)

Free cash flow $ 154,083 $ 84,034 $ 40,677

Components of Results of Operations

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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.

We expect our cost of revenue to increase on an absolute dollar basis as we continue to grow our revenue over time.

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.

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Operating Expenses

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

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

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

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

Additional expenses include third-party infrastructure costs,

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

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 capitalized commissions, bonuses and stock-based compensation.

Sales and marketing expense consists of personnel costs for our sales and marketing team, including salaries and other payroll related costs, commissions, including amortization of 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.

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

Impairment of Long-Lived Assets

Restructuring Expense

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

For further information, refer to Note 18, Restructuring , in the Notes to our Consolidated Financial Statements.

Interest Income

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Interest Expense

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

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.

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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 (Benefit from) Income Taxes

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

Provision (Benefit) for Income Taxes

Provision (Benefit) 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 December 31, 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.

However, we may release some of these valuation allowances in future periods if positive evidence, such as projection of sustained future growth, supports the realization of such deferred tax assets.

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

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

Results of Operations

The following table presents the consolidated statement of operations data (in thousands):

Year Ended December 31,

2025 2024 2023

(in thousands)

Consolidated Statement of Operations Data:

Product subscriptions $ 831,325 $ 808,906 $ 740,168

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Interest expense (10,436) (10,963) (64,700)

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

Other income (expense), net 6,030 (3,680) (14,522)

Income (loss) before income taxes 30,181 41,455 (153,333)

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

Provision (benefit) for income taxes 6,800 15,929 (518)

Net income (loss) $ 23,381 $ 25,526 $ (152,815)

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

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

Year Ended December 31,

2025 2024 2023

(in thousands)

Stock-based compensation expense:

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2025 2024 2023

(in thousands)

Depreciation and amortization expense:

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2025 2024 2023

Consolidated Statement of Operations Data:

Product subscriptions 96.7 % 95.8 % 95.2 %

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Interest expense (1.2) (1.3) (8.3)

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

Other income (loss), net 0.7 (0.4) (1.9)

Income (loss) before income taxes 3.5 5.0 (19.7)

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

Provision (benefit) for income taxes 0.8 1.9 (0.1)

Net income (loss) 2.7 % 3.1 % (19.6) %

Comparison of the Year Ended December 31, 2024 and 2023

Comparison of the Years Ended December 31, 2025 and 2024

All numbers presented below are in thousands, except for percentages.

Year Ended December 31, Change

2025 2024 $ %

(dollars in thousands)

Product subscriptions $ 831,325 $ 808,906 $ 22,419 2.8 %

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Total revenue $ 859,794 $ 844,007 $ 15,787 1.9 %

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

The $60.2 million increase in revenue from existing customers was due to an increase in revenue from renewals, upsells and cross-sells as a result of the continued growth

of our existing customer base.

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

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

The increase in total revenue for the year ended December 31, 2025 as compared to the same period in 2024 was primarily driven by renewals, upselling activities, and cross-selling initiatives conducted with the existing customer base, reflecting sustained expansion among existing customers.

This increase in revenue was partially offset by a decline in revenue generated from new customers during the respective periods, as compared to the revenue derived from new customers in the corresponding periods of the prior year.

Cost of Revenue

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2025 2024 $ %

(dollars in thousands)

Cost of revenue:

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Total gross margin % 70.3 % 70.3 %

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

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

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

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

The increase in total cost of revenue for the year ended December 31, 2025 as compared to the same period in 2024 was primarily driven by an increase in cloud computing costs of $5.2 million and a $3.0 million increase in amortization expense for capitalized internally-developed software, software subscriptions of $0.7 million, and royalties of $0.3 million.

The increase was partially offset by a decrease in personnel costs of $5.8 million, driven by a shift in the nature of certain roles and responsibilities between product delivery and sales support functions of approximately $13.0 million, partially offset by an increase of $7.2 million in personnel costs primarily related to expanding D&R and managed product support.

Operating Expenses

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2025 2024 $ %

(dollars in thousands)

Research and development $ 190,660 $ 173,126 $ 17,534 10.1 %

% of revenue 22.2 % 20.5 %

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

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

Research and development expenses increased for the year ended December 31, 2025 as compared to the same period in 2024, primarily driven by an increase in personnel cost, inclusive of stock-based compensation, of $14.5 million, third-party cloud infrastructure costs of $2.6 million and professional fees of $1.3 million related to the development of new and enhanced products.

Sales and Marketing Expense

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2025 2024 $ %

(dollars in thousands)

Sales and marketing $ 317,665 $ 298,809 $ 18,856 6.3 %

% of revenue 36.9 % 35.4 %

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

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

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

Sales and marketing expenses increased for the year ended December 31, 2025 as compared to the same period in 2024, primarily driven by an increase in personnel costs of $14.6 million driven by a shift in the nature of certain roles and responsibilities between product delivery and sales support functions of $13.0 million.

The increase in sales and marketing expense was additionally driven by an increase in marketing and advertising costs of $3.1 million related to external marketing events and related activities and an increase of $1.2 million related to office expenses from internal corporate events, partially offset by a decrease in amortization expense of $1.1 million.

General and Administrative Expense

1 unchanged sentence

2025 2024 $ %

(dollars in thousands)

General and administrative $ 84,861 $ 86,002 $ (1,141) (1.3) %

% of revenue 9.9 % 10.2 %

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

Impairment of Long-Lived Assets

Year Ended December 31, Change

2024 2023 $ %

(dollars in thousands)

Impairment of long-lived assets $ — $ 30,784 $ (30,784) 100.0 %

% of revenue — % 4.0 %

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

Los Angeles, California;

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

Restructuring

Year Ended December 31, Change

2024 2023 $ %

(dollars in thousands)

Restructuring $ — $ 22,227 $ (22,227) 100.0 %

% of revenue — % 2.9 %

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

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

General and administrative expenses decreased for the year ended December 31, 2025 as compared to the same period in 2024, primarily driven by a decrease in hosting expenses of $1.8 million associated with enterprise softwares and cloud computing costs, a decrease in professional fees of $0.9 million from investor related expenses, and a decrease in office related expenses of $0.9 million partially offset by an increase in personnel costs of $1.6 million.

Interest Income

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2025 2024 $ %

(dollars in thousands)

Interest income $ 23,019 $ 21,063 $ 1,956 9.3 %

% of revenue 2.7 % 2.5 %

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

Interest income increased for the year ended December 31, 2025 compared to the same period in 2024, primarily due to higher average investment balances this year compared to prior year, as well as favorable market interest rates.

Interest Expense

1 unchanged sentence

2025 2024 $ %

(dollars in thousands)

Interest expense $ (10,436) $ (10,963) $ 527 (4.8) %

% of revenue (1.2) % (1.3) %

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

Other Expense, Net

Interest expense remained consistent in the year ended December 31, 2025 compared to the same period in 2024.

Other Income (Expense), Net

Year Ended December 31, Change

2025 2024 $ %

(dollars in thousands)

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

Other income (expense), net $ 6,030 $ (3,680) $ 9,710 (263.9) %

% of revenue 0.7 % (0.4) %

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

Provision for (Benefit from) Income Taxes

Other income (expense), net increased for the year ended December 31, 2025 compared to the same period due to gains on foreign currency transactions 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

Year Ended December 31, Change

2025 2024 $ %

(dollars in thousands)

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

Provision for income taxes $ 6,800 $ 15,929 $ (9,129) (57.3) %

% of revenue 0.8 % 1.9 %

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

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

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

Comparison of the Year Ended December 31, 2023 and 2022

We have elected not to include a discussion of our consolidated results for 2023 compared to 2022 in this report in reliance upon Instruction 1 to Item 303(b) of Regulation S-K.

This discussion can be found in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 26, 2024.

Provision for income taxes decreased by $9.1M in 2025 compared to 2024.

This decrease was driven by a $3.2M decrease in the domestic provision and a $5.9M decrease in the international provision for the year ended December 31, 2025.

decrease in the domestic provision is primarily related to the immediate expensing of domestic research and development costs from the One Big Beautiful Bill Act ("OBBBA") provisions and the international provision decrease is primarily related to tax expense recorded in 2024 for an intercompany sale of intellectual property as part of post-acquisition strategy related to the acquisition of Minerva Labs Ltd..

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.

These key metrics also facilitate management's internal comparisons to our historical performance as well as comparisons to certain competitors' operating results.

Year Ended December 31,

2025 2024 2023

Total revenue $ 859,794 $ 844,007 $ 777,707

Year-over-year growth 1.9 % 8.5 % 13.5 %

Non-GAAP income from operations $ 135,732 $ 163,508 $ 102,221

Non-GAAP operating margin 15.8 % 19.4 % 13.1 %

Free cash flow $ 130,122 $ 154,083 $ 84,034

As of December 31,

Annualized recurring revenue (“ARR”) $ 839,850 $ 839,819

Year-over-year change — % 4.2 %

Number of customers 11,674 11,727

Year-over-year change (0.5) % 1.7 %

ARR per customer $ 71.9 $ 71.6

Year-over-year change — % 2.5 %

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, which are 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.

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.

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 active contracts as of the last day of the period.

ARR is measured at a specific point in time and does not incorporate consideration of any anticipated contract terminations or other prospective events, regardless of whether such events may exert a favorable or adverse influence on the metric.

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.

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.

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.

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, induced conversion expense, change in the fair value of derivative assets, restructuring expense and discrete tax items.

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.

• 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 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.

• 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.

• Anti-dilutive impact of capped call transaction.

Our Capped Calls are intended to offset potential dilution from the conversion features in our convertible senior notes.

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.

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.

The following tables reconcile GAAP gross profit to non-GAAP gross profit for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Year Ended December 31,

2025 2024 2023

GAAP total gross profit $ 604,754 $ 592,972 $ 545,661

Stock-based compensation expense 9,641 12,208 11,005

Amortization of acquired intangible assets 17,693 17,163 18,386

Non-GAAP total gross profit $ 632,088 $ 622,343 $ 575,052

Year Ended December 31,

2025 2024 2023

GAAP gross profit – product subscriptions $ 601,206 $ 583,359 $ 537,028

Stock-based compensation expense 7,464 10,376 8,439

Amortization of acquired intangible assets 17,693 17,163 18,386

Non-GAAP gross profit – product subscriptions $ 626,363 $ 610,898 $ 563,853

Year Ended December 31,

2025 2024 2023

GAAP gross profit – professional services $ 3,548 $ 9,613 $ 8,633

Stock-based compensation expense 2,177 1,832 2,566

Non-GAAP gross profit – professional services $ 5,725 $ 11,445 $ 11,199

The following table reconciles GAAP income (loss) from operations to non-GAAP income from operations for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Year Ended December 31,

2025 2024 2023

GAAP income (loss) from operations $ 11,568 $ 35,035 $ (84,288)

Stock-based compensation expense 104,335 107,961 111,636

Amortization of acquired intangible assets 19,296 19,951 21,499

Acquisition-related expenses (1)

Impairment of long-lived assets — — 30,784

Restructuring expense (2)

— (190) 22,227

Non-GAAP income from operations $ 135,732 $ 163,508 $ 102,221

(1) For the years ended December 31, 2025, 2024 and 2023, acquisition-related expenses included $0.5 million, $0.8 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 year ended December 31, 2024, restructuring expense was recorded within general and administrative expense in our consolidated statement of operations.

The following table reconciles GAAP net income (loss) to non-GAAP net income for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Year Ended December 31,

2025 2024 2023

GAAP net income (loss) $ 23,381 $ 25,526 $ (152,815)

Stock-based compensation expense 104,335 107,961 111,636

Amortization of acquired intangible assets 19,296 19,951 21,499

Acquisition-related expenses 533 751 363

Amortization of debt issuance costs 4,211 4,447 4,138

Induced conversion expense — — 53,889

Restructuring expense — (190) 22,227

Discrete tax items — 4,692 —

Non-GAAP net income $ 151,756 $ 163,138 $ 107,232

Interest expense of convertible senior notes (1)

5,595 6,285 6,462

Numerator for non-GAAP earnings per share calculation $ 157,351 $ 169,423 $ 113,694

Weighted average shares used in GAAP earnings per share calculation, basic 64,727,551 62,607,583 60,756,087

Dilutive effect of convertible senior notes (1)

10,679,754 11,183,611 10,429,891

Dilutive effect of employee equity incentive plans (2)

275,587 576,068 916,134

Weighted average shares used in non-GAAP earnings per share calculation, diluted 75,682,892 74,367,262 72,102,112

Non-GAAP net income per share:

Basic $ 2.34 $ 2.61 $ 1.76

Diluted $ 2.08 $ 2.28 $ 1.58

(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 year ended December 31, 2025, the 2029 Notes, 2027 Notes and 2025 Notes were dilutive, for the year ended December 31, 2024 the 2029 Notes, 2027 Notes and 2025 Notes were dilutive, and for the year ended December 31, 2023 the 2029 Notes and 2027 Notes were dilutive and the 2025 Notes were anti-dilutive.

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

The following table reconciles GAAP net income (loss) to adjusted EBITDA for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Year Ended December 31,

2025 2024 2023

GAAP net income (loss) $ 23,381 $ 25,526 $ (152,815)

Interest income (23,019) (21,063) (10,177)

Interest expense 10,436 10,963 64,700

Other (income) expense, net (6,030) 3,680 14,522

Provision (benefit) for income taxes 6,800 15,929 (518)

Depreciation expense 9,767 11,059 14,047

Amortization of intangible assets 35,669 33,834 31,892

Stock-based compensation expense 104,335 107,961 111,636

Acquisition-related expenses 533 751 363

Impairment of long-lived assets — — 30,784

Restructuring expense — (190) 22,227

Adjusted EBITDA $ 161,872 $ 188,450 $ 126,661

The following table reconciles net cash provided by operating activities to free cash flow for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Year Ended December 31,

2025 2024 2023

Net cash provided by operating activities $ 153,827 $ 171,670 $ 104,278

Purchases of property and equipment (7,599) (3,425) (4,366)

Capitalized internal-use software costs (16,106) (14,162) (15,878)

Free cash flow $ 130,122 $ 154,083 $ 84,034

Liquidity and Capital Resources

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

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

As of December 31, 2025, we had $246.7 million in cash and cash equivalents, $412.1 million in investments that have maturities ranging from one to fourteen months and an accumulated deficit of $964.7 million.

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.

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

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

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

Our foreseeable cash needs, in addition to our recurring operating expenses, include our expected capital expenditures to support expansion of our infrastructure and workforce, office facilities lease obligations, purchase commitments, including our cloud infrastructure services, potential future acquisitions of technology businesses and any election we make to redeem our convertible senior notes, including our 2025 Notes which mature on May 1, 2025.

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

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

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.

We are presently in full compliance with all applicable covenants.

Furthermore, there exists a more than adequate capacity with respect to the affirmative covenants.

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.

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 15, Commitments and Contingencies , in the Notes to our consolidated financial statements for more information regarding this commitment.

In addition, certain measures have been implemented to prepare for the scheduled maturity and complete repayment of the 2027 Notes, which are due on March 15, 2027.

As an integral component of these measures, cash management procedures have been refined to ensure the availability of adequate liquidity, thereby supporting uninterrupted operations and facilitating the fulfillment of obligations related to the 2027 Notes without the incurrence of additional indebtedness.

Furthermore, the investment policy has been revised to restrict all new investments to instruments with maturities not exceeding twelve months.

These actions collectively reinforce the organization’s commitment to prudent financial management and maintenance of a robust liquidity position.

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

1 unchanged sentence

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

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

The following table shows a summary of our cash flows for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Year Ended December 31,

2025 2024 2023

(in thousands)

Cash, cash equivalents and restricted cash at beginning of period $ 342,101 $ 214,127 $ 207,804

1 unchanged sentence

Net cash used in investing activities (209,439) (46,522) (178,754)

Net cash provided by financing activities 5,582 79,597 7,416

Net cash (used in) provided by financing activities (45,504) 5,582 79,597

Effects of exchange rates on cash, cash equivalents and restricted cash 5,679 (2,756) 1,202

4 unchanged sentences

Operating activities provided $153.8 million of cash and cash equivalents for the year ended December 31, 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 was primarily driven by a net income of $23.4 million in addition to the significant beneficial adjustments to reconcile net income to net cash provided from operating activities of $104.3 million in stock-based compensation expense from stock awards granted to new and existing employees in order to attract and retain talent, $45.4 million of depreciation, from our fixed assets, and amortization, primarily from our internally-developed software and acquired intangibles.

These cash provided amounts were offset by negative working capital for the year of $15.5 million, primarily driven by a decrease in accounts payable of $8.9 million resulting from expense being paid and less cash collected for future performance obligations resulting in a decrease in deferred revenue of $8.4 million.

Operating activities provided $171.7 million of cash and cash equivalents for the year ended December 31, 2024, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments.

Cash provided by operating activities reflected our net income of $25.5 million and a decrease in our net operating assets and liabilities of $10.4 million, offset by non-cash charges of $156.6 million related primarily to depreciation and amortization, stock-based compensation expense, deferred income taxes, amortization of debt issuance costs and other non-cash charges.

The change in our net operating assets and liabilities was primarily due to a $9.8 million decrease in accrued expenses, a $5.5 million increase in accounts receivable, a $0.8 million decrease in deferred revenue and a $4.2 million increase in deferred contract acquisition and fulfillment costs, which each had a negative impact on operating cash flow.

These factors were offset by a $4.3 million increase in other liabilities, a $2.8 million decrease in prepaid expenses and a $2.8 million increase in accounts payable, which each had a positive impact on operating cash flow.

Operating activities provided $104.3 million of cash and cash equivalents for the year ended December 31, 2023, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments.

Cash provided by operating activities reflected our net loss of $149.3 million and an increase in our net operating assets and liabilities of $0.4 million, offset by non-cash charges of $253.2 million related primarily to depreciation and amortization, stock-based compensation expense, deferred income taxes, impairment of long-lived assets, change in fair value of derivative assets, amortization of debt issuance costs and other non-cash charges.

The change in our net operating assets and liabilities was primarily due to a $30.5 million increase in deferred revenue due to increased billings and a $5.4 million increase in accounts payable and a $2.4 million increase in accrued expenses, which each had a positive impact on operating cash flow.

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

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

These factors

were offset by a $4.3 million increase in other liabilities, a $2.8 million decrease in prepaid expenses and a $2.8 million increase in accounts payable, which each had a positive impact on operating cash flow.

Investing Activities

Investing activities used $209.4 million of cash for the year ended December 31, 2025, primarily driven $533.3 million in purchases of investments, which was partially offset by $351.3 million in proceeds from investment as we strategically utilize our cash to maximize return;

$16.1 million for capitalization of internal-use software costs as we continue to develop new products and enhance our existing product catalog, and $7.6 million in capital expenditures to purchase computer equipment to support new and existing employees and leasehold improvements related to the new leases entered into in 2025.

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

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

Financing Activities

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

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

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

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

Financing activities used $45.5 million for the year ended December 31, 2025, which consisted primarily of $46.0 million of cash paid relating to the repayment of our 2025 convertible senior note, $4.1 million in cash paid relating to the earnout from our Noetic acquisition, and $3.0 million in withholding taxes paid for the net share settlement of equity awards, partially offset by cash provided by the purchase of stock by our employees through the employee stock purchase plan.

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

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

Off-Balance Sheet Arrangements

16 unchanged sentences

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

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

partner or direct).

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

When not regularly sold on a stand-alone basis, we estimate SSP for our products and services utilizing historical sales data, including discounts from list price.

When not regularly sold on a stand-alone basis, we estimate SSP for our products and services utilizing historical sales data, including discounts

from list price.

The historical data is aggregated and analyzed by geographic location and selling method to establish a median or average price.

Once SSP is established it is applied consistently to all transactions involving that product or service utilizing a portfolio approach.

Once SSP is established it is applied consistently to all transactions involving that product or service.

Deferred Contract Acquisition Costs

9 unchanged sentences

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What changed 10-K

Item 7. Management’s Discussion and Analysis