Rapid7 Inc

Previous wording

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 March 31, 2024, we had over 11,000 customers in 148 countries, including 47% of the Fortune 100. Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for the three months ended March 31, 2024 or 2023.

Current wording

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, 2024, we had over 11,000 customers in 147 countries, including 46% of the Fortune 100. Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for three and six months ended June 30, 2024 or 2023.

Previous wording

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

Current wording

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

Previous wording

We define non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share as the respective GAAP balances excluding the effect of stock-based compensation expense, amortization of acquired intangible assets, amortization of debt issuance costs and certain other items such as acquisition-related expenses, restructuring expense and discrete tax items. Non-GAAP net income per basic and diluted share is calculated as non-GAAP net income divided by the weighted average shares used to compute net income per share, with the number of weighted average shares decreased, when applicable, to reflect the anti-dilutive impact of the capped call transactions entered into in connection with our convertible senior notes.

Current wording

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, 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.

Previous wording

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.

Current wording

We define adjusted EBITDA as net income before (1) interest income, (2) interest expense, (3) other (income) expense, net, (4) provision for income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, (8) acquisition-related expenses, (9) impairment of long-lived assets and (10) restructuring expense. We believe that the use of adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Our total cost of revenue consists of the costs of products 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.

Current wording

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.

Previous wording

Total revenue increased by $21.9 million in the three months ended March 31, 2024 compared to the same period in 2023. The $21.9 million increase in revenue consisted of a $1.9 million increase in revenue from new customers and a $20.0 million increase in revenue from existing customers. The $20.0 million increase in revenue from existing customers was due to an increase in revenue from renewals, upsells and cross-sells as a result of the continued growth of our existing customer base. Revenue from new customers represents the revenue recognized from the customer's initial purchase.

Current wording

Total revenue increased by $17.6 million in the three months ended June 30, 2024 compared to the same period in 2023. The $17.6 million increase in revenue consisted of a $1.6 million increase in revenue from new customers and a $16.0 million increase in revenue from existing customers. The $16.0 million increase in revenue from existing customers was due to an increase in revenue from renewals, upsells and cross-sells as a result of the continued growth of our existing customer base. Revenue from new customers represents the revenue recognized from the customer's initial purchase.

Previous wording

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

Current wording

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

Previous wording

Total cost of revenue increased by $4.9 million in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a $6.1 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue, a $1.4 million increase in amortization expense for capitalized internally-developed software and a $0.5 million increase in other expenses. These increases were partially offset by a $3.1 million decrease in personnel costs, inclusive of a $0.3 million decrease in stock-based compensation expense, resulting from a decrease in headcount due to our Restructuring Plan.

Current wording

Total cost of revenue increased by $2.7 million in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $5.0 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue and a $1.0 million increase in amortization expense for capitalized internally-developed software. These increases were partially offset by a $3.0 million decrease in personnel costs, inclusive of a $0.1 million decrease in stock-based compensation expense, resulting from a decrease in headcount due to our Restructuring Plan, and a $1.0 million decrease in other expenses.

Previous wording

Total gross margin percentage increased for the three months ended March 31, 2024 compared to the same period in 2023. The products subscriptions gross margin was consistent year-over-year. The increase in professional services gross margin for the three months ended March 31, 2024 was primarily due to a decrease in personnel costs.

Current wording

Total gross margin percentage increased for the three months ended June 30, 2024 compared to the same period in 2023. The increase in product subscriptions gross margin for the three months ended June 30, 2024 was driven by our ability to scale as our revenue continues to grow. The increase in professional services gross margin for the three months ended June 30, 2024 was primarily due to a decrease in personnel costs.

Previous wording

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

Current wording

Sales and marketing expense decreased by $5.2 million in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a $6.2 million decrease in personnel costs, inclusive of a $0.6 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to our Restructuring Plan, and a $0.5 million decrease in marketing and advertising expenses. These decreases were partially offset by a $1.1 million increase in other expenses.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

As of March 31, 2024, we had $198.7 million in cash and cash equivalents, $265.5 million in investments that have maturities ranging from one to sixteen months and an accumulated deficit of $1.0 billion. Since our inception, we have generated significant losses and we may generate losses for the foreseeable future. Our principal sources of liquidity are cash and cash equivalents, investments, cash flow provided by operating activities and our Credit and Security Agreement (the “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.

Current wording

As of June 30, 2024, we had $237.0 million in cash and cash equivalents, $257.1 million in investments that have maturities ranging from one to fifteen months and an accumulated deficit of $1.0 billion. Since our inception, we have generated significant losses and we may generate losses for the foreseeable future. Our principal sources of liquidity are cash and cash equivalents, investments, cash flow provided by operating activities and our Credit and Security Agreement (the “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.

Previous wording

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

Current wording

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

Previous wording

Operating activities provided $31.1 million of cash and cash equivalents in the three months ended March 31, 2024, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments. Cash provided by operating activities reflected our net income of $2.3 million and a decrease in our net operating assets and liabilities of $10.1 million, offset by non-cash charges of $38.9 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.

Current wording

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.

Previous wording

Operating activities provided $5.8 million of cash and cash equivalents in the three months ended March 31, 2023, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments. Cash provided by operating activities reflected our net loss of $25.9 million and a decrease in our net operating assets and liabilities of $10.7 million, offset by non-cash charges of $42.4 million related primarily to depreciation and amortization, stock-based compensation expense, amortization of debt issuance costs and other non-cash charges. 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.

Current wording

Operating activities provided $37.1 million of cash and cash equivalents in the six months ended June 30, 2023, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments. Cash provided by operating activities reflected our net loss of $92.7 million and a decrease in our net operating assets and liabilities of $0.4 million, offset by non-cash charges of $130.3 million related primarily to depreciation and amortization, stock-based compensation expense, impairment of long-lived assets, change in fair value of derivative assets, amortization of debt issuance costs and other non-cash charges. The change in our net operating assets and liabilities was primarily due to a $12.0 million decrease in accrued expenses, primarily as a result of the payout of annual bonuses and year-end commissions, a $1.3 million decrease in accounts payable and a $6.0 million increase in deferred contract acquisition and fulfillment costs, which each had a negative impact on operating cash flow. These factors were offset by a $15.1 million decrease in accounts receivable due to an increase in collections, a $1.4 million decrease in prepaid expenses, a $1.8 million increase in deferred revenue and a $0.5 million increase in other liabilities, which each had a positive impact on operating cash flow.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Financing activities provided $4.4 million of cash in the three months ended March 31, 2024, which consisted primarily of $5.0 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc. 2015 Employee Stock Purchase Plan (“ESPP”) and $1.1 million in proceeds from the exercise of stock options, partially offset by $1.7 million in withholding taxes paid for the net share settlement of equity awards.

Current wording

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.

Previous wording

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

Current wording

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