[10-Q] Rapid7, Inc. Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Rhea-AI Filing Summary
Rapid7鈥檚 Q2-25 10-Q shows modest revenue growth with improved bottom-line and liquidity. Revenue rose 3% YoY to $214.2 m, led by subscription sales (97% mix). Gross margin was steady at 70.5%, but operating expenses grew 4%, trimming operating income 33% to $3.5 m (1.6% margin). A lower other-expense line and tax rate lifted net income 27% to $8.3 m, or diluted EPS of $0.13.
- Six-month results: revenue $424.4 m (+2.8%), net income $10.4 m.
- Cash flow: operating cash flow +21% YoY to $77.3 m; cash balance $261.3 m after higher investment outlays.
- Capital structure: equity strengthened to $90.4 m from $17.7 m YE-24; remaining convertible debt $890.3 m (2027 & 2029 notes) after repaying $46 m 2025 notes.
- Liquidity: new undrawn $200 m revolver; $6 m letters of credit outstanding.
- Obligations: amended AWS contract adds $660 m minimum spend (-$125 m/yr through 2029).
- Contingencies: Israel Tax Authority assessment 鈮�$88 m; company contests.
- M&A: Noetic Cyber acquisition closed July 2024; $12.8 m earn-out liability recorded.
Positive
- Net income up 27% YoY to $8.3 m; diluted EPS $0.13
- Operating cash flow climbed 21% to $77.3 m
- Retired remaining 2025 convertible notes, eliminating near-term maturities
- Stockholders鈥� equity improved to $90.4 m from $17.7 m YE-24
- Undrawn $200 m revolving credit facility enhances liquidity
Negative
- Revenue growth slowed to 3% YoY, below sector averages
- Operating income fell 33% YoY; margin only 1.6%
- Convertible debt still high at $890 m, interest coverage thin
- $660 m cloud-service purchase obligation adds significant fixed cost
- $88 m Israeli tax assessment could impact future earnings and cash
Insights
TL;DR: Solid cash flow and equity rebuild, but revenue growth remains sluggish and margin thin; outlook neutral.
Rapid7 eked out 3% top-line growth and held gross margin above 70%, yet operating leverage is limited鈥攐pex grew faster than revenue, compressing operating income. Positively, net EPS rose on interest income and tax normalization, and free cash flow covered retirement of 2025 notes. Stockholders鈥� equity jumped to $90 m, easing covenant flexibility ahead of the new $200 m revolver. Near-term catalysts are integration of Noetic and uptake of the Command Platform, but investors will want >10% ARR growth to justify the debt-weighted balance sheet. The $660 m AWS commitment and $88 m Israeli tax dispute add risk.
TL;DR: Debt profile stable post-redemption; liquidity sound, but fixed cloud spend and tax exposure temper credit upside.
After redeeming the 2025 notes, Rapid7鈥檚 nearest maturity shifts to 2027. Net cash is negative, yet $261 m cash, $338 m liquid investments and an undrawn $200 m revolver provide ample runway. Interest coverage (EBIT/interest) is a modest 1.3脳, so sustaining positive EBITDA is critical. The sizable AWS commitment effectively converts a variable cost into a fixed obligation, tightening future flexibility. The pending Israeli assessment could absorb ~10% of cash if paid. Overall credit stance is stable, but leverage reduction will require faster revenue expansion or equity issuance.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2025
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-37496
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
Registrant’s telephone number, including area code: (617 ) 247-1717
| Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: | ||||||||
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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☒ | Accelerated Filer | ☐ | |||||||||
| Non-accelerated Filer | ☐ | Small Reporting Company | |||||||||
| Emerging Growth Company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 1, 2025, there were 64,745,948 shares of the registrant’s common stock, $0.01 par value per share, outstanding.
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| Page | ||||||||
| PART I. | FINANCIAL INFORMATION | |||||||
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) | 1 | ||||||
Condensed Consolidated Balance Sheets | 1 | |||||||
Condensed Consolidated Statements of Operations | 2 | |||||||
Condensed Consolidated Statements of Comprehensive Income (Loss) | 3 | |||||||
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) | 4 | |||||||
Condensed Consolidated Statements of Cash Flows | 6 | |||||||
Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 40 | ||||||
| Item 4. | Controls and Procedures | 41 | ||||||
| PART II. | OTHER INFORMATION | 43 | ||||||
| Item 1. | Legal Proceedings | 43 | ||||||
| Item 1A. | Risk Factors | 43 | ||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 43 | ||||||
| Item 3. | Defaults Upon Senior Securities | 43 | ||||||
| Item 4. | Mine Safety Disclosures | 43 | ||||||
| Item 5. | Other Information | 43 | ||||||
| Item 6. | Exhibits | 45 | ||||||
Signatures | ||||||||
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
RAPID7, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data)
| June 30, 2025 | December 31, 2024 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Deferred contract acquisition and fulfillment costs, current portion | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Long-term investments | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Deferred contract acquisition and fulfillment costs, non-current portion | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Convertible senior notes, current portion, net | |||||||||||
| Operating lease liabilities, current portion | |||||||||||
| Deferred revenue, current portion | |||||||||||
| Total current liabilities | |||||||||||
| Convertible senior notes non-current portion, net | |||||||||||
| Operating lease liabilities, non-current portion | |||||||||||
| Deferred revenue, non-current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | $ | $ | |||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | $ | $ | |||||||||
Common stock, $ | |||||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Additional paid-in-capital | |||||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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RAPID7, INC.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Product subscriptions | $ | $ | |||||||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||||||||
| Product subscriptions | |||||||||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||||||||
| Total gross profit | |||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||||||||
Income from operations | |||||||||||||||||||||||||||||
Other income (expense), net: | |||||||||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||||||||
| Other income (expense), net | ( | ( | |||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income per share, basic | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income per share, diluted | $ | $ | $ | $ | |||||||||||||||||||||||||
| Weighted-average common shares outstanding, basic | |||||||||||||||||||||||||||||
| Weighted-average common shares outstanding, diluted | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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RAPID7, INC.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Change in fair value of cash flow hedges | ( | ( | |||||||||||||||||||||||||||
Adjustment for net losses (gains) realized on cash flow hedges and included in net income, net of taxes | ( | ( | |||||||||||||||||||||||||||
| Total change in unrealized gains (losses) on cash flow hedges | ( | ( | |||||||||||||||||||||||||||
Change in unrealized losses on investments | ( | ( | ( | ( | |||||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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RAPID7, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited)
Three Months Ended June 30, 2025 and 2024
(in thousands)
| Common stock | Treasury stock | Additional paid-in-capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes | ( | ( | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from aquisition | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive gain | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Common stock | Treasury stock | Additional paid-in-capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders’ deficit | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes | ( | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RAPID7, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited)
Six Months Ended June 30, 2025 and 2024
(in thousands)
| Common stock | Treasury stock | Additional paid-in-capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes | ( | ( | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Vesting of equity awards previously classified as liabilities | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock from acquisition | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive gain | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Common stock | Treasury stock | Additional paid-in-capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders’ deficit | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | ( | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes | ( | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Vesting of equity awards previously classified as liabilities | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RAPID7, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| Six Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | $ | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||
| Deferred income taxes | |||||||||||||||||
| Other | ( | ( | |||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| Accounts receivable | |||||||||||||||||
| Deferred contract acquisition and fulfillment costs | ( | ||||||||||||||||
| Prepaid expenses and other assets | ( | ||||||||||||||||
| Accounts payable | ( | ( | |||||||||||||||
| Accrued expenses | ( | ( | |||||||||||||||
| Deferred revenue | ( | ( | |||||||||||||||
| Other liabilities | ( | ||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of property and equipment | ( | ( | |||||||||||||||
| Capitalization of internal-use software | ( | ( | |||||||||||||||
| Purchases of investments | ( | ( | |||||||||||||||
| Sales and maturities of investments | |||||||||||||||||
| Other investing activities | |||||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Payment of debt issuance costs | ( | ||||||||||||||||
Payments for maturity of convertible senior notes | ( | ||||||||||||||||
| Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||||||||
| Proceeds from employee stock purchase plan | |||||||||||||||||
| Proceeds from stock option exercises | |||||||||||||||||
Issuance of common stock from acquisition | |||||||||||||||||
Net cash (used in) provided by financing activities | ( | ||||||||||||||||
| Effect of exchange rate changes on cash ,cash equivalents and restricted cash | ( | ||||||||||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||||||||
| Supplemental cash flow information: | |||||||||||||||||
| Cash paid for interest on convertible senior notes | $ | $ | |||||||||||||||
| Cash paid for income taxes, net of refund | |||||||||||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||
Restricted cash included in other assets | |||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||||||||
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RAPID7, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies
Description of Business
Rapid7, Inc. and subsidiaries (“we,” “us” or “our”) are advancing security with visibility, analytics, and automation delivered through our platform solutions. Our solutions simplify the complex, allowing security teams to work more effectively with IT and development to reduce vulnerabilities, monitor for malicious behavior, investigate and shut down attacks, and automate routine tasks.
Immaterial Correction of an Error
During the fourth quarter of 2024, we identified an immaterial error related to stock-based compensation expense associated with certain restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted during fiscal years 2023 and 2024 attributable to an improper valuation of the underlying awards, resulting in an understatement of stock-based compensation expense in 2023 and 2024. Based on an analysis of quantitative and qualitative factors in accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and as described further in Note 16, Immaterial Correction of an Error, we evaluated the errors and determined the related impacts were not material to our consolidated financial statements for the prior periods when they occurred, but that correcting the cumulative errors in the period detected would have been material to our results of operations for that period. Accordingly, we revised previously reported comparative financial information presented herein for such immaterial errors.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as well as pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), regarding interim financial reporting. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 28, 2025.
The condensed consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Significant Accounting Policies
Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no changes to the significant accounting policies during the six-month period ended June 30, 2025.
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Recent Accounting Pronouncements
Note 2. Revenue from Contracts with Customers
We generate revenue primarily from: (1) product subscriptions from the sale of cloud-based subscriptions, managed services, term software licenses, content subscriptions and maintenance and support associated with our software licenses and (2) professional services from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services.
Product Subscriptions
Product subscriptions consists primarily of revenue from our cloud-based subscription, managed services offerings, term software licenses, content subscriptions and maintenance and support associated with our software licenses.
•We generate cloud-based subscription revenue primarily from sales of subscriptions to access our cloud platform, together with related support services to our customers. These arrangements do not provide the customer with the right to take possession of our software operating on our cloud platform at any time. Instead, customers are granted continuous access to our cloud platform over the contractual period. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our cloud-based subscription contracts generally have annual or multi-year contractual terms which are billed in advance of the annual subscription period and are non-cancellable.
•Managed services offerings consist of fees generated when we operate our software and provide our capabilities on behalf of our customers. Revenue is recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our managed services offerings generally have annual or multi-year contractual terms which are billed in advance of the annual subscription period and are non-cancellable.
•For our term software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, we recognize the license revenue over the contractual term of the content subscription.
•Content subscriptions and our maintenance and support services are sold with our term software licenses. Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period.
Professional Services
All of our professional services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For the majority of these contracts, revenue is recognized over time based upon the proportion of work performed to date.
Contract Balances
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period consistent with the above methodology. For the three months ended June 30, 2025 and 2024, we recognized revenue of $187.3 million and $179.0 million, respectively, and for the six months ended June 30, 2025 and 2024, we recognized $321.8 million and $310.8 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.
We receive payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced. If the right to consideration is based on satisfaction of another performance obligation in the contract other than the passage of time, we record a contract asset. As of June 30, 2025 and December 31, 2024, unbilled receivables of $2.2 million and $2.5 million,
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respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet. As of June 30, 2025 and December 31, 2024, we had no
Transaction Price Allocated to the Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2025. The estimated revenues do not include unexercised contract renewals.
| Next Twelve Months | Thereafter | |||||||||||||
| (in thousands) | ||||||||||||||
| Product subscriptions | $ | $ | ||||||||||||
| Professional services | ||||||||||||||
| Total | $ | $ | ||||||||||||
Note 3. Business Combinations
Noetic Cyber, Inc.
On July 3, 2024, we acquired Noetic Cyber, Inc, (“Noetic”) a provider of cyber asset attack surface management, to extend Rapid7’s security operations platform by unlocking more accessible and accurate asset inventory in order to provide customers more comprehensive visibility to their attack surface, for a purchase price with an aggregate fair value of $51.2 million. The purchase consideration consisted of $38.6 million in cash paid at closing, $12.1 million of contingent consideration and $0.5 million of deferred cash payments. The deferred cash payments were held by Rapid7 to satisfy certain post-closing purchase price adjustments and payment was made during the fourth quarter of 2024.
Subject to the terms of the merger agreement, we are required to pay consideration of up to $20.0 million to Noetic shareholders based on the achievement of certain performance targets (the “Earnout Consideration”), measured annually upon the first, second and third anniversaries of the closing date of the transaction (the “Earnout Period”). If all performance targets are achieved, approximately $13.1 million of Earnout Consideration will be paid in cash, and the remaining $6.9 million of Earnout Consideration will be issued to certain employees in the form of shares of our common stock subject to continued employment requirements over the Earnout Period. The approximate $6.9 million of the Earnout Consideration that is subject to continued employment will be recognized as stock-based compensation expense over the required employment period. The fair value of the portion of the Earnout Consideration that is not subject to continued employment is included as part of purchase consideration at the date of the acquisition. As of July 3, 2024, we determined the fair value of the contingent purchase consideration to be $12.1 million. The fair value of the contingent purchase consideration will be reassessed each reporting period and any required adjustment will be recorded to general and administrative expense. As of June 30, 2025, the fair value of the contingent purchase consideration was $12.8 million of which $7.1 million was recorded within accrued expenses and other current liabilities and $5.7 million was recorded within other liabilities in our unaudited condensed consolidated balance sheet. For the three and six months ended June 30, 2025, we recorded approximately $0.2 million and $0.4 million of accretion expense related to the contingent purchase consideration to general and administrative expense.
In connection with the acquisition, we expect to issue an aggregate value of $2.3 million of our common stock to two key employees of Noetic in three installments over a 36 -month period following the closing date of the transaction, subject to continued employment requirements (the “Key Employee Consideration”), which therefore will be recognized as stock-based compensation expense over the required employment period.
In June 2025, the Company issued 31,911 shares of common stock as the first installment of common stock issued to the two key Noetic employees.
The number of shares to be issued at each issuance date for both the Earnout Consideration and the Key Employee Consideration will be determined by dividing the aggregate value by the fair market value of our common stock on the issuance date, and therefore will be liability-classified until the final issuance dates. In the three and six months ended June 30, 2025, we recognized stock-based compensation expense related to such shares in the amount of $1.0 million and $2.1 million.
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The following table summarizes the preliminary allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):
| Consideration: | ||||||||
| Cash | $ | |||||||
| Deferred cash consideration | ||||||||
| Contingent consideration | ||||||||
| Fair value of total consideration transferred | $ | |||||||
| Recognized amount of identifiable assets acquired and liabilities assumed: | ||||||||
| Cash and cash equivalents | $ | |||||||
| Accounts receivable | ||||||||
| Prepaid and other current assets | ||||||||
| Property and equipment, net | ||||||||
| Accrued expenses and other current liabilities | ( | |||||||
| Deferred revenue | ( | |||||||
| Other long-term liabilities | ( | |||||||
| Intangible asset | ||||||||
| Total identifiable net assets assumed | $ | |||||||
| Goodwill | ||||||||
| Total purchase price allocation | $ | |||||||
We identified developed technology as the sole acquired intangible asset. The estimated fair value of the developed technology intangible asset was $11.5 million which was based on a valuation using a probability weighted expected return model (“PWERM”). The estimated useful life of the developed technology is 7 years.
The excess of the purchase price over the tangible assets acquired, identifiable intangible asset acquired and assumed liabilities was recorded as goodwill. We believe that the amount of goodwill reflects the expected synergistic benefits of being able to leverage the integration of the technology acquired with our existing product offerings and being able to successfully market and sell these new features to our customer base. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible asset were not deductible for tax purposes.
Our revenue and net loss attributable to the Noetic business for the six months ended June 30, 2025 were not material.
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Note 4. Investments
Our investments, which are all classified as available-for-sale, consisted of the following:
| June 30, 2025 | ||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Description: | ||||||||||||||||||||||||||
| U.S government agencies | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Total assets | $ | $ | $ | ( | $ | |||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Description: | |||||||||||||||||||||||
| U.S government agencies | $ | $ | $ | ( | $ | ||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
As of June 30, 2025 and December 31, 2024, our available-for-sale investments had maturities ranging from 1 to 18 and from 1 to 17 months, respectively.
Note 5. Fair Value Measurements
We measure certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.
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The following table presents our financial assets and liabilities measured and recorded at fair value on a recurring basis using the above input categories:
| As of June 30, 2025 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Description: | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| U.S. government agencies | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets) | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration (other current liabilities and other long-term liabilities) | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Description: | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| U.S. government agencies | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets and other assets) | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration (other current liabilities and other long-term liabilities) | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency forward contracts designated as cash flow hedges (other current liabilities) | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
Cash and cash equivalents are excluded from the table above as carrying amounts reported in our unaudited condensed consolidated balance sheet equal or approximate fair value. As of June 30, 2025, the fair value of our 0.25 % and 1.25 % convertible senior notes due 2027 and 2029, as further described in Note 10, Debt, was $556.5 million and $265.1 million, respectively, based upon quoted market prices. We consider the fair value of the Notes (as defined in Note 10, Debt) to be a Level 2 measurement due to limited trading activity of the Notes. As of June 30, 2025, the fair value of our contingent consideration, as further described in Note 3, Business Combinations, was $12.8 million and is classified as a Level 3 measurement based on inputs not observable in the market.
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Note 6. Property and Equipment
Property and equipment are recorded at cost and consist of the following:
| June 30, | December 31, | ||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Computer equipment and software | $ | $ | |||||||||
| Furniture and fixtures | |||||||||||
| Leasehold improvements | |||||||||||
| Total | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
Note 7. Goodwill and Intangibles
Goodwill was $575.3
The following table presents details of our intangible assets which include acquired identifiable intangible assets and capitalized internal-use software costs:
| Weighted- Average Estimated Useful Life (years) | As of June 30, 2025 | As of December 31, 2024 | |||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||||||||||||||||||||
| Developed technology | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Trade names | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total acquired intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Internal-use software | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
Intangible assets are expensed on a straight-line basis over the useful life of the asset. Amortization expense was $9.0 million and $8.1 million for the three months ended June 30, 2025 and 2024, respectively, and $17.9 million and $16.5 million for the six months ended June 30, 2025 and 2024, respectively.
Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of June 30, 2025 was as follows (in thousands):
| 2025 (for the remaining six months) | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 and thereafter | |||||
| Total | $ | ||||
The table above excludes the impact of $9.1 million of capitalized internal-use software costs for projects that have not been completed as of June 30, 2025, and therefore, all the costs associated with these projects have not been incurred.
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Note 8. Deferred Contract Acquisitions and Fulfillment Costs
The following table summarizes the activity of the deferred contract acquisition and fulfillment costs, which primarily consist of capitalized sales commissions, for the six months ended June 30, 2025 and 2024:
| Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Beginning balance | |||||||||||
| Capitalization of contract acquisition and fulfillment costs | |||||||||||
| Amortization of deferred contract acquisition and fulfillment costs | ( | ( | |||||||||
| Ending balance | |||||||||||
Note 9. Derivative and Hedging Activities
To mitigate our exposure to foreign currency fluctuations resulting from certain expenses denominated in certain foreign currencies, we enter into forward contracts that are designated as cash flow hedging instruments. These forward contracts have contractual maturities of eighteen months 57.8 million and $50.4 million, respectively. The notional value represents the gross amount of foreign currency that will be bought or sold upon maturity of the forward contract. During the three and six months ended June 30, 2025 and 2024, all cash flow hedges were considered effective. Refer to Note 5, Fair Value Measurements, for the fair values of our outstanding derivative instruments.
Note 10. Debt
Convertible Senior Notes
In May 2020, we issued $230.0 million aggregate principal amount of convertible senior notes due May 1, 2025 (the “2025 Notes”), in March 2021, we issued $600.0 million aggregate principal amount of convertible senior notes due March 15, 2027 (the “2027 Notes”), and in September 2023, we issued $300.0 million aggregate principal amount of convertible senior notes due March 15, 2029 (the “2029 Notes”) (collectively, the “Notes”). In September 2023, we used $201.0 million of the proceeds from the issuance of the 2029 Notes to repurchase and retire $184.0 million aggregate principal amount of the 2025 Notes and paid accrued and unpaid interest thereon. Further details of the Notes are as follows:
| Issuance | Maturity Date | Interest Rate | First Interest Payment Date | Effective Interest Rate | Semi-Annual Interest Payment Dates | Initial Conversion Rate per $1,000 Principal | Initial Conversion Price | Number of Shares (in millions) | ||||||||||||||||||||||||||||||||||||||||||
| 2025 Notes | May 1, 2025 | November 1, 2020 | May 1 and November 1 | 16.3875 | $ | |||||||||||||||||||||||||||||||||||||||||||||
| 2027 Notes | March 15, 2027 | September 15, 2021 | March 15 and September 15 | 9.6734 | $ | |||||||||||||||||||||||||||||||||||||||||||||
| 2029 Notes | March 15, 2029 | March 15, 2024 | March 15 and September 15 | 15.4213 | $ | |||||||||||||||||||||||||||||||||||||||||||||
On May 1, 2025, the Company paid $46.5 million to redeem the outstanding portion of the 2025 Notes, including the outstanding principal amount and accrued interest through the maturity date of the 2025 Notes.
The 2027 Notes and the 2029 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures between the Company, as issuer, and U.S. Trust Company, Bank National Association, as trustee (the “Indentures”). The total net proceeds from the 2025 Notes, the 2027 Notes and the 2029 Notes offerings, after deducting initial purchase discounts and debt issuance costs, were $222.8 million, $585.0 million and $292.0 million, respectively.
As of June 30, 2025, the 2027 Notes and the 2029 Notes were not convertible at the option of the holders.
The holders may convert the 2027 Notes and the 2029 Notes at any time on or after December 15, 2026 and December 15, 2028, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the circumstances set forth above. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in the manner and subject to the terms and conditions provided in the Indentures.
If we undergo a fundamental change (as set forth in the Indentures) at any time prior to the maturity date, holders of the Notes will have the right, at their option, to require us to repurchase for cash all or any portion of their Notes at a repurchase price
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equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, in each case as described in the Indentures, we will increase the conversion rate for a holder of the Notes who elects to convert its Notes in connection with such a corporate event or during the related redemption period in certain circumstances.
For additional details on the terms of our Notes, see Note 11, Debt, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.
Accounting for the Notes
In accounting for the issuance of the Notes, the principal less debt issuance costs are recorded as debt on our unaudited condensed consolidated balance sheet. The debt issuance costs are amortized to interest expense using the effective interest method over the contractual term of the Notes.
The net carrying amount of the Notes as of June 30, 2025 and December 31, 2024 was as follows (in thousands):
| 2025 Notes | 2027 Notes | 2029 Notes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principal | Unamortized debt issuance costs | Total | Principal | Unamortized debt issuance costs | Total | Principal | Unamortized debt issuance costs | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principal payment upon maturity | ( | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
Interest expense related to the Notes was as follows (in thousands):
Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 Notes | 2027 Notes | 2029 Notes | Total | 2025 Notes | 2027 Notes | 2029 Notes | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contractual interest expense | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 Notes | 2027 Notes | 2029 Notes | Total | 2025 Notes | 2027 Notes | 2029 Notes | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contractual interest expense | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capped Calls
In connection with the offering of the 2025 Notes, the 2027 Notes and the 2029 Notes, we entered into privately negotiated capped call transactions with certain counterparties (the “2025 Capped Calls”, “2027 Capped Calls” and “2029 Capped Calls”) (collectively, the “Capped Calls”).
The Capped Calls are expected to reduce potential dilution to our common stock upon conversion of a given series of notes and/or offset any cash payments that we are required to make in excess of the principal amount of converted notes of such series, as the case may be, with such reduction and/or offset subject to a cap. The Capped Calls are subject to adjustment upon the occurrence of certain specified extraordinary events affecting us, including merger events, tender offers and announcement events. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions.
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The following table sets forth other key terms and premiums paid for the Capped Calls related to each series of Notes:
| Capped Calls Entered into in Connection with the Issuance of the 2025 Notes | Capped Calls Entered into in Connection with the Issuance of the 2027 Notes | Capped Calls Entered into in Connection with the Issuance of the 2029 Notes | ||||||||||||||||||
| Initial strike price, subject to certain adjustments | $ | $ | $ | |||||||||||||||||
| Cap price, subject to certain adjustments | $ | $ | $ | |||||||||||||||||
| Total premium paid (in thousands) | $ | $ | $ | |||||||||||||||||
| Expiration dates | March 4, 2025 - April 29, 2025 | January 1, 2027 - March 11, 2027 | February 13, 2029 - March 13, 2029 | |||||||||||||||||
The 2025 Capped Calls expired in full on April 29, 2025. The Company did not elect to exercise any portion of the 2025 Capped Calls prior to expiration.
For additional details on the terms of our Capped Calls, see Note 11, Debt, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.
For accounting purposes, the 2025 Capped Calls, the 2027 Capped Calls and the 2029 Capped Calls are separate transactions, and not part of the terms of the 2025 Notes, the 2027 Notes and the 2029 Notes. The 2025 Capped Calls, 2027 Capped Calls and 2029 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives.
Credit Agreement
On June 25, 2025 (the "Closing Date"), the Company entered into a credit agreement (the "Credit Agreement"), by and among the Company, Rapid7 LLC, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, that provides for a $200.0 million revolving credit facility with a letter of credit sublimit of $20.0 million. The Credit Agreement allows for incremental facilities up to the greater of $141 million or 75 % of Consolidated EBITDA (as defined in the Credit Agreement). Additional incremental facilities may be incurred, subject to certain conditions. We incurred fees of $1.6 million in connection with entering into the Credit Agreement. The fees are recorded in other current and non-current assets on the consolidated balance sheet and are amortized on a straight-line basis over the contractual term of the arrangement. Under the terms of the Credit Agreement, we are required to pay a commitment fee on the unused portion of the credit facility. The commitment fee rate is determined by the total net leverage ratio of the Company and its subsidiaries, ranging from 0.20 % to 0.25 % per annum on the unused portion of the credit facility. The commitment fee is expensed as incurred and included within interest expense on the condensed consolidated statement of operations. The Credit Agreement matures on the fifth anniversary of the Closing Date or, if certain specified liquidity conditions are not satisfied, 91 days prior to the earliest maturity date of either the 2027 or the 2029 Notes. The Credit Agreement also contains certain affirmative and negative covenants, including a requirement to maintain a minimum interest coverage ratio for the duration of the Credit Agreement and a maximum net leverage ratio.
The borrowings under the Credit Agreement bear interest at a variable annual rate based on either the Secured Overnight Financing Rate (SOFR) subject to a floor of zero or alternate base rate plus, in each case, a fixed margin, which varies depending on the Company’s net leverage ratio. As of June 30, 2025, we did not have any outstanding borrowings under the Credit Agreement.
As of June 30, 2025, we had a total of $6.0 million in letters of credit outstanding as collateral for certain office space leases which reduce the amount of borrowing availability under our Credit Agreement.
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Note 11. Stock-Based Compensation
(a) General
Stock-based compensation expense for restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), stock options and purchase rights issued under our employee stock purchase plan was classified in the accompanying unaudited condensed consolidated statements of operations as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense: | |||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
We recognize compensation cost of all awards on a straight-line basis over the applicable vesting period, which is generally three to four years .
Our Compensation Committee adopted and approved the performance goals, targets and payout formulas for our 2025 and 2024 bonus plans, including permitting our executive officers and certain other employees the opportunity to receive payment of their earned bonuses in the form of common stock (in lieu of cash). During each of the three months ended June 30, 2025 and 2024, we recognized stock-based compensation expense related to such bonuses in the amount of $0.4 million and $0.4 million, respectively, and during the six months ended June 30, 2025 and 2024, we recognized stock-based compensation expense in the amount of $0.7 million and $0.5 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of June 30, 2025 and 2024. For employees, including executive officers, who elect to receive their bonuses in the form of common stock (in lieu of cash), the payouts are expected to be made in the form of fully vested stock awards in the first quarter of the following year pursuant to our 2015 Equity Incentive Plan, as amended. The number of shares underlying such awards is determined by dividing the dollar value of the actual bonus award payment by the closing price per share of our common stock on the date of grant.
(b) Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units
| Shares | Weighted- Average Grant Date Fair Value | ||||||||||
| Unvested balance as of December 31, 2024 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited | ( | $ | |||||||||
| Unvested balance as of June 30, 2025 | $ | ||||||||||
As of June 30, 2025, the unrecognized compensation expense related to our unvested RSUs and PSUs was $91.6 million. This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 1.15 years.
In January 2025, our Compensation Committee awarded 181,067 PSUs that required the achievement of net annualized recurring revenue (“Net ARR”) and Adjusted EBITDA targets for the 2025 fiscal-year to earn any payout. Net ARR is defined as the change in the annual value of all recurring revenue related to contracts in place at year end. In addition, the portion of the PSUs that are earned would be capped at a maximum of 200 % of the target level payout and if certain net ARR or Adjusted EBITDA goals were not met, no PSUs will be earned. The PSUs have a performance period of one year and the earned PSUs will vest in three equal installments following each of the first, second and third anniversary of the vesting commencement date, subject to the participant’s continuous service as of
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each such date. In the three and six months ended June 30, 2025, we recorded $0.6 million and $1.1 million, respectively, of stock-based compensation expense related to these PSUs based on estimated achievement of the performance criteria.
(c)Stock Options
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding as of December 31, 2024 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | $ | $ | ||||||||||||||||||||
| Forfeited/cancelled | ( | $ | $ | — | |||||||||||||||||||
| Outstanding as of June 30, 2025 | $ | $ | |||||||||||||||||||||
| Vested and exercisable as of June 30, 2025 | $ | $ | |||||||||||||||||||||
(d)Employee Stock Purchase Plan
Under the Rapid7, Inc. 2015 Employee Stock Purchase Plan ("ESPP"), employees may set aside up to 15 % of their gross earnings, on an after-tax basis, to purchase our common shares at a discounted price, which is calculated at 85 % of the lesser of: (i) the market value of our common stock at the beginning of each offering period and (ii) the market value of our common stock on the applicable purchase date.
On March 14, 2025, we issued 186,793 shares of common stock to employees, with a purchase price of $23.79 per share, for aggregate proceeds of $4.4 million.
Note 12. Income Taxes
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Our effective tax rates for the three and six months ended June 30, 2025 and 2024 are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| Effective Tax Rate | % | % | % | % | |||||||||||||||||||||||||
The primary reconciling items between the Federal statutory tax rate of 21% and our overall effective rate for the three and six months ended June 30, 2025 were due to foreign taxes on our international operations, state income taxes, and the impact of valuation allowance on deferred tax assets.
The primary reconciling items between the Federal statutory tax rate of 21% and our overall effective rate for the three and six months ended June 30, 2024 were due to foreign taxes on our international operations, state income taxes, the impact of valuation allowance on deferred tax assets, and certain discrete items.
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Note 13. Net Income per Share
The following table summarizes the computation of basic and diluted net income per share of our common stock for the three months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||||||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||||||||||||||||||||
| Net income used to calculate net income, basic | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||||||||||||||||||||
| Weighted-average common shares outstanding, basic | |||||||||||||||||||||||||||||||||||||||||
| Weighted-average effect of dilutive shares: | |||||||||||||||||||||||||||||||||||||||||
| Dilutive effect of equity incentive plans | |||||||||||||||||||||||||||||||||||||||||
| Dilutive effect of convertible senior notes | |||||||||||||||||||||||||||||||||||||||||
| Weighted-average common shares outstanding, diluted | |||||||||||||||||||||||||||||||||||||||||
| Net income per share, basic | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net income per share, diluted | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
We intend to settle any conversion of our 2027 Notes and 2029 Notes in cash, shares, or a combination thereof. The dilutive impact of the Notes for our calculation of diluted net income per share is considered using the if-converted method. For the three and six months ended June 30, 2025 and 2024, the shares underlying the Notes were not considered in the calculation of diluted net income per share as the effect would have been anti-dilutive.
In connection with the issuance of the 2025 Notes, the 2027 Notes and the 2029 Notes, we entered into the 2025 Capped Calls, 2027 Capped Calls and 2029 Capped Calls, which were not included for the purpose of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.
As of June 30, 2025, the 2027 Notes and the 2029 Notes were not convertible at the option of the holder. As of June 30, 2024, the 2025 Notes, the 2027 Notes and the 2029 Notes were not convertible at the option of the holder. We had not received any conversion notices through the issuance date of our unaudited condensed consolidated financial statements. For disclosure purposes, we have calculated the potentially dilutive effect of the conversion spread, which is included in the table below. The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Options to purchase common stock | ||||||||||||||||||||||||||
| Unvested restricted stock units | ||||||||||||||||||||||||||
| Common stock issued in conjunction to acquisitions | ||||||||||||||||||||||||||
| Shares to be issued under ESPP | ||||||||||||||||||||||||||
| Convertible senior notes | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
Note 14. Commitments and Contingencies
(a) Purchase Obligations
In January 2025, we amended our contract with a cloud services provider which increased our total purchase obligation to $660 million, including a minimum purchase commitment of $125.0 35.0 million obligation over the five-year period.
(b) Warranty
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We provide limited product warranties. Historically, any payments made under these provisions have been immaterial.
(c)Litigation and Claims
From time to time, we may be a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
(d)Indemnification Obligations
We agree to standard indemnification provisions in the ordinary course of business. Pursuant to these provisions, we agree to indemnify, hold harmless and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our customers, in connection with any United States patent, copyright or other intellectual property infringement claim by any third party arising from the use of our products or services in accordance with the agreement or arising from our gross negligence, willful misconduct or violation of the law (provided that there is not gross or willful misconduct on the part of the other party) with respect to our products or services. The term of these indemnification provisions is generally perpetual from the time of execution of the agreement. We carry insurance that covers certain third-party claims relating to our services and limits our exposure. We have never incurred costs to defend lawsuits or settle claims related to these indemnification provisions.
As permitted under Delaware law, we have entered into indemnification agreements with our officers and directors, indemnifying them for certain events or occurrences while they serve as officers or directors of the company.
(d) Income Taxes
From time to time, we may receive income tax assessments from taxing authorities asserting additional tax liabilities owed by the Company. During the quarter ended June 30, 2024, we received an initial assessment from the Israel Tax Authority (“ITA”) of approximately 324 million Israeli New Shekels (approximately $88 million, based upon current exchange rates between the Israeli New Shekel and the US Dollar) related to fiscal year 2021. Based on our interpretation of the regulations and available case law, we believe that the tax positions we have taken on our filed tax return in Israel are sustainable and we intend to defend our position through all available means. As such, we have not recorded any impact of the ITA assessment in our unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2025. We are continuing to monitor developments related to this matter and its impact on our existing income tax reserves for all open years. If we are unsuccessful in sustaining our tax position in this matter, our financial condition and results of operations would be adversely affected.
Note 15. Segment Information and Information about Geographic Areas
We operate in a single reportable operating segment, providing product subscriptions and professional services to our customers. The operating segment’s accounting policies are consistent with those described in Note 1, Summary of Significant Accounting Policies. Our chief operating decision maker (“CODM”) is our Chief Executive Officer. One of the measures of profit or loss that is used by our CODM to assess performance and allocate resources is consolidated net income, as reported in the condensed consolidated statements of operations. Consolidated net income is used by our CODM in monitoring actual versus budgeted results as well as in benchmarking against our competitors, which are used in assessing performance of the segment.
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The following table includes segment revenue, segment profit or loss, significant segment expenses and other segment expenses for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||||||||
Adjusted total cost of revenue1 | |||||||||||||||||||||||||||||
Adjusted research and development1 | |||||||||||||||||||||||||||||
Adjusted sales and marketing1 | |||||||||||||||||||||||||||||
Adjusted general and administrative1 | |||||||||||||||||||||||||||||
Other segment expense, net2 | |||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||
1 Adjusted total cost of revenue excludes the impact of stock-based compensation expense and amortization of acquired intangible assets. Adjusted research and development excludes the impact of stock-based compensation expense. Adjusted sales and marketing excludes the impact of stock-based compensation and amortization of acquired intangible assets. Adjusted general and administrative excludes the impact of stock-based compensation, amortization of acquired intangible assets and acquisition-related expenses.
Net revenues by geographic area presented based upon the location of the customer are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||||||||
| Rest of world | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
Property and equipment, net by geographic area was as follows:
| As of June 30, 2025 | As of December 31, 2024 | |||||||||||||
| (in thousands) | ||||||||||||||
| United States | $ | $ | ||||||||||||
| Rest of World | ||||||||||||||
| Total | $ | $ | ||||||||||||
Note 16. Immaterial Correction of an Error
During the fourth quarter of 2024, we identified an immaterial error related to stock-based compensation expense associated with certain RSUs and PSUs granted during fiscal years 2023 and 2024 attributable to an improper valuation of the underlying awards, resulting in an understatement of stock-based compensation expense in 2023 and 2024.
In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the errors and determined that the related impact was not material to results of operations or financial position for any historical annual or interim period. As a result, we have corrected the errors by adjusting prior period financial statements
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Note 17. Subsequent Events
On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act ("OBBBA"). The OBBBA changes the current tax law related to both corporate income taxes and deferred tax assets and liabilities, which the Company currently accounts for under ASC 740, Income taxes ("ASC 740"). The income tax effects of a change in tax law on current taxes related to current year ordinary income and changes to deferred taxes arising subsequent to the date of enactment are included in the annual effective tax rate, beginning in the period of enactment. The Company is currently evaluating the impact of the OBBBA on its business, financial condition, and results of operations under ASC 740.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2024 included in our Annual Report on Form 10-K, filed with the SEC on February 28, 2025. Forward-looking statements in this review are qualified by the cautionary statement included under the next sub-heading, “Special Note Regarding Forward-Looking Statements”.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Statements that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:
• our ability to continue to add new customers, maintain existing customers and sell new products and professional services to new and existing customers;
• uncertain impacts that prolonged economic uncertainty may have on our business, strategy, operating results, financial condition and cash flows, as well as changes in overall level of software spending and volatility in the global economy;
• the effects of increased competition as well as innovations by new and existing competitors in our market;
• our ability to effectively restructure our business in alignment with our strategic priorities;
• our ability to adapt to technological change and effectively enhance, innovate and scale our solutions, including our Command Platform;
• our ability to effectively manage or sustain our growth and to sustain profitability;
• our ability to diversify our sources of revenue;
• potential acquisitions and integration of complementary business and technologies;
• our expected use of proceeds from future issuances of equity or convertible debt securities;
• our ability to maintain, or strengthen awareness of, our brand;
• perceived or actual security, integrity, reliability, quality or compatibility problems with our solutions, including problems related to systems, unscheduled downtime, outages or security breaches in our customers;
• statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance;
• our ability to meet publicly announced guidance or other expectations about our business, key metrics and future operating results;
• our ability to maintain an adequate annualized recurring revenue growth;
• our ability to attract and retain qualified employees and key personnel and further expand our overall headcount;
• our ability to grow, both domestically and internationally;
• our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
• our ability to maintain, protect and enhance our intellectual property;
• the outcomes of our initiatives that use artificial intelligence (“AI”);
• costs associated with defending intellectual property infringement and other claims; and
• the future trading prices of our common stock and the impact of securities analysts’ reports on these prices.
These statements represent the beliefs and assumptions of our management based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the
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timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part I, Item 1A. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.
As used in this report, the terms “Rapid7,” the “company,” “we,” “us,” and “our” mean Rapid7, Inc. and its subsidiaries unless the context indicates otherwise.
Overview
Rapid7 is a global cybersecurity software and service provider on a mission to create a safer digital world by making cybersecurity simpler and more accessible. For more than twenty years, Rapid7 has partnered with enterprises across the globe representing a diverse range of industries to improve the efficacy and productivity of their security operations (“SecOps”). In today's rapidly evolving IT environment, customers are encountering escalating challenges due to the widening spectrum of attackers and techniques, including the proliferation of cyberattacks leveraging artificial intelligence (“AI”) and targeted automation. We empower security professionals to manage a modern attack surface through our trusted AI infused technology, leading-edge research, and broad, strategic expertise. Rapid7’s comprehensive security solutions help our global customers unite exposure management with threat detection and response to reduce attack surfaces and eliminate threats with speed and precision.
Our Command Platform is anchored on our cloud security, security information and event management (“SIEM”), advanced detection and response, and vulnerability management offerings. Rapid7 enables the Security Operations Center (“SOC”) to understand their fragmented attack surface with attacker perspective, allowing them to proactively secure their attack surface and better detect and respond to threats. Enriched by years of managed services expertise, our integrated security operations platform enables SecOps teams to move away from a reactive approach, reduce their attack surface, and enhance response efficiency with a deep contextual understanding of their environment.
In the past few years, we have observed the industry undergoing a customer-driven shift to consolidated security platforms. As part of this transition, customers are moving away from cloud security as a specialized function towards cloud security as an integrated capability for SecOps teams. We view this as a demand driver for integrated SecOps, and believe that we have an opportunity to be a leader in delivering integrated risk and threat management across on-premise, cloud, and external attack surfaces. As we have shifted our strategic focus to SecOps consolidation, we are focused on continuing to drive innovation across our core products and capabilities to accelerate customer value and provide a frictionless and integrated cloud security experience.
As the threat landscape continues to grow in complexity, customers are demonstrating demand for integrated expertise to support them in effectively managing their security technologies. The convergence of these key trends – security consolidation, integrated cloud security, and expertise driven outcomes – are the foundation of what our customers require for the modern SOC. Our focus is to be the leading provider of integrated security operations solutions by providing exposure and threat management that leverages our ability to give customers command of their attack surface.
We market and sell our products and professional services to organizations of all sizes globally, including mid-market businesses, enterprises, non-profits, educational institutions and government agencies. Our customers span a wide variety of industries such as technology, energy, financial services, healthcare and life sciences, manufacturing, media and entertainment, retail, education, real estate, transportation, government and professional services. As of June 30, 2025, we had over 11,000 customers in 151 countries, including 40% of the Fortune 100. Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for the three and six months ended June 30, 2025 or 2024.
Recent Developments
Credit Agreement
On June 25, 2025 (the "Closing Date"), we entered into a credit agreement (the "Credit Agreement"), by and among the Company, Rapid7 LLC, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, that provides for a $200.0 million revolving credit facility with a letter of credit sublimit of $20.0 million. The Credit Agreement allows for incremental facilities up to the greater of $141 million or 75% of Consolidated EBITDA (as defined in the Credit Agreement). Additional incremental facilities may be incurred, subject to certain conditions. We incurred fees of $1.6 million in connection with entering into the Credit Agreement. The fees are recorded as other current assets on the consolidated balance sheet and are amortized on a straight-line basis over the contractual term of the arrangement. Under the terms of the Credit Agreement, we are required to pay a commitment fee on the unused portion of the credit facility. The commitment fee rate is determined by the total net leverage ratio of the Company and its subsidiaries, ranging from 0.20% to 0.25% per annum on the unused portion of
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the credit facility. The commitment fee is expensed as incurred and included within interest expense on the consolidated statement of operations. The Credit Agreement matures on the fifth-anniversary of the Closing Date or, if certain specified liquidity conditions are note satisfied, 91 days prior to the earliest maturity date of either the 2027 or the 2029 Notes. The Credit Agreement also contains certain affirmative and negative covenants, including a requirement to maintain a minimum interest coverage ratio for the duration of the Credit Agreement and a maximum net leverage ratio.
The borrowings under the Credit Agreement bear interest at a variable annual rate based on either the Secured Overnight Financing Rate (SOFR) subject to a floor of zero or alternate base rate plus, in each case, a fixed margin, which varies depending on the Company’s net leverage ratio. As of June 30, 2025, we did not have any outstanding borrowings under the Credit Agreement.
As of June 30, 2025, we had a total of $6.0 million in letters of credit outstanding as collateral for certain office space leases and corporate credit card programs which reduce the amount of borrowing availability under our Credit Agreement.
New U.S. Federal Tax Legislation
On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act ("OBBBA"). The OBBBA changes the current tax law related to both corporate income taxes and deferred tax assets and liabilities, which we currently accounts for under ASC 740, Income taxes ("ASC 740"). The income tax effects of a change in tax law on current taxes related to current year ordinary income and changes to deferred taxes arising subsequent to the date of enactment are included in the annual effective tax rate, beginning in the period of enactment. We are currently evaluating the impact of the OBBBA on its business, financial condition, and results of operations under ASC 740.
Our Business Model
We offer our products through a variety of delivery models to meet the needs of our diverse customer base, including:
•Cloud-based subscriptions, which provide our software capabilities to our customers through cloud access and on a subscription basis. Our InsightIDR, InsightCloudSec, InsightVM, InsightAppSec, InsightConnect and Threat Command products are offered as cloud-based subscriptions, with an option for a one or multi-year term.
•Managed services, through which we operate our products and provide our capabilities on behalf of our customers. Our Managed Vulnerability Management, Managed Detection and Response, and Managed Application Security products are offered on a managed service basis, pursuant to one or multi-year agreements.
•Licensed on-premise software consists of term licenses. When licensed on-premise software is purchased, maintenance and support and content subscriptions, as applicable, are bundled with the license for the term period. Our Nexpose and Metasploit products are offered through term software licenses with an option for one or multi-year terms. Our maintenance and support provides our customers with telephone and web-based support and ongoing bug fixes and repairs during the term of the maintenance and support agreement, and our customers who purchase our Nexpose and Metasploit products also purchase content subscriptions, which provide them with real-time access to the latest vulnerabilities and exploits.
Additionally, we offer our products through our consolidation offerings, which unify our products and services to our customers in a single package. Our Threat Complete and Cloud Risk Complete packages are offered as cloud based subscriptions, with an option for a one or multi-year term. Our Managed Threat Complete Offering is offered on a managed service basis, generally pursuant to one or multi-year agreements.
For the three and six months ended June 30, 2025 and 2024, recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 97%, and 96%, respectively, of total revenue.
Immaterial Correction of an Error
During the fourth quarter of 2024, we identified an immaterial error related to stock-based compensation expense associated with certain restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted during fiscal years 2023 and 2024 attributable to an improper valuation of the underlying awards, resulting in an understatement of stock-based compensation expense in 2023 and 2024. In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated the errors and determined the related impacts were not material to our unaudited consolidated financial statements for the prior periods when they occurred, but that correcting the cumulative errors in the period detected would have been material to our results of operations for that period. Accordingly, we revised previously reported comparative financial information presented herein for such immaterial errors. Refer to Note 16, Immaterial Correction of an Error, in the notes to our unaudited condensed consolidated financial statements for further information.
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Components of Results of Operations
Revenue
We generate revenue primarily from selling products and professional services through a variety of delivery models to meet the needs of our diverse customer base.
Product Subscriptions
We generate product subscriptions revenue from the sale of (1) cloud-based subscriptions, (2) managed services offerings, which utilize our products and (3) software licenses with related maintenance and support and content subscription, as applicable. Software license revenue consists of revenues from term licenses. When software licenses are purchased, maintenance and support and content subscription, as applicable, are bundled with the license for the term period.
Professional Services
We generate professional service revenue from the sale of deployment and training services related to our products, incident response services and security advisory services.
Cost of Revenue
Our total cost of revenue consists of the costs of product subscriptions and professional services, as noted below. In addition, cost of revenue includes overhead costs for depreciation, facilities, IT, information security, and recruiting. Our IT overhead costs include IT personnel compensation costs and costs associated with our IT infrastructure. All overhead costs are allocated based on relative headcount.
Cost of Product Subscriptions
Cost of product subscriptions consists of personnel and related costs for our content, support, managed service and cloud operations teams, including salaries and other payroll related costs, bonuses, stock-based compensation and allocated overhead costs. Also included in cost of products are software license fees, cloud computing costs and internet connectivity expenses directly related to delivering our products, amortization of contract fulfillment costs, as well as amortization of certain intangible assets including internally developed software.
Cost of Professional Services
Cost of professional services consists of personnel and related costs for our professional services team, including salaries and other payroll related costs, bonuses, stock-based compensation, costs of contracted third-party vendors, travel and entertainment expenses and allocated overhead costs.
We expect our cost of revenue to increase on an absolute dollar basis as we continue to grow our revenue.
Gross Margin
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our products and services, transaction volume growth, the mix of revenue between software licenses, cloud-based subscriptions, managed services and professional services and changes in cloud computing costs.
We expect our gross margins to fluctuate over time depending on the factors described above.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, general and administrative expenses, and restructuring. Operating expenses include overhead costs for depreciation, facilities, IT, information security and recruiting. Our IT overhead costs include IT personnel compensation costs and costs associated with our IT infrastructure. All overhead costs are allocated based on relative headcount. In the near term, we expect our operating expenses to increase as a percentage of revenue as we prioritize investments to drive growth.
Research and Development Expense
Research and development expense consists of personnel costs for our research and development team, including salaries and other payroll related costs, bonuses and stock-based compensation. Additional expenses include third-party infrastructure costs,
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travel and entertainment, consulting and professional fees for third-party development resources as well as allocated overhead costs.
Sales and Marketing Expense
Sales and marketing expense consists of personnel costs for our sales and marketing team, including salaries and other payroll related costs, commissions, including amortization of deferred commissions, bonuses and stock-based compensation. Additional expenses include marketing activities and promotional events, travel and entertainment, training costs, amortization of certain intangible assets and allocated overhead costs.
General and Administrative Expense
General and administrative expense consists of personnel costs for our executive, legal, human resources, and finance and accounting departments, including salaries and other payroll related costs, bonuses and stock-based compensation. Additional expenses include travel and entertainment, professional fees, litigation-related expenses, insurance, acquisition-related expenses, amortization of certain intangible assets and allocated overhead costs.
Interest Income
Interest income consists primarily of interest income on our cash and cash equivalents and our short and long-term investments.
Interest Expense
Interest expense consists primarily of contractual interest expense, amortization of debt issuance costs related to our convertible senior notes and revolving credit facility and induced conversion expense. We expect interest expense in the near term to represent contractual interest expense and amortization of debt issuance costs related to our convertible senior notes.
Other Income (Expense), Net
Other income (expense), net consists primarily of the change in fair value of derivative assets and unrealized and realized gains and losses related to changes in foreign currency exchange rates.
Provision for Income Taxes
Provision for income taxes consists of domestic and foreign taxes on income and withholding taxes. We maintain a substantially full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards and tax credits. We determined as of June 30, 2025 that it was more likely than not that these deferred tax assets will not be realized. However, we may release some of these valuation allowances in future periods if objective negative evidence of cumulative losses is no longer present and positive evidence, such as projection of future growth, supports the realization of such deferred tax assets. Release of all or a portion of these valuation allowances would result in a decrease in the provision for income taxes in the period of the release.
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Results of Operations
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Consolidated Statement of Operations Data: | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Product subscriptions | $ | 208,097 | $ | 200,067 | $ | 412,032 | $ | 396,985 | |||||||||||||||||||||
| Professional services | 6,096 | 7,924 | 12,414 | 16,107 | |||||||||||||||||||||||||
| Total revenue | 214,193 | 207,991 | 424,446 | 413,092 | |||||||||||||||||||||||||
Cost of revenue:(1) | |||||||||||||||||||||||||||||
| Product subscriptions | 57,236 | 55,107 | 111,604 | 109,841 | |||||||||||||||||||||||||
| Professional services | 5,823 | 5,885 | 10,935 | 12,145 | |||||||||||||||||||||||||
| Total cost of revenue | 63,059 | 60,992 | 122,539 | 121,986 | |||||||||||||||||||||||||
Operating expenses:(1) | |||||||||||||||||||||||||||||
| Research and development | 47,227 | 40,448 | 95,115 | 81,816 | |||||||||||||||||||||||||
| Sales and marketing | 79,247 | 78,126 | 158,647 | 151,221 | |||||||||||||||||||||||||
| General and administrative | 21,166 | 23,202 | 44,752 | 43,130 | |||||||||||||||||||||||||
| Total operating expenses | 147,640 | 141,776 | 298,514 | 276,167 | |||||||||||||||||||||||||
Income from operations | 3,494 | 5,223 | 3,393 | 14,939 | |||||||||||||||||||||||||
| Interest income | 5,514 | 5,221 | 11,272 | 9,941 | |||||||||||||||||||||||||
| Interest expense | (2,627) | (2,673) | (5,281) | (5,343) | |||||||||||||||||||||||||
Other income (loss), net | 3,957 | (695) | 5,759 | (2,130) | |||||||||||||||||||||||||
| Income before income taxes | 10,338 | 7,076 | 15,143 | 17,407 | |||||||||||||||||||||||||
| Provision for income taxes | 2,000 | 538 | 4,700 | 9,463 | |||||||||||||||||||||||||
| Net income | $ | 8,338 | $ | 6,538 | $ | 10,443 | $ | 7,944 | |||||||||||||||||||||
(1) Cost of revenue and operating expenses include stock-based compensation expense and depreciation and amortization expense as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Stock-based compensation expense: | |||||||||||||||||||||||||||||
| Cost of revenue | $ | 2,580 | $ | 3,270 | $ | 4,844 | $ | 5,941 | |||||||||||||||||||||
| Research and development | 10,250 | 8,989 | 20,636 | 16,933 | |||||||||||||||||||||||||
| Sales and marketing | 7,451 | 7,843 | 14,692 | 14,980 | |||||||||||||||||||||||||
| General and administrative | 7,300 | 8,964 | 14,560 | 16,957 | |||||||||||||||||||||||||
| Total stock-based compensation expense | $ | 27,581 | $ | 29,066 | $ | 54,732 | $ | 54,811 | |||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Depreciation and amortization expense: | |||||||||||||||||||||||||||||
| Cost of revenue | $ | 8,832 | $ | 7,926 | $ | 17,506 | $ | 16,226 | |||||||||||||||||||||
| Research and development | 648 | 839 | 1,558 | 1,698 | |||||||||||||||||||||||||
| Sales and marketing | 1,557 | 1,669 | 3,223 | 3,402 | |||||||||||||||||||||||||
| General and administrative | 353 | 437 | 768 | 893 | |||||||||||||||||||||||||
| Total depreciation and amortization expense | $ | 11,390 | $ | 10,871 | $ | 23,055 | $ | 22,219 | |||||||||||||||||||||
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The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| Consolidated Statement of Operations Data: | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Product subscriptions | 97.2 | % | 96.2 | % | 97.1 | % | 96.1 | % | |||||||||||||||||||||
| Professional services | 2.8 | 3.8 | 2.9 | 3.9 | |||||||||||||||||||||||||
| Total revenue | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||||||||
| Product subscriptions | 26.7 | 26.5 | 26.3 | 26.6 | |||||||||||||||||||||||||
| Professional services | 2.7 | 2.8 | 2.6 | 2.9 | |||||||||||||||||||||||||
| Total cost of revenue | 29.4 | 29.3 | 28.9 | 29.5 | |||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Research and development | 22.0 | 19.4 | 22.4 | 19.8 | |||||||||||||||||||||||||
| Sales and marketing | 37.0 | 37.6 | 37.4 | 36.6 | |||||||||||||||||||||||||
| General and administrative | 9.9 | 11.2 | 10.5 | 10.4 | |||||||||||||||||||||||||
| Total operating expenses | 68.9 | 68.2 | 70.3 | 66.8 | |||||||||||||||||||||||||
Income from operations | 1.6 | 2.5 | 0.8 | 3.7 | |||||||||||||||||||||||||
| Interest income | 2.6 | 2.5 | 2.7 | 2.4 | |||||||||||||||||||||||||
| Interest expense | (1.2) | (1.3) | (1.2) | (1.3) | |||||||||||||||||||||||||
Other income (loss), net | 1.8 | (0.3) | 1.4 | (0.5) | |||||||||||||||||||||||||
| Income before income taxes | 4.8 | 3.4 | 3.7 | 4.3 | |||||||||||||||||||||||||
| Provision for income taxes | 0.9 | 0.3 | 1.1 | 2.3 | |||||||||||||||||||||||||
| Net income | 3.9 | % | 3.1 | % | 2.6 | % | 2.0 | % | |||||||||||||||||||||
Comparison of the Three and Six Months Ended June 30, 2025 and 2024
Revenue
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Product subscriptions | $ | 208,097 | $ | 200,067 | $ | 8,030 | 4.0 | % | $ | 412,032 | $ | 396,985 | $ | 15,047 | 3.8 | % | |||||||||||||||||||||||||||||||
| Professional services | 6,096 | 7,924 | (1,828) | (23.1) | % | 12,414 | 16,107 | (3,693) | (22.9) | % | |||||||||||||||||||||||||||||||||||||
| Total revenue | 214,193 | $ | 207,991 | $ | 6,202 | 3.0 | % | $ | 424,446 | $ | 413,092 | $ | 11,354 | 2.7 | % | ||||||||||||||||||||||||||||||||
Total revenue increased by $6.2 million in the three months ended June 30, 2025 compared to the same period in 2024, due to a $9.1 million increase in revenue from existing customers, partially offset by a $2.9 million decrease in revenue from new customers. Total revenue increased by $11.4 million in the six months ended June 30, 2025 compared to the same period in 2024, due to an $17.2 million increase in revenue from existing customers, partially offset by a $5.8 million decrease in revenue from new customers. The increase in revenue from existing customers was due to an increase in revenue from renewals, upsells and cross-sells as a result of the continued growth of our existing customer base. Revenue from new customers represents the revenue recognized from the customer's initial purchase.
The increase in total revenue in the three months ended June 30, 2025 compared to the same period in 2024 was comprised of $1.2 million generated from sales in North America and $4.9 million generated from sales from the rest of the world. The increase in total revenue in the six months ended June 30, 2025 compared to the same period in 2024 was comprised of $1.9 million generated from sales in North America and $9.4 million generated from sales from the rest of the world.
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Cost of Revenue
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Product subscriptions | $ | 57,236 | $ | 55,107 | $ | 2,129 | 3.9 | % | $ | 111,604 | $ | 109,841 | $ | 1,763 | 1.6 | % | |||||||||||||||||||||||||||||||
| Professional services | 5,823 | 5,885 | (62) | (1.1) | % | 10,935 | 12,145 | (1,210) | (10.0) | % | |||||||||||||||||||||||||||||||||||||
| Total cost of revenue | 63,059 | $ | 60,992 | $ | 2,067 | 3.4 | % | $ | 122,539 | $ | 121,986 | $ | 553 | 0.5 | % | ||||||||||||||||||||||||||||||||
| Gross margin %: | |||||||||||||||||||||||||||||||||||||||||||||||
| Products | 72.5 | % | 72.5 | % | 72.9 | % | 72.3 | % | |||||||||||||||||||||||||||||||||||||||
| Professional services | 4.5 | % | 25.7 | % | 11.9 | % | 24.6 | % | |||||||||||||||||||||||||||||||||||||||
| Total gross margin % | 70.6 | % | 70.7 | % | 71.1 | % | 70.5 | % | |||||||||||||||||||||||||||||||||||||||
Total cost of revenue increased by $2.1 million in the three months ended June 30, 2025 compared to the same period in 2024, due to a $1.6 million increase in cloud computing costs, a $0.6 increase in amortization expense for capitalized internally-developed software, a $0.4 million increase in royalties and subscriptions and a $0.6 million increase in other expenses. These increases were partially offset by a $1.1 million decrease in personnel costs, inclusive of a $3.8 million decrease due to a shift in the nature of certain roles and responsibilities between product delivery and sales support functions which were partially offset by a $2.7 million increase due to an increase in headcount excluding the aforementioned shift in roles.
Total cost of revenue increased by $0.6 million in the six months ended June 30, 2025 compared to the same period in 2024, due to a $3.1 million increase in cloud computing costs, a $0.9 million increase in amortization expense for capitalized internally-developed software, a $0.9 million increase in royalties and subscriptions and a $0.8 million increase in other expenses. These increases were partially offset by a $3.2 million decrease in personnel costs, inclusive of a $6.0 million decrease due to a shift in the nature of certain roles and responsibilities between product delivery and sales support functions which were partially offset by a $2.8 million increase due to an increase in headcount excluding the aforementioned shift in roles, a $1.0 million decrease on third-party professional services consulting spend primarily driven by a related decrease in professional services revenue, and a $0.9 million decrease in allocated overhead costs.
Total gross margin percentage increased for the three and six months ended June 30, 2025 compared to the same period in 2024, primarily due to an increase in products gross margin due to the decrease in personnel costs described above.
Operating Expenses
Research and Development Expense
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 47,227 | $ | 40,448 | $ | 6,779 | 16.8 | % | $ | 95,115 | $ | 81,816 | $ | 13,299 | 16.3 | % | |||||||||||||||||||||||||||||||
| % of revenue | 22.0 | % | 19.4 | % | 22.4 | % | 19.8 | % | |||||||||||||||||||||||||||||||||||||||
Research and development expense increased by $6.8 million in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to a $4.7 million increase in personnel costs, inclusive of a $1.3 million increase in stock-based compensation expense resulting from an increase in headcount, a $1.3 million increase in third-party cloud infrastructure costs related to new product development and a $0.8 million increase in other expenses.
Research and development expense increased by $13.3 million in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to a $9.0 million increase in personnel costs, inclusive of a $3.7 million increase in stock-based compensation expense resulting from an increase in headcount, a $2.2 million increase in third-party cloud infrastructure costs related to new product development, a $0.8 million increase in allocated overhead costs and a $1.3 million increase in other expenses.
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Sales and Marketing Expense
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 79,247 | $ | 78,126 | $ | 1,121 | 1.4 | % | $ | 158,647 | $ | 151,221 | $ | 7,426 | 4.9 | % | |||||||||||||||||||||||||||||||
| % of revenue | 37.0 | % | 37.6 | % | 37.4 | % | 36.6 | % | |||||||||||||||||||||||||||||||||||||||
Sales and marketing expense increased by $1.1 million in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to a $0.7 million increase in personnel costs, inclusive of a $3.8 million increase driven by a shift in the nature of certain roles and responsibilities between product delivery and sales support functions partially offset by a $3.1 million decrease due to decreased headcount excluding the aforementioned shift in roles, a $0.7 million increase in allocated overhead expenses and a $0.4 million increase in commissions expense. These increases were partially offset by a $0.7 million decrease in other expenses.
Sales and marketing expense increased by $7.4 million in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to a $2.1 million increase in personnel costs, inclusive of a $6.0 million increase driven by a shift in the nature of certain roles and responsibilities between product delivery and sales support functions partially offset by a $3.9 million decrease due to decreased headcount excluding the aforementioned shift in roles, a $2.7 million increase in commissions expense, a $1.1 million increase in office related expenses driven by higher costs related to corporate events and related activities, a $0.7 million increase in marketing and advertising expense and a $0.7 million increase in other expenses.
General and Administrative Expense
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 21,166 | $ | 23,202 | $ | (2,036) | (8.8) | % | $ | 44,752 | $ | 43,130 | $ | 1,622 | 3.8 | % | |||||||||||||||||||||||||||||||
| % of revenue | 9.9 | % | 11.2 | % | 10.5 | % | 10.4 | % | |||||||||||||||||||||||||||||||||||||||
General and administrative expense decreased by $2.0 million in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to a $1.3 million decrease in charitable contributions and taxes, a $0.8 million decrease in personnel costs and a $0.5 million decrease in operating expenses largely related to bad debt expense. These decreases were partially offset by a $0.5 million increase in professional fees.
General and administrative expense increased by $1.6 million in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to a $2.3 million increase in professional fees related to accounting, legal and corporate advisory services and a $0.7 million increase in operating expenses largely related to bad debt expense. These increases were partially offset by a $1.0 million decrease related to charitable contributions and taxes and a $0.7 million decrease in personnel cost.
Interest Income
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | 5,514 | $ | 5,221 | $ | 293 | 5.6 | % | $ | 11,272 | $ | 9,941 | $ | 1,331 | 13.4 | % | |||||||||||||||||||||||||||||||
| % of revenue | 2.6 | % | 2.5 | % | 2.7 | % | 2.4 | % | |||||||||||||||||||||||||||||||||||||||
Interest income increased by $0.3 million in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to higher interest income as a result of an increase in cash and cash equivalents and investments as well as favorable market conditions.
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Interest income increased by $1.3 million in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to higher interest income as a result of an increase in cash and cash equivalents and investments as well as favorable market conditions.
Interest Expense
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | $ | (2,627) | $ | (2,673) | $ | 46 | (1.7) | % | $ | (5,281) | $ | (5,343) | $ | 62 | (1.2) | % | |||||||||||||||||||||||||||||||
| % of revenue | (1.2) | % | (1.3) | % | (1.2) | % | (1.3) | % | |||||||||||||||||||||||||||||||||||||||
Interest expense remained consistent in the three and six months ended June 30, 2025 compared to the same period in 2024.
Other Income (Expense), Net
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | $ | 3,957 | $ | (695) | $ | 4,652 | (669.4) | % | $ | 5,759 | $ | (2,130) | $ | 7,889 | (370.4) | % | |||||||||||||||||||||||||||||||
| % of revenue | 1.8 | % | (0.3) | % | 1.4 | % | (0.5) | % | |||||||||||||||||||||||||||||||||||||||
Other income (expense), net increased by $7.9 million in the six months ended June 30, 2025 compared to the same period in 2024, due to favorable market conditions resulting in an increase in unrealized gains primarily related to the British Pound Sterling and recognition of realized gains during the period.
Provision for Income Taxes
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 2,000 | $ | 538 | $ | 1,462 | 271.7 | % | $ | 4,700 | $ | 9,463 | $ | (4,763) | (50.3) | % | |||||||||||||||||||||||||||||||
| % of revenue | 0.9 | % | 0.3 | % | 1.1 | % | 2.3 | % | |||||||||||||||||||||||||||||||||||||||
Provision for income taxes increased by $1.5 million in the three months ended June 30, 2025 compared to the same period in 2024 primarily due to increased pre-tax earnings in the current period, resulting in an increase in domestic and international taxes.
Provision for income taxes decreased by $4.8 million in the six months ended June 30, 2025 compared to the same period in 2024 primarily due to $6.4 million of tax expense recorded in the prior period for an intercompany sale of intellectual property as part of post-acquisition strategy related to the acquisition of Minerva Lab Ltd., partially offset by an increase in domestic and international taxes in the current period.
Key Metrics
We monitor the following key metrics to help us measure and evaluate the effectiveness of our operations and as a means to evaluate period-to-period comparisons. We believe that both management and investors benefit from referring to these key metrics as supplemental information in assessing our performance and when planning, forecasting, and analyzing future periods. These key metrics also facilitate management's internal comparisons to our historical performance as well as comparisons to certain competitors' operating results. We believe these key metrics are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and also because they are used by institutional investors and the analyst community to help evaluate the health of our business:
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| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 214,193 | $ | 207,991 | $ | 424,446 | $ | 413,092 | |||||||||||||||||||||||||||||||||
| Year-over-year growth | 3.0 | % | 9.2 | % | 2.7 | % | 10.6 | % | |||||||||||||||||||||||||||||||||
| Non-GAAP income from operations | $ | 36,348 | $ | 39,276 | $ | 68,701 | $ | 79,561 | |||||||||||||||||||||||||||||||||
| Non-GAAP operating margin | 17.0 | % | 18.9 | % | 16.2 | % | 19.3 | % | |||||||||||||||||||||||||||||||||
| Free cash flow | $ | 42,280 | $ | 29,205 | $ | 66,957 | $ | 56,739 | |||||||||||||||||||||||||||||||||
| As of June 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (dollars in thousands) | ||||||||||||||
| Annualized recurring revenue (“ARR”) | $ | 840,610 | $ | 815,630 | ||||||||||
| Year-over-year growth | 3.1 | % | 8.6 | % | ||||||||||
| Number of customers | 11,643 | 11,484 | ||||||||||||
| Year-over-year growth | 1.4 | % | 1.7 | % | ||||||||||
| ARR per customer | $ | 72.2 | $ | 71.0 | ||||||||||
| Year-over-year growth | 1.7 | % | 6.8 | % | ||||||||||
Total Revenue and Growth. We are focused on driving continued revenue growth through increased sales of our products and professional services to new and existing customers. We monitor total revenue and believe it is useful to investors as a measure of the overall success of our business.
Non-GAAP Income from Operations and Non-GAAP Operating Margin. We monitor non-GAAP income from operations and non-GAAP operating margin, non-GAAP financial measures, to analyze our financial results. We believe non-GAAP income from operations and non-GAAP operating margin are useful to investors, as supplements to U.S. GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance and allowing for greater transparency with respect to metrics used by our management in its financial and operational decision-making. See "Non-GAAP Financial Results" below for further information on non-GAAP income from operations and a reconciliation of non-GAAP income from operations to the comparable GAAP financial measure.
Free Cash Flow. Free cash flow is a non-GAAP measure that we define as cash provided by operating activities less purchases of property and equipment and capitalization of internal-use software costs. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures. See "Non-GAAP Financial Results" below for a reconciliation of non-GAAP free cash flow to the comparable GAAP financial measure.
Annualized Recurring Revenue and Growth. ARR is defined as the annual value of all recurring revenue related to contracts in place at the end of the quarter. ARR should be viewed independently of revenue and deferred revenue, as ARR is an operating metric and is not intended to be combined with or replace these items. ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates and does not include revenue reported as professional services revenue in our consolidated statement of operations. We use ARR and believe it is useful to investors as a measure of the overall success of our business.
Number of Customers. We believe that the size of our customer base is an indicator of our global market penetration and that our net customer additions are an indicator of the growth of our business. We define a customer as any entity that has an active Rapid7 recurring revenue contract as of the specified measurement date, excluding only InsightOps and Logentries customers with a contract value less than $2,400 per year.
ARR per Customer. ARR per customer is defined as ARR divided by the number of customers at the end of the period.
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Non-GAAP Financial Results
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we may provide investors with certain non-GAAP financial measures from time to time, including non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, adjusted EBITDA and free cash flow. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons, and use certain non-GAAP financial measures as performance measures under our executive bonus plan. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making. While our non-GAAP financial measures are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, you should review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not rely on any single financial measure to evaluate our business.
We define non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share as the respective GAAP balances excluding the effect of stock-based compensation expense, amortization of acquired intangible assets, amortization of debt issuance costs and certain other items such as acquisition-related expenses, non-ordinary course litigation-related expenses, impairment of long-lived assets, change in the fair value of derivative assets, restructuring expense and discrete tax items. Non-GAAP net income per basic and diluted share is calculated as non-GAAP net income divided by the weighted average shares used to compute net income per share, with the number of weighted average shares decreased, when applicable, to reflect the anti-dilutive impact of the capped call transactions entered into in connection with our convertible senior notes.
We believe these non-GAAP financial measures are useful to investors in assessing our operating performance due to the following factors:
•Stock-based compensation expense. We exclude stock-based compensation expense because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact our non-cash expense. We believe that providing non-GAAP financial measures that exclude stock-based compensation expense allows for more meaningful comparisons between our operating results from period to period.
•Amortization of acquired intangible assets. We believe that excluding the impact of amortization of acquired intangible assets allows for more meaningful comparisons between operating results from period to period as the intangible assets are valued at the time of acquisition and are amortized over several years after the acquisition.
•Amortization of debt issuance costs. The expense for the amortization of debt issuance costs related to our convertible senior notes and revolving credit facility is a non-cash item and we believe the exclusion of this interest expense provides a more useful comparison of our operational performance in different periods.
•Induced conversion expense. In conjunction with the third quarter of 2023 partial repurchase of our 2.25% convertible senior notes due 2025, we incurred a non-cash induced conversion expense of $53.9 million. We exclude induced conversion expense because this amount is not indicative of the performance of or trends in our business, and neither is comparable to the prior period nor predictive of future results.
•Non-ordinary course litigation-related expenses. We exclude non-ordinary course litigation expense because we do not consider legal costs and settlement fees incurred in litigation and litigation-related matters of non-ordinary course lawsuits and other disputes to be indicative of our core operating performance. We do not adjust for ordinary course legal expenses, including legal costs and settlement fees resulting from maintaining and enforcing our intellectual property portfolio and license agreements.
•Acquisition-related expenses. We exclude acquisition-related expenses that are unrelated to the current operations and neither are comparable to the prior period nor predictive of future results.
•Change in fair value of derivative assets. The change in fair value of derivative assets related to our capped calls settlement is a non-cash item and we believe the exclusion of this other income (expense) provides a more useful comparison of our operational performance in different periods.
•Impairment of long-lived assets. Impairment of long-lived assets consists of impairment charges allocated to the carrying amount of certain operating right-of-use assets and the associated leasehold improvements when the carrying
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amounts exceed their respective fair values and we believe the exclusion of the impairment charges provides a more useful comparison of our operational performance in different periods.
•Restructuring expense. We exclude non-ordinary course restructuring expenses related to the Restructuring Plan because we do not believe these charges are indicative of our core operating performance and we believe the exclusion of the restructuring expense provides a more useful comparison of our performance in different periods.
•Discrete tax items. We exclude certain discrete tax items such as income tax expenses or benefits that are not related to ongoing business operations in the current year and adjustments to uncertain tax position reserves as these charges are not indicative of our ongoing operating results, and they are not considered when we are forecasting our future results.
•Anti-dilutive impact of capped call transaction. Our capped calls transactions are intended to offset potential dilution from the conversion features in our convertible senior notes. Although we cannot reflect the anti-dilutive impact of the capped call transactions under GAAP, we do reflect the anti-dilutive impact of the capped call transactions in non-GAAP net income (loss) per diluted share, when applicable, to provide investors with useful information in evaluating our financial performance on a per share basis.
We include all non-GAAP financial measures in the current year or any comparative year that will be included in the non-GAAP reconciliation during the current fiscal year annual Form 10-K. As such, not all non-GAAP financial measures listed above may be included in the current reporting period non-GAAP financial metrics presented with this Form 10-Q.
We define adjusted EBITDA as net income before (1) interest income, (2) interest expense, (3) other (income) expense, net, (4) provision for income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, (8) acquisition-related expenses, and (9) restructuring expense. We believe that the use of adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods.
Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact upon our reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees.
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The following tables reconcile GAAP gross profit to non-GAAP gross profit for the three and six months ended June 30, 2025 and 2024 :
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| GAAP total gross profit | $ | 151,134 | $ | 146,999 | $ | 301,907 | $ | 291,106 | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 2,580 | 3,270 | 4,844 | 5,941 | |||||||||||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 4,423 | 4,012 | 8,846 | 8,329 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP total gross profit | $ | 158,137 | $ | 154,281 | $ | 315,597 | $ | 305,376 | |||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| GAAP gross profit – product subscriptions | $ | 150,861 | $ | 144,960 | $ | 300,428 | $ | 287,144 | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 2,054 | 2,802 | 3,785 | 5,100 | |||||||||||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 4,423 | 4,012 | 8,846 | 8,329 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP gross profit – product subscriptions | $ | 157,338 | $ | 151,774 | $ | 313,059 | $ | 300,573 | |||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| GAAP gross profit – professional services | $ | 273 | $ | 2,039 | $ | 1,479 | $ | 3,962 | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 526 | 468 | 1,059 | 841 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP gross profit – professional services | $ | 799 | $ | 2,507 | $ | 2,538 | $ | 4,803 | |||||||||||||||||||||||||||||||||
The following table reconciles GAAP income from operations to non-GAAP income from operations for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
GAAP income from operations | $ | 3,494 | $ | 5,223 | $ | 3,393 | $ | 14,939 | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 27,581 | 29,066 | 54,732 | 54,811 | |||||||||||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 5,090 | 4,709 | 10,210 | 9,723 | |||||||||||||||||||||||||||||||||||||
Acquisition-related expenses(1) | 183 | 278 | 366 | 278 | |||||||||||||||||||||||||||||||||||||
Restructuring expense(2) | — | — | — | (190) | |||||||||||||||||||||||||||||||||||||
| Non-GAAP income from operations | $ | 36,348 | $ | 39,276 | $ | 68,701 | $ | 79,561 | |||||||||||||||||||||||||||||||||
(1) For the three and six months ended June 30, 2025, acquisition-related expenses included $0.2 million and $0.4 million, respectively of accretion expense related to contingent consideration recorded in connection with our July 2024 acquisition of Noetic. | |||||||||||||||||||||||||||||||||||||||||
(2 For the three and six months ended June 30, 2024, restructuring expense was recorded within general and administrative expense in our consolidated statement of operations. | |||||||||||||||||||||||||||||||||||||||||
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The following table reconciles GAAP net income to non-GAAP net income for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||||||||||||||||||||||||||
| GAAP net income | $ | 8,338 | $ | 6,538 | $ | 10,443 | $ | 7,944 | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 27,581 | 29,066 | 54,732 | 54,811 | |||||||||||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 5,090 | 4,709 | 10,210 | 9,723 | |||||||||||||||||||||||||||||||||||||
| Acquisition-related expenses | 183 | 278 | 366 | 278 | |||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | 999 | 1,055 | 2,018 | 2,108 | |||||||||||||||||||||||||||||||||||||
| Restructuring expense | — | — | — | (190) | |||||||||||||||||||||||||||||||||||||
| Discrete tax items | — | — | — | 6,360 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP net income | $ | 42,191 | $ | 41,646 | $ | 77,769 | $ | 81,034 | |||||||||||||||||||||||||||||||||
| Interest expense of convertible senior notes (1) | 1,399 | 1,571 | 2,625 | 3,142 | |||||||||||||||||||||||||||||||||||||
| Numerator for non-GAAP earnings per share calculation | $ | 43,590 | $ | 43,217 | $ | 80,394 | $ | 84,176 | |||||||||||||||||||||||||||||||||
| Weighted average shares used in GAAP earnings per share calculation, basic | 64,441,000 | 62,496,289 | 64,140,087 | 62,201,182 | |||||||||||||||||||||||||||||||||||||
| Dilutive effect of convertible senior notes (1) | 10,686,653 | 11,183,611 | 10,429,891 | 11,183,611 | |||||||||||||||||||||||||||||||||||||
| Dilutive effect of employee equity incentive plans (2) | 255,992 | 570,460 | 322,231 | 750,328 | |||||||||||||||||||||||||||||||||||||
| Weighted average shares used in non-GAAP earnings per share calculation, diluted | 75,383,645 | 74,250,360 | 74,892,209 | 74,135,121 | |||||||||||||||||||||||||||||||||||||
| Non-GAAP net income per share: | |||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.65 | $ | 0.67 | $ | 1.21 | $ | 1.30 | |||||||||||||||||||||||||||||||||
| Diluted | $ | 0.58 | $ | 0.58 | $ | 1.07 | $ | 1.14 | |||||||||||||||||||||||||||||||||
(1) We use the if-converted method to compute diluted earnings per share with respect to our Notes. There was no add-back of interest expense or additional dilutive shares related to the Notes where the effect was anti-dilutive. On an if converted basis, for the three and six months ended June 30, 2025 and 2024, the 2029 Notes, 2027 Notes and 2025 Notes were dilutive. | |||||||||||||||||||||||||||||||||||||||||
| (2) We use the treasury method to compute the dilutive effect of employee equity incentive plan awards. | |||||||||||||||||||||||||||||||||||||||||
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The following table reconciles GAAP net income to adjusted EBITDA for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| GAAP net income | $ | 8,338 | $ | 6,538 | $ | 10,443 | $ | 7,944 | |||||||||||||||||||||
| Interest income | (5,514) | (5,221) | (11,272) | (9,941) | |||||||||||||||||||||||||
| Interest expense | 2,627 | 2,673 | 5,281 | 5,343 | |||||||||||||||||||||||||
| Other (income) expense, net | (3,957) | 695 | (5,759) | 2,130 | |||||||||||||||||||||||||
| Provision for income taxes | 2,000 | 538 | 4,700 | 9,463 | |||||||||||||||||||||||||
| Depreciation expense | 2,349 | 2,775 | 5,140 | 5,683 | |||||||||||||||||||||||||
| Amortization of intangible assets | 9,041 | 8,096 | 17,915 | 16,536 | |||||||||||||||||||||||||
| Stock-based compensation expense | 27,581 | 29,066 | 54,732 | 54,811 | |||||||||||||||||||||||||
| Acquisition-related expenses | 183 | 278 | 366 | 278 | |||||||||||||||||||||||||
Restructuring expense | — | — | — | (190) | |||||||||||||||||||||||||
| Adjusted EBITDA | $ | 42,648 | $ | 45,438 | $ | 81,546 | $ | 92,057 | |||||||||||||||||||||
The following table reconciles net cash provided by operating activities to free cash flow for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 47,542 | $ | 32,858 | $ | 77,299 | $ | 63,928 | ||||||||||||||||||
| Less: Purchases of property and equipment | (948) | (280) | (2,309) | (900) | ||||||||||||||||||||||
| Less: Capitalized internal-use software costs | (4,314) | (3,373) | (8,033) | (6,289) | ||||||||||||||||||||||
| Free cash flow | $ | 42,280 | $ | 29,205 | $ | 66,957 | $ | 56,739 | ||||||||||||||||||
Liquidity and Capital Resources
As of June 30, 2025, we had $261.3 million in cash and cash equivalents, $338.4 million in investments that have maturities ranging from one to eighteen months and an accumulated deficit of $1.0 billion. Our principal sources of liquidity are cash and cash equivalents, investments, cash flow provided by operating activities and our Credit Agreement. To date, we have financed our operations primarily through private and public equity financings, issuance of convertible senior notes and through cash generated by operating activities.
On June 25, 2025 we entered into a credit agreement (the "Credit Agreement") that establishes a senior secured revolving credit facility and provides for borrowings in an aggregate principal amount of up to $200 million (the “Revolving Facility”, the loans thereunder, the “Revolving Loans” and the commitments thereunder, the “Revolving Commitments”).The Credit Agreement allows for incremental facilities up to the greater of $141 million or 75% of Consolidated EBITDA (as defined in the Credit Agreement). Additional incremental facilities may be incurred, subject to certain conditions. The proceeds of the Revolving Facility can be used to finance working capital needs, capital expenditures, permitted acquisitions and other general corporate purposes. Refer to Note 10, Debt, for additional information related to the credit agreement.
We believe that our existing cash and cash equivalents, our investments, our cash generated by operating activities and our available borrowings under our Credit Agreement will be sufficient to meet our operating and capital requirements for at least the next 12 months. Our foreseeable cash needs, in addition to our recurring operating expenses, include our expected capital expenditures to support expansion of our infrastructure and workforce, office facilities lease obligations, purchase commitments, including our cloud infrastructure services, potential future acquisitions of technology businesses and any election we make to redeem our convertible senior notes. Further, in January 2025, we entered into a cloud-services agreement with a cloud services provider that contains minimum spend commitments. The agreement provides for an annual commitment of $125.0 million per year over the next five years, with an additional $35.0 million obligation over the five-year period of the agreement, for an aggregate total commitment of $660.0 million. See Note 14, Commitments and Contingencies, in the Notes to our unaudited condensed consolidated financial statements for more information regarding this commitment.
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Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, the introduction of new and enhanced products and service offerings, the cost of any future acquisitions of technology or businesses and any election we make to redeem our convertible senior notes. In the event that additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms, if at all. If we are unable to raise additional capital on terms satisfactory to us when we require it, our business, operating results and financial condition could be adversely affected.
Cash Flows
The following table shows a summary of our cash flows for the six months ended June 30, 2025 and 2024:
| Six Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | $ | 342,101 | $ | 214,130 | |||||||||||||
| Net cash provided by operating activities | 77,299 | 63,928 | |||||||||||||||
| Net cash used in investing activities | (120,530) | (34,795) | |||||||||||||||
Net cash (used in) provided by financing activities | (42,390) | 3,361 | |||||||||||||||
| Effects of exchange rates on cash, cash equivalents and restricted cash | 4,847 | (2,076) | |||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 261,327 | $ | 244,548 | |||||||||||||
Our historical uses of cash have primarily consisted of cash used for operating activities such as expansion of our sales and marketing operations, research and development activities and other working capital needs, as well as cash used for business acquisitions and purchases of property and equipment, including leasehold improvements for our facilities.
Operating Activities
Operating activities provided $77.3 million of cash and cash equivalents for the six months ended June 30, 2025, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments. Cash provided by operating activities reflected our net income of $10.4 million and a decrease in our net operating assets and liabilities of $8.3 million, offset by non-cash charges of $75.1 million related primarily to depreciation and amortization, stock-based compensation expense, amortization of debt issuance costs and other non-cash charges. The change in our net operating assets and liabilities was primarily due to a $13.2 million decrease in accrued expenses, a $12.3 million decrease in deferred revenue, a $5.8 million increase in prepaid expenses, a $1.2 million decrease in other liabilities and a $3.0 million decrease in accounts payable, which each had a negative impact on operating cash flow. These factors were offset by a $17.5 million decrease in accounts receivable and a $9.8 million decrease in deferred contract acquisition and fulfillment costs, which each had a positive impact on operating cash flow.
Operating activities provided $63.9 million of cash and cash equivalents in the six months ended June 30, 2024, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments. Cash provided by operating activities reflected our net income of $10.5 million and a decrease in our net operating assets and liabilities of $23.6 million, offset by non-cash charges of $77.1 million related primarily to depreciation and amortization, stock-based compensation expense, deferred income taxes, amortization of debt issuance costs and other non-cash charges. The change in our net operating assets and liabilities was primarily due to a decrease in deferred revenue and the timing of payments of operating expenses, including payout of annual bonuses and year-end commissions and other compensation costs and accounts payable, partially offset by a decrease in accounts receivable due to an increase in cash collections from our customers.
Investing Activities
Investing activities used $120.5 million of cash for the six months ended June 30, 2025, consisting of $111.5 million in purchases of investments, net of sales/maturities, $8.0 million for capitalization of internal-use software costs, and $2.3 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by $1.3 million in proceeds from other investments.
Investing activities used $34.8 million of cash in the six months ended June 30, 2024, consisting of $28.0 million in purchases of investments, net of sales/maturities, $6.3 million for capitalization of internal-use software costs, and $0.9 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by proceeds of $0.4 million from other investing activities.
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Financing Activities
Financing activities used $42.4 million for the six months ended June 30, 2025, which consisted primarily of $46.0 million in conversion of convertible senior notes, $1.9 million in withholding taxes paid for the net share settlement of equity awards, and $1.3 million in debt issuance costs, partially offset by $4.4 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc. 2015 Employee Stock Purchase Plan (“ESPP”) and $1.6 million in proceeds from the exercise of stock options.
Financing activities provided $3.4 million of cash in the six months ended June 30, 2024, which consisted primarily of $5.0 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc. 2015 Employee Stock Purchase Plan (“ESPP”) and $1.4 million in proceeds from the exercise of stock options, partially offset by $3.1 million in withholding taxes paid for the net share settlement of equity awards.
Contractual Obligations and Commitments
As of June 30, 2025, there were no additional material changes from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025 (the “Annual Report”) other than the cloud services agreement discussed in Note 14, Commitments and Contingencies, in the notes to our unaudited condensed consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. There have been no material changes in our critical accounting policies from those disclosed in our Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. A majority of our customers enter into contracts that are denominated in U.S. dollars. Our expenses are generally denominated in the currencies of the countries where our operations are located, which is primarily in the United States and to a lesser extent in the United Kingdom, other Euro-zone countries within mainland Europe, Canada, Australia, Israel, Singapore and Japan. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign currency exchange rates. The effect of a hypothetical 10% adverse change in foreign currency exchange rates on monetary assets and liabilities as of June 30, 2025 would not have been material to our financial condition or results of operations.
We enter into forward contracts designated as cash flow hedges to manage the foreign currency exchange rate risk associated with certain of our foreign currency denominated expenditures. The effectiveness of our existing hedging transactions and the availability and effectiveness of any hedging transactions we may decide to enter into in the future may be limited, and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and operating results. For further information, see Note 9, Derivatives and Hedging Activities, in the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency rates.
Interest Rate Risk
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As of June 30, 2025, we had cash and cash equivalents of $261.3 million consisting of bank deposits and money market funds and investments of $338.4 million consisting of U.S. government agencies. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.
Our cash and cash equivalents and investments are subject to market risk due to changes in interest rates, which may affect our interest income and the fair value of our investments. Due in part to these factors, our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our investments as available-for-sale securities, no gains or losses are recognized due to the changes in interest rates unless securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.
The fair values of our convertible senior notes are subject to interest rate risk, market risk and other factors due to the conversion features of the notes. The fair values of the convertible senior notes may increase or decrease for various reasons, including fluctuations in the market price of our common stock, fluctuations in market interest rates and fluctuations in general economic conditions. The interest and market value changes affect the fair values of the convertible senior notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Based upon the quoted market price as of June 30, 2025, the fair values of our 2027 Notes and 2029 Notes were $556.5 million and $265.1 million, respectively.
As of June 30, 2025, the effect of a hypothetical 10% increase or decrease in interest rates would not have had a material impact on our financial statements.
Inflation Risk
As of June 30, 2025, we do not believe that inflation had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operations of our disclosure controls and procedures as of June 30, 2025. Based on the evaluation of our disclosure controls and procedures as of June 30, 2025, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Inherent Limitations of Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
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There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in Part 1, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2025 (the “Annual Report”). Our operations and financial results are subject to various risks and uncertainties that, if they materialize, could adversely affect our business, financial condition and results of operations. In that event, the trading price of our common stock could decline. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors described in Part I, Item 1A. “Risk Factors” of our Annual Report. We may disclose additional changes to risk factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Recent Sales of Unregistered Equity Securities
None.
(b) Use of Proceeds from Initial Public Offering of Common Stock
None.
(c) Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Certain of our executive officers and directors may execute purchases and sales of our securities through Rule 10b5-1 equity trading plans and “non-Rule 10b5-1 equity trading arrangements” (as defined in Item 408(c) of Regulation S-K).
During the three months ended June 30, 2025, the executive officers or directors listed below terminated or modified a 10b5-1 equity trading plan, or adopted , terminated , or modified any “non-Rule 10b5-1 equity trading arrangement”.
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Name and Position | Action | Adoption or Transaction Date | Type of Trading Arrangement | Number of Shares of Common Stock to be Sold | Expiration Date | ||||||||||||
Rule 10b5-1* | |||||||||||||||||
Rule 10b5-1* | |||||||||||||||||
* Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
** Represents the maximum number of shares that may be sold pursuant to the Rule 10b5-1 trading arrangement in amounts and prices determined in accordance with a formula set forth in the plan. The actual number of shares sold will depend on the satisfaction of certain conditions as set forth in the written plan.
*** The Rule 10b5-1 trading arrangement will terminate on the earlier of the date all the shares under the plan are sold and the expiration date indicated, subject to early termination for specified events set forth in the plan.
During the three months ended June 30, 2025, other than noted above, none of our executive officers or directors terminated or modified a 10b5-1 equity trading plan, or adopted, terminated, or modified any “non-Rule 10b5-1 equity trading arrangement”.
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Item 6. Exhibits.
| Exhibit Number | Description | ||||||||||
| 3.1 | Amended and Restated Certificate of Incorporation of Rapid7, Inc., as of June 3, 2020 (incorporated by reference Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37496), filed on August 10, 2020). | ||||||||||
| 3.2 | Amended and Restated Bylaws of Rapid7, Inc., as of June 3, 2020 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37496), filed with the Securities and Exchange Commission on August 10, 2020). | ||||||||||
| 10.1+ | Amendment No. 1 to the Rapid7, Inc. 2015 Equity Incentive Plan, as amended. (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K (File No. 001-37496), filed on February 28, 2025). | ||||||||||
| 10.2+ | Letter Agreement, dated as of February 17, 2025, by and between Rapid7, Inc. and Christina Luconi. (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K (File No. 001-37496), filed on February 28, 2025). | ||||||||||
| 10.3 | Cooperation Agreement, by and between Rapid7, Inc. and JANA Partners Management, LP, dated March 21, 2025. (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-37496), filed on March 24, 2025). | ||||||||||
| 10.4 | Credit Agreement, dated June 25, 2025, by and among the Company, Rapid7 LLC, a Delaware limited liability company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.(incorporated by reference to Exhibit 10.1 to the Registrants's Current Report on Form 8-K (File No. 001-37496), filed on June 25, 2025 | ||||||||||
10.5*+ | Rapid7, Inc. Non-Employee Director Compensation Policy | ||||||||||
| 31.1* | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||
| 31.2* | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||
| 32.1** | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||||
| 32.2** | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the inline XBRL document. | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||||||
| 104 | Cover Page Interactive Data file (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | ||||||||||
| * | Filed herewith. | ||||
| ** | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. | ||||
| + | Indicates management contract of compensatory plan. | ||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| RAPID7, INC. | |||||||||||
Date: August 8, 2025 | By: | /s/ Corey E. Thomas | |||||||||
Name: Corey E. Thomas | |||||||||||
Title: Chief Executive Officer | |||||||||||
Date: August 8, 2025 | By: | /s/ Tim Adams | |||||||||
Name: Tim Adams | |||||||||||
Title: Chief Financial Officer | |||||||||||
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FAQ
What were Rapid7 (RPD) revenues for Q2 2025?
Rapid7 reported $214.2 million in total revenue for the quarter ended June 30 2025, a 3% year-over-year increase.
How did Rapid7鈥檚 Q2 2025 EPS compare with last year?
Diluted EPS rose to $0.13 versus $0.09 in Q2 2024, driven by higher net income and a lower share count.
What is Rapid7鈥檚 current debt position after redeeming the 2025 notes?
Long-term convertible debt totals $890.3 million (2027 & 2029 notes). No borrowings are outstanding on the new $200 million revolver.
How much cash did Rapid7 generate from operations in the first half of 2025?
Operating activities provided $77.3 million, up 21% from $63.9 million in the prior-year period.
What are Rapid7鈥檚 obligations under the amended AWS contract?
The company must spend $660 million through 2029, including a minimum of $125 million each year plus $35 million additional over the term.
What is the status of the Israel Tax Authority assessment?
Rapid7 received an initial assessment of roughly $88 million for FY 2021 but believes its tax position is defensible and has not recorded a liability.
Did the Noetic Cyber acquisition affect Q2 results?
No material revenue yet; Rapid7 recorded a $12.8 million earn-out liability and $2.1 million of related stock-based compensation in H1 2025.
Rapid7
NASDAQ:RPD
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Jul 16, 2025
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Jun 25, 2025
[8-K] Rapid7, Inc. Reports Material Event
RPD Stock Data
1.28B
63.04M
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Software - Infrastructure
Services-prepackaged Software
United States
BOSTON