10-Q 1 rp-20240930.htm 10-Q rp-20240930
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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 September 30, 2024
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
 
RAPID7, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 35-2423994
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
120 Causeway Street 
Boston,MA02114
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (617247-1717
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareRPDThe Nasdaq Global Market
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.


Large Accelerated Filer
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 October 31, 2024, there were 63,206,602 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

































Table of Contents
 
  Page
PART I.
Item 1.
Item 2.
   21
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.





























PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
RAPID7, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data) 
September 30, 2024December 31, 2023
Assets
Current assets:
Cash and cash equivalents$222,571 $213,629 
Short-term investments221,122 169,544 
Accounts receivable, net of allowance for credit losses of $1,591 and $951 at September 30, 2024 and December 31, 2023, respectively
141,891 164,862 
Deferred contract acquisition and fulfillment costs, current portion49,710 45,008 
Prepaid expenses and other current assets37,328 41,407 
Total current assets672,622 634,450 
Long-term investments60,382 56,171 
Property and equipment, net33,936 39,642 
Operating lease right-of-use assets50,756 54,693 
Deferred contract acquisition and fulfillment costs, non-current portion72,392 76,601 
Goodwill575,165 536,351 
Intangible assets, net90,748 94,546 
Other assets18,530 12,894 
Total assets$1,574,531 $1,505,348 
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable$6,005 $15,812 
Accrued expenses and other current liabilities82,319 85,025 
Convertible senior notes, current portion, net45,816  
Operating lease liabilities, current portion15,849 13,452 
Deferred revenue, current portion423,640 455,503 
Total current liabilities573,629 569,792 
Convertible senior notes non-current portion, net887,362 929,996 
Operating lease liabilities, non-current portion72,555 81,130 
Deferred revenue, non-current portion28,239 32,577 
Other long-term liabilities19,050 10,032 
Total liabilities$1,580,835 $1,623,527 
Stockholders’ deficit:
Preferred stock, $0.01 par value per share; 100,000,000 shares authorized at September 30, 2024 and December 31, 2023; 0 shares issued and outstanding at September 30, 2024 and December 31, 2023
$ $ 
Common stock, $0.01 par value per share; 100,000,000 shares authorized at September 30, 2024 and December 31, 2023; 63,747,524 and 62,283,630 shares issued at September 30, 2024 and December 31, 2023, respectively; 63,177,945 and 61,714,051 shares outstanding at September 30, 2024 and December 31, 2023, respectively
632 617 
Treasury stock, at cost, 569,579 shares at September 30, 2024 and December 31, 2023
(4,765)(4,765)
Additional paid-in-capital978,898 894,630 
Accumulated other comprehensive income1,929 1,344 
Accumulated deficit(982,998)(1,010,005)
Total stockholders’ deficit(6,304)(118,179)
Total liabilities and stockholders’ deficit$1,574,531 $1,505,348 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1

RAPID7, INC.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)

 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Revenue:
Product subscriptions$205,593 $189,876 $602,578 $545,349 
Professional services9,061 8,967 25,168 27,090 
Total revenue214,654 198,843 627,746 572,439 
Cost of revenue:
Product subscriptions56,653 51,261 166,290 150,597 
Professional services6,364 6,569 18,478 21,396 
Total cost of revenue63,017 57,830 184,768 171,993 
Total gross profit151,637 141,013 442,978 400,446 
Operating expenses:
Research and development44,565 39,940 125,611 137,048 
Sales and marketing74,521 75,699 225,121 239,322 
General and administrative18,590 17,866 60,837 64,961 
Impairment of long-lived assets 3,553  30,784 
Restructuring  19,996  19,996 
Total operating expenses137,676 157,054 411,569 492,111 
Income (loss) from operations13,961 (16,041)31,409 (91,665)
Other income (expense), net:
Interest income5,571 2,545 15,512 6,000 
Interest expense(2,837)(56,515)(8,180)(62,005)
Other income (expense), net2,811 (4,518)681 (18,093)
Income (loss) before income taxes19,506 (74,529)39,422 (165,763)
Provision for income taxes2,952 2,082 12,415 3,545 
Net income (loss)$16,554 $(76,611)$27,007 $(169,308)
Net income (loss) per share, basic$0.26 $(1.25)$0.43 $(2.80)
Net income (loss) per share, diluted$0.22 $(1.25)$0.36 $(2.80)
Weighted-average common shares outstanding, basic62,898,078 61,065,157 62,389,482 60,506,082 
Weighted-average common shares outstanding, diluted74,537,085 61,065,157 74,225,110 60,506,082 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2

RAPID7, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Net income (loss)$16,554 $(76,611)$27,007 $(169,308)
Other comprehensive income (loss):
Change in fair value of cash flow hedges1,840 (1,120)882 (481)
Adjustment for net (gains)/losses realized on cash flow hedges and included in net income (loss), net of taxes(183)(49)(656)531 
Total change in unrealized gains (losses) on cash flow hedges1,657 (1,169)226 50 
Change in unrealized gains on investments1,123 97 359 539 
Total other comprehensive income (loss)2,780 (1,072)585 589 
Comprehensive income (loss)$19,334 $(77,683)$27,592 $(168,719)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.




















3


RAPID7, INC.
Condensed Consolidated Statements of Changes in Stockholders' Deficit (Unaudited)
Three Months Ended September 30, 2024 and 2023
(in thousands)
 Common stockTreasury stockAdditional
paid-in-capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders’
deficit
 SharesAmountSharesAmount
Balance, June 30, 202462,702 $628 570 $(4,765)$951,620 $(851)$(999,552)$(52,920)
Stock-based compensation expense— — — — 23,739 — — 23,739 
Issuance of common stock under employee stock purchase plan144 1 4,200 4,201 
Vesting of restricted stock units341 3 — — (3)— —  
Shares withheld for employee taxes(21)— — — (794)— — (794)
Issuance of common stock upon exercise of stock options11 — — — 136 — — 136 
Other comprehensive loss— — — — — 2,780 — 2,780 
Net income— — — — — — 16,554 16,554 
Balance, September 30, 202463,177 $632 570 $(4,765)$978,898 $1,929 $(982,998)$(6,304)

 Common stockTreasury stockAdditional
paid-in-capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders’
deficit
 SharesAmountSharesAmount
Balance, June 30, 202360,940 $609 570 $(4,765)$846,326 $250 $(953,442)$(111,022)
Stock-based compensation expense— — — — 23,719 — — 23,719 
Issuance of common stock under employee stock purchase plan152 2 — — 5,147 — — 5,149 
Vesting of restricted stock units338 3 — — (3)— —  
Shares withheld for employee taxes(29)— — — (1,421)— — (1,421)
Issuance of common stock upon exercise of stock options21 — — — 302 — — 302 
Purchase of capped calls related to convertible senior notes— — — — (36,570)— — (36,570)
Repurchase and inducement of convertible senior notes— — — — 35,881 — — 35,881 
Other comprehensive gain— — — — — (1,072)— (1,072)
Net loss— — — — — — (76,611)(76,611)
Balance, September 30, 202361,422 $614 570 $(4,765)$873,381 $(822)$(1,030,053)$(161,645)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.





















4




RAPID7, INC.
Condensed Consolidated Statements of Changes in Stockholders' Deficit (Unaudited)
Nine Months Ended September 30, 2024 and 2023
(in thousands)
 Common stockTreasury stockAdditional
paid-in-capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders’
deficit
 SharesAmountSharesAmount
Balance, December 31, 202361,714 $617 570 $(4,765)$894,630 $1,344 $(1,010,005)$(118,179)
Stock-based compensation expense— — — — 77,381 — — 77,381 
Issuance of common stock under employee stock purchase plan292 3 — — 9,243 — — 9,246 
Vesting of restricted stock units1,123 11 — — (11)— —  
Shares withheld for employee taxes(83)— — — (3,883)— — (3,883)
Issuance of common stock upon exercise of stock options131 1 — — 1,538 — — 1,539 
Other comprehensive loss— — — — — 585 — 585 
Net income— — — — — — 27,007 27,007 
Balance, September 30, 202463,177 $632 570 $(4,765)$978,898 $1,929 $(982,998)$(6,304)

 Common stockTreasury stockAdditional
paid-in-capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders’
deficit
 SharesAmountSharesAmount
Balance, December 31, 202259,720 $597 487 $(4,764)$746,249 $(1,411)$(860,745)$(120,074)
Stock-based compensation expense— — — — 84,513 — — 84,513 
Issuance of common stock under employee stock purchase plan330 4 — — 11,319 — — 11,323 
Vesting of restricted stock units1,139 10 — — (10)— —  
Shares withheld for employee taxes(82)— — — (4,012)— — (4,012)
Issuance of common stock upon exercise of stock options208 2 — — 2,982 — — 2,984 
Issuance of common stock in relation to an acquisition107 1 — — (1)— —  
Repurchase of common stock in relation to acquisition— — 83 (1)1 — —  
Reclassification of 2023 capped calls from equity to derivative asset— — — — 33,029 — — 33,029 
Purchase of capped calls related to convertible senior notes— — — — (36,570)— — (36,570)
Repurchase and inducement of convertible senior notes— — — — 35,881 — — 35,881 
Other comprehensive gain— — — — — 589 — 589 
Net loss— — — — — — (169,308)(169,308)
Balance, September 30, 202361,422 $614 570 $(4,765)$873,381 $(822)$(1,030,053)$(161,645)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.














5




RAPID7, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 Nine Months Ended September 30,
 20242023
Cash flows from operating activities:
Net income (loss)$27,007 $(169,308)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization33,457 34,528 
Amortization of debt issuance costs3,325 3,061 
Stock-based compensation expense76,896 84,836 
Impairment of long-lived assets 30,784 
Change in fair value of derivative assets 15,511 
Deferred income taxes1,840  
Induced conversion expense 53,889 
Other(4,534)5,626 
Changes in assets and liabilities:
Accounts receivable22,432 12,428 
Deferred contract acquisition and fulfillment costs(493)(9,488)
Prepaid expenses and other assets6,062 5,433 
Accounts payable(10,450)(1,255)
Accrued expenses(17,413)(17,968)
Deferred revenue(37,112)(6,367)
Other liabilities6,880 (898)
Net cash provided by operating activities107,897 40,812 
Cash flows from investing activities:
Business acquisitions, net of cash acquired(37,198)(34,841)
Purchases of property and equipment(2,242)(3,999)
Capitalization of internal-use software(10,414)(13,033)
Purchases of investments(242,494)(194,013)
Sales and maturities of investments192,500 100,700 
Other investing activities360  
Net cash used in investing activities(99,488)(145,186)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs paid of $7,200
 292,800 
Purchase of capped calls related to convertible senior notes (36,570)
Payments for repurchase of convertible senior notes (199,998)
Payments related to business acquisitions (2,250)
Proceeds from capped call settlement 17,518 
Taxes paid related to net share settlement of equity awards(3,883)(4,012)
Proceeds from employee stock purchase plan9,246 11,323 
Proceeds from stock option exercises1,436 2,984 
Net cash provided by financing activities6,799 81,795 
Effect of exchange rate changes on cash ,cash equivalents and restricted cash770 (2,010)
Net increase (decrease) in cash, cash equivalents and restricted cash15,978 (24,589)
Cash, cash equivalents and restricted cash, beginning of period214,130 207,804 
Cash, cash equivalents and restricted cash, end of period$230,108 $183,215 
Supplemental cash flow information:
Cash paid for interest on convertible senior notes$5,840 $1,165 
Cash paid for income taxes, net of refunds$7,073 $4,087 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$222,571 $182,727 
Restricted cash included in other assets and prepaid expenses and other current assets7,537 488 
Total cash, cash equivalents and restricted cash$230,108 $183,215 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6

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.
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 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, 2023 filed with the SEC on February 26, 2024.
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 nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The management estimates include, but are not limited to the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition costs, the useful lives and recoverability of long-lived assets, the valuation for credit losses, the valuation of stock-based compensation, the fair value of assets acquired and liabilities assumed in business combinations, the valuation of contingent consideration, the incremental borrowing rate for operating leases and the valuation for deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable. Actual results could differ from those estimates.
Significant Accounting Policies
Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. Except for the inclusion of a description of contingent consideration within our Business Combinations policy, as noted below, there have been no changes to the significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Business Combinations
We allocate the fair value of purchase consideration to the tangible asset acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair value these identifiable assets and liabilities is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the final determination of the fair value of assets acquired or liabilities assumed any subsequent adjustments are recorded to the consolidated statements of operations. Determining the fair value of the tangible assets acquired, liabilities assumed and intangible assets requires management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, cash flows that an asset is expected to generate in the future, technology migration curves, discount rates, and useful lives. While we use our best estimates and judgements, our estimates are inherently uncertain and subject to refinement.

7

Contingent consideration arising from business combinations is recorded at fair value as a liability on the acquisition date and remeasured at each reporting date. Changes in fair value are recorded in general and administrative expense in the consolidated statements of operations. Determining the fair value of the contingent consideration each period requires management to make assumptions and judgments. These estimates involve inherent uncertainties, and if different assumptions had been used, the fair value of contingent consideration could have been materially different from the amounts recorded.
Acquisition-related transaction costs are expensed as incurred.
Restricted Cash
As of September 30, 2024, we had $7.5 million of restricted cash recorded on our condensed consolidated balance sheet in prepaid expenses and other current assets and other assets in letters of credit outstanding as collateral for certain office space leases.
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Effective
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures. The amendments of this update are related to the rate reconciliation and income taxes paid, requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. We do not plan to early adopt this standard. We are currently evaluating the effect of adopting this standard on our disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures (“ASU 2023-07”), to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses on an interim and annual basis. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods for the fiscal years beginning after December 15, 2024, and should be applied on a retrospective basis to all periods presented. Early adoption is permitted. We do not plan to early adopt this standard. We are currently evaluating the effect of adopting this standard on our disclosures.
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.
8

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. The majority of our professional services contracts 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 September 30, 2024 and 2023, we recognized revenue of $184.6 million and $174.3 million, respectively, and for the nine months ended September 30, 2024 and 2023, we recognized $398.3 million and $366.5 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 September 30, 2024 and December 31, 2023, unbilled receivables of $3.6 million and $2.0 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet. As of September 30, 2024 and December 31, 2023, we had no contract assets recorded on our condensed consolidated balance sheet.
Transaction Price Allocated to the Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of September 30, 2024. The estimated revenues do not include unexercised contract renewals.
Next Twelve MonthsThereafter
 (in thousands)
Product subscriptions$556,284 $268,636 
Professional services16,785 6,410 
Total$573,069 $275,046 
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 $51.0 million. The purchase consideration consisted of $38.6 million in cash paid at closing, $12.1 million of contingent consideration and $0.4 million of deferred cash payments. The deferred cash payments will be held by Rapid7 to satisfy certain post-closing purchase price adjustments.
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
9

period and any required adjustment will be recorded to general and administrative expense. As of September 30, 2024, the fair value of the contingent purchase consideration was $12.2 million of which $6.8 million was recorded within accrued expenses and other current liabilities and $5.4 million was recorded within other liabilities in our condensed consolidated balance sheet. In the three and nine months ended September 30, 2024, we recorded $0.2 million of accretion expense related to the contingent purchase consideration to general and administrative expense.
In connection with the acquisition, we expect to issue an aggregate value of $2.3 million of our common stock to two key employees of Noetic in three installments over a 36-month period following the closing date of the transaction, subject to continued employment requirements (the “Key Employee Consideration”) and therefore will be recognized as stock-based compensation expense over the required employment period.
The number of shares to be issued at each issuance date for both the Earnout Consideration and the Key Employee Consideration shares 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 nine months ended September 30, 2024, we recognized stock-based compensation expense related to such shares in the amount of $0.7 million.
The following table summarizes the preliminary allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):
Consideration:
Cash$38,597 
Deferred cash consideration397 
Contingent consideration12,055 
Fair value of total consideration transferred$51,049 
Recognized amount of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents$1,296 
Accounts receivable510 
Prepaid and other current assets102 
Property and equipment, net19 
Accrued expenses and other current liabilities(220)
Deferred revenue(910)
Other long-term liabilities(62)
Intangible asset11,500 
Total identifiable net assets assumed$12,235 
Goodwill38,814 
Total purchase price allocation$51,049 
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.
In the three and nine months ended September 30, 2024, we recorded $0.1 million and $0.4 million, respectively, of acquisition-related transaction costs related to the acquisition of Noetic to general and administrative expense.
Our revenue and net loss attributable to the Noetic business for the three and nine months ended September 30, 2024 was not material.


10

Minerva Labs Ltd.
On March 14, 2023, we acquired Minerva Labs Ltd. (“Minerva”), a leading provider of anti-evasion and ransomware prevention technology, for a purchase price with an aggregate fair value of $34.6 million. The purchase consideration consisted of $35 million paid in cash at closing and a $(0.4) million receivable for purchase price adjustments.
The assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The excess of the purchase price over the assets acquired and liabilities assumed was recorded as goodwill. The fair value of net assets acquired, goodwill and intangible assets were $13.9 million, $20.7 million and $12.8 million, respectively. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible assets were not deductible for tax purposes.
In the first quarter of 2024, we sold acquired intellectual property through a non-cash intercompany transaction, which for the three and nine months ended September 30, 2024 resulted in $4.6 million of current tax expense and $1.8 million of deferred tax expense in Israel.
Note 4. Investments
Our investments, which are all classified as available-for-sale, consisted of the following:
 As of September 30, 2024
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
 (in thousands)
Description:
U.S government agencies$280,757 $787 $(40)$281,504 
Total$280,757 $787 $(40)$281,504 
 As of December 31, 2023
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
 (in thousands)
Description:
U.S government agencies$222,820 $467 $(65)$223,222 
Agency bonds2,500  (7)2,493 
Total$225,320 $467 $(72)$225,715 
As of September 30, 2024, our available-for-sale investments had maturities ranging from 1 to 20 months. As of December 31, 2023, our available-for-sale investments had maturities ranging from 1 to 18 months.
For all of our investments for which the amortized cost basis was greater than the fair value at September 30, 2024 and December 31, 2023, we have concluded that there is no plan to sell the security nor is it more likely than not that we would be required to sell the security before its anticipated maturity. In making the determination as to whether the unrealized loss is other-than-temporary, we considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity.
Note 5. Fair Value Measurements
We measure certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
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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.
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 September 30, 2024
 Level 1Level 2Level 3Total
 (in thousands)
Description:
Assets:
U.S. government agencies$281,504 $ $ $281,504 
Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets and other assets) 1,559  1,559 
Total assets$281,504 $1,559 $ $283,063 
Liabilities:
Contingent consideration (other current liabilities and other long-term liabilities)  12,238 12,238 
Foreign currency forward contracts designated as cash flow hedges (other current liabilities and other long-term liabilities) 66  66 
Total liabilities$ $66 $12,238 $12,304 
 As of December 31, 2023
 Level 1Level 2Level 3Total
 (in thousands)
Description:
Assets:
U.S. government agencies$223,222 $ $ $223,222 
Agency bonds 2,493  2,493 
Foreign currency forward contracts designated as cash flow hedges (prepaid expenses and other current assets and other assets) 1,322  1,322 
Total assets$223,222 $3,815 $ $227,037 
Liabilities:
Foreign currency forward contracts designated as cash flow hedges (other current liabilities) 55  55 
Total liabilities$ $55 $ $55 
Cash and cash equivalents are excluded from the table above as carrying amounts reported in our condensed consolidated balance sheet equal or approximate fair value. As of September 30, 2024, the fair value of our 2.25%, 0.25% and 1.25% convertible senior notes due 2025, 2027 and 2029, as further described in Note 10, Debt, was $45.1 million, $547.1 million and $281.9 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 September 30, 2024, the fair value of our contingent consideration, as further described in Note 3, Business Combinations, was $12.2 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:
 September 30,December 31,
 20242023
 (in thousands)
Computer equipment and software$28,100 $26,442 
Furniture and fixtures 10,954 10,850 
Leasehold improvements56,878 56,151 
Total95,932 93,443 
Less accumulated depreciation(61,996)(53,801)
Property and equipment, net$33,936 $39,642 
Depreciation expense was $2.7 million and $3.3 million for the three months ended September 30, 2024 and 2023, respectively, and $8.4 million and $10.9 million for the nine months ended September 30, 2024 and 2023, respectively.
Note 7. Goodwill and Intangibles
Goodwill was $575.2 million and $536.4 million as of September 30, 2024 and December 31, 2023, respectively. The following table displays the changes in the gross carrying amount of goodwill:
 Amount
 (in thousands)
Balance, December 31, 2023$536,351 
Noetic acquisition38,814 
Balance, September 30, 2024$575,165 
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 September 30, 2024As of December 31, 2023
 Gross Carrying
Amount
Accumulated
Amortization
Net Book ValueGross Carrying
Amount
Accumulated
Amortization
Net Book Value
  (in thousands)
Intangible assets subject to amortization:
Developed technology6.1$146,855 $(89,770)$57,085 $135,355 $(77,031)$58,324 
Customer relationships4.512,000 (9,711)2,289 12,000 (7,755)4,245 
Trade names3.12,619 (2,514)105 2,619 (2,379)240 
Total acquired intangible assets161,474 (101,995)59,479 149,974 (87,164)62,810 
Internal-use software3.065,130 (33,861)31,269 55,371 (23,635)31,736 
Total intangible assets$226,604 $(135,856)$90,748 $205,345 $(110,799)$94,546 
Amortization expense was $8.5 million and $8.3 million for the three months ended September 30, 2024 and 2023, respectively, and $25.1 million and $23.6 million for the nine months ended September 30, 2024 and 2023, respectively.
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Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of September 30, 2024 was as follows (in thousands):
2024 (for the remaining three months)$8,429 
202530,900 
202621,149 
20279,128 
20283,243 
2029 and thereafter7,652 
Total$80,501 
The table above excludes the impact of $10.2 million of capitalized internal-use software costs for projects that have not been completed as of September 30, 2024, and therefore, all the costs associated with these projects have not been incurred.
Note 8. Deferred Contract Acquisitions and Fulfillment Costs
Deferred contract acquisition and fulfillment costs, which primarily consist of capitalized sales commissions, for the nine months ended September 30, 2024 and 2023 was as follows:
Nine Months Ended September 30,
20242023
(in thousands)
Beginning balance$121,609 $103,075 
Capitalization of contract acquisition and fulfillment costs39,850 39,904 
Amortization of deferred contract acquisition and fulfillment costs(39,357)(30,416)
Ending balance$122,102 $112,563 

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 twenty months or less, and as of September 30, 2024 and December 31, 2023, outstanding forward contracts had a total notional value of $52.4 million and $49.5 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 nine months ended September 30, 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:
IssuanceMaturity DateInterest RateFirst Interest Payment DateEffective Interest RateSemi-Annual Interest Payment DatesInitial Conversion Rate per $1,000 PrincipalInitial Conversion PriceNumber of Shares (in millions)
2025 NotesMay 1, 20252.25%November 1, 20202.88%May 1 and November 116.3875$61.02 0.8
2027 NotesMarch 15, 20270.25%September 15, 20210.67%March 15 and September 159.6734$103.38 5.8
2029 NotesMarch 15, 20291.25%March 15, 20241.69%March 15 and September 1515.4213$64.85 4.6
The 2025 Notes, the 2027 Notes and the 2029 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures between the Company, as issuer, and U.S. Trust Company, Bank National Association, as
14

trustee (the “Indentures”). The total net proceeds from the 2025 Notes, the 2027 Notes and the 2029 Notes offerings, after deducting initial purchase discounts and debt issuance costs, were $222.8 million, $585.0 million and $292.0 million, respectively.
For additional details on the terms of our Notes, see Note 11, Debt, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
As of September 30, 2024, the 2025 Notes, the 2027 Notes and the 2029 Notes were not convertible at the option of the holders.
The holders may convert the 2025 Notes, the 2027 Notes and the 2029 Notes at any time on or after November 1, 2024, December 15, 2026 and December 15, 2028, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the circumstances set forth above. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in the manner and subject to the terms and conditions provided in the Indentures.
If we undergo a fundamental change (as set forth in the Indentures) at any time prior to the maturity date, holders of the Notes will have the right, at their option, to require us to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, in each case as described in the Indentures, we will increase the conversion rate for a holder of the Notes who elects to convert its Notes in connection with such a corporate event or during the related redemption period in certain circumstances.
Accounting for the Notes
In accounting for the issuance of the Notes, the principal less debt issuance costs are recorded as debt on our 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 September 30, 2024 and December 31, 2023 was as follows (in thousands):
2025 Notes2027 Notes2029 Notes
PrincipalUnamortized debt issuance costsTotalPrincipalUnamortized debt issuance costsTotalPrincipalUnamortized debt issuance costsTotal
Balance at December 31, 2023$45,992 $(404)$45,588 $600,000 $(8,077)$591,923 $300,000 $(7,515)$292,485 
Amortization of debt issuance costs— 228 228 — 1,877 1,877 — 1,077 1,077 
Balance at September 30, 2024$45,992 $(176)$45,816 $600,000 $(6,200)$593,800 $300,000 $(6,438)$293,562 
Interest expense related to the Notes was as follows (in thousands):
Three Months Ended September 30,
20242023
2025 Notes2027 Notes2029 NotesTotal2025 Notes2027 Notes2029 NotesTotal
Contractual interest expense$258 $375 $938 $1,571 $948 $375 $229 $1,552 
Amortization of debt issuance costs79 634 455 1,168 289 631 73 $993 
Total interest expense$337 $1,009 $1,393 $2,739 $1,237 $1,006 $302 $2,545 
Nine Months Ended September 30,
20242023
2025 Notes2027 Notes2029 NotesTotal2025 Notes2027 Notes2029 NotesTotal
Contractual interest expense$776 $1,125 $2,812 $4,713 $3,536 $1,125 $229 $4,890 
Amortization of debt issuance costs228 1,877 1,077 3,182 990 1,855 73 2,918 
Total interest expense$1,004 $3,002 $3,889 $7,895 $4,526 $2,980 $302 $7,808 
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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.
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 NotesCapped Calls Entered into in Connection with the Issuance of the 2027 NotesCapped Calls Entered into in Connection with the Issuance of the 2029 Notes
Initial strike price, subject to certain adjustments$61.02 $103.38 $64.85 
Cap price, subject to certain adjustments$93.88 $159.04 $97.88 
Total premium paid (in thousands)$27,255 $76,020 $36,570 
Expiration datesMarch 4, 2025 - April 29, 2025January 1, 2027 - March 11, 2027February 13, 2029 - March 13, 2029
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, 2023.
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
In April 2020, we entered into a Credit and Security Agreement (the Credit Agreement), with KeyBank National Association (as amended, in December 2021) that provides for a $100.0 million revolving credit facility, with a letter of credit sublimit of $15.0 million and an accordion feature under which we can increase the credit facility to up to $150.0 million. We incurred fees of $0.4 million in connection with entering into the Credit Agreement. The fees are recorded in other current assets on the condensed consolidated balance sheet and are amortized on a straight-line basis over the contractual term of the arrangement. The commitment fee of 0.2% per annum on the unused portion of the credit facility is expensed as incurred and included within interest expense on the condensed consolidated statement of operations. The Credit Agreement contains certain financial covenants including a requirement that we maintain specified minimum recurring revenue and liquidity amounts.
The borrowings under the Credit Agreement bear interest, at our option, at a rate equal to either (i) term SOFR plus a credit spread adjustment of 0.10% per annum plus a margin of 2.50% per annum or (ii) the alternate base rate (subject to a floor), plus an applicable margin equal to 0% per annum.
As of September 30, 2024, we did not have any outstanding borrowings under the 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 condensed consolidated statements of operations as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
 (in thousands)
Stock-based compensation expense:
Cost of revenue$3,001 $2,527 $8,707 $8,348 
Research and development9,535 8,436 25,698 30,575 
Sales and marketing6,823 7,106 21,182 23,087 
General and administrative5,235 5,699 21,309 22,826 
Total stock-based compensation expense$24,594 $23,768 $76,896 $84,836 
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 2024 and 2023 bonus plans, including permitting our executive officers and certain other employees the opportunity to receive payment of their earned bonuses in the form of common stock (in lieu of cash). During the three months ended September 30, 2024 and 2023, we recognized stock-based compensation expense related to such bonuses in the amount of $0.2 million and $50 thousand, respectively, and during the nine months ended September 30, 2024 and 2023, we recognized stock-based compensation expense in the amount of $0.5 million and $1.1 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of September 30, 2024 and 2023. For employees, including executive officers, who elect to receive their bonuses in the form of common stock (in lieu of cash), the payouts are expected to be made in the form of fully vested stock awards in the first quarter of the following year pursuant to our 2015 Equity Incentive Plan, as amended. The number of shares underlying such awards is determined by dividing the dollar value of the actual bonus award payment by the closing price per share of our common stock on the date of grant.
(b)Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units
RSUs and PSUs activity during the nine months ended September 30, 2024 was as follows:
 Shares        Weighted-
Average Grant
Date Fair
Value
Unvested balance as of December 31, 20232,714,426 $61.60 
Granted2,338,438 $52.37 
Vested(1,122,737)$61.36