Rapid7 Announces Third Quarter 2022 Financial Results

November 2, 2022
  • Annualized recurring revenue (ARR) of $684 million, an increase of 24% year-over-year
  • Total revenue of $176 million, up 26% year-over-year; Products revenue of $166 million, up 27% year-over-year
  • GAAP operating loss of $23 million; Non-GAAP operating income of $13 million
  • Total ARR per customer growth of 14% year-over-year

BOSTON, Nov. 02, 2022 (GLOBE NEWSWIRE) -- Rapid7, Inc. (Nasdaq: RPD), a leading provider of security analytics and automation, today announced its financial results for the third quarter of 2022.

“Customers’ increasing focus on better value and higher efficacy of their security solutions in today’s shifting landscape supported 24% year-over-year growth in our third quarter ARR to $684 million,” said Corey Thomas, Chairman and CEO of Rapid7.

“Amid an evolving macroeconomic backdrop, customers are searching for the most effective and efficient ways to secure their traditional and cloud environments. Rapid7 is as focused as ever on delivering the platform of choice for consolidated SecOps management to help customers manage this dual mandate. We continue to drive growth while also scaling profitability in our business, as demonstrated by our strong third quarter non-GAAP operating income of $13 million and a raise to our full year non-GAAP operating income guidance range.”

Third Quarter 2022 Financial Results and Other Metrics

  Three Months Ended September 30,
    2022     2021   % Change
  (dollars in thousands)
Annualized recurring revenue $ 683,816   $ 550,044   24%
Number of customers   10,791     9,909   9%
ARR per customer $ 63.4   $ 55.5   14%
               


  Three Months Ended September 30,
    2022       2021     % Change
  (in thousands, except per share data)
Products revenue $ 166,496     $ 131,149     27%
Professional services revenue   9,269       8,745     6%
Total revenue $ 175,765     $ 139,894     26%
           
North America revenue $ 138,242     $ 112,337     23%
Rest of world revenue   37,523       27,557     36%
Total revenue $ 175,765     $ 139,894     26%
           
GAAP gross profit $ 121,915     $ 96,424      
GAAP gross margin   69 %     69 %    
Non-GAAP gross profit $ 129,089     $ 102,838      
Non-GAAP gross margin   73 %     74 %    
           
GAAP loss from operations $ (23,236 )   $ (34,315 )    
GAAP operating margin   (13 )%     (25 )%    
Non-GAAP income from operations $ 13,044     $ 5,733      
Non-GAAP operating margin   7 %     4 %    
           
GAAP net loss $ (28,727 )   $ (37,700 )    
GAAP net loss per share, basic and diluted $ (0.49 )   $ (0.67 )    
Non-GAAP net income $ 8,599     $ 3,443      
Non-GAAP net income per share, diluted $ 0.14     $ 0.06      
           
Adjusted EBITDA $ 17,930     $ 9,911      
           
Net cash provided by operating activities $ 20,110     $ 19,448      
Free cash flow $ 9,657     $ 14,327      

For additional details on the reconciliation of non-GAAP measures and certain other business metrics to their nearest comparable GAAP measures, please refer to the accompanying financial data tables included in this press release.

Recent Business Highlights

  • In October 2022, Rapid7 was recognized by Gartner for Security Information and Event Management (SIEM) for the fifth year; InsightIDR was named a Challenger for delivering cloud-native, highly efficient, accelerated detection and response for resource constrained security teams.
  • In September 2022, Rapid7 announced a multi-year partnership with the Boston Bruins, beginning with the 2022-2023 season, with Rapid7 as the first-ever official jersey patch partner of the Boston Bruins, the Official Cybersecurity Partner of the Boston Bruins and the Official Cybersecurity Partner of TD Garden.
  • In July 2022, Rapid7 announced new layered context capabilities for InsightCloudSec, the company’s fully-integrated Cloud-Native Security Platform (CNSP) including consolidated, unified, and real-time views of risk signals.

Fourth Quarter and Full-Year 2022 Guidance

Rapid7 anticipates annualized recurring revenue, revenue, non-GAAP income from operations, non-GAAP net income per share and free cash flow to be in the following ranges:

  Fourth Quarter 2022   Full-Year 2022
  (in millions, except per share data)
Annualized recurring revenue         $711 to $717
Year-over-year growth         19% to 20%
Revenue $179 to $181   $680 to $682
Year-over-year growth 18% to 19%   27%
Non-GAAP income from operations $14 to $16   $25 to $27
Non-GAAP net income per share $0.17 to $0.20   $0.17 to $0.20
Weighted average shares outstanding, diluted 66.0   59.9
Free cash flow         $36 to $40
               

The guidance provided above is forward-looking in nature. Actual results may differ materially. See the cautionary note regarding “Forward-Looking Statements” below. Guidance for the fourth quarter and full-year 2022 does not include any potential impact of foreign exchange gains or losses. The guidance provided above is based on a number of assumptions, estimates and expectations as of the date of this press release and, while presented with numerical specificity, this guidance is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond Rapid7's control and are based upon specific assumptions with respect to future business decisions or economic conditions, some of which may change. Rapid7 undertakes no obligation to update guidance after this date.

Non-GAAP guidance excludes estimates for stock-based compensation expense, amortization of acquired intangible assets, amortization of debt issuance costs, and certain other items. Rapid7 has provided a reconciliation of each non-GAAP guidance measure to the most comparable GAAP measures in the financial statement tables included in this press release. The reconciliation does not reflect any items that are unknown at this time, such as litigation-related expenses, which we are not able to predict without unreasonable effort due to their inherent uncertainty.

Conference Call and Webcast Information

Rapid7 will host a conference call today, November 2, 2022, to discuss its results at 4:30 p.m. Eastern Time. The call will be accessible by telephone at 888-330-2384 (domestic) or +1 240-789-2701 (international) with the event code 8484206. The call will also be available live via webcast on Rapid7's website at https://investors.rapid7.com. A webcast replay of the conference call will be available at https://investors.rapid7.com.

About Rapid7

Rapid7, Inc. (Nasdaq: RPD) is advancing security with visibility, analytics, and automation delivered through our Insight cloud. 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. Over 10,000 customers rely on Rapid7 technology, services, and research to improve security outcomes and securely advance their organizations. For more information, visit our website, check out our blog, or follow us on Twitter.

Non-GAAP Financial Measures and Other Metrics

To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (GAAP), we provide investors with certain non-GAAP financial measures and other metrics, which we believe are helpful to our investors. We use these non-GAAP financial measures and other metrics for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We also use certain non-GAAP financial measures as performance measures under our executive bonus plan. We believe that these non-GAAP financial measures and other metrics provide useful information about our operating results, enhance the overall understanding of our past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in their 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.

Non-GAAP Financial Measures

We disclose the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP income (loss) from operations, non-GAAP net income (loss), non-GAAP net income (loss) per share, adjusted EBITDA and free cash flow. We also disclose non-GAAP gross margin and non-GAAP operating margin derived from these financial measures.

We define non-GAAP gross profit, non-GAAP income (loss) from operations, non-GAAP net income (loss) and non-GAAP net income (loss) per share as the respective GAAP balances excluding the effect of stock-based compensation expense, amortization of acquired intangible assets, amortization of debt issuance costs and certain other items such as acquisition-related expenses, litigation-related expenses and induced conversion expense. Non-GAAP net income (loss) per basic and diluted share is calculated as non-GAAP net income (loss) divided by the weighted average shares used to compute net income (loss) 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 first quarter of 2021 partial repurchase of our 1.25% convertible senior notes due 2023, we incurred an induced conversion expense of $2.7 million. We exclude induced conversion expense because this amount is not indicative of the performance of, or trends in, our business and neither is comparable to the prior period nor predictive of future results.

Litigation-related expenses. We exclude certain litigation-related expenses consisting of professional fees and related costs incurred by us related to significant litigation outside the ordinary course of business. We believe it is useful to exclude such expenses because we do not consider such amounts to be part of our ongoing operations.

Acquisition-related expenses. We exclude acquisition-related expenses as costs that are unrelated to the current operations and neither are comparable to the prior period nor predictive of 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.

Adjusted EBITDA (non-GAAP). Adjusted EBITDA is a non-GAAP measure that we define as net loss 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, and (8) certain other items. 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.  

Free Cash Flow. Free cash flow is a non-GAAP measure that we define as net cash provided by operating activities less purchases of property and equipment and capitalization of internal-use software costs.

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.

Other Metrics

Annualized Recurring Revenue (ARR). ARR is defined as the annual value of all recurring revenue related contracts in place at the end of the period. 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 and can be impacted by contract start and end dates and renewal rates, and does not include revenue reported as perpetual license or professional services revenue in our consolidated statement of operations.

Number of Customers. We define a customer as any entity that has an active Rapid7 recurring revenue contract as of the specified measurement date, excluding InsightOps and Logentries only customers with a contract value less than $2,400 per year.

ARR per Customer. We define ARR per customer as ARR divided by the number of customers at the end of the period.

Cautionary Language Concerning Forward-Looking Statements

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, the statements regarding our financial guidance for the fourth quarter and full-year 2022 , the assumptions underlying such guidance, including the timing of global economic recovery, market opportunities, future growth and operating leverage, and the ability of our solutions to drive profitable, sustainable growth. Our use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “will” and similar expressions are intended to identify forward-looking statements. The events described in our forward-looking statements are subject to a number of risks and uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Risks that could cause or contribute to such differences include, but are not limited to, growing macroeconomic uncertainty, unstable market and economic conditions, fluctuations in our quarterly results, risks arising from the ongoing COVID-19 pandemic, failure to meet our publicly announced guidance or other expectations about our business, our ability to sustain our revenue growth rate, the ability of our products and professional services to correctly detect vulnerabilities, our customers renewal of their subscriptions with us, competition in the markets in which we operate, market growth, our ability to innovate and manage our growth, our sales cycles, our ability to integrate acquired companies, and our ability to operate in compliance with applicable laws as well as other risks and uncertainties set forth in the “Risk Factors” section of our most recent Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on August 4, 2022 and in the subsequent reports that we file with the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those expressed in any forward-looking statements we may make. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this press release.

Investor contact:

Sunil Shah
Vice President, Investor Relations
investors@rapid7.com
(617) 865-4277

Press contact:

Caitlin O'Connor
Senior Public Relations Manager
press@rapid7.com
(857) 990-4240

RAPID7, INC.    
Consolidated Balance Sheets (Unaudited)     
(in thousands)    

    September 30, 2022   December 31, 2021
Assets        
Current assets:        
Cash and cash equivalents   $ 168,353     $ 164,582  
Short-term investments     83,231       58,850  
Accounts receivable, net     121,017       146,094  
Deferred contract acquisition and fulfillment costs, current portion     33,307       29,974  
Prepaid expenses and other current assets     33,402       33,236  
Total current assets     439,310       432,736  
Long-term investments     16,707       34,068  
Property and equipment, net     55,002       50,225  
Operating lease right-of-use assets     85,250       83,751  
Deferred contract acquisition and fulfillment costs, non-current portion     61,857       57,191  
Goodwill     515,631       515,258  
Intangible assets, net     103,660       111,591  
Other assets     18,132       11,191  
Total assets   $ 1,295,549     $ 1,296,011  
Liabilities and Stockholders’ Equity (Deficit)        
Current liabilities:        
Accounts payable   $ 13,864     $ 3,521  
Accrued expenses     64,427       82,620  
Operating lease liabilities, current portion     11,858       9,630  
Deferred revenue, current portion     391,761       372,067  
Other current liabilities     5,254       842  
Total current liabilities     487,164       468,680  
Convertible senior notes, non-current portion, net     814,947       812,063  
Operating lease liabilities, non-current portion     90,427       90,865  
Deferred revenue, non-current portion     31,659       33,056  
Other long-term liabilities     13,636       17,342  
Total liabilities     1,437,833       1,422,006  
Stockholders’ equity (deficit):        
Common stock     592       577  
Treasury stock     (4,764 )     (4,764 )
Additional paid-in-capital     717,946       615,032  
Accumulated other comprehensive loss     (6,698 )     (812 )
Accumulated deficit     (849,360 )     (736,028 )
Total stockholders’ equity (deficit)     (142,284 )     (125,995 )
Total liabilities and stockholders’ equity (deficit)   $ 1,295,549     $ 1,296,011  


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

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
Revenue:              
Products $ 166,496     $ 131,149     $ 474,643     $ 359,581  
Professional services   9,269       8,745       25,961       24,185  
Total revenue   175,765       139,894       500,604       383,766  
Cost of revenue:              
Products   45,957       36,497       135,296       99,315  
Professional services   7,893       6,973       24,118       19,753  
Total cost of revenue   53,850       43,470       159,414       119,068  
Total gross profit   121,915       96,424       341,190       264,698  
Operating expenses:              
Research and development   48,622       43,880       147,341       112,265  
Sales and marketing   75,968       63,041       229,148       174,264  
General and administrative   20,561       23,818       62,967       57,527  
Total operating expenses   145,151       130,739       439,456       344,056  
Loss from operations   (23,236 )     (34,315 )     (98,266 )     (79,358 )
Other income (expense), net:              
Interest income   498       84       853       302  
Interest expense   (2,749 )     (2,962 )     (8,200 )     (11,415 )
Other income (expense), net   (2,205 )     (299 )     (5,211 )     (1,217 )
Loss before income taxes   (27,692 )     (37,492 )     (110,824 )     (91,688 )
Provision for income taxes   1,035       208       2,508       10,021  
Net loss $ (28,727 )   $ (37,700 )   $ (113,332 )   $ (101,709 )
Net loss per share, basic and diluted $ (0.49 )   $ (0.67 )   $ (1.95 )   $ (1.86 )
Weighted-average common shares outstanding, basic and diluted   58,730,651       55,976,671       58,229,872       54,743,538  


RAPID7, INC.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
Cash flows from operating activities:              
Net loss $ (28,727 )   $ (37,700 )   $ (113,332 )   $ (101,709 )
Adjustments to reconcile net loss to cash provided by operating activities:              
Depreciation and amortization   10,195       9,745       30,587       23,513  
Amortization of debt issuance costs   1,046       1,095       3,036       2,886  
Stock-based compensation expense   30,971       29,196       92,304       73,872  
Deferred income taxes                     3,924  
Induced conversion expense                     2,740  
Other   1,547       209       3,828       1,655  
Change in operating assets and liabilities:              
Accounts receivable   3,278       10,706       21,425       23,522  
Deferred contract acquisition and fulfillment costs   (2,919 )     (4,319 )     (7,999 )     (9,772 )
Prepaid expenses and other assets   5,224       2,697       (5,303 )     3,091  
Accounts payable   4,947       3,408       8,504       2,079  
Accrued expenses   252       3,038       (12,241 )     (4,554 )
Deferred revenue   (4,886 )     2,169       18,297       24,389  
Other liabilities   (818 )     (796 )     (1,144 )     3,593  
Net cash provided by operating activities   20,110       19,448       37,962       49,229  
Cash flows from investing activities:              
Business acquisition, net of cash acquired         (306,000 )           (358,420 )
Purchases of property and equipment   (5,863 )     (2,164 )     (13,087 )     (4,835 )
Capitalization of internal-use software costs   (4,590 )     (2,957 )     (12,648 )     (7,162 )
Purchases of investments   (35,489 )           (94,486 )     (59,308 )
Sales/maturities of investments   26,050       36,900       86,379       124,838  
Other investments   (500 )     (1,500 )     (1,000 )     (3,000 )
Net cash used in investing activities   (20,392 )     (275,721 )     (34,842 )     (307,887 )
Cash flows from financing activities:              
Proceeds from issuance of convertible senior notes, net of issuance costs paid         (416 )           585,024  
Purchase of capped calls related to convertible senior notes                     (76,020 )
Payment of debt issuance costs               (71 )      
Payments for repurchase of convertible senior notes               (12 )     (184,649 )
Payments related to business acquisitions         (9,687 )     (300 )     (12,118 )
Taxes paid related to net share settlement of equity awards   (1,637 )     (4,701 )     (6,743 )     (11,372 )
Proceeds from employee stock purchase plan   6,233       4,809       11,943       9,276  
Proceeds from stock option exercises   416       749       1,621       3,279  
Net cash provided by (used in) financing activities   5,012       (9,246 )     6,438       313,420  
Effects of exchange rates on cash, cash equivalents and restricted cash   (2,036 )     (556 )     (5,707 )     (849 )
Net increase (decrease) in cash, cash equivalents and restricted cash   2,694       (266,075 )     3,851       53,913  
Cash, cash equivalents and restricted cash, beginning of period   166,174       493,605       165,017       173,617  
Cash, cash equivalents and restricted cash, end of period $ 168,868     $ 227,530     $ 168,868     $ 227,530  


RAPID7, INC.    
GAAP to Non-GAAP Reconciliation (Unaudited)    
(in thousands, except share and per share data)   

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
GAAP gross profit $ 121,915     $ 96,424     $ 341,190     $ 264,698  
Add: Stock-based compensation expense1   2,745       1,604       7,610       4,970  
Add: Amortization of acquired intangible assets2   4,429       4,810       14,117       10,471  
Non-GAAP gross profit $ 129,089     $ 102,838     $ 362,917     $ 280,139  
Non-GAAP gross margin   73.4 %     73.5 %     72.5 %     73.0 %
               
GAAP gross profit - Products $ 120,539     $ 94,652     $ 339,347     $ 260,266  
Add: Stock-based compensation expense   2,006       1,073       5,513       3,291  
Add: Amortization of acquired intangible assets   4,429       4,810       14,117       10,471  
Non-GAAP gross profit - Products $ 126,974     $ 100,535     $ 358,977     $ 274,028  
Non-GAAP gross margin - Products   76.3 %     76.7 %     75.6 %     76.2 %
               
GAAP gross profit - Professional services $ 1,376     $ 1,772     $ 1,843     $ 4,432  
Add: Stock-based compensation expense   739       531       2,097       1,679  
Non-GAAP gross profit - Professional services $ 2,115     $ 2,303     $ 3,940     $ 6,111  
Non-GAAP gross margin - Professional services   22.8 %     26.3 %     15.2 %     25.3 %
               
GAAP loss from operations $ (23,236 )   $ (34,315 )   $ (98,266 )   $ (79,358 )
Add: Stock-based compensation expense1   30,971       29,196       92,304       73,872  
Add: Amortization of acquired intangible assets2   5,309       5,567       16,755       11,524  
Add: Acquisition-related expenses3         5,180             7,211  
Add: Litigation-related expenses4         105       115       459  
Non-GAAP income from operations $ 13,044     $ 5,733     $ 10,908     $ 13,708  
               
GAAP net loss $ (28,727 )   $ (37,700 )   $ (113,332 )   $ (101,709 )
Add: Stock-based compensation expense1   30,971       29,196       92,304       73,872  
Add: Amortization of acquired intangible assets2   5,309       5,567       16,755       11,524  
Add: Acquisition-related expenses3         5,180             16,176  
Add: Litigation-related expenses4         105       115       459  
Add: Amortization of debt issuance costs   1,046       1,095       3,036       2,886  
Add: Induced conversion expense                     2,740  
Non-GAAP net income (loss) $ 8,599     $ 3,443     $ (1,122 )   $ 5,948  
Add: Interest expense of convertible senior notes5   375                    
Numerator for non-GAAP earnings per share calculation $ 8,974     $ 3,443     $ (1,122 )   $ 5,948  
               
Weighted average shares used in GAAP earnings per share calculation, basic and diluted   58,730,651       55,976,671       58,229,872       54,743,538  
Dilutive effect of convertible senior notes5   5,803,831                    
Dilutive effect of employee equity incentive plans6   1,063,389       2,400,321             2,438,108  
Weighted average shares used in non-GAAP earnings per share calculation, diluted   65,597,871       58,376,992       58,229,872       57,181,646  
               
Non-GAAP net income (loss) per share:              
Basic $ 0.15     $ 0.06     $ (0.02 )   $ 0.11  
Diluted $ 0.14     $ 0.06     $ (0.02 )   $ 0.10  
               
1 Includes stock-based compensation expense as follows:              
Cost of revenue $ 2,745     $ 1,604     $ 7,610     $ 4,970  
Research and development   13,400       14,549       40,349       31,784  
Sales and marketing   8,047       6,348       23,251       18,132  
General and administrative   6,779       6,695       21,094       18,986  
               
2 Includes amortization of acquired intangible assets as follows:              
Cost of revenue $ 4,429     $ 4,810     $ 14,117     $ 10,471  
Sales and marketing   685       587       2,053       793  
General and administrative   195       170       585       260  
               
3 Includes acquisition-related expenses as follows:              
Research and development $     $ 40     $     $ 40  
Sales and marketing         153             275  
General and administrative         4,987             6,896  
Provision for income taxes                     8,965  
               
4 Includes litigation-related expenses as follows:              
General and administrative $     $ 105     $ 115     $ 459  
               
5 We use the if-converted method to compute diluted earnings per share with respect to our convertible senior notes. There was no add-back of interest expense or additional dilutive shares related to the convertible senior notes where the effect was anti-dilutive. On an if-converted basis, for the three months ended September 30, 2022, the 2027 convertible senior notes were dilutive and the 2025 convertible senior notes were anti-dilutive.
               
6 We use the treasury method to compute the dilutive effect of employee equity incentive plan awards.
               

RAPID7, INC.
Reconciliation of Net Loss to Adjusted EBITDA (Unaudited)
(in thousands)

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
GAAP net loss $ (28,727 )   $ (37,700 )   $ (113,332 )   $ (101,709 )
Interest income   (498 )     (84 )     (853 )     (302 )
Interest expense   2,749       2,962       8,200       11,415  
Other (income) expense, net   2,205       299       5,211       1,217  
Provision for income taxes   1,035       208       2,508       10,021  
Depreciation expense   3,479       3,155       10,008       9,202  
Amortization of intangible assets   6,716       6,590       20,579       14,311  
Stock-based compensation expense   30,971       29,196       92,304       73,872  
Acquisition-related expenses         5,180             7,211  
Litigation-related expenses         105       115       459  
Adjusted EBITDA $ 17,930     $ 9,911     $ 24,740     $ 25,697  


RAPID7, INC.
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (Unaudited)
(in thousands)

  Three Months Ended September 30,   Nine Months Ended September 30,
    2022       2021       2022       2021  
Net cash provided by operating activities $ 20,110     $ 19,448     $ 37,962     $ 49,229  
Less: Purchases of property and equipment   (5,863 )     (2,164 )     (13,087 )     (4,835 )
Less: Capitalized internal-use software costs   (4,590 )     (2,957 )     (12,648 )     (7,162 )
Free cash flow $ 9,657     $ 14,327     $ 12,227     $ 37,232  


Fourth Quarter and Full-Year 2022 Guidance
GAAP to Non-GAAP Reconciliation    
(in millions, except per share data)

  Fourth Quarter 2022   Full-Year 2022
Reconciliation of GAAP loss from operations to non-GAAP income from operations:              
Anticipated GAAP loss from operations $ (22 ) to $ (20 )   $ (120 ) to $ (118 )
Add: Anticipated stock-based compensation expense   31   to   31       123   to   123  
Add: Anticipated amortization of acquired intangible assets   5   to   5       22   to   22  
Anticipated non-GAAP income from operations $ 14     $ 16     $ 25     $ 27  
               
Reconciliation of GAAP net loss to non-GAAP net income:              
Anticipated GAAP net loss $ (26 ) to $ (24 )   $ (139 ) to $ (137 )
Add: Anticipated stock-based compensation expense   31   to   31       123   to   123  
Add: Anticipated amortization of acquired intangible assets   5   to   5       22   to   22  
Add: Anticipated amortization of debt issuance costs   1   to   1       4   to   4  
Anticipated non-GAAP net income $ 11     $ 13     $ 10     $ 12  
               
Anticipated GAAP net loss per share, basic and diluted $ (0.44 )   $ (0.40 )   $ (2.37 )   $ (2.34 )
Anticipated non-GAAP net income per share, diluted $ 0.17     $ 0.20     $ 0.17     $ 0.20  
               
Weighted average shares used in GAAP earnings per share calculation, basic and diluted   59.3       58.6  
               
Weighted average shares used in non-GAAP earnings per share calculation, diluted   66.0       59.9  

The reconciliation does not reflect any items that are unknown at this time, such as litigation-related expenses, which we are not able to predict without unreasonable effort due to their inherent uncertainty. As a result, the estimates shown for Anticipated GAAP loss from operations, Anticipated GAAP net loss and Anticipated GAAP net loss per share are expected to change.

  Full-Year 2022
Reconciliation of net cash provided by operating activities to free cash flow:      
Anticipated net cash provided by operating activities $ 76   to $ 80  
Anticipated purchases of property and equipment   (22 ) to   (22 )
Anticipated capitalized internal-use software costs   (18 ) to   (18 )
Anticipated free cash flow $ 36     $ 40  

 


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Source: Rapid7