Rapid7 Announces Fourth Quarter and Full-Year 2022 Financial Results

February 8, 2023
  • Annualized recurring revenue (ARR) of $714 million, an increase of 19% year-over-year
  • Full-year revenue of $685 million, up 28% year-over-year; Products revenue of $648 million, up 29% year-over-year
  • Full-year net cash provided by operating activities of $78 million; Free cash flow of $41 million
  • Total ARR per customer growth of 12% year-over-year

BOSTON, Feb. 08, 2023 (GLOBE NEWSWIRE) -- Rapid7, Inc. (NASDAQ: RPD), a leader in cloud risk and threat detection, today announced financial results for the fourth quarter and full-year 2022.

“Rapid7 ended the year with revenue, operating profit, and free cash flow that exceeded our targeted ranges. Amidst an evolving economic landscape, we see customers continuing to expand their wallet share around our leading Insight platform, with ARR per customer growing double-digits from the prior year,” said Corey Thomas, Chairman and CEO of Rapid7.

“As we look ahead to 2023, our commitment to driving profitable growth is underscored by our Free Cash Flow outlook, which we expect to double from the prior year.”

Fourth Quarter 2022 Financial Results and Other Metrics

  As of December 31,
    2022       2021     % Change
  (dollars in thousands)
Annualized recurring revenue $ 714,231     $ 599,020     19 %
Number of customers   10,929       10,283     6 %
ARR per customer $ 65.4     $ 58.3     12 %
                     


  Three Months Ended December 31,   Year Ended December 31,
    2022       2021     % Change     2022       2021     % Change
  (in thousands, except per share data)
Products revenue $ 172,892     $ 141,262     22 %   $ 647,535     $ 500,843     29 %
Professional services revenue   11,587       10,376     12 %     37,548       34,561     9 %
Total revenue $ 184,479     $ 151,638     22 %   $ 685,083     $ 535,404     28 %
                       
North America revenue $ 145,990     $ 120,886     21 %   $ 541,812     $ 433,111     25 %
Rest of world revenue   38,489       30,752     25 %     143,271       102,293     40 %
Total revenue $ 184,479     $ 151,638     22 %   $ 685,083     $ 535,404     28 %
                       
GAAP gross profit $ 129,544     $ 101,758         $ 470,734     $ 366,456      
GAAP gross margin   70 %     67 %         69 %     68 %    
Non-GAAP gross profit $ 136,677     $ 108,181         $ 499,594     $ 388,320      
Non-GAAP gross margin   74 %     71 %         73 %     73 %    
                       
GAAP loss from operations $ (13,349 )   $ (40,708 )       $ (111,614 )   $ (120,065 )    
GAAP operating margin   (7 )%     (27 )%         (16 )%     (22 )%    
Non-GAAP income (loss) from operations $ 19,477     $ (6,110 )       $ 30,386     $ 7,599      
Non-GAAP operating margin   11 %     (4 )%         4 %     1 %    
                       
GAAP net loss $ (11,385 )   $ (44,625 )       $ (124,717 )   $ (146,334 )    
GAAP net loss per share, basic and diluted $ (0.19 )   $ (0.79 )       $ (2.13 )   $ (2.65 )    
Non-GAAP net income (loss) $ 22,490     $ (8,931 )       $ 21,368     $ (2,983 )    
Non-GAAP net income (loss) per share:                      
Basic $ 0.38     $ (0.16 )       $ 0.36     $ (0.05 )    
Diluted $ 0.35     $ (0.16 )       $ 0.35     $ (0.05 )    
                       
Adjusted EBITDA $ 24,700     $ (1,903 )       $ 49,441     $ 23,795      
                       
Net cash provided by operating activities $ 40,242     $ 4,688         $ 78,204     $ 53,917      
Free cash flow $ 28,450     $ (2,179 )       $ 40,677     $ 35,053      
                                       

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 January 2023, Rapid7 announced its inclusion in the Bloomberg Gender-Equality Index, which aims to track the performance of public companies committed to transparency in gender-data reporting.
  • In November, Rapid7 announced the results of the 2022 MITRE Engenuity ATT&CK® Evaluations, in which Rapid7 Managed Detection & Response demonstrated early detection of threats, complete coverage across the cyber-attack chain, and the artifacts collected highlighted rich reporting and engagement throughout.
  • In November, Rapid7 showcased several new Cloud Security capabilities at AWS re-Invent, including Agentless vulnerability assessment and cloud detection and response.
  • In October, Rapid7 achieved ISO 27001 certification for information security management, validating the high standards of its security strategy and processes, and underscoring the company’s commitment to corporate and customer data security.

First Quarter and Full-Year 2023 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:

  First Quarter 2023   Full-Year 2023
  (in millions, except per share data)
Annualized recurring revenue         $ 815   to $ 825  
Year-over-year growth           14 % to   16 %
Revenue $ 180   to $ 182     $ 771   to $ 778  
Year-over-year growth   14 % to   16 %     13 % to   14 %
Non-GAAP income from operations $ 5   to $ 7     $ 57   to $ 62  
Non-GAAP net income per share $ 0.07   to $ 0.10     $ 0.81   to $ 0.88  
Weighted average shares outstanding   66.4       67.4  
Free cash flow         Approximately $80
           

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 first quarter and full-year 2023 does not include any potential impact of foreign exchange gains or losses. The weighted average shares outstanding for the first quarter and full-year 2023 represents diluted shares outstanding given our projected range of non-GAAP net income. 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, February 8, 2023, 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 (Nasdaq: RPD) is on a mission to create a safer digital world by making cybersecurity simpler and more accessible. We empower security professionals to manage a modern attack surface through our best-in-class technology, leading-edge research, and broad, strategic expertise. Rapid7’s comprehensive security solutions help more than 10,000 global customers unite cloud risk management and threat detection to reduce attack surfaces and eliminate threats with speed and precision. For more information, visit our website, check out our blog, or follow us on LinkedIn or 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 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.

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 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 those expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements.

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) (benefit from) provision for income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, (8) acquisition-related expenses and (9) litigation-related expenses. 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 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 first quarter and full-year 2023, 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 November 3, 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)

    December 31, 2022   December 31, 2021
Assets        
Current assets:        
Cash and cash equivalents   $ 207,287     $ 164,582  
Short-term investments     84,162       58,850  
Accounts receivable, net     152,045       146,094  
Deferred contract acquisition and fulfillment costs, current portion     34,906       29,974  
Prepaid expenses and other current assets     31,907       33,236  
Total current assets     510,307       432,736  
Long-term investments     9,756       34,068  
Property and equipment, net     57,891       50,225  
Operating lease right-of-use assets     79,342       83,751  
Deferred contract acquisition and fulfillment costs, non-current portion     68,169       57,191  
Goodwill     515,631       515,258  
Intangible assets, net     101,269       111,591  
Other assets     16,626       11,191  
Total assets   $ 1,358,991     $ 1,296,011  
Liabilities and Stockholders’ Equity (Deficit)        
Current liabilities:        
Accounts payable   $ 10,255     $ 3,521  
Accrued expenses     80,306       82,620  
Operating lease liabilities, current portion     12,444       9,630  
Deferred revenue, current portion     426,599       372,067  
Other current liabilities     1,663       842  
Total current liabilities     531,267       468,680  
Convertible senior notes, net     815,948       812,063  
Operating lease liabilities, non-current portion     85,946       90,865  
Deferred revenue, non-current portion     31,040       33,056  
Other long-term liabilities     14,864       17,342  
Total liabilities     1,479,065       1,422,006  
Stockholders’ equity (deficit):        
Common stock     597       577  
Treasury stock     (4,764 )     (4,764 )
Additional paid-in-capital     746,249       615,032  
Accumulated other comprehensive loss     (1,411 )     (812 )
Accumulated deficit     (860,745 )     (736,028 )
Total stockholders’ equity (deficit)     (120,074 )     (125,995 )
Total liabilities and stockholders’ equity (deficit)   $ 1,358,991     $ 1,296,011  
                 

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

  Three Months Ended December 31,   Year Ended December 31,
    2022       2021       2022       2021  
Revenue:              
Products $ 172,892     $ 141,262     $ 647,535     $ 500,843  
Professional services   11,587       10,376       37,548       34,561  
Total revenue   184,479       151,638       685,083       535,404  
Cost of revenue:              
Products   46,916       41,457       182,212       140,773  
Professional services   8,019       8,423       32,137       28,175  
Total cost of revenue   54,935       49,880       214,349       168,948  
Total gross profit   129,544       101,758       470,734       366,456  
Operating expenses:              
Research and development   42,629       48,514       189,970       160,779  
Sales and marketing   78,261       73,189       307,409       247,453  
General and administrative   22,003       20,763       84,969       78,289  
Total operating expenses   142,893       142,466       582,348       486,521  
Loss from operations   (13,349 )     (40,708 )     (111,614 )     (120,065 )
Other income (expense), net:              
Interest income   960       63       1,813       365  
Interest expense   (2,782 )     (2,877 )     (10,982 )     (14,292 )
Other income (expense), net   3,690       (703 )     (1,522 )     (1,921 )
Loss before income taxes   (11,481 )     (44,225 )     (122,305 )     (135,913 )
(Benefit from) provision for income taxes   (96 )     400       2,412       10,421  
Net loss $ (11,385 )   $ (44,625 )   $ (124,717 )   $ (146,334 )
Net loss per share, basic and diluted $ (0.19 )   $ (0.79 )   $ (2.13 )   $ (2.65 )
Weighted-average common shares outstanding, basic and diluted   59,328,736       56,752,295       58,552,065       55,270,998  
                               

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

    Three Months Ended December 31,   Year Ended December 31,
      2022       2021       2022       2021  
Cash flows from operating activities:                
Net loss   $ (11,385 )   $ (44,625 )   $ (124,717 )   $ (146,334 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     10,451       9,988       41,038       33,501  
Amortization of debt issuance costs     1,049       1,096       4,085       3,982  
Stock-based compensation expense     27,598       28,707       119,902       102,579  
Deferred income taxes     332       (3,458 )     332       466  
Induced conversion expense                       2,740  
Other     (4,028 )     265       (200 )     1,920  
Changes in operating assets and liabilities:                
Accounts receivable     (30,475 )     (48,997 )     (9,050 )     (25,475 )
Deferred contract acquisition and fulfillment costs     (7,911 )     (12,754 )     (15,910 )     (22,526 )
Prepaid expenses and other assets     3,072       (6,446 )     (2,231 )     (3,355 )
Accounts payable     (527 )     (4,156 )     7,977       (2,077 )
Accrued expenses     14,210       23,759       1,969       19,205  
Deferred revenue     34,219       61,173       52,516       85,562  
Other liabilities     3,637       136       2,493       3,729  
Net cash provided by operating activities     40,242       4,688       78,204       53,917  
Cash flows from investing activities:                
Business acquisitions, net of cash acquired                       (358,420 )
Purchases of property and equipment     (7,295 )     (4,175 )     (20,382 )     (9,010 )
Capitalization of internal-use software costs     (4,497 )     (2,692 )     (17,145 )     (9,854 )
Purchases of investments     (28,279 )     (33,784 )     (122,765 )     (93,092 )
Sales/maturities of investments     34,925       23,160       121,304       147,998  
Other investments                 (1,000 )     (3,000 )
Net cash used in investing activities     (5,146 )     (17,491 )     (39,988 )     (325,378 )
Cash flows from financing activities:                
Proceeds from issuance of convertible senior notes, net of issuance costs paid                       585,024  
Purchase of capped calls related to convertible senior notes                       (76,020 )
Payments of debt issuance costs           (300 )     (71 )     (300 )
Payments for redemption, repurchase and conversion of convertible senior notes           (45,351 )     (12 )     (230,000 )
Payments related to business acquisitions                 (300 )     (12,118 )
Taxes paid related to net share settlement of equity awards     (719 )     (4,672 )     (7,462 )     (16,044 )
Proceeds from employee stock purchase plan                 11,943       9,276  
Proceeds from stock option exercises     1,697       1,036       3,318       4,315  
Net cash provided by (used in) financing activities     978       (49,287 )     7,416       264,133  
Effect of exchange rate changes on cash, cash equivalents and restricted cash     2,862       (423 )     (2,845 )     (1,272 )
Net increase (decrease) in cash, cash equivalents and restricted cash     38,936       (62,513 )     42,787       (8,600 )
Cash, cash equivalents and restricted cash, beginning of period     168,868       227,530       165,017       173,617  
Cash, cash equivalents and restricted cash, end of period   $ 207,804     $ 165,017     $ 207,804     $ 165,017  
                                 

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

    Three Months Ended December 31,   Year Ended December 31,
      2022       2021       2022       2021  
Total gross profit (GAAP)   $ 129,544     $ 101,758     $ 470,734     $ 366,456  
Add: Stock-based compensation expense1     2,757       1,521       10,367       6,491  
Add: Amortization of acquired intangible assets2     4,376       4,902       18,493       15,373  
Total gross profit (non-GAAP)   $ 136,677     $ 108,181     $ 499,594     $ 388,320  
Gross margin (non-GAAP)     74.1 %     71.3 %     72.9 %     72.5 %
Gross profit (GAAP) - Products   $ 125,976     $ 99,805     $ 465,323     $ 360,070  
Add: Stock-based compensation expense     2,049       1,066       7,562       4,357  
Add: Amortization of acquired intangible assets     4,376       4,902       18,493       15,373  
Total gross profit (non-GAAP) - Products   $ 132,401     $ 105,773     $ 491,378     $ 379,800  
Gross margin (non-GAAP) - Products     76.6 %     74.9 %     75.9 %     75.8 %
Gross profit (GAAP) - Professional services   $ 3,568     $ 1,953     $ 5,411     $ 6,386  
Add: Stock-based compensation expense     708       455       2,805       2,134  
Total gross profit (non-GAAP) - Professional services   $ 4,276     $ 2,408     $ 8,216     $ 8,520  
Gross margin (non-GAAP) - Professional services     36.9 %     23.2 %     21.9 %     24.7 %
GAAP Loss from operations   $ (13,349 )   $ (40,708 )   $ (111,614 )   $ (120,065 )
Add: Stock-based compensation expense1     27,598       28,707       119,902       102,579  
Add: Amortization of acquired intangible assets2     5,228       5,781       21,983       17,305  
Add: Acquisition-related expenses3                       7,211  
Add: Litigation-related expenses4           110       115       569  
Non-GAAP income (loss) from operations   $ 19,477     $ (6,110 )   $ 30,386     $ 7,599  
GAAP Net loss   $ (11,385 )   $ (44,625 )   $ (124,717 )   $ (146,334 )
Add: Stock-based compensation expense1     27,598       28,707       119,902       102,579  
Add: Amortization of acquired intangible assets2     5,228       5,781       21,983       17,305  
Add: Acquisition-related expenses3                       16,176  
Add: Litigation-related expenses4           110       115       569  
Add: Amortization of debt issuance costs     1,049       1,096       4,085       3,982  
Add: Induced conversion expense                       2,740  
Non-GAAP Net income (loss)   $ 22,490     $ (8,931 )   $ 21,368     $ (2,983 )
Add: Interest expense of convertible senior notes5     1,669             1,500        
Numerator for non-GAAP earnings per share calculation   $ 24,159     $ (8,931 )   $ 22,868     $ (2,983 )
                 
Weighted average shares used in GAAP earnings per share calculation, basic and diluted     59,328,736       56,752,295       58,552,065       55,270,998  
Dilutive effect of convertible senior notes5     9,572,956             5,803,831        
Dilutive effect of employee equity incentive plans6     709,258             1,251,725        
Weighted average shares used in non-GAAP earnings per share calculation, diluted     69,610,950       56,752,295       65,607,621       55,270,998  
                 
Non-GAAP net income (loss) per share:                
Basic   $ 0.38     $ (0.16 )   $ 0.36     $ (0.05 )
Diluted   $ 0.35     $ (0.16 )   $ 0.35     $ (0.05 )
                 
1 Includes stock-based compensation expense as follows:                
Cost of revenue   $ 2,757     $ 1,521     $ 10,367     $ 6,491  
Research and development     9,591       14,838       49,940       46,622  
Sales and marketing     7,966       5,696       31,217       23,828  
General and administrative     7,284       6,652       28,378       25,638  
2 Includes amortization of acquired intangible assets as follows:                
Cost of revenue   $ 4,376     $ 4,902     $ 18,493     $ 15,373  
Sales and marketing     657       684       2,710       1,477  
General and administrative     195       195       780       455  
3 Includes acquisition-related expenses as follows:                
Research and development   $     $     $     $ 40  
Sales and marketing                       275  
General and administrative                       6,896  
Provision for income taxes                       8,965  
4 Includes litigation-related expenses as follows:                
General and administrative   $     $ 110     $ 115     $ 569  
                 
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 December 31, 2022, both the 2025 and 2027 convertible senior notes were dilutive and for the year ended December 31, 2022, the 2027 convertible senior notes were dilutive.
                 
6 We use the treasury method to compute the dilutive effect of employee equity incentive plan awards.
 

Reconciliation of GAAP Net Loss to Adjusted EBITDA (Unaudited)
(in thousands)

    Three Months Ended December 31,   Year Ended December 31,
      2022       2021       2022       2021  
Net loss   $ (11,385 )   $ (44,625 )   $ (124,717 )   $ (146,334 )
Interest income     (960 )     (63 )     (1,813 )     (365 )
Interest expense     2,782       2,877       10,982       14,292  
Other (income) expense, net     (3,690 )     703       1,522       1,921  
(Benefit from) provision for income taxes     (96 )     400       2,412       10,421  
Depreciation expense     3,563       3,140       13,571       12,342  
Amortization of intangible assets     6,888       6,848       27,467       21,159  
Stock-based compensation expense     27,598       28,707       119,902       102,579  
Acquisition-related expenses                       7,211  
Litigation-related expenses           110       115       569  
Adjusted EBITDA   $ 24,700     $ (1,903 )   $ 49,441     $ 23,795  
                                 

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

  Three Months Ended December 31,   Year Ended December 31,
    2022       2021       2022       2021  
Net cash provided by operating activities $ 40,242     $ 4,688     $ 78,204     $ 53,917  
Less: Purchases of property and equipment   (7,295 )     (4,175 )     (20,382 )     (9,010 )
Less: Capitalized internal-use software costs   (4,497 )     (2,692 )     (17,145 )     (9,854 )
Free cash flow $ 28,450     $ (2,179 )   $ 40,677     $ 35,053  
                               

First Quarter and Full-Year 2023 Guidance
GAAP to Non-GAAP Reconciliation
(in millions, except per share data)

               
  First Quarter 2023   Full-Year 2023
Reconciliation of GAAP to non-GAAP (loss) income from operations:              
Anticipated GAAP loss from operations $ (32 ) to $ (30 )   $ (98 ) to $ (93 )
Add: Anticipated stock-based compensation expense   32   to   32       135   to   135  
Add: Anticipated amortization of acquired intangible assets   5   to   5       20   to   20  
Anticipated non-GAAP income from operations $ 5   to $ 7     $ 57   to $ 62  
               
Reconciliation of GAAP to non-GAAP net (loss) income:              
Anticipated GAAP net loss $ (34 ) to $ (32 )   $ (106 ) to $ (101 )
Add: Anticipated stock-based compensation expense   32   to   32       135   to   135  
Add: Anticipated amortization of acquired intangible assets   5   to   5       20   to   20  
Add: Anticipated amortization of debt issuance costs   1   to   1       4   to   4  
Anticipated non-GAAP net income $ 4   to $ 6     $ 53   to $ 58  
               
Anticipated GAAP net loss per share, basic and diluted $ (0.57 )   $ (0.53 )   $ (1.74 )   $ (1.66 )
Anticipated non-GAAP net income per share, diluted $ 0.07     $ 0.10     $ 0.81     $ 0.88  
               
Weighted average shares used in GAAP per share calculation, basic and diluted   60.0       60.9  
               
Weighted average shares used in non-GAAP per share calculation, diluted   66.4       67.4  
               

The reconciliation does not reflect any items that are unknown at this time, such as acquisition-related and 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 2023
Reconciliation of net cash provided by operating activities to free cash flow:  
Anticipated net cash provided by operating activities $ 105  
Anticipated purchases of property and equipment   (7 )
Anticipated capitalized internal-use software costs   (18 )
Anticipated free cash flow $ 80  
       

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Source: Rapid7