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GAAP to Non-GAAP Reconciliation (Unaudited)(in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023GAAP gross profit$147,143 $132,258 $291,341 $259,433 Add: Stock-based compensation expense1 3,126 2,984 5,706 5,821 Add: Amortization of acquired intangible assets2 4,012 4,843 8,329 9,218 Non-GAAP gross profit$154,281 $140,085 $305,376 $274,472 Non-GAAP gross margin 74.2% 73.6% 73.9% 73.5% GAAP gross profit - Product subscriptions$145,085 $130,553 $287,348 $256,137 Add: Stock-based compensation expense 2,677 2,269 4,896 4,392 Add: Amortization of acquired intangible assets 4,012 4,843 8,329 9,218 Non-GAAP gross profit - Product subscriptions$151,774 $137,665 $300,573 $269,747 Non-GAAP gross margin - Product subscriptions 75.9% 75.8% 75.7% 75.9% GAAP gross profit - Professional services$2,058 $1,705 $3,993 $3,296 Add: Stock-based compensation expense 449 715 810 1,429 Non-GAAP gross profit - Professional services$2,507 $2,420 $4,803 $4,725 Non-GAAP gross margin - Professional services 31.6% 27.7% 29.8% 26.1% GAAP income (loss) from operations$6,880 $(51,659) $17,448 $(75,624)Add: Stock-based compensation expense1 27,409 31,695 52,302 61,068 Add: Amortization of acquired intangible assets2 4,709 5,690 9,723 10,912 Add: Acquisition-related expenses3 278 278 363 Add: Restructuring expense4 — — (190) — Add: Impairment of long-lived assets — 27,231 — 27,231 Non-GAAP income from operations$39,276 $12,957 $79,561 $23,950 GAAP net income (loss)$8,195 $(66,782) $10,453 $(92,697)Add: Stock-based compensation expense1 27,409 31,695 52,302 61,068 Add: Amortization of acquired intangible assets2 4,709 5,690 9,723 10,912 Add: Acquisition-related expenses3 278 — 278 363 Add: Amortization of debt issuance costs 1,055 1,026 2,108 2,020 Add: Restructuring expense4 — — (190) — Add: Discrete tax items5 — — 6,360 — Add: Change in fair value of derivative assets — 12,660 — 12,660 Add: Impairment of long-lived assets — 27,231 — 27,231 Non-GAAP net income$41,646 $11,520 $81,034 $21,557 Add: Interest expense of convertible senior notes6 1,571 375 3,142 750 Numerator for non-GAAP earnings per share calculation$43,217 $11,895 $84,176 $22,307 Weighted average shares used in GAAP earnings per share calculation, basic 62,496,289 60,470,396 62,201,182 60,180,954 Dilutive effect of convertible senior notes6 11,183,611 5,803,831 11,183,611 5,803,831 Dilutive effect of employee equity incentive plans7 570,460 957,278 750,328 1,292,686 Weighted average shares used in non-GAAP earnings per share calculation, diluted 74,250,360 67,231,505 74,135,121 67,277,471 Non-GAAP net income per share: Basic$0.67 $0.19 $1.30 $0.36 Diluted$0.58 $0.18 $1.14 $0.33 1Includes stock-based compensation expense as follows: Cost of revenue$3,126 $2,984 $5,706 $5,821 Research and development 8,597 11,634 16,163 22,139 Sales and marketing 7,512 8,138 14,359 15,981 General and administrative 8,174 8,939 16,074 17,127 2Includes amortization of acquired intangible assets as follows: Cost of revenue$4,012 $4,843 $8,329 $9,218 Sales and marketing 652 652 1,304 1,304 General and administrative 45 195 90 390 3Includes acquisition-related expenses as follows: General and administrative$278 $— $278 $363 4For the six months ended June 30, 2024, restructuring expense was recorded within general and administrative expense in our condensed consolidated statement of operations. 5Includes discrete tax items as follows: Provision for income taxes$— $— $6,360 $— 6We use the if-converted method to compute diluted earnings per share with respect to our convertible senior notes.
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (Unaudited)(in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023Net cash provided by operating activities$32,858 $31,305 $63,928 $37,147 Less: Purchases of property and equipment (280) (1,419) (900) (3,704)Less: Capitalized internal-use software costs (3,373) (4,305) (6,289) (9,081)Free cash flow$29,205 $25,581 $56,739 $24,362 Third Quarter and Full-Year 2024 GuidanceGAAP to Non-GAAP Reconciliation(in millions, except per share data) Third Quarter 2024 Full-Year 2024Reconciliation of GAAP income from operations to non-GAAP income from operations: Anticipated GAAP income from operations$4.0 to$6.0 $22.9 to$30.9 Add: Anticipated stock-based compensation expense 27.0 to 27.0 108.0 to 108.0 Add: Anticipated amortization of acquired intangible assets 5.0 to 5.0 19.0 to 19.0 Add: Anticipated acquisition-related expense — to — 0.3 to 0.3 Add: Anticipated restructuring expense — to — (0.2)to (0.2)Anticipated non-GAAP income from operations$36.0 to $38.0 $150.0 to$158.0 Reconciliation of GAAP net income to non-GAAP net income: Anticipated GAAP net income$2.9 to$4.9 $16.5 to$20.5 Add: Anticipated stock-based compensation expense 27.0 to 27.0 108.0 to 108.0 Add: Anticipated amortization of acquired intangible assets 5.0 to 5.0 19.0 to 19.0 Add: Anticipated acquisition-related expense — to — 0.3 to 0.3 Add: Anticipated amortization of debt issuance costs 1.0 to 1.0 4.0 to 4.0 Add: Anticipated restructuring expense — to — (0.2)to (0.2)Add: Anticipated discrete tax items — to — 6.4 to 6.4 Anticipated non-GAAP net income$35.9 to$37.9 $154.0 to$158.0 Add: Anticipated interest expense on convertible senior notes 1.6 to 1.6 6.3 to 6.3 Numerator for non-GAAP earnings per share calculation$37.5 to$39.5 $160.3 to$164.3 Anticipated GAAP net income per share, diluted$0.04 $0.07 $0.22 $0.27 Anticipated non-GAAP net income per share, diluted$0.50 $0.53 $2.15 $2.20 Weighted average shares used in earnings per share calculation, diluted74.9 74.7 The reconciliation does not reflect any items that are unknown at this time, including, but not limited to, non-ordinary course litigation-related expenses, which we are not able to predict without unreasonable effort due to their inherent uncertainty.
Condensed Consolidated Statements of Cash Flows (Unaudited)(in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023Cash flows from operating activities: Net income (loss)$8,195 $(66,782) $10,453 $(92,697)Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 10,871 11,829 22,219 22,879 Amortization of debt issuance costs 1,055 1,026 2,108 2,020 Stock-based compensation expense 27,409 31,695 52,302 61,068 Impairment of long-lived assets — 27,231 — 27,231 Change in fair value of derivatives — 12,660 — 12,660 Deferred income taxes — — 1,840 — Other (1,149) 3,428 (1,352) 4,423 Change in operating assets and liabilities: Accounts receivable (19,539) (20,695) 19,990 15,110 Deferred contract acquisition and fulfillment costs (1,285) (3,723) (1,964) (5,963)Prepaid expenses and other assets 1,653 6,967 430 1,400 Accounts payable 1,169 1,462 (3,021) (1,282)Accrued expenses 6,499 11,983 (18,391) (11,968)Deferred revenue (2,160) 13,845 (23,346) 1,783 Other liabilities 140 379 2,660 483 Net cash provided by operating activities 32,858 31,305 63,928 37,147 Cash flows from investing activities: Business acquisition, net of cash acquired — (808) — (34,841)Purchases of property and equipment (280) (1,419) (900) (3,704)Capitalization of internal-use software costs (3,373) (4,305) (6,289) (9,081)Purchases of investments (64,808) (75,374) (157,966) (80,257)Sales/maturities of investments 75,000 29,900 130,000 65,700 Other investing activities 360 — 360 — Net cash provided by (used in) investing activities 6,899 (52,006) (34,795) (62,183)Cash flows from financing activities: Payments related to business acquisitions — — — (2,250)Taxes paid related to net share settlement of equity awards (1,325) (1,324) (3,089) (2,591)Proceeds from employee stock purchase plan — — 5,046 6,174 Proceeds from stock option exercises 324 2,501 1,404 2,682 Net cash (used in) provided by financing activities (1,001) 1,177 3,361 4,015 Effects of exchange rates on cash, cash equivalents and restricted cash (583) (304) (2,076) (337)Net increase (decrease) in cash, cash equivalents and restricted cash 38,173 (19,828) 30,418 (21,358)Cash, cash equivalents and restricted cash, beginning of period 206,375 206,274 214,130 207,804 Cash, cash equivalents and restricted cash, end of period$244,548 $186,446 $244,548 $186,446 Supplemental cash flow information: Cash paid for interest on convertible senior notes $517 $3,337 $3,215 $750 Cash paid for income taxes, net of refunds$3,153 $1,221 $5,505 $166 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents$236,975 $185,929 $236,975 $185,929 Restricted cash included in other assets and prepaid expenses and other current assets 7,573 517 7,573 517 Total cash, cash equivalents and restricted cash$244,548 $186,446 $244,548 $186,446 RAPID7, INC.
