10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

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,	MA	02114
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (617) 247-1717

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	RPD	The 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 July 31, 2020, there were 51,006,114 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Loss	3
	Consolidated Statements of Changes in Stockholders' Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION	44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70

i

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

RAPID7, INC.

Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

	June 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	279,343	$	123,413
Short-term investments	36,313		116,158
Accounts receivable, net of allowance for doubtful accounts of $2,608 and $1,829 at June 30, 2020 and December 31, 2019, respectively	76,823		87,927
Deferred contract acquisition and fulfillment costs, current portion	18,439		17,047
Prepaid expenses and other current assets	20,708		20,051
Total current assets	431,626		364,596
Long-term investments	5,365		22,887
Property and equipment, net	48,904		50,670
Operating lease right-of-use assets	72,005		60,984
Deferred contract acquisition and fulfillment costs, non-current portion	35,815		34,213
Goodwill	213,686		97,866
Intangible assets, net	47,706		28,561
Other assets	5,304		5,136
Total assets	$	860,411	$	664,913
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,078	$	6,836
Accrued expenses	36,165		41,021
Operating lease liabilities, current portion	9,436		7,179
Deferred revenue, current portion	227,318		231,518
Other current liabilities	—		119
Total current liabilities	279,997		286,673
Convertible senior notes, net	368,161		185,200
Operating lease liabilities, non-current portion	80,081		72,294
Deferred revenue, non-current portion	33,280		36,226
Other long-term liabilities	8,204		1,352
Total liabilities	769,723		581,745
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized at June 30, 2020 and December 31, 2019; 0 shares issued at June 30, 2020 and December 31, 2019	—		—
Common stock, $0.01 par value per share; 100,000,000 shares authorized at June 30, 2020 and December 31, 2019; 51,438,042 and 50,397,922 shares issued at June 30, 2020 and December 31, 2019, respectively; 50,951,234 and 49,911,114 shares outstanding at June 30, 2020 and December 31, 2019, respectively	509		499
Treasury stock, at cost, 486,808 shares at June 30, 2020 and December 31, 2019	(4,764)		(4,764)
Additional paid-in-capital	657,678		605,650
Accumulated other comprehensive income	85		213
Accumulated deficit	(562,820)		(518,430)
Total stockholders’ equity	90,688		83,168
Total liabilities and stockholders’ equity	$	860,411	$	664,913

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

1

RAPID7, INC.

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue:
Products	$	92,430	$	72,579	$	179,979	$	138,424
Professional services	6,482		6,380		13,273		13,720
Total revenue	98,912		78,959		193,252		152,144
Cost of revenue:
Products	23,118		16,637		44,373		31,006
Professional services	5,963		5,544		12,422		11,148
Total cost of revenue	29,081		22,181		56,795		42,154
Total gross profit	69,831		56,778		136,457		109,990
Operating expenses:
Research and development	26,120		19,626		50,322		37,491
Sales and marketing	44,959		38,172		93,104		73,310
General and administrative	14,484		11,160		28,583		21,113
Total operating expenses	85,563		68,958		172,009		131,914
Loss from operations	(15,732)		(12,180)		(35,552)		(21,924)
Other income (expense), net:
Interest income	208		1,582		1,256		3,313
Interest expense	(5,917)		(3,312)		(9,379)		(6,541)
Other income (expense), net	210		(29)		(237)		(235)
Loss before income taxes	(21,231)		(13,939)		(43,912)		(25,387)
Provision for (benefit from) income taxes	235		(519)		478		(294)
Net loss	$	(21,466)	$	(13,420)	$	(44,390)	$	(25,093)
Net loss per share, basic and diluted	$	(0.42)	$	(0.28)	$	(0.88)	$	(0.52)
Weighted-average common shares outstanding, basic and diluted	50,695,706		48,451,562		50,411,508		48,141,474

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

2

RAPID7, INC.

Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net loss	$	(21,466)	$	(13,420)	$	(44,390)	$	(25,093)
Other comprehensive income (loss):
Change in fair value of investments	128		189		(107)		382
Adjustments for net losses (gains) realized and included in net loss	35		—		(21)		—
Total change in unrealized gains (losses) on investments	163		189		(128)		382
Comprehensive loss	$	(21,303)	$	(13,231)	$	(44,518)	$	(24,711)

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

3

RAPID7, INC.

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(in thousands)

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance, March 31, 2020	50,419	$	504	487	$	(4,764)	$	621,992	$	(78)	$	(541,354)	$	76,300
Stock-based compensation expense	—	—		—	—		15,864		—		—		15,864
Vesting of restricted stock units	415	4		—	—		(4)		—		—		—
Shares withheld for employee taxes	(42)	—		—	—		(1,917)		—		—		(1,917)
Issuance of common stock upon exercise of stock options	160	1		—	—		2,163		—		—		2,164
Change in unrealized gains on investments	—	—		—	—		—		163		—		163
Equity component of convertible senior notes, net	—	—		—	—		46,835		—		—		46,835
Purchase of capped calls related to convertible senior notes	—	—		—	—		(27,255)		—		—		(27,255)
Net loss	—	—		—	—		—		—		(21,466)		(21,466)
Balance, June 30, 2020	50,952	$	509	487	$	(4,764)	$	657,678	$	85	$	(562,820)	$	90,688

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance, March 31, 2019	48,158	$	482	487	$	(4,764)	$	569,229	$	162	$	(476,258)	$	88,851
Stock-based compensation expense	—	—		—	—		10,430		—		—		10,430
Vesting of restricted stock units	351	3		—	—		(3)		—		—		—
Shares withheld for employee taxes	(36)	(1)		—	—		(1,858)		—		—		(1,859)
Issuance of common stock upon exercise of stock options	325	4		—	—		3,329		—		—		3,333
Change in unrealized losses on investments	—	—		—	—		—		189		—		189
Net loss	—	—		—	—		—		—		(13,420)		(13,420)
Balance, June 30, 2019	48,798	$	488	487	$	(4,764)	$	581,127	$	351	$	(489,678)	$	87,524

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2019	49,911	$	499	487	$	(4,764)	$	605,650	$	213	$	(518,430)	$	83,168
Stock-based compensation expense	—	—		—	—		28,829		—		—		28,829
Issuance of common stock under employee stock purchase plan	102	1		—	—		3,345		—		—		3,346
Vesting of restricted stock units	723	7		—	—		(7)		—		—		—
Shares withheld for employee taxes	(69)	—		—	—		(3,450)		—		—		(3,450)
Issuance of common stock upon exercise of stock options	285	2		—	—		3,731		—		—		3,733
Change in unrealized losses on investments	—	—		—	—		—		(128)		—		(128)
Equity component of convertible senior notes, net	—	—		—	—		46,835		—		—		46,835
Purchase of capped calls related to convertible senior notes	—	—		—	—		(27,255)		—		—		(27,255)
Net loss	—	—		—	—		—		—		(44,390)		(44,390)
Balance, June 30, 2020	50,952	$	509	487	$	(4,764)	$	657,678	$	85	$	(562,820)	$	90,688

	Common stock			Treasury stock			Additional paid-in-capital		Accumulated other comprehensive gain (loss)		Accumulated deficit		Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balance, December 31, 2018	47,600	$	476	487	$	(4,764)	$	556,223	$	(31)	$	(464,585)	$	87,319
Stock-based compensation expense	—	—		—	—		19,064		—		—		19,064
Issuance of common stock under employee stock purchase plan	111	1					2,633						2,634
Vesting of restricted stock units	595	6		—	—		(6)		—		—		—
Shares withheld for employee taxes	(58)	(1)		—	—		(2,838)		—		—		(2,839)
Issuance of common stock upon exercise of stock options	550	6		—	—		6,051		—		—		6,057
Change in unrealized gains on investments	—	—		—	—		—		382		—		382
Net loss	—	—		—	—		—		—		(25,093)		(25,093)
Balance, June 30, 2019	48,798	$	488	487	$	(4,764)	$	581,127	$	351	$	(489,678)	$	87,524

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

4

RAPID7, INC.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(44,390)	$	(25,093)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	10,419		7,371
Amortization of debt discount and issuance costs	7,007		5,104
Stock-based compensation expense	29,793		19,064
Provision for doubtful accounts	1,008		1,353
Deferred income taxes	—		(761)
Foreign currency re-measurement loss	199		191
Other non-cash (income) expense	(147)		(1,290)
Changes in operating assets and liabilities:
Accounts receivable	10,835		4,549
Deferred contract acquisition and fulfillment costs	(2,994)		(3,172)
Prepaid expenses and other assets	1,773		(9,334)
Accounts payable	137		2,184
Accrued expenses	(7,437)		(7,312)
Deferred revenue	(11,996)		(5,066)
Other liabilities	(980)		1,129
Net cash used in operating activities	(6,773)		(11,083)
Cash flows from investing activities:
Business acquisition, net of cash acquired	(125,771)		(14,621)
Purchases of property and equipment	(3,955)		(17,712)
Capitalization of internal-use software costs	(2,948)		(3,152)
Purchases of investments	(49,259)		(72,432)
Sales/maturities of investments	146,599		140,302
Net cash (used in) provided by investing activities	(35,334)		32,385
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs paid of $6,500	223,500		—
Purchase of capped calls related to convertible senior notes	(27,255)		—
Payments of debt issuance costs	(248)		—
Taxes paid related to net share settlement of equity awards	(3,450)		(2,839)
Proceeds from employee stock purchase plan	3,346		2,634
Proceeds from stock option exercises	3,728		6,058
Net cash provided by financing activities	199,621		5,853
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(301)		(151)
Net increase in cash, cash equivalents and restricted cash	157,213		27,004
Cash, cash equivalents and restricted cash, beginning of period	123,413		99,565
Cash, cash equivalents and restricted cash, end of period	$	280,626	$	126,569
Supplemental cash flow information:
Cash paid for interest on convertible senior notes	$	1,438	$	1,342
Cash paid for income taxes, net of refunds	$	135	$	319
Non-cash investing activities:
Leasehold improvements acquired through tenant improvement allowance	$	—	$	14,016
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	279,343	$	126,569
Restricted cash in other current assets	1,283		—
Total cash, cash equivalents and restricted cash	$	280,626	$	126,569

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

5

RAPID7, INC.

Notes to 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) is advancing security with visibility, analytics, and automation delivered through our Insight Platform. 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 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 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, 2019 filed with the SEC on February 28, 2020.

The consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the determination of the estimated economic life of perpetual licenses for revenue recognition, the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition and fulfillment costs, the useful lives of long-lived assets, the valuation of allowance for doubtful accounts, the valuation of stock-based compensation, the valuation of intangible assets acquired in a business combination, 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.

The COVID-19 pandemic is expected to result in a sustained global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, including from our customers. We currently expect our operational and financial performance to be negatively impacted by the slowdown in activity associated with the COVID-19 pandemic for the quarters ending September 30, 2020 and December 31, 2020 and the year ending December 31, 2020 and beyond. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, assumptions and judgments or revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained and will be recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.

Reclassification

Prior to the fiscal year beginning January 1, 2020, we have presented revenue on our consolidated statement of operations as products, maintenance and support and professional services revenue. For the three and six months ended June 30, 2020, we have combined products and maintenance and support revenue as products revenue on our consolidated statement of operations as our customers continue to migrate from our on-premise products to our SaaS Insight Platform. Given this continued migration, we believe it is more relevant to categorize maintenance and support revenue together as products revenue. Prior periods have been adjusted to conform with this presentation.

6

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, 2019. There have been no changes to the significant accounting policies during the three and six-month periods ended June 30, 2020.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard on January 1, 2020 using the prospective adoption approach. The impact to our consolidated financial statements as a result of the adoption was not material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, modifies and adds disclosure requirements for fair value measurements. We adopted this standard on January 1, 2020 and there was no impact to our consolidated financial statements as a result of the adoption.

Accounting Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates. We may elect to apply the amendments prospectively through December 31, 2022. The impact to our consolidated financial statements from the adoption of this standard is expected to be immaterial.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. The new standard will be effective for us in the first quarter of 2021, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently assessing the impact of adopting this standard but do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

Note 2. Revenue from Contracts with Customers

We generate products revenue from the sale of (1) cloud-based subscriptions for our InsightIDR, InsightVM, InsightAppSec and InsightConnect products, (2) managed services offerings which utilize our products and (3) term or perpetual software licenses for our Nexpose, Metasploit, AppSpider and DivvyCloud products, and associated content subscriptions for our Nexpose and Metasploit products. We also generate appliance revenue that is included in our products revenue and is associated with hardware sold with our Nexpose product to certain customers. We generate maintenance and support revenue that is included in our products revenue and is associated with customers’ purchases of our software licenses for Nexpose, Metasploit and AppSpider products. We generate professional service revenue from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services. Our deployment services educate and assist our customers on the best use and best practices to deploy our solutions.

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The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Subscription revenue	$	72,796	$	52,309	$	141,421	$	99,278
Term and perpetual software licenses	11,281		10,315		21,552		18,991
Maintenance and support	8,150		9,372		16,572		18,929
Professional services	6,482		6,380		13,273		13,720
Other	203		583		434		1,226
Total revenue	$	98,912	$	78,959	$	193,252	$	152,144

Subscription Revenue

Subscription revenue consists of revenue from our cloud-based subscription, managed services offerings and content subscriptions 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.

•Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period.

Term and Perpetual Software Licenses

For our perpetual software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, the content subscription renewal options result in a material right with respect to the perpetual software license. As a result, the revenue attributable to the perpetual software license is recognized ratably over the customer’s estimated economic life of five years, which represents a longer period of time in comparison to the initial contractual period of maintenance and support. The estimated economic life of five years represents the period which the customer is expected to benefit from the material right. We estimated this period of benefit by taking into consideration several factors, including the terms and conditions of our customer contracts and renewals and the expected useful life of our technology.

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 arrangement as a material right does not exist.

For our term and perpetual software licenses, which are not dependent on the continued delivery of content subscriptions, the license is considered distinct from the maintenance and support, and we therefore recognize revenue attributable to the license at the time of delivery.

Maintenance and support services are sold with our perpetual and term software licenses. As maintenance and support services are distinct from the perpetual and term software license, revenue attributable to maintenance and support services is recognized ratably over the contractual period.

Professional Services

All of our professional services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For the majority of these contracts, revenue is recognized over time based upon the proportion of work performed to date.

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Other

Other revenue primarily includes revenue from delivery of appliances and other miscellaneous revenue.

Contracts with Multiple Performance Obligations

The majority of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP) basis. We determine SSP of our products and services based on our overall pricing objectives using all information reasonably available to us, taking into consideration market conditions and other factors, including the geographic locations of our customers, negotiated discounts from price lists and selling method (i.e., partner or direct). When available, we use directly observable stand-alone transactions to determine SSP. When not regularly sold on a stand-alone basis, we estimate SSP for our products and services utilizing historical sales data, including discounts from list price. The historical data is aggregated and analyzed by geographic location and selling method to establish a median or average price. Once SSP is established it is applied consistently to all transactions including that product or service utilizing a portfolio approach.

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period consistent with the above methodology. For the three months ended June 30, 2020 and 2019, we recognized revenue of $84.8 million and $66.6 million, respectively, and for the six months ended June 30, 2020 and 2019, we recognized $149.3 million and $117.2 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

We receive payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced. If the right to consideration is based on satisfaction of another performance obligation in the contract other than the passage of time, we record a contract asset. As of June 30, 2020 and December 31, 2019, unbilled receivables of $1.5 million and $0.8 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet. As of June 30, 2020 and December 31, 2019, we had no contract assets recorded on our 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 June 30, 2020. The estimated revenues do not include unexercised contract renewals.

	Next Twelve Months		Thereafter
	(in thousands)
Subscription revenue	$	189,769	$	37,159
Term and perpetual software licenses	30,151		15,613
Maintenance and support	18,784		3,520
Professional services	11,357		—

The amounts presented in the table above primarily consist of fixed fees, which are typically recognized ratably as the performance obligation is satisfied.

Note 3. Business Combinations

Divvy Cloud Corporation

On May 1, 2020, we acquired Divvy Cloud Corporation (DivvyCloud), a Cloud Security Posture Management (CSPM) company, for a purchase price with an aggregate fair value of $137.8 million. The purchase consideration consisted of $130.8 million in cash paid at closing, $7.4 million in deferred cash payments and $0.1 million in estimated working capital and other purchase price adjustments. The deferred cash payments will be held by Rapid7 to satisfy indemnification obligations and certain post-closing purchase price adjustments. The deferred cash payments for post-closing purchase price adjustments is payable three months from the acquisition date in the amount of $0.2 million and the remaining $7.2 million is payable on the fifteenth month anniversary of the acquisition date. We have determined the fair value of the deferred cash payments was $7.0 million as of the acquisition date. In addition, in connection with the acquisition, we will issue an aggregate of 200,596

9

shares of Rapid7’s common stock to the founders of DivvyCloud in three equal annual installments beginning on the first anniversary of the closing date. The 200,596 shares of common stock were accounted for as stock-based compensation expense as continued service was required. The fair value of the 200,596 shares of common stock was $8.9 million. In the three and six months ended June 30, 2020, we recognized stock-based compensation expense related to such shares in the amount of $0.5 million. In the three and six months ended June 30, 2020, we recorded $0.8 million and $1.1 million, respectively, of acquisition-related costs in general and administrative expense.

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	$	130,810
Deferred cash consideration	6,963
Estimated working capital and other purchase price adjustments	68
Fair value of total consideration transferred	$	137,841
Recognized amounts of identifiable assets and liabilities assumed:
Cash and cash equivalents	$	5,039
Accounts receivable, net	904
Prepaid expenses and other current assets	810
Property and equipment, net	492
Operating lease right-of-use assets	3,320
Accounts payable	(288)
Accrued expenses	(1,308)
Operating lease liabilities, current portion	(313)
Deferred revenue, current portion	(3,491)
Operating lease liabilities, non-current portion	(2,984)
Deferred revenue, non-current portion	(1,360)
Intangible assets	21,200
Total identifiable net assets assumed	$	22,021
Goodwill	115,820
Net purchase price	$	137,841

The fair value of identifiable intangible assets was based on valuations using the income approach. The estimated fair value and useful life of identifiable intangible assets are as follows:

	Amount		Weighted Average Life
	(in thousands)		(in years)
Developed technology	$	18,600	6
Customer relationships	1,700		6
Trade name	900		5
Total identifiable intangible assets	$	21,200

The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill. We believe the goodwill is attributable to expanded product offerings resulting from the integration of the technology acquired with our existing product offerings and increased opportunities to successfully market and sell these new products and features to our customer base. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible assets were not deductible for tax purposes.

These preliminary amounts are subject to subsequent adjustment as we obtain additional information to finalize certain components of working capital.

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Following the acquisition, we granted to certain retained employees of DivvyCloud restricted stock units (RSUs) for an aggregate of 153,643 shares of our common stock, which will vest over three years subject to continued service. In addition, we granted certain retained employees of DivvyCloud performance-based restricted stock units (PSUs) for an aggregate of 109,760 shares of our common stock, which will vest over a maximum of three years based upon achievement of certain performance conditions and continued service. The RSUs and PSUs are expensed as stock-based compensation expense over the required service periods, assuming the service and performance conditions are achieved.

Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of our operations and DivvyCloud, on a pro forma basis, as though we had acquired DivvyCloud on January 1, 2019. The unaudited pro forma financial information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including an adjustment to revenue for the deferred revenue fair value adjustment, amortization expense from acquired intangibles assets, reversal of acquisition-related expenses and the stock-compensation expense recorded to retain certain employees.

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue	$	100,437	$	79,963	$	197,299	$	154,068
Net loss	$	(21,666)	$	(22,671)	$	(49,600)	$	(40,228)

NetFort Technologies Limited

On April 1, 2019, we acquired NetFort Technologies Limited (NetFort), a provider of end-to-end network traffic visibility and analytics across cloud, virtual and physical platforms for a purchase price of $16.1 million. The $16.1 million purchase price was funded with cash. In the three and six months ended June 30, 2019, we recorded $0.3 million and $0.5 million, respectively, of acquisition-related costs in general and administrative expense.

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 $0.6 million, $9.4 million and $6.1 million, respectively.

The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible asset will not be deductible for tax purposes. Accordingly, a $0.8 million deferred tax benefit was recorded resulting from a partial release of our valuation allowance to account for the creation of a deferred tax liability for the developed technology intangible asset acquired.

Following the acquisition, certain retained employees and non-employee contractors of NetFort received an aggregate of 123,623 restricted stock units (RSUs), which vest over a maximum of three years. The vesting of the RSUs is subject to the employee's continued service with us. Accordingly, the compensation expense associated with the RSUs is expensed as incurred in our post-acquisition financial statements.

Note 4. Fair Value Measurements

We measure certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and we consider an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.

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The following table presents our financial assets measured and recorded at fair value on a recurring basis using the above input categories:

	As of June 30, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Description:
Assets:
Money market funds	$	253,786	$	—	$	—	$	253,786
U.S. government agencies	24,977		—		—		24,977
Corporate bonds	—		13,702		—		13,702
Commercial paper	—		3,000		—		3,000
Total assets	$	278,763	$	16,702	$	—	$	295,465

	As of December 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Description:
Assets:
Money market funds	$	106,781	$	—	$	—	$	106,781
Corporate bonds	—		60,878		—		60,878
U.S. government agencies	36,979		—		—		36,979
Commercial paper	—		19,966		—		19,966
Agency bonds	—		12,242		—		12,242
Asset-backed securities	—		8,980		—		8,980
Total assets	$	143,760	$	102,066	$	—	$	245,826

As of June 30, 2020, the fair values of our 1.25% and 2.25% convertible senior notes due 2023 and 2025, respectively, as further described in Note 8, Debt, were $309.1 million and $247.9 million, respectively, based upon quoted market prices. We consider the fair values of the convertible senior notes to be a Level 2 measurement due to the limited trading activity of both notes. We had no other liabilities measured and recorded at fair value on a recurring basis as of June 30, 2020 or December 31, 2019.

Our investments, which are all classified as available-for-sale, consisted of the following:

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Description:
U.S. government agencies	24,981		—		(4)		24,977
Corporate bonds	13,613		90		(1)		13,702
Commercial paper	3,000		—		—		3,000
Total assets	$	41,594	$	90	$	(5)	$	41,679

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	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Description:
U.S. government agencies	$	36,880	$	99	$	—	$	36,979
Corporate bonds	60,803		77		(2)		60,878
Commercial paper	19,965		1		—		19,966
Agency bonds	12,198		44		—		12,242
Asset-backed securities	8,986		1		(7)		8,980
Total assets	$	138,832	$	222	$	(9)	$	139,045

As of June 30, 2020, our available-for-sale investments had maturities ranging from four to fifteen months. As of December 31, 2019, our available-for-sale investments had maturities ranging from three months to two years.

For all of our investments for which the amortized cost basis was greater than the fair value at June 30, 2020 and December 31, 2019, 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. Property and Equipment

Property and equipment are recorded at cost and consist of the following:

	As of June 30, 2020		As of December 31, 2019
	(in thousands)
Computer equipment and software	$	14,765	$	13,106
Furniture and fixtures	8,339		7,522
Leasehold improvements	44,676		44,050
Total	67,780		64,678
Less accumulated depreciation	(18,876)		(14,008)
Property and equipment, net	$	48,904	$	50,670

Depreciation expense was $2.9 million and $2.1 million for the three months ended June 30, 2020 and 2019, respectively, and $5.4 million and $3.9 million for the six months ended June 30, 2020 and 2019, respectively.

Note 6. Goodwill and Intangible Assets

Goodwill was $213.7 million and $97.9 million as of June 30, 2020 and December 31, 2019, respectively. The following table displays the changes in goodwill:

	Amount
	(in thousands)
Balance at December 31, 2019	$	97,866
DivvyCloud acquisition	115,820
Balance at June 30, 2020	$	213,686

The following table presents details of our intangible assets, which include acquired identifiable intangible assets and capitalized internal-use software costs:

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		As of June 30, 2020						As of December 31, 2019
	Weighted- Average Life (years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
		(in thousands)
Intangible assets subject to amortization:
Developed technology	5.6	$	54,455	$	(19,913)	$	34,542	$	35,855	$	(16,080)	$	19,775
Customer relationships	6.3	2,700		(753)		1,947		1,000		(641)		359
Trade names	5.4	1,419		(549)		870		519		(519)		—
Non-compete agreements	2.0	40		(40)		—		40		(40)		—
Total acquired intangible assets		58,614		(21,255)		37,359		37,414		(17,280)		20,134
Internal-use software	3.0	12,821		(2,474)		10,347		9,873		(1,446)		8,427
Total intangible assets		$	71,435	$	(23,729)	$	47,706	$	47,287	$	(18,726)	$	28,561

Amortization expense was $2.8 million and $1.9 million for the three months ended June 30, 2020 and 2019, respectively, and $5.0 million and $3.5 million for the six months ended June 30, 2020 and 2019, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of June 30, 2020 was as follows (in thousands):

2020 (for the remaining six months)	$	6,285
2021	11,810
2022	8,939
2023	6,426
2024	3,871
2025 and thereafter	4,571
Total	$	41,902

The table above excludes the impact of $5.8 million of capitalized internal-use software costs for projects that have not been completed as of June 30, 2020, and, therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

Note 7. Deferred Contract Acquisition and Fulfillment Costs

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,
	2020		2019
	(in thousands)
Beginning balance	$	51,260	$	39,955
Capitalization of contract acquisition and fulfillment costs	12,378		10,067
Amortization of deferred contract acquisition and fulfillment costs	(9,384)		(6,896)
Ending balance	$	54,254	$	43,126

Note 8. Debt

Convertible Senior Notes

In August 2018, we issued $230.0 million aggregate principal amount of convertible senior notes due August 1, 2023 (the 2023 Notes) and in May 2020, we issued $230.0 million aggregate principal amount of convertible senior notes due May 1, 2025 (the 2025 Notes), collectively (the Notes). The 2023 Notes bear interest at a fixed rate of 1.25% per annum, payable semi-annually in arrears on February 1 and August 1 of each year. The 2025 Notes bear interest at a fixed rate of 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2020. The 2023 Notes and the 2025 Notes mature on August 1, 2023 and May 1, 2025, respectively unless earlier converted, redeemed or repurchased. The 2023 Notes and 2025 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by an indenture between the Company, as issuer, and U.S. Bank National Association, as trustee (the 2023 Indenture and the 2025 Indenture, respectively).

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The total net proceeds from the 2023 Notes and the 2025 Notes offerings, after deducting initial purchase discounts and estimated debt issuance costs, were $223.1 million and $222.8 million, respectively.

Terms of the 2023 Notes and the 2025 Notes

The holders of the Notes may convert their respective Notes at their option at any time prior to the close of business on the business day immediately preceding their respective convertible dates only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on December 31, 2018 for the 2023 Notes and September 30, 2020 for the 2025 Notes (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the respective Notes on each applicable trading day;

•during the five business day period after any five consecutive trading day period (measurement period) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the applicable series of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate of the respective Notes on each such trading day;

•if we call any or all of the respective Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the respective redemption date; or

•upon the occurrence of specified corporate events (as set forth in the Indenture).

As of June 30, 2020, the Notes are not convertible at the option of the holder.

The following table presents details of the Notes (number of shares in millions):

	Initial Conversion Price per $1,000 Principal	Initial Conversion Price		Initial Number of Shares
2023 Notes	24.0460	$	41.59	5.5
2025 Notes	16.3875	$	61.02	3.8

The holders may convert the 2023 Notes and 2025 Notes at any time on or after February 1, 2023 and November 1, 2024, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. 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 Indenture.

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.

We may not redeem the 2023 Notes or 2025 Notes prior to August 6, 2021 and May 6, 2023 (Redemption Dates), respectively. On or after the respective Redemption Dates, we may redeem for cash all or any portion of the 2023 Notes or 2025 Notes, at our option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including the trading day immediately preceding, the date on which we provide the redemption notice at a redemption price equal to 100% principal amount of the 2023 Notes or 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The foregoing description is qualified in its entirety by reference to the text of the Indenture and the Form of the 2023 Notes, which were incorporated by reference as Exhibits 4.4 and 4.5 to our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020. The 2025 Notes were incorporated by reference as Exhibits 4.1 and 4.2 to our Current Report on Form 8-K, filed with the SEC on May 4, 2020.

Accounting for the 2023 Notes and the 2025 Notes

In accounting for the transactions, the 2023 Notes and the 2025 Notes have been separated into liability and equity components. The initial carrying amounts of the liability components were calculated by measuring the fair value of similar debt instruments

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that do not have an associated convertible feature. The initial carrying amounts of the equity components representing the Conversion Option was $53.8 million and $48.3 million for the 2023 Notes and the 2025 Notes, respectively, and were determined by deducting the fair values of the liability components from the par value of the 2023 Notes and 2025 Notes. The equity components were recorded as an increase to additional paid-in capital and are not remeasured as long as they continue to meet the conditions for equity classification. The excess of the principal amount of the 2023 Notes and the 2025 Notes over their respective carrying amount of the liability component, or debt discount, are amortized to interest expense using the effective interest method over the contractual terms of the respective Notes.

In accounting for the debt issuance costs of $6.9 million and $7.2 million related to the 2023 Notes and the 2025 Notes, respectively, we allocated the total amount incurred to the liability and equity components of the 2023 Notes and 2025 Notes based on their relative values. Issuance costs attributable to the liability component were $5.3 million and $5.7 million, for the 2023 Notes and the 2025 Notes, respectively, and will be amortized to interest expense using the effective interest method over the contractual term of the 2023 Notes and 2025 Notes, respectively. Issuance costs attributable to the equity component of $1.6 million and $1.5 million for the 2023 Notes and the 2025 Notes, respectively, were netted with the equity component in additional paid-in capital.

The effective interest rates for the 2023 Notes and the 2025 Notes were 7.36% and 7.85%, respectively.

The net carrying amounts of the liability components of the 2023 Notes and the 2025 Notes were as follows (in thousands):

	As of June 30, 2020						As of December 31, 2019
	2023 Notes		2025 Notes		Total		2023 Notes
Principal	$	230,000	$	230,000	$	460,000	$	230,000
Unamortized debt discount	(35,728)		(47,053)		(82,781)		(40,768)
Unamortized issuance costs	(3,534)		(5,524)		(9,058)		(4,032)
Net carrying amount	$	190,738	$	177,423	$	368,161	$	185,200

The net carrying amount of the equity component as of June 30, 2020 and December 31, 2019 (for the 2023 Notes) was as follows (in thousands):

	2023 Notes		2025 Notes		Total
Debt discount for conversion option	$	53,820	$	48,346	$	102,166
Issuance costs	(1,626)		(1,511)		(3,137)
Net carrying amount	$	52,194	$	46,835	$	99,029

Interest expense related to the 2023 Notes and the 2025 Notes was as follows (in thousands):

	Three Months Ended June 30,												Six Months Ended June 30,
	2020						2019						2020						2019
	2023		2025				2023		2025				2023		2025				2023		2025
	Notes		Notes		Total		Notes		Notes		Total		Notes		Notes		Total		Notes		Notes		Total
Contractual interest expense	$	719	$	863	$	1,582	$	718	$	—	$	718	$	1,438	$	863	$	2,301	$	1,437	$	—	$	1,437
Amortization of debt discount	2,543		1,293		3,836		2,361		—		2,361		5,039		1,293		6,332		4,645		—		4,645
Amortization of issuance costs	251		152		403		233		—		233		498		152		650		459		—		459
Total interest expense	$	3,513	$	2,308	$	5,821	$	3,312	$	—	$	3,312	$	6,975	$	2,308	$	9,283	$	6,541	$	—	$	6,541

Capped Calls

In connection with the offering of the 2023 Notes and the 2025 Notes, we entered into privately negotiated capped call transactions with certain counterparties, the (2023 Capped Calls and 2025 Capped Calls). The initial strike prices for the 2023 Capped Calls and the 2025 Capped Calls are $41.59 and $61.02 per share, respectively, subject to certain adjustments, which correspond to the initial conversion price of the 2023 Notes and the 2025 Notes. The initial cap prices for the 2023 Capped Calls and the 2025 Capped Calls are $63.98 and $93.88 per share, respectively, subject to certain adjustments. The 2023 Capped Calls and the 2025 Capped Calls are expected to offset potential dilution to our common stock upon conversion of the

16

respective 2023 Notes or the 2025 Notes, with such offset subject to a cap based on the cap price. The 2023 Capped Calls and the 2025 Capped Calls cover, subject to anti-dilution adjustments, approximately 5.5 million and 3.8 million shares of our common stock, respectively. For accounting purposes, the 2023 Capped Calls and the 2025 Capped Calls are separate transactions, and not part of the terms of the 2023 Notes and the 2025 Notes. The 2023 Capped Calls and the 2025 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. Accordingly, the cost of $26.9 million and $27.3 million, respectively, for the 2023 Capped Calls and 2025 Capped Calls was recorded as a reduction to additional paid-in capital.

The net impact to our stockholders' equity, included in additional paid-in capital, of the above components of the 2023 Notes and the 2025 Notes was as follows (in thousands):

	2023 Notes		2025 Notes
Conversion option	$	53,820	$	48,346
Purchase of capped calls	(26,910)		(27,255)
Issuance costs	(1,626)		(1,511)
Total	$	25,284	$	19,580

Credit Agreement

On April 23, 2020, we entered into a Credit and Security Agreement (the Credit Agreement), with KeyBank National Association that provides for a $30.0 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 $70.0 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 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 consolidated statement of operations. The Credit Agreement matures on April 23, 2023 and contains certain financial covenants including a requirement that we maintain specified minimum recurring revenue and liquidity amounts. In May 2020, we utilized the accordion feature to increase the credit facility to $50.0 million.

The borrowings under the Credit Agreement bear interest, at our option, at a rate equal to either the London Interbank Offered Rate (LIBOR) rate (subject to a 1.00% floor), plus an applicable margin equal to 2.50% per annum or the alternate base rate (subject to a floor), plus an applicable margin equal to 0% per annum. As of June 30, 2020, we did not have any outstanding borrowings under the Credit Agreement.

Note 9. Leases

Our leases primarily relate to office facilities that have remaining terms of up to 10.4 years, some of which include one or more options to renew with renewal terms of up to 5 years and some of which include options to terminate the leases within the next 6 years. All of our leases are classified as operating leases.

The components of lease expense were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Operating lease cost	$	3,881	$	3,055	$	7,252	$	5,022
Short-term lease costs	224		137		514		286
Variable lease costs	1,367		592		2,289		1,009
Total lease costs	$	5,472	$	3,784	$	10,055	$	6,317

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Supplemental balance sheet information related to the operating leases was as follows:

	As of June 30, 2020			As of December 31, 2019
	(in thousands, except lease term and discount rate)
Operating lease right-of-use (ROU) assets	$	72,005		$	60,984
Operating lease liabilities, current portion	$	9,436		$	7,179
Operating lease liabilities, non-current portion	80,081			72,294
Total operating lease liabilities	$	89,517		$	79,473
Weighted average remaining lease term (in years) - operating leases	8.2			8.7
Weighted average discount rate - operating leases	7.7		%	7.6		%

Supplemental cash flow information related to leases was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	2,524	$	2,578	$	6,360	$	4,506
Operating lease ROU assets obtained in exchange for new lease obligations	$	11,607	$	58,906	$	15,597	$	60,772

Maturities of operating lease liabilities as of June 30, 2020 were as follows (in thousands):

2020 (for the remaining six months)	$	6,837
2021	16,380
2022	13,721
2023	13,954
2024	13,253
2025 and thereafter	53,501
Total lease payments	$	117,646
Less: imputed interest	(28,129)
Total	$	89,517

Note 10. Stock-Based Compensation Expense

(a)General

Stock-based compensation expense for restricted stock units, stock options and issuances of common stock pursuant to our employee stock purchase plan was classified in the accompanying consolidated statements of operations as follows:

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	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Stock-based compensation expense:
Cost of revenue	$	1,131	$	718	$	2,062	$	1,291
Research and development	6,389		4,054		11,034		7,228
Sales and marketing	4,345		2,942		8,023		5,406
General and administrative	4,581		2,716		8,674		5,139
Total stock-based compensation expense	$	16,446	$	10,430	$	29,793	$	19,064

We recognize compensation cost of all awards on a straight-line basis over the applicable vesting period, which is generally four years.

In the first quarter of 2020, our Compensation Committee adopted and approved the performance goals, targets and payout formulas for 2020 under our bonus plans, including permitting our executive officers and other employees the opportunity to receive payment of their earned bonuses for fiscal year 2020 in the form of common stock (in lieu of cash). During the three and six months ended June 30, 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $0.4 million and $0.8 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of June 30, 2020. For all employees, including executive officers, who elected to receive their 2020 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 2021 pursuant to our 2015 Equity Incentive Plan, as amended. The number of shares underlying such awards shall be 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 Units

Restricted stock unit activity during the six months ended June 30, 2020 was as follows:

	Shares	Weighted-Average Grant Date Fair Value
Unvested balance as of December 31, 2019	2,936,924	$	32.43
Granted	1,548,989	56.48
Vested	(723,742)	32.01
Forfeited	(122,463)	36.03
Unvested balance as of June 30, 2020	3,639,708	$	42.65

As of June 30, 2020, the unrecognized compensation expense related to our unvested restricted stock units expected to vest was $145.2 million. This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.6 years.

(c)Stock Options

Stock option activity during the six months ended June 30, 2020 was as follows:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2019	2,705,458	$	10.18
Granted	—	—
Exercised	(284,962)	13.10			$	10,137
Forfeited/cancelled	(16,484)	17.01
Outstanding as of June 30, 2020	2,404,012	$	9.79	4.5	$	99,113
Vested and exercisable as of June 30, 2020	2,171,711	$	9.20	4.3	$	90,811

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As of June 30, 2020, the unrecognized compensation expense related to our unvested stock options expected to vest was $1.4 million. This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 0.8 years.

The total fair value of stock options vested in the six months ended June 30, 2020 was $1.3 million.

(d)Employee Stock Purchase Plan

Under the Rapid7, Inc. 2015 Employee Stock Purchase Plan (ESPP), employees may set aside up to 15% of their gross earnings, on an after-tax basis, to purchase our common stock at a discounted price, which is calculated at 85% of the lesser of: (i) the market value of our common stock at the beginning of each offering period and (ii) the market value of our common stock on the applicable purchase date.

On March 15, 2019, we issued 110,822 shares of common stock to employees for aggregate proceeds of $2.6 million. The purchase prices of the shares were $30.46 and $21.96 per share, which were discounted in accordance with the terms of the ESPP from the closing prices of our common stock on September 17, 2018 of $35.84 and on March 16, 2018 of $25.84, respectively.

On September 13, 2019, we issued 74,221 shares of common stock to employees for aggregate proceeds of $2.9 million. The purchase prices of the shares were $30.46 and $42.22 per share, which were discounted in accordance with the terms of the ESPP from the closing prices of our common stock on September 17, 2018 of $35.84 and on September 13, 2019 of $49.67, respectively.

On March 15, 2020, we issued 101,806 shares of common stock to employees for aggregate proceeds of $3.3 million. The purchase price of the shares was $32.87 per share, which was discounted in accordance with the terms of the ESPP from the closing price of our common stock on March 13, 2020 of $38.67.

Note 11. Net Loss per Share

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands, except share and per share data)
Numerator:
Net loss	$	(21,466)	$	(13,420)	$	(44,390)	$	(25,093)
Denominator:
Weighted-average common shares outstanding, basic and diluted	50,695,706		48,451,562		50,411,508		48,141,474
Net loss per share attributable to common stockholders, basic and diluted	$	(0.42)	$	(0.28)	$	(0.88)	$	(0.52)

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if-converted method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:

	Three and Six Months Ended June 30,
	2020	2019
Options to purchase common stock	2,404,012	3,137,554
Unvested restricted stock units	3,639,708	3,513,781
Common shares to be issued	200,596	—
Shares to be issued under ESPP	77,926	46,331
Total	6,322,242	6,697,666

The shares underlying the conversion options in the 2023 Notes and the 2025 Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive. Based on the initial conversion prices, the entire outstanding principal amount of the 2023 Notes and the 2025 Notes as of June 30, 2020 would have been convertible into approximately 5.5 million and 3.8 million shares, respectively. We expect to settle the principal amount of the 2023 Notes and the 2025 Notes in cash. As a result, only the amount by which the conversion value exceeds the aggregate principal amount of

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the 2023 Notes and the 2025 Notes is considered in the diluted earnings per share computation under the treasury stock method. The conversion spread has a dilutive impact on diluted net income per share when the average market price of our common stock for a given period of time exceeds the initial conversion prices of $41.59 per share for the 2023 Notes and $61.02 per share for the 2025 Notes. In connection with the issuance of the 2023 Notes and the 2025 Notes, we entered into 2023 Capped Calls and 2025 Capped Calls, which were not included for the purpose of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.

Note 12. Commitments and Contingencies

(a)Warranty

We provide limited product warranties. Historically, any payments made under these provisions have been immaterial.

(b)Litigation and Claims

In October 2018, Finjan, Inc. (Finjan) filed a complaint against us and our wholly-owned subsidiary, Rapid7 LLC, in the United States District Court, District of Delaware, alleging patent infringement of seven patents held by them. In the complaint, Finjan sought unspecified damages, attorneys' fees and injunctive relief. We intend to vigorously contest Finjan's claims. This litigation is still in its early stages and the final outcome, including our liability, if any, with respect to Finjan's claims, is uncertain. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

In addition, from time to time, we are a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

(c)Indemnification Obligations

We agree to standard indemnification provisions in the ordinary course of business. Pursuant to these provisions, we agree to indemnify, hold harmless and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our customers, in connection with any United States patent, copyright or other intellectual property infringement claim by any third party arising from the use of our products or services in accordance with the agreement or arising from our gross negligence, willful misconduct or violation of the law (provided that there is not gross or willful misconduct on the part of the other party) with respect to our products or services. The term of these indemnification provisions is generally perpetual from the time of execution of the agreement. We carry insurance that covers certain third-party claims relating to our services and limits our exposure. We have never incurred costs to defend lawsuits or settle claims related to these indemnification provisions.

As permitted under Delaware law, we have entered into indemnification agreements with our officers and directors, indemnifying them for certain events or occurrences while they serve as officers or directors of the company.

Note 13. Segment Information and Information about Geographic Areas

We operate in one segment. Our chief operating decision maker is our Chief Executive Officer, who makes operating decisions, assesses performance and allocates resources on a consolidated basis.

Net revenues by geographic area presented based upon the location of the customer were as follows: 

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
United States	$	79,457	$	64,106	$	155,295	$	124,046
Other	19,455		14,853		37,957		28,098
Total	$	98,912	$	78,959	$	193,252	$	152,144

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Property and equipment, net by geographic area was as follows:

	As of June 30, 2020		As of December 31, 2019
	(in thousands)
United States	$	43,349	$	42,570
Other	5,555		8,100
Total	$	48,904	$	50,670

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2019 included in our Annual Report on Form 10-K, filed with the SEC on February 28, 2020.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations and such forward-looking statements include, but are not limited to, statements with respect to our outlook; the impact of new accounting standards; deferred revenue; our business strategy, plans and objectives for future operations; our future financial and business performance and the uncertain negative impacts that COVID-19 may have on our business, financial condition, results of operations and changes in overall level of security software spending and volatility in the global economy. The events described in these forward-looking statements are subject to a number of risks, 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. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

Rapid7 is a leading cyber security solutions provider, on a mission to make successful security tools and practices accessible to all. Rapid7 Insight Platform technology, expert services, and thought-leading research enables over 9,100 customers to improve their security programs so that they can safely advance and innovate.

In the nearly 20 years that Rapid7 has been in business, security companies and trends have come and gone, while broader technology innovation continues to advance rapidly. Every company is now a technology company, and rampant innovation inevitably creates security risk. The migration of businesses to the cloud and ubiquitous connected devices present security teams with an increasingly complex, ever-changing, and unpredictable attack surface.

We believe as cybersecurity challenges continue to rise exponentially, two key factors can prevent organizations from effectively managing their growing security exposure. First, the tools to manage complex security problems are often equally complicated to use. Second, there is a scarcity of cybersecurity professionals who are qualified to successfully manage these sophisticated tools. These two factors compound the difficulties that resource-constrained organizations face when attempting to minimize their security exposure, meet security compliance regulations and provide visibility to their leadership. The expanding divide between risk created through innovation and risk managed by security teams is called the Security Achievement Gap.

We believe Rapid7 is uniquely positioned to improve how customer security challenges are addressed. Our solutions simplify the complex, allowing teams to more effectively reduce vulnerabilities, monitor malicious behavior, investigate and shut down attacks, and automate routine tasks. All of our solutions and services are built with and supported by the expertise of our dedicated team of security researchers and consultants, who bring knowledge of attacker behavior and emerging vulnerabilities directly to customers. We also continue to invest in further simplifying our technology to improve usability, lowering the barrier to managing security for teams and organizations who lack resources.

While our security technology is the foundation of our mission to make successful security accessible to all, technology alone will not solve today’s cybersecurity challenges. Our ongoing commitment to researching and partnering with the technology community helps to curb new security risks born through innovation. We are also investing in under-served, at risk communities, like non-profits and hospitals, to better understand their needs and make security technology and services accessible. By continuously improving our technology, stemming the creation of risk in the community, and making security more usable and accessible, Rapid7 aims to close the Security Achievement Gap.

We market and sell our products and professional services to organizations of all sizes globally, including mid-market businesses, enterprises, non-profits, educational institutions and government agencies. Our customers span a wide variety of industries such as technology, energy, financial services, healthcare and life sciences, manufacturing, media and entertainment, retail, education, real estate, transportation, government and professional services. As of June 30, 2020, we had over 9,100

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customers in 139 countries, including 46% of the Fortune 100. Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for the three and six months ended June 30, 2020 or 2019.

We sell our products and professional services through direct inside and field sales teams and indirect channel partner relationships. Our sales teams focus on both new customer acquisition as well as up-selling and cross-selling additional offerings to our existing customers. Our sales teams are organized by geography, consisting of the Americas; Europe, the Middle East and Africa (EMEA); and Asia Pacific (APAC), as well as by target organization size. Our highly technical sales engineers help define customer use cases, manage solution evaluations and train channel partners. In addition, we maintain a global channel partner network that complements our sales organization, particularly in EMEA, APAC and Latin America.

Recent Developments

Acquisition of Divvy Cloud Corporation

On May 1, 2020, we acquired Divvy Cloud Corporation (DivvyCloud), a Cloud Security Posture Management (CSPM) company, for a purchase consideration of $130.8 million in cash paid at closing, $7.4 million in deferred cash payments and $0.1 million in estimated working capital and other purchase price adjustments. In addition, in connection with the acquisition, we will issue an aggregate of 200,596 shares of Rapid7’s common stock to the founders of DivvyCloud in three equal annual installments beginning on the first anniversary of the closing date.

Convertible Senior Notes

On May 1, 2020, we issued $230.0 million aggregate principal amount of convertible senior notes due May 1, 2025 (collectively, the 2025 Notes). The total net proceeds from the offering, after deducting initial purchase discounts and estimated debt issuance costs, were $222.8 million. The 2025 Notes are unsecured obligations and bear interest at a fixed rate of 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2020. The 2025 Notes will mature on May 1, 2025, unless earlier converted, redeemed or repurchased. The 2025 Notes do not contain any financial covenants. The 2025 Notes are governed by an indenture between the Company, as issuer, and U.S. Bank National Association, as trustee (the 2025 Indenture).

In connection with the issuance of the 2025 Notes, we entered into capped call transactions with certain counterparties (the 2025 Capped Calls). We used $27.3 million of the net proceeds from the 2025 Notes to purchase the 2025 Capped Calls. The 2025 Capped Calls are expected to offset potential dilution to our common stock upon conversion of the 2025 Notes. The 2025 Capped Calls have an initial cap price of $93.88 per share, subject to certain adjustments.

Credit Agreement

On April 23, 2020, we entered into a Credit and Security Agreement the (Credit Agreement), with KeyBank National Association that provides for a $30.0 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 $70.0 million. The Credit Agreement matures on April 23, 2023 and contains certain financial covenants including to maintain specified minimum recurring revenue and liquidity amounts. In May 2020, we utilized the accordion feature to increase the credit facility to $50.0 million.

The borrowings under the Credit Agreement bear interest, at our option, at a rate equal to either the London Interbank Offered Rate (LIBOR) rate (subject to a 1.00% floor), plus an applicable margin equal to 2.50% per annum or the alternate base rate (subject to a floor), plus an applicable margin equal to 0% per annum. We are required to pay a 0.20% per annum commitment fee on the unused portion of the credit facility. As of June 30, 2020, we did not have any outstanding borrowings under the Credit Agreement.

COVID-19 Response

Rapid7 remains focused on supporting its customers, partners, employees and communities during the COVID-19 pandemic. The impact of COVID-19 on the global economy and on our business continues to be a fluid situation. We responded quickly to adopt a virtual sales strategy to enable most of our employees to work productively from home, continued our focus on customers and new customers and worked to guard the health and safety of our team, support our customers and partners, mitigate risk, and maximize our financial performance. We are focused on ensuring continuity for our customers and partners. During the three months ended June 30, 2020, we slowed hiring and reduced discretionary spending, and in addition, we continue to realize savings that naturally accrue from less travel and virtual rather than in-person events.

The continuing COVID-19 pandemic is expected to result in a sustained global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, including from our customers. We currently expect our operational and financial performance to be negatively impacted by the slowdown in activity associated with the COVID-19 pandemic for the year ending December 31, 2020 and beyond. The extent of the impact of the COVID-19 on our operational and financial

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performance will depend on certain developments, including the duration and spread of the disease, its impact on industry events, and its effect on our customers, partners, suppliers and vendors and other parties with whom we do business, all of which are uncertain and cannot be predicted at this time. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel, employee work locations, and cancellation of Rapid7 in-person marketing events. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our business operations, including those that may be required by federal, foreign, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, vendors and stockholders. At this point, the extent to which the COVID-19 pandemic may impact our business, results of operations and financial condition is uncertain. Furthermore, due to our subscription model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

Our Business Model

We have offerings in five key areas: (1) Vulnerability Risk Management, (2) Incident Detection and Response, (3) Application Security, (4) Cloud Security and (5) Security Orchestration and Automation Response.

We offer our products through a variety of delivery models to meet the needs of our diverse customer base, including:

•Cloud-based subscriptions, which provide our software capabilities to our customers through cloud access and on a SaaS basis. Our InsightIDR, InsightVM, InsightAppSec and InsightConnect products are offered as cloud-based subscriptions, generally with a one-year term.

•Managed services, through which we operate our products and provide our capabilities on behalf of our customers. Our Managed Vulnerability Management, Managed Application Security and Managed Detection and Response products are offered on a managed service basis, generally pursuant to one-year agreements.

•Licensed software, including both term and perpetual licenses, and the simultaneous sale of maintenance and support. Our Nexpose, Metasploit, AppSpider and DivvyCloud products are offered through term or perpetual software licenses. Our customers who purchase software licenses also purchase maintenance and support, which provides our customers with telephone and web-based support and ongoing bug fixes and repairs during the term of the maintenance and support agreement, and our customers who purchase our Nexpose and Metasploit products also purchase content subscriptions, which provide them with real-time access to the latest vulnerabilities and exploits. Our maintenance and support and content subscription agreements are typically for one-year terms.

We also offer various professional services across all of our offerings, including deployment and training services related to our software and cloud-based products, incident response services, penetration testing and security advisory services. Customers can purchase our professional services together with our product offerings or on a stand-alone basis pursuant to fixed fee or time-and-materials agreements.

For the three months ended June 30, 2020 and 2019, recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 91% and 87%, respectively, of total revenue. For the six months ended June 30, 2020 and 2019, recurring revenue was 90% and 86%, respectively, of total revenue.

Our renewal rate was 105% and 113% for the three and six months ended June 30, 2020 and 2019, respectively. For the three months ended June 30, 2019, our renewal rate was adjusted from the previously disclosed 116% to 113% based on a reclassification of certain upsells and cross-sells. We calculate our renewal rate by dividing the dollar value of renewed customer agreements, including upsells and cross-sells of additional products, but excluding professional services, in a trailing 12-month period by the dollar value of the corresponding customer agreements.

Key Metrics

We monitor the following key metrics to help us measure and evaluate the effectiveness of our operations:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(dollars in thousands)
Total revenue	$	98,912		$	78,959		$	193,252		$	152,144
Year-over-year revenue growth	25.3		%	35.1		%	27.0		%	34.7		%
Non-GAAP income from operations	$	4,265		$	500		$	332		$	1,077
Operating cash flow	$	442		$	2,483		$	(6,773)		$	(11,083)

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	As of June 30,
	2020			2019
	(dollars in thousands)
Number of customers	9,142			8,400
Year-over-year customer growth	9		%	16		%
Annualized recurring revenue (ARR)	$	379,891		$	290,016
Year-over-year ARR growth	31.0		%	46.0		%

Total Revenue and Growth. We are focused on driving continued revenue growth through increased sales of our products and professional services to new and existing customers.

Non-GAAP Income from Operations. We monitor non-GAAP income from operations, a non-GAAP financial measure, to analyze our financial results. We believe non-GAAP income from operations is useful to investors, as a supplement to U.S. GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance and allowing for greater transparency with respect to metrics used by our management in its financial and operational decision-making. See Non-GAAP Financial Results below for further information on non-GAAP income from operations and a reconciliation of non-GAAP income from operations to the comparable GAAP financial measure.

Operating Cash Flow. We monitor our operating cash flow as a measure of our overall business performance, which enables us to analyze our financial performance without the effects of certain non-cash items such as stock-based compensation expenses and depreciation and amortization. Additionally, operating cash flow takes into account the increase in deferred revenue as a result of increases in sales of products and services, which reflects the receipt of cash payment for products before they are recognized into revenue. Our operating cash flow is impacted by the timing of commission and bonus payments, accounts payable payments and collections of accounts receivable.

Number of Customers. We believe that the size of our customer base is an indicator of our global market penetration and that our net customer additions are an indicator of the growth of our business. We define a customer as any entity that has (1) an active Rapid7 contract or a contract that expired within 90 days or less of the applicable measurement date; and for Logentries products, those customers with a contract value equal to or greater than $2,400 per year, or (2) purchased Rapid7 professional services within the 12 months preceding the applicable measurement date.

Annualized Recurring Revenue and Growth. Annualized Recurring Revenue (ARR) is defined as the annual value of all recurring revenue related to contracts in place at the end of the quarter. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or replace these items. ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates and does not include revenue reported as perpetual license or professional services revenue in our consolidated statement of operations.

Non-GAAP Financial Results

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures and key metrics, including non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income (loss), non-GAAP net income (loss) per share and adjusted EBITDA. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures and key metrics for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons, and use certain non-GAAP financial measures as performance measures under our executive bonus plan. We believe that these non-GAAP financial measures and key 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.

We define non-GAAP gross profit, non-GAAP income 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 discount and issuance costs, and certain other items such as acquisition-related expenses and litigation-related expenses. 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 to reflect the anti-dilutive impact of the capped call transactions entered into in connection with our convertible senior notes.

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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 discount and issuance costs. The expense for the amortization of debt discount and 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.

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 basic and diluted share to provide investors with useful information in evaluating our financial performance on a per share basis.

Adjusted EBITDA. We define adjusted EBITDA as net loss before (1) interest income, (2) interest expense, (3) other income (expense), net, (4) provision for (benefit from) 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.

Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact upon our reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees.

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The following tables reconcile GAAP gross profit to non-GAAP gross profit for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
GAAP total gross profit	$	69,831	$	56,778	$	136,457	$	109,990
Stock-based compensation expense	1,131		718		2,062		1,291
Amortization of acquired intangible assets	2,175		1,662		3,833		3,020
Non-GAAP total gross profit	$	73,137	$	59,158	$	142,352	$	114,301
	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
GAAP gross profit – products	$	69,312	$	55,942	$	135,606	$	107,418
Stock-based compensation expense	710		373		1,283		650
Amortization of acquired intangible assets	2,175		1,662		3,833		3,020
Non-GAAP gross profit – products	$	72,197	$	57,977	$	140,722	$	111,088
	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
GAAP gross profit – professional services	$	519	$	836	$	851	$	2,572
Stock-based compensation expense	421		345		779		641
Non-GAAP gross profit – professional services	$	940	$	1,181	$	1,630	$	3,213

The following table reconciles GAAP loss from operations to non-GAAP income from operations for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
GAAP loss from operations	$	(15,732)	$	(12,180)	$	(35,552)	$	(21,924)
Stock-based compensation expense	16,446		10,430		29,793		19,064
Amortization of acquired intangible assets	2,285		1,698		3,975		3,095
Acquisition-related expenses	831		297		1,138		514
Litigation-related expenses	435		255		978		328
Non-GAAP income from operations	$	4,265	$	500	$	332	$	1,077

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The following table reconciles GAAP net loss to non-GAAP net income (loss) income for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands, except share and per share data)
GAAP net loss	$	(21,466)	$	(13,420)	$	(44,390)	$	(25,093)
Stock-based compensation expense	16,446		10,430		29,793		19,064
Amortization of acquired intangible assets	2,285		1,698		3,975		3,095
Acquisition-related expenses	831		297		1,138		514
Litigation-related expenses	435		255		978		328
Amortization of debt discount and issuance costs	4,264		2,594		7,007		5,104
Release of valuation allowance, acquisition-related	—		(761)		—		(761)
Non-GAAP net income (loss)	$	2,795	$	1,093	$	(1,499)	$	2,251
Reconciliation of net (loss) income per share, basic:
GAAP net loss per share, basic	$	(0.42)	$	(0.28)	$	(0.88)	$	(0.52)
Non-GAAP adjustments to net loss	0.48		0.30		0.85		0.57
Non-GAAP net (loss) income per share, basic	$	0.06	$	0.02	$	(0.03)	$	0.05
Reconciliation of net (loss) income per share, diluted:
GAAP net loss per share, diluted	$	(0.42)	$	(0.28)	$	(0.88)	$	(0.52)
Non-GAAP adjustments to net loss	0.47		0.30		0.85		0.56
Non-GAAP net (loss) income per share, diluted	$	0.05	$	0.02	$	(0.03)	$	0.04
Weighted average shares used in GAAP per share calculation, basic and diluted	50,695,706		48,451,562		50,411,508		48,141,474
Weighted average shares used in non-GAAP per share calculation:
Basic	50,695,706		48,451,562		50,411,508		48,141,474
Diluted	53,063,261		52,035,868		50,411,508		51,611,858

The following table reconciles GAAP net loss to adjusted EBITDA for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
GAAP net loss	$	(21,466)	$	(13,420)	$	(44,390)	$	(25,093)
Interest income	(208)		(1,582)		(1,256)		(3,313)
Interest expense	5,917		3,312		9,379		6,541
Other (income) expense, net	(210)		29		237		235
Provision for (benefit from) income taxes	235		(519)		478		(294)
Depreciation expense	2,740		2,056		5,415		3,906
Amortization of intangible assets	2,836		1,888		5,004		3,465
Stock-based compensation expense	16,446		10,430		29,793		19,064
Acquisition-related expenses	831		297		1,138		514
Litigation-related expenses	435		255		978		328
Adjusted EBITDA	$	7,556	$	2,746	$	6,776	$	5,353

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Components of Results of Operations

Revenue

We generate revenue primarily from selling products and professional services through a variety of delivery models to meet the needs of our diverse customer base. We generally bill customers and collect payment for both our products and services at the beginning of a contractual period.

Products

We generate products revenue from the sale of (1) cloud-based subscriptions for our InsightVM, InsightIDR, InsightAppSec and InsightConnect products, (2) managed services offerings, which utilize our products and (3) term or perpetual software licenses for our Nexpose, Metasploit, AppSpider and DivvyCloud products, as well as associated content subscriptions for our Nexpose and Metasploit products. We also generate revenue when customers purchase or renew agreements for maintenance and support of their Nexpose, Metasploit and AppSpider software licenses. Substantially all of our customers purchase an agreement for maintenance and support in connection with their purchase of a Nexpose, Metasploit or AppSpider software license. Lastly, we also generate appliance revenue that is included in our products revenue and is associated with hardware sold with our Nexpose product to certain customers.

Professional Services

We generate professional service revenue from the sale of deployment and training services related to our products, incident response services and security advisory services.

Cost of Revenue

Our total cost of revenue consists of the costs of products and professional services. Cost of revenue include overhead costs for depreciation, facilities, IT, information security, and recruiting. Our IT overhead costs include IT personnel compensation costs and costs associated with our IT infrastructure. All overhead costs are allocated based on relative headcount.

Cost of Products

Cost of products consists of personnel and related costs for our content, support, managed service and cloud operations teams, including salaries and other payroll related costs, bonuses, stock-based compensation and allocated overhead costs. Also included in cost of products are software license fees, hardware, cloud computing costs and internet connectivity expenses directly related to delivering our products, amortization of contract fulfillment costs, as well as amortization of certain intangible assets including internally developed software.

Cost of Professional Services

Cost of professional services consists of personnel and related costs for our professional services team, including salaries and other payroll related costs, bonuses, stock-based compensation, costs of contracted third-party vendors, travel and entertainment expenses and allocated overhead costs.

We expect our cost of revenue to increase on an absolute dollar basis as we continue to grow our revenue.

Gross Margin

Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our products and services, transaction volume growth, the mix of revenue between software licenses, cloud-based subscriptions, managed services and professional services and changes in cloud computing costs. We expect our gross margins to fluctuate over time depending on the factors described above.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Operating expenses include overhead costs for depreciation, facilities, IT, information security and recruiting. Our IT overhead costs include IT personnel compensation costs and costs associated with our IT infrastructure. All overhead costs are allocated based on relative headcount.

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Research and Development Expense

Research and development expense consists of personnel costs for our research and development team, including salaries and other payroll related costs, bonuses and stock-based compensation. Additional expenses include travel and entertainment, consulting and professional fees for third-party development resources as well as allocated overhead costs.

We expect research and development expense to increase on an absolute dollar basis in the near term as we continue to increase investments in our products and technology platform innovation, but to remain relatively consistent as a percentage of total revenue.

Sales and Marketing Expense

Sales and marketing expense consists of personnel costs for our sales and marketing team, including salaries and other payroll related costs, commissions, including amortization of deferred commissions, bonuses and stock-based compensation. Additional expenses include marketing activities and promotional events, travel and entertainment, training costs, amortization of certain intangible assets and allocated overhead costs.

We expect sales and marketing expense to increase on an absolute dollar basis in the near term as we continue to increase investments to drive our revenue growth, but to decrease as a percentage of total revenue.

General and Administrative Expense

General and administrative expense consists of personnel costs for our executive, legal, human resources, and finance and accounting departments, including salaries and other payroll related costs, bonuses and stock-based compensation. Additional expenses include travel and entertainment, professional fees, litigation-related expenses, insurance, acquisition-related expenses, amortization of certain intangible assets and allocated overhead costs.

We expect general and administrative expense to increase on an absolute dollar basis in the near term as we continue to increase investments to support our growth, but to remain relatively consistent as a percentage of total revenue.

Interest Income

Interest income consists primarily of interest income on our cash and cash equivalents and our short and long-term investments.

Interest Expense

Interest expense consists primarily of contractual interest expense, as well as amortization of debt discount and issuance costs related to our convertible senior notes and revolving credit facility.

Other Income (Expense), Net

Other income (expense), net consists primarily of unrealized and realized gains and losses related to changes in foreign currency exchange rates and realized gains and losses on the sale of investments.

Provision for Income Taxes

Provision for income taxes relates to U.S. federal and state, as well as certain foreign jurisdiction, income taxes. Historically, we have generated net losses in the U.S., U.K and Ireland and recorded a full valuation allowance against our U.S., U.K. and Ireland deferred tax assets. We expect to maintain a full valuation allowance on our U.S., Ireland and U.K. deferred tax assets in the near term. Realization of our U.S., Ireland and U.K. deferred tax assets depends upon future earnings, the timing and amount of which are uncertain.

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Results of Operations

The following table sets forth our selected consolidated statements of operations data:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Consolidated Statement of Operations Data:
Revenue:
Products	$	92,430	$	72,579	$	179,979	$	138,424
Professional services	6,482		6,380		13,273		13,720
Total revenue	98,912		78,959		193,252		152,144
Cost of revenue:(1)
Products	23,118		16,637		44,373		31,006
Professional services	5,963		5,544		12,422		11,148
Total cost of revenue	29,081		22,181		56,795		42,154
Operating expenses:(1)
Research and development	26,120		19,626		50,322		37,491
Sales and marketing	44,959		38,172		93,104		73,310
General and administrative	14,484		11,160		28,583		21,113
Total operating expenses	85,563		68,958		172,009		131,914
Loss from operations	(15,732)		(12,180)		(35,552)		(21,924)
Interest income	208		1,582		1,256		3,313
Interest expense	(5,917)		(3,312)		(9,379)		(6,541)
Other income (expense), net	210		(29)		(237)		(235)
Loss before income taxes	(21,231)		(13,939)		(43,912)		(25,387)
Provision for (benefit from) income taxes	235		(519)		478		(294)
Net loss	$	(21,466)	$	(13,420)	$	(44,390)	$	(25,093)

(1)Cost of revenue and operating expenses include stock-based compensation expense and depreciation and amortization expense as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Stock-based compensation expense:
Cost of revenue	$	1,131	$	718	$	2,062	$	1,291
Research and development	6,389		4,054		11,034		7,228
Sales and marketing	4,345		2,942		8,023		5,406
General and administrative	4,581		2,716		8,674		5,139
Total stock-based compensation expense	$	16,446	$	10,430	$	29,793	$	19,064

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Depreciation and amortization expense:
Cost of revenue	$	3,238	$	2,253	$	5,861	$	4,160
Research and development	693		465		1,352		895
Sales and marketing	1,224		912		2,390		1,722
General and administrative	421		314		816		594
Total depreciation and amortization expense	$	5,576	$	3,944	$	10,419	$	7,371

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The following table sets forth our selected consolidated statements of operations data expressed as a percentage of revenue:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Consolidated Statement of Operations Data:
Revenue:
Products	93.4	%	91.9	%	93.1	%	91.0	%
Professional services	6.6		8.1		6.9		9.0
Total revenue	100.0		100.0		100.0		100.0
Cost of revenue:
Products	23.4		21.1		23.0		20.4
Professional services	6.0		7.0		6.4		7.3
Total cost of revenue	29.4		28.1		29.4		27.7
Operating expenses:
Research and development	26.4		24.9		26.0		24.6
Sales and marketing	45.5		48.3		48.2		48.2
General and administrative	14.6		14.1		14.8		13.9
Total operating expenses	86.5		87.3		89.0		86.7
Loss from operations	(15.9)		(15.4)		(18.4)		(14.4)
Interest income	0.2		2.0		0.6		2.2
Interest expense	(6.0)		(4.2)		(4.9)		(4.3)
Other income (expense), net	0.2		—		(0.1)		(0.2)
Loss before income taxes	(21.5)		(17.6)		(22.8)		(16.7)
Provision for (benefit from) income taxes	0.2		(0.7)		0.2		(0.2)
Net loss	(21.7)	%	(16.9)	%	(23.0)	%	(16.5)	%

Comparison of the Three Months Ended June 30, 2020 and 2019

Revenue

	Three Months Ended June 30,				Change
	2020		2019		$		%
	(dollars in thousands)
Revenue:
Products	$	92,430	$	72,579	$	19,851	27.4	%
Professional services	6,482		6,380		102		1.6
Total revenue	$	98,912	$	78,959	$	19,953	25.3	%

Total revenue increased by $20.0 million in the three months ended June 30, 2020 compared to the same period in 2019. The $20.0 million increase in revenue was primarily from existing customers and was due to an increase in revenue from renewals, upsells and cross-sells as a result of the continued growth of our customer base. Revenue from new customers represents the revenue recognized from the customer's initial purchase. All renewals, upsells and cross-sells are considered revenue from existing customers.

The increase in total revenue in the three months ended June 30, 2020 compared to the same period in 2019 was comprised of $16.3 million generated from sales in North America and $3.7 million generated from sales from the rest of the world.

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Cost of Revenue

	Three Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Cost of revenue:
Products	$	23,118		$	16,637		$	6,481	39.0	%
Professional services	5,963			5,544			419		7.6
Total cost of revenue	$	29,081		$	22,181		$	6,900	31.1	%
Gross margin %:
Products	75.0		%	77.1		%
Professional services	8.0			13.1
Total gross margin %	70.6		%	71.9		%

Total cost of revenue increased by $6.9 million in the three months ended June 30, 2020 compared to the same period in 2019, primarily due to a $3.8 million increase in personnel costs, inclusive of a $0.4 million increase in stock-based compensation expense, resulting from an increase in headcount to support our growing customer base, and a $2.6 million increase in cloud computing costs related to growing cloud-based subscription revenue. The $3.8 million increase in personnel costs included $0.5 million of additional costs attributable to the employees acquired in the DivvyCloud acquisition. Our increase in total cost of revenue also included a $0.5 million increase in amortization expense for acquired intangible assets, a $0.4 million increase in amortization expense for capitalized internally-developed software and a $0.2 million increase in allocated overhead driven largely by an increase in IT and facilities costs. These increases were partially offset by a $0.6 million decrease in other expenses.

Total gross margin percentage decreased for the three months ended June 30, 2020 compared to the same period in 2019. The decrease in products gross margin for the three months ended June 30, 2020 was primarily due to an increase in revenue from cloud-based subscriptions and managed services, which have lower gross margins than our licensed software products. The decrease in professional services gross margin for the three months ended June 30, 2020 was primarily due to a reduction in professional services revenue as customers delayed scheduling the delivery of services in response to the COVID-19 pandemic.

Operating Expenses

Research and Development Expense

	Three Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Research and development	$	26,120		$	19,626		$	6,494	33.1	%
% of revenue	26.4		%	24.9		%

Research and development expense increased by $6.5 million in the three months ended June 30, 2020 compared to the same period in 2019, primarily due to a $5.7 million increase in personnel costs and an increase of $0.7 million in allocated overhead driven largely by an increase in IT and facilities costs and a $0.1 million increase in other expenses. The $5.7 million increase in personnel costs was primarily due to a $3.4 million increase in salaries and related costs driven by growth in headcount, including $0.9 million in additional salaries and related costs attributable to the employees acquired in the acquisition of DivvyCloud in May 2020, and a $2.3 million increase in stock-based compensation expense, including $1.1 million of stock-based compensation expense related to restricted stock units (RSUs) issued to retained employees and common stock to be issued to the founders as part of the acquisition of DivvyCloud.

Sales and Marketing Expense

	Three Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Sales and marketing	$	44,959		$	38,172		$	6,787	17.8	%
% of revenue	45.5		%	48.3		%

Sales and marketing expense increased by $6.8 million in the three months ended June 30, 2020 compared to the same period in 2019, primarily due to a $7.1 million increase in personnel costs due to an increase in headcount, inclusive of a $1.4 million increase in stock-based compensation expense, and due to a $1.5 million increase in commission expense and a $0.8 million increase in allocated overhead driven largely by an increase in IT and facilities costs. The $7.1 million increase in personnel costs included $1.2 million of additional costs attributable to the employees acquired in the DivvyCloud acquisition, including

34

$0.4 million in stock-based compensation expense related to RSUs issued to retained employees. These increases were partially offset by a $1.6 million decrease in travel and entertainment expenses and a $1.0 million decrease in marketing and advertising costs, as a result of reduced costs due to the COVID-19 pandemic.

General and Administrative Expense 

	Three Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
General and administrative	$	14,484		$	11,160		$	3,324	29.8	%
% of revenue	14.6		%	14.1		%

General and administrative expense increased by $3.3 million in the three months ended June 30, 2020 compared to the same period in 2019, primarily due to a $2.5 million increase in personnel costs due to an increase in headcount, inclusive of a $1.9 million increase in stock-based compensation expense, and a $0.8 million increase in professional fees primarily due to litigation and acquisition-related expenses and other professional consulting fees.

Interest Income

	Three Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Interest income	$	208		$	1,582		$	(1,374)	(86.9)	%
% of revenue	0.2		%	2.0		%

Interest income decreased by $1.4 million in the three months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest rates.

Interest Expense

	Three Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Interest expense	$	(5,917)		$	(3,312)		$	(2,605)	78.7	%
% of revenue	(6.0)		%	(4.2)		%

Interest expense increased by $2.6 million in the three months ended June 30, 2020 compared to the same period in 2019 primarily due to an increase in interest expense and amortization of debt discount and issuance costs related to the 2025 Notes.

Other Income (Expense), Net

	Three Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Other income (expense), net	$	210		$	(29)		$	239	NM
% of revenue	0.2		%	—		%

Other income (expense), net increased by $0.2 million in the three months ended June 30, 2020 compared to the same period in 2019 due to realized and unrealized foreign currency gains, primarily related to the euro and British pound sterling.

Provision for (Benefit from) Income Taxes

	Three Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Provision for (benefit from) income taxes	$	235		$	(519)		$	754	(145.3)	%
% of revenue	0.2		%	(0.7)		%

Provision for (benefit from) income taxes changed from a benefit of $0.5 million in the three months ended June 30, 2019 to an expense of $0.2 million in the three months ended June 30, 2020 primarily due to a $0.8 million deferred tax benefit in the prior period which resulted from a partial release of our valuation allowance to account for the creation of a deferred tax liability for the developed technology intangible asset acquired in the acquisition of NetFort, which was not deductible for tax purposes.

35

Comparison of the Six Months Ended June 30, 2020 and 2019

Revenue

	Six Months Ended June 30,				Change
	2020		2019		$		%
	(dollars in thousands)
Revenue:
Products	$	179,979	$	138,424	$	41,555	30.0	%
Professional services	13,273		13,720		(447)		(3.3)
Total revenue	$	193,252	$	152,144	$	41,108	27.0	%

Total revenue increased by $41.1 million in the six months ended June 30, 2020 compared to the same period in 2019. The $41.1 million increase in revenue consisted of a $0.6 million increase in revenue from new customers and a $40.5 million increase in revenue from existing customers. The $40.5 million increase in revenue from existing customers was due to an increase in revenue from renewals, upsells and cross-sells as a result of the continued growth of our customer base. Revenue from new customers represents the revenue recognized from the customer's initial purchase. All renewals, upsells and cross-sells are considered revenue from existing customers.

The increase in total revenue in the six months ended June 30, 2020 compared to the same period in 2019 was comprised of $32.9 million generated from sales in North America and $8.2 million generated from sales from the rest of the world.

The $0.4 million decrease in professional services revenue in the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to a decline in services as customers delayed the scheduling of services in response to the COVID-19 pandemic.

Cost of Revenue

	Six Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Cost of revenue:
Products	44,373			31,006			$	13,367	43.1	%
Professional services	12,422			11,148			1,274		11.4
Total cost of revenue	$	56,795		$	42,154		$	14,641	34.7	%
Gross margin %:
Products	75.3		%	77.6		%
Professional services	6.4			18.7
Total gross margin %	70.6		%	72.3		%

Total cost of revenue increased by $14.6 million in the six months ended June 30, 2020 compared to the same period in 2019, primarily due to a $6.3 million increase in personnel costs, inclusive of a $0.8 million increase in stock-based compensation expense, resulting from an increase in headcount to support our growing customer base, and a $5.2 million increase in cloud computing costs related to growing cloud-based subscription revenue. The $6.3 million increase in personnel costs included $0.5 million of additional costs attributable to the employees acquired in the DivvyCloud acquisition. Our increase in total cost of revenue also included a $2.0 million increase in allocated overhead driven by costs related to our global kick-off meeting as well as an increase in IT and facilities costs, a $0.8 million increase in amortization expense for acquired intangible assets, a $0.7 million increase in amortization expense for capitalized internally-developed software and a $0.4 million increase in third-party professional service consulting costs. These increases were partially offset by a $0.8 million decrease in other expenses.

Total gross margin percentage decreased for the six months ended June 30, 2020 compared to the same period in 2019. The decrease in products gross margin for the six months ended June 30, 2020 was primarily due to an increase in revenue from cloud-based subscriptions and managed services, which have lower gross margins than our licensed software products. The decrease in professional services gross margin for the six months ended June 30, 2020 was primarily due to a reduction in professional services revenue as customers rescheduled services in response to the COVID-19 pandemic.

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Operating Expenses

Research and Development Expense

	Six Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Research and development	$	50,322		$	37,491		$	12,831	34.2	%
% of revenue	26.0		%	24.6		%

Research and development expense increased by $12.8 million in the six months ended June 30, 2020 compared to the same period in 2019, primarily due to a $9.3 million increase in personnel costs and an increase of $3.7 million in allocated overhead driven by costs related to our global kick-off meeting and an increase in IT and facilities costs, partially offset by a decrease of $0.2 million in other expenses. The $9.3 million increase in personnel costs was primarily due to a $5.5 million increase in salaries and related costs driven by growth in headcount, including $0.9 million in additional salaries and related costs attributable to the employees acquired in the acquisition of DivvyCloud in May 2020, and a $3.8 million increase in stock-based compensation expense including $1.1 million of stock-based compensation expense related to RSUs issued to retained employees and common stock to be issued to the founders as part of the acquisition of DivvyCloud.

Sales and Marketing Expense

	Six Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Sales and marketing	$	93,104		$	73,310		$	19,794	27.0	%
% of revenue	48.2		%	48.2		%

Sales and marketing expense increased by $19.8 million in the six months ended June 30, 2020 compared to the same period in 2019, primarily due to a $13.5 million increase in personnel costs due to an increase in headcount, inclusive of a $2.6 million increase in stock-based compensation expense, and a $5.6 million increase in allocated overhead driven by costs related to our global kick-off meeting as well as an increase in IT and facilities costs. The $13.5 million increase in personnel costs included $1.2 million of additional costs attributable to the employees acquired in the DivvyCloud acquisition, including $0.4 million in stock-based compensation expense related to RSUs issued to retained employees. Our increase in sales and marketing expense also included a $3.0 million increase in commission expense. These increases were partially offset by a $1.8 million decrease in travel and entertainment expenses, as a result of reduced costs due to the COVID-19 pandemic, and a $0.5 million decrease in other expenses.

General and Administrative Expense 

	Six Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
General and administrative	$	28,583		$	21,113		$	7,470	35.4	%
% of revenue	14.8		%	13.9		%

General and administrative expense increased by $7.5 million in the six months ended June 30, 2020 compared to the same period in 2019, primarily due to a $5.0 million increase in personnel costs due to an increase in headcount, inclusive of a $3.5 million increase in stock-based compensation expense, a $1.8 million increase in professional fees primarily due to litigation and acquisition-related expenses and other professional consulting fees, a $0.5 million increase in allocated overhead driven by costs related to our global kick-off meeting as well as an increase in IT and facilities costs, and a $0.2 million increase in other expenses.

Interest Income

	Six Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Interest income	$	1,256		$	3,313		$	(2,057)	(62.1)	%
% of revenue	0.6		%	2.2		%

Interest income decreased by $2.1 million in the six months ended June 30, 2020 compared to the same period in 2019 primarily due to a decrease in interest rates.

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Interest Expense

	Six Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Interest expense	$	(9,379)		$	(6,541)		$	(2,838)	43.4	%
% of revenue	(4.9)		%	(4.3)		%

Interest expense increased by $2.8 million in the six months ended June 30, 2020 compared to the same period in 2019 primarily due to an increase in interest expense and amortization of debt discount and issuance costs related to the 2025 Notes.

Other Income (Expense), Net

	Six Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Other income (expense), net	$	(237)		$	(235)		$	(2)	0.9	%
% of revenue	(0.1)		%	(0.2)		%

Other income (expense), net remained consistent in the six months ended June 30, 2020 compared to the same period in 2019.

Provision for (Benefit from) Income Taxes

	Six Months Ended June 30,						Change
	2020			2019			$		%
	(dollars in thousands)
Provision for (benefit from) income taxes	$	478		$	(294)		$	772	(262.6)	%
% of revenue	0.2		%	(0.2)		%

Provision for (benefit from) income taxes changed from a benefit of $0.3 million in the six months ended June 30, 2019 to an expense of $0.5 million in the six months ended June 30, 2020 primarily due to a $0.8 million deferred tax benefit in the prior period which resulted from a partial release of our valuation allowance to account for the creation of a deferred tax liability for the developed technology intangible asset acquired in the acquisition of NetFort, which was not deductible for tax purposes.

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Liquidity and Capital Resources

As of June 30, 2020, we had $279.3 million in cash and cash equivalents, $41.7 million in short- and long-term investments that have maturities ranging from four to fifteen months and an accumulated deficit of $562.8 million. Since our inception, we have generated significant losses and expect to continue to generate losses for the foreseeable future. Our principal sources of liquidity are cash and cash equivalents, short and long-term investments and our Credit Agreement. To date, we have financed our operations primarily through private and public equity financings and issuance of convertible senior notes and through cash generated by operating activities.

We believe that our existing cash and cash equivalents, our short and long-term investments and our available borrowings under our Credit Agreement will be sufficient to meet our working capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, particularly internationally, the introduction of new and enhanced products and service offerings and the cost of any future acquisitions of technology or businesses. In the event that additional financing is required from outside sources, we may be unable to raise the funds on acceptable terms, if at all. If we are unable to raise additional capital on terms satisfactory to us when we require it, our business, operating results and financial condition could be adversely affected.

Cash Flows

The following table shows a summary of our cash flows for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,
	2020		2019
	(in thousands)
Cash, cash equivalents and restricted cash at beginning of period	$	123,413	$	99,565
Net cash used in operating activities	(6,773)		(11,083)
Net cash (used in) provided by investing activities	(35,334)		32,385
Net cash provided by financing activities	199,621		5,853
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(301)		(151)
Cash, cash equivalents and restricted cash at end of period	$	280,626	$	126,569

Credit Agreement

On April 23, 2020, we entered into a Credit and Security Agreement, the (Credit Agreement), with KeyBank National Association that provides for a $30.0 million revolving credit facility with an accordion feature under which we can increase the credit facility to up to $70.0 million. The Credit Agreement matures on April 23, 2023 and contains certain financial covenants including to maintain specified minimum recurring revenue and liquidity amounts. In May 2020, we utilized the accordion feature increasing the credit facility to $50.0 million.

The borrowings under the Credit Agreement bear interest, at our option, at a rate equal to either the London Interbank Offered Rate (LIBOR) rate (subject to a 1.00% floor), plus an applicable margin equal to 2.50% per annum or the alternate base rate (subject to a floor), plus an applicable margin equal to 0% per annum. We are required to pay a 0.20% per annum commitment fee on the unused portion of the credit facility. As of June 30, 2020, we did not have any outstanding borrowings under the Credit Agreement.

Acquisition of DivvyCloud

On May 1, 2020, we acquired DivvyCloud, for a purchase consideration of $130.8 million in cash paid at closing, $7.4 million in deferred cash payments and $0.1 million in estimated working capital and other purchase price adjustments. The deferred cash payments will be held by Rapid7 to satisfy indemnification obligations and certain post-closing purchase price adjustments. The deferred cash payments for post-closing purchase price adjustments is payable three months from the acquisition date in the amount of $0.2 million and the remaining $7.2 million is payable on the fifteenth month anniversary of the acquisition date.

Convertible Senior Notes

On May 1, 2020, we issued $230.0 million aggregate principal amount of convertible senior notes due May 1, 2025 (collectively, the 2025 Notes). The total net proceeds from the offering, after deducting initial purchase discounts and estimated debt issuance costs, was $222.8 million. The 2025 Notes are unsecured obligations and bear interest at a fixed rate of 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2020. The 2025

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Notes will mature on May 1, 2025, unless earlier converted, redeemed or repurchased. The 2025 Notes do not contain any financial covenants. The 2025 Notes are governed by an indenture between the Company, as issuer, and U.S. Bank National Association, as trustee (the 2025 Indenture).

In connection with the issuance of the 2025 Notes, we entered into capped call transactions with certain counterparties (the 2025 Capped Calls). We used $27.3 million of the net proceeds from the 2025 Notes to purchase the 2025 Capped Calls. The Capped Calls are expected to offset potential dilution to our common stock upon conversion of the 2025 Notes. The 2025 Capped Calls have an initial cap price of $93.88 per share, subject to certain adjustments.

Uses of Funds

Our historical uses of cash have primarily consisted of cash used for operating activities such as expansion of our sales and marketing operations, research and development activities and other working capital needs, as well as cash used for business acquisitions and purchases of property and equipment including leasehold improvements for our facilities.

Operating Activities

Operating activities used $6.8 million of cash and cash equivalents in the six months ended June 30, 2020, which reflects our continued growth in revenue offset by continued investments in our operations and impact of the timing of working capital items. Cash provided by operating activities reflected our net loss of $44.4 million and an increase in our net operating assets and liabilities of $10.7 million, offset by $48.3 million of non-cash charges related primarily to depreciation and amortization, stock-based compensation expense, amortization of debt discount and debt issuance costs, provision for doubtful accounts and other non-cash charges. The increase in our net operating assets and liabilities was primarily due to a $12.0 million decrease in deferred revenue, a $7.4 million decrease in accrued expenses, primarily as a result of the payout of annual bonuses and year-end commissions, a $1.0 million decrease in other liabilities, a $3.0 million increase in deferred contract acquisition and fulfillment costs, which each had a negative impact on operating cash flow. These factors were partially offset by a $10.8 million decrease in accounts receivable due to an increase in collections, and a $0.1 million increase in accounts payable and a $1.8 million decrease in prepaid expenses and other assets, which each had a positive impact on operating cash flow.

Operating activities used $11.1 million of cash and cash equivalents in the six months ended June 30, 2019, which reflects our continued growth in revenue offset by continued investments in our operations and impact of the timing of working capital items. Cash used in operating activities reflected our net loss of $25.1 million and an increase in our net operating assets and liabilities of $17.0 million, offset by $31.0 million of non-cash charges related primarily to depreciation and amortization, stock-based compensation expense, amortization of debt discount and debt issuance costs, provision for doubtful accounts and other non-cash charges. The increase in our net operating assets and liabilities was primarily due to a $7.3 million decrease in accrued expenses primarily as a result of the payout of annual bonuses and year-end commissions, a $5.0 million decrease in deferred revenue, a $3.2 million increase in deferred contract acquisition and fulfillment costs, and a $9.3 million increase in prepaid expenses and other assets, which each had a negative impact on operating cash flow. These factors were partially offset by a $4.5 million decrease in accounts receivable due to collections, a $1.1 million increase in other liabilities and a $2.2 million increase in accounts payable, which each had a positive impact on operating cash flow.

Investing Activities

Investing activities used $35.3 million of cash in the six months ended June 30, 2020, consisting of $125.8 million of cash paid for the acquisition of DivvyCloud, net of cash acquired of $5.0 million, $146.6 million of investment sales and maturities, offset by $49.2 million for purchases of investments, $4.0 million in capital expenditures to purchase leasehold improvements, furniture and fixtures and computer equipment and $2.9 million for capitalization of internal-use software costs.

Investing activities provided $32.4 million of cash in the six months ended June 30, 2019, consisting of $140.3 million of investment sales and maturities, offset by $72.4 million for purchases of investments, $17.7 million in capital expenditures to purchase leasehold improvements and furniture and fixtures, primarily related to office space build-outs, and computer equipment, $14.6 million of cash paid for the acquisition of NetFort and $3.2 million for capitalization of internal-use software costs.

Financing Activities

Financing activities provided $199.6 million of cash in the six months ended June 30, 2020, which consisted primarily of $223.5 million in proceeds from the issuance of the 2025 Notes, net of issuance costs paid of $6.5 million, $3.7 million in proceeds from the exercise of stock options and $3.3 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc. 2015 Employee Stock Purchase Plan (ESPP), partially offset by $27.3 million for the purchase of 2025 Capped Calls, $3.4 million in withholding taxes paid for the net share settlement of equity awards and $0.2 million of payments of debt issuance costs.

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Financing activities provided $5.9 million of cash in the six months ended June 30, 2019, which consisted primarily of $6.1 million in proceeds from the exercise of stock options and $2.6 million in proceeds from the issuance of common stock purchased by employees under the ESPP, partially offset by $2.8 million in withholding taxes paid for the net share settlement of equity awards.

Contractual Obligations and Commitments

In May 2020, we issued $230.0 million aggregate principal amount of convertible senior notes. The 2025 Notes are unsecured obligations and bear interest at a fixed rate of 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2020. The 2025 Notes will mature on May 1, 2025, unless earlier converted, redeemed or repurchased.

In January 2020, we amended our contract with Amazon Web Services (AWS) which increased our total purchase obligation by $15.0 million, $40.0 million and $50.0 million in 2021, 2022 and 2023, respectively, for a total additional obligation of $105.0 million.

As of June 30, 2020, other than the items noted above, there were no material changes in our contractual obligations and commitments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements.

Recent Accounting Pronouncements

See Note 1 in the notes to the consolidated financial statements for a discussion of recent accounting pronouncements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (GAAP). The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. A majority of our customers enter into contracts that are denominated in U.S. dollars. Our expenses are generally denominated in the currencies of the countries where our operations are located, which is primarily in the United States and to a lesser extent in the United Kingdom, other Euro-zone countries within mainland Europe, Canada, Australia, Singapore and Japan. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign currency exchange rates. The effect of a hypothetical 10% adverse change in foreign currency exchange rates on monetary assets and liabilities at June 30, 2020 would not have been material to our financial condition or results of operations. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency rates.

Interest Rate Risk

As of June 30, 2020, we had cash and cash equivalents of $279.3 million consisting of bank deposits and money market funds and short- and long-term investments of $41.7 million consisting of U.S government agencies, corporate bonds and commercial paper. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.

Our cash and cash equivalents and short- and long-term investments are subject to market risk due to changes in interest rates, which may affect our interest income and the fair value of our investments. Due in part to these factors, our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our investments as available-for-sale securities, no gains or losses are recognized due to the changes in interest rates unless securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.

The fair values of our convertible senior notes are subject to interest rate risk, market risk and other factors due to the conversion features of the notes. The fair values of the convertible senior notes may increase or decrease for various reasons, including fluctuations in the market price of our common stock, fluctuations in market interest rates and fluctuations in general economic conditions. The interest and market value changes affect the fair values of the convertible senior notes but does not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Based upon the quoted market price as of June 30, 2020, the fair values of our 2023 Notes and 2025 Notes were $309.1 million and $247.9 million, respectively.

As of June 30, 2020, the effect of a hypothetical 10% increase or decrease in interest rates would not have had a material impact on our financial statements.

Inflation Risk

We do not believe that inflation had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operations of our disclosure controls and procedures as of June 30, 2020. Based on the evaluation of our disclosure controls and procedures as of June 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Inherent Limitations of Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

In October 2018, Finjan, Inc. (Finjan) filed a complaint against us and our wholly-owned subsidiary, Rapid7 LLC, in the United States District Court, District of Delaware, alleging patent infringement of seven patents held by them. In the complaint, Finjan sought unspecified damages, attorneys' fees and injunctive relief. We intend to vigorously contest Finjan's claims. This litigation is still in its early stages and the final outcome, including our liability, if any, with respect to Finjan's claims, is uncertain. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

In addition, from time to time, we are a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

Our operations and financial results are subject to various risks and uncertainties including those described below. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10-Q as well as our other public filings with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. Furthermore, the ongoing COVID-19 pandemic (including federal, state and local governmental responses, broad economic impacts and market disruptions) has heightened risks discussed in the risk factors described below. If any of the following risks or others not specified below materialize, our business, financial condition and results of operations could be materially adversely affected. In that event, the trading price of our common stock could decline. 

Risks Related to Our Business and Industry

The ongoing COVID-19 pandemic could materially and adversely affect our business, results of operations and financial condition.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Even though some of these original restrictions have been relaxed or lifted, additional or renewed limitations have been imposed as COVID-19 continues to spread. We are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures. Our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our customers, partners, suppliers and others with whom we work, for an indefinite period of time. To support the health and well-being of our employees, customers, partners and communities, a vast majority of our employees began working remotely as of late March 2020, and they continue to do so. In addition, many of our customers and prospective customers are working remotely, which may delay the timing of subscriptions. The disruptions to our operations caused by the COVID-19 pandemic may result in inefficiencies, delays and additional costs in our sales and marketing, professional service and research and development efforts, which cannot be predicted or quantified at this time. To the extent that disruptions occur, we may not be able to fully mitigate any such inefficiencies, delays and additional costs through remote or other alternative work arrangements. In addition, given the economic uncertainty created by COVID-19, we have and may continue to see delays in our sales cycle, failures of customers to renew at all or to renew the anticipated scope their subscriptions with us, requests from customers for payment term deferrals as well as pricing or bundling concessions, which, if significant, could materially and adversely affect our business, results of operations and financial condition. Although such events did not have a material adverse impact on our customer renewals for the first two quarters of fiscal 2020, our annualized recurring revenue (ARR) related to contracts in place at the end of the second quarter of fiscal year 2020 was lower than initially anticipated at the beginning of fiscal year 2020 as a result of the pull back on customer spending, in light of the economic uncertainty caused by the COVID-19 pandemic.

Negative conditions in the general economy both in the United States and abroad, including conditions resulting from the COVID-19 pandemic, changes in gross domestic product growth, financial and credit market fluctuations, energy costs, international trade relations and other geopolitical issues, the availability and cost of credit and the global housing and mortgage

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markets could cause a decrease in consumer discretionary spending and business investment and diminish growth expectations in the U.S. economy and abroad. More generally, the COVID-19 pandemic raises the possibility of an extended global economic downturn and has caused volatility in financial markets, which could materially and adversely affect demand for our products and professional services and could materially and adversely impact our results and financial condition even after the pandemic is contained and the shelter-in-place orders are lifted. For example, we may be unable to collect receivables from those customers significantly impacted by COVID-19, which may be more pronounced in industry verticals more directly impacted by the COVID-19 pandemic. Also, a decrease in subscriptions and/or renewals in a given period could negatively affect our ARR as well as our revenues in future periods, particularly if experienced on a sustained basis, because a substantial proportion of our software subscriptions yield revenue recognized over time. The pandemic may also have the effect of heightening many of the other risks described in this “Risk Factors” section, including risks associated with our guidance, our customers, our potential customers, our market opportunity, renewals and sales cycle, among others. We will continue to evaluate the nature and extent of the impact of the COVID-19 pandemic on our business.

Although we expect that current cash and cash equivalent balances, including the proceeds of our recently completed convertible senior notes offering, together with cash flows that are generated from operations and availability under our new revolving credit facility, will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months, if our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted.

The full extent of the COVID-19 pandemic’s impact on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets, the timing of economic recovery and any new information that may emerge concerning the severity of the virus, its spread to other regions as well as the actions taken to contain it, among others. Any of these impacts could have a material adverse impact on our business, results of operations and financial condition and ability to execute and capitalize on our strategies. Due to the current uncertainty regarding the severity and duration of the COVID-19 pandemic, we cannot predict whether our response to date or the actions we may take in the future will be effective in mitigating the effects of COVID-19 pandemic on our business, results of operations or financial condition. Accordingly, we are unable at this time to predict the impact of the COVID-19 pandemic on our operations, liquidity, and financial results, and, depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material.

Our quarterly operating results may vary from period to period, which could result in our failure to meet expectations with respect to operating results and cause the trading price of our stock to decline.

Our operating results, including the levels of our revenue, ARR, renewal rates, cash flow, deferred revenue and gross margins, have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control, including:

•quarantine, private travel limitation, or business disruptions in regions affecting our operations, stemming from actual, imminent or perceived outbreak of contagious disease, including the COVID-19 pandemic;

•the level of demand for our products and professional services;

•customer renewal rates and ability to attract new customers;

•the extent to which customers purchase additional products or professional services;

•the mix of our products, as well as professional services, sold during a period;

•the ability to successfully grow our sales of our cloud-based solutions;

•the level of perceived threats to organizations’ cyber security;

•network outages, security breaches, technical difficulties or interruptions with our products;

•changes in the growth rate of the markets in which we compete;

•sales of our products and professional services due to seasonality and customer demand;

•the timing and success of new product or service introductions by us or our competitors or any other changes in the competitive landscape of our industry, including consolidation among our competitors;

•the introduction or adoption of new technologies that compete with our offerings;

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•decisions by potential customers to purchase cyber security products or professional services from other vendors;

•the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business;

•price competition;

•our ability to successfully manage and integrate any acquired businesses, including Divvy Cloud Corporation (DivvyCloud) and NetFort Technologies Limited (NetFort), and including without limitation the amount and timing of expenses and potential future charges for impairment of goodwill from acquired companies;

•our ability to increase, retain and incentivize the channel partners that market and sell our products and professional services;

•our continued international expansion and associated exposure to changes in foreign currency exchange rates, including any fluctuations caused by uncertainties relating to United Kingdom's exit from the European Union, commonly referred to as “Brexit”;

•the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;

•the announcement or adoption of new regulations and policy mandates or changes to existing regulations and policy mandates;

•the cost or results of existing or unforeseen litigation and intellectual property infringement;

•the strength of regional, national and global economies;

•the impact of natural disasters or manmade problems such as terrorism or war; and

•future accounting pronouncements or changes in our accounting policies.

Fluctuations in our quarterly operating results, key metrics, non-GAAP metrics and the price of our common stock may be particularly pronounced in the current economic environment due to the uncertainty caused by and the unprecedented nature of the current COVID-19 pandemic. Each factor above or discussed elsewhere herein or the cumulative effect of some of these factors may result in fluctuations in our operating results. This variability and unpredictability could result in our failure to meet expectations with respect to operating results, or those of securities analysts or investors, for a particular period. If we fail to meet or exceed expectations for our operating results for these or any other reasons, the market price of our stock could fall and we could face costly lawsuits, including securities class action suits.

We are a rapidly growing company, which makes it difficult to evaluate our future operating and financial results and may increase the risk that we will not be successful.

We are a rapidly growing company. Our ability to forecast our future operating and financial results is subject to a number of uncertainties, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly evolving industries. If our assumptions regarding these uncertainties, which we use to plan our business, are incorrect or change in reaction to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, our business could suffer and the trading price of our common stock may decline.

If we are unable to sustain our revenue growth rate, we may not achieve or maintain profitability in the future.

From the year ended December 31, 2015 to the year ended December 31, 2019, our revenue grew from $110.5 million to $326.9 million. Although we have experienced rapid growth historically and currently have high renewal rates, we may not continue to grow as rapidly in the future and our renewal rates may decline. Any success that we may experience in the future will depend, in large part, on our ability to, among other things:

•maintain and expand our customer base;

•increase revenues from existing customers through increased or broader use of our products and professional services within their organizations;

•improve the performance and capabilities of our products through research and development;

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•continue to develop our cloud-based solutions;

•maintain the rate at which customers purchase and renew subscriptions to our cloud-based solutions, content subscriptions, maintenance and support and managed services;

•continue to successfully expand our business domestically and internationally;

•continue to effectively grow and improve the productivity of our sales teams; and

•successfully compete with other companies.

If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. You should not rely on our revenue for any prior quarterly or annual periods as any indication of our future revenue or revenue growth.

We have not been profitable historically and may not achieve or maintain profitability in the future.

We have posted a net loss in each year since inception, including net losses of $53.8 million, $55.5 million and $45.5 million in the years ended December 31, 2019, 2018 and 2017, respectively. As of June 30, 2020, we had an accumulated deficit of $562.8 million. While we have experienced significant revenue growth in recent periods, we may not obtain a high enough volume of sales of our products and professional services to sustain or increase our growth or achieve or maintain profitability in the future. We also expect our costs to increase in future periods, which could negatively affect our future operating results if our revenue does not increase. In particular, we expect to continue to expend financial and other resources on:

•research and development related to our offerings, including investments in our research and development team;

•sales and marketing, including a continued expansion of our sales organization, both domestically and internationally;

•continued international expansion of our business;

•strategic acquisitions and expansion of our partner ecosystem; and

•general and administrative expenses as we continue to implement and enhance our administrative, financial and operational systems, procedures and controls.

These investments may not result in increased revenue or growth in our business. If we are unable to increase our revenue at a rate sufficient to offset the expected increase in our costs, our business, financial position and results of operations will be harmed, and we may not be able to achieve or maintain profitability over the long term. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our financial performance may be harmed, and we may not achieve or maintain profitability in the future.

If our products or professional services fail to detect vulnerabilities or identify and respond to cyber security incidents, or if our products contain undetected errors or defects, our brand and reputation could be harmed, which could have an adverse effect on our business and results of operations.

If our products or professional services fail to detect vulnerabilities in our customers’ cyber security infrastructure, or if our products or professional services fail to identify and respond to new and increasingly complex methods of cyber attacks, our business and reputation may suffer. There is no guarantee that our products or professional services will detect all vulnerabilities, especially in light of the rapidly changing security landscape to which we must respond. Additionally, our products may falsely detect vulnerabilities or threats that do not actually exist. For example, our Metasploit offering relies on information provided by an active community of security researchers who contribute new exploits, attacks and vulnerabilities. If the information from these third parties is inaccurate, the potential for false indications of security vulnerabilities increases. These false positives, while typical in the industry, may impair the perceived reliability of our offerings and may therefore adversely impact market acceptance of our products and professional services and could result in negative publicity, loss of customers and sales and increased costs to remedy any problem.

Our products may also contain undetected errors or defects. Errors or defects may be more likely when a product is first introduced or as new versions are released, or when we introduce an acquired company's products. We have experienced these errors or defects in the past in connection with new products, acquired products and product upgrades and we expect that these errors or defects will be found from time to time in the future in new, acquired or enhanced products after commercial release. Defects may cause our products to be vulnerable to attacks, cause them to fail to detect vulnerabilities, or temporarily interrupt

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customers’ networking traffic. Any errors, defects, disruptions in service or other performance problems with our products may damage our customers’ businesses and could hurt our reputation. If our products or professional services fail to detect vulnerabilities for any reason, we may incur significant costs, the attention of our key personnel could be diverted, our customers may delay or withhold payment to us or elect not to renew or other significant customer relations problems may arise. We may also be subject to liability claims for damages related to errors or defects in our products. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our products may harm our business and operating results.

Many federal, state and foreign governments have enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, and any association of us with such publicity may cause our customers to lose confidence in the effectiveness of our data security solutions. An actual or perceived security breach or theft of the sensitive data of one of our customers, regardless of whether the breach is attributable to the failure of our products or professional services, could adversely affect the market’s perception of our offerings and subject us to legal claims.

Our brand, reputation and ability to attract, retain and serve our customers are dependent in part upon the reliable performance of our products and network infrastructure.

Our brand, reputation and ability to attract, retain and serve our customers are dependent in part upon the reliable performance of our products and network infrastructure. We have experienced, and may in the future experience, disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints and fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.

We utilize third-party data centers located in North America, in addition to operating and maintaining certain elements of our own network infrastructure. We also utilize other cloud providers, such as Amazon Web Services, for our Insight Platform infrastructure. Some elements of our complex infrastructure are operated by third parties that we do not control and that could require significant time to replace. We expect this dependence on third parties to continue. More specifically, certain of our products, in particular our cloud-based products, are hosted on cloud providers such as Amazon Web Services, which provides us with computing and storage capacity. Interruptions in our systems or the third-party systems on which we rely, whether due to system failures, computer viruses, physical or electronic break-ins, or other factors, could affect the security or availability of our products, network infrastructure and website.

Prolonged delays or unforeseen difficulties in connection with adding capacity or upgrading our network architecture when required may cause our service quality to suffer. Problems with the reliability or security of our systems could harm our reputation. Damage to our reputation and the cost of remedying these problems could negatively affect our business, financial condition, and operating results.

Additionally, our existing data center facilities and third-party hosting providers have no obligations to renew their agreements with us on commercially reasonable terms or at all, and certain of the agreements governing these relationships may be terminated by either party at any time. If we are unable to maintain or renew our agreements with these providers on commercially reasonable terms or if in the future we add additional data center facilities or third-party hosting providers, we may experience additional costs or downtime or delays as we transition our operations.

Any disruptions or other performance problems with our products could harm our reputation and business and may damage our customers’ businesses. Interruptions in our service delivery might reduce our revenue, cause us to issue credits to customers, subject us to potential liability and cause customers to not renew their purchases or our products.

If we fail to manage our operations infrastructure, our customers may experience service outages and/or delays.

Our future growth is dependent upon our ability to continue to meet the expanding needs of our customers and to attract new customers. As existing customers gain more experience with our products, they may broaden their reliance on our products, which will require that we expand our operations infrastructure. We also seek to maintain excess capacity in our operations infrastructure to facilitate the rapid provision of new customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support changes in hardware and software parameters and the evolution of our products, all of which require significant lead time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation and our revenue.

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Our business and growth depend substantially on customers renewing their subscriptions with us. Any decline in our customer renewals or failure to convince customers to expand their use of our subscription offerings could adversely affect our future operating results.

Our subscription offerings are sold on a term basis. In order for us to improve our operating results, it is important that our existing customers renew their subscriptions with us when the existing subscription term expires, and renew on the same or more favorable terms. Our customers have no obligation to renew their subscriptions with us and we may not be able to accurately predict customer renewal rates. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our new or current product offerings, our pricing, the effects of economic conditions, including due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic, competitive offerings, our customers' perception of their exposure, or alterations or reductions in their spending levels. If our customers do not renew their agreements with us or renew on terms less favorable to us, our revenues and results of operations may be adversely impacted.

Our future growth is also affected by our ability to sell additional offerings to our existing customers, which depends on a number of factors, including customers’ satisfaction with our products and services and general economic conditions. If our efforts to cross-sell and upsell to our customers are unsuccessful, the rate at which our business grows might decline.

The market for Security Operations is new and unproven and may not grow.

We believe our future success will depend in large part on the growth, if any, in the market for Security Operations (SecOps). This market is nascent, and as such, it is difficult to predict important market trends, including the potential growth, if any. To date, the majority of enterprise spend on cyber security has been on threat protection products, such as network, endpoint and web security that are designed to stop threats from penetrating corporate networks. Organizations that use these security products may believe that their existing security solutions sufficiently protect access to their sensitive business data. Therefore, they may continue allocating their cyber security budgets to these products and may not adopt our products and professional services in addition to, or in lieu of, such traditional products. Further, sophisticated cyber attackers are skilled at adapting to new technologies and developing new methods of gaining access to organizations’ sensitive business data, and changes in the nature of advanced cyber threats could result in a shift in IT budgets away from products and professional services such as ours. In addition, while recent high visibility attacks on prominent enterprises and governments have increased market awareness of the problem of cyber attacks, if cyber attacks were to decline, or enterprises or governments perceived that the general level of cyber attacks have declined, our ability to attract new customers and expand our sale to existing customers could be materially and adversely affected. If products and professional services such as ours are not viewed by organizations as necessary, or if customers do not recognize the benefit of our offerings as a critical layer of an effective cyber security strategy, our revenue may not grow as quickly as expected, or may decline, and the trading price of our stock could suffer. It is therefore difficult to predict how large the market will be for our solutions.

In addition, it is difficult to predict customer adoption and renewal rates, as well as customer demand for our products and professional services, particularly in light of the ongoing COVID-19 pandemic. As a result of the pandemic, customers may not renew when or as we expect, including electing to reduce the anticipated scope of their subscriptions with us, or requesting payment term deferrals as well as pricing or bundling concessions, which, if significant, could materially and adversely affect our business, results of operations and financial condition. It is also difficult to predict the size and growth rate of the market for SecOps, the entry of competitive products or the success of existing competitive products. Any expansion in our market depends on a number of factors, including the cost, performance and perceived value associated with our offerings and those of our competitors, as well as broader economic conditions. If these offerings do not achieve widespread adoption or there is a reduction in demand for solutions in our market caused by a lack of customer acceptance, technological challenges, competing technologies and products, decreases in corporate spending, weakening economic conditions, or otherwise, it could result in reduced customer orders, early terminations, reduced renewal rates or decreased revenue, any of which would adversely affect our business operations and financial results. You should consider our business and prospects in light of the risks and difficulties we face in this new and unproven market.

We face intense competition in our market.

The market for SecOps solutions is highly fragmented, intensely competitive and constantly evolving. We compete with an array of established and emerging security software and services vendors. With the introduction of new technologies and market entrants, we expect the competitive environment to remain intense going forward. Our primary competitors in Vulnerability Risk Management include Qualys and Tenable; in Incident Detection and Response (SIEM) include Splunk, Micro Focus and LogRhythm; in Application Security include Micro Focus and IBM; in Cloud Security include Prisma (Palo Alto Networks) and CloudGuard (Check Point Software Technologies); in Security Orchestration and Automation Response include Phantom (Splunk) and Demisto (Palo Alto Networks); and finally, while the competition in our professional services

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business is diverse, our competitors include FireEye's Mandiant, SecureWorks and NCC Group.

Some of our actual and potential competitors have advantages over us, such as longer operating histories, significantly greater financial, technical, marketing or other resources, stronger brand and business user recognition, larger and more mature intellectual property portfolios and broader global distribution and presence. In addition, our industry is evolving rapidly and is becoming increasingly competitive. Larger and more established companies may focus on security operations and could directly compete with us. Smaller companies could also launch new products and services that we do not offer and that could gain market acceptance quickly.

Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. With the introduction of new technologies, the evolution of our offerings and new market entrants, we expect competition to intensify in the future. In addition, some of our larger competitors have substantially broader product offerings and can bundle competing products and services with other software offerings. As a result, customers may choose a bundled product offering from our competitors, even if individual products have more limited functionality than our solutions. These competitors may also offer their products at a lower price as part of this larger sale, which could increase pricing pressure on our offerings and cause the average sales price for our offerings to decline. These larger competitors are also often in a better position to withstand any significant reduction in spending by customers, and will therefore not be as susceptible to economic downturns.

Furthermore, our current and potential competitors may establish cooperative relationships among themselves or with third parties that may further enhance their resources and product and services offerings in the markets we address. In addition, current or potential competitors may be acquired by third parties with greater available resources. As a result of such relationships and acquisitions, our current or potential competitors might be able to adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products and services, initiate or withstand substantial price competition, take advantage of other opportunities more readily or develop and expand their product and service offerings more quickly than we do. For all of these reasons, we may not be able to compete successfully against our current or future competitors, or we may be required to expend significant resources in order to remain competitive. If our competitors are more successful than we are in developing new product and service offerings or in attracting and retaining customers, our business, financial condition and results of operations could be adversely affected.

Our sales cycle may be unpredictable.

The timing of sales of our offerings is difficult to forecast because of the length and unpredictability of our sales cycle, particularly with large enterprises and with respect to certain of our products. We sell our products primarily to IT departments that are managing a growing set of user and compliance demands, which has increased the complexity of customer requirements to be met and confirmed during the sales cycle and prolonged our sales cycle. Further, the length of time that potential customers devote to their testing and evaluation, contract negotiation and budgeting processes varies significantly, depending on the size of the organization and nature of the product or service under consideration. In addition, we might devote substantial time and effort to a particular unsuccessful sales effort, and as a result, we could lose other sales opportunities or incur expenses that are not offset by an increase in revenue, which could harm our business.

If we do not continue to innovate and offer products and professional services that address the dynamic threat landscape, we may not remain competitive, and our revenue and operating results could suffer.

The market for SecOps solutions is characterized by rapid technological advances, changes in customer requirements, frequent new product introductions and enhancements and evolving industry standards. Our success also depends, in part, upon our ability to anticipate industry evolution and introduce or acquire new products and professional services to keep pace with technological developments and market requirements both within our industry and in related industries. While we continue to invest significant resources in research and development in order to ensure that our products continue to address the cyber security risks that our customers face, the introduction of products and professional services embodying new technologies could render our existing products or professional services obsolete or less attractive to customers. In addition, developing new products and product enhancements is expensive and time consuming, and there is no assurance that such activities will result in significant cost savings, revenue or other expected benefits. If we spend significant time and effort on research and development and are unable to generate an adequate return on our investment, our business and results of operations may be materially and adversely affected. Further, we may not be able to successfully anticipate or adapt to changing technology or customer requirements or the dynamic threat landscape on a timely basis, in a way that sufficiently differentiates us from competing solutions such that customers choose to purchase our solutions. If any of our competitors implement new technologies before we are able to implement them or better anticipate the innovation opportunities in related industries, those competitors may be able to provide more effective or more cost-effective solutions than ours. In addition, we may experience technical problems and additional costs as we introduce new products and product enhancements, deploy future iterations of our products and integrate new products with existing customer systems. If any of these problems were to arise, our business,

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financial condition and results of operations could be adversely affected.

To date, we have derived a majority of our revenue from customers using our vulnerability management offerings. If we are unable to renew or increase sales of our vulnerability management offerings, or if we are unable to increase sales of our other offerings, our business and operating results could be adversely affected.

Although we continue to introduce and acquire new products and professional services, we derive and expect to continue to derive a majority of our revenue from customers using certain of our vulnerability management offerings (VM), InsightVM, Nexpose and Metasploit. Greater than half of our revenue was attributable to InsightVM, Nexpose and Metasploit in each of our last three fiscal years. As a result, our operating results could suffer due to:

•any decline in demand for our vulnerability management offerings;

•failure of our vulnerability management offerings to detect vulnerabilities in our customers’ IT environments;

•the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our vulnerability management offerings;

•technological innovations or new standards that our vulnerability management offerings do not address;

•sensitivity to current or future prices offered by us or competing solutions;

•our inability to release enhanced versions of our vulnerability management offerings on a timely basis in response to the dynamic threat landscape; and

•a decline in overall IT spending due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic.

Our inability to renew or increase sales of our vulnerability management offerings, including cloud-based subscriptions, content subscriptions, managed services and content and maintenance and support subscriptions, or a decline in prices of our vulnerability management offerings would harm our business and operating results more seriously than if we derived significant revenues from a variety of offerings. In addition, we have introduced several non-VM subscription products, including InsightIDR, InsightAppSec, and InsightConnect. These products are relatively new, and it is uncertain whether they will gain the market acceptance we expect. Any factor adversely affecting sales of our non-VM products or professional services, including release cycles, market acceptance, competition, performance and reliability, reputation and economic and market conditions, could adversely affect our business and operating results.

If we are unable to successfully hire, train, manage and retain qualified personnel, especially those in sales and marketing and research and development, our business may suffer.

We continue to be substantially dependent on our sales force to obtain new customers and increase sales with existing customers. Our ability to successfully pursue our growth strategy will also depend on our ability to attract, motivate and retain our personnel, especially those in sales, marketing and research and development. We face intense competition for these employees from numerous technology, software and other companies, especially in certain geographic areas in which we operate, and we cannot ensure that we will be able to attract, motivate and/or retain sufficient qualified employees in the future. If we are unable to attract new employees and retain our current employees, we may not be able to adequately develop and maintain new products or professional services or market our existing products or professional services at the same levels as our competitors and we may, therefore, lose customers and market share. Our failure to attract and retain personnel, especially those in sales and marketing and research and development positions for which we have historically had a high turnover rate, could have an adverse effect on our ability to execute our business objectives and, as a result, our ability to compete could decrease, our operating results could suffer and our revenue could decrease. Even if we are able to identify and recruit a sufficient number of new hires, these new hires will require significant training before they achieve full productivity and they may not become productive as quickly as we would like or at all.

We believe that our corporate culture has been a critical component to our success. We have invested substantial time and resources in building our team. As we grow and mature as a public company, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could negatively affect our future success, including our ability to attract, motivate and retain personnel and effectively focus on and pursue our business strategy.

If Metasploit were to be used by attackers to exploit vulnerabilities in the cyber security infrastructures of third parties, our reputation and business could be harmed.

Although Metasploit is a penetration testing tool that is intended to allow organizations to test the effectiveness of their cyber

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security programs, Metasploit has in the past and may in the future be used to exploit vulnerabilities in the cyber security infrastructures of third parties. While we have incorporated certain features into Metasploit to deter misuse, there is no guarantee that these controls will not be circumvented or that Metasploit will only be used defensively or for research purposes. Any actual or perceived security breach, malicious intrusion or theft of sensitive data in which Metasploit is believed to have been used could adversely affect perception of, and demand for, our offerings. Further, the identification of new exploits and vulnerabilities by the Metasploit community may enhance the knowledge base of cyber attackers or enable them to undertake new forms of attacks. If any of the foregoing were to occur, we could suffer negative publicity and loss of customers and sales, as well as possible legal claims.

A component of our growth strategy is dependent on our continued international expansion, which adds complexity to our operations.

We market and sell our products and professional services throughout the world and have personnel in many parts of the world. For the six months ended June 30, 2020 and 2019, operations located outside of North America generated 17% and 16%, respectively, of our revenue. Our growth strategy is dependent, in part, on our continued international expansion. We expect to conduct a significant amount of our business with organizations that are located outside the United States, particularly in Europe and Asia. We cannot assure you that our expansion efforts into international markets will be successful in creating further demand for our products and professional services or in effectively selling our products and professional services in the international markets that we enter. Our current international operations and future initiatives will involve a variety of risks, including:

•increased management, infrastructure and legal costs associated with having international operations;

•reliance on channel partners;

•trade and foreign exchange restrictions;

•economic or political instability or uncertainty in foreign markets and around the world, such as related to Brexit;

•foreign currency exchange rate fluctuations;

•greater difficulty in enforcing contracts, accounts receivable collection and longer collection periods;

•changes in regulatory requirements, including, but not limited to data privacy, data protection and data security regulations;

•difficulties and costs of staffing and managing foreign operations;

•the uncertainty and limitation of protection for intellectual property rights in some countries;

•costs of compliance with foreign laws and regulations and the risks and costs of non-compliance with such laws and regulations;

•costs of compliance with U.S. laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell or provide our solutions in certain foreign markets, and the risks and costs of non-compliance;

•heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, and irregularities in, financial statements;

•the potential for political unrest, acts of terrorism, hostilities or war;

•management communication and integration problems resulting from cultural differences and geographic dispersion;

•costs associated with language localization of our products;

•increased exposure to natural disasters, acts of war, terrorism, epidemics, or pandemics and other health crises, including the ongoing COVID-19 pandemic; and

•costs of compliance with multiple and possibly overlapping tax structures.

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Our business, including the sales of our products and professional services by us and our channel partners, may be subject to foreign governmental regulations, which vary substantially from country to country and change from time to time. Our failure, or the failure by our channel partners, to comply with these regulations could adversely affect our business. Further, in many foreign countries it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. regulations applicable to us. Although we have implemented policies and procedures designed to comply with these laws and policies, there can be no assurance that our employees, contractors, channel partners and agents have complied, or will comply, with these laws and policies. Violations of laws or key control policies by our employees, contractors, channel partners or agents could result in delays in revenue recognition, financial reporting misstatements, fines, penalties or the prohibition of the importation or exportation of our products and could have a material adverse effect on our business and results of operations. If we are unable to successfully manage the challenges of international expansion and operations, our business and operating results could be adversely affected.

We are also monitoring developments related to Brexit, which could have significant implications for our business. Brexit could lead to economic and legal uncertainty, including significant volatility in global stock markets and currency exchange rates, and differing laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. In particular, although the United Kingdom enacted a Data Protection Act in May 2018 that is consistent with the EU General Data Protection Regulation, uncertainty remains regarding how data transfers to and from the United Kingdom will be regulated. Any of these effects of Brexit, among others, could adversely affect our operations in the United Kingdom and our financial results.

Because our products collect and store user and related information, domestic and international privacy and cyber security concerns, and other laws and regulations, could result in additional costs and liabilities to us or inhibit sales of our products.

We, and our customers, are subject to a number of domestic and international laws and regulations that apply to online services and the internet generally. These laws, rules and regulations address a range of issues including data privacy and cyber security, and restrictions or technological requirements regarding the collection, use, storage, protection, retention or transfer of data. The regulatory framework for online services, data privacy and cyber security issues worldwide can vary substantially from jurisdiction to jurisdiction, is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws, rules and regulations regarding the collection, use, storage and disclosure of information, web browsing and geolocation data collection, data analytics, cyber security and breach notification procedures. Interpretation of these laws, rules and regulations and their application to our products and professional services in the United States and foreign jurisdictions is ongoing and cannot be fully determined at this time.

In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Electronic Communications Privacy Act, Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Gramm Leach Bliley Act and state breach notification laws, as well as regulator enforcement positions and expectations reflected in federal and state regulatory actions, settlements, consent decrees and guidance documents. In June 2018, California enacted the California Consumer Privacy Act (CCPA), which took effect on January 1, 2020. The CCPA requires a broad range of companies that do business in California to honor the requests of California residents to access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used and shared. The CCPA provides for civil penalties of up to $7,500 for violations, and a private right of action for data breaches that allows private plaintiffs to seek the greater of actual damages or statutory damages of up to $750 per affected consumer per data breach. These statutory remedies are expected to prompt an increase in data breach litigation and the cost to resolve it. The CCPA has prompted a number of proposals for new federal and state privacy legislation in the United States that, if passed, could increase our potential liability, increase our compliance costs and adversely affect our business.

Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal frameworks with which we, and/or our customers, must comply, including the European Union's General Data Protection Regulation, (EU) 2016/679 (GDPR), which went into effect in May 2018 and is designed to update current privacy laws to better reflect the digital economy and to unify data protection within the European Union (EU) under a single law and laws implemented by EU member states which contain derogations from, or exemptions or authorizations for the purposes of, the GDPR, or which are otherwise intended to supplement the GDPR and any legislation that replaces or converts into domestic law the GDPR or any other law relating to data protection, the processing of personal data and privacy as a consequence of the United Kingdom (UK) leaving the EU (European Data Protection Laws). The European Data Protect Laws present significantly greater risks, compliance burdens and costs for companies with users and operations in the European Union. Under the GDPR, fines of up to 20 million euros or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed for significant non-compliance. The European Data Protection Laws are broad in their application and apply when we

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do business with EU- and UK-based customers and when our U.S.-based customers collect and use personal data that originates from individuals resident in the EU and UK. They also apply to transfers of personal data between us and our EU- and UK-based subsidiaries, including employee information. Further, many U.S. federal and state and other foreign government bodies and agencies have introduced, and are currently considering, additional laws and regulations. Non-compliance with these laws could result in penalties or significant legal liability. We could be adversely affected if legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of operations or financial condition.

European Data Protection Laws generally prohibit the transfer of personal data from the European Economic Area, the UK and Switzerland (Europe), to the United States and most other countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal data. One of the primary safeguards used for transfers of personal data from Europe to the United States was the Privacy Shield framework which is administered by the U.S. Department of Commerce. To facilitate the transfer of both customer and employee personal data from Europe to the United States, we self-certified under the EU-US Privacy Shield framework on December 20, 2016. However, this framework was recently invalidated by a decision of the European Union’s highest court. Authorities in the United Kingdom and Switzerland may similarly invalidate use of the Privacy Shield as a vehicle for lawful data transfers from those countries to the United States. The same decision also cast doubt on the ability to use one of the primary alternatives to the Privacy Shield, namely, the European Commission’s Standard Contractual Clauses, to lawfully transfer personal data from Europe to the United States and most other countries. At present, there are few if any viable alternatives to the Privacy Shield and the Standard Contractual Clauses. As such, our processing of personal data from Europe may not comply with European Data Protection Law. This may increase our exposure to the GDPR’s heightened sanctions for violations of its cross-border data transfer restrictions, including injunctions against transferring personal data subject to the GDPR. This may also reduce demand for our services from companies subject to European Data Protection Laws. Loss of our ability to import personal data from Europe may also require us to increase our data processing capabilities in Europe at significant expense. Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of delivering our services and operating our business. In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. Because the interpretation and application of privacy and data protection laws are still uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing practices or the features of our products. We may also be subject to claims of liability or responsibility for the actions of third parties with whom we interact or upon whom we rely in relation to various services, including but not limited to vendors and business partners. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our products, which could have an adverse effect on our business. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business.

The costs of compliance with, and other burdens imposed by, the laws, rules, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our software. Privacy or cyber security concerns, whether valid or not valid, may inhibit market adoption of our products particularly in certain industries and foreign countries.

Further, there are active legislative discussions regarding the implementation of laws or regulations that could restrict the manner in which security research is conducted and that could restrict or possibly bar the conduct of penetration testing and the use of exploits, which are an essential component of our Metasploit product and our business strategy more generally. Our failure to comply with existing laws, rules or regulations, changes to existing laws or their interpretation, or the imposition of new laws, rules or regulations, could result in additional costs and may necessitate changes to our business practices and divergent operating models, which may have a material and adverse impact on our business, results of operations, and financial condition.

Organizations may be reluctant to purchase our cloud-based offerings due to the actual or perceived vulnerability of cloud solutions.

Some organizations have been reluctant to use cloud solutions for cyber security, such as our InsightVM, InsightIDR, InsightAppSec and InsightConnect, because they have concerns regarding the risks associated with the reliability or security of the technology delivery model associated with this solution. If we or other cloud service providers experience security incidents, breaches of customer data, disruptions in service delivery or other problems, the market for cloud solutions as a whole may be negatively impacted, which could harm our business.

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As a cyber security provider, we are a target of cyber attacks and other cyber risks that could adversely impact our reputation and operating results.

We sell cyber security and data analytics products. As a result, we have been and will be a target of cyber attacks designed to impede the performance of our products, penetrate our network security or the security of our cloud platform or our internal systems, or that of our customers, misappropriate proprietary information and/or cause interruptions to our services. For example, because Metasploit serves as an introduction to hacking for many individuals, a successful cyber attack on us may be perceived as a victory for the cyber attacker, thereby increasing the likelihood that we may be a target of cyber attacks, even absent financial motives. Further, if our systems are breached as a result of third-party action, employee error or misconduct, attackers could learn critical information about how our products operate to help protect our customers’ IT infrastructures from cyber risk, thereby making our customers more vulnerable to cyber attacks. In addition, if actual or perceived breaches of our network security occur, they could adversely affect the market perception of our products, negatively affecting our reputation, and may expose us to the loss of our proprietary information or information belonging to our customers, investigations or litigation and possible liability, including injunctive relief and monetary damages. Such security breaches could also divert the efforts of our technical and management personnel. In addition, such security breaches could impair our ability to operate our business and provide products to our customers. If this happens, our reputation could be harmed, our revenue could decline and our business could suffer.

Additionally, we cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

We recognize a significant percentage of our revenue ratably over the term of our agreements with customers, and as a result, downturns or upturns in sales may not be immediately reflected in our operating results.

We recognize a significant percentage of our revenue ratably over the various terms of our agreements with customers. As a result, a substantial portion of the revenue that we report in each period will be derived from the recognition of deferred revenue relating to agreements entered into during previous periods. Consequently, a decline in new sales or renewals in any one period may not be immediately reflected in our revenue results for that period. This decline, however, will negatively affect our revenue in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of our products and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. Our model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers generally will be recognized over the applicable term.

We also intend to increase our investment in research and development, sales and marketing, and general and administrative functions and other areas to grow our business. We are likely to recognize the costs associated with these increased investments earlier than some of the anticipated benefits and the return on these investments may be lower, or may develop more slowly, than we expect, which could adversely affect our operating results.

We may be unable to rapidly and efficiently adjust our cost structure in response to significant revenue declines, which could adversely affect our operating results.

If our customers are unable to implement our products successfully, customer perceptions of our offerings may be impaired or our reputation and brand may suffer.

Our products are deployed in a wide variety of IT environments, including large-scale, complex infrastructures. Some of our customers have experienced difficulties implementing our products in the past and may experience implementation difficulties in the future. If our customers are unable to implement our products successfully, customer perceptions of our offerings may be impaired or our reputation and brand may suffer.

In addition, in order for our products to achieve their functional potential, our products must effectively integrate into our customers’ IT infrastructures, which have different specifications, utilize varied protocol standards, deploy products from multiple different vendors and contain multiple layers of products that have been added over time. Our customers’ IT infrastructures are also dynamic, with a myriad of devices and endpoints entering and exiting the customers’ IT systems on a regular basis, and our products must be able to effectively adapt to and track these changes.

Any failure by our customers to appropriately implement our products or any failure of our products to effectively integrate and operate within our customers’ IT infrastructures could result in customer dissatisfaction, impact the perceived reliability of our products, result in negative press coverage, negatively affect our reputation and harm our financial results.

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Acquisitions could disrupt our business and harm our financial condition and operating results.

In order to remain competitive, we have in the past and may in the future seek to acquire additional businesses, products or technologies. We also may not find suitable acquisition candidates, and acquisitions we complete may be unsuccessful.

Achieving the anticipated benefits of past or future acquisitions will depend in part upon whether we can integrate acquired operations, products and technology in a timely and cost-effective manner and successfully market and sell these as new product offerings, or as new features within our existing offerings. For example, on May 1, 2020 we acquired DivvyCloud, a CSPM platform that enables visibility, automation, and continuous security governance across multi-cloud environments. Some of our acquisitions could improve the capabilities of our existing offerings or platform, as opposed to becoming a new offering. The acquisition of DivvyCloud is intended to extend the cloud security capabilities of our Insight Platform, helping security and DevOps teams understand and manage governance, risk and security in their growing cloud environments. The integration of DivvyCloud and any other acquisition may prove to be difficult due to the necessity of coordinating geographically separate organizations and integrating personnel with disparate business backgrounds and accustomed to different corporate cultures. The acquisition and integration processes are complex, expensive and time consuming, and may cause an interruption of, or loss of momentum in, product development, sales activities and operations of both companies. Further, we may be unable to retain key personnel of an acquired company following the acquisition, including certain employees which we acquired in connection with our acquisition of DivvyCloud. If we are unable to effectively execute or integrate acquisitions, our business, financial condition and operating results could be adversely affected.

In addition, we may only be able to conduct limited due diligence on an acquired company’s operations or may discover that the products or technology acquired were not as capable as we thought based upon the initial or limited due diligence. Following an acquisition, we may be subject to unforeseen liabilities arising from an acquired company’s past or present operations and these liabilities may be greater than the warranty and indemnity limitations that we negotiate. Any unforeseen liability that is greater than these warranty and indemnity limitations could have a negative impact on our financial condition.

We may be unable to realize the anticipated benefits of the acquisition of DivvyCloud or those benefits may take longer to realize than expected.

The acquisition of DivvyCloud involves the combination of two companies that have historically operated independently. In order to realize the anticipated benefits of such acquisition, we will be required to devote significant management attention and resources to align the business practices, supply chains, cultures and operations of each business. We may encounter difficulties as we attempt to integrate the businesses in a manner that permits us to achieve the cost savings, synergies, business opportunities, growth prospects and other benefits anticipated to result from the acquisition of DivvyCloud. Accordingly, the contemplated benefits of such acquisition may not be realized fully, or at all, or may take longer to realize than expected. In addition, even if the DivvyCloud is integrated successfully, the anticipated benefits of such acquisition may not be realized, including the sales or growth opportunities that are anticipated. Further, additional unanticipated costs may be incurred in the integration process.

DivvyCloud may underperform relative to our expectations.

We may not be able to maintain the growth rate, levels of revenue, earnings or operating efficiency that we and DivvyCloud have achieved or might achieve separately. The business and financial performance of DivvyCloud are subject to certain risks and uncertainties. Our failure to maintain the growth rate, levels of revenue, earnings or operating efficiency could have a material adverse effect on our financial condition and results of operations.

We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our stock price to decline.

We have provided and may continue to provide guidance about our business, future operating results and key metrics, including ARR. In developing this guidance, our management must make certain assumptions and judgments about our future performance. Some of those key assumptions relate to the impact of the COVID-19 pandemic and the associated economic uncertainty on our business and the timing and scope of economic recovery globally, which are inherently difficult to predict. While presented with numerical specificity, this guidance is necessarily speculative in nature, and is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions or economic conditions, some of which may change. This guidance, which inherently consists of forward-looking statements, is also qualified by, and subject to, assumptions, estimates and expectations as of the date given. Forward-looking statements are subject to a number of risks, 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 including the risks described in this Risk Factors section and in the Risk Factors section of any future SEC filings we make. It can be expected that some or all of the assumptions, estimates and expectations of any guidance we furnished will not materialize or will vary significantly from actual results. Accordingly,

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our guidance is only an estimate of what management believes is realizable as of the date of release of such guidance.

Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our future performance. Our business results may vary significantly from such projections or that consensus due to a number of factors, many of which are outside of our control, including due to the global economic uncertainty and financial market conditions caused by the COVID-19 pandemic and which could adversely affect our operations and operating results. There are no comparable recent events that provide guidance as to the probable effect of the COVID-19 pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak is highly uncertain and subject to change. We are relying on the reports and models of economic and medical experts in making assumptions relating to the duration of this crisis and predictions as to timing and pace of any future economic recovery. If these models are incorrect or incomplete, or if we fail to accurately predict the full impact that the COVID-19 pandemic will have on all aspects of our business, the guidance and other forward-looking statements provided may also be incorrect or incomplete. Furthermore, if we make downward revisions of our previously announced guidance, or if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors or other interested parties, the price of our common stock would decline.

If we are unable to maintain successful relationships with our channel partners, our business operations, financial results and growth prospects could be adversely affected.

Our success is dependent in part upon establishing and maintaining relationships with a variety of channel partners that we utilize to extend our geographic reach and market penetration. We anticipate that we will continue to rely on these partners in order to help facilitate sales of our offerings as part of larger purchases in the United States and to grow our business internationally. For 2019, 2018 and 2017, we derived approximately 43%, 39%, and 37%, respectively, of our revenue from sales of products and professional services through channel partners, and the percentage of revenue derived from channel partners may increase in future periods. Our agreements with our channel partners are non-exclusive and do not prohibit them from working with our competitors or offering competing solutions, and some of our channel partners may have more established relationships with our competitors. If our channel partners choose to place greater emphasis on products of their own or those offered by our competitors or do not effectively market and sell our products and professional services, our ability to grow our business and sell our products and professional services, particularly in key international markets, may be adversely affected. In addition, our failure to recruit additional channel partners, or any reduction or delay in their sales of our products and professional services or conflicts between channel sales and our direct sales and marketing activities may harm our results of operations. Finally, even if we are successful, our relationships with channel partners may not result in greater customer usage of our products and professional services or increased revenue.

If we are not able to maintain and enhance our brand, our business and operating results may be adversely affected.

We believe that maintaining and enhancing our brand identity is critical to our relationships with our customers and channel partners and to our ability to attract new customers and channel partners. The successful promotion of our brand will depend largely upon our marketing efforts, our ability to continue to offer high-quality offerings and our ability to successfully differentiate our offerings from those of our competitors. Our brand promotion activities may not be successful or yield increased revenues. In addition, independent industry analysts often provide reviews of our offerings, as well as those of our competitors, and perception of our offerings in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors’ products and professional services, our brand may be adversely affected.

Moreover, it may be difficult to maintain and enhance our brand in connection with sales through channel or strategic partners. The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets and as more sales are generated through our channel partners. To the extent that these activities yield increased revenues, these revenues may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to competitors with stronger brands, and we could lose customers and channel partners, all of which would adversely affect our business operations and financial results.

Failure to maintain high-quality customer support could have a material adverse effect on our business.

Once our products are deployed within our customers’ networks, our customers depend on our technical and other customer support services to resolve any issues relating to the implementation and maintenance of our products. If we do not effectively assist our customers in deploying our products, help our customers quickly resolve post-deployment issues or provide effective ongoing support, our ability to renew or sell additional products or professional services to existing customers would be adversely affected and our reputation with potential customers could be damaged. Further, to the extent that we are unsuccessful in hiring, training and retaining adequate technical and customer success personnel, our ability to provide adequate and timely support to our customers will be negatively impacted, and our customers’ satisfaction with our offerings will be adversely affected.

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We are dependent on the continued services and performance of our senior management and other key employees, the loss of any of whom could adversely affect our business, operating results and financial condition.

Our future performance depends on the continued services and contributions of our senior management, particularly Corey Thomas, our Chief Executive Officer, and other key employees to execute on our business plan and to identify and pursue new opportunities and product innovations. From time to time, there may be changes in our senior management team resulting from the termination or departure of our executive officers and key employees. Our senior management and key employees are employed on an at-will basis, which means that they could terminate their employment with us at any time. Further, members of our management and other key personnel in critical functions across our organization may be unable to perform their duties or have limited availability due to COVID-19. The temporary or permanent loss of the services of our senior management, particularly Mr. Thomas, or other key employees for any reason could significantly delay or prevent the achievement of our development and strategic objectives and harm our business, financial condition and results of operations.

We rely on third-party software to operate certain functions of our business.

We rely on software vendors to operate certain critical functions of our business, including financial management, customer relationship management and human resource management. If we experience difficulties in implementing new software or if these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices, our expenses could increase, our ability to manage our finances could be interrupted and our processes for managing sales of our solutions and supporting our customers could be impaired until equivalent services, if available, are identified, obtained and integrated, all of which could harm our business.

We use third-party software and data that may be difficult to replace or that may cause errors or failures of our solutions, which could lead to lost customers or harm to our reputation and our operating results.

We license third-party software and security and compliance data from various third parties that are used in our solutions in order to deliver our offerings. In the future, this software or data may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of this software or data could result in delays in the provisioning of our offerings until equivalent technology or data is either developed by us, or, if available, is identified, obtained and integrated, which could harm our business. In addition, any errors or defects in or failures of this third-party software could result in errors or defects in our products or cause our products to fail, which could harm our business and be costly to correct. Many of these providers attempt to impose limitations on their liability for such errors, defects or failures, and if enforceable, we may have additional liability to our customers or third-party providers that could harm our reputation and increase our operating costs.

We will need to maintain our relationships with third-party software and data providers, and to obtain software and data from such providers that do not contain errors or defects. Any failure to do so could adversely impact our ability to deliver effective solutions to our customers and could harm our operating results.

Our products contain third-party open source software components, and our failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our products.

Our products contain software licensed to us by third parties under so-called “open source” licenses, including the GNU General Public License, the GNU Lesser General Public License, the BSD License, the Apache License and others. From time to time, there have been claims against companies that distribute or use open source software in their products and services, asserting that such open source software infringes the claimants’ intellectual property rights. We could be subject to suits by parties claiming that what we believe to be licensed open source software infringes their intellectual property rights. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. In addition, certain open source licenses require that source code for software programs that are subject to the license be made available to the public and that any modifications or derivative works to such open source software continue to be licensed under the same terms.

Although we monitor our use of open source software in an effort both to comply with the terms of the applicable open source licenses and to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. The terms of certain open source licenses require us to release the source code of our applications and to make our applications available under those open source licenses if we combine or distribute our applications with open source software in a certain manner. In the event that portions of our applications are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all, or a portion of, those applications or otherwise be limited in the licensing of our applications. Disclosing our proprietary source code could allow our competitors to create similar products with lower development effort and time and ultimately, could result in a loss of sales for us. Disclosing the source code of our proprietary

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software could also make it easier for cyber attackers and other third parties to discover vulnerabilities in or to defeat the protections of our products, which could result in our products failing to provide our customers with the security they expect. Any of these events could have a material adverse effect on our business, operating results and financial condition.

Our technology alliance partnerships expose us to a range of business risks and uncertainties that could have a material adverse impact on our business and financial results.

We have entered, and intend to continue to enter, into technology alliance partnerships with third parties to support our future growth plans, including with certain of our actual or potential competitors. For example, through these technology alliance partnerships, we integrate with certain third-party application program interfaces (APIs), which enhance our data collection capabilities in our customers’ IT environments. If these third parties no longer allow us to integrate with their APIs, or if we determine not to maintain these integrations, the functionality of our products may be reduced and our products may not be as marketable to certain potential customers. Technology alliance partnerships require significant coordination between the parties involved, particularly if a partner requires that we integrate its products with our products. Further, we have invested and will continue to invest significant time, money and resources to establish and maintain relationships with our technology alliance partners, but we have no assurance that any particular relationship will continue for any specific period of time, result in new offerings that we can effectively commercialize or result in enhancements to our existing offerings. In addition, while we believe that entering into technology alliance partnerships with certain of our actual or potential competitors is currently beneficial to our competitive position in the market, such partnerships may also give our competitors insight into our offerings that they may not otherwise have, thereby allowing them to compete more effectively against us.

The continued utility of Metasploit depends in part on the continued contributions from security researchers.

Our Metasploit product relies on information provided by an active community of security researchers who contribute new exploits, attacks and vulnerabilities. We expect that the continued contributions from these third parties will both enhance the robustness of Metasploit and also support our sales and marketing efforts. However, to the extent that the information provided by these third parties is inaccurate or malicious, the potential for false indications of security vulnerabilities and susceptibility to attack increases, which could adversely impact market acceptance of our products and professional services and could result in negative publicity, loss of customers and sales and increased costs to remedy any problem. Further, to the extent that our community of third parties is reduced in size or participants become less active, we may lose valuable insight into the dynamic threat landscape and our ability to quickly respond to new exploits, attacks and vulnerabilities may be reduced.

If our products fail to help our customers achieve and maintain compliance with regulations and/or industry standards, our revenue and operating results could be harmed.

We generate a portion of our revenue from our vulnerability management offerings that help organizations achieve and maintain compliance with regulations and industry standards both domestically and internationally. For example, many of our customers subscribe to our vulnerability management offerings to help them comply with the security standards developed and maintained by the Payment Card Industry Security Standards Council (the PCI Council), which apply to companies that process, transmit or store cardholder data. In addition, our vulnerability management offerings are used by customers in the health care industry to help them comply with numerous federal and state laws and regulations related to patient privacy. In particular, HIPAA, and the 2009 Health Information Technology for Economic and Clinical Health Act include privacy standards that protect individual privacy by limiting the uses and disclosures of individually identifiable health information and implementing data security standards. The foregoing and other state, federal and international legal and regulatory regimes may affect our customers’ requirements for, and demand for, our products and professional services. Governments and industry organizations, such as the PCI Council, may also adopt new laws, regulations or requirements, or make changes to existing laws or regulations, that could impact the demand for, or value of, our products. If we are unable to adapt our products to changing legal and regulatory standards or other requirements in a timely manner, or if our products fail to assist with, or expedite, our customers’ cyber security defense and compliance efforts, our customers may lose confidence in our products and could switch to products offered by our competitors or threaten or bring legal actions against us. In addition, if laws, regulations or standards related to data security, vulnerability management and other IT security and compliance requirements are relaxed or the penalties for non-compliance are changed in a manner that makes them less onerous, our customers may view government and industry regulatory compliance as less critical to their businesses, and our customers may be less willing to purchase our products. In any of these cases, our revenue and operating results could be harmed.

In addition, government and other customers may require our products to comply with certain privacy, security or other certifications and standards. If our products are late in achieving or fail to achieve or maintain compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from selling our products to such customers, or may otherwise be at a competitive disadvantage, either of which would harm our business, results of operations, and financial condition.

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A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

Selling to government entities can be highly competitive, expensive and time consuming, and often requires significant upfront time and expense without any assurance that we will win a sale. Government demand and payment for our products and professional services may also be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings. Government entities also have heightened sensitivity surrounding the purchase of cyber security solutions due to the critical importance of their IT infrastructures, the nature of the information contained within those infrastructures and the fact that they are highly-visible targets for cyber attacks. Accordingly, increasing sales of our products and professional services to government entities may be more challenging than selling to commercial organizations. Further, in the course of providing our products and professional services to government entities, our employees and those of our channel partners may be exposed to sensitive government information. Any failure by us or our channel partners to safeguard and maintain the confidentiality of such information could subject us to liability and reputational harm, which could materially and adversely affect our results of operations and financial performance.

The phaseout of LIBOR, or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flows and liquidity. We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks. We may need to renegotiate our senior secured credit facility or incur other indebtedness, and changes in the method of calculating LIBOR, or the use of an alternative rate or benchmark, may negatively impact the terms of such indebtedness. If changes are made to the method of calculating LIBOR or LIBOR ceases to exist, we may need to amend certain contracts, including our senior secured credit facility, and we cannot predict what alternative rate or benchmark would be negotiated. This may result in an increase to our interest expense.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

Our reporting currency is the U.S. dollar and we generate a majority of our revenue in U.S. dollars. However, for each of the three months ended June 30, 2020 and 2019 we incurred 12% of our expenses outside of the United States in foreign currencies, primarily the British pound sterling and euro, principally with respect to salaries and related personnel expenses associated with our sales and research and development operations. Additionally, for the three months ended June 30, 2020 and 2019, 9% and 7%, respectively, of our revenue was generated in foreign currencies. Accordingly, changes in exchange rates may have an adverse effect on our business, operating results and financial condition. The exchange rate between the U.S. dollar and foreign currencies has fluctuated in recent years and may fluctuate substantially in the future. Furthermore, a strengthening of the U.S. dollar could increase the cost in local currency of our products and services to customers outside the United States, which could adversely affect our business, results of operations, financial condition and cash flows. To date, we have not engaged in any hedging strategies, and any such strategies, such as forward contracts, options and foreign exchange swaps related to transaction exposures that we may implement to mitigate this risk may not eliminate our exposure to foreign exchange fluctuations.

Changes in financial accounting standards may adversely impact our reported results of operations.

A change in accounting standards or practices could adversely affect our operating results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our operating results.

We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features or enhance our products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. For example, while the potential impact and

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duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. Although we expect that current cash and cash equivalent balances, including the proceeds from the issuance our 2.25% convertible senior notes due 2025 (2025 Notes) and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months, if we are unable to obtain adequate financing or financing on terms satisfactory to us if and when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be adversely affected.

Risks Related to Intellectual Property, Litigation, Government Regulation, Data Collection and Catastrophic Events

Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and operating results.

Our success and competitive position depend in part on our ability to protect our intellectual property and proprietary technologies. To safeguard these rights, we rely on a combination of patent, trademark, copyright and trade secret laws and contractual protections in the United States and other jurisdictions, all of which provide only limited protection and may not now or in the future provide us with a competitive advantage.

We cannot assure you that any patents will issue from any patent applications, that patents that issue from such applications will give us the protection that we seek or that any such patents will not be challenged, invalidated, or circumvented. Any patents that may issue in the future from our pending or future patent applications may not provide sufficiently broad protection and may not be enforceable in actions against alleged infringers. We have registered the “Rapid7,” “Nexpose” and “Metasploit” names and logos in the United States and certain other countries. We have registrations and/or pending applications for additional marks in the United States and other countries; however, we cannot assure you that any future trademark registrations will be issued for pending or future applications or that any registered trademarks will be enforceable or provide adequate protection of our proprietary rights. While we have copyrights in our software, we do not typically register such copyrights with the Copyright Office. This failure to register the copyrights in our software may preclude us from obtaining statutory damages for infringement under certain circumstances. We also license software from third parties for integration into our products, including open source software and other software available on commercially reasonable terms. We cannot assure you that such third parties will maintain such software or continue to make it available.

In order to protect our unpatented proprietary technologies and processes, we rely on trade secret laws and confidentiality agreements with our employees, consultants, channel partners, vendors and others. Despite our efforts to protect our proprietary technology and trade secrets, unauthorized parties may attempt to misappropriate, reverse engineer or otherwise obtain and use them. In addition, others may independently discover our trade secrets, in which case we would not be able to assert trade secret rights, or develop similar technologies and processes. Further, the contractual provisions that we enter into may not prevent unauthorized use or disclosure of our proprietary technology or intellectual property rights and may not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary technology or intellectual property rights. Moreover, policing unauthorized use of our technologies, trade secrets and intellectual property is difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. We may be unable to determine the extent of any unauthorized use or infringement of our solutions, technologies or intellectual property rights.

From time to time, legal action by us may be necessary to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the intellectual property rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could result in impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could negatively affect our brand and adversely impact our business, operating results and financial condition.

Assertions by third parties of infringement or other violations by us of their intellectual property rights, whether or not correct, could result in significant costs and harm our business and operating results.

Patent and other intellectual property disputes are common in our industry. We are periodically involved in disputes brought by non-practicing entities alleging patent infringement and we may, from time to time, be involved in other such disputes in the ordinary course of our business. Some companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use to assert claims against us. Many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights. Third parties have in the past and may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights against us and we are currently

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involved in legal proceedings with Finjan, Inc., which has filed a complaint against us and our wholly-owned subsidiary, Rapid7 LLC, in the United States District Court, District of Delaware, alleging patent infringement. Third parties may also assert claims against our customers or channel partners, whom we typically indemnify against claims that our solutions infringe, misappropriate or otherwise violate the intellectual property rights of third parties. As the numbers of products and competitors in our market increase and overlaps occur, claims of infringement, misappropriation and other violations of intellectual property rights may increase. Any claim of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business.

The patent portfolios of our most significant competitors are larger than ours. This disparity may increase the risk that they may sue us for patent infringement and may limit our ability to counterclaim for patent infringement or settle through patent cross-licenses. In addition, future assertions of patent rights by third parties, and any resulting litigation, may involve patent holding companies or other adverse patent owners who have no relevant product revenues and against whom our own patents may therefore provide little or no deterrence or protection. There can be no assurance that we will not be found to infringe or otherwise violate any third-party intellectual property rights or to have done so in the past.

An adverse outcome of a dispute may require us to:

•pay substantial damages, including treble damages, if we are found to have willfully infringed a third party’s patents or copyrights;

•cease making, licensing or using solutions that are alleged to infringe or misappropriate the intellectual property of others;

•expend additional development resources to attempt to redesign our solutions or otherwise develop non-infringing technology, which may not be successful;

•enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies or intellectual property rights; and

•indemnify our partners and other third parties.

In addition, royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. Some licenses may also be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us.

Any of the foregoing events could seriously harm our business, financial condition and results of operations.

We are subject to governmental export and import controls that could impair our ability to compete in international markets and/or subject us to liability if we are not in compliance with applicable laws.

Like other U.S.-based IT security products, our products are subject to U.S. export control and import laws and regulations, including the U.S. Export Administration Regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control. Exports of these products must be made in compliance with these laws and regulations. Compliance with these laws and regulations is complex, and if we were to fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil and criminal penalties, including fines for our company and responsible employees or managers, and, in extreme cases, incarceration of responsible employees and managers and the possible loss of export privileges. Complying with export control laws and regulations, including obtaining the necessary licenses or authorizations, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. Changes in export or import laws and regulations, shifts in the enforcement or scope of existing laws and regulations, or changes in the countries, governments, persons, products or services targeted by such laws and regulations, could also result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers. A decreased use of our products or limitation on our ability to export or sell our products could adversely affect our business, financial condition and results of operations.

We also incorporate encryption technology into our products. These encryption products may be exported outside of the United States only with the required export authorizations, including by a license, a license exception or other appropriate government authorizations, including the filing of a product classification request. In addition, various countries regulate the import and domestic use of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or our failure to obtain required import or export approval for our products, when applicable, could harm

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our international sales and adversely affect our revenue. Compliance with applicable laws and regulations regarding the export and import of our products, including with respect to new products or changes in existing products, may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products globally or, in some cases, could prevent the export or import of our products to certain countries, governments, entities or persons altogether.

Further, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to U.S. embargoed or sanctioned countries, governments or persons. Although we take precautions to prevent our products from being provided to those subject to U.S. sanctions, such measures may be circumvented and we have in the past identified limited instances of non-compliance with these rules. After these instances were disclosed to U.S. authorities, those authorities decided to not bring enforcement actions against or impose penalties on us.

Finally, in recent years, there have been multinational efforts to impose additional restrictions on certain cyber security products that could include commercial versions of Metasploit. Such restrictions have been imposed by individual countries, but are not currently in effect in the United States. The implementation of such restrictions could adversely affect our business, financial condition and results of operations. We are closely monitoring these efforts and are prepared to work with interested parties and/or stakeholders with respect to the implementation of restrictions potentially applicable to our products.

Failure to comply with governmental laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local and foreign governments. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions or other collateral consequences. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, reputation, results of operations and financial condition.

Our intercompany relationships are subject to complex transfer pricing regulations, which may be challenged by taxing authorities.

We generally conduct our international operations through wholly-owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are and will continue to be subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2019, we had federal and state net operating loss carryforwards (NOLs), of $275.8 million and $209.7 million, respectively, available to offset future taxable income, which expire in various years beginning in 2021 if not utilized. A lack of future taxable income would adversely affect our ability to utilize these NOLs before they expire. Under the provisions of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), substantial changes in our ownership may limit the amount of pre-change NOLs that can be utilized annually in the future to offset taxable income. Section 382 of the Internal Revenue Code imposes limitations on a company’s ability to use NOLs if a company experiences a more-than-50-percentage point ownership change over a three-year testing period. Based upon our analysis as of December 31, 2019, we determined that although a limitation on our historical NOLs exists, we do not expect this limitation to impair our ability to use our NOLs prior to expiration. However, if changes in our ownership occur in the future, our ability to use our NOLs may be further limited. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we achieve profitability. If we are limited in our ability to use our NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs. This could adversely affect our operating results, cash balances and the market price of our common stock.

We could be subject to additional tax liabilities.

We are subject to U.S. federal, state, local and sales taxes in the United States and foreign income taxes, withholding taxes and transaction taxes in numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and our worldwide provision for taxes. During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations and effective tax rates could be adversely affected by

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changes in the relevant tax, accounting and other laws, regulations, principles and interpretations by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. We may be audited in various jurisdictions, and such jurisdictions may assess additional taxes, sales taxes and value-added taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our operating results or cash flows in the period for which a determination is made.

Our business is subject to the risks of pandemics, earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by manmade problems such as terrorism.

A significant public health crisis, epidemic or pandemic (including the ongoing COVID-19 pandemic), or a natural disaster, such as an earthquake, fire or a flood, or a significant power outage could have a material adverse impact on our business, operating results and financial condition. In addition, public health crises or natural disasters could affect our channel partners’ ability to perform services for us on a timely basis. In the event we or our channel partners are hindered by any of the events discussed above, our ability to provide our products or professional services to customers could be delayed.

In addition, our facilities and those of our third-party data centers and hosting providers are vulnerable to damage or interruption from human error, intentional bad acts, pandemics, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. The occurrence of a public health crisis, natural disaster, power failure or an act of terrorism, vandalism or other misconduct, a decision by a third party to close a facility on which we rely without adequate notice, or other unanticipated problems could result in lengthy interruptions in provision or delivery of our products, potentially leaving our customers vulnerable to cyber attacks. The occurrence of any of the foregoing events could damage our systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business, that may result from interruptions in our service as a result of system failures.

All of the aforementioned risks may be exacerbated if our disaster recovery plans or the disaster recovery plans established for our third-party data centers and hosting providers prove to be inadequate. To the extent that any of the above results in delayed or reduced customer sales, our business, financial condition and results of operations could be adversely affected.

Risks Related to our Common Stock

The market price of our common stock has been and is likely to continue to be volatile.

The market price of our common stock may be highly volatile and may fluctuate substantially as a result of a variety of factors, some of which are related in complex ways. Since shares of our common stock were sold in our initial public offering, or IPO, in July 2015 at a price of $16.00 per share, our stock price has ranged from an intraday low of $9.05 to an intraday high of $66.01 through July 31, 2020. Factors that may affect the market price of our common stock include:

•actual or anticipated fluctuations in our financial condition and operating results;

•variance in our financial performance from expectations of securities analysts;

•changes in our projected operating and financial results;

•changes in the prices of our products and professional services;

•changes in laws or regulations applicable to our products or professional services;

•announcements by us or our competitors of significant business developments, acquisitions or new offerings;

•our involvement in any litigation or investigations by regulators;

•our sale of our common stock or other securities in the future;

•changes in our board of directors, senior management or key personnel;

•trading volume of our common stock;

•price and volume fluctuations in the overall stock market;

•changes in the anticipated future size and growth rate of our market;

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•sales of shares of our common stock by us or our stockholders, including sales and purchases of any common stock issued upon conversion of our convertible senior notes; and

•general economic, regulatory and market conditions.

Recently, the stock markets, and in particular the market on which our common stock is listed, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies due to, among other factors, the actions of market participants or other actions outside of our control, including general market volatility caused by the COVID-19 pandemic. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may negatively impact the market price of our common stock. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial costs and divert our management’s attention.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.

The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If our financial performance fails to meet analyst estimates or one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

We are obligated to maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We have been and are required, pursuant to Section 404 of the Sarbanes-Oxley Act (Section 404), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. While we have established certain procedures and control over our financial reporting processes, we cannot assure you that these efforts will prevent restatements of our financial statements in the future.

Our independent registered public accounting firm is also required, pursuant to Section 404, to report annually on the effectiveness of our internal control over financial reporting. This assessment is required to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. For future reporting periods, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion.

If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion that our internal controls over financial reporting are effective, investors could lose confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we could be subject to sanctions or investigations by regulatory authorities, including the SEC and Nasdaq. Failure to remediate any material weakness in our internal control over financial reporting, or to maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Future sales of our common stock or equity-linked securities in the public market could lower the market price for our common stock and adversely impact the trading price of the Notes.

In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In addition, a substantial number of shares of our common stock is reserved for issuance upon the exercise of stock options, settlement of

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other equity incentive awards and upon conversion of the Notes. The indentures for the Notes do not restrict our ability to issue additional common stock or equity-linked securities in the future. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the trading price of the Notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change in control or changes in our management. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

•authorize our board of directors to issue preferred stock without further stockholder action and with voting liquidation, dividend and other rights superior to our common stock;

•require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent, and limit the ability of our stockholders to call special meetings;

•establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for director nominees;

•establish that our board of directors is divided into three classes, with directors in each class serving three-year staggered terms;

•require the approval of holders of two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our amended and restated bylaws or amend or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors and the ability of stockholders to take action by written consent or call a special meeting;

•prohibit cumulative voting in the election of directors; and

•provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any of the foregoing provisions could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our amended and restated certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or (4) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provision. The forum selection clause in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

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Risks Related to our Indebtedness

We have a significant amount of debt that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur additional debt in the future, which may adversely affect our operations and financial results. We may not have sufficient cash flow from our business to pay our substantial debt when due.

As of December 31, 2019, we had $230.0 million aggregate principal amount of indebtedness under the 2023 Notes and we issued an additional $230.0 million aggregate principal amount of indebtedness under the 2025 Notes on May 1, 2020. In addition, we may also incur indebtedness under our senior secured credit facility. Our indebtedness may:

•limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;

•limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;

•require us to use a substantial portion of our cash flow from operations to make debt service payments;

•limit our flexibility to plan for, or react to, changes in our business and industry;

•place us at a competitive disadvantage compared to our less leveraged competitors; and

•increase our vulnerability to the impact of adverse economic and industry conditions.

Further, the indentures governing the Notes do not restrict our ability to incur additional indebtedness, secure existing or future debt, recapitalize our existing or future debt or take a number of other actions that could intensify the risks discussed above and below. Further, we and our subsidiaries may incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facility and any future debt instruments existing at the time, some of which may be secured indebtedness. While our senior secured credit facility restricts our ability to incur additional indebtedness, if our senior secured credit facility is terminated, we may not be subject to such restriction under the terms of such indebtedness.

Our ability to pay our debt when due or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. In addition, any required repurchase of the Notes for cash as a result of a fundamental change or voluntary redemption (in each case, pursuant to the terms of the Notes) would lower our current cash on hand such that we would not have that cash available to fund operations. If we are unable to generate sufficient cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring our debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

In addition, our senior secured credit facility contains, and any future additional indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital, pay dividends and/or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full. Any such event of default under our senior secured credit facility would give the lenders the right to terminate their commitments to provide additional loans under our senior secured credit facility and to declare any and all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, the lenders under our senior secured credit facility would have the right to proceed against the collateral in which we granted a security interest to them, which consists of substantially all our assets. If the debt under our senior secured credit facility were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately materially and adversely affect our cash flows, business, results of operations, financial condition and our ability to make payments under our indebtedness, including the Notes, when due. Further, the terms of any new or additional financing may be on terms that are more restrictive or on terms that are less desirable to us.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion features of the Notes are triggered, holders of the Notes will be entitled to convert their Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering

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any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders of Notes do not elect to convert their Notes, when they are able to do so, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the Notes. As a result, we will be required to record non-cash interest expense through the amortization of the excess of the face amount over the carrying amount of the expected life of the Notes. We will report larger net losses (or lower net income) in our financial results because ASC 470-20 requires interest to include both the amortization of the debt discount and the instrument’s cash coupon interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the Notes.

In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash may be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of such Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are included in the denominator for purposes of calculating diluted earnings per share.

We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. For example, in July 2019, the FASB issued an exposure draft that proposes to change the accounting for the convertible debt instruments described above. Under the exposure draft, an entity may no longer be required to separately account for the liability and equity components of convertible debt instruments. This could have the impact of reducing non-cash interest expense, and thereby increasing net income. Additionally, as currently proposed, the treasury stock method for calculating earnings per share will no longer be allowed for convertible debt instruments whose principal amount may be settled using shares. Rather, the if-converted method may be required. Application of the “if converted” method may reduce our reported diluted earnings per share. We cannot be sure that this exposure draft will be issued, or will be issued in its current format. We also cannot be sure whether other changes may be made to the current accounting standards related to the Notes, or otherwise, that could have an adverse impact on our financial statements.

The capped call transactions may affect the value of the Notes and our common stock.

In connection with the pricing of the Notes and the exercise by the initial purchasers of their option to purchase additional Notes, we entered into capped call transactions with certain counterparties (Capped Calls). The Capped Calls cover, subject to customary adjustments, the number of shares of our common stock initially underlying the Notes. The Capped Calls are expected to offset the potential dilution as a result of conversion of the Notes. In connection with establishing their initial hedge of the capped call transactions, the counterparties or their respective affiliates entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricings of the Notes, including with certain investors in the Notes. The counterparties and/or or their respective affiliates may modify or unwind their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so on each exercise date of the capped call transactions, which are scheduled to occur during the applicable observation period relating to any conversion of the 2023 Notes on or after February 1, 2023, or relating to any conversion of the 2025 Notes on or after November 1, 2024, in each case that is not in connection with a redemption). We cannot make any prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the prices of the Notes or the shares of our common stock. Any of these activities could adversely affect the value of the Notes and our common stock.

We are subject to counterparty risk with respect to the capped call transactions.

The option counterparties are financial institutions, and we will be subject to the risk that one or more of the option counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the Capped Calls. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Recent global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings

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with a claim equal to our exposure at the time under such transaction. Our exposure will depend on many factors but, generally, our exposure will increase if the market price or the volatility of our common stock increases. In addition, upon a default or other failure to perform, or a termination of obligations, by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.

Provisions in the indentures for the Notes may deter or prevent a business combination that may be favorable to our stockholders.

If a fundamental change occurs prior to the maturity date of the Notes, holders of the Notes, will have the right, at their option, to require us to repurchase all or a portion of their Notes. In addition, if a “make-whole fundamental change” (as defined in the indentures) occurs prior the maturity date, we will in some cases be required to increase the conversion rate of the Notes for a holder that elects to convert its Notes in connection with such make-whole fundamental change.

Furthermore, the indentures governing the Notes prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes. These and other provisions in the indentures could deter or prevent a third party from acquiring us even when the acquisition may be favorable to our stockholders.

Conversion of the Notes will dilute the ownership interest of existing stockholders, including holders who had previously converted their Notes, or may otherwise depress the price of our common stock.

The conversion of some or all of the Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the Notes. The Notes may become in the future convertible at the option of their holders prior to their scheduled terms under certain circumstances. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Recent Sales of Unregistered Equity Securities

None.

(b) Use of Proceeds from Initial Public Offering of Common Stock

None.

(c) Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit Number	Description
3.1*	Amended and Restated Certificate of Incorporation of Rapid7, Inc., as of June 3, 2020
3.2*	Amended and Restated Bylaws of Rapid7, Inc., as of June 3, 2020.
4.1	Indenture, dated as of May 1, 2020, by and between Rapid7, Inc. and U.S. Bank National Association, as Trustee (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37496), filed with the Securities and Exchange Commission on May 4, 2020, and incorporated herein by reference).
4.2	Form of Global Note, representing Rapid7, Inc.’s 2.25% Convertible Senior Notes due 2025 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37496), filed with the Securities and Exchange Commission on May 4, 2020, and incorporated herein by reference, and included as Exhibit A to the Indenture filed as Exhibit 4.1 hereto).
10.1	Purchase Agreement, dated April 28, 2020, by and between Rapid7, Inc. and Barclays Capital Inc. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37496), filed with the Securities and Exchange Commission on May 4, 2020).
10.2	Form of Confirmation for Capped Call Transactions (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37496), filed with the Securities and Exchange Commission on May 4, 2020).
10.3	Credit and Security Agreement, dated as of April 23, 2020, by and among Rapid7, Inc., Rapid7 LLC, KeyBank National Association, and the lenders party thereto (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37496), filed with the Securities and Exchange Commission on April 28, 2020).
10.4*	First Amendment Agreement, dated as of May 29, 2020, by and among Rapid7, Inc., Rapid7 LLC, KeyBank National Association, and the lenders party thereto.
10.5	Merger Agreement, dated as of April 24, 2020, by and between Rapid7, Inc., Rapid7 LLC, Stratus Acquisition, Inc., Divvy Cloud Corporation and Fortis Advisors LLC (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37496), filed with the Securities and Exchange Commission on April 28, 2020).
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data file (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

* Filed herewith.

** This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RAPID7, INC.
Date: August 10, 2020	By:	/s/ Corey E. Thomas
		Name:  Corey E. Thomas
		Title:    Chief Executive Officer
		(Principal Executive Officer)
Date: August 10, 2020	By:	/s/ Jeff Kalowski
		Name:  Jeff Kalowski
		Title:    Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

Rapid7, INC.

(Composite document reflecting amendments through June 3, 2020)

I.

The name of this company is Rapid7, Inc. (the “Company” or the “Corporation”).

II.

The address of the registered office of this Corporation in the State of Delaware is The Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name of the registered agent of this Corporation in the State of Delaware at such address is The Corporation Trust Company.

III.

The purpose of this Company is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law (“DGCL”).

IV.

A.This Company is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Company is authorized to issue is one hundred ten million (110,000,000) shares. One hundred million (100,000,000) shares shall be Common Stock, each having a par value of one cent ($0.01) and ten million (10,000,000) shares shall be Preferred Stock, each having a par value of one cent ($0.01).

B.The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Company (the “Board of Directors”) is hereby expressly authorized to provide for the issue of all of any of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. The Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the stock of the Corporation entitled to vote thereon, without a separate vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of Preferred Stock.

C.Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).

V.

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For the management of the business and for the conduct of the affairs of the Company, and in further definition, limitation and regulation of the powers of the Company, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:

A.Management of Business.

1.The management of the business and the conduct of the affairs of the Company shall be vested in its Board of Directors. The number of directors which shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the authorized number of directors constituting the Board of Directors.

2.The Company expressly elects to be governed by § 203 of the DGCL.

B.Board of Directors.

Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, until the 2023 annual meeting of stockholders, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors elected at the 2020 annual meeting of stockholders shall have terms expiring at the 2023 annual meeting of stockholders. Directors elected at the 2021 annual meeting of stockholders shall have terms expiring at the 2022 annual meeting of the stockholders. Directors elected at the 2022 annual meeting of stockholders shall have terms expiring at the 2023 annual meeting of the stockholders. Commencing with the 2023 annual meeting of stockholders, the classification of the Board of Directors shall cease, and at each succeeding annual meeting of stockholders, directors shall be elected for terms expiring at the next annual meeting of stockholders following their election.

Notwithstanding the foregoing provisions of this section, each director shall serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

C.Removal of Directors.

1.Subject to the rights of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the Initial Public Offering, for so long as the Board of Directors is classified, neither the Board of Directors nor any individual director may be removed without cause.

2.Subject to any limitation imposed by law, any individual director or directors may be removed with cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all then-outstanding shares of capital stock of the Corporation entitled to vote generally at an election of directors.

D.Vacancies. Subject to any limitations imposed by applicable law and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders and except as otherwise provided by applicable law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified.

E.Bylaw Amendments.

1.The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Company.Any adoption, amendment or repeal of the Bylaws of the Company by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of

2

the Company; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Company required by law or by this Amended and Restated Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the Requisite Stockholders. As used herein, “Requisite Stockholders” shall mean (i) prior to June 30, 2022, the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class and (ii) on or following June 30, 2022, the holders of a majority of the voting power of all of the then-outstanding shares of capital stock of the Company entitled to vote generally at an election of directors, voting together as a single class.

2.The directors of the Company need not be elected by written ballot unless the Bylaws so provide.

3.No action shall be taken by the stockholders of the Company except at an annual or special meeting of stockholders called in accordance with the Bylaws, and no action shall be taken by the stockholders by written consent or electronic transmission.

4.Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Company shall be given in the manner provided in the Bylaws of the Company.

VI.

A.The liability of the directors for monetary damages shall be eliminated to the fullest extent under applicable law.

B.To the fullest extent permitted by applicable law, the Company is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Company (and any other persons to which applicable law permits the Company to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise in excess of the indemnification and advancement otherwise permitted by such applicable law. If applicable law is amended after approval by the stockholders of this Article VI to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director to the company shall be eliminated or limited to the fullest extent permitted by applicable law as so amended.

C.Any repeal or modification of this Article VI shall only be prospective and shall not affect the rights or protections or increase the liability of any director under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.

VII.

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (A) any derivative action or proceeding brought on behalf of the Company; (B) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders; (C) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the DGCL, the Amended and Restated Certificate of Incorporation or the Bylaws of the Company; or (D) any action asserting a claim against the Company or any director or officer or other employee of the Company governed by the internal affairs doctrine.

VIII.

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A.The Company reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B. of this Article VIII, and all rights conferred upon the stockholders herein are granted subject to this reservation.

B.Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Company required by law or by this Amended and Restated Certificate of Incorporation or any certificate of designation filed with respect to a series of Preferred Stock, the affirmative vote of the Requisite Stockholders shall be required to alter, amend or repeal Articles V, VI, VII and VIII.

4

EX-3.2

                 Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

Rapid7, Inc.

(A DELAWARE CORPORATION)

(Composite document reflecting amendments through June 3, 2020)

ARTICLE I

OFFICES

Section 1.Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.

Section 2.Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II

CORPORATE SEAL

Section 3.Corporate Seal. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, “Corporate Seal-Delaware.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE III

STOCKHOLDERS’ MEETINGS

Section 4.Place Of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (“DGCL”).

Section 5.Annual Meetings.

(a)The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may properly come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation’s notice of meeting of stockholders (with respect to business other than nominations); (ii) brought specifically by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving the stockholder’s notice provided for in Section 5(b) below, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5. For the avoidance of doubt, clause (iii) above shall be the exclusive means for a stockholder to make nominations and submit other business (other than matters properly included in the corporation’s notice of meeting of stockholders and proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “1934 Act”)) before an annual meeting of stockholders.

1

(b)At an annual meeting of the stockholders, only such business shall be conducted as is a proper matter for stockholder action under Delaware law and as shall have been properly brought before the meeting.

(i)For nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(iii) and must update and supplement such written notice on a timely basis as set forth in Section 5(c). Such stockholder’s notice shall set forth: (A) as to each nominee such stockholder proposes to nominate at the meeting: (1) the name, age, business address and residence address of such nominee, (2) the principal occupation or employment of such nominee, (3) the class and number of shares of each class of capital stock of the corporation which are owned of record and beneficially by such nominee, (4) the date or dates on which such shares were acquired and the investment intent of such acquisition, (5) a statement whether such nominee, if elected, intends to tender, promptly following such person's failure to receive the required vote for election or re-election at the next meeting at which such person would face election or re-election, an irrevocable resignation effective upon acceptance of such resignation by the Board of Directors, and (6) such other information concerning such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved), or that is otherwise required to be disclosed pursuant to Section 14 of the 1934 Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named as a nominee and to serving as a director if elected); and (B) the information required by Section 5(b)(iv). The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such proposed nominee.

(ii)Other than proposals sought to be included in the corporation’s proxy materials pursuant to Rule 14(a)-8 under the 1934 Act, for business other than nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(iii), and must update and supplement such written notice on a timely basis as set forth in Section 5(c). Such stockholder’s notice shall set forth: (A) as to each matter such stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest (including any anticipated benefit of such business to any Proponent (as defined below) other than solely as a result of its ownership of the corporation’s capital stock, that is material to any Proponent individually, or to the Proponents in the aggregate) in such business of any Proponent; and (B) the information required by Section 5(b)(iv).

(iii)To be timely, the written notice required by Section 5(b)(i) or 5(b)(ii) must be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the ninetieth (90^th) day nor earlier than the close of business on the one hundred twentieth (120^th)day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that, subject to the last sentence of this Section 5(b)(iii), in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so received not earlier than the close of business on the one hundred twentieth (120^th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90^th) day prior to such annual meeting or the tenth (10^th) day following the day on which public announcement of the date of such meeting is first made. In no event shall an adjournment or a postponement of an annual meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholder’s notice as described above.

(iv)The written notice required by Section 5(b)(i) or 5(b)(ii) shall also set forth, as of the date of the notice and as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (each, a “Proponent” and collectively, the “Proponents”): (A) the name and address of each Proponent, as they appear on the corporation’s books; (B) the class, series and number of shares of the corporation that are owned beneficially and of record by each Proponent; (C) a description of any agreement, arrangement or understanding (whether oral or in writing) with respect to such nomination or proposal between or

2

among any Proponent and any of its affiliates or associates, and any others (including their names) acting in concert, or otherwise under the agreement, arrangement or understanding, with any of the foregoing; (D) a representation that the Proponents are holders of record or beneficial owners, as the case may be, of shares of the corporation entitled to vote at the meeting and intend to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice (with respect to a notice under Section 5(b)(i)) or to propose the business that is specified in the notice (with respect to a notice under Section 5(b)(ii)); (E) a representation as to whether the Proponents intend to deliver a proxy statement and form of proxy to holders of a sufficient number of holders of the corporation’s voting shares to elect such nominee or nominees (with respect to a notice under Section 5(b)(i)) or to carry such proposal (with respect to a notice under Section 5(b)(ii)); (F) to the extent known by any Proponent, the name and address of any other stockholder supporting the proposal on the date of such stockholder’s notice; and (G) a description of all Derivative Transactions (as defined below) by each Proponent during the previous twelve (12) month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions.

For purposes of Sections 5 and 6, a “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, any Proponent or any of its affiliates or associates, whether record or beneficial:

(w) the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the corporation,

(x)  which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the corporation,

(y)  the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or

(z)  which provides the right to vote or increase or decrease the voting power of, such Proponent, or any of its affiliates or associates, with respect to any securities of the corporation,

which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proponent in the securities of the corporation held by any general or limited partnership, or any limited liability company, of which such Proponent is, directly or indirectly, a general partner or managing member.

(c)A stockholder providing written notice required by Section 5(b)(i) or (ii) shall update and supplement such notice in writing, if necessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of (i) the record date for the meeting and (ii) the date that is five (5) business days prior to the meeting and, in the event of any adjournment or postponement thereof, five (5) business days prior to such adjourned or postponed meeting. In the case of an update and supplement pursuant to clause (i) of this Section 5(c), such update and supplement shall be received by the Secretary at the principal executive offices of the corporation not later than five (5) business days after the record date for the meeting. In the case of an update and supplement pursuant to clause (ii) of this Section 5(c), such update and supplement shall be received by the Secretary at the principal executive offices of the corporation not later than two (2) business days prior to the date for the meeting, and, in the event of any adjournment or postponement thereof, two (2) business days prior to such adjourned or postponed meeting.

(d)Notwithstanding anything in Section 5(b)(iii)to the contrary, in the event that the number of directors in an Expiring Class is increased and there is no public announcement of the appointment of a director to such class, or, if no appointment was made, of the vacancy in such class, made by the corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance withSection 5(b)(iii), a stockholder’s notice required by this Section 5 and which complies with the requirements in Section 5(b)(i), other than the timing requirements in Section 5(b)(iii), shall also be considered timely, but only with respect to nominees for any new positions in such Expiring Class created by such increase, if it shall be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following

3

the day on which such public announcement is first made by the corporation. For purposes of this section, an “Expiring Class” shall mean a class of directors whose term shall expire at the next annual meeting of stockholders.

(e)A person shall not be eligible for election or re-election as a director unless the person is nominated either in accordance with clause (ii) of Section 5(a), or in accordance with clause (iii) of Section 5(a). Except as otherwise required by law, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, or the Proponent does not act in accordance with the representations in Sections 5(b)(iv)(D) and 5(b)(iv)(E), to declare that such proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded, notwithstanding that proxies in respect of such nominations or such business may have been solicited or received.

(f)Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders’ meeting, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to proposals and/or nominations to be considered pursuant to Section 5(a)(iii) of these Bylaws.

(g)For purposes of Sections 5 and 6,

(i)“public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act; and

(ii)“affiliates” and “associates” shall have the meanings set forth in Rule 405 under the Securities Act of 1933, as amended (the “1933 Act”).

Section 6.Special Meetings.

(a)Special meetings of the stockholders of the corporation may be called, for any purpose as is a proper matter for stockholder action under Delaware law, by (i) the Chairperson of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).

(b)The Board of Directors shall determine the time and place, if any, of such special meeting. Upon determination of the time and place, if any, of the meeting, the Secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. No business may be transacted at such special meeting otherwise than specified in the notice of meeting.

(c)Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in this paragraph, who shall be entitled to vote at the meeting and who delivers written notice to the Secretary of the corporation setting forth the information required by Section 5(b)(i). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder of record may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation’s notice of meeting, if written notice setting forth the information required by Section 5(b)(i) of these Bylaws shall be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the later of the ninetieth (90^th) day prior to such meeting or the tenth (10^th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The stockholder shall also update and supplement such information as required under Section 5(c). In no event shall an adjournment or a postponement of

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a special meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholder’s notice as described above.

(d)Notwithstanding the foregoing provisions of this Section 6, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder with respect to matters set forth in this Section 6. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable tonominations for the election to the Board of Directors to be considered pursuant to Section 6(c) of these Bylaws.

Section 7.Notice Of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

Section 8.Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairperson of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute or by applicable stock exchange rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.

Section 9.Adjournment And Notice Of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairperson of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is

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fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 10.Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to voteshall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.

Section 11.Joint Owners Of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.

Section 12.List Of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.

Section 13.Action Without Meeting. No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent or by electronic transmission.

Section 14.Organization.

(a)At every meeting of stockholders, the Chairperson of the Board of Directors, or, if a Chairperson has not been appointed or is absent, the Chief Executive Officer, or if no Chief Executive Officer is then serving or is absent, the President, or, if the President is absent, a chairperson of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairperson. The Chairperson of the Board may appoint the Chief Executive Officer as chairperson of the meeting. The Secretary, or, in his or her absence, an Assistant Secretary or other officer or other person directed to do so by the chairperson of the meeting, shall act as secretary of the meeting.

(b)The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairperson of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairperson shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the

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time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

ARTICLE IV

DIRECTORS

Section 15.Number And Term Of Office. The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.

Section 16.Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.

Section 17.Term of Office. The term of office of each director shall be as provided in the Certificate of Incorporation.

Section 18.Vacancies. Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock or as otherwise provided by applicable law, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, and not by the stockholders, provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.

Section 19.Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time. If no such specification is made, the Secretary, in his or her discretion, may either (a) require confirmation from the director prior to deeming the resignation effective, in which case the resignation will be deemed effective upon receipt of such confirmation, or (b) deem the resignation effective at the time of delivery of the resignation to the Secretary. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.

Section 20.Removal.

(a)Subject to the rights of holders of any series of Preferred Stock to elect additional directors under specified circumstances, for so long as the Board of Directors is classified, neither the Board of Directors nor any individual director may be removed without cause.

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(b)Subject to any limitation imposed by law, any individual director or directors may be removed with cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors, voting together as a single class.

Section 21.Meetings.

(a)Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors.

(b)Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairperson of the Board, the Chief Executive Officer or a majority of the total number of authorized directors.

(c)Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

(d)Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

(e)Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though it had been transacted at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 22.Quorum And Voting.

(a)Unless the Certificate of Incorporation requires a greater number, and except with respect to questions related to indemnification arising under Section 44 for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

(b)At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.

Section 23.Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the

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case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 24.Fees And Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.

Section 25.Committees.

(a)Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any Bylaw of the corporation.

(b)Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.

(c)Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Section 25, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

(d)Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any Directorwho is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized

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number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

Section 26.Duties of Chairperson of the Board of Directors. The Chairperson of the Board of Directors, if appointed and when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairperson of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.

Section 27.Organization. At every meeting of the directors, the Chairperson of the Board of Directors, or, if a Chairperson has not been appointed or is absent, the Chief Executive Officer (if a director), or, if a Chief Executive Officer is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairperson of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary or other officer, director or other person directed to do so by the person presiding over the meeting, shall act as secretary of the meeting.

ARTICLE V

OFFICERS

Section 28.Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer and the Treasurer. The Board of Directors may also appoint one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.

Section 29.Tenure And Duties Of Officers.

(a)General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

(b)Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors (if a director), unless the Chairperson of the Board of Directors has been appointed and is present. Unless an officer has been appointed Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. To the extent that a Chief Executive Officer has been appointed and no President has been appointed, all references in these Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.

(c)Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors (if a director), unless the Chairperson of the Board of Directors or the Chief Executive Officer has been appointed and is present. Unless another officer has been appointed Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation.The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.

(d)Duties of Vice Presidents. A Vice President may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. A Vice President

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shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or, if the Chief Executive Officer has not been appointed or is absent, the President shall designate from time to time.

(e)Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The Chief Executive Officer, or if no Chief Executive Officer is then serving, the President may direct any Assistant Secretary or other officer to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President shall designate from time to time.

(f)Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President shall designate from time to time. To the extent that a Chief Financial Officer has been appointed and no Treasurer has been appointed, all references in these Bylaws to the Treasurer shall be deemed references to the Chief Financial Officer. The President may direct the Treasurer, if any, or any Assistant Treasurer, or the controller or any assistant controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each controller and assistant controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President shall designate from time to time.

(g)Duties of Treasurer. Unless another officer has been appointed Chief Financial Officer of the corporation, the Treasurer shall be the chief financial officer of the corporation and shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, and, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation.The Treasurer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President and Chief Financial Officer (if not Treasurer) shall designate from time to time.

Section 30.Delegation Of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.

Section 31.Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.

Section 32.Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or by the Chief Executive Officer or by other superior officers upon whom such power of removal may have been conferred by the Board of Directors.

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ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION

Section 33.Execution Of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.

All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.

Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

Section 34.Voting Of Securities Owned By The Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairperson of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.

ARTICLE VII

SHARES OF STOCK

Section 35.Form And Execution Of Certificates. The shares of the corporation shall be represented by certificates, or shall be uncertificated if so provided by resolution or resolutions of the Board of Directors. Certificates for the shares of stock, if any, shall be in such formas is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation represented by certificateshall be entitled to have a certificate signed by or in the name of the corporation by the Chairperson of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

Section 36.Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

Section 37.Transfers.

(a)Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.

(b)The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of

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stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

Section 38.Fixing Record Dates.

(a)In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b)In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 39.Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

Section 40.Execution Of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 35), may be signed by the Chairperson of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.

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ARTICLE IX

DIVIDENDS

Section 41.Declaration Of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.

Section 42.Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE X

FISCAL YEAR

Section 43.Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

ARTICLE XI

INDEMNIFICATION

Section 44.Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.

(a)Directors and executive officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, “executive officers” shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d).

(b)Other Officers, Employees and Other Agents. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except executive officers to such officers or other persons as the Board of Directors shall determine.

(c)Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or executive officer in his or her capacity as a director or executive officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an “undertaking”), by or on

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behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this section or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this section, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.

(d)Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this section to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. To the extent permitted by law, the claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this section or otherwise shall be on the corporation.

(e)Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.

(f)Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or executive officer or officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

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(g)Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this section.

(h)Amendments. Any repeal or modification of this section shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.

(i)Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this section that shall not have been invalidated, or by any other applicable law. If this section shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under any other applicable law.

(j)Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:

(i)The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.

(ii)The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.

(iii)The term the “corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

(iv)References to a “director,” “executiveofficer,” “officer,” “employee,” or “agent” of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.

(v)References to “otherenterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this section.

ARTICLE XII

NOTICES

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Section 45.Notices.

(a)Notice To Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by US mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.

(b)Notice To Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in these Bylaws with notice other than one which is delivered personally to be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known address of such director.

(c)Affidavit Of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.

(d)Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

(e)Notice To Person With Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

(f)Notice to Stockholders Sharing an Address. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within sixty (60) days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation.

ARTICLE XIII

AMENDMENTS

Section 46.Subject to the limitations set forth in Section 44(h) of these Bylaws or the provisions of the Certificate of Incorporation, the Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation. Any adoption, amendment or repeal of the Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders also shall have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the Requisite Holders. As used herein, “Requisite Holders” shall mean (i) prior to June 30, 2022, the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class and (ii) on or following June 30, 2022, the

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holders of majority of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.

ARTICLE XIV

LOANS TO OFFICERS

Section 47.Loans To Officers. Except as otherwise prohibited by applicable law, the corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.

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EX-10.4

Exhibit 10.4

FIRST AMENDMENT AGREEMENT

This FIRST AMENDMENT AGREEMENT (this “Amendment”) is made as of the 29th day of May, 2020 among:

(a)RAPID7, INC., a Delaware corporation (“Rapid7, Inc.”);

(b)RAPID7 LLC, a Delaware limited liability company (“Rapid7 LLC” and, together with Rapid7 Inc., collectively, the “Borrowers” and, individually, each a “Borrower”);

(c)the Lenders, as defined in the Credit Agreement, as hereinafter defined; and

(d)KEYBANK NATIONAL ASSOCIATION, a national banking association, as the administrative agent for the Lenders under the Credit Agreement (the “Administrative Agent”).

WHEREAS, the Borrowers, the Administrative Agent and the Lenders are parties to that certain Credit and Security Agreement, dated as of April 23, 2020, that provides, among other things, for loans and letters of credit, all upon certain terms and conditions (as the same may from time to time be amended, restated or otherwise modified, the “Credit Agreement”);

WHEREAS, pursuant to Section 2.9(b) of the Credit Agreement, the Maximum Revolving Amount is being increased by Twenty Million Dollars ($20,000,000) (the “Partial Exercise of Accordion”);

WHEREAS, the Borrowers, the Administrative Agent and the Lenders desire to amend the Credit Agreement to effectuate the Partial Exercise of Accordion;

WHEREAS, each capitalized term used herein and defined in the Credit Agreement, but not otherwise defined herein, shall have the meaning given such term in the Credit Agreement; and

WHEREAS, unless otherwise specifically provided herein, the provisions of the Credit Agreement revised herein are amended effective as of the date of this Amendment;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrowers, the Administrative Agent and the Lenders agree as follows:

1.Amendment to Definitions in the Credit Agreement. Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of “Revolving Amount” and “Total Commitment Amount” therefrom and to insert in place thereof, respectively, the following:

“Revolving Amount” means Fifty Million Dollars ($50,000,000), as such amount may be increased pursuant to Section 2.9(b) hereof or reduced pursuant to Section 2.9(a) hereof.

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“Total Commitment Amount” means the principal amount of Fifty Million Dollars ($50,000,000), as such amount may be increased pursuant to Section 2.9(b) hereof, or decreased pursuant to Section 2.9(a) hereof.

2.Amendment to Financial Covenant Provisions. Section 5.7 of the Credit Agreement is hereby amended to delete subsection (a) therefrom and to insert in place thereof the following:

(a)Available Liquidity. The Borrowers shall not permit at any time from and after the date on which Indebtedness is incurred pursuant to Section 5.8(i) hereof, Available Liquidity to be less than Fifty Million Dollars ($50,000,000.00).

3.Amendment to Schedule 1. The Credit Agreement is hereby amended to delete Schedule 1 (Commitments of Lenders) therefrom and to insert in place thereof a new Schedule 1 in the form of Schedule 1 hereto.

4.Closing Deliveries. On or prior to the execution of this Amendment, the Borrowers shall:

(a)deliver to the Administrative Agent, for delivery to City National Bank, a new Revolving Credit Note in the amount specified in Schedule 1 to the Credit Agreement (after giving effect to this Amendment);

(b)deliver to the Administrative Agent an opinion of counsel for each Credit Party, in form and substance reasonably satisfactory to the Administrative Agent and the Lenders;

(c)execute and deliver to the Administrative Agent the First Amendment Fee Letter and pay to the Administrative Agent the fees stated therein; and

(d)pay all reasonable and documented legal fees and expenses of the Administrative Agent in connection with this Amendment and any other Loan Documents.

5.Reallocation of Outstanding Amounts. On May 29, 2020 (the “First Amendment Effective Date”), the Lenders shall make adjustments among themselves with respect to the Loans then outstanding and amounts of principal with respect thereto as shall be necessary, in the opinion of the Administrative Agent, in order to reallocate among such Lenders such outstanding amounts based on the revised Commitments as set forth in the revised Schedule 1 hereto.

6.City National Bank as a Lender. By executing this Amendment, City National Bank (“City National Bank”) represents and warrants to the Borrowers, the Administrative Agent and the Lenders that (a) it is able to fund the Loans and participate in the Letters of Credit as required by the Credit Agreement; (b) it will perform, in accordance with their terms, all of the obligations which by the terms of the Credit Agreement and the other Loan Documents are required to be performed by it as a Lender thereunder; and (c) it has reviewed each of the Loan

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Documents. City National Bank appoints the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof. On the First Amendment Effective Date, after execution of this Amendment, City National Bank shall become and thereafter be deemed to be a “Lender” for the purposes of the Credit Agreement and the other Loan Documents, and shall be bound thereby as if it were an original signatory thereto. All notices, requests, demands and other communications provided for under the Credit Agreement to City National Bank, mailed or delivered to it, shall be addressed to it at the address specified on the signature pages of this Amendment, or at such other address as shall be designated by City National Bank in a written notice to each of the other parties.

7.Representations and Warranties. The Borrowers hereby represent and warrant to the Administrative Agent and the Lenders that (a) the Borrowers have the legal power and authority to execute and deliver this Amendment; (b) the officers executing this Amendment have been duly authorized to execute and deliver the same and bind the Borrowers with respect to the provisions hereof; (c) the execution and delivery hereof by the Borrowers and the performance and observance by the Borrowers of the provisions hereof do not violate or conflict with the Organizational Documents of the Borrowers or any law applicable to the Borrowers or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against the Borrowers; (d) no Default or Event of Default exists, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof; (e) each of the representations and warranties contained in the Loan Documents is true and correct in all material respects as of the First Amendment Effective Date as if made on the First Amendment Effective Date, except to the extent that any such representation or warranty expressly states that it relates to an earlier date (in which case such representation or warranty is true and correct in all material respects as of such earlier date); (f) the Borrowers are not aware of any claim or offset against, or defense or counterclaim to, the Borrowers’ obligations or liabilities under the Credit Agreement or any other Loan Document; and (g) this Amendment constitutes a valid and binding obligation of the Borrowers in every respect, enforceable in accordance with its terms.

8.References to Credit Agreement and Ratification. Each reference to the Credit Agreement that is made in the Credit Agreement and the other Loan Documents shall hereafter be construed as a reference to the Credit Agreement as amended hereby. Except as otherwise specifically provided herein, all terms and provisions of the Credit Agreement are confirmed and ratified and shall remain in full force and effect and be unaffected hereby. This Amendment is a Loan Document.

9.Counterparts. This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile or other electronic signature, each of which, when so executed and delivered, shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

10.Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

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11.Severability. Any provision of this Amendment that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

12.Governing Law. The rights and obligations of all parties hereto shall be governed by the laws of the State of New York.

[Remainder of page intentionally left blank.]

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JURY TRIAL WAIVER. THE BORROWERS, THE ADMINISTRATIVE AGENT AND THE LENDERS, TO THE EXTENT PERMITTED BY LAW, EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE BORROWERS, THE ADMINISTRATIVE AGENT AND THE LENDERS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first set forth above.

RAPID7, INC.

By: /s/Jeffrey Kalowski

Jeffrey Kalowski

Chief Financial Officer

RAPID7 LLC

By: Rapid7, Inc., its sole member

By: /s/Jeffrey Kalowski

  Jeffrey Kalowski

Chief Financial Officer

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Signature Page to

First Amendment Agreement

            KEYBANK NATIONAL ASSOCIATION

             As the Administrative Agent and as a Lender

By: /s/Thomas A. Crandell

Thomas A. Crandell

Senior Vice President

            CITI NATIONAL BANK

            Address: 200 Clarendon Street, 48^th Floor

            Boston, MA 02116

Attention: James Demoy

By: /s/James Demoy

James Demoy

Senior Vice President

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SCHEDULE 1

COMMITMENTS OF LENDERS

LENDERS	REVOLVING CREDIT COMMITMENT PERCENTAGE	REVOLVING CREDIT COMMITMENT AMOUNT	MAXIMUM AMOUNT
KeyBank National Association	60%	$30,000,000	$30,000,000
City National Bank	40%	$20,000,000	$20,000,000
Total Commitment Amount	100%	$50,000,000	$50,000,000

S-1

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Corey E. Thomas, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Rapid7, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2020	By:	/s/ Corey E. Thomas
		Name:  Corey E. Thomas
		Title:    Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeff Kalowski, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Rapid7, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2020	By:	/s/ Jeff Kalowski
		Name:  Jeff Kalowski
		Title:    Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Corey E. Thomas, Chief Executive Officer of Rapid7, Inc., do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, the Quarterly Report on Form 10-Q of Rapid7, Inc. for the quarter ended June 30, 2020 (the “Report”):

(1)fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Rapid7, Inc. for the period presented herein.

Date: August 10, 2020	By:	/s/ Corey E. Thomas
		Name:  Corey E. Thomas
		Title:    Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeff Kalowski, Chief Financial Officer of Rapid7, Inc., do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, the Quarterly Report on Form 10-Q of Rapid7, Inc. for the quarter ended June 30, 2020 (the “Report”):

(1)fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Rapid7, Inc. for the period presented herein.

Date: August 10, 2020	By:	/s/ Jeff Kalowski
		Name:  Jeff Kalowski
		Title:    Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

XML

Cover Page - shares	6 Months Ended
	Jun. 30, 2020	Jul. 31, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2020
Document Transition Report	false
Entity File Number	001-37496
Entity Registrant Name	RAPID7, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	35-2423994
Entity Address, Address Line One	120 Causeway Street
Entity Address, City or Town	Boston,
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	02114
City Area Code	617
Local Phone Number	247-1717
Title of 12(b) Security	Common Stock, $0.01 par value per share
Trading Symbol	RPD
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		51,006,114
Entity Central Index Key	0001560327
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 279,343	$ 123,413
Short-term investments	36,313	116,158
Accounts receivable, net of allowance for doubtful accounts of $2,608 and $1,829 at June 30, 2020 and December 31, 2019, respectively	76,823	87,927
Deferred contract acquisition and fulfillment costs, current portion	18,439	17,047
Prepaid expenses and other current assets	20,708	20,051
Total current assets	431,626	364,596
Long-term investments	5,365	22,887
Property and equipment, net	48,904	50,670
Operating lease right-of-use assets	72,005	60,984
Deferred contract acquisition and fulfillment costs, non-current portion	35,815	34,213
Goodwill	213,686	97,866
Intangible assets, net	47,706	28,561
Other assets	5,304	5,136
Total assets	860,411	664,913
Current liabilities:
Accounts payable	7,078	6,836
Accrued expenses	36,165	41,021
Operating lease liabilities, current portion	9,436	7,179
Deferred revenue, current portion	227,318	231,518
Other current liabilities	0	119
Total current liabilities	279,997	286,673
Convertible senior notes, net	368,161	185,200
Operating lease liabilities, non-current portion	80,081	72,294
Deferred revenue, non-current portion	33,280	36,226
Other long-term liabilities	8,204	1,352
Total liabilities	769,723	581,745
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized at June 30, 2020 and December 31, 2019; 0 shares issued at June 30, 2020 and December 31, 2019	0	0
Common stock, $0.01 par value per share; 100,000,000 shares authorized at June 30, 2020 and December 31, 2019; 51,438,042 and 50,397,922 shares issued at June 30, 2020 and December 31, 2019, respectively; 50,951,234 and 49,911,114 shares outstanding at June 30, 2020 and December 31, 2019, respectively	509	499
Treasury stock, at cost, 486,808 shares at June 30, 2020 and December 31, 2019	(4,764)	(4,764)
Additional paid-in-capital	657,678	605,650
Accumulated other comprehensive income	85	213
Accumulated deficit	(562,820)	(518,430)
Total stockholders’ equity	90,688	83,168
Total liabilities and stockholders’ equity	$ 860,411	$ 664,913

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Net of allowance for doubtful accounts	$ 2,608	$ 1,829
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	51,438,042	50,397,922
Common stock, shares outstanding (in shares)	50,951,234	49,911,114
Treasury stock, shares (in shares)	486,808	486,808

XML

Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenue:
Total revenue	$ 98,912	$ 78,959	$ 193,252	$ 152,144
Cost of revenue:
Total cost of revenue	29,081	22,181	56,795	42,154
Total gross profit	69,831	56,778	136,457	109,990
Operating expenses:
Research and development	26,120	19,626	50,322	37,491
Sales and marketing	44,959	38,172	93,104	73,310
General and administrative	14,484	11,160	28,583	21,113
Total operating expenses	85,563	68,958	172,009	131,914
Loss from operations	(15,732)	(12,180)	(35,552)	(21,924)
Other income (expense), net:
Interest income	208	1,582	1,256	3,313
Interest expense	(5,917)	(3,312)	(9,379)	(6,541)
Other income (expense), net	210	(29)	(237)	(235)
Loss before income taxes	(21,231)	(13,939)	(43,912)	(25,387)
Provision for (benefit from) income taxes	235	(519)	478	(294)
Net loss	$ (21,466)	$ (13,420)	$ (44,390)	$ (25,093)
Net loss per share, basic and diluted (in dollars per share)	$ (0.42)	$ (0.28)	$ (0.88)	$ (0.52)
Weighted-average common shares outstanding, basic and diluted (in shares)	50,695,706	48,451,562	50,411,508	48,141,474
Products [Member]
Revenue:
Total revenue	$ 92,430	$ 72,579	$ 179,979	$ 138,424
Cost of revenue:
Total cost of revenue	23,118	16,637	44,373	31,006
Professional Services [Member]
Revenue:
Total revenue	6,482	6,380	13,273	13,720
Cost of revenue:
Total cost of revenue	$ 5,963	$ 5,544	$ 12,422	$ 11,148

XML

Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Comprehensive Income [Abstract]
Net loss	$ (21,466)	$ (13,420)	$ (44,390)	$ (25,093)
Other comprehensive income (loss):
Change in fair value of investments	128	189	(107)	382
Adjustments for net losses (gains) realized and included in net loss	35	0	(21)	0
Total change in unrealized gains (losses) on investments	163	189	(128)	382
Comprehensive loss	$ (21,303)	$ (13,231)	$ (44,518)	$ (24,711)

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Gain (Loss) [Member]	Accumulated Deficit [Member]
Beginning balance (in shares) at Dec. 31, 2018		47,600	487
Beginning balance at Dec. 31, 2018	$ 87,319	$ 476	$ (4,764)	$ 556,223	$ (31)	$ (464,585)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense	19,064			19,064
Issuance of common stock under employee stock purchase plan (in shares)		111
Issuance of common stock under employee stock purchase plan	2,634	$ 1		2,633
Vesting of restricted stock units (in shares)		595
Vesting of restricted stock units	0	$ 6		(6)
Shares withheld for employee taxes (in shares)		(58)
Shares withheld for employee taxes	(2,839)	$ (1)		(2,838)
Issuance of common stock upon exercise of stock options (in shares)		550
Issuance of common stock upon exercise of stock options	6,057	$ 6		6,051
Net unrealized gain (loss) on investments	382				382
Net loss	(25,093)					(25,093)
Ending balance (in shares) at Jun. 30, 2019		48,798	487
Ending balance at Jun. 30, 2019	87,524	$ 488	$ (4,764)	581,127	351	(489,678)
Beginning balance (in shares) at Mar. 31, 2019		48,158	487
Beginning balance at Mar. 31, 2019	88,851	$ 482	$ (4,764)	569,229	162	(476,258)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense	10,430			10,430
Vesting of restricted stock units (in shares)		351
Vesting of restricted stock units	0	$ 3		(3)
Shares withheld for employee taxes (in shares)		(36)
Shares withheld for employee taxes	(1,859)	$ (1)		(1,858)
Issuance of common stock upon exercise of stock options (in shares)		325
Issuance of common stock upon exercise of stock options	3,333	$ 4		3,329
Net unrealized gain (loss) on investments	189				189
Net loss	(13,420)					(13,420)
Ending balance (in shares) at Jun. 30, 2019		48,798	487
Ending balance at Jun. 30, 2019	87,524	$ 488	$ (4,764)	581,127	351	(489,678)
Beginning balance (in shares) at Dec. 31, 2019		49,911	487
Beginning balance at Dec. 31, 2019	83,168	$ 499	$ (4,764)	605,650	213	(518,430)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense	28,829			28,829
Issuance of common stock under employee stock purchase plan (in shares)		102
Issuance of common stock under employee stock purchase plan	3,346	$ 1		3,345
Vesting of restricted stock units (in shares)		723
Vesting of restricted stock units	0	$ 7		(7)
Shares withheld for employee taxes (in shares)		(69)
Shares withheld for employee taxes	(3,450)			(3,450)
Issuance of common stock upon exercise of stock options (in shares)		285
Issuance of common stock upon exercise of stock options	3,733	$ 2		3,731
Net unrealized gain (loss) on investments	(128)				(128)
Equity component of convertible senior notes, net	46,835			46,835
Purchase of capped calls related to convertible senior notes	(27,255)			(27,255)
Net loss	(44,390)					(44,390)
Ending balance (in shares) at Jun. 30, 2020		50,952	487
Ending balance at Jun. 30, 2020	90,688	$ 509	$ (4,764)	657,678	85	(562,820)
Beginning balance (in shares) at Mar. 31, 2020		50,419	487
Beginning balance at Mar. 31, 2020	76,300	$ 504	$ (4,764)	621,992	(78)	(541,354)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense	15,864			15,864
Vesting of restricted stock units (in shares)		415
Vesting of restricted stock units	0	$ 4		(4)
Shares withheld for employee taxes (in shares)		(42)
Shares withheld for employee taxes	(1,917)			(1,917)
Issuance of common stock upon exercise of stock options (in shares)		160
Issuance of common stock upon exercise of stock options	2,164	$ 1		2,163
Net unrealized gain (loss) on investments	163				163
Equity component of convertible senior notes, net	46,835			46,835
Purchase of capped calls related to convertible senior notes	(27,255)			(27,255)
Net loss	(21,466)					(21,466)
Ending balance (in shares) at Jun. 30, 2020		50,952	487
Ending balance at Jun. 30, 2020	$ 90,688	$ 509	$ (4,764)	$ 657,678	$ 85	$ (562,820)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities:
Net loss	$ (44,390)	$ (25,093)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	10,419	7,371
Amortization of debt discount and issuance costs	7,007	5,104
Stock-based compensation expense	29,793	19,064
Provision for doubtful accounts	1,008	1,353
Deferred income taxes	0	(761)
Foreign currency re-measurement loss	199	191
Other non-cash (income) expense	(147)	(1,290)
Changes in operating assets and liabilities:
Accounts receivable	10,835	4,549
Deferred contract acquisition and fulfillment costs	(2,994)	(3,172)
Prepaid expenses and other assets	1,773	(9,334)
Accounts payable	137	2,184
Accrued expenses	(7,437)	(7,312)
Deferred revenue	(11,996)	(5,066)
Other liabilities	(980)	1,129
Net cash used in operating activities	(6,773)	(11,083)
Cash flows from investing activities:
Business acquisition, net of cash acquired	(125,771)	(14,621)
Purchases of property and equipment	(3,955)	(17,712)
Capitalization of internal-use software costs	(2,948)	(3,152)
Purchases of investments	(49,259)	(72,432)
Sales/maturities of investments	146,599	140,302
Net cash (used in) provided by investing activities	(35,334)	32,385
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs paid of $6,500	223,500	0
Purchase of capped calls related to convertible senior notes	(27,255)	0
Payments of debt issuance costs	(248)	0
Taxes paid related to net share settlement of equity awards	(3,450)	(2,839)
Proceeds from employee stock purchase plan	3,346	2,634
Proceeds from stock option exercises	3,728	6,058
Net cash provided by financing activities	199,621	5,853
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(301)	(151)
Net increase in cash, cash equivalents and restricted cash	157,213	27,004
Cash, cash equivalents and restricted cash, beginning of period	123,413	99,565
Cash, cash equivalents and restricted cash, end of period	280,626	126,569
Supplemental cash flow information:
Cash paid for interest on convertible senior notes	1,438	1,342
Cash paid for income taxes, net of refunds	135	319
Non-cash investing activities:
Leasehold improvements acquired through tenant improvement allowance	0	14,016
Reconciliation of cash, cash equivalents and restricted cash:
Total cash, cash equivalents and restricted cash	$ 280,626	$ 126,569

XML

Consolidated Statements of Cash Flows (Unaudited) (Parenthetical) $ in Thousands	6 Months Ended
	Jun. 30, 2020 USD ($)
Statement of Cash Flows [Abstract]
Issuance costs, convertible debt	$ 6,500

XML

Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies

Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies

Description of Business

Rapid7, Inc. and subsidiaries (we, us or our) is advancing security with visibility, analytics, and automation delivered through our Insight Platform. 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 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 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, 2019 filed with the SEC on February 28, 2020.

The consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the determination of the estimated economic life of perpetual licenses for revenue recognition, the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition and fulfillment costs, the useful lives of long-lived assets, the valuation of allowance for doubtful accounts, the valuation of stock-based compensation, the valuation of intangible assets acquired in a business combination, 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.

The COVID-19 pandemic is expected to result in a sustained global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, including from our customers. We currently expect our operational and financial performance to be negatively impacted by the slowdown in activity associated with the COVID-19 pandemic for the quarters ending September 30, 2020 and December 31, 2020 and the year ending December 31, 2020 and beyond. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, assumptions and judgments or revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained and will be recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.

Reclassification

Prior to the fiscal year beginning January 1, 2020, we have presented revenue on our consolidated statement of operations as products, maintenance and support and professional services revenue. For the three and six months ended June 30, 2020, we have combined products and maintenance and support revenue as products revenue on our consolidated statement of operations as our customers continue to migrate from our on-premise products to our SaaS Insight Platform. Given this continued migration, we believe it is more relevant to categorize maintenance and support revenue together as products revenue. Prior periods have been adjusted to conform with this presentation.

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, 2019. There have been no changes to the significant accounting policies during the three and six-month periods ended June 30, 2020.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard on January 1, 2020 using the prospective adoption approach. The impact to our consolidated financial statements as a result of the adoption was not material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, modifies and adds disclosure requirements for fair value measurements. We adopted this standard on January 1, 2020 and there was no impact to our consolidated financial statements as a result of the adoption.

Accounting Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates. We may elect to apply the amendments prospectively through December 31, 2022. The impact to our consolidated financial statements from the adoption of this standard is expected to be immaterial.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. The new standard will be effective for us in the first quarter of 2021, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently assessing the impact of adopting this standard but do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

XML

Revenue from Contracts with Customers

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

Revenue from Contracts with CustomersWe generate products revenue from the sale of (1) cloud-based subscriptions for our InsightIDR, InsightVM, InsightAppSec and InsightConnect products, (2) managed services offerings which utilize our products and (3) term or perpetual software licenses for our Nexpose, Metasploit, AppSpider and DivvyCloud products, and associated content subscriptions for our Nexpose and Metasploit products. We also generate appliance revenue that is included in our products revenue and is associated with hardware sold with our Nexpose product to certain customers. We generate maintenance and support revenue that is included in our products revenue and is associated with customers’ purchases of our software licenses for Nexpose, Metasploit and AppSpider products. We generate professional service revenue from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services. Our deployment services educate and assist our customers on the best use and best practices to deploy our solutions.

The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Subscription revenue	$	72,796	$	52,309	$	141,421	$	99,278
Term and perpetual software licenses	11,281		10,315		21,552		18,991
Maintenance and support	8,150		9,372		16,572		18,929
Professional services	6,482		6,380		13,273		13,720
Other	203		583		434		1,226
Total revenue	$	98,912	$	78,959	$	193,252	$	152,144

Subscription Revenue

Subscription revenue consists of revenue from our cloud-based subscription, managed services offerings and content subscriptions 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.

•Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period.

Term and Perpetual Software Licenses

For our perpetual software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, the content subscription renewal options result in a material right with respect to the perpetual software license. As a result, the revenue attributable to the perpetual software license is recognized ratably over the customer’s estimated economic life of five years, which represents a longer period of time in comparison to the initial contractual period of maintenance and support. The estimated economic life of five years represents the period which the customer is expected to benefit from the material right. We estimated this period of benefit by taking into consideration several factors, including the terms and conditions of our customer contracts and renewals and the expected useful life of our technology.

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 arrangement as a material right does not exist.

For our term and perpetual software licenses, which are not dependent on the continued delivery of content subscriptions, the license is considered distinct from the maintenance and support, and we therefore recognize revenue attributable to the license at the time of delivery.

Maintenance and support services are sold with our perpetual and term software licenses. As maintenance and support services are distinct from the perpetual and term software license, revenue attributable to maintenance and support services is recognized ratably over the contractual period.

Professional Services

All of our professional services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For the majority of these contracts, revenue is recognized over time based upon the proportion of work performed to date.

Other

Other revenue primarily includes revenue from delivery of appliances and other miscellaneous revenue.

Contracts with Multiple Performance Obligations

The majority of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP) basis. We determine SSP of our products and services based on our overall pricing objectives using all information reasonably available to us, taking into consideration market conditions and other factors, including the geographic locations of our customers, negotiated discounts from price lists and selling method (i.e., partner or direct). When available, we use directly observable stand-alone transactions to determine SSP. When not regularly sold on a stand-alone basis, we estimate SSP for our products and services utilizing historical sales data, including discounts from list price. The historical data is aggregated and analyzed by geographic location and selling method to establish a median or average price. Once SSP is established it is applied consistently to all transactions including that product or service utilizing a portfolio approach.

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period consistent with the above methodology. For the three months ended June 30, 2020 and 2019, we recognized revenue of $84.8 million and $66.6 million, respectively, and for the six months ended June 30, 2020 and 2019, we recognized $149.3 million and $117.2 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

We receive payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced. If the right to consideration is based on satisfaction of another performance obligation in the contract other than the passage of time, we record a contract asset. As of June 30, 2020 and December 31, 2019, unbilled receivables of $1.5 million and $0.8 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet. As of June 30, 2020 and December 31, 2019, we had no contract assets recorded on our 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 June 30, 2020. The estimated revenues do not include unexercised contract renewals.

	Next Twelve Months		Thereafter
	(in thousands)
Subscription revenue	$	189,769	$	37,159
Term and perpetual software licenses	30,151		15,613
Maintenance and support	18,784		3,520
Professional services	11,357		—

The amounts presented in the table above primarily consist of fixed fees, which are typically recognized ratably as the performance obligation is satisfied.

Deferred Contract Acquisition and Fulfillment Costs

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,
	2020		2019
	(in thousands)
Beginning balance	$	51,260	$	39,955
Capitalization of contract acquisition and fulfillment costs	12,378		10,067
Amortization of deferred contract acquisition and fulfillment costs	(9,384)		(6,896)
Ending balance	$	54,254	$	43,126

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Business Combinations

6 Months Ended

Jun. 30, 2020

Business Combinations [Abstract]

Business Combinations

Business Combinations

Divvy Cloud Corporation

On May 1, 2020, we acquired Divvy Cloud Corporation (DivvyCloud), a Cloud Security Posture Management (CSPM) company, for a purchase price with an aggregate fair value of $137.8 million. The purchase consideration consisted of $130.8 million in cash paid at closing, $7.4 million in deferred cash payments and $0.1 million in estimated working capital and other purchase price adjustments. The deferred cash payments will be held by Rapid7 to satisfy indemnification obligations and certain post-closing purchase price adjustments. The deferred cash payments for post-closing purchase price adjustments is payable three months from the acquisition date in the amount of $0.2 million and the remaining $7.2 million is payable on the fifteenth month anniversary of the acquisition date. We have determined the fair value of the deferred cash payments was $7.0 million as of the acquisition date. In addition, in connection with the acquisition, we will issue an aggregate of 200,596

shares of Rapid7’s common stock to the founders of DivvyCloud in three equal annual installments beginning on the first anniversary of the closing date. The 200,596 shares of common stock were accounted for as stock-based compensation expense as continued service was required. The fair value of the 200,596 shares of common stock was $8.9 million. In the three and six months ended June 30, 2020, we recognized stock-based compensation expense related to such shares in the amount of $0.5 million. In the three and six months ended June 30, 2020, we recorded $0.8 million and $1.1 million, respectively, of acquisition-related costs in general and administrative expense.

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	$	130,810
Deferred cash consideration	6,963
Estimated working capital and other purchase price adjustments	68
Fair value of total consideration transferred	$	137,841
Recognized amounts of identifiable assets and liabilities assumed:
Cash and cash equivalents	$	5,039
Accounts receivable, net	904
Prepaid expenses and other current assets	810
Property and equipment, net	492
Operating lease right-of-use assets	3,320
Accounts payable	(288)
Accrued expenses	(1,308)
Operating lease liabilities, current portion	(313)
Deferred revenue, current portion	(3,491)
Operating lease liabilities, non-current portion	(2,984)
Deferred revenue, non-current portion	(1,360)
Intangible assets	21,200
Total identifiable net assets assumed	$	22,021
Goodwill	115,820
Net purchase price	$	137,841

The fair value of identifiable intangible assets was based on valuations using the income approach. The estimated fair value and useful life of identifiable intangible assets are as follows:

	Amount		Weighted Average Life
	(in thousands)		(in years)
Developed technology	$	18,600	6
Customer relationships	1,700		6
Trade name	900		5
Total identifiable intangible assets	$	21,200

The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill. We believe the goodwill is attributable to expanded product offerings resulting from the integration of the technology acquired with our existing product offerings and increased opportunities to successfully market and sell these new products and features to our customer base. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible assets were not deductible for tax purposes.

These preliminary amounts are subject to subsequent adjustment as we obtain additional information to finalize certain components of working capital.

Following the acquisition, we granted to certain retained employees of DivvyCloud restricted stock units (RSUs) for an aggregate of 153,643 shares of our common stock, which will vest over three years subject to continued service. In addition, we granted certain retained employees of DivvyCloud performance-based restricted stock units (PSUs) for an aggregate of 109,760 shares of our common stock, which will vest over a maximum of three years based upon achievement of certain performance conditions and continued service. The RSUs and PSUs are expensed as stock-based compensation expense over the required service periods, assuming the service and performance conditions are achieved.

Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of our operations and DivvyCloud, on a pro forma basis, as though we had acquired DivvyCloud on January 1, 2019. The unaudited pro forma financial information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including an adjustment to revenue for the deferred revenue fair value adjustment, amortization expense from acquired intangibles assets, reversal of acquisition-related expenses and the stock-compensation expense recorded to retain certain employees.

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue	$	100,437	$	79,963	$	197,299	$	154,068
Net loss	$	(21,666)	$	(22,671)	$	(49,600)	$	(40,228)

NetFort Technologies Limited

On April 1, 2019, we acquired NetFort Technologies Limited (NetFort), a provider of end-to-end network traffic visibility and analytics across cloud, virtual and physical platforms for a purchase price of $16.1 million. The $16.1 million purchase price was funded with cash. In the three and six months ended June 30, 2019, we recorded $0.3 million and $0.5 million, respectively, of acquisition-related costs in general and administrative expense.

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 $0.6 million, $9.4 million and $6.1 million, respectively.

The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible asset will not be deductible for tax purposes. Accordingly, a $0.8 million deferred tax benefit was recorded resulting from a partial release of our valuation allowance to account for the creation of a deferred tax liability for the developed technology intangible asset acquired.

Following the acquisition, certain retained employees and non-employee contractors of NetFort received an aggregate of 123,623 restricted stock units (RSUs), which vest over a maximum of three years. The vesting of the RSUs is subject to the employee's continued service with us. Accordingly, the compensation expense associated with the RSUs is expensed as incurred in our post-acquisition financial statements.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

We measure certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and we 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 measured and recorded at fair value on a recurring basis using the above input categories:

	As of June 30, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Description:
Assets:
Money market funds	$	253,786	$	—	$	—	$	253,786
U.S. government agencies	24,977		—		—		24,977
Corporate bonds	—		13,702		—		13,702
Commercial paper	—		3,000		—		3,000
Total assets	$	278,763	$	16,702	$	—	$	295,465

	As of December 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Description:
Assets:
Money market funds	$	106,781	$	—	$	—	$	106,781
Corporate bonds	—		60,878		—		60,878
U.S. government agencies	36,979		—		—		36,979
Commercial paper	—		19,966		—		19,966
Agency bonds	—		12,242		—		12,242
Asset-backed securities	—		8,980		—		8,980
Total assets	$	143,760	$	102,066	$	—	$	245,826

As of June 30, 2020, the fair values of our 1.25% and 2.25% convertible senior notes due 2023 and 2025, respectively, as further described in Note 8, Debt, were $309.1 million and $247.9 million, respectively, based upon quoted market prices. We consider the fair values of the convertible senior notes to be a Level 2 measurement due to the limited trading activity of both notes. We had no other liabilities measured and recorded at fair value on a recurring basis as of June 30, 2020 or December 31, 2019.

Our investments, which are all classified as available-for-sale, consisted of the following:

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Description:
U.S. government agencies	24,981		—		(4)		24,977
Corporate bonds	13,613		90		(1)		13,702
Commercial paper	3,000		—		—		3,000
Total assets	$	41,594	$	90	$	(5)	$	41,679

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Description:
U.S. government agencies	$	36,880	$	99	$	—	$	36,979
Corporate bonds	60,803		77		(2)		60,878
Commercial paper	19,965		1		—		19,966
Agency bonds	12,198		44		—		12,242
Asset-backed securities	8,986		1		(7)		8,980
Total assets	$	138,832	$	222	$	(9)	$	139,045

As of June 30, 2020, our available-for-sale investments had maturities ranging from four to fifteen months. As of December 31, 2019, our available-for-sale investments had maturities ranging from three months to two years.

For all of our investments for which the amortized cost basis was greater than the fair value at June 30, 2020 and December 31, 2019, 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.

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Property and Equipment

6 Months Ended

Jun. 30, 2020

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost and consist of the following:

	As of June 30, 2020		As of December 31, 2019
	(in thousands)
Computer equipment and software	$	14,765	$	13,106
Furniture and fixtures	8,339		7,522
Leasehold improvements	44,676		44,050
Total	67,780		64,678
Less accumulated depreciation	(18,876)		(14,008)
Property and equipment, net	$	48,904	$	50,670

Depreciation expense was $2.9 million and $2.1 million for the three months ended June 30, 2020 and 2019, respectively, and $5.4 million and $3.9 million for the six months ended June 30, 2020 and 2019, respectively.

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill was $213.7 million and $97.9 million as of June 30, 2020 and December 31, 2019, respectively. The following table displays the changes in goodwill:

	Amount
	(in thousands)
Balance at December 31, 2019	$	97,866
DivvyCloud acquisition	115,820
Balance at June 30, 2020	$	213,686

The following table presents details of our intangible assets, which include acquired identifiable intangible assets and capitalized internal-use software costs:

		As of June 30, 2020						As of December 31, 2019
	Weighted- Average Life (years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
		(in thousands)
Intangible assets subject to amortization:
Developed technology	5.6	$	54,455	$	(19,913)	$	34,542	$	35,855	$	(16,080)	$	19,775
Customer relationships	6.3	2,700		(753)		1,947		1,000		(641)		359
Trade names	5.4	1,419		(549)		870		519		(519)		—
Non-compete agreements	2.0	40		(40)		—		40		(40)		—
Total acquired intangible assets		58,614		(21,255)		37,359		37,414		(17,280)		20,134
Internal-use software	3.0	12,821		(2,474)		10,347		9,873		(1,446)		8,427
Total intangible assets		$	71,435	$	(23,729)	$	47,706	$	47,287	$	(18,726)	$	28,561

Amortization expense was $2.8 million and $1.9 million for the three months ended June 30, 2020 and 2019, respectively, and $5.0 million and $3.5 million for the six months ended June 30, 2020 and 2019, respectively.

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of June 30, 2020 was as follows (in thousands):

2020 (for the remaining six months)	$	6,285
2021	11,810
2022	8,939
2023	6,426
2024	3,871
2025 and thereafter	4,571
Total	$	41,902

The table above excludes the impact of $5.8 million of capitalized internal-use software costs for projects that have not been completed as of June 30, 2020, and, therefore, we have not determined the useful life of the software, nor have all the costs associated with these projects been incurred.

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Deferred Contract Acquisition and Fulfillment Costs

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Deferred Contract Acquisition and Fulfillment Costs

Revenue from Contracts with CustomersWe generate products revenue from the sale of (1) cloud-based subscriptions for our InsightIDR, InsightVM, InsightAppSec and InsightConnect products, (2) managed services offerings which utilize our products and (3) term or perpetual software licenses for our Nexpose, Metasploit, AppSpider and DivvyCloud products, and associated content subscriptions for our Nexpose and Metasploit products. We also generate appliance revenue that is included in our products revenue and is associated with hardware sold with our Nexpose product to certain customers. We generate maintenance and support revenue that is included in our products revenue and is associated with customers’ purchases of our software licenses for Nexpose, Metasploit and AppSpider products. We generate professional service revenue from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services. Our deployment services educate and assist our customers on the best use and best practices to deploy our solutions.

The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Subscription revenue	$	72,796	$	52,309	$	141,421	$	99,278
Term and perpetual software licenses	11,281		10,315		21,552		18,991
Maintenance and support	8,150		9,372		16,572		18,929
Professional services	6,482		6,380		13,273		13,720
Other	203		583		434		1,226
Total revenue	$	98,912	$	78,959	$	193,252	$	152,144

Subscription Revenue

Subscription revenue consists of revenue from our cloud-based subscription, managed services offerings and content subscriptions 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.

•Revenue related to our content subscriptions associated with our software licenses is recognized ratably over the contractual period.

Term and Perpetual Software Licenses

For our perpetual software licenses where the utility to the customer is dependent on the continued delivery of content subscriptions, the content subscription renewal options result in a material right with respect to the perpetual software license. As a result, the revenue attributable to the perpetual software license is recognized ratably over the customer’s estimated economic life of five years, which represents a longer period of time in comparison to the initial contractual period of maintenance and support. The estimated economic life of five years represents the period which the customer is expected to benefit from the material right. We estimated this period of benefit by taking into consideration several factors, including the terms and conditions of our customer contracts and renewals and the expected useful life of our technology.

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 arrangement as a material right does not exist.

For our term and perpetual software licenses, which are not dependent on the continued delivery of content subscriptions, the license is considered distinct from the maintenance and support, and we therefore recognize revenue attributable to the license at the time of delivery.

Maintenance and support services are sold with our perpetual and term software licenses. As maintenance and support services are distinct from the perpetual and term software license, revenue attributable to maintenance and support services is recognized ratably over the contractual period.

Professional Services

All of our professional services are considered distinct performance obligations when sold stand alone or with other products. These contracts generally have terms of one year or less. For the majority of these contracts, revenue is recognized over time based upon the proportion of work performed to date.

Other

Other revenue primarily includes revenue from delivery of appliances and other miscellaneous revenue.

Contracts with Multiple Performance Obligations

The majority of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (SSP) basis. We determine SSP of our products and services based on our overall pricing objectives using all information reasonably available to us, taking into consideration market conditions and other factors, including the geographic locations of our customers, negotiated discounts from price lists and selling method (i.e., partner or direct). When available, we use directly observable stand-alone transactions to determine SSP. When not regularly sold on a stand-alone basis, we estimate SSP for our products and services utilizing historical sales data, including discounts from list price. The historical data is aggregated and analyzed by geographic location and selling method to establish a median or average price. Once SSP is established it is applied consistently to all transactions including that product or service utilizing a portfolio approach.

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period consistent with the above methodology. For the three months ended June 30, 2020 and 2019, we recognized revenue of $84.8 million and $66.6 million, respectively, and for the six months ended June 30, 2020 and 2019, we recognized $149.3 million and $117.2 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods presented. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.

We receive payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that have not been invoiced. If the right to consideration is based on satisfaction of another performance obligation in the contract other than the passage of time, we record a contract asset. As of June 30, 2020 and December 31, 2019, unbilled receivables of $1.5 million and $0.8 million, respectively, are included in prepaid expenses and other current assets in our consolidated balance sheet. As of June 30, 2020 and December 31, 2019, we had no contract assets recorded on our 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 June 30, 2020. The estimated revenues do not include unexercised contract renewals.

	Next Twelve Months		Thereafter
	(in thousands)
Subscription revenue	$	189,769	$	37,159
Term and perpetual software licenses	30,151		15,613
Maintenance and support	18,784		3,520
Professional services	11,357		—

The amounts presented in the table above primarily consist of fixed fees, which are typically recognized ratably as the performance obligation is satisfied.

Deferred Contract Acquisition and Fulfillment Costs

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,
	2020		2019
	(in thousands)
Beginning balance	$	51,260	$	39,955
Capitalization of contract acquisition and fulfillment costs	12,378		10,067
Amortization of deferred contract acquisition and fulfillment costs	(9,384)		(6,896)
Ending balance	$	54,254	$	43,126

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Debt

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Debt

Debt

Convertible Senior Notes

In August 2018, we issued $230.0 million aggregate principal amount of convertible senior notes due August 1, 2023 (the 2023 Notes) and in May 2020, we issued $230.0 million aggregate principal amount of convertible senior notes due May 1, 2025 (the 2025 Notes), collectively (the Notes). The 2023 Notes bear interest at a fixed rate of 1.25% per annum, payable semi-annually in arrears on February 1 and August 1 of each year. The 2025 Notes bear interest at a fixed rate of 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2020. The 2023 Notes and the 2025 Notes mature on August 1, 2023 and May 1, 2025, respectively unless earlier converted, redeemed or repurchased. The 2023 Notes and 2025 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by an indenture between the Company, as issuer, and U.S. Bank National Association, as trustee (the 2023 Indenture and the 2025 Indenture, respectively).

The total net proceeds from the 2023 Notes and the 2025 Notes offerings, after deducting initial purchase discounts and estimated debt issuance costs, were $223.1 million and $222.8 million, respectively.

Terms of the 2023 Notes and the 2025 Notes

The holders of the Notes may convert their respective Notes at their option at any time prior to the close of business on the business day immediately preceding their respective convertible dates only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on December 31, 2018 for the 2023 Notes and September 30, 2020 for the 2025 Notes (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the respective Notes on each applicable trading day;

•during the five business day period after any five consecutive trading day period (measurement period) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the applicable series of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate of the respective Notes on each such trading day;

•if we call any or all of the respective Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the respective redemption date; or

•upon the occurrence of specified corporate events (as set forth in the Indenture).

As of June 30, 2020, the Notes are not convertible at the option of the holder.

The following table presents details of the Notes (number of shares in millions):

	Initial Conversion Price per $1,000 Principal	Initial Conversion Price		Initial Number of Shares
2023 Notes	24.0460	$	41.59	5.5
2025 Notes	16.3875	$	61.02	3.8

The holders may convert the 2023 Notes and 2025 Notes at any time on or after February 1, 2023 and November 1, 2024, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. 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 Indenture.

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.

We may not redeem the 2023 Notes or 2025 Notes prior to August 6, 2021 and May 6, 2023 (Redemption Dates), respectively. On or after the respective Redemption Dates, we may redeem for cash all or any portion of the 2023 Notes or 2025 Notes, at our option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including the trading day immediately preceding, the date on which we provide the redemption notice at a redemption price equal to 100% principal amount of the 2023 Notes or 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The foregoing description is qualified in its entirety by reference to the text of the Indenture and the Form of the 2023 Notes, which were incorporated by reference as Exhibits 4.4 and 4.5 to our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020. The 2025 Notes were incorporated by reference as Exhibits 4.1 and 4.2 to our Current Report on Form 8-K, filed with the SEC on May 4, 2020.

Accounting for the 2023 Notes and the 2025 Notes

In accounting for the transactions, the 2023 Notes and the 2025 Notes have been separated into liability and equity components. The initial carrying amounts of the liability components were calculated by measuring the fair value of similar debt instruments

that do not have an associated convertible feature. The initial carrying amounts of the equity components representing the Conversion Option was $53.8 million and $48.3 million for the 2023 Notes and the 2025 Notes, respectively, and were determined by deducting the fair values of the liability components from the par value of the 2023 Notes and 2025 Notes. The equity components were recorded as an increase to additional paid-in capital and are not remeasured as long as they continue to meet the conditions for equity classification. The excess of the principal amount of the 2023 Notes and the 2025 Notes over their respective carrying amount of the liability component, or debt discount, are amortized to interest expense using the effective interest method over the contractual terms of the respective Notes.

In accounting for the debt issuance costs of $6.9 million and $7.2 million related to the 2023 Notes and the 2025 Notes, respectively, we allocated the total amount incurred to the liability and equity components of the 2023 Notes and 2025 Notes based on their relative values. Issuance costs attributable to the liability component were $5.3 million and $5.7 million, for the 2023 Notes and the 2025 Notes, respectively, and will be amortized to interest expense using the effective interest method over the contractual term of the 2023 Notes and 2025 Notes, respectively. Issuance costs attributable to the equity component of $1.6 million and $1.5 million for the 2023 Notes and the 2025 Notes, respectively, were netted with the equity component in additional paid-in capital.

The effective interest rates for the 2023 Notes and the 2025 Notes were 7.36% and 7.85%, respectively.

The net carrying amounts of the liability components of the 2023 Notes and the 2025 Notes were as follows (in thousands):

	As of June 30, 2020						As of December 31, 2019
	2023 Notes		2025 Notes		Total		2023 Notes
Principal	$	230,000	$	230,000	$	460,000	$	230,000
Unamortized debt discount	(35,728)		(47,053)		(82,781)		(40,768)
Unamortized issuance costs	(3,534)		(5,524)		(9,058)		(4,032)
Net carrying amount	$	190,738	$	177,423	$	368,161	$	185,200

The net carrying amount of the equity component as of June 30, 2020 and December 31, 2019 (for the 2023 Notes) was as follows (in thousands):

	2023 Notes		2025 Notes		Total
Debt discount for conversion option	$	53,820	$	48,346	$	102,166
Issuance costs	(1,626)		(1,511)		(3,137)
Net carrying amount	$	52,194	$	46,835	$	99,029

Interest expense related to the 2023 Notes and the 2025 Notes was as follows (in thousands):

	Three Months Ended June 30,												Six Months Ended June 30,
	2020						2019						2020						2019
	2023		2025				2023		2025				2023		2025				2023		2025
	Notes		Notes		Total		Notes		Notes		Total		Notes		Notes		Total		Notes		Notes		Total
Contractual interest expense	$	719	$	863	$	1,582	$	718	$	—	$	718	$	1,438	$	863	$	2,301	$	1,437	$	—	$	1,437
Amortization of debt discount	2,543		1,293		3,836		2,361		—		2,361		5,039		1,293		6,332		4,645		—		4,645
Amortization of issuance costs	251		152		403		233		—		233		498		152		650		459		—		459
Total interest expense	$	3,513	$	2,308	$	5,821	$	3,312	$	—	$	3,312	$	6,975	$	2,308	$	9,283	$	6,541	$	—	$	6,541

Capped Calls

In connection with the offering of the 2023 Notes and the 2025 Notes, we entered into privately negotiated capped call transactions with certain counterparties, the (2023 Capped Calls and 2025 Capped Calls). The initial strike prices for the 2023 Capped Calls and the 2025 Capped Calls are $41.59 and $61.02 per share, respectively, subject to certain adjustments, which correspond to the initial conversion price of the 2023 Notes and the 2025 Notes. The initial cap prices for the 2023 Capped Calls and the 2025 Capped Calls are $63.98 and $93.88 per share, respectively, subject to certain adjustments. The 2023 Capped Calls and the 2025 Capped Calls are expected to offset potential dilution to our common stock upon conversion of the

respective 2023 Notes or the 2025 Notes, with such offset subject to a cap based on the cap price. The 2023 Capped Calls and the 2025 Capped Calls cover, subject to anti-dilution adjustments, approximately 5.5 million and 3.8 million shares of our common stock, respectively. For accounting purposes, the 2023 Capped Calls and the 2025 Capped Calls are separate transactions, and not part of the terms of the 2023 Notes and the 2025 Notes. The 2023 Capped Calls and the 2025 Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. Accordingly, the cost of $26.9 million and $27.3 million, respectively, for the 2023 Capped Calls and 2025 Capped Calls was recorded as a reduction to additional paid-in capital.

The net impact to our stockholders' equity, included in additional paid-in capital, of the above components of the 2023 Notes and the 2025 Notes was as follows (in thousands):

	2023 Notes		2025 Notes
Conversion option	$	53,820	$	48,346
Purchase of capped calls	(26,910)		(27,255)
Issuance costs	(1,626)		(1,511)
Total	$	25,284	$	19,580

Credit Agreement

On April 23, 2020, we entered into a Credit and Security Agreement (the Credit Agreement), with KeyBank National Association that provides for a $30.0 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 $70.0 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 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 consolidated statement of operations. The Credit Agreement matures on April 23, 2023 and contains certain financial covenants including a requirement that we maintain specified minimum recurring revenue and liquidity amounts. In May 2020, we utilized the accordion feature to increase the credit facility to $50.0 million.

The borrowings under the Credit Agreement bear interest, at our option, at a rate equal to either the London Interbank Offered Rate (LIBOR) rate (subject to a 1.00% floor), plus an applicable margin equal to 2.50% per annum or the alternate base rate (subject to a floor), plus an applicable margin equal to 0% per annum. As of June 30, 2020, we did not have any outstanding borrowings under the Credit Agreement.

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Leases

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

Leases

Our leases primarily relate to office facilities that have remaining terms of up to 10.4 years, some of which include one or more options to renew with renewal terms of up to 5 years and some of which include options to terminate the leases within the next 6 years. All of our leases are classified as operating leases.

The components of lease expense were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Operating lease cost	$	3,881	$	3,055	$	7,252	$	5,022
Short-term lease costs	224		137		514		286
Variable lease costs	1,367		592		2,289		1,009
Total lease costs	$	5,472	$	3,784	$	10,055	$	6,317

Supplemental balance sheet information related to the operating leases was as follows:

	As of June 30, 2020			As of December 31, 2019
	(in thousands, except lease term and discount rate)
Operating lease right-of-use (ROU) assets	$	72,005		$	60,984
Operating lease liabilities, current portion	$	9,436		$	7,179
Operating lease liabilities, non-current portion	80,081			72,294
Total operating lease liabilities	$	89,517		$	79,473
Weighted average remaining lease term (in years) - operating leases	8.2			8.7
Weighted average discount rate - operating leases	7.7		%	7.6		%

Supplemental cash flow information related to leases was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	2,524	$	2,578	$	6,360	$	4,506
Operating lease ROU assets obtained in exchange for new lease obligations	$	11,607	$	58,906	$	15,597	$	60,772

Maturities of operating lease liabilities as of June 30, 2020 were as follows (in thousands):

2020 (for the remaining six months)	$	6,837
2021	16,380
2022	13,721
2023	13,954
2024	13,253
2025 and thereafter	53,501
Total lease payments	$	117,646
Less: imputed interest	(28,129)
Total	$	89,517

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Stock-Based Compensation Expense

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation Expense

Stock-Based Compensation Expense

(a)General

Stock-based compensation expense for restricted stock units, stock options and issuances of common stock pursuant to our employee stock purchase plan was classified in the accompanying consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Stock-based compensation expense:
Cost of revenue	$	1,131	$	718	$	2,062	$	1,291
Research and development	6,389		4,054		11,034		7,228
Sales and marketing	4,345		2,942		8,023		5,406
General and administrative	4,581		2,716		8,674		5,139
Total stock-based compensation expense	$	16,446	$	10,430	$	29,793	$	19,064

We recognize compensation cost of all awards on a straight-line basis over the applicable vesting period, which is generally four years.

In the first quarter of 2020, our Compensation Committee adopted and approved the performance goals, targets and payout formulas for 2020 under our bonus plans, including permitting our executive officers and other employees the opportunity to receive payment of their earned bonuses for fiscal year 2020 in the form of common stock (in lieu of cash). During the three and six months ended June 30, 2020, we recognized stock-based compensation expense related to such bonuses in the amount of $0.4 million and $0.8 million, respectively, based on the probable expected performance against the pre-established corporate financial objectives as of June 30, 2020. For all employees, including executive officers, who elected to receive their 2020 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 2021 pursuant to our 2015 Equity Incentive Plan, as amended. The number of shares underlying such awards shall be 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 Units

Restricted stock unit activity during the six months ended June 30, 2020 was as follows:

	Shares	Weighted-Average Grant Date Fair Value
Unvested balance as of December 31, 2019	2,936,924	$	32.43
Granted	1,548,989	56.48
Vested	(723,742)	32.01
Forfeited	(122,463)	36.03
Unvested balance as of June 30, 2020	3,639,708	$	42.65

As of June 30, 2020, the unrecognized compensation expense related to our unvested restricted stock units expected to vest was $145.2 million. This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 2.6 years.

(c)Stock Options

Stock option activity during the six months ended June 30, 2020 was as follows:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2019	2,705,458	$	10.18
Granted	—	—
Exercised	(284,962)	13.10			$	10,137
Forfeited/cancelled	(16,484)	17.01
Outstanding as of June 30, 2020	2,404,012	$	9.79	4.5	$	99,113
Vested and exercisable as of June 30, 2020	2,171,711	$	9.20	4.3	$	90,811

As of June 30, 2020, the unrecognized compensation expense related to our unvested stock options expected to vest was $1.4 million. This unrecognized compensation expense will be recognized over an estimated weighted-average amortization period of 0.8 years.

The total fair value of stock options vested in the six months ended June 30, 2020 was $1.3 million.

(d)Employee Stock Purchase Plan

Under the Rapid7, Inc. 2015 Employee Stock Purchase Plan (ESPP), employees may set aside up to 15% of their gross earnings, on an after-tax basis, to purchase our common stock at a discounted price, which is calculated at 85% of the lesser of: (i) the market value of our common stock at the beginning of each offering period and (ii) the market value of our common stock on the applicable purchase date.

On March 15, 2019, we issued 110,822 shares of common stock to employees for aggregate proceeds of $2.6 million. The purchase prices of the shares were $30.46 and $21.96 per share, which were discounted in accordance with the terms of the ESPP from the closing prices of our common stock on September 17, 2018 of $35.84 and on March 16, 2018 of $25.84, respectively.

On September 13, 2019, we issued 74,221 shares of common stock to employees for aggregate proceeds of $2.9 million. The purchase prices of the shares were $30.46 and $42.22 per share, which were discounted in accordance with the terms of the ESPP from the closing prices of our common stock on September 17, 2018 of $35.84 and on September 13, 2019 of $49.67, respectively.

On March 15, 2020, we issued 101,806 shares of common stock to employees for aggregate proceeds of $3.3 million. The purchase price of the shares was $32.87 per share, which was discounted in accordance with the terms of the ESPP from the closing price of our common stock on March 13, 2020 of $38.67.

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Net Loss per Share

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Net Loss per Share

Net Loss per Share

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands, except share and per share data)
Numerator:
Net loss	$	(21,466)	$	(13,420)	$	(44,390)	$	(25,093)
Denominator:
Weighted-average common shares outstanding, basic and diluted	50,695,706		48,451,562		50,411,508		48,141,474
Net loss per share attributable to common stockholders, basic and diluted	$	(0.42)	$	(0.28)	$	(0.88)	$	(0.52)

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if-converted method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:

	Three and Six Months Ended June 30,
	2020	2019
Options to purchase common stock	2,404,012	3,137,554
Unvested restricted stock units	3,639,708	3,513,781
Common shares to be issued	200,596	—
Shares to be issued under ESPP	77,926	46,331
Total	6,322,242	6,697,666

The shares underlying the conversion options in the 2023 Notes and the 2025 Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive. Based on the initial conversion prices, the entire outstanding principal amount of the 2023 Notes and the 2025 Notes as of June 30, 2020 would have been convertible into approximately 5.5 million and 3.8 million shares, respectively. We expect to settle the principal amount of the 2023 Notes and the 2025 Notes in cash. As a result, only the amount by which the conversion value exceeds the aggregate principal amount of

the 2023 Notes and the 2025 Notes is considered in the diluted earnings per share computation under the treasury stock method. The conversion spread has a dilutive impact on diluted net income per share when the average market price of our common stock for a given period of time exceeds the initial conversion prices of $41.59 per share for the 2023 Notes and $61.02 per share for the 2025 Notes. In connection with the issuance of the 2023 Notes and the 2025 Notes, we entered into 2023 Capped Calls and 2025 Capped Calls, which were not included for the purpose of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

(a)Warranty

We provide limited product warranties. Historically, any payments made under these provisions have been immaterial.

(b)Litigation and Claims

In October 2018, Finjan, Inc. (Finjan) filed a complaint against us and our wholly-owned subsidiary, Rapid7 LLC, in the United States District Court, District of Delaware, alleging patent infringement of seven patents held by them. In the complaint, Finjan sought unspecified damages, attorneys' fees and injunctive relief. We intend to vigorously contest Finjan's claims. This litigation is still in its early stages and the final outcome, including our liability, if any, with respect to Finjan's claims, is uncertain. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

In addition, from time to time, we are a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

(c)Indemnification Obligations

We agree to standard indemnification provisions in the ordinary course of business. Pursuant to these provisions, we agree to indemnify, hold harmless and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our customers, in connection with any United States patent, copyright or other intellectual property infringement claim by any third party arising from the use of our products or services in accordance with the agreement or arising from our gross negligence, willful misconduct or violation of the law (provided that there is not gross or willful misconduct on the part of the other party) with respect to our products or services. The term of these indemnification provisions is generally perpetual from the time of execution of the agreement. We carry insurance that covers certain third-party claims relating to our services and limits our exposure. We have never incurred costs to defend lawsuits or settle claims related to these indemnification provisions.

As permitted under Delaware law, we have entered into indemnification agreements with our officers and directors, indemnifying them for certain events or occurrences while they serve as officers or directors of the company.

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Segment Information and Information about Geographic Areas

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Segment Information and Information about Geographic Areas

Segment Information and Information about Geographic Areas

We operate in one segment. Our chief operating decision maker is our Chief Executive Officer, who makes operating decisions, assesses performance and allocates resources on a consolidated basis.

Net revenues by geographic area presented based upon the location of the customer were as follows: 

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
United States	$	79,457	$	64,106	$	155,295	$	124,046
Other	19,455		14,853		37,957		28,098
Total	$	98,912	$	78,959	$	193,252	$	152,144

Property and equipment, net by geographic area was as follows:

	As of June 30, 2020		As of December 31, 2019
	(in thousands)
United States	$	43,349	$	42,570
Other	5,555		8,100
Total	$	48,904	$	50,670

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Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The accompanying unaudited 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 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, 2019 filed with the SEC on February 28, 2020.

The consolidated financial statements include our results of operations and those of our wholly-owned subsidiaries and reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. All intercompany transactions and balances have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the determination of the estimated economic life of perpetual licenses for revenue recognition, the determination of standalone selling prices in revenue transactions with multiple performance obligations, the estimated period of benefit for deferred contract acquisition and fulfillment costs, the useful lives of long-lived assets, the valuation of allowance for doubtful accounts, the valuation of stock-based compensation, the valuation of intangible assets acquired in a business combination, 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.

The COVID-19 pandemic is expected to result in a sustained global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, including from our customers. We currently expect our operational and financial performance to be negatively impacted by the slowdown in activity associated with the COVID-19 pandemic for the quarters ending September 30, 2020 and December 31, 2020 and the year ending December 31, 2020 and beyond. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, assumptions and judgments or revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained and will be recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.

Reclassification

Reclassification

Prior to the fiscal year beginning January 1, 2020, we have presented revenue on our consolidated statement of operations as products, maintenance and support and professional services revenue. For the three and six months ended June 30, 2020, we have combined products and maintenance and support revenue as products revenue on our consolidated statement of operations as our customers continue to migrate from our on-premise products to our SaaS Insight Platform. Given this continued migration, we believe it is more relevant to categorize maintenance and support revenue together as products revenue. Prior periods have been adjusted to conform with this presentation.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard on January 1, 2020 using the prospective adoption approach. The impact to our consolidated financial statements as a result of the adoption was not material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, modifies and adds disclosure requirements for fair value measurements. We adopted this standard on January 1, 2020 and there was no impact to our consolidated financial statements as a result of the adoption.

Accounting Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) to alternative reference rates. We may elect to apply the amendments prospectively through December 31, 2022. The impact to our consolidated financial statements from the adoption of this standard is expected to be immaterial.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. The new standard will be effective for us in the first quarter of 2021, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently assessing the impact of adopting this standard but do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

Revenue

We generate products revenue from the sale of (1) cloud-based subscriptions for our InsightIDR, InsightVM, InsightAppSec and InsightConnect products, (2) managed services offerings which utilize our products and (3) term or perpetual software licenses for our Nexpose, Metasploit, AppSpider and DivvyCloud products, and associated content subscriptions for our Nexpose and Metasploit products. We also generate appliance revenue that is included in our products revenue and is associated with hardware sold with our Nexpose product to certain customers. We generate maintenance and support revenue that is included in our products revenue and is associated with customers’ purchases of our software licenses for Nexpose, Metasploit and AppSpider products. We generate professional service revenue from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services. Our deployment services educate and assist our customers on the best use and best practices to deploy our solutions.

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Revenue from Contracts with Customers (Tables)

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Summary of Revenue from Contracts with Customers and Revenue by Region

The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Subscription revenue	$	72,796	$	52,309	$	141,421	$	99,278
Term and perpetual software licenses	11,281		10,315		21,552		18,991
Maintenance and support	8,150		9,372		16,572		18,929
Professional services	6,482		6,380		13,273		13,720
Other	203		583		434		1,226
Total revenue	$	98,912	$	78,959	$	193,252	$	152,144

Summary of Estimated Revenue Expected to be Recognized in Future Related to Performance Obligations

The estimated revenues do not include unexercised contract renewals.

	Next Twelve Months		Thereafter
	(in thousands)
Subscription revenue	$	189,769	$	37,159
Term and perpetual software licenses	30,151		15,613
Maintenance and support	18,784		3,520
Professional services	11,357		—

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Business Combinations (Tables)

6 Months Ended

Jun. 30, 2020

Business Combinations [Abstract]

Summary of Preliminary Allocation of Purchase Price to Estimated Fair Value of Assets Acquired and Liabilities Assumed

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	$	130,810
Deferred cash consideration	6,963
Estimated working capital and other purchase price adjustments	68
Fair value of total consideration transferred	$	137,841
Recognized amounts of identifiable assets and liabilities assumed:
Cash and cash equivalents	$	5,039
Accounts receivable, net	904
Prepaid expenses and other current assets	810
Property and equipment, net	492
Operating lease right-of-use assets	3,320
Accounts payable	(288)
Accrued expenses	(1,308)
Operating lease liabilities, current portion	(313)
Deferred revenue, current portion	(3,491)
Operating lease liabilities, non-current portion	(2,984)
Deferred revenue, non-current portion	(1,360)
Intangible assets	21,200
Total identifiable net assets assumed	$	22,021
Goodwill	115,820
Net purchase price	$	137,841

Summary of Estimated Fair Value and Useful Life of Identifiable Intangible Assets

The fair value of identifiable intangible assets was based on valuations using the income approach. The estimated fair value and useful life of identifiable intangible assets are as follows:

	Amount		Weighted Average Life
	(in thousands)		(in years)
Developed technology	$	18,600	6
Customer relationships	1,700		6
Trade name	900		5
Total identifiable intangible assets	$	21,200

The excess of the purchase price over the tangible assets acquired, identifiable intangible assets acquired and assumed liabilities was recorded as goodwill. We believe the goodwill is attributable to expanded product offerings resulting from the integration of the technology acquired with our existing product offerings and increased opportunities to successfully market and sell these new products and features to our customer base. The goodwill was allocated to our one reporting unit. The acquired goodwill and intangible assets were not deductible for tax purposes.

Business Acquisition, Pro Forma Information

The unaudited pro forma financial information in the table below summarizes the combined results of our operations and DivvyCloud, on a pro forma basis, as though we had acquired DivvyCloud on January 1, 2019. The unaudited pro forma financial information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including an adjustment to revenue for the deferred revenue fair value adjustment, amortization expense from acquired intangibles assets, reversal of acquisition-related expenses and the stock-compensation expense recorded to retain certain employees.

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue	$	100,437	$	79,963	$	197,299	$	154,068
Net loss	$	(21,666)	$	(22,671)	$	(49,600)	$	(40,228)

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Summary of Financial Assets Measured and Recorded at Fair Value on Recurring Basis

The following table presents our financial assets measured and recorded at fair value on a recurring basis using the above input categories:

	As of June 30, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Description:
Assets:
Money market funds	$	253,786	$	—	$	—	$	253,786
U.S. government agencies	24,977		—		—		24,977
Corporate bonds	—		13,702		—		13,702
Commercial paper	—		3,000		—		3,000
Total assets	$	278,763	$	16,702	$	—	$	295,465

	As of December 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Description:
Assets:
Money market funds	$	106,781	$	—	$	—	$	106,781
Corporate bonds	—		60,878		—		60,878
U.S. government agencies	36,979		—		—		36,979
Commercial paper	—		19,966		—		19,966
Agency bonds	—		12,242		—		12,242
Asset-backed securities	—		8,980		—		8,980
Total assets	$	143,760	$	102,066	$	—	$	245,826

Summary of Investments Classified as Available-For-Sale

Our investments, which are all classified as available-for-sale, consisted of the following:

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Description:
U.S. government agencies	24,981		—		(4)		24,977
Corporate bonds	13,613		90		(1)		13,702
Commercial paper	3,000		—		—		3,000
Total assets	$	41,594	$	90	$	(5)	$	41,679

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Description:
U.S. government agencies	$	36,880	$	99	$	—	$	36,979
Corporate bonds	60,803		77		(2)		60,878
Commercial paper	19,965		1		—		19,966
Agency bonds	12,198		44		—		12,242
Asset-backed securities	8,986		1		(7)		8,980
Total assets	$	138,832	$	222	$	(9)	$	139,045

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2020

Property, Plant and Equipment [Abstract]

Summary of Property and Equipment

Property and equipment are recorded at cost and consist of the following:

	As of June 30, 2020		As of December 31, 2019
	(in thousands)
Computer equipment and software	$	14,765	$	13,106
Furniture and fixtures	8,339		7,522
Leasehold improvements	44,676		44,050
Total	67,780		64,678
Less accumulated depreciation	(18,876)		(14,008)
Property and equipment, net	$	48,904	$	50,670

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Identifiable Intangible Assets

The following table presents details of our intangible assets, which include acquired identifiable intangible assets and capitalized internal-use software costs:

		As of June 30, 2020						As of December 31, 2019
	Weighted- Average Life (years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
		(in thousands)
Intangible assets subject to amortization:
Developed technology	5.6	$	54,455	$	(19,913)	$	34,542	$	35,855	$	(16,080)	$	19,775
Customer relationships	6.3	2,700		(753)		1,947		1,000		(641)		359
Trade names	5.4	1,419		(549)		870		519		(519)		—
Non-compete agreements	2.0	40		(40)		—		40		(40)		—
Total acquired intangible assets		58,614		(21,255)		37,359		37,414		(17,280)		20,134
Internal-use software	3.0	12,821		(2,474)		10,347		9,873		(1,446)		8,427
Total intangible assets		$	71,435	$	(23,729)	$	47,706	$	47,287	$	(18,726)	$	28,561

Schedule of Estimated Amortization Expense

Estimated future amortization expense of the acquired identifiable intangible assets and completed capitalized internal-use software costs as of June 30, 2020 was as follows (in thousands):

2020 (for the remaining six months)	$	6,285
2021	11,810
2022	8,939
2023	6,426
2024	3,871
2025 and thereafter	4,571
Total	$	41,902

Schedule of Goodwill

The following table displays the changes in goodwill:

	Amount
	(in thousands)
Balance at December 31, 2019	$	97,866
DivvyCloud acquisition	115,820
Balance at June 30, 2020	$	213,686

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Deferred Contract Acquisition and Fulfillment Costs (Tables)

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Summary of Activity of Deferred Contract Acquisition and Fulfillment Costs

The following table summarizes the activity of the deferred contract acquisition and fulfillment costs for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,
	2020		2019
	(in thousands)
Beginning balance	$	51,260	$	39,955
Capitalization of contract acquisition and fulfillment costs	12,378		10,067
Amortization of deferred contract acquisition and fulfillment costs	(9,384)		(6,896)
Ending balance	$	54,254	$	43,126

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Debt (Tables)

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of Liability and Equity Components of Convertible Debt

The following table presents details of the Notes (number of shares in millions):

	Initial Conversion Price per $1,000 Principal	Initial Conversion Price		Initial Number of Shares
2023 Notes	24.0460	$	41.59	5.5
2025 Notes	16.3875	$	61.02	3.8

The net carrying amounts of the liability components of the 2023 Notes and the 2025 Notes were as follows (in thousands):

	As of June 30, 2020						As of December 31, 2019
	2023 Notes		2025 Notes		Total		2023 Notes
Principal	$	230,000	$	230,000	$	460,000	$	230,000
Unamortized debt discount	(35,728)		(47,053)		(82,781)		(40,768)
Unamortized issuance costs	(3,534)		(5,524)		(9,058)		(4,032)
Net carrying amount	$	190,738	$	177,423	$	368,161	$	185,200

The net carrying amount of the equity component as of June 30, 2020 and December 31, 2019 (for the 2023 Notes) was as follows (in thousands):

	2023 Notes		2025 Notes		Total
Debt discount for conversion option	$	53,820	$	48,346	$	102,166
Issuance costs	(1,626)		(1,511)		(3,137)
Net carrying amount	$	52,194	$	46,835	$	99,029

Interest expense related to the 2023 Notes and the 2025 Notes was as follows (in thousands):

	Three Months Ended June 30,												Six Months Ended June 30,
	2020						2019						2020						2019
	2023		2025				2023		2025				2023		2025				2023		2025
	Notes		Notes		Total		Notes		Notes		Total		Notes		Notes		Total		Notes		Notes		Total
Contractual interest expense	$	719	$	863	$	1,582	$	718	$	—	$	718	$	1,438	$	863	$	2,301	$	1,437	$	—	$	1,437
Amortization of debt discount	2,543		1,293		3,836		2,361		—		2,361		5,039		1,293		6,332		4,645		—		4,645
Amortization of issuance costs	251		152		403		233		—		233		498		152		650		459		—		459
Total interest expense	$	3,513	$	2,308	$	5,821	$	3,312	$	—	$	3,312	$	6,975	$	2,308	$	9,283	$	6,541	$	—	$	6,541

The net impact to our stockholders' equity, included in additional paid-in capital, of the above components of the 2023 Notes and the 2025 Notes was as follows (in thousands):

	2023 Notes		2025 Notes
Conversion option	$	53,820	$	48,346
Purchase of capped calls	(26,910)		(27,255)
Issuance costs	(1,626)		(1,511)
Total	$	25,284	$	19,580

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Leases (Tables)

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Summary of Components of Lease Expense and Supplemental Cash Flow Information Related to Leases

The components of lease expense were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Operating lease cost	$	3,881	$	3,055	$	7,252	$	5,022
Short-term lease costs	224		137		514		286
Variable lease costs	1,367		592		2,289		1,009
Total lease costs	$	5,472	$	3,784	$	10,055	$	6,317

Supplemental cash flow information related to leases was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	2,524	$	2,578	$	6,360	$	4,506
Operating lease ROU assets obtained in exchange for new lease obligations	$	11,607	$	58,906	$	15,597	$	60,772

Summary of Supplemental Balance Sheet Information Related to Operating Leases

Supplemental balance sheet information related to the operating leases was as follows:

	As of June 30, 2020			As of December 31, 2019
	(in thousands, except lease term and discount rate)
Operating lease right-of-use (ROU) assets	$	72,005		$	60,984
Operating lease liabilities, current portion	$	9,436		$	7,179
Operating lease liabilities, non-current portion	80,081			72,294
Total operating lease liabilities	$	89,517		$	79,473
Weighted average remaining lease term (in years) - operating leases	8.2			8.7
Weighted average discount rate - operating leases	7.7		%	7.6		%

Summary of Maturities of Operating Lease Liabilities and Future Minimum Payments under Non-cancellable Leases

Maturities of operating lease liabilities as of June 30, 2020 were as follows (in thousands):

2020 (for the remaining six months)	$	6,837
2021	16,380
2022	13,721
2023	13,954
2024	13,253
2025 and thereafter	53,501
Total lease payments	$	117,646
Less: imputed interest	(28,129)
Total	$	89,517

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Stock-Based Compensation Expense (Tables)

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Schedule of Stock-Based Compensation Expense

Stock-based compensation expense for restricted stock units, stock options and issuances of common stock pursuant to our employee stock purchase plan was classified in the accompanying consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
Stock-based compensation expense:
Cost of revenue	$	1,131	$	718	$	2,062	$	1,291
Research and development	6,389		4,054		11,034		7,228
Sales and marketing	4,345		2,942		8,023		5,406
General and administrative	4,581		2,716		8,674		5,139
Total stock-based compensation expense	$	16,446	$	10,430	$	29,793	$	19,064

Summary of Restricted Stock and Restricted Stock Unit Activity

Restricted stock unit activity during the six months ended June 30, 2020 was as follows:

	Shares	Weighted-Average Grant Date Fair Value
Unvested balance as of December 31, 2019	2,936,924	$	32.43
Granted	1,548,989	56.48
Vested	(723,742)	32.01
Forfeited	(122,463)	36.03
Unvested balance as of June 30, 2020	3,639,708	$	42.65

Summary of Stock Option Activity

Stock option activity during the six months ended June 30, 2020 was as follows:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2019	2,705,458	$	10.18
Granted	—	—
Exercised	(284,962)	13.10			$	10,137
Forfeited/cancelled	(16,484)	17.01
Outstanding as of June 30, 2020	2,404,012	$	9.79	4.5	$	99,113
Vested and exercisable as of June 30, 2020	2,171,711	$	9.20	4.3	$	90,811

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Net Loss per Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Summary of Basic and Diluted Net Loss Per Share of Common Stock

The following table summarizes the computation of basic and diluted net loss per share of our common stock for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands, except share and per share data)
Numerator:
Net loss	$	(21,466)	$	(13,420)	$	(44,390)	$	(25,093)
Denominator:
Weighted-average common shares outstanding, basic and diluted	50,695,706		48,451,562		50,411,508		48,141,474
Net loss per share attributable to common stockholders, basic and diluted	$	(0.42)	$	(0.28)	$	(0.88)	$	(0.52)

Anti-Dilutive Securities Excluded from Computation Diluted Weighted Average Shares Outstanding

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method or if-converted method, have been excluded from the computation of diluted weighted-average shares outstanding for the respective periods below because they would have been anti-dilutive:

	Three and Six Months Ended June 30,
	2020	2019
Options to purchase common stock	2,404,012	3,137,554
Unvested restricted stock units	3,639,708	3,513,781
Common shares to be issued	200,596	—
Shares to be issued under ESPP	77,926	46,331
Total	6,322,242	6,697,666

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Segment Information and Information about Geographic Areas (Tables)

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Net Revenues of Customer by Geographic Area

Net revenues by geographic area presented based upon the location of the customer were as follows: 

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(in thousands)
United States	$	79,457	$	64,106	$	155,295	$	124,046
Other	19,455		14,853		37,957		28,098
Total	$	98,912	$	78,959	$	193,252	$	152,144

Property and Equipment, Net By Geographic Area

Property and equipment, net by geographic area was as follows:

	As of June 30, 2020		As of December 31, 2019
	(in thousands)
United States	$	43,349	$	42,570
Other	5,555		8,100
Total	$	48,904	$	50,670

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Revenue from Contracts with Customers - Summary of Revenue from Contracts with Customers and Revenue by Region (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Disaggregation of Revenue [Line Items]
Total revenue	$ 98,912	$ 78,959	$ 193,252	$ 152,144
Subscription Revenue [Member]
Disaggregation of Revenue [Line Items]
Total revenue	72,796	52,309	141,421	99,278
Term and Perpetual Software Licenses [Member]
Disaggregation of Revenue [Line Items]
Total revenue	11,281	10,315	21,552	18,991
Maintenance and Support [Member]
Disaggregation of Revenue [Line Items]
Total revenue	8,150	9,372	16,572	18,929
Professional Services [Member]
Disaggregation of Revenue [Line Items]
Total revenue	6,482	6,380	13,273	13,720
Other [Member]
Disaggregation of Revenue [Line Items]
Total revenue	$ 203	$ 583	$ 434	$ 1,226

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Revenue from Contracts with Customers - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue recognized	$ 84.8	$ 66.6	$ 149.3	$ 117.2
Contract assets	$ 1.5		$ 1.5		$ 0.8
Term and Perpetual Software Licenses [Member] | Difference between Revenue Guidance in Effect before and after Topic 606 [Member]
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Economic life			5 years
Professional Services [Member] | Difference between Revenue Guidance in Effect before and after Topic 606 [Member]
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Contractual period			1 year

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Revenue from Contracts with Customers - Summary of Estimated Revenue Expected to be Recognized in Future Related to Performance Obligations (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Subscription Revenue [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation	$ 189,769
Expected timing of satisfaction, period	12 months
Subscription Revenue [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation	$ 37,159
Expected timing of satisfaction, period
Term and Perpetual Software Licenses [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation	$ 30,151
Expected timing of satisfaction, period	12 months
Term and Perpetual Software Licenses [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation	$ 15,613
Expected timing of satisfaction, period
Maintenance and Support [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation	$ 18,784
Expected timing of satisfaction, period	12 months
Maintenance and Support [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation	$ 3,520
Expected timing of satisfaction, period
Professional Services [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation	$ 11,357
Expected timing of satisfaction, period	12 months
Professional Services [Member] | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation	$ 0
Expected timing of satisfaction, period

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Business Combinations - Additional Information (Details)			3 Months Ended		6 Months Ended
	May 01, 2020 USD ($) installment reportingUnit shares	Apr. 01, 2019 USD ($) reportingUnit shares	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Business Acquisition [Line Items]
Share-based payment arrangement, expense			$ 16,446,000	$ 10,430,000	$ 29,793,000	$ 19,064,000
Vesting period					4 years
Goodwill			213,686,000		$ 213,686,000		$ 97,866,000
Number of reporting units | reportingUnit	1	1
Divvy Cloud Corporation [Member]
Business Acquisition [Line Items]
Total cash consideration	$ 137,841,000
Payments to acquire businesses, gross	130,810,000
Deferred cash consideration	7,400,000
Working capital adjustment	68,000
Deferred cash payments, due in three months from acquisition	200,000
Working capital adjustment, due fifteen months after acquisition bate	7,200,000
Deferred cash consideration	$ 6,963,000
Equity awards granted to certain retained employees (in shares) | shares	200,596
Number of installments | installment	3
Equity interest issued or issuable, value assigned	$ 8,900,000
Share-based payment arrangement, expense			500,000		500,000
Acquisition related costs			800,000		1,100,000
Net assets acquired	22,021,000
Goodwill	115,820,000
Intangible assets	$ 21,200,000
Expected tax deductible amount			0		0
Divvy Cloud Corporation [Member] | Restricted Stock Units (RSUs) [Member]
Business Acquisition [Line Items]
Equity awards granted to certain retained employees (in shares) | shares	153,643
Vesting period	3 years
Divvy Cloud Corporation [Member] | Performance Shares [Member]
Business Acquisition [Line Items]
Equity awards granted to certain retained employees (in shares) | shares	109,760
Vesting period	3 years
NetFort Technologies [Member]
Business Acquisition [Line Items]
Payments to acquire businesses, gross		$ 16,100,000
Acquisition related costs				$ 300,000		$ 500,000
Net assets acquired		600,000
Goodwill		9,400,000
Intangible assets		6,100,000
Expected tax deductible amount			$ 0		$ 0
Deferred tax benefit recognized during period for release of valuation allowance		$ 800,000
NetFort Technologies [Member] | Restricted Stock Units (RSUs) [Member]
Business Acquisition [Line Items]
Equity awards granted to certain retained employees (in shares) | shares		123,623
Vesting period		3 years

XML

Business Combinations - Summary of Preliminary Allocation of Purchase Price to Estimated Fair Value of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	May 01, 2020	Jun. 30, 2020	Dec. 31, 2019
Recognized amounts of identifiable assets and liabilities assumed:
Goodwill		$ 213,686	$ 97,866
Divvy Cloud Corporation [Member]
Consideration:
Cash	$ 130,810
Deferred cash consideration	6,963
Estimated working capital and other purchase price adjustments	68
Fair value of total consideration transferred	137,841
Recognized amounts of identifiable assets and liabilities assumed:
Cash and cash equivalents	5,039
Accounts receivable, net	904
Prepaid expenses and other current assets	810
Property and equipment, net	492
Operating lease right-of-use assets	3,320
Accounts payable	(288)
Accrued expenses	(1,308)
Operating lease liabilities, current portion	(313)
Deferred revenue, current portion	(3,491)
Operating lease liabilities, non-current portion	(2,984)
Deferred revenue, non-current portion	(1,360)
Intangible assets	21,200
Total identifiable net assets assumed	22,021
Goodwill	115,820
Net purchase price	$ 137,841

XML

Business Combinations - Summary of Estimated Fair Value and Useful Life of Identifiable Intangible Assets (Details) - USD ($) $ in Thousands		6 Months Ended
	May 01, 2020	Jun. 30, 2020
Divvy Cloud Corporation [Member]
Business Acquisition [Line Items]
Identifiable intangible assets	$ 21,200
Developed Technology [Member]
Business Acquisition [Line Items]
Weighted average life		5 years 7 months 6 days
Developed Technology [Member] | Divvy Cloud Corporation [Member]
Business Acquisition [Line Items]
Identifiable intangible assets	$ 18,600
Weighted average life	6 years
Customer Relationships [Member]
Business Acquisition [Line Items]
Weighted average life		6 years 3 months 18 days
Customer Relationships [Member] | Divvy Cloud Corporation [Member]
Business Acquisition [Line Items]
Identifiable intangible assets	$ 1,700
Weighted average life	6 years
Trade Names [Member]
Business Acquisition [Line Items]
Weighted average life		5 years 4 months 24 days
Trade Names [Member] | Divvy Cloud Corporation [Member]
Business Acquisition [Line Items]
Identifiable intangible assets	$ 900
Weighted average life	5 years

XML

Business Combinations - Pro Forma Financial Information (Details) - Divvy Cloud Corporation [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Business Acquisition [Line Items]
Revenue	$ 100,437	$ 79,963	$ 197,299	$ 154,068
Net loss	$ (21,666)	$ (22,671)	$ (49,600)	$ (40,228)

XML

Fair Value Measurements - Summary of Financial Assets Measured and Recorded at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019	Aug. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	$ 41,679	$ 139,045
2023 Notes [Member] | Convertible Debt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate	1.25%		1.25%
Convertible debt, fair value	$ 309,100
2025 Notes [Member] | Convertible Debt [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate	2.25%		2.25%
Convertible debt, fair value	$ 247,900
Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	295,465	245,826
Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	278,763	143,760
Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	16,702	102,066
Level 3 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
U.S. Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	24,977	36,979
U.S. Government Agencies [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	24,977	36,979
U.S. Government Agencies [Member] | Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	24,977	36,979
U.S. Government Agencies [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
U.S. Government Agencies [Member] | Level 3 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
Corporate Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	13,702	60,878
Corporate Bonds [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	13,702	60,878
Corporate Bonds [Member] | Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
Corporate Bonds [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	13,702	60,878
Corporate Bonds [Member] | Level 3 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
Commercial Paper [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	3,000	19,966
Commercial Paper [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	3,000	19,966
Commercial Paper [Member] | Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
Commercial Paper [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	3,000	19,966
Commercial Paper [Member] | Level 3 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
Agency Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		12,242
Agency Bonds [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		12,242
Agency Bonds [Member] | Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		0
Agency Bonds [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		12,242
Agency Bonds [Member] | Level 3 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		0
Asset-backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		8,980
Asset-backed Securities [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		8,980
Asset-backed Securities [Member] | Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		0
Asset-backed Securities [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		8,980
Asset-backed Securities [Member] | Level 3 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities		0
Money Market Funds [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	253,786	106,781
Money Market Funds [Member] | Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	253,786	106,781
Money Market Funds [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	0	0
Money Market Funds [Member] | Level 3 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market funds	$ 0	$ 0

XML

Fair Value Measurements - Summary of Investments Classified as Available-For-Sale (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 41,594	$ 138,832
Gross Unrealized Gains	90	222
Gross Unrealized Losses	(5)	(9)
Fair Value	$ 41,679	$ 139,045
Minimum [Member]
Debt Securities, Available-for-sale [Line Items]
Remaining maturity	4 months	3 months
Maximum [Member]
Debt Securities, Available-for-sale [Line Items]
Remaining maturity	15 months	2 years
U.S. Government Agencies [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 24,981	$ 36,880
Gross Unrealized Gains	0	99
Gross Unrealized Losses	(4)	0
Fair Value	24,977	36,979
Corporate Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	13,613	60,803
Gross Unrealized Gains	90	77
Gross Unrealized Losses	(1)	(2)
Fair Value	13,702	60,878
Commercial Paper [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	3,000	19,965
Gross Unrealized Gains	0	1
Gross Unrealized Losses	0	0
Fair Value	$ 3,000	19,966
Agency Bonds [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost		12,198
Gross Unrealized Gains		44
Gross Unrealized Losses		0
Fair Value		12,242
Asset-backed Securities [Member]
Debt Securities, Available-for-sale [Line Items]
Amortized Cost		8,986
Gross Unrealized Gains		1
Gross Unrealized Losses		(7)
Fair Value		$ 8,980

XML

Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 67,780	$ 64,678
Less accumulated depreciation	(18,876)	(14,008)
Property and equipment, net	48,904	50,670
Computer Equipment and Software [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	14,765	13,106
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	8,339	7,522
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 44,676	$ 44,050

XML

Property and Equipment - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 2.9	$ 2.1	$ 5.4	$ 3.9

XML

Goodwill and Intangible Assets - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill	$ 213,686		$ 213,686		$ 97,866
Amortization expense	$ 2,800	$ 1,900	5,000	$ 3,500
Capitalized internal-use software costs for works in process			$ 5,800

XML

Goodwill and Intangible Assets - Goodwill Activity (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2020 USD ($)
Goodwill [Roll Forward]
Balance at December 31, 2019	$ 97,866
DivvyCloud acquisition	115,820
Balance at June 30, 2020	$ 213,686

XML

Goodwill and Intangible Assets - Schedule of Identifiable Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]
Total intangible assets, Gross Carrying Amount	$ 71,435	$ 47,287
Accumulated Amortization	(23,729)	(18,726)
Total intangible assets, Net Book Value	47,706	28,561
Total acquired intangible assets, Gross Carrying Amount	58,614	37,414
Total acquired intangible assets, Accumulated Amortization	(21,255)	(17,280)
Acquired Intangible Assets, Net Book Value	$ 37,359	20,134
Developed Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Weighted-Average Life (years)	5 years 7 months 6 days
Gross Carrying Amount	$ 54,455	35,855
Accumulated Amortization	(19,913)	(16,080)
Total	$ 34,542	19,775
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Weighted-Average Life (years)	6 years 3 months 18 days
Gross Carrying Amount	$ 2,700	1,000
Accumulated Amortization	(753)	(641)
Total	$ 1,947	359
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Weighted-Average Life (years)	5 years 4 months 24 days
Gross Carrying Amount	$ 1,419	519
Accumulated Amortization	(549)	(519)
Total	$ 870	0
Non-compete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Weighted-Average Life (years)	2 years
Gross Carrying Amount	$ 40	40
Accumulated Amortization	(40)	(40)
Total	$ 0	0
Internal-use Software [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Weighted-Average Life (years)	3 years
Gross Carrying Amount	$ 12,821	9,873
Accumulated Amortization	(2,474)	(1,446)
Total	$ 10,347	$ 8,427

XML

Goodwill and Intangible Assets - Schedule of Estimated Amortization Expense (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
2020 (for the remaining six months)	$ 6,285
2021	11,810
2022	8,939
2023	6,426
2024	3,871
2025 and thereafter	4,571
Total	$ 41,902

XML

Deferred Contract Acquisition and Fulfillment Costs (Details) - Contract Acquisition and Fulfillment Costs [Member] - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Capitalized Contract Costs [Roll Forward]
Beginning balance	$ 51,260	$ 39,955
Capitalization of contract acquisition and fulfillment costs	12,378	10,067
Amortization of deferred contract acquisition and fulfillment costs	(9,384)	(6,896)
Ending balance	$ 54,254	$ 43,126

XML

Debt - Additional Information (Details) $ / shares in Units, shares in Millions			1 Months Ended	6 Months Ended
	May 01, 2020 USD ($) $ / shares shares	Apr. 23, 2020 USD ($)	Aug. 31, 2018 USD ($) day $ / shares shares	Jun. 30, 2020 USD ($) $ / shares	Jun. 30, 2019 USD ($)	May 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Debt Instrument [Line Items]
Proceeds from convertible debt				$ 223,500,000	$ 0
Convertible Debt [Member]
Debt Instrument [Line Items]
Carrying amount of equity component				99,029,000			$ 99,029,000
Debt issuance costs, net				$ 9,058,000
Convertible Debt [Member] | Debt Covenant One [Member]
Debt Instrument [Line Items]
Threshold trading days | day			20
Threshold consecutive trading days | day			30
Threshold percentage of stock price trigger			130.00%
Convertible Debt [Member] | Debt Covenant Two [Member]
Debt Instrument [Line Items]
Threshold trading days | day			5
Threshold percentage of stock price trigger			98.00%
Convertible Debt [Member] | Debt Covenant Three [Member]
Debt Instrument [Line Items]
Threshold percentage of stock price trigger			130.00%
Redemption price, percentage			100.00%
2023 Notes [Member]
Debt Instrument [Line Items]
Strike price (in dollars per share) | $ / shares				$ 41.59
Equity component of convertible debt, subsequent adjustments			$ 26,910,000
2023 Notes [Member] | Call Option [Member]
Debt Instrument [Line Items]
Strike price (in dollars per share) | $ / shares			$ 41.59
Cap price (in dollars per share) | $ / shares			$ 63.98
Option indexed to issuer's equity (in shares) | shares			5.5
Equity component of convertible debt, subsequent adjustments			$ 26,900,000
2023 Notes [Member] | Convertible Debt [Member]
Debt Instrument [Line Items]
Face amount			$ 230,000,000.0
Interest rate			1.25%	1.25%
Proceeds from convertible debt			$ 223,100,000
Conversion ratio (in shares per $1000)			0.024046
Conversion price (in dollars per share) | $ / shares			$ 41.59
Carrying amount of equity component			$ 53,800,000	$ 52,194,000			52,194,000
Converted instrument, rate			7.36%
Debt issuance costs, net			$ 6,900,000	$ 3,534,000			4,032,000
Liability component			5,300,000
Issuance costs of equity component			$ 1,600,000
2023 Notes [Member] | Convertible Debt [Member] | Call Option [Member]
Debt Instrument [Line Items]
Option indexed to issuer's equity (in shares) | shares			5.5
2023 Notes [Member] | Convertible Debt [Member] | Debt Covenant Three [Member]
Debt Instrument [Line Items]
Threshold trading days | day			20
Threshold consecutive trading days | day			30
Redemption price, percentage			100.00%
2025 Notes [Member]
Debt Instrument [Line Items]
Strike price (in dollars per share) | $ / shares				$ 61.02
Equity component of convertible debt, subsequent adjustments	$ 27,255,000
2025 Notes [Member] | Call Option [Member]
Debt Instrument [Line Items]
Strike price (in dollars per share) | $ / shares	$ 61.02
Cap price (in dollars per share) | $ / shares	$ 93.88
Option indexed to issuer's equity (in shares) | shares	3.8
Equity component of convertible debt, subsequent adjustments	$ 27,300,000
2025 Notes [Member] | Convertible Debt [Member]
Debt Instrument [Line Items]
Face amount			$ 230,000,000.0
Interest rate			2.25%	2.25%
Proceeds from convertible debt			$ 222,800,000
Conversion ratio (in shares per $1000)	0.0163875
Conversion price (in dollars per share) | $ / shares			$ 61.02
Carrying amount of equity component	$ 48,300,000			$ 46,835,000			$ 46,835,000
Converted instrument, rate			7.85%
Debt issuance costs, net	7,200,000			5,524,000
Liability component	5,700,000
Issuance costs of equity component	$ 1,500,000
2025 Notes [Member] | Convertible Debt [Member] | Call Option [Member]
Debt Instrument [Line Items]
Option indexed to issuer's equity (in shares) | shares			3.8
Credit Agreement [Member]
Debt Instrument [Line Items]
Long-term line of credit				$ 0
Credit Agreement [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Current borrowing capacity		$ 30,000,000.0				$ 50,000,000.0
Fee amount		$ 400,000
Commitment fee percentage		0.20%
Credit sublimit		$ 15,000,000.0
Credit Agreement [Member] | Letter of Credit [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity		$ 70,000,000.0
Credit Agreement [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Basis spread on variable rate		2.50%
Credit Agreement [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate		1.00%
Credit Agreement [Member] | Base Rate [Member]
Debt Instrument [Line Items]
Basis spread on variable rate		0.00%

XML

Debt - Details of Notes (Details) shares in Millions		1 Months Ended
	May 01, 2020 shares	Aug. 31, 2018 $ / shares shares
2023 Notes [Member] | Call Option [Member]
Debt Instrument [Line Items]
Option indexed to issuer's equity (in shares)		5.5
2023 Notes [Member] | Convertible Debt [Member]
Debt Instrument [Line Items]
Conversion ratio (in shares per $1000)		0.024046
Conversion price (in dollars per share) | $ / shares		$ 41.59
2023 Notes [Member] | Convertible Debt [Member] | Call Option [Member]
Debt Instrument [Line Items]
Option indexed to issuer's equity (in shares)		5.5
2025 Notes [Member] | Call Option [Member]
Debt Instrument [Line Items]
Option indexed to issuer's equity (in shares)	3.8
2025 Notes [Member] | Convertible Debt [Member]
Debt Instrument [Line Items]
Conversion ratio (in shares per $1000)	0.0163875
Conversion price (in dollars per share) | $ / shares		$ 61.02
2025 Notes [Member] | Convertible Debt [Member] | Call Option [Member]
Debt Instrument [Line Items]
Option indexed to issuer's equity (in shares)		3.8

XML

Debt - Carrying Amount of Liability Component (Details) - Convertible Debt [Member] - USD ($) $ in Thousands	Jun. 30, 2020	May 01, 2020	Dec. 31, 2019	Aug. 31, 2018
Debt Instrument [Line Items]
Principal	$ 460,000
Unamortized debt discount	(82,781)
Unamortized issuance costs	(9,058)
Net carrying amount	368,161
2023 Notes [Member]
Debt Instrument [Line Items]
Principal	230,000		$ 230,000
Unamortized debt discount	(35,728)		(40,768)
Unamortized issuance costs	(3,534)		(4,032)	$ (6,900)
Net carrying amount	190,738		$ 185,200
2025 Notes [Member]
Debt Instrument [Line Items]
Principal	230,000
Unamortized debt discount	(47,053)
Unamortized issuance costs	(5,524)	$ (7,200)
Net carrying amount	$ 177,423

XML

Debt - Carrying Amount of Equity Component (Details) - Convertible Debt [Member] - USD ($) $ in Thousands	Jun. 30, 2020	May 01, 2020	Dec. 31, 2019	Aug. 31, 2018
Debt Instrument [Line Items]
Debt discount for conversion option	$ 102,166		$ 102,166
Issuance costs	(3,137)		(3,137)
Net carrying amount	99,029		99,029
2023 Notes [Member]
Debt Instrument [Line Items]
Debt discount for conversion option	53,820		53,820
Issuance costs	(1,626)		(1,626)
Net carrying amount	52,194		52,194	$ 53,800
2025 Notes [Member]
Debt Instrument [Line Items]
Debt discount for conversion option	48,346		48,346
Issuance costs	(1,511)		(1,511)
Net carrying amount	$ 46,835	$ 48,300	$ 46,835

XML

Debt - Schedule of Interest Expense (Details) - Convertible Debt [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Debt Instrument [Line Items]
Contractual interest expense	$ 1,582	$ 718	$ 2,301	$ 1,437
Amortization of debt discount	3,836	2,361	6,332	4,645
Amortization of issuance costs	403	233	650	459
Total interest expense	5,821	3,312	9,283	6,541
2023 Notes [Member]
Debt Instrument [Line Items]
Contractual interest expense	719	718	1,438	1,437
Amortization of debt discount	2,543	2,361	5,039	4,645
Amortization of issuance costs	251	233	498	459
Total interest expense	3,513	3,312	6,975	6,541
2025 Notes [Member]
Debt Instrument [Line Items]
Contractual interest expense	863	0	863	0
Amortization of debt discount	1,293	0	1,293	0
Amortization of issuance costs	152	0	152	0
Total interest expense	$ 2,308	$ 0	$ 2,308	$ 0

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Debt - Impact to Shareholders' Equity (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended	6 Months Ended
	May 01, 2020	Aug. 31, 2018	Jun. 30, 2020	Jun. 30, 2020
Debt Instrument [Line Items]
Total			$ 46,835	$ 46,835
2023 Notes [Member]
Debt Instrument [Line Items]
Conversion option		$ 53,820
Purchase of capped calls		(26,910)
Issuance costs		(1,626)
Total		$ 25,284
2025 Notes [Member]
Debt Instrument [Line Items]
Conversion option	$ 48,346
Purchase of capped calls	(27,255)
Issuance costs	(1,511)
Total	$ 19,580

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Leases - Additional Information (Details)	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Lessee, Lease, Description [Line Items]
Lease term	8 years 2 months 12 days	8 years 8 months 12 days
Renewal term	5 years
Termination period	6 years
Office Building [Member]
Lessee, Lease, Description [Line Items]
Lease term	10 years 4 months 24 days

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Leases - Summary of Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Leases [Abstract]
Operating lease cost	$ 3,881	$ 3,055	$ 7,252	$ 5,022
Short-term lease costs	224	137	514	286
Variable lease costs	1,367	592	2,289	1,009
Total lease costs	$ 5,472	$ 3,784	$ 10,055	$ 6,317

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Leases - Summary of Supplemental Balance Sheet Information Related to Operating Leases (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Leases [Abstract]
Operating lease right-of-use (ROU) assets	$ 72,005	$ 60,984
Operating lease liabilities, current portion	9,436	7,179
Operating lease liabilities, non-current portion	80,081	72,294
Total operating lease liabilities	$ 89,517	$ 79,473
Weighted average remaining lease term (in years) - operating leases	8 years 2 months 12 days	8 years 8 months 12 days
Weighted average discount rate - operating leases	7.70%	7.60%

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Leases - Summary of Supplemental Cash Flow Information Related to Leases (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Leases [Abstract]
Cash paid for amounts included in the measurement of lease liabilities	$ 2,524	$ 2,578	$ 6,360	$ 4,506
Operating lease ROU assets obtained in exchange for new lease obligations	$ 11,607	$ 58,906	$ 15,597	$ 60,772

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Leases - Summary of Maturities of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Leases [Abstract]
2020 (for the remaining six months)	$ 6,837
2021	16,380
2022	13,721
2023	13,954
2024	13,253
2025 and thereafter	53,501
Total lease payments	117,646
Less: imputed interest	(28,129)
Total	$ 89,517	$ 79,473

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Stock-Based Compensation Expense - Schedule of Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation	$ 16,446	$ 10,430	$ 29,793	$ 19,064
Cost of Revenue [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation	1,131	718	2,062	1,291
Research and Development [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation	6,389	4,054	11,034	7,228
Sales and Marketing [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation	4,345	2,942	8,023	5,406
General and Administrative [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation	$ 4,581	$ 2,716	$ 8,674	$ 5,139

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Stock-Based Compensation Expense - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended		6 Months Ended
	Mar. 15, 2020	Sep. 13, 2019	Mar. 15, 2019	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Mar. 13, 2020	Sep. 17, 2018	Mar. 16, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period						4 years
Share-based payment arrangement, expense				$ 16,446	$ 10,430	$ 29,793	$ 19,064
Purchase price of common stock by employees						85.00%
Issuance of common stock under employee stock purchase plan						$ 3,346	$ 2,634
Employee Stock Purchase Plan [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee withholding percentage						15.00%
2020 Bonus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based payment arrangement, expense				400		$ 800
Restricted Stock and Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense				145,200		$ 145,200
Unrecognized compensation expense, recognition period						2 years 7 months 6 days
Options to Purchase Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense, recognition period						9 months 18 days
Unrecognized compensation cost, stock options				$ 1,400		$ 1,400
Stock options vested, fair value						$ 1,300
Employee Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock issued to employees (in shares)	101,806	74,221	110,822
Issuance of common stock under employee stock purchase plan	$ 3,300	$ 2,900	$ 2,600
Share issued, price per share (in dollars per share)	$ 32.87	$ 42.22							$ 30.46	$ 21.96
Closing price of shares issued (in dollars per share)		$ 49.67						$ 38.67	$ 35.84	$ 25.84

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Stock-Based Compensation Expense - Summary of Restricted Stock and Restricted Stock Unit Activity (Details) - Restricted Stock Units (RSUs) [Member]	6 Months Ended
	Jun. 30, 2020 $ / shares shares
Shares
Unvested balance, Beginning balance (in shares) | shares	2,936,924
Granted (in shares) | shares	1,548,989
Vested (in shares) | shares	(723,742)
Forfeited (in shares) | shares	(122,463)
Unvested balance, Ending balance (in shares) | shares	3,639,708
Weighted-Average Grant Date Fair Value
Unvested balance, Beginning balance (in dollars per share) | $ / shares	$ 32.43
Granted (in dollars per share) | $ / shares	56.48
Vested (in dollars per share) | $ / shares	32.01
Forfeited (in dollars per share) | $ / shares	36.03
Unvested balance, Ending Balance (in dollars per share) | $ / shares	$ 42.65

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Stock-Based Compensation Expense - Summary of Stock Option Activity (Details) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2020 USD ($) $ / shares shares
Shares
Outstanding, Beginning balance (in shares) | shares	2,705,458
Granted (in shares) | shares	0
Exercised (in shares) | shares	(284,962)
Forfeited/canceled (in shares) | shares	(16,484)
Outstanding, Ending balance (in shares) | shares	2,404,012
Vested and exercisable (in shares) | shares	2,171,711
Weighted Average Exercise Price
Outstanding, Beginning balance (in dollars per share) | $ / shares	$ 10.18
Granted (in dollars per share) | $ / shares	0
Exercised (in dollars per share) | $ / shares	13.10
Forfeited/canceled (in dollars per share) | $ / shares	17.01
Outstanding, Ending balance (in dollars per share) | $ / shares	9.79
Vested and exercisable (in dollars per share) | $ / shares	$ 9.20
Weighted Average Remaining Contractual Life (in years)
Outstanding	4 years 6 months
Vested and exercisable	4 years 3 months 18 days
Aggregate Intrinsic Value
Exercised | $	$ 10,137
Outstanding | $	99,113
Vested and exercisable | $	$ 90,811

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Net Loss per Share - Summary of Basic and Diluted Net Loss Per Share of Common Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Numerator:
Net loss	$ (21,466)	$ (13,420)	$ (44,390)	$ (25,093)
Denominator:
Weighted-average common shares outstanding, basic and diluted (in shares)	50,695,706	48,451,562	50,411,508	48,141,474
Net loss per share attributable to common stockholders, basic and diluted (in dollars per share)	$ (0.42)	$ (0.28)	$ (0.88)	$ (0.52)

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Net Loss per Share - Summary of Antidilutive Securities Excluded From Computation Diluted Weighted Average Shares Outstanding (Details) - $ / shares	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	6,322,242	6,697,666
2023 Notes [Member]
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Strike price (in dollars per share)	$ 41.59
2025 Notes [Member]
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Strike price (in dollars per share)	$ 61.02
Unvested Restricted Stock Units [Member]
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	3,639,708	3,513,781
Common Stock [Member]
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	200,596	0
Employee Stock Purchase Plan [Member]
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	77,926	46,331
Convertible Debt Securities [Member] | 2023 Notes [Member]
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	5,500,000
Convertible Debt Securities [Member] | 2025 Notes [Member]
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	3,800,000
Options to Purchase Common Stock [Member]
Schedule Of Calculation Of Numerator And Denominator In Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share amount (in shares)	2,404,012	3,137,554

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Commitments and Contingencies - Additional Information (Details)	1 Months Ended
	Oct. 31, 2018 patent
Commitments and Contingencies Disclosure [Abstract]
Number of patents allegedly infringed	7

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Segment Information and Information about Geographic Areas - Additional Information (Details)	6 Months Ended
	Jun. 30, 2020 Segment
Segment Reporting [Abstract]
Number of operating segments	1

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Segment Information and Information about Geographic Areas - Net Revenues of Customer by Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Entity Wide Portfolio Carrying Amount, Major Customer [Line Items]
Net revenues, Total	$ 98,912	$ 78,959	$ 193,252	$ 152,144
North America [Member]
Entity Wide Portfolio Carrying Amount, Major Customer [Line Items]
Net revenues, Total	79,457	64,106	155,295	124,046
Other [Member]
Entity Wide Portfolio Carrying Amount, Major Customer [Line Items]
Net revenues, Total	$ 19,455	$ 14,853	$ 37,957	$ 28,098

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Segment Information and Information about Geographic Areas - Property and Equipment, Net By Geographic Area (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net, Total	$ 48,904	$ 50,670
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net, Total	43,349	42,570
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Property and equipment, net, Total	$ 5,555	$ 8,100

XML

Label	Element	Value
Restricted Cash and Cash Equivalents	us-gaap_RestrictedCashAndCashEquivalents	$ 0
Restricted Cash and Cash Equivalents	us-gaap_RestrictedCashAndCashEquivalents	$ 1,283,000