Company Overview August 6, 2018
This presentation contains forward-looking statements. All statements contained in this presentation other than statements of historical facts, including, without limitation, statements regarding our market opportunity, demand for our product and service offerings, expectations regarding our annualized recurring revenue (ARR), ARR growth per customer, compounded annualized growth rate (CAGR), and our non-gaap measures, our transition to subscription, our business strategy, plans and objectives for future operations, the expected impact of ASC 606 on our financial statements and expectations regarding non-gaap targets, and our future financial and business performance for the third quarter and full-year 2018, are forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, risks related to our rapid growth and ability to sustain our revenue growth rate, the ability of our products and professional services to correctly detect vulnerabilities, competition in the markets in which we operate, market growth, our ability to innovate and manage our growth, our ability to operate in compliance with applicable laws as well as other risks and uncertainties set forth in the Risk Factors section of our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended March 31, 2018 filed with the Securities and Exchange Commission on May 9, 2018, and subsequent reports that we file with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after the date of this presentation to conform these statements to actual results or revised expectations, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this presentation.. This presentation also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Neither we nor any other person makes any representation as to the accuracy or completeness of such data or undertakes any obligation to update such data after the date of this presentation. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk. This presentation also contains certain non-gaap financial measures as defined by the SEC rules. These non-gaap financial measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-gaap financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-gaap financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-gaap financial measures as tools for comparison. Please refer to our August 6, 2018 press release for additional information as to why we believe these non-gaap financial measures are useful to investors and others in assessing our operating results. As required by Regulation G, we have provided a reconciliation of those measures to their most directly comparable GAAP measures, which is available in the end notes to this presentation. However, we have not reconciled our expectations as to non-gaap measures in future periods to their most directly comparable GAAP measure because certain costs and expenses, namely stock-based compensation expense, are out of our control or cannot be reasonably predicted. Accordingly, reconciliation is not available without unreasonable effort, although it is important to note that these factors could be material to our results computed in accordance with GAAP. 2
REVENUES
We combine: Threat intelligence and security research Data collection and analytics on the Rapid7 Insight platform Our products provide: Visibility into security vulnerabilities Visibility into active threats in your environment Visibility across the network and endpoints Analytics to prioritize risk management, detection and response Workflows and automation to investigate and remediate 4
Common Vulnerabilities & Exposures (CVE s) in National Vulnerability Database 94,606 EXPANDING SECURITY MANAGEMENT GAP Decades Backlog in Security Maintenance Growth in devices per user Expanding applications per user Low IT headcount budget growth Major cybersecurity skills gap 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 New CVE s more than doubled last year NIST National Vulnerability Database New CVE's Reported Total CVE's 5
AUTOMATION InsightVM InsightIDR InsightAppSec Komand InsightOps InsightPhish AUTOMATION CLOUD BASED SERVICES SHARED PLATFORM SERVICES SEARCH ANALYZE VISUALIZE REPORT INTEGRATE PERSISTED DATA ANALYTICAL POOLS HIGH VOLUME STORAGE CONTEXTUAL PROCESSING USER ATTRIBUTION DEVICE ATTRIBUTION DATA NORMALIZATION CONTEXTUAL TAGGING DATA COLLECTORS ENDPOINT AGENTS LOG COLLECTORS API INTERROGATOR SCAN ENGINES DATA TYPES ASSET CONFIGURATION ASSET INVENTORY USER PROFILES ENDPOINT ACTIVITY LOG DATA NETWORK ACTIVITY THIRD PARTY 6
Emergence of Analytics Evolution of Operations Position Market & Potential Average Subscription ARR Sources of Growth 7
Live Vulnerability and Endpoint Analytics Collect Prioritize Remediate 8
2017 SIEM Magic Quadrant Rapid7 has already implemented what VRM will look like in the future" Highest Scores in Strategy and Current Offering Categories Rapid7 s InsightVM solution has a dashboard that not only breaks out risk exposure quantitatively but includes a prioritized list of active campaigns to which customers are exposed, allowing them to strategically patch in response to actual threat intelligence. Rapid7 leverages the same agent for endpoint detection and response as well as VRM to ease deployment, management, and, most importantly, to marry all your endpoint data at the point of collection. 9
Detect attacks earlier Unify Detect Prioritize 10
2017 SIEM Magic Quadrant Rapid7 highest ranked Visionary in first placement on Magic Quadrant Easy deployment and immediate benefits. CISO in the Services Industry Unlike other SIEM solutions, you don't need a dedicated FTE for this one. Simple, elegant. VP, Information Security Officer in the Finance Industry Great replacement for the standard SIEM VP of IT in the Retail Industry (Source: Gartner Peer Insights) https://www.gartner.com/reviews/review/view/258989 https://www.gartner.com/reviews/review/view/257556 https://www.gartner.com/reviews/review/view/279469 11
Our Current TAM The SecOps Opportunity SIEM 33% Policy & Compliance 20% IT Operations Analytics - Public Cloud 5% $6.9bn Forensics & Incident Management 9% Vulnerability Assessment 33% Forensics & Incident Management 3% SIEM 10% Policy & Compliance 6% $22.2bn IT Operations Management Software 40% vulnerability assessment software ( fastest spending growth Vulnerability Assessment 11% IT Automation & Configuration Management Software 30% Rapid7 analysis based on IDC market data 2017 * 2015-2020 CAGR; Worldwide Spending on Security Technology Forecast to Reach $81.7 Billion 12 in 2017, According to New IDC Spending Guide, 29 MAR 2017
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FINANCIAL OVERVIEW 14
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$200m $150m 28% YoY $100m $50m 29% YoY $0m -$50m 2012 2013 2014 2015 2016 2017 1H 16 1H 17 1H 18* Total Revenue Loss from Operations (non-gaap) Cash from operating activities *1H 18 under ASC 605 16
*Q1 18 and Q2 18 under ASC 605
$250m 50% $200m 45% $150m 40% $100m $50m $0m Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 35% 30% 25% ARR ARR Growth 18
$30,000 $27,519 35% $25,000 $20,000 $19,529 $20,220 $20,979 $22,049 $23,457 $24,996 30% 25% $15,000 20% 15% $10,000 10% $5,000 5% $0 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 0% ARR per Customer YoY Growth 19
111% 126% 120% 122% 120% 119% 119% 122% 120% 122% 85% 88% 89% 89% 88% 88% 89% 89% 89% 89% End Notes for additional information and definitions 20
$800.0 $700.0 $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0 2010 2011 2012 2013 2014 2015 2016 2017 41% 35% 36% 31% 30% 29% 29% 2010 Cohort 2011 Cohort 2012 Cohort 2013 Cohort 2014 Cohort 2015 Cohort 2016 Cohort 2017 Cohort
Gross Margin (non-gaap) Sales & Marketing (non-gaap) Research & Development (non-gaap) General & Administrative (non-gaap) Operating Loss (non-gaap) 76% 74% 74% 74% 74% 53% 53% 53% 50% 52% 27% 22% 21% 24% 21% -13% -13% -12% -9% 15% 12% 12% 11% 10% -19% 2016 2017 Q2 17 Q1 18 Q2 18 2016 2017 Q2 17 Q1 18 Q2 18 2016 2017 Q2 17 Q1 18 Q2 18 2016 2017 Q2 17 Q1 18 Q2 18 2016 2017 Q2 17 Q1 18 Q2 18 All Q1 18 and Q2 18 data based on ASC 605 - See End Notes for additional information and definitions 23
Line Item Perpetual Licenses With content subscriptions Ratable* Ratable over economic life (5 years) Without content subscriptions Ratable* Upfront Term Licenses Without content subscription Ratable* Upfront Product Revenues $41.0m $39.0m $(2.0)m Maintenance and Support Revenues $11.6m Change in allocation method $10.6 $(1.0)m Professional Services Revenues Bundled deployment and training Standalone services Ratable* As delivered $9.0m As delivered As delivered $8.8m $(0.2)m Commissions Expense Expensed as incurred Deferred and recognized over estimated period of benefit for new bookings or contract term for renewals $(2.8)m Current Deferred Revenues Ratable recognition of certain perpetual licenses to 5 years $(9.5)m Non-current Deferred Revenues Ratable recognition of certain perpetual licenses to 5 years $17.4m Deferred contract acquisition and fulfillment costs Costs to obtain contracts with customers are deferred $31.7m **Recognized ratably over the customer s contract period
Landing Renewing Driving Up-Sell Expanding Cross-Sell +10% YoY Customer Growth* 122% $ Based Renewal Rate* 3.8x Increase in Initial Spend Over 5 Years (2010, 2011 and 2012 customer cohorts) 1.5x Avg Solutions Per Customer*
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Supplemental 28
Total Revenue $58.6 to $60.0 m $237.0 to $240.0 m $61.7 to $63.1 m $250.0 to $253.0 m $(3.1) m $(13.0) m Non-GAAP Operating Loss $(7.3) to $(5.9) m $(25.0) to $(22.0) m $(6.6) to $(5.2) m $(24.5) to $(21.5) m $(0.7) m $(0.5) m Non-GAAP Loss Per Share $(0.15) to $(0.12) $(0.52) to $(0.45) Weighted-average common shares outstanding 47.1 m 46.6 m
With content subscriptions Without content subscriptions With content subscriptions Without content subscriptions Bundled deployment and training Standalone services
Three Months Ended June 30, Six Months Ended June 30, 2018 2018 2017 2018 2018 2017 606 605 605 606 605 605 Net loss $ (14,333) $ (14,015) $ (11,637) $ (30,694) $ (28,403) $ (22,182) Interest (income) expense, net (464) (464) (218) (705) (705) (387) Other (income) expense, net 326 326 (229) 248 248 (114) Provision for income taxes 131 131 187 226 226 316 Depreciation expense 1,642 1,642 1,130 3,025 3,025 2,268 Amortization of intangible assets 1,036 1,036 483 2,052 2,052 968 Stock-based compensation expense 7,350 7,350 5,171 13,575 13,575 9,450 Acquisition-related expenses 80 80 Secondary public offering costs 65 65 205 205 Litigation-related expenses 400 400 Adjusted EBITDA $ (4,247 ) $ (3,929 ) $ (5,033 ) $ (11,668 ) $ (9,377 ) $ (9,601 ) 31
Three Months Ended June 30, Six Months Ended June 30, 2018 2018 2017 2018 2018 2017 606 605 605 606 605 605 Total revenue $ 58,441 $ 61,577 $ 47,443 $ 112,956 $ 119,778 $ 92,688 Add: Deferred revenue, end of period 224,400 216,499 180,429 224,400 216,499 180,429 Less: Deferred revenue, beginning of period 218,898 214,066 167,647 225,393 224,500 169,063 Calculated billings $ 63,943 $ 64,010 $ 60,225 $ 111,963 $ 111,777 $ 104,054 32
(unaudited, in thousands) Three Months Ended June 30, Six Months Ended June 30, 2018 2018 2017 2018 2018 2017 606 605 605 606 605 605 Total gross profit (GAAP) $ 41,048 $ 44,210 $ 34,364 $ 78,969 $ 85,796 $ 67,345 Add: Stock-based compensation expense 1 469 469 308 843 843 510 Add: Amortization of acquired intangible assets 2 893 893 439 1,801 1,801 878 Total gross profit (non-gaap) $ 42,410 $ 45,572 $ 35,111 $ 81,613 $ 88,440 $ 68,733 Gross margin (non-gaap) 72.6 % 74.0 % 74.0 % 72.3% 73.8 % 74.2 % Gross profit (GAAP) - Products $ 29,393 $ 31,417 $ 21,611 $ 56,236 $ 60,719 $ 42,843 Add: Stock-based compensation expense 157 157 90 282 282 150 Add: Amortization of acquired intangible assets 893 893 439 1,801 1,801 878 Total gross profit (non-gaap) - Products $ 30,443 $ 32,467 $ 22,140 $ 58,319 $ 62,802 $ 43,871 Gross margin (non-gaap) - Products 78.0 % 79.1 % 81.5 % 78.5% 79.7 % 82.6 % Gross profit (GAAP) - Maintenance and support $ 8,603 $ 9,551 $ 9,488 $ 17,507 $ 19,384 $ 18,412 Add: Stock-based compensation expense 60 60 81 88 88 141 Total gross profit (non-gaap) - Maintenance and support $ 8,663 $ 9,611 $ 9,569 $ 17,595 $ 19,472 $ 18,553 Gross margin (non-gaap) - Maintenance and support 81.6 % 83.2 % 84.4 % 82.4 % 83.8 % 83.8 % Gross profit (GAAP) - Professional services $ 3,052 $ 3,242 $ 3,265 $ 5,226 $ 5,693 $ 6,090 Add: Stock-based compensation expense 252 252 137 473 473 219 Total gross profit (non-gaap) - Professional services $ 3,304 $ 3,494 $ 3,402 $ 5,699 $ 6,166 $ 6,309 Gross margin (non-gaap) - Professional services 37.6 % 38.9 % 38.1 % 33.0 % 34.8 % 36.2 % 33
(unaudited, in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2018 2018 2017 2018 2018 2017 606 605 605 606 605 605 Loss from operations (GAAP) $ (14,340) $ (14,022) $ (11,897) $ (30,925) $ (28,634) $ (22,367) Add: Stock-based compensation expense 1 7,350 7,350 5,171 13,575 13,575 $ 9,450 Add: Amortization of acquired intangible assets 2 933 933 483 1,881 1,881 $ 968 Add: Acquisition-related expenses 3 80 80 Add: Secondary public offering costs 4 65 65 205 205 Add: Litigation-related expenses 5 400 400 Loss from operations (non-gaap) $ (5,992 ) $ (5,674 ) $ (6,163 ) $ (14,864) $ (12,573 ) $ (11,869 ) Net loss (GAAP) $ (14,333 ) $ (14,015 ) $ (11,637 ) $ (30,694) $ (28,403 ) $ (22,182 ) Add: Stock-based compensation expense 1 7,350 7,350 5,171 13,575 13,575 9,450 Add: Amortization of acquired intangible assets 2 933 933 483 1,881 1,881 968 Add: Acquisition-related expenses 3 80 80 Add: Secondary public offering costs 4 65 65 205 205 Add: Litigation-related expenses 5 400 400 Net loss (non-gaap) $ (5,985 ) $ (5,667 ) $ (5,903 ) $ (14,633) $ (12,342 ) $ (11,684 ) Net loss per share, basic and diluted (non-gaap) $ (0.13 ) $ (0.12 ) $ (0.14 ) $ (0.32 ) $ (0.27 ) $ (0.28 ) Weighted-average common shares outstanding, basic and diluted 46,279,947 46,279,947 42,681,287 45,746,513 45,746,513 42,395,450 1 Includes stock-based compensation expense as follows: Cost of revenue $ 469 $ 469 $ 308 $ 843 $ 843 $ 510 Research and development 2,850 2,850 1,689 5,416 5,416 3,202 Sales and marketing 2,055 2,055 1,779 3,618 3,618 3,182 General and administrative 1,976 1,976 1,395 3,698 3,698 2,556 2 Includes amortization of acquired intangible assets as follows: Cost of revenue $ 893 $ 893 $ 439 $ 1,801 $ 1,801 $ 878 Sales and marketing 38 38 39 77 77 76 General and administrative 2 2 5 3 3 14 3 Includes acquisition-related expenses as follows: General and administrative $ $ $ 80 $ $ $ 80 4 Includes secondary public offering costs as follows: General and administrative $ 65 $ 65 $ $ 205 $ 205 $ 5 Includes litigation-related expenses as follows: General and administrative $ $ $ $ 400 $ 400 $ 34
$63.9m 85% Recorded as deferred revenue and to be recognized in future periods 15% Converts to revenue and is recognized as revenue in the current quarter 17% $58.4m Recognized as revenue from deferred revenue as of Apr 1 (from prior period billings) 83% See End Notes for additional information and definitions 35
$64.0m 87% Recorded as deferred revenue and to be recognized in future periods 13% Converts to revenue and is recognized as revenue in the current quarter 13% $61.6m Recognized as revenue from deferred revenue as of Apr 1 (from prior period billings) 87% See End Notes for additional information and definitions 36
15% 20% 65% Perpetual Content Subscription Maintenance & Support 37
Page 17 Recurring revenue is defined as revenue from the sale of term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support calculated as % of total revenue. Page 20 Renewal rate is calculated by dividing the dollar value of renewed customer agreements, including upsells and cross-sells of additional products, but excluding professional services and Logentries, in a trailing 12-month period by the dollar value of the corresponding customer agreements. Expiring renewal rate is calculated similar to the renewal rate however does not take into account any upsells or cross-sells. Page 23 Non-GAAP gross margins represent the GAAP gross profit, excluding stock-based compensation expense and amortization of acquired intangible assets calculated as a % of revenue. See GAAP to Non-GAAP reconciliation. Operating expenses and operating income margin presented are on a non-gaap basis and exclude stock-based compensation expense, amortization of acquired intangible assets, and certain non-recurring items such as acquisition-related expenses, secondary public offering costs and litigation-related expenses. Page 29 Guidance for the third quarter and full-year 2018 does not include any potential impact of foreign exchange gains or losses. Non-GAAP guidance excludes estimates for stock-based compensation expense, amortization of acquired intangible assets, and acquisition-related expenses and certain non-recurring items. A reconciliation of non-gaap guidance measures to the most comparable GAAP measures is not available on a forward-looking basis. Rapid7 has provided a reconciliation of historical non-gaap financial measures to the most comparable GAAP measures in the financial statement tables included in these End Notes. The guidance provided reflects the impact of ASC 606, which Rapid7 has adopted for its fiscal year 2018 using the modified retrospective transition method in order to provide additional transparency. In addition to the guidance under ASC 606, this quarter, Rapid7 is providing guidance for revenue and non-gaap operating loss under ASC 605 for the third quarter and full-year 2018, and an estimate of the changes to its guidance resulting from the transition from ASC 605 to ASC 606. Rapid7 believes that providing this additional disclosure will help investors and analysts better understand the impact that the adoption of ASC 606 has on Rapid7 s guidance and reported results. 38