company overview - rapid7

COMPANY OVERVIEWNovember 6, 2018

Rapid7 Proprietary2

DISCLAIMERSThis 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 and convertible note offering on our financial statements and expectations regarding non-GAAP targets, and our future financial and business performance for the fourth quarter and full-year 2018, are forward-looking statements.

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 November 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.

Rapid7 Proprietary3

RAPID7 SNAPSHOT

▪ 2017 revenues of over $200m

▪ 7,399 customers as of Q3 2018, 10% growth

▪ 81% of revenue* was recurring in Q3 2018, ARR grew +46% year-over-year

▪ Strong renewals and up-sells/cross-sells drive 120% renewal rate for Q3 2018

Our mission is to lead the emerging SecOps movement through our multi-product Analytics and Automation Cloud

REVENUES

Rapid7 Proprietary4

WHAT WE DO

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

Rapid7 Proprietary5

UNDERSTANDING THE SHIFT

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

NIST National Vulnerability Database

94,606

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Common Vulnerabilities & Exposures (CVE’s)in National Vulnerability Database

New CVE's Reported Total CVE's

New CVE’s more than doubled last year

Rapid7 Proprietary6

AUTOMATION

AUTOMATION

SEARCH ANALYZE VISUALIZE REPORT

ANALYTICAL POOLS

DATA NORMALIZATIONUSER ATTRIBUTION DEVICE ATTRIBUTION

INTEGRATE

HIGH VOLUME STORAGE

CONTEXTUAL TAGGING

SHARED PLATFORM SERVICES

PERSISTED DATA

CONTEXTUALPROCESSING

CLOUD BASED SERVICES

SCANENGINES

ENDPOINT AGENTS

LOGCOLLECTORS

APIINTERROGATOR

ASSETINVENTORY

ASSETCONFIGURATION

USER PROFILES

LOGDATA

ENDPOINT ACTIVITY

THIRDPARTY

NETWORKACTIVITY

DATA TYPES

DATA COLLECTORS

InsightVM InsightIDR InsightAppSec InsightOpsKomand

POWERFUL ANALYTICS AND AUTOMATION CLOUD

InsightPhishInsightVM InsightIDR InsightAppSec InsightOpsInsightConnect InsightPhishing

Rapid7 Proprietary7

Position Disruptor Leader Leader Disruptor Disruptor

Market & Potential Average Subscription ARR

SIEM & IDR~$50k

Application Security~$35k

VulnerabilityManagement

~$40k

Automation & Orchestration

TBDLog Analytics

~$10k

Sources of Growth

Mid MarketLegacy Displacement

Managed ServiceEnterprise Expansion

Mid MarketLegacy Displacement

Managed ServiceEnterprise Expansion

Mid MarketLegacy DisplacementAsset Management

Enterprise Expansion

Mid MarketSecDevOps Expansion

Patch and Configuration

Mid MarketDevOps Expansion

Consolidation

LAND WITH DIFFERENTIATED SOLUTIONSEmergence of Analytics Evolution of Operations

Rapid7 ProprietaryRapid7 Proprietary8

Live Vulnerability and Endpoint Analytics

Collect Prioritize Remediate

Rapid7 Proprietary9

The Forrester WaveTM

Vulnerability Risk Management, Q1 2018

• 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.”

“Rapid7 has already implemented what VRM will look like in the future"

Rapid7 ProprietaryRapid7 Proprietary10

Detect attacks earlier

Unify Detect Prioritize

Rapid7 Proprietary11

Rapid7 highest ranked “Visionary” in first placement on Magic QuadrantGartner

2017 SIEM 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)


Forensics & Incident Management

3%

Vulnerability Assessment

11%

SIEM10%

Forensics & Incident Management

9%

12

$6.9bn

$22.2bn

Our Current TAM The SecOps Opportunity

Policy & Compliance

6%

IT Operations Analytics - Public

Cloud 5%

IT Operations Management

Software 40%

IT Automation & Configuration Management

Software 30%

INNOVATION-DRIVEN TAM EXPANSION

Vulnerability Assessment

33%

Policy & Compliance

20%

SIEM33%

The technology categories that will see the fastest spending growth over the 2015-2020 forecast period are • device vulnerability assessment software (16.0%*)• software vulnerability assessment (14.5%*)• managed security services (12.2%*)• user behavioral analytics (12.2%*)• UTM hardware (11.9%*).

Rapid7 analysis based on IDC market data 2017 * 2015-2020 CAGR; Worldwide Spending on Security Technology Forecast to Reach $81.7 Billion in 2017, According to New IDC Spending Guide, 29 MAR 2017


PARTNER ECOSYSTEM

▪

▪

▪

▪

▪

▪

▪

▪

▪

Rapid7 has more than 80 Platform integrations with partners


FINANCIAL OVERVIEW


>30% ARR CAGR targeted through 2020(4)

Expect to be Non-GAAP Operating Income positive for 2019(4)

ARR growth of 46% YoY(1)

Operating Cash Flow positive for

FY’16 and FY’17

FINANCIAL HIGHLIGHTS

Recurring revenue

81% of total revenue(1)(2)

3.8x increase in initial customer

spend over 5 years(3)


GROWTH HISTORY

$46.0$60.0

$76.9

$110.5

$157.4

$200.9

$112.40

$143.20

$185.28

-$50m

$0m

$50m

$100m

$150m

$200m

2012 2013 2014 2015 2016 2017 Q3 16 YTD Q3 17 YTD Q3 18 YTD*

Total Revenue Loss from Operations (non-GAAP) Cash from operating activities

28% YoY

29% YoY*


INCREASING RECURRING REVENUE

• Recurring revenue is 81% of total revenues

• Recurring revenue is growing over 48%, y-o-y

65.4% 64.6%66.6% 65.6%67.2% 67.4% 67.7%

65.8%

68.6%69.5%

70.5%69.6%

74.9%76.8%

80.7%

60%

65%

70%

75%

80%

85%

90%

$0m

$10m

$20m

$30m

$40m

$50m

$60m

Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18* Q2 18* Q3 18*Recurring Revenues Non-Recurring Revenues % of total revenues that is recurring


ANNUALIZED RECURRING REVENUE

▪ ARR definition: We define ARR as the annualized value of all recurring revenue related contracts in place at the end of the quarter

▪ Has maintained 30%+ growth

▪ ARR - best indicator of the growth of the business

25%

30%

35%

40%

45%

50%

$0m

$50m

$100m

$150m

$200m

$250m

Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18

ARR ARR Growth


ARR PER CUSTOMER

▪ ARR per customer now at $29,382

▪ Growth in ARR per customer is accelerating

▪ Shift to subscription increased ARR opportunity

▪ Up-sell and cross-sell opportunity is significant

$19,529 $20,220$20,979

$22,049$23,457

$24,996

$27,519

$29,382

0%

5%

10%

15%

20%

25%

30%

35%

40%

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18

ARR per Customer YoY Growth


STRONG RENEWAL RATES

111%

126%120% 122% 120% 119% 119% 122% 120% 122% 120%

85% 88% 89% 89% 88% 88% 89% 89% 89% 89% 90%

Renewal rates remain strong due to combination of renewals, up-sells and cross-sells, driving better customer economics.


$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

$700.0

$800.0

2010 2011 2012 2013 2014 2015 2016 2017

2010 Cohort 2011 Cohort 2012 Cohort 2013 Cohort 2014 Cohort 2015 Cohort 2016 Cohort 2017 Cohort

STRONG CUSTOMER EXPANSION GROWTHConsistent CAGR Growth from 2010 to 2017 Cohorts

41%

35%

36%

31%

30%

29%

29%


• For an average-sized customer, we have $190,000 per year of recurring revenue potential*

• As of Q3 18, we had $29,382 in ARR per customer

SUBSCRIPTION TRANSITION IMPROVES CUSTOMER ECONOMICS


PATH TO PROFITABILITY:Expenses and Loss as % of Revenue (Non-GAAP)

53% 53% 53% 52%46%

2016 2017 Q3 17 Q2 18Q3 18

Sales & Marketing

(non-GAAP)

27%22% 23% 21% 22%

2016 2017 Q3 17 Q2 18 Q3 18

Research & Development

(non-GAAP)

15%12% 12% 10% 9%

2016 2017 Q3 17 Q2 18 Q3 18

General & Administrative

(non-GAAP)

76% 74% 74% 74% 75%

2016 2017 Q3 17 Q2 18 Q3 18

Gross Margin(non-GAAP)

-19%

-13% -13%-9%

-2%

2016 2017 Q3 17 Q2 18 Q3 18

Operating Loss(non-GAAP)


Compelling Track Record of Customer Retention and Expansion

Expanding Cross-Sell

Landing

POWERFUL LAND AND EXPAND MODEL

3.8xIncrease in Initial Spend

Over 5 Years(2010, 2011 and 2012 customer cohorts)

1.5xAvg SolutionsPer Customer*

120%$ Based

Renewal Rate*

Expanding Cross-Sell

DrivingUp-Sell

RenewingLanding

+10%YoY

Customer Growth*


GAINING MOMENTUM

+48%Recurring Revenue Growth

Q3 YOY

120%Renewal Rate*

+10%Customer Growth**

52 of Fortune 100Fortune 100 Companies**

SIEM VISIONARYin the 2017 Gartner Magic Quadrant

FORRESTER WAVELeader in VRM


GUIDANCE

Total Revenue $65.8 to $67.2 m $241.1 to $242.5 m

Non-GAAP Operating Loss $(5.5) to $(4.5) m $(23.0) to $(22.0) m

Non-GAAP Loss Per Share $(0.10) to $(0.08) $(0.46) to $(0.43)

Weighted-average common shares

outstanding47.5 m 46.5 m

Rapid7 anticipates total revenue, non-GAAP loss from operations, and non-GAAP loss per share to be in the following ranges for Q4 2018 and the full-year 2018:


THE PATH AHEAD


SUPPLEMENTAL


END NOTES

GAAP

Stock-based

compensation

expense

Amortization of

acquired

intangible

assets

Acquisition-

related

expenses

Amortization

of debt

discount and

issuance

costs Non-GAAP

Depreciation

expense

Amortization

of intangible

assets

Adjusted

EBITDA

Revenue:

Products 43,829$ -$ -$ -$ -$ 43,829$ -$ -$ 43,829$

Maintenance and support 10,614 - - - - 10,614 - - 10,614

Professional services 7,922 - - - - 7,922 - - 7,922

Total revenue 62,365 - - - - 62,365 - - 62,365

Cost of revenue:

Products 10,294 142 901 - - 9,251 71 129 9,051

Maintenance and support 1,901 73 - - - 1,828 72 - 1,756

Professional services 5,615 263 - - - 5,352 158 - 5,194

Total cost of revenue 17,810 478 901 - - 16,431 301 129 16,001

Gross margin % 71% 74%

Research and development 17,111 2,984 - - - 14,127 320 - 13,807

Sales and marketing 30,570 2,066 38 - - 28,466 640 - 27,826

General and administrative 8,175 1,896 1 115 - 6,163 330 - 5,833

Loss from operations (11,301)$ (7,424)$ (940)$ (115)$ -$ (2,822)$ (1,591)$ (129)$ (1,102)$

Interest income 813 - - - - 813

Interest expense (1,679) - - - (1,296) (383)

Other income (expense), net 181 - - - - 181

Loss before income taxes (11,986) (7,424) (940) (115) (1,296) (2,211)

Provision for (benefit from) income taxes (155) - - - - (155)

Net loss (11,831)$ (7,424)$ (940)$ (115)$ (1,296)$ (2,056)$

Net loss per share, basic and diluted (0.25)$ (0.04)$

Weighted-average common shares outstanding, basic and diluted 46,914,077 46,914,077

(Under ASC 606)

Three Months Ended September 30, 2018


END NOTES


GAAP

Stock-based

compensation

expense

Amortization of

acquired

intangible

assets

Acquisition-

related

expenses

Amortization

of debt

discount and

issuance

costs Non-GAAP

Depreciation

expense

Amortization

of intangible

assets

Adjusted

EBITDA

Revenue:

Products 45,310$ -$ -$ -$ -$ 45,310$ -$ -$ 45,310$

Maintenance and support 11,467 - - - - 11,467 - - 11,467

Professional services 8,730 - - - - 8,730 - - 8,730

Total revenue 65,507 - - - - 65,507 - - 65,507

Cost of revenue:

Products 10,256 142 901 - - 9,213 71 129 9,013

Maintenance and support 1,901 73 - - - 1,828 72 - 1,756

Professional services 5,609 263 - - - 5,346 158 - 5,188

Total cost of revenue 17,766 478 901 - - 16,387 301 129 15,957


Research and development 17,111 2,984 - - - 14,127 320 - 13,807

Sales and marketing 32,468 2,066 38 - - 30,364 640 - 29,724

General and administrative 8,175 1,896 1 115 - 6,163 330 - 5,833

Loss from operations (10,013)$ (7,424)$ (940)$ (115)$ -$ (1,534)$ (1,591)$ (129)$ 186$

Interest income 813 - - - - 813

Interest expense (1,679) (1,296) (383)

Other income (expense), net 181 - - - - 181

Loss before income taxes (10,698) (7,424) (940) (115) (1,296) (923)

Provision for (benefit from) income taxes (155) - - - - (155)

Net loss (10,543)$ (7,424)$ (940)$ (115)$ (1,296)$ (768)$



Three Months Ended September 30, 2018

(Under ASC 605)

END NOTES


GAAP

Stock-based

compensation

expense

Amortization of

acquired

intangible

assets

Acquisition-

related

expenses

Secondary

public

offering costs

Litigation-

related

expenses

Amortization

of debt

discount and

issuance

costs Non-GAAP

Depreciation

expense

Amortization

of intangible

assets

Adjusted

EBITDA

Revenue:

Products 124,119$ -$ -$ -$ -$ -$ -$ 124,119$ -$ -$ 124,119$

Maintenance and support 34,707 - - - - - - 34,707 - - 34,707

Professional services 26,459 - - - - - - 26,459 - - 26,459

Total revenue 185,285 - - - - - - 185,285 - - 185,285

Cost of revenue:

Products 28,346 424 2,702 - - - - 25,220 206 300 24,714

Maintenance and support 5,757 161 - - - - - 5,596 208 - 5,388

Professional services 17,645 736 - - - - - 16,909 458 - 16,451

Total cost of revenue 51,748 1,321 2,702 - - - - 47,725 872 300 46,553


Research and development 49,915 8,400 - - - - - 41,515 944 - 40,571

Sales and marketing 97,213 5,684 115 - - - - 91,414 1,866 - 89,548

General and administrative 25,056 5,594 4 115 205 400 - 18,738 934 - 17,804

Loss from operations (38,647)$ (20,999)$ (2,821)$ (115)$ (205)$ (400)$ -$ (14,107)$ (4,616)$ (300)$ (9,191)$

Interest income 1,520 - - - - - - 1,520

Interest expense (1,681) - - - - - (1,296) (385)

Other income (expense), net (67) - - - - - - (67)

Loss before income taxes (38,875) (20,999) (2,821) (115) (205) (400) (1,296) (13,039)

Provision for (benefit from) income taxes 71 - - - - - - 71

Net loss (38,946)$ (20,999)$ (2,821)$ (115)$ (205)$ (400)$ (1,296)$ (13,110)$



Nine Months Ended September 30, 2018

(Under ASC 605)

END NOTES


Account

GAAP Non-GAAP GAAP Non-GAAPImpact on Income Statement

Amortization of debt discount and issuance costs $(1.3)m - $(10.5)m -Coupon* $(0.4)m $(0.4)m $(2.9)m $(2.9)m

Impact on Cash FlowsImpact on Cash from operations - - $(2.8)m $(2.8)mImpact on Cash from financing activities

Proceeds from issuance of convertible notes, net of issuance costs $223.5m $223.5m - -

Purchase of capped calls related to convertible notes $(26.9)m $(26.9)m - -

Impact on Balance Sheet

Increase in cash & short-term investments $196.2m $196.2m - -

Long-term debt (Principal, less unamortized debt discount and issuance costs $170.9m $170.9m - -

Equity (Conversion option, less purchase of capped calls and issuance costs) $25.3m $25.3m - -

IMPACT OF CONVERTIBLE NOTES


With content subscriptionsWithout content subscriptions

With content subscriptionsWithout content subscriptions

Bundled deployment and trainingStandalone services

ASC 606 – WHAT CHANGED?


Line Item

Perpetual LicensesWith content subscriptions Ratable* Ratable over economic life (5 years)

Without content subscriptions Ratable* Upfront

Term Licenses Without content subscription Ratable* Upfront

Product Revenues $45.3m $43.8m $(1.5)mMaintenance and Support Revenues $11.5m Change in allocation method $10.7m $(0.8)m

Professional Services Revenues Bundled deployment and trainingStandalone services

Ratable*As delivered $8.7m As delivered

As delivered $7.9m $(0.8)m

Commissions Expense Expensed as incurredDeferred and recognized over estimated

period of benefit for new bookingsor contract term for renewals

$(1.9)m

Current Deferred Revenues Ratable recognition of certain perpetual licenses to 5 years $(6.3)m

Non-current Deferred Revenues Ratable recognition of certain perpetual licenses to 5 years $17.3m

Deferred contract acquisition and fulfillment costs

Costs to obtain contracts with customers are deferred $33.6m

ASC 606 – Q3 2018 IMPACT


END NOTESPage 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 26• Guidance for the fourth 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, amortization of debt discount and issuance

costs, 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.

company overview - rapid7

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