Rapid7, Inc.RPD
Rapid7, Inc. Income Taxes Disclosure
(13) Income Taxes
We have provided for current and deferred U.S. federal, state, and foreign income taxes for all tax jurisdictions in which we operate.
Income (loss) before income taxes included in the consolidated statements of operations was as follows (in thousands):
| As of December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| United States | $ | 21,244 | $ | 35,699 | $ | (139,295) | ||||||||||||||
| Foreign | 8,937 | 5,756 | (14,038) | |||||||||||||||||
| Income (loss) before Income taxes | $ | 30,181 | $ | 41,455 | $ | (153,333) | ||||||||||||||
Income tax expense included in the consolidated statements of operations was as follows (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | (948) | $ | 2,426 | $ | 428 | ||||||||||||||
| State and Local | 3,038 | 2,848 | 1,361 | |||||||||||||||||
| Foreign | 6,400 | 9,864 | 3,317 | |||||||||||||||||
| Total current tax expense | $ | 8,490 | $ | 15,138 | $ | 5,106 | ||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | $ | — | $ | 12 | $ | 9 | ||||||||||||||
| State and local | — | — | 2 | |||||||||||||||||
| Foreign | (1,690) | 779 | (5,635) | |||||||||||||||||
| Total deferred tax expense (benefit) | (1,690) | 791 | (5,624) | |||||||||||||||||
| Income tax expense (benefit) | $ | 6,800 | $ | 15,929 | $ | (518) | ||||||||||||||
As of January 1, 2025, we elected to adopt ASU 2023-09 prospectively. Refer to Note 2, Summary of Significant Accounting Policies - Accounting Pronouncements Recently Adopted, for additional detail regarding our adoption.
The reconciliation of the federal statutory rate of 21% to the effective income tax rate for the year ended December 31, 2025 subsequent to the adoption of ASU 2023-09 was as follows (in thousands, except for percents):
| As of December 31, | ||||||||||||||
| 2025 | ||||||||||||||
| U.S. Federal Statutory Tax Rate | $ | 6,338 | 21.0 | % | ||||||||||
| State and Local Income Tax, Net of Federal Income Tax Effect* | 2,400 | 8.0 | % | |||||||||||
| Effect of Cross-Border Tax Laws | ||||||||||||||
| Subpart F Income | 650 | 2.2 | % | |||||||||||
| Global Intangible Low Tax Income | 5,128 | 17.0 | % | |||||||||||
| Other | 187 | 0.6 | % | |||||||||||
| Tax Credits | ||||||||||||||
| Research and Development Credits | (2,578) | (8.5) | % | |||||||||||
| Changes in Valuation Allowances | (27,430) | (90.9) | % | |||||||||||
| Nontaxable or Nondeductible Items | ||||||||||||||
| Stock Compensation Adjustment | 14,689 | 48.7 | % | |||||||||||
| Excess Officer's Compensation | 2,135 | 7.1 | % | |||||||||||
| Other | 253 | 0.8 | % | |||||||||||
| Other Adjustments | ||||||||||||||
| Impact of Filed Tax Returns | 1,920 | 6.4 | % | |||||||||||
| Other | 816 | 2.5 | % | |||||||||||
| Foreign Tax Effects | ||||||||||||||
| Brazil | ||||||||||||||
| Withholding Tax | 390 | 1.3 | % | |||||||||||
| Canada | ||||||||||||||
| Impact of Filed Tax Returns | (317) | (1.0) | % | |||||||||||
| Other | 51 | 0.2 | % | |||||||||||
| Israel | ||||||||||||||
| Impact of Filed Tax Returns | 600 | 2.0 | % | |||||||||||
| Stock Compensation Adjustment | 1,159 | 3.8 | % | |||||||||||
| Tax Effect from Repatriation of Foreign Earnings | 324 | 1.1 | % | |||||||||||
| Other | (355) | (1.2) | % | |||||||||||
| United Kingdom | ||||||||||||||
| Changes in Valuation Allowances | 2,628 | 8.7 | % | |||||||||||
| Impact of Filed Tax Returns | 721 | 2.4 | % | |||||||||||
| Stock Compensation Adjustment | (4,135) | (13.7) | % | |||||||||||
| Withholding Tax | 1,008 | 3.3 | % | |||||||||||
| Other | (122) | (0.4) | % | |||||||||||
| Other Jurisdiction | 122 | 0.4 | % | |||||||||||
| Changes in Unrecognized Tax Benefits | 218 | 0.7 | % | |||||||||||
| Effective Tax Rate | $ | 6,800 | 22.5 | % | ||||||||||
| *State taxes in CA, FL, IL made up the majority (greater than 50 percent) of the tax effect in this category | ||||||||||||||
The reconciliation of the federal statutory rate of 21% to the effective income tax rate for the years ended December 31, 2024 and 2023 prior to the adoption of ASU 2023-09 was as follows:
| Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State taxes, net of federal benefit | 6.0 | (0.5) | ||||||||||||
| Permanent differences | 7.0 | (0.9) | ||||||||||||
| Stock-based compensation | 15.7 | (7.0) | ||||||||||||
| Federal research and development credit | (18.5) | 0.9 | ||||||||||||
| Foreign rate differential | 3.0 | 0.3 | ||||||||||||
| Change in valuation allowance | (11.2) | (3.2) | ||||||||||||
| Excess officers' compensation | 5.5 | (1.7) | ||||||||||||
| Tax rate change | (13.4) | (3.4) | ||||||||||||
| Induced conversion expense | — | (9.5) | ||||||||||||
| Tax reserves | 12.6 | (0.1) | ||||||||||||
| Provision to return | (0.5) | 5.2 | ||||||||||||
| U.S. taxation of international operations | 3.5 | — | ||||||||||||
| Other | 7.7 | (0.8) | ||||||||||||
| Effective income tax rate | 38.4 | % | 0.3 | % | ||||||||||
Income taxes paid during the year ended December 31, 2025 subsequent to the adoption of ASU 2023-09 was as follows (in thousands):
| As of December 31, | ||||||||
| 2025 | ||||||||
| US Federal Taxes | ||||||||
| United States | $ | 559 | ||||||
| US State and Local Taxes | ||||||||
| California | 461 | |||||||
| Illinois | 568 | |||||||
| Other | 886 | |||||||
| Total US State and Local | $ | 1,915 | ||||||
| Foreign | ||||||||
| Czech Republic | $ | 687 | ||||||
| Ireland | 795 | |||||||
| Israel | 2,362 | |||||||
| United Kingdom | 939 | |||||||
| Other | 691 | |||||||
| Total Foreign | $ | 5,474 | ||||||
| Total | $ | 7,948 | ||||||
Net deferred tax assets and liabilities, as set forth in the table below, reflect the impact of temporary differences between the amounts of assets and liabilities recorded for financial statement purposes and such amounts measured in accordance with tax laws (in thousands):
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Accruals and reserves | $ | 1,027 | $ | 824 | ||||||||||
| Net operating loss carryforwards | 112,976 | 121,343 | ||||||||||||
| Deferred revenue | 3,112 | 3,192 | ||||||||||||
| Depreciation | 4,732 | 4,304 | ||||||||||||
| Research and development credits | 15,489 | 13,697 | ||||||||||||
| Capitalized research and development | 70,704 | 90,965 | ||||||||||||
| Operating lease liabilities | 15,045 | 18,164 | ||||||||||||
| Stock-based compensation | 14,042 | 12,290 | ||||||||||||
| Other | 31 | 3,369 | ||||||||||||
| Gross deferred tax assets | $ | 237,158 | $ | 268,148 | ||||||||||
| Valuation allowance | (199,095) | (229,283) | ||||||||||||
| Total deferred tax assets | $ | 38,063 | $ | 38,865 | ||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Operating lease ROU assets | $ | (8,812) | $ | (10,329) | ||||||||||
| Deferred contract acquisition and fulfillment costs | (23,918) | (26,277) | ||||||||||||
| Other | (4,329) | (2,944) | ||||||||||||
| Total deferred tax liabilities | $ | (37,059) | $ | (39,550) | ||||||||||
| Net deferred tax assets (liabilities) | $ | 1,004 | $ | (685) | ||||||||||
Valuation Allowance
As of December 31, 2025, we have evaluated the need for a valuation allowance on our deferred tax assets. In making this determination, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The valuation allowance decreased by $30.2 million for the year ended December 31, 2025, primarily due to the utilization of US federal and state net operating loss ("NOL"). This compares to a decrease of $2.4 million for the year ended December 31, 2024. We continue to record a full valuation allowance against our net deferred tax assets in the United States and U.K. We may release additional valuation allowances in future periods if positive evidence, such as projection of sustained future growth, supports the realization of such deferred tax assets. Release of all or a portion of these valuation allowances would result in a decrease in the provision for income taxes in the period of the release.
Net Operating Loss Carryforwards and Research and Development Credits
As of December 31, 2025, we had federal and state NOL carryforwards in the United States of $222.6 million and $240.3 million, respectively. Of these amounts, $219.1 million of federal and $30.9 million of state NOLs can be carried forward indefinitely. The remaining NOLs expire at various dates beginning in 2033. We had foreign NOL carryforwards of $234.2 million that can be carried forward indefinitely. We also had federal and state research and development credit and other state tax credit carryforwards of $10.8 million, $4.5 million and $1.0 million as of December 31, 2025, respectively. These credit carryforwards expire at various dates beginning in 2025.
As of December 31, 2025, our ability to utilize NOLs remains limited under IRC Sections 382 and 383 due to an ownership change we experienced in January 2018. We will not be precluded from realizing the NOL carryforwards and tax credits but may be limited in the amount we could utilize in any given tax year in the event that the federal and state taxable income exceeds the limitation imposed by Section 382. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
Unrecognized Tax Benefits
We file income tax returns in all jurisdictions in which we operate. In the normal course of business, we are subject to
examination by federal, state, and foreign tax authorities, where applicable. The statute of limitations for these jurisdictions is generally to seven years. However, to the extent we utilize net operating losses or other similar carryforward attributes such as credits, the statute remains open to the extent of the net operating losses or credits that are utilized. We are currently under tax examination in Israel for tax years 2018 through 2023.
The following is a reconciliation of the beginning and ending balances of unrecognized tax benefits (excluding interest and penalties), in thousands:
| Balance, January 1, 2025 | $ | 9,876 | ||||||
| Additions for tax positions of prior years | 113 | |||||||
| Reductions for tax positions of prior years | (315) | |||||||
| Balance, December 31, 2025 | $ | 9,674 | ||||||
We have established reserves to provide for additional income taxes that management believes will more likely than not be due in future years. The reserves have been established based upon our assessment of the potential exposure. The change in our reserves during the year 2025 consists of $0.2 million of U.S. state reserves related to unrecognized tax benefits. During the next twelve months, we do not expect any change to our uncertain tax positions other than the accrual of interest in the normal course of business.
From time to time, we may receive income tax assessments from taxing authorities asserting additional tax liabilities owed. During the quarter ended June 30, 2024, we received an initial assessment from the Israel Tax Authority (“ITA”) of approximately 324 million Israeli New Shekels (approximately $102 million, based upon exchange rates as of December 31, 2025 between the Israeli New Shekel and the US Dollar) related to fiscal year 2021. Based on our interpretation of the regulations and available case law, we believe that the tax positions we have taken on our filed tax return in Israel are sustainable and we intend to defend our position through all available means. As such, we have not recorded any impact of the ITA assessment in our consolidated financial statements for the year ended December 31, 2025. We are continuing to monitor developments related to this matter and its impact on our existing income tax reserves for all open years. If we are unsuccessful in sustaining our tax position in this matter, our financial condition and results of operations would be adversely affected.
Other Tax Matters
On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act ("OBBBA"). The OBBBA changes the current tax law related to both corporate income taxes and deferred tax assets and liabilities, which we currently accounts for under ASC 740, Income taxes ("ASC 740"). The provisions include the immediate expensing of domestic research and development costs which reduced our U.S. federal cash tax payments for the remainder of 2025. Overall, OBBBA did not have a material impact on our financial statements
As of December 31, 2025, we have accumulated earnings generated by foreign subsidiaries. Except for unremitted earnings associated with our Israel legal entity, we have not recognized a deferred tax liability for the majority of these unremitted earnings as our intention is to indefinitely reinvest these accumulated earnings in our foreign subsidiaries. During 2025, we recorded an incremental liability of $0.4 million related to the taxes expected to be imposed upon the repatriation of these unremitted foreign earnings from our Israel legal entity that are not considered indefinitely reinvested.
The Organization for Economic Co-operation and Development (“OECD”) Pillar Two Model Rules (“Pillar Two”) for the global 15% minimum tax have been adopted in a number of jurisdictions in which we operate. We are continuing to evaluate the potential impact on future periods of the Pillar Two framework, pending legislative adoption by additional individual countries.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Mar 8, 2018 | |
| 2016 | Mar 9, 2017 | |
| 2015 | Mar 10, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.