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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-24 · 157 added, 195 removed, 362 unchanged (49% of the section changed)

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Factors that could cause or contribute to these differences include those under “Risk Factors” included in Part I, Item 1A or in other parts of this Annual Report on Form 10-K.

Rapid7 is on a mission to create a safer digital world by making cybersecurity simpler and more accessible.

We empower security professionals to manage a modern attack surface through our best-in-class technology, leading-edge research, and broad, strategic expertise.

Our comprehensive security solutions help our customers unite cloud risk management and threat detection to reduce attack surfaces and eliminate threats with speed and precision.

In the over 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, more distributed workforces, 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.

We call the expanding divide between risk created through innovation and risk effectively managed by security teams the security achievement gap.

We believe Rapid7 is uniquely positioned to improve how customer security challenges are addressed.

All of our solutions and services are built with and supported by the expertise of our dedicated team of security researchers, expert SOC analysts 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 for teams and organizations who lack resources to manage their security posture.

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.

Rapid7 is a global cybersecurity software and services provider on a mission to offer customers greater clarity and control of their attack surface through our comprehensive and consolidated security offerings.

For more than twenty years, Rapid7 has partnered with customers across the globe representing a diverse range of industries and sizes to improve the efficacy and productivity of their security operations (“SecOps”).

In today's rapidly evolving IT environment, customers are encountering escalating challenges due to the proliferation of cyberattacks leveraging artificial intelligence (“AI”), targeted automation, and a widening spectrum of attackers and techniques.

To fortify their security posture, organizations will require greater visibility, advanced capabilities leveraging increased expertise, and integrated data to effectively anticipate, identify, and respond to exposure-led threats.

Through our security operations platform, anchored on our cloud security, security information and event management (“SIEM”), advanced detection and response, and vulnerability management offerings, we believe that Rapid7 is poised to expand the capabilities of today's SecOps teams.

Rapid7 extends and expands the expertise of the Security Operations Center (“SOC") across information security, cloud operations, development, and IT teams, enabling them to better understand the attacker and leverage that information to take control of their fragmented attack surface.

Enriched by years of managed services expertise, our integrated security operations platform enables SecOps teams to move away from a reactive approach, reduce their attack surface, and enhance response efficiency with a deep contextual understanding of their environment.

In the past few years, we have observed the industry undergoing a customer-driven shift to consolidated security platforms.

As part of this transition, customers are moving away from cloud security as a specialized function towards cloud security as an integrated capability for SecOps teams.

We view this as a demand driver for integrated SecOps, and believe that we have an opportunity to be a leader in delivering integrated risk and threat management across on-premise, cloud, and external attack surfaces.

As we have shifted our strategic focus to SecOps consolidation, we are focused on continuing to drive innovation across our core products and capabilities to accelerate customer value and provide a frictionless and integrated cloud security experience.

As the threat landscape continues to grow in complexity, customers are demonstrating demand for integrated expertise to support them in effectively managing their security technologies.

The convergence of these key trends – security consolidation, integrated cloud security, and expertise driven outcomes – are the foundation of what we view as the new extended SOC.

Our focus is to be the leading provider of integrated security solutions for the extended SOC by providing risk and threat management within the context of overall security.

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.

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As of December 31, 2023, we had over 11,500 customers in 151 countries, including 40% of the Fortune 100.

Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue in 2022, 2021 or 2020.

Our revenue was not concentrated with any individual customer and no customer represented more than 1% of our revenue for the years ended December 31, 2023, 2022 or 2021.

Recent Developments

Restructuring Plan

In August 2023, we announced a restructuring plan designed to improve operational efficiencies, reduce operating costs and better align the Company’s workforce with current business needs, top strategic priorities, and key growth opportunities (the “Restructuring Plan”).

The Restructuring Plan included a reduction of our workforce and office space reductions within certain markets.

The execution of the Restructuring Plan was substantially complete by December 31, 2023.

For further information, refer to Note 19, Restructuring , in the Notes to our Consolidated Financial Statements.

Our Business Model

We have offerings in six key areas:

(1) Incident Detection and Response, (2) Cloud Security, (3) Vulnerability Risk Management, (4) Application Security, (5) Threat Intelligence and (6) 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:

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• Cloud-based subscriptions, which provide our software capabilities to our customers through cloud access and on a subscription basis.

Our InsightIDR, InsightCloudSec, InsightVM, InsightAppSec, InsightConnect and Threat Intelligence products are offered as cloud-based subscriptions, generally with a one-year term.

Our InsightIDR, InsightCloudSec, InsightVM, InsightAppSec, InsightConnect and Threat Command products are offered as cloud-based subscriptions, with an option for a one or multi-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 consists of term licenses.

When licensed software is purchased, maintenance and support and content subscriptions, as applicable, are bundled with the license for the term period.

Our Nexpose, Metasploit and AppSpider products are offered through term software licenses.

Our Managed Vulnerability Management, Managed Detection and Response, and Managed Application Security products are offered on a managed service basis, pursuant to one or multi-year agreements.

• Licensed on-premise software consists of term licenses.

When licensed on-premise software is purchased, maintenance and support and content subscriptions, as applicable, are bundled with the license for the term period.

Our Nexpose and Metasploit products are offered through term software licenses.

Our maintenance and support 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.

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.

In 2022, 2021 and 2020 recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 94%, 92% and 90%, respectively, of total revenue.

Additionally, we offer our products through our consolidation offerings, which unify our products and services to our customers in a single package.

Our Threat Complete and Cloud Risk Complete packages are offered as cloud based subscriptions, with an option for a one or multi-year term.

Our Managed Threat Complete Offering is offered on a managed service basis, generally pursuant to one or multi-year agreements.

In the years ended December 31, 2023, 2022 and 2021, recurring revenue, defined as revenue from term software licenses, content subscriptions, managed services, cloud-based subscriptions and maintenance and support, was 95%, 94% and 92%, respectively, of total revenue.

We monitor the following key metrics to help us measure and evaluate the effectiveness of our operations and as a means to evaluate period-to-period comparisons.

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Annualized recurring revenue (“ARR”) $ 805,670 $ 714,231

$ 714,231 $ 599,020

Year-over-year growth 12.8 % 19.2 %

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We believe non-GAAP income from operations and non-GAAP operating margin are useful to investors, as supplements 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.

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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.

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Free cash flow is a non-GAAP measure that we define as cash provided by operating activities less purchases of property and equipment and capitalization of internal-use software costs.

We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the

business after necessary capital expenditures.

We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures.

See Non-GAAP Financial Results below for a reconciliation of non-GAAP free cash flow to the comparable GAAP financial measure.

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.

Annualized Recurring Revenue (“ARR”) is defined as the annual value of all recurring revenue related to contracts in place at the end of the period.

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.

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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 an active Rapid7 recurring revenue contract as of the specified measurement date, excluding InsightOps and Logentries only customers with a contract value less than $2,400 per year.

We define a customer as any entity that has an active Rapid7 recurring revenue contract as of the specified measurement date, excluding only InsightOps and Logentries customers with a contract value less than $2,400 per year.

ARR per Customer .

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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 operating margin, 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, litigation-related expenses and induced conversion expense.

We define non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, 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 issuance costs and certain other items such as acquisition-related expenses, impairment of long-lived assets, Restructuring Expense, induced conversion expense, change in the fair value of derivative assets 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, when applicable, 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 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.

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• Amortization of debt issuance costs.

The expense for the amortization of 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.

• Induced conversion expense.

In conjunction with the first quarter of 2021 partial repurchase of our 1.25% convertible senior notes due 2023 (the “2023 Notes”), we incurred an induced conversion expense of $2.7 million.

We exclude induced conversion expense because this amount is not indicative of the performance of, or trends in, our business and is neither comparable to the prior period nor predictive of future results.

In conjunction with the third quarter of 2023 partial repurchase of our 2025 Notes, we incurred a non-cash induced conversion expense of $53.9 million.

We exclude induced conversion expense because this amount is not indicative of the performance of, or trends in, our business and neither is comparable to the prior period nor predictive of future results.

• Litigation-related expenses.

We exclude non-ordinary course litigation expense because we do not consider legal costs and settlement fees incurred in litigation and litigation-related matters of non-ordinary course lawsuits and other disputes to be indicative of our core operating performance.

We do not adjust for ordinary course legal expenses, including those expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements.

We do not adjust for ordinary course legal expenses, including legal costs and settlement fees resulting from maintaining and enforcing our intellectual property portfolio and license agreements.

• Acquisition-related expenses.

We exclude acquisition-related expenses that are unrelated to the current operations and neither are comparable to the prior period nor predictive of future results.

Our acquisition-related expenses for the year ended December 31, 2021 include $9.0 million of tax expense related to the sale of acquired intellectual property through an intercompany transaction related to the Alcide acquisition.

• Change in fair value of derivative assets.

The change in fair value of derivative assets related to our capped calls settlement is a non-cash item and we believe the exclusion of this other income (expense) provides a more useful comparison of our operational performance in different periods.

• Impairment of long-lived assets.

Impairment of long-lived assets consists of impairment charges allocated to the carrying amount of certain operating right-of-use assets and the associated leasehold improvements when the carrying amounts exceed their respective fair values and we believe the exclusion of the impairment charges provides a more useful comparison of our operational performance in different periods.

• Restructuring Expense.

We exclude non-ordinary course restructuring expenses related to the Restructuring Plan because we do not believe these charges are indicative of our core operating performance and we believe the exclusion of the restructuring expense provides a more useful comparison of our performance in different periods.

• Anti-dilutive impact of capped call transaction.

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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 diluted share, when applicable, to provide investors with useful information in evaluating our financial performance on a per share basis.

We define adjusted EBITDA as net loss before (1) interest income, (2) interest expense, (3) other income (expense), net, (4) provision for income taxes, (5) depreciation expense, (6) amortization of intangible assets, (7) stock-based compensation expense, (8) acquisition-related expenses and (9) litigation-related expenses.

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.

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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 years ended December 31, 2023, 2022 and 2021:

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Litigation-related expenses — 115 569

Impairment of long-lived assets 30,784 — —

Restructuring expense 22,227 — —

Non-GAAP income from operations $ 102,221 $ 30,386 $ 7,599

The following table reconciles GAAP net loss to non-GAAP net income (loss) for the years ended December 31, 2022, 2021 and 2020:

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The following table reconciles GAAP net loss to non-GAAP net (loss) income for the years ended December 31, 2023, 2022 and 2021:

Year Ended December 31,

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Litigation-related expenses — 115 569

Amortization of debt discount and issuance costs 4,085 3,982 17,518

Amortization of debt issuance costs 4,138 4,085 3,982

Induced conversion expense 53,889 — 2,740

Non-GAAP net income (loss) $ 21,368 $ (2,983) $ (5,200)

Change in fair value of derivative assets 15,511 — —

Impairment of long-lived assets 30,784 — —

Restructuring expense 22,227 — —

Non-GAAP net (loss) income $ 107,232 $ 21,368 $ (2,983)

Interest expense of convertible senior notes (1) 2,667 1,500 —

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Diluted $ 1.52 $ 0.35 $ (0.05)

(1) We use the if-converted method to compute diluted earnings per share with respect to our convertible senior notes.

There was no add-back of interest expense or additional dilutive shares related to the convertible senior notes where the effect was anti-dilutive.

On an if-converted basis, for the year ended December 31, 2022, the 2027 convertible senior notes were dilutive and the 2025 convertible senior notes were anti-dilutive.

(1) We use the if-converted method to compute diluted earnings per share with respect to our Notes.

There was no add-back of interest expense or additional dilutive shares related to the Notes where the effect was anti-dilutive.

On an if converted basis, for the year ended December 31, 2023, the 2029 Notes and 2027 Notes were dilutive and the 2025 Notes were anti-dilutive and for the year ended December 31, 2022, the 2025 Notes were dilutive and the 2027 Notes were anti-dilutive.

(2) We use the treasury method to compute the dilutive effect of employee equity incentive plan awards.

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The following table reconciles GAAP net loss to adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021:

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(in thousands)

GAAP net loss $ (124,717) $ (146,334) $ (98,849)

Net loss $ (149,260) $ (124,717) $ (146,334)

Interest income (10,177) (1,813) (365)

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Other (income) expense, net 14,522 1,522 1,921

Provision for income taxes 2,412 10,421 1,986

(Benefit from) provision for income taxes (518) 2,412 10,421

Depreciation expense 14,047 13,571 12,342

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Litigation-related expenses — 115 569

Impairment of long-lived assets 30,784 — —

Restructuring expense 22,227 — —

Adjusted EBITDA $ 126,661 $ 49,441 $ 23,795

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All overhead costs are allocated based on relative headcount.

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Cost of Products

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Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses.

Operating expenses consist of research and development, sales and marketing, general and administrative expenses, impairment of long-lived assets and restructuring.

Operating expenses include overhead costs for depreciation, facilities, IT, information security and recruiting.

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Additional expenses include third-party infrastructure costs, 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 decrease as a percentage of total revenue.

We expect research and development expense to decrease as a percentage of total revenue in the near term.

Sales and Marketing Expense

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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.

We expect sales and marketing expense to decrease as a percentage of total revenue in the near term.

General and Administrative Expense

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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.

We expect general and administrative expense to decrease as a percentage of total revenue in the near term.

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Impairment of Long-Lived Assets

Restructuring Expense

Restructuring expense consist of charges related to the Restructuring Plan such as employee transition, notice period and severance payments and employee benefits and related facilitation costs.

For further information, refer to Note 19, Restructuring , in the Notes to our Consolidated Financial Statements.

Interest Income

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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.

Other income (expense), net consists primarily of the change in fair value of derivative assets and unrealized and realized gains and losses related to changes in foreign currency exchange rates.

Provision for Income Taxes

Provision for income taxes consists of income taxes in foreign jurisdictions where we conduct business, withholding taxes, and state income taxes in the United States.

We maintain a full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards and tax credits.

Based on our history of losses, we expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized.

Provision for income taxes consists of domestic and foreign taxes on income and withholding taxes.

We maintain a substantially full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards and tax credits.

Based on our history of losses, we expect to maintain this substantially full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized.

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Results of Operations

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General and administrative 84,276 84,969 78,289

Impairment of long-lived assets 30,784 — —

Restructuring 22,227 — —

Total operating expenses 626,699 582,348 486,521

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Loss before income taxes (149,778) (122,305) (135,913)

Provision for income taxes 2,412 10,421 1,986

(Benefit from) provision for income taxes (518) 2,412 10,421

Net loss $ (149,260) $ (124,717) (146,334)

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Total depreciation and amortization expense $ 45,939 $ 41,038 $ 33,501

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

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General and administrative 10.8 12.4 14.6

Impairment of long-lived assets 4.0 — —

Restructuring 2.9 — —

Total operating expenses 80.6 85.0 90.8

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Net loss (19.2) % (18.2) % (27.3) %

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

December 31, Change

Comparison of the Year Ended December 31, 2023 and 2022

Year Ended December 31, Change

2023 2022 $ %

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Total revenue $ 777,707 $ 685,083 $ 92,624 13.5 %

Total revenue increased by $149.7 million in 2022 compared to 2021 and consisted of $133.9 million of organic growth and $15.8 million related to the acquisition of IntSights in July 2021.

The $133.9 million increase in revenue related to organic growth consisted of a $12.7 million increase in revenue from new customers and a $121.2 million increase in revenue from existing customers.

Total revenue increased by $92.6 million in 2023 compared to 2022 and consisted of a $2.2 million increase in revenue from new customers and a $90.4 million increase in revenue from existing customers.

The $90.4 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 existing customer base.

All renewals, upsells and cross-sells are considered revenue from existing customers.

The increase in total revenue in 2022 was comprised of $108.7 million generated from sales in North America and $41.0 million generated from sales from the rest of the world.

Revenue from new customers represents the revenue recognized from the customer's initial purchase.

The increase in total revenue in 2023 compared to 2022 was comprised of $65.6 million generated from sales in North America and $27.0 million generated from sales from the rest of the world.

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Cost of Revenue

December 31, Change

Year Ended December 31, Change

2023 2022 $ %

(dollars in thousands)

Cost of revenue:

Products $ 202,904 $ 182,212 $ 20,692 11.4 %

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Total gross margin % 70.2 % 68.7 %

Total cost of revenue increased by $45.4 million in 2022 compared to 2021, primarily due to a $18.2 million increase in personnel costs, inclusive of a $3.9 million increase in stock-based compensation expense, resulting from an increase in headcount to support our growing customer base, as well as $1.5 million of additional costs attributable to the employees acquired in the IntSights acquisition in July 2021.

Our increase in total cost of revenue also included a $14.8 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue, a $5.9 million increase in allocated overhead driven largely by an increase in IT and facilities costs, a $3.1 million increase in amortization expense for acquired intangible assets, a $1.6 million increase in amortization expense for capitalized internally-developed software and a $1.8 million increase in other expenses.

Total gross margin percentage increased slightly in 2022 compared to 2021 due to a higher mix of products revenue as compared to professional services revenue.

The gross margin for products remained consistent.

The decrease in professional services gross margin was due to an increase in personnel cost inclusive of stock-based compensation expense.

Total cost of revenue increased by $17.4 million in 2023 compared to 2022, primarily due to a $10.0 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue, a $4.9 million increase in amortization expense for capitalized internally-developed software, a $2.3 million increase in personnel costs, inclusive of a $0.3 million increase in stock-based compensation expense, and a $0.1 million increase in other expenses.

Total gross margin percentage increased in 2023 compared to 2022.

The increase in products gross margin was driven by our ability to scale as our revenue continues to grow.

The increase in professional services gross margin in 2023 compared to 2022 was primarily due to a decrease in personnel costs.

Operating Expenses

Research and Development Expense

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Year Ended December 31, Change

2023 2022 $ %

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% of revenue 22.7 % 27.7 %

Research and development expense increased by $29.2 million in 2022 compared to 2021, primarily due to a $18.5 million increase in personnel costs, a $8.1 million increase in allocated overhead driven largely by an increase in IT and facilities costs and a $2.6 million increase in other expenses.

The $18.5 million increase in personnel costs was primarily due to a $15.2 million increase in salaries and related costs driven by growth in headcount, inclusive of $5.6 million in additional salaries and related costs attributable to the employees acquired in the acquisitions of IntSights in July 2021, and a $3.3 million increase in stock-based compensation expense.

Research and development expense decreased by $13.2 million in 2023 compared to 2022, primarily due to a $14.2 million decrease in personnel costs, inclusive of a $11.9 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to the Restructuring Plan, and a $2.5 million decrease in other expenses.

These decreases were partially offset by a $3.5 million write-off of capitalized internal-use software projects.

Sales and Marketing Expense

December 31, Change

Year Ended December 31, Change

2023 2022 $ %

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% of revenue 40.2 % 44.9 %

Sales and marketing expense increased by $60.0 million in 2022 compared to 2021, primarily due to a $30.4 million increase in personnel costs, a $10.6 million increase in commission expense, a $10.0 million increase in allocated overhead driven largely by an increase in IT and facilities costs, a $3.2 million increase in marketing and advertising costs, a $1.2 million increase in amortization of acquired intangible assets, a $2.5 million increase in travel and entertainment expense and a $2.1 million increase in other expenses.

The $30.4 million increase in personnel costs was primarily due to a $23.0 million increase in salaries and related costs driven by growth in headcount, inclusive of $5.2 million of additional costs attributable to the employees acquired in the IntSights acquisition in July 2021, and a $7.4 million increase in stock-based compensation expense.

Sales and marketing expense increased by $5.2 million in 2023 compared to 2022, primarily due to a $7.6 million increase in personnel costs, net of a $1.7 million decrease in stock-based compensation expense, resulting from a decrease in headcount primarily due to the Restructuring Plan.

This increase was partially offset by a decrease of $1.7 million in marketing and advertising expenses and a $0.7 million decrease in other expenses.

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General and Administrative Expense

December 31, Change

Year Ended December 31, Change

2023 2022 $ %

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% of revenue 10.8 % 12.4 %

General and administrative expense increased by $6.7 million in 2022 compared to 2021, primarily due to a $8.1 million increase in personnel costs due to an increase in headcount, inclusive of a $2.7 million increase in stock-based compensation expense, a $1.2 million increase in allocated overhead driven largely by an increase in IT and facilities costs and a $2.5 million increase in other expenses.

These increases were partially offset by a $5.1 million decrease in professional fees primarily due to a decrease in acquisition-related expenses and other professional consulting fees.

Interest Income

December 31, Change

2022 2021 $ %

(dollars in thousands)

Interest income $ 1,813 $ 365 $ 1,448 396.7 %

% of revenue 0.3 % 0.1 %

Interest income increased by $1.4 million in 2022 compared to 2021 primarily due to an increase in interest rates.

Interest Expense

December 31, Change

2022 2021 $ %

(dollars in thousands)

Interest expense $ (10,982) $ (14,292) $ 3,310 (23.2) %

% of revenue (1.6) % (2.7) %

Interest expense decreased by $3.3 million in 2022 compared to 2021 primarily due to a $2.7 million decrease of induced conversion expense incurred in conjunction with the partial repurchase of the 2023 Notes in March 2021 and a decrease in contractual interest expense related to the 2023 Notes which were partially repurchased in the first quarter of 2021, with the remaining amount repurchased in the fourth quarter of 2021.

Other Income (Expense), Net

December 31, Change

2022 2021 $ %

(dollars in thousands)

Other income (expense), net $ (1,522) $ (1,921) $ 399 (20.8) %

% of revenue (0.2) % (0.4) %

Other income (expense), net decreased by $0.4 million in 2022 compared to 2021 due to realized and unrealized foreign currency losses, primarily related to the euro and British pound sterling.

Provision for Income Taxes

December 31, Change

2022 2021 $ %

(dollars in thousands)

Provision for income taxes $ 2,412 $ 10,421 $ (8,009) (76.9) %

% of revenue 0.4 % 1.9 %

Provision for income taxes decreased by $8.0 million in 2022 compared to 2021 primarily due to $9.0 million of tax expense associated with the 2021 intercompany sale of intellectual property as part of post-acquisition tax planning related to the Alcide acquisition, partially offset by an increase of $1.0 million due to our increased operations in foreign jurisdictions.

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

December 31, Change

2021 2020 $ %

(dollars in thousands)

Products $ 500,843 $ 382,922 $ 117,921 30.8 %

Professional services 34,561 28,564 5,997 21.0

Total revenue $ 535,404 $ 411,486 $ 123,918 30.1 %

Total revenue increased by $123.9 million in 2021 compared to 2020 and consisted of $114.8 million of organic growth and $9.1 million related to the acquisition of IntSights in July 2021.

The $114.8 million increase in revenue related to organic growth consisted of a $3.4 million increase in revenue from new customers and a $111.4 million increase in revenue from existing customers.

The $111.4 million increase in revenue from existing customers was due to an increase in revenue from renewals, upsells and cross-sells as a result of our growing base of existing customers.

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 2021 was comprised of $90.5 million generated from sales in North America and $33.4 million generated from sales from the rest of the world.

Cost of Revenue

December 31, Change

2021 2020 $ %

(dollars in thousands)

Products $ 140,773 $ 96,864 $ 43,909 45.3 %

Professional services 28,175 24,653 3,522 14.3

Total cost of revenue $ 168,948 $ 121,517 $ 47,431 39.0 %

Gross margin %:

Products 71.9 % 74.7 %

Professional services 18.5 13.7

Total gross margin % 68.4 % 70.5 %

Total cost of revenue increased by $47.4 million in 2021 compared to 2020, primarily due to a $19.7 million increase in cloud computing costs related to growing cloud-based subscription and managed services revenue and a $16.8 million increase in personnel costs, inclusive of a $2.2 million increase in stock-based compensation expense, resulting from an increase in headcount to support our growing customer base, as well as $1.7 million of additional costs attributable to the employees acquired in the IntSights acquisition in July 2021 and the DivvyCloud acquisition in May 2020.

Our increase in total cost of revenue also included a $6.7 million increase in amortization expense for acquired intangible assets, a $1.9 million increase in third-party professional service consulting costs, a $1.4 million increase in amortization expense for capitalized internally-developed software and a $0.9 million increase in other expenses.

Total gross margin percentage decreased in 2021 compared to 2020.

The decrease in products gross margin was primarily due to an increase in revenue from cloud-based subscriptions and managed services, which have lower margins than our licensed

software products as well as an increase in amortization expense for the developed technology acquired intangible asset related to the acquisition of IntSights.

The increase in professional services gross margin was primarily due to the increase in professional services revenue.

Operating Expenses

Research and Development Expense

December 31, Change

2021 2020 $ %

(dollars in thousands)

Research and development $ 160,779 $ 108,568 $ 52,211 48.1 %

% of revenue 30.0 % 26.4 %

Research and development expense increased by $52.2 million in 2021 compared to 2020, primarily due to a $44.5 million increase in personnel costs, a $4.4 million increase in allocated overhead driven largely by an increase in IT and facilities costs, a $2.5 million increase in third-party infrastructure costs and a $0.8 million increase in other expenses.

The $44.5 million increase in personnel costs was primarily due to a $22.3 million increase in salaries and related costs driven by growth in headcount, inclusive of $13.7 million in additional salaries and related costs attributable to the employees acquired in the acquisitions of IntSights in July 2021, Alcide in January 2021 and DivvyCloud in May 2020, and a $22.2 million increase in stock-based compensation expense.

The $22.2 million increase in stock-based compensation expense includes $16.4 million of stock-based compensation for employees acquired in the acquisitions of IntSights, DivvyCloud and Alcide, inclusive of $6.9 million of stock-based compensation expense related to accelerated vesting of a stock award which was deemed a modification of the original award.

Sales and Marketing Expense

December 31, Change

General and administrative expense decreased by $0.7 million in 2023 compared to 2022, primarily due to a $2.8 million increase in professional fees, partially offset by a $1.9 million decrease in other expenses.

Impairment of Long-Lived Assets

Year Ended December 31, Change

2023 2022 $ %

(dollars in thousands)

Sales and marketing $ 247,453 $ 195,981 $ 51,472 26.3 %

Impairment of long-lived assets $ 30,784 $ — $ 30,784 100.0 %

% of revenue 4.0 % — %

Sales and marketing expense increased by $51.5 million in 2021 compared to 2020, primarily due to a $32.9 million increase in personnel costs, an $8.4 million increase in commission expense, a $6.1 million increase in marketing and advertising costs, a $1.2 million increase in amortization of acquired intangible asset and a $2.9 million increase in other expenses.

The $32.9 million increase in personnel costs was primarily due to a $25.9 million increase in salaries and related costs driven by growth in headcount, inclusive of $7.0 million of additional costs attributable to the employees acquired in the acquisitions of IntSights in July 2021 and DivvyCloud in May 2020, and a $7.0 million increase in stock-based compensation expense.

General and Administrative Expense

December 31, Change

Impairment of long-lived assets expense increased by $30.8 million in 2023 compared to 2022, due to an impairment charge recorded after a triggering event related to a change in usage of certain idle office space at our corporate headquarters in Boston, Massachusetts as well as idle office spaces located in Plano, Texas, Los Angeles, California and Toronto, Canada indicated that the carrying value of our right of use and other lease-related assets may not be fully recoverable.

Restructuring Expense

Year Ended December 31, Change

2023 2022 $ %

(dollars in thousands)

General and administrative $ 78,289 $ 59,519 $ 18,770 31.5 %

Restructuring $ 22,227 $ — $ 22,227 100.0 %

% of revenue 2.9 % — %

General and administrative expense increased by $18.8 million in 2021 compared to 2020, primarily due to a $11.8 million increase in personnel costs due to an increase in headcount, inclusive of a $7.3 million increase in stock-based compensation expense, a $6.8 million increase in professional fees primarily due to acquisition-related expenses and other professional consulting fees and a $3.0 million increase in other expenses.

These increases were partially offset by a $2.8 million decrease in bad debt expense.

Restructuring expense increased by $22.2 million in 2023 compared to 2022, due to restructuring charges consisting of employee transition, notice period and severance payments and employee benefits and related facilitation costs related to our Restructuring Plan.

Refer to Note 19, Restructuring , in the Notes to our Consolidated Financial Statements for further details on our Restructuring Plan.

Interest Income

December 31, Change

Year Ended December 31, Change

2023 2022 $ %

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% of revenue 1.3 % 0.3 %

Interest income decreased by $1.1 million in 2021 compared to 2020 primarily due to a decrease in interest rates.

Interest income increased by $8.4 million in 2023 compared to 2022, primarily due to an increase in interest rates.

Interest Expense

December 31, Change

Year Ended December 31, Change

2023 2022 $ %

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% of revenue (8.3) % (1.6) %

Interest expense decreased by $9.8 million in 2021 compared to 2020 primarily due to a $15.8 million decrease in amortization of debt discount costs as a result of our adoption of ASU 2020-06, partially offset by $2.7 million of induced conversion expense incurred in conjunction with the partial repurchase of the 2023 Notes in March 2021, a $1.0 million increase in contractual interest and a $2.3 million increase in amortization of debt issuance costs related to the 2025 Notes issued in May 2020, the 2027 Notes issued in March 2021 and the revolving credit facility issued in April 2020 and amended in December 2021.

Interest expense increased by $53.7 million in 2023 compared to 2022, primarily due to $53.9 million of induced conversion expense incurred in conjunction with the partial repurchase of the 2025 Notes.

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Other Income (Expense), Net

December 31, Change

Year Ended December 31, Change

2023 2022 $ %

(dollars in thousands)

Other income (expense), net $ (1,921) $ (81) $ (1,840) NM

Other income (expense), net $ (14,522) $ (1,522) $ (13,000) 854.1 %

% of revenue (1.9) % (0.2) %

Other income (expense), net reflected a $1.8 million decrease in expense in 2021 compared to 2020 due to realized and unrealized foreign currency losses, primarily related to the euro and British pound sterling.

Provision for Income Taxes

December 31, Change

Other income (expense), net increased by $13.0 million in 2023 compared to 2022, due to a $15.5 million expense for the change in fair value of derivative assets related to our 2023 Capped Calls settlement and a decrease in realized and unrealized foreign currency gains, primarily related to the euro and British pound sterling.

(Benefit From) Provision for Income Taxes

Year Ended December 31, Change

2023 2022 $ %

(dollars in thousands)

Provision for income taxes $ 10,421 $ 1,986 $ 8,435 NM

(Benefit from) provision for income taxes $ (518) $ 2,412 $ (2,930) (121.5) %

% of revenue (0.1) % 0.4 %

Provision for income taxes increased by $8.4 million in 2021 compared to 2020 primarily due to $9.0 million of tax expense recorded for an intercompany sale of intellectual property as part of post-acquisition tax planning related to the Alcide acquisition.

In 2023, the benefit from income taxes was $0.5 million, primarily due to changes in valuation allowance related to foreign entity deferred tax assets, compared to a provision for income taxes of $2.4 million in 2022.

Comparison of the Year Ended December 31, 2022 and 2021

We have elected not to include a discussion of our consolidated results for 2022 compared to 2021 in this report in reliance upon Instruction 1 to Item 303(b) of Regulation S-K.

This discussion can be found in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 24, 2023.

Liquidity and Capital Resources

As of December 31, 2022, we had $207.3 million in cash and cash equivalents and $93.9 million of investments that have maturities ranging from 2 to 19 months.

Since our inception, we have generated significant losses and expect to continue to generate losses for the foreseeable future and as of December 31, 2022 have an accumulated deficit of $860.7 million.

Our principal sources of liquidity are cash and cash equivalents, investments and our Credit and Security Agreement (“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 investments, our available borrowings under our Credit Agreement and cash generated by operating activities will be sufficient to meet our operating and capital requirements for at least the next 12 months as well as our longer-term expected future cash requirements and obligations.

Our foreseeable cash needs, in

addition to our recurring operating expenses, include our expected capital expenditures to support expansion of our infrastructure and workforce, office facilities lease obligations, purchase commitments, including our cloud infrastructure services (including with Amazon Web Services (“AWS”)), potential future acquisitions of technology businesses and any election we make to redeem our convertible senior notes.

As of December 31, 2023, we had $213.6 million in cash and cash equivalents, $225.7 million in investments that have maturities ranging from one to thirteen months and an accumulated deficit of $1.0 billion.

Since our inception, we have generated significant losses and we may generate losses for the foreseeable future.

Our principal sources of liquidity are cash and cash equivalents, investments and our Credit and Security Agreement (the “Credit Agreement”).

To date, we have financed our operations primarily through private and public equity financings, issuance of convertible senior notes and through cash generated by operating activities.

Our foreseeable cash needs, in addition to our recurring operating expenses, include our expected capital expenditures to support expansion of our infrastructure and workforce, office facilities lease obligations, purchase commitments, including our cloud infrastructure services (including with Amazon Web Services (“AWS”)), potential future acquisitions of technology businesses and any election we make to redeem our convertible senior notes.

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, the cost of any future acquisitions of technology or businesses and any election we make to redeem our convertible senior notes.

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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.

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The following table shows a summary of our cash flows for the years ended December 31, 2023 and 2022:

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Operating Activities

Operating activities provided $104.3 million of cash and cash equivalents for the year ended December 31, 2023, which reflects continued growth in revenue partially offset by our continued investments in our operations and the timing of working capital adjustments.

Cash provided by operating activities reflected our net loss of $149.3 million and an increase in our net operating assets and liabilities of $0.4 million, offset by non-cash charges of $253.2 million related primarily to depreciation and amortization, stock-based compensation expense, deferred income taxes, impairment of long-lived assets, change in fair value of derivative assets, amortization of debt issuance costs and other non-cash charges.

The change in our net operating assets and liabilities was primarily due to a $30.5 million increase in deferred revenue due to increased billings and a $5.4 million increase in accounts payable and a $2.4 million increase in accrued expenses, which each had a positive impact on operating cash flow.

These factors were offset by an $18.5 million increase in deferred contract acquisition and fulfillment costs, a $14.0 million increase in accounts receivable, a $4.1 million increase in prepaid expenses and a $1.3 million decrease in other liabilities , which each had a negative impact on operating cash flow.

Operating activities provided $78.2 million of cash in 2022, which reflects continued growth in revenue partially offset by our continued investments in our operations and a net benefit from changes in working capital items.

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These factors were partially offset by a $15.9 million increase in deferred contract acquisition and fulfillment costs, a $9.0 million increase in accounts receivable and a $2.2 million increase in prepaid expenses and other assets, which each had a negative impact on operating cash flow.

Operating activities provided $53.9 million of cash in 2021, which reflects continued growth in revenue partially offset by our continued investments in our operations and a net benefit from changes in working capital items.

Cash provided by operating activities reflected our net loss of $146.3 million, offset by a decrease in our net operating assets of $55.0 million and non-cash charges of $145.2 million related primarily to depreciation and amortization, stock-based compensation expense, deferred income taxes, induced conversion expense, amortization of debt issuance costs and other non-cash charges.

The decrease in our net operating assets was primarily due to a $85.6 million increase in deferred revenue due to increased billings, a $19.2 million increase in accrued expenses and a $3.7 million increase in other liabilities, which each had a positive impact on operating cash flow.

These factors were partially offset by a $25.5 million increase in accounts receivable, a $22.5 million increase in deferred contract acquisition and fulfillment costs, a $3.4 million increase in prepaid expenses and other assets and a $2.1 million decrease in accounts payable, which each had a negative impact on operating cash flow.

Operating activities provided $4.9 million of cash in 2020, which reflects continued growth in revenue partially offset by our continued investments in our operations and changes in working capital items.

Cash provided by operating activities reflected our net loss of $98.8 million and an increase in our net operating assets and liabilities of $3.5 million, offset by $106.7 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, deferred income taxes and other non-cash charges.

The increase in our net operating assets and liabilities was primarily due to a $24.4 million increase in accounts receivable, a $13.4 million increase in deferred contract acquisition and fulfillment costs, a $8.9 million increase in prepaid expenses and other assets, a $2.4 million decrease in accounts payable and a $0.4 million decrease in other liabilities, which each had a negative impact on operating cash flow.

These factors were partially offset by a $37.4 million increase in deferred revenue from sales of our products and services and a $8.6 million increase in accrued expenses, which each had a positive impact on operating cash flow.

Investing Activities

Investing activities used $178.8 million of cash for the year ended December 31, 2023, consisting of $126.4 million in purchases of investments, net of sales and maturities, $34.8 million of cash paid for the acquisition of Minerva, $15.9 million for capitalization of internal-use software costs, $4.4 million in capital expenditures to purchase computer equipment and leasehold improvements, partially offset by $2.7 million in proceeds from other investments.

Investing activities used $40.0 million of cash in 2022, consisting of $20.4 million in capital expenditures to purchase computer equipment and leasehold improvements, $17.1 million for capitalization of internal-use software costs, $1.5 million of investment purchases, net of sales and maturities, and $1.0 million of other investments.

Investing activities used $325.4 million of cash in 2021, consisting of $358.4 million of cash paid for the acquisitions of IntSights, Alcide and Velocidex, net of cash acquired, $9.9 million for capitalization of internal-use software costs, $9.0 million in capital expenditures to purchase computer equipment, furniture and fixtures and leasehold improvements, $3.0 million for other investing activities, partially offset by $54.9 million of investment sales and maturities, net of purchases.

Investing activities used $156.3 million of cash in 2020, consisting of $125.8 million of cash paid for the acquisition of DivvyCloud, net of cash acquired of $5.0 million, $13.8 million in capital expenditures to purchase leasehold improvements, furniture and fixtures and computer equipment, $10.6 million for purchases of investments, net of sales and maturities, and $6.1 million for capitalization of internal-use software costs.

Financing Activities

Financing activities provided $79.6 million for the year ended December 31, 2023, which consisted primarily of $292.1 million in proceeds from the issuance of the 2029 Notes, net of issuance costs paid of $7.9 million, $17.5 million in proceeds from the

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settlement of the 2023 Capped Calls, $11.3 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc.

2015 Employee Stock Purchase Plan (“ESPP”) and $3.1 million in proceeds from the exercise of stock options, partially offset by $200.0 million for the repurchase and conversion of the 2025 Notes, $36.6 million for the purchase of the 2029 Capped Calls, $5.6 million in withholding taxes paid for the net share settlement of equity awards and $2.3 million in payments related to the acquisition of IntSights.

Financing activities provided $7.4 million of cash in 2022, which consisted primarily of $11.9 million in proceeds from the issuance of common stock purchased by employees under the Rapid7, Inc.

2015 Employee Stock Purchase Plan (“ESPP”) and $3.3 million in proceeds from the exercise of stock options, partially offset by $7.5 million in withholding taxes paid for the net share settlement of equity awards and $0.3 million in payments related to the acquisition of Velocidex.

Financing activities provided $264.1 million of cash in 2021, which consisted primarily of $585.0 million in proceeds from the issuance of the 2027 Notes, net of issuance costs paid of $15.0 million, $9.3 million in proceeds from the issuance of common stock purchased by employees under the ESPP and $4.3 million in proceeds from the exercise of stock options, partially offset by $230.0 million for the redemption, repurchase and conversion of the 2023 Notes, $76.0 million for the purchase of 2027 Capped Calls, $16.0 million in withholding taxes paid for the net share settlement of equity awards, $12.1 million for payments related to the acquisitions of DivvyCloud, Alcide and IntSights, and $0.3 million for payments of debt issuance costs.

Financing activities provided $200.9 million of cash in 2020, which consisted primarily of $222.8 million in proceeds from the issuance of the 2025 Notes, net of issuance costs paid of $7.2 million, $7.8 million in proceeds from the exercise of stock options and $7.1 million in proceeds from the issuance of common stock purchased by employees under the ESPP, partially offset by $27.3 million for the purchase of 2025 Capped Calls, $8.9 million in withholding taxes paid for the net share settlement of equity awards, $0.4 million of payments of debt issuance costs and $0.2 million of deferred consideration payments.

Off-Balance Sheet Arrangements

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We generate revenue primarily from:

(1) subscriptions from the sale of cloud-based subscriptions, managed services, term software licenses, content subscriptions and maintenance and support associated with our software licenses and (2) professional services from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services.

(1) product subscriptions from the sale of cloud-based subscriptions, managed services, term software licenses, content subscriptions and maintenance and support associated with our software licenses and (2) professional services from the sale of our deployment and training services related to our solutions, incident response services, penetration testing and security advisory services.

The majority of our contracts with customers contain multiple performance obligations.

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We determined the estimated period of benefit by taking into consideration the contractual term and expected renewals of customer contracts, our technology and other factors, including the fact that commissions paid on renewals are not commensurate with commissions paid on initial sales transactions.

Contract costs relating to contract renewals are deferred and amortized on a straight-line basis over the related renewal period.

Contract costs for professional services arrangements are expensed as incurred in accordance with the practical expedient as the contractual period of our professional services arrangements are one year or less.

We periodically review the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

Contract costs relating to contract renewals are deferred and amortized on a straight-line basis over the weighted average contract length of renewal contracts.

We periodically review the carrying amount of

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deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis