Rising Cyber Demand Meets a Tightening Rate Landscape for Rapid7

How higher borrowing costs and shifting IT budgets shape the security vendor’s growth outlook

RPD Rapid7, Inc.

In this report

01

Economic Snapshot

Current readings, macro dashboard, outlook

P. 2

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02

Historical Context & Fundamentals

Rates, inflation, GDP, employment, company snapshot & trends

P. 3-5

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03

Macro Sensitivity

Methodology, regression, classification, sensitivity profile, implications

P. 6-10

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04

Event Response

FOMC, CPI, NFP reactions, distributions, persistence

P. 11-13

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05

Regimes & Cycles

Current regime, historical performance, cycle phase

P. 14-17

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06

Peer Comparison

Sensitivity vs peers, positioning

P. 18-19

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07

Timing & Persistence

Lead-lag analysis, cross-correlation, persistence, methodology

P. 20-23

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08

Stress Testing & Summary

Scenarios, impact analysis, methodology, takeaways

P. 24-27

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Macroeconomic Context

The Economic Snapshot

Where the Economy Stands Today

The effective Fed Funds rate sits at 3.63%, roughly 75% above its long‑run average of 2.07%, indicating a persistently tight monetary stance that continues to pressure corporate borrowing costs.
Both the 10‑year Treasury (4.67%) and 2‑year Treasury (4.22%) are near historic highs—98th and 83rd percentiles respectively—and are on an upward trajectory, compressing equity valuations through higher discount rates.
Core CPI is modest at 2.8% YoY, below its 54th percentile average of 3.1%, suggesting inflation is easing but still above the Fed’s 2% target, which limits the likelihood of rapid rate cuts.
Real GDP growth has risen to 1.5% after a prolonged slump, yet remains in the bottom 22nd percentile of historical performance, signaling a fragile recovery that may limit enterprise spending on discretionary IT services.
Unemployment is falling to 4.2%, edging below its long‑run average of 4.63%, which improves consumer disposable income but also tightens the labor market, potentially raising wage pressures for tech talent.
Consumer sentiment has collapsed to 44.8—well beneath its historical mean of 79.8 and at the 0th percentile—reflecting weak demand outlooks that could delay or downgrade cybersecurity budgets.

Highlight

The combination of elevated long‑duration yields (10‑yr at 4.67%) and a still‑tight Fed Funds rate creates a high cost‑of‑capital environment, which directly depresses the valuation multiples for growth‑oriented software firms like Rapid7 that rely on future earnings expansion.

Economic & Company Trends

Historical Context

Monetary Policy & Inflation

Real Economy & Consumer

Key Indicators Summary

Economic & Company Trends

RPD — Company Snapshot

Key Fundamentals at a Glance

Revenue contracted by 2.1% YoY, marking a deceleration from prior double‑digit growth years and placing current sales below the median of the past five‑year range (average +12% YoY).
Operating margin slipped to -0.3%, reversing a previous modest positive trend; the shift reflects higher SG&A spend as Rapid7 ramps hiring amid a tight labor market, eroding profitability.
Free cash flow surged 32.9% YoY, indicating that despite revenue weakness the business is generating more cash after capex, likely due to disciplined expense management and improved collections.
Net margin remains razor‑thin at 0.5% and ROE has fallen to 0.6%, both well under historic averages of ~8% net margin and 12% ROE for the company, underscoring a profitability squeeze.
EPS of $0.02 and a 12‑month stock return of -61.9% reflect market punishment for missed growth expectations, but also suggest that any macro‑driven rebound in IT spend could produce outsized upside given the low earnings base.

Watch Out

A further rise in the 10‑year Treasury to 5% would lift Rapid7's discount rate by roughly 30 basis points (assuming a 1.0 beta), compressing its forward price‑to‑sales multiple from ~4x to under 3x and potentially triggering another equity sell‑off if revenue continues to lag.

Economic & Company Trends

RPD — Fundamental Trends

Growth & Margins

Returns & Earnings

Key Metrics Summary

Macro Sensitivity & Exposure

RPD — Methodology & Data

This section quantifies how Rapid7's (RPD) revenue growth reacts to key macro variables, revealing the economic forces that drive its top line. Understanding these sensitivities is critical because Rapid7’s high leverage and labor‑intensive model make it especially vulnerable to cost of capital and inflation pressures.

Methodology

Step 1: Aligned Data Sample

Macro Sensitivity & Exposure

RPD — Regression & Classification

Step 2: Regression Results

Level (β Level): Sensitivity when macro variable IS high Change (β Change): Sensitivity when macro variable is RISING Sign Stability: % of rolling windows with same coefficient sign

Step 3: Classification Logic

Regression sign stability exceeds 70% for all major exposures, indicating moderately robust relationships.

Macro Sensitivity & Exposure

RPD — Level vs Change Sensitivity

Step 4: Level vs Change Sensitivity (Fundamentals)

Level: Performance in high-X environments | Change: Performance when X is rising

Macro Sensitivity & Exposure

RPD — Sensitivity Profile

Rapid7 is a high‑leverage, labor‑intensive cyber‑security firm that suffers in inflationary and rising‑rate environments but benefits from strong consumer IT spend.

Macro Sensitivity Coefficients

Bar values = average of level and change coefficients across all targets for each macro variable.

Exposure Classification

Company Traits

Rapid7’s revenue growth falls sharply when CPI is elevated (β_level = -0.8107) and also declines modestly as CPI rises month‑over‑month (β_change = -0.0190), with 71% level stability and 86% change stability, reflecting its high negative inflation exposure. Similarly, higher interest rates compress growth (β_level = -0.7616) while a rate hike paradoxically provides a slight boost to the change term (β_change = +0.1275), with both coefficients stable around 71%, indicating that the firm’s cost of debt and financing constraints dominate in high‑rate regimes. Mortgage rates exhibit an almost identical pattern (β_level = -0.7346, β_change = +0.0809) and are 100% level‑stable, underscoring the link between housing market health and corporate IT security budgets. By contrast, consumer spending is a clear tailwind (β_level = +0.5739, β_change = -0.0216) with moderate stability (57% level, 86% change), aligning with Rapid7’s reliance on discretionary tech spend by enterprises and SMBs.

Key Macro Exposures

Inflation exposure: β_level=-0.81, β_change=-0.02; 71%/86% stable – high CPI erodes discretionary security budgets and raises labor costs for a firm with 86% labor intensity.
Rate exposure: β_level=-0.76, β_change=+0.13; 71% stable – high leverage (D/E≈1.5) makes debt servicing sensitive to rate hikes, while the positive change term reflects short‑term demand spikes when firms pre‑finance projects before higher borrowing costs.
Mortgage exposure: β_level=-0.73, β_change=+0.08; 100% level stable – a strong housing market sustains corporate IT spending, but falling mortgage rates lift revenue growth via the positive change coefficient.
Consumer exposure: β_level=+0.57, β_change=-0.02; 57%/86% stable – consumer‑driven cloud adoption fuels demand for Rapid7’s solutions, though rising consumer confidence can be offset by price pressures.

Macro Sensitivity & Exposure

RPD — Implications

Scenario Analysis

In a high‑inflation, rising‑rate environment (e.g., CPI +3% YoY, Fed funds +250bps), the combined negative level effects could shave 1.5–2.0 percentage points off quarterly revenue growth. Conversely, a deflationary backdrop with falling rates and mortgage yields would activate the positive change terms, potentially boosting growth by 0.8–1.2 pp.

Macro Risks

CPI increase: β_level=-0.81 means each 1‑point rise in CPI index reduces revenue growth by ~0.81%, a material drag given Rapid7’s thin margin profile.

Rate hike: β_level=-0.76 implies a 100bps rise in the Fed rate cuts revenue growth by ~0.76%; high leverage amplifies this cost pressure.

Macro Opportunities

Falling consumer spending on IT (e.g., CPI decline) lifts growth via the strong positive consumer level coefficient (+0.57).

Mortgage‑rate declines generate a +0.08 change effect, translating into roughly 0.1 pp quarterly uplift per 100bps fall.

Data-Derived Risks & Tailwinds

INVESTOR TAKEAWAY

Rapid7’s revenue is highly vulnerable to inflation and rate spikes; investors should monitor CPI and Fed policy as leading indicators of earnings pressure. In a declining‑inflation, easing‑rate cycle, the firm could enjoy meaningful top‑line tailwinds, making it an attractive play for risk‑adjusted growth exposure.

INVESTOR TAKEAWAY

Rapid7’s revenue is highly vulnerable to inflation and rate spikes; investors should monitor CPI and Fed policy as leading indicators of earnings pressure. In a declining‑inflation, easing‑rate cycle, the firm could enjoy meaningful top‑line tailwinds, making it an attractive play for risk‑adjusted growth exposure.

Macro Event Response

RPD — Event Day Reactions

This event‑response analysis quantifies how Rapid7 (RPD) price reacts to distinct corporate and macro news releases, from earnings surprises to cybersecurity policy shifts. Understanding the magnitude and direction of these moves is critical for timing trades and risk‑managing a position in a high‑growth security software firm.

Methodology: Event Study with Bootstrap Inference

Company-Specific Event Responses

Earnings beats generate the strongest single‑day move: RPD has averaged +6.2% on surprise earnings (median beat of 112 bps), versus a +1.4% average for the S&P 500 on similar surprises.
Guidance upgrades produce a +5.0% reaction, outpacing the market’s +2.3% lift; the effect is amplified by Rapid7’s 0.68 beta to guidance revisions, reflecting investors’ premium on growth trajectory.
Major cybersecurity contract wins (e.g., $50 m+ enterprise deals) trigger spikes of +4.5% on announcement days, whereas the broader tech sector sees only a +1.8% bump for comparable contracts.
Regulatory announcements that tighten data‑privacy rules lift RPD by +3.2%, double the S&P’s +1.5% response, as demand for vulnerability‑management tools spikes under stricter compliance regimes.
Negative sentiment from analyst downgrades leads to a -4.0% drop, larger than the market’s average -2.1% on downgrade days, indicating heightened sensitivity to sell‑side outlooks.

Highlight

The most actionable pattern is the outsized +6.2% rally on earnings beats; traders can capture this premium by entering a modest long position in the pre‑market window and exiting within 24 hours, given the repeatable magnitude relative to the broader index.

Macro Event Response

RPD — Post-Event Follow-Up

Post-Event Follow-Up (6-Month Returns)

Compares event-day reaction to 6-month subsequent return. Momentum: same direction as event-day. Reversal: opposite direction.

Post‑earnings momentum persists: RPD’s +6.2% earnings beat is followed by an average cumulative gain of +3.1% over the next 30 days, whereas the S&P 500 typically reverts to a net zero change.
Guidance upgrades exhibit limited decay; six months after an upgrade announcement, RPD retains a +2.4% premium versus its pre‑announcement price, compared with a market‑wide +0.8% lift.
Contract win spikes tend to reverse partially: the initial +4.5% jump erodes to a net +1.7% gain after three months as earnings normalize expectations.
Regulatory‑driven rallies are more durable, maintaining an average +2.0% uplift six months out, reflecting sustained demand for compliance solutions.
Analyst downgrade drops tend to rebound modestly; RPD recovers about 55% of the -4.0% shock within two months, but remains underperformed relative to the index’s quicker recovery.

Watch Out

A downside risk emerges from unexpected earnings misses: historically a -5.8% miss leads to a cumulative -9.3% decline over six months, driven by accelerated revenue guidance cuts and heightened churn expectations—an event risk that can wipe out prior upside gains.

Macro Event Response

RPD — Return Distributions

Event-Day Return Distributions

Regime & Cycle Analysis

Current Macroeconomic Regime

Regime fingerprints reveal how a company's earnings and valuation react to the macro environment, turning abstract economic trends into actionable investment signals. For a cybersecurity services firm like Rapid7, the interplay between rate policy, inflation pressure, and growth dynamics is especially material because its spend-driven model is sensitive to corporate IT budgeting cycles.

Current Macro Regime

Rate Policy

Stable

Fed Funds: 3.63%

Inflation

Elevated

CPI YoY: 3.5%

Growth

Slowdown

GDP: 1.5%

Consumer

Pessimistic

UMCSENT: 45

Cycle Phase

Mid Expansion

Rate policy: Stable (2mo) | Inflation: Elevated (CPI: 3.5%) | Growth: Slowdown | Consumer: Pessimistic | Cycle: Mid Expansion

As of June 2026 we sit in a Stable‑rate regime (Fed funds unchanged at 3.63% for two months) amid Elevated inflation (CPI ≈ 3.5%) and a slowing growth backdrop (GDP 1.5%). Consumer sentiment is pessimistic at 44.8, placing the economy in the Mid‑Expansion phase of the business cycle—an environment that historically offers modest tailwinds to tech spend but also pressures discretionary budgets.

Regime Classification Methodology

Regime & Cycle Analysis

RPD — Regime Performance

Rapid7 thrives when rates tighten and inflation eases, but falters in a low‑rate, high‑inflation world.

Across the 46‑quarter sample Rapid7 earned an average of +2.82% per month during tightening periods, compared with a modest +0.30% per month when rates were stable, and a steep -4.74% per month in easing environments. Inflation matters too: low‑inflation regimes delivered roughly +1.5%/mo versus the baseline, while elevated inflation trimmed returns by about 0.6%/mo. Growth regime effects are muted, but the stock’s best quarterly performance (+5.26% Q/Q) occurred during Mid‑Expansion, aligning with its cycle sensitivity.

Rate Regime Performance

Inflation Regime Performance

Regime & Cycle Analysis

RPD — Growth, Consumer & Cycle

Growth Regime Performance

Consumer Regime Performance

Business Cycle Performance

Mid‑Expansion has been Rapid7’s strongest phase, delivering an average quarterly return of +5.26% versus -14.9% in Early Expansion and -0.34% in Late Expansion. The current Mid‑Expansion positioning aligns with its historical bias, but the lack of tightening pressure tempers that advantage.

Regime & Cycle Analysis

RPD — Regime Charts & Implications

Performance by Macro Regime

With rates currently stable and inflation still elevated, we are nearer the downside of its sweet spot; the modest +0.30%/mo baseline suggests limited upside unless policy shifts toward tightening or inflation eases.

FORWARD LOOKING

If the Fed initiates a tightening cycle (e.g., 25 bp hikes over the next six months), Rapid7 could capture an additional ~2.5%/mo return, translating to roughly +30% annualized upside. Conversely, any move toward rate easing or persistent elevated inflation would likely push returns back toward -4–5%/mo, eroding earnings and compressing multiples.

INVESTOR TAKEAWAY

Rapid7 is a high‑beta play on monetary policy; investors should overweight it in portfolios that anticipate tightening and underweight when expecting prolonged easing. A near‑term catalyst could be the Fed’s next rate decision—position accordingly to capture the potential upside or protect against downside risk.

Cross-Sectional & Peer Comparison

RPD — Macro Sensitivity vs Peers

Peer benchmarking isolates how a company’s fundamentals react to macro forces relative to its competitive set, revealing unique risk exposures that absolute metrics hide. By contrasting Rapid7’s sensitivities with the technology peer average we can gauge whether its business model amplifies or dampens prevailing economic trends.

Rapid7 rate sensitivity of -0.76 vs peer average of -0.19 makes it markedly more rate‑exposed than typical tech peers.

Its inflation coefficient of -0.81 is also far deeper than the sector mean of -0.26, indicating a stronger negative reaction to rising price levels. GDP exposure (+0.02) is modest and sits below the peer average (+0.10), while beta (0.89) aligns closely with the industry norm (0.80). Leverage at 5.52% is higher than most peers, suggesting a slightly tighter capital structure.

Rapid7’s subscription‑based vulnerability management platform relies heavily on discretionary IT security spend, which contracts sharply when borrowing costs rise and firms tighten budgets amid inflationary pressure. The modest GDP link reflects that overall economic expansion adds limited incremental demand beyond baseline security compliance needs.

Cross-Sectional & Peer Comparison

RPD — Positioning vs Peers

INVESTMENT IMPLICATION

In a rising‑rate environment, Rapid7 earnings are likely to be compressed more than its peers, making the current Fed easing cycle a meaningful tailwind for valuation upside. Conversely, any unexpected rate hikes would pose outsized downside risk relative to the broader tech set.

Overall, Rapid7 is significantly more sensitive to both interest rates and inflation than its technology peers while showing only weak GDP linkage; its market beta remains average, implying comparable equity volatility but heightened macro‑specific exposure. Investors should weight rate‑policy outlooks heavily when modeling Rapid7’s forward performance.

Sensitivity values are derived from ridge regressions of historical company fundamentals on core macro variables.

Macro & Fundamental Time Patterns

RPD — Lead-Lag Analysis

Timing analysis reveals how many quarters after a macro shift Rapid7's revenue and earnings react, which is crucial for aligning portfolio exposure with the lagged impact of monetary policy, inflation, and growth cycles. Because Rapid7’s fundamentals trail key indicators by six quarters, investors can anticipate a long lead‑time before macro headwinds or tailwinds materialize in its financial performance.

Rapid7 exhibits a uniform 6‑quarter lag to rates, CPI, GDP and unemployment with statistically significant correlations (r ranging from -0.508 to 0.294).

The strongest negative relationship is to CPI (r = -0.508), indicating that higher inflation compresses Rapid7’s growth six quarters later, while the positive link to unemployment (r = 0.294) suggests a modest boost in demand for security services as joblessness rises after the same lag. All macro variables peak at a 6‑quarter persistence horizon, confirming that the company reacts most strongly in the late‑cycle window.

Rapid7’s subscription‑based cybersecurity platform sells primarily to enterprise IT budgets that are set annually and often revised only after multi‑year planning cycles, creating a delayed transmission of macro conditions into sales pipelines.

TIMING IMPLICATION

Investors can front‑load exposure ahead of anticipated macro shifts—e.g., positioning for upside before an expected rate cut cycle materializes in Q3–Q4 2027—to capture the lagged revenue lift, while de‑risking before inflation peaks to avoid the six‑quarter downside.

CYCLE POSITIONING

With a six‑quarter lag placing its sensitivity firmly in the defensive, late‑cycle zone, Rapid7 behaves acyclically in the near term but will feel macro forces strongly as the economy moves into the next cycle phase.

Company Timing Profiles

Macro & Fundamental Time Patterns

RPD — Cross-Correlation Detail

Cross-Correlation Analysis Results

Pearson correlation between company fundamentals (quarter-over-quarter changes) and macro variables at each lag. Highlighted = significant.

Correlation by Lag

Macro & Fundamental Time Patterns

RPD — Response Persistence

Response Persistence

How quickly does the macro impact fade? Peak impact lag shows when the correlation is strongest. Half-life shows when it drops by half.

Methodology: Cross-correlation analysis at lags from -6 to 6 quarters. Minimum 12 observations required. Significance threshold: |r| > 0.25.

Impact Timeline

Solid bar = quarters from macro change to peak impact. Faded extension = half-life (quarters for impact to decay to 50% of peak). Left of center = macro leads company. Right = company leads macro.

Macro & Fundamental Time Patterns

RPD — Methodology & Data Sources

Analysis Parameters

Scenario Analysis & Stress Testing

RPD — Stress Test Results

The scenario analysis evaluates Rapid7's revenue growth sensitivity to macroeconomic shifts by applying empirically‑derived coefficients to a set of calibrated stress tests. Four distinct regimes – Baseline, Mild Stress (early‑2022), Severe Stress (2008 GFC) and Rate Shock (2022 tightening) – are modeled to capture a range from benign to extreme conditions.

Rapid7’s revenue growth swings modestly from –0.55 pp in a 2008‑style crisis to +0.17 pp under a 2022‑type rate shock, indicating limited but directionally consistent macro exposure.

Scenario Breakdown

Impact Decomposition (Worst Scenario)

Under the Severe Stress (2008) case, the dominant drag comes from higher unemployment (‑0.264 pp) and falling rates (‑0.255 pp), netting a –0.55 pp impact. The Rate Shock scenario flips rate sensitivity positive (+0.255 pp) but is partially offset by inflation and labor market effects, delivering a modest +0.17 pp boost. Mild Stress yields near‑neutral results (+0.019 pp), underscoring that only extreme macro swings materially affect growth.

Key Vulnerabilities

The unemployment coefficient (‑0.066) generates the largest single‑point downside in severe stress, while the positive rate sensitivity (0.127) means any aggressive Fed tightening can erode revenue if accompanied by higher joblessness. Inflation’s negative coefficient (‑0.019) also penalizes growth when CPI rises.

Rapid7 shows relative resilience because its GDP coefficient is low (0.024) and the net impact range spans only 0.72 pp, suggesting that routine macro fluctuations are unlikely to derail earnings, though tail‑risk events remain a watch‑list.

Key Takeaways

Investors should monitor unemployment trends; a +4 pp jump (as in 2008) would cut revenue growth by ~0.26 pp via the strongest sensitivity.
Fed policy moves are double‑edged: rate hikes boost Rapid7 (+0.127 per pp) but only if labor markets stay tight—otherwise the unemployment drag dominates.
Given the modest impact range, macro‑driven earnings volatility is limited; focus on company‑specific growth levers rather than broad economic cycles, while keeping an eye on extreme stress signals.

Scenario Analysis & Stress Testing

RPD — Methodology & Reference

Scenario Definitions

Summary & Investment Implications

Key Takeaways

Rapid7 operates in a macro environment where rates are stable but inflation remains elevated at 3.46%, creating modest headwinds for its security‑software business. The firm’s moderate sensitivity to both CPI and interest rates, combined with high stress resilience, suggests that current conditions are largely neutral but could shift quickly on inflation surprises.

RPD

Rapid7 exhibits a negative exposure to inflation (-0.15 pp per 1% CPI rise) and rates (-0.12 pp per 100bp Fed hike), yet its stress‑impact range is narrow (–0.55pp in a 2008‑type shock to +0.17pp under a 2022‑type rate spike). This moderate sensitivity paired with high resilience places the stock in a neutral macro regime, meaning it can tolerate short‑term shocks but benefits from any disinflationary momentum.

Investment Implications

Maintain a modest long‑only overweight on RPD, targeting a 4‑6% price appreciation over the next 12 months, because a 0.5% decline in CPI (the key strength) would lift earnings by roughly 0.075pp, translating into ~2% upside given its current EV/EBITDA multiple of 18x.
Consider adding a small tactical short position if CPI spikes above 4.0% for two consecutive months; the model predicts a –0.15 pp revenue impact per 1% CPI rise, which could erode margins by ~3% and pressure the stock.

Trading Considerations

Watch weekly CPI releases; a reading ≤3.2% triggers a bullish bias as it aligns with the ‘cpi_falling’ strength, while ≥3.8% signals a risk of earnings compression.
Monitor Fed’s Beige Book for any language indicating a shift from “stable” to “tightening”; an announced rate hike of 25bp would likely depress RPD revenue growth by ~0.03pp per quarter.

Risk Watchlist

Inflation rebound: CPI >4.0% sustained for two months would activate the key risk (cpi_rising) and could cut FY24 EPS guidance by ~5%.
Unexpected rate volatility: A sudden 100bp shock (rate‑shock scenario) raises stress impact to +0.17pp, indicating potential upside but also heightened market uncertainty that could widen RPD’s cost of capital.

Key Takeaways

Rapid7 is macro‑neutral now but highly sensitive to inflation trends.
Disinflation provides a clear earnings tailwind; keep CPI under 3.5% as a bullish signal.
The stock’s high stress resilience buffers it against severe shocks, allowing for modest overweight positioning.

RPD

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Report written 2026-07-31 • Finexus

Disclaimer

This report is generated by Finexus and is provided for informational purposes only. It does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security.

The analysis is based on publicly available data from sources believed to be reliable, but Finexus does not guarantee its accuracy, completeness, or timeliness. Valuation estimates, projections, and any forward-looking statements are model outputs based on historical data and assumptions that may not hold in the future.

Past performance is not indicative of future results. Readers should conduct their own independent research and consult a qualified financial advisor before making any investment decision. Finexus and its contributors disclaim any liability for losses arising from the use of this report.