While our R&D spending as a percent of revenue is coming down over time, it’s multiple standard deviations away from the mean in comparison to our public peer group. It’s particularly anomalous when you compare Rippling to other HCM companies. Public HCM companies invest less in R&D, as a percent of 4 Paycom revenue, than any other major software category. As of Feb 2024, spent only 10% of revenue on R&D. Paylocity, 11%. Paycor, 9%. Ceridian, 13%. UKG spent 17% in 2018, the last year before they were taken private. While Rippling’s R&D investment is unusually high as a percent of revenue and will need to come down as a percentage of revenue over time, we believe our HCM competitors have been underinvesting in R&D for years. We are going to make them regret this misstep. We believe the saving grace of the upfront R&D expense required to build a compound software business is that at some level of scale, compound software businesses turn a corner on R&D investment. This is both because the individual products get to maturity and their revenue continues to grow as the R&D cost required decelerates, but also because of the effects of platform R&D investments. Over time, more and more of the code required to build a Rippling application is in shared services teams that we collectively refer to as “platform.” These teams build capabilities, such as analytics, work昀氀ow automations, permissions, approvals, and more, can be re-used by every application development team. As this underlying platform’s capabilities grow, less and less R&D is required to build or maintain individual applications. • A larger overall TAM. It should be obvious that compound software businesses, because they compete in many parallel markets, have larger TAM than point-SaaS competitors. • Better CAC payback and sales & marketing ef昀椀ciency. Abnormally ef昀椀cient sales and marketing, and what that implies for long-term operating margins, is the secret weapon of compound software businesses. It’s a lot harder to acquire a new customer relationship (a new logo) than it is to sell a new, adjacent product to a happy customer. But almost all SaaS companies are operating in impossible mode, selling a single product to a brand new customer every time. Compound software 4 Source: CapIQ. Note: All peer metrics based on the most recently reported last twelve months (as of 02/20/24), except UKG, as noted. These metrics exclude stock-based comp.