What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-28 · 80 added, 86 removed, 266 unchanged (38% of the section changed)

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You should read the following discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.

We are a pioneer and leading provider of intelligent cloud software for contact centers, facilitating more than nine billion call minutes between our more than 2,500 clients and their customers per year.

We believe we achieved this leadership position through our expertise and technology, which has empowered us to help organizations of all

sizes transition from legacy on-premise contact center systems to our cloud solution.

Our solution, comprised of our VCC cloud platform and applications, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our APIs.

We are a pioneer and leading provider of intelligent cloud contact center market with more than 2,500 clients.

We believe we achieved this leadership position through our expertise and technology, which has empowered us to help organizations of all sizes transition from legacy on-premise contact center systems to our cloud solution.

solution, comprised of our VCC cloud platform and applications, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our APIs.

Our VCC cloud platform matches each customer interaction with an appropriate agent resource and delivers relevant customer data to the agent in real-time through integrations with adjacent enterprise applications, such as CRM software, to optimize the customer experience and improve agent productivity.

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Fixed subscription fees, including bundled plans, are generally billed monthly in advance, while related usage fees are billed in arrears.

For the years ended December 31, 2021, 2020 and 2019, subscription and related usage fees accounted for 92% of our revenue for each of these years, respectively.

For the years ended December 31, 2022, 2021 and 2020, subscription and related usage fees accounted for 91%, 92% and 92% of our revenue, respectively.

The remainder was comprised of professional services revenue from the implementation and optimization of our solution.

Termination of Proposed Merger with Zoom

On July 16, 2021, we entered into an Agreement and Plan of Merger, or the Merger Agreement, by and among our company, Zoom, and Summer Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Zoom, or Merger Sub.

The Merger Agreement provided for the merger of Merger Sub with and into our company, or the Merger, with our company surviving the Merger and continuing as a wholly owned subsidiary of Zoom.

On September 30, 2021 at a special meeting of our stockholders, a vote to approve the Merger was unsuccessful.

As a result, immediately following the special meeting, on September 30, 2021, we and Zoom mutually agreed to terminate the Merger Agreement, effective immediately.

Except as otherwise set forth in the Merger Agreement, none of our company, Zoom or Merger Sub shall have any further liability thereunder.

We incurred approximately $7.6 million in transaction costs related to the Merger that was recorded in general and administrative expense in our consolidated statements of operations.

Effects of COVID-19

In December 2019, a novel coronavirus disease known as COVID-19 was reported and on March 11, 2020, the WHO characterized COVID-19 as a pandemic.

This pandemic has resulted in a widespread health crisis that has

significantly harmed the U.S.

and global economies and caused significant fluctuation in financial markets, including those on which our common stock and our convertible senior notes trade, and may impact demand for our solution.

In accordance with the various social distancing and other office closure orders and recommendations of applicable government agencies, all of our employees transitioned to work-from-home operations and we canceled all business travel by our employees except where necessary and properly authorized, which changed how we operated our business.

Our clients and business partners have been, and continue to be subject to various and changing social distancing and office closure orders and recommendations and travel restrictions and prohibitions, which have changed the way we interact with our clients and business partners.

Recently, we have re-opened our U.S.

offices for employees to voluntarily return, subject to capacity restrictions and applicable government regulations.

Appropriate measures are being taken to protect the health of employees who return to the office.

We have also reinstated business travel on a voluntary basis and subject to prior approval.

COVID-19 had a moderately positive impact on our 2020 and 2021 financial results due to the shift from brick-and-mortar to virtual.

The severity and duration of the COVID-19 pandemic, and its impact on the U.S.

and global economy remains uncertain, but we believe that there may be a continuing net benefit to us longer term.

See Part I, Item 1A.

Risk Factors, for further discussion of the impact of the COVID-19 pandemic on our business and operations.

Macroeconomic and Other Factors

We are subject to risks and exposures, including those caused by adverse economic conditions, including macroeconomic deterioration, the Russia-Ukraine conflict and the COVID-19 pandemic.

Macroeconomic factors include the global economic slowdown, increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates.

We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.

While the implications of macroeconomic events on our business, results of operations and overall financial position remain uncertain over the long term, we continue to experience macroeconomic headwinds on our installed base business, which typically contributes approximately half of our revenue growth, particularly in two verticals, healthcare and consumer, which are typically our two strongest seasonal industries in the fourth quarter.

There has also been some adverse impact on the mid-market portion of our net new clients business.

In March 2022 we decided to close our Russia office and to establish a new European development center in Portugal, in part due to the growing uncertainty arising from the Russia-Ukraine conflict.

During the year ended December 31, 2022, we incurred approximately $7.9 million in costs related to the closure and relocation of our

Russian operations, of which $0.7 million was recorded in cost of revenue, $5.9 million was recorded in research and development expense, $1.4 million was recorded in general and administrative expense and $(0.1) million was recorded in interest income and other in our consolidated statements of operations and comprehensive loss.

We currently do not believe that this decision will have a material effect on our business, results of operations or financial condition.

The COVID-19 pandemic had a moderately positive impact on our financial results due to the shift from brick-and-mortar to virtual.

The severity and duration of the COVID-19 pandemic, and its continuing impact on the U.S.

and global economy remains uncertain, but we believe that most of this benefit has now dissipated.

Key GAAP Operating Results

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For each of the years ended December 31, 2022, 2021 and 2020, no single client accounted for more than 10% of our total revenue.

As of December 31, 2021, we had over 2,500 clients across multiple industries.

Our clients’ subscriptions generally range in size from fewer than 10 agent seats to approximately 11,000 agent seats.

As of December 31, 2022, we had over 2,500 clients across multiple industries with a wide range of seat sizes.

We had a net loss of $94.7 million, $53.0 million and $42.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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The growth of our business and our future success depend on many factors, including our ability to continue to expand our base of larger clients, grow revenue from our existing clients, innovate and expand internationally.

While these areas represent significant opportunities for us, they also pose risks and challenges, including the impact of the COVID-19 pandemic, that we must successfully address in order to sustain the growth of our business and improve our operating results.

While these areas represent significant opportunities for us, they also pose risks and challenges that we must successfully address, including the impact of macroeconomic deterioration, the Russia-Ukraine conflict and the COVID-19 pandemic, in order to successfully grow our business and improve our operating results.

Key Operating and Non-GAAP Financial Performance Metrics

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We believe that our Annual Dollar-Based Retention Rate provides insight into our ability to retain and grow revenue from our clients, and is a measure of the long-term value of our client relationships.

Starting with the fourth quarter of 2020, we revised our Annual Dollar-Based Retention Rate calculation to be based on Net Revenue, rather than Net Invoicing.

Our Annual Dollar-Based Retention Rate is calculated by dividing our Retained Net Revenue by our Retention Base Net Revenue on a monthly basis, which we then average using the rates for the trailing twelve months for the period presented.

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Annual Dollar-Based Retention Rate 115% 122%

Our Dollar-Based Retention Rate improved year-over-year primarily due to our larger clients increasing their number of agent seats.

Our Dollar-Based Retention Rate decreased year-over-year primarily due to the initial benefit we previously experienced in 2021 from the COVID-19 pandemic and macroeconomic headwinds we started experiencing in 2022.

Adjusted EBITDA

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GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance.

We believe that adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude from adjusted EBITDA.

We believe that adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the

income or expenses that we exclude from adjusted EBITDA.

Furthermore, we use this measure to establish budgets and operational goals for managing our business and evaluating our performance.

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GAAP measure, net loss.

We calculate adjusted EBITDA as net loss before (1) depreciation and amortization, (2) stock-based compensation, (3) interest expense, (4) other expense and interest income, (5) acquisition-related transaction costs and one-time integration costs, (6) COVID-19 relief bonuses for employees, (7) loss on early extinguishment of debt, (8) contingent consideration expense, (9) (benefit from) provision for income taxes, and (10) other items that do not directly affect what we consider to be our core operating performance.

We calculate adjusted EBITDA as net loss before (1) depreciation and amortization, (2) stock-based compensation, (3) interest expense, (4) interest (income) and other, (5) exit costs related to the closure and relocation of our Russian operations, (6) acquisition-related transaction and one-time integration costs, (7) contingent consideration expense, (8) refund for prior year overpayment of USF fees, (9) provision for (benefit from) income taxes, and (10) other items that do not directly affect what we consider to be our core operating performance.

The following table shows a reconciliation of net loss to adjusted EBITDA for the periods presented (in thousands):

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Interest expense 7,493 8,027

Other expense and interest (income) 8 (3,034)

Interest (income) and other (4,813) 8

Exit costs related to closure and relocation of Russian operations (3)

Acquisition-related transaction costs and one-time integration costs 6,901 13,576

COVID-19 relief bonuses for employees — 1,817

Loss on early extinguishment of debt — 6,964

Contingent consideration expense 260 5,640

Benefit from income taxes (11,285) (2,453)

Refund for prior year overpayment of USF fees (3,511) —

Provision for (benefit from) income taxes 4,388 (11,285)

Adjusted EBITDA $ 140,436 $ 110,503

(1) See ITEM 6 of this Form 10-K for depreciation and amortization expenses included in our results of operations for the periods presented.

(1) Depreciation and amortization expenses included in our results of operations for the periods presented are as follows (in thousands):

Year Ended December 31,

Cost of revenue $ 34,955 $ 30,870

Research and development 3,164 3,277

Sales and marketing

General and administrative

Total depreciation and amortization $ 44,671 $ 38,732

(2) See Note 7 to the consolidated financial statements for stock-based compensation expense included in our results of operations for the periods presented.

(3) Exit costs related to the closure of our Russian operations were $3.4 million and one-time and relocation-related costs were $4.5 million during the year ended December 31, 2022.

The $7.2 million adjustment presented above was net of $0.8 million included in “Depreciation and amortization” and $(0.1) million included in “Interest (income) and other.”

Key Components of Our Results of Operations

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Professional services are recognized as the services are performed using the proportional performance method, with performance measured based on labor hours, provided all other criteria for revenue recognition are met.

We expect that adverse economic conditions will continue to have an adverse impact on our revenue in future periods.

For example, we continue to experience macroeconomic headwinds on our installed base business, which typically contributes approximately half of our revenue growth, particularly in two verticals, healthcare and consumer, which are typically our two strongest seasonal industries in the fourth quarter.

There has also been some adverse impact on the mid-market portion of our net new clients business.

Cost of Revenue

Our cost of revenue consists primarily of personnel costs, including stock-based compensation, fees that we pay to telecommunications providers for usage, USF costs which have been increasing, contributions and other regulatory costs, depreciation and related expenses of the servers and equipment, costs to build out and maintain co-location data centers, costs of public cloud-based data centers, allocated office and facility costs and amortization of acquired technology.

Our cost of revenue consists primarily of personnel costs, including stock-based compensation, fees that we pay to telecommunications providers for usage, USF contributions and other regulatory costs, depreciation and related expenses of our servers and equipment, costs to build out and maintain co-location data centers, costs of public cloud-based data centers, allocated office and facility costs, amortization of acquired technology and amortization of internal-use software costs.

Cost of revenue can fluctuate based on a number of factors, including the fees we pay to telecommunications providers, which vary depending on our clients’ usage of our VCC cloud platform, the timing of capital expenditures and related depreciation charges and changes in headcount.

We expect to continue investing in our network infrastructure and operations and client support function to maintain high quality and availability of services, which investments will result in absolute dollar increases in cost of revenue but percentage of revenue declines in the long-term through economies of scale.

In the near-term, however, we expect cost of revenue to increase both in absolute dollars and as a percentage of revenue, primarily due to increased investments in public cloud, cloud operations and professional services to support our growth initiatives.

We expect to continue investing in professional services, public cloud, cloud operations, client support and network infrastructure to maintain high quality and availability of services, which we believe will result in absolute dollar increases in cost of revenue but percentage of revenue declines in the long-term through economies of scale.

Operating Expenses

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We expense research and development expenses as they are incurred except for internal use software development costs that qualify for capitalization.

We believe that continued investment in our solution is important for our future growth, and we expect our research and development expenses to increase in absolute dollars and as a percentage of revenue in the near term and to fluctuate in the longer term.

We believe that continued investment in our solution is important

for our future growth, and we expect our research and development expenses to increase in absolute dollars and fluctuate as a percentage of revenue in the near and longer term.

Sales and Marketing .

Sales and marketing expenses consist primarily of salaries and related expenses, including stock-based compensation, for personnel in sales and marketing, sales commissions, as well as advertising,

marketing, corporate communications, travel costs and allocated overhead.

We believe it is important to continue investing in sales and marketing to continue to generate revenue growth, and we expect sales and marketing expenses to increase in absolute dollars over the long term and fluctuate as a percentage of revenue in the near and longer term as we continue to support our growth initiatives.

Sales and marketing expenses consist primarily of salaries and related expenses, including stock-based compensation, for personnel in sales and marketing, sales commissions, as well as advertising, marketing, corporate communications, travel costs and allocated overhead.

We believe it is important to continue investing in sales and marketing to continue to generate revenue growth, and we expect sales and marketing expenses to increase in absolute dollars and fluctuate as a percentage of revenue in the near and longer term as we continue to support our growth initiatives.

General and Administrative.

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Total operating expenses 64 % 66 %

(Loss) income from operations (10) % (2) %

Loss from operations (11) % (10) %

Other (expense) income, net:

Interest expense (1) % (1) %

Loss on early extinguishment of debt — % (2) %

Other (expense) and interest income — % 1 %

Interest income and other 1 % — %

Total other (expense) income, net — % (1) %

Loss before income taxes (11) % (11) %

Benefit from income taxes (2) % — %

Provision for (benefit from) income taxes 1 % (2) %

Net loss (12) % (9) %

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% of Revenue 47% 44%

The increase in cost of revenue for 2021 compared to 2020 was primarily due to a $29.2 million increase in personnel costs, including stock-based compensation costs, driven mainly by increased headcount, higher salaries and a higher fair value of employee equity awards due primarily to our increased stock price, a $22.4 million increase in depreciation, data center and public cloud costs driven to support our growing capacity needs, an $18.5 million increase in third-party hosted software costs driven by increased client activities, a $5.7 million increase in USF contributions and other federal telecommunication service fees due primarily to increased client usage and an increase in the USF contribution rate, a $5.6 million increase in amortization expense due to the acquisitions of Virtual Observer in April 2020 and Inference in November 2020, and a $3.2 million increase in office, facilities and related costs.

The increase in cost of revenue for 2022 compared to 2021 was primarily due to a $37.9 million increase in personnel costs, including stock-based compensation costs, driven mainly by increased headcount and higher salaries, a $29.4 million increase in depreciation, data center and public cloud costs to support our growing capacity needs, a $19.4 million increase in third-party hosted software costs driven by increased client activities, a $5.1 million increase in consulting costs for global expansion, a $3.4 million increase in usage and carrier costs due to increased volume, and a $3.2 million increase in staff augmentation costs related to implementation of our solutions,

offset in part by a $2.5 million decrease in USF contributions and other federal telecommunication service fees due primarily to a change in methodology, which resulted in a $3.5 million refund for 2020 that was received in 2022.

The $3.5 million refund for 2020, accompanied by the decrease in the USF contribution rates resulted in a decrease in USF costs for 2022 compared to 2021.

This decrease in USF costs was offset in part by increased client usage.

Year Ended December 31,

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The increase in gross profit for 2022 compared to 2021 was primarily due to increases in subscription and related revenues.

The decrease in gross margin for 2021 compared to 2020 was primarily due to the increase in personnel costs, driven by increased headcount, higher salaries and a higher fair value of employee equity awards primarily due to our increased stock price, the increase in depreciation, data center and public cloud costs to support our growing capacity needs, the increase in third-party hosted software costs driven by increased client activities, the increase in USF contributions and other federal telecommunication service fees due primarily to increased client usage and an increase in the USF contribution rate, the increase in amortization expense from the acquisition of certain intangible assets from Virtual Observer and Inference, and the increase in office, facilities and related costs.

Due to increased investments in public cloud, cloud operations and professional services, we expect gross margin to decline slightly in the near term and increase in the long term.

The decrease in gross margin for 2022 compared to 2021 was primarily due to increased cost of revenue as described above, which grew at a higher rate than our growth in revenue.

We expect gross margin to increase in the long term despite continued investments in professional services, public cloud, cloud operations, client support and network infrastructure, as we expect revenue growth in the long term to more than offset these increases.

Operating Expenses

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% of Revenue 18% 18%

The increase in research and development expenses for 2021 compared to 2020 was primarily due to a $33.6 million increase in personnel-related costs including stock-based compensation costs, driven mainly by increased headcount, higher salaries, higher fair value of employee equity awards due primarily to our increased stock price, and by incremental stock-based compensation costs due to the modification of certain stock-based awards of a former executive, and a $1.9 million increase in office, facilities and related costs.

The increase in research and development expenses for 2022 compared to 2021 was primarily due to a $35.2 million increase in personnel-related costs including stock-based compensation costs, driven mainly by increased headcount and higher salaries, and a $2.3 million increase in office, facilities and related costs, offset in part by $5.6 million in research and development costs that qualified for capitalization.

Sales and Marketing

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% of Revenue 34% 32%

The increase in sales and marketing expenses for 2021 compared to 2020 was primarily due to a $38.9 million increase in personnel-related costs, including stock-based compensation costs driven mainly by increased headcount, higher salaries and higher fair value of equity awards due primarily to our increased stock price, a $9.0 million increase in sales commission expenses driven by the growth in sales and bookings of our solution, and a $3.9 million increase in office, facilities and related costs.

The increase in sales and marketing expenses for 2022 compared to 2021 was primarily due to a $38.3 million increase in personnel-related costs, including stock-based compensation costs driven mainly by increased headcount and higher salaries, a $16.2 million increase in sales commission expenses driven by the growth in sales and bookings of our solution, a $5.0 million increase in travel costs and an in-person user conference as a result of an increase in business travel as COVID-19 restrictions decreased, and a $2.2 million increase in office, facilities and related costs.

The remaining net increase in sales and marketing expenses was primarily due to the execution of our growth strategy to acquire new clients, increase the number of agent seats within our existing client base, and increased advertising and other marketing expenses to increase our brand awareness.

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% of Revenue 12% 16%

The increase in general and administrative expenses for 2021 compared to 2020 was primarily due to a $14.6 million increase in personnel costs including stock-based compensation costs, driven mainly by increased headcount, higher salaries and a higher fair value of equity awards due primarily to our increased stock price, a $6.9 million increase in legal and other professional service costs mainly related to the proposed Merger that was terminated on September 30, 2021, and a $5.6 million increase in contingent consideration expense for the Inference acquisition.

The increase in general and administrative expenses for 2022 compared to 2021 was primarily due to a $11.9 million increase in personnel costs including stock-based compensation costs, driven mainly by increased headcount and higher salaries.

partially offset by a $5.7 million decrease in legal and other professional service costs due to a decline in M&A activities and by a $5.4 million decrease in contingent consideration expense for the Inference acquisition.

Other (Expense) Income, Net

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Interest expense $ (7,493) $ (8,027) $ 534 7 %

Loss on early extinguishment of debt — (6,964) 6,964 (100) %

Other (expense) and interest income (8) 3,034 (3,042) 100 %

Interest income and other 4,813 (8) 4,821 nm

Total other (expense) income, net $ (2,680) $ (8,035) $ 5,355 67 %

% of Revenue (1) % (1) %

The decrease in interest expense for 2021 compared to 2020 was primarily due to our adoption of ASU 2020-06, which resulted in the elimination of the debt discounts that were amortized to interest expense over the contractual term of the convertible senior notes prior to January 1, 2021, and due to the 2023 Note Repurchase Transactions and other 2023 convertible senior note settlements in 2020, which resulted in the decrease in contractual interest expense due to the reduction in the aggregate outstanding principal amount of our 2023 convertible senior notes.

The decrease in interest expense was offset in part by the increase in contractual interest expense due to the issuance of the 2025 convertible senior notes in May and June 2020.

nm - not meaningful

The decrease in interest expense for 2022 compared to 2021 was primarily due to the reduction in the aggregate outstanding principal amount of our 2023 convertible senior notes.

See Note 6 to the consolidated financial statements for further details.

The 2023 Note Repurchase Transactions and other 2023 convertible senior note settlements in 2020 resulted in $7.0 million loss on early extinguishment of debt.

The settlements that occurred in 2021 were subject to ASU 2020-06, with such settlements accounted for as contractual conversions and did not result in any gain or loss upon their settlement.

The decrease in other (expense) and interest income for 2021 compared to 2020 was primarily due to a decrease in interest income on our marketable investments resulting from lower investible balances and lower interest rates.

The increase in interest income and other for 2022 compared to 2021 was primarily due to higher interest income on our marketable investments.

Liquidity and Capital Resources

To date, we have financed our operations, primarily through sales of our solution, net proceeds from our equity and debt financings, including the issuance of our 2025 convertible senior notes in May and June 2020 and of our 2023 convertible senior notes in May 2018, and lease facilities.

As of December 31, 2021, we had $459.7 million in working capital, which included $90.9 million in cash and cash equivalents, $379.0 million in short-term marketable investments and $147.4 million in long-term marketable investments.

As of December 31, 2022, we had $627.9 million in working capital, which included $180.5 million in cash and cash equivalents, $433.7 million in short-term marketable investments and excluded long-term marketable investments of $0.9 million.

We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.

We plan to continue to finance our operations in the future primarily through sales of our solution, net proceeds from equity and debt financings, and lease facilities.

Our future capital requirements will depend on many factors including our growth rate, continuing market acceptance of our solution, client retention, our ability to gain new clients, the timing and extent of spending to support research and development efforts, the outcome of any pending or future litigation or other claims by third parties or governmental entities, the expansion of sales and marketing activities and personnel, the introduction of new and enhanced offerings, and the impact of the COVID-19 pandemic on these or other factors.

Our future capital requirements will depend on many factors including our growth rate, continuing market acceptance of our solution, the strength of the global economy, client retention, growth within our installed base, our ability to gain new clients, the timing and extent of spending to support research and development efforts, the outcome of any pending or future litigation or other claims by third parties or governmental entities, the expansion of sales and marketing activities and personnel, the introduction of new and enhanced offerings, expenses incurred in closing our Russia operations and expanding our new office in Portugal and any operational disruptions due to this transition, and the effect of the length and severity of the current economic downturn, the Russia-Ukraine conflict and the COVID-19 pandemic on these or other factors.

We may also acquire or invest in complementary businesses, technologies and intellectual property rights, which may increase our use of cash and future capital requirements, both to pay acquisition costs and to support our combined operations.

We may raise additional capital through equity or engage in debt financings at any time to fund these or other requirements.

However, we may not be able to raise additional capital through equity or debt financings when needed on terms acceptable to us or at all, depending on our financial performance, market conditions, the trading price of our common stock, and other factors, including the length and severity of the impact of the COVID-19 pandemic on general economic conditions and potential future impacts on the financial markets.

If we are unable to raise additional capital as needed, our business, operating results and financial condition could be harmed.

We may raise additional capital through equity or debt financings at any time to fund these or other requirements.

However, we may not be able to raise additional capital through equity or debt financings when needed on terms acceptable to us or at all, depending on our financial performance, economic and market conditions, the trading price of our common stock, and other factors, including the length and severity of the current economic downturn and fluctuations in the financial markets, including due to the Russia-Ukraine conflict and the ongoing COVID-19 pandemic.

If we are unable to raise additional capital as needed, our business, operating results and

financial condition could be harmed.

In addition, if our operating performance during the next twelve months is below our expectations, our liquidity and ability to operate our business also could be harmed.

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Net cash provided by operating activities $ 88,865 $ 28,998

Net cash used in investing activities (150,478) (382,330)

Net cash (used in) provided by financing activities (7,501) 457,424

Net (decrease) increase in cash and cash equivalents $ (129,494) $ 142,396

Net cash provided by (used in) investing activities 30,963 (150,478)

Net cash used in financing activities (30,232) (7,501)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 89,596 $ (128,981)

Cash Flows from Operating Activities

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Net cash provided by operating activities was $88.9 million during the year ended December 31, 2022.

Net cash provided by operating activities resulted from our net loss of $53.0 million adjusted for non-cash items of

$192.6 million, primarily consisting of $108.8 million of stock-based compensation, $38.7 million of depreciation and amortization, $26.1 million of amortization of commission costs, $5.6 million of contingent consideration expense and $4.0 million of amortization of issuance costs on our convertible senior notes, offset by use of cash for operating assets and liabilities of $111.1 million primarily due to the timing of cash payments to vendors and cash receipts from customers.

Net cash provided by operating activities resulted from our net loss of $94.7 million, adjustments to reconcile net loss to net cash provided by operating activities of $271.0 million, primarily consisting of $172.5 million of stock-based compensation, $44.7 million of depreciation and amortization, $41.0 million of amortization of commission costs, $10.4 million of amortization of operating lease right-of-use assets, $3.7 million of amortization of issuance costs on our convertible senior notes, and $(5.9) million payment for the Inference contingent consideration in excess of its acquisition-date fair value, partially offset by use of cash for operating assets and liabilities of $(87.5) million primarily due to the timing of cash payments to vendors and cash receipts from customers.

Cash Flows from Investing Activities

Net cash used in investing activities of $150.5 million in 2021 was comprised of $680.5 million related to purchases of marketable investments and $42.2 million in capital expenditures, offset in part by $572.2 million related to cash proceeds from sales and maturities of marketable investments.

Net cash provided by investing activities of $31.0 million in 2022 was comprised of $525.2 million related to cash proceeds from sales and maturities of marketable investments, offset in part by $435.8 million related to purchases of marketable investments, $52.3 million in capital expenditures, $3.9 million in capitalized software development costs and $2.0 million in connection with an equity investment in a privately-held company.

Cash Flows from Financing Activities

Net cash used in financing activities of $7.5 million in 2021 related to $24.7 million of cash paid in connection with other 2023 convertible senior note settlements, $5.0 million in holdback payments related to acquisitions and $0.6 million of payments related to finance leases, partially offset by $15.4 million from the sale of common stock under our employee stock purchase plan and cash proceeds of $7.4 million from exercise of stock options.

Net cash used in financing activities of $30.2 million in 2022 related to $34.1 million of cash paid in connection with other 2023 convertible senior note settlements and $24.0 million of cash paid in connection with the contingent consideration payment related to the Inference acquisition, of which $18.1 million represented the acquisition-date fair value and was presented as a financing activity and $5.9 million represented the amount of payment in excess of the acquisition-date fair value and was presented as an operating activity, partially offset by cash proceeds of $13.4 million from the sale of common stock under our employee stock purchase plan and $8.5 million from the exercise of stock options.

Contractual and Other Obligations

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The 2025 convertible senior notes bear interest at a fixed rate of 0.50% per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning December 1, 2020.

In addition, under the terms of the 2025 convertible senior notes, we were obligated to pay additional interest on the 2025 convertible senior notes at a rate equal to 0.500% per annum for the period from June 13, 2021 through July 8, 2021, after which such additional interest is no longer payable.

The total net proceeds from the offering, after deducting initial purchasers’ discounts and commissions and estimated debt issuance costs, were approximately $728.8 million.

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As of December 31, 2022, after giving effect to the 2023 Note Repurchase Transactions and other settlements upon conversion requests, approximately $0.2 million aggregate principal amount of 2023 convertible senior notes remained outstanding.

For additional information regarding the convertible senior notes, see Note 6 to the consolidated financial statements included in this report.

See Note 6 to the consolidated financial statements included in this report for further details.

We have leases for offices, data centers and computer and networking equipment that expire at various dates through 2031.

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We have agreements with third parties to provide co-location hosting and telecommunication usage services.

The agreements require payments per month for a fixed period of time in exchange for certain guarantees of network

and telecommunication availability.

The agreements require payments per month for a fixed period of time in exchange for certain guarantees of network and telecommunication availability.

As of December 31, 2022, we had outstanding hosting and telecommunication usage services obligations of $16.0 million, with $8.1 million payable within 12 months, $7.5 million payable within one to three years, and $0.4 million payable within three to five years.

32 unchanged sentences

Substantially all of our clients purchase both subscriptions and related telephony usage.

A small percentage of our clients subscribe to our platform but purchase telephony usage directly

from a wholesale telecommunications service provider.

A small percentage of our clients subscribe to our platform but purchase telephony usage directly from a wholesale telecommunications service provider.

We do not sell telephony usage on a stand-alone basis to any client.

11 unchanged sentences

Professional services are primarily billed on a fixed-fee basis and are performed by us directly or, alternatively, clients may also choose to perform these services themselves or engage their own third-party service providers.

Revenue for professional services is recognized over time, as services are performed.

Revenue for professional services is recognized over time as services are performed, based on the proportion of labor hours expended compared to the total hours expected to complete the related performance obligation.

The estimation of variable consideration for each performance obligation requires us to make subjective judgments.

In the early stages of our larger contracts, in order to allocate the overall transaction fee on a relative stand-alone selling price basis to our multiple performance obligations, we estimate variable consideration to be included in the transaction fee to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

When services are included in the contract with the customer and are not sold at their stand-alone selling price, we are required to estimate the number of seats the customer will use, especially during the initial ramp period of the contract, during which we bill under an ‘actual usage’ model for subscription-related services.

The estimated variable consideration has had an immaterial impact on the allocation of transaction fees to multiple performance obligations in the past.

We recognize revenue on fixed fee professional services performance obligations based on the proportion of labor hours expended compared to the total hours expected to complete the related performance obligation.

We expect estimated variable consideration to continue to not have a material impact on the allocation of transaction fees to multiple performance obligations.

The revenue recognition standards include guidance relating to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added and excise taxes.

12 unchanged sentences

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