What changed in this filing

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Item 1A. Risk Factors

2024-02-22 compared with 2023-02-24 · 179 added, 169 removed, 744 unchanged (32% of the section changed)

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The following is a summary of the principal risks that could adversely affect our business, financial condition, results of operations, and future prospects.

• Adverse economic conditions, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, and other factors, may continue to harm our business.

• Adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, and other factors, may continue to harm our business.

• If we are unable to attract new clients or sell additional services and functionality to our existing clients, our revenue and revenue growth will be harmed.

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• Because a significant percentage of our revenue is derived from existing clients, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern.

• We have established, and are continuing to increase, our network of technology solution brokers and resellers to sell our solution;

• If we fail to manage our technical operations infrastructure, our existing clients may experience service outages, our new clients may experience delays in the deployment of our solution and we could be subject to, among other things, claims for credits or damages.

• We have established, and are continuing to increase, our network of technology solution distributors and resellers to sell our solution;

our failure to effectively develop, manage, and maintain this network could materially harm our revenues.

• Our quarterly and annual results may fluctuate significantly, including as a result of the timing and success of new product and feature introductions by us, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock.

• Our recent rapid growth may not be indicative of our future growth, and even if we continue to grow rapidly, we may fail to manage our growth effectively.

• Our recent Chief Executive Officer transition could disrupt our operations, result in additional executive and personnel transitions and make it more difficult for us to hire and retain employees.

• Our historical growth may not be indicative of our future growth, and even if we continue to grow rapidly, we may fail to manage our growth effectively.

• Failure to adequately retain and expand our sales force will impede our growth.

• Further development of our AI solutions may not be successful and may result in reputational harm and our future operating results could be materially harmed.

• The AI technology and features incorporated into our solution include new and evolving technologies that may present both legal and business risks.

• The use of AI by our workforce may present risks to our business.

• The contact center software solutions market is subject to rapid technological change, and we must develop and sell incremental and new solutions in order to maintain and grow our business.

• Our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully maintain, grow and manage these relationships could harm our business.

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• We continue to expand our international operations, which exposes us to significant macroeconomic and other risks.

• Security breaches and improper access to or disclosure of our data or our clients’ data, or other cyber attacks on our systems, could result in litigation and regulatory risk, harm our reputation and our business.

• Security breaches and improper access to, use of, or disclosure of our data or our clients’ data, or other cyber attacks on our systems, could result in litigation and regulatory risk, harm our reputation, our business or financial results.

• We may acquire other companies, or technologies or be the target of strategic transactions, or be impacted by transactions by other companies, which could divert our management’s attention, result in additional dilution to our stockholders or use a significant amount of our cash resources and otherwise disrupt our operations and harm our operating results.

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• We have a history of losses and we may be unable to achieve or sustain profitability.

• The contact center software solutions market is subject to rapid technological change, and we must develop and sell incremental and new solutions in order to maintain and grow our business.

• Our stock price has been volatile, may continue to be volatile and may decline, including due to factors beyond our control.

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Factors that may cause fluctuations in our quarterly and annual results include, without limitation:

• market acceptance of our solution, including new features that are added to our solution;

• market acceptance of our solution, including new features and AI components that are added to our solution;

• if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, or fail to grow subscriptions at the rate they have in the past or that we expect;

• adverse economic conditions, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, or other factors;

• adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors;

• our ability to attract new clients and grow our business with existing clients;

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• client attrition rates;

• changes to our management team;

• network outages or security incidents, which may result in additional expenses or losses, legal or regulatory actions, the loss of clients, the provision of client credits, and harm to our reputation;

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• the amount and timing of costs and expenses related to the maintenance and expansion of our business, operations and infrastructure;

• seasonal factors that may cause our revenues in the first half of a year to be relatively lower than our revenues in the second half of a year;

• seasonal factors that tend to cause our revenues in the first half of a year to be relatively lower than our revenues in the second half of a year;

• inaccessibility or failure of our cloud contact center software due to failures in the products or services provided by third parties;

• the amount and timing of costs and expenses related to our research and development efforts or in the acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies;

• our ability to expand, and effectively utilize, our network of technology solution brokers, resellers and systems integrators;

• our ability to expand, and effectively utilize, our network of technology solution distributors, resellers and systems integrators;

• the timing of recognition of revenues under current and future GAAP;

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As a result, the vast majority of the subscription revenue we report in each quarter is derived from existing clients.

Consequently, a decline in new subscriptions in any single quarter will likely have only a small impact on our revenue results for that

Consequently, a decline in new subscriptions in any single quarter will likely have only a small impact on our revenue results for that quarter.

However, the cumulative impact of such declines could negatively impact our business and results of operations in future quarters.

Accordingly, the effect of potential changes in our pricing policies or renewal rates, and significant downturns in sales, number of agent seats, market acceptance and implementation of our solution, including as a result of the impact of macroeconomic deterioration on our clients, increased inflation rates, increased interest rates, decreased economic output and fluctuations in currency exchange rates, will typically not be reflected in our results of operations until future periods.

Accordingly, the effect of potential changes in our pricing policies or renewal rates, and significant downturns in sales, number of agent seats, market acceptance and implementation of our solution, within our installed base or from new clients, including as a result of the impact of macroeconomic deterioration, continued inflation, increased interest rates, decreased economic output and fluctuations in currency exchange rates, will typically not be reflected in our results of operations until future periods.

For example, our installed base business, which typically contributes approximately half of our annual revenue growth, continues to experience macroeconomic headwinds.

We also may be unable to adjust our cost structure to reflect the changes in revenue, resulting in lower margins and earnings.

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Selling to smaller clients may involve smaller contract sizes, fewer opportunities to sell additional services, a higher likelihood of contract terminations, lower returns on sales and marketing expense, fewer potential agent seats and greater credit risk and uncertainty.

If the mix of organizations that purchase our solution changes unfavorably, our revenues and gross margins could decrease, and our operating results could be harmed.

If the mix of organizations that purchase our solution changes, our revenues and gross margins could decrease, and our operating results could be harmed.

We have a history of losses and we may be unable to achieve or sustain profitability.

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Risks Related to Our Growth

Our recent rapid growth may not be indicative of our future growth, and if we continue to grow rapidly, we may fail to manage our growth effectively.

Our historical growth may not be indicative of our future growth, and if we continue to grow rapidly, we may fail to manage our growth effectively.

For the years ended December 31, 2023, 2022 and 2021, our revenues were $910.5 million, $778.8 million and $609.6 million, respectively, representing year-over-year growth of 17% and 28%, respectively.

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• maintain our existing clients and their level of subscriptions and related usage, and grow subscriptions within our existing client base;

• respond to adverse economic conditions, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, or other factors;

• respond to adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors;

• respond to general macro economic factors and industry and market conditions;

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• strengthen and improve our solution through significant investments in research and development and the introduction of new and enhanced features and functionality, such as our AI enabled automation features;

• introduce our solution to new markets outside of the United States and increase global awareness of our brand;

• introduce our solution to new markets outside the United States and increase global awareness of our brand;

• selectively pursue acquisitions that enhance our solution offerings.

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Moreover, we continue to expand our headcount and operations.

We grew from 1,549 employees as of December 31, 2020, to 2,138 employees as of December 31, 2021, and to 2,380 employees as of December 31, 2022.

We grew from 1,549 employees as of December 31, 2020, to 2,138 employees as of December 31, 2021, to 2,380 employees as of December 31, 2022, and to 2,684 employees as of December 31, 2023.

We anticipate that we will continue to expand our operations and headcount in the near term and beyond in accordance with our overall strategy and taking into consideration macroeconomic conditions.

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Our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully maintain, grow and manage these relationships could harm our business.

We leverage strategic relationships with third parties, such as CRM providers, WFO providers, systems integrators, telephony and other technology providers.

We leverage strategic relationships with third parties, such as CRM providers, WEM providers, systems integrators, telephony and other technology providers.

For example, our relationship with CRM providers and systems integrators provide significant lead generation for new client opportunities.

These relationships are typically not exclusive and our partners often also offer products of our competitors.

As we grow our business, we will continue to depend on both existing and new strategic relationships.

As we grow our business, we will

continue to depend on both existing and new strategic relationships.

Our competitors may be more successful than we are in establishing or expanding relationships with third parties or may provide incentives to third parties to favor their products over our solution.

Our competitors may also have deeper or broader relationships with third parties, including a broader suite of products that are outside our core markets, that could give these competitors an advantage in establishing and maintaining relationships with these third parties.

These strategic partners may cease to recommend our solution to prospective clients due to actual or perceived lack of features, technological or

security issues or failures, reputational concerns, economic incentives, or other factors, which would harm our business, financial condition and operations.

These strategic partners may cease to recommend our solution to prospective clients due to actual or perceived lack of features, technological or security issues or failures, reputational concerns, economic incentives, or other factors, which would harm our business, financial condition and operations.

Furthermore, there has and continues to be a significant amount of consolidation in our industry and adjacent industries, and if our partners are acquired, fail to work effectively with us or go out of business, they may no longer support or promote our solution, or may be less effective in doing so, which could harm our business, financial condition and operations.

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Our inability to successfully manage and maintain these complex relationships or negotiate sufficient and favorable contractual terms could harm our business.

Our recent growth, the COVID-19 pandemic and recent adverse economic conditions make it difficult to evaluate and predict our current business and future prospects.

Our historical growth and recent adverse economic conditions make it difficult to evaluate and predict our current business and future prospects.

While we have been in existence since 2001, much of our employee, revenue and operations growth has occurred in recent years.

Our recent growth may make it difficult for investors to evaluate our current business and our future prospects.

Our historical growth may make it difficult for investors to evaluate our current business and our future prospects.

We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including increasing and unforeseen expenses as we continue to grow our business.

Financial results during the COVID-19 pandemic may not be illustrative of our current business and future prospects.

Our ability to forecast our future operating results is limited and subject to a number of uncertainties, including our ability to predict revenue and expense levels, and plan for and model future growth.

These uncertainties are exacerbated by the effects of recent adverse economic conditions, including macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, or other factors.

These uncertainties are exacerbated by the effects of recent adverse economic conditions, including macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors.

We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described in this annual report.

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To increase our revenue, we must add new clients, add additional agent seats and sell additional seats, functionality and services to existing clients, and successfully get existing clients to renew their subscriptions on terms favorable to us.

As our industry matures, as our clients experience seasonal trends in their business, or as competitors introduce lower cost or differentiated products or services that are perceived to compete favorably with ours, our ability to add new clients and renew, maintain or sell additional services to existing clients based on pricing, cost of ownership, technology and functionality could be harmed.

As a result, our existing clients may not renew our agreements or may decrease their number of agent seats, and we may be unable to attract new clients or grow or maintain our business with existing clients, which could harm our revenue and growth.

Furthermore, a portion of our revenue is generated by acquiring domestic and international telecommunications minutes from wholesale telecommunication service providers and reselling those minutes to our

As our industry matures, as our clients experience macroeconomic issues or seasonal trends in their business, or as competitors introduce lower cost or differentiated products or services that are perceived to compete favorably with ours, our ability to add new clients and renew, maintain or sell additional services to existing clients could be harmed.

As a result, our existing clients may not renew our agreements or may decrease

their number of agent seats, and we may be unable to attract new clients or grow or maintain our business with existing clients, which could harm our revenue and growth.

For example, our installed base business, which typically contributes approximately half of our annual revenue growth, continues to experience macroeconomic headwinds.

To grow our business, we plan to add new clients that are government entities.

We have made, and plan to continue to make, investments to support future client opportunities in the government sector.

government customers require that we be authorized under the FedRAMP to help satisfy their own legal and regulatory compliance requirements, which may require us to undertake additional actions and expense to ensure compliance.

We are currently undergoing processes and procedures to obtain FedRAMP authorization, which processes and procedures are costly and time consuming.

There are no assurances that we will be able to obtain such authorizations or that if obtained, this authorization will result in increased revenue or a sufficient return on our investment.

As telecommunications rates continue to decrease, we may not be able to resell more minutes to maintain our level of usage revenue.

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Subscriptions and related usage by our existing clients may decrease if:

• our clients’ business or demand for our services slows or declines due to industry cycles, seasonality, business difficulties or other reasons, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, or other factors;

• our clients’ business or demand for our services slows or declines due to industry cycles, seasonality, business difficulties or other reasons, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors;

• clients are not satisfied with our services, prices or the functionality of our solution;

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If clients fail to pay us under the terms of our agreements or fail to comply with the terms of our agreements, including compliance with regulatory requirements and intellectual property terms, we may terminate clients, lose revenue, be unable to collect amounts due to us, be subject to legal or regulatory action and incur costs in enforcing the terms of our contracts, including litigation.

Some of our clients may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, seek reimbursement for amounts already paid, or pay those amounts more slowly, all of which risks may be exacerbated by the effects of macroeconomic deterioration, including increased interest inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, or other factors, any of which could harm our operating results, financial position and cash flow.

Some of our clients may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, seek reimbursement for amounts already paid, or pay those amounts more slowly, all of which risks may be exacerbated by the effects of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors, any of which could harm our operating results, financial position and cash flow.

Our business could be harmed if our clients are not satisfied with the professional services and technical support provided by us or our partners.

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Professional services and technical support may be performed by our own staff or, in a select subset of cases, by third parties.

Our professional services offerings have lower or negative margins.

Our professional services offerings currently have negative margins.

Accordingly, any increase in sales of professional services could harm our gross margins and operating results.

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In particular, if we are unable to hire, develop and retain talented sales personnel or if new sales personnel, including those joining our company as a result of an acquisition, are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenues.

We have established, and are continuing to increase, our network of technology solution brokers and resellers to sell our solution;

We have established, and are continuing to increase, our network of technology solution distributors and resellers to sell our solution;

our failure to effectively develop, manage, and maintain this network could materially harm our revenues.

We have established, and are continuing to increase, our network of technology solution brokers, which provide sales leads, and resellers, which sell our solution to new clients.

We have established, and are continuing to increase, our network of technology solution distributors, which provide sales leads, and resellers.

This network has helped us attract additional clients.

Our resellers have assisted us in expanding in both domestic and international markets.

These technology solution brokers and resellers sell, or may in the future decide to sell, solutions for our competitors.

Our competitors may be able to cause our current or potential technology solution brokers or resellers to favor their services over ours, either through financial incentives, technological innovation, solution features or performance, by offering a broader array of products to these service providers or otherwise, which could reduce the effectiveness of our use of these third parties.

If we fail to maintain relationships with current technology solution brokers and resellers, fail to develop relationships with new technology solution brokers and resellers in new and existing markets, if we fail to manage, train, or provide appropriate incentives to our existing technology solution brokers and resellers, or if our technology solution brokers and resellers are not successful in their sales efforts, sales of our subscriptions may decrease or not grow at an appropriate rate and our operating results could be harmed.

These technology solution distributors and resellers sell, or may in the future decide to sell, solutions for our competitors.

Our competitors may be able to cause our current or potential technology solution distributors or resellers to favor their services over ours, either through financial

incentives, technological innovation, solution features or performance, by offering a broader array of products to these service providers or otherwise, which could reduce the effectiveness of our use of these third parties.

If we fail to maintain relationships with current technology solution distributors and resellers, fail to develop relationships with new technology solution distributors and resellers in new and existing markets, if we fail to manage, train, enable, or provide appropriate incentives to our existing technology solution distributors and resellers, or if our technology solution distributors and resellers are not successful in their sales efforts, sales of our subscriptions may decrease or not grow at an appropriate rate and our operating results could be harmed.

Additionally, in order to effectively utilize our resellers, we must enhance our systems, develop specialized marketing materials and invest in educating resellers regarding our systems, product offerings and services.

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Some of our competitors can devote significantly greater resources than we can to the development, promotion and sale of their products and services and many have the ability to initiate or withstand substantial price competition.

Current or potential competitors may also be acquired by third parties with significantly greater

Current or potential competitors may also be acquired by third parties with significantly greater resources.

Many of our competitors have stronger name recognition, longer operating histories, larger marketing budgets, greater financial or technical resources, better established relationships with clients, more comprehensive product offerings, larger installed bases and major distribution agreements with consultants, system integrators and resellers.

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Our success depends in large part upon the capacity, stability, security and performance of our technical operations infrastructure, which currently relies upon a mix of external data centers and, increasingly, public cloud providers.

From time-to-time, we have experienced interruptions in service, and may experience such interruptions in the future.

From time-to-time, we have experienced interruptions in service, and may experience such interruptions

in the future.

These service interruptions may be caused by a variety of factors, including infrastructure changes, human or software errors, telecom network outages, viruses, security attacks, fraud, spikes in client usage and denial of service issues.

In some instances, we may not be able to identify the cause or causes of these performance problems, or remediate them within an acceptable period of time.

Our failure to achieve or maintain expected performance levels, stability and security, particularly as we increase the number of users of our service and the product applications that run on our system, could harm our relationships with our clients, result in claims for credits or damages or other actions, damage our reputation, significantly reduce client demand for our solution, cause us to incur significant expense and personnel time replacing and upgrading our infrastructure, cause customer attrition, and harm our business.

We have experienced significant growth in the number of agent seats and interactions that our infrastructure supports.

As the number of agent seats within our client base grows and our clients’ use of our service increases, we

need to continue to make additional investments in our capacity to maintain adequate and reliable availability, stability and performance, the availability of which may be limited or the cost of which may be prohibitive, and any failure may cause interruptions in service that may harm our business.

Our failure to achieve or maintain expected performance levels, stability and security, particularly as we increase our number of larger clients and attract increasingly larger clients than in the past, the number of users of our service and the product applications that run on our system, could harm our relationships with our clients, result in claims for credits or damages or other actions, damage our reputation, significantly reduce client demand for our solution, cause us to incur significant expense and personnel time replacing and upgrading our infrastructure, cause customer attrition, and harm our business.

We have experienced significant growth in the number of our larger clients, as well as the number of agent seats and interactions that our infrastructure supports.

As the number of agent seats within our client base grows and our clients’ use of our service increases, we need to continue to make additional investments in our capacity to maintain adequate and reliable availability, stability and performance, the availability of which may be limited or the cost of which may be prohibitive, and any failure may cause interruptions in service that may harm our business.

In addition, we need to properly manage our operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our solution.

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While our data centers have redundant power, cooling and infrastructure, they are subject to various points of failure.

Problems with cooling equipment, generators, uninterruptible power supply, routers, switches, or other equipment, whether or not within our control, could result in service interruptions for our clients as well as equipment damage.

Problems with cooling equipment, generators, uninterruptible power supply, routers, switches, or other equipment, most of which is under the control of our data center operators, could result in service interruptions for our clients as well as equipment damage.

Our data centers are subject to disasters such as earthquakes, floods, fires, hurricanes, cyber attacks, acts of terrorism, sabotage, break-ins, acts of vandalism and other events, which could cause service interruptions or the operators of these data centers to close their facilities for an extended period of time or permanently.

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In addition, using the public cloud presents a variety of additional risks, including risks related to sharing the same computing resources with others, reliance on public cloud providers’ authentication, security, authorization and access control mechanisms, a lack of control over the public cloud’s redundancy and security systems and fault tolerances, a reduced ability to control data security and privacy, and future unpredictable costs of these services.

Development of our AI solutions to make people more efficient, automate interactions through virtual agents to improve customer experience and provide conversational insights to customers may not be successful and may result in reputational harm and our future operating results could be materially harmed.

We plan to continue to increase, and provide our customers with, our AI-powered applications, including conversational virtual agents, agent assistance and business insights.

In the fourth quarter of 2020, we enhanced our AI-powered applications with the acquisition of Inference Solutions Inc., or Inference, and now offer an integrated IVA platform with AI-enabled omni-channel service solutions.

These applications are part of our comprehensive AI & Automation portfolio, which is now comprised of eight distinct modules, including speech analytics, workflow automation, voice IVA, digital IVA and Agent Assist as well as the recently launched Five9 Analytics, AI Insights and AI Summaries.

While we aim for our AI-powered applications to make agents more efficient and improve customer experience, our AI models may not achieve sufficient levels of accuracy.

In addition, we may not be able to acquire sufficient training data or our training data may contain biased or otherwise inaccurate information.

Our competitors or other organizations may incorporate AI features into their products more quickly or more successfully and their AI features may achieve higher market acceptance than ours, which may result in us failing to recoup our investments in developing AI-powered applications and result in lost business.

Should any of these items

or others occur, our ability to compete, our reputation and operating results may be materially and adversely affected.

Further development of our AI solutions may not be successful and may result in reputational harm and our future operating results could be materially harmed.

We plan to continue to further develop and enhance our AI-powered features, including integration of Generative AI technologies.

While we aim for our AI-powered features to make agents more efficient and improve

customer experience, our AI features may not achieve sufficient levels of accuracy or may not otherwise meet the needs of our clients.

In addition, we may not be able to incorporate sufficient customer data and such data may contain biased or otherwise inaccurate information, resulting in unacceptable user experiences.

Furthermore, our competitors or other organizations may incorporate AI features into their products more quickly or more successfully and their AI features may achieve higher market acceptance than ours, which may result in us failing to recoup our investments in developing AI-powered features and result in lost business.

Should any of these factors or others occur, our ability to compete, our reputation and operating results may be materially and adversely affected.

The AI technology and features incorporated into our solution include new and evolving technologies that may present both legal and business risks.

We have incorporated a number of AI-powered features into our solution, and are making investments in expanding our AI capabilities with Generative AI.

Generative AI technologies are complex and rapidly evolving, and we face significant competition from other companies as well as an evolving legal and regulatory landscape.

The incorporation of Generative AI-powered features into our solution may subject us to new or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns, or other complications that could harm our business, reputation, financial condition or results of operations.

Intellectual property ownership and license rights, including copyright, surrounding AI and Generative AI technologies has not been fully addressed by federal or state laws or by U.S.

courts, and the manner in which we configure and use these technologies may expose us to claims of copyright infringement or other intellectual property misappropriation.

New laws have been adopted in the EU, and it is possible that new laws and regulations will be adopted in the United States and in other countries, or that existing laws and regulations will be interpreted in ways that would affect the operation of our solution and the way in which we use AI.

Further, the cost to comply with such laws or regulations could be significant and would increase our operating expenses, which could harm our business, reputation, financial condition and results of operations.

Uncertainty around and rapid evolution of Generative AI technologies may require additional investment, including research and development of new approaches and processes, which will be costly and increase our expenses.

AI can generate written content which contains bias, factual errors, misrepresentations, offensive language, or inappropriate statements.

While we seek to use Generative AI in a way that is designed to minimize these risks, there are still risks of such events occurring.

Our failure to address these risks could harm our business, reputation, financial condition and results of operations.

In addition, the use of AI, including Generative AI, involves significant technical complexity and requires specialized expertise, and competition for specialized personnel in the AI industry is intense.

Any disruption or failure in our AI systems or infrastructure could result in delays or errors in our operations, which could harm our business, reputation, financial condition and results of operations.

The use of AI by our workforce may present risks to our business.

Our workforce is exposed to and uses AI technologies for certain tasks related to our business.

We have guidelines specifically directed at the use of AI tools in the workplace, including our code of conduct, confidentiality obligations, IT internal use policies and other corporate policies.

Nevertheless, our workforce may use these authorized or unauthorized tools, which poses potential risks relating to the protection of data, including cybersecurity risk, exposure of our proprietary confidential information to unauthorized recipients and the misuse of our or third-party intellectual property.

Use of AI technology by our workforce even when used consistent with our guidelines, may result in allegations or claims against us related to violation of third-party intellectual property rights, unauthorized access to or use of proprietary information and failure to comply with open source software requirements.

AI technology may also produce inaccurate responses that could lead to errors in our decision-making, solution development or other business activities, which could have a negative impact on our business, operating results and financial condition.

Our ability to mitigate these risks will depend on our continued effective training, monitoring and enforcement of appropriate policies, guidelines and procedures governing the use of AI technology, and compliance by our workforce.

If our solution fails, or is perceived to fail, to perform properly or if it contains technical defects, our reputation could be harmed, our market share may decline and we could be subject to product liability claims.

Our solution may contain undetected errors or defects that may result in failures or otherwise cause our solution to fail to perform in accordance with client expectations and contractual obligations.

Moreover, our clients could incorrectly implement or inadvertently misuse our solution, which could result in client dissatisfaction and harm the perceived utility of our solution and our brand.

Moreover, our clients could incorrectly implement or inadvertently misuse our solution, which could result in client dissatisfaction and

harm the perceived utility of our solution and our brand.

Because our clients use our solution for critical aspects of their business, any real or perceived errors or defects in, or other performance problems with, our solution may damage our clients’ businesses and could significantly harm our reputation.

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Maintaining adequate research and development personnel and resources to meet the demands of the market is essential.

If we are unable to develop products, applications or features internally due to constraints, such as high employee turnover, insufficient cash, other cash needs of our business, inability to hire sufficient research and development personnel or a lack of other research and development resources, we may miss market opportunities.

a lack of other research and development resources, we may miss market opportunities.

Furthermore, many of our competitors have greater financial resources and expend greater amounts on their research and development programs than we do, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors’ research and development programs.

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These telephony services include the public switched telephone network, or PSTN, telephone numbers, call termination and origination services, and local number portability for our clients.

In addition, we depend on our internet bandwidth suppliers to provide uninterrupted and error-free service through their telecommunications networks.

In addition, we depend on our internet bandwidth suppliers to provide uninterrupted and error-free service through their

telecommunications networks.

Some of our services may require that users of our service obtain their own internet bandwidth.

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However, we already have significant operations outside these countries and regions, and we expect to grow our international presence in the future.

Our international employees are primarily located in the Philippines, where technical support, training and other professional services are performed, Portugal, where we continue to transition portions of engineering and operations previously performed in Russia, and Australia, where additional portions of engineering and operations are now performed.

Our international employees are primarily located in the Philippines, where technical support, training and other professional services are performed, Portugal, where we continue to increase our engineering and operations previously performed in Russia, and Australia, where additional portions of engineering and operations are now performed.

In March 2022, we made a decision to close our Russia office and to establish a new European development center in Portugal.

While approximately half of our Russian-citizen employees have received visas and have moved to Portugal, it was not feasible to move and retain all of the Russian-citizen employees in connection with growing our overall operations presence in Portugal, we have

expanded recruiting and employment-related efforts in Portugal to further enhance our operations.

We have and will continue to incur costs in connection with this transition, and during the transition we have and may continue to experience operational disruptions.

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Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic, and political risks that are different from those in the U.S.

In addition, in order to effectively market and sell our solution in international markets, we often must localize our solution, including the language in which our solution is offered, which increases our costs, could result in delays in offering our solution in these markets and may decrease the effectiveness of our sales efforts.

these markets and may decrease the effectiveness of our sales efforts.

Due to our limited experience with international operations and developing and managing sales and distribution channels in international markets, our international expansion efforts may not be successful.

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In addition to the United States, Canada, Europe, Latin America and Australia, we plan in the future to market and sell our solution in Asia and other international markets.

Adverse economic conditions in these markets, including declining worldwide economic conditions, increased inflation rates, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates, has and will likely continue to reduce overall demand for our solution, particularly in our installed base.

Adverse economic conditions in these markets, including the impact of macroeconomic deterioration, continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, has and will likely continue to reduce overall demand for our solution, particularly in our installed base.

These factors could also delay our clients' implementation of our solution, delay or lengthen sales cycles, delay international expansion, lower prices for our solution, and may also lead to longer collection cycles for payments due from our clients, as well as result in an increase in client bad debt.

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.

While the implications of macroeconomic events on our business, results of operations and overall financial position remain uncertain over the long term, we expect that adverse economic conditions will continue to have an adverse impact on our revenue in future periods.

For example, our installed base business, which typically contributes approximately half of our annual revenue growth, continues to experience macroeconomic headwinds.

All of these potential circumstances could lead to slower growth, or even a decline in, our revenues, operating results and cash flows.

Security breaches and improper access to or disclosure of our data or our clients’ data, or other cyber attacks on our systems, could result in litigation and regulatory risk, harm our reputation and our business.

Security breaches and improper access to, use of, or disclosure of our data or our clients’ data, or other cyber attacks on our systems, or those of third parties on which we rely, could result in litigation and regulatory risk, harm our reputation and our business.

Our solution involves the storage and transmission of our clients’ information, including information about our clients’ customers or other information treated by our clients as confidential.

Unauthorized access, unauthorized

use of our systems, security breaches or other cyber attacks could result in the loss of confidentiality, integrity and availability of such information, leading to litigation, governmental investigations and enforcements actions, indemnity obligations, increased expense, and other liability.

Unauthorized access, unauthorized use of our systems or those of third parties on which we rely or the data stored within those systems, security breaches or other cyber attacks could result in the loss of confidentiality, integrity and availability of such information or systems, leading to litigation, governmental investigations and enforcements actions, indemnity obligations, increased expense, and other liability.

Such incidents could also cause interruptions to the solutions we provide, degrade the user experience, harm our reputation or cause clients to lose confidence in our solution.

We are required to comply with laws and regulations that require us to maintain the security of personal data and we may have contractual and other legal obligations to notify customers or other relevant stakeholders of security breaches.

While we have implemented security measures to protect client information and minimize the risk of security breaches and other cyber attacks, if these measures fail as a result of a cyber-attack, other third-party action, employee error, malfeasance or otherwise, and someone unlawfully or without authorization obtains access to our clients’ information, including personal data, our reputation could be damaged, our business may suffer and we could incur significant liability.

Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.

In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data.

We are required to comply with laws and regulations that require us to protect personal data and we may have contractual and other legal obligations to notify customers or other relevant stakeholders of security breaches or other security events.

While we have implemented security measures to protect client and other confidential information and minimize the risk of security breaches and other cyber attacks, if these measures fail as a result of a

cyber-attack, software vulnerability, other third-party action, employee error, malfeasance or otherwise, and someone unlawfully or without authorization obtains access to our clients’ information, including personal data, our reputation could be damaged, our business may suffer and we could incur significant liability.

Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we or our third party service providers may be unable to anticipate these techniques or implement adequate preventative measures.

In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data or the systems on which our data is stored or hosted.

Such security breaches could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and require us to respond to and/or mitigate the security breach.

Accordingly, if our cybersecurity measures fail to protect against unauthorized access, attacks, compromise or the mishandling of data by our employees, then our reputation, business, results of operations and financial condition could be adversely affected.

Moreover, any failure on the part of third parties, including our clients, to maintain appropriate security measures for their own systems could harm our relationships with our clients, result in claims against us for credits or damages, damage our reputation and significantly reduce client demand for our solution.

Any or all of these issues could harm our ability to attract new clients, cause existing clients to cancel, reduce or not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits, governmental investigations and enforcement actions, regulatory fines or other action or liability, including orders or consent decrees forcing us to modify our business practices, all of which could materially harm our business, reputation or financial results.

We are undergoing changes to our management team;

we depend on our senior management team, and the loss of one or more of our senior leadership team or other key employees could harm our business and results of operations.

On October 7, 2022, our Chief Executive Officer resigned as our Chief Executive Officer and from our Board of Directors, effective November 28, 2022.

On October 10, 2022, we announced the appointment, effective as of November 28, 2022, of Michael Burkland as our new Chief Executive Officer.

Burkland previously served as our Chief Executive Officer from 2008 until he resigned due to personal health reasons in 2017, and has remained on our Board of Directors either as Executive Chairman or Chairman since that time.

Our Chief Executive Officer transition may be disruptive to, or cause uncertainty in, our business and our relationships with clients, business partners, stockholders and employees, and could lead to attrition of management and key employees.

If we are unable to execute an orderly transition and successfully integrate Mr.

Burkland back into our management team, our business could be harmed.

Our success depends, in part, upon the performance and continued services of our senior leadership team, including our new Chief Executive Officer.

If our senior leadership team, including our Chief Executive Officer, fails to perform effectively or if we fail to attract or retain key executives, senior management or other key employees, our business, financial condition or results of operations could be harmed.

We also rely on our leadership team, key employees, and critical individual contributors in all of our functional areas.

The loss of one or more of our leadership team, key employees, and critical individual contributors could harm our business.

We currently do not maintain key person life insurance policies on any of our employees.

Moreover, any failure on the part of third parties, including our clients or other hosting or service providers, to maintain appropriate security measures for their own systems could harm our relationships with our clients, result in claims against us for credits or damages, damage our reputation and significantly reduce client demand for our solution.

Any or all of these issues could harm our ability to attract new clients, cause existing clients to cancel, reduce or not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits (including class actions), governmental investigations and enforcement actions, regulatory fines or other action or liability, including orders or consent decrees forcing us to modify our business practices, all of which could materially harm our business, reputation or financial results.

If we are unable to attract and retain highly skilled leaders and other employees, our business and results of operations may be adversely affected.

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Competition for these personnel is intense, especially for senior executives, engineers highly experienced in designing and developing cloud software and for senior sales personnel.

We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and this difficulty could be further exacerbated by our Chief Executive Officer transition and any other senior leadership or other key employee transitions we experience.

We invest significant time and expense in

training our employees, which increases their value to competitors who may seek to recruit them and increases our costs.

We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and this difficulty could be further exacerbated by any senior leadership or other key employee transitions we experience.

We invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them and increases our costs.

We believe that our corporate culture is a critical component to our ability to attract and retain employees.

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We may acquire or invest in businesses, applications or technologies that we believe could complement or expand our solution, enhance our technical capabilities or otherwise offer growth opportunities.

For instance, in 2019, we acquired substantially all of the assets of Whendu LLC, or Whendu, including its iPaaS platform, and in 2020, we acquired both Virtual Observer and Inference.

For instance, in 2019, we acquired substantially all of the assets of Whendu LLC, or Whendu, including its iPaaS platform, in 2020, we acquired both Virtual Observer and Inference, and in 2023, we acquired Aceyus, Inc., or Aceyus.

The pursuit of potential acquisitions may divert the attention of management, and cause us to incur various costs and expenses in identifying, investigating and pursuing acquisitions, whether or not they are consummated.

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We do not know when or if our operations will generate sufficient cash to fund our ongoing operations.

We may require additional capital to respond to business opportunities, challenges, acquisitions, a decline in sales, increased regulatory obligations or unforeseen circumstances and may engage in equity or debt financings or enter into credit facilities.

We may require additional

capital to respond to business opportunities, challenges, acquisitions, a decline in sales, increased regulatory obligations or unforeseen circumstances and may engage in equity or debt financings or enter into credit facilities.

We have a substantial amount of debt.

As of December 31, 2022, we had approximately $747.7 million in principal outstanding under our convertible senior notes issued in May 2018 and in May and June 2020.

As of December 31, 2023, we had approximately $747.5 million in principal outstanding under our convertible senior notes issued in May and June 2020 that mature on June 1, 2025.

See Note 6 to the consolidated financial statements.

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If we have material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.

If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or if our independent registered public accounting firm is unable to attest that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our

common stock could decrease.

We could also become subject to stockholder or other third-party litigation as well as investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, penalties, trading suspensions or other remedies.

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However, the interpretation of these new standards may continue to evolve as other public companies adopt the new guidance and the standard setters issue new interpretative guidance related to these rules.

As a result, changes in the interpretation of these rules could result in material adjustments to our application of the new guidance, which could have a material effect on our results of operations and financial condition.

As a result, changes in the interpretation of these rules could result in material adjustments to our application of the

new guidance, which could have a material effect on our results of operations and financial condition.

Additionally, any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline, cessation or disruption of trading in our common stock and harm investors’ confidence in us.

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As of December 31, 2023, our intellectual property portfolio included three registered U.S.

trademarks, 15 issued U.S.

trademarks, two pending U.S.

trademark applications, 16 issued U.S.

patents, one pending U.S.

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As of December 31, 2023, outside the U.S.

we also had 10 trademark registrations, five issued patents, and two pending international PCT patent applications.

we also had 10 trademark registrations, five issued patents, and three pending international PCT patent applications.

The expiration dates of our issued patents range from 2030 to 2041.

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In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights.

Litigation brought to protect and enforce our intellectual property rights will be

costly, time consuming and distracting to our management and could result in the impairment or loss of our intellectual property.

Litigation brought to protect and enforce our intellectual property rights will be costly, time consuming and distracting to our management and could result in the impairment or loss of our intellectual property.

Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights, which could weaken our intellectual property protection.

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In addition, integration of the software used in our solution with new third-party software may require significant work and require substantial investment of our time and resources.

To the extent that our solution

depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our solution, delay new product or solution introductions, result in increased costs, or a failure of our solution and injure our reputation.

To the extent that our solution depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our solution, delay new product or solution introductions, result in increased costs, or a failure of our solution and injure our reputation.

Our use of additional or alternative third-party software would require us to enter into license agreements with third parties and to integrate such software to our solution.

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Our solution includes software covered by open source licenses, which may include, for example, free general public use licenses, open source front-end libraries and open source applications.

The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solution.

The terms of various open source

licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solution.

By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a certain manner.

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Alleged or actual failure to comply with the constantly evolving legal and contractual environment surrounding calling consumers and wireless phone numbers by other companies or our competitors or governmental or private enforcement actions related thereto, could harm our business, financial condition, results of operations and cash flows.

The legal and contractual environment surrounding calling consumers and wireless phone numbers is constantly evolving.

In the United States, two federal agencies, the Federal Trade Commission, or the FTC, and the

FCC, and various states have laws including, at the federal level, the TCPA that restrict the placing of certain telephone calls and texts to residential and wireless telephone subscribers by means of automatic telephone dialing systems, prerecorded or artificial voice messages and fax machines.

The legal and contractual environment surrounding contacting consumers using voice calls or text messages to their wireless phones is constantly evolving.

In the United States, two federal agencies, the Federal Trade Commission, or the FTC, and the FCC, and various states have laws including, at the federal level, the TCPA that restrict the placing of certain telephone calls and texts to residential and wireless telephone subscribers by means of automatic telephone dialing systems, prerecorded or artificial voice messages and fax machines, or placing non-autodialed telemarketing calls to individuals who do not wish to receive such calls.

These laws require companies to institute processes and safeguards to comply with these restrictions.

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Even with these efforts, it is possible that the FTC, FCC, private litigants or others may attempt to hold our clients, or us as a software solution provider, responsible for alleged violations of these laws.

To the extent any court finds that the software solution violated a controlling legal standard, we could face indemnification demands from our clients for costs, fees and damages with respect to calls placed using that solution.

placed using that solution.

It also is possible that we may not successfully enforce or collect upon our contractual indemnities from our clients.

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The regulatory significance to us is that the FCC’s decision gives wireless carriers the flexibility to block SMS messages if the carriers identify the messages as unwanted by their wireless customers.

More recent FCC decisions also require wireless carriers to block certain calls and text messages.

Such blocking efforts by carriers may make it more difficult for our clients to use SMS messages that are provided by us as a part of our overall communications and outreach solution for our clients.

Further, on December 18, 2023, the FCC revised its mandate that a consumer’s prior written consent must be secured prior to initiating SMS messages to them that are telemarketing in nature.

The revised rules require that such consent cannot be shared between multiple sellers or between different product and service lines.

Thus, although SMS comprises only a very small portion of our revenue base, its future availability as an effective tool for communication and outreach for our clients and their customers is uncertain and could cause our solution to be less valuable to clients and potential clients.

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While we have accrued for these potential liabilities in each period, such accruals are based on analyses of our business activities, the operation of our solution, applicable statutes, regulations and rules in each state and locality and estimates of sales subject to sales tax or other charges.

State and local taxing and regulatory authorities may

challenge our position and may decide to audit our business and operations with respect to state or local sales, use, gross receipts, excise and utility user taxes, fees or surcharges, which could result in our being liable for taxes, fees, or surcharges, as well as related penalties and interest, above our recorded accrued liability or additional liability for taxes, fees, or surcharges, as well as penalties and interest for our clients, which could harm our results of operations and our relationships with our clients.

State and local taxing and regulatory authorities may challenge our position and may decide to audit our business and operations with respect to state or local sales, use, gross receipts, excise and utility user taxes, fees or surcharges, which could result in our being liable for taxes, fees, or surcharges, as well as related penalties and interest, above our recorded accrued liability or additional liability for taxes, fees, or surcharges, as well as penalties and interest for our clients, which could harm our results of operations and our relationships with our clients.

In addition, if our international sales grow, additional foreign countries may seek to impose sales or other tax collection obligations on us, which would increase our exposure to liability.

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Compliance with new or existing legislation, rules or regulations may also make us less competitive with those competitors who are not subject to, or choose not to comply with, such legislation, rules or regulations.

We have incurred, and will continue to incur, substantial ongoing costs associated with complying with state or local tax, fee or surcharge requirements in the numerous markets in which we conduct or will conduct business.

incurred, and will continue to incur, substantial ongoing costs associated with complying with state or local tax, fee or surcharge requirements in the numerous markets in which we conduct or will conduct business.

Our ability to maintain compliance with complex rules and technological requirements intended to prevent robocalls and caller ID spoofing poses a significant business risk due to possible blocking of client voice traffic.

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STIR/SHAKEN is a series of protocols and a governance framework in which the originating voice service provider attests to the calling party’s identity and is intended to ensure the caller’s ID has not been spoofed in order to reduce the number of illegal robocalls.

The STIR/SHAKEN regulatory framework creates a significant business risk for companies such as ours that include clients that originate large volumes of telephone calls to consumers because, if an intermediate or terminating carrier is unable to verify the authenticity of an incoming call from one of our clients, they may block the call, preventing it from reaching the intended party, which would damage our relationship with our clients, and make our solution less attractive to our clients and potential clients.

In addition, the FCC is requiring voice service providers to implement other robocall prevention measures, including registering with the FCC’s Robocall Mitigation Database and maintaining a robocall mitigation plan that includes conducting due diligence on customers to ensure they do not engage, or appear to engage, in robocalling or caller ID spoofing.

The STIR/SHAKEN regulatory framework creates a significant business risk for companies such as ours that include clients that originate large volumes of telephone calls to consumers because, if an intermediate or terminating carrier is unable to verify the authenticity of an incoming call from one of our clients, they may, or may be required to block the call, preventing it from reaching the intended party, which would damage our relationship with our clients, and make our solution less attractive to our clients and potential clients.

In addition, the FCC required voice service providers to implement other robocall prevention measures, including registering with the FCC’s Robocall Mitigation Database and maintaining a robocall mitigation plan that includes conducting due diligence on customers to ensure they do not engage, or appear to engage, in robocalling or caller ID spoofing.

Third party complaints and unusual calling patterns on end user bills must be investigated and the services of non-compliant clients terminated.

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Additionally, as we expand internationally, the risk that governments will regulate or impose new or increased taxes or fees on our services increases.

Any such additional regulation or taxes could decrease the value of our international expansion, or impede our ability to expand internationally, and therefore harm our results of operations.

We are subject to assessments for unpaid USF contributions, as well as interest thereon and civil penalties, due to our late registration and past failure to recognize our obligation as a USF contributor and as an international carrier.

Any such additional regulation or taxes could increase our costs and our tax payments, decrease the value of our international expansion, or impede our ability to expand internationally, and therefore harm our results of operations.

The Organization for Economic Co-operation and Development (“OECD”) Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries.

The European Union and many other member states have committed to adopting Pillar 2 which calls for a global minimum tax of 15% to be effective for tax years beginning in 2024.

The OECD guidelines published to date include transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax.

We are monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules.

We are subject to assessments for unpaid USF contributions, as well as interest thereon and civil penalties, due to our prior position that we were not subject to regulation as a USF contributor and as an international carrier.

We are classified as a telecommunications service provider for regulatory purposes and we are required to make direct contributions to the USF based on revenue we receive from the resale of interstate and certain international telecommunications services.

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If we do not comply with FCC rules and regulations, we could be subject to further FCC enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services.

Since our business is regulated by the FCC, we are subject to existing or potential FCC regulations relating to privacy, disability access, porting of numbers, USF contributions and other requirements.

Since our business is regulated by the FCC, we are subject to existing or potential FCC regulations relating to privacy, disability access, access to and porting of numbers, USF contributions and other requirements.

If we do not comply with FCC rules and regulations, we could be subject to FCC enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services.

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The regulations to which we are subject (in whole or in part) include:

• the TRACED Act and corresponding regulations from the FCC, which requires carriers to authenticate incoming calls using the STIR/SHAKEN caller ID framework and correspondingly compels providers of telecommunications services to implement capabilities to certify as authentic the traffic they provide to those carriers;

• the Communications Assistance for Law Enforcement Act, or CALEA, which requires covered entities to assist law enforcement in undertaking electronic surveillance;

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If we do not comply with any current or future rules or regulations that apply to our business, we could be subject to additional and substantial fines and penalties, we may have to restructure our solution, exit certain markets, accept lower margins or raise the price of our solution, any of which could harm our business and results of operations.

Reform of federal and state USF programs could increase the cost of our service to our clients, diminishing or eliminating our pricing advantage.

The FCC and a number of states are considering reform or other modifications to USF programs.

The way we calculate our contribution may change if the FCC or certain states engage in reform or adopt other modifications.

Should the FCC or certain states adopt new contribution mechanisms or otherwise modify contribution obligations that increase our contribution burden, we will either need to raise the amount we currently collect from our clients to cover this obligation or absorb the costs, which would reduce our profit margins.

Furthermore, the FCC has ruled that states can require us to contribute to state USF programs.

A number of states already require us to contribute, while others are actively considering extending their programs to include the solution we provide.

Currently our USF contributions are borne by our clients, which could result in our solution becoming less competitive as compared to products provided by our competitors.

We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could harm our profitability and financial condition.

As of December 31, 2023, we had federal, state and foreign net operating loss carryforwards due to prior period losses of $403.4 million, $298.6 million and $14.0 million, respectively, available to reduce future income subject to income taxes.

If not utilized, the federal and significant state net operating loss carryforwards will begin to expire in 2024 and 2028, respectively, while the foreign net operating loss carryforwards do not expire.

If not utilized, $69.5 million of federal and various amounts of significant state net operating loss carryforwards will begin to expire in 2027 and 2028, respectively, $339.9 million of federal net operating losses, as well as the foreign net operating losses, do not expire.

As of December 31, 2023, we also had gross research credit carryforwards for federal and California state tax purposes of $12.9 million and $7.5 million, respectively.

A portion of the federal research credit carryforwards will continue to expire in 2023.

The federal research credit carryforwards will expire between 2024 and 2043.

The California research credit carryforwards do not expire.

If we are unable to generate sufficient taxable income to utilize our net operating loss and research tax credit carryforwards, these carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could harm our profitability and financial condition in future periods.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or IRC Section 382, our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” An IRC Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or IRC Section 382, our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” The events that may cause ownership changes include, but are not limited to, a cumulative stock ownership change of greater than 50 percentage points over a three-year period.

Similar rules may apply under state tax laws.

We experienced an ownership change prior to 2014 and the disclosed amounts of our net operating losses and research credit carryforwards have been reduced for the resulting effect of the IRC Section 382 limitations.

We experienced ownership changes prior to 2015 and the disclosed amounts of our net operating losses and research credit carryforwards have been reduced for the resulting effect of the IRC Section 382 limitations, as necessary.

Subsequent or future issuances or sales of our stock (including certain transactions involving our stock that are outside of our control) could cause an “ownership change” again, which would impose an annual limit on the amount of pre-ownership change net operating loss carryforwards and other tax attributes we can use to reduce our taxable income.

This could potentially cause those tax attributes to expire unused or to be reduced, which would increase and accelerate our liability for income taxes.

It is possible that such an

ownership change could materially reduce our ability to use our net operating loss carryforwards or other tax attributes to offset taxable income, which could require us to pay more income taxes than if we were able to fully utilize our net operating loss carryforwards and harm our profitability.

It is possible that such an ownership change could materially reduce our ability to use our net operating loss carryforwards or other tax attributes to offset taxable income, which could require us to pay more income taxes than if we were able to fully utilize our net operating loss carryforwards and harm our profitability.

Privacy concerns and domestic or foreign laws and regulations may reduce the demand for our solution, increase our costs and harm our business.

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The Processing of personal data and other types of protected data subjects us and our customers to a number of domestic and international laws that govern and regulate the Processing of personal data and other types of protected data.

These laws regulate and address a range of issues including data privacy (e.g., restrictions or technological or process requirements regarding the Processing of data), cybersecurity (e.g., requirements for the protection of personal data against compromise of the confidentiality, integrity, or availability of personal data), breach notification, data governance, and risk management and reporting.

These laws can vary substantially from jurisdiction to jurisdiction, and are rapidly evolving.

Domestic and international government authorities are considering adopting, or may adopt, laws and regulations in the future, regarding the Processing of personal data obtained from consumers and individuals.

Government authorities and, in some cases, private party litigants could pursue claims against us or our customers.

In these types of actions, the plaintiff may seek damages, statutory penalties, costs and/or attorneys’ fees.

In the U.S., there are numerous federal and state laws governing the privacy and security of personal data.

For instance, we may be subject to FTC enforcement actions if the FTC has reason to believe we have engaged in unfair or deceptive privacy or data security practices in violation of the FTC Act.

There are also new state privacy laws, including the California Consumer Privacy Act, or CCPA, the California Privacy Rights Act, or CPRA, the Colorado Privacy Act, or CPA, the Connecticut Data Privacy Act, or CDPA, the Utah Consumer Privacy Act, or UCPA, and the Virginia Consumer Data Protection Act, or VCDPA, that set forth comprehensive privacy obligations regarding the Processing of personal data.

It is possible that other states may pass their own versions of data privacy laws.

There are also state privacy laws, including the California Consumer Privacy Act, or CCPA, the California Privacy Rights Act, or CPRA, the Colorado Privacy Act, or CPA, the Connecticut Data Privacy Act, or CDPA, the Utah Consumer Privacy Act, or UCPA, and the Virginia Consumer Data Protection Act, or VCDPA, that set forth comprehensive privacy obligations regarding the Processing of personal data, which relevant State Attorney General or other state regulatory bodies can enforce.

Other states have recently enacted their own versions of data privacy laws, and we expect this trend to continue.

Some states also have enacted privacy laws focusing on particular types of information, such as health or biometric information, including Connecticut, Illinois, Nevada, and Washington, and private party litigants are exploring whether state wiretap laws, statutory invasion of privacy, and common law claims may be used to pursue privacy causes of action.

Moreover, data protection laws and regulations outside the United States, including Brazil, Canada, China, Japan, Russia, Singapore, the United Kingdom and particularly in the EU, often are more restrictive than those in the United States.

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The European Union’s GDPR may continue to increase our costs and the costs of our clients to operate, limit the use of our solution or change the way we operate, exposes us to substantial fines and penalties if we fail to comply, and has led to similar laws being enacted in other jurisdictions.

The GDPR replaced the EU Data Protection Directive, also known as Directive 95/46/EC, and is intended to harmonize data protection laws throughout the EU by applying a single data protection law that is binding throughout each member state.

We and many of our customers are subject to the GDPR based upon our processing of personal data collected from EU data subjects, such as our processing of personal data of our customers in the EU and our processing of our EU employees’ personal data.

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Both laws broadly regulate the processing of personal information in a manner comparable to the GDPR, and violators of the LGPD and APPI face substantial penalties.

Most recently, India enacted the Digital Personal Data Protection Act, 2023, which establishes a legal framework regulating the processing of personal data in India and processing outside of India if it is related to offering goods or services to individuals in India.

The law is comparable to GDPR in many ways, but also has some distinct elements, which forthcoming regulations may further clarify.

We also continue to see jurisdictions, such as Russia, imposing data localization laws, which under Russian laws require personal information of Russian citizens to be, among other data processing operations, initially collected, stored, and modified in Russia.

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Because the interpretation and application of many privacy and data protection laws (including the GDPR), commercial frameworks, and standards are uncertain, it is possible that these laws, frameworks, and standards may be interpreted and applied in a manner that is inconsistent with our existing data protection practices.

If so, we and our customers are at risk of enforcement actions taken by EU data protection authorities or litigation from consumer advocacy groups acting on behalf of data subjects.

In addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and

practices or modify our solutions, which could have an adverse effect on our business.

If so, we and our customers are at risk of enforcement actions taken by data protection authorities or litigation from consumer advocacy groups acting on behalf of data subjects.

In addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our solutions, which could have an adverse effect on our business.

Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and security or data security laws, regulations, and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business.

state privacy laws, including the CCPA, CPA, CTDPA, UCPA and VCDPA could increase our costs and the costs of our clients to operate, limit the use of our solution or change the way we operate, and expose us to substantial fines and class action risk if we fail to comply, and lead to similar laws being enacted in other states.

The CCPA, CPA, CTDPA, UCPA and VCDPA apply to certain entities doing business in California, Colorado, Connecticut, Utah and Virginia.

We and our qualifying customers were required to comply with the requirements of the CCPA on January 1, 2020 and have been subject to the VCDPA since January 1, 2023.

The CPA and CTDPA will be effective July 1, 2023 and the UCPA will come into effect on December 31, 2023.

The CCPA, CPA, CTDPA, UCPA, VCDPA, and other privacy laws in the United States apply to certain entities doing business in such states, and we and our qualifying customers were required to comply with applicable requirements as of the effective dates of the applicable state laws or corresponding regulations.

state privacy laws establish a privacy framework for covered businesses by creating an expanded definition of personal data and creating new data privacy rights for eligible residents in those states, including the right to the right to access, delete or correct such data, the right to opt out of sales or use of their personal data for targeted advertising or profiling purposes, the right to limit the use and disclosure of their sensitive personal data and the right to be free from discrimination for exercising their rights.

Eligible residents of those states may also appeal any decision or indecision related to the exercise of any of their data privacy rights.

As required by the statutes, covered entities doing business in California, Colorado, Connecticut, Utah and Virginia have disclosure obligations to consumers for whom they collect or process personal data.

Complying with these obligations involves continued expenditures that could increase as more consumers exercise their rights under the statute.

As required by the statutes, covered entities also have disclosure obligations to consumers for whom they collect or process personal data.

Complying with these obligations involves continued expenditures that could increase as more consumers exercise their privacy law rights.

state privacy laws create new and potentially severe statutory damages frameworks for violations of their provisions.

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state privacy laws are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.

We anticipate that more states may enact legislation similar to the CCPA, CPA, CTDPA, UCPA and VCDPA, by providing consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal data of such consumers.

These laws have prompted a number of proposals for new federal and state-level privacy legislation.

We anticipate that more states may enact their own comprehensive or subject matter specific privacy legislation and provide consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal data of such consumers.

These laws have prompted a number of proposals for new federal and state-level privacy legislation, and related legislation affecting the use of certain types of AI-based systems and services.

Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

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We may not have sufficient cash flow from our business to pay our indebtedness, and we may not have the ability to raise the funds necessary to settle conversions of the convertible senior notes in cash or to repurchase the convertible senior notes for cash upon a fundamental change, which could adversely affect our business and results of operations.

In May 2018, we issued $258.8 million in aggregate principal amount of the 2023 convertible senior notes in a private offering.

In May 2020, we repurchased or exchanged $181.0 million in aggregate principal amount of the 2023 convertible senior notes through individually negotiated private transactions in the 2023 Note Repurchase Transactions.

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

The 2023 convertible senior notes mature on May 1, 2023 and the interest rate of the 2023 convertible senior notes is fixed at 0.125% per annum, payable semiannually in arrears on May 1 and November 1 of each year.

In May and June 2020, we issued $747.5 million in aggregate principal amount of the 2025 convertible senior notes in a private offering, all of which were outstanding as of December 31, 2023.

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We may not be able to engage in any of these activities on favorable terms or at all, which could result in a default on our debt obligations or other material adverse effects on our business and financial condition.

Subject to certain conditions, holders of both series of the convertible senior notes have the right to require us to repurchase for cash all or any portion of their convertible senior notes upon the occurrence of a fundamental change (as defined in the indentures governing the convertible senior notes) at a fundamental change repurchase price equal to 100% of the principal amount of the applicable series of convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable fundamental change repurchase date.

Upon conversion of either or both series of convertible senior notes in accordance with their terms, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to settle a portion or all of our conversion obligation through the payment of cash.

Subject to certain conditions, holders of the 2025 convertible senior notes have the right to require us to repurchase for cash all or any portion of their 2025 convertible senior notes upon the occurrence of a fundamental change (as defined in the indenture governing the 2025 convertible senior notes) at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable fundamental change repurchase date.

Upon conversion of the 2025 convertible senior notes in accordance with their terms, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to settle a portion or all of our conversion obligation through the payment of cash.

We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases in connection with such conversion and our ability to pay may be further limited by law, regulatory authority or agreements governing our future indebtedness.

Our failure to repurchase any convertible senior notes at a time when the repurchase is required by the applicable indenture or to pay any cash payable on any future conversions as required by the applicable indenture would constitute a default under such indenture.

A default under either such indenture would lead to, and the occurrence of the fundamental change itself may also lead to, a default under agreements governing our future indebtedness.

If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness or repurchase any convertible senior notes when required, or to make cash payments upon conversions thereof.

Our failure to repurchase any 2025 convertible senior notes at a time when the repurchase is required by the indenture or to pay any cash payable on any future conversions as required by the indenture would constitute a default under the indenture.

A default under the indenture would lead to, and the occurrence of the fundamental change itself may also lead to, a default under agreements governing our future indebtedness.

If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness or repurchase the 2025 convertible senior notes when required, or to make cash payments upon conversions thereof.

If triggered, the conditional conversion feature of the 2025 convertible senior notes may adversely affect our financial condition and operating results.

If and to the extent the conditional conversion feature of our 2025 convertible senior notes is triggered, holders of such convertible senior notes will be entitled to convert their convertible senior notes at any time during specified periods at their option.

During the three months ended December 31, 2022, the conversion features of the 2025 convertible senior notes were not triggered.

Accordingly, holders of the 2025 convertible senior notes are not entitled to convert such convertible senior notes from January 1, 2023 to March 31, 2023.

If and to the extent the conditional conversion feature of our 2025 convertible senior notes is triggered, holders of the 2025 convertible senior notes will be entitled to convert their 2025 convertible senior notes at any time during specified periods at their option.

During the three months ended December 31, 2023, the conversion

features of the 2025 convertible senior notes were not triggered.

Accordingly, holders of the 2025 convertible senior notes are not entitled to convert their convertible senior notes from January 1, 2024 to March 31, 2024.

Whether the 2025 convertible senior notes will be convertible after March 31, 2024 will depend on the satisfaction of the conversion conditions.

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the trading price of our 2025 convertible senior notes may be affected by volatility in the price of our common stock.

The conversion of some or all of either series of convertible senior notes would dilute the ownership interests of our existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our common stock.

The conversion of some or all of the 2025 convertible senior notes would dilute the ownership interests of our existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our common stock.

In this regard, if holders of the 2025 convertible senior notes elect to convert their notes, we may settle our conversion obligations by delivering to them cash, shares of our common stock or a combination thereof.

In addition, we may issue shares of our common stock in connection with repurchases, exchanges or other transactions involving the convertible senior notes, such as the 2023 Note Repurchase Transactions, which involved the issuance of 2,723,581 shares of our common stock to certain holders of the 2023 convertible senior notes.

elections to convert a significant portion of 2023 convertible senior notes from the fourth quarter of 2019 through the fourth quarter of 2022.

We have elected to satisfy our obligations through the payment of cash in certain circumstances, the issuance of shares of common stock in other circumstances, or a combination thereof, to such convertible senior note holders.

In addition, we may issue shares of our common stock in connection with repurchases, exchanges or other transactions involving the convertible senior notes.

Historically, we have elected to satisfy our convertible senior note conversion obligations through the payment of cash in certain circumstances, the issuance of shares of common stock in other circumstances, or a combination thereof, to such convertible senior note holders.

See Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources, for further discussion of our elections to satisfy our conversion obligations.

In addition, in connection with the issuance of the 2023 convertible senior notes and the 2025 convertible senior notes, we entered into capped call transactions with certain financial institutions, or the Option Counterparties.

The capped call transactions are expected generally to reduce the potential dilution to holders of our common stock upon any conversion or settlement of either series of convertible notes and/or offset any cash payments we are required to make in excess of the principal amount of such convertible senior notes, as the case may be, with such reduction and/or offset subject to a cap under the terms of the capped call transactions.

In addition, in connection with the issuance of the 2025 convertible senior notes, we entered into capped call transactions with certain financial institutions, or the Option Counterparties.

The capped call transactions are expected generally to reduce the potential dilution to holders of our common stock upon any conversion or settlement of the 2025 convertible notes and/or offset any cash payments we are required to make in excess of the principal amount of such 2025 convertible senior notes, as the case may be, with such reduction and/or offset subject to a cap under the terms of the capped call transactions.

We expect that the Option Counterparties or their respective affiliates may from time to time purchase shares of our common stock and/or enter into various derivative transactions with respect to our common stock in connection with their hedging activities relating to the capped call transactions.

The Option Counterparties or their respective affiliates also may modify their hedge positions by entering into or unwinding such derivative transactions and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the applicable maturity of either series of convertible senior notes.

These activities could negatively affect the market price of our common stock.

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• actual or anticipated fluctuations or declines in our operating results;

• the impact of adverse economic conditions, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, or other factors;

• the impact of adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors;

• loss of clients or a reduction, or slower growth, in subscriptions or features subscribed to by our existing clients;

• any major change in our board of directors or management, including in connection with our recent CEO transition;

• loss of key personnel;

• the impacts of the COVID-19 pandemic and related matters on the equity capital markets and economy in general, or on us or our industry in particular;

• any major change in our board of directors or management;

• the financial projections we provide to the public, any changes in these projections, our failure to meet these projections, or our failure to exceed these projections by amounts or percentages expected by our investors and analysts;

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• the perceived or real impact of events that harm our competitors;

• loss of key personnel;

• developments with respect to patents or proprietary rights;

• other events or factors, including those resulting from war, incidents of terrorism or responses to these events, which would be unrelated to our business and industry, and outside of our control.

In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies, particularly in connection with the continued macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict and the COVID-19 pandemic.

In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies, particularly in connection with the continued macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict and the conflict in Israel.

Stock prices of many technology companies have recently declined, including in some cases in a manner unrelated or disproportionate to the operating performance of those companies.

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Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Delaware.

The Court of Chancery or federal district courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and

such judgments or results may be more favorable to us than to our stockholders.

Alternatively, if a court were to find either of these choice of forum provisions to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

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Accordingly, holders of our common stock must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Unresolved Staff Comments

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 1A. Risk Factors