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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-24 · 60 added, 67 removed, 279 unchanged (31% of the section changed)

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

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

We are a pioneer and leading provider of intelligent cloud contact centers with more than 3,000 clients.

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

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

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

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

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Macroeconomic and Other Factors

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

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

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

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

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

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

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

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.

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

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

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

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

During the years ended December 31, 2023 and 2022, we incurred approximately $2.8 million and $7.9 million in costs related to the closure and relocation of our Russian operations, of which $0.1 million and $0.7 million was recorded in cost of revenue, $1.7 million and $5.9 million was recorded in research and development expense, $0.5 million and $1.4 million was recorded in general and administrative expense and $0.5 million and $(0.1) million was recorded in interest income and other in our consolidated statements of operations and comprehensive loss.

Going forward, we do not expect to incur additional material costs related to the closure and relocation of our Russia operations.

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

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

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

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

Key GAAP Operating Results

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

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

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

Key Operating and Non-GAAP Financial Performance Metrics

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Annual Dollar-Based Retention Rate 110% 115%

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

Our Dollar-Based Retention Rate decreased year-over-year primarily due to macroeconomic headwinds we started experiencing in 2022 and continued to experience throughout 2023.

Adjusted EBITDA

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

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

income or expenses that we exclude from adjusted EBITDA.

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

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

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GAAP measure, net loss.

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

We calculate adjusted EBITDA as net loss before (1) depreciation and amortization, (2) stock-based compensation, (3) interest expense, (4) interest (income) and other, (5) exit costs related to the closure and relocation of our Russian operations, (6) acquisition and related transaction costs and one-time integration costs, (7) contingent consideration expense, (8) lease amortization for finance leases, (9) refund for prior year overpayment of USF fees, (10) provision for income taxes, and (11) other items that do not directly affect what we consider to be our core operating performance.

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

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

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

Acquisition and related transaction costs and one-time integration costs 6,780 6,901

Contingent consideration expense — 260

Lease amortization for finance leases 941 —

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

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

Provision for income taxes 2,341 4,388

Adjusted EBITDA $ 166,265 $ 140,436

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

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

(3) Exit costs related to the closure and relocation of our Russian operations were $2.8 million during the year ended December 31, 2023.

The $2.3 million adjustment presented above was net of $0.5 million included in “Interest (income) and other.” Exit costs related to the closure and relocation of our Russian operations were $7.9 million during the year ended December 31, 2022.

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

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

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

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

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

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

Cost of Revenue

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

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

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

We believe that continued investment in our solution is important

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

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

Sales and Marketing .

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Loss from operations (11) % (11) %

Other (expense) income, net:

Other income (expense), net:

Interest expense (1) % (1) %

Interest income and other 3 % 1 %

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

Total other income (expense), net 2 % — %

Loss before income taxes (9) % (11) %

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

Provision for income taxes — % 1 %

Net loss (9) % (12) %

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% of Revenue 48% 47%

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

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

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

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

The increase in cost of revenue for 2023 compared to 2022 was primarily due to a $19.1 million increase in depreciation, data center and public cloud costs to support our growing capacity needs, an $18.4 million increase in personnel costs driven mainly by increased headcount, higher salaries and increased stock-based compensation costs, an $18.0 million increase in third-party hosted software costs driven by increased client activities, an $8.4 million increase in USF contributions and other federal telecommunication service fees due to increased client usage and a change in methodology in the prior year, which resulted in a $3.5 million refund for 2020 that was received in

2022, a $2.0 million increase in office, facilities and related costs, and a $1.0 million increase in amortization of capitalized internal-use software development costs, partially offset by a $1.6 million decrease in usage and carrier costs due to a rate reduction and a $1.5 million decrease in staff augmentation costs related to implementation of our solutions.

Year Ended December 31,

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The increase in gross profit for 2023 compared to 2022 was primarily due to increases in subscription and related revenues.

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

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

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% of Revenue 17% 18%

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

The increase in research and development expenses for 2023 compared to 2022 was primarily due to a $20.0 million increase in personnel-related costs driven mainly by an increase in stock-based compensation costs, increased headcount and higher salaries, and a $1.4 million increase in office, facilities and related costs, offset in part by a $8.0 million increase in research and development costs that qualified for capitalization.

Sales and Marketing

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% of Revenue 32% 34%

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

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

The increase in sales and marketing expenses for 2023 compared to 2022 was primarily due to a $14.9 million increase in personnel costs driven by increased stock-based compensation costs, increased headcount and higher salaries, a $14.2 million increase in amortization of deferred contract acquisition costs driven by the growth in sales and bookings of our solution, a $1.9 million increase in travel costs as a result of an increase in business travel, and a $1.2 million increase in office, facilities and related costs.

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

General and Administrative

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% of Revenue 14% 12%

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

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

Other (Expense) Income, Net

The increase in general and administrative expenses for 2023 compared to 2022 was primarily due to a $23.4 million increase in personnel costs driven by increased stock-based compensation costs, increased headcount and higher salaries, and a $5.1 million increase in legal and other professional service costs primarily as a result of the expenses incurred in connection with the Aceyus acquisition and other strategic activities.

Other Income (Expense), Net

Year Ended December 31,

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Interest expense $ (7,646) $ (7,493) $ (153) 2 %

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

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

Interest income and other 26,799 4,813 21,986 457 %

Total other income (expense), net $ 19,153 $ (2,680) $ 21,833 815 %

% of Revenue 2 % (1) %

nm - not meaningful

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

Interest expense remained consistent for 2023 compared to 2022 as it primarily related to our 2025 convertible senior notes for which the aggregate outstanding principal amount remained unchanged during 2022 and 2023.

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

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

The increase in interest income and other for 2023 compared to 2022 was primarily due to higher interest income on our marketable investments, offset in part by an increase in foreign currency transaction losses during this period.

Liquidity and Capital Resources

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

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

As of December 31, 2023, we had $756.8 million in working capital, which included $143.2 million in cash and cash equivalents, and $587.1 million in marketable investments.

Our intent is that all marketable investments are available for use in our current operations, including marketable investments with maturity dates greater than one year from December 31, 2023.

The 2023 convertible senior notes matured on May 1, 2023 and were settled in a combination of cash and shares of our common stock.

Upon maturity, the outstanding capped calls associated with the repurchase and early settlements of $194.7 million 2023 convertible senior notes were settled, which resulted in us receiving 370,877 shares of our common stock and $74.5 million.

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

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

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

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

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

We may also acquire or invest in complementary businesses, technologies and intellectual property rights, such as our recent acquisition of Aceyus in August 2023, which may increase our use of cash and future capital requirements, both to pay acquisition costs and to support our combined operations.

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

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

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

financial condition could be harmed.

However, we may not be able to raise additional capital through equity or debt financings when needed on terms acceptable to us or at all, depending on our financial

performance and condition, economic and market conditions, the trading price of our common stock, and other factors, including the length and severity of the current economic downturn and fluctuations in the financial markets, including due to the Russia-Ukraine conflict and the conflict in Israel.

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

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

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Net cash provided by operating activities $ 128,838 $ 88,865

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

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

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

Net cash (used in) provided by investing activities (259,562) 30,963

Net cash provided by (used in) financing activities 94,579 (30,232)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (36,145) $ 89,596

Cash Flows from Operating Activities

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Net cash provided by operating activities was $128.8 million during the year ended December 31, 2023.

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

Net cash provided by operating activities resulted from our net loss of $81.8 million, adjustments to reconcile net loss to net cash provided by operating activities of $317.1 million, primarily consisting of $206.3 million of stock-based compensation, $55.4 million of amortization of deferred contract acquisition costs,$48.5 million of depreciation and amortization, $12.6 million of amortization of operating lease right-of-use assets, $3.7 million of amortization of issuance costs on our convertible senior notes and $(11.4) million of accretion of discount on marketable investments, partially offset by use of cash for operating assets and liabilities of $(106.5) million primarily due to the timing of cash payments to vendors and cash receipts from customers.

Cash Flows from Investing Activities

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

Net cash used in investing activities of $(259.6) million in 2023 was comprised of $795.0 million related to purchases of marketable investments, $80.6 million, in connection with the acquisition of Aceyus, net of cash acquired, $31.2 million in capital expenditures and $9.5 million in capitalized software development costs, offset in part by $656.8 million related to cash proceeds from sales and maturities of marketable investments.

Cash Flows from Financing Activities

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

Net cash provided by financing activities of $94.6 million in 2023 was related to $74.5 million of cash received from the settlement at maturity of the outstanding capped calls associated with the repurchase and early settlements of the 2023 convertible senior notes, $15.9 million from the sale of common stock under our employee stock purchase plan, and cash proceeds of $9.1 million from the exercise of stock options, offset in part by $3.3 million related to payments of employee taxes related to vested RSUs, $1.0 million of payments related to finance leases, $0.5 million of holdback payment related to an acquisition, and $0.2 million of cash paid in connection with 2023 convertible senior note settlements.

Contractual and Other Obligations

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

The 2023 convertible senior notes mature on May 1, 2023 and are our senior unsecured obligations.

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

The total net proceeds from the offering, after deducting the initial purchasers’ discounts and estimated debt issuance costs, were approximately $250.8 million.

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

The 2023 convertible senior notes matured on May 1, 2023 and the remaining principle amounts were settled in a combination of cash and shares of our common stock.

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

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

Our leases have remaining terms of one to ten years.

Some of the leases include an option to extend the leases for up to three to five years, and some of the leases include the option to terminate the leases upon 30-days notice.

Our leases have remaining terms of one to seven years.

Some of the leases include an option to extend the leases for up to one to five years, and some of the leases include the option to terminate the leases upon 30-days notice.

We had outstanding operating lease obligations of $52.0 million as of December 31, 2023, with $12.3 million payable within 12 months, $16.4 million payable within one to three years, $11.6 million payable within three to five years, and $11.7 million after five years.

We also had outstanding finance lease obligations of $5.0 million as of December 31, 2023, with $2.0 million payable within 12 months, and $3.0 million payable within one to three years.

See Note 13 to the consolidated financial statements included in this report for further details.

Cloud Services

As of December 31, 2022, we had outstanding cloud service agreement commitments totaling $41.1 million, of which $29.0 million is expected to be paid in 2023 and the remaining $12.1 million in 2024.

Cloud Services and Software and Maintenance

As of December 31, 2023, we had outstanding cloud services and software and maintenance agreement commitments totaling $104.4 million, of which $33.0 million is expected to be purchased in 2024, $45.6 million is expected to be purchased in 2025 and the remaining $25.8 million is expected to be purchased in 2026.

Hosting and Telecommunication Usage Services

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We assess our potential liability by analyzing specific litigation and regulatory matters using reasonably available information.

We develop our views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies.

We develop our views

on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies.

Legal fees are expensed in the period in which they are incurred.

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Our actual results may differ from these estimates under different assumptions or conditions.

We currently do not have any critical accounting estimates that involve a significant level of estimation uncertainty that could have a material impact on our consolidated financial statements.

Our significant accounting policies are described in Note 1 to the consolidated financial statements.

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

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

In the early stages of our larger contracts, in order to allocate the overall transaction fee on a relative

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis