Five9, Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data. Report of Independent Registered Public Accounting Firm (PCAOB ID: 185 ) 67 Consolidated Balance Sheets 70 Consolidated Statements of Operations and Comprehensive Loss 71 Consolidated Statements of Stockholders' Equity 72 Consolidated Statements of Cash Flows 73 Notes to Consolidated Financial Statements 74 66 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Five9, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Five9, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria, established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 67 Table of Contents Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of the sufficiency of audit evidence over revenues from subscription services and related usage As discussed in Note 1 to the consolidated financial statements, the Company charges clients subscription fees, usually billed on a monthly basis, for access to the Company’s Virtual Contact Center (VCC) solution. For the year ended December 31, 2023, the Company recorded $910,488 thousand of revenue. The subscription fees are primarily based on the number of agent seats as well as the specific VCC functionalities and applications deployed by the client. Agent seats are defined as the maximum number to named agents allowed to concurrently access the VCC cloud platform. Substantially all of the Company’s clients purchase both subscriptions and related telephony usage. The related usage fees are generally based on the volume of minutes used for inbound and outbound client interactions. There are high volumes of subscription and related usage transactions processed across multiple information technology (IT) systems. We identified the evaluation of the sufficiency of audit evidence over subscription services and related usage as a critical audit matter. Revenues from subscription services and related usage involve a high volume of automated transactions dependent on the Company’s IT systems. Therefore, our audit procedures required the involvement of IT professionals and auditor judgment was required to determine the nature and extent of audit evidence obtained and evaluate the results of the procedures. The following are the primary procedures we performed to address this critical audit matter. We involved IT professionals with specialized skills and knowledge, who assisted in evaluating the design and testing the operating effectiveness of certain internal controls over the Company’s revenue process. This included controls over the capture and flow of subscription and related usage transactional information through the Company’s IT systems. We placed test calls and observed that call attributes such as duration and type of service were captured in the relevant IT systems. We assessed the recorded revenue by comparing total cash received during the year, adjusted for reconciling items, to the revenue recognized. Such assessment also evaluated the relevance and reliability of reconciling items to underlying documentation, including the changes in accounts receivable and deferred revenue. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of such evidence. /s/ KPMG LLP 68 Table of Contents We have served as the Company’s auditor since 2012. Santa Clara, California February 21, 2024 69 Table of Contents FIVE9, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 143,201 $ 180,520 Marketable investments 587,096 433,743 Accounts receivable, net 97,424 87,494 Prepaid expenses and other current assets 34,622 29,711 Deferred contract acquisition costs, net 61,711 47,242 Total current assets 924,054 778,710 Property and equipment, net 108,572 101,221 Operating lease right-of-use assets 38,873 44,120 Finance lease right-of-use assets 4,564 — Intangible assets, net 38,323 28,192 Goodwill 227,412 165,420 Marketable investments — 885 Other assets 16,199 11,057 Deferred contract acquisition costs, net — less current portion 136,571 114,880 Total assets $ 1,494,568 $ 1,244,485 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 24,399 $ 23,629 Accrued and other current liabilities 62,131 58,536 Operating lease liabilities 10,731 10,626 Finance lease liabilities 1,767 — Deferred revenue 68,187 57,816 Convertible senior notes — 169 Total current liabilities 167,215 150,776 Convertible senior notes - less current portion 742,125 738,376 Operating lease liabilities — less current portion 36,378 41,389 Finance lease liabilities — less current portion 2,877 — Other long-term liabilities 7,888 3,979 Total liabilities 956,483 934,520 Commitments and contingencies (Note 10) Stockholders’ equity: Preferred stock, $ 0.001 par value; 5,000 shares authorized, no shares issued and outstanding as of December 31, 2023 and 2022 — — Common stock, $ 0.001 par value; 450,000 shares authorized, 73,317 shares and 71,047 shares issued and outstanding as of December 31, 2023 and 2022, respectively 73 71 Additional paid-in capital 942,280 635,668 Accumulated other comprehensive income (loss) 582 ( 2,688 ) Accumulated deficit ( 404,850 ) ( 323,086 ) Total stockholders’ equity 538,085 309,965 Total liabilities and stockholders’ equity $ 1,494,568 $ 1,244,485 See accompanying notes to the consolidated financial statements. 70 Table of Contents FIVE9, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share data) Year Ended December 31, 2023 2022 2021 Revenue $ 910,488 $ 778,846 $ 609,591 Cost of revenue 432,690 367,501 271,099 Gross profit 477,798 411,345 338,492 Operating expenses: Research and development 156,582 141,794 106,897 Sales and marketing 296,713 261,990 193,929 General and administrative 123,079 95,143 93,916 Total operating expenses 576,374 498,927 394,742 Loss from operations ( 98,576 ) ( 87,582 ) ( 56,250 ) Other income (expense), net: Interest expense ( 7,646 ) ( 7,493 ) ( 8,027 ) Interest income and other 26,799 4,813 ( 8 ) Total other income (expense), net 19,153 ( 2,680 ) ( 8,035 ) Loss before income taxes ( 79,423 ) ( 90,262 ) ( 64,285 ) Provision for (benefit from) income taxes 2,341 4,388 ( 11,285 ) Net loss $ ( 81,764 ) $ ( 94,650 ) $ ( 53,000 ) Net loss per share: Basic and diluted $ ( 1.13 ) $ ( 1.35 ) $ ( 0.79 ) Shares used in computing net loss per share: Basic and diluted 72,048 69,920 67,512 Comprehensive Loss: Net loss $ ( 81,764 ) $ ( 94,650 ) $ ( 53,000 ) Other comprehensive income (loss) 3,270 ( 2,401 ) ( 622 ) Comprehensive loss $ ( 78,494 ) $ ( 97,051 ) $ ( 53,622 ) See accompanying notes to the consolidated financial statements. 71 Table of Contents FIVE9, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2020 66,496 $ 67 $ 476,941 $ 335 $ ( 198,179 ) $ 279,164 Cumulative effect adjustment due to adoption of ASU 2020-06 (1) — — ( 168,412 ) — 22,743 ( 145,669 ) Issuance of common stock upon partial conversion of the 2023 convertible senior notes 454 — ( 353 ) — — ( 353 ) Partial unwind of capped calls and retirement of common stock related to the 2023 convertible senior notes ( 69 ) — 9 — — 9 Issuance of common stock upon exercise of stock options 389 — 7,402 — — 7,402 Issuance of common stock upon vesting of restricted stock units 1,097 1 ( 2 ) — — ( 1 ) Issuance of common stock under ESPP 121 — 15,397 — — 15,397 Stock-based compensation — — 108,805 — — 108,805 Other comprehensive loss — — — ( 622 ) — ( 622 ) Net loss — — — — ( 53,000 ) ( 53,000 ) Balance as of December 31, 2021 68,488 68 439,787 ( 287 ) ( 228,436 ) 211,132 Issuance of common stock upon partial conversion of the 2023 convertible senior notes 574 1 ( 281 ) — — ( 280 ) Partial unwind of capped calls and retirement of common stock related to the 2023 convertible senior notes ( 119 ) — 10 — — 10 Issuance of common stock upon exercise of stock options 531 1 8,521 — — 8,522 Issuance of common stock upon vesting of restricted stock units 1,383 1 — — — 1 Issuance of common stock under ESPP 190 — 13,413 — — 13,413 Stock-based compensation — — 174,218 — — 174,218 Other comprehensive loss — — — ( 2,401 ) — ( 2,401 ) Net loss — — — — ( 94,650 ) ( 94,650 ) Balance as of December 31, 2022 71,047 71 635,668 ( 2,688 ) ( 323,086 ) 309,965 Issuance of common stock upon partial conversion of the 2023 convertible senior notes 2 — — — — — Settlement at maturity of the outstanding capped calls and retirement of common stock related to the 2023 convertible senior notes ( 371 ) — 74,453 — — 74,453 Issuance of common stock upon exercise of stock options 491 — 9,127 — — 9,127 Issuance of common stock upon vesting of restricted stock units 1,844 2 ( 2 ) — — — Shares held for tax withholdings ( 40 ) — ( 3,270 ) — — ( 3,270 ) Issuance of common stock under ESPP 344 — 15,927 — — 15,927 Stock-based compensation — — 210,377 — — 210,377 Other comprehensive income — — — 3,270 — 3,270 Net loss — — — — ( 81,764 ) ( 81,764 ) Balance as of December 31, 2023 73,317 $ 73 $ 942,280 $ 582 $ ( 404,850 ) $ 538,085 (1) Effective January 1, 2021, the Company adopted ASU 2020-06. Accordingly, the Company recorded a net reduction to opening accumulated deficit of $ 22.7 million and a net reduction to opening additional paid-in capital of $ 168.4 million as of January 1, 2021 due to the cumulative impact of adopting this new standard. See accompanying notes to the consolidated financial statements. 72 Table of Contents FIVE9, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net loss $ ( 81,764 ) $ ( 94,650 ) $ ( 53,000 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 48,515 44,671 38,732 Amortization of operating lease right-of-use assets 12,642 10,377 8,698 Amortization of deferred contract acquisition costs 55,384 41,034 26,050 (Accretion of discount) amortization of premium on marketable investments ( 11,351 ) ( 90 ) 6,385 Provision for credit losses 989 1,105 808 Stock-based compensation 206,292 172,507 108,805 Amortization of discount and issuance costs on convertible senior notes 3,749 3,743 3,957 Deferred taxes 53 3,088 ( 6,907 ) Change in fair value of contingent consideration — 260 5,640 Payment of contingent consideration liability in excess of acquisition-date fair value — ( 5,900 ) — Other 807 188 396 Changes in operating assets and liabilities: Accounts receivable ( 9,844 ) ( 4,899 ) ( 35,986 ) Prepaid expenses and other current assets ( 3,532 ) 661 ( 14,193 ) Deferred contract acquisition costs ( 91,544 ) ( 85,197 ) ( 71,380 ) Other assets ( 3,988 ) ( 319 ) ( 1,216 ) Accounts payable 2,932 845 4,305 Accrued and other current liabilities ( 9,274 ) ( 7,878 ) 20,045 Deferred revenue 4,958 13,176 10,462 Other long-term liabilities (including non-current portions of operating and finance lease liabilities) 3,814 ( 3,857 ) ( 22,603 ) Net cash provided by operating activities 128,838 88,865 28,998 Cash flows from investing activities: Purchases of marketable investments ( 795,002 ) ( 435,768 ) ( 680,490 ) Proceeds from sales of marketable investments 1,211 600 44,288 Proceeds from maturities of marketable investments 655,588 524,568 527,940 Purchases of property and equipment ( 31,234 ) ( 52,272 ) ( 42,216 ) Capitalization of internal-use software development costs ( 9,537 ) ( 3,899 ) — Payments of initial direct costs — ( 266 ) — Cash paid for an equity investment in a privately-held company — ( 2,000 ) — Cash paid to acquire Aceyus, Inc. ( 80,588 ) — — Net cash (used in) provided by investing activities ( 259,562 ) 30,963 ( 150,478 ) Cash flows from financing activities: Repurchase of a portion of 2023 convertible senior notes, net of costs — ( 34,067 ) ( 24,688 ) Repayment of outstanding 2023 convertible senior notes at maturity ( 169 ) — — Cash received from the settlement at maturity of the outstanding capped calls associated with the 2023 convertible senior notes 74,453 — — Proceeds from exercise of common stock options 9,127 8,522 7,402 Proceeds from sale of common stock under ESPP 15,927 13,413 15,397 Payment of employee taxes related to vested RSUs ( 3,270 ) — — Payment of contingent consideration liability up to acquisition-date fair value — ( 18,100 ) — Payment of holdbacks related to acquisitions ( 500 ) — ( 5,000 ) Payments of finance leases ( 989 ) — ( 612 ) Net cash provided by (used in) financing activities 94,579 ( 30,232 ) ( 7,501 ) Net (decrease) increase in cash and cash equivalents ( 36,145 ) 89,596 ( 128,981 ) Cash and cash equivalents: Beginning of year 180,987 91,391 220,372 End of year $ 144,842 $ 180,987 $ 91,391 Supplemental disclosures of cash flow data: Cash paid for interest $ 3,897 $ 3,744 $ 4,073 Cash paid for income taxes 1,589 1,033 31 Non-cash investing and financing activities: Equipment purchased and unpaid at period-end 11,243 12,332 13,871 Capitalization of leasehold improvement through non-cash lease incentive — 109 5,121 Stock-based compensation included in capitalized software development costs 4,085 1,711 — Reconciliation of Cash, Cash Equivalents and Restricted Cash to the Consolidated Balance Sheets - Beginning of Period: Cash and cash equivalents $ 180,520 $ 90,878 $ 220,372 Restricted cash in other assets 467 513 — Total cash, cash equivalents and restricted cash $ 180,987 $ 91,391 $ 220,372 Reconciliation of Cash, Cash Equivalents and Restricted Cash to the Consolidated Balance Sheets - End of Period: Cash and cash equivalents $ 143,201 $ 180,520 $ 90,878 Restricted cash in other assets 1,641 467 513 Total cash, cash equivalents and restricted cash $ 144,842 $ 180,987 $ 91,391 See accompanying notes to the consolidated financial statements. 73 Table of Contents FIVE9, INC. Notes to Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies Five9, Inc. and its wholly-owned subsidiaries (the “Company”) is a provider of cloud software for contact centers. The Company was incorporated in Delaware in 2001 and is headquartered in San Ramon, California. The Company has offices in Europe, Asia and Australia, which primarily provide research, development, sales, marketing, and client support services. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding annual financial reporting. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The significant estimates made by management affect revenue and related reserves, as well as the fair value of assets acquired and liabilities assumed through business combinations. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. Actual results could differ from those estimates. Foreign Currency The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. For these subsidiaries, the monetary assets and liabilities resulting from foreign currency transactions are adjusted to reflect the exchange rate as of the balance sheet date. Foreign currency transaction gains and losses were not significant in any period and are reported in “Other income (expense), net” in the consolidated statements of operations and comprehensive loss. Cash and Cash Equivalents The Company’s cash and cash equivalents consist of highly liquid investments with maturities of three months or less at the time of purchase. The Company’s cash equivalents consist of investments in money market funds and U.S. treasury securities. Marketable Investments The Company’s marketable investments consist of U.S. agency securities and government sponsored securities, U.S. treasury securities, certificates of deposit, municipal bonds, corporate bonds and commercial paper. The Company determines the appropriate classification of its investments in marketable investments at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable investments have been classified and accounted for as available-for-sale. The intent is that all marketable investments are available for use in the Company’s current operations, including marketable investments with maturity dates greater than one year from December 31, 2023. Marketable investments are carried at fair value. Concentration Risks Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents, marketable investments and accounts receivable. A significant portion of the Company’s cash and cash equivalents is held at three large reputable financial institutions. Total cash and cash equivalents in excess of insured limits were $ 141.1 million and $ 178.6 million as of December 31, 2023 and 2022, respectively. The Company has not experienced any losses in such accounts. 74 Table of Contents As of December 31, 2023, there was one client which represented 11 % of accounts receivable. As of December 31, 2022, no single client represented more than 10% of accounts receivable. For the years ended December 31, 2023, 2022 and 2021, no single client represented more than 10% of revenue. Provision for Credit Losses The Company uses an expected credit loss model, which requires it to consider historical loss rates and expectations of forward-looking losses to estimate its provision for credit losses on its trade accounts receivables, unbilled accounts receivables and contract assets. The following table presents the changes in the provision for credit losses (in thousands): Year Ended December 31, 2023 2022 Balance, beginning of period $ 262 $ 220 Add: bad debt expense 989 1,105 Less: write-offs, net of recoveries ( 987 ) ( 1,063 ) Balance, end of period $ 264 $ 262 Property and Equipment, Net Property and equipment is stated at cost less accumulated depreciation and amortization, and is depreciated using the straight-line method over the estimated useful lives of the assets as follows: Asset Category Estimated Useful Lives Computer and network equipment 3 to 5 years Computer software 3 years Internal-use software development costs 3 years Furniture and fixtures 7 years Leasehold improvements Shorter of useful life or lease term The Company capitalizes certain qualifying costs incurred during the development stage of internal-use software. Costs related to preliminary project activities and post-implementation activities are expensed in research and development as incurred. Preliminary project activities include conceptual formulation, evaluation and final selection of alternatives, planning, proof of concept and requirement analysis of the selected alternative. The post-implementation stage begins when the internal-use software is ready for its intended use, and includes all internal and external training and application maintenance activities. Capitalized internal-use software development costs are included within property and equipment, net on the consolidated balance sheets, and are amortized over the estimated useful life of the software, which is three years . The related amortization expense is recognized in cost of revenue in the consolidated statements of operations and comprehensive loss. Maintenance and repairs of property and equipment are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the consolidated balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss in the period realized. The Company evaluates the recoverability of property and equipment for possible impairment whenever events or circumstances indicate that the carrying amount of such assets or asset groups may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets or asset groups are expected to generate. If such evaluation indicates that the carrying amount of the assets or asset groups is not recoverable, the carrying amount of such assets or asset groups is reduced to fair value. No impairment losses have been recognized in any of the periods presented. 75 Table of Contents Business Combinations The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed as of the acquisition date. The Company’s estimates are inherently uncertain and subject to change. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to its consolidated statements of operations and comprehensive loss. Goodwill and Intangible Assets The Company records goodwill when the consideration paid in a business combination exceeds the fair value of the net tangible assets and the identified intangible assets acquired. Goodwill is not amortized, but instead is required to be tested for impairment annually and whenever events or changes in circumstances indicate that the carrying value of goodwill may exceed its fair value. The Company performs testing for impairment of goodwill in its fourth quarter, or as events occur or circumstances change that would more likely than not reduce the fair value of the Company’s single reporting unit below its carrying amount. A qualitative assessment is first made to determine whether it is necessary to perform the quantitative goodwill impairment test. This initial qualitative assessment includes, among other things, consideration of: (i) market capitalization of the Company; (ii) past, current and projected future earnings and equity; (iii) recent trends and market conditions; and (iv) valuation metrics involving similar companies that are publicly-traded and acquisitions of similar companies, if available. If this initial qualitative assessment indicates that it is more likely than not that impairment exists, a second quantitative assessment will be performed, involving a comparison between the estimated fair values of the Company’s single reporting unit with its respective carrying amount including goodwill. If the carrying value exceeds estimated fair value, an impairment charge is recorded for the excess. The Company may elect to bypass the qualitative assessment and proceed to perform the quantitative goodwill impairment test. Intangible assets, consisting of acquired developed technology, trademarks and customer relationships, are carried at cost less accumulated amortization. All intangible assets have been determined to have definite lives and are amortized on a straight-line basis over their estimated remaining economic lives, ranging from three to eight years . Amortization expense related to developed technology is included in cost of revenue. Amortization expense related to customer relationships is included in sales and marketing expense. Amortization expense related to domain names is included in general and administrative expense. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. Revenue Recognition Revenue is recognized when control of the promised services is transferred to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company generates all of its revenue from contracts with customers. In contracts with multiple performance obligations, it identifies each performance obligation and evaluates whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined. The Company allocates the transaction price to each distinct performance obligation proportionately based on the estimated standalone selling price for each performance obligation. The Company then looks to how services are transferred to the customer in order to determine the timing of revenue recognition. Most services provided under the Company’s agreements result in the transfer of control over time. The Company’s revenue consists of subscription services and related usage as well as professional services. The Company charges clients subscription fees, usually billed on a monthly basis, for access to the Company’s VCC solution. The subscription fees are primarily based on the number of agent seats, as well as the specific VCC functionalities and applications deployed by the client. Agent seats are defined as the maximum number of named agents allowed to concurrently access the VCC cloud platform. Clients typically have more named agents than agent seats. Multiple named agents may use an agent seat, though not simultaneously. Substantially all of the Company’s clients purchase both subscriptions and related telephony usage. A small percentage of the Company’s clients subscribe to its platform but purchase telephony usage directly from a wholesale telecommunications service 76 Table of Contents provider. The Company does not sell telephony usage on a stand-alone basis to any client. The related usage fees are generally based on the volume of minutes used for inbound and outbound client interactions. Revenue generated from telephony usage is presented in revenue and cost of sales on a gross basis, as the Company is the party that controls the service and is responsible for fulfilling the promise to provide the call service by diverting the calls to selected carriers. The Company also offers bundled plans, generally for smaller deployments, whereby the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and, in some cases, Canada. Professional services revenue is derived primarily from VCC implementations, including application configuration, system integration, optimization, education and training services. Clients are not permitted to take possession of the Company’s software. The Company offers monthly, annual and multiple-year contracts to its clients, generally with 30 days’ notice required for reductions in the number of agent seats. Increases in the number of agent seats can be provisioned almost immediately. The Company’s clients, therefore, are able to adjust the number of agent seats used to meet their changing contact center needs. The Company’s larger clients typically choose annual contracts, which generally include an implementation and ramp period of several months. Fixed subscription fees, including bundled plans, are generally billed monthly in advance, while related usage fees are billed in arrears. Support activities include technical assistance for the Company’s solution and upgrades and enhancements to the VCC cloud platform on a when-and-if-available basis, which are not billed separately. The Company generally requires advance deposits from its clients based on estimated usage when such usage is not billed as part of a bundled plan. Any unused portion of the deposit is refundable to the client upon termination of the arrangement, provided all amounts due have been paid. All fees, except usage deposits, are non-refundable. Professional services are primarily billed on a fixed-fee basis. Revenue for professional services is recognized over time, as services are performed. The estimation of variable consideration for each performance obligation requires the Company to make subjective judgments resulting in estimated variable consideration that is included in the transaction fee. This is done to the extent that it is probable, in the Company’s judgment, that a significant reversal in the amount of cumulative revenue recognized under the contract will not occur. The Company estimates the variable consideration in order to allocate the overall transaction fee on a relative stand-alone selling price basis to its multiple performance obligations. When services are included in the contract with the customer and are not sold at their stand-alone selling price, the Company is required to estimate the number of seats the customer will use, especially during the initial ramp period of the contract, during which the Company bills under an ‘actual usage’ model for subscription-related services. To date, variable consideration has not had a material impact on the allocation of transaction fees to multiple performance obligations. The Company recognizes revenue on fixed fee professional services performance obligations based on the proportion of labor hours expended compared to the total hours expected to complete the related performance obligation. The determination of the total labor hours expected to complete the performance obligations involves judgment, which influences the initial stand-alone selling price estimate as well as the timing of professional services revenue recognition, although this is typically resolved in a short time frame. When a contract with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company assesses collection based on a number of factors, including past transaction history and the creditworthiness of the client. The Company maintains a revenue reserve for potential credits to be issued in accordance with service level agreements or for other revenue adjustments. Deferred Revenue Deferred revenue consists of billings or payments received from clients for subscription services, usage and professional services in advance of revenue recognition and is recognized in accordance with the Company’s revenue recognition policy discussed above. The Company generally invoices its clients monthly in advance for subscription services. Accordingly, the deferred revenue balance does not represent the total contract value of sales arrangements. Cost of Revenue Cost of revenue consists primarily of personnel costs, including stock-based compensation, fees that the Company pays to telecommunications providers for usage, USF contributions and other regulatory costs, 77 Table of Contents depreciation and related expenses of 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. Personnel costs include those associated with support of the Company’s solution, clients and data center operations, as well as with providing professional services. Data center costs include costs for servers and equipment to build out and setup, as well as co-location fees for the right to place the Company’s servers in data centers owned by third parties. Research and Development Research and development expenses consist primarily of salary and related expenses, including stock-based compensation, for personnel related to the development of improvements and expanded features for the Company’s solution, as well as quality assurance, testing, product management and allocated overhead. Research and development costs are expensed as incurred except for internal use software development costs that qualify for capitalization. The Company reviews development costs incurred for internal-use software in the application development stage and assesses costs for capitalization. Advertising Costs The Company primarily advertises its services through the internet and in conjunction with partners. Advertising costs are expensed as incurred and were $ 31.3 million, $ 28.1 million and $ 20.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. Commissions Commissions consist of variable compensation earned by sales personnel and referral fees the Company pays to third parties. The Company defers all incremental commission costs to obtain the contract, and amortizes these costs over a period of benefit determined to be five years . Commission expense was $ 61.5 million, $ 47.3 million and $ 31.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Stock-Based Compensation All stock-based compensation granted to employees and non-employee directors is measured at the grant date fair value of the award. The Company estimates the fair value of stock options under the Company’s Equity Incentive Plans and purchase rights under the Company’s 2014 Employee Stock Purchase Plan (“2014 ESPP Plan” or “ESPP”) using the Black-Scholes option-pricing model. The fair value of restricted stock units (“RSUs”), including performance-based restricted stock units (“PRSUs”) subject to performance conditions, is equal to the fair value of the Company’s common stock on the date of grant. The fair value of PRSUs subject to market conditions are determined using a Monte Carlo Simulation model. Compensation expense is recognized net of actual forfeitures over the service period, which is generally the vesting period. Income Taxes The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date. The Company records a valuation allowance to reduce its deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. As of December 31, 2023 and 2022, the Company recorded a full valuation allowance against the U.S. net deferred tax assets because of its history of operating losses in the United States. As of December 31, 2023, the Company recognized a net deferred tax asset balance of $ 3.8 million related to its operations in Australia and Portugal, and placed a valuation allowance against its UK net deferred tax asset balance due to its recent history of losses. As of December 31, 2022, the Company recognized a net deferred tax asset balance of $ 3.8 million related to its operations in the UK and Australia. The Company classifies interest and penalties on unrecognized tax benefits as income tax expense. Comprehensive loss 78 Table of Contents Comprehensive loss consists of net loss, and unrealized gains or losses on available-for-sale marketable investments. The Company presents comprehensive loss as part of the consolidated statements of operations. The changes in the accumulated balances of the components of other comprehensive loss were not material for the periods presented. Net Loss Per Share Basic net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period, and excludes any dilutive effects of employee stock-based awards and potential shares issuable upon conversion of the convertible senior notes. Diluted net loss per share is computed giving effect to all potentially dilutive shares of common stock, including common stock issuable upon exercise of stock options, vesting of RSUs and PRSUs, and shares of common stock issuable upon conversion of convertible senior notes. In periods of net loss, all potentially issuable shares of common stock are excluded from the diluted net loss per share computation because they are anti-dilutive. Therefore, basic and diluted net loss per share are the same for all years presented in the Company’s consolidated statements of operations and comprehensive loss. Indemnification The Company, in the ordinary course of business, enters into agreements of varying scope and terms pursuant to which it agrees to indemnify clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, including breach of security, services to be provided by the Company or from intellectual property infringement claims made by third parties. To date, the Company has not incurred any material costs as a result of such indemnification provisions and the Company has not accrued any liabilities related to such obligations in the consolidated financial statements as of December 31, 2023 and 2022. Segment Information The Company has determined that its Chief Executive Officer is its chief operating decision maker. The Company’s Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of assessing performance and making decisions on how to allocate resources. Accordingly, the Company has determined that it operates in a single reportable segment. Recent Accounting Pronouncements Not Yet Effective In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ ASU”) No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures , which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. This ASU is effective for the Company’s fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively. The Company is currently evaluating the impact of this ASU on its consolidated financial statement disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This ASU requires disclosure of specific categories in the effective tax rate reconciliation and additional information on income taxes paid. This ASU is effective for the Company’s fiscal years beginning after December 15, 2024. Early adoption is permitted and may be adopted on a prospective or retrospective basis. The Company is currently evaluating the impact of this ASU on its consolidated financial statement disclosures. 79 Table of Contents 2. Revenue Contract Balances The following table provides information about accounts receivable, net, deferred contract acquisition costs, net, contract assets and contract liabilities from contracts with customers (in thousands): December 31, 2023 December 31, 2022 Accounts receivable, net $ 97,424 $ 87,494 Deferred contract acquisition costs, net: Current $ 61,711 $ 47,242 Non-current 136,571 114,880 Total deferred contract acquisition costs, net $ 198,282 $ 162,122 Contract assets and contract liabilities: Contract assets (included in prepaid expenses and other current assets) $ 4,106 $ 3,401 Contract liabilities (deferred revenue) 68,187 57,816 Noncurrent contract liabilities (deferred revenue) (included in other long term liabilities) 1,350 1,178 Net contract liabilities $ ( 65,431 ) $ ( 55,593 ) The Company receives payments from customers based upon billing cycles. Invoice payment terms are usually 30 days or less. Accounts receivable are recorded when the right to consideration becomes unconditional. The Company’s contract assets consist of unbilled amounts typically resulting from professional services revenue recognition when it exceeds the total amounts billed to the customer. The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized. In the year ended December 31, 2023, the Company recognized revenue of $ 49.1 million related to its contract liabilities at December 31, 2022. Remaining Performance Obligations As of December 31, 2023, the aggregate amount of the total transaction price allocated in contracts with original duration of greater than one year to the remaining performance obligations was $ 1,055.9 million. The Company expects to recognize revenue on approximately three-fourths of the remaining performance obligations over the next 24 months, with the balance recognized thereafter. The Company excludes amounts for remaining performance obligations that are part of contracts with an original expected duration of one year or less. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligations. 3. Investments and Fair Value Measurements Marketable Investments 80 Table of Contents The Company’s marketable investments have been classified and accounted for as available-for-sale. The Company’s intent is that all marketable investments are available for use in its current operations, including marketable investments with maturity dates greater than one year from December 31, 2023. The Company’s marketable investments as of December 31, 2023 and 2022 were as follows (in thousands): December 31, 2023 Short-Term Marketable Investments Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Certificates of deposit $ 1,463 $ — $ — $ 1,463 U.S. treasury securities 315,608 191 ( 362 ) 315,437 U.S. agency and government-sponsored securities 239,358 78 ( 177 ) 239,259 Commercial paper 17,382 9 — 17,391 Municipal bonds 927 1 — 928 Corporate bonds 12,630 4 ( 16 ) 12,618 Total $ 587,368 $ 283 $ ( 555 ) $ 587,096 December 31, 2022 Short-Term Marketable Investments Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Certificates of deposit $ 747 $ — $ ( 13 ) $ 734 U.S. treasury securities 186,776 8 ( 1,382 ) 185,402 U.S. agency and government-sponsored securities 197,597 29 ( 1,660 ) 195,966 Commercial paper 25,386 — — 25,386 Municipal bonds 22,764 — ( 145 ) 22,619 Corporate bonds 3,658 — ( 22 ) 3,636 Total $ 436,928 $ 37 $ ( 3,222 ) $ 433,743 December 31, 2022 Long-Term Marketable Investments Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. agency and government-sponsored securities $ 885 $ — $ — $ 885 Total $ 885 $ — $ — $ 885 The following table presents the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than 12 months as of December 31, 2023 and 2022 (in thousands): December 31, 2023 December 31, 2022 Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Certificates of deposit $ — $ — $ ( 13 ) $ 734 U.S. treasury securities ( 362 ) 79,644 ( 1,382 ) 126,534 U.S. agency and government-sponsored securities ( 177 ) 165,493 ( 1,660 ) 172,458 Municipal bonds — — ( 145 ) 12,623 Corporate bonds ( 16 ) 7,550 ( 22 ) 3,636 Total $ ( 555 ) $ 252,687 $ ( 3,222 ) $ 315,985 Although the Company had certain available-for-sale debt securities in an unrealized loss position as of December 31, 2023, no impairment loss was recorded since it did not intend to sell them, did not anticipate a need to sell them, and the decline in fair value was not due to any credit-related factors. 81 Table of Contents The amortized cost and fair value of the Company’s marketable investments by contractual maturity as of December 31, 2023 were as follows (in thousands): Cost Fair Value Due within one year $ 457,498 $ 457,484 Due after one year through two years 129,870 129,612 Total $ 587,368 $ 587,096 Fair Value Measurements The Company carries cash equivalents and marketable investments at fair value. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 — Observable inputs, which include unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 — Observable inputs other than Level 1 inputs, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 — Unobservable inputs that are supported by little or no market activity and that are based on management’s assumptions, including fair value measurements determined by using pricing models, discounted cash flow methodologies or similar techniques. The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments. Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. The Company performs routine procedures such as comparing prices obtained from independent sources to ensure that appropriate fair values are recorded. 82 Table of Contents The following tables set forth the Company’s assets measured at fair value by level within the fair value hierarchy (in thousands): December 31, 2023 Level 1 Level 2 Level 3 Total Assets Cash equivalents Money market funds $ 66,661 $ — $ — $ 66,661 Certificates of deposit — 493 — 493 U.S. treasury securities 4,983 — — 4,983 Commercial paper — 1,498 — 1,498 Total cash equivalents $ 71,644 $ 1,991 $ — $ 73,635 Marketable investments Certificates of deposit $ — $ 1,463 $ — $ 1,463 U.S. treasury securities 315,437 — — 315,437 U.S. agency and government-sponsored securities — 239,259 — 239,259 Commercial paper — 17,391 — 17,391 Municipal bonds — 928 — 928 Corporate bonds — 12,618 — 12,618 Total marketable investments $ 315,437 $ 271,659 $ — $ 587,096 December 31, 2022 Level 1 Level 2 Level 3 Total Assets Cash equivalents Money market funds $ 37,560 $ — $ — $ 37,560 U.S. treasury securities 19,700 — — 19,700 Total cash equivalents $ 57,260 $ — $ — $ 57,260 Marketable investments (short and long-term) Certificates of deposit $ — $ 734 $ — $ 734 U.S. treasury securities 185,402 — — 185,402 U.S. agency and government-sponsored securities — 196,851 — 196,851 Commercial paper — 25,386 — 25,386 Municipal bonds — 22,619 — 22,619 Corporate bonds — 3,636 — 3,636 Total marketable investments $ 185,402 $ 249,226 $ — $ 434,628 As of December 31, 2022, the estimated fair value of the Company’s outstanding 2023 convertible senior notes was $ 0.3 million. The 2023 convertible senior notes matured on May 1, 2023. As of December 31, 2023 and 2022, the estimated fair value of the Company's outstanding 2025 convertible senior notes was $ 718.3 million and $ 687.1 million, respectively. The fair values were determined based on the quoted price of the convertible senior notes in an inactive market on the last trading day of the reporting period and have been classified as Level 2 in the fair value hierarchy. See Note 6 for further information on the Company’s convertible senior notes. In February 2022, the Company made a $ 2.0 million equity investment in a privately-held company that it does not have the ability to exercise significant influence over. The Company elected the measurement alternative for an equity security without a readily determinable fair value. Accordingly, this investment is accounted for at its cost minus impairment, if any, and is classified within Level 3. If the Company identifies observable price changes in orderly transactions for such investment or a similar investment, it will measure the investment at fair value as of 83 Table of Contents the date that the observable transactions or events occurred. The Company concluded that there was no indicator of impairment of this investment as of December 31, 2023. Except for the $ 2.0 million equity investment described above, there were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2023 and 2022. The fair value of the Company’s other financial instruments, including accounts receivable, accounts payable and other current liabilities, approximate their carrying value due to the relatively short maturity of those instruments. The carrying amounts of the Company’s operating and finance leases approximate their fair value, which is the present value of expected future cash payments based on assumptions about current interest rates and the creditworthiness of the Company. 4. Financial Statement Components Cash and cash equivalents consisted of the following (in thousands): December 31, 2023 2022 Cash $ 69,566 $ 123,260 Money market funds 66,661 37,560 Certificates of deposit 493 — U.S. Treasury 4,983 19,700 Commercial paper 1,498 — Total cash and cash equivalents $ 143,201 $ 180,520 Accounts receivable, net consisted of the following (in thousands): December 31, 2023 2022 Trade accounts receivable $ 86,912 $ 77,621 Unbilled trade accounts receivable, net of advance client deposits 10,776 10,135 Provision for credit losses ( 264 ) ( 262 ) Accounts receivable, net $ 97,424 $ 87,494 Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2023 2022 Prepaid expenses $ 22,023 $ 17,151 Other current assets 8,493 9,159 Contract assets 4,106 3,401 Prepaid expenses and other current assets $ 34,622 $ 29,711 84 Table of Contents Property and equipment, net consisted of the following (in thousands): December 31, 2023 2022 Computer and network equipment $ 155,997 $ 148,789 Computer software 59,452 50,955 Internal-use software development costs 19,734 6,111 Furniture and fixtures 4,666 3,326 Leasehold improvements 6,425 6,574 Property and equipment 246,274 215,755 Accumulated depreciation and amortization ( 137,702 ) ( 114,534 ) Property and equipment, net $ 108,572 $ 101,221 Depreciation and amortization expense associated with property and equipment was $ 36.5 million, $ 33.0 million and $ 26.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. Property and equipment capitalized under finance lease obligations consists primarily of computer and network equipment and was immaterial as of December 31, 2023 and 2022. Other assets consisted of the following (in thousands): December 31, 2023 2022 Other assets $ 10,433 $ 5,081 Equity investment in a privately-held company 2,000 2,000 Deferred tax assets 3,766 3,976 Other assets $ 16,199 $ 11,057 Accrued and other current liabilities consisted of the following (in thousands): December 31, 2023 2022 Accrued expenses $ 18,282 $ 19,343 Accrued compensation and benefits 35,927 33,749 Accrued federal fees 4,166 2,471 Sales tax liabilities 3,756 2,973 Accrued and other current liabilities $ 62,131 $ 58,536 Other long-term liabilities consisted of the following (in thousands): December 31, 2023 2022 Deferred revenue $ 1,350 $ 1,178 Deferred tax liabilities — 157 Sales tax liabilities 926 899 Other long-term liabilities 5,612 1,745 Other long-term liabilities $ 7,888 $ 3,979 85 Table of Contents 5. Goodwill and Intangible Assets Goodwill of $ 62.0 million and intangible assets of $ 22.1 million were recognized as a result of the Company's acquisition of Aceyus, Inc. ("Aceyus") in August 2023. See Note 14 for further details. The following table summarizes the activity in the Company's goodwill and intangible asset balances during the years ended December 31, 2023 and 2022 (in thousands): Goodwill Intangible Assets Beginning of the period, January 1, 2022 $ 165,420 $ 39,897 Amortization — ( 11,705 ) Beginning of the period, December 31, 2022 165,420 28,192 Addition (Aceyus) 61,992 22,150 Amortization — ( 12,019 ) End of the period, December 31, 2023 $ 227,412 $ 38,323 During the fourth quarter of 2023, the Company completed its annual goodwill impairment test. Based on the Company’s assessment, it concluded that it is more likely than not that the fair values are more than their carrying values. Accordingly, there was no indication of impairment of goodwill, and further quantitative testing was not required. Subsequent to the 2023 annual impairment test, the Company believes there have been no significant events or circumstances negatively affecting the valuation of goodwill. As of December 31, 2023 and 2022, there was no impairment to the carrying value of the Company’s goodwill. The components of intangible assets were as follows (in thousands): December 31, 2023 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Amortization Period (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Amortization Period (Years) Developed technology $ 75,314 $ ( 40,327 ) $ 34,987 5.2 $ 56,214 $ ( 28,881 ) $ 27,333 3.2 Acquired workforce 470 ( 470 ) — 0.0 470 ( 470 ) — 0.0 Customer relationships 4,150 ( 1,252 ) 2,898 4.1 1,600 ( 741 ) 859 2.7 Trademarks 1,000 ( 562 ) 438 2.6 500 ( 500 ) — 0.0 Total $ 80,934 $ ( 42,611 ) $ 38,323 5.1 $ 58,784 $ ( 30,592 ) $ 28,192 3.2 Amortization expense related to intangible assets was $ 12.0 million, $ 11.7 million and $ 11.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. 86 Table of Contents As of December 31, 2023, the expected future amortization expense for intangible assets was as follows (in thousands): Period Expected Future Amortization Expense 2024 $ 10,591 2025 8,660 2026 7,201 2027 2,898 2028 2,706 Thereafter 6,267 Total $ 38,323 Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. The Company concluded that there was no indicators of impairment of its intangible assets as of December 31, 2023 and 2022. 6. Debt 2025 Convertible Senior Notes and Related Capped Call Transactions In May and June 2020, the Company issued $ 747.5 million aggregate principal amount of 2025 convertible senior notes in a private offering, which aggregate principal amount included the exercise in full of the initial purchasers’ option to purchase up to an additional $ 97.5 million principal amount of the 2025 convertible senior notes. The 2025 convertible senior notes mature on June 1, 2025 and bear interest at a fixed rate of 0.500 % per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The total net proceeds from the issuance of the 2025 convertible senior notes, after deducting initial purchasers' discounts and commissions and estimated debt issuance costs, were approximately $ 728.8 million. Each $1,000 principal amount of the 2025 convertible senior notes is initially convertible into 7.4437 shares of the Company’s common stock (the “2025 Conversion Option”), which is equivalent to an initial conversion price of approximately $ 134.34 per share of common stock, subject to adjustment upon the occurrence of specified events. The initial conversion price represents a premium of approximately 30 % to the $ 103.34 per share closing price of the Company’s common stock on The Nasdaq Global Market on May 21, 2020. The 2025 convertible senior notes are convertible, in multiples of $1,000 principal amount, at the option of the holders prior to the close of business on the business day immediately preceding March 1, 2025, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “2025 Measurement Period”) in which the trading price (as defined in the 2025 Indenture governing the 2025 convertible senior notes) per $1,000 principal amount of the 2025 convertible senior notes for each trading day of the 2025 Measurement Period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate in effect on each such trading day; (3) if the Company calls any or all of the 2025 convertible senior notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2025 convertible senior notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. If the Company undergoes a fundamental change (as defined in the indenture governing the 2025 convertible senior notes), subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their 2025 convertible senior notes, in principal amounts of $1,000 or a multiple thereof, at a fundamental change repurchase price equal to 100 % of the principal amount of the 2025 convertible senior notes to be repurchased, plus 87 Table of Contents accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their notes in connection with such corporate event or during the relevant redemption period. There have been no changes to the initial conversion price of the 2025 convertible senior notes since issuance. The closing market price of the Company's common stock of $ 78.69 per share as of December 29, 2023, the last trading day during the three months ended December 31, 2023, was below $ 174.64 per share, which represents 130 % of the initial conversion price of $ 134.34 per share. Additionally, the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day, December 29, 2023, was not greater than or equal to 130 % of the initial conversion price. As such, during the three months ended December 31, 2023, the conditions allowing holders of the 2025 convertible senior notes to convert were not met. The 2025 convertible senior notes are therefore not convertible during the three months ending March 31, 2024. The 2025 convertible senior notes became redeemable at the Company’s option on June 6, 2023. The Company may redeem for cash all or any portion of the 2025 convertible senior notes, at its option, prior to March 1, 2025, if the last reported sale price of its common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than two trading days immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the 2025 convertible senior notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the 2025 convertible senior notes. During the three months ended December 31, 2023, the conditions allowing the Company to redeem for cash all or any portion of the 2025 convertible senior notes were not met. The 2025 convertible senior notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2025 convertible senior notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries. The net carrying amount of the 2025 convertible senior notes as of December 31, 2023 and 2022 was as follows (in thousands): December 31, 2023 December 31, 2022 Principal $ 747,500 $ 747,500 Unamortized issuance costs ( 5,375 ) ( 9,124 ) Net carrying amount $ 742,125 $ 738,376 Interest expense related to the 2025 convertible senior notes was as follows (in thousands): Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Contractual interest expense $ 3,737 $ 3,737 $ 4,007 Amortization of issuance costs 3,749 3,711 3,674 Total interest expense $ 7,486 $ 7,448 $ 7,681 In connection with the issuance of the 2025 convertible senior notes, the Company entered into privately negotiated capped call transactions (the “2025 Capped Call Transactions”) with certain financial institutions. The initial cap price of the 2025 Capped Call Transactions was $ 206.68 per share and is subject to certain adjustments under the terms of the 2025 Capped Call Transactions. The 2025 Capped Call Transactions cover, subject to anti-dilution adjustments, approximately 5.6 million shares of the Company’s common stock. 88 Table of Contents 2023 Convertible Senior Notes and Related Capped Call Transactions In May 2018, the Company issued $ 258.8 million aggregate principal amount of the 2023 convertible senior notes in a private offering. The total net proceeds from the offering, after deducting initial purchasers' discounts and commissions and estimated debt issuance costs, was approximately $ 250.8 million. In May 2020, the Company used part of the net proceeds from the issuance of the 2025 convertible senior notes to repurchase, exchange or otherwise retire approximately $ 181.0 million aggregate principal amount of the 2023 convertible senior notes in privately-negotiated transactions for aggregate consideration of $ 449.6 million, consisting of $ 181.0 million in cash and 2,723,581 shares of the Company’s common stock. The 2023 convertible senior notes matured on May 1, 2023, and were settled in a combination of cash and shares of the Company’s common stock. Prior to maturity, the 2023 convertible senior notes bore interest at a fixed rate of 0.125 % per annum, payable semiannually in arrears on May 1 and November 1 of each year. There were no changes to the 2023 convertible senior notes’ initial conversion price of approximately $ 40.82 per share of common stock since issuance. The net carrying amount of the 2023 convertible senior notes as of December 31, 2022 was $ 0.2 million. There were no 2023 convertible senior notes outstanding as of December 31, 2023. Interest expense related to the 2023 convertible senior notes was immaterial for the years ended December 31, 2023, 2022 and 2021. In connection with the issuance of the 2023 convertible senior notes, the Company entered into privately negotiated capped call transactions (the “2023 Capped Call Transactions”) with certain financial institutions. The initial cap price of the 2023 Capped Call Transactions was $ 62.80 per share. The 2023 Capped Call Transactions covered approximately 6.3 million shares of the Company’s common stock. Upon maturity, the outstanding capped calls associated with the repurchase, early settlements and settlements at maturity of $ 194.7 million of the 2023 convertible senior notes were settled, which resulted in the Company receiving 370,877 shares of the Company’s common stock and $ 74.5 million. 7. Stockholders’ Equity Capital Structure Common Stock The Company is authorized to issue 450,000,000 shares of common stock with a par value of $ 0.001 per share. As of December 31, 2023 and 2022, the Company had 73,316,968 and 71,047,179 shares of common stock issued and outstanding, respectively. During 2023 and 2022, the Company issued 1,445 and 573,633 shares, respectively, of common stock in connection with 2023 convertible senior note settlements. During 2023 and 2022, the Company also received 370,877 and 119,492 shares, respectively, from the partial unwind and settlement of capped calls resulting from the settlement of its 2023 convertible senior notes. The receipt of the 370,877 and 119,492 shares reduced the number of shares of common stock outstanding. See Note 6 for further details. Holders of the Company’s common stock are entitled to dividends, if and when declared by the board of directors. In the event of liquidation, dissolution or winding up, subject to the rights of the holders of any then outstanding shares of preferred stock, holders of common stock will be entitled to receive the assets and funds of the Company that are legally available for distribution. Preferred Stock The Company is authorized to designate and issue up to 5,000,000 shares of preferred stock with a par value of $ 0.001 per share in one or more series without stockholder approval and to fix the rights, preferences, privileges and restrictions thereof. As of December 31, 2023 and 2022, there were no shares of preferred stock issued and outstanding. 89 Table of Contents Common Stock Reserved for Future Issuance Shares of common stock reserved for future issuance related to outstanding equity awards and employee equity incentive plans as of December 31, 2023, were as follows (in thousands): Common Stock Reserved Stock options outstanding 918 RSUs (including PRSUs) outstanding 4,076 Shares available for future grant under 2014 Plan 15,653 Shares available for future issuance under ESPP 3,937 Total shares of common stock reserved 24,584 Equity Incentive Plans Prior to the Company’s initial public offering (“IPO”) in April 2014, the Company granted stock options under its Amended and Restated 2004 Equity Incentive Plan, as amended (“2004 Plan”). Under the terms of the 2004 Plan, the Company had the ability to grant incentive and nonstatutory stock options. Incentive stock options could only be granted to Company employees. Nonstatutory stock options could be granted to Company employees, directors and consultants. Such options are exercisable at prices, as determined by the board of directors, generally equal to the fair value of the Company’s common stock at the date of grant. Options granted to employees generally vest over a four-year period, with an initial vesting period of 12 months for 25 % of the shares, and the remaining 75 % of the shares vesting monthly on a ratable basis over the remaining 36 months. Options generally expire 10 years after the grant date and are generally exercisable upon vesting. Vested options generally expire 90 days after termination of the optionee’s employment or relationship as a consultant or director, unless otherwise extended by the terms of the stock option agreement. In March 2014, the Company’s board of directors and stockholders approved the 2014 Equity Incentive Plan (“2014 Plan”) and 5,300,000 shares of common stock were authorized for issuance under the 2014 Plan. In addition, on the first day of each year beginning in 2015 and ending in 2024, the 2014 Plan provides for an annual automatic increase to the shares reserved for issuance in an amount equal to 5 % of the total number of shares outstanding on December 31st of the preceding calendar year or a lesser number as determined by the Company’s board of directors. Pursuant to the automatic annual increase, 3,665,848 additional shares were reserved under the 2014 Plan on January 1, 2024. No further grants were made under the 2004 Plan once the 2014 Plan became effective on April 3, 2014. Upon the effectiveness of the 2014 Plan, all shares reserved for future issuance under the 2004 Plan became available for issuance under the 2014 Plan. Additionally, any forfeited or expired shares that would have otherwise returned to the 2004 Plan, instead return to the 2014 Plan. The 2014 Plan allows the Company to grant stock options, RSUs, restricted stock awards, performance stock awards, stock appreciation rights, performance cash awards, and other stock awards. To date, the Company has granted stock options and RSUs under the 2014 Plan. Stock options granted under the 2014 Plan are in general at a price equal to the fair market value of the common stock on the date of grant and vest over four years . The Company’s stock options expire 10 years from the date of grant. Each RSU granted under the 2014 Plan represents a right to receive one share of the Company’s common stock when the RSU vests. RSUs generally vest over one to four years . Vested options generally expire three months after termination of the optionee’s employment or relationship as a consultant or director, unless otherwise extended by the terms of the stock option agreement. In connection with the Company’s acquisition of Inference in 2020, the Company assumed unvested stock options that had been granted under the Inference Technologies Group Inc. 2018 Equity Incentive Plan. Each of the assumed stock options are subject to substantially the same terms and conditions as applied to the assumed stock options immediately prior to the acquisition date, except that the number of shares of the Company’s common stock subject to each assumed stock option and the exercise price has been adjusted in accordance with the terms of the acquisition agreement. If these assumed stock options are cancelled, forfeited or expire unexercised, the underlying shares do not become available for future grant. As of the acquisition date, the estimated fair value of the assumed unvested options was $ 7.6 million, of which $ 0.2 million was recognized as goodwill and the balance of $ 7.4 million is being recognized as stock-based compensation expense over the remaining service period of the assumed unvested stock options. 90 Table of Contents Stock Options A summary of the Company’s stock option activity during the year ended December 31, 2023 is as follows (in thousands, except years and per share data): Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (1) Outstanding as of December 31, 2022 1,481 $ 47.75 Options granted 0 0.00 Options exercised ( 491 ) 18.58 Options forfeited or expired ( 72 ) 141.83 Outstanding as of December 31, 2023 918 55.96 4.7 $ 34,205 Vested and expected to vest as of December 31, 2023 918 55.96 4.7 34,205 Exercisable as of December 31, 2023 841 48.61 4.5 34,131 (1) The aggregate intrinsic value amounts are computed based on the difference between the exercise price of the stock options and the fair market value of the Company’s common stock of $ 78.69 per share as of December 29, 2023 for all in-the-money stock options outstanding. Following is additional information pertaining to the Company’s stock option activity (in thousands, except per share data): Year Ended December 31, 2023 2022 2021 Weighted average grant date fair value per share of options granted $ — $ 50.44 $ 78.72 Intrinsic value of options exercised (1) 26,943 45,698 59,762 Total fair value of options vested during the period 5,602 11,421 12,760 Cash received from options exercised 9,127 8,522 7,402 (1) Intrinsic value of options exercised is the difference between the fair market value of the Company’s common stock at the time of exercise and the exercise price paid. Restricted Stock Units (including Performance-Based Restricted Stock Units) A summary of RSU activity (including PRSUs) during the year ended December 31, 2023 is as follows (in thousands, except years and per share data): Number of Shares Weighted Average Grant Date Fair Value Per Share Outstanding as of December 31, 2022 3,718 $ 103.55 RSUs granted (1) 2,648 69.84 RSUs vested and released ( 1,844 ) 100.60 RSUs forfeited or cancelled ( 446 ) 100.75 Outstanding as of December 31, 2023 4,076 83.25 (1) Includes 36 thousand PRSUs granted during 2023. PRSUs with Market and Service Conditions . In 2022, the Company granted 284,282 PRSUs subject to market and service conditions (“market-based PRSUs”) with a grant date fair value of $ 30.6 million as part of its annual grant of equity incentive awards to certain executives and in connection with the appointment of Michael Burkland as its new Chief Executive Officer. In 2023, the Company granted an additional 35,921 market-based PRSUs with a grant date fair value of $ 3.1 million. The amount that may be earned pursuant to the market-based PRSUs ranges 91 Table of Contents from 0 % to 200 % of the target number based on the Company’s relative total shareholder return (“RTSR”) performance as compared to the companies in the S&P Software and Services Select Index during three one -year performance periods. One-third of the total market-based PRSUs may be earned and settled in shares following the end of each one -year performance period based on RTSR performance and subject to continued employment through the payment date, but the amount initially paid for the first two one -year performance periods is limited to 100 % of the target amount for such years, and any market-based PRSUs resulting from above-target performance in those first two years will be paid following the end of the final one -year performance period, subject to the executive’s continued employment through the payment date. If the Company’s absolute total shareholder return for any performance period is negative, then no more than 100 % of the target amount of market-based PRSUs for such period may be earned. If an executive's employment with the Company terminates before the end of the final one -year performance period due to death or disability, 100 % (if due to death) or 50 % (if due to disability) of the unvested market-based PRSUs may be earned subject to ultimate RTSR performance in each remaining performance period. Upon a qualifying termination of employment in connection with a change in control of the Company, the unvested market-based PRSUs will vest on a double-trigger basis (i) at the target level for the market-based PRSUs subject to the 2022-2024 performance period, and (ii) for the market-based PRSUs subject to the 2023-2025 performance period, (a) at the target level for the uncompleted portions of the performance periods and (b) at the actual level of performance measured through the date of the change in control of the Company, based on the price per share paid in such change in control. The fair value of the market-based PRSUs is determined on their grant date using a Monte Carlo Simulation model based upon assumptions presented below. The Company recognizes the fair value of the market-based PRSUs ratably over their requisite service period. During the first quarter of 2023, the Company certified the performance results for the 2022 measurement period for the market-based PRSUs subject to the 2022-2024 performance period. Under the market-based PRSU agreements, the TSR payout percentage ranges from 0 % to 200 %, with a 50 % payout at the 25th TSR percentile (threshold), 100 % payout at the 55th TSR percentile (target), 200 % payout at the 90th percentile or greater (maximum) and no payout below the threshold performance level. The Company determined that its actual total shareholder return was - 52.64 % for 2022, and that its relative total shareholder return ranking was in the 30.2 percentile relative to companies in the S&P Software & Services Select Index, which resulted in a payout percentage of 58.7 % of target. During the first quarter of 2024, the Company certified the performance results for the 2023 measurement period for the market-based PRSUs subject to the 2022-2024 performance period. The Company determined that its actual total shareholder return was 19.95 % for 2023, and that its relative total shareholder return ranking was in the 53.8 percentile relative to companies in the S&P Software & Services Select Index, which resulted in a payout percentage of 98.0 % of target. During the first quarter of 2024, the Company also certified the performance results for the 2023 measurement period for the market-based PRSUs subject to the 2023-2025 performance period. The Company determined that its actual total shareholder return was 19.95 % for 2023, and that its relative total shareholder return ranking was in the 50.5 percentile relative to companies in the S&P Software & Services Select Index, which resulted in a payout percentage of 92.5 % of target. PRSUs with Revenue and Service Conditions . In 2022, the Company granted 66,167 PRSUs subject to revenue-based performance and service conditions (“revenue-based PRSUs”) with a grant date fair value of $ 6.6 million. The amount of revenue-based PRSUs that may be earned will be determined based on achievement of two quarterly revenue goals. One third of the revenue-based PRSUs may be earned based on achievement of the first revenue target and, if achieved, will vest in four quarterly installments, with the first installment occurring on the date such achievement is certified, subject to the executive's continuous service through the applicable vesting dates. Two thirds of the revenue-based PRSUs may be earned based on achievement of the second revenue target and, if achieved, will vest in eight quarterly installments, with the first installment occurring on the date such achievement is certified, subject to the executive's continuous service through the applicable vesting dates. The revenue-based PRSUs are otherwise on the Company's standard award terms for its market-based PRSUs. During 2023, the Company certified that the first revenue target was achieved, and thus recognized the related stock-based compensation expense for this first revenue target. However, the Company certified during the first quarter of 2024 92 Table of Contents that, as of December 31, 2023, the second revenue target was not achieved, and thus did not recognize the related stock-based compensation expense and cancelled the shares associated with this target. Following is additional information pertaining to the Company’s RSU activity (including PRSUs) (in thousands, except per share data): Year Ended December 31, 2023 2022 2021 Weighted average grant date fair value per share of RSUs granted $ 69.84 $ 90.51 $ 177.00 Total fair value of RSUs vested during the period 184,443 125,798 174,500 Employee Stock Purchase Plan In March 2014, the Company’s board of directors and stockholders adopted the 2014 ESPP and the shares authorized for issuance thereunder. The 2014 ESPP became effective on April 3, 2014. The 2014 ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll deductions with up to 15 % of their pre-tax earnings subject to certain Internal Revenue Code limitations. The purchase price of the shares is 85 % of the lower of the fair market value of the Company’s common stock on the first day of a six month offering period, except for the initial offering period, or the relevant purchase date. In addition, no participant may purchase more than 1,500 shares of common stock in each purchase period. The number of shares of common stock originally reserved for issuance under the 2014 ESPP was 880,000 shares, which increases automatically each year, beginning on January 1, 2015 and continuing through January 1, 2024, by the lesser of (i) 1 % of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year; (ii) 1,000,000 shares of common stock (subject to adjustment to reflect any split or combination of its common stock); or (iii) such lesser number as determined by its board of directors. Pursuant to the automatic annual increase, 733,169 additional shares were reserved under the 2014 ESPP on January 1, 2024. During 2023 and 2022, 344,309 and 190,257 shares were purchased by employees under the 2014 ESPP at a weighted average price of $ 46.26 and $ 70.50 per share, respectively. Stock-Based Compensation Stock-based compensation expenses for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cost of revenue $ 38,259 $ 33,297 $ 17,734 Research and development 50,430 44,367 29,179 Sales and marketing 66,229 59,300 35,269 General and administrative 51,374 35,543 26,623 Total stock-based compensation $ 206,292 $ 172,507 $ 108,805 As of December 31, 2023, unrecognized stock-based compensation expense by award type and their expected weighted-average recognition periods are summarized in the following table (in thousands, except years). Stock Option RSU (excluding PRSUs) PRSU ESPP Unrecognized stock-based compensation expense $ 4,660 $ 284,201 $ 13,068 $ 2,888 Weighted-average amortization period 1.5 years 2.7 years 1.8 years 0.4 years The Company recognizes stock-based compensation expense that is calculated based upon awards that have vested, reduced for actual forfeitures. All stock-based compensation for equity awards granted to employees and non-employee directors is measured based on the grant date fair value of the award. 93 Table of Contents The Company values RSUs, including PRSUs subject to performance conditions, at the closing market price of its common stock on the date of grant. The Company estimates the fair value of each stock option and purchase right under the 2014 ESPP granted to employees on the date of grant using the Black-Scholes option-pricing model using the assumptions disclosed in the table below. The Company estimates the fair value of PRSUs subject to market conditions using a Monte Carlo Simulation model using the assumptions disclosed in the table below. Expected volatility is based upon the weighting of the Company’s historical volatility. The expected term of options granted is estimated using the simplified method by taking the average of the vesting term and the contractual term of the option. The expected volatility assumption for purchase rights under the 2014 ESPP is based on the historical volatility of the Company’s common stock. The risk-free rate for the expected term of the awards is based on U.S. Treasury zero-coupon issues at the time of grant. The Company has not paid, and does not anticipate paying, cash dividends on its shares of common stock. Accordingly, the expected dividend yield is zero. The weighted average assumptions used to value stock options granted during the periods presented were as follows: Stock Options Year Ended December 31, 2023 2022 2021 Expected term (years) — 6.0 6.0 Volatility — 46 % 47 % Risk-free interest rate — 1.8 % 1.0 % Dividend yield — — — The weighted average assumptions used to value PRSUs with market conditions granted during the periods presented were as follows: PRSUs (Market Conditions) Year Ended December 31, 2023 2022 2021 Expected term (years) 2.8 3.0 — Volatility 51.1 % 53.0 % — Risk-free interest rate 4.5 % 3.5 % — Dividend yield — — — The weighted average assumptions used to value purchase rights under the 2014 ESPP granted during the periods presented were as follows: ESPP Granted In November 2023 May 2023 November 2022 May 2022 November 2021 May 2021 Expected term (years) 0.5 0.5 0.5 0.5 0.5 0.5 Volatility 48 % 75 % 59 % 46 % 46 % 49 % Risk-free interest rate 4.8 % 4.6 % 2.1 % 0.2 % 0.2 % 0.1 % Dividend yield — — — — — — 8. Net Loss Per Share Basic net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the period, and excludes any dilutive effects of employee stock-based awards and potential shares upon conversion of the convertible senior notes. Diluted net loss per share is computed giving effect to all potentially dilutive shares of common stock, including common stock issuable upon exercise of stock options, vesting of RSUs and PRSUs, and shares of common stock issuable upon conversion of convertible senior notes. As the Company had net losses for the years ended December 31, 2023, 2022 and 2021, all potentially issuable shares of common stock were determined to be anti-dilutive. 94 Table of Contents The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data): Year Ended December 31, 2023 2022 2021 Net loss $ ( 81,764 ) $ ( 94,650 ) $ ( 53,000 ) Weighted-average shares used in computing basic and diluted net loss per share 72,048 69,920 67,512 Basic and diluted net loss per share $ ( 1.13 ) $ ( 1.35 ) $ ( 0.79 ) The following securities were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive (in thousands): December 31, 2023 2022 2021 Stock options 918 1,481 1,982 RSUs (including PRSUs) 4,076 3,718 2,560 Convertible senior notes 5,566 5,685 6,663 Total 10,560 10,884 11,205 The Company used the if-converted method for calculating any potential dilutive effect of the convertible senior notes for the years ended December 31, 2023, 2022 and 2021. Under this method, the Company calculates diluted earnings per share under both the cash and share settlement assumptions to determine which is more dilutive. If share settlement is more dilutive, the Company calculates diluted earnings per share assuming that all of the convertible senior notes were converted solely into shares of common stock at the beginning of the reporting period. The potential impact upon the conversion of the convertible senior notes were excluded from the calculation of diluted net loss per share for the years ended December 31, 2023, 2022 and 2021 because the effect would have been anti-dilutive. 95 Table of Contents 9. Income Taxes The following table presents components of loss before income taxes for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 United States $ ( 80,348 ) $ ( 76,280 ) $ ( 59,856 ) International 925 ( 13,982 ) ( 4,429 ) Loss before income taxes $ ( 79,423 ) $ ( 90,262 ) $ ( 64,285 ) Provision for (benefit from) income taxes for the periods presented consisted of (in thousands): Year Ended December 31, 2023 2022 2021 Current: U.S. federal $ — $ — $ — U.S. state 2,531 576 262 Foreign ( 243 ) 724 ( 202 ) Total provision for income taxes - Current 2,288 1,300 60 Deferred: U.S. federal — — — U.S. state — — — Foreign 53 3,088 ( 11,345 ) Total provision for (benefit from) income taxes - Deferred 53 3,088 ( 11,345 ) Total provision for (benefit from) income taxes $ 2,341 $ 4,388 $ ( 11,285 ) The Company recorded current income tax expense during 2023 principally due to U.S. taxable income as a result of IRC Section 174 research and experimental capitalization requirements. The Company offset federal 96 Table of Contents taxable income through the utilization of available net operating loss carryforward attributes. However, the Company was subject to net operating loss utilization limitations in some U.S. state jurisdictions. Income tax expense (benefit) differed from the amount computed by applying the U.S. federal statutory income tax rate of 21% to pre-tax (loss) income for the periods presented as a result of the following (in thousands): Year Ended December 31, 2023 2022 2021 U.S. federal tax at statutory rate $ ( 16,676 ) $ ( 18,957 ) $ ( 13,500 ) U.S. state income taxes 2,531 576 262 Section 162(m) 6,417 3,851 7,543 Global intangible low-taxed income ( 4,002 ) 4,127 — Effect of waived tax deductions - Base Erosion and Anti-Abuse Tax 7,751 — — Non-deductible expenses 894 78 1,361 Research and development credit ( 943 ) ( 1,194 ) ( 1,181 ) Stock-based compensation 10,829 1,722 ( 25,241 ) Tax benefit from acquisition/reorganizations — ( 3,852 ) ( 5,877 ) Foreign taxes ( 383 ) 6,749 ( 4,760 ) Other — — 20 Change in valuation allowance ( 4,077 ) 11,288 30,088 Total provision for (benefit from) income taxes $ 2,341 $ 4,388 $ ( 11,285 ) The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 related to the following (in thousands): December 31, 2023 2022 Deferred tax assets: Net operating loss and credit carryforwards $ 115,137 $ 125,698 Capitalized R&D costs 55,167 30,552 Accrued liabilities 9,807 10,295 Provision for credit losses 1,236 1,143 Amortized intangibles 29 3,041 Deferred revenue 2,440 1,992 Accrued compensation 4,132 3,238 Long-term lease liabilities 11,171 12,421 Gross deferred tax assets 199,119 188,380 Valuation allowance ( 134,802 ) ( 135,406 ) Net deferred tax assets 64,317 52,974 Deferred tax liabilities: Property and equipment ( 7,037 ) ( 2,737 ) Other ( 205 ) ( 556 ) Right of use assets ( 9,092 ) ( 10,419 ) Deferred contract acquisition costs ( 44,217 ) ( 35,443 ) Gross deferred tax liabilities ( 60,551 ) ( 49,155 ) Net deferred taxes $ 3,766 $ 3,819 With the exception of Russia, the Company has not provided for U.S. income taxes on undistributed earnings of its foreign subsidiaries because it intends to permanently re-invest those earnings outside the United States. The Company has plans to liquidate its Russian subsidiary. As such, the Company can no longer assert an intention to 97 Table of Contents permanently re-invest those earnings. The undistributed earnings of the Company’s foreign subsidiaries were immaterial as of December 31, 2023 and 2022 and no U.S. income taxes have been accrued. A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. Based on the weight of the available evidence, which includes the Company’s historical operating losses, lack of taxable income and the accumulated deficit for the year ended December 31, 2023, the Company has provided a valuation allowance against its U.S. and U.K. net deferred tax assets. The Company has recorded net foreign deferred tax assets associated with its Australia and Portugal operations totaling $ 3.8 million since management has assessed it is more likely than not that the results of future operations within these jurisdictions will generate sufficient taxable income to realize the deferred tax assets. The Australia and Portugal deferred tax assets cannot increase its U.S. or U.K. valuation allowance. The net change in the valuation allowance for the years ended December 31, 2023 and 2022 was a decrease of $ 0.6 million and an increase of $ 13.6 million, respectively. The decrease of the valuation allowance in the current year was primarily attributed to the utilization of net operating losses, an increase in deductible deferred contract acquisition costs, federal bonus tax depreciation, and Aceyus purchased intangibles, offset by the requirement to capitalize research and development costs under IRC Section 174. As of December 31, 2023, the Company had net operating loss carryforwards for federal, state and foreign income tax purposes of $ 403.4 million, $ 298.6 million and $ 14.0 million, respectively, available to reduce future income subject to income taxes. 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, while $ 333.9 million of federal net operating losses, as well as the foreign net operating losses, do not expire. As of December 31, 2023, the Company also had gross research credit carryforwards for federal and California state tax purposes of $ 12.9 million and $ 7.5 million, available to reduce future income subject to income taxes. The federal research credit carryforwards will expire between 2024 and 2043. The California state research credits do not expire. The IRC imposes restrictions on the utilization of net operating losses and credits in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses and credits may be subject to substantial limitation as prescribed under the IRC Sections 382 and 383 and similar state provisions. Events that may cause limitations in the amount of the net operating losses and credits that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50 % over a three-year period. The Company completed a study covering through December 31, 2022, discovering we experienced certain ownership changes prior to 2015, and adjusted the disclosed amounts of our net operating losses and research credit carryforwards for the resulting effect of the IRC Section 382 limitations, as necessary. In the event the Company has further changes in ownership, net operating losses and research and development credit carryforwards, which are fully reserved by the deferred tax asset valuation allowance, could be limited and may expire unutilized. Unrecognized Tax Benefits The table below shows the changes in the gross amount of unrecognized tax benefits for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Unrecognized benefit — beginning of period $ 9,415 $ 7,643 $ 6,076 Gross increases — current year tax positions 1,413 1,773 1,851 Gross increases — prior year tax positions 299 — — Gross decreases — prior year tax positions ( 3 ) ( 1 ) — Settlements with tax authorities — — ( 284 ) Unrecognized benefit — end of period $ 11,124 $ 9,415 $ 7,643 As of each of December 31, 2023 and 2022, the Company had unrecognized tax benefits that, if recognized, would impact its effective tax rate by $ 0.5 million and $ 0.1 million, respectively. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense, which has cumulatively been immaterial to its financial statements. The Company does not anticipate its total unrecognized tax benefits as of December 31, 2023 will significantly change due to settlement of examination or the expiration of statutes of limitation during the next 98 Table of Contents 12 months. The Company is currently unaware of any uncertain tax positions that could result in significant additional payments, accruals or other material deviation in this estimate over the next 12 months. The Company is subject to taxation in the United States, various states and several foreign jurisdictions. Due to the Company’s net carryover of unused operating losses, all years from 2003 forward remain subject to future examination by the U.S. federal and state tax authorities. The Company’s foreign tax returns are open to audit under the statutes of limitation of the respective foreign countries in which its subsidiaries are located. With the exception of Russia, the Company considers all undistributed earnings of its foreign subsidiaries indefinitely reinvested. 10. Commitments and Contingencies Commitments As of December 31, 2023, $ 747.5 million of aggregate principal of the 2025 convertible senior notes were outstanding and are due on June 1, 2025. As of December 31, 2023, no 2023 convertible senior notes were outstanding. See Note 6 for more information concerning the convertible senior notes. The Company had outstanding operating lease and finance lease obligations of $ 52.0 million and $ 5.0 million, respectively, as of December 31, 2023. See Note 13 for further details. As of December 31, 2023, the Company also 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 The Company has agreements with third parties to provide co-location hosting and telecommunication usage services. The agreements require payments per month for a fixed period of time in exchange for certain guarantees of network and telecommunication availability. As of December 31, 2023, future minimum payments under these arrangements were as follows in thousands): Year Ending December 31, Hosting Services Telecommunication Usage Services 2024 $ 246 $ 7,619 2025 4 3,144 2026 — 1,871 2027 — 1,358 Thereafter — 685 Total future minimum payment $ 250 $ 14,677 Universal Services Fund Liability The Company is classified as a telecommunications service provider for regulatory purposes and is required to make contributions to the USF based on the revenue the Company receives from the resale of interstate and some international telecommunications services. In order to comply with the obligation to make direct contributions, the Company is registered with the USAC, which is charged by the FCC with administering the USF, and has been remitting the required contributions to USAC since its registration with the USAC in April 2013. The Company also made retroactive USF contributions based on its revenues for the period from 2008 to 2012. The Company, however, has an unresolved and arguably dormant dispute with the FCC regarding whether the Company is liable for USF contributions related to the period from 2003 through 2007. As of December 31, 2023, the Company had accrued $ 0.1 million in interest related to the disputed assessments for the period of 2003 through 2007. State and Local Taxes and Surcharges The Company, based on analysis of its activities, has determined that it is obligated to collect and remit U.S. state or local sales, use, gross receipts, excise and utility user taxes, as well as fees or surcharges as a communications service provider in certain U.S. states, municipalities or local tax jurisdictions. The Company is registered for, collecting and remitting applicable taxes where such a determination has been made. Prior to the Company’s making such determination, the Company neither collected nor remitted these taxes, fees or surcharges to applicable local, municipal or state jurisdictions. The Company continues to analyze its activities to determine if it is subject to these taxes in additional jurisdictions and based on the Company’s ongoing assessment of its U.S. state 99 Table of Contents and local tax collection and remittance obligations, the Company registers for tax and regulatory purposes in such jurisdictions and commences collecting and remitting applicable state and local taxes and surcharges to these jurisdictions. As of December 31, 2023 and 2022, the Company had total accrued liabilities of $ 1.7 million and $ 1.2 million, respectively, for such contingent sales taxes and surcharges that were not being collected from its clients but may be imposed by various taxing authorities, of which $ 0.8 million and $ 0.3 million, respectively, were included in “Accrued and other current liabilities” on the consolidated balance sheet, and the remaining were included in “Other long-term liabilities” on the consolidated balance sheet. The Company’s estimate of the probable loss incurred under this contingency is based on its analysis of the source location of its usage-based fees and the regulations and rules in each tax jurisdiction. Legal Matters The Company is involved in various legal and regulatory matters arising in the normal course of business. In management’s opinion, resolution of these matters is not expected to have a material impact on the Company’s consolidated results of operations, cash flows, or its financial position. However, due to the uncertain nature of legal matters, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company expenses legal fees as incurred. Indemnification Agreements In the ordinary course of business, the Company enters into agreements of varying scope and terms pursuant to which it agrees to indemnify clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, including breach of security, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors, officers and certain employees that requires it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. There are no claims that the Company is aware of that could have a material effect on the consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows. 11. Geographical Information The following table summarizes revenues by geographic region based on client billing address (in thousands): Year Ended December 31, 2023 2022 2021 United States $ 812,708 $ 702,206 $ 556,385 International 97,780 76,640 53,206 Total revenue $ 910,488 $ 778,846 $ 609,591 The following table summarizes total property and equipment, net in the respective locations (in thousands): December 31, 2023 2022 United States $ 101,567 $ 92,659 International 7,005 8,562 Property and equipment, net $ 108,572 $ 101,221 12. Retirement Plans The Company has a 401(k) plan to provide tax deferred salary deductions for all eligible employees. Participants may make voluntary contributions to the 401(k) plan, limited by certain Internal Revenue Service restrictions. The Company is responsible for the administrative costs of the 401(k) plan. The Company began matching employee contributions in cash in the fourth quarter of 2019. The contribution expense for the years ended December 31, 2023 and 2022 was $ 2.4 million and $ 2.1 million, respectively. 100 Table of Contents The Company complies with the requirement of maintaining a retirement plan for employees in the Philippines. This plan is a non-contributory and defined benefit plan that provides retirement to employees equal to approximately one month salary for every year of credited service for employees who attain the normal retirement age of 60 with at least five years of service. The benefits are paid in a lump sum amount upon retirement from the Company. Total defined benefit liability under this plan was $ 0.8 million and $ 0.5 million as of each of December 31, 2023 and 2022, respectively. Total retirement expense for this plan were $ 0.3 million, $ 0.2 million, and $ 0.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. 13. Leases The Company has leases for offices, data centers and computer and networking equipment that expire at various dates through 2031. The Company’s leases have remaining terms of one to seven years , some of the leases include a Company 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. The Company does not separate lease and non-lease components for real estate operating leases. The components of lease expenses were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Operating lease cost $ 13,544 $ 12,072 $ 10,238 Finance lease cost: Amortization of right-of-use assets $ 940 $ 56 $ 438 Interest on finance lease liabilities 155 — — Total finance lease cost $ 1,095 $ 56 $ 438 Supplemental cash flow information related to leases was as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash used in operating leases $ ( 10,966 ) $ ( 11,684 ) $ ( 7,178 ) Financing cash used in finance leases ( 989 ) — ( 612 ) Right of use assets obtained in exchange for lease obligations: Operating leases 6,454 5,984 50,101 Finance leases 5,505 — — 101 Table of Contents Supplemental balance sheet information related to leases was as follows (in thousands): December 31, 2023 2022 Operating leases Operating lease right-of-use assets $ 38,873 $ 44,120 Operating lease liabilities: $ 10,731 $ 10,626 Operating lease liabilities — less current portion 36,378 41,389 Total operating lease liabilities $ 47,109 $ 52,015 Finance leases Finance lease right-of-use assets $ 4,564 $ — Property and equipment, gross $ 29,503 $ 36,282 Less: accumulated depreciation and amortization ( 29,503 ) ( 36,203 ) Property and equipment, net $ — $ 79 Finance lease liabilities $ 1,767 $ — Finance lease liabilities — less current portion 2,877 — Total finance lease liabilities $ 4,644 $ — Weighted average remaining terms were as follows (in years): December 31, 2023 2022 Weighted average remaining lease term Operating leases 5.7 years 6.4 years Finance leases 2.6 years 0.0 years Weighted average discount rates were as follows: December 31, 2023 2022 Weighted average discount rate Operating leases 3.8 % 3.4 % Finance leases 6.1 % — % Maturities of lease liabilities were as follows (in thousands): Year Ending December 31, Operating Leases Finance Leases 2024 $ 12,283 $ 1,991 2025 9,329 1,991 2026 7,109 1,013 2027 5,969 — 2028 5,582 — Thereafter 11,709 — Total future minimum lease payments 51,981 4,995 Less: imputed interest ( 4,872 ) ( 351 ) Total $ 47,109 $ 4,644 102 14. Acquisitions Aceyus On August 14, 2023, the Company acquired all of the issued and outstanding shares of capital stock of Aceyus for total cash consideration of approximately $ 82.0 million. This acquisition, which was accounted for as a business combination, is intended to accelerate the Company's ability to capitalize on two business opportunities, namely facilitating the migration of large enterprise customers from on-premise to cloud and leveraging contextual data to deliver personalized experiences throughout the customer journey, including using this contextual data in the Company's AI & Automation solutions. The excess of the purchase price over identifiable intangible assets and net tangible assets in the amount of $ 62.0 million was allocated to goodwill, which is not deductible for tax purposes. The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the acquisition date and are considered preliminary pending finalization of valuation analyses pertaining to intangible assets acquired, liabilities assumed and tax liabilities assumed. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. The following table presents the preliminary allocation of the purchase price at the acquisition date (in thousands): Cash $ 1,424 Tangible assets acquired 383 Other assets acquired 3,002 Acquired technology 19,100 Customer relationships 2,550 Trademarks 500 Goodwill 61,992 Total assets acquired 88,951 Liabilities assumed ( 6,939 ) Total $ 82,012 The acquired technology, customer relationships, and trademarks will be amortized on a straight-line basis over their estimated useful lives of eight years , five years , and three years , respectively. The Company used the income approach to estimate the fair value of intangible assets acquired. In connection with this acquisition, the Company incurred total acquisition-related transaction costs of $ 2.2 million during the year ended December 31, 2023 that have been expensed as incurred and included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. The results of operations of this acquisition are included in the accompanying consolidated statements of operations and comprehensive loss from the date of acquisition and are not material to the Company's consolidated financial statements. 103 Table of Contents 15. Selected Quarterly Financial Data (Unaudited) Selected quarterly financial information for 2023 and 2022 is as follows: Quarter Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 (unaudited, in thousands, except per share data) Revenue $ 239,062 $ 230,105 $ 222,882 $ 218,439 $ 208,345 $ 198,342 $ 189,382 $ 182,777 Cost of revenue (1)(2) 112,493 111,080 104,361 104,756 96,294 94,111 88,229 88,867 Gross profit 126,569 119,025 118,521 113,683 112,051 104,231 101,153 93,910 Operating expenses: Research and development (1)(2) 38,873 40,391 39,210 38,108 36,865 34,113 34,992 35,824 Sales and marketing (1)(2) 72,956 73,366 74,077 76,314 65,928 67,353 64,098 64,611 General and administrative (1)(2) 33,338 31,006 30,477 28,258 22,509 24,496 23,824 24,314 Total operating expenses 145,167 144,763 143,764 142,680 125,302 125,962 122,914 124,749 Loss from operations ( 18,598 ) ( 25,738 ) ( 25,243 ) ( 28,997 ) ( 13,251 ) ( 21,731 ) ( 21,761 ) ( 30,839 ) Other (expense) income, net: Interest expense ( 1,963 ) ( 1,972 ) ( 1,866 ) ( 1,845 ) ( 1,887 ) ( 1,879 ) ( 1,857 ) ( 1,870 ) Interest income and other 8,322 8,233 6,123 4,121 2,706 982 280 845 Total other income (expense), net 6,359 6,261 4,257 2,276 819 ( 897 ) ( 1,577 ) ( 1,025 ) Loss before income taxes ( 12,239 ) ( 19,477 ) ( 20,986 ) ( 26,721 ) ( 12,432 ) ( 22,628 ) ( 23,338 ) ( 31,864 ) Provision for (benefit from) income taxes 119 942 753 527 1,221 579 332 2,256 Net loss $ ( 12,358 ) $ ( 20,419 ) $ ( 21,739 ) $ ( 27,248 ) $ ( 13,653 ) $ ( 23,207 ) $ ( 23,670 ) $ ( 34,120 ) Net loss per share: Basic $ ( 0.17 ) $ ( 0.28 ) $ ( 0.30 ) $ ( 0.38 ) $ ( 0.19 ) $ ( 0.33 ) $ ( 0.34 ) $ ( 0.49 ) Diluted $ ( 0.17 ) $ ( 0.28 ) $ ( 0.30 ) $ ( 0.38 ) $ ( 0.19 ) $ ( 0.33 ) $ ( 0.34 ) $ ( 0.49 ) Shares used in computing net loss per share: Basic 72,926 72,356 71,627 71,259 70,704 70,232 69,748 68,974 Diluted 72,926 72,356 71,627 71,259 70,704 70,232 69,748 68,974 (1) Included stock-based compensation as follows: Quarter Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 (unaudited, in thousands) Cost of revenue $ 9,182 $ 9,856 $ 9,888 $ 9,333 $ 8,638 $ 8,329 $ 8,538 $ 7,793 Research and development 12,055 12,980 13,013 12,382 11,799 10,603 11,818 10,145 Sales and marketing 15,389 16,404 17,391 17,045 15,152 15,761 14,963 13,424 General and administrative 12,945 13,371 13,075 11,983 8,235 9,810 9,467 8,032 Total stock-based compensation $ 49,571 $ 52,611 $ 53,367 $ 50,743 $ 43,824 $ 44,503 $ 44,786 $ 39,394 104 Table of Contents (2) Included depreciation and amortization expenses as follows: Quarter Ended Dec. 31, 2023 Sept. 30, 2023 Jun. 30, 2023 Mar. 31, 2023 Dec. 31, 2022 Sept. 30, 2022 Jun. 30, 2022 Mar. 31, 2022 (unaudited, in thousands) Cost of revenue $ 10,308 $ 10,075 $ 9,269 $ 8,907 $ 8,803 $ 8,904 $ 8,747 $ 8,500 Research and development 1,012 831 868 872 768 768 804 825 Sales and marketing 27 36 1 1 1 1 1 1 General and administrative 1,615 1,540 1,586 1,567 1,449 1,542 2,088 1,469 Total depreciation and amortization $ 12,962 $ 12,482 $ 11,724 $ 11,347 $ 11,021 $ 11,215 $ 11,640 $ 10,795 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.