Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors.”
Key Metrics
Average Annual Revenue Per Enterprise and Mid-market Customer (“ARPC”) and revenue retention are currently the key performance metrics our management uses to assess the health and trajectory of the Company. These metrics should be viewed independently of revenue, deferred revenue and remaining performance obligations. ARPC increased to approximately $610,000 in 2023, as compared to approximately $545,000 in 2022. Revenue retention for our enterprise and mid-market customers on the Conversational Cloud, which represents the trailing-twelve-month change in total revenue from existing customers after upsells, downsells and attrition, was approximately 95%, below our target range of 105% to 115% in 2023, as compared to 2022, where our revenue retention rate for enterprise and mid-market customers on Conversational Cloud was within the target range.
Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources.
We believe that the assumptions and estimates associated with revenue recognition and valuation of goodwill have the greatest potential impact on our consolidated financial statements. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. For further information on our significant accounting policies, see Note 1 – Description of Business and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.
Revenue Recognition
The majority of our revenue is generated from hosted service revenues, which is inclusive of our platform pricing model. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
Hosted Services Revenue
Hosted services revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consist of fees that provide customers access to the Conversational Cloud. We have determined such access represents a stand-ready service provided continually throughout the contract term. As such, control and satisfaction of this stand-ready
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performance obligation is deemed to occur over time. We recognize this revenue over time on a ratable basis over the contract term, beginning on the date that access to the Conversational Cloud platform is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by our performance. Subscription contracts are generally one year or longer in length, billed monthly, quarterly or annually in advance. Additionally, for certain of our larger customers, we may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, we pass the fee we incur with the labor provider and its fee for the hosted services through to our customers in the form of a fixed fee for each order placed via our online engagement solutions. For these Gainshare arrangements, we act as a principal in a transaction if we control the specified goods or services before they are transferred to the customer.
Professional Services Revenue
Professional Services revenue is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for such services. The Company’s professional services revenue consists of fees that provide customers with product support and updates during the term of the arrangement, which is typically one year or longer in length, billed monthly, quarterly or annually in advance. Revenue is generally recognized ratably over the contract term. The Company’s professional services revenue also includes custom support services, which differ from the Company’s standard product support. These custom support revenues are recognized as the services are performed.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. We evaluate goodwill for impairment on an annual basis in the third quarter, and more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its fair value in accordance with ASC 820, “Fair Value Measurement.” In performing the goodwill impairment test, we first assess qualitative factors to determine the existence of impairment. If the qualitative factors indicate that the carrying value of a reporting unit more likely than not exceeds its fair value, we proceed to a quantitative test to measure the existence and amount, if any, of goodwill impairment. We may also choose to bypass the qualitative assessment and proceed directly to the quantitative test. In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its assessed fair value. We determine the fair value using the income and market approaches. During the fourth quarter of 2023, the Company voluntarily changed its annual goodwill testing date from September 30 to October 1. The Company believes this change of method of applying the accounting principle is preferable, as it more closely aligns the annual impairment testing date with the most current information from the budgeting and strategic planning process and provides management with sufficient time to complete its annual assessment. This change will be applied prospectively, as retrospective application would be impracticable.
In connection with the annual impairment test completed as of September 30, 2023 using the quantitative “Step 1” assessment, we determined the fair value of our reporting units, using both an income approach and a market approach. The income approach uses a discounted cash flow model that reflects our assumptions regarding revenue growth rates, operating margins, risk-adjusted discount rate, terminal period growth rate, economic and market trends and other expectations about the anticipated operating results of the reporting units. Under the market approach, we estimate the fair value based on market multiples of revenues derived from comparable publicly traded companies with operating characteristics similar to the reporting units.
Based on our 2023 annual goodwill impairment test, the Company recorded a non-cash impairment charge of $11.9 million in our consolidated statements of operations, representing a portion of goodwill related to the WildHealth reporting unit. This conclusion was primarily based upon slower growth in existing revenue streams and strategic decisions to reduce or eliminate investment in new and existing revenue streams previously planned for expansion. Our latest available financial forecasts at the time of the annual goodwill impairment test reflected lower cash flows than previously projected related to the WildHealth reporting unit. There were no impairments of our Business reporting unit, as the fair value of this reporting unit substantially exceeded its carrying value.
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Recently Issued Accounting Standards
See Note 1 – Description of Business and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for additional information about recent accounting guidance not yet adopted and recently adopted accounting pronouncements.
Results of Operations
We enable brands to leverage the Conversational Cloud’s sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Conversational Cloud enables businesses to have conversations with millions of consumers as personally as they would with one consumer.
Revenue
The following tables set forth our results of operations for the years presented and as a percentage of our revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Business $ 401,983 $ 514,800 (22) % $ 514,800 $ 469,624 10 %
Revenue decreased by 22% to $402.0 million for the year ended December 31, 2023, from $514.8 million for the year ended December 31, 2022. This decrease in revenue is driven primarily by decreases in hosted services of approximately $79.5 million and Professional Services of approximately $33.3 million.
Included in hosted services is a decrease in revenue that is variable based on interactions and usage of approximately $40.8 million for the year ended December 31, 2023 . Further, on March 20, 2023, the Company completed the sale of Kasamba and therefore ceased recognizing revenue related to Kasamba effective on the transaction close date. This sale eliminated the entire Consumer segment, as a result of which revenue is presented within a single consolidated segment. Hosted services for Consumer included $7.1 million, $37.1 million, and $37.7 million for the years ended December 31, 2023, 2022, and 2021, respectively, relating to Kasamba. The decrease in Professional Services revenue is driven by the build out of the Claire Holdings, Inc. (“Claire”) joint venture platform, which resulted in a decrease of approximately $34.9 million for the year ended December 31, 2023. Refer to Note 19 - Related Parties , for additional information about the commercial agreement arrangement.
The ARPC for our enterprise and mid-market customers was approximately $610,000 for the trailing twelve months ended December 31, 2023, as compared to $545,000 for the trailing twelve months ended December 31, 2022. Revenue retention for our enterprise and mid-market customers on the Conversational Cloud was below our target range of 105% to 115% for 2023, but was within this range for 2022.
Revenue increased by 10% to $514.8 million for the year ended December 31, 2022, from $469.6 million for the year ended December 31, 2021. This increase in Business revenue is driven primarily by increases in hosted services of approximately $10.5 million and an increase in Professional Services of approximately $34.6 million. The increase in professional services is primarily driven by increased revenue related to the Claire joint venture platform. The increase in hosted services is primarily related to the acquisitions of e-bot7 GmbH (“e-bot7”), Callinize, Inc. (dba Tenfold) (“Tenfold”) and VoiceBase, Inc. (“VoiceBase”), partially offset by a decrease in revenue that is variable based on interactions and usage of approximately $21.7 million.
We have experienced headwinds in our expansion and retention efforts that have slowed our ability to attract new customers to our product, and we have experienced cancellations and downsell. Further, we have observed customers tending to cancel on shorter notice than previously. We are also actively marketing a sale of WildHealth, which contributed $3.4 million of revenue during the fourth quarter, inclusive of approximately $2.0 million received through delayed Medicare reimbursement. While we are observing a positive operational impact from recent changes to our go-to-market motion, considering the length of our sales and renewal cycles, there can be no assurance that we will be able to fully mitigate or reverse these unfavorable trends, and it would take time for these operational changes to translate into significant improvements to key financial metrics.
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Cost of Revenue
Cost of revenue consists of compensation costs relating to employees who provide customer service to our customers, compensation costs relating to our network support staff, outside labor provider costs, the cost of supporting our server and network infrastructure, and allocated occupancy costs and related overhead.
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Cost of revenue $ 142,823 $ 184,699 (23) % $ 184,699 $ 156,880 18 %
Percentage of total revenue 36 % 36 % 36 % 33 %
Headcount (at period end) 211 300 (30) % 300 295 2 %
Cost of revenue decreased by 23% to $142.8 million for the year ended December 31, 2023, from $184.7 million for the year ended December 31, 2022 . This decrease in expense is primarily attributable to a decrease in outsourced labor and related costs of approximately $30.2 million, a decrease in salary and related employee expenses of approximately $17.5 million due to att rition from prior year and a decrease in compensation expense due to the settlement of earn-outs related to prior acquisitions of approximately $5.4 million, partially offset by an increase in software, hosting and other expenses of approximately $11.2 million.
Cost of revenue increased by 18% to $184.7 million for the year ended December 31, 2022, from $156.9 million for the year ended December 31, 2021. This increase in expense is primarily attributable to an increase in salary and related employee expenses of approximately $10.9 million, an increase in contingent compensation of approximately $3.3 million in conjunction with acquisitions, an increase in amortization expense of approximately $11.2 million primarily driven by the acquisitions of e-bot7, Tenfold and VoiceBase, and an increase in business services and outsourced subcontracted labor of approximately $3.2 million. The increases were partially offset by a decrease in software expense of approximately $0.3 million and a decrease of $0.4 million related to other expenses.
Sales and Marketing
Sales and marketing expenses consist of compensation and related expenses for sales and marketing personnel, as well as advertising, marketing events, public relations, trade show exhibit expenses and allocated occupancy costs and related overhead.
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Sales and marketing $ 125,677 $ 214,027 (41) % $ 214,027 $ 165,421 29 %
Percentage of total revenue 31 % 42 % 42 % 35 %
Headcount (at period end) 328 399 (18) % 399 477 (16) %
Sales and marketing expenses decreased by 41% to $125.7 million for the year ended December 31, 2023, from $214.0 million for the year ended December 31, 2022. This decrease was primarily attributable to a decrease in salary and employee-related expenses of approximately $40.8 million due to attrition from the prior year, a decrease in marketing expenses of approximately $35.1 million, a decrease in outsourced labor of approximately $4.9 million, and a decrease in compensation expense due to the settlement of earn-outs related to prior acquisitions of approximately $2.4 million.
Sales and marketing expenses increased by 29% to $214.0 million for the year ended December 31, 2022, from $165.4 million for the year ended December 31, 2021. This is primarily related to an increase in salary and employee-related expenses of approximately $38.1 million, an increase in marketing events, advertising, and public relations of approximately $4.1 million an increase in contingent compensation of approximately $1.8 million in conjunction with acquisitions, an increase of restructuring costs of approximately $1.6 million and an increase in software expense of approximately $1.5 million, with the
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remaining net increase related to several other sales and marketing business expenses. These increases were partially offset by a decrease in outsourcing subcontracted labor of approximately $0.4 million.
General and Administrative
Our general and administrative expenses consist of compensation and related expenses for executive, accounting, legal, human resources and administrative personnel, professional fees and other general corporate expenses.
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
General and administrative $ 91,619 $ 120,625 (24) % $ 120,625 $ 76,757 57 %
Percentage of total revenue 23 % 23 % 23 % 16 %
Headcount (at period end) 136 134 1 % 134 166 (19) %
General and administrative expenses decreased by 24% to $91.6 million for the year ended December 31, 2023, from $120.6 million for the year ended December 31, 2022. This is primarily related to a decrease of $44.6 million in stock-based compensation expense, primarily due to the settlement of earn-outs in 2023 . A dditionally, there was a decrease in business services and outsourced labor of approximately $5.2 million, a decrease in salary and related employee expenses of approximately $4.2 million and a decrease in facilities expenses of approximately $1.5 million, partially offset by an increase in other expenses of approximately $26.3 million due to leadership transition costs and increased legal fees recognized in the year ended December 31, 2023.
General and administrative expenses increased by 57% to $120.6 million for the year ended December 31, 2022, from $76.8 million for the year ended December 31, 2021. This is primarily related to an increase in contingent compensation of approximately $30.5 million in conjunction with acquisitions, an increase in salary and employee-related expenses of approximately $3.2 million, an increase in restructuring and other one-time expenses of $6.1 million, an increase in outsourcing subcontracted labor of approximately $3.3 million and net $0.8 million increase of several other general and administrative expenses.
Product Development
Our product development expenses consist of compensation and related expenses for product development personnel as well as allocated occupancy costs and related overhead and outsourced labor and expenses for testing new versions of our software.
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Product development $ 124,792 $ 193,688 (36) % $ 193,688 $ 158,390 22 %
Percentage of total revenue 31 % 38 % 38 % 34 %
Headcount (at period end) 468 468 — % 468 602 (22) %
Product development costs decreased by 36% to $124.8 million for the year ended December 31, 2023, from $193.7 million for the year ended December 31, 2022. This decrease is primarily related to a decrease in salary and employee-related expenses of approximately $43.3 million , a decrease in compensation expense due to the settlement of earn-outs related to prior acquisitions of approximately $20.1 million , and a decrease in business services and outsourced labor of approximately $6.2 million, partially offset by depreciation expenses of approximately $2.3 million.
Product development costs increased by 22% to $193.7 million for the year ended December 31, 2022, from $158.4 million for the year ended December 31, 2021. This is primarily related to an increase in contingent compensation of approximately $13.7 million in conjunction with acquisitions, an increase in salaries and employee-related expenses of
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approximately $5.4 million, an increase in business services and outsourcing subcontracted labor of approximately $5.4 million, an increase in backup server facilities of approximately $5.9 million related to costs supporting our backup servers and an increase in depreciation expense of approximately $5.0 million.
We continued to make investments in public cloud migration, and in enhancing and expanding new features of the Conversational Cloud, including Voice. During the years ended December 31, 2023, 2022, and 2021, $19.4 million, $39.2 million, and $36.1 million was capitalized, respectively.
Restructuring Costs
Restructuring costs consist of reprioritizing and reallocating resources to focus on areas believed to show high growth potential.
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Restructuring Costs $ 22,664 $ 19,967 14 % $ 19,967 $ 3,397 488 %
Percentage of total revenue 6 % 4 % 4 % 1 %
Restructuring costs increased by 14% to $22.7 million for the year ended December 31, 2023, from $20.0 million for the year ended December 31, 2022. This increase is attributable to IT infrastructure contract termination costs of approximately $5.7 million, partially offset by lower costs related to the restructuring initiative, which commenced during the second quarter of 2022, primarily consisting of severance and other associated costs related to the reduction in our workforce. In 2023, due to the changing technology landscape related to the evolution of LLMs, we were able to identify opportunities for significant cost savings because the latest generation of LLMs is able to build a bot in minutes, enabling reduction of headcount previously devoted to bot-building. Additionally, we have moved to a product-led growth structure where we flattened the organization to align to more efficient sales and service support ratios. Refer to Note 14 – Restructuring for additional information about the restructuring initiative.
Restructuring costs increased by 488% to $20.0 million for the year ended December 31, 2022, from $3.4 million for the year ended December 31, 2021. This increase is attributable primarily as a result of an increase in restructuring costs related to severance and other compensation costs. During the second quarter of 2022, we began a restructuring initiative to realign our cost structure to better reflect significant product and business model innovation and changes over the past year due to acquisitions and factors outside our control. As part of the restructuring initiative, we reoriented our global product and engineering organization for greater efficiency and focus, and reallocated some spending to increase our investment in customer success and go-to-market initiatives.
Amortization of Purchased Intangibles
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Amortization of purchased intangibles $ 3,505 $ 3,678 (5)% $ 3,678 $ 2,045 80%
Percentage of total revenue 1 % 1% 1% —%
Amortization expense for purchased intangibles decreased by 5% to $3.5 million for the year ended December 31, 2023, from $3.7 million for the year ended December 31, 2022. The year-over-year variance is primarily attributable to the impairment of WildHealth developed technology in the year ended December 31, 2023.
Amortization expense for purchased intangibles increased by 80% to $3.7 million for the year ended December 31, 2022 from $2.0 million for the year ended December 31, 2021. The year-over-year variance is primarily attributable to amortization of patents and customer relationships as well as the intangible assets acquired in the three acquisitions that occurred in 2021.
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Impairment of Goodwill
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Impairment of goodwill $ 11,895 $ — 100% $ — $ — —%
Percentage of total revenue 3 % —% —% —%
Goodwill impairment was approximately $11.9 million for the year ended December 31, 2023. This non-cash charge was a result of our September 30, 2023 annual goodwill impairment test and was attributable to the WildHealth reporting unit. There were no impairment charges for the years ended December 31, 2022 and 2021.
Impairment of Intangibles and Other Assets
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Impairment of intangibles and other assets
$ 7,974 $ — 100% $ — $ — —%
Percentage of total revenue 2 % —% —% —%
Impairment of intangibles and other assets was approximately $8.0 million for the year ended December 31, 2023. During the fourth quarter of fiscal year 2023, the Company recognized an impairment charge of $5.0 million related to fixed assets associated with internal-use software development projects that were discontinued and determined to have no future economic benefit. The Company further recognized an immaterial non-cash impairment charge of $3.0 million related to intangible assets – developed technology associated with WildHealth, as a result of the Company’s annual impairment test of its intangible assets.
There were no impairment charges for the years ended December 31, 2022 and 2021.
Total Other Income (Expense), net
Total other income (expense), net consists primarily of fair value adjustments for earn-outs, foreign currency gains and losses and income (loss) from our equity method investment. Interest income includes interest income from cash deposits, amortization of debt discount, amortization of issuance costs, and interest expense from our convertible senior notes.
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Interest income (expense), net $ 4,669 $ (352) 1,426% $ (352) $ (37,406) (99)%
Other income (expense), net 10,434 (1,784) 685% (1,784) 3,294 (154)%
Total other income (expense), net $ 15,103 $ (2,136) 807% $ (2,136) $ (34,112) (94)%
Total other income (expense), net increased to income of $15.1 million for the year ended December 31, 2023 from an expense of $2.1 million for the year ended December 31, 2022. The increase is primarily due to a gain of $10.0 million related to a legal settlement, a gain of $7.2 million resulting from the repurchase of 2024 Notes, a $4.6 million change in fair value of earn-out as a result of settlements, related to prior acquisitions, and reduced losses recognized related to the Company’s equity method investment compared to the year ended December 31, 2022. The remaining amount of total other income (expense), net fluctuation is attributable to currency rate fluctuations.
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Total other income (expense), net decreased by $32.0 million to an expense of $2.1 million for the year ended December 31, 2022, from an expense of $34.1 million for the year ended December 31, 2021. This decrease was primarily attributable to a decrease in interest expense due to the adoption of ASU 2020-06 and the elimination of the debt discount that was previously being amortized to interest expense over the contractual term of 2024 Notes and the 2026 Notes, a gain related to the fair value adjustment for earn-outs recorded during the third quarter of 2022, partially offset by the loss in equity earnings related to the launch of Claire, a joint venture, during the year ended December 31, 2022.
Provision For (Benefit From) Income Taxes
Year Ended December 31, Year Ended December 31,
2023 2022 % Change 2022 2021 % Change
(Dollars in thousands)
Provision for (benefit from) income taxes $ 4,163 $ 1,727 141% $ 1,727 $ (2,404) 172%
We had a provision for income taxes of $4.2 million for the year ended December 31, 2023 and a provision for income taxes of $1.7 million for the year ended December 31, 2022. Our consolidated effective tax rate was impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate, valuation allowance recorded against losses generated in the U.S. and Germany and changes to unrecognized tax benefits in Israel. The overall tax provision recorded represents tax on non-U.S. earnings in the various jurisdictions in which we operate, a tax charge of $0.8 million for valuation allowance on certain LivePerson, Inc. net operating losses in connection with the sale of the Kasamba business and additional accruals related to unrecognized tax benefits. The increase in tax expense is primarily due to a change in the amount of valuation allowance recognized related to acquisition and sale activity of the company year over year. The total tax expense associated with non-U.S. jurisdictions is relatively consistent between periods.
In prior periods, we had a tax provision for income taxes of $1.7 million for the year ended December 31, 2022 and a tax benefit for income taxes of $2.4 million for the year ended December 31, 2021. Our consolidated effective tax rate was impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate, movement of valuation allowance recorded against deferred tax activities of the U.S. and Germany and changes to unrecognized benefits in Israel. During 2022, we recorded a benefit of $1.6 million for a release of valuation allowance on certain LivePerson, Inc. net operating losses in connection with the acquisition of WildHealth. The increase in tax expense is primarily due to a change in the amount of valuation allowance recognized related to acquisitions. The total tax expense associated with non-U.S. jurisdictions is relatively consistent between periods.
Liquidity and Capital Resources
The following describes the Company’s cash flows for the years ended December 31, 2022, 2021, and 2020:
Year Ended December 31,
2023 2022 2021
(In thousands)
Net cash (used in) provided by operating activities $ (19,765) $ (62,101) $ 3,247
Net cash used in investing activities (18,842) (56,860) (140,249)
Net cash (used in) provided by financing activities (151,142) 1,618 11,843
As of December 31, 2023, we had approximately $212.9 million in cash, cash equivalents, and restricted cash, a decrease of approximately $179.3 million from December 31, 2022. The decrease is primarily attributable to payment of approximately $149.7 million in cash for the repurchase of approximately $157.5 million in aggregate principal amount of the 2024 Notes, coupled with the payment of bonuses in cash and various other uses of cash for operating purposes. The decrease was partially offset by $13.8 million in cash proceeds from the divestiture of Kasamba.
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Cash Flows from Operating Activities
Net cash used in operating activities was $19.8 million in the year ended December 31, 2023. Our net loss was $100.4 million, which includes the effect of non-cash expenses related to depreciation of $32.6 million, amortization of purchased intangibles and finance leases of $22.2 million, amortization of debt issuance costs of $4.0 million, allowance for credit losses of $3.3 million, a goodwill impairment of $11.9 million, intangible and other assets impairment of $8.0 million related to our WildHealth reporting unit and internal-use software development costs, a $4.6 million change in fair value of contingent consideration and stock-based compensation of $11.9 million, partially offset by a gain on divestiture of $17.6 million and a gain on repurchase of convertible notes of $7.2 million. Net cash used in operating activities was further driven by a decrease in accounts payable of $13.6 million, a decrease in deferred revenue of $3.2 million, a decrease in other liabilities of $7.8 million, a decrease in accounts receivable of $1.5 million, an increase in accrued expenses and other current liabilities of $24.3 million, an increase in prepaid expenses and other current assets of $3.4 million, and an increase in contract acquisition costs of $5.0 million.
Net cash used in operating activities was $62.1 million in the year ended December 31, 2022. Our net loss was $225.7 million for the year ended December 31, 2022, which includes the effect of non-cash expenses related to stock-based compensation expense, change in fair value of contingent consideration, depreciation, amortization of purchased intangibles, finance leases, convertible debt issuance costs, gain on settlement of leases, allowance for credit losses, increases in accounts receivable, prepaid expenses and other current assets, accrued expenses and other current liabilities, contract acquisition costs, other assets, and decreases in deferred revenue and operating lease liabilities.
Cash Flows from Investing Activities
Net cash used in investing activities was $18.8 million in the year ended December 31, 2023 which was primarily driven by purchases of fixed assets and capitalization of internally developed software, partially offset by the proceeds from the sale of Kasamba. Net cash used in investing activities was $56.9 million in the year ended December 31, 2022 which was driven primarily by purchases of property and equipment, including capitalized software, payments for the WildHealth acquisition, net of cash acquired and cash infusion into the Claire joint venture.
Cash Flows from Financing Activities
Net cash used in financing activities was $151.1 million in the year ended December 31, 2023 which was primarily driven by the repurchase of our 2024 Notes. Net cash provided by financing activities was $1.6 million in the year ended December 31, 2022 driven primarily by proceeds from issuance of common stock in connection with the exercise of stock options by employees, partially offset by principal payments for financing leases and the repurchase of common stock.
We have incurred significant expenses to develop our technology and services, to hire employees in our customer service and sales and marketing departments, and for the amortization of purchased intangible assets, as well as acquisition costs and non-cash compensation costs. Historically, we have incurred net losses and negative cash flows for various quarterly and annual periods since our inception, including during numerous quarters and annual periods in the past several years. As of December 31, 2023, we had an accumulated deficit of approximately $857.0 million.
Our principal sources of liquidity are the net proceeds from the issuance of our convertible senior notes, after deducting purchaser discounts and debt issuance costs paid by us, issuance of common stock in connection with the exercise of options, and payments received from customers using our products. We anticipate that our current cash and cash equivalents will be sufficient to satisfy our working capital and capital requirements for at least the next 12 months. However, we cannot assure you that we will not require additional funds prior to such time, and we would then seek to sell additional equity or debt securities through public financings, or seek alternative sources of financing. Further, we plan to refinance the 2026 Notes on or prior to their maturity, and we are currently reviewing our capital structure with a goal of refinancing the 2026 Notes. We cannot assure you that additional funding will be available on favorable terms, when needed, if at all. If we are unable to obtain any necessary financing, we may be required to further reduce the scope of our planned sales and marketing and product development efforts, which could materially adversely affect our financial condition and operating results. In addition, we may require additional funds in order to fund more rapid expansion, to develop new or enhanced services or products, or to invest in or acquire complementary businesses, technologies, services or products.
The Company may from time to time, subject to board authorization and any applicable restrictions under contracts to which it may be or become a party, depending upon market conditions and the Company’s financing needs, use available funds to
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refinance or repurchase its outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise, in compliance with applicable laws, rules and regulations, at prices and on terms the Company deems appropriate (which, in the case of debt securities, may be below par) and subject to the Company’s cash requirements for other purposes and other factors management deems relevant.
We do not engage in off-balance sheet financing arrangements.
Capital Expenditures
Total capital expenditures in 2023 were approximately $28.7 million, primarily related to software capitalization and to the continued investment in our co-location facilities. We anticipate that our current cash and cash equivalents and cash from operations will be sufficient to fund our capital expenditures for at least the next 12 months.
Indemnifications
We enter into service and license agreements in the ordinary course of business. Pursuant to some of these agreements, we agree to indemnify certain customers from and against certain types of claims and losses suffered or incurred by them as a result of using our products.
We also have agreements whereby certain of our officers and our directors are indemnified for certain events or occurrences. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a directors and officers insurance policy that reduces our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Currently, we have no liabilities recorded for these agreements as of December 31, 2023.
Contractual Obligations
Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 31, 2023, the value of our non-cancellable unconditional purchase obligations was approximately $36.0 million , primarily relating to contracts with vendors in connection with IT infrastructure and cloud computing-related services. See Note 12 – Commitments and Contingencies in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for additional information regarding our purchase obligations.
We also lease certain facilities and data centers under non-cancellable operating lease arrangements that expire at various dates through 2028. See Note 10 – Leases in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for additional information regarding our lease obligations.