MARCHEX INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS Page Marchex, Inc. Report of Independent Registered Public Accounting Firm , RSM US LLP (PCAOB ID: 49 ) 33 Consolidated Balance Sheets as of December 31, 2024 and 2023 35 Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 36 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024 and 2023 37 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 38 Notes to Consolidated Financial Statements 39 32 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders' and the Board of Directors of Marchex, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Marchex, Inc. and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023 , and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements 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 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the 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 financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the 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. Occurrence of Pay per Call Revenue As described in Note 1 of the consolidated financial statements, the Company generates revenue from the Company's conversational analytics technology platform when customers pay the Company a fee for call, text, or other communication related data element they receive from calls or texts or for each phone number tracked based on a pre-negotiated rate. Revenue is recognized over time as the service is performed. We identified the occurrence of pay per call revenue as a critical audit matter as the processes to track and record the calls on which revenue is recorded is based on data from internally developed systems, which are complex and require an increased audit effort around assessing the reliability of data. 33 Table of Contents Our audit procedures related to the occurrence of calls included performing the following audit procedures, among others: • We obtained an understanding of the relevant controls related to the occurrence of calls and tested such controls for design and operating effectiveness. • In order to assess the accuracy of information generated from the internally developed information systems, we reconciled the total call information to the third-party vendor bills. • On a sample basis, we agreed the minutes from the call information to the vendor bill. • On a sample basis, we listened to calls to determine the call occurred. • On a sample basis, we obtained the customer invoice, the supporting call log data from the Company’s internal tracking system relating to the invoiced period, and the underlying customer contracts. For each sample we recalculated the invoiced amount. • We tested the reasonableness of changes in pay per call revenue by performing trend analysis which compared month-over month revenues. /s/ RSM US LLP We have served as the Company's auditor since 2022. Seattle, Washington March 14, 2025 34 Table of Contents MARCHEX, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands) December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 12,767 $ 14,607 Accounts receivable, net 7,072 7,394 Prepaid expenses and other current assets 2,439 1,805 Total current assets 22,278 23,806 Property and equipment, net 1,811 2,398 Other assets, net 397 1,482 Right-of-use lease assets 1,156 1,631 Goodwill 17,558 17,558 Intangible assets from acquisitions, net — 602 Total assets $ 43,200 $ 47,477 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,349 $ 1,533 Accrued benefits and payroll 2,133 3,294 Other accrued expenses and current liabilities 4,197 3,217 Deferred revenue and deposits 1,093 1,214 Operating lease liability, current 495 462 Total current liabilities 9,267 9,720 Deferred tax liabilities 579 249 Finance lease liability, non-current — 421 Operating lease liability, non-current 721 1,217 Total liabilities $ 10,567 $ 11,607 Commitments and contingencies - See Note 10 Stockholders’ equity: Common stock, $ 0.01 par value; Authorized 137,500 shares Class A: 12,500 shares authorized; 4,661 shares issued and outstanding at December 31, 2024 and December 31, 2023 $ 49 $ 49 Class B: 125,000 shares authorized; 39,025 shares issued and outstanding at December 31, 2024, including 365 shares of restricted stock; and 38,661 shares issued and outstanding at December 31, 2023, including 720 shares of restricted stock 390 386 Additional paid-in capital 358,372 356,666 Accumulated deficit ( 326,178 ) ( 321,231 ) Total stockholders’ equity 32,633 35,870 Total liabilities and stockholders’ equity $ 43,200 $ 47,477 See accompanying Notes to the Consolidated Financial Statements. 35 Table of Contents MARCHEX, INC. AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except per share amounts) Year Ended December 31, 2024 2023 Revenue $ 48,122 $ 49,910 Expenses: Cost of revenue 17,172 20,582 Sales and marketing 12,136 11,412 Product development 12,414 15,355 General and administrative 10,245 10,205 Amortization of intangible assets from acquisitions 602 1,987 Acquisition and disposition related costs — 12 Total operating expenses 52,569 59,553 Loss from operations ( 4,447 ) ( 9,643 ) Interest income (expense) and other, net ( 120 ) ( 173 ) Loss before income tax expense ( 4,567 ) ( 9,816 ) Income tax expense 380 94 Net loss applicable to common stockholders $ ( 4,947 ) $ ( 9,910 ) Basic and diluted net loss per Class A and B share applicable to common stockholders $ ( 0.11 ) $ ( 0.23 ) Shares used to calculate basic net loss per share applicable to common stockholders: Class A 4,661 4,661 Class B 38,498 37,960 Shares used to calculate diluted net loss per share applicable to common stockholders: Class A 4,661 4,661 Class B 43,159 42,621 See accompanying Notes to the Consolidated Financial Statements. 36 Table of Contents MARCHEX, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (in thousands) Class A Class B Additional Total common stock common stock paid-in Accumulated stockholders ’ Shares Amount Shares Amount capital deficit equity Balance at December 31, 2022 4,661 $ 49 38,497 $ 385 $ 354,999 $ ( 311,321 ) $ 44,112 Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net — — 398 3 24 — 27 Retirements of treasury stock — — ( 234 ) ( 2 ) — — ( 2 ) Stock-based compensation from options and restricted stock, net of forfeitures — — — — 1,643 — 1,643 Net loss — — — — — ( 9,910 ) ( 9,910 ) Balance at December 31, 2023 4,661 $ 49 38,661 $ 386 $ 356,666 $ ( 321,231 ) $ 35,870 Issuance of common stock upon exercise of options, issuance and vesting of restricted stock and under employee stock purchase plan, net — — 8 — 3 — 3 Stock-based compensation from options and restricted stock, net of forfeitures — — — — 1,707 — 1,707 Issuance of Class B common stock in connection with prior deferred issuance from acquisition — — 356 4 ( 4 ) — — Net loss — — — — — ( 4,947 ) ( 4,947 ) Balance at December 31, 2024 4,661 $ 49 39,025 $ 390 $ 358,372 $ ( 326,178 ) $ 32,633 See accompanying Notes to the Consolidated Financial Statements. 37 Table of Contents MARCHEX, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities: Net loss applicable to common stockholders $ ( 4,947 ) $ ( 9,910 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization and depreciation 2,646 3,873 Allowance for credit losses ( 147 ) 641 Deferred income taxes 330 — Loss on the disposal of capital assets — 178 Stock-based compensation 1,707 2,393 Change in certain assets and liabilities: Accounts receivable, net 469 360 Prepaid expenses, other current assets, and other assets 280 1,152 Accounts payable ( 566 ) ( 1,255 ) Accrued compensation, other accrued, and other liabilities ( 755 ) ( 1,658 ) Deferred revenue and deposits ( 121 ) ( 169 ) Net cash used in operating activities ( 1,104 ) ( 4,395 ) Cash flows from investing activities: Purchases of property and equipment ( 429 ) ( 1,377 ) Proceeds from sales of property and equipment — 65 Net cash used in investing activities ( 429 ) ( 1,312 ) Cash flows from financing activities: Proceeds from exercises of stock options, issuance and vesting of restricted stock and employee stock purchase plan, net 3 25 Repayments under finance lease liabilities and related obligations ( 310 ) ( 185 ) Net cash used in financing activities ( 307 ) ( 160 ) Net decrease in cash and cash equivalents ( 1,840 ) ( 5,867 ) Cash and cash equivalents at beginning of period 14,607 20,474 Cash and cash equivalents at end of period $ 12,767 $ 14,607 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 63 $ 70 Cash paid for interest $ 124 $ 115 Non-cash purchases of property and equipment $ 383 $ — See accompanying Notes to the Consolidated Financial Statements. 38 Table of Contents MARCHEX, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements No te 1: Description of Business and Summary of Significant Accounting Policies (a) Description of Business and Basis of Presentation Marchex, Inc. was incorporated in the state of Delaware on January 17, 2003. The Company is a conversation intelligence company that harnesses the power of AI and conversational intelligence to provide actionable insights aligned with prescriptive vertical market data analytics, driving operational excellence and revenue acceleration. Marchex enables executive, sales, and marketing teams to optimize customer journey experiences across all communication channels. Through our prescriptive analytics solutions, we enable the alignment of enterprise strategy, empowering businesses to increase revenue through informed decision-making and strategic execution. The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. GAAP. The preparation of our Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company has used estimates related to several financial statement amounts, including revenues, the fair value of stock options awards, and the impairment of goodwill. Actual results could differ from those estimates. (b) Going Concern Based on our operating plans we believe that our resources will be sufficient to fund our operations, including any investments in strategic initiatives, for at least twelve months from March 14, 2025 , the date of financial statement issuance. The Company considers any substantial doubt raised from recent net losses from operations to be alleviated by management's future operating plans, which consist of strategies for product innovation, increased sales, and cost cutting and efficiency efforts. When evaluating the Company's ability to continue as a going concern, management analyzed our strong working capital and cash position, positive momentum from year over year operating performance, and absence of any internal or external matters outstanding that would cause operating plans to be significantly revised. (c) Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds. The Company maintains cash balances with large financial institutions in excess of federally insured limits. (d) Fair Value of Financial Instruments The carrying value of financial instruments approximates their fair value based on the liquidity of these financial instruments and their short-term nature. Further, these financial instruments are considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Assets, liabilities, and operations of foreign subsidiaries are recorded based on the functional currency of the entity. For a majority of our foreign operations, the functional currency is the U.S. dollar. Assets and liabilities denominated in a currency other than the functional currency are remeasured each month with the remeasurement gain or loss recorded in Interest income (expense) and other, net in the Consolidated Statements of Operations. (e) Accounts Receivable Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable balances are presented net of allowance for credit losses. 39 Table of Contents Allowance for Credit Losses The allowance for credit losses is the Company’s best estimate of the amount of expected credit losses in existing accounts receivable. The Company determines the allowance based on analysis of historical bad debts, customer concentrations, customer creditworthiness and current economic trends. Past due balances over 90 days and specific other balances are reviewed individually for collectability. The Company reviews accounts for collectability and the allowance for adequacy quarterly. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Allowance for Customer Credits The allowance for customer credits is the Company’s best estimate of the amount of expected future reductions in customers’ payment obligations related to delivered services. The Company determines the allowance for customer credits based on analysis of historical credits and expected revenue adjustments. (f) Property and Equipment Property and equipment are stated at cost. Depreciation on computers and other related equipment, purchased and internally developed software, and furniture and fixtures are calculated on the straight-line method over the estimated useful lives of the assets, generally averaging three years . Leasehold improvements are amortized straight-line over the shorter of the lease term or estimated useful lives of the assets generally ranging from five to eight years . We capitalize certain software development costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed, and it is probable that the software will be used as intended. Capitalized software costs include (i) external direct costs of materials and services utilized in developing computer software, (ii) compensation and related benefits for employees who are directly associated with the software projects. Capitalized software costs are amortized on a straight-line basis when placed into service over the estimated useful life of the software, generally averaging three years . We capitalized $ 47.2 thousand in software development costs for the year ended December 31, 2024 and $ 0.4 million for the year ended December 31, 2023 . (g) Leases The Company determines whether an arrangement is a lease or contains a lease at inception of the arrangement. For arrangements considered leases, the Company assesses the lease for finance or operating classification and records a right-of-use asset and lease liability as of the commencement date. Finance leases are recorded on the Company's Consolidated Balance Sheets and interest is recognized and presented separately in Interest income (expense) and other on the Company's Consolidated Statements of Operations. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Right-of-use assets which represent the Company’s right to use the underlying asset for the lease term are amortized over the shorter of the useful life of the asset and the lease term. Operating leases with an initial term of 12 months or less are not recorded on the Company's Consolidated Balance Sheets. (h) Goodwill Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed in business combinations accounted for under the purchase method, net of recognized impairment. Goodwill acquired in a purchase business combination is not amortized, but instead tested for impairment at least annually on November 30, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. No impairment was recognized for the years ended December 31, 2024 and 2023 . 40 Table of Contents (i) Impairment or Disposal of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the primary asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds fair value. Assets to be disposed of would be separately presented on the Company's Consolidated Balance Sheets and reported at the lower of their carrying amount or fair value less costs to sell, and no longer depreciated. No impairment was recognized for the years ended December 31, 2024 and 2023 . (j) Revenue Recognition We generate the majority of our revenues from conversational intelligence product offerings. Customers typically receive the benefit of the Company’s services as they are performed and substantially all the Company’s revenue is recognized over time as the services are performed. Revenue is recognized when a customer obtains control of services in an amount that reflects the consideration the Company expects to receive in exchange for those services. The Company measures revenue based on the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service or product to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The Company’s AI-powered conversational analytics technology platform provides data and insights into the conversations our clients are having with their customers across phone, text and other communication channels. Our tools enable brands to personalize customer interactions in order to accelerate sales and capture more opportunities to grow their business. The Company generates revenue from the Company’s conversational analytics technology platform when customers pay the Company a fee for call, text, or other communication related data element they receive from calls or texts or for each phone number tracked based on a pre-negotiated rate. Revenue is recognized as services are provided over time, which is generally measured by the delivery of each call/text or call/text related data element or each phone number tracked. The majority of the Company’s customers are invoiced on a monthly basis following the month of the delivery of services and are required to make payments under standard credit terms. The Company establishes an allowance for customer credits, which is included in Accounts receivable, net in the Company's Consolidated Balance Sheets, using its best estimate of the amount of expected future reductions in customers’ payment obligations related to delivered services based on analysis of historical credits and expected revenue adjustments. The majority of the Company’s total revenue is derived from contracts that include consideration that is variable in nature. The variable elements of these contracts primarily include the number of transactions (for example, the number of qualified phone calls). For contracts with an effective term greater than one year, the Company applies the standard’s practical expedient that permits the exclusion of disclosure of the value of unsatisfied performance obligations for these contracts as the Company’s right to consideration corresponds directly to the value provided to the customer for services completed to date and all future variable consideration is allocated to wholly unsatisfied performance obligations. A term for purposes of these contracts has been estimated at 24 months. In addition, the Company applies the standard’s optional exemption to disclose information about performance obligations for contracts that have original expected terms of one year or less. For arrangements that include multiple performance obligations, the transaction price from the arrangement is allocated to each respective performance obligation based on its relative standalone selling price and recognized when revenue recognition criteria for each performance obligation are met. The standalone selling price for each performance obligation is established based on the sales price at which the Company would sell a promised good or service separately to a customer or the estimated standalone selling price. 41 Table of Contents The Company’s incremental direct costs of obtaining a contract, which consist primarily of sales commissions, are generally deferred and amortized to sales and marketing expense over the estimated life of the relevant customer relationship of approximately 24 months and are subject to being monitored every period to reflect any significant change in assumptions. In addition, the deferred contract cost asset is assessed for impairment on a periodic basis. The Company’s contract acquisition costs are included in O ther assets, net in the Company's Consolidated Balance Sheets. The Company is applying the standard’s practical expedient permitting expensing of costs to obtain a contract when the expected amortization period is one year or less, which typically results in expensing commissions paid to acquire certain contracts. (k) Cost of Revenue Our cost of revenue represents the cost of providing our services to our customers. These costs primarily consist of cloud computing and hosting costs, telecommunication costs, including the use of phone numbers relating to our services; bandwidth and software license fees; network operations; and payroll and related expenses of personnel, including stock based compensation. The Company has historically reported these costs under the caption "service costs" on the Consolidated Statement of Operations, but determined that the change to "cost of revenue" on a go-forward basis, beginning on December 31, 2024, better aligns the Company's financial reporting to its industry and competitors for comparison. (l) Advertising Expenses Advertising costs are expensed as incurred and include mobile and online advertising and related outside marketing activities, including sponsorships and trade shows. Such costs are included in sales and marketing. Advertising costs were approximately $ 0.4 million and $ 0.7 million for the years ended December 31, 2024 and 2023 , respectively. (m) Product Development Product development costs consist primarily of expenses incurred by the Company in the research and development, creation, and enhancement of the Company’s products and services. Research and development costs are expensed as incurred and include compensation and related expenses, costs of computer hardware and software, and costs incurred in developing features and functionality of the services. For the periods presented, substantially all of the product development expenses are related to research and development. Product development costs are expensed as incurred or capitalized into property and equipment in accordance with FASB ASC 350. ASC 350 requires that cost incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized. (n) Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in results of operations in the period that includes the enactment date. (o) Defined Contribution 401(k) Plan The Company maintains voluntary defined contribution plans, which are qualified, covering employees that meet eligibility requirements. Eligible employees may elect to defer and contribute a portion of their eligible compensation to the plans, not to exceed the dollar amounts set by applicable laws. Cash contributions by the Company were approximately $ 0.2 million for both the years ended December 31, 2024 and 2023 . 42 Table of Contents (p) Stock-Based Compensation The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense, over the vesting or service period, as applicable, of the stock award using the straight-line method. The Company accounts for forfeitures as they occur. (q) Net Loss Per Share The Company computes net loss per share of Class A and Class B common stock using the two class method. Under the provisions of the two class method, basic net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the year. Diluted net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the diluted net loss per share of Class B common stock assumes the conversion of Class A common stock to Class B common stock, while the diluted net loss per share of Class A common stock does not assume the conversion of those shares. In accordance with the two class method, the undistributed losses for each year are allocated based on the contractual participation rights of the Class A and Class B common shares and the restricted shares as if the losses for the year had been distributed. Considering the terms of the Company’s charter which provides that, if and when dividends are declared on its common stock in accordance with Delaware General Corporation Law, equivalent dividends shall be paid with respect to the shares of Class A common stock and Class B common stock and that both classes of common stock have identical dividend rights and would share equally in the Company’s net assets in the event of liquidation, the Company has allocated undistributed losses on a proportionate basis. See Note 6: Stockholders' Equity of the Notes to Consolidated Financial Statements for additional information. Instruments granted in unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities prior to vesting. As such, the Company’s restricted stock awards are considered participating securities for purposes of calculating loss per share. Under the two class method, dividends paid on unvested restricted stock are allocated to these participating securities and therefore impact the calculation of amounts allocated to common stock. (r) Guarantees FASB ASC 460, Guarantees, provides accounting guidance surrounding liability recognition and disclosure requirements related to guarantees. In the ordinary course of business, the Company is not subject to potential obligations under guarantees that fall within the scope of ASC 460 except for standard indemnification provisions that are contained within many of the Company’s agreements, and give rise only to the disclosure requirements prescribed by ASC 460. In certain agreements, the Company has agreed to indemnification provisions of varying scope and terms with customers, vendors and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of agreements or representations and warranties made by the Company, services to be provided by the Company and intellectual property infringement claims made by third parties. As a result of these provisions, the Company may from time to time provide certain levels of financial support to contract parties to seek to minimize the impact of any associated litigation in which they may be involved. To date, there have been no known events or circumstances that have resulted in any material costs related to these indemnification provisions and no liabilities therefore have been recorded in the accompanying Consolidated Financial Statements. However, the maximum potential amount of the future payments the Company could be required to make under these indemnification provisions could be material. (s) Recent Accounting Pronouncement Not Yet Effective In December 2023, the FASB issued Accounting Standards Update ("ASU") 2023-09, Improvements to Income Tax Disclosures , which requires public entities to disclose disaggregated information about their effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and may be applied on a prospective basis, with early adoption permitted. The Company is currently assessing the impact of this ASU on its Consolidated Financial Statements. 43 Table of Contents In January 2025, the FASB issued ASU 2025-01, which updates the effective date of the November 2024 issued ASU 2024-03, Disaggregation of Income Statement Expenses, that requires public entities to improve disclosures about their expenses and provide more detailed information about the types of expenses in commonly presented expense captions. ASU 2024-03 is now effective for annual periods beginning after December 15, 2026 and interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. The Company is currently assessing the impact of this ASU on its Consolidated Financial Statements. Note 2: Revenue Recognition The majority of the Compan y’s customers are invoiced on a monthly basis following the month of the delivery of services and are required to make payments under standard credit terms. Net accounts receivable, including unbilled accounts receivable, consists of the following: December 31, (In Thousands) 2024 2023 Accounts receivable: Billed $ 5,420 $ 6,102 Unbilled 1,736 1,523 Allowance for expected credit losses ( 84 ) ( 231 ) Accounts receivable, net $ 7,072 $ 7,394 Accounts receivable, net was $ 8.4 million as of January 1, 2023, which included Unbilled accounts receivable of $ 2.1 million. Customer payments received in advance of revenue recognition are considered contract liabilities and are recorded as deferred revenue. The deferred revenue balance and revenue recognized that was included in these contract liabilities at the beginning of the period consists of the following: December 31, (In Thousands) 2024 2023 Deferred revenue and deposits $ 1,093 $ 1,214 Revenue recognized in the period from contract liability at beginning of period $ 1,197 $ 1,346 The Company’s incremental direct costs of obtaining a contract, which consist primarily of sales incentive compensation including commissions, are generally deferred and amortized to sales and marketing expense over the estimated life of the relevant customer relationship. The Company’s contract acquisition costs shown below consist of $ 0.8 million in Prepaid expenses and other current assets and $ 2.6 million in Other assets, net on the December 31, 2024 Consolidated Balance Sheet. The full gross balance was included in Other assets, net at December 31, 2023. The net amounts consist of the following: December 31, (In Thousands) 2024 2023 Contract assets: Gross balance $ 3,407 $ 1,920 Accumulated amortization ( 2,247 ) ( 1,634 ) Contract assets, net $ 1,160 $ 286 Note 3: Segment Reporting and Geographic Information Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally for the Company’s management. For the years ended December 31, 2024 and 2023 , the Company operated in a single segment comprised of its conversational analytics and related solutions. In accordance with ASC 280, Segment Reporting , Edwin Miller, Chief Executive Officer , functions as the Company's chief operating decision maker for segment reporting purposes. 44 Table of Contents In November 2023, the FASB issued ASU 2023-07, Segment Reporting , which improved reportable segment disclosure requirements, on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses. The Company adopted ASU 2023-07 during the year ended December 31, 2024 with no material impact to the Company's Consolidated Financial Statements. Long-lived assets by geographical region are based on the location of the legal entity that owns the assets. As of December 31, 2024 and 2023, no significant long-lived assets were held by entities outside of the U.S. Revenues from customers by geographical areas are tracked on the basis of the location of the customer. The majority of the Company’s revenue and accounts receivable are derived from domestic sales to customers. Revenues by geographic region are as follows: Year Ended December 31, (In Percentages) 2024 2023 United States 99 % 99 % Canada and other countries 1 % 1 % Total 100 % 100 % Note 4: Concentrations The Company maintains substantially all of its cash and cash equivalents with two financial institutions. The Company has one customer that generally represents more than 10% of consolidated revenue. The table below sets forth the percentage of the Company's consolidated revenue that was attributed to this customer for the periods presented below: Year Ended December 31, (In Percentages) 2024 2023 Customer A 10 % 11 % The Company has one customer that generally represents more than 10% of consolidated accounts receivable. The Company also has a significant concentration of credit risk arising from receivables due from a network of independent dealers that is above the 10 % threshold. These dealers, while independently operated, sell the same brands and collectively represent a substantial portion of the Company's receivables. The table below sets forth the percentage of the Company's outstanding receivable balance that was attributed to this customer, and attributed to the aggregated balance due from the independent dealer network, as of the periods presented below: December 31, (In Percentages) 2024 2023 Concentration type: Customer A 23 % 21 % Independent dealer network A 15 % 16 % 45 Table of Contents Note 5: Fair Value of Financial Instruments The Company had the following financial instruments as of December 31, 2024 and 2023 : cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities. The carrying value of these financial instruments approximates their fair value based on the liquidity of these financial instruments and their short-term nature. Further, these financial instruments are considered at Level 1 fair value with observable inputs that reflect quoted prices for identical assets or liabilities in active markets. The following table provides information about the fair value of our cash and cash equivalents balance: December 31, (In Thousands) 2024 2023 Level 1 assets: Cash $ 7,615 $ 9,510 Money market funds 5,152 5,097 Total cash and cash equivalents $ 12,767 $ 14,607 No te 6: Stockholders' Equity (a) Common Stock and Authorized Capital The total number of shares of all classes of capital stock which the Company has authority to issue is 138,500,000 shares, consisting of (i) 137,500,000 shares of common stock, par value $ 0.01 per share, of which 12,500,000 shares are designated Class A common stock and 125,000,000 shares are designated Class B common stock, and (ii) 1,000,000 shares of preferred stock, par value $ 0.01 per share. The Company’s board of directors has the authority to designate rights, privileges and restrictions of each such series, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series. The Company has two classes of authorized common stock: Class A common stock and Class B common stock. Except with respect to voting rights, the Class A and Class B shares have identical rights. Each share of Class A common stock is entitled to twenty-five votes per share, and each share of Class B common stock is entitled to one vote per share. Each share of Class A common stock is convertible at the holder’s option into one share of Class B common stock. In accordance with the stockholders’ agreement signed by the founding Class A common stockholders, the following provisions survived the Company’s initial public offering: Class A stockholders other than Russell C. Horowitz may only sell, assign or transfer their Class A stock to existing Class A stockholders or to the Company and in the event of transfers of Class A stock not expressly permitted by the stockholders’ agreement, such shares of Class A stock shall be converted into shares of Class B common stock. In November 2014, the Company’s board of directors authorized a new share repurchase program (“2014 Repurchase Program”), which superseded and replaced any prior repurchase programs. Under the 2014 Repurchase Program, the Company is authorized to repurchase up to 3,000,000 shares of the Company’s Class B common stock in the aggregate through open market and privately negotiated transactions, at such times and in such amounts as the Company deems appropriate. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability, and other market conditions. The 2014 Repurchase Program does not have an expiration date and may be expanded, limited or terminated at any time without prior notice. The Company made no repurchases under the 2014 Repurchase Program for the years ended December 31, 2024 and 2023. Shares repurchased but not yet retired by the Company are classified as treasury stock on the Consolidated Balance Sheet before retirement. Retirement of treasury stock results in reductions to common stock and additional paid-in capital. 46 Table of Contents (b) Stock Option Plan The Company’s active stock incentive plan (“2021 Plan”), which was established in 2021, allows for grants of stock options, restricted stock units and restricted stock awards to eligible participants and such options may be designated as incentive or non-qualified stock options at the discretion of the 2021 Plan’s Administrative Committee. Prior to the 2021 Plan, the Company granted stock-based awards under its 2012 Stock Incentive Plan (“2012 Plan”). No further awards were made under the 2012 Plan after December 31, 2021. The 2021 Plan authorizes up to 3,500,000 shares of Class B common stock that may be issued with respect to awards granted under the 2021 Plan, and provides that the total number of shares of Class B common stock for which options designated as incentive stock options may be granted shall not exceed 3,500,000 shares. Annual increases to each of these share limits are to be added on the first day of each fiscal year beginning on January 1, 2022 equal to 3 % of the outstanding common stock (including for this purpose any shares of common stock issuable upon conversion of any outstanding capital stock of the Company) or in the case of incentive stock options, the lesser of (i) 2,000,000 shares of Class B common stock, or (ii) 3 % of the outstanding common stock (including for this purpose any shares of common stock issuable upon conversion of any outstanding capital stock of the Company), or (iii) such number as determined by the Company’s board of directors. As a result of this provision, the authorized number of shares available under the 2021 Plan was increased by 1,299,680 and 1,294,725 on January 1, 2024 and 2023, respectively, bringing the aggregate authorized number of shares available under the 2021 Plan to 7,355,971 and 6,056,291 on January 1, 2024 and 2023 , respectively. The Company may issue new shares or reissue treasury shares for stock option exercises and restricted stock grants. Generally, stock options have 10 -year terms and vest 25 % each year either annually or quarterly, over a 4 -year period and restricted stock awards and units vest 25 % each year annually over a 4 -year period. The Company did no t grant any options with exercise prices less than the then current market value during 2024 or 2023. The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense over the vesting or service period, as applicable, of the stock award using the straight-line method. The Company accounts for forfeitures as they occur. Stock-based compensation has been included in the same lines as compensation paid to the same employees in the Consolidated Statements of Operations. Stock-based compensation expense was included in the following operating expense categories: Year Ended December 31, (In Thousands) 2024 2023 Cost of revenue $ 24 $ 2 Sales and marketing 308 663 Product development 54 114 General and administrative 1,321 1,614 Total stock-based compensation $ 1,707 $ 2,393 Stock-based compensation expense as reported in the Consolidated Statements of Operations for the year ended December 31, 2023, varies from the reported Stock-based compensation from options and restricted stock, net of forfeitures in the Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2023, because of a reclassification of a $ 0.8 million payment owed to a former employee in connection with the Sonar acquisition. This payment was to be made, at the Company's election, in any mix of cash or restricted stock. The Company had previously determined its intent and ability to settle this obligation in restricted stock; however, in December 2023, the Company chose to settle in cash, resulting in a reclassification of this payment obligation from Additional paid-in capital to Other accrued expenses and current liabilities in the Consolidated Statements of Balance Sheets. This caused a decrease to Stock-based compensation from options and restricted stock, net of forfeitures in the Consolidated Statements of Stockholders’ Equity, with no corresponding decrease in stock-based compensation as reported in the Consolidated Statements of Operations, for the year ended December 31, 2023. 47 Table of Contents The Company uses the Black-Scholes option pricing model to estimate the per share fair value of stock option grants with time-based vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. For the years ended December 31, 2024 and 2023 , the expected life of each award granted was determined based on historical experience with similar awards, giving consideration to contractual terms, anticipated exercise patterns, and vesting schedules. Expected volatility is based on historical volatility levels of the Company’s Class B common stock and the expected volatility of companies in similar industries that have similar vesting and contractual terms. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. The Company uses an expected annual dividend yield in consideration of the Company’s common stock dividend payments, which we consider to be zero . The following assumptions were used in determining the fair value of time-vested stock options granted for the periods indicated: Year Ended December 31, 2024 2023 Expected life (in years) 4.00 - 6.25 4.00 - 6.25 Risk-free interest rate 3.93 % - 4.43 % 3.86 % - 3.93 % Expected volatility 57 % - 64 % 57 % - 64 % Stock option activity during the period is as follows: Options (in thousands) Weighted average exercise price of options Weighted average remaining contractual term (in years) Balance at December 31, 2023 5,395 $ 2.21 7.39 Options granted 2,012 1.61 Options forfeited ( 180 ) 1.63 Options expired ( 188 ) 6.84 Options exercised — Balance at December 31, 2024 7,039 $ 1.91 7.57 As of December 31, 2024, there was $ 3.1 million of unrecognized compensation costs related to stock options. These costs are expected to be recognized over the weighted average period of 2.59 years. Restricted stock awards and restricted stock unit activity during the period is as follows: Shares/ Units (In Thousands) Weighted Average Grant Date Fair Value Unvested at December 31, 2023 782 $ 1.94 Granted — — Vested ( 361 ) 1.96 Forfeited ( 15 ) 1.46 Unvested at December 31, 2024 406 $ 2.04 Restricted stock awards and restricted stock units are generally measured at fair value on the date of grant based on the number of awards granted and the quoted price of the Company’s common stock. Restricted stock awards and restricted stock units are expensed on a straight-line basis over the vesting or service period, as applicable, and forfeitures are recognized as they occur. Restricted stock units entitle the holder to receive one share of the Company’s Class B common stock upon satisfaction of certain service conditions. As of December 31, 2024, there was $ 0.3 million of unrecognized compensation costs related to restricted stock. These costs are expected to be recognized over the weighted average period of 1.08 years. 48 Table of Contents Note 7: Net Loss Per Share The Company computes net loss per share of Class A and Class B common stock using the two class method. Under the provisions of the two class method, basic net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the year. Diluted net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. The computation of the diluted net loss per share of Class B common stock assumes the conversion of Class A common stock to Class B common stock, while the diluted net loss per share of Class A common stock does not assume the conversion of those shares. The following table presents the computation of basic net loss per share applicable to common stockholders for the periods ended: Year Ended December 31, 2024 2023 (In Thousands, Except Per Share Amounts) Class A Class B Class A Class B Basic net loss per share: Numerator: Net loss applicable to common stockholders $ ( 534 ) $ ( 4,413 ) $ ( 1,084 ) $ ( 8,826 ) Denominator: Weighted average number of shares outstanding - basic 4,661 38,498 4,661 37,960 Basic net loss per share applicable to common stockholders $ ( 0.11 ) $ ( 0.11 ) $ ( 0.23 ) $ ( 0.23 ) The following table presents the computation of diluted net loss per share for the periods ended: Year Ended December 31, 2024 2023 (In Thousands, Except Per Share Amounts) Class A Class B Class A Class B Diluted net loss per share: Numerator: Net loss applicable to common stockholders $ ( 534 ) $ ( 4,413 ) $ ( 1,084 ) $ ( 8,826 ) Reallocation of net loss for Class A to Class B shares — ( 534 ) — ( 1,084 ) Diluted net loss applicable to common stockholders: $ ( 534 ) $ ( 4,947 ) $ ( 1,084 ) $ ( 9,910 ) Denominator: Weighted average number of shares outstanding - basic 4,661 38,498 4,661 37,960 Conversion of Class A to B common shares outstanding — 4,661 — 4,661 Weighted average number of shares outstanding - diluted 4,661 43,159 4,661 42,621 Diluted net loss per share applicable to common stockholders $ ( 0.11 ) $ ( 0.11 ) $ ( 0.23 ) $ ( 0.23 ) Anti-dilutive securities — 5,951 — 4,689 49 Table of Contents Note 8: Property and Equipment Property and equipment consisted of the following: December 31, (In Thousands) 2024 2023 Computer and other related equipment $ 1,198 $ 1,012 Purchased and internally developed software 3,276 2,699 Furniture and fixtures 262 260 Construction in progress 72 25 $ 4,808 $ 3,996 Less: accumulated depreciation and amortization ( 2,997 ) ( 1,598 ) Property and equipment, net $ 1,811 $ 2,398 Depreciation and amortization expense related to property and equipment was as follows: Year Ended December 31, (In Thousands) 2024 2023 Depreciation and amortization expense $ 1,399 $ 1,783 No te 9: Leases The Company has operating leases for its corporate office headquarters in Seattle, Washington, and office space in Wichita, Kansas. The Company recognizes its operating lease agreements in accordance with ASC 842, Leases , and recognizes rent expense on a straight-line basis over the lease term with any lease incentives amortized as a reduction of rent expense over the lease term. Assets under operating leases are included in Right-of-use lease assets, and the related liabilities are included in Operating lease liability, current and Operating lease liability, non-current on the Consolidated Balance Sheets. Assets under finance leases, which primarily represent computer equipment, are subject to a rental agreement for a third-party's utilization of this equipment; however, we retain our primary obligation under the original financing terms. Therefore, the Company does not have a right-of-use asset, but it does carry the lease liability related to this financed equipment, on the Consolidated Balance Sheets. The present value of the rent receivable from the rental agreement is included in Other assets, net , and the related lease liability is included in Other accrued expenses and current liabilities and Finance lease liability, non-current on the Consolidated Balance Sheets. Lease cost recognized in the Consolidated Statements of Operations and other lease information is summarized as follows: Year Ended December 31, (In Thousands) 2024 2023 Operating lease cost $ 575 $ 1,067 Finance lease cost: Amortization of right-of-use assets — 134 Interest on lease liabilities 72 90 Variable and short-term lease cost 23 182 Total lease cost $ 670 $ 1,473 Other information: Weighted-average remaining lease term - operating leases 2.6 3.6 Weighted-average remaining lease term - finance leases 0.9 1.9 Weighted-average discount rate - operating leases 7.0 % 6.7 % Weighted-average discount rate - finance leases 14.1 % 14.1 % Cash paid for operating leases $ 562 $ 462 Cash paid for finance leases $ 459 $ 268 50 Table of Contents As of December 31, 2024, the Company’s future payments under operating and finance lease liabilities were as follows: (In Thousands) Operating Leases Finance Leases 2025 $ 566 $ 421 2026 397 — 2027 380 — 2028 — — 2029 and thereafter — — Gross future lease payments $ 1,343 $ 421 Less: imputed interest ( 127 ) ( 24 ) Present value of total lease liabilities $ 1,216 $ 397 Less: current portion of lease liabilities ( 495 ) ( 397 ) Total long-term lease liabilities $ 721 $ — No te 10: Commitments, Contingencies, and Taxes Commitments The Company has commitments for future payments related to office facilities and financed equipment leases, as well as other contractual obligations primarily related to minimum payments due to outside service providers. For information regarding the Company's lease commitments, see Note 9: Leases of the Notes to the Consolidated Financial Statements. Future minimum payments on the Company's other contractual obligations are approximately as follows: (In Thousands) 2025 $ 4,164 2026 4,065 2027 1,383 2028 — 2029 and thereafter — Total minimum payments $ 9,612 Contingencies The Company from time to time is a party to disputes and legal and administrative proceedings arising from the ordinary course of business. We could become in the future subject to legal proceedings, governmental investigations, and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks, and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources and could be material. See (p) Guarantees section of Note 1: Description of Business and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for additional information. In certain agreements, the Company has agreed to indemnification provisions of varying scope and terms with customers, vendors and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of agreements or representations and warranties made by the Company, services to be provided by the Company and intellectual property infringement claims made by third parties. As a result of these provisions, the Company may from time to time provide certain levels of financial support to contract parties to seek to minimize the impact of any associated litigation in which they may be involved. To date, there have been no known events or circumstances that have resulted in any material costs related to these indemnification provisions and no liabilities therefore have been recorded in the accompanying Consolidated Financial Statements. However, the maximum potential amount of the future payments the Company could be required to make under these indemnification provisions could be material. 51 Table of Contents On October 21, 2022, the Shareholder Representatives for the former shareholders of Telmetrics, Inc. (an entity acquired by the Company in 2018) filed litigation against the Company in the U.S. District Court for the District of Delaware. The plaintiffs are asserting claims under a share purchase agreement and escrow agreement regarding entitlement to an earnout of up to $ 3.0 million and $ 1.0 million that was placed in escrow to secure indemnification obligations. On March 22, 2023, the plaintiffs filed an amended complaint also seeking substantial punitive damages, followed by a second amended complaint on May 9, 2023. On February 2, 2024, the Magistrate Judge issued a report and recommendation advising the U.S. District Court Judge to dismiss certain claims from the second amended complaint and to allow other claims to proceed to discovery. On July 17, 2024, the U.S. District Court Judge adopted portions of the Magistrate Judge's recommendation. The parties have begun discovery. While we believe we have meritorious defenses to this lawsuit and are vigorously defending against it, litigation is inherently uncertain and we cannot currently predict the ultimate outcome of this matter. While any litigation contains an element of uncertainty, the Company is not aware of any legal proceedings or claims which are pending that the Company believes, based on current knowledge, will have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations or liquidity. Taxes The components of the loss before income tax expense consisted of the following: Year Ended December 31, (In Thousands) 2024 2023 United States $ ( 4,565 ) $ ( 9,829 ) Foreign ( 2 ) 13 Loss before income tax expense $ ( 4,567 ) $ ( 9,816 ) Income tax expense consisted of the following: Year Ended December 31, (In Thousands) 2024 2023 Current federal provision State $ 49 $ 78 Foreign — — Deferred provision (benefit) Federal 160 25 State 171 ( 9 ) Total income tax expense $ 380 $ 94 The Company's income tax expense differed from the amounts computed by applying the U.S. federal statutory rate to the loss before provision for income taxes as a result of the following: Year Ended December 31, (In Thousands) 2024 2023 Income tax benefit at U.S. statutory rate $ ( 959 ) $ ( 2,061 ) State taxes, net of valuation allowance ( 129 ) ( 339 ) Foreign taxes 92 3 Non-deductible items 13 ( 29 ) Stock-based compensation (1) 145 101 Valuation allowance 491 2,307 Tax credits ( 474 ) ( 282 ) Goodwill tax basis difference 1,201 394 Total income tax expense $ 380 $ 94 (1) Includes non-deductible stock-based compensation and excess tax benefits and shortfalls from stock-based compensation 52 Table of Contents The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below and reflect the 21 % U.S. federal statutory rate for the years ended December 31, 2024 and 2023: As of December 31, 2024 (In Thousands) 2024 2023 Deferred tax assets: Accrued liabilities not currently deductible $ 357 $ 559 Intangible assets-excess of financial statement over tax amortization 3,276 2,096 Stock-based compensation 941 741 Federal net operating and capital losses 42,283 42,774 Research & experimental tax and other credit carryforwards 6,198 5,612 Lease liability 307 416 Capitalized research and development 2,170 1,764 Other 274 337 Gross deferred tax assets $ 55,806 $ 54,299 Valuation allowance ( 54,597 ) ( 54,105 ) Net deferred tax assets $ 1,209 $ 194 Deferred tax liabilities: Fixed assets $ ( 295 ) $ — Intangible assets-excess of tax over financial statement amortization ( 1,433 ) — Right-of-use lease asset — ( 404 ) Other ( 60 ) ( 39 ) Net deferred tax liabilities $ ( 579 ) ( 249 ) As of December 31, 2024, the Company’s federal and state net operating loss ("NOL") carryforwards were approximately $ 179.8 million and $ 60.1 million , respectively. Of the total federal NOL carryforwards reported, we have accumulated $ 56.7 million with an indefinite life as of December 31, 2024. The remaining federal and state NOL carryforwards will begin to expire in 2027 and 2028 , respectively, for income tax purposes. As of December 31, 2024, the Company’s federal research and development credit carryforwards were $ 6.5 million , which will begin to expire in 2029 . The Tax Reform Act of 1986 limits the use of NOL and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. The Company is not aware that any such change has occurred related to these specific tax attributes, or that the utilization of the carryforwards is limited such that these NOL or tax credit carryforwards will likely never be utilized. Accordingly, the Company has included these federal NOL and tax credit carryforwards in its deferred tax assets (subject to valuation allowance). The Company has recorded a deferred tax asset for stock-based compensation recorded on unexercised non-qualified stock options and certain restricted shares and restricted share units. The ultimate realization of this asset is dependent upon the fair value of the Company’s stock when the options are exercised and when restricted shares or restricted share units vest, and generation of sufficient taxable income to realize the benefit of the related tax deduction. The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized. 53 Table of Contents The Company regularly reviews deferred tax assets to assess whether it is more likely than not that its deferred tax assets will be realized and, if necessary, establishes a valuation allowance for portions of such assets to reduce the carrying value. In assessing whether it is more likely than not that the Company’s deferred tax assets will be realized, factors considered included: historical taxable income, historical trends related to customer usage rates, projected revenues and expenses, macroeconomic conditions, issues facing the industry, existing contracts, the Company’s ability to project future results and any appreciation of its other assets. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considered the future reversal of deferred tax liabilities, carryback potential, projected taxable income, and tax planning strategies as well as its history of taxable income or losses in the relevant jurisdictions in making this assessment. Based on the level of historical taxable losses and the uncertainty of projections for future taxable income over the periods for which the deferred tax assets are deductible, with the exception of certain insignificant foreign deferred tax assets, the Company concluded that it is not more likely than not that the gross deferred tax assets will be realized and, accordingly, recorded 100 % valuation allowance against these deferred tax assets as of both December 31, 2024 and 2023. From time to time, various state, federal and other jurisdictional tax authorities undertake audits of the Company and its filings. In evaluating the exposure associated with various tax filing positions, the Company on occasion accrues charges for uncertain positions. Resolution of uncertain tax positions will impact the Company’s effective tax rate when settled. The Company does not have any significant accruals for uncertain tax positions including interest or penalties. The provision for income taxes includes the impact of contingency provisions and changes to contingencies that are considered appropriate. The Company files U.S. federal, certain U.S. states, and certain foreign tax returns. Generally, U.S. federal, U.S. state, and foreign tax returns filed for years after 2013 are within the statute of limitations and are subject to review and adjustment by the Internal Revenue Service. The following table summarizes activity related to tax contingencies, which are recorded as an offset to deferred tax assets: (In Thousands) Gross tax contingencies—January 1, 2023 $ 1,384 Gross increases to current period tax positions 25 Gross tax contingencies—December 31, 2023 $ 1,409 Gross increases to current period tax positions 60 Gross tax contingencies—December 31, 2024 $ 1,469 Note 11: Identifiable Intangible Assets from Acquisitions Intangible assets from acquisitions represent customer relationships, acquired technology, non-competition agreements, and trade names. These assets are determined to have definite lives and are amortized on a straight-line basis over the estimated period over which we expect to realize economic value related to the intangible asset. The amortization periods range from one to five years . As of December 31, 2024, the net identifiable intangible assets have been fully amortized. Identifiable intangible assets from acquisitions consisted of the following: As of December 31, 2024 (In Thousands) Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Customer relationships $ 13,018 $ ( 9,588 ) $ ( 3,430 ) $ — Technologies 9,369 ( 8,307 ) ( 1,062 ) — Non-compete agreements 3,409 ( 3,063 ) ( 346 ) — Trade names 734 ( 613 ) ( 121 ) — Total identifiable intangible assets from acquisitions $ 26,530 $ ( 21,571 ) $ ( 4,959 ) $ — 54 Table of Contents As of December 31, 2023 (In Thousands) Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Customer relationships $ 13,018 $ ( 9,588 ) $ ( 3,430 ) $ — Technologies 9,369 ( 7,839 ) ( 1,062 ) 468 Non-compete agreements 3,409 ( 2,929 ) ( 346 ) 134 Trade names 734 ( 613 ) ( 121 ) — Total identifiable intangible assets from acquisitions $ 26,530 $ ( 20,969 ) $ ( 4,959 ) $ 602 The amortization of intangible assets is separately presented on the Consolidated Statements of Operations; if these amortization costs were not separately stated, they would be reported as follows: Year Ended December 31, (In Thousands) 2024 2023 Components of amortization of intangibles from acquisitions: Cost of revenue $ 467 $ 467 Sales and marketing 135 1,520 Total $ 602 $ 1,987 Note 12: Divestiture Support Services Fee In October 2020, the Company sold certain assets to a related party controlled by a shareholder and officers of the Company. In connection with the closing, th e Company also entered into an administrative support services agreement with the related party purchaser pursuant to which the Company was to provide services to the related party purchaser for a support services fee. The support services fees are included in the Consolidated Statements of Operations, net of the related expenses, within C ost of revenue, Sales and marketing , Product development , and General and administrative. As of December 31, 2024 and 2023 , the net amount due from the purchaser of $ 40.5 thousand and $ 0.4 million , respectively, is included in the Company’s Consolidated Balance Sheet within Prepaid expenses and other current assets . The components of related party support services fees in the Consolidated Statements of Operations are as follows: Year Ended December 31, (In Thousands) 2024 2023 Components of related party support services fee recovery Cost of revenue $ 101 $ 1,115 Sales and marketing — 90 Product development — 172 General and administrative 104 147 Total $ 205 $ 1,524 55 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.