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What changed in Five9, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Five9, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+354 added−339 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-24)

Top changes in Five9, Inc.'s 2023 10-K

354 paragraphs added · 339 removed · 287 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

65 edited+25 added−14 removed71 unchanged
Biggest changeIf we do not comply with FTC rules and regulations, we could be subject to an FTC enforcement action, fines or restrictions on our business practices. 12 Table of Contents We must comply with numerous federal regulations, including: • Telephone Consumer Protection Act of 1991, or TCPA, which regulates the use of automatic dialing equipment and pre-recorded messages to contact consumers, and the Telemarketing Sales Rule, which has similar obligations as to telemarketing activities; • The TRACED Act and corresponding regulations from the FCC, which require carriers to authenticate incoming calls using the STIR/SHAKEN caller ID framework and correspondingly compels providers of telecommunications services to implement capabilities to certify as authentic the traffic they provide to those carriers; • CALEA, which requires telecommunications service providers to assist law enforcement in undertaking electronic surveillance; • enhanced 911 rules, KARI’s Law and RAY BAUM’s Act, which, in certain circumstances, require telecommunications service providers to ensure their users can directly dial 911 emergency services and, if technically feasible, automatically convey dispatchable location information with the call; • contributions to the USF, which requires that we pay a percentage of our revenues resulting from the provision of interstate and some international telecommunications services to support certain federal programs; • payment of annual FCC regulatory fees based on our interstate and international revenues; • rules pertaining to access to our services by people with disabilities and contributions to the Telecommunications Relay Services fund; • FCC rules regarding Customer Proprietary Network Information, or CPNI, which require that we limit disclosure of certain information received from customers as a result of a service provider/customer relationship without customer approval, subject to certain exceptions; • Federal Trade Commission Act and rules promulgated thereunder, which generally relate to avoiding unfair and deceptive trade practices, our advertising, and privacy practices; and • State privacy laws require compliance with privacy frameworks and include disclosure obligations to consumers for whom we hold or process personal data including: ◦ The California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act of 2020, or the CCPA, which took effect on January 1, 2023; ◦ Virginia Consumer Data Protection Act, or the VCDPA, which took effect on January 1, 2023; ◦ Colorado Privacy Act, or the CPA, which will take effect on July 1, 2023; ◦ Connecticut Data Privacy Act, or CDPA, which will take effect on July 1, 2023; and ◦ Utah Consumer Privacy Act, or the UCPA, which will take effect on December 31, 2023.
Biggest changeWe must comply with numerous federal regulations, including: • Telephone Consumer Protection Act of 1991, or TCPA, which regulates the use of automatic dialing equipment and pre-recorded messages to contact consumers, and the Telemarketing Sales Rule, which has similar obligations as to telemarketing activities; • the TRACED Act and corresponding regulations from the FCC, which require carriers to authenticate incoming calls using the STIR/SHAKEN caller ID framework and correspondingly compels providers of telecommunications services to implement capabilities to certify as authentic the traffic they provide to those carriers and to block transmission of certain calls; • CALEA, which requires telecommunications service providers to assist law enforcement in undertaking electronic surveillance; • enhanced 911 rules, KARI’s Law and RAY BAUM’s Act, which, in certain circumstances, require telecommunications service providers to ensure their users can directly dial 911 emergency services and, if technically feasible, automatically convey dispatchable location information with the call; • contributions to the USF, which requires that we pay a percentage of our revenues resulting from the provision of interstate and some international telecommunications services to support certain federal programs; • payment of annual FCC regulatory fees based on our interstate and international revenues; • rules pertaining to access to our services by people with disabilities and contributions to the Telecommunications Relay Services fund; • FCC rules regarding Customer Proprietary Network Information, or CPNI, which require that we limit disclosure of certain information received from customers as a result of a service provider/customer relationship without customer approval, subject to certain exceptions; • Federal Trade Commission Act and rules promulgated thereunder, which generally relate to avoiding unfair and deceptive trade practices, our advertising, use and deployment of certain AI-based services, and privacy practices; and • state privacy laws require compliance with privacy frameworks and include disclosure obligations to consumers for whom we hold or process personal data including, but not limited to: ◦ California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act of 2020, or the CCPA, which took effect on January 1, 2023; ◦ Virginia Consumer Data Protection Act, or the VCDPA, which took effect on January 1, 2023; 13 Table of Contents ◦ Colorado Privacy Act, or the CPA, which took effect on July 1, 2023; ◦ Connecticut Data Privacy Act, or CDPA, which took effect on July 1, 2023; and ◦ Utah Consumer Privacy Act, or the UCPA, which took effect on December 31, 2023.
Combined with the disruptive nature of the cloud in the contact center, this has resulted in competitors who come from different market and product heritages, and who vary in size, breadth and scope of the products and services offered.
Combined with the disruptive nature of the cloud in the contact center, this has resulted in competitors who come from different market and product heritages, and who vary in size, breadth and scope of products and services offered.
We believe the principal competitive factors in our market include: • breadth and depth of solution features; • reliability, scalability and quality of the platform; • ease and speed of deployment; • ease of application administration and use; • level of client satisfaction; • domain expertise in contact center operations; • integration with third-party applications; • ability to quickly adapt and upgrade to new and evolving technologies, including AI; • pricing; • ability to quickly adjust agent seats based on business requirements; • breadth and domain expertise of the sales, marketing and support organization; • ability to keep pace with client requirements; • extent and efficiency of professional services; 9 Table of Contents • ability to offer multiple channels of engagement; and • size and financial stability.
We believe the principal competitive factors in our market include: • breadth and depth of solution features; 9 Table of Contents • reliability, scalability and quality of the platform; • ease and speed of deployment; • ease of application administration and use; • level of client satisfaction; • domain expertise in contact center operations; • integration with third-party applications; • ability to quickly adapt and upgrade to new and evolving technologies, including AI; • pricing; • ability to quickly adjust agent seats based on business requirements; • breadth and domain expertise of the sales, marketing and support organization; • ability to keep pace with client requirements; • extent and efficiency of professional services; • ability to offer multiple channels of engagement; and • size and financial stability.
Since our business is regulated by the FCC, we are subject to existing or potential FCC regulations relating to privacy, disability access, Enhanced 911 access, porting of numbers, automatic number dialing, contributions to the federal Universal Service Fund and related funds, or USF, and other requirements.
Since our business is regulated by the FCC, we are subject to existing or potential FCC regulations relating to privacy, disability access, Enhanced 911 access, access to and porting of numbers, automatic number dialing, contributions to the federal Universal Service Fund and related funds, or USF, and other requirements.
Using the rich contact history and additional context through integrations with CRM applications, agents have immediate access to the most current, relevant and accurate information about the customer, resulting in increased first contact resolutions and a more satisfying experience for the customer. • Higher agent productivity.
Using the rich contact history and additional context through integrations with CRM and other applications, agents have immediate access to the most current, relevant and accurate information about the customer, resulting in increased first contact resolutions and a more satisfying experience for the customer. • Higher agent productivity.
Our intelligent contact routing and self-service IVA and IVR capabilities, pre-built CRM integrations, and multichannel engagement ensure that customers receive an omnichannel experience. Each new contact is quickly routed to an appropriate agent resource.
Our intelligent contact routing and self-service IVA and IVR capabilities, pre-built CRM and other integrations, and multichannel engagement ensure that customers receive an omnichannel experience. Each new contact is quickly routed to an appropriate agent resource.
Furthermore, our AI enabled automation features are designed to enable agent efficiency and cost reductions, including through the utilization of natural language processing, or NLP. • Enhanced end-to-end visibility.
Furthermore, our AI enabled automation features are designed to enable agent efficiency and cost reductions, including through the utilization of LLMs and natural language processing, or NLP. • Enhanced end-to-end visibility.
In addition, among other comprehensive privacy laws, we are subject to the UK’s Data Protection Act, Canada’s Personal Information Protection and Electronic Documents Act, or PIPEDA, and analogous provincial laws, emerging U.S. state privacy laws, which collectively impose similar data privacy and security obligations on our processing of personal data.
In addition, among other comprehensive privacy laws around the world, we are subject to the UK’s Data Protection Act, Canada’s Personal Information Protection and Electronic Documents Act, or PIPEDA, and analogous provincial laws, and emerging U.S. state privacy laws, which collectively impose similar data privacy and security obligations on our processing of personal data.
The platform facilitates this through key capabilities such as interaction routing and prioritization across channels, automation and integration of back and front end systems and the ability to leverage the power of AI through IVA and more. Our solution also empowers agents and supervisors through WFO.
Our platform facilitates this through key capabilities such as interaction routing and prioritization across channels, automation and integration of back and front end systems and the ability to leverage the power of AI through IVA and more. Our solution also empowers agents and supervisors through WEM.
These systems are also often inflexible, complex, and require significant duplication of effort and integration across multiple sites. In addition, commencing during the COVID-19 pandemic, agents have increasingly worked remotely, which presents a challenge to premise-based systems that, by design, are focused on a particular physical location. This creates substantial challenges for clients with on-premise contact center systems.
These systems are also often inflexible, complex, and require significant duplication of effort and integration across multiple sites. In addition, commencing during the COVID-19 pandemic, agents increasingly work remotely, which presents a challenge to on-premise based systems that, by design, are focused on a particular physical location. This creates substantial challenges for clients with on-premise contact center systems.
We manage upgrades and deployments remotely, resulting in lower total cost of operations relative to legacy on-premise contact center systems that often require in-house technical support staff. Our Competitive Strengths We believe that our position as a leading provider of cloud contact center software results from several key competitive strengths, including: • Global Cloud-based, enterprise-grade platform and end-to-end application suite.
We manage upgrades and deployments remotely, resulting in lower total cost of operations relative to legacy on-premise contact center systems that often require in-house technical support staff. 6 Table of Contents Our Competitive Strengths We believe that our position as a leading provider of cloud contact center software results from several key competitive strengths, including: • Global Cloud-based, enterprise-grade platform and end-to-end application suite.
Direct Sales. Our sales model consists of a field sales team that sells our solution into larger opportunities and a telesales team that sells our solution into smaller opportunities.
Our sales model consists of a field sales team that sells our solution into larger opportunities and a telesales team that sells our solution into smaller opportunities.
The proliferation of each is driving change in contact center technology, as customers expect companies to give them the option of seamless communication across all channels without losing the overall context of customer interactions according to their preference and needs.
The proliferation of each is driving change in contact center technology, as customers expect companies to give them the option of seamless communication across all channels without losing the overall context of customer interactions according to their preferences and needs.
If we do not comply with current or future rules or regulations that apply to our business, we could be subject to substantial fines and penalties, we may have to restructure our service offerings, exit certain markets, accept lower margins or raise the price of our services, any of which could harm our business and results of operations.
If we do not comply with current or future rules or regulations that apply to our business, we could be subject to substantial fines and penalties, we may have to restructure our service offerings, 14 Table of Contents exit certain markets, accept lower margins or raise the price of our services, any of which could harm our business and results of operations.
We also host some of our voice services on the public cloud in Europe, Asia, South America and Australia as well as additional core services in Europe. Our infrastructure, including our third-party co-location 8 Table of Contents facilities, is designed to support real-time critical telecommunications, applications and operational support systems.
We also host some of our voice services on the public cloud in Europe, Asia, South America and Australia as well as additional core services in Europe. Our infrastructure, including our third-party co-location facilities, is designed to support real-time critical telecommunications, applications and operational support systems.
Unlike legacy on-premise contact center systems, our solution requires limited up-front investment, can be rapidly deployed and is maintained by us in the cloud. 4 Table of Contents Our sales model consists of a field sales team that sells our solution into larger opportunities and a telesales team that sells our solution into smaller opportunities.
Unlike legacy on-premise contact center systems, our solution requires limited up-front investment, can be rapidly deployed and is maintained by us in the cloud. Our sales model consists of a field sales team that sells our solution into larger opportunities and a telesales team that sells our solution into smaller opportunities.
We believe this ecosystem has enabled us to increase our brand awareness and enhance the functionality and value of our solution for our clients. • Focus on innovation and thought leadership . Since our inception, we have been an innovator of intelligent cloud contact center software.
We believe this ecosystem has enabled us to increase our brand awareness and enhance the functionality and value of our solution for our clients. 7 Table of Contents • Focus on innovation and thought leadership . Since our inception, we have been an innovator of intelligent cloud contact center software.
Delivered on-demand, our solution enables our clients to quickly deploy agent seats in any geographic location with only a computer, headset and broadband internet connection, and rapidly adjust the number of contact center agent seats in response to changing business requirements.
Delivered on-demand, our solution enables our clients to quickly deploy agent seats in any geographic location with only a computer, 4 Table of Contents headset and broadband internet connection, and rapidly adjust the number of contact center agent seats in response to changing business requirements.
Our solution is designed to be seamlessly updated so that clients are 5 Table of Contents always operating on the latest version of the software, while maintaining their existing configurations, ensuring minimal disruption to the client’s contact center operations. • Highly flexible platform.
Our solution is designed to be seamlessly updated so that clients are always operating on the latest version of the software, while maintaining their existing configurations, ensuring minimal disruption to the client’s contact center operations. • Highly flexible platform.
Our purpose-built, reliable, scalable and secure Virtual Contact Center, or VCC, cloud platform delivers a comprehensive suite of easy-to-use applications that enable the breadth of contact center-related customer service, sales and marketing functions. We have become an established leader in the cloud contact center market with more than 2,500 clients.
Our purpose-built, reliable, scalable and secure Virtual Contact Center, or VCC, cloud platform delivers a comprehensive suite of easy-to-use applications that enable the breadth of contact center-related customer service, sales and marketing functions. We have become an established leader in the cloud contact center market with more than 3,000 clients.
Seasonality We believe that there are seasonal factors that cause our revenues in the first half of a year to be lower than our revenues in the second half of the year. During 2022, 2021 and 2020, 52%, 54%, and 55% of our total revenues were generated in the second half of each year.
Seasonality We believe that there are seasonal factors that cause our revenues in the first half of a year to be lower than our revenues in the second half of the year. During 2023, 2022 and 2021, 52%, 52%, and 54% of our total revenues were generated in the second half of each year.
Our solution, comprised of our VCC cloud platform with native AI and automation capabilities, including Interactive Virtual Agent, or IVA, Agent Assist, Workflow Automation, or WFA, and Workforce Optimization, or WFO, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our application programming interfaces, or APIs.
Our solution, comprised of our VCC cloud platform with native AI and automation capabilities, including Interactive Virtual Agent, or IVA, Agent Assist, Workflow Automation, or WFA, Workforce Engagement Management, or WEM, AI Insights and AI Summaries, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our application programming interfaces, or APIs.
Our client base spans organizations of all sizes across multiple industries, including banking and financial services, business process outsourcers, retail, healthcare, technology and education. 7 Table of Contents Sales and Marketing Marketing.
Our client base spans organizations of all sizes across multiple industries, including banking and financial services, business process outsourcers, retail, healthcare, technology and education. Sales and Marketing Marketing.
To complement this go-to-market strategy, we have developed a large ecosystem of technology and system integrator partners, which also provide sales leads, and independent software vendors to help increase awareness of our solution in the market and drive additional sales opportunities with new and existing clients.
To complement this go-to-market strategy, we have developed a strategically-built ecosystem of technology alliances, solution providers and system integrator partners, which also provide sales leads, and independent software vendors to help increase awareness of our solution in the market and drive additional sales opportunities with new and existing clients.
We have a large, diverse client base of over 2,500 organizations across multiple industries. We believe our clients view us as a key strategic solutions provider. The performance, reliability, ease-of-use and comprehensive nature of our solution has resulted in high client retention. • Extensive partner ecosystem.
We have a large, diverse client base of over 3,000 organizations across multiple industries. We believe our clients view us as a key strategic solution provider. The performance, reliability, ease-of-use and comprehensive nature of our solution has resulted in high client retention. • Extensive partner ecosystem.
Our recurring revenue model combined with our Annual Dollar-Based Retention Rate, which was 115% as of December 31, 2022, have enhanced our ability to forecast our financial performance and plan future investments.
Our recurring revenue model combined with our Annual Dollar-Based Retention Rate, which was 110% as of December 31, 2023, have enhanced our ability to forecast our financial performance and plan future investments.
To build client awareness and adoption of our solution, our lead generation activities consist of a mix of organic activities such as social, digital presence and search engine optimization, and paid for activations such as search engine marketing, internet advertising, digital marketing campaigns, trade shows, industry events, co-marketing with strategic partners, account-based marketing, client referrals and out-of-home campaigns.
To build client awareness and adoption of our solution, our lead generation activities consist of a mix of organic activities such as social, digital presence and search engine optimization, and paid for activations such as search engine marketing, internet advertising, digital marketing campaigns, content syndication, trade shows, industry events, co-marketing with strategic partners, account-based marketing, client referrals and other promotional campaigns.
We have also established, and are continuing to increase, our network of technology solution brokers who provide sales leads and resellers that integrate our solution into their service offerings to new clients. Our partner ecosystem has helped us access new routes to market and gain market share both in domestic and international markets.
We have also established, and are continuing to increase, our network of technology solution distributors who provide sales leads and resellers that integrate our solution into their service offerings to new clients. Our partner ecosystem has helped us access new routes to market and increase our penetration in domestic and international markets.
We regularly collect feedback to better understand and improve the employee experience and identify opportunities to continually strengthen our culture. 81% of our employees participated in our most recent employee survey in 2022.
We regularly collect feedback to better understand and improve the employee experience and identify opportunities to continually strengthen our culture. 85% of our employees participated in our most recent employee survey in 2023.
We have cultivated strong partner relationships with technology solution brokers, system integrators and resellers to drive sales of our solution.
We have cultivated strong partner relationships with technology solution distributors, global system integrators and resellers to drive sales of our solution.
Last year we maintained the highest level of employee engagement according to our vendor, Culture Amp, as noted in its Engagement and Inclusion benchmark (top quartile) based upon responses from approximately 2,000 companies. Employees’ highest rated areas were the following: work & life blend (92%), management (91%) and inclusion (91%).
Last year we maintained the highest level of employee engagement according to our vendor, Culture Amp, as noted in its Engagement and Inclusion benchmark (top quartile) based upon responses from approximately 2,000 companies. Employees’ highest rated areas were the following: employee productivity (91%) and engagement (90%).
We incurred net losses of $94.7 million, $53.0 million and $42.1 million for the years ended December 31, 2022, 2021 and 2020, respectively, primarily as a result of increased investment in our growth, along with higher stock-based compensation. As of December 31, 2022, 2021 and 2020, our total assets were $1,244.5 million, $1,192.9 million and $1,063.7 million, respectively.
We incurred net losses of $81.8 million, $94.7 million and $53.0 million for the years ended December 31, 2023, 2022 and 2021, respectively, primarily as a result of increased investment in our growth, along with higher stock-based compensation. As of December 31, 2023, 2022 and 2021, our total assets were $1,494.6 million, $1,244.5 million and $1,192.9 million, respectively.
Our CEO also weaves these values into quarterly company meetings and regular smaller meetings, such as “Thursdays in the Cloud” where one of the values may be highlighted through a story and employee example.
Our CEO also weaves these values into quarterly company meetings and regular smaller meetings, where one of the values may be highlighted through a story and employee example.
Our solution provides the following advantages: • Rapid implementation, seamless updates and pre-built integrations. Our solution is designed to be deployed quickly and seamlessly with minimal disruption to a client’s operations. The pre-built integrations with leading CRM and other enterprise applications reduce the complexity and burden of integrating with the client’s business applications.
Our solution is designed to be deployed quickly and seamlessly with minimal disruption to a client’s operations. The pre-built integrations with leading CRM and other enterprise applications reduce the complexity and burden of integrating with the client’s business applications.
The key human capital measures and objectives that we focus on in managing our business are maintaining our company values, increasing our diversity and inclusion, our compensation philosophy, our talent development, and our employees’ safety and wellness. Five9 Values - Bringing Passion and Purpose At Five9 we are focused on delivering success for our customers, partners and employees.
The key human capital measures and objectives that we focus on in managing our business are maintaining our company values, promoting our diversity and inclusion, our total rewards philosophy, our talent development, and our employees’ safety and wellness. 10 Table of Contents Five9 Values - Bringing Passion and Purpose At Five9 we are focused on delivering success for our customers, partners and employees.
In January 2023, we announced the opening of our new European Research and Development Hub in Porto, Portugal, which will serve as our European engineering headquarters. Our engineering team has deep software and telecommunications skills, and works closely with our sales team to identify our clients’ product requirements.
In January 2023, we opened our new European Research and Development Hub in Porto, Portugal, which serves as 8 Table of Contents our European engineering headquarters. Our engineering team has deep software and telecommunications skills, and works closely with our sales team to identify our clients’ product requirements.
As of December 31, 2022, we had 2,380 full-time employees. 47% of our employees are in various cost of revenue functions, 17% in research and development, 25% in sales and marketing and 11% in general and administrative. Our employee turnover for the last three years has averaged 8.1%.
As of December 31, 2023, we had 2,684 full-time employees. 46% of our employees are in various cost of revenue functions, 19% in research and development, 24% in sales and marketing and 11% in general and administrative. Our employee turnover for the last three years has averaged 8.8%.
We have established, and continue to increase, our network of technology solution brokers, which provide sales leads, system integrators, which also provide sales leads and help integrate our solution with our client systems, and resellers, which sell our solution to new clients. This network has helped us attract additional clients.
We have established, and continue to increase, our network of technology solution distributors, which provide sales leads, global system integrators, which also provide sales leads and help integrate our solution with our client systems, and resellers, which sell our solution to new clients.
For the years ended December 31, 2022, 2021 and 2020, our revenue was $778.8 million, $609.6 million and $434.9 million, respectively, representing year-over-year growth of 28% and 40%, respectively.
For the years ended December 31, 2023, 2022 and 2021, our revenue was $910.5 million, $778.8 million and $609.6 million, respectively, representing year-over-year growth of 17% and 28%, respectively.
Our complete end-to-end capabilities include Computer-Telephony Integration, or CTI, IVA, Interactive Voice Response, or IVR, WFA, Agent Assist, Automatic Call/Contact Distribution, or ACD, with skills-based routing, reporting, dashboards, agent and supervisor desktops, outbound dialer, pre-built third-party integrations, quality management, speech and desktop analytics, customer surveys and workforce management.
Our complete end-to-end capabilities include Computer-Telephony Integration, or CTI, IVA, Interactive Voice Response, or IVR, WFA, Agent Assist, AI Insights, AI Summaries, Automatic Call/Contact Distribution, or ACD, with skills-based routing, reporting, dashboards, agent and supervisor desktops, outbound dialer, pre-built third-party integrations, quality management, speech and desktop analytics, customer surveys and workforce management. 5 Table of Contents Our solution provides the following advantages: • Rapid implementation, seamless updates and pre-built integrations.
We introduce new employees to our values during new hire orientation and our values are visible in the offer package as well as company employee resource pages.
In addition, we regularly celebrate employees that live our values through recognition and rewards. We introduce new employees to our values during new hire orientation and our values are visible in the offer package as well as company employee resource pages.
Our highly scalable, secure and multi-tenant architecture enables us to serve large multi-national enterprises with complex contact center requirements, regional or national enterprises in countries around the world, as well as smaller organizations, all from our platform comprised of physical data centers around the world and globally distributed public cloud regions, all interconnected with a robust, redundant, private WAN and diverse regionalized Internet connectivity. 6 Table of Contents • Rapid deployment and support of our comprehensive solution.
Our highly scalable, secure and multi-tenant architecture enables us to serve large multi-national enterprises with complex contact center requirements, as well as smaller organizations, all from our platform comprised of globally distributed physical data centers and public cloud deployments, all interconnected with a robust, redundant, private WAN and diverse regionalized Internet connectivity.
We have cultivated a robust ecosystem of partners including a variety of leading CRM software vendors such as Microsoft, Oracle, Salesforce, ServiceNow and Zendesk; WFO vendors such as Calabrio, Inc., or Calabrio, and Verint Systems Inc., or Verint; unified communications vendors such as Microsoft Teams, Nextiva, RingCentral and Zoom; system integrators such as Accenture PLC, Deloitte Consulting LLP, IBM, PwC LLP and Slalom Consulting, LLC; technology solution brokers, value-added resellers such as AT&T Inc. and CDW Corporation; independent software vendors; and telephony providers.
We have cultivated a robust ecosystem of partners including a variety of leading CRM software vendors such as Microsoft, Oracle, Salesforce, ServiceNow and Zendesk; WEM vendors such as Calabrio, Inc., or Calabrio, and Verint Systems Inc., or Verint; unified communications vendors such as Microsoft Teams, Nextiva, RingCentral and Zoom; system integrators such as Accenture PLC, Deloitte Consulting LLP, IBM, Kyndryl, Inc., PwC LLP and Slalom Consulting, LLC; technology solution distributors such as Avant, LLC, Intelysis and Telarus, value-added resellers such as British Telecom, CDW Corporation, NWN Carousel, Presidio Networked Solutions Group, LLC, and Worldwide Technologies; independent software vendors; and telephony providers.
To reduce waste, we use source compostable/recyclable kitchen products, centralized waste collection with an emphasis on recycling, established an E-waste program, implemented software tools to minimize printing waste and reduce equipment and toner purchases, and expanded our battery recycling program to include work-related and personal battery recycling.
To reduce waste, we use source compostable/recyclable kitchen products, centralized waste collection with an emphasis on recycling, established an E-waste program, implemented software tools to minimize printing waste and reduce equipment and toner purchases, and expanded our battery recycling program to include work-related and personal battery recycling. 12 Table of Contents We are also committed to complying with California’s climate legislation, SB-253 and SB-261.
Women represent 30% of our worldwide employees and racial and ethnic minorities represent 32% of our U.S. employees as of December 31, 2022. Women and ethnic minorities each represent 22% and 11%, respectively, of our executive leadership team and 33% and 22%, respectively, of our Board of Directors as of December 31, 2022.
Women represented 31% of our worldwide employees and racial and ethnic minorities represented 31% of our U.S. employees as of December 31, 2023. Women and ethnic minorities each represented 27% and 9%, respectively, of our executive leadership team and 22% and 11%, respectively, of our Board of Directors, or Board, as of December 31, 2023.
Living our values everyday results in a unique and powerful culture that we call “winning culture” in which every member on our team is passionately committed to achieve this collective success.
Living our values everyday results in a unique and powerful culture that we call “winning culture” in which every member on our team is passionately committed to achieve collective success. This powerful team-first culture enables us to overcome obstacles and win year after year, while enjoying the journey together.
We believe that AI is having, and is likely to have, an increasingly profound impact in how businesses deliver service to their customers. Clients We have a large, diverse and global client base comprised of more than 2,500 organizations as of December 31, 2022, with no single client representing more than 10% of our revenues in 2022, 2021 or 2020.
We believe that AI, and Generative AI in particular, will profoundly impact how businesses deliver services to their customers. Clients We have a large, diverse and global client base comprised of more than 3,000 organizations as of December 31, 2023, with no single client representing more than 10% of our revenues in 2023, 2022 or 2021.
We offer online self-service demos to allow prospective clients to learn about the features and functionality of our cloud platform in more detail. We also offer proof of concept service packages, which include return-on-investment analyses conducted by third parties, to allow prospects to experience the quality and ease-of-use of our cloud solution and quantify the potential benefits of our deployment.
We also offer proof of concept service packages and trial opportunities, which include return-on-investment analyses conducted by third parties, to allow prospects to experience the quality and ease-of-use of our cloud solution and quantify the potential benefits of our deployment model. Direct Sales.
Our solution has robust intelligence and analytics capabilities to help supervisors optimize operations and campaigns in real-time to drive increased efficiency. Our role-based interfaces deliver specific functionality to both desktops and mobile devices to meet the unique needs of agents, supervisors and administrators. • Compelling value proposition.
Our role-based interfaces deliver specific functionality to both desktops and mobile devices to meet the unique needs of agents, supervisors and administrators. • Compelling value proposition.
As a result, we are typically able to deploy and optimize our solution in significantly less time than required for deployments of legacy on-premise contact center systems.
Our cloud solution allows us to eliminate the need for lengthy and complex technology integrations, such as deploying equipment or maintaining hardware infrastructure for individual clients. As a result, we are typically able to deploy and optimize our solution in significantly less time than required for deployments of legacy on-premise contact center systems.
As of December 31, 2022, our intellectual property portfolio included three registered U.S. trademarks, 15 issued U.S. patents, one pending U.S. patent application and one registered U.S. copyright. As of December 31, 2022, outside the U.S. we also had 10 trademark registrations, five issued patents and two pending international Patent Cooperation Treaty, or PCT, patent applications.
As of December 31, 2023, our intellectual property portfolio included three registered U.S. trademarks, two pending U.S. trademark applications, 16 issued U.S. patents, one pending U.S. patent application and one registered U.S. copyright.
As a result, our clients’ contact centers become fully operational faster and they recognize time to value more quickly than with legacy on-premise contact center systems. • Reliable, secure, compliant and scalable platform.
In addition, we assign customer success representatives to every customer. These customer success representatives build deep relationships with our customers to help maximize the value of our platform. As a result, our clients’ contact centers become fully operational faster and they recognize time to value quicker than with legacy on-premise contact center systems. • Reliable, secure, compliant and scalable platform.
The expiration dates of our issued patents range from 2030 to 2041. In general, our patents and patent applications apply to aspects of our VCC cloud platform. We are also a party to various license agreements with third parties that typically grant us the right to use certain third-party technology in conjunction with our solution.
We are also a party to various license agreements with third parties that typically grant us the right to use certain third-party technology in conjunction with our solution.
The Telecommunications Act of 1996 vests the Federal Communications Commission, or FCC, with jurisdiction over interstate telecommunications services, while preserving state and local jurisdiction over many aspects of these services. As a result, telecommunications services are regulated at both the federal and state levels in the United States. We are classified as a telecommunications service provider for federal regulatory purposes.
As a result, telecommunications services are regulated at both the federal and state levels in the United States. We are classified as a telecommunications service provider for federal regulatory purposes.
Our values are instrumental in the semi-annual employee performance self-reflection cycle, and we request that employees share how they have lived our values. In addition, we regularly celebrate employees that live our values through recognition and rewards.
Our values are woven throughout the entire employee lifecycle and used in the interview process to ensure we hire candidates that have personal values that align with ours. Our values are instrumental in the semi-annual employee performance self-reflection cycle, and we request that employees share how they have lived our values.
Contact centers are a rich source of the data that powers AI, from call detail records to full recordings of calls and customer interactions. With recent advances in automatic speech recognition, voice recordings are becoming a source for training machine-learning models.
Contact centers are a rich source of the data that powers AI, from call detail records to full recordings of calls and customer interactions. Recent advances in Generative AI enable us to deliver even more innovation by integrating it deep into our VCC platform.
Our regulatory obligations in foreign jurisdictions could impact the use or cost of our solution in international locations as data protection and privacy laws and regulations around the world continue to evolve. 13 Table of Contents The legislative and regulatory scheme for telecommunications service providers and other solutions we provide will continue to evolve and can be expected to change the competitive environment for these services.
Our regulatory obligations in foreign jurisdictions could impact the use or cost of our solution in international locations as data protection and privacy laws and regulations around the world continue to evolve, and which may also address the use of certain types of AI-based systems and solutions within their scope.
Regulatory The following summarizes important, but not all, federal, state and foreign regulations that could impact our operations. Federal and state regulations are subject to judicial review, administrative revision and statutory changes through legislation that could materially affect how we and others in this industry operate.
Federal and state regulations are subject to judicial review, administrative revision and statutory changes through legislation that could materially affect how we and others in this industry operate. The Telecommunications Act of 1996 vests the Federal Communications Commission, or FCC, with jurisdiction over interstate telecommunications services, while preserving state and local jurisdiction over many aspects of these services.
This insight provides an organization-wide view of customer engagement performance and allows clients to quickly address changing circumstances. • Greater operational efficiency. Our solution provides contact center managers and supervisors with significant visibility into their agents’ productivity and effectiveness and the performance of their inbound queues and outbound campaigns.
Our solution provides contact center managers and supervisors with significant visibility into their agents’ productivity and effectiveness and the performance of their inbound queues and outbound campaigns. Our solution has robust intelligence and analytics capabilities to help supervisors optimize operations and campaigns in real-time to drive increased efficiency.
Compensation Philosophy We strive to attract and retain the best employees by providing a total rewards package that is at or above market rates to enable us to attract and retain employee talent needed to accomplish our goals and objectives.
Total Rewards Philosophy 11 Table of Contents Our total rewards philosophy is a comprehensive approach designed to attract, engage, and retain the best talent in our industry by providing a total rewards package that is at or above market rates and, in cases where business demands are unique, we may lead the competitive market.
In addition, we have several Employee Resource Groups, or ERGs, that are committed to diversity and creating and fostering a culture of inclusion. Our ERGs include Women In Tech, Blatinx, Veterans, Five9 Faith and Pride @ Five9.
We recruit from various diversity organizations, including historically black colleges and universities, the Professional Diversity Network, Military 2 Career, Ability Careers, Asian Career Network, Women’s Career Channel, Black Career Network, LGBTQ+ Career Network, and Ihispano. In addition, we have several Employee Resource Groups, or ERGs, that are committed to diversity and creating and fostering a culture of inclusion.
In 2022, we returned to an almost fully in-person mode for our annual CX Summit and saw attendance increase by approximately 30% from the last fully in-person event in 2019. In addition, our industry analyst, press and media outreach programs, and web site marketing initiatives are designed to build brand awareness and preference for our solution.
In addition, our industry analyst, press and media outreach programs, and web site marketing initiatives are designed to build brand awareness and preference for our solution. We offer online self-service demos and instructional videos to help prospective clients learn about the features and functionality of our cloud platform.
Professional Services We offer global comprehensive professional services to our clients to assist in the successful implementation and optimization of our solution. Our professional services include application configuration, system integration, and education and training.
Our professional services include application configuration, system integration, and education and training. Our clients may use our professional services team for implementing our solution or, in many cases, they may choose to perform these services themselves or engage with one of our certified implementation partners to perform these services.
Third is cloud-based technology advancements in areas such as artificial intelligence, or AI, which are enabling improved customer experience, significant operational efficiencies and business insights.
Third is advancements in artificial intelligence, or AI, which enable improved customer experience, significant operational efficiencies and business insights. The recent advances in Generative AI, including Large Language Models, or LLMs, enable new capabilities in contact centers that were not possible in prior generations.
It is not possible to predict how such evolution and changes will affect our business or our industry.
The legislative and regulatory scheme, as well as the information governance programs, relevant to telecommunications service providers and other solutions we provide will continue to evolve and can be expected to change the competitive environment for these services. It is not possible to predict how such evolution and changes will affect our business or our industry.
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For example, real-time, accurate and increasingly cost-effective automatic speech recognition and natural language processing are increasingly allowing mundane contact center tasks to be handled efficiently and effectively by virtual agents, allowing live agents to focus on more complex issues.
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Our AI Summaries feature uses Generative AI to automatically summarize a call at the end, reducing after-call work time. Natural language voice and chat bots, using Generative AI, speech recognition, intent detection, and text-to-speech technologies quickly and effectively handle mundane contact center tasks, allowing agents to focus on more complex issues.
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We have adapted to various COVID-19 restrictions by converting our user group meeting from in-person to virtual and switching from in-person to fully virtual or hybrid attendance at various trade shows.
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Generative AI technologies are also used in our AI Insights product, which gives customers an understanding of reasons for customer calls, customer sentiment, and call resolution status, with little up-front configuration. AI technologies generally require cloud deployment and, therefore, provide additional incentives for customers to move off their legacy on-premise solutions.
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Our clients may use our professional services team for implementing our solution or, in limited cases, they may also choose to perform these services themselves or engage third-party service providers to perform these services. Our cloud solution allows us to eliminate the need for lengthy and complex technology integrations, such as deploying equipment or maintaining hardware infrastructure for individual clients.
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Our advanced reporting solution enables us to connect to external data sources such as ACDs, WEM platforms, CRM solutions, and many more pre-built integrations. This insight provides an organization-wide view of customer engagement performance and allows clients to quickly address changing circumstances. • Greater operational efficiency.
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This powerful team-first culture enables us to overcome any adversity or obstacle and win year after year while enjoying the journey together. 10 Table of Contents Our values are woven throughout the entire employee lifecycle and used in the interview process to ensure we hire candidates that have personal values that align with ours.
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We have also commenced investments in a dedicated U.S.-based data center deployment to support Federal Risk and Authorization Management Program, or FedRAMP, customers. • Rapid deployment and support of our comprehensive solution.
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Diversity & Inclusion at Five9 We value diversity and hold ourselves accountable to create a culture where our employees represent the communities in which we operate. We embrace authenticity and trust and lead with transparency, empowering our employees to have a voice that's heard.
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This network has helped us attract additional clients, and we continue to empower these partnerships to participate in the delivery of our solution and extend the total customer value gained from unique integrated value propositions. Professional Services We offer global comprehensive professional services to our clients to assist in the successful implementation and optimization of our solution.
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We are committed to learning, empowering, advocating, allying and supporting each other within our company and in our communities. Our recruiting programs support and encourage diversity. We recruit from various diversity organizations, including historically black colleges and universities, the Career Cast Diversity Network of Women, Black, Hispanic, Asian, LGBTQIA, the Career Cast Disability Network, and the Career Cast Veteran Network.
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As of December 31, 2023, outside the U.S. we also had 10 trademark registrations, five issued patents and three pending international Patent Cooperation Treaty, or PCT, patent applications. The expiration dates of our issued patents range from 2030 to 2041. In general, our patents and patent applications apply to aspects of our VCC cloud platform.
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We are currently working with Black Girls Code to offer an online educational session for underserved girls enlisted in their program and our female employees are facilitating the class. We have also created a mentorship program with a specific eye towards diversity.
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Diversity & Inclusion at Five9 At Five9, we celebrate diversity and foster an inclusive environment by creating a culture where our employees can be their authentic selves. We integrate our core values of honesty and respect and lead with transparency and inclusivity. We are committed to building belonging in our workplace and society at large.
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Executive sponsors of the program reach out to employees from underrepresented groups to promote the program and encourage employees to participate. Our human resources team pairs mentors with mentees to enable employees to receive opportunities for growth and development.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisk Factors Summary The following is a summary of the principal risks that could adversely affect our business, financial condition, results of operations, and future prospects. • Adverse economic conditions, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, and other factors, may continue to harm our business. • If we are unable to attract new clients or sell additional services and functionality to our existing clients, our revenue and revenue growth will be harmed. • If our existing clients terminate their subscriptions or reduce their subscriptions and related usage, or fail to grow subscriptions at the rate they have in the past or that we might expect, our revenues and gross margins will be harmed, and we will be required to spend more money to grow our client base. • Because a significant percentage of our revenue is derived from existing clients, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern. • We have established, and are continuing to increase, our network of technology solution brokers and resellers to sell our solution; our failure to effectively develop, manage, and maintain this network could materially harm our revenues. 14 Table of Contents • Our quarterly and annual results may fluctuate significantly, including as a result of the timing and success of new product and feature introductions by us, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock. • Our recent rapid growth may not be indicative of our future growth, and even if we continue to grow rapidly, we may fail to manage our growth effectively. • Our recent Chief Executive Officer transition could disrupt our operations, result in additional executive and personnel transitions and make it more difficult for us to hire and retain employees. • Failure to adequately retain and expand our sales force will impede our growth. • If we fail to manage our technical operations infrastructure, our existing clients may experience service outages, our new clients may experience delays in the deployment of our solution and we could be subject to, among other things, claims for credits or damages. • Our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully maintain, grow and manage these relationships could harm our business. • The markets in which we participate involve a high number of competitors that is continuing to increase, and if we do not compete effectively, our operating results could be harmed. • We continue to expand our international operations, which exposes us to significant macroeconomic and other risks. • Security breaches and improper access to or disclosure of our data or our clients’ data, or other cyber attacks on our systems, could result in litigation and regulatory risk, harm our reputation and our business. • We may acquire other companies, or technologies or be the target of strategic transactions, or be impacted by transactions by other companies, which could divert our management’s attention, result in additional dilution to our stockholders or use a significant amount of our cash resources and otherwise disrupt our operations and harm our operating results. • We sell our solution to larger organizations that require longer sales and implementation cycles and often demand more configuration and integration services or customized features and functions that we may not offer, any of which could delay or prevent these sales and harm our growth rates, business and operating results. • We rely on third-party telecommunications and internet service providers to provide our clients and their customers with telecommunication services and connectivity to our cloud contact center software and any failure by these service providers to provide reliable services could cause us to lose clients and subject us to claims for credits or damages, among other things. • We have a history of losses and we may be unable to achieve or sustain profitability. • The contact center software solutions market is subject to rapid technological change, and we must develop and sell incremental and new solutions in order to maintain and grow our business. • Our stock price has been volatile, may continue to be volatile and may decline, including due to factors beyond our control. • We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs. • Failure to comply with laws and regulations could harm our business and our reputation. • We may not have sufficient cash to service our convertible senior notes and repay such notes, if required.
Biggest changeRisk Factors Summary The following is a summary of the principal risks that could adversely affect our business, financial condition, results of operations, and future prospects. • Adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, and other factors, may continue to harm our business. • If we are unable to attract new clients or sell additional services and functionality to our existing clients, our revenue and revenue growth will be harmed. • If our existing clients terminate their subscriptions or reduce their subscriptions and related usage, or fail to grow subscriptions at the rate they have in the past or that we might expect, our revenues and gross margins will be harmed, and we will be required to spend more money to grow our client base. • Because a significant percentage of our revenue is derived from existing clients, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern. • If we fail to manage our technical operations infrastructure, our existing clients may experience service outages, our new clients may experience delays in the deployment of our solution and we could be subject to, among other things, claims for credits or damages. • We have established, and are continuing to increase, our network of technology solution distributors and resellers to sell our solution; our failure to effectively develop, manage, and maintain this network could materially harm our revenues. 15 Table of Contents • Our quarterly and annual results may fluctuate significantly, including as a result of the timing and success of new product and feature introductions by us, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock. • Our historical growth may not be indicative of our future growth, and even if we continue to grow rapidly, we may fail to manage our growth effectively. • Failure to adequately retain and expand our sales force will impede our growth. • Further development of our AI solutions may not be successful and may result in reputational harm and our future operating results could be materially harmed. • The AI technology and features incorporated into our solution include new and evolving technologies that may present both legal and business risks. • The use of AI by our workforce may present risks to our business. • The contact center software solutions market is subject to rapid technological change, and we must develop and sell incremental and new solutions in order to maintain and grow our business. • Our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully maintain, grow and manage these relationships could harm our business. • The markets in which we participate involve a high number of competitors that is continuing to increase, and if we do not compete effectively, our operating results could be harmed. • We continue to expand our international operations, which exposes us to significant macroeconomic and other risks. • Security breaches and improper access to, use of, or disclosure of our data or our clients’ data, or other cyber attacks on our systems, could result in litigation and regulatory risk, harm our reputation, our business or financial results. • We may acquire other companies, or technologies or be the target of strategic transactions, or be impacted by transactions by other companies, which could divert our management’s attention, result in additional dilution to our stockholders or use a significant amount of our cash resources and otherwise disrupt our operations and harm our operating results. • We sell our solution to larger organizations that require longer sales and implementation cycles and often demand more configuration and integration services or customized features and functions that we may not offer, any of which could delay or prevent these sales and harm our growth rates, business and operating results. • We rely on third-party telecommunications and internet service providers to provide our clients and their customers with telecommunication services and connectivity to our cloud contact center software and any failure by these service providers to provide reliable services could cause us to lose clients and subject us to claims for credits or damages, among other things. • We have a history of losses and we may be unable to achieve or sustain profitability. • Our stock price has been volatile, may continue to be volatile and may decline, including due to factors beyond our control. • We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs. • Failure to comply with laws and regulations could harm our business and our reputation. • We may not have sufficient cash to service our convertible senior notes and repay such notes, if required.
Since our business is regulated by the FCC, we are subject to existing or potential FCC regulations relating to privacy, disability access, porting of numbers, USF contributions and other requirements.
Since our business is regulated by the FCC, we are subject to existing or potential FCC regulations relating to privacy, disability access, access to and porting of numbers, USF contributions and other requirements.
As we increase our international sales efforts and continue and increase our other international operations, we will face increased risks in doing business internationally that could harm our business, including: • the need to establish and protect our brand in international markets; • the need to localize and adapt our solution for specific countries, including translation into foreign languages and associated costs and expenses; • difficulties in staffing and managing foreign operations, particularly hiring and training qualified sales and service personnel; 28 Table of Contents • the need to implement and offer customer care, in various languages; • different pricing environments, longer sales and accounts receivable payment cycles and collections issues; • weaker protection for intellectual property and other legal rights than in the U.S. and practical difficulties in enforcing intellectual property and other rights outside of the U.S.; • privacy and data protection laws and regulations that are complex, expensive to comply with and may require that client data be stored and processed in a designated territory; • increased risk of piracy, counterfeiting and other misappropriation of our intellectual property in our locations outside the U.S.; • new and different sources of competition; • general economic conditions in international markets; • fluctuations in the value of the U.S. dollar and foreign currencies, which may make our solution more expensive in other countries or may increase our costs, impacting our operating results when translated into U.S. dollars; • compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, telecommunications and telemarketing laws and regulations; • increased risk of international telecom fraud; • laws and business practices favoring local competitors; • compliance with laws and regulations applicable to foreign operations and cross border transactions, including the Foreign Corrupt Practices Act, the U.K.
As we increase our international sales efforts and continue and increase our other international operations, we will face increased risks in doing business internationally that could harm our business, including: • the need to establish and protect our brand in international markets; • the need to localize and adapt our solution for specific countries, including translation into foreign languages and associated costs and expenses; • difficulties in staffing and managing foreign operations, particularly hiring and training qualified sales and service personnel; • the need to implement and offer customer care, in various languages; • different pricing environments, longer sales and accounts receivable payment cycles and collections issues; • weaker protection for intellectual property and other legal rights than in the U.S. and practical difficulties in enforcing intellectual property and other rights outside of the U.S.; • privacy and data protection laws and regulations that are complex, expensive to comply with and may require that client data be stored and processed in a designated territory; • increased risk of piracy, counterfeiting and other misappropriation of our intellectual property in our locations outside the U.S.; • new and different sources of competition; 30 Table of Contents • general economic conditions in international markets; • fluctuations in the value of the U.S. dollar and foreign currencies, which may make our solution more expensive in other countries or may increase our costs, impacting our operating results when translated into U.S. dollars; • compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, telecommunications and telemarketing laws and regulations; • increased risk of international telecom fraud; • laws and business practices favoring local competitors; • compliance with laws and regulations applicable to foreign operations and cross border transactions, including the Foreign Corrupt Practices Act, the U.K.
Any or all of these issues could harm our ability to attract new clients, cause existing clients to cancel, reduce or not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits, governmental investigations and enforcement actions, regulatory fines or other action or liability, including orders or consent decrees forcing us to modify our business practices, all of which could materially harm our business, reputation or financial results.
Any or all of these issues could harm our ability to attract new clients, cause existing clients to cancel, reduce or not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits (including class actions), governmental investigations and enforcement actions, regulatory fines or other action or liability, including orders or consent decrees forcing us to modify our business practices, all of which could materially harm our business, reputation or financial results.
Subscriptions and related usage by our existing clients may decrease if: • our clients’ business or demand for our services slows or declines due to industry cycles, seasonality, business difficulties or other reasons, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, or other factors; • clients are not satisfied with our services, prices or the functionality of our solution; • the stability, performance or security of our solution are not satisfactory; • the U.S. or global economy declines; • clients favor products offered by other contact center providers, particularly as competition continues to increase; • fewer clients purchase usage from us; • alternative technologies, products or features emerge or gain popularity that we do not provide; or • our clients or potential clients experience financial difficulties, including as a result of macroeconomic deterioration.
Subscriptions and related usage by our existing clients may decrease if: • our clients’ business or demand for our services slows or declines due to industry cycles, seasonality, business difficulties or other reasons, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors; • clients are not satisfied with our services, prices or the functionality of our solution; • the stability, performance or security of our solution are not satisfactory; • the U.S. or global economy declines; • clients favor products offered by other contact center providers, particularly as competition continues to increase; • fewer clients purchase usage from us; • alternative technologies, products or features emerge or gain popularity that we do not provide; or • our clients or potential clients experience financial difficulties, including as a result of macroeconomic deterioration.
Our amended and restated certificate of incorporation and amended and restated bylaws: • provide that our board of directors is classified into three classes of directors; 45 Table of Contents • provide that stockholders may remove directors only for cause; • provide that the authorized number of directors may be changed only by resolution of the board of directors; • provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; • provide that our stockholders may not take action by written consent, and may only take action at annual or special meetings of our stockholders; • provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice; • restrict the forum for certain litigation against us to Delaware; • restrict the forum for complaints asserting a cause of action under the Securities Act to the federal district courts; • do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election); • provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer or the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and • provide that stockholders will be permitted to amend our amended and restated bylaws and certain parts of our amended and restated certificate of incorporation only upon receiving at least 66 2 / 3 % of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.
Our amended and restated certificate of incorporation and amended and restated bylaws: • provide that our board of directors is classified into three classes of directors; • provide that stockholders may remove directors only for cause; • provide that the authorized number of directors may be changed only by resolution of the board of directors; • provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; • provide that our stockholders may not take action by written consent, and may only take action at annual or special meetings of our stockholders; • provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice; • restrict the forum for certain litigation against us to Delaware; • restrict the forum for complaints asserting a cause of action under the Securities Act to the federal district courts; • do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election); • provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer or the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and • provide that stockholders will be permitted to amend our amended and restated bylaws and certain parts of our amended and restated certificate of incorporation only upon receiving at least 66 2 / 3 % of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.
Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources, for further discussion of our elections to satisfy our conversion obligations. In addition, in connection with the issuance of the 2023 convertible senior notes and the 2025 convertible senior notes, we entered into capped call transactions with certain financial institutions, or the Option Counterparties.
Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources, for further discussion of our elections to satisfy our conversion obligations. In addition, in connection with the issuance of the 2025 convertible senior notes, we entered into capped call transactions with certain financial institutions, or the Option Counterparties.
If the mix of organizations that purchase our solution changes unfavorably, our revenues and gross margins could decrease, and our operating results could be harmed. We have a history of losses and we may be unable to achieve or sustain profitability. We have incurred losses in each annual period since our inception in 2001.
If the mix of organizations that purchase our solution changes, our revenues and gross margins could decrease, and our operating results could be harmed. We have a history of losses and we may be unable to achieve or sustain profitability. We have incurred losses in each annual period since our inception in 2001.
If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness or repurchase any convertible senior notes when required, or to make cash payments upon conversions thereof.
If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness or repurchase the 2025 convertible senior notes when required, or to make cash payments upon conversions thereof.
While we have been in existence since 2001, much of our employee, revenue and operations growth has occurred in recent years. Our recent growth may make it difficult for investors to evaluate our current business and our future prospects.
While we have been in existence since 2001, much of our employee, revenue and operations growth has occurred in recent years. Our historical growth may make it difficult for investors to evaluate our current business and our future prospects.
The STIR/SHAKEN regulatory framework creates a significant business risk for companies such as ours that include clients that originate large volumes of telephone calls to consumers because, if an intermediate or terminating carrier is unable to verify the authenticity of an incoming call from one of our clients, they may block the call, preventing it from reaching the intended party, which would damage our relationship with our clients, and make our solution less attractive to our clients and potential clients.
The STIR/SHAKEN regulatory framework creates a significant business risk for companies such as ours that include clients that originate large volumes of telephone calls to consumers because, if an intermediate or terminating carrier is unable to verify the authenticity of an incoming call from one of our clients, they may, or may be required to block the call, preventing it from reaching the intended party, which would damage our relationship with our clients, and make our solution less attractive to our clients and potential clients.
If and to the extent the conditional conversion feature of our 2025 convertible senior notes is triggered, holders of such convertible senior notes will be entitled to convert their convertible senior notes at any time during specified periods at their option.
If and to the extent the conditional conversion feature of our 2025 convertible senior notes is triggered, holders of the 2025 convertible senior notes will be entitled to convert their 2025 convertible senior notes at any time during specified periods at their option.
We believe our revenue growth will depend on a number of factors, including our ability to: • compete with other vendors of cloud-based enterprise contact center systems, including recent market entrants, and with providers of legacy on-premise systems; • increase our existing clients’ use of our solution, including additional and new features of our solution; • maintain our existing clients and their level of subscriptions and related usage, and grow subscriptions within our existing client base; 17 Table of Contents • respond to adverse economic conditions, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, or other factors; • respond to general macro economic factors and industry and market conditions; • further develop our partner ecosystem; • strengthen and improve our solution through significant investments in research and development and the introduction of new and enhanced features and functionality, such as our AI enabled automation features; • introduce our solution to new markets outside of the United States and increase global awareness of our brand; and • selectively pursue acquisitions that enhance our solution offerings.
We believe our revenue growth will depend on a number of factors, including our ability to: 18 Table of Contents • compete with other vendors of cloud-based enterprise contact center systems, including recent market entrants, and with providers of legacy on-premise systems; • increase our existing clients’ use of our solution, including additional and new features of our solution; • maintain our existing clients and their level of subscriptions and related usage, and grow subscriptions within our existing client base; • respond to adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors; • respond to general macro economic factors and industry and market conditions; • further develop our partner ecosystem; • strengthen and improve our solution through significant investments in research and development and the introduction of new and enhanced features and functionality, such as our AI enabled automation features; • introduce our solution to new markets outside the United States and increase global awareness of our brand; and • selectively pursue acquisitions that enhance our solution offerings.
Transactions relating to the convertible senior notes may dilute the ownership interests of our existing stockholders or adversely affect the market price of our common stock; the trading price of our convertible senior notes may be affected by volatility in the price of our common stock.
Transactions relating to the 2025 convertible senior notes may dilute the ownership interests of our existing stockholders or adversely affect the market price of our common stock; the trading price of our 2025 convertible senior notes may be affected by volatility in the price of our common stock.
If so, we and our customers are at risk of enforcement actions taken by EU data protection authorities or litigation from consumer advocacy groups acting on behalf of data subjects.
If so, we and our customers are at risk of enforcement actions taken by data protection authorities or litigation from consumer advocacy groups acting on behalf of data subjects.
The regulations to which we are subject (in whole or in part) include: • the TRACED Act and corresponding regulations from the FCC, which requires carriers to authenticate incoming calls using the STIR/SHAKEN caller ID framework and correspondingly compels providers of telecommunications services to implement capabilities to certify as authentic the traffic they provide to those carriers; • the Communications Assistance for Law Enforcement Act, or CALEA, which requires covered entities to assist law enforcement in undertaking electronic surveillance; 38 Table of Contents • enhanced 911 rules, KARI’s Law and RAY BAUM’s Act, which, in some circumstances, require telecommunications service providers to ensure their users can directly dial 911 emergency services and, if technically feasible, automatically convey dispatchable location information with the call; • contributions to the USF which requires that we pay a percentage of our revenues resulting from the provision of interstate and some international telecommunications services to support certain federal programs; • payment of annual FCC regulatory fees based on our interstate and international revenues; • rules pertaining to access to our services by people with disabilities and contributions to the Telecommunications Relay Services fund; and • FCC rules regarding CPNI which requires that we limit disclosure of certain information received from customers without client approval, subject to certain exceptions.
The regulations to which we are subject (in whole or in part) include: • the TRACED Act and corresponding regulations from the FCC, which requires carriers to authenticate incoming calls using the STIR/SHAKEN caller ID framework and correspondingly compels providers of telecommunications services to implement capabilities to certify as authentic the traffic they provide to those carriers, and to block transmission of certain calls; • the Communications Assistance for Law Enforcement Act, or CALEA, which requires covered entities to assist law enforcement in undertaking electronic surveillance; • enhanced 911 rules, KARI’s Law and RAY BAUM’s Act, which, in some circumstances, require telecommunications service providers to ensure their users can directly dial 911 emergency services and, if technically feasible, automatically convey dispatchable location information with the call; • contributions to the USF which requires that we pay a percentage of our revenues resulting from the provision of interstate and some international telecommunications services to support certain federal programs; • payment of annual FCC regulatory fees based on our interstate and international revenues; • rules pertaining to access to our services by people with disabilities and contributions to the Telecommunications Relay Services fund; and • FCC rules regarding CPNI which requires that we limit disclosure of certain information received from customers without client approval, subject to certain exceptions.
We leverage strategic relationships with third parties, such as CRM providers, WFO providers, systems integrators, telephony and other technology providers. For example, our relationship with CRM providers and systems integrators provide significant lead generation for new client opportunities. These relationships are typically not exclusive and our partners often also offer products of our competitors.
We leverage strategic relationships with third parties, such as CRM providers, WEM providers, systems integrators, telephony and other technology providers. For example, our relationship with CRM providers and systems integrators provide significant lead generation for new client opportunities. These relationships are typically not exclusive and our partners often also offer products of our competitors.
We have accrued a contingent liability of $1.2 million for our best estimate of the probable amount of taxes and surcharges that may be imposed by various states and municipalities on our activities, including our usage-based and subscription services, prior to registration.
We have accrued a contingent liability of $1.7 million for our best estimate of the probable amount of taxes and surcharges that may be imposed by various states and municipalities on our activities, including our usage-based and subscription services, prior to registration.
Professional services and technical support may be performed by our own staff or, in a select subset of cases, by third parties. Our professional services offerings have lower or negative margins. Accordingly, any increase in sales of professional services could harm our gross margins and operating results.
Professional services and technical support may be performed by our own staff or, in a select subset of cases, by third parties. Our professional services offerings currently have negative margins. Accordingly, any increase in sales of professional services could harm our gross margins and operating results.
Our competitors or other organizations may incorporate AI features into their products more quickly or more successfully and their AI features may achieve higher market acceptance than ours, which may result in us failing to recoup our investments in developing AI-powered applications and result in lost business.
Furthermore, our competitors or other organizations may incorporate AI features into their products more quickly or more successfully and their AI features may achieve higher market acceptance than ours, which may result in us failing to recoup our investments in developing AI-powered features and result in lost business.
We have elected to satisfy our obligations through the payment of cash in certain circumstances, the issuance of shares of common stock in other circumstances, or a combination thereof, to such convertible senior note holders. See Part II, Item 7.
Historically, we have elected to satisfy our convertible senior note conversion obligations through the payment of cash in certain circumstances, the issuance of shares of common stock in other circumstances, or a combination thereof, to such convertible senior note holders. See Part II, Item 7.
If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or if our independent registered public accounting firm is unable to attest that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our 32 Table of Contents common stock could decrease.
If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or if our independent registered public accounting firm is unable to attest that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decrease.
State and local taxing and regulatory authorities may 36 Table of Contents challenge our position and may decide to audit our business and operations with respect to state or local sales, use, gross receipts, excise and utility user taxes, fees or surcharges, which could result in our being liable for taxes, fees, or surcharges, as well as related penalties and interest, above our recorded accrued liability or additional liability for taxes, fees, or surcharges, as well as penalties and interest for our clients, which could harm our results of operations and our relationships with our clients.
State and local taxing and regulatory authorities may challenge our position and may decide to audit our business and operations with respect to state or local sales, use, gross receipts, excise and utility user taxes, fees or surcharges, which could result in our being liable for taxes, fees, or surcharges, as well as related penalties and interest, above our recorded accrued liability or additional liability for taxes, fees, or surcharges, as well as penalties and interest for our clients, which could harm our results of operations and our relationships with our clients.
Complying with these obligations involves continued expenditures that could increase as more consumers exercise their rights under the statute. The U.S. state privacy laws create new and potentially severe statutory damages frameworks for violations of their provisions. Additionally, the CCPA creates a private right of action for consumers whose personal data is subject to a data breach.
Complying with these obligations involves continued expenditures that could increase as more consumers exercise their privacy law rights. The U.S. state privacy laws create new and potentially severe statutory damages frameworks for violations of their provisions. Additionally, the CCPA creates a private right of action for consumers whose personal data is subject to a data breach.
The capped call transactions are expected generally to reduce the potential dilution to holders of our common stock upon any conversion or settlement of either series of convertible notes and/or offset any cash payments we are required to make in excess of the principal amount of such convertible senior notes, as the case may be, with such reduction and/or offset subject to a cap under the terms of the capped call transactions.
The capped call transactions are expected generally to reduce the potential dilution to holders of our common stock upon any conversion or settlement of the 2025 convertible notes and/or offset any cash payments we are required to make in excess of the principal amount of such 2025 convertible senior notes, as the case may be, with such reduction and/or offset subject to a cap under the terms of the capped call transactions.
Our international employees are primarily located in the Philippines, where technical support, training and other professional services are performed, Portugal, where we continue to transition portions of engineering and operations previously performed in Russia, and Australia, where additional portions of engineering and operations are now performed.
Our international employees are primarily located in the Philippines, where technical support, training and other professional services are performed, Portugal, where we continue to increase our engineering and operations previously performed in Russia, and Australia, where additional portions of engineering and operations are now performed.
The existence of such a patent, copyright or other protections, or our inability to negotiate a license for any such technology on acceptable terms, could force us to cease using such technology and offering solutions incorporating such technology. Others have claimed, or in the future may claim, that our solution and underlying technology infringe or violate their intellectual property rights.
The existence of such a patent, copyright or other protections, or our inability to negotiate a license for any such technology on acceptable terms, could force us to cease using such technology and offering solutions incorporating such technology. 35 Table of Contents Others have claimed, or in the future may claim, that our solution and underlying technology infringe or violate their intellectual property rights.
As the number of agent seats within our client base grows and our clients’ use of our service increases, we 23 Table of Contents need to continue to make additional investments in our capacity to maintain adequate and reliable availability, stability and performance, the availability of which may be limited or the cost of which may be prohibitive, and any failure may cause interruptions in service that may harm our business.
As the number of agent seats within our client base grows and our clients’ use of our service increases, we need to continue to make additional investments in our capacity to maintain adequate and reliable availability, stability and performance, the availability of which may be limited or the cost of which may be prohibitive, and any failure may cause interruptions in service that may harm our business.
In addition, we depend on our internet bandwidth suppliers to provide uninterrupted and error-free service through their telecommunications networks. Some of our services may require that users of our service obtain their own internet bandwidth. We exercise little control over these third-party providers, which increases our vulnerability to problems with the services they provide.
In addition, we depend on our internet bandwidth suppliers to provide uninterrupted and error-free service through their 28 Table of Contents telecommunications networks. Some of our services may require that users of our service obtain their own internet bandwidth. We exercise little control over these third-party providers, which increases our vulnerability to problems with the services they provide.
In May and June 2020, we issued $747.5 million in aggregate principal amount of the 2025 convertible senior notes in a private offering, all of which were outstanding as of December 31, 2022.
In May and June 2020, we issued $747.5 million in aggregate principal amount of the 2025 convertible senior notes in a private offering, all of which were outstanding as of December 31, 2023.
If we fail to maintain relationships with current technology solution brokers and resellers, fail to develop relationships with new technology solution brokers and resellers in new and existing markets, if we fail to manage, train, or provide appropriate incentives to our existing technology solution brokers and resellers, or if our technology solution brokers and resellers are not successful in their sales efforts, sales of our subscriptions may decrease or not grow at an appropriate rate and our operating results could be harmed.
If we fail to maintain relationships with current technology solution distributors and resellers, fail to develop relationships with new technology solution distributors and resellers in new and existing markets, if we fail to manage, train, enable, or provide appropriate incentives to our existing technology solution distributors and resellers, or if our technology solution distributors and resellers are not successful in their sales efforts, sales of our subscriptions may decrease or not grow at an appropriate rate and our operating results could be harmed.
As of December 31, 2022, we had accrued $0.1 million in interest related to the disputed assessments for the period of 2003 through 2007. See Note 10 to the consolidated financial statements.
As of December 31, 2023, we had accrued $0.1 million in interest related to the disputed assessments for the period of 2003 through 2007. See Note 10 to the consolidated financial statements.
Our success depends in large part upon the capacity, stability, security and performance of our technical operations infrastructure, which currently relies upon a mix of external data centers and, increasingly, public cloud providers. From time-to-time, we have experienced interruptions in service, and may experience such interruptions in the future.
Our success depends in large part upon the capacity, stability, security and performance of our technical operations infrastructure, which currently relies upon a mix of external data centers and, increasingly, public cloud providers. From time-to-time, we have experienced interruptions in service, and may experience such interruptions 24 Table of Contents in the future.
In addition, the FCC is requiring voice service providers to implement other robocall prevention measures, including registering with the FCC’s Robocall Mitigation Database and maintaining a robocall mitigation plan that includes conducting due diligence on customers to ensure they do not engage, or appear to engage, in robocalling or caller ID spoofing.
In addition, the FCC required voice service providers to implement other robocall prevention measures, including registering with the FCC’s Robocall Mitigation Database and maintaining a robocall mitigation plan that includes conducting due diligence on customers to ensure they do not engage, or appear to engage, in robocalling or caller ID spoofing.
To the extent that our solution 34 Table of Contents depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our solution, delay new product or solution introductions, result in increased costs, or a failure of our solution and injure our reputation.
To the extent that our solution depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our solution, delay new product or solution introductions, result in increased costs, or a failure of our solution and injure our reputation.
In addition, acquisitions of our clients could lead to cancellation of our contracts with those clients, thereby reducing the number of our existing and potential clients and key reference clients. Our clients may fail to comply with the terms of their agreements, necessitating action by us to collect payment, or may terminate their subscriptions for our solution.
In addition, acquisitions of our clients could lead to cancellation of our contracts with those clients, thereby reducing the number of our existing and potential clients and key reference clients. 21 Table of Contents Our clients may fail to comply with the terms of their agreements, necessitating action by us to collect payment, or may terminate their subscriptions for our solution.
Some of our competitors can devote significantly greater resources than we can to the development, promotion and sale of their products and services and many have the ability to initiate or withstand substantial price competition. Current or potential competitors may also be acquired by third parties with significantly greater 22 Table of Contents resources.
Some of our competitors can devote significantly greater resources than we can to the development, promotion and sale of their products and services and many have the ability to initiate or withstand substantial price competition. Current or potential competitors may also be acquired by third parties with significantly greater resources.
If we are unable to develop products, applications or features internally due to constraints, such as high employee turnover, insufficient cash, other cash needs of our business, inability to hire sufficient research and development personnel or a lack of other research and development resources, we may miss market opportunities.
If we are unable to develop products, applications or features internally due to constraints, such as high employee turnover, insufficient cash, other cash needs of our business, inability to hire sufficient research and development personnel or 27 Table of Contents a lack of other research and development resources, we may miss market opportunities.
Should a change in the conduct of our business be required, it may involve substantial expense and the diversion of resources from other aspects of our business, all of which may harm our business and results of operations. Jurisdictions outside of the EU are also considering and/or enacting comprehensive data protection legislation.
Should a change in the conduct of our business be required, it may involve substantial expense and the diversion of resources from other aspects of our business, all of which may harm our business and results of operations. 42 Table of Contents Jurisdictions outside of the EU are also considering and/or enacting comprehensive data protection legislation.
While approximately half of our Russian-citizen employees have received visas and have moved to Portugal, it was not feasible to move and retain all of the Russian-citizen employees in connection with growing our overall operations presence in Portugal, we have 27 Table of Contents expanded recruiting and employment-related efforts in Portugal to further enhance our operations.
While approximately half of our Russian-citizen employees have received visas and have moved to Portugal, it was not feasible to move and retain all of the Russian-citizen employees in connection with growing our overall operations presence in Portugal, we have expanded recruiting and employment-related efforts in Portugal to further enhance our operations.
The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solution.
The terms of various open source 36 Table of Contents licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solution.
Factors that may contribute to continuing volatility in the price of our common stock include: • actual or anticipated fluctuations or declines in our operating results; • the impact of adverse economic conditions, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, or other factors; • loss of clients or a reduction, or slower growth, in subscriptions or features subscribed to by our existing clients; • any major change in our board of directors or management, including in connection with our recent CEO transition; • loss of key personnel; • the impacts of the COVID-19 pandemic and related matters on the equity capital markets and economy in general, or on us or our industry in particular; • the financial projections we provide to the public, any changes in these projections, our failure to meet these projections, or our failure to exceed these projections by amounts or percentages expected by our investors and analysts; • failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • ratings changes by any securities analysts who follow our company; • sales of our common stock (or securities that convert into our common stock) by us or sales by our significant stockholders, or the public announcement of same; • the assessment of our business or position in our market published in research and other reports; • announcements by us or our competitors of significant product or technical innovations, financings, acquisitions, strategic partnerships, joint ventures or capital commitments; • entry into the market by new competitors, or the introduction of new products or the generation of new sales by us or our competitors; 44 Table of Contents • changes in operating performance and stock market valuations of other technology companies generally, or those in the software as a service industry in particular; • price and volume fluctuations in the overall stock market, including as a result of trends in the U.S. or global economy; • lawsuits threatened or filed against us; • security breaches or incidents impacting our clients or their customers and security breaches of companies that provide solutions similar to our solution, which could negatively impact our industry as a whole; • legislation or regulation of our business, the business of our clients, the internet and/or contact centers; • new entrants into and consolidations of the contact center market, including the transition by providers of legacy on-premise contact center systems to cloud solutions; • acquisitions by us or our competitors, and our ability to effectively integrate and achieve the desired benefits from acquisitions by us; • the perceived or real impact of events that harm our competitors; • developments with respect to patents or proprietary rights; and • other events or factors, including those resulting from war, incidents of terrorism or responses to these events, which would be unrelated to our business and industry, and outside of our control.
Factors that may contribute to continuing volatility in the price of our common stock include: • actual or anticipated fluctuations or declines in our operating results; • the impact of adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors; • loss of clients or a reduction, or slower growth, in subscriptions or features subscribed to by our existing clients; 45 Table of Contents • any major change in our board of directors or management; • the financial projections we provide to the public, any changes in these projections, our failure to meet these projections, or our failure to exceed these projections by amounts or percentages expected by our investors and analysts; • failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • ratings changes by any securities analysts who follow our company; • sales of our common stock (or securities that convert into our common stock) by us or sales by our significant stockholders, or the public announcement of same; • the assessment of our business or position in our market published in research and other reports; • announcements by us or our competitors of significant product or technical innovations, financings, acquisitions, strategic partnerships, joint ventures or capital commitments; • entry into the market by new competitors, or the introduction of new products or the generation of new sales by us or our competitors; • changes in operating performance and stock market valuations of other technology companies generally, or those in the software as a service industry in particular; • price and volume fluctuations in the overall stock market, including as a result of trends in the U.S. or global economy; • lawsuits threatened or filed against us; • security breaches or incidents impacting our clients or their customers and security breaches of companies that provide solutions similar to our solution, which could negatively impact our industry as a whole; • legislation or regulation of our business, the business of our clients, the internet and/or contact centers; • new entrants into and consolidations of the contact center market, including the transition by providers of legacy on-premise contact center systems to cloud solutions; • acquisitions by us or our competitors, and our ability to effectively integrate and achieve the desired benefits from acquisitions by us; • the perceived or real impact of events that harm our competitors; • loss of key personnel; • developments with respect to patents or proprietary rights; and • other events or factors, including those resulting from war, incidents of terrorism or responses to these events, which would be unrelated to our business and industry, and outside of our control.
The Court of Chancery or federal district courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and 46 Table of Contents such judgments or results may be more favorable to us than to our stockholders.
The Court of Chancery or federal district courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders.
Accordingly, there is no assurance that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability. Risks Related to Our Growth Our recent rapid growth may not be indicative of our future growth, and if we continue to grow rapidly, we may fail to manage our growth effectively.
Accordingly, there is no assurance that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability. Risks Related to Our Growth Our historical growth may not be indicative of our future growth, and if we continue to grow rapidly, we may fail to manage our growth effectively.
Moreover, we continue to expand our headcount and operations. We grew from 1,549 employees as of December 31, 2020, to 2,138 employees as of December 31, 2021, and to 2,380 employees as of December 31, 2022.
Moreover, we continue to expand our headcount and operations. We grew from 1,549 employees as of December 31, 2020, to 2,138 employees as of December 31, 2021, to 2,380 employees as of December 31, 2022, and to 2,684 employees as of December 31, 2023.
These strategic partners may cease to recommend our solution to prospective clients due to actual or perceived lack of features, technological or 18 Table of Contents security issues or failures, reputational concerns, economic incentives, or other factors, which would harm our business, financial condition and operations.
These strategic partners may cease to recommend our solution to prospective clients due to actual or perceived lack of features, technological or security issues or failures, reputational concerns, economic incentives, or other factors, which would harm our business, financial condition and operations.
Our failure to achieve or maintain expected performance levels, stability and security, particularly as we increase the number of users of our service and the product applications that run on our system, could harm our relationships with our clients, result in claims for credits or damages or other actions, damage our reputation, significantly reduce client demand for our solution, cause us to incur significant expense and personnel time replacing and upgrading our infrastructure, cause customer attrition, and harm our business.
Our failure to achieve or maintain expected performance levels, stability and security, particularly as we increase our number of larger clients and attract increasingly larger clients than in the past, the number of users of our service and the product applications that run on our system, could harm our relationships with our clients, result in claims for credits or damages or other actions, damage our reputation, significantly reduce client demand for our solution, cause us to incur significant expense and personnel time replacing and upgrading our infrastructure, cause customer attrition, and harm our business.
Any failure of our solution to operate effectively, including with future network platforms and technologies, could reduce the demand for our solution, result in client dissatisfaction and harm our business. 25 Table of Contents Our ability to continue to enhance our solution is dependent on adequate research and development resources.
Any failure of our solution to operate effectively, including with future network platforms and technologies, could reduce the demand for our solution, result in client dissatisfaction and harm our business. Our ability to continue to enhance our solution is dependent on adequate research and development resources.
We also face competition from many smaller contact center service providers such as Content Guru and Talkdesk, as well as vendors offering unified communications and contact center solutions such as Zoom. In addition, Amazon, Twilio and, most recently, Microsoft, have introduced solutions aimed at companies who wish to build their own contact centers and/or contact center components with developers.
We also face competition from many smaller contact center service providers such as Content Guru and Talkdesk, as well as vendors offering unified communications and contact center solutions such as Zoom. 23 Table of Contents In addition, Amazon, Twilio and, most recently, Microsoft, have introduced solutions aimed at companies who wish to build their own contact centers and/or contact center components with developers.
In addition, in order to effectively market and sell our solution in international markets, we often must localize our solution, including the language in which our solution is offered, which increases our costs, could result in delays in offering our solution in these markets and may decrease the effectiveness of our sales efforts.
In addition, in order to effectively market and sell our solution in international markets, we often must localize our solution, including the language in which our solution is offered, which increases our costs, could result in delays in offering our solution in 29 Table of Contents these markets and may decrease the effectiveness of our sales efforts.
In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies, particularly in connection with the continued macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict and the COVID-19 pandemic.
In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies, particularly in connection with the continued macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict and the conflict in Israel.
These uncertainties are exacerbated by the effects of recent adverse economic conditions, including macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, or other factors.
These uncertainties are exacerbated by the effects of recent adverse economic conditions, including macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors.
We may require additional capital to respond to business opportunities, challenges, acquisitions, a decline in sales, increased regulatory obligations or unforeseen circumstances and may engage in equity or debt financings or enter into credit facilities. We have a substantial amount of debt.
We may require additional 33 Table of Contents capital to respond to business opportunities, challenges, acquisitions, a decline in sales, increased regulatory obligations or unforeseen circumstances and may engage in equity or debt financings or enter into credit facilities. We have a substantial amount of debt.
To the extent any court finds that the software solution violated a controlling legal standard, we could face indemnification demands from our clients for costs, fees and damages with respect to calls placed using that solution. It also is possible that we may not successfully enforce or collect upon our contractual indemnities from our clients.
To the extent any court finds that the software solution violated a controlling legal standard, we could face indemnification demands from our clients for costs, fees and damages with respect to calls 37 Table of Contents placed using that solution. It also is possible that we may not successfully enforce or collect upon our contractual indemnities from our clients.
As a result, our existing clients may not renew our agreements or may decrease their number of agent seats, and we may be unable to attract new clients or grow or maintain our business with existing clients, which could harm our revenue and growth.
As a result, our existing clients may not renew our agreements or may decrease 20 Table of Contents their number of agent seats, and we may be unable to attract new clients or grow or maintain our business with existing clients, which could harm our revenue and growth.
In addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and 41 Table of Contents practices or modify our solutions, which could have an adverse effect on our business.
In addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our solutions, which could have an adverse effect on our business.
Upon conversion of either or both series of convertible senior notes in accordance with their terms, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to settle a portion or all of our conversion obligation through the payment of cash.
Upon conversion of the 2025 convertible senior notes in accordance with their terms, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to settle a portion or all of our conversion obligation through the payment of cash.
It is possible that such an 39 Table of Contents ownership change could materially reduce our ability to use our net operating loss carryforwards or other tax attributes to offset taxable income, which could require us to pay more income taxes than if we were able to fully utilize our net operating loss carryforwards and harm our profitability.
It is possible that such an ownership change could materially reduce our ability to use our net operating loss carryforwards or other tax attributes to offset taxable income, which could require us to pay more income taxes than if we were able to fully utilize our net operating loss carryforwards and harm our profitability.
A default under either such indenture would lead to, and the occurrence of the fundamental change itself may also lead to, a default under agreements governing our future indebtedness.
A default under the indenture would lead to, and the occurrence of the fundamental change itself may also lead to, a default under agreements governing our future indebtedness.
Moreover, any failure on the part of third parties, including our clients, to maintain appropriate security measures for their own systems could harm our relationships with our clients, result in claims against us for credits or damages, damage our reputation and significantly reduce client demand for our solution.
Moreover, any failure on the part of third parties, including our clients or other hosting or service providers, to maintain appropriate security measures for their own systems could harm our relationships with our clients, result in claims against us for credits or damages, damage our reputation and significantly reduce client demand for our solution.
Subject to certain conditions, holders of both series of the convertible senior notes have the right to require us to repurchase for cash all or any portion of their convertible senior notes upon the occurrence of a fundamental change (as defined in the indentures governing the convertible senior notes) at a fundamental change repurchase price equal to 100% of the principal amount of the applicable series of convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable fundamental change repurchase date.
Subject to certain conditions, holders of the 2025 convertible senior notes have the right to require us to repurchase for cash all or any portion of their 2025 convertible senior notes upon the occurrence of a fundamental change (as defined in the indenture governing the 2025 convertible senior notes) at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable fundamental change repurchase date.
Additionally, as we expand internationally, the risk that governments will regulate or impose new or increased taxes or fees on our services increases. Any such additional regulation or taxes could decrease the value of our international expansion, or impede our ability to expand internationally, and therefore harm our results of operations.
Additionally, as we expand internationally, the risk that governments will regulate or impose new or increased taxes or fees on our services increases. Any such additional regulation or taxes could increase our costs and our tax payments, decrease the value of our international expansion, or impede our ability to expand internationally, and therefore harm our results of operations.
Our failure to repurchase any convertible senior notes at a time when the repurchase is required by the applicable indenture or to pay any cash payable on any future conversions as required by the applicable indenture would constitute a default under such indenture.
Our failure to repurchase any 2025 convertible senior notes at a time when the repurchase is required by the indenture or to pay any cash payable on any future conversions as required by the indenture would constitute a default under the indenture.
As we grow our business, we will continue to depend on both existing and new strategic relationships. Our competitors may be more successful than we are in establishing or expanding relationships with third parties or may provide incentives to third parties to favor their products over our solution.
As we grow our business, we will 19 Table of Contents continue to depend on both existing and new strategic relationships. Our competitors may be more successful than we are in establishing or expanding relationships with third parties or may provide incentives to third parties to favor their products over our solution.
While we have implemented security measures to protect client information and minimize the risk of security breaches and other cyber attacks, if these measures fail as a result of a cyber-attack, other third-party action, employee error, malfeasance or otherwise, and someone unlawfully or without authorization obtains access to our clients’ information, including personal data, our reputation could be damaged, our business may suffer and we could incur significant liability.
While we have implemented security measures to protect client and other confidential information and minimize the risk of security breaches and other cyber attacks, if these measures fail as a result of a 31 Table of Contents cyber-attack, software vulnerability, other third-party action, employee error, malfeasance or otherwise, and someone unlawfully or without authorization obtains access to our clients’ information, including personal data, our reputation could be damaged, our business may suffer and we could incur significant liability.
Our competitors may be able to cause our current or potential technology solution brokers or resellers to favor their services over ours, either through financial incentives, technological innovation, solution features or performance, by offering a broader array of products to these service providers or otherwise, which could reduce the effectiveness of our use of these third parties.
Our competitors may be able to cause our current or potential technology solution distributors or resellers to favor their services over ours, either through financial 22 Table of Contents incentives, technological innovation, solution features or performance, by offering a broader array of products to these service providers or otherwise, which could reduce the effectiveness of our use of these third parties.
As a result, changes in the interpretation of these rules could result in material adjustments to our application of the new guidance, which could have a material effect on our results of operations and financial condition.
As a result, changes in the interpretation of these rules could result in material adjustments to our application of the 34 Table of Contents new guidance, which could have a material effect on our results of operations and financial condition.
Factors that may cause fluctuations in our quarterly and annual results include, without limitation: • market acceptance of our solution, including new features that are added to our solution; 15 Table of Contents • if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, or fail to grow subscriptions at the rate they have in the past or that we expect; • adverse economic conditions, including the impact of macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, or other factors; • our ability to attract new clients and grow our business with existing clients; • client renewal rates; • client attrition rates; • changes to our management team; • network outages or security incidents, which may result in additional expenses or losses, legal or regulatory actions, the loss of clients, the provision of client credits, and harm to our reputation; • our ability to make technological advancements, add more features to our solution, and integrate those features within our client’s technology infrastructure; • our ability to adequately expand our sales and service team; • our ability to acquire and maintain strategic and client relationships; • the timing and success of new product and feature introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation, partnership or collaboration among competitors, clients or strategic partners; • our ability to successfully integrate companies, businesses and technology that we acquire and achieve a positive return on our investment; • the amount and timing of costs and expenses related to the maintenance and expansion of our business, operations and infrastructure; • seasonal factors that may cause our revenues in the first half of a year to be relatively lower than our revenues in the second half of a year; • inaccessibility or failure of our cloud contact center software due to failures in the products or services provided by third parties; • the amount and timing of costs and expenses related to our research and development efforts or in the acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; • our ability to expand, and effectively utilize, our network of technology solution brokers, resellers and systems integrators; • the timing of recognition of revenues under current and future GAAP; • changes in our pricing policies or those of our competitors; • increases or decreases in the costs to provide our solution or pricing changes upon any renewals of client agreements; • the level of professional services and support we provide our clients; • the addition or loss of key clients, including through acquisitions or consolidations; • compliance with, or changes in, the current and future domestic and international regulatory environment; • the hiring, training and retention of key employees; • the outcome of litigation or other claims against us; • the ability to expand internationally, and to do so profitability; • our ability to obtain additional financing on acceptable terms if and when needed; • the timing of expenses related to any future acquisition transactions; and • advances and trends in new technologies and industry standards.
Factors that may cause fluctuations in our quarterly and annual results include, without limitation: 16 Table of Contents • market acceptance of our solution, including new features and AI components that are added to our solution; • if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, or fail to grow subscriptions at the rate they have in the past or that we expect; • adverse economic conditions, including the impact of macroeconomic deterioration, including continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of the conflict in Israel, or other factors; • our ability to attract new clients and grow our business with existing clients; • client renewal rates; • client attrition rates; • network outages or security incidents, which may result in additional expenses or losses, legal or regulatory actions, the loss of clients, the provision of client credits, and harm to our reputation; • our ability to make technological advancements, add more features to our solution, and integrate those features within our client’s technology infrastructure; • our ability to adequately expand our sales and service team; • our ability to acquire and maintain strategic and client relationships; • the timing and success of new product and feature introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation, partnership or collaboration among competitors, clients or strategic partners; • our ability to successfully integrate companies, businesses and technology that we acquire and achieve a positive return on our investment; • the amount and timing of costs and expenses related to the maintenance and expansion of our business, operations and infrastructure; • seasonal factors that tend to cause our revenues in the first half of a year to be relatively lower than our revenues in the second half of a year; • inaccessibility or failure of our cloud contact center software due to failures in the products or services provided by third parties; • the amount and timing of costs and expenses related to our research and development efforts or in the acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; • our ability to expand, and effectively utilize, our network of technology solution distributors, resellers and systems integrators; • the timing of recognition of revenues under current and future GAAP; • changes in our pricing policies or those of our competitors; • increases or decreases in the costs to provide our solution or pricing changes upon any renewals of client agreements; • the level of professional services and support we provide our clients; • the addition or loss of key clients, including through acquisitions or consolidations; • compliance with, or changes in, the current and future domestic and international regulatory environment; • the hiring, training and retention of key employees; • the outcome of litigation or other claims against us; • the ability to expand internationally, and to do so profitability; • our ability to obtain additional financing on acceptable terms if and when needed; • the timing of expenses related to any future acquisition transactions; and • advances and trends in new technologies and industry standards. 17 Table of Contents Because a significant percentage of our revenue is derived from existing clients, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern.
As of December 31, 2022, our intellectual property portfolio included three registered U.S. trademarks, 15 issued U.S. patents, one pending U.S. patent application and one registered U.S. copyright. As of December 31, 2022, outside the U.S. we also had 10 trademark registrations, five issued patents, and two pending international PCT patent applications.
As of December 31, 2023, our intellectual property portfolio included three registered U.S. trademarks, two pending U.S. trademark applications, 16 issued U.S. patents, one pending U.S. patent application and one registered U.S. copyright. As of December 31, 2023, outside the U.S. we also had 10 trademark registrations, five issued patents, and three pending international PCT patent applications.
The conversion of some or all of either series of convertible senior notes would dilute the ownership interests of our existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our common stock.
The conversion of some or all of the 2025 convertible senior notes would dilute the ownership interests of our existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our common stock.
Whether the 2025 convertible senior notes will be convertible after March 31, 2023 will depend on the satisfaction of the conversion conditions.
Whether the 2025 convertible senior notes will be convertible after March 31, 2024 will depend on the satisfaction of the conversion conditions.
Litigation brought to protect and enforce our intellectual property rights will be 33 Table of Contents costly, time consuming and distracting to our management and could result in the impairment or loss of our intellectual property.
Litigation brought to protect and enforce our intellectual property rights will be costly, time consuming and distracting to our management and could result in the impairment or loss of our intellectual property.
We invest significant time and expense in 30 Table of Contents training our employees, which increases their value to competitors who may seek to recruit them and increases our costs. We believe that our corporate culture is a critical component to our ability to attract and retain employees.
We invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them and increases our costs. We believe that our corporate culture is a critical component to our ability to attract and retain employees.
To date, we have realized only a small portion of our revenues from clients outside the United States, with approximately 90% of our revenue for the year ended December 31, 2022 derived from clients with billing addresses in the United States.
To date, we have realized only a small portion of our revenues from clients outside the United States, with approximately 89% of our revenue for the year ended December 31, 2023 derived from clients with billing addresses in the United States.
Accordingly, the effect of potential changes in our pricing policies or renewal rates, and significant downturns in sales, number of agent seats, market acceptance and implementation of our solution, including as a result of the impact of macroeconomic deterioration on our clients, increased inflation rates, increased interest rates, decreased economic output and fluctuations in currency exchange rates, will typically not be reflected in our results of operations until future periods.
Accordingly, the effect of potential changes in our pricing policies or renewal rates, and significant downturns in sales, number of agent seats, market acceptance and implementation of our solution, within our installed base or from new clients, including as a result of the impact of macroeconomic deterioration, continued inflation, increased interest rates, decreased economic output and fluctuations in currency exchange rates, will typically not be reflected in our results of operations until future periods.
We are required to comply with laws and regulations that require us to maintain the security of personal data and we may have contractual and other legal obligations to notify customers or other relevant stakeholders of security breaches.
We are required to comply with laws and regulations that require us to protect personal data and we may have contractual and other legal obligations to notify customers or other relevant stakeholders of security breaches or other security events.
We have incurred, and will continue to incur, substantial ongoing costs associated with complying with state or local tax, fee or surcharge requirements in the numerous markets in which we conduct or will conduct business.
We have 38 Table of Contents incurred, and will continue to incur, substantial ongoing costs associated with complying with state or local tax, fee or surcharge requirements in the numerous markets in which we conduct or will conduct business.
Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures.
Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we or our third party service providers may be unable to anticipate these techniques or implement adequate preventative measures.
Our inability to successfully manage and maintain these complex relationships or negotiate sufficient and favorable contractual terms could harm our business. Our recent growth, the COVID-19 pandemic and recent adverse economic conditions make it difficult to evaluate and predict our current business and future prospects.
Our inability to successfully manage and maintain these complex relationships or negotiate sufficient and favorable contractual terms could harm our business. Our historical growth and recent adverse economic conditions make it difficult to evaluate and predict our current business and future prospects.
We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and this difficulty could be further exacerbated by our Chief Executive Officer transition and any other senior leadership or other key employee transitions we experience.
We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and this difficulty could be further exacerbated by any senior leadership or other key employee transitions we experience.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe have entered into rental agreements with third-party facilities in Santa Clara, California; Atlanta, Georgia; Slough, England; and Amsterdam, the Netherlands, which require monthly payments for a fixed period of time in exchange for certain guarantees of space, and network and telecommunication availability. These agreements expire at various dates through 2026.
Biggest changeWe have entered into rental agreements with third-party facilities in Santa Clara, California; Atlanta, Georgia; and Slough, England, which require monthly payments for a fixed period of time in exchange for certain guarantees of space, and network and telecommunication availability. These agreements expire at various dates through 2028. We believe our facilities are sufficient for our current needs.
Information concerning our principal leased properties as of December 31, 2022 is set forth below: Location Principal Use Square Footage Lease Expiration Date San Ramon, California Corporate headquarters, sales, marketing, product design, professional services, research and development 104,000 January 2031 The Philippines Technical support, training and other professional services 26,600 July 2023 Portugal Portions of engineering and operations 20,600 August 2025 Australia Research and development, sales, marketing and client support services 14,000 October 2027 The hosting of our equipment and software at co-located third-party facilities is also significant to our business.
Information concerning our principal leased properties as of December 31, 2023 is set forth below: Location Principal Use Square Footage Lease Expiration Date San Ramon, California Corporate headquarters, sales, marketing, product design, professional services, research and development 104,000 January 2031 The Philippines Technical support, training and other professional services 26,600 July 2026 Portugal Portions of engineering and operations 20,600 August 2025 Australia Research and development, sales, marketing and client support services 14,000 October 2027 The hosting of our equipment and software at co-located third-party facilities is also significant to our business.
ITEM 2. Properties We currently lease approximately 173,000 square feet of office space worldwide.
ITEM 2. Properties We currently lease approximately 180,000 square feet of office space worldwide.
Removed
We believe our facilities are sufficient for our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. Legal Proceedings Information with respect to this item may be found under the heading “Legal Matters” in Note 10 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, which information is incorporated herein by reference. ITEM 4. Mine Safety Disclosures Not applicable. 47 Table of Contents PART II
Biggest changeITEM 3. Legal Proceedings Information with respect to this item may be found under the heading “Legal Matters” in Note 10 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, which information is incorporated herein by reference. ITEM 4. Mine Safety Disclosures Not applicable. 50 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe stock price performance on the following graph is not intended to forecast or be indicative of future stock price performance of our common stock.
Biggest changeCommencing this year, we have started to compare our common stock to the NASDAQ Computer Index and will cease using the NASDAQ Computer and Data Processing Index as that index is no longer available. The stock price performance on the following graph is not intended to forecast or be indicative of future stock price performance of our common stock.
The graph assumes $100 was invested at the close of market on December 31, 2017 in the common stock of Five9, the Russell 2000 Index and the NASDAQ Computer and Data Processing Index, and assumes the reinvestment of any dividends.
The period shown commences on December 31, 2018 and ends on December 31, 2023. The graph assumes $100 was invested at the close of market on December 31, 2018 in the common stock of Five9, the Russell 2000 Index, the NASDAQ Computer Index, and the NASDAQ Computer and Data Processing Index, and assumes the reinvestment of any dividends.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. 48 Table of Contents Stock Performance Graph The graph below compares the cumulative total return on our common stock with that of the Russell 2000 Index and the NASDAQ Computer and Data Processing Index. The period shown commences on December 31, 2017 and ends on December 31, 2022.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. 51 Table of Contents Stock Performance Graph The graph below compares the cumulative total return on our common stock with that of the Russell 2000 Index, the NASDAQ Computer Index, and the NASDAQ Computer and Data Processing Index.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock trades on The NASDAQ Global Market, or NASDAQ, under the symbol “FIVN.” Number of Common Stock Holders On February 21, 2023, there were 15 stockholders of record of our common stock who held an aggregate of 71,151,340 shares of our common stock.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock trades on The NASDAQ Global Market, or NASDAQ, under the symbol “FIVN.” Number of Common Stock Holders On February 16, 2024, there were 12 stockholders of record of our common stock who held an aggregate of 73,326,608 shares of our common stock.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations 49 Overview 49 Key Operating and Financial Performance Metrics 51 Key Components of Our Results of Operations 53 Results of Operations For the Years Ended December 31, 202 2 and 202 1 55 Liquidity and Capital Resources 57 Contractual and Other Obligations 58 Critical Accounting Policies and Estimates 60 ITEM 7A.
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations 52 Overview 53 Key Operating and Financial Performance Metrics 54 Key Components of Our Results of Operations 56 Results of Operations For the Years Ended December 31, 202 3 and 202 2 58 Liquidity and Capital Resources 60 Contractual and Other Obligations 62 Critical Accounting Policies and Estimates 63 ITEM 7A.
Quantitative and Qualitative Disclosure s About Market Risk 61 ITEM 8. Financial Statements and Supplementary Data 63
Quantitative and Qualitative Disclosure s About Market Risk 64 ITEM 8. Financial Statements and Supplementary Data 66
ITEM 6. Selected Financial Data 49 ITEM 7.
ITEM 6. Selected Financial Data 52 ITEM 7.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table shows a reconciliation of net loss to adjusted EBITDA for the periods presented (in thousands): Year Ended December 31, 2022 2021 Net loss $ (94,650) $ (53,000) Non-GAAP adjustments: Depreciation and amortization (1) 44,671 38,732 Stock-based compensation (2) 172,507 108,805 Interest expense 7,493 8,027 Interest (income) and other (4,813) 8 Exit costs related to closure and relocation of Russian operations (3) 7,190 — Acquisition-related transaction costs and one-time integration costs 6,901 13,576 Contingent consideration expense 260 5,640 Refund for prior year overpayment of USF fees (3,511) — Provision for (benefit from) income taxes 4,388 (11,285) Adjusted EBITDA $ 140,436 $ 110,503 (1) Depreciation and amortization expenses included in our results of operations for the periods presented are as follows (in thousands): Year Ended December 31, 2022 2021 Cost of revenue $ 34,955 $ 30,870 Research and development 3,164 3,277 Sales and marketing 4 4 General and administrative 6,548 4,581 Total depreciation and amortization $ 44,671 $ 38,732 (2) See Note 7 to the consolidated financial statements for stock-based compensation expense included in our results of operations for the periods presented.
Biggest changeWe calculate adjusted EBITDA as net loss before (1) depreciation and amortization, (2) stock-based compensation, (3) interest expense, (4) interest (income) and other, (5) exit costs related to the closure and relocation of our Russian operations, (6) acquisition and related transaction costs and one-time integration costs, (7) contingent consideration expense, (8) lease amortization for finance leases, (9) refund for prior year overpayment of USF fees, (10) provision for income taxes, and (11) other items that do not directly affect what we consider to be our core operating performance. 55 Table of Contents The following table shows a reconciliation of net loss to adjusted EBITDA for the periods presented (in thousands): Year Ended December 31, 2023 2022 Net loss $ (81,764) $ (94,650) Non-GAAP adjustments: Depreciation and amortization (1) 48,515 44,671 Stock-based compensation (2) 206,292 172,507 Interest expense 7,646 7,493 Interest (income) and other (26,799) (4,813) Exit costs related to closure and relocation of Russian operations (3) 2,313 7,190 Acquisition and related transaction costs and one-time integration costs 6,780 6,901 Contingent consideration expense — 260 Lease amortization for finance leases 941 — Refund for prior year overpayment of USF fees — (3,511) Provision for income taxes 2,341 4,388 Adjusted EBITDA $ 166,265 $ 140,436 (1) Depreciation and amortization expenses included in our results of operations for the periods presented are as follows (in thousands): Year Ended December 31, 2023 2022 Cost of revenue $ 38,559 $ 34,955 Research and development 3,583 3,164 Sales and marketing 65 4 General and administrative 6,308 6,548 Total depreciation and amortization $ 48,515 $ 44,671 (2) See Note 7 to the consolidated financial statements for stock-based compensation expense included in our results of operations for the periods presented.
We also offer bundled plans, generally for smaller deployments, where the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and, in some cases, Canada.
We also offer bundled plans, generally for smaller deployments, where the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and, in some cases, Canada.
Cost of Revenue Our cost of revenue consists primarily of personnel costs, including stock-based compensation, fees that we pay to telecommunications providers for usage, USF contributions and other regulatory costs, depreciation and related expenses of our servers and equipment, costs to build out and maintain co-location data centers, costs of public cloud-based data centers, allocated office and facility costs, amortization of acquired technology and amortization of internal-use software costs.
Cost of Revenue Our cost of revenue consists primarily of personnel costs, including stock-based compensation, fees that we pay to telecommunications providers for usage, USF contributions and other regulatory costs, depreciation and related expenses of our servers and equipment, costs to build out and maintain co-location data centers, costs of public cloud-based data centers, allocated office and facility costs, amortization of acquired technology and amortization of internal-use software development costs.
In the early stages of our larger contracts, in order to allocate the overall transaction fee on a relative stand-alone selling price basis to our multiple performance obligations, we estimate variable consideration to be included in the transaction fee to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently 60 Table of Contents resolved.
In the early stages of our larger contracts, in order to allocate the overall transaction fee on a relative 63 Table of Contents stand-alone selling price basis to our multiple performance obligations, we estimate variable consideration to be included in the transaction fee to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Our future capital requirements will depend on many factors including our growth rate, continuing market acceptance of our solution, the strength of the global economy, client retention, growth within our installed base, our ability to gain new clients, the timing and extent of spending to support research and development efforts, the outcome of any pending or future litigation or other claims by third parties or governmental entities, the expansion of sales and marketing activities and personnel, the introduction of new and enhanced offerings, expenses incurred in closing our Russia operations and expanding our new office in Portugal and any operational disruptions due to this transition, and the effect of the length and severity of the current economic downturn, the Russia-Ukraine conflict and the COVID-19 pandemic on these or other factors.
Our future capital requirements will depend on many factors including our growth rate, continuing market acceptance of our solution, the strength of the global economy, client retention, growth within our installed base, our ability to gain new clients, the timing and extent of spending to support research and development efforts, the outcome of any pending or future litigation or other claims by third parties or governmental entities, the expansion of sales and marketing activities and personnel, the introduction of new and enhanced offerings, expenses incurred in closing our Russia operations and expanding our operations in Portugal and any operational disruptions due to this transition, and the effect of the length and severity of the current economic downturn, the Russia-Ukraine conflict, and the conflict in Israel on these or other factors.
For the years ended December 31, 2022, 2021 and 2020, subscription and related usage fees accounted for 91%, 92% and 92% of our revenue, respectively. The remainder was comprised of professional services revenue from the implementation and optimization of our solution.
For the years ended December 31, 2023, 2022 and 2021, subscription and related usage fees accounted for 92%, 91% and 92% of our revenue, respectively. The remainder was comprised of professional services revenue from the implementation and optimization of our solution.
Leases We have leases for offices, data centers and computer and networking equipment that expire at various dates through 2031. Our leases have remaining terms of one to ten years.
Leases We have leases for offices, data centers and computer and networking equipment that expire at various dates through 2031. Our leases have remaining terms of one to seven years.
Our larger clients typically choose annual contracts, which generally include an implementation and ramp period of several months. Fixed subscription fees, including plans with bundled usage, are generally billed monthly in advance, while variable usage fees are billed in arrears.
Our larger clients typically choose annual contracts, which generally include an implementation and ramp period of several months. 56 Table of Contents Fixed subscription fees, including plans with bundled usage, are generally billed monthly in advance, while variable usage fees are billed in arrears.
We believe that continued investment in our solution is important 53 Table of Contents for our future growth, and we expect our research and development expenses to increase in absolute dollars and fluctuate as a percentage of revenue in the near and longer term. Sales and Marketing .
We believe that continued investment in our solution is important for our future growth, and we expect our research and development expenses to increase in absolute dollars and fluctuate as a percentage of revenue in the near and longer term. Sales and Marketing .
Our 49 Table of Contents solution, comprised of our VCC cloud platform and applications, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our APIs.
Our solution, comprised of our VCC cloud platform and applications, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our APIs.
Some of the leases include an option to extend the leases for up to three to five years, and some of the leases include the option to terminate the leases upon 30-days notice.
Some of the leases include an option to extend the leases for up to one to five years, and some of the leases include the option to terminate the leases upon 30-days notice.
While these areas represent significant opportunities for us, they also pose risks and challenges that we must successfully address, including the impact of macroeconomic deterioration, the Russia-Ukraine conflict and the COVID-19 pandemic, in order to successfully grow our business and improve our operating results.
While these areas represent significant opportunities for us, they also pose risks and challenges that we must successfully address, including the impact of macroeconomic deterioration, the Russia-Ukraine conflict and the conflict in Israel, in order to successfully grow our business and improve our operating results.
If we are unable to raise additional capital as needed, our business, operating results and 57 Table of Contents financial condition could be harmed. In addition, if our operating performance during the next twelve months is below our expectations, our liquidity and ability to operate our business also could be harmed.
If we are unable to raise additional capital as needed, our business, operating results and financial condition could be harmed. In addition, if our operating performance during the next twelve months is below our expectations, our liquidity and ability to operate our business also could be harmed.
We consider our subscription and related usage to be recurring revenue. This recurring revenue includes fixed subscription fees for the delivery and support of our VCC cloud platform, as well as related usage fees. The related usage fees are generally based on the volume of minutes for inbound and outbound client interactions.
This recurring revenue includes fixed subscription fees for the delivery and support of our VCC cloud platform, as well as related usage fees. The related usage fees are generally based on the volume of minutes for inbound and outbound client interactions.
Macroeconomic and Other Factors We are subject to risks and exposures, including those caused by adverse economic conditions, including macroeconomic deterioration, the Russia-Ukraine conflict and the COVID-19 pandemic. Macroeconomic factors include the global economic slowdown, increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates.
Macroeconomic and Other Factors We are subject to risks and exposures, including those caused by adverse economic conditions, including macroeconomic deterioration, the Russia-Ukraine conflict and the conflict in Israel. Macroeconomic factors include the global economic slowdown, continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates.
We expect that general and administrative expenses will fluctuate in absolute dollars and as a percentage of revenue in the near term, but to increase in absolute dollars and decline as a percentage of revenue in the longer term. 54 Table of Contents Results of Operations for the Years Ended December 31, 2022 and 2021 Based on the consolidated statements of operations and comprehensive loss set forth in this annual report, the following table sets forth our operating results as a percentage of revenue for the periods indicated: Year Ended December 31, 2022 2021 Revenue 100 % 100 % Cost of revenue 47 % 44 % Gross profit 53 % 56 % Operating expenses: Research and development 18 % 18 % Sales and marketing 34 % 32 % General and administrative 12 % 16 % Total operating expenses 64 % 66 % Loss from operations (11) % (10) % Other (expense) income, net: Interest expense (1) % (1) % Interest income and other 1 % — % Total other (expense) income, net — % (1) % Loss before income taxes (11) % (11) % Provision for (benefit from) income taxes 1 % (2) % Net loss (12) % (9) % Year-to-year comparisons between 2021 and 2020 have been omitted from this Form 10-K but may be found in “Management's Discussion and Analysis of Financial Condition” in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2021, which specific discussion is incorporated herein by reference.
We expect that general and administrative expenses will fluctuate in absolute dollars and as a percentage of revenue in the near term, but to increase in absolute dollars and decline as a percentage of revenue in the longer term. 57 Table of Contents Results of Operations for the Years Ended December 31, 2023 and 2022 Based on the consolidated statements of operations and comprehensive loss set forth in this annual report, the following table sets forth our operating results as a percentage of revenue for the periods indicated: Year Ended December 31, 2023 2022 Revenue 100 % 100 % Cost of revenue 48 % 47 % Gross profit 52 % 53 % Operating expenses: Research and development 17 % 18 % Sales and marketing 32 % 34 % General and administrative 14 % 12 % Total operating expenses 63 % 64 % Loss from operations (11) % (11) % Other income (expense), net: Interest expense (1) % (1) % Interest income and other 3 % 1 % Total other income (expense), net 2 % — % Loss before income taxes (9) % (11) % Provision for income taxes — % 1 % Net loss (9) % (12) % Year-to-year comparisons between 2022 and 2021 have been omitted from this Form 10-K but may be found in “Management's Discussion and Analysis of Financial Condition” in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2022, which specific discussion is incorporated herein by reference.
Key GAAP Operating Results Our revenue increased to $778.8 million for the year ended December 31, 2022, from $609.6 million and $434.9 million for the years ended December 31, 2021 and 2020, respectively. Revenue growth was primarily attributable to our larger clients, driven by an increase in our sales and marketing activities and our improved brand awareness.
Key GAAP Operating Results Our revenue increased to $910.5 million for the year ended December 31, 2023, from $778.8 million and $609.6 million for the years ended December 31, 2022 and 2021, respectively. Revenue growth was primarily attributable to our larger clients, driven by an increase in our sales and marketing activities and our improved brand awareness.
For each of the years ended December 31, 2022, 2021 and 2020, no single client accounted for more than 10% of our total revenue. As of December 31, 2022, we had over 2,500 clients across multiple industries with a wide range of seat sizes.
For each of the years ended December 31, 2023, 2022 and 2021, no single client accounted for more than 10% of our total revenue. As of December 31, 2023, we had over 3,000 clients across multiple industries with a wide range of seat sizes.
We had a net loss of $94.7 million, $53.0 million and $42.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. We have continued to make significant expenditures and investments, including in sales and marketing, research and development and infrastructure.
We had a net loss of $81.8 million, $94.7 million and $53.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. We have continued to make significant expenditures and investments, including in sales and marketing, research and development and infrastructure.
However, we may not be able to raise additional capital through equity or debt financings when needed on terms acceptable to us or at all, depending on our financial performance, economic and market conditions, the trading price of our common stock, and other factors, including the length and severity of the current economic downturn and fluctuations in the financial markets, including due to the Russia-Ukraine conflict and the ongoing COVID-19 pandemic.
However, we may not be able to raise additional capital through equity or debt financings when needed on terms acceptable to us or at all, depending on our financial 60 Table of Contents performance and condition, economic and market conditions, the trading price of our common stock, and other factors, including the length and severity of the current economic downturn and fluctuations in the financial markets, including due to the Russia-Ukraine conflict and the conflict in Israel.
During the year ended December 31, 2022, we incurred approximately $7.9 million in costs related to the closure and relocation of our 50 Table of Contents Russian operations, of which $0.7 million was recorded in cost of revenue, $5.9 million was recorded in research and development expense, $1.4 million was recorded in general and administrative expense and $(0.1) million was recorded in interest income and other in our consolidated statements of operations and comprehensive loss.
During the years ended December 31, 2023 and 2022, we incurred approximately $2.8 million and $7.9 million in costs related to the closure and relocation of our Russian operations, of which $0.1 million and $0.7 million was recorded in cost of revenue, $1.7 million and $5.9 million was recorded in research and development expense, $0.5 million and $1.4 million was recorded in general and administrative expense and $0.5 million and $(0.1) million was recorded in interest income and other in our consolidated statements of operations and comprehensive loss.
The $7.2 million adjustment presented above was net of $0.8 million included in “Depreciation and amortization” and $(0.1) million included in “Interest (income) and other.” 52 Table of Contents Key Components of Our Results of Operations Revenue Our revenue consists of subscription and related usage as well as professional services.
The $7.2 million adjustment presented above was net of $0.8 million included in “Depreciation and amortization” and $(0.1) million included in “Interest (income) and other.” Key Components of Our Results of Operations Revenue Our revenue consists of subscription and related usage as well as professional services. We consider our subscription and related usage to be recurring revenue.
In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined.
We generate all of our revenue from contracts with customers. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined.
GAAP, and our calculation of adjusted EBITDA may differ from that of other companies in our industry. We compensate for the inherent limitations associated with using adjusted EBITDA through disclosure of these limitations, presentation of our financial statements in accordance with U.S. GAAP and reconciliation of adjusted EBITDA to the most directly comparable U.S. GAAP measure, net loss.
We compensate for the inherent limitations associated with using adjusted EBITDA through disclosure of these limitations, presentation of our financial statements in accordance with U.S. GAAP and reconciliation of adjusted EBITDA to the most directly comparable U.S. GAAP measure, net loss.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. Overview We are a pioneer and leading provider of intelligent cloud contact center market with more than 2,500 clients.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. 52 Table of Contents Overview We are a pioneer and leading provider of intelligent cloud contact centers with more than 3,000 clients.
Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2022 2021 Net cash provided by operating activities $ 88,865 $ 28,998 Net cash provided by (used in) investing activities 30,963 (150,478) Net cash used in financing activities (30,232) (7,501) Net increase (decrease) in cash, cash equivalents and restricted cash $ 89,596 $ (128,981) Cash Flows from Operating Activities Cash provided by operating activities is primarily influenced by our personnel-related expenditures, data center and telecommunications carrier costs, office and facility related costs, USF contributions and other regulatory costs and the amount and timing of client payments.
Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2023 2022 Net cash provided by operating activities $ 128,838 $ 88,865 Net cash (used in) provided by investing activities (259,562) 30,963 Net cash provided by (used in) financing activities 94,579 (30,232) Net (decrease) increase in cash, cash equivalents and restricted cash $ (36,145) $ 89,596 Cash Flows from Operating Activities Cash provided by operating activities is primarily influenced by our personnel-related expenditures, data center and telecommunications carrier costs, office and facility related costs, USF contributions and other regulatory costs and the amount and timing of client payments.
As of December 31, 2022, the aggregate principal amount outstanding of our 2025 convertible senior notes was $747.5 million. In May 2018, we issued $258.8 million aggregate principal amount of our 2023 convertible senior notes in a private offering. The 2023 convertible senior notes mature on May 1, 2023 and are our senior unsecured obligations.
As of December 31, 2023, the aggregate principal amount outstanding of our 2025 convertible senior notes was $747.5 million. In May 2018, we issued $258.8 million aggregate principal amount of our 2023 convertible senior notes in a private offering.
Comparison of the Years Ended December 31, 2022 and 2021 Revenue Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Revenue $778,846 $609,591 $169,255 28% The increase in revenue for 2022 compared to 2021 was primarily attributable to our larger clients, driven by an increase in our sales and marketing activities and our improved brand awareness.
Comparison of the Years Ended December 31, 2023 and 2022 Revenue Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Revenue $910,488 $778,846 $131,642 17% The increase in revenue for 2023 compared to 2022 was primarily attributable to our larger clients, driven by an increase in our sales and marketing activities and our improved brand awareness.
As of December 31, 2022, we had outstanding hosting and telecommunication usage services obligations of $16.0 million, with $8.1 million payable within 12 months, $7.5 million payable within one to three years, and $0.4 million payable within three to five years.
As of December 31, 2023, we had outstanding hosting and telecommunication usage services obligations of $14.9 million, with $7.9 million payable within 12 months, $5.0 million payable within one to three years, and $2.0 million payable within three to five years.
We develop our views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Legal fees are expensed in the period in which they are incurred.
We develop our views 62 Table of Contents on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Legal fees are expensed in the period in which they are incurred. See Note 10 to the consolidated financial statements for more details.
Contractual and Other Obligations Our material cash requirements include the following contractual and other obligations. Convertible Senior Notes 58 Table of Contents In May and June 2020, we issued $747.5 million aggregate principal amount of our 2025 convertible senior notes in a private offering. The 2025 convertible senior notes mature on June 1, 2025 and are our senior unsecured obligations.
Convertible Senior Notes In May and June 2020, we issued $747.5 million aggregate principal amount of our 2025 convertible senior notes in a private offering. The 2025 convertible senior notes mature on June 1, 2025 and are our senior unsecured obligations.
(3) Exit costs related to the closure of our Russian operations were $3.4 million and one-time and relocation-related costs were $4.5 million during the year ended December 31, 2022.
(3) Exit costs related to the closure and relocation of our Russian operations were $2.8 million during the year ended December 31, 2023.
Our significant accounting policies are described in Note 1 to the consolidated financial statements. Revenue Recognition Revenue is recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration that we expect to receive in exchange for those services. We generate all of our revenue from contracts with customers.
Our actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in Note 1 to the consolidated financial statements. Revenue Recognition Revenue is recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration that we expect to receive in exchange for those services.
See Note 10 to the consolidated financial statements for more details. 59 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions.
Net cash provided by operating activities was $88.9 million during the year ended December 31, 2022.
Net cash provided by operating activities was $128.8 million during the year ended December 31, 2023.
We had outstanding operating lease obligations of $57.9 million as of December 31, 2022, with $12.2 million payable within 12 months, $17.1 million payable within one to three years, $11.4 million payable within three to five years, and $17.1 million after five years. See Note 13 to the consolidated financial statements included in this report for further details.
We also had outstanding finance lease obligations of $5.0 million as of December 31, 2023, with $2.0 million payable within 12 months, and $3.0 million payable within one to three years. See Note 13 to the consolidated financial statements included in this report for further details.
Cost of Revenue Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Cost of revenue $367,501 $271,099 $96,402 36% % of Revenue 47% 44% The increase in cost of revenue for 2022 compared to 2021 was primarily due to a $37.9 million increase in personnel costs, including stock-based compensation costs, driven mainly by increased headcount and higher salaries, a $29.4 million increase in depreciation, data center and public cloud costs to support our growing capacity needs, a $19.4 million increase in third-party hosted software costs driven by increased client activities, a $5.1 million increase in consulting costs for global expansion, a $3.4 million increase in usage and carrier costs due to increased volume, and a $3.2 million increase in staff augmentation costs related to implementation of our solutions, 55 Table of Contents offset in part by a $2.5 million decrease in USF contributions and other federal telecommunication service fees due primarily to a change in methodology, which resulted in a $3.5 million refund for 2020 that was received in 2022.
Cost of Revenue Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Cost of revenue $432,690 $367,501 $65,189 18% % of Revenue 48% 47% The increase in cost of revenue for 2023 compared to 2022 was primarily due to a $19.1 million increase in depreciation, data center and public cloud costs to support our growing capacity needs, an $18.4 million increase in personnel costs driven mainly by increased headcount, higher salaries and increased stock-based compensation costs, an $18.0 million increase in third-party hosted software costs driven by increased client activities, an $8.4 million increase in USF contributions and other federal telecommunication service fees due to increased client usage and a change in methodology in the prior year, which resulted in a $3.5 million refund for 2020 that was received in 58 Table of Contents 2022, a $2.0 million increase in office, facilities and related costs, and a $1.0 million increase in amortization of capitalized internal-use software development costs, partially offset by a $1.6 million decrease in usage and carrier costs due to a rate reduction and a $1.5 million decrease in staff augmentation costs related to implementation of our solutions.
Gross Profit Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Gross profit $411,345 $338,492 $72,853 22% % of Revenue 53% 56% The increase in gross profit for 2022 compared to 2021 was primarily due to increases in subscription and related revenues.
Gross Profit Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Gross profit $477,798 $411,345 $66,453 16% % of Revenue 52% 53% The increase in gross profit for 2023 compared to 2022 was primarily due to increases in subscription and related revenues.
Operating Expenses Research and Development Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Research and development $141,794 $106,897 $34,897 33% % of Revenue 18% 18% The increase in research and development expenses for 2022 compared to 2021 was primarily due to a $35.2 million increase in personnel-related costs including stock-based compensation costs, driven mainly by increased headcount and higher salaries, and a $2.3 million increase in office, facilities and related costs, offset in part by $5.6 million in research and development costs that qualified for capitalization.
Operating Expenses Research and Development Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Research and development $156,582 $141,794 $14,788 10% % of Revenue 17% 18% The increase in research and development expenses for 2023 compared to 2022 was primarily due to a $20.0 million increase in personnel-related costs driven mainly by an increase in stock-based compensation costs, increased headcount and higher salaries, and a $1.4 million increase in office, facilities and related costs, offset in part by a $8.0 million increase in research and development costs that qualified for capitalization.
See Note 6 to the consolidated financial statements for further details. The increase in interest income and other for 2022 compared to 2021 was primarily due to higher interest income on our marketable investments.
See Note 6 to the consolidated financial statements for further details. The increase in interest income and other for 2023 compared to 2022 was primarily due to higher interest income on our marketable investments, offset in part by an increase in foreign currency transaction losses during this period.
The remaining net increase in sales and marketing expenses was primarily due to the execution of our growth strategy to acquire new clients, increase the number of agent seats within our existing client base, and increased advertising and other marketing expenses to increase our brand awareness. 56 Table of Contents General and Administrative Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) General and administrative $95,143 $93,916 $1,227 1% % of Revenue 12% 16% The increase in general and administrative expenses for 2022 compared to 2021 was primarily due to a $11.9 million increase in personnel costs including stock-based compensation costs, driven mainly by increased headcount and higher salaries. partially offset by a $5.7 million decrease in legal and other professional service costs due to a decline in M&A activities and by a $5.4 million decrease in contingent consideration expense for the Inference acquisition.
The increases in sales and marketing expenses were primarily due to the execution of our growth strategy to acquire new clients, increase the number of agent seats within our existing client base, and increased advertising and other marketing expenses to increase our brand awareness. 59 Table of Contents General and Administrative Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) General and administrative $123,079 $95,143 $27,936 29% % of Revenue 14% 12% The increase in general and administrative expenses for 2023 compared to 2022 was primarily due to a $23.4 million increase in personnel costs driven by increased stock-based compensation costs, increased headcount and higher salaries, and a $5.1 million increase in legal and other professional service costs primarily as a result of the expenses incurred in connection with the Aceyus acquisition and other strategic activities.
We may also acquire or invest in complementary businesses, technologies and intellectual property rights, which may increase our use of cash and future capital requirements, both to pay acquisition costs and to support our combined operations. We may raise additional capital through equity or debt financings at any time to fund these or other requirements.
We may also acquire or invest in complementary businesses, technologies and intellectual property rights, such as our recent acquisition of Aceyus in August 2023, which may increase our use of cash and future capital requirements, both to pay acquisition costs and to support our combined operations.
The agreements require payments per month for a fixed period of time in exchange for certain guarantees of network and telecommunication availability.
Hosting and Telecommunication Usage Services We have agreements with third parties to provide co-location hosting and telecommunication usage services. The agreements require payments per month for a fixed period of time in exchange for certain guarantees of network and telecommunication availability.
Sales and Marketing Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Sales and marketing $261,990 $193,929 $68,061 35% % of Revenue 34% 32% The increase in sales and marketing expenses for 2022 compared to 2021 was primarily due to a $38.3 million increase in personnel-related costs, including stock-based compensation costs driven mainly by increased headcount and higher salaries, a $16.2 million increase in sales commission expenses driven by the growth in sales and bookings of our solution, a $5.0 million increase in travel costs and an in-person user conference as a result of an increase in business travel as COVID-19 restrictions decreased, and a $2.2 million increase in office, facilities and related costs.
Sales and Marketing Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Sales and marketing $296,713 $261,990 $34,723 13% % of Revenue 32% 34% The increase in sales and marketing expenses for 2023 compared to 2022 was primarily due to a $14.9 million increase in personnel costs driven by increased stock-based compensation costs, increased headcount and higher salaries, a $14.2 million increase in amortization of deferred contract acquisition costs driven by the growth in sales and bookings of our solution, a $1.9 million increase in travel costs as a result of an increase in business travel, and a $1.2 million increase in office, facilities and related costs.
Cash Flows from Investing Activities Net cash provided by investing activities of $31.0 million in 2022 was comprised of $525.2 million related to cash proceeds from sales and maturities of marketable investments, offset in part by $435.8 million related to purchases of marketable investments, $52.3 million in capital expenditures, $3.9 million in capitalized software development costs and $2.0 million in connection with an equity investment in a privately-held company.
Cash Flows from Investing Activities Net cash used in investing activities of $(259.6) million in 2023 was comprised of $795.0 million related to purchases of marketable investments, $80.6 million, in connection with the acquisition of Aceyus, net of cash acquired, $31.2 million in capital expenditures and $9.5 million in capitalized software development costs, offset in part by $656.8 million related to cash proceeds from sales and maturities of marketable investments.
Net cash provided by operating activities resulted from our net loss of $94.7 million, adjustments to reconcile net loss to net cash provided by operating activities of $271.0 million, primarily consisting of $172.5 million of stock-based compensation, $44.7 million of depreciation and amortization, $41.0 million of amortization of commission costs, $10.4 million of amortization of operating lease right-of-use assets, $3.7 million of amortization of issuance costs on our convertible senior notes, and $(5.9) million payment for the Inference contingent consideration in excess of its acquisition-date fair value, partially offset by use of cash for operating assets and liabilities of $(87.5) million primarily due to the timing of cash payments to vendors and cash receipts from customers.
Net cash provided by operating activities resulted from our net loss of $81.8 million, adjustments to reconcile net loss to net cash provided by operating activities of $317.1 million, primarily consisting of $206.3 million of stock-based compensation, $55.4 million of amortization of deferred contract acquisition costs,$48.5 million of depreciation and amortization, $12.6 million of amortization of operating lease right-of-use assets, $3.7 million of amortization of issuance costs on our convertible senior notes and $(11.4) million of accretion of discount on marketable investments, partially offset by use of cash for operating assets and liabilities of $(106.5) million primarily due to the timing of cash payments to vendors and cash receipts from customers.
We believe that adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the 51 Table of Contents income or expenses that we exclude from adjusted EBITDA. Furthermore, we use this measure to establish budgets and operational goals for managing our business and evaluating our performance.
GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance. We believe that adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude from adjusted EBITDA.
Other (Expense) Income, Net Year Ended December 31, 2022 2021 $ Change % Change (in thousands, except percentages) Interest expense $ (7,493) $ (8,027) $ 534 7 % Interest income and other 4,813 (8) 4,821 nm Total other (expense) income, net $ (2,680) $ (8,035) $ 5,355 67 % % of Revenue (1) % (1) % nm - not meaningful The decrease in interest expense for 2022 compared to 2021 was primarily due to the reduction in the aggregate outstanding principal amount of our 2023 convertible senior notes.
Other Income (Expense), Net Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Interest expense $ (7,646) $ (7,493) $ (153) 2 % Interest income and other 26,799 4,813 21,986 457 % Total other income (expense), net $ 19,153 $ (2,680) $ 21,833 815 % % of Revenue 2 % (1) % Interest expense remained consistent for 2023 compared to 2022 as it primarily related to our 2025 convertible senior notes for which the aggregate outstanding principal amount remained unchanged during 2022 and 2023.
We currently do not believe that this decision will have a material effect on our business, results of operations or financial condition. The COVID-19 pandemic had a moderately positive impact on our financial results due to the shift from brick-and-mortar to virtual.
Going forward, we do not expect to incur additional material costs related to the closure and relocation of our Russia operations. We currently do not believe that this decision will have a material effect on our business, results of operations or financial condition.
We also believe that adjusted EBITDA provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S.
Furthermore, we use this measure to establish budgets and operational goals for managing our business and evaluating our performance. We also believe that adjusted EBITDA provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry.
The following table shows our Annual Dollar-Based Retention Rate based on Net Revenue for the periods presented: Twelve Months Ended December 31, 2022 2021 Annual Dollar-Based Retention Rate 115% 122% Our Dollar-Based Retention Rate decreased year-over-year primarily due to the initial benefit we previously experienced in 2021 from the COVID-19 pandemic and macroeconomic headwinds we started experiencing in 2022.
The following table shows our Annual Dollar-Based Retention Rate based on Net Revenue for the periods presented: Twelve Months Ended December 31, 2023 2022 Annual Dollar-Based Retention Rate 110% 115% Our Dollar-Based Retention Rate decreased year-over-year primarily due to macroeconomic headwinds we started experiencing in 2022 and continued to experience throughout 2023. 54 Table of Contents Adjusted EBITDA We monitor adjusted EBITDA, a non-GAAP financial measure, to analyze our financial results and believe that it is useful to investors, as a supplement to U.S.
There has also been some adverse impact on the mid-market portion of our net new clients business. In March 2022 we decided to close our Russia office and to establish a new European development center in Portugal, in part due to the growing uncertainty arising from the Russia-Ukraine conflict.
For example, 53 Table of Contents our installed base business, which typically contributes approximately half of our annual revenue growth, continues to experience macroeconomic headwinds. In March 2022, we decided to close our Russia office and to establish a new European development center in Portugal, in part due to the growing uncertainty arising from the Russia-Ukraine conflict.
Cloud Services As of December 31, 2022, we had outstanding cloud service agreement commitments totaling $41.1 million, of which $29.0 million is expected to be paid in 2023 and the remaining $12.1 million in 2024. Hosting and Telecommunication Usage Services We have agreements with third parties to provide co-location hosting and telecommunication usage services.
Cloud Services and Software and Maintenance As of December 31, 2023, we had outstanding cloud services and software and maintenance agreement commitments totaling $104.4 million, of which $33.0 million is expected to be purchased in 2024, $45.6 million is expected to be purchased in 2025 and the remaining $25.8 million is expected to be purchased in 2026.
While the implications of macroeconomic events on our business, results of operations and overall financial position remain uncertain over the long term, we continue to experience macroeconomic headwinds on our installed base business, which typically contributes approximately half of our revenue growth, particularly in two verticals, healthcare and consumer, which are typically our two strongest seasonal industries in the fourth quarter.
While the implications of macroeconomic events on our business, results of operations and overall financial position remain uncertain over the long term, we expect that adverse economic conditions will continue to have an adverse impact on our revenue in future periods.
Cash Flows from Financing Activities Net cash used in financing activities of $30.2 million in 2022 related to $34.1 million of cash paid in connection with other 2023 convertible senior note settlements and $24.0 million of cash paid in connection with the contingent consideration payment related to the Inference acquisition, of which $18.1 million represented the acquisition-date fair value and was presented as a financing activity and $5.9 million represented the amount of payment in excess of the acquisition-date fair value and was presented as an operating activity, partially offset by cash proceeds of $13.4 million from the sale of common stock under our employee stock purchase plan and $8.5 million from the exercise of stock options.
Cash Flows from Financing Activities Net cash provided by financing activities of $94.6 million in 2023 was related to $74.5 million of cash received from the settlement at maturity of the outstanding capped calls associated with the repurchase and early settlements of the 2023 convertible senior notes, $15.9 million from the sale of common stock under our employee stock purchase plan, and cash proceeds of $9.1 million from the exercise of stock options, offset in part by $3.3 million related to payments of employee taxes related to vested RSUs, $1.0 million of payments related to finance leases, $0.5 million of holdback payment related to an acquisition, and $0.2 million of cash paid in connection with 2023 convertible senior note settlements. 61 Table of Contents Contractual and Other Obligations Our material cash requirements include the following contractual and other obligations.
We expect that adverse economic conditions will continue to have an adverse impact on our revenue in future periods. For example, we continue to experience macroeconomic headwinds on our installed base business, which typically contributes approximately half of our revenue growth, particularly in two verticals, healthcare and consumer, which are typically our two strongest seasonal industries in the fourth quarter.
While the implications of macroeconomic events on our business, results of operations and overall financial position remain uncertain over the long term, we expect that adverse economic conditions will continue to have an adverse impact on our revenue in future periods.
As of December 31, 2022, after giving effect to the 2023 Note Repurchase Transactions and other settlements upon conversion requests, approximately $0.2 million aggregate principal amount of 2023 convertible senior notes remained outstanding. See Note 6 to the consolidated financial statements included in this report for further details.
The 2023 convertible senior notes matured on May 1, 2023 and the remaining principle amounts were settled in a combination of cash and shares of our common stock. See Note 6 to the consolidated financial statements included in this report for further details.
Removed
The severity and duration of the COVID-19 pandemic, and its continuing impact on the U.S. and global economy remains uncertain, but we believe that most of this benefit has now dissipated.
Added
Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP, and our calculation of adjusted EBITDA may differ from that of other companies in our industry.
Removed
Adjusted EBITDA We monitor adjusted EBITDA, a non-GAAP financial measure, to analyze our financial results and believe that it is useful to investors, as a supplement to U.S. GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance.
Added
The $2.3 million adjustment presented above was net of $0.5 million included in “Interest (income) and other.” Exit costs related to the closure and relocation of our Russian operations were $7.9 million during the year ended December 31, 2022.
Removed
We calculate adjusted EBITDA as net loss before (1) depreciation and amortization, (2) stock-based compensation, (3) interest expense, (4) interest (income) and other, (5) exit costs related to the closure and relocation of our Russian operations, (6) acquisition-related transaction and one-time integration costs, (7) contingent consideration expense, (8) refund for prior year overpayment of USF fees, (9) provision for (benefit from) income taxes, and (10) other items that do not directly affect what we consider to be our core operating performance.
Added
For example, our installed base business, which typically contributes approximately half of our annual revenue growth, continues to experience macroeconomic headwinds.
Removed
There has also been some adverse impact on the mid-market portion of our net new clients business.
Added
As of December 31, 2023, we had $756.8 million in working capital, which included $143.2 million in cash and cash equivalents, and $587.1 million in marketable investments. Our intent is that all marketable investments are available for use in our current operations, including marketable investments with maturity dates greater than one year from December 31, 2023.
Removed
The $3.5 million refund for 2020, accompanied by the decrease in the USF contribution rates resulted in a decrease in USF costs for 2022 compared to 2021. This decrease in USF costs was offset in part by increased client usage.
Added
The 2023 convertible senior notes matured on May 1, 2023 and were settled in a combination of cash and shares of our common stock. Upon maturity, the outstanding capped calls associated with the repurchase and early settlements of $194.7 million 2023 convertible senior notes were settled, which resulted in us receiving 370,877 shares of our common stock and $74.5 million.
Removed
The decrease in gross margin for 2022 compared to 2021 was primarily due to increased cost of revenue as described above, which grew at a higher rate than our growth in revenue.
Added
We may raise additional capital through equity or debt financings at any time to fund these or other requirements.
Removed
As of December 31, 2022, we had $627.9 million in working capital, which included $180.5 million in cash and cash equivalents, $433.7 million in short-term marketable investments and excluded long-term marketable investments of $0.9 million.
Added
We had outstanding operating lease obligations of $52.0 million as of December 31, 2023, with $12.3 million payable within 12 months, $16.4 million payable within one to three years, $11.6 million payable within three to five years, and $11.7 million after five years.
Removed
The 2023 convertible senior notes bear interest at a fixed rate of 0.125% per annum, payable semiannually in arrears on May 1 and November 1 of each year. The total net proceeds from the offering, after deducting the initial purchasers’ discounts and estimated debt issuance costs, were approximately $250.8 million.
Removed
On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions. We currently do not have any critical accounting estimates that involve a significant level of estimation uncertainty that could have a material impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−0 removed7 unchanged
Biggest changeWe have not utilized derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion, except for the privately negotiated capped call transactions entered into in May and June 2020 and May 2018 related to the issuance of our 2025 convertible senior notes and our 2023 convertible senior notes, respectively.
Biggest changeWe have not utilized derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion, except for the privately negotiated capped call transactions entered into in May and June 2020 related to the issuance of our 2025 convertible senior notes.
The fair value of the convertible senior notes are subject to interest rate risk, market risk and other factors due to their conversion features. The fair value of the convertible senior notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines.
The fair value of the 2025 convertible senior notes are subject to interest rate risk, market risk and other factors due to their conversion features. The fair value of the 2025 convertible senior notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines.
A hypothetical 100 basis point change in interest rates would not have a material impact on the value of our cash and cash equivalents or marketable investments. As of December 31, 2022, the aggregate principal amount outstanding of our 2025 convertible senior notes and 2023 convertible senior notes was $747.5 million and $0.2 million, respectively.
A hypothetical 100 basis point change in interest rates would not have a material impact on the value of our cash and cash equivalents or marketable investments. As of December 31, 2023, the aggregate principal amount outstanding of our 2025 convertible senior notes was $747.5 million.
The interest and market value changes affect the fair value of the convertible senior notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligations.
The interest and market value changes affect the fair value of the 2025 convertible senior notes but do not impact our 64 Table of Contents financial position, cash flows or results of operations due to the fixed nature of the debt obligations.
Additionally, we carry the convertible senior notes at face value less 61 Table of Contents unamortized discount on our consolidated balance sheets, and we present the fair value for required disclosure purposes only. Our convertible senior notes bear fixed interest rates and, therefore, are not subject to interest rate risk.
Additionally, we carry the 2025 convertible senior notes at face value less unamortized discount on our consolidated balance sheets, and we present the fair value for required disclosure purposes only. Our 2025 convertible senior notes bear fixed interest rates and, therefore, are not subject to interest rate risk.
Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes. Interest Rate Sensitivity We had cash and cash equivalents, and marketable securities (short and long-term) totaling $615.1 million as of December 31, 2022.
Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes. Interest Rate Sensitivity We had cash and cash equivalents, and marketable securities totaling $730.3 million as of December 31, 2023.
During the year ended December 31, 2022, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have a maximum impact of $6.3 million on our operating expenses. 62 Table of Contents
During the year ended December 31, 2023, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have a maximum impact of $8.5 million on our operating expenses. 65 Table of Contents

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