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What changed in Five9, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Five9, Inc.'s 2023 and 2024 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 2024 report.

+550 added−526 removedSource: 10-K (2025-02-21) vs 10-K (2024-02-22)

Top changes in Five9, Inc.'s 2024 10-K

550 paragraphs added · 526 removed · 472 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

100 edited+13 added−11 removed50 unchanged
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.
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, the Telemarketing Sales Rule and state telemarketing laws, which have 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; • The Communications and Video Accessibility Act and 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; 13 Table of Contents • 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; • The Health Information Portability and Accountability Act (or HIPAA) and rules promulgated thereunder, which generally relate to the privacy and security of certain health-related information; and • an evolving set of comprehensive state privacy laws that require compliance with privacy frameworks and include disclosure and permission-related obligations to individuals for whom we hold or process personal data.
Our agent interface is an intuitive modern browser-based design that provides easy visualization of customer profiles, context and cross-channel history. Our solution is built on a modern SaaS architecture, leveraging both our own global data centers and public cloud deployments in a scalable, secure, and redundant manner.
Our agent interface is an intuitive, modern browser-based design that provides easy visualization of customer profiles, context and cross-channel history. Our solution is built on a modern SaaS architecture, leveraging both global data centers and public cloud deployments in a scalable, secure, and redundant manner.
Workplace Practices and Policies We are committed to providing a workplace free of harassment or discrimination based on race, color, religion, sex, sexual orientation, gender identity, national origin, disability, veteran status, caste or other legally protected characteristic. We are an equal opportunity employer committed to inclusion and diversity.
Workplace Practices and Policies We are committed to providing a workplace free of harassment or discrimination based on race, color, religion, sex, sexual orientation, gender identity, national origin, disability, veteran status, caste or other legally protected characteristic. We are an equal opportunity employer committed to inclusion.
We offer flexibility and integrate with a number of leading CRM vendors, including: Microsoft Corporation, or Microsoft, Oracle Corporation, or Oracle, Salesforce.com, Inc., or Salesforce, ServiceNow, Inc., or ServiceNow, Zendesk, Inc., or Zendesk, and others. We also offer integrations into UC partners such as Microsoft Teams, Nextiva, RingCentral, Zoom Video Communications, or Zoom, and others.
We offer flexibility and integrate with a number of leading CRM vendors, including Microsoft Corporation, or Microsoft, Oracle Corporation, or Oracle, Salesforce.com, Inc., or Salesforce, ServiceNow, Inc., or ServiceNow, Zendesk, Inc., or Zendesk, among others. We also offer integrations into UC partners such as Microsoft Teams, Nextiva, RingCentral, Zoom Video Communications, or Zoom, and others.
We also face competition from many smaller contact center service providers such as Content Guru and Talkdesk, as well as vendors offering both unified communications and contact center solutions such as Zoom.
We also face competition from many smaller contact center service providers such as Content Guru and Talkdesk, as well as vendors offering both unified communications and contact center solutions such as RingCentral and Zoom.
Our pla tform delivers what we believe is industry leading reliability utilizing public and private cloud technology; cybersecurity using a defense-in-depth approach; scalability to accommodate the requirements of larger clients; and legal and regulatory compliance features designed to assist our clients in complying with applicable laws, regulations and industry standards. • Proven, repeatable and scalable go-to-market model.
Our pla tform delivers what we believe is industry-leading reliability utilizing public and private cloud technology; cybersecurity using a defense-in-depth approach; scalability to accommodate the requirements of larger customers; and legal and regulatory compliance features designed to assist our customers in complying with applicable laws, regulations and industry standards. • Proven, repeatable and scalable go-to-market model.
Any enforcement action by the FCC, which may be a public process, would hurt our reputation in the industry, possibly impair our ability to sell our services to clients and could harm our business and results of operations. The Federal Trade Commission, or FTC, also has jurisdiction over some of our business practices, including advertising, trade practices, privacy and telemarketing.
Any enforcement action by the FCC, which may be a public process, would hurt our reputation in the industry, possibly impair our ability to sell our services to customers and could harm our business and results of operations. The Federal Trade Commission, or FTC, also has jurisdiction over some of our business practices, including advertising, trade practices, privacy and telemarketing.
We engage with our clients through a highly scalable and metrics-driven sales and marketing organization that effectively identifies, qualifies and closes sales opportunities. The deep domain expertise of our field sales team is instrumental in selling to larger opportunities, and our highly efficient telesales model enables us to cost-effectively identify, qualify and close a high volume of smaller opportunities.
We engage with our customers through a highly scalable and metrics-driven sales and marketing organization that effectively identifies, qualifies and closes sales opportunities. The deep domain expertise of our field sales team is instrumental in selling to larger opportunities, and our highly efficient telesales model enables us to cost-effectively identify, qualify and close a high volume of smaller opportunities.
In addition, Amazon.com, Inc., or Amazon, Twilio Inc., or 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, CRM vendors are increasingly offering features and functionality that were traditionally provided by contact center service providers.
In addition, Amazon.com, Inc., or Amazon, Twilio Inc., or 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, CRM vendors are increasingly offering features and functionality, including AI contact center solutions, that were traditionally provided by contact center service providers.
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 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 customers. Our partner ecosystem has helped us access new routes to market and increase our penetration in domestic and international markets.
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.
Inclusion and Culture At Five9, we 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.
Our ecosystem of technology, system integrator and channel partners increases awareness of our solution and helps generate new sales opportunities. We believe our go-to-market model gives us an efficient and effective means of targeting organizations of all sizes. • Established market presence and a large, diverse client base.
Our ecosystem of technology, system integrator and channel partners increases awareness of our solution and helps generate new sales opportunities. We believe our go-to-market model gives us an efficient and effective means of targeting organizations of all sizes. • Established market presence and a large, diverse customer base.
We currently compete with large legacy vendors that offer on-premise contact center systems, such as Avaya Inc., or Avaya, and Cisco Systems, Inc., or Cisco. These legacy telephony vendors are increasingly supplementing their traditional on-premise contact center systems with competing cloud offerings, through a combination of acquisitions, partnerships and in-house development.
We currently compete with large legacy vendors that offer on-premises contact center systems, such as Avaya Inc., or Avaya, and Cisco Systems, Inc., or Cisco. These legacy telephony vendors are increasingly supplementing their traditional on-premises contact center systems with competing cloud offerings, through a combination of acquisitions, partnerships, and in-house development.
This commitment involves the reporting to Scope 1, 2, and 3 emissions within the mandated reporting period. Regulatory The following summarizes important, but not all, federal, state and foreign regulations that could impact our operations.
This commitment involves the reporting to Scope 1, 2, and 3 emissions within the mandated reporting periods. Regulatory The following summarizes important, but not all, federal, state and foreign regulations that could impact our 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.
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.
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.
To complement our 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 customers.
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.
Our customer 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 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.
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. We are also committed to complying with California’s climate legislation, SB-253 and SB-261.
We provide high quality inbound and outbound voice services leveraging our global network infrastructure, key strategic carrier partnerships, complex real time call routing, and wide range of customer connectivity options for secure, resilient interconnectivity to our network.
We provide high quality inbound and outbound voice services leveraging our global network infrastructure with key strategic carrier partnerships, including complex real-time call routing, and a wide range of customer connectivity options for secure and resilient interconnectivity to our network.
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.
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 customers’ contact centers become fully operational faster and they recognize time to value quicker than legacy on-premises contact center systems. • Reliable, secure, compliant and scalable platform.
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.
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 customers learn about the capabilities and functionality of our cloud platform.
Contact centers are vital hubs of interaction between organizations and their customers and, therefore, are essential to delivering successful customer service, sales and marketing strategies. Our mission is to empower organizations to transform their contact centers into customer engagement centers of excellence, while improving business agility and significantly lowering the cost and complexity of their contact center operations.
Contact centers are vital hubs of interaction between organizations and their customers and are, therefore, essential to delivering successful customer service, sales, and marketing strategies. Our mission is to empower organizations to transform their contact centers into customer experience centers of excellence, while improving business agility, customer satisfaction, and significantly lowering the cost and complexity of their operations.
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.
Total Rewards Philosophy 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.
Our field and telesales teams are also responsible for selling to existing clients that may renew their subscriptions, increase the number of agents using our cloud solution, add new applications from our solution and expand the deployment of our solution across their contact centers. Indirect Sales.
Our field and telesales teams are also responsible for selling to existing customers that may renew their subscriptions, increase the number of licenses using our cloud solution, add new applications from our solution and expand the deployment of our solution across their contact centers. Indirect Sales.
Therefore, it is more critical than ever to provide the tools and technologies to meet consumer demands for a seamless experience across their engagement channels of choice. Cloud contact center software solutions provide organizations with the agility to adapt to a rapidly evolving environment and innovative functionalities to reimagine the way they engage with customers.
Therefore, it is more critical than ever to provide the tools and technologies to meet consumer demands for a seamless experience across their engagement channels of choice. Cloud contact center software solutions provide organizations with the agility to adapt to a rapidly evolving environment and leverage innovative functionalities to improve the way companies engage with customers.
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.
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, including the EU Artificial Intelligence Act.
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.
We believe the principal competitive factors in our market include: • breadth and depth of solution features, including AI; • reliability, scalability and quality of the platform; • ease and speed of deployment; • ease of application administration and use; • level of customer 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 service levels based on business requirements; • breadth and domain expertise of the sales, marketing and support organization; • ability to keep pace with customer requirements; • extent and efficiency of professional services; • ability to offer multiple channels of engagement; and • size and financial stability.
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.
To build customer 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 programs such as search engine marketing, internet advertising, digital marketing campaigns, content syndication, presence at industry events and trade shows, co-marketing with strategic partners, account-based marketing, customer referrals and other promotional campaigns.
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.
Our recurring revenue model combined with our Annual Dollar-Based Retention Rate, which was 108% as of December 31, 2024, have enhanced our ability to forecast our financial performance and plan future investments.
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.
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 customer systems, and resellers, which sell our solution to new customers.
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.
We have built 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, 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 AT&T Inc. and British Telecom, CDW Corporation, NWN Carousel, Presidio Networked Solutions Group, LLC, and Worldwide Technologies; independent software vendors such as Cresta AI, Pindrop, Blackchair, Level AI, Calabrio and Verint; and telephony providers.
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 regularly collect feedback to better understand and improve the employee experience and identify opportunities to continually strengthen our culture. 82% of our employees participated in our most recent employee survey in 2024.
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 believe that AI, and Generative AI in particular, will profoundly impact how businesses deliver experiences to their customers. Customers We have a large, diverse and global customer base comprised of more than 3,000 organizations as of December 31, 2024, with no single customer representing more than 10% of our revenues in 2024, 2023 or 2022.
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.
We believe this partner ecosystem has enabled us to increase our brand awareness and enhance the functionality and value of our solution for our customers. • Focus on innovation and thought leadership . Since our inception, we have been an innovator of intelligent cloud contact center software.
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.
We have a large, diverse customer base of over 3,000 organizations across multiple industries. We believe our customers view us as a key strategic solution provider. The performance, reliability, ease-of-use and comprehensive nature of our solution has resulted in high customer retention. 7 Table of Contents • Extensive partner ecosystem.
Research and Development Our ability to compete depends in large part on our continuous commitment to research and development and our ability to improve the functionality of, and add new features to, our VCC cloud platform.
Research and Development Our ability to compete depends in large part on our continuous commitment to research and development and our ability to improve the functionality of, and add new features to, our Intelligent CX 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 solution is designed to be seamlessly updated so that customers are always operating on the latest version of the software, while maintaining their existing configurations, to ensure minimal disruption to the customer’s contact center operations. • Highly flexible platform.
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.
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 a year. During 2024, 2023 and 2022, 52%, 52%, and 52% of our total revenues 10 Table of Contents were generated in the second half of each year.
Organizations of a broad variety of sizes use our solution to improve customer service and create customer loyalty. These capabilities are offered across a wide variety of engagement channels from chat and SMS to e-mail and voice. Consumers are able to engage using their channel of choice and clients are able to facilitate fluid experiences that drive digital transformation.
A broad range of organizations use our solution to improve customer service and create customer loyalty. These capabilities are offered across a wide variety of engagement channels from chat and SMS to e-mail and voice. Consumers are able to engage using their channel of choice and customers are able to facilitate seamless experiences that benefit from digital transformation.
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.
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 self-service, agent assistance, management insights, and more. Our solution also empowers agents and supervisors through WEM.
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.
We incurred net losses of $12.8 million, $81.8 million and $94.7 million for the years ended December 31, 2024, 2023 and 2022, respectively, primarily as a result of increased investment in our growth, along with higher stock-based compensation. As of December 31, 2024, 2023 and 2022, our total assets were $2,051.2 million, $1,494.6 million and $1,244.5 million, respectively.
Our investment in research and development has driven our growth and enabled us to deliver a cloud contact center software solution with the features and functionality to power the most complex contact centers. We strive to be a thought leader in our industry, identifying and developing cloud capabilities to transform traditional contact center operations into customer engagement centers of excellence.
Our investment in research and development has driven our growth and enabled us to deliver an Intelligent CX Platform with the capabilities and functionality to power the most complex contact centers. We strive to be a thought leader in our industry, identifying and developing cloud capabilities to transform traditional contact center operations into customer experience centers of excellence.
As a result, cloud contact center software solutions are continuing to replace legacy on-premise contact center systems. Second is digital transformation. Consumers have the ability to easily and quickly switch brands after experiencing poor customer service.
As a result, cloud contact center software solutions are continuing to replace legacy on-premises contact center systems. Second is digital transformation. End user consumers can easily and quickly switch brands after experiencing poor customer service.
Our solution provides organizations of all sizes with the robust contact center functionality, scalability, flexibility and security required in the most sophisticated and distributed environments. Our solution is designed to provide the following key benefits to clients: • Improved customer experience.
Our solution provides organizations of all sizes with robust contact center functionality, scalability, flexibility and security required in the most sophisticated and distributed environments. Our solution is designed to provide the following key benefits to customers: • A complete omnichannel solution.
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.
Unlike legacy on-premises 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 mid-size, enterprise, and Fortune 1000 companies and a telesales team that sells our solution into smaller companies.
PCI DSS 3.2; • AICPA - System and Organization Controls SOC 2, Type 2 Security and Availability criteria; • Health Insurance Portability and Accountability Act (HIPAA) that is designed to protect the privacy and security of protected health information (PHI); • ISO 27017 - Information technology – Security techniques – Code of practice for information security controls based on ISO/IEC 27002 for cloud services; • ISO 27018 - Information technology — Security techniques — Code of practice for protection of personally identifiable information (PII) in public clouds acting as PII processors; and • NIST 800-53 Rev 5 - Security and Privacy Controls for Information Systems and Organizations.
PCI DSS 3.2; • AICPA - System and Organization Controls SOC 2, Type 2 Security and Availability criteria; • ISO 27017 - Information technology – Security techniques – Code of practice for information security controls based on ISO/IEC 27002 for cloud services; • ISO 27018 - Information technology — Security techniques — Code of practice for protection of personally identifiable information (PII) in public clouds acting as PII processors; and • NIST 800-53 Rev 5 - Security and Privacy Controls for Information Systems and Organizations.
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.
Comprised of our Intelligent CX Platform and automation capabilities, including Intelligent Virtual Agent, or IVA, Agent Assist, Workflow Automation, or WFA, Workforce Engagement Management, or WEM, AI Insights and AI Summaries, Revenue Execution, and our most recent AI capability, AI Agents, our solution 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 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.
Our highly reliable, 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.
Environmental Sustainability We are committed to reducing workplace-related resource consumption through our site selection, facilities design and energy procurement practices through our landlords, to ensure our corporate responsibility goals are achieved. We participate in building sustainability by occupying LEED certified and 5-Star NABERS Energy Rated multi-tenant buildings. Our corporate headquarters offers a transportation program to cut down on emissions.
Environmental Sustainability 12 Table of Contents We are committed to reducing workplace-related resource consumption through our site selection, facilities design and energy procurement practices through our landlords, to ensure our corporate responsibility goals are achieved. We participate in building sustainability by occupying LEED certified and 5-Star NABERS Energy Rated multi-tenant buildings.
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.
This network has helped us attract additional customers, 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 provide professional services to assist our customers in implementing and optimizing our solution.
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, 2024, our intellectual property portfolio included nine registered U.S. trademarks, three pending U.S. trademark applications, 23 issued U.S. patents, seven pending U.S. patent applications and one registered U.S. copyright.
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%).
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. The areas rated highest by our employees were: growth and development (77%) and collaboration and communication (70%).
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.
Our reliable, secure, and scalable Intelligent CX Platform, powered by Five9 Genius AI, delivers a comprehensive suite of easy-to-use applications that enable the breadth of customer service, sales, and marketing functions. We have become an established leader in the cloud contact center market with more than 3,000 customers.
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.
Our complete end-to-end capabilities include IVA, Interactive Voice Response, or IVR, WFA, WEM, Agent Assist, AI Insights, AI Summaries, Revenue Execution, AI Knowledge, AI Agents, Automatic Call/Contact Distribution, or ACD, with skills-based routing, reporting, dashboards, agent and supervisor desktops, outbound dialer, pre-built 5 Table of Contents third-party integrations, quality management, speech and desktop analytics, customer surveys and more.
Our solution gives agents the ability to switch between media channels through an easy-to-use, unified interface that provides agents with all of the relevant content and tools needed to complete the task at hand.
Our solution enables agents to switch between media channels through an easy-to-use, unified interface that provides agents with all of the relevant content and tools needed to respond to customer needs.
With the introduction of new technologies and market entrants, we expect competition to continue to intensify in the future. Our recent, and any future, acquisitions will subject us to new competitors and cause us to face additional and different competition in the markets served by these businesses.
Our recent, and any future, acquisitions will subject us to new competitors and cause us to face additional and different competition in the markets served by these businesses.
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.
Competition The market for contact center software is fragmented, highly competitive and evolving rapidly. The proliferation of different channels of engagement is driving changes 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.
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.
In general, our patents and patent applications apply to aspects of our Intelligent CX 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.
Our VCC cloud platform matches each customer interaction with an appropriate agent resource and delivers relevant customer data to the agent in real-time through integrations with adjacent enterprise applications, such as CRM software, to optimize the customer experience and improve agent productivity. Our solution ensures our clients always have the latest version of our software.
Our Intelligent CX Platform matches each consumer interaction with an appropriate agent resource and delivers relevant consumer data to the agent in real-time through integrations with adjacent enterprise applications, 4 Table of Contents such as CRM software, to optimize the consumer experience and improve agent productivity.
We believe our ability to combine software and telephony into a single unified platform that is delivered in the cloud creates a significant advantage. We believe there are three key industry trends driving growth in the cloud contact center market. First is the rapid increase in adoption of cloud contact center software solutions as a result of several distinct factors.
We believe our ability to combine software, including artificial intelligence, or AI, solutions, with telephony into a single unified platform that is delivered in the cloud creates a significant advantage. We believe there are three key industry trends driving growth in the cloud contact center market.
Our VCC platform is based on a modern micro services-based open enterprise architecture built with representational state transfer, or REST, APIs and software development kits, or SDKs, that enable customers, partners and developers to bridge any operational gaps within their unique systems. AI is an embedded part of our platform.
Our Intelligent CX Platform is based on a modern micro services-based open enterprise architecture with open APIs and software development kits, or SDKs, to enable customers, partners and developers to integrate our solution into their unique systems. AI is an embedded part of our platform.
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.
Our intelligent contact routing and self-service IVA, IVR, and AI Agent capabilities, including pre-built CRM and other integrations, and omnichannel engagement ensure that consumers have a great experience. New contacts are quickly routed to an appropriate agent.
We have made strides in reducing energy consumption by upgrading our lighting system and installing motion sensors for lighting and convenience electrical outlets.
Our corporate headquarters offers a transportation program to cut down on emissions. We have made strides in reducing energy consumption by upgrading our lighting system and installing motion sensors for lighting and convenience electrical outlets.
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%.
As of December 31, 2024, we had 3,073 full-time employees. 43% of our employees are in various cost of revenue functions, 25% in research and development, 20% in sales and marketing and 12% in general and administrative. Our employee turnover for the last three years has averaged 14.7%.
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.
Natural language voice and chat-bots, using Generative AI, provide speech recognition, intent detection, and text-to-speech technologies to quickly and effectively handle mundane contact center tasks, allowing agents to focus on more complex issues.
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.
We also host some of our voice services on the public cloud in Europe, Asia, South America, and Australia. Our infrastructure, including our third-party co-location facilities, is designed to support real-time critical telecommunications, applications and operational support systems. Our infrastructure is built with redundant, fault-tolerant components divided into distinct security zones forming protective layers for our applications and customer data.
We currently deliver our services globally from third-party co-location data center facilities located in the United States, the United Kingdom, Europe and Australia and from public cloud locations in Canada, the United Kingdom and Europe.
We believe that all components can be upgraded, expanded or replaced with minimal or no interruption in service. We currently deliver our services from third-party co-location data center facilities located in the United States, the United Kingdom, Europe and Australia and from public cloud locations in Canada, the United Kingdom, Europe and India.
Our core research and development center is based in our San Ramon, California headquarters, with additional engineers located in Australia and Portugal, which allows us to benefit from relatively low-cost and highly skilled software developers.
Our core research and development center is based in our San Ramon, California headquarters, with additional engineers located in Australia, Portugal, and India, which international locations allow us to benefit from lower cost and highly skilled software developers. In January 2023, we opened our new European Research and Development Hub in Porto, Portugal, which serves as our European engineering headquarters.
We provide a unified cloud-based software platform for contact center operations, including software applications, technology infrastructure, maintenance, monitoring, storage, security, client support and upgrades, which enables our clients to simplify their technology infrastructure and streamline IT costs.
Additionally, we believe our Genius AI suite provides efficiencies across our customers’ overall operations. • Compelling value proposition. We provide a unified cloud-based software platform for contact center operations, including software applications, technology infrastructure, maintenance, monitoring, storage, 6 Table of Contents security, customer support and upgrades, which enables our customers to simplify their technology infrastructure and streamline IT costs.
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.
Generative AI technologies are also used in our AI Insights product, which gives customers an understanding of the reasons for customer calls, provides customer sentiment, and call resolution status, with little up-front configuration or setup.
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.
We have achieved significant growth in recent periods. For the years ended December 31, 2024, 2023 and 2022, our revenue was $1,041.9 million, $910.5 million and $778.8 million, respectively, representing year-over-year growth of 14% and 17%, respectively.
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.
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 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.
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.
Contact centers are a rich source of the contextual data that powers AI, from interaction data such as call transcripts to customer data from extensive integrations to back office systems, as well as brand information. Recent advances in Generative AI enable us to deliver even more innovation by integrating it deep into our Intelligent CX Platform.
Our global operations team monitors our data centers for potential performance issues, unauthorized attempts to access secure data or applications and the overall integrity of the platform.
We have designed and maintain an operations, capacity and security program to monitor and maintain our platform, ensure efficient utilization of our platform capacity and protect against security threats or data breaches. Our operations team monitors our data centers for potential performance issues, unauthorized attempts to access secure data or applications and the overall integrity of the platform.
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.
As of December 31, 2024, outside the U.S. we also had 27 trademark registrations across various countries, two pending trademark applications, five issued patents and three pending international national phase patent applications. There are no Patent Cooperation Treaty, or PCT, patent applications. The expiration dates of our issued patents range from 2025 to 2043.
Additionally, our framework is subject to annual independent verification audits performed by qualified and experienced external third parties who issue to us SOC 2 Type 2, PCI AOC, and HIPAA HiTech attestation reports, and who certify us to the ISO 27001:2013 Information Security Management System standard.
Additionally, our framework is subject to annual independent verification audits performed by qualified and experienced external third parties who issue to us SOC 2 Type 2, PCI AOC, and HIPAA HiTech attestation reports, and who certify us to the ISO 27001:2013 Information Security Management System standard. 14 Table of Contents 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.
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.
Women and ethnic minorities each represented 23% and 23%, respectively, of our executive leadership team and 30% and 40%, respectively, of our Board of Directors, or Board, as of December 31, 2024.
Our solution provides clients’ operations staff, quality team and leadership with a complete view of contact center performance through a comprehensive set of historical reports, real-time dashboards, and quality and performance management tools. Clients can also extract reporting data from our solution for further analysis using a spreadsheet application or using the sophistication of an enterprise business intelligence application.
Our solution provides contact center management, operations staff, quality team and executive leadership with a complete view of contact center performance through a comprehensive set of historical reports, real-time dashboards, and quality and performance management tools.
The increasing adoption of cloud computing, especially within customer relationship management, or CRM, is creating strong demand for integrated cloud contact center software solutions. In addition, cloud contact center software solutions now offer the functionality required by large, complex enterprise contact centers.
First is the increasing adoption of cloud-based solutions within companies around the world, which is creating strong demand for integrated cloud contact center software solutions. Cloud contact center solutions offer the functionality, reliability, scalability and security required by large, complex enterprise contact centers.
We deliver a cloud-based enterprise-grade platform and applications suite with multi-channel capabilities that allows our clients to manage their entire contact center operation.
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, AI infused, enterprise-grade platform and end-to-end application suite. We deliver a cloud-based, enterprise-grade, AI-infused platform and applications suite with multi-channel capabilities that allows our customers to manage their entire contact center operation.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFactors 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.
Biggest changeFactors that may cause fluctuations in our quarterly and annual results include, without limitation: • market acceptance of our solution, including new features and components that are added to our solution; • if our existing customers 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; • our ability to attract new customers and grow our business with existing customers; • customer renewal rates; • customer attrition rates; • the loss of key customers, including through acquisitions or consolidations; • our ability to make technological advancements, add more features to our solution, and integrate those features within our customer’s technology infrastructure; • our ability to capitalize on the transition by our customers to AI solutions; • our ability to successfully integrate companies, businesses and technology that we acquire and achieve a positive return on our investment; • adverse economic conditions, including the impact of macroeconomic challenges, including continued inflation, uncertainty regarding consumer spending, high interest rates, fluctuations in currency rates, the impact of the Russia-Ukraine conflict, the impact of conflicts in the Middle East, or other factors; • network outages or security incidents, which may result in additional expenses or losses, legal or regulatory actions, the loss of customers, the provision of customer credits, and harm to our reputation; • our ability to adequately expand our sales and service team; • our ability to acquire and maintain strategic and customer 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, customers or strategic partners; • 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 customer agreements; • the level of professional services and support we provide our customers; • the ability to expand internationally, and to do so profitability; • compliance with, or changes in, the current and future domestic and international regulatory environment; • the hiring, training and retention of key employees; 17 Table of Contents • the outcome of litigation or other claims against us; • 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.
For example, in the event of a major earthquake or flooding on the West Coast of the United States (where our corporate headquarters and one of our data centers are located), hurricane, tropical storm, flooding or severe weather in the southeastern United States (where our other U.S. data center is located) or catastrophic events such as fire, power loss, telecommunications failure, cyber-attack, global pandemic, war or terrorist attack, we may be unable to continue our operations and may endure system and service interruptions, reputational harm, delays in product development, breaches of data security and loss of critical data, any of which could harm our business and operating results.
For example, in the event of a major earthquake, fire or flooding on the West Coast of the United States (where our corporate headquarters and one of our data centers are located), hurricane, tropical storm, flooding or severe weather in the southeastern United States (where our other U.S. data center is located) or catastrophic events such as fire, power loss, telecommunications failure, cyber-attack, global pandemic, war or terrorist attack, we may be unable to continue our operations and may endure system and service interruptions, reputational harm, delays in product development, breaches of data security and loss of critical data, any of which could harm our business and operating results.
We continue to rely on Standard Contractual Clauses, or SCCs, and have updated our use of use of SCCs to the EU’s latest versions, as well as separate U.K. versions of the SCCs. Even still, there continue to be EU legal decisions and certain regulatory guidance that cast doubt on the legality of EU-U.S. data flows in general.
We continue to rely on Standard Contractual Clauses, or SCCs, and have updated our use of SCCs to the EU’s latest versions, as well as separate U.K. versions of the SCCs. Even still, there continue to be EU legal decisions and certain regulatory guidance that cast doubt on the legality of EU-U.S. data flows in general.
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.
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 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 Organization for Economic Co-operation and Development (“OECD”) Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries. The European Union and many other member states have committed to adopting Pillar 2 which calls for a global minimum tax of 15% to be effective for tax years beginning in 2024.
The Organization for Economic Co-operation and Development (“OECD”) Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries. The European Union and many other member states have committed to adopting Pillar 2, which calls for a global minimum tax of 15% effective for tax years beginning in 2024.
The Option Counterparties or their respective affiliates also may modify their hedge positions by entering into or unwinding such derivative transactions and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the applicable maturity of the 2025 convertible senior notes. These activities could negatively affect the market price of our common stock.
The Option Counterparties or their respective affiliates also may modify their hedge positions by entering into or unwinding such derivative transactions and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the applicable maturity of the convertible senior notes. These activities could negatively affect the market price of our common stock.
Risks Related to Third-Party Technology Providers 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.
Risks Related to Third-Party Technology Providers We rely on third-party telecommunications and internet service providers to provide our customers 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 customers and subject us to claims for credits or damages, among other things.
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.
Upon conversion of the 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.
Service disruption or outages, whether caused by our service, the products or services of our third party service providers, or our clients’ or their customers’ equipment and systems, may result in loss of market acceptance of our solution and harm to our reputation and any necessary repairs or other remedial actions may force us to incur significant costs and expenses.
Service disruption or outages, whether caused by our service, the products or services of our third-party service providers, or our customers’ or their customers’ equipment and systems, may result in loss of market acceptance of our solution and harm to our reputation and any necessary repairs or other remedial actions may force us to incur significant costs and expenses.
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.
To the extent that our solution depends upon the successful operation of third-party software in conjunction with our solutions, 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 this regard, if holders of the 2025 convertible senior notes elect to convert their notes, we may settle our conversion obligations by delivering to them cash, shares of our common stock or a combination thereof. In addition, we may issue shares of our common stock in connection with repurchases, exchanges or other transactions involving the convertible senior notes.
In this regard, if holders of the convertible senior notes elect to convert their notes, we may settle our conversion obligations by delivering to them cash, shares of our common stock or a combination thereof. In addition, we may issue shares of our common stock in connection with repurchases, exchanges or other transactions involving the convertible senior notes.
If one or more holders elect to convert their 2025 convertible senior notes during any such specified period, we have the option to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
If one or more holders elect to convert their convertible senior notes during any such specified period, we have the option to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
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.
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 customer 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.
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.
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 grow rapidly, we may fail to manage our growth effectively.
Thus, although SMS comprises only a very small portion of our revenue base, its future availability as an effective tool for communication and outreach for our clients and their customers is uncertain and could cause our solution to be less valuable to clients and potential clients.
Thus, although SMS comprises only a very small portion of our revenue base, its future availability as an effective tool for communication and outreach for our customers and their customers is uncertain and could cause our solution to be less valuable to customers and potential customers.
AI technology may also produce inaccurate responses that could lead to errors in our decision-making, solution development or other business activities, which could have a negative impact on our business, operating results and financial condition.
AI technology may also produce inaccurate responses that could lead to errors in our decision-making, solution development, operations or other business activities, which could have a negative impact on our business, operating results and financial condition.
Accordingly, if our cybersecurity measures fail to protect against unauthorized access, attacks, compromise or the mishandling of data by our employees, then our reputation, business, results of operations and financial condition could be adversely affected.
Accordingly, if our cybersecurity measures fail to protect against unauthorized access, cybersecurity incidents, attacks, compromise or the mishandling of data by our employees, then our reputation, business, results of operations and financial condition could be adversely affected.
Our ability to obtain additional financing or refinance the 2025 convertible senior notes, or any future indebtedness, will depend on conditions in the capital markets and our financial condition at such time, among other factors.
Our ability to obtain additional financing or refinance the 2025 convertible senior notes, the 2029 convertible senior notes or any future indebtedness, will depend on conditions in the capital markets and our financial condition at such time, among other factors.
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.
The STIR/SHAKEN regulatory framework creates a significant business risk for companies such as ours that include customers 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 customers, they may, or may be required to block the call, preventing it from reaching the intended party, which would damage our relationship with our customers, and make our solution less attractive to our customers and potential customers.
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.
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; • The Communications and Video Accessibility Act and 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 customer approval, subject to certain exceptions.
If we do not comply with any current or future rules or regulations that apply to our business, we could be subject to additional and substantial fines and penalties, we may have to restructure our solution, exit certain markets, accept lower margins or raise the price of our solution, any of which could harm our business and results of operations. 40 Table of Contents We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could harm our profitability and financial condition.
If we do not comply with any current or future rules or regulations that apply to our business, we could be subject to additional and substantial fines and penalties, we may have to restructure our solution, exit certain markets, accept lower margins or raise the price of our solution, any of which could harm our business and results of operations. 41 Table of Contents We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could harm our profitability and financial condition.
Additionally, these laws, and any changes to them or the interpretation thereof, that further restrict calling consumers, including to wireless phone numbers, adverse publicity regarding the alleged or actual failure by companies, including our clients and competitors, to comply with such laws or governmental or private enforcement actions related thereto, could result in a reduction in the use of our solution by our clients and potential clients, which could harm our business, financial condition, results of operations and cash flows.
Additionally, these laws, and any changes to them or the interpretation thereof, that further restrict calling consumers, including to wireless phone numbers, adverse publicity regarding the alleged or actual failure by companies, including our customers and competitors, to comply with such laws or governmental or private enforcement actions related thereto, could result in a reduction in the use of our solution by our customers and potential customers, which could harm our business, financial condition, results of operations and cash flows.
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.
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.
Operating in international markets requires significant resources and management attention and subjects us to intellectual property, regulatory, economic and political risks that are different from those in the United States.
Operating in international markets requires significant resources and management attention and subjects us to intellectual property, regulatory, tax, economic and political risks that are different from those in the United States.
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.
The conversion of some or all of the 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.
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.
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 customers, which could harm our results of operations and our relationships with our customers.
There are no assurances that we will be able to obtain such authorizations or that if obtained, this authorization will result in increased revenue or a sufficient return on our investment. Furthermore, a portion of our revenue is generated by acquiring domestic and international telecommunications minutes from wholesale telecommunication service providers and reselling those minutes to our clients.
There are no assurances that we will be able to obtain such authorizations or that if obtained, this authorization will result in increased revenue or a sufficient return on our investment. Furthermore, a portion of our revenue is generated by acquiring domestic and international telecommunications minutes from wholesale telecommunication service providers and reselling those minutes to our customers.
Subsequent or future issuances or sales of our stock (including certain transactions involving our stock that are outside of our control) could cause an “ownership change” again, which would impose an annual limit on the amount of pre-ownership change net operating loss carryforwards and other tax attributes we can use to reduce our taxable income.
Subsequent or future issuances or sales of our stock (including certain transactions involving our stock that are outside of our control) could cause an “ownership change” again, which could impose an additional annual limit on the amount of pre-ownership change net operating loss carryforwards and other tax attributes we can use to reduce our taxable income.
We are focused on enhancing the reliability, features and functionality of our contact center solution to enhance its utility to our clients, particularly larger clients, with complex, dynamic and global operations. In addition, cloud-based technology advancements in areas such as AI are designed to enable improved customer experience, significant operational efficiencies and business insights.
We are focused on enhancing the reliability, features and functionality of our contact center solution to enhance its utility to our customers, particularly larger customers, with complex, dynamic and global operations. In addition, cloud-based technology advancements in areas such as AI are designed to enable improved customer experience, significant operational efficiencies and business insights.
If that occurs, we could lose future sales, or our existing clients could cancel or reduce the use of our solution, seek payment credits or damages against us, or delay or withhold payment to us, which could result in reduced revenues, an increase in our provision for uncollectible accounts and service credits, an increase in collection cycles for accounts receivable, and harm our financial results.
If that occurs, we could lose future sales, or our existing customers could cancel or reduce the use of our solution, seek payment credits or damages against us, or delay or withhold payment to us, which could result in reduced revenues, an increase in our provision for uncollectible accounts and service credits, an increase in collection cycles for accounts receivable, and harm our financial results.
Unauthorized access, unauthorized use of our systems or those of third parties on which we rely or the data stored within those systems, security breaches or other cyber attacks could result in the loss of confidentiality, integrity and availability of such information or systems, leading to litigation, governmental investigations and enforcements actions, indemnity obligations, increased expense, and other liability.
Unauthorized access, unauthorized use of our systems or those of third parties on which we rely or the data stored within those systems, cybersecurity incidents, security breaches or other cyber-attacks could result in the loss of confidentiality, integrity and availability of such information or systems, leading to litigation, governmental investigations and enforcements actions, indemnity obligations, increased expense, and other liability.
In addition, integration of the software used in our solution with new third-party software may require significant work and require substantial investment of our time and resources.
In addition, integration of the software used in our solution with new third-party offerings may require significant work and require substantial investment of our time and resources.
If one of these agreements is terminated by the other party, we would have to find an alternative source or develop new technology ourselves, which preclude, limit or delay our ability to offer our solution or certain product features to our clients, result in increased expense and harm our business.
If one of these agreements is terminated by the other party, we would have to find an alternative source or develop new technology ourselves, which preclude, limit or delay our ability to offer our solution or certain product features to our customers, result in increased expense and harm our business.
In addition, negative publicity related to our professional services and technical support, regardless of its accuracy, may damage our business by affecting our ability to compete for new business with current and prospective clients. Risks Related to the Sale of our Solution Failure to adequately retain and expand our direct sales force will impede our growth.
In addition, negative publicity related to our professional services and technical support, regardless of its accuracy, may damage our business by affecting our ability to compete for new business with current and prospective customers. Risks Related to the Sale of our Solution Failure to adequately retain and expand our direct sales force will impede our growth.
If prospective clients require customized features or functions that we do not offer, and that would be difficult for them to deploy themselves, they will need to use our professional services or third-party service providers or we may lose sales opportunities with larger organizations and our business could suffer.
If prospective customers require customized features or functions that we do not offer, and that would be difficult for them to deploy themselves, they will need to use our professional services or third-party service providers, or we may lose sales opportunities with larger organizations and our business could suffer.
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.
Our failure to achieve or maintain expected performance levels, stability and security, particularly as we increase our number of larger customers and attract increasingly larger customers 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 customers, result in claims for credits or damages or other actions, damage our reputation, significantly reduce customer 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.
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.
A default under the applicable indenture would lead to, and the occurrence of the fundamental change itself may also lead to, a default under agreements governing our future indebtedness.
In addition, since telecommunications billing and associated telecom taxes and the related calculations and billing of telecom taxes are inherently complex and require highly sophisticated information systems to administer, our billing system may experience errors or we may improperly operate the system, which could result in the system incorrectly calculating the fees owed by our clients or related taxes and administrative fees.
In addition, since telecommunications billing and associated telecom taxes and the related calculations and billing of telecom taxes are inherently complex and require highly sophisticated information systems to administer, our billing system may experience errors or we may improperly operate the system, which could result in the system incorrectly calculating the fees owed by our customers or related taxes and administrative fees.
Our business depends on the overall demand for cloud contact center software solutions, the economic health of our current and prospective clients and worldwide economic conditions. In addition to the United States, Canada, Europe, Latin America and Australia, we plan in the future to market and sell our solution in Asia and other international markets.
Our business depends on the overall demand for cloud contact center software solutions, the economic health of our current and prospective customers and worldwide economic conditions. In addition to the United States, Canada, Europe, Latin America and Australia, we plan in the future to market and sell our solution in Asia and other international markets.
Third party complaints and unusual calling patterns on end user bills must be investigated and the services of non-compliant clients terminated. Voice service providers must also participate in an Industry Traceback Group program to further demonstrate their commitment to preventing robocalls and caller ID spoofing.
Third-party complaints and unusual calling patterns on end user bills must be investigated and the services of non-compliant customers terminated. Voice service providers must also participate in an Industry Traceback Group program to further demonstrate their commitment to preventing robocalls and caller ID spoofing.
Although we believe we have achieved full compliance, the regulatory measures to prevent robocalling and caller ID spoofing are relatively new, complex and continue to change and therefore pose a risk to all voice service providers with respect to the possible misidentification and blocking of voice calls originated by their clients.
Although we believe we have achieved full compliance, the regulatory measures to prevent robocalling and caller ID spoofing are relatively new, complex and continue to change and therefore pose a risk to all voice service providers with respect to the possible misidentification and blocking of voice calls originated by their customers.
As our industry matures, as our clients experience macroeconomic issues or seasonal trends in their business, or as competitors introduce lower cost or differentiated products or services that are perceived to compete favorably with ours, our ability to add new clients and renew, maintain or sell additional services to existing clients could be harmed.
As our industry matures, as our customers experience macroeconomic issues or seasonal trends in their business, or as competitors introduce lower cost or differentiated products or services that are perceived to compete favorably with ours, our ability to add new customers and renew, maintain or sell additional services to existing customers could be harmed.
Some U.S. government customers require that we be authorized under the FedRAMP to help satisfy their own legal and regulatory compliance requirements, which may require us to undertake additional actions and expense to ensure compliance. We are currently undergoing processes and procedures to obtain FedRAMP authorization, which processes and procedures are costly and time consuming.
Some U.S. government customers require that we be authorized under the FedRAMP to help satisfy their own legal and regulatory compliance requirements, which requires us to undertake additional actions and expense to ensure compliance. We are currently undergoing processes and procedures to obtain FedRAMP authorization, which processes and procedures are costly and time consuming.
If clients fail to pay us under the terms of our agreements or fail to comply with the terms of our agreements, including compliance with regulatory requirements and intellectual property terms, we may terminate clients, lose revenue, be unable to collect amounts due to us, be subject to legal or regulatory action and incur costs in enforcing the terms of our contracts, including litigation.
If customers fail to pay us under the terms of our agreements or fail to comply with the terms of our agreements, including compliance with regulatory requirements and intellectual property terms, we may terminate customers, lose revenue, be unable to collect amounts due to us, be subject to legal or regulatory action and incur costs in enforcing the terms of our contracts, including litigation.
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.
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 or business partners may be unable to anticipate these techniques or implement adequate preventative measures.
For example, the inclusion in our client contracts of non-standard terms, such as acceptance criteria, could require the deferral of revenue. To the extent that such contracts become more prevalent in the future our revenue may be harmed. Because of these factors and other specific requirements under U.S.
For example, the inclusion in our customer contracts of non-standard terms, such as acceptance criteria, could require the deferral of revenue. To the extent that such contracts become more prevalent in the future our revenue may be harmed. Because of these factors and other specific requirements under U.S.
Competition for these personnel is intense, especially for senior executives, engineers highly experienced in designing and developing cloud software and for senior sales personnel.
Competition for these personnel is intense, especially for senior executives, engineers highly experienced in designing and developing cloud software and AI and for senior sales personnel.
Our contractual arrangements with our clients who use our solution to place calls also expressly require them to comply with all such laws and to indemnify us for any failure to do so. We take numerous steps to reasonably confirm that the use of our services complies with applicable laws.
Our contractual arrangements with our customers who use our solution to place calls also expressly require them to comply with all such laws and to indemnify us for any failure to do so. We take numerous steps to reasonably confirm that the use of our services complies with applicable laws.
Risks Related to Our Solution If we fail to manage our technical operations infrastructure, our existing clients may experience service outages, our new clients may delay or decide against deployment of our solution, existing clients may decide to move to another vendor, and we could be subject to claims for credits, damages or other actions.
Risks Related to Our Solution If we fail to manage our technical operations infrastructure, our existing customers may experience service outages, our new customers may delay or decide against deployment of our solution, existing customers may decide to move to another vendor, and we could be subject to claims for credits, damages or other actions.
The European Union’s GDPR may continue to increase our costs and the costs of our clients to operate, limit the use of our solution or change the way we operate, exposes us to substantial fines and penalties if we fail to comply, and has led to similar laws being enacted in other jurisdictions.
The European Union’s GDPR may continue to increase our costs and the costs of our customers to operate, limit the use of our solution or change the way we operate, exposes us to substantial fines and penalties if we fail to comply, and has led to similar laws being enacted in other jurisdictions.
We will need to continue to considerably expand our professional services and technical support in order to implement and support new and larger global client installations. Identifying and recruiting qualified service personnel and training them in our solution is difficult and competitive and requires significant time, expense and attention.
We will need to continue to considerably expand our professional services and technical support in order to implement and support new and larger global customer installations. Identifying and recruiting qualified service personnel and training them in our solution is difficult and competitive and requires significant time, expense and attention.
Longer sales cycles could cause our operating and financial results to be less predictable and to fluctuate from period to period. In addition, many of our clients that are larger organizations initially deploy our solution to support only a portion of their contact center agents.
Longer sales cycles could cause our operating and financial results to be less predictable and to fluctuate from period to period. In addition, many of our customers that are larger organizations initially deploy our solution to support only a portion of their contact center agents.
These laws require companies to institute processes and safeguards to comply with these restrictions. The legal interpretation of certain of the requirements of these laws continue to be in dispute before the courts and federal agencies, and it is possible that legal decisions and agency actions may further alter the legal requirements involved.
These laws require companies to institute processes and safeguards to comply with these restrictions. The legal interpretation of certain of the requirements of these laws continues to be in dispute before the courts and federal agencies, and it is possible that legal decisions and agency actions may further alter the legal requirements involved.
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.
These strategic partners may cease to recommend our solution to prospective customers 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.
Clients also may make indemnification or warranty claims against us, which could result in significant expense and risk of litigation. Product performance problems could result in loss of market share, reputational harm, failure to achieve market acceptance and the diversion of development resources.
Customers also may make indemnification or warranty claims against us, which could result in significant expense and risk of litigation. Product performance problems could result in loss of market share, reputational harm, failure to achieve market acceptance and the diversion of 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.
Any failure of our solution to operate effectively, including with future network platforms and technologies, could reduce the demand for our solution, result in customer dissatisfaction and harm our business. Our ability to continue to enhance our solution is dependent on adequate research and development resources.
These new compliance measures have and will increase our regulatory compliance and other costs, could make our solution less attractive to our clients, and any non-compliance could subject us to fines, damages and penalties, or injunctions precluding the use of our solutions or certain features thereof.
These new compliance measures have and will increase our regulatory compliance and other costs, could make our solution less attractive to our customers, and any non-compliance could subject us to fines, damages and penalties, or injunctions precluding the use of our solutions or certain features thereof.
Also, failure to comply with such laws may lead to significant fines, penalties or other regulatory liabilities, such as orders or consent decrees forcing us or our clients to modify business practices, and reputational damage or third-party lawsuits for any noncompliance with such laws.
Also, failure to comply with such laws may lead to significant fines, penalties or other regulatory liabilities, such as orders or consent decrees forcing us or our customers to modify business practices, and reputational damage or third-party lawsuits for any noncompliance with such laws.
Even if we are successful, we cannot assure you that these relationships will result in increased client usage of our solution or increased revenue. In addition, identifying new partners, and negotiating and documenting relationships with them, requires significant time and resources.
Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our solution or increased revenue. In addition, identifying new partners, and negotiating and documenting relationships with them, requires significant time and resources.
These larger organizations typically require more configuration and integration services, which increases our upfront investment in sales and deployment efforts, with no guarantee that these clients will subscribe to our solution or increase the scope of their subscription.
These larger organizations typically require more configuration and integration services, which increases our upfront investment in sales and deployment efforts, with no guarantee that these customers will subscribe to our solution or increase the scope of their subscription.
In addition, we believe that developing and maintaining widespread awareness of our brand in a cost-effective manner, both in the United States and internationally, is critical to achieving widespread acceptance of our solution, expanding our business with existing clients and attracting new clients.
In addition, we believe that developing and maintaining widespread awareness of our brand in a cost-effective manner, both in the United States and internationally, is critical to achieving widespread acceptance of our solution, expanding our business with existing customers and attracting new customers.
We rely on third-party telecommunication service providers to provide our clients and their customers with telecommunication services. These telephony services include the public switched telephone network, or PSTN, telephone numbers, call termination and origination services, and local number portability for our clients.
We rely on third-party telecommunication service providers to provide our customers and their consumers with telecommunication services. These telephony services include the public switched telephone network, or PSTN, telephone numbers, call termination and origination services, and local number portability for our customers.
To the extent that our solution is viewed by clients or potential clients as less functional, or more difficult to deploy or use, because of our solution’s compliance features, we may lose market share to competitors that do not include similar compliance safeguards.
To the extent that our solution is viewed by customers or potential customers as less functional, or more difficult to deploy or use, because of our solution’s compliance features, we may lose market share to competitors that do not include similar compliance safeguards.
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.
Subject to certain conditions, holders 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 2025 convertible senior notes and the 2029 convertible senior notes) at a fundamental change repurchase price equal to 100% of the principal amount of the convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable fundamental change repurchase date.
Moreover, many of our clients initially deploy our solution to support only a portion of their contact center agents and, therefore, we may not generate significant revenue from these new clients at the outset of our relationship, if at all.
Moreover, many of our customers initially deploy our solution to support only a portion of their contact center agents and, therefore, we may not generate significant revenue from these new customers at the outset of our relationship, if at all.
We anticipate that more states may enact their own comprehensive or subject matter specific privacy legislation and provide consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal data of such consumers.
We anticipate that more states may enact their own comprehensive or subject matter specific privacy and AI-focused legislation and provide consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal data of such consumers.
We may be unable to respond quickly enough to accommodate short-term increases in client demand for support services. We also may be unable to modify the format of our support services or change our pricing to compete with changes in support services provided by our competitors.
We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services or change our pricing to compete with changes in support services provided by our competitors.
This network has helped us attract additional clients. Our resellers have assisted us in expanding in both domestic and international markets. These technology solution distributors and resellers sell, or may in the future decide to sell, solutions for our competitors.
This network has helped us attract additional customers. Our resellers have assisted us in expanding in both domestic and international markets. These technology solution distributors and resellers sell, or may in the future decide to sell, solutions for our competitors.
If any of these service providers fail to provide reliable services, suffer outages, degrade, disrupt, increase the cost of or terminate the services that we and our clients depend on, we may be required to switch to another service provider.
If any of these service providers fail to provide reliable services, suffer outages, degrade, disrupt, increase the cost of or terminate the services that we and our customers depend on, we may be required to switch to another service provider.
Even with these efforts, it is possible that the FTC, FCC, private litigants or others may attempt to hold our clients, or us as a software solution provider, responsible for alleged violations of these laws.
Even with these efforts, it is possible that the FTC, FCC, private litigants or others may attempt to hold our customers, or us as a software solution provider, responsible for alleged violations of these laws.
Any election to settle conversions of 2025 convertible senior notes with cash could adversely affect our liquidity.
Any election to settle conversions of convertible senior notes with cash could adversely affect our liquidity.
Brand promotion activities may not generate client awareness or increase revenues, and even if they do, any increase in revenues typically occurs after the expense has been incurred, and may not offset the costs and expenses of building our brand.
Brand promotion activities may not generate customer awareness or increase revenues, and even if they do, any increase in revenues typically occurs after the expense has been incurred, and may not offset the costs and expenses of building our brand.
These service interruptions may be caused by a variety of factors, including infrastructure changes, human or software errors, telecom network outages, viruses, security attacks, fraud, spikes in client usage and denial of service issues.
These service interruptions may be caused by a variety of factors, including infrastructure changes, human or software errors, telecom network outages, viruses, security attacks, fraud, spikes in customer usage and denial of service issues.
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.
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 India and Australia, where additional portions of engineering and operations are performed.
While we have worked to avoid and mitigate any effects of the Russia-Ukraine conflict on our business, employees and clients, the conflict is ongoing, and its ultimate scope and broader impacts cannot be predicted with certainty.
While we have worked to avoid and mitigate any effects of the Russia-Ukraine conflict on our business, employees and customers, the conflict is ongoing, and its ultimate scope and broader impacts cannot be predicted with certainty.
We may also be obligated to indemnify our clients or business partners and pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, which could be costly.
We may also be obligated to indemnify our customers or business partners and pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, which could be costly.
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.
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 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.
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.
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.
In addition, our subscription model makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new clients will be recognized over time as services are delivered.
In addition, our subscription model makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers will be recognized over time as services are delivered.
For example, our larger clients typically require more professional services, and because our professional services offerings typically have lower margins, any increase in sales of professional services could harm our gross margins and operating results. We also have lower margins on our usage revenues.
For example, our larger customers typically require more professional services, and because our professional services offerings typically have lower margins, any increase in sales of professional services could harm our gross margins and operating results. We also have lower margins on our usage revenues.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur ISMS and cybersecurity risk management program includes: • risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment; • a security team principally responsible for (1) recommending and implementing appropriate technologies to mitigate the cyber security risks; (2) monitoring internal systems and taking appropriate action in the event of alerts; (3) monitoring the threat landscape; and (4) our response to cybersecurity incidents and management of the incident response process and the Incident Response Team; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls, including but not limited to outside legal counsel, reputable third-party firms for 24/7 threat monitoring, detection and response, and third-party experts for conducting periodic process assessments to help us evaluate and enhance our cybersecurity practices; • cybersecurity awareness training of our employees, incident response personnel, and senior management, which covers a variety of topics designed to educate our employees about the importance of cybersecurity awareness, highlight typical cybersecurity-related risks and issues, such as phishing attacks and other methods used to attempt to infiltrate our systems, and test that awareness using knowledge assessments and simulations; • external cybersecurity consultants, including Palo Alto Networks Unit 42 Incident Response team, supervised by our Incident Response Team and Incident Classification Team; • a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; • a third-party risk management process for service providers, suppliers, and vendors, pursuant to which we require such third parties to maintain certain security controls and assess their compliance with these requirements; and • independent third party assessments and audits of our ISMS to determine if it meets the requirements of international information security standards such as ISO 27001:2013, PCI DSS 3.2.1, HIPAA HiTech, AICPA SOC criteria for Security and Availability requirements.
Biggest changeOur ISMS and cybersecurity risk management program includes: • risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment; • a security team principally responsible for (1) recommending and implementing appropriate technologies to mitigate the cyber security risks; (2) monitoring internal systems and taking appropriate action in the event of alerts; (3) monitoring the threat landscape; and (4) our response to cybersecurity incidents and management of the incident response process and the Incident Response Team; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls, including but not limited to outside legal counsel, reputable third-party firms for 24/7 threat monitoring, detection and response, and third-party experts for conducting periodic process assessments to help us evaluate and enhance our cybersecurity practices; • cybersecurity awareness training of our employees, incident response personnel, and senior management, which covers a variety of topics designed to educate our employees about the importance of cybersecurity awareness, highlight typical cybersecurity-related risks and issues, such as phishing attacks and other methods used to attempt to infiltrate our systems, and test that awareness using knowledge assessments and simulations; • external cybersecurity consultants, supervised by our Incident Response Team and Incident Classification Team; • a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; • a third-party risk management process for service providers, suppliers, and vendors, pursuant to which we require such third parties to maintain certain security controls and assess their compliance with these requirements; and 50 Table of Contents • independent third-party assessments and audits of our Information Security Management System, or ISMS, to monitor compliance with globally recognized information security standards, including ISO 27001:2013/2022, ISO 27017:2015 (cloud security best practices), PCI DSS 4.0, HIPAA HiTech, and the AICPA SOC 2 criteria for Security and Availability.
Sue Barsamian, Mr. David Welsh and Mr. David DeWalt. Our Board receives quarterly reports from management on our cybersecurity processes and risks. In addition, management updates the Board, as necessary, regarding cybersecurity incidents, including those that are immaterial. Our Board also receives briefings from management on our cyber risk management program.
Sue Barsamian and Mr. David Welsh. Our Board receives quarterly reports from management on our cybersecurity processes and risks. In addition, management updates the Board, as necessary, regarding cybersecurity incidents, including those that are immaterial. Our Board also receives briefings from management on our cyber risk management program.
The Incident Classification Team is responsible for assessing the incident and 48 Table of Contents notifying members of our management and our Board. Our Chief Executive Officer, CLO and CISO, in conjunction with third party experts, including outside legal counsel and our internal disclosure committee, are responsible for coordinating external communications and disclosures, including with the Securities and Exchange Commission.
The Incident Classification Team is responsible for assessing the incident and notifying members of our management and our Board. Our Chief Executive Officer, CLO, CISO and CFO, in conjunction with third-party experts, including outside legal counsel and our internal disclosure committee, are responsible for coordinating external communications and disclosures, including with the Securities and Exchange Commission.
Our management is responsible for assessing and managing our material risks from cybersecurity threats and incidents and has the primary responsibility for our overall cybersecurity risk management 49 Table of Contents program and supervise both our internal cybersecurity personnel and our retained external cybersecurity consultants. Our management, including our CISO, brings a wealth of knowledge and expertise to our company.
Our management is responsible for assessing and managing our material risks from cybersecurity threats and incidents and has the primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. Our management, including our CISO, brings a wealth of knowledge and expertise to our company.
ISMS complies with a number of internationally recognized standards for information security, including the ISO 27001:2013 Standard for Information Security, AICPA System and Organization Controls (SOC) for the criteria of Security and Availability; the Payment Card Industry Data Security Standard 3.2.1, or PCI DSS 3.2.1, the global standard for the payment card industry.
ISMS complies with a number of internationally recognized standards for information security, including the ISO 27001:2022 Standard for Information Security, AICPA System and Organization Controls 2 (SOC 2) for the criteria of Security and Availability; the Payment Card Industry Data Security Standard 4.0, or PCI DSS 4.0, the global standard for the payment card industry.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeInformation 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.
Biggest changeInformation concerning our principal leased properties as of December 31, 2024 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 India Research and development 15,900 January 2025 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 180,000 square feet of office space worldwide.
ITEM 2. Properties We currently lease approximately 198,000 square feet of office space worldwide.
We 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.
We have entered into rental agreements with third-party hosting 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 2029.
Added
We believe our facilities are sufficient for our current needs. 51 Table of Contents

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. 50 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. 52 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 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.
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.
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.
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 14, 2025, there were 14 stockholders of record of our common stock who held an aggregate of 75,809,562 shares of our common stock.
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.
The graph assumes $100 was invested at the close of market on December 31, 2019 in the common stock of Five9, the Russell 2000 Index, and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.
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.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. 53 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 Index. The period shown commences on December 31, 2019 and ends on December 31, 2024.

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 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.
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations 54 Overview 54 Key Operating and Financial Performance Metrics 56 Key Components of Our Results of Operations 57 Results of Operations For the Years Ended December 31, 202 4 and 202 3 59 Liquidity and Capital Resources 61 Contractual and Other Obligations 63 Critical Accounting Policies and Estimates 64 ITEM 7A.
Quantitative and Qualitative Disclosure s About Market Risk 64 ITEM 8. Financial Statements and Supplementary Data 66
Quantitative and Qualitative Disclosure s About Market Risk 66 ITEM 8. Financial Statements and Supplementary Data 68
ITEM 6. Selected Financial Data 52 ITEM 7.
ITEM 6. Selected Financial Data 54 ITEM 7.

Item 7. Management's Discussion & Analysis

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

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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.
Biggest changeThe following table shows a reconciliation of net loss to adjusted EBITDA for the periods presented (in thousands): Year Ended December 31, 2024 2023 Net loss $ (12,795) $ (81,764) Non-GAAP adjustments: Depreciation and amortization (1) 52,905 48,515 Stock-based compensation (2) 166,315 206,292 Interest expense 14,812 7,646 Gain on early extinguishment of debt (6,615) — Interest income and other (46,745) (26,799) Exit costs related to closure and relocation of Russian operations 78 2,313 Acquisition and related transaction costs and one-time integration costs 12,303 6,780 Lease amortization for finance leases 3,857 941 Costs related to a reduction in force plan 9,625 — Impairment charges related to closure of operating lease facilities 2,202 — Provision for income taxes (3) 40 2,341 Adjusted EBITDA $ 195,982 $ 166,265 (1) Depreciation and amortization expenses included in our results of operations for the periods presented are as follows (in thousands): Year Ended December 31, 2024 2023 Cost of revenue $ 42,535 $ 38,559 Research and development 2,972 3,583 Sales and marketing 123 65 General and administrative 7,275 6,308 Total depreciation and amortization $ 52,905 $ 48,515 (2) See Note 7 to the consolidated financial statements for stock-based compensation expense included in our results of operations for the periods presented.
Indemnification Agreements In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties.
Indemnification Agreements In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties.
When services are included in the contract with the customer and are not sold at their stand-alone selling price, we are required to estimate the number of seats the customer will use, especially during the initial ramp period of the contract, during which we bill under an ‘actual usage’ model for subscription-related services.
When services are included in the contract with the customer and are not sold at their stand-alone selling price, we are required to estimate the number of licenses the customer will use, especially during the initial ramp period of the contract, during which we bill under an ‘actual usage’ model for subscription-related services.
We initially targeted smaller contact center opportunities with our telesales team and, over time, invested in expanding the breadth and depth of the functionality of our cloud platform to meet the evolving requirements of our clients. In 2009, we made a strategic decision to expand our market opportunity to include larger contact centers.
We initially targeted smaller contact center opportunities with our telesales team and, over time, invested in expanding the breadth and depth of the functionality of our cloud platform to meet the evolving requirements of our customers. In 2009, we made a strategic decision to expand our market opportunity to include larger contact centers.
This decision drove further investments in research and development and the establishment of our field sales team to meet the requirements of these larger contact centers. We believe this shift has helped us diversify our client base, while significantly enhancing our opportunity for future revenue growth.
This decision drove further investments in research and development and the establishment of our field sales team to meet the requirements of these larger contact centers. We believe this shift has helped us diversify our customer base, while significantly enhancing our opportunity for future revenue growth.
We expect to continue investing in professional services, public cloud, cloud operations, client support and network infrastructure to maintain high quality and availability of services, which we believe will result in absolute dollar increases in cost of revenue but percentage of revenue declines in the long-term through economies of scale.
We expect to continue investing in professional services, public cloud, cloud operations, customer support and network infrastructure to maintain high quality and availability of services, which we believe will result in absolute dollar increases in cost of revenue but percentage of revenue declines in the long-term through economies of scale.
If we continue to improve our financial results, we expect net cash provided by operating activities to increase. Our largest source of operating cash inflows is cash collections from our clients for subscription and related usage services. Payments from clients for these services are typically received monthly.
If we continue to improve our financial results, we expect net cash provided by operating activities to increase. Our largest source of operating cash inflows is cash collections from our customers for subscription and related usage services. Payments from customers for these services are typically received monthly.
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.
In the early stages of our larger contracts, in order to allocate the overall transaction fee on a relative stand-alone selling price basis to our multiple performance obligations, we estimate variable consideration to be included in the transaction fee to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Our research and development expenses consist primarily of salary and related expenses, including stock-based compensation, for personnel related to the development of improvements and expanded features for our services, as well as quality assurance, testing, product management and allocated overhead.
Our research and development expenses consist primarily of salary and related expenses, including stock-based compensation, for personnel related to the development of new products, improvements and expanded features for our services, as well as quality assurance, testing, product management and allocated overhead.
We expect gross margin to increase in the long term despite continued investments in professional services, public cloud, cloud operations, client support and network infrastructure, as we expect revenue growth in the long term to more than offset these increases.
We expect gross margin to increase in the long term despite continued investments in professional services, public cloud, cloud operations, customer support and network infrastructure, as we expect revenue growth in the long term to more than offset these increases.
We define Retention Base Net Revenue as recurring net revenue from all clients in the comparable prior year period, and we define Retained Net Revenue as recurring net revenue from that same group of clients in the current period. We define recurring net revenue as net subscription and related usage revenue.
We define Retention Base Net Revenue as recurring net revenue from all customers in the comparable prior year period, and we define Retained Net Revenue as recurring net revenue from that same group of customers in the current period. We define recurring net revenue as net subscription and related usage revenue.
Liquidity and Capital Resources To date, we have financed our operations, primarily through sales of our solution, net proceeds from our equity and debt financings, including the issuance of our 2025 convertible senior notes in May and June 2020 and of our 2023 convertible senior notes in May 2018, and lease facilities.
Liquidity and Capital Resources To date, we have financed our operations, primarily through sales of our solution, net proceeds from our equity and debt financings, including the issuance of our 2029 convertible senior notes in March 2024, issuance of our 2025 convertible senior notes in May and June 2020 and of our 2023 convertible senior notes in May 2018, and lease facilities.
We may also acquire or invest in complementary businesses, technologies and intellectual property rights, such as our recent acquisition of Aceyus in August 2023, which may increase our use of cash and future capital requirements, both to pay acquisition costs and to support our combined operations.
We may also acquire or invest in complementary businesses, technologies and intellectual property rights, such as our recent acquisitions of Aceyus in August 2023 and Acqueon in August 2024, which may increase our use of cash and future capital requirements, both to pay acquisition costs and to support our combined operations.
In addition, we generate professional services revenue from assisting clients in implementing our solution and optimizing use. These services include application configuration, system integration and education and training services. Professional services are primarily billed on a fixed-fee basis and are typically performed by us directly.
In addition, we generate professional services revenue from assisting customers in implementing our solution and optimizing its use. These services include application configuration, system integration and education and training services. Professional services are primarily billed on a fixed-fee basis and are typically performed by us directly.
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.
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 macroeconomic challenges will continue to have an adverse impact on our revenue in future periods.
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.
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.
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.
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, cost of third party software that we resell, allocated office and facility costs, amortization of acquired technology, amortization of internal-use software development costs and lease amortization for finance leases.
Unlike legacy on-premise contact center systems, our solution requires minimal up-front investment, can be rapidly deployed and adjusted depending on our client’s requirements. Since founding our business in 2001, we have focused exclusively on delivering cloud contact center software.
Unlike legacy on-premises contact center systems, our solution requires minimal up-front investment, can be rapidly deployed and adjusted depending on our customer’s requirements. Since founding our business in 2001, we have focused exclusively on delivering cloud contact center software.
Our clients, therefore, are able to adjust the number of agent seats used to meet their changing contact center volume needs. Our larger clients typically choose annual contracts, which generally include an implementation and ramp period of several months. Fixed subscription fees, including bundled plans, are generally billed monthly in advance, while related usage fees are billed in arrears.
Our customers, therefore, are able to adjust the number of licenses used to meet their changing contact center volume needs. Our larger customers typically choose annual contracts, which generally include an implementation and ramp period of several months. Subscription fees, including bundled plans, are generally billed monthly in advance, while related usage fees are billed in arrears.
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.
However, we may not be able to raise additional capital through equity or debt financings when needed on terms acceptable to us or at all, depending on our financial performance and condition, economic and market conditions, the trading price of our common stock, and other factors, including the length and severity of the current economic downturn and fluctuations in the financial markets, including due to the Russia-Ukraine conflict and the conflicts in the Middle East.
Annual Dollar-Based Retention Rate We believe that our Annual Dollar-Based Retention Rate provides insight into our ability to retain and grow revenue from our clients, and is a measure of the long-term value of our client relationships.
Annual Dollar-Based Retention Rate We believe that our Annual Dollar-Based Retention Rate provides insight into our ability to retain and grow revenue from our customers, and is a measure of the long-term value of our customer relationships.
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.
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 leading provider of intelligent cloud contact centers with more than 3,000 customers.
Our solution, comprised of our VCC cloud platform and applications, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our APIs.
Our solution, comprised of our Intelligent CX 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.
We believe we achieved this leadership position through our expertise and technology, which has empowered us to help organizations of all sizes transition from legacy on-premise contact center systems to our cloud solution.
We believe we achieved this leadership position through our expertise and technology, which has empowered us to help 54 Table of Contents organizations of all sizes transition from legacy on-premises contact center systems to our cloud solution.
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.
While these areas represent significant opportunities for us, they also pose risks and challenges that we must successfully address, including the impact of continued macroeconomic challenges, the Russia-Ukraine conflict and the conflicts in the Middle East, in order to successfully grow our business and improve our operating results.
We also offer bundled plans, generally for smaller deployments, whereby the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and, in some cases, Canada. Professional services revenue is derived primarily from VCC implementations, including application configuration, system integration, optimization, education and training services.
We also offer bundled plans, generally for smaller deployments, whereby the customer is charged a single monthly fixed fee per license that includes both subscription and unlimited usage in the contiguous 48 states and, in some cases, Canada. Professional services revenue is derived primarily from Intelligent CX implementations, including application configuration, system integration, optimization, education and training services.
Cost of revenue can fluctuate based on a number of factors, including the fees we pay to telecommunications providers, which vary depending on our clients’ usage of our VCC cloud platform, the timing of capital expenditures and related depreciation charges and changes in headcount.
Cost of revenue can fluctuate based on a number of factors, including the fees we pay to telecommunications providers, which vary depending on our customers’ usage of our Intelligent CX Platform, the timing of capital expenditures and related depreciation charges and changes in headcount.
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.
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. 58 Table of Contents Results of Operations for the Years Ended December 31, 2024 and 2023 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, 2024 2023 Revenue 100 % 100 % Cost of revenue 46 % 48 % Gross profit 54 % 52 % Operating expenses: Research and development 16 % 17 % Sales and marketing 30 % 32 % General and administrative 13 % 14 % Total operating expenses 59 % 63 % Loss from operations (5) % (11) % Other income (expense), net: Interest expense (1) % (1) % Gain on early extinguishment of debt 1 % — % Interest income and other 4 % 3 % Total other income (expense), net 4 % 2 % Loss before income taxes (1) % (9) % Provision for income taxes — % — % Net loss (1) % (9) % Year-to-year comparisons between 2023 and 2022 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, 2023, which specific discussion is incorporated herein by reference.
Sales and marketing expenses consist primarily of salaries and related expenses, including stock-based compensation, for personnel in sales and marketing, sales commissions, as well as advertising, marketing, corporate communications, travel costs and allocated overhead.
Sales and marketing expenses consist primarily of salaries and related expenses, including stock-based compensation, for personnel in sales and marketing, amortization of deferred contract acquisition costs, as well as advertising, marketing, corporate communications, travel costs and allocated overhead.
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.
While the implications of macroeconomic challenges, and global and regional conflicts on our business, results of operations and overall financial position remain uncertain over the long term, we expect that macroeconomic challenges will continue to have an adverse impact on our revenue in future periods.
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.
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.
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.
Contractual and Other Obligations Our material cash requirements include the following contractual and other 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.
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.
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.
A small percentage of our clients subscribe to our platform but purchase telephony usage directly from a wholesale telecommunications service provider. We do not sell telephony usage on a stand-alone basis to any client. The related usage fees are based on the volume of minutes used for inbound and outbound client interactions.
A growing number of our customers subscribe to our platform but purchase telephony usage directly from wholesale telecommunications service providers. We do not sell telephony usage on a stand-alone basis to any customer. The related usage fees are based on the volume of minutes used for inbound and outbound customer interactions.
Our VCC cloud platform matches each customer interaction with an appropriate agent resource and delivers relevant customer data to the agent in real-time through integrations with adjacent enterprise applications, such as CRM software, to optimize the customer experience and improve agent productivity.
Our Intelligent CX Platform, powered by Five9 Genius AI, matches each customer interaction with an appropriate agent resource and delivers relevant customer data to the agent in real-time through integrations with adjacent enterprise applications, such as CRM software, to optimize the customer experience and improve agent productivity.
In limited cases, our clients choose to perform these services themselves or engage their own third-party service providers to perform such services. Professional services are recognized as the services are performed using the proportional performance method, with performance measured based on labor hours, provided all other criteria for revenue recognition are met.
However, our customers can choose to perform these services themselves, use one of our certified professional service providers, or engage their own third-party service providers to perform such services. Professional services are recognized as the services are performed using the proportional performance method, with performance measured based on labor hours, provided all other criteria for revenue recognition are met.
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.
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, customer retention, growth within our installed base, our ability to gain new customers, 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 expanding our operations in Portugal, and the effect of the length and severity of the continued macroeconomic challenges, the Russia-Ukraine conflict, and the conflicts in the Middle East, on these or other factors.
Clients are not permitted to take possession of our software. We offer monthly, annual and multiple-year contracts to our clients, generally with 30 days’ notice required for reductions in the number of agent seats. Increases in the number of agent seats can be provisioned almost immediately.
Customers are not permitted to take possession of our software. We offer monthly, annual and multiple-year contracts to our customers, generally with 30 days’ notice required for limited reductions in the number of licenses or the level of consumption or capacity. Increases in the number of licenses or the level of consumption or capacity can be provisioned almost immediately.
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.
Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 143,168 $ 128,838 Net cash used in investing activities (266,550) (259,562) Net cash provided by financing activities 342,725 94,579 Net increase (decrease) in cash, cash equivalents and restricted cash $ 219,343 $ (36,145) 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 customer payments.
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.
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.
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.
Subscription fees are generally billed monthly in advance, while related usage fees are billed in arrears. For the years ended December 31, 2024, 2023 and 2022, subscription and related usage fees accounted for 92%, 92% and 91% our revenue, respectively. The remainder was comprised of professional services revenue from the implementation and optimization of our solution.
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.
As of December 31, 2024, we had outstanding hosting and telecommunication usage services obligations of $14.6 million, with $6.7 million payable within 12 months, $6.6 million payable within one to three years, and $1.3 million payable within three to five years.
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.
Comparison of the Years Ended December 31, 2024 and 2023 Revenue Year Ended December 31, 2024 2023 $ Change % Change (in thousands, except percentages) Revenue $1,041,938 $910,488 $131,450 14% The increase in revenue for 2024 compared to 2023 was primarily attributable to our larger customers, driven by an increase in our sales and marketing activities and our improved brand awareness.
We primarily evaluate the success of our business based on revenue growth and the efficiency and effectiveness of our investments. The growth of our business and our future success depend on many factors, including our ability to continue to expand our base of larger clients, grow revenue from our existing clients, innovate and expand internationally.
The growth of our business and our future success depend on many factors, including our ability to continue to expand our base of larger customers, grow revenue from our existing customers, innovate and expand internationally.
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.
As of December 31, 2024, we had $606.9 million in working capital, which included $362.5 million in cash and cash equivalents, and $643.4 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, 2024.
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.
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.
Net cash provided by operating activities was $128.8 million during the year ended December 31, 2023.
Net cash provided by operating activities was $143.2 million during the year ended December 31, 2024.
We had outstanding operating lease obligations of $52.0 million as of December 31, 2023, with $12.3 million payable within 12 months, $16.4 million payable within one to three years, $11.6 million payable within three to five years, and $11.7 million after five years.
We had outstanding operating lease obligations of $53.3 million as of December 31, 2024, with $12.9 million payable within 12 months, $19.1 million payable within one to three years, $13.7 million payable within three to five years, and $7.6 million payable after five years.
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.
Gross Profit Year Ended December 31, 2024 2023 $ Change % Change (in thousands, except percentages) Gross profit $564,398 $477,798 $86,600 18% % of Revenue 54% 52% The increase in gross profit for 2024 compared to 2023 was primarily due to increases in subscription and related revenues.
For example, our installed base business, which typically contributes approximately half of our annual revenue growth, continues to experience macroeconomic headwinds.
For example, our installed base business, which contributes a significant portion of our annual revenue growth, continues to experience macroeconomic challenges.
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.
See Note 6 to the consolidated financial statements included in this report for further details. 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.
Agent seats are defined as the maximum number of named agents allowed to concurrently access the VCC cloud platform. Clients typically have more named agents than agent seats. Multiple named agents may use an agent seat, though not simultaneously. Substantially all of our clients purchase both subscriptions and related telephony usage.
Licenses are defined as the maximum number of named agents allowed to concurrently access the Intelligent CX Platform. Customers typically have more named agents than licenses. Multiple named agents may use a license, though not simultaneously. The majority of our customers purchase both subscriptions and related telephony usage.
The revenue recognition standards include guidance relating to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added and excise taxes.
We expect estimated variable consideration to continue to not have a material impact on the allocation of transaction fees to multiple performance obligations. 65 Table of Contents The revenue recognition standards include guidance relating to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added and excise taxes.
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.
Cash Flows from Investing Activities Net cash used in investing activities of $(266.6) million in 2024 was comprised of $1,289.4 million related to purchases of marketable investments, $167.2 million, net of cash acquired in connection with the acquisition of Acqueon, $42.4 million in capital expenditures and $22.2 million in capitalized software development costs, offset in part by $1,254.5 million related to cash proceeds from sales and maturities of marketable investments.
To complement these efforts, we have also focused on building client awareness and driving adoption of our solution through marketing activities, which include internet advertising, digital marketing campaigns, social media, trade shows, industry events, telemarketing and out of home campaigns. We provide our solution through a SaaS business model with recurring subscriptions.
In 2018, we started including AI enhancements to our platform, and AI is now embedded throughout our platform. To complement these efforts, we have also focused on building customer awareness and driving adoption of our solution through marketing activities, which include internet advertising, digital marketing campaigns, social media, trade shows, industry events, telemarketing and out of home campaigns.
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.
The agreements require payments per month for a fixed period of time in exchange for certain guarantees of network and telecommunication availability.
Support activities include technical assistance for our solution and upgrades and enhancements to our VCC cloud platform on a when-and-if-available basis, which are not billed separately. Professional services are primarily billed on a fixed-fee basis and are performed by us directly or, alternatively, clients may also choose to perform these services themselves or engage their own third-party service providers.
Support activities include technical assistance for our solution and upgrades and enhancements to our Intelligent CX Platform on a when-and-if-available basis, which are not billed separately. Professional services are primarily billed on a fixed-fee basis and are typically performed by us directly.
GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance. We believe that adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude from adjusted EBITDA.
We believe that adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude from adjusted EBITDA. Furthermore, we use this measure to establish budgets and operational goals for managing our business and evaluating our performance.
We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We plan to continue to finance our operations in the future primarily through sales of our solution, net proceeds from equity and debt financings, and lease facilities.
We plan to continue to finance our operations in the future primarily through sales of our solution, net proceeds from equity and debt financings, and lease facilities.
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.
Operating Expenses Research and Development Year Ended December 31, 2024 2023 $ Change % Change (in thousands, except percentages) Research and development $166,197 $156,582 $9,615 6% % of Revenue 16% 17% The increase in research and development expenses for 2024 compared to 2023 was primarily due to a $12.6 million increase in personnel-related costs, a $3.7 million increase in staff augmentation costs, a $3.3 million increase in office, facilities and related allocated costs, and a $1.3 million increase in public cloud development costs, offset in part by a $12.3 million increase in research and development costs (excluding stock-based compensation costs) that qualified for capitalization.
We offer monthly, annual and multiple-year contracts to our clients, generally with 30 days’ notice required for reductions in the number of agent seats. Increases in the number of agent seats can be provisioned almost immediately. Our clients, therefore, are able to adjust the number of agent seats used to meet their changing contact center volume needs.
We offer monthly, annual and multiple-year contracts to our customers, generally with 30 days’ notice required for limited reductions in the number of licenses or the level of consumption or capacity. Increases in the number of licenses or the level of consumption or capacity can be provisioned almost immediately.
We offer monthly, annual and multiple-year contracts for our clients, generally with 30 days’ notice required for reductions in the number of agent seats. Increases in the number of agent seats can be provisioned almost immediately. Our clients, therefore, are able to adjust the number of agent seats used to meet their changing contact center volume needs.
We offer monthly, annual and multiple-year contracts to our customers, generally with 30 days’ notice required for limited reductions in the number of licenses or the level of consumption or capacity. Increases in the number of licenses or the level of consumption or capacity can be provisioned almost immediately.
Our revenue consists of subscription services and related usage as well as professional services. We charge clients subscription fees, usually billed on a monthly basis, for access to our VCC solution. The subscription fees are primarily based on the number of agent seats, as well as the specific VCC functionalities and applications deployed by the client.
Our revenue consists of subscription services and related usage as well as professional services. We charge our customers subscription fees, usually billed on a monthly basis, for access to our Intelligent CX Platform, primarily based on the number of licenses, as well as on a consumption or capacity basis for our AI solutions.
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.
Net cash provided by operating activities resulted from our net loss of $12.8 million, adjustments to reconcile net loss to net cash provided by operating activities of $283.1 million, primarily consisting of $166.3 million of stock-based compensation, $71.5 million of amortization of deferred contract acquisition costs, $52.9 million of depreciation and amortization, $15.4 million of reduction in carrying amount of right-of-use assets, $5.5 million of amortization of 62 Table of Contents issuance costs on our convertible senior notes, a $2.2 million impairment charge as a result of our commitment to close two operating lease facilities and to abandon the associated leasehold improvements and property and equipment, a $1.3 million impairment charge of an equity investment, $(20.8) million of accretion of discount on marketable investments, and a $(6.6) million gain on early extinguishment of debt, partially offset by use of cash for operating assets and liabilities of $(127.1) million primarily due to the timing of cash payments to vendors and cash receipts from customers.
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.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, 64 Table of Contents liabilities, revenue, expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
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.
Cost of Revenue Year Ended December 31, 2024 2023 $ Change % Change (in thousands, except percentages) Cost of revenue $477,540 $432,690 $44,850 10% % of Revenue 46% 48% The increase in cost of revenue for 2024 compared to 2023 was primarily due to a $21.0 million increase in depreciation, data center and public cloud costs to support our growing capacity needs, a $10.0 million increase in personnel-related costs, a $6.2 million increase in third-party costs driven by increased customer activities, a $3.1 million increase in amortization of capitalized internal-use software development costs, a $2.9 million increase in USF contributions and other federal telecommunication service fees due to increased customer usage, a $2.7 million 59 Table of Contents increase in lease amortization of finance leases, and a $0.6 million increase in amortization of intangibles, offset in part by a $1.4 million decrease in usage and carrier costs due to lower rates and by a $0.8 million decrease in consulting costs for global expansion.
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.
Sales and Marketing Year Ended December 31, 2024 2023 $ Change % Change (in thousands, except percentages) Sales and marketing $311,954 $296,713 $15,241 5% % of Revenue 30% 32% The increase in sales and marketing expenses for 2024 compared to 2023 was primarily due to a $15.5 million increase in amortization of deferred contract acquisition costs driven by the growth in sales and bookings of our solution and a $3.0 million increase in personnel-related costs, offset in part by a decrease in overall marketing spend.
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.
Cloud Services and Software and Maintenance As of December 31, 2024, we had outstanding cloud services and software and maintenance agreement commitments totaling $38.1 million, of which $20.0 million is expected to be purchased within one year, and $18.1 million is expected to be purchased within one to three years.
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.
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.
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.
As a result, we also recognized short-term lease liabilities of $5.9 million within "Finance lease liabilities" and long-term lease liabilities of $12.7 million within "Finance lease liabilities - less current portion" for the year ended December 31, 2024. See Note 13 to the consolidated financial statements included in this report for further details.
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.
Revenue growth was primarily attributable to our larger customers, driven by an increase in our sales and marketing activities and our improved brand awareness. For each of the years ended December 31, 2024, 2023 and 2022, no single customer accounted for more than 10% of our total revenue.
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 increase in interest income and other for 2024 compared to 2023 was primarily due to higher interest income on our marketable investments due to higher investable balances and higher interest rates and from an increase in foreign currency transaction gains, offset in part by a $1.3 million impairment charge of an equity investment.
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.
The following table shows our Annual Dollar-Based Retention Rate based on Net Revenue for the periods presented: Twelve Months Ended December 31, 2024 2023 Annual Dollar-Based Retention Rate 108% 110% Our Dollar-Based Retention Rate decreased year-over-year primarily due to continued macroeconomic headwinds on our installed base.
Fixed subscription fees are recognized on a straight-line basis over the applicable term, which is predominantly the monthly contractual billing period. Support activities include technical assistance for our solution and upgrades and enhancements on a when and if available basis, which are not billed separately.
Support activities include technical assistance for our solution and upgrades and enhancements on a when and if available basis, which are not billed separately. Usage fees are billed in arrears based on customer-specific per minute rate plans and are recognized as actual usage occurs.
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.
In March 2024, we issued $747.5 million aggregate principal amount of our 2029 convertible senior notes in a private offering. The 2029 convertible senior notes mature on March 15, 2029 and are our senior unsecured obligations.
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.
As of December 31, 2024, we had over 3,000 customers across multiple 55 Table of Contents industries with a wide range of license sizes. We had a net loss of $12.8 million, $81.8 million and $94.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Our clients typically have more named agents than agent seats, and multiple named agents may use an agent seat, though not simultaneously. Substantially all of our clients purchase both subscriptions and related telephony usage from us. A small percentage of our clients subscribe to our platform but purchase telephony usage directly from wholesale telecommunications service providers.
Our customers generally purchase both subscriptions and related telephony usage from us. However, a growing number of our customers subscribe to our platform but purchase telephony usage directly from wholesale telecommunications service providers.
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.
Cash Flows from Financing Activities Net cash provided by financing activities of $342.7 million in 2024 was related to net cash proceeds of $728.8 million from the issuance of the 2029 convertible senior notes, net of initial purchasers' discounts and commissions and debt issuance costs, $14.8 million from the sale of common stock under our employee stock purchase plan, $0.5 million cash received from the partial termination of capped calls associated with the 2025 convertible senior notes, and $0.5 million of cash proceeds from the exercise of stock options, offset in part by $304.5 million from the repurchase of a portion of the 2025 convertible senior notes, $93.4 million from the payment for capped call transactions associated with the 2029 convertible senior notes, and $4.0 million of payments related to finance leases.
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.
Other Income (Expense), Net Year Ended December 31, 2024 2023 $ Change % Change (in thousands, except percentages) Interest expense $ (14,812) $ (7,646) $ (7,166) 94 % Gain on early extinguishment of debt 6,615 — 6,615 (100) % Interest income and other 46,745 26,799 19,946 74 % Total other income (expense), net $ 38,548 $ 19,153 $ 19,395 (101) % % of Revenue 4 % 2 % The increase in interest expense for 2024 compared to 2023 was primarily due to the issuance of the 2029 convertible senior notes in March 2024.
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.
The $3.0 million increase in personnel-related costs was primarily driven by higher salaries, and $4.4 million in restructuring costs related to the Plan, offset in part by a $15.0 million decrease in stock-based compensation costs. 60 Table of Contents General and Administrative Year Ended December 31, 2024 2023 $ Change % Change (in thousands, except percentages) General and administrative $137,550 $123,079 $14,471 12% % of Revenue 13% 14% The increase in general and administrative expenses for 2024 compared to 2023 was primarily due to a $7.9 million increase in costs associated with the acquisition of Acqueon, a $6.0 million increase in personnel-related costs, and a $2.2 million increase in impairment losses as a result of our commitment to close two operating lease facilities and to abandon the associated leasehold improvements and property and equipment, offset in part by a $1.6 million decrease in office, facilities and related allocated costs.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeForeign Currency Risk The functional currency of our foreign subsidiaries is the U.S. dollar. Our sales are primarily denominated in U.S. dollars and, therefore, our revenue is not directly subject to foreign currency risk. However, we are indirectly exposed to foreign currency risk.
Biggest changeOur sales are primarily denominated in U.S. dollars and, therefore, our revenue is not directly subject to foreign currency risk. However, we are indirectly exposed to foreign currency risk. A stronger U.S. dollar makes our solution more expensive outside the United States and therefore can reduce demand. A weaker U.S. dollar could have the opposite effects.
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.
Additionally, we carry the 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 convertible senior notes bear fixed interest rates and, therefore, are not subject to interest rate risk.
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.
The fair values 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 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.
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.
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.
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 $1,006.0 million as of December 31, 2024.
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.
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, 2024, the aggregate principal amount outstanding of our convertible senior notes was $1,181.9 million.
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
During the year ended December 31, 2024, the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have a maximum impact of $10.6 million on our operating expenses. 67 Table of Contents
We 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.
We 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 and entered in March 2024 related to the issuance of our 2029 convertible senior notes. 66 Table of Contents Foreign Currency Risk The functional currency of our foreign subsidiaries is the U.S. dollar.
A stronger U.S. dollar makes our solution more expensive outside the United States and therefore can reduce demand. A weaker U.S. dollar could have the opposite effects. Such economic exposure to currency fluctuations is difficult to measure or predict because our sales are influenced by many factors in addition to the impact of currency fluctuations.
Such economic exposure to currency fluctuations is difficult to measure or predict because our sales are influenced by many factors in addition to the impact of currency fluctuations.

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