In line with the Company's Cody + Search strategy, Finance believes it is important to introduce a multi-SKU ARR recognition guidance. Multi-SKU ARR recognition provides more granular insights into product performance, aids in customer segmentation, supports revenue optimization, and boosts investor confidence. By documenting and following this guidance, the company ensures accurate financial reporting, effective decision-making, and sustainable growth in the competitive market landscape.

Currently, we are categorizing enterprise ARR into four buckets:

• Professional Services ARR
• Platform or Recurring Fee ARR
• Software ARR
• Code Search ARR
• Cody ARR

Note: If we change methodologies, we will do so only in SFDC or a system of record. The ARR tracker does not scale for multi-product ARR recognition.

Professional Services ARR Recognition

When calculating ARR recognition by SKU, we will apply discounting for software + services purchases according to the following rules:

• Discounts are first applied against all one-time/non-recurring revenue. E.g., implementation fees.
• Discounts are then applied proportionally against all included SKUs based on list prices.
  • Example: the customer was buying $100k (list price) of software and $50k (list price) of recurring services, but they were only paying $135k (i.e., they got a 10% discount), then we would record it and report it as $90k of software ARR and $45k of services ARR — 10% off of each product at list price.

Note: Professional services must have their own line item(s) to get ARR recognition. If professional services are clearly outlined in terms of SKU name(s), quantity and price, the value should be excluded or carved from Product related ARR (e.g. Cody, Search, CIP).

Churn recognition on recurring services matches the rules for churn recognition on recurring software. In other words, churn is recognized on n+1 days after contract end date - regardless of unused hours, etc. This guidance applies to Slack Support, RA, FDE - all recurring services for which we recognize ARR.

Platform Fee ARR Recognition

Platform fees or any other ongoing fee charged to the customer will also impact the value of ARR, and will be applied directly to platform fee SKU. If for example the customer was buying $100K of Code Search Enterprise, but we also charged them a $10K Platform Fee, then we would record it and report it as $110K of total software ARR: $10k as Platform Fee ARR and $110k as Code Search Enterprise ARR. Please note for platform fees that we do not apply discount based allocations in the same manner as professional services.

Software (Code Search & Cody) ARR Recognition

Only Code Search OR Cody

Cody-only or Code Search-only deals are perhaps the most straightforward in which 100% of the seat quantity times price is attributable to Cody or Code Search, respectively.

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