This document provides examples of performance update best practices for boards of directors, including sample metrics and commentary. It recommends including quarterly updates on ARR performance vs plan, expenses vs plan, sales efficiency metrics like CAC payback, and cash balance/burn. Sample commentary discusses drivers of over/under performance, initiatives, and context on key customers/deals. The examples aim to help boards understand business performance in a clear and actionable way.

1. www.sorensoncapital.com
GETTING THE MOST OUT OF YOUR
BOARD OF DIRECTORS
Chapter 2: Performance Update Best Practices
March 2023

2. Proprietary and Confidential
❑ Top-line performance v. plan
‒ Note:ARR = leading indicator.
Revenue = lagging indicator
❑ Forward period ARR and
revenue forecasts (original plan
and current estimate)
❑ Quarterly ARR and revenue
performance YoY
❑ Quarterly ARR bridge (new,
expansion, contraction, logo
churn) over time
❑ Gross and net revenue retention
❑ New logo growth over time
ARR / Top Line
Performance Update Checklist
❑ Quarterly expenses v. plan
❑ Context on favorable /
unfavorable expense trajectories
‒ E.g., Hiring plan,variablecostdrivers,
macro impacts,one-time / atypical
expenses incurred
❑ Historic and current cash
balance, total liquidity (including
any available debt facilities), and
cash runway
Expenses
❑ Quarterly and LTM CAC
Payback
‒ Note: LTV:CAC acceptableand sales
efficiency are both alternatives
‒ Note: always grossmarginimpactnet
new ARR when calculatingCAC
Payback
❑ Net new ARR added / cash burn
‒ Note: this metric isused to measure
overallcashefficiency,including opex
and non-P&Lcash outflows(e.g., WC
requirements,etc.
Efficiency
Note: all metrics and commentary are illustrativ e examples

3. Proprietary and Confidential
ARR v. Plan
Example Commentary
● Ending ARR:
‒ Ending ARR and YoY growth
‒ Performance vs.plan
‒ Drivers of under or outperformance
● New ARR:
‒ New ARR and YoY growth
‒ Performance vs.plan
‒ Drivers of new ARR under or outperformance
● ExpansionARR:
‒ Ending ARR and YoY growth
‒ Performance vs.plan
‒ Drivers of expansion under or outperformance
● Churned /Contraction ARR:
‒ Ending ARR and YoY growth
‒ Performance vs.plan
‒ Drivers of churn under or outperformance
● Forecast: on / behind / ahead of ARR budget
Performance vs. Plan
0%
5%
10%
15%
20%
25%
30%
–
$10
$20
$30
$40
$50
$60
%
Growth
YoY
Ending
ARR
($M)
Actual ARR Budget ARR % Growth YoY
Actual Actual Actual Actual Actual
(US$ in millions) Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
Beginning ARR $27.5 $27.7 $29.1 $31.8 $35.9
New ARR $1.3 $3.1 $3.6 $4.1 $5.1
Expansion ARR $1.8 $0.3 $0.8 $1.6 $2.6
Contraction ARR ($2.0) ($1.4) ($0.7) ($1.2) ($1.4)
Churned ARR ($0.8) ($0.6) ($1.0) ($0.5) ($0.6)
Ending ARR $27.7 $29.1 $31.8 $35.9 $41.5
Note: all metrics and commentary are illustrativ e examples

4. Proprietary and Confidential
Gross Retention
Example Commentary
● Gross Retention Performance:actuals vs. plan; current and
trending
● Example Gross Retention Initiatives: Hired Head of CS,
implemented CS CRM, and adjusted account coverage model
● Example Contextof High-risk customers:
‒ Customer1 ($500K ACV): usage / active seats decreased
last six months; Jan-23 renewal
‒ Customer2 ($100K ACV): customerhad reduction in
employee base;looking to make budgetcuts; in active
discussions;Jan-23 renewal
Gross Retention Over Time
78%
83%
85%
87%
88%
90%
91%
93%
94%
87%
88%
89% 90%
91%
93% 94%
95% 95%
70%
75%
80%
85%
90%
95%
100%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
LTM Quarterly
Note: all metrics and commentary are illustrativ e examples

5. Proprietary and Confidential
Net Retention
Example Commentary
● Net Retention Performance:actuals vs. plan; current and
trending
● Contexton High Priority Upsells in Q4:
‒ Company 1: $245K upsell
‒ Company 2: $350K upsell
● Example Expansion Initiatives:
‒ Hired Head of CS, implemented CS CRM, and adjusted
account coverage model;CSMs now own upsell(transitioned
upsell responsibility from AEs)
‒ Too much of today’s NRR is driven by seat-based expansion.
We are shifting effortsto modularize productand build new
features to drive product expansion
‒ We plan to roll out our cloud product and feature XYZ
in Q2 2023,which customers have beenasking for
● Example Driversof Contraction: largelydriven by failed
implementations.We are seeing significant improvementafter
investing in a dedicated onboarding team
Net Retention Over Time
89%
90%
93%
95%
98%
101%
105%
106%
108%
94%
96%
98%
100%
104%
108%
110% 110%
111%
80%
85%
90%
95%
100%
105%
110%
115%
120%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
LTM Quarterly
Note: all metrics and commentary are illustrativ e examples

6. Proprietary and Confidential
New Logo Growth
Example Commentary
● New Logo Performance:actuals vs. plan; current and trending
new logo growth
● Example New Logo Growth Drivers:
‒ Top ofthe funnel: Pipeline coverage has declined in recent
periods,from ~4x unweighted pipeline coverage,to just ~2.0x
unweighted pipeline coverage
‒ AE Hiring: We are behind on hiring, which has resulted in a
reduction in quota coverage vs. plan from ~1.5x to just ~1.1x
in recentquarters
‒ Close Rates: we have observed lower win rates and
conversionrates in recent quarters. Largely driven by
competitive and pricing pressure
● Example Contexton Notable Q4’22 New Logo Wins:
‒ Customer1: $100K ARR,closed 10/2
‒ Customer2: $257K ARR,closed 12/15
● Example Contexton Key Q1’23 New Logo Opportunities:
‒ Prospective Customer 1: $500KARR;in contracting stage
‒ Prospective Customer 2: $200KARR;POC stage
New Logo & Ending ARR Growth
–
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
–
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
%
Growth
YoY
New
ARR
($M)
New ARR New ARR YoY Growth % Ending ARR YoY Growth %
Note: all metrics and commentary are illustrativ e examples

7. Proprietary and Confidential
Sales Efficiency
Example Commentary
● CAC PaybackPerformance: actuals vs. plan; current and
trending
‒ Formula: (S&M expenses/ (GM % * New ARR)) * 12
▪ The goal is to understand fullyloadedefficiencyof your
customeracquisition.You are taking yourtotal salesand
marketing expenseand calculating how many months if
takes to recoup thatcustomer’sactualvalue.
▪ New ARR excludesexpansionor churn,isolatingnew
customeracquisition costsfrom expansion
▪ It is importantto adjustadded ARR by gross margin to get
an accurateidea ofthe actual value obtainedpercustomer
‒ Target: Efficientorgs target a CAC payback of <12-15 months
● Example Driversof CAC Payback:
‒ Recentacceleration in GTM hires: ~30% of current AEs are
unramped and weighing down CAC payback. Ramped quota
attainment and bookings vs. OTE still healthy
‒ Deals slipping: Several deals were delayed to subsequent
quarters, weighing down CAC payback; evaluate CAC
payback after Q1’23 forbetter estimate of “real” CAC payback
in current market
● Example Questions for Discussion:How can we best
incentivize reps to focus on new bookings vs. upsells?
CAC Payback (Months)
16.0
24.3
28.9
30.0
32.9
31.3
34.0 34.1
35.7
14.5
17.3 17.4 17.6 17.7
19.6 19.0 18.0
19.3
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
Quarterly
New ARR Basis Net New ARR Basis
36.3
29.5
17.9 17.9 18.9
20.2
22.1
24.2
27.5
29.4
22.5
14.1 14.2 14.4
15.9
18.6 18.7
21.8
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
LTM
New ARR Basis Net New ARR Basis
Note: all metrics and commentary are illustrativ e examples

8. Proprietary and Confidential
Gross Margins
Example Commentary
● Gross Margin Performance:actuals vs. plan; current and
trending
● PotentialDriversof Gross Margin:
‒ Hosting costs
‒ Capitalized software
‒ Productmix shift
‒ Pricing
‒ Onboarding / implementation/ supportcosts
● Example Strategic Initiatives/ Considerations:
‒ Automating implementation as much as possible
‒ Gaining economiesof scale from hosting costs
‒ Optimizing pricing / avoiding rogue contracting
Gross Margins Over Time
83%
82%
81% 81%
80% 80%
78% 78%
76%
84%
84%
83%
83%
81% 81%
82%
83%
83%
70%
72%
74%
76%
78%
80%
82%
84%
86%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
Actual Budget
Note: all metrics and commentary are illustrativ e examples

9. Proprietary and Confidential
Cash Efficiency
Example Commentary
● Cash Efficiency Performance:actuals vs. plan; current and
trending
‒ Formula: Net New ARR / Cash Burn
‒ Target: >1.0xNet new ARR / Cash Burn is consideredbestin
class
● Example Driversof Good/PoorEfficiency:
‒ Spend by Department: measuring ROI on spend.For
example, is productdriving improved win and upsell rates?
Understand productspend for bug fixes, new
products/features,and improvements to existing features.
Understand the timing of the ROI on each category or spend.
‒ Financing Costs: are interest or amortization causing
increased cash burn. What is the coston that debt?
Net New ARR / Cash Burn
1.2x
0.9x
1.3x
1.0x 0.9x
0.7x 0.8x
1.0x
1.2x
–
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
Note: all metrics and commentary are illustrativ e examples

10. Proprietary and Confidential
Cash Burn and Balance
Example Commentary
● Cash Balance& Burn: actuals vs. plan; current and trending
‒ Net burn = Cash from operations + capital expenditures
‒ Cash Runway = Current cash balance / monthly burn rate
● Illustrative Cash BurnDrivers:
‒ One-time cash expenses
‒ Working capital or capital expenditure needs
‒ Increased spend to fund growth or productinvestments
Cash Balance Over Time
Net Burn ($4.9) ($3.8) ($2.7) ($7.6) ($8.5) ($4.9) ($11.0) ($11.2) ($1.2)
Runway (Months) 14.7 17.5 23.1 6.9 6.3 10.0 4.2 3.5 25.6
–
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
Cash Balance Budget Ending Cash
Note: all metrics and commentary are illustrativ e examples