What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-23 · 366 added, 333 removed, 655 unchanged (52% of the section changed)

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To the Stockholders and the Board of Directors of Freshworks Inc.

Opinion on the Financial Statements

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Freshworks Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

and its subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively, referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue — Refer to Note 2 and Note 3 to the financial statements

Critical Audit Matter Description

The Company derives its revenue from subscription contracts providing access to the Company’s cloud-based software solutions and related professional services.

The Company’s cloud-based software solutions allow customers to use the software without requiring them to take possession of the software and, as a result, are recognized ratably over the contract term.

In some cases, the Company will negotiate contractual terms and conditions with customers that deviate from the standard contractual terms and conditions (“non-standard contracts”).

We determined the identification of performance obligations in non-standard contracts to be a critical audit matter.

Significant auditor judgment was required to audit the evaluation of the Company’s assessment of the identification of distinct performance obligations in non-standard contracts.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to evaluating the Company’s assessment of the identification of distinct performance obligations in non-standard contracts included the following, among others:

• We obtained an understanding of the Company’s process for reviewing non-standard contracts and tested the effectiveness of internal controls related to the review of contract terms and identification of distinct performance obligations.

• We selected a sample of non-standard contracts and performed the following:

◦ Obtained and reviewed the non-standard contracts and other documents (i.e., purchase orders and invoices) that were part of the arrangement.

◦ Tested management’s identification and evaluation of distinct performance obligations.

/s/ DELOITTE & TOUCHE LLP

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We have served as the Company's auditor since 2018.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Freshworks Inc.:

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Freshworks Inc.

and its subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 23, 2023, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management's report on internal control over financial reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles").

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

San Jose, California

February 23, 2023

Consolidated Financial Statements

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CONSOLIDATED BALANCE SHEETS

(in thousands)

(in thousands, except share and per share amounts)

Current assets:

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Marketable securities 843,405 575,679

Accounts receivable, net 51,756 34,270

Accounts receivable, net of allowance of $ 6,628 and $ 6,030

70,470 51,756

Deferred contract acquisition costs 20,139 14,640

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Property and equipment, net 24,139 21,478

Operating lease right-of-use assets 33,024 —

Deferred contract acquisition costs, noncurrent 19,536 15,007

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Total assets $ 1,380,216 $ 1,482,812

Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

Liabilities and Stockholders' Equity

Current liabilities:

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Total current liabilities 271,692 223,346

Operating lease liabilities, non-current 28,174 —

Other liabilities 28,532 21,427

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Commitments and contingencies (Note 9)

Redeemable convertible preferred stock:

Redeemable convertible preferred stock, $ 0.0001 par value;

zero and 154,055,430 shares authorized as of December 31, 2021 and 2020, respectively;

zero and 153,937,730 shares issued and outstanding as of December 31, 2021 and 2020;

aggregate liquidation preference of zero and $ 326,559 as of December 31, 2021 and 2020, respectively

Stockholders' equity (deficit):

Stockholders' equity:

Preferred stock, $ 0.00001 par value per share;

10,000,000 and zero shares authorized as of December 31, 2021 and 2020, respectively;

10,000,000 shares authorized as of December 31, 2022 and 2021, respectively;

zero shares issued and outstanding as of December 31, 2022 and 2021

Common stock, $ 0.00001 par value;

zero and 285,000,000 shares authorized as of December 31, 2021 and 2020, respectively;

zero and 77,619,030 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Class A common stock, $ 0.00001 par value per share;

1,000,000,000 and zero shares authorized as of December 31, 2021 and 2020, respectively;

50,554,821 and zero shares issued and outstanding as of December 31, 2021 and 2020, respectively

1,000,000,000 shares authorized as of December 31, 2022 and 2021;

162,825,075 and 50,554,821 shares issued and outstanding as of December 31, 2022 and 2021, respectively

Class B common stock, $ 0.00001 par value per share;

350,000,000 and zero shares authorized as of December 31, 2021 and 2020, respectively;

222,739,562 and zero shares issued and outstanding as of December 31, 2021 and 2020, respectively

350,000,000 shares authorized as of December 31, 2022 and 2021;

126,268,150 and 222,789,562 shares issued and outstanding as of December 31, 2022 and 2021, respectively

FRESHWORKS INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

(in thousands, except share and per share amounts)

Additional paid-in capital 4,562,319 4,509,724

Accumulated other comprehensive (loss) income ( 747 ) 411

Accumulated other comprehensive loss ( 7,431 ) ( 747 )

Accumulated deficit ( 3,503,073 ) ( 3,270,941 )

Total stockholders' equity (deficit) 1,238,039 ( 2,696,741 )

Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) $ 1,482,812 $ 367,424

Total stockholders' equity 1,051,818 1,238,039

Total liabilities and stockholders' equity $ 1,380,216 $ 1,482,812

The accompanying notes are an integral part of these consolidated financial statements.

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Accretion of redeemable convertible preferred stock — ( 2,646,662 ) ( 1,560,524 )

Deemed dividend distribution — — ( 40,071 )

Net loss attributable to common stockholders $ ( 232,132 ) $ ( 2,838,657 ) $ ( 1,617,818 )

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Net loss $ ( 232,132 ) $ ( 191,995 ) $ ( 57,294 )

Other comprehensive loss:

Adjustment for the adoption of ASU 2016-01 — — ( 981 )

Other comprehensive (loss) income:

Unrealized (loss) gain on marketable securities ( 6,684 ) ( 1,158 ) 272

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Balances as of January 1, 2020 153,938 $ 1,334,572 76,821 $ 1 $ — $ 139 $ ( 1,122,861 ) $ ( 1,122,721 )

Adjustment for the adoption of ASU 2016-01 — — — — — ( 981 ) 981 —

Issuance of Series H redeemable convertible, preferred stock, net issuance costs of $ 181

11,276 149,820 — — — — — —

Sale of redeemable convertible preferred stock (Note 11) 7,517 59,929 — — — — — —

Deemed contribution (Note 11) — — — — — — 40,071 40,071

Repurchase of redeemable convertible preferred stock (Note 11) ( 7,517 ) ( 59,929 ) — — — — — —

Accretion of redeemable convertible preferred — 553,339 — — ( 962 ) — ( 552,377 ) ( 553,339 )

Deemed dividend distribution (Note 11) — — — — — — ( 40,071 ) ( 40,071 )

Accretion of redeemable convertible preferred stock — 1,560,524 — — ( 43,526 ) — ( 1,516,998 ) ( 1,560,524 )

Issuance of common stock upon exercise of stock options — — 798 — 246 — — 246

Stock-based compensation — — — — 43,280 — — 43,280

Unrealized loss on marketable securities — — — — — ( 21 ) — ( 21 )

Unrealized gain on marketable securities — — — — — 272 — 272

Net loss — — — — — — ( 57,294 ) ( 57,294 )

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Accretion of redeemable convertible preferred stock — 2,646,662 — — ( 2,264,869 ) — ( 381,793 ) ( 2,646,662 )

Conversion of redeemable convertible preferred stock into common stock upon initial public offering ( 153,938 ) ( 5,541,758 ) 153,938 2 5,541,756 — — 5,541,758

Issuance of common stock upon initial public offering, net of underwriting discount and offering expenses — — 31,350 — 1,062,058 — — 1,062,058

Issuance of common stock upon exercise of stock options — — 537 — 94 — — 94

Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for tax purposes — — 9,850 — ( 3,343 ) — — ( 3,343 )

Stock-based compensation — — — — 174,028 — — 174,028

Unrealized gain on marketable securities — — — — — 272 — 272

Unrealized loss on marketable securities — — — — — ( 1,158 ) — ( 1,158 )

Net loss — — — — — — ( 191,995 ) ( 191,995 )

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Balances as of December 31, 2021 — $ — 273,294 $ 3 $ 4,509,724 $ ( 747 ) $ ( 3,270,941 ) $ 1,238,039

Accretion of redeemable convertible preferred stock — 2,646,662 — — ( 2,264,869 ) — ( 381,793 ) ( 2,646,662 )

Conversion of redeemable convertible preferred stock into common stock upon initial public offering ( 153,938 ) ( 5,541,758 ) 153,938 2 5,541,756 — — 5,541,758

Issuance of common stock upon initial public offering, net of underwriting discount and offering expenses — — 31,350 — 1,062,058 — — 1,062,058

Issuance of common stock upon exercise of stock options — — 407 — 109 — — 109

Vesting of restricted stock units — — 9,850 — ( 3,343 ) — — ( 3,343 )

Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for tax purposes — — 14,570 — ( 167,745 ) — — ( 167,745 )

Issuance of common stock under employee stock purchase plan, net of shares withheld and retired for taxes — — 822 — 10,870 — — 10,870

Stock-based compensation — — — — 209,361 — — 209,361

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Amortization of deferred contract acquisition costs 18,532 12,844 7,681

Non-cash lease expense 6,195 — —

Stock-based compensation 207,696 173,443 43,280

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Deferred revenue 45,453 55,989 36,444

Operating lease liabilities ( 8,787 ) — —

Net cash provided by (used in) operating activities ( 2,525 ) 11,460 32,530

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Proceeds from initial public offering, net of underwriting discounts — 1,069,348 —

Proceeds from issuance of Series H redeemable convertible preferred stock, net of issuance costs — — 149,820

Sale of redeemable convertible preferred stock — — 100,000

Repurchase of redeemable convertible preferred stock — — ( 100,000 )

Proceeds from issuance of common stock under employee stock purchase plan, net 10,870 — —

Proceeds from exercise of stock options 109 94 246

Payment of deferred offering costs ( 6,830 ) — —

Payment of withholding taxes on net share settlement of equity awards ( 167,224 ) ( 3,343 ) —

Payment of deferred offering costs ( 109 ) ( 6,830 ) —

Payment of acquisition-related liabilities — ( 900 ) ( 2,155 )

Net cash provided by (used in) financing activities ( 156,354 ) 1,058,369 ( 1,909 )

Year Ended December 31,

2022 2021 2020

Net increase (decrease) in cash, cash equivalents and restricted cash ( 443,706 ) 649,533 19,196

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Cash, cash equivalents and restricted cash, end of period $ 304,158 $ 747,864 $ 98,331

Year Ended December 31,

2021 2020 2019

Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets:

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Non-cash investing and financing activities:

Purchased property and equipment included in accrued expenses $ 492 $ 62 $ 1,393

Property and equipment acquired through tenant improvement allowance $ — $ 322 $ 1,524

Deferred purchase consideration for acquisition $ — $ 900 $ 2,883

Operating lease right-of-use assets obtained in exchange for operating lease obligations $ 14,903 $ — $ —

Stock-based compensation capitalized as internal-use software $ 1,665 $ 585 $ —

Accretion of redeemable convertible preferred stock $ — $ 2,646,662 $ 1,560,524

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In September 2021, the Company completed its initial public offering (IPO), in which it issued and sold 31,350,000 shares of its newly authorized Class A common stock at $ 36.00 per share, which included 2,850,000 shares issued upon the exercise of the underwriters’ option to purchase additional shares.

The Company received net proceeds of approximately $ 1.1 billion from the IPO, after deducting underwriters’ discounts.

The Company received proceeds of approximately $ 1.1 billion from the IPO, net of underwriters’ discounts and offering expenses.

As of December 31, 2021, deferred offering costs totaling $ 7.3 million were reclassified to stockholders' equity (deficit) as a reduction of the net proceeds from the IPO.

Pursuant to the Company's amended and restated certificate of incorporation, all shares of common stock then outstanding were reclassified as Class B common stock prior to the IPO.

Upon completion of the IPO, the majority of shares of Class B common stock then outstanding were automatically converted to Class A common stock on a one -to-one basis, unless an option to remain as Class B common stock was elected by the holder.

Upon completion of the IPO, certain shares of Class B common stock then outstanding (excluding shares of Class B common stock issued upon conversion and reclassification of the redeemable convertible preferred stock described below) were automatically converted to Class A common stock on a one-to-one basis, unless an option to remain as Class B common stock was elected by the holder.

In addition, all shares of redeemable convertible preferred stock then outstanding were converted into 153,937,730 shares of common stock on a one -to-one basis and then reclassified into Class B common stock.

See Note 10 for additional details.

As detailed in Note 10— Stockholders' Equity and Stock-Based Compensation , under the 2011 Stock Plan, the Company granted employees restricted stock units (RSUs) with both a service and a liquidity performance condition.

Upon the Company's IPO in September 2021, the liquidity event condition was met for all RSUs.

Upon the Company's IPO in September 2021, the liquidity event condition was met for all RSUs and the Company began to recognize stock-based compensation expense.

RSUs that had already met the service condition at that date were entitled to one share of Class B common stock for each vested RSU.

On November 4, 2021, as part of an early lockup agreement with the underwriters during the IPO, the Company issued a total of 9.9 million shares of common stock underlying the RSUs to its employees.

In September 2021, the Company completed a 10 -for-one forward stock split of the Company’s authorized, issued and outstanding stock.

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Basis of Presentation and Principles of Consolidation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation.

Foreign Currency Remeasurement and Transactions

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• valuation of deferred tax assets;

• valuation of employee defined benefit plan;

• valuation of employee defined benefit plan and other compensation liabilities;

• fair value of share-based awards, including performance-based awards;

Risk and Uncertainties

Due to the COVID-19 pandemic, the Company has temporarily closed its headquarters in San Mateo, California, and other offices around the world, required its employees to work remotely from home, and implemented travel restrictions, all of which have caused significant disruption in how the Company operates its business.

At the same time, the operations of its partners and customers have also been disrupted.

While the duration and extent of the COVID-19 pandemic depends largely on future developments that cannot be accurately predicted at this time, such as the extent of and effectiveness of containment actions and developed vaccines, it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown.

Additionally, inflationary pressures and a global labor shortage are currently impacting the pace of global recovery.

In particular, the conditions caused by this pandemic could adversely affect demand for the Company’s products and services, lead to longer sales cycles, reduce the value or duration of subscriptions, negatively impact collections of accounts receivable, reduce expected spending from new customers, cause some of the existing customers to go out of business, limit the potential to generate additional business with new customers due to travel restrictions imposed, and affect contraction or attrition rates of the Company’s customers, all of which could adversely affect the Company’s business, results of operations, and financial condition.

While government authorities are adjusting COVID-19 related restrictions, we continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders, including in response to outbreaks and variants.

The Company is not aware of any specific event or circumstances related to COVID-19 or other estimates that would require it to update estimates or judgments or adjust the carrying value of its assets or liabilities.

Actual results could differ from those estimates and any such differences may be material to the consolidated financial statements.

• incremental borrowing rate used for operating leases.

Segment Information

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The Company records revenue net of sales or value-added taxes.

On occasion, the Company sells subscriptions to third-party resellers.

The Company sells subscriptions to third-party resellers.

The price at which subscriptions are sold to the reseller is typically discounted, as compared to the price at which the Company would sell to an end customer, in order to enable the reseller to realize a margin on the eventual sale to the end customer.

As pricing to the reseller is fixed, and the

Company lacks visibility into the pricing provided by the reseller to the end customer, reseller revenue is recorded net of any reseller margin.

As pricing to the reseller is fixed, and the Company lacks visibility into the pricing provided by the reseller to the end customer, reseller revenue is recorded net of any reseller discounts.

Subscription Revenue

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For these contracts, the Company accounts for individual performance obligations separately.

The transaction price is allocated to the separate performance obligations on the basis of relative SSP.

The Company determines SSP by taking into consideration historical selling price of these performance obligations in similar transactions, as well as current pricing practices and other observable inputs including, but not limited to, customer size and geography.

The transaction price is allocated to the separate performance obligations on the basis of relative standalone selling price (SSP).

The Company determines SSP by taking into

consideration historical selling price of these performance obligations in similar transactions, as well as current pricing practices and other observable inputs including, but not limited to, customer size and geography.

As the Company’s go-to-market strategies evolve, it may modify its pricing practices in the future, which could result in changes to SSP.

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Stock-Based Compensation

The Company issues stock options and restricted stock units (RSUs) to employees, consultants, and directors, and stock purchase rights granted under the Employee Stock Purchase Plan (ESPP) to employees based on the estimated fair value on the date of the grant.

For stock options and ESPP, the fair value is estimated using the Black-Scholes option-pricing model, and stock-based compensation expense is recognized in the consolidated statements of operations using the straight line attribution method.

The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected term of the option, the expected stock price volatility of the Company's common stock, risk-free interest rates, and the expected dividend yield of the Company's common stock.

The assumptions used to

determine the fair value of the option awards represent the Company's best estimates.

These estimates involve inherent uncertainties and the application of the Company's judgement.

The fair value of RSUs is based on the closing market price of its Class A common stock on the date of the grant.

The Company recognizes stock-based compensation on a straight-line basis over the requisite service period, which is the vesting period of the respective awards.

The Company issues stock options and RSUs to employees, consultants and directors, and stock purchase rights granted under the 2021 Employee Stock Purchase Plan (ESPP) to employees based on the estimated fair value on the date of the grant.

Stock-based compensation expense is recognized in the consolidated statements of operations on a straight-line basis over the requisite service period, which is the vesting period of the respective awards.

Forfeitures are accounted for when they occur.

Prior to the IPO, the fair market value of the Company's common stock on the date of the grant was determined based on independent third-party valuations as there was no public market, and there was no stock-based compensation expense recognized from the RSUs as the liquidity event-related performance condition was not probable.

Upon completion of the IPO, the performance condition became probable, and the Company began to recognize stock-based compensation expense.

For the performance-based award granted to the CEO with both a service-based vesting condition and a market condition (as discussed further in Note 11), the Company determined the fair value of the award by using the Monte Carlo simulation model.

The fair value of RSUs is based on the closing market price of its Class A common stock on the date of the grant.

Prior to the IPO, the Company determined the fair value of the common stock underlying stock options and RSUs by considering numerous objective and subjective factors including, but not limited to:

(i) independent third-party valuations, (ii) the prices, rights, preferences, and privileges of the Company’s redeemable convertible preferred stock relative to its common stock, (iii) the lack of marketability of the common stock, (iv) current business conditions and financial projections, and (iv) the likelihood of achieving an IPO or sale event.

The fair values of stock options and the stock purchase rights under the ESPP are estimated using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions.

These assumptions represent the Company's best estimates and involve inherent uncertainties and the application of the Company's judgement.

The main assumptions used in the Black-Scholes option-pricing model include:

Expected term— The expected term represents the period that stock-based awards are expected to be outstanding.

The expected term for option grants is determined using the simplified method which represents the average of the contractual term of the option and the weighted-average vesting period of the option.

The Company considers this appropriate as there is not sufficient historical information available to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

The expected term for ESPP is the length of time from the grant date to the date on which the stock is purchased by the employees.

Stock price volatility— For the stock price volatility over the expected term of six months and one year, the Company estimates the stock price volatility using the combination of the average historical volatility of its own stock and those of comparable companies with similar characteristics to it.

For expected term of greater than one year, since the Company's

common stock lacks sufficient trading history, the stock price volatility over the expected term is estimated based on the average historical volatility of comparable companies with similar characteristics to those of the Company.

Risk-free interest rate— The risk-free interest rate is based on the yield of the U.S.

treasury debt securities commensurate with the expected term.

Dividend yield— Since the Company has never paid and has no intention to pay cash dividends on its common stock, the dividend yield is zero .

For the performance-based award granted to the CEO with both a service-based vesting condition and a market condition (as discussed further in Note 10— Stockholders' Equity and Stock-Based Compensation ), the Company determined the fair value of the award by using the Monte Carlo simulation model.

The main assumptions used in the Monte Carlo simulation model include stock price volatility, risk-free interest rate, dividend yield and the measurement period, which is the period over which simulated stock prices of the Company are used to evaluate the possibility of achieving the specified stock price targets.

Since both vesting conditions have to be met for each tranche of the award to ultimately vest, the associated stock-based compensation expense is recognized over the longer of the derived service period or the requisite service period, using the accelerated attribution method.

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All available-for-sale debt securities are recorded at their estimated fair value, with changes in fair value recognized as unrealized gains or losses in accumulated other comprehensive income.

For any security in an unrealized loss position, the Company evaluates it to assess whether the associated unrealized loss is considered other than temporary.

Impairments are considered other-than-temporary if they are related to a deterioration in credit risk or if it is likely that the Company will sell the security before the recovery of its cost basis.

Realized gains and losses and declines in value determined to be other than temporary are determined based on the specific identification method and are reported in interest and other income, net in the consolidated statements of operations.

There was no impairment recorded for the years ended December 31, 2021, 2020, and 2019.

For available-for-sale debt securities in an unrealized loss position, the Company evaluates whether a current expected credit loss exists based on available information relevant to the credit rating of the security, current economic conditions and reasonable and supportable forecasts.

Expected credit losses are recorded in other income (expense), net, on the consolidated statements of income, and any remaining unrealized losses are recognized in accumulated other comprehensive income or loss in the stockholders' equity section of the consolidated balance sheets.

Realized gains and losses are determined based on the specific identification method and are reported in interest and other income, net in the consolidated statements of operations.

There were no credit losses or impairment on available-for-sale debt securities recognized for the years ended December 31, 2022, 2021, and 2020.

The Company is not aware of any specific event or circumstances that would require the Company to change its assessment of credit losses for any marketable available-for-sale debt securities as of December 31, 2022.

Marketable securities also include mutual funds comprised of certain term bonds.

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Under this guidance, the Company measures these mutual funds at their estimated fair value, with changes in fair value recognized in interest and other income, net in the consolidated statements of operations.

Non-Marketable Equity Securities

The Company owns interests in non-marketable equity investments, which consist of minority equity interests in privately held companies.

The Company does not have significant influence over these investments, which do not have readily determinable fair values.

Under ASU 2016-01, the Company has elected the measurement alternative to carry them at cost, less any impairment charges.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at the invoiced amount, net of allowance for credit losses.

The allowance is based on the Company’s assessment of the collectability of accounts and is recorded as an offset to revenue and deferred revenue.

The Company regularly reviews the adequacy of the allowance by considering the age of each outstanding invoice and the collection history.

As of December 31, 2021 and 2020, the Company's allowance for doubtful accounts was $ 6.0 million and $ 6.4 million, respectively.

Concentrations of Credit Risk

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The Company’s cash and cash equivalents and marketable securities are generally held with large financial institutions and are in excess of the federally insured limits provided on such deposits.

In addition, the Company has cash and cash equivalents held in international bank accounts, which are denominated primarily in Euros, British Pounds, Indian Rupees, and Australian Dollars.

In addition, the Company has cash and cash equivalents held in international bank accounts, which are denominated primarily in Euros, British Pounds, and Indian Rupees.

There were no customers that individually exceeded 10% of the Company’s revenue for the years ended December 31, 2022, 2021, and 2020 or that represented 10% or more of the Company’s consolidated accounts receivable balance as of December 31, 2022 and 2021.

The Company primarily relies upon Amazon Web Services (AWS) to provide its cloud computing infrastructure, serve customers and operate certain aspects of its services.

Any disruption of AWS's services would impact the Company's operations and its business could be adversely impacted.

Deferred Contract Acquisition Costs

Deferred contract acquisition costs are incremental costs that are associated with acquiring customer contracts and consist primarily of sales commissions and the associated payroll taxes and certain referral fees paid to independent third-parties.

The costs incurred upon the execution of initial and expansion contracts are primarily deferred and amortized over an expected benefit period of three years .

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Leasehold improvements Lesser of lease term or 5 years

Expenditures for maintenance and repairs are charged to expense as incurred.

Capitalized Internal-Use Software

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Costs related to preliminary project activities and post-implementation activities are expensed as incurred.

Internal-use software is amortized on a straight-line basis over its estimated useful life.

The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Business Combinations

The Company applies a screen test to determine whether a transaction is more akin to an asset acquisition or a business combination.

If this screen test indicates that substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the transaction is accounted for as an asset acquisition.

In a business combination, the purchase consideration is allocated to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated respective fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and consequently, actual results may differ from estimates.

Capitalized cloud computing costs are amortized on a straight-line basis over its estimated useful life.

Long-Lived Assets (Including Goodwill and Intangible Assets)

Long-lived assets with finite lives include property and equipment, capitalized internal-use software, and acquired intangible assets.

Long-lived assets with finite lives include property and equipment, capitalized internal-use software, right-of-use (ROU) assets and acquired intangible assets.

The Company evaluates long-lived assets, including acquired intangible assets and capitalized internal-use software, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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Goodwill is not amortized but rather is tested for impairment at least annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired.

The Company elected to bypass the qualitative assessment, and performed a quantitative goodwill impairment test.

Goodwill impairment is recognized when the quantitative assessment results in the carrying value of the reporting unit exceeding its fair value, in which case an impairment charge in the amount of such excess is recorded to goodwill, limited to the amount of goodwill.

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The Company’s payment terms generally provide that customers pay the invoiced portion of the total arrangement fee either in advance or within 30 days from the invoice date.

Comprehensive Loss

Comprehensive loss is comprised of two components—net loss and other comprehensive (loss) income.

Other comprehensive (loss) income includes unrealized gains or losses on available-for-sale debt securities recognized during the period.

The following tables shows the change in unrealized gains or losses within accumulated other comprehensive (loss) income:

2021 2020 2019

Beginning balance $ 411 $ 139 $ 1,141

Unrealized (losses) gains on available-for-sale debt securities

( 1,152 ) 405 —

Adjustment for the adoption of ASU 2016-01

Reclassification of unrealized gains to interest and other income, net, in the consolidated statements of operations ( 6 ) ( 133 ) ( 21 )

Net impact to other comprehensive (loss) income in current period

( 1,158 ) 272 ( 1,002 )

Ending balance $ ( 747 ) $ 411 $ 139

Net Loss per Share Attributable to Common Stockholders

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Current service costs are accrued in the period to which they relate.

The benefit obligations are calculated by a qualified actuary using the projected unit credit method and the unfunded position is recognized as a liability in the consolidated balance sheets.

The benefit obligations are calculated by a qualified actuary using the projected unit credit method and the unfunded position is recognized as a liability in the consolidated balance

In measuring the defined benefit obligations, the Company uses a discount rate at the reporting date based on yields of local government treasury bills denominated in the same currency in which the benefits are expected to be paid, with maturities approximating the terms of the Company’s obligations.

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Disclosures required under ASC 715—Compensation—Retirement Benefits, have been omitted because the Company has deemed them immaterial to its consolidated financial statements.

The benefit plans had a plan benefit obligation of $ 7.4 million and $ 5.6 million as of December 31, 2021 and 2020, respectively, included in other liabilities in the consolidated balance sheets.

The Company accounts for its existing leases of office facilities as operating leases.

Certain facility lease agreements contain rent holidays, allowances and rent escalation provisions.

For leases that contain rent escalation or rent concession provisions, the Company records the total rent expense during the lease term on a straight-line basis over the term of the lease.

The difference between the amount of rent paid and the straight-line rent expense is recorded as deferred rent, with its current and long-term portions classified in accrued liabilities and other liabilities, respectively, in the consolidated balance sheets.

The benefit plans had a plan benefit obligation of $ 9.6 million and $ 7.4 million as of December 31, 2022 and 2021, respectively.

The long-term portion for the amount of $ 8.6 million and $ 6.7 million is included in other liabilities in the consolidated balance sheets as of December 31, 2022 and 2021, respectively.

The current portion for the amount of $ 1.0 million and $ 0.7 million is included in accrued expenses the consolidated balance sheets as of December 31, 2022 and 2021, respectively

The Company leases office space under operating leases with expiration dates through 2031.

The Company determines whether an arrangement constitutes a lease and records lease liabilities and ROU assets on its consolidated balance sheets at the lease commencement date.

Lease liabilities are measured based on the present value of the total lease payments not yet paid, discounted based on either the rate implicit in the lease or the Company's incremental borrowing rate (the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease), whichever is more readily determinable.

The incremental borrowing rate is based on an estimate of the Company's expected unsecured borrowing rate for its notes, adjusted for tenor and collateralized security features.

Lease liabilities due within 12 months are included within accrued liabilities on the Company's consolidated balance sheets.

ROU assets are measured based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the lease commencement date, (ii) initial direct costs incurred, and (iii) tenant incentives received, incurred or payable under the lease.

Recognition of rent expense begins when the lessor makes the underlying asset available to the Company.

The Company does not assume renewals or early terminations of its leases unless it is reasonably certain to exercise these options at commencement and does not allocate consideration between lease and non-lease components.

For short-term leases, the Company records rent expense in its consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred.

Recent Accounting Pronouncements

New accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) under its ASC or ASU and adopted by the Company as of the specified effective date.

As an emerging growth company, the Jumpstart Our Business Startups Act (the JOBS Act) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

The Company has elected to use the adoption dates applicable to private companies.

As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The Company adopted the requirements of ASU 2018-15 as of January 1, 2021 on a prospective basis.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as right-of-use (ROU) assets with corresponding lease liabilities and eliminates certain real estate-specific provisions.

Under the standard, lease expenses will continue to be recorded over the lease term in the consolidated statements of operations in a manner similar to the current standard.

Certain practical expedients are available for lessees to elect upon adopting the new standard.

This standard is effective for the Company on January 1, 2022, and early adoption is permitted.

The Company plans to adopt Topic 842 on a modified basis using the optional transition method, and accordingly, will not restate comparative periods.

Amounts and related disclosures for fiscal 2021 will continue to be presented in accordance with ASC 840, Leases.

Amounts and disclosures for fiscal 2022 will be presented under ASC 84 2.

The Company expects adoption of the standard will result in the recognition of additional ROU assets and lease liabilities for operating leases in the range of approximately $ 23.0 million to $ 25.0 million, and $ 28.0 million to $ 30.0 million, respectively, as of January 1, 2022.

Additionally, the adoption of this standard will have no impact to the Company's consolidated income statements and cash flows.

Accounting Standards Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as ROU assets with corresponding lease liabilities and eliminates certain real estate-specific provisions.

The Company adopted this standard effective January 1, 2022 on a modified retrospective basis, and as such, results in comparative periods were not restated.

As a result of the adoption, the Company recognized operating ROU assets of $ 24.3 million and operating lease liabilities of $ 28.8 million in its consolidated balance sheets on the adoption date.

The Company has elected certain available practical expedients, which allow it to forego the reassessments of (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification of any expired or existing leases, and (iii) initial direct costs for any existing leases.

The Company has also elected to combine lease and non-lease components for commercial lease arrangements.

Additionally, the Company elected not to recognize operating ROU assets and the associated operating lease liabilities for leases with a term of 12 months or less from the lease commencement date.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

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ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets by requiring an allowance to be recorded as an offset to the amortized cost of such assets.

The Company is required to adopt this standard on or before January 1, 2023.

The Company elected to early adopt ASU 2016-13 effective January 1, 2022 using the modified retrospective approach.

The standard primarily impacts our financial assets measured at amortized cost and available-for-sale debt securities.

The adoption of this standard will not have a material impact on the Company's consolidated financial statements.

The standard primarily impacts the amortized cost of the Company's available-for-sale debt securities.

The Company adopted this standard on January 1, 2022 using the modified retrospective approach, which did not result in a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740).

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The standard also simplifies aspects of accounting for franchise taxes and enacted changes in tax or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis for goodwill.

The guidance will become effective for the Company on January 1, 2022;

early adoption is permitted.

The adoption of this standard will not have a material impact on the Company's consolidated financial statements.

The Company adopted this standard effective January 1, 2022, which did not result in a material impact on its consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

ASU 2021-08 will become effective for public entities for fiscal years beginning after December 15, 2022, to be applied prospectively to business combinations occurring on or after the effective date of the ASU, with early adoption permitted.

The Company is currently evaluating the impact of adopting this standard.

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires acquiring entities to apply Topic 606 to recognize and

measure contract assets and contract liabilities in a business combination.

ASU 2021-08 will become effective for the Company on January 1, 2023, to be applied prospectively to business combinations occurring on or after the effective date of the ASU, with early adoption permitted.

The Company adopted this standard effective January 1, 2022, which did not result in any impact on its consolidated financial statements.

Effective December 31, 2022, the Company is no longer an emerging growth company.

As a result, the Company started adopting new or revised accounting pronouncements at dates applicable to public companies.

Revenue From Contracts with Customers

The Company derives revenue from subscription fees and related professional services.

The Company sells subscriptions for its cloud-based solutions directly to customers and indirectly through channel partners through arrangements that are non-cancelable and non-refundable.

The Company’s subscription arrangements do not provide customers with the right to take

possession of the software supporting the solutions and, as a result, are accounted for as service arrangements.

The Company records revenue net of sales or value-added taxes.

Disaggregation of Revenues

Disaggregation of Revenue

The following table summarizes revenue by the Company’s service offerings (in thousands):

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Deferred revenue consists of customer billings in advance of revenue being recognized from the Company’s subscription and professional services arrangements.

The following table summarizes the changes in the balance of deferred revenue during the periods (in thousands):

The following table summarizes the changes in the balance of deferred revenue during the years (in thousands):

Year Ended December 31,

2022 2021 2020

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The change in the balance of deferred contract acquisition costs during the periods presented is as follows (in thousands):

Year Ended December 31,

2022 2021 2020

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Money market funds $ 684,485 $ — $ — $ 684,485

treasury securities 22,000 — — 22,000

government agency securities 4,286 — ( 1 ) 4,285

Corporate debt securities 15,998 — — 15,998

Total cash equivalents 726,769 — ( 1 ) 726,768

Debt securities:

treasury securities 442,715 2 ( 432 ) 442,285

government agency securities 75,725 — ( 159 ) 75,566

Corporate debt securities 54,335 17 ( 175 ) 54,177

Asset-backed securities 3,247 15 — 3,262

Total debt securities 572,775 19 ( 766 ) 572,028

Total cash equivalents and debt securities $ 1,299,544 $ 19 $ ( 767 ) $ 1,298,796

As of December 31, 2021 and 2020, there were no securities that have been in a continuous unrealized loss position for 12 months or longer.

The following table presents gross unrealized losses and fair values for the securities that were in a continuous unrealized loss position as of December 31, 2022 (in thousands):

December 31, 2022

Less than 12 months Greater than 12 months Total

Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

treasury securities $ 190,820 $ ( 1,794 ) $ 105,115 $ ( 1,366 ) $ 295,935 $ ( 3,160 )

government agency securities 220,766 ( 2,245 ) 42,754 ( 1,286 ) 263,520 ( 3,531 )

Corporate debt securities 30,485 ( 455 ) 22,864 ( 362 ) 53,349 ( 817 )

Total $ 442,071 $ ( 4,494 ) $ 170,733 $ ( 3,014 ) $ 612,804 $ ( 7,508 )

As of December 31, 2021, there were no securities that have been in a continuous unrealized loss position for 12 months or longer.

The amortized cost and fair value of the available-for-sale debt securities based on contractual maturities are as follows (in thousands):

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Total $ 849,354 $ 841,917

Accrued interest receivable of $ 2.8 million was classified as prepaid expenses and other current assets in the consolidated balance sheets as of December 31, 2022.

In addition to available-for-sale debt securities, marketable securities also include term bond mutual funds, which are measured at fair value.

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The change in fair value of the term bond mutual funds is recorded in interest and other income, net in the consolidated statements of operations.

The following table summarizes the realized and unrealized gains recognized in the consolidated

statements of operations for the term bond mutual funds during the years ended December 31, 2021, 2020, and 2019 (in thousands):

Year Ended December 31,

2021 2020 2019

Net gains recognized on marketable equity investments $ 132 $ 107 $ 582

Net gains recognized on sale of marketable equity investments — — ( 316 )

Unrealized gains at the end of the period $ 132 $ 107 $ 266

The realized and unrealized gains recognized in the consolidated statements of operations for the term bond mutual funds were not material during the years ended December 31, 2022, 2021, and 2020.

Non-Marketable Equity Securities

Non-marketable equity securities represent the Company’s interest in privately held entities which have no readily determinable fair values.

The Company carries these investments at cost, less impairment, and reports them under other assets in the consolidated balance sheets.

As of December 31, 2021 and 2020, the Company had non-marketable equity securities of $ 0.4 million and $ 0.5 million, respectively.

Non-marketable equity securities represent the Company's interest in privately-held entities.

The Company does not have significant influence over these investments, which do not have readily determinable fair values.

Under ASU 2016-01, the Company has elected the measurement alternative to carry them at cost, less any impairment charges, and reports them under other assets in the consolidated balance sheets.

In September 2021, the Company sold its interest in a privately held entity for proceeds totaling $ 24 million, resulting in a gain of $ 23.8 million, which was recorded in interest and other income, net, in the consolidated statements of operations.

As of December 31, 2022 and December 31, 2021, the Company's non-marketable equity securities were not material.

Fair Value Measurements

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Available-for-sale debt securities are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

In connection with the acquisition of Natero, Inc., the Company recognized a liability on the acquisition date for the estimated fair value of the contingent consideration based on the probability of achieving certain milestones pursuant to the acquisition agreement.

The fair value measurement of the contingent consideration is based on significant unobservable inputs and management judgment;

therefore, it is categorized under Level 3 at the balance sheet date in the table below.

The Company does not have any assets or liabilities subject to fair value remeasurement on a nonrecurring basis as of December 31, 2021 and 2020.

The Company did not have any assets or liabilities subject to fair value remeasurement on a nonrecurring basis as of December 31, 2022 and 2021.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020 (in thousands):

The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2022 and 2021 (in thousands):

December 31, 2022

Fair Value Measured Using

Level 1 Level 2 Level 3 Total

Level 1 Level 2 Total

Financial assets:

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Total financial assets $ 672,212 $ 417,035 $ 1,089,247

Financial liabilities:

Acquisition-related contingent consideration $ — $ — $ 800 $ 800

December 31, 2021

Fair Value Measured Using

Level 1 Level 2 Level 3 Total

Level 1 Level 2 Total

Financial assets:

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Money market funds $ 684,485 $ — $ 684,485

treasury securities 22,000 — 22,000

government agency securities — 4,285 4,285

Corporate debt securities — 15,998 15,998

Marketable securities:

treasury securities 442,285 — 442,285

government agency securities — 75,566 75,566

Corporate debt securities — 54,177 54,177

Asset-backed securities — 3,262 — 3,262

Term bond mutual funds — 3,651 3,651

Total financial assets $ 1,148,770 $ 153,677 $ 1,302,447

Financial liabilities:

Acquisition-related contingent consideration $ — $ — $ 775 $ 775

The following table represents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis, using Level 3 significant unobservable inputs (in thousands):

Beginning balance $ 775 $ 1,950

Additions during the period — —

Payments during the period — ( 1,200 )

Change in estimated fair value 25 25

Ending balance $ 800 $ 775

Balance Sheet Components

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Property and equipment, net $ 24,139 $ 21,478

Capitalization of costs associated with internal-use software was $ 4.1 million and $ 4.6 million for the years ended December 31, 2021 and 2020, respectively.

Capitalization of costs associated with internal-use software were $ 6.8 million, $ 4.1 million and $ 4.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Amortization expense of capitalized internal-use software was $ 3.2 million, $ 2.5 million and $ 1.5 million for the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022 and 2021, the net carrying value of capitalized internal-use software was $ 11.2 million and $ 8.3 million, respectively.

Depreciation expense and amortization of internal-use software for the years ended December 31, 2021, 2020, and 2019 totaled $ 9.0 million, $ 6.9 million, and $ 4.9 million, respectively.

Accrued Liabilities

Depreciation expense for the years ended December 31, 2022, 2021, and 2020 totaled $ 6.7 million, $ 6.5 million, and $ 5.4 million, respectively.

Accrued and Other Liabilities

The following table summarizes accrued liabilities as of December 31, 2022 and 2021 (in thousands):

Accrued compensation $ 20,192 $ 17,261

Acquisition-related liabilities 800 1,942

Accrued third-party cloud infrastructure expenses 2,752 2,785

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Accrued taxes 7,730 10,777

Operating lease liabilities, current 6,775 —

Contributions withheld for employee stock purchase plan 1,546 4,211

Other accrued expenses 4,337 5,643

Total accrued liabilities $ 59,008 $ 55,829

Business Combinations and Asset Purchase

AnsweriQ Inc.

In January 2020, the Company acquired all issued and outstanding shares of AIQ, a provider of machine learning and artificial intelligence self-service tools.

The acquisition date cash consideration paid was $ 5.7 million.

The Company acquired $ 4.0 million of developed technology with an estimated useful life of two years , and $ 1.7 million of goodwill which is primarily attributed to the assembled workforce.

Infiverve Technologies Private Ltd.

and Infiverve Technologies Pte.

(collectively known as Flint)

In March 2020, the Company entered into an asset purchase agreement with Flint, an IT orchestration and cloud management platform, to complement Freshservice’s IT service management and IT operations management product capabilities, for a total consideration of $ 2.0 million in cash.

The transaction was accounted for as an asset acquisition as the developed technology was the only asset acquired.

None of the above transactions had a material impact on the Company’s consolidated financial statements;

therefore, historical and proforma disclosures have not been presented.

Goodwill and Intangible Assets, Net

The carrying value of goodwill was $ 6.2 million as of December 31, 2021 and 2020.

Acquired intangibles consist of developed technology and customer relationships and are amortized on a straight-line basis over their estimated useful lives.

Noncurrent liabilities include $ 23.3 million and $ 14.9 million of long term accrued compensation as of December 31, 2022 and 2021, respectively.

Business Combination, Asset Purchase and Intangible Assets, Net

Business Combinations and Asset Purchases

From time to time, the Company makes acquisitions of, or investments in companies or enters into asset purchase agreements that could enhance the functionality and features of the Company's software platform.

In 2020, Freshworks

completed a business acquisition and asset purchase which were not material.

Substantially all of the consideration of the business acquisition was allocated to acquisition-related intangible assets and goodwill.

Intangible Assets, Net

Acquired intangible assets consist of developed technology and customer relationships and are amortized on a straight-line basis over their estimated useful lives.

The following tables summarize acquired intangible assets as of December 31, 2022 and 2021 (amounts in thousands):

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Total $ 12,096 $ ( 10,202 ) $ 1,894

Total amortization of acquired intangible assets was $ 4.3 million, $ 4.3 million and $ 1.4 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The Company recorded amortization of developed technology of $ 3.9 million, $ 3.9 million, and $ 1.1 million in cost of revenue and customer relationships of $ 0.4 million, $ 0.4 million, and $ 0.3 million in sales and marketing expenses in each of the respective periods in the consolidated statements of operations.

Expected future amortization expense related to acquired intangible assets is as follows (in thousands):

Year Ending December 31, Amortization Expense

Total $ 1,894

Commitments and Contingencies

Total amortization of acquired intangible assets for the years ended December 31, 2022, 2021, and 2020 is as follows (in thousands):

Year Ended December 31,

2022 2021 2020

Developed technology

Cost of revenue $ 1,191 $ 3,929 $ 3,867

Customer relationships:

Sales and marketing $ 400 400 401

Total amortization expense $ 1,591 $ 4,329 $ 4,268

As of December 31, 2022, the net book value of acquired intangible assets is expected to be fully amortized during the year ending December 31, 2023.

The Company has operating leases primarily for office space.

The leases have remaining lease terms of one to eight years , some of which include options to extend the lease for up to six years .

The Company's leases do not contain any residual value guarantee.

The following table presents various components of the lease costs (in thousands):

Operating Leases December 31, 2022

Operating lease cost $ 8,312

Short-term lease cost 1,162

Variable lease cost 2,797

Rent expense for operating leases recognized prior to our adoption of Topic 842 for the years ended December 31, 2021 and 2020 was $ 9.7 million and $ 10.2 million, respectively.

The weighted-average remaining term of the Company's operating leases and the weighted-average discount rate used to measure the present value of the operating lease liabilities are as follows:

Lease Term and Discount Rate December 31, 2022

Weighted-average remaining lease term (in years) 4.81

Weighted-average discount rate 7.4 %

The following table presents supplemental information arising from lease transactions.

Cash payments related to short-term leases are not included in the measurement of the operating lease liabilities, and as such, are excluded from the amounts below (in thousands):

Supplemental Cash Flow Information:

December 31, 2022

Cash payments included in the measurement of operating lease liabilities $ 8,885

Operating ROU assets obtained in exchange for lease obligations 14,903

Maturities of the operating lease liabilities are as follows (in thousands):

Year Ending December 31:

Operating Leases

The Company leases office space under non-cancelable operating lease agreements, which expire on various dates through September 2028.

Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments.

The Company maintains an uncollateralized letter of credit for the lease, which is renewed on an annual basis.

In September 2018, the Company entered into a lease agreement for its corporate headquarters located in San Mateo, California, which it occupied in January 2019.

This lease covers approximately 22,000 square feet of office space at a monthly base rent of $ 113,246 , increasing approximately 3 % annually.

The lease expires in July 2026, with an option to extend the lease for another five years , subject to certain requirements.

The total commitment is $ 10.5 million with a tenant improvement allowance of $ 1.5 million.

Deferred rent was $ 4.6 million and $ 5.1 million as of December 31, 2021 and 2020, respectively, of which $ 3.8 million and $ 4.6 million was classified in other liabilities in the consolidated balance sheets in each of the two periods, respectively.

Rent expense for operating leases for the years ended December 31, 2021, 2020, and 2019 was $ 9.7 million, $ 10.2 million, and $ 7.1 million, respectively.

Future minimum lease payments under non-cancelable operating leases as of December 31, 2021, are as follows (in thousands):

Thereafter 5,760

Total lease payments 43,125

imputed interest ( 8,176 )

Present value of operating lease liabilities $ 34,949

As of December 31, 2022, there were no future payments related to signed leases that have not yet commended.

Future minimum lease payments under non-cancelable operating leases as of December 31, 2021, were as follows (in thousands):

Year ending December 31, Operating Leases

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Total minimum future payments $ 34,245

Commitments and Contingencies

Other Contractual Commitments

The Company's other contractual commitments primarily consist of third-party cloud infrastructure agreements and service subscription arrangements used to support operations at the enterprise level.

The Company's other contractual commitments primarily consist of third-party cloud infrastructure agreements and service subscription purchase arrangements used to support operations at the enterprise level.

Future minimum payments under the Company’s non-cancelable purchase commitments as of December 31, 2022 are presented in the table below (in thousands):

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Litigation and Loss Contingencies

On November 1, 2022, a purported Company stockholder filed a securities class action complaint in the U.S.

District Court for the Northern District of California against us, certain of our current officers and directors, and underwriters of the IPO.

The complaint alleges that defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 by making material misstatements or omissions in offering documents filed in connection with the IPO.

The complaint seeks unspecified damages, interest, fees, costs, and rescission on behalf of purchasers and/or acquirers of common stock issued in the IPO.

The Company and the other defendants intend to vigorously defend against the claims in this action.

From time to time, the Company may be subject to other legal proceedings, claims, investigations, and government inquiries (collectively, Legal Proceedings) in the ordinary course of business.

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In these circumstances, payment is typically conditional on the other party making a claim pursuant to the procedures specified in the particular contract.

The Company also indemnifies certain of its officers, directors and certain key employees while they are serving in good faith in their respective capacities.

To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in its consolidated financial statements.

Redeemable Convertible Preferred Stock

Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 153,937,730 shares of common stock on a one -to-one basis and then reclassified into Class B common stock, and their carrying value of $ 5.6 billion was reclassified into stockholders' equity (deficit).

As of December 31, 2021, there were no shares of redeemable convertible preferred stock issued and outstanding.

As of December 31, 2020, there were 154,055,430 authorized shares and 153,937,730 issued and outstanding shares of redeemable convertible preferred stock with aggregate liquidation preference of $ 326.6 million.

The following table summarizes the Company’s redeemable convertible preferred stock as of December 31, 2020 (in thousands, except per share amounts):

December 31, 2020

Shares Authorized Shares Outstanding Original Issue Price Liquidation Preference Carrying Value

Series A 21,428 21,311 $ 0.05 $ 1,059 $ 397,172

Series B 36,229 36,229 0.14 5,000 675,223

Series C 15,307 15,307 0.46 7,000 285,280

Series D 30,663 30,663 1.01 31,000 571,476

Series E 21,292 21,292 2.35 50,000 396,927

Series F 8,709 8,709 3.16 27,500 162,439

Series G 9,151 9,151 6.01 55,000 172,344

Series H 11,276 11,276 13.30 150,000 234,235

Total 154,055 153,938 $ 326,559 $ 2,895,096

Preferred Stock Transactions

In January 2020, an investor, also a member of the Board of Directors of the Company (the Board) at that time, entered into a secondary transaction to sell 26,210 shares of redeemable convertible Series A preferred stock, 1,314,830 shares of redeemable convertible Series B preferred stock, and 448,110 shares of redeemable convertible Series C preferred stock to a new investor for a total price in excess of the fair value of the shares.

The sale was facilitated by the Company and deemed compensatory to the seller.

The amount paid by the investor to acquire the shares was $ 25.5 million, while the fair value of the shares on the transaction date was $ 14.7 million.

The excess value of $ 10.8 million was recognized as stock-based compensation expense by the Company in general and administrative expense in its consolidated statements of operations.

See Note 11 for a discussion of stock-based compensation recognized from the secondary transaction involving the repurchases of redeemable convertible preferred stock (as described above) and common stock from the Company’s founders and employees.

Stockholders' Equity and Stock Based Compensation

Preferred Stock

In connection with the IPO, the Company’s amended and restated certificate of incorporation became effective, which authorized the issuance of 10,000,000 shares of undesignated preferred stock with a par value of $ 0.00001 per share with rights and preferences, including voting rights, designated from time to time by the board of directors.

The Company has two classes of common stock:

Class A common stock and Class B common stock.

In connection with the IPO, the Company’s amended and restated certificate of incorporation authorized the issuance of 1,000,000,000 shares of Class A common stock and 350,000,000 shares of Class B common stock.

The shares of Class A common stock and Class B common stock are identical, except with respect to voting, conversion, and transfer rights.

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Each share of Class B common stock is entitled to ten votes.

Class A and Class B common stock have a par value of $ 0.00001 per share, and are referred to as common stock throughout these notes to the consolidated financial statements, unless otherwise noted.

Class A and Class B common stock are referred to as common stock throughout these notes to the consolidated financial statements, unless otherwise noted.

Holders of common stock are entitled to receive any dividends as may be declared from time to time by the board of directors.

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(2) the death of such Class B common stockholder (or nine months after the date of death if the stockholder is our founder);

and (3) on the final conversion date, defined as the earlier of (a) the last trading day of the fiscal year following the seventh anniversary of the IPO;

and (3) on the final conversion date, defined as the earlier of (a) the last trading day of the fiscal year following the seventh anniversary of the Company's IPO;

or (b) the date specified by a vote of the holders of a majority of the outstanding shares of Class B common stock, voting as a single class.

Comprehensive Loss

Comprehensive loss is comprised of two components—net loss and other comprehensive (loss) income.

Other comprehensive (loss) income includes unrealized gains or losses on available-for-sale debt securities recognized during the period.

The following tables shows the change in unrealized gains or losses within accumulated other comprehensive (loss) income:

Year Ended December 31,

2022 2021 2020

Beginning balance $ ( 747 ) $ 411 $ 139

Unrealized (losses) gains on available-for-sale debt securities

( 6,684 ) ( 1,152 ) 405

Reclassification of unrealized gains to interest and other income, net, in the consolidated statements of operations

— ( 6 ) ( 133 )

Net impact to other comprehensive (loss) income in current period

( 6,684 ) ( 1,158 ) 272

Ending balance $ ( 7,431 ) $ ( 747 ) $ 411

Equity Compensation Plans

In August 2021, the board of directors (the Board) adopted the 2021 Equity Incentive Plan (the 2021 Plan) and the 2021 Employee Stock Purchase Plan (ESPP), effective upon the Company's IPO.

Pursuant to the 2021 Plan, the Board may grant incentive stock options to purchase shares of the Company’s common stock, non-statutory stock options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock, RSUs, performance awards (PRSUs) and other awards.

The ESPP enables eligible employees to purchase the Company's Class A common stock.

Both the 2021 Plan and ESPP include an automatic increase to their shares reserve on January 1 of each year as set forth in the respective plan documents.

In August 2022, the Board adopted the 2022 Inducement Plan (the Inducement Plan) in accordance with Listing Rule 5635(c)(4) of the Nasdaq Stock Market.

Under the Inducement Plan, nonstatutory stock options, stock appreciation rights, restricted stock, RSUs, PRSUs and other awards may be granted as an inducement material for eligible persons to enter into employment with the Company.

Upon adoption, the Company has initially reserved 10,000,000 shares of Class A common stock for issuance under the Inducement Plan.

In September 2022, the Company hired a President and granted him 1,732,501 RSUs under the Inducement Plan and stock options to purchase up to 1,815,980 shares of Class A common stock, of which stock options to purchase up to 1,776,780 shares of Class A common stock were granted under the Inducement Plan and the remaining under the 2021 Plan.

Each award will vest over four years with 25 % of the shares vesting on the first anniversary of the grant date and the remaining 75 % of the shares vesting in equal quarterly installments thereafter, subject to continued employment.

Shares of common stock reserved for future issuance were as follows (in thousands):

Redeemable convertible preferred stock — 153,938

2011 Stock Plan:

Options and RSUs outstanding 21,380

Shares reserved for future award issuances — 9,981

2021 Equity Incentive Plan:

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Shares reserved for future award issuances 52,178

2022 Inducement Plan:

Options and RSUs outstanding 3,509

Shares reserved for future award issuances 6,491

2021 Employee Stock Purchase Plan 8,371

Total shares of common stock reserved for issuance 102,051

Equity Incentive Plans

In 2011, the Company adopted the 2011 Stock Plan (the 2011 Plan) pursuant to which the Board may grant incentive stock options to purchase shares of the Company’s common stock, non-statutory stock options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock and RSUs.

The 2011 Plan was terminated in September 2021 in connection with the IPO but continues to govern the terms of outstanding awards that were granted prior to its termination.

With the establishment of the 2021 Equity Incentive Plan (the 2021 Plan) as further discussed below, upon the expiration, forfeiture, cancellation, or reacquisition of any shares of Class B common stock underlying outstanding stock-based awards granted under the 2011 Plan, an equal number of shares of Class A common stock will become available for grant under the 2021 Plan.

In August 2021, the Board adopted the 2021 Plan, which became effective upon the IPO.

Upon adoption, the 2021 Plan began with a reserve of 35,000,000 shares of Class A common stock for future issuance, with (i) an automatic increase occurring on January 1 of each year by 5 % of the aggregate number of shares of common stock of all classes issued and outstanding on December 31 of the preceding calendar year, or (ii) a lesser number of shares determined by the Board prior to January 1 of each year.

The reserve is reduced by the number of shares granted, and increased by the number of shares subject to stock options or other stock awards that would have otherwise returned to the 2011 Plan, up to a maximum of 51,178,920 shares, as well as the net number of shares withheld from the release of RSUs.

As of December 31, 2021, the Company has granted 431,886 shares from the 2021 Plan, and a total of 1,439,884 shares comprising of cancellations from the 2011 Plan and withholding of net shares recirculated back to the reserve, resulting in 36,018,956 shares available for future issuance.

Employee Stock Purchase Plan

In August 2021, the Board adopted the ESPP, which became effective upon the Company’s IPO.

Initially, 6,500,000 Class A shares of common stock have been reserved for future issuance under the ESPP, with an automatic increase to such reserve on January 1 of each year.

The price at which Class A common stock is purchased under the ESPP is equal to 85 % of the fair market value of a share of the Company’s Class A common stock on the first or last day of the offering period, whichever is lower.

The ESPP provides an offering period of 24 months, with four purchase periods that are generally six months long ending on May 15 and November 15 of each year, except for the first purchase period, which began upon the completion of the IPO on September 22, 2021 and will end on May 13, 2022, with contributions from employees beginning on October 1, 2021.

As of December 31, 2021, the Company has withheld $ 4.2 million of contributions from its employees, and no shares have been purchased under the ESPP.

During the year ended December 31, 2021, the Company recognized $ 3.5 million of stock-based compensation expense related to the ESPP.

Under the ESPP, the price at which common stock is purchased is equal to 85 % of the fair market value of a share of the Company’s common stock on the first day of the offering period or the applicable purchase date, whichever is lower.

The fair market value of common stock will generally be the closing sales price on the determination date.

The ESPP provides an offering period of 24 months, with four purchase periods that are generally six months long and end on May 15 and November 15 of each year, except for the first purchase period, which began upon the completion of the IPO in September 2021 and ended on May 13, 2022.

The Company issued 822,423 shares under the ESPP during the year ended December 31, 2022, net of shares withheld and retired to satisfy withholding tax requirements for certain employees in jurisdictions outside the United States, with a weighted average purchase price of $ 13.33 and aggregate net proceeds of $ 10.9 million.

During the year ended December 31, 2021, no shares were purchased under the ESPP.

The ESPP also includes a reset provision for the purchase price if the fair market value of a share of the Company's common stock on the first day of any purchase period is less than or equal to the fair market value of a share of the Company's common stock on the first day of an ongoing offering.

If the reset provision is triggered, a new 24-month offering period begins.

The reset provision under the ESPP was triggered on May 16, 2022, and again on November 16, 2022.

Each triggering of the reset provision was considered a modification in accordance with ASC 718, Stock Based Compensation , with the modification charge recognized on a straight-line basis over the new offering period.

The modifications did not have a material effect on the Company's stock-based compensation expense during the year ended December 31, 2022.

As of December 31, 2022 and 2021, the Company has withheld $ 1.5 million and $ 4.2 million of contributions from its employees.

During the years ended December 31, 2022 and 2021, the Company recognized $ 12.2 million and $ 3.5 million of stock-based compensation expense related to the ESPP, respectively.

Determination of Fair Value of the ESPP

The Company estimates the fair value of the ESPP using the Black-Scholes option-pricing model, which requires certain complex valuation assumption inputs such as expected term, expected stock price volatility, risk-free interest rate and dividend

The fair value of each of the four purchase periods is estimated separately.

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Stock price volatility 55.8 % - 84.5 %

47.7 % - 58.5 %

Risk-free interest rate 1.54 % - 4.62 %

0.06 % - 0.29 %

Dividend yield 0.00 % 0.00 %

Expected term— The expected term is estimated based on the exercise term of the ESPP, which is the length of time from the grant date to the date on which the stock is purchased by the employees.

Stock price volatility— Since the Company's common stock lacks sufficient trading history, the stock price volatility over the expected term is estimated based on the average historical volatility of comparable companies with similar characteristics to those of the Company.

Risk-free interest rate— The risk-free interest rate is based on the yield of the U.S.

Treasury debt securities commensurate with the expected term of the ESPP.

Dividend yield— Since the Company has never paid and has no intention to pay cash dividends on its common stock, the dividend yield is zero.

Fair value of underlying stock— The fair value of Company's common stock underlying the ESPP is determined by the closing market price of its Class A common stock on the date that the Company began withholding the contributions from its employees, which was October 1, 2021.

Stock Options

Stock options are granted with an exercise price equal to the stock’s fair market value at the date of grant, have 10-year contractual terms, and vest over a four-year period.

Stock options are granted with an exercise price equal to the stock’s fair market value at the date of grant, have a 10-year contractual term, and vest over a four-year period.

Stock option activity during the year ended December 31, 2022 is as follows (in thousands, except per share data):

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Balance as of December 31, 2022 2,758 $ 9.06 7.3 $ 15,595

Options vested and expected to vest as of December 31, 2022 2,758 $ 9.06 7.3 $ 15,595

Options exercisable as of December 31, 2022 942 $ 0.27 2.7 $ 13,598

(1) Aggregate intrinsic value for stock options represents the difference between the exercise price and the per share fair value of the Company’s common stock as of the end of the period, multiplied by the number of stock options outstanding, exercisable, or vested.

(2) The ending balance as of December 31, 2021 represents options that were fully vested and exercisable.

Total intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020 was $ 5.9 million, $ 14.0 million, and $ 9.8 million, respectively.

The weighted-average grant date fair value of stock options granted was $ 8.26 per share during the year ended December 31, 2022.

There were no options granted during the years ended December 31, 2021 and 2020.

Determination of Fair Value of Stock Options

The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, which requires certain complex valuation assumption inputs such as expected term, expected stock price volatility, risk-free interest rate, and dividend yield.

The following table summarizes the valuation assumptions used in estimating the fair value of stock options granted during the year:

Year Ended December 31,

Valuation Assumption Inputs 2022

Expected term (in years) 6.1

Stock price volatility 65.0 %

Risk-free interest rate 3.37 %

Dividend yield — %

Restricted Stock Units

RSUs are granted at fair market value at the date of the grant and vest over a four-year period.

RSU activity during the year ended December 31, 2021 is as follows (in thousands, except per share data):

RSU activity, which includes PRSUs, during the year ended December 31, 2022 is as follows (in thousands, except per share data):

Share Information:

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Granted 13,054 $ 16.88

Vested ( 9,928 ) $ 5.17

( 24,397 ) $ 9.63

Forfeited ( 4,234 ) $ 16.24

Unvested, as of December 31, 2022 32,253 $ 18.86

(1) During the year ended December 31, 2022 total shares that vested were 24.4 million, of which 9.8 million shares were withheld for tax withholding requirements.

The total fair value of vested RSUs during the years ended December 31, 2022, 2021, and 2020 were $ 235.0 million, $ 51.3 million, and zero , respectively.

Performance-Based Awards

In May 2019, the Board approved a grant of 166,390 shares of performance-based RSUs (PRSUs) to the Company’s CEO.

The vesting of these PRSUs is contingent upon the satisfaction of all three of the following:

(i) the achievement of certain revenue related milestones on or before December 31, 2019, (ii) vesting over the requisite service period in accordance with the Plan, and (iii) a liquidity event.

The revenue-related milestone was met as of December 31, 2019, and the liquidity event condition was met upon the completion of the IPO as described in Note 1— Initial Public Offering .

As of December 31, 2021, the time-based vesting was the only condition yet to be satisfied over the remaining requisite service period, and the number of shares to vest subject to this condition is insignificant.

In May 2019, the Board approved a grant of 166,390 shares PRSUs to the Company’s CEO.

The vesting of these PRSUs is contingent upon the satisfaction of certain milestones.

The revenue-related milestone and the liquidity event condition were met prior to December 31, 2021 upon the completion of the IPO as described in Note 1 - Description of Business .

Upon completion of the IPO, the time-based vesting was the only condition yet to be satisfied over the remaining requisite service period.

The number of shares to vest subject to this condition is insignificant.

In September 2021, the Board approved a grant of 6,000,000 PRSUs to the Company's CEO with a time-based service condition beginning January 1, 2022, and a market condition involving five separate stock price targets ranging from $ 70.00 to $ 200.00 per share for each of the five vesting tranches (CEO Performance Award).

These stock price targets will be measured based on the average closing price over a consecutive 60 -trading day period, beginning on the first trading day after the expiration of the final lock-up period in February 2022.

These stock price targets are measured based on the average closing price over a consecutive 60 -trading day period, beginning on the first trading day after the expiration of the final lock-up period in February 2022.

The vesting of the CEO Performance Award is contingent upon the completion of the requisite service through January 1, 2029 and the achievement of the specified stock price target in each tranche on or before January 1, 2029.

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The CEO Performance Award had a total grant date fair value of $ 131.0 million.

The fair value of the CEO Performance Award was determined at grant date by using the Monte Carlo simulation model with the following valuation assumptions:

Year Ended December 31,

The fair value of the CEO Performance Award was determined at grant date by using the Monte Carlo simulation model, which requires certain complex valuation assumption inputs such as measurement period, expected stock price volatility, risk-free interest rate and dividend yield.

The valuation assumptions using the Monte Carlo simulation model at the date of grant were:

Valuation Assumption Inputs

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Dividend yield — %

Measurement period— This is the period over which simulated stock prices of the Company are used to evaluate the possibility of achieving the specified stock price targets (as described above).

Stock price volatility— Since the Company's common stock lacks sufficient trading history, the stock price volatility over the measurement period is estimated based on the average historical volatility of comparable companies with similar characteristics to those of the Company.

Risk-free interest rate— The risk-free interest rate is based on the yield of the U.S.

Treasury debt securities commensurate with the measurement period.

Dividend yield— Since the Company has never paid and has no intention to pay cash dividends on its common stock, the dividend yield is zero.

Fair value of underlying stock— The fair value of Company's common stock underlying the CEO Performance Award on is based on an independent third-party valuation as there was no public market on the date of the grant.

For the year ended December 31, 2021, the Company recognized $ 9.0 million of stock-based compensation expense associated with performance-based awards described above, of which $ 8.4 million was related to the CEO Performance Award.

For the years ended December 31, 2022 and 2021, the Company recognized $ 27.6 million and $ 9.0 million of stock-based compensation expense associated with performance-based awards, respectively, which were primarily related to the CEO Performance Award.

There were no stock-based compensation expense associated with performance-based awards during the year ended December 31, 2020.

Stock-Based Compensation

For the year ended December 31, 2021, stock-based compensation expense of $ 173.4 million included a cumulative charge associated with certain RSUs for which the service-based vesting condition has been satisfied upon the completion of the liquidity event, as further described in Note 1— Initial Public Offering.

During the year ended December 31, 2020, stock-based compensation included expenses recognized from employee stock-based awards, and the excess value of $ 43.2 million paid to repurchase shares in a secondary transaction.

The excess value was comprised of $ 10.8 million recorded in general and administrative expense for the repurchase of redeemable convertible preferred stock (as described in Note 10), and $ 32.4 million for the repurchases of shares of common stock from the Company’s founders and a number of employees, of which $ 16.5 million and $ 15.9 million were recorded in general and administrative expense and research and development, respectively.

Total stock-based compensation expense recorded for the years ended December 31, 2022, 2021, and 2020 was as follows (in thousands):

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Research and development (1)

36,413 45,162 8

Sales and marketing (2)

64,328 53,169 7

General and administrative (3)

99,916 69,508 29

Total employee awards 207,696 173,443 44

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Total stock-based compensation expense $ 209,361 $ 174,028 $ 43,280

Stock-based compensation expense recorded to research and development in the consolidated statements of operations excludes amounts that were capitalized for internal-use software for the year ended December 31, 2021.

As of December 31, 2021, unrecognized stock-based compensation expense related to unvested stock-based awards was as follows (amount in thousands):

(1) Stock-based compensation expense recorded to research and development in the consolidated statements of operations excludes amounts that were capitalized for internal-use software for the years ended December 31, 2022 and 2021.

(2) Sales and marketing expense for the year ended December 31, 2022 includes $ 3.2 million of stock-based compensation expense associated with RSU and options granted to the President in September 2022.

(3) General and administrative expense includes $ 55.9 million and $ 19.1 million of stock-based compensation expense associated with RSUs and PRSUs primarily granted to the CEO in September 2021 for the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2021, stock-based compensation expense of $ 173.4 million included a cumulative charge associated with certain RSUs for which the service-based vesting condition was satisfied upon the completion of the IPO (liquidity event), as further described in Note 1— Description of Business.

The excess value was comprised of $ 10.8 million recorded in general and administrative expense for the repurchase of redeemable convertible preferred stock (as described below), and $ 32.4 million for the repurchases of shares of common stock from the Company’s founders and a number of employees, of which $ 16.5 million and $ 15.9 million were recorded in general and administrative expense and research and development, respectively.

In January 2020, an investor, also a member of the Board at that time, entered into a secondary transaction to sell 26,210 shares of redeemable convertible Series A preferred stock, 1,314,830 shares of redeemable convertible Series B preferred stock, and 448,110 shares of redeemable convertible Series C preferred stock to a new investor for a total price in excess of the fair value of the shares.

The sale was facilitated by the Company and deemed compensatory to the seller.

The amount paid by the investor to acquire the shares was $ 25.5 million, while the fair value of the shares on the transaction date was $ 14.7 million.

The excess value of $ 10.8 million was recognized as stock-based compensation expense.

As of December 31, 2022, unrecognized stock-based compensation expense related to unvested stock-based awards was as follows (in thousands, except for period data):

December 31, 2022

Unrecognized Stock-Based Compensation Weighted-Average Period to Recognize Expense

RSUs $ 574,916 3.6

Unrecognized Stock-Based Compensation Weighted-Average Period to Recognize Expense (in years)

RSUs and PSUs $ 531,758 3.0

Stock options 13,758 3.7

ESPP 12,606 1.1

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Diluted net loss per share attributable to common stockholders is determined by giving effect to all potential common equivalents during the reporting period, unless including them yields an antidilutive result.

The Company considers its redeemable convertible preferred stock, stock options and restricted stock units as potential common equivalents, but excluded them from the computation of diluted net loss per share attributable to common stockholders in the periods presented, as their effect was antidilutive.

The Company considers its redeemable convertible preferred stock, stock options and RSUs as potential common stock equivalents, but excluded them from the computation of diluted net loss per share attributable to common stockholders in the periods presented, as their effect was antidilutive.

The rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights.

As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted

net loss per share attributable to common stockholders are the same for both Class A and Class B common stock on both an individual and combined basis.

As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net loss per share attributable to common stockholders are the same for both Class A and Class B common stock on both an individual and combined basis.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):

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Accretion of redeemable convertible preferred stock — ( 2,646,662 ) ( 1,560,524 )

Deemed dividend distribution — — ( 40,071 )

Net loss attributable to Class A and Class B common stockholders - basic and diluted $ ( 232,132 ) $ ( 2,838,657 ) $ ( 1,617,818 )

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Net loss per share attributable to Class A and Class B common stockholders - basic and diluted $ ( 0.82 ) $ ( 21.73 ) $ ( 21.03 )

The following table summarizes the potential common equivalents that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented (in thousands):

The following table summarizes the potential common equivalents that were excluded from the computation of diluted net loss per share attributable to Class A and Class B common stockholders for the periods presented (in thousands):

Year Ended December 31,

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Redeemable convertible preferred stock — — 153,938

RSUs and PRSUs 32,253 47,830 33,928

Stock options 2,758 1,348 2,096

RSUs 47,830 33,928 22,602

ESPP 124 160 —

Total 35,135 49,338 189,962

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Federal income tax 21.0 % 21.0 % 21.0 %

State taxes, net of federal benefit — — 3.2

Stock-based compensation ( 1.6 ) 2.1 ( 17.1 )

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Foreign tax credit carryforwards 4,955 4,955

Capitalized R&E under IRC 174 36,970 —

Stock-based compensation 4,337 9,643

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Allowance for uncollectible accounts 212 66

Operating lease liability 19,207 —

Total deferred tax assets 176,252 100,958

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Commissions ( 6,146 ) ( 4,771 )

Operating lease right-of-use assets ( 15,283 ) —

Net deferred tax assets $ 8,689 $ 6,284

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The Company’s valuation allowance increased by $ 56.2 million and $ 48.8 million during the years ended December 31, 2022 and 2021, respectively.

The Tax Cuts and Jobs Act of 2017 (TCJA) made a significant change to Internal Revenue Code Section 174, which went into effect for taxable years beginning after December 31, 2021.

The change requires Companies to capitalize specific research and experimental (“R&E”) expenditures and amortize over five years for U.S.

incurred R&E or fifteen years for foreign incurred R&E beginning on January 1, 2022.

Since the Company generated enough pre-tax loss in 2022, this legislation did not result in an increase in U.S.

federal and state cash tax payments.

The Company has not provided U.S.

income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries because the Company intends to permanently reinvest such earnings outside the U.S.

income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries because the Company intends to permanently reinvest such earnings outside the United States.

Net Operating Loss and Credit Carryforwards

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Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change provisions of IRC Section 382 and similar state provisions.

The annual limitation may result in the inability to fully

offset future annual taxable income and could result in the expiration of net operating loss carryforwards before utilization.

The Company continually reviews the impact to net operating losses of any ownership changes.

The annual limitation may result in the inability to fully offset future annual taxable income and could result in the expiration of net operating loss carryforwards before utilization.

The Company continually monitors the impact to net operating losses of any ownership changes.

Unrecognized Tax Benefits

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For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has no likelihood of being realized upon ultimate settlement with the relevant tax authority.

As of December 31, 2021, the Company had gross unrecognized tax benefits of $ 2.2 million, all of which would affect income tax expense, if recognized, after consideration of valuation allowance.

The Company did no t have any unrecognized tax benefits with a significant impact on its financial statements as of December 31, 2020 and 2019.

As of December 31, 2022 and 2021, the Company had gross unrecognized tax benefits of $ 3.6 million and $ 2.2 million, respectively, all of which would affect income tax expense, if recognized, after consideration of valuation allowance.

The Company did no t have any unrecognized tax benefits with a significant impact on its financial statements as of December 31, 2020.

The following table presents a reconciliation of the beginning and ending amount of the unrecognized tax benefits (in thousands):

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Decreases related to prior year tax positions ( 6 ) —

Reversal of prior year unrecognized tax benefits —

Increases in current year unrecognized benefits 1,426 958

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The Company recognizes interest and penalties related to income tax matters as a component of income tax expense.

Accrued interest of $ 0.5 million has been recorded as of December 31, 2021.

The Company's major tax jurisdictions are India and the U.S.

and also files income tax returns in other various U.S.

states and international jurisdictions.

Carryover attributes beginning December 31, 2008, remain open to adjustment by the United States and state authorities.

Accrued interest of $ 0.8 million and $ 0.5 million has been recorded as of December 31, 2022 and 2021, respectively.

The Company's major tax jurisdictions are India and the United States and also files income tax returns in various U.S.

states and foreign jurisdictions.

Carryover attributes beginning December 31, 2008, remain open to adjustment by the U.S.

federal and state authorities.

federal, state, and foreign jurisdictions have statutes of limitations that generally range from three to five years.

Due to the Company’s net losses, substantially all of its federal and state income tax returns are subject to examination for federal and state purposes since inception.

As of December 31, 2021, Freshworks Inc., Freshworks India and Freshworks, GmbH are currently under examinations in India and Germany.

Due to the Company’s net losses, substantially all of its federal and state income tax returns are subject to examination since inception.

As of December 31, 2022, the Company is currently under examinations in India and Germany.

The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years.

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Geographic Information

The following table summarizes revenue by geographic location (in thousands):

Revenue by geographic location is determined based on the customers' billing address.

The following table summarizes revenue by geographic region (in thousands):

Year Ended December 31,

5 unchanged sentences

Total revenue $ 497,999 $ 371,022 $ 249,659

Revenue from North America primarily includes revenue from the United States.

For the years ended December 31, 2022, 2021 and 2020, revenue generated from the United States was $ 192.2 million, $ 142.9 million and $ 99.2 million, or 39 %, 39 % and 40 % of total consolidated revenue, respectively.

The United Kingdom, categorized within Europe, Middle East and Africa

in the table above, contributed $ 63.8 million $ 52.9 million and $ 33.2 million or 13 %, 14 % and 13 % of total consolidated revenue for the years ended December 31, 2022, 2021 and 2020, respectively.

Long-lived assets consist primarily of property, plant and equipment and ROU assets.

The following table summarizes long-lived assets by geographic information (in thousands):

3 unchanged sentences

Total long-lived assets $ 57,163 $ 23,373

Subsequent Events

On February 14, 2022, the final lock-up period following the IPO expired, and the Company issued an aggregate of 9.3 million shares of its common stock, net of shares withheld for taxes, as settlement of all RSUs that had met time-based service condition.

Primary all of the long-lived assets in North America are located in the United States, and primarily all the long lived assets in Asia Pacific are located in India .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data