What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-16 compared with 2023-02-23 · 162 added, 159 removed, 862 unchanged (27% of the section changed)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Consolidated Financial Statements

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

Opinion on the Financial Statements

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

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").

and subsidiaries (the "Company") as of December 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

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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 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 are a public accounting firm registered with the 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 conducted our audits in accordance with the standards of the PCAOB.

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/s/ Deloitte & Touche LLP

San Jose, California

February 16, 2024

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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).

and subsidiaries (the “Company”) as of December 31, 2023, 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, 2023, 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.

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, 2023, of the Company and our report dated February 16, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion

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

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 U.S.

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

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

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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 is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with 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.

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of 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;

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

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/s/ Deloitte & Touche LLP

San Jose, California

February 16, 2024

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Deferred contract acquisition costs, noncurrent 19,764 19,536

Intangible assets, net 303 1,894

Goodwill 6,181 6,181

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Net loss $ ( 137,436 ) $ ( 232,132 ) $ ( 191,995 )

Other comprehensive (loss) income:

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

Other comprehensive income (loss):

Changes in unrealized loss on marketable securities 7,105 ( 6,684 ) ( 1,158 )

Net change on cash flow hedging ( 428 ) — —

Total other comprehensive income (loss):

$ 6,677 $ ( 6,684 ) $ ( 1,158 )

Comprehensive loss $ ( 130,759 ) $ ( 238,816 ) $ ( 193,153 )

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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

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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

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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Stock-based compensation — — — — 212,465 — — 212,465

Unrealized loss on marketable securities — — — — — ( 6,684 ) — ( 6,684 )

Other comprehensive income

— — — — — 6,677 — 6,677

Net loss — — — — — — ( 137,436 ) ( 137,436 )

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Maturities and redemptions of marketable securities 1,009,532 483,055 119,130

Acquired intangible assets — — ( 1,750 )

Business combination, net of cash acquired — — ( 5,075 )

Net cash used in investing activities ( 284,827 ) ( 420,296 ) ( 11,425 )

Net cash provided by (used in) investing activities

158,499 ( 284,827 ) ( 420,296 )

Cash Flows from Financing Activities:

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Freshworks Inc.

(Freshworks or the Company) is a software development company that provides modern software-as-a-service (SaaS) products that are designed with the user in mind.

(Freshworks or the Company) is a software development company that provides software-as-a-service (SaaS) products that deliver modern and innovative AI-guided customer and employee service solutions that enable companies of all sizes to drive delightful engagement and increase productivity.

The Company was incorporated in Delaware in 2010 and is headquartered in San Mateo, California, and has foreign subsidiaries located in India, Australia, the United Kingdom, Ireland, Germany, France, the Netherlands, and Singapore.

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• capitalization of internal-use software development costs;

• fair value of acquired intangible assets and goodwill;

• fair value of goodwill;

• useful lives of long-lived assets;

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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.

Stock price volatility— For the stock price volatility over the expected term where the Company's common stock has sufficient trading history, the Company generally estimates the stock price volatility using the historical volatility of its own

If the Company's common stock lacks sufficient trading history, the stock price volatility over the expected term is estimated based on the 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.

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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.

Expected credit losses are recorded in interest and other income, 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, 2023, 2022, and 2021.

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

Concentrations of Credit Risk

Concentrations of Risk

Financial instruments that potentially expose the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable.

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There were no customers that individually exceeded 10% of the Company’s revenue for the years ended December 31, 2023, 2022, and 2021 or that represented 10% or more of the Company’s consolidated accounts receivable balance as of December 31, 2023 and 2022.

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.

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

Any disruption of this cloud infrastructure partner would impact the Company's operations and its business could be adversely impacted.

Derivative Instruments

The Company enters into foreign currency forward contracts, most of which were designated as cash flow hedges, in order to manage the volatility of cash flows that relate to cost of revenues and operating expenses denominated in Indian Rupee.

All derivative instruments are measured at fair value based upon quoted market prices for comparable instruments and as such, classified within Level 2 of the fair value hierarchy.

Derivative assets and liabilities are presented on a gross basis on the consolidated balance sheets under prepaid expenses and other current assets and accrued liabilities, respectively.

Gains or losses related to cash flow hedges are recorded as a component of accumulated other comprehensive income (AOCI) on the consolidated statements of stockholders' equity until the forecasted transaction occurs in earnings.

When the forecasted transaction occurs, the related gains and losses are reclassified into earnings within the financial statement line item associated with the underlying hedged transaction.

If the underlying hedged transaction does not occur, or it becomes probable that the hedged transaction will not occur, the cumulative unrealized gain or loss is reclassified immediately from AOCI into earnings within interest and other income.

Changes in the fair value of currency forward exchange contracts due to changes in time value were excluded from the assessment of effectiveness.

The initial value of this excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in the f inancial statement line item to which the hedge relates.

A majority of the balance related to foreign exchange derivative instruments included in AOCI at December 31, 2023 is expected to be reclassified into earnings within 12 months.

Derivative instruments are classified in the consolidated statements of cash flows as cash from operating activities, which reflect the classification of the underlying hedged transactions.

The Company does not use derivative financial instruments for trading or speculative purposes.

As of December 31, 2023, the total notional amount of outstanding designated foreign currency forward contracts was $ 55.8 million.

The fair value of derivative assets and liabilities as of December 31, 2023, and all related unrealized and realized gains and losses during the year ended December 31, 2023, were not material.

Entering into derivative instruments exposes the Company to credit risk to the extent that the counterparties are unable to meet the terms of the contract.

The Company mitigates this credit risk by transacting with major financial institutions with high credit ratings.

In addition, the Company has entered into master netting arrangements that mitigate credit risk by permitting net settlement of transactions.

As such, the Company's exposure is not considered significant.

The Company does not have any collateral requirements with its counterparties.

Deferred Contract Acquisition Costs

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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, 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.

Long-Lived Assets (Including Goodwill)

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

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group.

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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

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.

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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The long-term portion for the amount of $ 10.5 million and $ 8.6 million is included in other liabilities in the consolidated balance sheets as of December 31, 2023 and 2022, 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 current portion for the amount of $ 1.4 million and $ 1.0 million is included in accrued expenses in the consolidated balance sheets as of December 31, 2023 and 2022, respectively.

The Company leases office space under operating leases with expiration dates through 2032.

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Recent Accounting Pronouncements

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):

Measurement of Credit Losses on Financial Instruments.

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 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).

The standard eliminates certain exceptions related to the approach for intraperiod tax allocation and the methodology for calculating income taxes in an interim period.

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 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 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.

Accounting Standards Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

ASU 2023-07 requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit and loss and assets that are currently required annually.

Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280.

This authoritative guidance is required to be applied retrospectively and effective for Freshworks starting in its annual disclosures for 2024 and interim periods starting 2025.

This guidance is only related to disclosures and is not expected to have a significant impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

ASU 2023-09 requires entities to provide more information in the rate reconciliation table and about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories.

This authoritative guidance should be applied prospectively and will be effective for Freshworks starting in its annual disclosures for 2025.

Retrospective application is permitted.

This guidance is only related to disclosures and is not expected to have a significant impact on the Company's consolidated financial statements.

Revenue From Contracts with Customers

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Total cash equivalents and debt securities $ 1,095,190 $ 77 $ ( 7,508 ) $ 1,087,759

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):

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, 2023 and 2022 (in thousands):

December 31, 2023

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Total $ 221,212 $ ( 582 ) $ 136,056 $ ( 749 ) $ 357,268 $ ( 1,331 )

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

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 )

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 $ 698,277 $ 697,928

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.

Accrued interest receivable of $ 4.4 million and $ 2.8 million was classified as prepaid expenses and other current assets in the consolidated balance sheets as of December 31, 2023 and December 31, 2022, respectively.

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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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, 2023 and December 31, 2022, the Company's non-marketable equity securities were not material.

Fair Value Measurements

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Property and equipment, net $ 22,747 $ 24,139

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.

The following table summarizes depreciation expense and internal-use software capitalization and amortization expense for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Year Ended December 31,

2023 2022 2021

Capitalization of costs associated with internal-use software $ 8,029 $ 6,781 $ 4,137

Amortization expense of capitalized internal-use software 5,106 3,193 2,542

Depreciation expense 6,735 6,720 6,423

As of December 31, 2023 and 2022, the net carrying value of capitalized internal-use software was $ 14.1 million and $ 11.2 million, respectively.

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

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Noncurrent liabilities include $ 22.7 million and $ 23.3 million of long term accrued compensation as of December 31, 2023 and 2022, 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):

December 31, 2022

Gross Amount Accumulated Amortization Net Carrying Value Weighted Average Remaining Useful Life

Developed technology $ 10,496 $ ( 10,338 ) $ 158 0.2

Customer relationships 1,600 ( 1,455 ) 145 0.4

Total $ 12,096 $ ( 11,793 ) $ 303

December 31, 2021

Gross Amount Accumulated Amortization Net Carrying Value Weighted Average Remaining Useful Life

Developed technology $ 10,496 $ ( 9,147 ) $ 1,349 0.9

Customer relationships 1,600 ( 1,055 ) 545 1.4

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

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 leases have remaining lease terms of one to nine 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

Year Ended December 31,

Operating Leases 2023 2022

Operating lease cost $ 10,415 $ 8,312

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Variable lease cost 3,190 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 Company adopted accounting standard update 2016-2, Leases (Topic 842) effective January 1, 2022.

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

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

Lease Term and Discount Rate 2023 2022

Weighted-average remaining lease term (in years) 5.21 4.81

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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):

Year Ended December 31,

Supplemental Cash Flow Information:

December 31, 2022

Cash payments included in the measurement of operating lease liabilities $ 15,526 $ 8,885

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As of December 31, 2023, 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

Thereafter 4,304

Total minimum future payments $ 34,245

Commitments and Contingencies

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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.

District Court for the Northern District of California against the Company, certain of its current officers and directors, and underwriters of the Company's Initial Public Offering (IPO).

On April 14, 2023, the court-appointed lead plaintiff filed a consolidated amended class action complaint.

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.

On September 28, 2023, the court issued an order granting in part and denying in part defendants' motion to dismiss.

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

On March 20, 2023, a purported stockholder derivative complaint was filed in the U.S.

District Court for the Northern District of California.

The complaint names as defendants the Company's current directors, as well as the Company as nominal defendant, and asserts state and federal claims based on some of the same alleged misstatements as the securities class action complaint.

The derivative complaint seeks unspecified damages, attorneys’ fees, and other costs.

On June 21, 2023, the court stayed the case in light of the pending securities class action.

On October 16, 2023, the court extended the stay of the case in light of the pending securities class action.

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.

It may receive claims from third parties asserting, among other things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights.

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

It has received and may receive claims from third parties asserting, among other things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights.

There are no currently pending legal proceedings that the Company believes will have a material adverse impact on the business or consolidated financial statements.

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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:

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is comprised of two components — unrealized gains or losses on available-for-sale debt securities and net changes in cash flow hedges.

The following tables shows the changes in the components of accumulated other comprehensive (loss) income:

Year Ended December 31,

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

— ( 6 ) ( 133 )

Net change on cash flow hedging

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

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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.

In August 2021, the board of directors (the Board) adopted and, in September 2021, the stockholders approved the 2021 Equity Incentive Plan (the 2021 Plan) and the 2021 Employee Stock Purchase Plan (ESPP), effective upon the IPO.

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.

In August 2022, the Compensation Committee of 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.

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2011 Stock Plan:

Options and RSUs outstanding 21,380

Options, RSUs and PRSUs outstanding

2021 Equity Incentive Plan:

RSUs outstanding 10,122

Options and RSUs outstanding

Shares reserved for future award issuances 65,635

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2021 Employee Stock Purchase Plan

Shares reserved for future award issuances 10,517

Total shares of common stock reserved for issuance 111,679

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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 following table summarizes the information on shares purchased under the ESPP for the years ended December 31, 2023 and 2022:

Year Ended December 31,

Net shares issued under ESPP (1)

627,371 822,423

Weighted average purchase price

$ 11.88 $ 13.33

Aggregate net proceeds (in thousands)

$ 7,271 $ 10,870

(1) Net of shares withheld and retired to satisfy withholding tax requirements for certain employees in jurisdictions outside the United States

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.

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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.

The previous modifications did not have a material effect on the Company's stock-based compensation expense during the years ended December 31, 2023 and 2022.

As of December 31, 2023 and 2022, the Company has withheld $ 1.3 million and $ 1.5 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.

During the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 7.6 million, $ 12.2 million and $ 3.5 million of stock-based compensation expense related to the ESPP, respectively.

Determination of Fair Value of the ESPP

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55.8 % - 84.5 %

47.7 % - 58.5 %

Risk-free interest rate 4.47 % - 5.38 %

1.54 % - 4.62 %

0.06 % - 0.29 %

Dividend yield 0.00 % 0.00 % 0.00 %

Stock Options

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 options are generally granted with an exercise price equal to the fair market value of a share of common stock 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, 2023 is as follows (in thousands, except per share data):

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Restricted Stock Units

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

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

RSU activity, which includes PRSUs, during the year ended December 31, 2023 is as follows (in thousands, except per share data):

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Unvested, as of December 31, 2023 26,755 $ 18.44

(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.

(1) During the year ended December 31, 2023 total shares that vested were 10.6 million, of which 4.0 million shares were withheld for tax purposes.

The total fair value of vested RSUs during the years ended December 31, 2023, 2022, and 2021 were $ 175.3 million, $ 235.0 million, and $ 51.3 million, respectively.

Performance-Based Awards

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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.

All shares related to this grant were vested as of December 31, 2023.

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 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.

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.

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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Dividend yield — %

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.

For the years ended December 31, 2023, 2022 and 2021 the Company recognized $ 28.1 million, $ 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.

Stock-Based Compensation

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99,654 99,916 69,508

Total employee awards 207,696 173,443 44

Secondary transaction — — 43,236

Stock-based compensation, net of amounts capitalized 210,707 207,696 173,443

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Total stock-based compensation expense $ 212,465 $ 209,361 $ 174,028

(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.

(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.

(2) Sales and marketing expense for the years ended December 31, 2023 and 2022 includes $ 9.6 million and $ 3.2 million, respectively, 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, $ 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, 2023, 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.

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 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, 2023, unrecognized stock-based compensation expense related to unvested stock-based awards was as follows (in thousands, except for period data):

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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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2023 2022 2021

Redeemable convertible preferred stock — — 153,938

RSUs and PRSUs 26,755 32,253 47,830

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Earnings from foreign subsidiaries ( 1.8 ) ( 1.2 ) ( 0.5 )

taxes on foreign operations

Other items ( 2.1 ) ( 0.9 ) ( 3.0 )

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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.

This mandatory capitalization requirement does not have a material impact on the 2023 cash tax liabilities due to sufficient tax attributes.

The Company has not provided U.S.

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As of December 31, 2023, the Company has U.S.

federal net operating loss carryforwards of approximately $ 429.6 million, of which $ 10.7 million are subject to limitation under Internal Revenue Code Section 382 (IRC Section 382).

The net operating loss carryforwards for all the states in the United States is $ 151.4 million as of December 31, 2022.

The federal net operating loss carryforwards that were generated prior to the 2018 tax year will begin to expire in 2030 if not utilized.

For net operating loss carryforwards arising in tax years beginning after December 31, 2017, the Tax Act limits the Company’s ability to utilize carryforwards to 80% of taxable income, however, these operating losses may be carried forward indefinitely.

The state net operating loss carryforwards will begin to expire in 2032 if not utilized.

The Company has foreign tax credits of $ 5.0 million that will expire in 2027 if not utilized.

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.

federal net operating loss ("NOL") carryforwards of approximately $ 341.8 million.

If not utilized, the federal NOL carryforwards will begin to expire in 2034.

For the federal NOL carryforwards arising in tax years beginning after December 31, 2017, which represents the majority of the Company's federal NOL carryforwards, the Tax Act limits the Company's ability to utilize carryforwards to 80% of taxable income;

however, these NOLs may be carried forward indefinitely.

As of December 31, 2023, the NOL carryforwards for all the states in the United States is $ 147.2 million.

If not utilized, the state NOL carryforwards will begin to expire in 2024.

As of December 31, 2023, the Company also has federal tax credits carryforwards of $ 6.0 million.

If not utilized, the credits will begin to expire in 2027.

Utilization of the NOL 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 expiration of NOL carryforwards before utilization.

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

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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, 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.

As of December 31, 2023 and 2022, the Company had gross unrecognized tax benefits of $ 5.6 million and $ 3.6 million, respectively, all of which would affect the effective tax rate, if recognized, after consideration of valuation allowance.

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

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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.

As of December 31, 2023, the Company is currently under examination in India.

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

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For the years ended December 31, 2023, 2022 and 2021, revenue generated from the United States was $ 235.3 million, $ 192.2 million and $ 142.9 million, or 39 %, 39 % and 39 % 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.

The United Kingdom, categorized within Europe, Middle East and Africa in the table above, contributed $ 75.1 million, $ 63.8 million and $ 52.9 million or 13 %, 13 % and 14 % of total consolidated revenue for the years ended December 31, 2023, 2022 and 2021, respectively.

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

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Total long-lived assets $ 55,496 $ 57,163

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 .

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

Subsequent Events

In February 2024, the Board of Directors approved the cancellation of the CEO Performance Award and the grant of an annual long term equity incentive award with a fair value of $ 19 million, both effective March 1, 2024.

The annual long term equity incentive award will be comprised of 70 % time-based RSUs and 30 % performance-based RSUs.

The performance-based RSUs will be earned based on the achievement of revenue and free cash flow targets for the 2024 financial year.

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