Freshworks Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) 69 Consolidated Balance Sheets 72 Consolidated Statements of Operations 74 Consolidated Statements of Comprehensive Loss 75 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) 76 Consolidated Statements of Cash Flows 78 Notes to Consolidated Financial Statements 80 68 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 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. 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, 2023, 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 16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. 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 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. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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. 69 Table of Contents 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 San Jose, CA February 16, 2024 We have served as the Company's auditor since 2018. 70 Table of Contents 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 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, 2023, of the Company and our report dated February 16, 2024, expressed an unqualified opinion on those 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 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. 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 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 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 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, CA February 16, 2024 71 Table of Contents Consolidated Financial Statements FRESHWORKS INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 488,121 $ 304,083 Marketable securities 699,506 843,405 Accounts receivable, net of allowance of $ 8,562 and $ 6,628 97,179 70,470 Deferred contract acquisition costs 22,908 20,139 Prepaid expenses and other current assets 47,832 38,913 Total current assets 1,355,546 1,277,010 Property and equipment, net 22,747 24,139 Operating lease right-of-use assets 32,749 33,024 Deferred contract acquisition costs, noncurrent 19,764 19,536 Goodwill 6,181 6,181 Deferred tax assets 10,013 8,689 Other assets 9,772 11,637 Total assets $ 1,456,772 $ 1,380,216 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,485 $ 5,908 Accrued liabilities 56,608 59,008 Deferred revenue 266,399 205,626 Income tax payable 722 1,150 Total current liabilities 327,214 271,692 Operating lease liabilities, non-current 26,795 28,174 Other liabilities 30,501 28,532 Total liabilities 384,510 328,398 Commitments and contingencies (Note 8) Stockholders' equity: Preferred stock, $ 0.00001 par value per share; 10,000,000 shares authorized as of December 31, 2023 and 2022, respectively; zero shares issued and outstanding as of December 31, 2023 and 2022 — — Class A common stock, $ 0.00001 par value per share; 1,000,000,000 shares authorized as of December 31, 2023 and 2022; 208,940,016 and 162,825,075 shares issued and outstanding as of December 31, 2023 and 2022, respectively 2 2 Class B common stock, $ 0.00001 par value per share; 350,000,000 shares authorized as of December 31, 2023 and 2022; 87,754,921 and 126,268,150 shares issued and outstanding as of December 31, 2023 and 2022, respectively 1 1 72 Table of Contents FRESHWORKS INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2023 2022 Additional paid-in capital 4,713,522 4,562,319 Accumulated other comprehensive loss ( 754 ) ( 7,431 ) Accumulated deficit ( 3,640,509 ) ( 3,503,073 ) Total stockholders' equity 1,072,262 1,051,818 Total liabilities and stockholders' equity $ 1,456,772 $ 1,380,216 The accompanying notes are an integral part of these consolidated financial statements. 73 Table of Contents FRESHWORKS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 2023 2022 2021 Revenue $ 596,432 $ 497,999 $ 371,022 Cost of revenue 103,369 95,772 78,030 Gross profit 493,063 402,227 292,992 Operating expense: Research and development 137,756 135,543 120,407 Sales and marketing 357,781 343,207 260,345 General and administrative 167,698 156,849 117,022 Total operating expenses 663,235 635,599 497,774 Loss from operations ( 170,172 ) ( 233,372 ) ( 204,782 ) Interest and other income, net 46,403 12,582 23,303 Loss before income taxes ( 123,769 ) ( 220,790 ) ( 181,479 ) Provision for income taxes 13,667 11,342 10,516 Net loss ( 137,436 ) ( 232,132 ) ( 191,995 ) Accretion of redeemable convertible preferred stock — — ( 2,646,662 ) Net loss attributable to common stockholders $ ( 137,436 ) $ ( 232,132 ) $ ( 2,838,657 ) Net loss per share attributable to common stockholders - basic and diluted $ ( 0.47 ) $ ( 0.82 ) $ ( 21.73 ) Weighted-average shares used in computing net loss per share attributable to common stockholders - basic and diluted 293,087 284,587 130,652 The accompanying notes are an integral part of these consolidated financial statements. 74 Table of Contents FRESHWORKS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended December 31, 2023 2022 2021 Net loss $ ( 137,436 ) $ ( 232,132 ) $ ( 191,995 ) 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 ) The accompanying notes are an integral part of these consolidated financial statements. 75 Table of Contents FRESHWORKS INC. CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (in thousands) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' (Deficit) Equity Shares Amount Shares Amount Balances as of January 1, 2021 153,938 $ 2,895,096 77,619 $ 1 $ — $ 411 $ ( 2,697,153 ) $ ( 2,696,741 ) 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 — — — — — ( 1,158 ) — ( 1,158 ) Net loss — — — — — — ( 191,995 ) ( 191,995 ) Balances as of December 31, 2021 — — 273,294 3 4,509,724 ( 747 ) ( 3,270,941 ) 1,238,039 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 Unrealized loss on marketable securities — — — — — ( 6,684 ) — ( 6,684 ) Net loss — — — — — — ( 232,132 ) ( 232,132 ) Balances as of December 31, 2022 — $ — 289,093 $ 3 $ 4,562,319 $ ( 7,431 ) $ ( 3,503,073 ) $ 1,051,818 76 Table of Contents Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' (Deficit) Equity Shares Amount Shares Amount Balances as of December 31, 2022 — $ — 289,093 $ 3 $ 4,562,319 $ ( 7,431 ) $ ( 3,503,073 ) $ 1,051,818 Issuance of common stock upon exercise of stock options — — 360 — 88 — — 88 Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for tax purposes — — 6,615 — ( 68,621 ) — — ( 68,621 ) Issuance of common stock under employee stock purchase plan, net of shares withheld and retired for taxes — — 627 — 7,271 — — 7,271 Stock-based compensation — — — — 212,465 — — 212,465 Other comprehensive income — — — — — 6,677 — 6,677 Net loss — — — — — — ( 137,436 ) ( 137,436 ) Balances as of December 31, 2023 — $ — 296,695 $ 3 $ 4,713,522 $ ( 754 ) $ ( 3,640,509 ) $ 1,072,262 The accompanying notes are an integral part of these consolidated financial statements. 77 Table of Contents FRESHWORKS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2023 2022 2021 Cash Flows Operating Activities: Net loss $ ( 137,436 ) $ ( 232,132 ) $ ( 191,995 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 12,144 11,504 13,294 Amortization of deferred contract acquisition costs 23,965 18,532 12,844 Non-cash lease expense 7,736 6,195 — Stock-based compensation 210,707 207,696 173,443 Premium (discount) amortization on marketable securities ( 15,652 ) ( 1,627 ) 1,757 Gain realized on sale of marketable securities and non-marketable equity investments — — ( 23,836 ) Change in fair value of equity securities ( 90 ) ( 71 ) ( 132 ) Deferred income taxes ( 1,322 ) ( 2,405 ) ( 1,907 ) Other 209 887 ( 28 ) Changes in operating assets and liabilities: Accounts receivable ( 26,982 ) ( 18,892 ) ( 17,509 ) Deferred contract acquisition costs ( 26,962 ) ( 28,560 ) ( 24,218 ) Prepaid expenses and other assets ( 7,411 ) ( 8,141 ) ( 5,942 ) Accounts payable ( 2,423 ) 77 1,986 Accrued and other liabilities 1,839 7,746 17,714 Deferred revenue 60,773 45,453 55,989 Operating lease liabilities ( 12,917 ) ( 8,787 ) — Net cash provided by (used in) operating activities 86,178 ( 2,525 ) 11,460 Cash Flows from Investing Activities: Purchases of property and equipment ( 2,069 ) ( 7,129 ) ( 5,565 ) Proceeds from sale of property and equipment 110 137 620 Capitalized internal-use software ( 6,271 ) ( 5,116 ) ( 3,552 ) Sale of non-marketable equity investment — — 23,979 Purchases of marketable securities ( 842,803 ) ( 848,560 ) ( 686,078 ) Sales of marketable securities — 92,786 131,170 Maturities and redemptions of marketable securities 1,009,532 483,055 119,130 Net cash provided by (used in) investing activities 158,499 ( 284,827 ) ( 420,296 ) Cash Flows from Financing Activities: Proceeds from initial public offering, net of underwriting discounts — — 1,069,348 Proceeds from issuance of common stock under employee stock purchase plan, net 7,271 10,870 — Proceeds from exercise of stock options 88 109 94 Payment of withholding taxes on net share settlement of equity awards ( 67,978 ) ( 167,224 ) ( 3,343 ) Payment of deferred offering costs — ( 109 ) ( 6,830 ) Payment of acquisition-related liabilities — — ( 900 ) Net cash provided by (used in) financing activities ( 60,619 ) ( 156,354 ) 1,058,369 78 Table of Contents Year Ended December 31, 2023 2022 2021 Net increase (decrease) in cash, cash equivalents and restricted cash 184,058 ( 443,706 ) 649,533 Cash, cash equivalents and restricted cash, beginning of period 304,158 747,864 98,331 Cash, cash equivalents and restricted cash, end of period $ 488,216 $ 304,158 $ 747,864 Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets: Cash and cash equivalents $ 488,121 $ 304,083 $ 747,861 Restricted cash included in prepaid expenses and other current assets — 3 — Restricted cash included in other assets 95 72 3 Total cash, cash equivalents and restricted cash $ 488,216 $ 304,158 $ 747,864 Supplemental cash flow information: Cash paid for taxes $ 12,034 $ 13,412 $ 10,458 Non-cash investing and financing activities: Operating lease right-of-use assets obtained in exchange for operating lease obligations $ 7,461 $ 14,903 $ — Stock-based compensation capitalized as internal-use software $ 1,758 $ 1,665 $ 585 Accretion of redeemable convertible preferred stock $ — $ — $ 2,646,662 Conversion of redeemable convertible preferred stock into common stock upon initial public offering $ — $ — $ 5,541,758 The accompanying notes are an integral part of these consolidated financial statements. 79 Table of Contents FRESHWORKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business Freshworks Inc. (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. Initial Public Offering 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 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. 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. As detailed in Note 9— 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 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. Stock Split In September 2021, the Company completed a 10 -for-one forward stock split of the Company’s authorized, issued and outstanding stock. All share and per share information included in the accompanying consolidated financial statements and notes thereto has been adjusted on a retrospective basis to reflect this stock split. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of 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 The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Accordingly, each foreign subsidiary remeasures monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenues and expenses are remeasured at the exchange rates in effect on the day the transaction occurred, except for those expenses related to non-monetary assets and liabilities, which are remeasured at historical exchange rates. Remeasurement adjustments are recognized in interest and other income, net in the consolidated statements of operations, and have not been material for the years ended December 31, 2023, 2022, and 2021. Use of Estimates The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the 80 Table of Contents date of the consolidated financial statements, and the reported amounts of income and expense during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the following: • determination of standalone selling price (SSP) for each distinct performance obligation included in customer contracts with multiple performance obligations; • allowance for doubtful accounts; • expected benefit period of deferred contract acquisition costs; • capitalization of internal-use software development costs; • fair value of goodwill; • useful lives of long-lived assets; • valuation of deferred tax assets; • valuation of employee defined benefit plan and other compensation liabilities; • fair value of share-based awards, including performance-based awards; and • incremental borrowing rate used for operating leases. Segment Information The Company operates in a single operating segment. The Chief Executive Officer (CEO) is the chief operating decision maker of the Company and makes operating decisions, assesses financial performance, and allocates resources based upon discrete financial information at a consolidated level. Revenue Recognition 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. 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 discounts. Subscription Revenue Subscription revenue is primarily comprised of fees paid by the Company’s customers for accessing its cloud-based software during the term of the arrangement. Cloud-based services allow customers to use the Company’s multi-tenant software without requiring them to take possession of the software. Given that access to the cloud-based software represents a series of distinct services that comprise a single performance obligation that is satisfied over time, subscription revenue is recognized ratably over the contract term beginning on the commencement date of each contract, which is the date that the cloud-based software is made available to customers. Professional Services Revenue Professional services revenue is comprised of fees charged for services ranging from product configuration, data migration, systems integration, and training. The Company recognizes professional services revenues as services are performed. Customers with Multiple Performance Obligations Some of the Company’s contracts with customers contain both subscriptions and professional services. 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 standalone selling price (SSP). The Company determines SSP by taking into 81 Table of Contents 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. Cost of Revenue Cost of revenue consists primarily of personnel-related expenses (primarily including salaries, related benefits, and stock-based compensation) for employees associated with the Company’s cloud-based infrastructure, payment gateway fees, voice, product support, and professional service organizations, as well as costs incurred by the Company for third-party hosting capabilities. Cost of revenue also includes third-party license fees, amortization of acquired intangibles, amortization of capitalized internal-use software, and allocation of general overhead expenses such as facilities and information technology. Research and Development Research and development costs are expensed as incurred and consist primarily of personnel-related expenses (primarily including salaries, related benefits, and stock-based compensation) for the Company’s product development employees. Research and development expenses also include non-personnel-related expenses such as third-party services for product development and consulting expenses, depreciation expense related to equipment used in research and development activities, and allocation of the Company’s general overhead expenses. Advertising Costs Advertising costs are charged to sales and marketing expense in the consolidated statements of operations as incurred. The Company recognized $ 41.2 million, $ 47.2 million, and $ 41.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. Stock-Based Compensation 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. 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 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 82 Table of Contents stock. 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. 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 9— 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. Provided that the CEO remains employed by the Company in his current position, stock-based compensation expense is recognized over the requisite service period, regardless of whether the stock price goals are achieved. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2023 and 2022, the Company has recorded a full valuation allowance against its U.S. deferred tax assets. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is more likely than not of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. Cash and Cash Equivalents Cash and cash equivalents consist of deposits held at financial institutions, money market funds, as well as highly liquid investments with an original maturity of three months or less when purchased. Cash and cash equivalents are recorded at cost, which approximates fair value. Marketable Securities Marketable securities consist primarily of debt securities such as corporate bonds, commercial paper, U.S. treasury securities, and U.S. government agency securities. These securities are classified as available-for-sale securities at the time of purchase as they represent funds readily available for current operations, and the Company also has the ability and intent to liquidate them at any time to meet its operating cash needs, if necessary. 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 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 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. Marketable securities also include mutual funds comprised of certain term bonds. These mutual funds meet certain criteria for equity investments in accordance with ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. 83 Table of Contents 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. 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. 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. 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, and Indian Rupees. 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 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. 84 Table of Contents 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 third-party resellers. The costs incurred upon the execution of initial and expansion contracts are primarily deferred and amortized over an expected benefit period of three years . The expected benefit period is determined by taking into consideration the Company’s contracts with customers, technology life cycle and other factors. The Company considers the expected benefit period to exceed the initial contract term for certain costs because of anticipated renewals and because sales commission rates for renewal contracts are not commensurate with sales commissions for initial contracts. The Company includes amortization of deferred commissions in sales and marketing expense in its consolidated statements of operations. There was no impairment loss in relation to the incremental selling costs capitalized for the years ended December 31, 2023, 2022, and 2021. The Company has elected to apply the practical expedient under Accounting Standards Codification (ASC) No. 340-40—Other Assets and Deferred Costs to account for costs incurred in obtaining a contract with the expected benefit period of one year or less as commission expenses, which are included in sales and marketing expense in its consolidated statements of operations. Property and Equipment, net Property and equipment, net, including capitalized internally-developed software, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets as follows: Estimated Useful Life Computers 3 years Capitalized internal-use software 3 years Office equipment, furniture and fixtures 5 years Motor vehicles 5 years Leasehold improvements Lesser of lease term or 5 years Capitalized Internal-Use Software The Company capitalizes costs incurred in its software development projects as part of property and equipment during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Once the development project is available for general release, capitalization ceases, and the Company estimates the useful life of the asset and begins amortization. Internal-use software is amortized on a straight-line basis over its estimated useful life, which is generally three years . The Company also capitalizes certain costs related to its enterprise cloud computing services and certain projects for internal use incurred during the application development stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Capitalized cloud computing costs are amortized on a straight-line basis over its estimated useful life. 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. If the carrying amount of an asset or asset group exceeds these estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group. 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. The Company did no t recognize any impairment of goodwill during the years ended December 31, 2023, 2022, and 2021. 85 Table of Contents Deferred Revenue Deferred revenue consists of customer billings in advance of revenue being recognized from the Company’s subscription and professional services arrangements. Customers are invoiced for subscription services arrangements in advance for monthly, quarterly, semi-annual and annual subscription plans. 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. Net Loss per Share Attributable to Common Stockholders Basic and diluted net loss per share attributable to common stockholders are presented in conformity with the two-class method required for participating securities. Under the two-class method, net income is attributed to common stockholders and participating securities based on their participation rights. Prior to the IPO, the Company considered all series of its redeemable convertible preferred stock to be participating securities. Net loss attributable to common stockholders was not allocated to the redeemable convertible preferred stock as the holders of the redeemable convertible preferred stock were not contractually obligated to share in the losses of the Company. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the number of weighted-average shares of common stock outstanding during the reporting period. Prior to the IPO, the net loss attributable to common stockholders was adjusted for accretion of the carrying value of redeemable convertible preferred stock and deemed dividend distribution. Since the Company has reported net losses for all periods presented, all potentially dilutive securities are considered antidilutive, and accordingly, diluted net loss per share is the same as basic net loss per share. Defined Benefit Plan Employees in India are entitled to benefits under the Gratuity Act, a defined benefit retirement plan covering eligible employees. The plan requires employers to provide for a lump-sum payment to eligible employees at retirement, death, and incapacitation or on termination of employment, of an amount based on the respective employee’s salary and tenure of employment. Employees in India are also entitled to a defined benefit plan with benefits based on an employee’s accumulated leave balance and salary. Both plans are unfunded arrangements. 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. 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. Since the plan is unfunded, no annual contributions are required to be made as per applicable regulations. 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 $ 11.9 million and $ 9.6 million as of December 31, 2023 and 2022, respectively. 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 $ 1.4 million and $ 1.0 million is included in accrued expenses in the consolidated balance sheets as of December 31, 2023 and 2022, respectively. Leases The Company leases office space under operating leases with expiration dates through 2032. 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. 86 Table of Contents 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 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. 3. Revenue From Contracts with Customers Disaggregation of Revenue The following table summarizes revenue by the Company’s service offerings (in thousands): Year Ended December 31, 2023 2022 2021 Subscription services $ 582,868 $ 485,322 $ 360,506 Professional services 13,564 12,677 10,516 Total revenue $ 596,432 $ 497,999 $ 371,022 See Note 12 for revenue by geographic location. Deferred Revenue and Remaining Performance Obligations 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 years (in thousands): Year Ended December 31, 2023 2022 2021 Balance at beginning of the year $ 205,626 $ 160,173 $ 104,184 Add: Billings during the year 657,205 543,452 427,011 Less: Revenue recognized during the year ( 596,432 ) ( 497,999 ) ( 371,022 ) Balance at end of the year $ 266,399 $ 205,626 $ 160,173 Revenue recognized during the years ended December 31, 2023, 2022, and 2021 from amounts included in deferred revenue at the beginning of these periods was $ 204.8 million, $ 158.7 million, and $ 103.8 million, respectively. The aggregate balance of remaining performance obligations as of December 31, 2023 was $ 418.9 million. The Company expects to recognize $ 309.8 million of the balance as revenue in the next 12 months and the remainder thereafter. The aggregate balance of remaining performance obligations represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. 87 Table of Contents Deferred Contract Acquisition Costs The change in the balance of deferred contract acquisition costs during the periods presented is as follows (in thousands): Year Ended December 31, 2023 2022 2021 Balance at beginning of the year $ 39,675 $ 29,647 $ 18,273 Add: Contract costs capitalized during the year 26,962 28,560 24,218 Less: Amortization of contract costs during the year ( 23,965 ) ( 18,532 ) ( 12,844 ) Balance at end of the year $ 42,672 $ 39,675 $ 29,647 4. Cash Equivalents and Marketable Securities Cash equivalents and available-for-sale debt securities consisted of the following as of December 31, 2023 and 2022 (in thousands): December 31, 2023 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash equivalents: Money market funds $ 77,832 $ — $ — $ 77,832 U.S. treasury securities 239,727 22 — 239,749 U.S. government agency securities 8,388 1 — 8,389 Corporate debt securities 36,905 — — 36,905 Total cash equivalents 362,852 23 — 362,875 Debt securities: U.S. treasury securities 264,554 339 ( 398 ) 264,495 U.S. government agency securities 366,946 571 ( 824 ) 366,693 Corporate debt securities 66,777 72 ( 109 ) 66,740 Total debt securities 698,277 982 ( 1,331 ) 697,928 Total cash equivalents and debt securities $ 1,061,129 $ 1,005 $ ( 1,331 ) $ 1,060,803 December 31, 2022 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash equivalents: Money market funds $ 219,512 $ — $ — $ 219,512 U.S. treasury securities 13,912 3 — 13,915 U.S. government agency securities 10,417 2 — 10,419 Corporate debt securities 1,995 1 — 1,996 Total cash equivalents 245,836 6 — 245,842 Debt securities: U.S. treasury securities 441,909 36 ( 3,160 ) 438,785 U.S. government agency securities 301,009 35 ( 3,531 ) 297,513 Corporate debt securities 106,436 — ( 817 ) 105,619 Total debt securities 849,354 71 ( 7,508 ) 841,917 Total cash equivalents and debt securities $ 1,095,190 $ 77 $ ( 7,508 ) $ 1,087,759 88 Table of Contents 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 Less than 12 months Greater than 12 months Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. treasury securities $ 60,869 $ ( 159 ) $ 42,667 $ ( 239 ) $ 103,536 $ ( 398 ) U.S. government agency securities 145,594 ( 364 ) 80,455 ( 460 ) 226,049 ( 824 ) Corporate debt securities 14,749 ( 59 ) 12,934 ( 50 ) 27,683 ( 109 ) Total $ 221,212 $ ( 582 ) $ 136,056 $ ( 749 ) $ 357,268 $ ( 1,331 ) December 31, 2022 Less than 12 months Greater than 12 months Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. treasury securities $ 190,820 $ ( 1,794 ) $ 105,115 $ ( 1,366 ) $ 295,935 $ ( 3,160 ) U.S. 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): December 31, 2023 Amortized Cost Fair Value Due within one year $ 503,640 $ 502,571 Due after one year but within five years 194,637 195,357 Total $ 698,277 $ 697,928 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. As of December 31, 2023 and 2022, the fair value of the term bond mutual funds was $ 1.6 million and $ 1.5 million, respectively. 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 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, 2023, 2022, and 2021. Non-Marketable Equity Securities 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. As of December 31, 2023 and December 31, 2022, the Company's non-marketable equity securities were not material. 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. 89 Table of Contents 5. Fair Value Measurements The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 —Inputs are observable and reflect quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 —Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. Level 3 —Inputs that are unobservable. Money market funds and U.S. treasury securities are classified within Level 1 because they are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Other debt securities and investments are classified within Level 2 if the investments are valued using model driven valuations which use observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. 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. The Company did not have any assets or liabilities subject to fair value remeasurement on a nonrecurring basis as of December 31, 2023 and 2022. 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 measured at fair value on a recurring basis as of December 31, 2023 and 2022 (in thousands): December 31, 2023 Fair Value Measured Using Level 1 Level 2 Total Financial assets: Cash equivalents: Money market funds $ 77,832 $ — $ 77,832 U.S. treasury securities 239,749 — 239,749 U.S. government agency securities — 8,389 8,389 Corporate debt securities — 36,905 36,905 Marketable securities: U.S. treasury securities 264,495 — 264,495 U.S. government agency securities — 366,693 366,693 Corporate debt securities — 66,740 66,740 Term bond mutual funds — 1,578 1,578 Total financial assets $ 582,076 $ 480,305 $ 1,062,381 90 Table of Contents December 31, 2022 Fair Value Measured Using Level 1 Level 2 Total Financial assets: Cash equivalents: Money market funds $ 219,512 $ — $ 219,512 U.S. treasury securities 13,915 — 13,915 U.S. government agency securities — 10,419 10,419 Corporate debt securities — 1,996 1,996 Marketable securities: U.S. treasury securities 438,785 — 438,785 U.S. government agency securities — 297,513 297,513 Corporate debt securities — 105,619 105,619 Term bond mutual funds — 1,488 1,488 Total financial assets $ 672,212 $ 417,035 $ 1,089,247 6. Balance Sheet Components Property and Equipment, net The following table summarizes property and equipment, net as of December 31, 2023 and 2022 (in thousands): December 31, 2023 2022 Computers $ 17,188 $ 16,552 Capitalized internal-use software 28,259 20,230 Office equipment 4,357 3,744 Furniture and fixtures 8,886 8,881 Motor vehicles 808 1,158 Leasehold improvements 5,768 5,654 Construction in progress 751 224 Total property and equipment 66,017 56,443 Less: accumulated depreciation and amortization ( 43,270 ) ( 32,304 ) Property and equipment, net $ 22,747 $ 24,139 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. 91 Table of Contents Accrued and Other Liabilities The following table summarizes accrued liabilities as of December 31, 2023 and 2022 (in thousands): December 31, 2023 2022 Accrued compensation $ 20,976 $ 20,192 Accrued third-party cloud infrastructure expenses — 2,752 Accrued reseller commissions 9,641 7,731 Accrued advertising and marketing expenses 2,095 4,465 Advanced payments from customers 4,265 3,480 Accrued taxes 10,964 7,730 Operating lease liabilities, current 2,699 6,775 Contributions withheld for employee stock purchase plan 1,298 1,546 Other accrued expenses 4,670 4,337 Total accrued liabilities $ 56,608 $ 59,008 Noncurrent liabilities include $ 22.7 million and $ 23.3 million of long term accrued compensation as of December 31, 2023 and 2022, respectively. 7. Leases The Company has operating leases primarily for office space. 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): Year Ended December 31, Operating Leases 2023 2022 Operating lease cost $ 10,415 $ 8,312 Short-term lease cost 415 1,162 Variable lease cost 3,190 2,797 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: December 31, Lease Term and Discount Rate 2023 2022 Weighted-average remaining lease term (in years) 5.21 4.81 Weighted-average discount rate 9.1 % 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): Year Ended December 31, Supplemental Cash Flow Information: 2023 2022 Cash payments included in the measurement of operating lease liabilities $ 15,526 $ 8,885 Operating ROU assets obtained in exchange for lease obligations 7,461 14,903 92 Table of Contents Maturities of the operating lease liabilities are as follows (in thousands): Year Ending December 31: Operating Leases 2024 $ 4,799 2025 10,052 2026 6,882 2027 5,668 2028 4,963 Thereafter 7,213 Total lease payments 39,577 Less: imputed interest ( 10,083 ) Present value of operating lease liabilities $ 29,494 As of December 31, 2023, there were no future payments related to signed leases that have not yet commended. 8. Commitments and Contingencies Other Contractual Commitments 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, 2023 are presented in the table below (in thousands): Year ending December 31, Contractual Commitments 2024 $ 63,703 2025 67,144 2026 67,662 2027 71,242 2028 67,741 Total $ 337,492 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 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 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. 93 Table of Contents Indemnifications In the ordinary course of business, the Company enters into contractual arrangements under which the Company agrees to provide indemnification of varying scope and terms to customers, business partners, and other parties with respect to certain matters, including losses arising out of intellectual property infringement claims made by third parties, if the Company has violated applicable laws, if the Company is negligent or commits acts of willful misconduct, and other liabilities with respect to its products and services and its business. 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. 9. Stockholders' Equity and Stock-Based Compensation Common Stock The Company has two classes of common stock: Class A common stock and 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. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes. 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. Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder. Shares of Class B common stock automatically convert to Class A common stock upon the following: (1) sale or transfer of such share of Class B common stock, except for certain permitted transfers as described in our amended and restated certificate of incorporation; (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 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. 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, 2023 2022 2021 Beginning balance $ ( 7,431 ) $ ( 747 ) $ 411 Unrealized (losses) gains on available-for-sale debt securities 7,105 ( 6,684 ) ( 1,152 ) Reclassification of unrealized gains to interest and other income, net, in the consolidated statements of operations — — ( 6 ) Net change on cash flow hedging ( 428 ) — — Net impact to other comprehensive (loss) income in current period 6,677 ( 6,684 ) ( 1,158 ) Ending balance $ ( 754 ) $ ( 7,431 ) $ ( 747 ) Equity Compensation Plans 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. 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, restricted stock units (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 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, 94 Table of Contents 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): December 31, 2023 2011 Stock Plan: Options, RSUs and PRSUs outstanding 12,866 2021 Equity Incentive Plan: Options and RSUs outstanding 12,939 Shares reserved for future award issuances 65,635 2022 Inducement Plan: Options and RSUs outstanding 3,345 Shares reserved for future award issuances 6,377 2021 Employee Stock Purchase Plan Shares reserved for future award issuances 10,517 Total shares of common stock reserved for issuance 111,679 2021 Employee Stock Purchase Plan 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 following table summarizes the information on shares purchased under the ESPP for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 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. 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 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, 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. 95 Table of Contents 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 yield. The fair value of each of the four purchase periods is estimated separately. The following table summarizes the range of valuation assumptions used in estimating the fair value of the ESPP during the period: Year Ended December 31, Valuation Assumption Inputs 2023 2022 2021 Expected term (in years) 0.5 - 1.5 0.5 - 2.0 0.6 - 2.1 Stock price volatility 47.4 % - 77.3 % 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 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): Share Information: Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1) Balance as of December 31, 2022 2,758 $ 9.06 7.3 $ 15,595 Stock options granted — $ — Stock options exercised ( 360 ) $ 0.25 Stock options cancelled / forfeited / expired ( 3 ) $ 0.16 Balance as of December 31, 2023 2,395 $ 10.39 7.0 $ 31,368 Options vested and expected to vest as of December 31, 2023 2,395 $ 10.39 7.0 $ 31,368 Options exercisable as of December 31, 2023 1,146 $ 6.89 5.2 $ 19,033 (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. Total intrinsic value of options exercised during the years ended December 31, 2023, 2022, and 2021 was $ 6.8 million, $ 5.9 million, and $ 14.0 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, 2023 and 2021. 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 — % 96 Table of Contents Restricted Stock Units 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): Share Information: Number of Shares Weighted-Average Grant Date Fair Value Unvested, as of December 31, 2022 32,253 $ 18.86 Granted 9,583 $ 14.34 Vested (1) ( 10,629 ) $ 16.49 Forfeited ( 4,452 ) $ 17.32 Unvested, as of December 31, 2023 26,755 $ 18.44 (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 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. 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 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. The stock price targets are not required to be achieved within the service period of each tranche, and accordingly, multiple tranches can vest at the same date if the specified stock price targets are achieved after December 31, 2025. 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, 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 Measurement period (in years) 7.0 Stock price volatility 60.0 % Risk-free interest rate 1.12 % Dividend yield — % 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. 97 Table of Contents Stock-Based Compensation Total stock-based compensation expense recorded for the years ended December 31, 2023, 2022, and 2021 was as follows (in thousands): Year Ended December 31, 2023 2022 2021 Equity awards: Cost of revenue $ 6,774 $ 7,039 $ 5,604 Research and development (1) 37,524 36,413 45,162 Sales and marketing (2) 66,755 64,328 53,169 General and administrative (3) 99,654 99,916 69,508 Stock-based compensation, net of amounts capitalized 210,707 207,696 173,443 Capitalized stock-based compensation 1,758 1,665 585 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. (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. 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): December 31, 2023 Unrecognized Stock-Based Compensation Weighted-Average Period to Recognize Expense (in years) RSUs and PSUs $ 390,716 2.6 Stock options 10,010 2.7 ESPP 4,288 0.6 Total unrecognized stock-based compensation expense $ 405,014 10. Net Loss Per Share Basic net loss per share attributable to common stockholders is computed by dividing the net loss by the number of weighted-average outstanding common shares. 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 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 98 Table of Contents 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): Year Ended December 31, 2023 2022 2021 Numerator: Net loss $ ( 137,436 ) $ ( 232,132 ) $ ( 191,995 ) Accretion of redeemable convertible preferred stock — — ( 2,646,662 ) Net loss attributable to Class A and Class B common stockholders - basic and diluted $ ( 137,436 ) $ ( 232,132 ) $ ( 2,838,657 ) Denominator: Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders - basic and diluted 293,087 284,587 130,652 Net loss per share attributable to Class A and Class B common stockholders - basic and diluted $ ( 0.47 ) $ ( 0.82 ) $ ( 21.73 ) 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, 2023 2022 2021 RSUs and PRSUs 26,755 32,253 47,830 Stock options 2,395 2,758 1,348 ESPP 109 124 160 Total 29,259 35,135 49,338 11. Income Taxes The Company’s net loss before provision for income taxes for the years ended December 31, 2023, 2022, and 2021 was as follows (in thousands): Year Ended December 31, 2023 2022 2021 Domestic $ ( 165,144 ) $ ( 252,261 ) $ ( 211,844 ) Foreign 41,375 31,471 30,365 Total $ ( 123,769 ) $ ( 220,790 ) $ ( 181,479 ) The components of the provision for income taxes for the years ended December 31, 2023, 2022, and 2021 were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Current: Domestic $ 2,810 $ 2,137 $ 2,876 Foreign 12,179 11,610 9,547 Deferred: Domestic — — — Foreign ( 1,322 ) ( 2,405 ) ( 1,907 ) Total provision for income taxes $ 13,667 $ 11,342 $ 10,516 99 Table of Contents The following is a reconciliation of the federal statutory income tax rate to the Company’s effective tax rate for the years ended December 31, 2023, 2022, and 2021: Year Ended December 31, 2023 2022 2021 Federal income tax 21.0 % 21.0 % 21.0 % Stock-based compensation ( 16.9 ) ( 1.6 ) 2.1 Change in valuation allowance ( 6.4 ) ( 22.4 ) ( 25.4 ) Earnings from foreign subsidiaries ( 1.8 ) ( 1.2 ) ( 0.5 ) U.S. taxes on foreign operations ( 4.8 ) — — Other items ( 2.1 ) ( 0.9 ) ( 3.0 ) Total provision for income taxes ( 11.0 ) % ( 5.1 ) % ( 5.8 ) % The components of the Company’s net deferred tax assets as of December 31, 2023 and 2022, were as follows (in thousands): December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 81,373 $ 100,090 Foreign tax credit carryforwards 5,999 4,955 Capitalized R&E under IRC 174 65,478 36,970 Stock-based compensation 3,672 4,337 Accruals and Reserves 8,948 9,032 Depreciation and amortization 3,328 1,449 Allowance for uncollectible accounts 1,003 212 Operating lease liability 6,877 19,207 Total deferred tax assets 176,678 176,252 Less: valuation allowance ( 154,788 ) ( 146,134 ) Deferred tax assets, net of valuation allowance 21,890 30,118 Deferred tax liabilities: Commissions ( 5,926 ) ( 6,146 ) Operating lease right-of-use assets ( 5,951 ) ( 15,283 ) Net deferred tax assets $ 10,013 $ 8,689 The Company regularly reviews its deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences and tax planning strategies. The Company’s judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute the business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, the Company’s income tax provision would increase or decrease in the period in which the assessment is changed. The Company’s valuation allowance increased by $ 8.7 million and $ 56.2 million during the years ended December 31, 2023 and 2022, 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. 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. 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. 100 Table of Contents Net Operating Loss and Credit Carryforwards As of December 31, 2023, the Company has U.S. 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. Unrecognized Tax Benefits The Company has adopted authoritative guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company recognizes financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. 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, 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): Year Ended December 31, 2023 2022 Unrecognized gross tax benefits at the beginning of the period $ 3,647 $ 2,227 Increases related to prior year tax positions — — Decreases related to prior year tax positions ( 22 ) ( 6 ) Increases in current year unrecognized benefits 2,009 1,426 Unrecognized gross tax benefits at the end of the period $ 5,634 $ 3,647 The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. Accrued interest of $ 1.4 million and $ 0.8 million has been recorded as of December 31, 2023 and 2022, 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. The U.S. 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 since inception. 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. As the outcome of the Company's tax audits are resolved in a manner inconsistent with management's expectations, the Company could adjust its provision for income taxes in the future. 101 Table of Contents 12. Geographic Information 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, 2023 2022 2021 North America $ 266,331 $ 216,112 $ 160,224 Europe, Middle East and Africa 229,983 193,899 152,542 Asia Pacific 83,109 74,948 49,933 Other 17,009 13,040 8,323 Total revenue $ 596,432 $ 497,999 $ 371,022 Revenue from North America primarily includes revenue from the United States. 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 $ 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. The following table summarizes long-lived assets by geographic information (in thousands): December 31, 2023 2022 North America $ 22,635 $ 23,839 Europe, Middle East and Africa 2,244 4,039 Asia Pacific 30,617 29,285 Total long-lived assets $ 55,496 $ 57,163 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 . 13. 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. 102 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.