FRSH 10-K & 10-Q changes, risk factors and insider trading

•WeAlthough we recently generated net income, we have a history of losses,losses and we may not be able to achieve profitability or, if achieved, sustain profitability.

WeAlthough we recently generated net income, we have a history of losses,losses and we may not be able to achieve profitability or, if achieved, sustain profitability.

WeOther than the fiscal year ended December 31, 2025, we have incurred net losses in each fiscal year since our founding. We generated net lossesincome of $95.4$183.7 million and $137.4incurred a net loss $95.4 million for the years ended December 31, 20242025 and 2023, respectively.2024. As of December 31, 2024,2025, we had an accumulated deficit of $3.7$3.6 billion. WeAlthough dowe notgenerated expectnet to be profitableincome in the nearfiscal future,year andended December 31, 2025, we cannot assure you that, if we do become profitable,that we will sustain profitability. Any failure by us to achieve and sustain profitability could cause the value of our Class A common stock to decline. TheseOur losses reflect, among other things, the significant investments we made to develop and commercialize our products, serve our existing customers, and broaden our customer base.

As a result of expected investments and expenditures related to the growth of our business, we may experience increasing losses in future periods and these losses may be significantly greater than the losses we would incur if we developed our business more slowly. In addition, we may find that these efforts are more expensive than we currently anticipate or that they may not result in increases in our revenue.

•successfully compete against and withstand competitive pressure from established companies and new market entrants; and

We have been growing significantly in recent periods and, as a result, have a relatively short history operating our business at its current scale. The growth and expansion of our business and products may place a significant strain on our management and our operational and financial resources. AsTo wekeep growgrowing and expand,successfully, we will need to continue to successfully manage a variety of relationships with partners, customers, and other third parties. We must continue to improve and expand our information technology (IT) and financial infrastructure, our security and compliance requirements, our operating and administrative systems, our relationships with various partners and other third parties, and our ability to manage headcount and processes in an efficient manner to manage our growth effectively.:

Furthermore,Additionally, we operate in an industry that is characterized by rapid technological innovation, intense competition, changing customer needs, and frequent introductions of new products, technologies, and services. WeIf we cannot keep pace with these changes or fail to build the right systems and processes, we may not be able to sustain the pace of improvements to our products successfully or implement systems, processes, and controls in an efficient or timely manner or in a manner that does not negatively affect our results of operations. Our failure to improve our systems, processes, and controls, or their failure to operate in the intended manner, may result in our inabilitystruggle to manage theour growth ofand accurately predict our business,financial forecast our revenue, expenses, and earnings accurately, or prevent losses.performance.

We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in evolving industries. In addition, ourOur future growth rate is subject to a number of uncertainties, such as general economic and market conditions.conditions, In particular, we have limited experience operating our business at its current scale under economic conditions characterized byincluding high inflation or inand recessionary or other uncertain economic environments. If general economic and market conditions diminish the rate of global IT spending, small and mid-sized businesses (SMBs) that are our target customers may cease to operate, which could adversely affectthe demand for our products.products would be adversely affected. If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change in reaction to changes in the market, or if we do not address these risks successfully, our results of operations could differfall materiallyshort fromof our expectations, and our business, results of operations, and financial condition would suffer.

Macroeconomic uncertainties, including inflationary pressures, rising interest rates, supply chain disruptions, labor shortages,market significantvolatility, volatilitygeopolitical in global markets,tensions, and recession risks, have in the past adversely affected and may continue to adversely affect our business, future results of operations, and financial condition, the effects of which remain uncertain.condition.

Larger customers are becoming a bigger part of our business. Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller organizations, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales. For example, large customers may require considerable time to evaluate and test our products prior to making a purchase decision. A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our products, the considerable time spent by potential customers to evaluate and test our products prior to making a purchase decision, the discretionary nature of purchasing and budget cycles, and the competitive nature of evaluation and purchasing approval processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Our typical sales cycle for mid-market and enterprise customers is approximately 130 to 150 days, as compared to 30 days for SMB customers. Moreover, large customers are often more demanding than other customers and begin to deploy our products on a limited basis, but, nevertheless require implementation services and negotiate pricing discounts or other onerous terms, which increase our upfront investment in the sales effort with no guarantee that sales to these customers will justify our substantial upfront investment, which can affect our roadmaps and deliverables. If we fail to effectively manage these risks associated with sales cycles and sales to large customers, our business, financial condition, and results of operations may be adversely affected.

To increase our revenue and achieve profitability, we must increase our customer base through various methods, including, but not limited to, adding new customers, converting customers using our free trial versions into paying customers, and expanding usage across our existing customers' organizations. We encourage customers on our free trial version to upgrade to paid subscription plans and customers on our base level paid plans to upgrade to plans with more features and to incorporate add-ons. Additionally, we seek to expand within organizations by having organizations add new users, upgrade their plans, or expand their use of our products into other departments within the organization. While we have experienced significant growth in the number of customers on our products, we do not know whether we will continue to achieve similar customer growth rates in the future. Numerous factors may impede our ability to add new customers, convert customers using our free trial versions into paying customers, expand usage within organizations, and sell subscriptions to our products, including but not limited to, our failure to attract, retain, and effectively train and motivate new sales and marketing personnel, develop or expand relationships with our partners, compete effectively against alternative products or services, successfully deploy new features and integrations, provide a quality customer experience and customer support, or ensure the effectiveness of our marketing programs.

Our business is primarily subscription based, and customers are not obligated to and may not renew their subscriptions after their existing subscriptions expire. In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions when the initial contract term expires and add additional users to their subscriptions. Our customers have no obligation to renew their subscriptions, and we cannot ensure that customers will renew subscriptions with a similar contract period, with the same or greater number of users, or for the same or upgraded level of subscription plan. Customers may or may not renew their subscription plans as a result of a number of factors, including their satisfaction or dissatisfaction with our products, our pricing or pricing structure, the pricing or capabilities of the products and services offered by our competitors, the effects of general economic conditions, inflation, or customers’ budgetary constraints. If customers do not renew their subscriptions, renew on less favorable terms, or fail to add more users, or if we fail to upgrade trial customers to our paid subscription plans, or expand the adoption of our products within and across organizations, our revenue may decline or grow less quickly than anticipated, which would harm our business, results of operations, and financial condition. We have also experienced and may experience in the future a reduction in renewal rates and increased churn rates, particularly within our SMB customers, many of whom are on month-to-month subscriptions, as well as reduced customer spend and delayed payments that could materially impact our business, results of operations, and financial condition in future periods. If we fail to predict customer demands or fail to attract new customers and maintain and expand new and existing customer relationships, our revenue may grow more slowly than expected, may not grow at all, or may decline, and our business may be harmed.

We use generative and agentic artificial intelligence, including in certain of our products and services, which may result in operational challenges, legal liability andliability, reputational concerns and other negative consequences that could adversely affect our business and results of operations.

We deploy generative and agentic AI into certain of our products and services, which may result in adverse effects to our operations, legal liability, reputation and competitive risks.risks, and other adverse consequences. The rapid evolution of AI and the use of generative and agentic AI may lead to challenges, concerns and risks that are significant or that we may not be able to predict, especially if our use of these technologies in our products and services becomes more important to our operations over time. For example, there is ongoing litigation over whether the use of copyrighted materials to train certain AI models is lawful, and the impact of decisions in such litigation on our use of AI tools is unknown.

Generative and agentic AI in our products and services may be difficult to deploy successfully due to operational issues inherent to the nature of such technologies. Moreover, known risks of generative and agentic AI currently include risks related to accuracy, bias, toxicity, privacy and security and data provenance. For example, AI algorithms use machine learning and predictive analytics which may be insufficient or of poor quality and reflect inherent biases and could lead to flawed, biased, and inaccurate results. Since we may use AI outputs to make certain decisions, due to these potential inaccuracies or flaws, the model could be biased and could lead us to make decisions that could bias certain individuals (or classes of individuals), and adversely impact their rights, employment, and ability to obtain certain pricing, products, services, or benefits, including exposure to reputational and competitive harm, customer loss, and legal liability. In addition, generative and agentic AI may create content that appears correct but is factually inaccurate or flawed, or contains copyrighted or other protected material, and if our customers or others use this flawed content to their detriment, we may be exposed to brand or reputational harm, competitive harm, and/or legal liability. For example, deficient or inaccurate recommendations, summaries, or analyses that generative or agentic AI features assist in producing could lead to customer rejection or skepticism of our products, affect our reputation or brand, and negatively affect our financial results. Further, unauthorized use or misuse of generative or agentic AI by our employees or others may result in disclosure of confidential company and customer data, reputational harm, privacy law violations and legal liability. GenerativeWhile AIwe ishave also the subject of a quickly evolving legalpolicies and regulatorypractices environment, and new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns, or other complications relateddesigned to mitigate risk around our use of generativeAI AItools, our practices may not be error free, and our use of such tools may inadvertently violate a third party’s rights, be non-compliant with the applicable terms of use or our other legal obligations, or result in a security or privacy risk or data leakage. Moreover, because our products and services are configurable, there is a risk that our customers could causeuse usour to divert resources towards complianceproducts and adverselyservices affectin way that violates applicable law, contract, or our business,acceptable reputation,use orand financialconduct results.policy. Our use of generative and agentic AI may also lead to novel and urgent cybersecurity risks, including the misuse of personal data, which may adversely affect our operations and reputation.

Many of our current and potential competitors may have longer operating histories, greater brand name recognition, stronger and more extensive partner relationships, significantly greater financial, technical, marketing, and other resources, lower labor and development costs, and larger customer bases than we do. These competitors may invest and engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns, and adopt more aggressive pricing policies that will allow them to build larger customer bases than we have. Our competitors may also offer their products and services at a lower price, or may offer price concessions, delayed payment terms, financing terms, or other terms and conditions that are more enticing to potential customers. Additionally,We wealso areuse usingand or building our Freddybuild AI offerings into many of our productproducts and we are facingface increased competition as AI technologies are integrated into the various competitive offerings. Our current and potential competitors may bedevelop ableand market new technologies, including through more effective utilization of evolving AI technologies, greater investment in AI research and development, access to developsuperior newtraining datasets, or deployment of more advanced AI offeringsmodels, thatwhich disruptcould materially reduce the competitiveness of, or render obsolete, our customers’existing needsor future products and negativelymaterially impactadversely demand foraffect our products,business, results of operations, and financial condition. If we fail to effectively develop, integrate, or incorporateutilize AI intotechnologies theirin offeringsour more successfully than we doproducts and achieveservices, greateror if competitors gain advantages through superior AI implementations, our competitive position, value proposition, and fastermarket adoption.share could be adversely affected.

A significant part of our business strategy and culture is to focus on long-term growth and customer success over short-term financial results. For example, in the year ended December 31, 2024, we increased our operating expenses to $745.7 million as compared to $663.2 million for the year ended December 31, 2023, while continuing to generate a net loss of $95.4 million in the year ended December 31, 2024. We expect that we will continue to operate at a loss, and ourOur profitability may be lower than it would be if our strategy were to maximize near-term profitability. If we are ultimately unable to achieveimprove orgrowth improveand profitability at the level or during the time frame anticipated by securities or industry analysts and our stockholders, the trading price of our Class A common stock may decline.

We believe that a critical component of our success has been our culture. We have invested substantial time and resources in building out our team with an emphasis on shared values and a commitment to diversity and inclusion. As we continue to develop the infrastructure to support our growth, we will need to maintain our culture among a larger number of employees dispersed across the globe. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel.

If our information technology, systems, or those of third parties uponwith whichwhom we rely,work, or our data are or were to be compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits, loss of customers or sales, and other adverse consequences.

We have in the past and may in the future experience system slowdowns and interruptionsinterruptions. from time to time. In addition, continuedAdditionally, growth in our customer base could place additional demands on our products and could cause or otherwise exacerbate slowdowns or interrupt the availability of our products. If there is a substantial increase in the volume of usage of our products, we will be required to further expand and upgrade our technology and infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our products or expand and upgrade our systems and infrastructure to accommodate such increases on a timely basis. In such cases, we may lose customers or partners if our users are not able to access our products or encounter slowdowns when doing so, we may lose customers or partners.so. Some of our subscriptions include standard service-level commitments. If we are unable to meet the stated service-level commitments, including failing to meet the uptime and delivery requirements under our customer subscription agreements, we may be obligated to provide these customers with service credits which could significantly affect our revenue in the periods in which the uptime or delivery failure occurs and the credits are applied. Additionally, we could also face subscription terminations, which could significantly affect both our current and future revenue. Any service-level failures could also damage our reputation, which could also adversely affect our business and results of operations. Our disaster recovery plan may not be sufficient to address all aspects or any unanticipated consequence or incidents, and our insurance may not be sufficient to compensate us for the losses that could occur.

Moreover, Amazon Web Services (AWS) provides the vast majority of our cloud computing infrastructure thatfor we use to host our products, mobile applications, and many of the internal tools we use to operate our business. We have a long-term commitment with AWS pursuant to a commercial agreement, andhosting our products, mobile applications, and internal business tools useunder computing,a storagelong-term capabilities,commercial bandwidth, and other services provided by AWS.agreement. Any significant disruption of, limitation of our access to, or other interference with our use of AWS would negatively affect our operations and could seriously harm our business. In addition, any transition of the cloud services currently provided by AWSTransitioning to another cloud services provider would require significant time and expense and could disrupt or degrade delivery of our products. Our business relies on the availability of our products for our users and customers, and we may lose users or customers if they are not able to access our products or encounter difficulties in doing so. The level of service provided by AWS could affect the availability or speed of our products, which may also impact the usage of, and our customers’ satisfaction with, our products and could seriously harm our business and reputation.delivery. If AWS increases pricing terms,pricing, terminates or seeks to terminate our contractual relationship, establishes more favorable relationshipsterms with our competitors, or changes or interprets its terms of service or policies in a manner that is unfavorable with respect to us,unfavorably, our business, results of operations,business and financial condition would be materially harmed.

In addition, we rely on hardware and infrastructure purchased or leased from third parties and softwaresoftware, AI tools and SaaS products licensed from third parties to operate critical business functions.functions, and we face risks as a result of our reliance on these third-party providers, including risks inherent in how third party AI tools used in our solutions have been developed and deployed, including situations in which the third party may lack a proper license or consent for the data used to train their AI tools. Our business would be disrupted if any of thissuch third-party hardware, software, AI tools, SaaS products and infrastructure becomes unavailable on commercially reasonable terms, or at all. Furthermore, delaysall or complicationshas withdegradations respectin toperformance. the transition of critical business functions from one third-party product to another, or anyAny errors or defects in third-party hardware, software, AI tools, SaaS products or infrastructure could result in errors or a failure of our products, which could harm our business and results of operations. Additionally, should we choose to switch any third-party hardware, software, AI tools, SaaS products and/or infrastructure, delays or complications with respect to the transition could adversely impact our business and results of operations.

We rely on search engines, including traditional web search enginesand emerging AI-powered platforms, to directdrive traffic to our website.websites, Ifand changes in these platforms could adversely affect our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business would be adversely affected.business.

We provide people-first,people-first AI service software that organizations use to deliver exceptional customeremployee and employeecustomer experiences. WeOur provideemployee our solutions in two product families: Customer Experience (CX) and Employee Experienceexperience (EX). CX products include Freshdesk, Freshdesk Omni, Freshchat, Freshsales, and Freshmarketer. EX products include Freshservice, Freshservice for Business TeamsTeams, Device42 and Device42.FireHydrant. Our latestcustomer generativeexperience (CX) products include our Freshdesk suite of products. Our AI solutions,offerings, which include Freddy AI AgentAgent, Freddy AI Copilot and Freddy AI Copilot,Insights, further enhance the customeremployee and employee experience. Freddy AI Agent offers always-on, autonomous, personalized resolutions to customer and employee queries. Freddy AI Copilot provides always-on contextual assistance for customer support, employee support, marketingexperience and salesare use casesdesigned to boost productivity. Currently, over 72,000 companies choose Freshworks' uncomplicated solutions to increase efficiency and loyalty.

In June 2024, we acquired all outstanding shares of D42 Parent, Inc., an IT asset management company for approximately $238.1 million, which primarily consisted of $225.3 million in cash, and approximately $12.9 million of common stock and stock options. Our consolidated financial statements and key business metrics as of and for the year ended December 31, 2024 include D42 Parent, Inc. since the acquisition date.

We generate revenue primarily from the sale of subscriptions for accessing our cloud-based software products over the contract term. We generally enter into subscription agreements with our customers on monthly, annual, or multi-year terms and invoice customers in advance in either monthly or annual installments. We also sell professional services that include product configuration, data migration, systems integration, and training. With the acquisition of D42 Parent, Inc. in June 2024,Inc., we also sell software licenses with associated maintenance.

Our customer base and operations have scaled over time. Our total revenue was $720.4$838.8 million, $596.4$720.4 million and $498.0$596.4 million in the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively, representing year-over-year growth rates of 21%16% and 20%,21%, respectively. We generated operating income of $13.2 million and incurred operating losses of $138.6 million, $170.2 million and $233.4$170.2 million in the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively, and ourrecognized net income of $183.7 million and incurred net losses wereof $95.4 million, $137.4 million and $232.1$137.4 million in the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively.

Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, and geopolitical developments have impacted and may continue to impact business spending and the overall economy, and in turn our business. These macroeconomic events could adversely affect demand for our products and services. For example, during fiscal 2024, our net dollar retention rate was adversely impacted by lower expansion within existing customers driven by macroeconomic pressuresservices and we expect these pressures to persist for the foreseeable future. Additionally, foreign currency exchange rate fluctuations negatively impacted our revenue growth historically and volatility in the foreign currency market may still exist. For each of the years ended December 31, 2025, 2024, 2023, and 20222023 we had approximately 27%,28%, 27%, and 26%,27%, respectively, of revenue exposure related to the euro and British pound. If adverse conditions arise, they could have a material adverse impact on our results and our ability to accurately predict our future results and earnings.

We will continue to invest in acquiring new customers across all of our products. We believe that our focus on offering products that delight our users facilitates our go-to-market strategy, which is designed to be product-led and self-service in nature, reducing the friction new customers have to overcome to adopt our products within their organization. Our approach to acquiring new customers allows us to benefit from user-driven, organic adoption of our products across organizations of all sizes, as well as enable our customers to standardize on our products across the organization. As of December 31, 20242025 and 2023,2024, we had morenearly than 72,20075,000 and 67,100over 72,200 paying customers, respectively.

We have made and continue to make significant investments in strengthening our outbound sales motion to enable adoption of department-specific and organization-wide use cases for mid-market and enterprise customers. We believe that larger businesses can benefit from implementing multiple Freshworks products, as once they are a customer they are able to expand their use of these products. We define annual recurring revenue (ARR) as the sum total of the subscription, software license, and maintenance revenue we would contractually expect to recognize over the next 12 months from all customers at a point in time, assuming no increases, reductions, or cancellations in their subscriptions, and assuming that revenues are recognized ratably over the term of thesubscription contract.and maintenance contracts and upon delivery for software licenses. For monthly subscriptions, we take the recurring revenue run-rate of such subscriptions for the last month of the period and multiply it by 12 to get to ARR. While monthly subscribers as a group have historically maintained or increased their subscriptions over time, there is no guarantee that any particular customer on a monthly subscription will renew its subscription in any given month, and therefore the calculation of ARR for these monthly subscriptions may not accurately reflect revenue to be received over a 12-month period from such customers. As of December 31, 20242025 and 2023,2024, 22,55824,762 and 20,26122,558 of our customers contributed more than $5,000 in ARR, respectively, demonstrating the broad appeal of our products to customers of all sizes and geographies, and as of December 31, 20242025 and 2023,2024, customers contributing more than $5,000 in ARR represented 90%91% and 89%90% of total ARR, respectively. We believe that the number of customers that contribute more than $5,000 in ARR is an indicator of our success in expanding upmarket to larger businesses.

We measure the rate of expansion within our customer base using net dollar retention rate (as defined under Key Business Metrics), and we believe that our net dollar retention rate demonstrates our rate of expansion within our existing customer base. Our net dollar retention rate was 103%108% and 108%103% as of December 31, 20242025 and December 31, 2023,2024, respectively. On constant currency basis, our net dollar retention rate was 105%104% which was aan decreaseincrease from prior year primarily due to lower expansion within existing customers driven by macroeconomic pressures offset by the addition of Device42 and a slightan improvement in our overall churn rate. These macroeconomic events could adversely affect demand for our products and services and we expect these pressures to persist for the foreseeable future We have a significant opportunity to expand within our existing customer base and substantially increase the number of customers that purchase multiple Freshworks products. As of December 31, 2024, approximately 36% of our customers purchased two or more Freshworks products, which includes customers on our Freshdesk Omni and Freshsales Suite subscription plans counting as customers who purchased multiple products. These customers represented 46% of total ARR as of December 31, 2024, illustrating the large opportunity we have to sell additional products to our current customer base and drive growth.

We believe that we are early in addressing our large market opportunity and we intend to continue to make investments to support the growth and expansion of our business. We have a track record of bringing new products to market and scaling these new products over time. As of December 31, 2024,2025, we have two primary products with over $100 million in ARR, FreshdeskFreshservice and Freshservice.Freshdesk. We intend to invest in growing our research and development team to extend the functionality of our solutions and continue to bring new solutions to market. Our investments in our Neo platform have helped us accelerate the pace of innovation.

We believe that our market remains largely underserved. We intend to invest aggressively in our direct and indirect sales and marketing capabilities, including investments in our outbound sales motion. We have been global from our earliest product sales and our global footprint continues to expand, with customers in approximatelyover 170 countries. During the year ended December 31, 2024,2025, 46%, 38%,39%, and 16%15% of our revenue was derived from customers in North America; Europe, Middle East and Africa; and the rest of the world, respectively. We have a significant opportunity to further expand globally. We plan to support more languages, recruit partners, hire sales and customer service personnel in additional countries as needed, and expand our presence in countries where we already operate. A critical part of our go-to-market strategy has been our broad and diverse set of partners that enrich our offerings, scale our geographic coverage, and help us reach a broader audience than we would be able to reach on our own, thus amplifying our go-to-market investments. We plan to continue to invest in growing our partner ecosystem to fuel additional customer acquisition and expand use cases within our existing customer base.

We define ARR as the sum total of subscription, software license, and maintenance revenue we would contractually expect to recognize over the next 12 months from all customers at a point in time, assuming no increases, reductions, or cancellations in their subscriptions, and assuming that revenues are recognized ratably over the term of thesubscription contract.and maintenance contracts and upon delivery for software licenses. For monthly subscriptions, we take the recurring revenue run-rate of such subscriptions for the last month of the period and multiply it by 12 to get to ARR. While monthly subscribers as a group have historically maintained or increased their subscriptions over time, there is no guarantee that any particular customer on a monthly subscription will renew its subscription in any given month, and therefore the calculation of ARR for these monthly subscriptions may not accurately reflect revenue to be received over a 12-month period from such customers, and net dollar retention rate may reflect a higher rate than the actual rate if customers on monthly subscriptions choose not to renew during the course of the 12 months. Monthly subscriptions represented 13%, 14%, 17%, and 20%17% of ARR as of December 31, 2024,2025, 20232024 and 2022,2023, respectively. The net dollar retention rate for customers on monthly contracts has generally been lower than our overall net dollar retention rate. In addition, as part of our regular review of customer data that includes reviewing customers purchasing our products via resellers so we can properly attribute them as end customers, we may make adjustments that could impact the calculation of net dollar retention rate.

Our net dollar retention rate was 103%108% and 108%103% as of December 31, 20242025 and 2023,2024, respectively. Net dollar retention rate decreasedincreased from prior year primarily due to lowera expansion within existing customers driven by macroeconomic pressures and an unfavorablefavorable foreign currency impact, offset by the addition of Device42impact and a slightan improvement in our overall churn rate. Werate.We expect our net dollar retention rate could fluctuate in future periods due to a number of factors, including, but not limited to, difficult macroeconomic conditions, our expected growth, the level of penetration within our customer base, our ability to upsell and cross-sell products to existing customers, and our ability to retain our customers.

Software license revenue is generally sold as bundled arrangements that include the rights to a software license and maintenance and cloud-based software in some cases. Software license revenue consists of term licenses and is recognized upfront, upon making the software available to the customer. The associated software maintenance revenue is generally recognized ratably over the contract term as support and updates areis provided to the customers over the term of the arrangement.

•IncomeGain taxon effectsale andof adjustments.non-marketable equity investments. We exclude thegains incomeon tax effectsale of thenon-marketable aboveequity adjustments and income tax effect associated with acquisitionsinvestments from certain of our non-GAAP financial measures. We exclude these costsmeasures because we do not believe thesethey expensesare have a direct correlationunrelated to theour ongoing operating performance ofand are not expected to recur in our business.continuing operating results.

Non-GAAP Income (Loss) From Operations and Non-GAAP Net Income (Loss)

We define non-GAAP income (loss) from operations as GAAP income (loss) from operations excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangibles, restructuring charges and restructuringacquisition charges.expenses.

We define non-GAAP net income (loss) as GAAP net loss,income (loss), excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangibles, and restructuring charges, gain on sale of non-marketable equity investments, acquisition expenses and income tax adjustments.

The following tables present a reconciliation of our GAAP income (loss) from operations to our non-GAAP income (loss) from operations and our GAAP net income (loss) to our non-GAAP net income (loss) for each of the periods presented (in thousands):

Non-GAAP Income (Loss) from Operations

Non-GAAP Net Income (Loss)

We define free cash flow as net cash provided by (used in) operating activities, less purchases of property and equipment, and capitalized internal-use software costs. We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash from our core operations after purchases of property and equipment. Free cash flow is a measure to determine, among other things, cash available for strategic initiatives, including further investments in our business and potential acquisitions of businesses.

(1) Free cash flow includes $2.2 million and $7.3 million of restructuring costs paid during the yearyears ended December 31, 2025 and 2024.

Research and Development. Research and development expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for engineering and product development employees and certain executives, software license fees, rental of office premises, third-party hosting fees, third-party product development services and consulting expenses, and depreciation expense for equipment used in research and development activities. We capitalize a portion of our research and development expenses that meet the criteria for capitalization of internal-use software. All other research and development costs are expensed as incurred.

Sales and Marketing. Sales and marketing expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for our sales personnel and certain executives, sales commissions for our sales force and reseller commissions for our channel sales partners, as well as costs associated with marketing activities, travel and entertainment costs, amortization of acquired technology intangibles, software license fees, and rental of office premises. Sales and reseller commissions that are considered incremental costs incurred to obtain contracts with customers, are deferred and amortized over the benefit period of three years. Marketing activities include online lead generation, advertising, and promotional events.

ProvisionWe forare subject to income taxes consistsin primarilyU.S. and in foreign jurisdictions. We monitor the realizability of incomeour taxesdeferred relatedtax to U.S. statesassets and foreigntake jurisdictionsinto account all relevant factors at each reporting period. As of December 31, 2025, based on the relevant weight of positive and negative evidence, including the amount of our taxable income in the current year, which is objective and verifiable, we conductconcluded business.that Weit maintainis amore fulllikely valuationthan allowancenot onthat our U.S. federal and state netdeferred tax assets are realizable. As such, we released $151.7 million valuation allowance related to the U.S. deferred tax assets as we have concluded that it is not more likely than not thatduring the deferredyear taxended assetsDecember will31, be realized. Provision for income taxes could also include changes in valuation allowance.2025. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions,jurisdictions as well as non-deductible expenses, such as stock-based compensation, and changes in our valuation allowance.

(32) General and administrative expense includes stock-based compensation expense associated with RSUs and PRSUs primarily granted to the Executive Chairman of $50.4$(5.1) million, $55.9$50.4 million and $55.9 million for the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively.respectively, with 2025 including $38.7 million in forfeitures due to the departure of the Executive Chairman.

The following table sets forth our consolidated statements of operations data for the periods presented, as a percentage of revenue:

Cost of revenue increased by $10.0$12.8 million, or 10%,11%, for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. This increase was primarily due to increases of $2.8$3.4 million in third-party hosting costs as we expand capacity to support our growing customer base, $2.7 million in employee related costs driven by annual compensation adjustments, higher variable incentive compensation and changes in retirement benefit obligations for employees in India, partially offset by lower headcount, $2.6 million in software license fees attributable to higher usage and renewal costs, $2.2 million in amortization of developed technology, and $1.8 million in softwareamortization licenseof fees,internally $1.6capitalized million in third-party hosting costs, $1.3 million in professional service fees, and $1.2 million in personnel-related costs.software. Our gross margin increased to 84%85% from 83%84% as we increased revenue and realized benefits from economies of scale primarily related to our third-party hosting costs.

Research and development expense increaseddecreased by $26.8$1.4 million, or 19%,1%, for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. This increasedecrease was primarily driven by lower stock-based compensation expense of $6.7 million due to employee terminations and fully vested equity awards, as well as a $1.1 million decrease in personnel-related costs. These decreases were partially offset by increases of $17.8$1.6 million in personnel-relatedthird-party hosting costs due to compensationsupport adjustments,our $4.0development millionactivities, in stock-based compensation expense, and $2.2$1.3 million in software license fees, $1.0 million each in professional service fees and third-partyallocated hosting fees.rent.

Sales and marketing expense increased by $33.0$3.9 million, or 9%,1%, for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. This increase was primarily due to increases of $16.9$5.6 million in personnel-relatedreseller costs due to compensation adjustments,commissions, $4.7 million in adverting, marketing and branding costs, $4.4 million in software license fees, and $3.6 million amortization of acquired intangible assets,assets $4.0from millionthe inD42 advertising,Parent, brandingInc. andacquisition. eventThe costs,increase $2.7 million in travel related expenses for events, $2.3 million in reseller commissions, $2.3 million in professional services fees, and $1.3 million in software license fees,was partially offset by a decrease of $3.5 million inlower stock-based compensation expense.expense of $14.9 million from lower headcount following the November 2024 restructuring and the transition of our President to CEO mid 2024.

Restructuring charges of $0.4 million and $9.7 million for the yearyears ended December 31, 2025 and 2024, respectively, consisted of employee severance and termination benefits related to a restructuring plan that we initiated in November 2024. The restructuring plan is complete, with no remaining liability as of December 31, 2025.

Interest income increaseddecreased by $5.8$13.5 millionmillion, primarily due to higherreduction interestin rates and increased interest income earned on largeraverage balances maintainedheld in our marketable securities portfolios.portfolios as a result of our share repurchases.

Other income (expense), net changed by $4.4$5.8 million, primarily due to ana unfavorable$4.4 million favorable impact from changes in British pound and euro against the U.S. dollar.dollar, and a $1.8 million gain on sale of non-marketable equity investments.

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the years ended December 31, 20242025 and 2023,2024, we recorded aincome tax provision for income taxes(benefit) of $4.5$(130.4) million,million and $13.7$4.5 million, respectively, on income (loss) before taxes of $90.8$53.3 million and $123.8$(90.8) million, respectively. The effective tax rates for the years ended December 31, 20242025 and 20232024 were (5.0244.8)% and (11.05.0)% respectively. The effective tax rates differ from the statutory rate of 21% primarily due to nondeductiblethe compensationrelease of the U.S. federal and change in thestate valuation allowance.allowance, profits from foreign jurisdictions, and nondeductible compensation. The $9.1$135.0 million decrease in tax expense was primarily related to the tax benefit of $14.3$151.7 million fromrelated D42to Parent,U.S. Inc.federal acquisition,and state valuation allowance release, partially offset by higher tax expenses due to higher pre-tax earnings from foreign subsidiaries.subsidiaries and nondeductible compensation.

Our material cash requirements from known contractual obligations consistsprimarily consist of our obligations under operating leases for office space and contractual obligations for third-party cloud infrastructure. See Item 8 of Part I, "Financial Statements and Supplementary Data — Note 8—Leases and Note 9—Commitments and Contingencies" for additional discussion of our principal contractual commitments.commitments and Note 16—Subsequent Events for details on transactions that occurred after December 31, 2025.

Cash Flows from Operating Activities

Cash Flows from Investing Activities

Cash Flows from Financing Activities

Net cash used in financing activities of $60.6$436.7 million for the year ended December 31, 20232025 consisted primarily of $68.0$386.3 million cash paid to repurchase shares of our common stock and $56.7 million in payment of withholding taxes on net share settlement of equity awards,awards; partially offset by $7.3$6.2 million in net proceeds from issuance of common stock under our employee stock purchase plan, net.plan.

Our customer base and operations have scaled over time. Our total revenue was $228.6$237.4 million and $196.3$204.7 million in the three months ended MarchJune 31,30, 2026 and 2025, respectively, representing year-over-year growth of 16%; and $466.0 million and $401.0 million in the six months ended June 30, 2026 and 2025, respectively, representing year-over-year growth of 16%. WeOur incurredincome operating(loss) lossesfrom ofoperations $8.1was $6.1 million and $10.4$(8.7) million for three months ended MarchJune 31,30, 2026 and 2025, respectively; and $(2.0) million and $(19.1) million for the six months ended June 30, 2026 and 2025, respectively.

Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, and geopolitical developments have impacted and may continue to impact business spending and the overall economy, and in turn our business. These macroeconomic events could adversely affect demand for our products and services and we expect these pressures to persist for the foreseeable future. Additionally, foreign currency exchange rate fluctuations negatively impacted our revenue growth historically and volatility in the foreign currency market still exist.exists. For the quarters ended June 30, 2026, March 31, 2026, December 31, 2025, and MarchJune 31,30, 2025, we had approximately 29%, 28%29% and 27%, respectively, of revenue exposure related to the euro and British pound. If adverse conditions arise,persist, they could have a material adverse impact on our results and our ability to accurately predict our future results and earnings.

We define ARR as the sum total of subscription, software license, and maintenance revenue we would contractually expect to recognize over the next 12 months from all customers at a point in time, assuming no increases, reductions, or cancellations in their subscriptions, and assuming that revenues are recognized ratably over the term of subscription and maintenance contracts and upon delivery for software licenses. For monthly subscriptions, we take the recurring revenue run-rate of such subscriptions for the last month of the period and multiply it by 12 to get to ARR. While monthly subscribers as a group have historically maintained or increased their subscriptions over time, there is no guarantee that any particular customer on a monthly subscription will renew its subscription in any given month, and therefore the calculation of ARR for these monthly subscriptions may not accurately reflect revenue to be received over a 12-month period from such customers, and net dollar retention rate may reflect a higher rate than the actual rate if customers on monthly subscriptions choose not to renew during the course of the 12 months. Monthly subscriptions represented 12% and 14%13% of ARR as of MarchJune 31,30, 2026 and 2025, respectively. The net dollar retention rate for customers on monthly contracts has generally been lower than our overall net dollar retention rate. In addition, as part of our regular review of customer data that includes reviewing customers purchasing our products via resellers so we can properly attribute them as end customers, we may make adjustments that could impact the calculation of net dollar retention rate.

Our net dollar retention rate increasedwas 104% as of June 30, 2026, compared to 106% as of MarchJune 31,30, 2026,2025. comparedThis decrease was primarily due to 105%unfavorable asfluctuations ofin Marchforeign 31,exchange 2025, remained relatively flat.rates. We expect our net dollar retention rate may fluctuate more in future periods due to a number of factors, including, but not limited to, difficult macroeconomic conditions, volatility in foreign exchange rates, our expected growth, the level of penetration within our customer base, our ability to upsell and cross-sell products to existing customers, and our ability to retain our customers.

We define non-GAAP income from operations as GAAP income (loss) from operations, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangibles, restructuring charges and acquisition expenses.

We define non-GAAP net income as GAAP net loss,income (loss), excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, restructuring charges, amortization of acquired intangibles, acquisition expenses and income tax adjustments.

The following tables present a reconciliation of our GAAP income (loss) from operations to our non-GAAP income from operations and our GAAP net income (loss) to our non-GAAP net income for each of the periods presented (in thousands):

(1) Free cash flow includes $0.7 million of acquisition expensescosts paid during the threesix months ended MarchJune 31,30, 2026 and $1.5$5.6 million of restructuring costs paid during the three and six months ended MarchJune 31,30, 2025.2026. There were no acquisition costs paid during the three months ended June 30, 2026. Additionally, free cash flow includes $0.7 million and $2.2 million of restructuring costs paid during the three and six months ended June 30, 2025, respectively.

(2) General and administrative expense includes stock-based compensation associated with RSUs and PRSUs primarily granted to the former Executive Chairman of $11.3$10.4 million and $21.7 million for the three and six months ended MarchJune 31,30, 2025.2025, respectively.

Comparison of the Three Months Ended MarchJune 31,30, 2026 and 2025

RevenueTotal revenue increased by $32.4$32.7 million, or 16%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. Of the total increase in revenue, approximately $14.2$16.0 million was attributable to revenue from existing customers as of MarchJune 31,30, 2025, net of contraction and churn, and approximately $18.2$16.7 million was attributable to revenue from new customers acquired during the threetwelve months ended MarchJune 31,30, 2026, net of contraction and churn.

Cost of revenue increased by $4.8$5.0 million, or 16%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increase was primarily driven by a $2.5$4.6 million increase in third-party hosting costs and cloud software fees,costs, which was driven by the increased capacity and volume required to support new customers. Additionally, the increase was driven by $0.9 million in amortization of internally capitalized software and $0.7 million in personnel-related costs, primarily due to annual compensation adjustment.. Our gross margin remained flat at 85% for the three months ended MarchJune 31,30, 2026 and 2025.

The $25.2$13.0 million or 14%,7%, increase in our operating expenses for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025,2025 was primarily driven by higher personnel related costs due to annualrestructuring compensationcharges, adjustments andhigher marketing sponsorship costs, and merit-driven salary increases, partially offset by lower stock-based compensation expense from the departure of our former Executive Chairman in December 2025.

Research and development expense increased by $9.3$3.9 million, or 23%,10%, for the three months ended MarchJune 31,30, 20262026, compared to the three months ended MarchJune 31,30, 2025. The increase was primarily driven by increasesa of $3.6$1.4 million increase in personnel-related costscosts, primarilyreflecting duea todecrease in capitalized internally-developed software costs, annual compensation adjustments,adjustments $3.1and lower headcount following the restructuring. The overall increase in research and development was further driven by a $0.8 million innet stock-basedloss compensation,related $1.0to foreign currency exchange rate fluctuations, as well as a $0.5 million increase in professional service fees, $1.0 million in software licensing fees anddue webto hostinghigher costscontractor for product development.costs.

Sales and marketing expense increased by $23.2$11.2 million, or 26%,12%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increase was primarily due to increases in personnel-related costs of $12.7 million primarily from higher headcount and annual compensation adjustment, $6.7$5.3 million in marketing sponsorship costs, $1.4$3.1 million in resellerpersonnel-related commissionscosts primarily from annual compensation adjustment partially offset by lower average headcount resulting from the impacts of restructuring, and $1.1$1.2 million in softwareprofessional licenseservice fees.

General and administrative expense decreased by $6.8$9.1 million, or 14%,19%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The decrease was primarily driven by a decrease of $10.5$11.3 million in stock-based compensation expense primarily due to the departure of our former Executive Chairman in December 2025; partially offset by increasesan increase of $2.7$1.6 million in personnel-related costs primarily due to annual compensation adjustments.adjustments and lower average headcount resulting from the impacts of restructuring.

Interest income decreased by $4.3$3.9 million, or 38%,39%, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025, primarily due to reduction in average balances held in our marketable securities portfolios used for share repurchases and decrease in interest rates.repurchases.

Other income (expense), net changed by $7.3$4.4 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025, primarily due to a $7.1$4.2 million unrealized foreign exchange loss during the period, mostly from unfavorable changes in foreign exchange rates in the Indian rupee against the U.S. dollar.

Provision for (Benefit from) Income Taxes

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the three months ended MarchJune 31,30, 2026 and 2025, we recorded a provision for (benefit from) income taxes of $(1.8)$7.0 million and $5.6 million on income before taxes of $10.3 million and $3.9 million on income (loss) before taxes of $(6.6) million and $2.6 million, respectively. The decreaseincrease in the provision for income taxes for the three months ended MarchJune 31,30, 2026, was largely driven by ahigher pre-taxincome lossbefore income taxes in the current quarterperiod compared to pre-tax income in the correspondingsame quarter of 2025. In addition, following the release of the valuation allowance on U.S. federal2025 and statelower deferred tax assets in the fourth quarter of 2025, we are able to recognizeexcess tax benefits associatedfrom withstock-based pre-taxcompensation lossesduring incurredthe inthree months period ended June 30, 2026.

As of MarchJune 31,30, 2026, our principal sources of liquidity were cash and cash equivalents of $548.2$494.7 million and marketable securities of $231.1$169.4 million, which were primarily held for working capital resources.

As of MarchJune 31,30, 2026, we had an accumulated deficit of $3.6 billion. Our operating activities resulted in cash inflows of $62.4$120.9 million for the threesix months ended MarchJune 31,30, 2026. In May 2026, we committed toannounced a restructuring plan that isincurred expected to incurrestructuring charges of $7.0 million in the second quarter of 2026, consisting primarily of cash expenditures for separation-related payments,and other employee benefits and related costs. See Note 1412—SubsequentRestructuring Events.Charges.

Our material cash requirements from known contractual obligations consist primarily of our obligations under operating leases for office space and contractual obligations for third-party cloud infrastructureinfrastructure. See Note 7 — Leases and Note 8 — Commitments and Contingencies for additional discussion of our principal contractual commitments.

In February 2026, our board of directors approved the share repurchase program, which authorized the repurchase of up to $400$400.0 million of our outstanding Class A common stock. For the threesix months ended MarchJune 31,30, 2026, we repurchased a total of 5.724.0 million shares of Class A common stock under this program in open market transactions for an aggregate purchase price of $45.4$204.5 million. As of MarchJune 31,30, 2026, $354.6$195.5 million remained available for future share repurchases under the current program.

As of MarchJune 31,30, 2026, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Net cash provided by operating activities of $62.4$120.9 million for the threesix months ended MarchJune 31,30, 2026 reflects our net loss of $4.8$1.6 million, adjusted for non-cash items such as stock-based compensation of $43.9$81.8 million, amortization of deferred contract acquisition costs of $8.6$17.5 million, depreciation and amortization of $7.9$16.1 million, non-cash lease expense of $2.9$5.6 million and $7.8$9.4 million of other items, primarily related to foreigneffects currencyof gainsexchange rate changes on cash, cash equivalents and lossesrestricted cash; offset by $5.9$2.6 million change in deferred tax provision and $0.9$1.2 million from discount amortization of marketable securities. Additionally, net cash inflows from changes in operating assets and liabilities were $2.9$4.1 million. The net cash inflows from changes in operating assets and liabilities were primarily due to a decrease of $24.9$14.6 million in accounts receivable and increases of $6.9$15.6 million in accounts payable and $1.0$9.5 million in deferred revenue; offset by increases of $12.6$21.3 million in deferred contract acquisition costs, $10.3 million in prepaid expenses and other assets, $10.2 million in deferred contract acquisition costs, and decreases of $3.7$6.4 million in operating lease liabilities and $3.4$5.7 million in accrued expenses and other liabilities.

Net cash provided by operating activities of $58.0$116.6 million for the threesix months ended MarchJune 31,30, 2025 reflects our net loss of $1.3$3.0 million, adjusted for non-cash items such as stock-based compensation of $51.7$100.9 million, amortization of deferred contract acquisition costs of $7.6$15.4 million, depreciation and amortization of $6.4$12.6 million and non-cash lease expense of $2.3$4.6 million; offset by $1.9$3.7 million from discount amortization of marketable securities and $0.5 million from changes in deferred income taxes.securities. Additionally, net cash outflows from changes in operating assets and liabilities were $6.3$10.3 million. The net cash outflows from changes in operating assets and liabilities were due to an increaseincreases of $15.3$22.7 million in prepaid expenses and other assets,assets anand increase of $8.7$18.8 million in deferred contract acquisition costs; offset by a decreaseincreases of $10.6$15.4 million in accountsdeferred receivablerevenue and an$7.8 increasemillion in accrued and other liabilities, and a decrease of $7.0 million in deferredaccounts revenue.receivable.

Net cash used in investing activities of $82.3$27.6 million for the threesix months ended MarchJune 31,30, 2026 consisted of $56.9 million paid for business combinations, net of cash acquired, $18.1 million in purchases of marketable securities, net of maturities, $3.9$8.9 million in purchases of property and equipment, which primarily include construction and improvements at our major offices, and $3.4$4.9 million in capitalized internal-use software.software, partially offset by $43.1 million in maturities and redemption of marketable securities, net of purchases.

Net cash provided by investing activities of $46.2$3.4 million for the threesix months ended MarchJune 31,30, 2025 consisted of $50.3$12.5 million in maturities and redemptions of marketable securities, net of purchases; offset by $2.8$7.4 million in capitalized internal-use software and $1.3$1.7 million in purchases of property and equipment.

Net cash used in financing activities of $55.5$221.3 million for the threesix months ended MarchJune 31,30, 2026 consisted of $48.4$207.4 million cash paid to repurchase shares of our common stock and $7.2$17.0 million in payment of withholding taxes on net share settlement of equity awards.awards, partially offset by $3.1 million receipt of ESPP proceeds.

Net cash used in financing activities of $130.3$254.3 million for the threesix months ended MarchJune 31,30, 2025 consisted of $113.6$227.2 million cash paid to repurchase shares of our common stock, including $1.8 million of unsettled stock repurchases as of December 31, 2024, and $16.7$30.5 million in payment of withholding taxes on net share settlement of equity awards.awards; offset by $3.3 million of proceeds from the issuance of common stock under our employee stock purchase plan, net of taxes withheld.

There have been no changes to our critical accounting policies and estimates during the three and six months ended MarchJune 31,30, 2026 as compared to those disclosed in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K filed with the SEC on February 26, 2026.