Freshworks Inc.: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2024 included in the Annual Report on Form 10-K. As described in the section titled “Special Note About Forward-Looking Statements,” the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Risk Factors.”

Overview

We build uncomplicated service software that delivers exceptional customer and employee experiences. Our people-first approach to AI eliminates friction, making employees more effective and organizations more productive. We provide our solutions in two product families: Customer Experience (CX) and Employee Experience (EX). CX products include Freshdesk, Freshdesk Omni, Freshchat, Freshsales, and Freshmarketer. EX products include Freshservice, Freshservice for Business Teams and Device42. Our latest generative AI solutions, Freddy AI Agent, Freddy AI Copilot and Freddy AI Insights, further enhance the customer and employee experience. Freddy AI Agent offers always-on, autonomous, personalized resolutions to customer and employee queries. Freddy AI Copilot provides contextual assistance for customer support, employee support, marketing and sales use cases to boost productivity. Freddy AI Insights empowers leaders with proactive, data-driven intelligence to make fast and informed decisions that help businesses optimize customer and employee service delivery.

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 2024, we also sell software licenses with associated maintenance.

Our customer base and operations have scaled over time. Our total revenue was $215.1 million and $186.6 million in the three months ended September 30, 2025 and 2024, respectively, representing year-over-year growth of 15%; and $616.1 million and $525.8 million in the nine months ended September 30, 2025 and 2024, respectively, representing year-over-year growth of 17%. We incurred operating losses of $7.5 million and $38.9 million for three months ended September 30, 2025 and 2024, respectively; and $26.5 million and $114.8 million for the nine months ended September 30, 2025 and 2024, respectively.

Macroeconomic and Other Factors

Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, tariffs, the threat of new or increased tariffs, escalating trade tensions, 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 the recent quarters, our net dollar retention rate was adversely impacted by lower expansion within existing customers driven by macroeconomic pressures 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. For the quarters ended September 30, 2025, June 30, 2025, and September 30, 2024, we had approximately 28%, 27% and 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.

Given our business model is primarily subscription-based, the effects of the macroeconomic conditions may not be fully reflected in our revenue until future periods. The ultimate impact on our business and operations remains highly uncertain, and it is not possible for us to predict the duration and extent to which this will affect our business, future results of operations, and financial condition.

Key Business Metrics

We monitor and review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions. Key business metrics and our financial performance are impacted by various factors discussed below, including fluctuations in the value of foreign currencies relative to the U.S. dollar. We also review customer data used for calculating these key business metrics on an ongoing basis and make necessary modifications resulting from such review. We believe these key business metrics provide meaningful supplemental information for management and investors in assessing our operating performance.

Number of Customers Contributing More Than $5,000 in ARR

We define our total customers contributing more than $5,000 in annual recurring revenue (ARR) as of a particular date as the number of business entities or individuals, represented by a unique domain or a unique email address, with one or more paid subscriptions to one or more of our products that contributed more than $5,000 in ARR. We believe that the number of customers that contribute more than $5,000 in ARR is an indicator of our success in attracting, retaining, and expanding with larger businesses.

Net Dollar Retention Rate

Our net dollar retention rate measures our ability to increase revenue across our existing customer base through expansion of users and products associated with a customer as offset by our churn and contraction in the number of users and products associated with a customer. To calculate net dollar retention rate as of a particular date, we first determine “Entering ARR,” which is ARR from the population of our customers as of 12 months prior to the end of the reporting period. We then calculate the “Ending ARR,” which is ARR from the same set of customers as of the end of the reporting period. We then divide the Ending ARR by the Entering ARR to arrive at our net dollar retention rate. Ending ARR includes upsells, cross-sells, renewals and expansion as a result of acquisitions during the measurement period and is net of any contraction or attrition over this period.

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 the contract. 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% and 15% of ARR as of September 30, 2025 and 2024, 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 decreased to 105% as of September 30, 2025, compared to 107% as of September 30, 2024, primarily due to lower expansion within existing customers driven by macroeconomic pressures. We expect our net dollar retention rate may 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.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. generally accepted accounting principles (GAAP), we believe the following non-GAAP financial measures are useful in evaluating our operating performance: non-GAAP income from operations, non-GAAP net income, and free cash flow. We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe these non-GAAP financial measures may be helpful to investors because they provide consistency and comparability with past financial performance.

Non-GAAP financial measures have limitations in their usefulness to investors and should not be considered in isolation or as substitutes for financial information presented under GAAP. Non-GAAP financial measures have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As a result, our non-GAAP financial measures are presented for supplemental informational purposes only.

We exclude the following items from one or more of our non-GAAP financial measures:

• Stock-based compensation expense. We exclude stock-based compensation, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this expense provides meaningful supplemental information regarding operational performance. In particular, stock-based compensation expense is not comparable across companies given the variety of valuation methodologies and assumptions.
• Employer payroll taxes on employee stock transactions. We exclude the amount of employer payroll taxes on equity awards from certain of our non-GAAP financial measures because they are dependent on our stock price at the time of vesting or exercise and other factors that are beyond our control and do not believe these expenses have a direct correlation to the operation of the business.
• Amortization of acquired intangibles. We exclude amortization of acquired intangibles, which is a non-cash expense, from certain of our non-GAAP financial measures. Our expenses for amortization of acquired intangibles are inconsistent in amount and frequency because they are significantly affected by the timing, size of acquisitions, and the allocation of purchase price. We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operating performance of our business.
• Restructuring charges. We exclude restructuring charges, which primarily consist of employee severance and other employee termination benefits associated with the restructuring plan initiated in November 2024, from our non-GAAP financial measures, because we do not believe these expenses have a direct correlation to the operating performance of our business.
• Gain on sale of non-marketable equity investments. We exclude gains on sale of non-marketable equity investments from certain of our non-GAAP financial measures because we believe they are unrelated to our ongoing operating performance and are not expected to recur in our continuing operating results.
• Income tax effect and adjustments. We exclude the income tax effect of the above adjustments and income tax effect associated with acquisitions from our non-GAAP financial measures. We exclude these costs because we do not believe these expenses have a direct correlation to the operating performance of our business.

Non-GAAP Income From Operations and Non-GAAP Net Income

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

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

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

Non-GAAP Income from Operations

Non-GAAP Net Income

Free Cash Flow

We define free cash flow as net cash provided by 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.

The following table presents a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable measure calculated in accordance with GAAP for each of the periods presented (in thousands):

(1) Free cash flow includes $2.2 million of restructuring costs paid during the nine months ended September 30, 2025.

Components of Our Results of Operations

Revenue

Substantially all of our revenue is derived from subscriptions, which is comprised of fees paid by customers for accessing our cloud-based software products during the term of the subscription. Subscription revenue is recognized ratably over the contract term beginning on the commencement date of each subscription, which is the date that the cloud-based software is made available to customers. We also sell software licenses with associated maintenance and professional services based on product offerings introduced upon the acquisition of D42 Parent, Inc. in June 2024. Software license revenue is recognized upon making the software available to the customer and maintenance revenue is recognized as support and updates are provided, which is generally ratably over the contract term.

Professional services revenue comprises less than 5% of total revenue and includes fees charged for product configuration, data migration, systems integration, and training. Professional services revenue is recognized as services are performed.

We generally enter into subscription and software license agreements with our customers on monthly, annual, or multi-year terms and invoice customers in advance in either monthly or annual installments. Our payment terms generally require the customers to pay the invoiced amount in advance or within 30 days from the invoice date. Our maintenance and professional services are generally billed in advance along with the related subscription and software license arrangements.

Cost of Revenue

Cost of revenue consists primarily of personnel-related expenses (including salaries, related benefits, and stock-based compensation expense) for employees associated with our cloud-based infrastructure, payment gateway fees, voice, product support, and professional services organizations, as well as costs for hosting capabilities. Cost of revenue also includes third-party license fees, amortization of acquired technology intangibles, amortization of capitalized internal-use software, and allocation of general overhead costs such as facilities and information technology.

We expect our cost of revenue to continue to increase in dollar amount as we invest additional resources in our cloud-based infrastructure and customer support and professional services organizations. However, our gross profit and gross margin may fluctuate from period to period due to the timing and extent of our investments in third-party hosting capacity, expansion of our cloud-based infrastructure, customer support, and professional services organizations, as well as the amortization of costs associated with capitalized internal-use software.

Overhead Allocation

We allocate shared costs, such as facilities costs (including rent, utilities, and depreciation on capital expenditures related to facilities shared by multiple departments), information technology costs, and certain administrative personnel costs to all departments based on headcount and location. Allocated shared costs are reflected in each of the expense categories described below, in addition to cost of revenue as described above.

Operating Expenses

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 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.

We believe that continued investment in our products is important for our growth, and as such, we expect that our research and development expenses will continue to increase in dollar amount for the foreseeable future, but such expenses as a percentage of revenue may fluctuate from period to period depending upon the timing and amount of these expenses.

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, software license fees, and rental of office premises. Sales 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.

We expect to continue to make significant investments as we expand our customer acquisition, retention efforts and marketing events and associated business travel. As a result, we expect that our sales and marketing expenses will continue to increase in dollar amount for the foreseeable future, however, we expect it to decline as a percentage of revenue over the longer term. This percentage may fluctuate from period to period depending upon the timing and amount of these expenses.

General and Administrative. General and administrative expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for certain executives and other general and administrative personnel, third-party professional services fees, costs of director and officer insurance, and costs associated with acquisitions of businesses, software license fees, and rental of office premises.

We expect to increase personnel-related and professional service expenses associated with ongoing compliance and reporting obligations and costs to broaden our IT related infrastructure. Our general and administrative expenses are expected to continue to increase in dollar amount for the foreseeable future, however, we expect it to decline as a percentage of revenue over the longer term. This percentage may fluctuate from period to period depending upon the timing and amount of our general and administrative expenses.

Restructuring Charges. Restructuring charges primarily consist of employee severance and other employee termination benefits associated with the restructuring plan that we initiated in November 2024. Refer to Note 12—Restructuring Charges of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

Interest and Other Income (Expense), Net

Interest and other income (expense), net primarily consists of interest income from our investment portfolios, amortization of premium or discount on marketable securities, gain realized on sale of non-marketable equity investments, and foreign currency gains and losses.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes consists primarily of income taxes related to U.S. states and foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. Provision for (benefit from) income taxes could also include changes in valuation allowance. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as stock-based compensation, and changes in our valuation allowance.

Results of Operations

The following table sets forth our condensed consolidated statements of operations data for the periods presented (in thousands):

(1) Includes stock-based compensation expense as follows:

(1) Stock-based compensation expense recorded to research and development in the condensed consolidated statements of operations excludes amounts that were capitalized for internal-use software.

(2) General and administrative expense includes stock-based compensation associated with RSUs and PRSUs granted to our Executive Chairman of $10.1 million and $12.1 million for the three months ended September 30, 2025 and 2024, respectively and $31.8 million and $38.3 million for the nine months ended September 30, 2025 and 2024, respectively.

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

Comparison of the Three Months Ended September 30, 2025 and 2024

Revenue

(dollars in thousands)

Revenue increased by $28.5 million, or 15%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. Of the total increase in revenue, approximately $9.7 million was attributable to revenue from existing customers as of September 30, 2024, net of contraction and churn, and approximately $18.8 million was attributable to revenue from new customers acquired during the twelve months ended September 30, 2025, net of contraction and churn. Our net dollar retention rate of 105% as of September 30, 2025 reflects the expansion within existing customers and the sale of additional products to these customers. Our net dollar retention rate decreased from 107% as of September 30, 2024 primarily due to lower expansion within existing customers driven by macroeconomic pressures. The majority of our revenue continues to be generated from subscription services.

Cost of Revenue and Gross Margin

(dollars in thousands)

35

Cost of revenue increased by $3.1 million, or 11%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase was primarily driven by increases of $1.1 million in third-party hosting costs and $1.1 million in cloud software fees attributable to higher usage as we expand capacity to support our growing customer base, and $0.7 million in amortization of internally capitalized software. Our gross margin increased to 85% for the three months ended September 30, 2025 from 84% in the same period of the prior year, as we increased our revenue and continue to realize benefits from economies of scale primarily related to our third-party hosting costs.

Operating Expenses

(dollars in thousands)

The $6.0 million or 3%, decrease in our operating expenses for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, was primarily driven by lower headcount following the restructuring, which decreased stock-based compensation expenses and personnel-related costs. This decrease is partially offset by the impact of annual compensation adjustments and higher variable incentive compensation which increased personnel-related costs.

Research and Development

Research and development expense decreased by $6.4 million, or 13%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease was primarily driven by lower stock-based compensation expense of $4.5 million from employee terminations and fully vested equity awards and $3.4 million of higher capitalized internally developed software costs as more development efforts met the criteria for capitalization during the period. This decrease was partially offset by an increase of $1.0 million in software licensing fees, web hosting costs for product development, and travel expenses.

Sales and Marketing

Sales and marketing expense decreased by $0.2 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The slight decrease was primarily driven by lower stock-based compensation expense of $3.5 million from employee terminations and fully vested equity awards and lower personnel-related costs of $2.6 million primarily from lower headcount offset by annual compensation adjustment. These decreases were partially offset by increases of $2.2 million in marketing sponsorship costs, $1.5 million in reseller commission, $1.3 million in software license fees and $0.9 million in professional services.

General and Administrative

General and administrative expense increased by $0.7 million, or 1%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase was primarily driven by an increase of $2.2 million in personnel-related costs primarily due to higher variable incentive compensation and annual compensation adjustments, partially offset by a decrease of $1.8 million in stock-based compensation expense.

Interest and Other Income (Expense), Net

(dollars in thousands)

* not meaningful

Interest income decreased by $3.6 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to reduction in average balances held in our marketable securities portfolios used for share repurchases.

Other income (expense), net changed by $2.9 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to a $4.7 million foreign exchange loss during the period, mostly from unfavorable changes in foreign exchange rates in Indian Rupee against the U.S. dollar, partially offset by a $1.8 million gain on sale of non-marketable equity investments.

Provision for (Benefit from) Income Taxes

(dollars in thousands)

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the three months ended September 30, 2025 and 2024, the income tax provision remained consistent.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, introducing significant changes to the U.S. tax code, including the immediate expensing of U.S. research and development costs, the immediate expensing of certain capital expenditures, and other tax code changes effective beginning in 2026. Based on our assessment, the effects of the enactment were not material for the three and nine months ended September 30, 2025. While we expect the current year’s impact to be immaterial, we continue to evaluate the broader implications of the legislation on our financial position and future results of operations.

Comparison of the Nine Months Ended September 30, 2025 and 2024

Revenue

(dollars in thousands)

37

Revenue increased by $90.2 million, or 17%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. Of the total increase in revenue, approximately $51.5 million was attributable to revenue from existing customers as of September 30, 2024, net of contraction and churn, and approximately $38.7 million was attributable to revenue from new customers acquired during the twelve months ended September 30, 2025, net of contraction and churn. The substantial majority of our revenue continues to be generated from subscription services.

Cost of Revenue and Gross Margin

(dollars in thousands)

Cost of revenue increased by $10.1 million, or 12%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase was primarily due to increases of $2.3 million in third-party hosting costs as we expand capacity to support our growing customer base, $2.3 million in personnel-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, $2.2 million in amortization of developed technology, $2.2 million in cloud software fees, and $1.1 million in amortization of internally capitalized software. Our gross margin increased to 85% for the nine months ended September 30, 2025 from 84% in the same period of the prior year, as we increased our revenue and realized benefits from economies of scale primarily related to our third-party hosting costs.

Operating Expenses

(dollars in thousands)

The $8.2 million, or 1%, decrease in our operating expenses in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, was primarily driven by lower headcount following the restructuring which decreased stock-based compensation expenses and personnel-related costs. This decrease is partially offset by the impact of annual compensation adjustments, changes in retirement benefit obligations for employees in India, and higher variable incentive compensation.

Research and Development

Research and development expense decreased by $2.2 million, or 2%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The decrease was primarily driven by lower stock-based compensation of $5.7 million due to employee terminations and fully vested equity awards and $8.6 million of higher capitalized internally developed software costs as more development efforts met the criteria for capitalization during the period. These decreases were partially offset by increases of $8.1 million in personnel-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, $1.2 million in software licensing fees and $1.1 million in third-party hosting costs to support our development activities.

Sales and Marketing

Sales and marketing expense decreased by $14.8 million, or 5%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The decrease was primarily driven by lower stock-based compensation of $14.0 million from employee terminations and the transition of our President to CEO mid 2024, a $5.2 million reduction in personnel-related costs from lower headcount, and a $3.3 million decrease in advertisement, marketing and branding costs. These decreases were partially offset by increases of $3.6 million in amortization of acquired intangible assets from the D42 Parent, Inc. acquisition, $3.0 million in software license fees, and $2.6 million in reseller commissions.

General and Administrative

General and administrative expense increased by $8.3 million, or 6%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase was primarily driven by increases of $5.4 million in personnel-related costs, mainly due to annual compensation adjustments and higher variable incentive compensation and $3.5 million in stock-based compensation expense, primarily from the transition of our President to CEO mid 2024.

Restructuring Charges

Restructuring charges of $0.4 million for the nine months ended September 30, 2025, consisted of employee severance and termination benefits related to the restructuring plan that we initiated in November 2024.

Interest and Other Income (Expense), Net

(dollars in thousands)

* not meaningful

Interest income decreased by $9.8 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to lower balances maintained in our marketable securities portfolios as a result of our share repurchase program.

Other income (expense), net changed by $2.8 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to a $1.8 million gain on sale of non-marketable equity investments.

Provision for (Benefit from) Income Taxes

(dollars in thousands)

* not meaningful

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the nine months ended September 30, 2025 and 2024, we recorded an income tax provision (benefit) of $14.1 million and $(1.4) million, respectively. The net increase in tax benefit of $15.5 million was primarily related to a tax benefit of $14.3 million from the Device42 acquisition as a result of releasing the valuation allowance due to sufficient income in prior year, and a higher pre-tax profits this year in certain foreign jurisdictions.

Liquidity and Capital Resources

As of September 30, 2025, our principal sources of liquidity were cash and cash equivalents of $420.9 million and marketable securities of $392.3 million, which were primarily held for working capital resources.

As of September 30, 2025, we had an accumulated deficit of $3.7 billion. Our operating activities resulted in cash inflows of $180.0 million for the nine months ended September 30, 2025.

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 infrastructure, service subscription, and sponsorship arrangement to promote our brand and services. See Note 7 — Leases and Note 8 — Commitments and Contingencies for additional discussion of our principal contractual commitments.

In November 2024, our board of directors approved the share repurchase program, which authorized the repurchase of up to $400 million of our outstanding Class A common stock. For the nine months ended September 30, 2025, we repurchased a total of 26.9 million shares of Class A common stock under this program in open market transactions for an aggregate purchase price of $384.5 million. As of September 30, 2025, the share repurchase program is complete.

As of September 30, 2025, 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.

We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of our existing cash available balances, cash flow from operations, and issuances of equity securities or debt offerings, as needed. Our future capital requirements will depend on many factors, including the rate of our revenue growth, the timing and extent of spending on research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and other business initiatives and the continuing market adoption of our products. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing in connection with such activities. If we raise additional funds through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our equity securities and could contain covenants that restrict our operational flexibility. Any additional equity or convertible debt financing may be dilutive to stockholders. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all.

The following table summarizes our cash flows for the periods presented (in thousands):

Cash Flows from Operating Activities

Net cash provided by operating activities of $180.0 million for the nine months ended September 30, 2025 reflects our net loss of $7.7 million, adjusted for non-cash items such as stock-based compensation of $149.5 million, amortization of deferred contract acquisition costs of $23.4 million, depreciation and amortization of $19.2 million, and non-cash lease expense of $7.0 million; offset by $5.5 million from discount amortization of marketable securities and $1.8 million gain on sale of non-marketable equity investments. Additionally, net cash outflows from changes in operating assets and liabilities were $4.3 million. The net cash outflows from changes in operating assets and liabilities were primarily due to increases of $29.4 million in deferred contract acquisition costs and $15.4 million in prepaid expenses and other assets, and a decrease of $5.7 million in operating lease liabilities; offset by increases of $24.3 million in deferred revenue, $13.2 million in accrued and other liabilities, $5.6 million in accounts payable and a decrease of $3.0 million in accounts receivable.

Net cash provided by operating activities of $119.3 million for the nine months ended September 30, 2024 reflects our net loss of $73.5 million, adjusted for non-cash items such as stock-based compensation of $166.3 million, amortization of deferred contract acquisition costs of $20.7 million, depreciation and amortization of $13.1 million and non-cash lease expense of $6.6 million; offset by $13.8 million from changes in deferred income taxes and $13.0 million from discount amortization of marketable securities. Additionally, net cash inflows from changes in operating assets and liabilities were $12.6 million. The net cash inflows from changes in operating assets and liabilities were due to a decrease of $6.6 million in accounts receivable and increases in operating liabilities of $27.0 million in deferred revenue, $10.2 million in accrued and other liabilities and $3.1 million in accounts payable; offset by increases in operating assets of $24.7 million in deferred contract acquisition costs and $7.7 million in prepaid expenses and other assets; and a decrease of $1.8 million in operating lease liabilities.

Cash Flows from Investing Activities

Net cash provided by investing activities of $48.9 million for the nine months ended September 30, 2025 consisted of $62.2 million in maturities and redemptions of marketable securities, net of purchases and $2.0 million in proceeds from sale of non-marketable securities; offset by $11.9 million in capitalized internal-use software and $3.5 million in purchases of property and equipment.

Net cash used in investing activities of $170.3 million for the nine months ended September 30, 2024 consisted of $213.9 million cash paid for business combination, net of cash acquired, $4.1 million in purchases of property and equipment and $3.6 million in capitalized internal-use software, offset by $51.2 million in maturities and sales of marketable securities, net of purchases.

Cash Flows from Financing Activities

Net cash used in financing activities of $428.3 million for the nine months ended September 30, 2025 consisted of $386.3 million cash paid to repurchase shares of our common stock, including $1.8 million of unsettled common stock repurchases as of December 31, 2024, and $45.4 million in payment of withholding taxes on net share settlement of equity awards; offset by $3.3 million of proceeds from the issuance of common stock under our employee stock purchase plan, net of taxes withheld.

Net cash used in financing activities of $46.0 million for the nine months ended September 30, 2024 consisted of $49.6 million in payment of withholding taxes on net share settlement of equity awards, offset by $3.6 million of proceeds from the issuance of common stock under our employee stock purchase plan, net of taxes withheld.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates, assumptions and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change the results from those reported. We evaluate our estimates, assumptions, and judgments on an ongoing basis.

There have been no changes to our critical accounting policies and estimates during the three and nine months ended September 30, 2025 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 20, 2025.

Recent Accounting Pronouncements

See Note 1—Basis of Presentation and Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.

We are exposed to certain market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. In addition, we are subject to broader market risk that is created by the global market disruptions and uncertainties resulting from macroeconomic challenges, geopolitical events, tariffs, trade and other international disputes.

Foreign Currency Exchange Risk

The functional currency of our foreign subsidiaries is the U.S. dollar. The majority of our sales are derived in U.S. dollars. Our operating expenses incurred by our foreign subsidiaries are denominated in their respective local currencies, and remeasured at the exchange rates in effect on the transaction date. Additionally, fluctuations in foreign exchange rates may result in the recognition of transaction gains and losses in our condensed consolidated statements of operations. Our condensed consolidated results of operations and cash flows are, therefore, subject to foreign exchange rate fluctuations, particularly changes in the Indian Rupee, British Pound and euro, and may be adversely affected in the future due to changes in foreign exchange rates. Based on a sensitivity analysis we have performed as of September 30, 2025, an adverse 10% foreign currency exchange rate change applied to total monetary assets and liabilities denominated in currencies other than the U.S. dollar would result in a gain or loss of approximately $12.3 million.

To reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates, we entered into foreign exchange forward contracts to hedge a portion of our forecasted foreign currency expenses denominated in Indian Rupee. Gains or losses on these contracts are generally recognized in income at the time the related transactions being hedged are recognized. As of September 30, 2025, the total notional amount of outstanding designated foreign currency forward contracts was $69.6 million. The fair value of derivative assets and liabilities as of September 30, 2025, and all related unrealized and realized gains and losses during the three and nine months ended September 30, 2025 and 2024 were not material.

We do not use foreign exchange contracts for speculative trading purposes and we may enter into other hedging transactions in the future if our exposure to foreign currency becomes more significant. We monitor our exposures in other currencies and assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.

Interest Rate Risk

Our cash, cash equivalents, and marketable securities primarily consist of deposits held at financial institutions, highly liquid money market funds, and investments in U.S. treasury securities, U.S. government agency securities, corporate bonds, and commercial paper. We had cash and cash equivalents of $420.9 million and marketable securities of $392.3 million as of September 30, 2025. We do not enter into investments for trading or speculative purposes. The carrying amount of our cash equivalents reasonably approximate fair value, due to the maturities of three months or less of these instruments. Our investments are subject to market risk due to changes in interest rates, which may affect our interest income and the fair value of our investments. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of our expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our marketable securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.

Based on an interest rate sensitivity analysis we have performed as of September 30, 2025, a hypothetical 100 basis points favorable or adverse movement in interest rates would not have a material effect in the combined market value of our cash and cash equivalents and marketable securities.

Evaluation of Disclosure Controls and Procedures

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

You should carefully consider the risks and uncertainties described under the section “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on February 20, 2025 as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment decision. These identified risks and uncertainties may have a material adverse effect on our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also become important factors that affect our business. There have been no material changes from the risks and uncertainties previously disclosed under the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.