HUBSPOT INC

1. Organization and Operations

HubSpot, Inc. (the “Company”) provides a customer platform that helps businesses connect and grow better. The Company delivers seamless connection for customer-facing teams with a unified platform that includes three layers: AI-powered engagement hubs, a Smart CRM, and a connected ecosystem that extends the customer platform with app marketplace integrations, a community network, and educational content.

The AI-powered engagement Hubs include Marketing, Sales, Service, Operations, Content and Commerce, as well as other tools and integrations that enable companies to attract, engage, and delight customers throughout the customer experience. The Smart CRM is the foundational layer that combines customer data with AI to power the entire customer platform.

2. Summary of Significant Accounting Policies

Basis of Presentation —The consolidated financial statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Use of Estimates —The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revisions to Previously Issued Financial Statements— During the financial close process for the first quarter of 2024, the Company identified an error related to the calculation of contractual credits in one of its third-party vendor agreements which impacted its previously issued financial statements beginning with the quarter ended December 31, 2021. The error impacted subsequent annual and quarterly reporting periods through December 31, 2023. The Company assessed the materiality of the error on prior period consolidated financial statements in accordance with the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 99, “Materiality,” codified in ASC 250, Accounting Changes and Error Corrections (“ASC 250”). Based on this assessment, in consideration of both quantitative and qualitative factors, the Company concluded that the error is not material to any previously presented interim or annual financial statements. The Company revised its financial statements for the periods impacted. In connection with the revisions, the Company also corrected a previously identified immaterial error related to the recording of certain deferred tax balances.

The impact of the revisions to the annual periods ending December 31, 2023 and December 31, 2022 are disclosed below. The errors created immaterial impacts to the Consolidated Statements of Cash Flows, however, there was no net impact to classification of the cash flows so a revision table was not included below. The impact to the Consolidated Statements of Stockholders' Equity was isolated to net income and accumulated deficit as revised in the other statements.

Operating Segments —See Note 11 for more information.

Net Income (Loss) Per Share — Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock units (“RSUs”), shares issued pursuant to the Employee Stock Purchase Plan (“ESPP”), performance restricted stock units (“PSUs”), warrants, and the Conversion Option of the 2025 Notes (the “Conversion Options”) (Note 10) are considered to be potential common stock equivalents.

A reconciliation of the denominator used in the calculation of basic and diluted income (loss) per share is as follows:

Since the Company incurred net losses in 2023 and 2022, diluted net loss per share is the same as basic net loss per share. All of the Company’s outstanding stock options, RSUs, and shares issuable under the ESPP, PSUs as well as the warrants and Conversion Options were excluded in the calculation of diluted net loss per share as the effect would be anti-dilutive.

The Company uses the treasury stock method and the average market price per share during the period for calculating any potential dilutive effect of the stock options, RSUs, ESPPs, PSUs and warrants. The Company uses the if-converted method when calculating any potential dilutive effect of the Conversion Options, which assumes conversion of outstanding convertible securities at the beginning of the reporting period or date of issuance, if the convertible security was issued during the period.

The following table contains all potentially dilutive common stock equivalents.

Cash and Cash Equivalents — The Company considers all highly liquid investments purchased with original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash held in bank deposit accounts and short-term, highly-liquid investments with remaining maturities ofthree months or less at the date of purchase, consisting primarily of money-market funds.

Available-for-sale Investments— Investments consist of commercial paper, corporate debt securities, U.S. Treasury securities, and U.S. Government agency securities. Securities having remaining maturities of more than three months at the date of purchase and less than one year from the date of the balance sheets are classified as short-term, and those with maturities of more than one year from the date of the balance sheet are classified as long-term in the consolidated balance sheets. The Company classifies its debt investments with readily determinable market values as available-for-sale. These debt investments are classified as investments on the consolidated balance sheets and are carried at fair market value.

For available-for-sale debt securities, any realized gains and losses are determined based on the specific identification method and are reported in other income (expense) in the consolidated statements of operations. For securities in an unrealized loss position, the Company first assesses whether it intends to sell or it is more likely than not that the Company will be required to sell the security before the recovery of its entire amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through other income (expense) in the consolidated statements of operations. The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments before recovery of their amortized cost basis.

If neither of the above criteria is met, the Company further assesses whether the decline in fair value below amortized cost is due to credit or non-credit related factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, credit ratings, the financial health of the industry and sector of the issuer, the overall risk profile of the securities, overall macroeconomic conditions, and more. Any credit-related unrealized losses are recognized as an allowance on the consolidated balance sheets with a corresponding charge in other income (expense) in the consolidated statements of operations. Non-credit related unrealized losses and unrealized gains on available-for-sale debt securities are included in accumulated other comprehensive income (loss). In considering the underlying risk of its portfolio, the Company has a zero-loss expectation for U.S. treasury and U.S. government agency securities, which represents the majority of its debt investment available-for-sale securities portfolio. As of December 31, 2024 and 2023, no allowance for credit losses in investments was recorded.

Strategic Investments— Strategic investments consist of non-marketable equity investments of privately held companies in which the Company does not have a controlling interest.

The Company may elect to apply the measurement alternative or the fair value option for investments without readily determinable fair values for which the Company does not have the ability to exercise significant influence. Under the measurement alternative, the non-marketable securities are carried at cost less any impairments, plus or minus adjustments resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. On a quarterly basis, the Company performs a qualitative assessment to evaluate whether the investment is impaired. If there are sufficient indicators that the fair value of the investment is less than the carrying value, the carrying value of the investment is reduced and an impairment is recorded in the consolidated statements of operations in other income (expense).

The Company has elected the fair value option for certain other non-marketable investments as it has determined the fair value best reflects the economic performance of the equity investment. Under the fair value option, the non-marketable investments are measured at fair value based on valuation methods which may include a combination of observable and unobservable inputs and are reviewed quarterly for reductions in fair value that are other-than-temporary. Any changes to the fair value is recorded in the consolidated statements of operations in other income (expense).

Investments for which the Company has the ability to exercise significant influence, but does not have control and is not the primary beneficiary, are accounted for under the equity method. Under the equity method of accounting, the Company's proportionate share of the net earnings or impairment charges on investments are reported in the consolidated statements of operations in other income (expense), and increase or decrease the investment balance recorded on the balance sheet. Equity method investments are reviewed for indicators of other-than-temporary impairment on a quarterly basis. An equity method investment is written down to fair value if there is evidence of a loss in value which is other-than-temporary. The Company may estimate the fair value of its equity method investments by considering recent investee equity transactions and recent operating results.

Accounts Receivable and Allowance for Credit Losses — Accounts receivable are carried at the original invoiced amount less an allowance for credit losses based on the probability of future collection. The probability of future collection is based on specific considerations of historical loss patterns and an assessment of the continuation of such patterns based on past collection trends and known or anticipated future economic events that may impact collectability. The probability of future collection is also assessed by geography. To date, losses resulting from uncollected receivables have not materially exceeded estimates.

The following is a roll-forward of the Company’s allowance for credit losses (in thousands):

(1) Deductions include actual accounts written-off, net of recoveries.

Restricted Cash —The Company had restricted cash of$4.1 million at December 31, 2024 and 2023 related to letters of credit for its leased facilities. The following table provides a reconciliation of the cash, cash equivalents and restricted cash within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows for the year ended December 31,2024 and 2023.

Property and Equipment —Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions to leasehold improvements. Depreciation is recorded over the following estimated useful lives:

The Company capitalizes certain payroll and stock compensation costs incurred to develop functionality for certain of the Company’s internally built software platforms. The costs incurred during the preliminary stages of development are expensed as incurred. Once a piece of incremental functionality has reached the development stage certain internal costs are capitalized until the functionality is ready for its intended use. Internal-use software is included within property and equipment on the consolidated balance sheets.

Impairment of Long-Lived Assets —Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable or that the useful lives of those assets are no longer appropriate. Management considers the following potential indicators of impairment of its long-lived assets (asset group): a substantial decrease in the Company’s stock price, a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used, a significant adverse change in legal factors or in the business climate that could affect the value of the long-lived asset (asset group), an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group), and a current expectation that, more likely than not, a long lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If this comparison indicates that there may be an impairment, the amount of the impairment is calculated as the difference between the carrying value and fair value. For the years presented, the Company didnot recognize an impairment charge.

Intangible Assets— Intangible assets consist of acquired technology, trade name, customer relationships, sublease asset and a domain name. The Company records acquired intangible assets at fair value on the date of acquisition and amortizes such assets in a pattern reflective of the expected economic benefits consumption over the expected useful life of the asset. If this pattern cannot be reliably determined, a straight-line amortization method is used. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying value of the intangible asset is amortized prospectively over the revised remaining useful life. During 2023, the Company recognized an impairment of $1.6 million. No impairment charges were recognized in 2024 and 2022.

Goodwill — Goodwill represents the excess of cost over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization but is monitored annually for impairment or more frequently if there are indicators of impairment. Management considers the following potential indicators of impairment: significant underperformance relative to historical or projected future operating results, significant changes in the Company’s use of acquired assets or the strategy of the Company’s overall business, significant negative industry or economic trends and a significant decline in the Company’s stock price for a sustained period. The Company performs its annual impairment test on November 30. The Company’s goodwill is evaluated at the consolidated level as it has been determined there is one operating segment comprised ofone repor ting unit. The Company performs a quantitative assessment, which compares the fair value of the reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized. Based on the quantitative assessment performed on November 30, 2024, the fair value exceeded the carrying value, and as such, there wasno impairment of goodwill as of November 30,2024. There were no triggering events after the measurement date that may indicate impairment as of December 31, 2024. For the years ended December 31, 2024, 2023 and 2022, the Company didnot recognize an impairment charge.

Business Combinations— The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The purchase price allocation process requires management to make significant judgment with respect to intangible assets. Fair value and useful life determinations are based on, among other factors, estimates of replacement costs and future expected cash flows attributable to the acquired intangible asset and appropriate discount rates used in computing present values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up toone year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statement of operations.

Advertising Expense —The Company expenses advertising as incurred, which is included in sales and marketing expense in the consolidated statements of operations. The Company incurred $117.8 million of advertising expense in 2024, $105.3 million in 2023, and $59.4 million in 2022.

Leases — The Company determines if an arrangement contains a lease at inception and does not separate lease and non-lease components of an arrangement determined to contain a lease. Operating leases are included in right-of-use ("ROU") assets, current operating lease liabilities and operating lease liabilities, net of current portion, on the Company’s consolidated balance sheet.

Operating leases with a duration of 12 months or less are excluded from ROU assets and operating lease liabilities. Lease payments are recognized on a straight-line basis over the lease term and variable lease payments are recognized as incurred.

ROU assets represent the Company's right to use an underlying asset for the lease term and the corresponding lease liabilities represent its obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. The lease ROU asset includes any initial direct costs incurred and is reduced for tenant incentives. As the Company’s operating leases do not provide an implicit rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate. To determine the estimated incremental borrowing rate, the Company uses publicly available credit ratings for peer companies. The Company estimates the incremental borrowing rate using yields for maturities that are in line with the duration of the lease payments. The Company evaluates the recoverability of the ROU assets for possible impairment in accordance with the long-lived assets policy above. The Company recognized an impairment charge of $46.8 million in connection with the Restructuring Plan (Note 18) in 2023. No impairment charges were recognized in 2024 and 2022.

Lease expense for minimum lease payments for operating leases is recognized on a straight-line basis over the lease term. Improvement reimbursements from landlords are amortized through ROU assets on a straight-line basis as a reduction to rent expense over the terms of the corresponding leases.

The Company also subleases some of its unused spaces to third parties. The Company recognizes sublease income, as a reduction to rent expense, on a straight-line basis over the sublease term.

Asset retirement obligations (“ARO”)

On the lease commencement date, the Company establishes an ARO based on the present value of contractually required estimated future costs to retire long-lived assets at the termination or expiration of a lease. The asset associated with the ARO is amortized over the corresponding lease term to operating expense and the ARO is accreted to the end-of-lease obligation value over the same term.

Derivatives — The Company uses derivative instruments, primarily forward contracts, to reduce the risk of variability in future cash flow due to foreign currency exchange rate fluctuations. Hedging derivative instruments are recognized as either assets or liabilities and are measured at fair value. For derivative instruments designated as cash flow hedges, unrealized foreign exchange gains or losses are recorded in accumulated other comprehensive income ("AOCI") and are reclassified into revenues in the same periods when the hedged transactions are recognized in the consolidated statements of operations.

Revenue Recognition — The Company generates revenue from arrangements with multiple performance obligations, which typically include subscriptions to its online software products and support, as well as professional services which include on-boarding, training and consulting services. The Company’s customers do not have the right to take possession of the online software products. The Company recognizes revenue from contracts with customers using a five-step model, which is described below:

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Identify the customer contract;

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Identify performance obligations that are distinct;

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Determine the transaction price;

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Allocate the transaction price to the distinct performance obligations; and

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Recognize revenue as the performance obligations are satisfied.

Identify the customer contract

A customer contract is generally identified when the Company and a customer have executed an arrangement that calls for the Company to grant access to its online software products and provide professional services in exchange for consideration from the customer.

Identify performance obligations that are distinct

A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The Company has determined that subscriptions for its online software products are distinct because, once a customer has access to the online software product that it purchased, the online software product is fully functional and does not require any additional development, modification, or customization. Professional services sold are distinct because the customer benefits from the on-boarding, training and consulting to make better use of the online software products it purchased.

Determine the transaction price

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies. The Company estimates any variable consideration to which it will be entitled at contract inception, and reassesses at each reporting date, when determining the transaction price. The Company does not include variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will occur when any uncertainty associated with the variable consideration is resolved.

Allocate the transaction price to the distinct performance obligations

The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer. The Company determines the SSP of its goods and services based upon the average sales prices for each type of online software product and professional services sold. In instances where there are not sufficient data points, or the selling prices for a particular online software product or professional service are disparate, the Company estimates the SSP using other observable inputs, such as similar products or services.

Recognize revenue as the performance obligations are satisfied

Revenues are recognized when or as control of the promised goods or services is transferred to customers. Revenue from online software products and support is recognized ratably over the subscription period beginning on the date the Company’s online software products are made available to customers. Most subscription contracts areone year or less. The Company recognizes revenue from on-boarding, training, and consulting services as the services are provided. Cash payments received in advance of providing subscription or services are recorded to deferred revenue until the performance obligation is satisfied.

Costs to Obtain a Contract with a Customer

The incremental direct costs of obtaining a contract, which primarily consist of employee sales and Solutions Partner commissions paid for new subscription contracts, are deferred and amortized on a straight-line basis over a period of approximately two to four years. Thetwo tofour-year period has been determined by taking into consideration the type of product sold, the commitment term of the customer contract, the nature of the Company’s technology development life-cycle, and an estimated customer relationship period. Sales and Solutions Partner commissions for upgrade contracts are deferred and amortized on a straight-line basis over the remaining estimated customer relationship period of the related customer. Deferred commission expense that will be recorded as expense during the succeeding 12-month period is recorded as current deferred commission expense, and the remaining portion is recorded as long-term deferred commission expense.

The Company pays its Solutions Partners a commission based on the online software product sales price for sales to end-customers. The classification of the commission paid in the Company’s consolidated statements of operations depends on who purchases the online software product. In instances where an end-customer purchases from the Company, the commission paid to the Solutions Partner is recorded as sales and marketing expense. When a Solutions Partner purchases directly from the Company, the commission paid to the Solutions Partner is netted against the associated revenue recognized.

Concentrations of Credit Risk and Significant Customers —Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, investments, and accounts receivable.

The Company's cash and cash equivalents are generally held with large financial institutions. Although the Company's deposits may exceed federally insured limits, the financial institutions that the Company uses have high investment-grade credit ratings and, as a result, the Company believes that, as of December 31, 2024, its risk relating to deposits exceeding federally insured limits was not significant.

The Company’s investments consist of highly rated corporate debt securities and U.S. Treasury securities. The Company limits the amount of investments in any single issuer, except U.S. Treasuries. The Company believes that, as of December 31, 2024, its concentration of credit risk related to investments was not significant.

The Company generally does not require collateral from its customers and generally requires payment 30 days from the invoice date. The Company maintains an allowance for credit losses based on its assessment of the collectability of accounts receivable. Credit risk arising from accounts receivable is mitigated as a result of transacting with a large number of geographically dispersed customers spread across various industries.

At December 31, 2024 and 2023, there wereno customers that represented more than 10% of the net accounts receivable balance. There wereno customers that individually exceeded 10% of the Company’s revenue in any of the periods presented.

Foreign Currency —The functional currency of the Company’s foreign subsidiaries is the local currency. The Company presents its consolidated financial statements in U.S. dollars. The Company translates the foreign currency financial statements to U.S. dollar using the exchange rates at the balance sheet date for assets and liabilities, the weighted-average exchange rate for the period for revenues and expenses, and the historical exchange rates for equity. The effects of foreign currency translation adjustments are recorded to accumulated other comprehensive income (loss) as a component of shareholders’ equity in the consolidated balance sheets and the related periodic movements are presented in the consolidated statements of comprehensive income (loss). Foreign currency transaction gains and losses are recorded in other income (expense) in the consolidated statements of operations.

Research and Development —Research and development expenses include payroll, employee benefits and other expenses associated with product development.

Capitalized Software Development Costs —Certain payroll and stock compensation costs incurred to develop functionality for the Company’s software and internally built software platforms, as well as certain upgrades and enhancements that are expected to result in enhanced functionality are capitalized. Certain implementation costs, including external direct costs, incurred during the development stage of cloud computing arrangements are also capitalized. The costs incurred in the preliminary stages of development, and costs of maintaining the customer platform and internally built software platforms are expensed as incurred. Once an application has reached the development stage, the Company capitalizes certain software development costs for new offerings as well as upgrades to existing software platforms. Capitalized software development costs are amortized on a straight-line basis over their estimated useful life oftwo tofive years. Management evaluates the useful lives of these assets on a quarterly basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

The Company determines the amount of internal software costs to be capitalized based on the amount of time spent by the developers on projects in the application stage of development. There is judgment involved in estimating time allocated to a particular project in the application stage.

Capitalized software development costs, exclusive of those costs recorded within property and equipment, consisted of the following:

Amortization of capitalized software development costs, exclusive of costs recorded within property and equipment, was $74.3 million in 2024, $45.8 million in 2023, and $32.0 million in 2022. Amortization expense is included in cost of revenue in the consolidated statements of operations.

Income Taxes —Deferred tax assets and liabilities are recognized for the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities using tax rates expected to be in effect in the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. Net deferred tax assets are included within other assets and net deferred tax liabilities are included within other long-term liabilities on the consolidated balance sheets.

The Company accounts for uncertainty in income taxes by using a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement.

Stock-Based Compensation — The Company accounts for all stock options and awards granted to employees and nonemployees using a fair value method. The measurement date for awards is generally the date of the grant. The fair value of the Company’s common stock is the closing price of the stock on the date of the grant. For stock options and the purchase rights issued under the Company's ESPP, the Black-Scholes option pricing model is used to measure the fair value. The expected term of options granted to employees and ESPP purchase rights was calculated using the simplified method, which represents the average of the contractual term of the option or purchase right and the weighted-average vesting period. The Company considers this appropriate as there is no other method that would be more indicative of exercise activity. The expected volatility for the Company’s common stock was based on the average of the Company's historical volatility. The risk-free interest rate is based on the rate on U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future.

Stock-based compensation costs for awards with time-based service condition is recognized on a straight-line basis over the requisite service period and stock-based compensation costs for awards with performance conditions is recognized on the graded vesting attribution method over the requisite service period when it becomes probable that the performance target will be achieved. If the performance condition becomes probable of being achieved before the end of the requisite service period, the remaining compensation costs are recognized over the remaining requisite service period. Forfeitures are recorded in the period in which they occur.

Recent Accounting Pronouncements— Recent accounting standards not included below are not expected to have a material impact on our consolidated financial position and results of operations.

Recent Accounting Pronouncements Adopted in 2024:

In November 2023, the FASB issued guidance enhancing the disclosures of reportable segment information, primarily about significant segment expenses. The new standard was effective for the Company for the annual periods beginning on January 1, 2024, and for interim periods beginning January 1, 2025. The guidance was adopted on January 1, 2024 and it did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements to be Adopted in Future Periods:

In December 2023, the FASB issued guidance enhancing income tax disclosure requirements by requiring specified categories and greater disaggregation within the rate reconciliation table, disclosure of income taxes paid by jurisdiction, and providing clarification on uncertain tax positions and related financial statement impacts. The new standard will be effective for the Company for the annual period beginning on January 1, 2025, with early adoption permitted. The adoption of this standard only impacts annual disclosures and is not expected to have a material impact on the Company's consolidated financial statements.

In November 2024, the FASB issued guidance that requires the disclosure about specific types of expenses included in the expense captions presented on the face of the income statement. The new standard will be effective for the Company for the annual periods beginning January 1, 2027, and for interim periods beginning January 1, 2028, with early adoption permitted. The Company is currently evaluating the impact of adoption of the standard on its consolidated financial statements.

3. Revenues

Disaggregation of Revenue

The Company provides disaggregation of revenue based on geographic region (Note 11) and based on the subscription versus professional services and other classification on the consolidated statements of operations as it believes these best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Deferred Revenue and Deferred Commission Expense

Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as long-term deferred revenue. Deferred revenue during the year ended December 31, 2024 increased by $110.3 million resulting from $2.7 billion of calculated billings and was offset by revenue recognized of $2.6 billion during the same period. The Company recognized $670.3 million of revenue in 2024 that was included in deferred revenue as of December 31, 2023,$543.2 million of revenue in 2023 that was included in deferred revenue as of December 31, 2022, and$426.8 million of revenue in 2022 that was included in deferred revenue as of December 31, 2021. As of December 31, 2024, approximately$1.0 billion of revenue is expected to be recognized from remaining performance obligations for contracts with original performance obligations that exceedone year. The Company expects to recognize revenue on approximately 89% of these remaining performance obligations over the next 24 months, with the balance recognized thereafter.

Additional contract liabilities of $6.4 million and $4.5 million were included in accrued expenses and other current liabilities as of December 31, 2024 and December 31, 2023.

The incremental direct costs of obtaining a contract, which primarily consist of employee sales and Solutions Partners commissions paid for new subscription contracts, are deferred and amortized on a straight-line basis over a period of approximatelytwo tofour years. Deferred commission expense during the year ended December 31, 2024 increased by $88.0 million as a result of deferring incremental costs of obtaining a contract of $231.1 million and was offset by amortization of $143.1 million during the same period.

4. Leases

The Company leases office facilities under non-cancelable operating leases that expire at various dates through February 2035.

The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of operating lease payments. To determine the estimated incremental borrowing rate, the Company uses publicly available credit ratings for peer companies. The Company estimates the incremental borrowing rate using yields for maturities that are in line with the duration of the lease payments.

The following table provides weighted average remaining lease terms and weighted average discount rate for operating leases as of December 31,2024:

Operating lease expense, variable lease expense and cash payments related to operating lease liabilities for the 2024, 2023, and 2022 are as follows:

The following table provides a reconciliation between non-cancelable lease commitments and lease liabilities as of December 31,2024 (in thousands):

The Company subleases some of its unused spaces to third parties. Operating sublease income generated under all operating lease agreements is as follows:

During the year ended December 31, 2023, the Company terminated and abandoned various leases of office spaces in connection with the Restructuring Plan. Refer to Note 18 for more information.

5. Fair Value of Financial Instruments

The Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets and liabilities at December 31,2024 and December 31, 2023:

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the consolidated balance sheets. At December 31, 2024 and 2023, Level 2 securities were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities. Certain non-marketable strategic investments measured at fair value on a non-recurring basis are classified as Level 3 as their fair value measurements may include a combination of observable and unobservable inputs.

Foreign currency derivative assets and liabilities are classified as Level 2 and are valued using observable inputs, such as quotations on forward and spot rates for currencies, interest rates and credit derivative market rates.

As of December 31, 2024, the fair value of the 2025 Notes was$1.1 billion (Note 11). The fair value was determined based on the quoted price of the 2025 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy.

For certain other financial instruments, including accounts receivable, accounts payable, and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

Restricted cash is comprised of money market funds related to landlord guarantees for leased facilities. These restricted cash balances have been excluded from our cash and cash equivalents balance on our consolidated balance sheets.

6. Investments

Available-for-sale Investments

The following tables summarize the composition of our short- and long-term investments at December 31,2024 and 2023:

For all of our securities for which the amortized cost basis was greater than the fair value at December 31, 2024 and 2023, the Company has concluded that there is no plan to sell the security nor is it more likely than not that the Company would be required to sell the security before its anticipated recovery. The Company further assesses whether the decline in fair value below amortized cost is due to credit or non-credit related factors by considering the extent to which fair value is less than amortized cost, credit ratings, the financial health of the industry and sector of the issuer, the overall risk profile of the securities, overall macroeconomic conditions, and more. As of December 31, 2024 and 2023, no allowance for credit losses in investments has been recorded.

The contractual maturities of short-term and long-term investments held as follows:

Strategic Investments

Strategic investments that consist of non-controlling equity investments without readily determinable fair values in privately held companies for which the Company does not have the ability to exercise significant influence are measured under the measurement alternative method. These investments are accounted for under the cost method of accounting. Under the cost method of accounting, the non-marketable equity securities are carried at cost less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, which is recorded within the consolidated statement of operations. The Company held$72.5 million of strategic investments without readily determinable fair values at December 31, 2024 and$41.1 million of strategic investments without readily determinable fair values at December 31, 2023. These investments are included in other assets on the consolidated balance sheets.

The Company adjusts the fair values of its strategic investments based on observable price changes. The Company recorded a gain of $21.2 million and an impairment of $5.3 million in 2024, an impairment of $1.7 million in 2023, and a gain of $4.2 million and an impairment of $5.9 million in 2022. The gains and impairment loss are reported in the consolidated statements of operations as other income (expense).

The Company has certain other non-marketable strategic investments measured at fair value on a non-recurring basis. The Company held$9.4 million of these investments at December 31, 2024 and$13.2 million at December 31, 2023. These investments are included in other assets on the consolidated balance sheets.

The Company has certain strategic investments in non-controlled companies without a readily determinable market value that are accounted for as equity method investments. The carrying value was $11.7 million as of December 31, 2024 and $7.9 million as of December 31, 2023. These investments are included in other assets on the consolidated balance sheets and the Company's proportionate share of the investments' net earnings and impairment charges are reported in the consolidated statements of operations as other income (expense).

7. Property and Equipment

Property and equipment consists of the following:

Depreciation and amortization expense was$29.7 million in 2024,$29.0 million in 2023, and$27.8 million in 2022. During the year ended December 31, 2024, the Company wrote off previously disposed of assets of $24.4 million in property and equipment with accumulated depreciation of $24.4 million, as the assets were determined to no longer have any future economic benefit.

As part of the Restructuring Plan (defined in Note 18), the Company disposed of $1.4 million of fixed assets, net, in the year ended December 31, 2023. The Company also recorded accelerated depreciation expense for fixed assets in connection with the lease abandonments as part of the Restructuring Plan. See Note 18 for more information.

The Company had capitalized asset retirement costs of $4.4 million at December 31, 2024 and $4.7 million at December 31, 2023 within leasehold improvements and the related liability is within accrued expenses and other current liabilities and other long-term liabilities on the consolidated balance sheet. These costs represent future lease restoration obligations as required by Company’s leases.

The changes in the asset retirement obligation balance during the years ended December 31,2024 and December 31, 2023 are as follows:

8. Business Acquisitions

Cacheflow, Inc.

On October 30, 2024, the Company acquired all outstanding shares of Cacheflow Inc. (“Cacheflow”), a B2B subscription billing management and configure, price, quote (“CPQ”) solution. The total cash purchase price for the acquisition was $40.4 million, net of cash acquired. There was approximately $24.5 millionof post-combination consideration, which is contingent upon post-acquisition employmentand will be recognized as compensation expense in the consolidated statement of operations over a period oftwo years. The transaction costs associated with the acquisition were approximately $1.4 million and were recorded in general and administrative expense.

The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the date of acquisition:

The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets and liabilities acquired was recorded as goodwill. The Company expects to derive value from Cacheflow’s billing management and CPQ solution by expanding its commerce capabilities to help customers automate revenue management and shorten sales cycles. The goodwill recognized is not deductible for U.S. income tax purposes.

The intangible asset acquired in the business combination was developed technology and the fair value of the developed technology was estimated to be $4.0 million. The developed technology was valued using a replacement cost approach and the key assumptions include the Company’s estimates of the direct and indirect costs required to replace the asset. The Company began amortizing the acquired technology on the date of acquisition over a period offive years on a straight-line basis. The amortization expense is recorded to cost of professional services and other revenue in the consolidated statements of operations.

The Company has included the operating results of Cacheflow in its consolidated financial statements since the date of the acquisition. The acquisition did not have a material effect on the revenue or earnings in the consolidated statement of operations for the reporting periods presented. Separate financial results and pro forma financial information for Cacheflow have not been presented as the effect of this acquisition was not material to our financial results.

APIHub, Inc.

On December 1, 2023, the Company acquired all outstanding shares of APIHub, Inc. (d.b.a. Clearbit), a B2B data provider that provided a complimentary B2B data asset to the Company's customers. The total cash purchase price for the acquisition was $140.4 million, net of cash acquired, which included a working capital adjustment of $1.8 million. There was approximately $4.1 million of post-combination expense, which is contingent upon post-acquisition employment and will be recognized as compensation expense in the consolidated statement of operations over a period oftwo years. As of December 31, 2024, $3.1 million of this consideration had been earned and recorded as operating expense in the consolidated statements of operations. The transaction costs associated with the acquisition were approximately $3.4 million and were recorded in general and administrative expense.

The following table summarizes the fair value of assets acquired and liabilities assumed as of the date of acquisition:

The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets and liabilities acquired was recorded as goodwill. The Company expects to derive value from the combination of Clearbit's data asset and HubSpot's AI-powered Smart CRM, as well as through other synergies. The goodwill recognized is not deductible for U.S. income tax purposes.

The primary intangible asset acquired in the business combination was developed technology and the fair value of the developed technology of $28.9 million was determined based on the estimated present value of expected after-tax cash flows attributable to the technology using an excess earnings method. The Company applied significant estimates and assumptions with respect to forecasted revenue growth rates, the revenue attributable to the acquired intangible asset over its estimated economic life, and the discount rate. The fair values assigned to the other tangible and identifiable intangible assets acquired and liabilities assumed as part of the business combination were based on management’s estimates and assumptions. The Company began amortizing the acquired technology on the date of acquisition over a period offive years based on expected future cash flow attributable to the technology. The amortization expense is recorded to cost of subscription revenue in the consolidated statements of operations.

The Company has included the operating results of Clearbit in its consolidated financial statements since the date of the acquisition. Separate financial results and pro forma financial information for Clearbit have not been presented as the effect of this acquisition was not material to the Company's financial results.

9. Intangible Assets and Goodwill

Intangible assets

Intangible assets as of December 31,2024 and 2023 consist of the following:

The Company has intangible assets acquired through business acquisitions (Note 8). The estimated useful life of acquired technology istwo to seven years and the estimated useful life of sublease assets istwo years. The Company also purchased rights tothe domain name "connect.com" and the cost is amortized on a straight-line basis over its estimated useful life of seven years. Other intangible assets have estimated useful lives of two to three years. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Amortization expense related to intangible assets was$9.6 million in 2024,$5.3 million in 2023, and$2.6 million in 2022. Amortization expense of acquired technology is included in cost of subscription revenue and cost of professional services and other revenue. Amortization expense of customer relationships and the domain name is included in sales and marketing expense in the consolidated statements of operations.

Estimated future amortization expense for intangible assets as of December 31,2024 is as follows:

Goodwill

Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired and is generally not deductible for tax purposes. Goodwill amounts are not amortized, but rather tested for impairment annually.

The changes in the carrying amounts of goodwill consist of the following:

10. Convertible Senior Notes

2025 Convertible Senior Notes and Capped Call Options

In June 2020, the Company issued $400 million aggregate principal amount of 0.375% convertible senior notes due June 1, 2025 (the “2025 Notes”) in a private offering and an additional $60 million aggregate principal amount of the 2025 Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers. The interest rate is fixed at 0.375% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year. The total net proceeds from the debt offering, after deducting initial purchase discounts and debt issuance costs, were approximately $450.1 million.

Each $1,000 of principal amount of the 2025 Notes will initially be convertible into 3.5396 shares of the Company’s common stock (the “Conversion Option of the 2025 Notes”), which is equivalent to an initial conversion price of approximately $282.52 per share, subject to adjustment upon the occurrence of certain specified events. On or after March 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2025 Notes at any time. The 2025 Notes will be convertible at the option of the holders prior to the close of business on the business day immediately preceding March 1, 2025 under certain circumstances as described in the indenture governing the 2025 Notes (the “Indenture”). Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The Company expects to settle the principal amount of the 2025 Notes in cash. Because the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the calendar quarter ended December 31, 2024 was equal to or greater than 130% of the applicable conversion price on each applicable trading day, the 2025 Notes are convertible at the option of the holders thereof during the calendar quarter ending March 31, 2025.

The net carrying amount of the liability component of the 2025 Notes is as follows:

Interest expense related to the 2025 Notes is as follows:

In connection with the offering of the 2025 Notes, the Company purchased capped call options (“Capped Call Options”) with respect to its common stock for $50.6 million. The Capped Call Options are purchased call options that give the Company the option to purchase up to approximately 1.6 million shares of its common stock for $282.52 per share, which corresponds to the approximate initial conversion price of the 2025 Notes. The Capped Call Options were purchased in order to offset potential dilution to the Company’s common stock upon any conversion of the 2025 Notes, subject to a cap of $426.44 per share, and expire concurrently with the 2025 Notes. The Capped Call Options automatically settle in components commencing on April 16, 2025 and are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event; a tender offer; and a nationalization, insolvency or delisting involving the Company. In addition, the Capped Call Options are subject to certain specified additional disruption events that may give rise to a termination of the Capped Call Options, including changes in law, insolvency filings, and hedging disruptions. Since the transaction meets certain accounting criteria, the $50.6 million paid for the Capped Call Options is recorded in stockholders’ equity as a reduction in additional paid-in capital and are not accounted for as separate derivative financial instruments.

11. Segment Information and Geographic Data

The Company provides a customer platform that helps businesses connect and grow better. The Company generates revenue from subscriptions to its customer platform and related professional services and other revenue consisting mainly of customer on-boarding, training and consulting services and Commerce Hub.

The Company operates asone operating segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the CODM, which is the Company’s chief executive officer, in deciding how to allocate resources and assess performance. The Company’s CODM evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis. There is no expense or asset information, that are supplemental to those disclosed in these consolidated financial statements, that are regularly provided to the CODM. The allocation of resources and assessment of performance of the operating segment is based on consolidated net income as shown in our consolidated statements of operations. The CODM considers net income in the annual forecasting process and reviews actual results when making decisions about allocating resources. Since the Company operates as one operating segment, financial segment information, including profit or loss and asset information, can be found in the consolidated financial statements.

Geographic information

Revenue and long-lived assets by geographic region, based on the physical location of the operations recording the revenue or the long-lived assets, respectively, are as follows:

Revenues by geographic region:

Revenue derived from customers outside the United States (international) was approximately 47% of total revenue in 2024 and 2023 and 46% of total revenue 2022. Revenues attributed to the United States were 95%,96%, and 98% of Americas in the years ended December 31,2024, 2023 and 2022. Revenues attributed to Ireland were 47%,54%, and 67% of Europe in the years ended December 31,2024, 2023 and 2022.

Total long-lived assets bygeographic region:

Long-lived assets attributed to the United States were 97% and 96% of Americas as of December 31,2024 and 2023. Long-lived assets attributed to Ireland were 80% and 79% of Europe as of December 31,2024 and 2023.

12. Commitments and Contingencies

Contractual Obligations

The Company leases its office facilities under non-cancelable operating leases that expire at various dates through February 2035. Certain leases contain optional termination dates. The table below only includes payments up to the optional termination date. If the Company were to extend leases beyond the optional termination date, the future commitments would increase by approximately $79.1 million.

Included in the table below are operating lease commitments for leases that have not yet commenced of approximately $5.8 million for facilities with lease terms of approximatelytwo tofive years.

Future minimum payments under all operating lease agreements as of December 31,2024, are as follows:

The Company has entered into certain non-cancelable vendor commitments, which require the future purchase of goods or services. Future minimum payments under all vendor commitments as of December 31,2024 are as follows:

The Company also has commitments to contribute additional capital of $3.0 million to the Black Economic Development Fund.

Legal Contingencies

From time to time the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

13. Changes in Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss), which is reported as a component of stockholders’ equity, for the years ended December 31,2024 and 2023:

14. Stockholders’ Equity and Stock-Based Compensation

Common Stock Reserved — As of December 31, 2024 and 2023, the Company has authorized 500 million shares of common stock. The number of shares of common stock reserved for the vesting of RSUs, PSUs, and exercise of common stock options are as follows (in thousands):

For shares reserved for issuance for the Conversion Options and Capped Call Options of the Notes, see Note 10.

Equity Incentive Plans —The Company’s 2014 Stock Option and Incentive Plan (the “2014 Plan”) became effective upon the closing of the Company’s IPO in the fourth quarter of 2014. As of December 31, 2024,0.3 million options to purchase common stock,1.2 million RSUs and 0.1 million PSUs remained outstanding under the 2014 Plan.

The Company’s 2024 Stock Option and Incentive Plan (the “2024 Plan”) became effective June 11, 2024 after shareholder approval andno new awards will be issued under the 2014 Plan as of this date. The Company reserved 3,950,000 shares available for issuance. The shares of stock underlying any awards under the 2024 Plan and 2014 Plan that are forfeited, canceled, or otherwise terminated (other than by exercise) are added back to the shares available for issuance under the 2024 Plan. As of December 31, 2024,0.2 million RSUs remained outstanding under the 2024 Plan.

Stock Compensation Expense —The Company’s equity compensation expense is comprised of awards of options to purchase common stock, RSUs, PSUs, and stock issued under the Company’s employee stock purchase plan (“ESPP”).

The following two tables show stock compensation expense by award type and where the stock compensation expense is recorded in the Company’s consolidated statements of operations:

Excluded from stock-based compensation expense is$40.1 million of capitalized software development costs in 2024,$28.2 million in 2023, and$13.1 million in 2022.

Stock Options —The fair value of employee options is estimated on the date of each grant using the Black-Scholes option-pricing model with the following assumptions. There wereno options granted in 2024.

The risk-free interest rate is based on the U.S. Treasury bond rate at the date of grant with a maturity approximately equal to the expected term. The expected term of options granted to employees is calculated using the simplified method, which represents the average of the contractual term of the option and the weighted-average vesting period of the option. The expected volatility for the Company’s common stock is based on the average of the Company's historical volatility over the expected term of the award. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. Forfeitures of share-based awards prior to vesting results in a reversal of previously recorded stock-compensation expense associated with such forfeited awards. The fair value of the Company’s common stock is the closing price of the stock on the date of grant.

The stock option activity for the year ended December 31,2024 is as follows:

Total unrecognized compensation cost related to the unvested options was$6.0 million at December 31, 2024. That cost is expected to be recognized over a weighted-average period of 1.5 years.

Restricted Stock Units —RSUs vest upon achievement of a time-based service condition over a period of three or four years. As soon as practicable following each vesting date, the Company will issue to the holder of the RSUs the number of shares of common stock equal to the aggregate number of RSUs that have vested. The total stock-based compensation expense expected to be recorded over the remaining life of outstanding RSUs is approximately$635.3 million at December 31, 2024. That cost is expected to be recognized over a weighted-average period of 2.0 years. As of December 31, 2024, there are 1.5 million RSUs expected to vest with an aggregate intrinsic value of$1.0 billion.

The following table summarizes the activity related to RSUs for the year ended December 31,2024:

Performance-based Restricted Stock Units —PSUs are eligible to be earned upon the achievement of a pre-determined revenue growth metric and service condition. To the extent earned,33% of the PSUs will vest following the completion of the performance period and theremaining 67% will vest in eight equal quarterly installments thereafter. No PSUs will be earned if the pre-determined revenue growth metric is not achieved, and the overall number of shares that may be earned shall not exceed 150% of the target award.

The fair value of the PSUs is the closing price of the Company's common stock on the grant date of the award. Stock-based compensation costs for PSUs are recognized using the graded vesting attribution method over the requisite service period when it becomes probable that the performance target will be achieved. The total stock-based compensation expense expected to be recorded over the remaining life of outstanding PSUs is approximately$13.2 million at December 31, 2024. That cost is expected to be recognized over a weighted-average period of 1.9 years. The intrinsic value of PSUs vested was$20.4 million in 2024. The total fair value of PSUs vested was$13.0 million in 2024. The weighted-average grant date fair value was$633.80 in 2024 and$383.13 in 2023. As of December 31, 2024, there are 0.1 million PSUs expected to vest with an aggregate intrinsic value of$49.6 million.

The following table summarizes the activity related to PSUs for the year ended December 31,2024:

Employee Stock Purchase Plan (“ESPP”)— The ESPP authorizes the issuance of up to a total of 2.5 million sharesof common stock to participating employees and allows those employees to purchase shares of common stock at a 15% discount from the fair market value of the stock as determined on specific dates at six-month intervals. The offering periods for the ESPP commence on June 1 and December 1 of each year.

The fair value of the purchase rights under the ESPP is estimated using the Black-Scholes option-pricing model with the following assumptions:

The risk-free interest rate is based on the U.S. Treasury bond rate at the date of grant with a maturity approximately equal to the expected term. The expected term is based on the term of the offering period. The expected volatility for the Company’s common stock is based on the average of the Company's historical volatility over the expected term of the award. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The fair value of the Company’s common stock is the closing price of the stock on the date the offering period starts.

The following table summarizes the activity related to ESPP:

15. Derivatives

The Company enters into foreign currency forward contracts to reduce the risk of variability in future cash flow due to foreign currency exchange rate fluctuation from certain forecasted revenue transactions billed in currencies other than the U.S. Dollar. These transactions are designated as cash flow hedges. The foreign currency forward contracts have maturities of 12 months or less. Hedge effectiveness is assessed at inception and at each reporting period utilizing statistical regression analysis. The derivatives are subject to master netting arrangements and are disclosed on a gross basis on the consolidated balance sheets. Unrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in accumulated other comprehensive income ("AOCI") and are reclassified into revenues in the same periods when the hedged transactions are recognized in earnings. Cash flows from the settlement of these forward contracts are classified as operating activities on the consolidated statements of cash flows. As of December 31, 2024, the Company had designated cash flow hedge forward contracts with notional amounts equivalent to $26.0 million.

The following summarizes the fair value of derivative financial instruments as of December 31, 2024 and 2023:

Refer to Note 13 for the activity of foreign currency forward contracts designated as hedging instruments and the impact of these derivatives on AOCI. As of December 31, 2024, the Company estimates the net amount of unrealized losses before tax on the foreign currency contracts expected to be reclassified into revenue over the next 12 months is approximately $1.1 million.

16. Income Taxes

Income (loss) before provision for income taxes was as follows:

The provision for income taxes consists of the following:

The following reconciles the differences between income taxes computed at the federal statutory rate of 21% for 2024, 2023 and 2022 and the provision for income taxes:

Deferred Tax Assets and Liabilities — Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows:

The Company reviews all available evidence to evaluate the realizability of its deferred tax assets, including its recent history of accumulated losses over the most recent three years as well as its ability to generate income in future periods. The Company has provided a valuation allowance against its U.S. net deferred tax assets as it is more likely than not that these assets will not be realized given the nature of the assets and the likelihood of future utilization.

The valuation allowance increased by$101.3 million in 2024,$127.5 million in 2023 and$62.4 million in 2022, primarily due to the increase in deductible temporary differences for U.S. research and development capitalization. The Company does not expect any significant changes in its valuation allowance positions within the next 12 months.

The Company had federal and state net operating loss carryforwards of $640.0 million and $723.7 million at December 31,2024 and $861.4 million and $741.0 million at December 31,2023. The Company also had international net operating loss carryforwards of $0.9 million at December 31,2024 and $8.6 million at December 31,2023. All federal net operating losses have an indefinite carryforward period. State net operating losses will begin to expire in 2027.

The Company has net federal research and development credit carryforwards of $155.7 million at December 31, 2024 that begin to expire in 2027. The Company also has state research and investment tax credit carryforwards of $72.3 million that begin to expire in 2026.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in the Company's ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of net operating loss carryforwards before they expire.

The Company adjusted the lease liability deferred tax asset and right of use and other asset deferred tax liability amounts as of December 31, 2023 in the table above to correct for immaterial presentation errors.

Uncertain Tax Positions — The Company accounts for uncertainty in income taxes using a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination by a tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The following summarizes activity related to unrecognized tax benefits:

The majority of the gross unrecognized tax benefits represent a reduction to the research and development tax credit carryforward. The majority of the unrecognized tax benefits decrease deferred tax assets with a corresponding decrease to the valuation allowance.

The Company has elected to recognize interest and penalties related to uncertain tax positions as a component of income tax expense.

The Company does not expect any significant change in its unrecognized tax benefits within the next 12 months.

The Company files tax returns in the United States and various jurisdictions throughout the world where the Company has operations or has established a taxable presence. All of the Company’s tax years remain open to examination in the United States, as carryforward attributes generated in past years may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in future periods. The Company is no longer subject to examination for years prior to 2017 in various significant tax jurisdictions and continues to be routinely examined by various taxing authorities.

17. Employee Benefit Plan

The Company maintains a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers certain employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis, subject to legal limitations. Total employer contributions were$23.1 million in 2024,$11.0 million in 2023, and$10.6 million in 2022.

18. Restructuring Plan

On January 25, 2023, the Company's board of directors authorized a restructuring plan (the “Restructuring Plan”) that was designed to reduce operating costs and enable investment in key opportunities for long-term growth while driving continued profitability. The Restructuring Plan included a reduction of the Company’s workforce by approximately 7% and a global lease consolidation to create higher density across our workspaces.

In 2023, the Company terminated and abandoned various leases of office spaces globally. The Company recorded a reduction in right-of-use assets of $46.8 million and an increase in lease liabilities of $5.9 million for these leases upon the lease terminations or abandonments. The Company also incurred $96.8 million of restructuring charges in 2023, composed of $70.0 million related to facilities and $26.8 million for severance, employee related benefits, and other costs, including $1.0 million of stock-based compensation expense. In 2024, the Company incurred restructuring charges of $4.0 million consisting of variable facilities related costs on unused space. The charges are recorded to the restructuring line item within the consolidated statements of operations.

Future variable facilities related costs for vacated properties will continue to be recorded to restructuring charges. As of December 31, 2024, the Company didnot have any remaining liabilities accrued related to the Restructuring Plan.

19. Subsequent Events

Business Acquisition

On January 6, 2025, the Company acquired all outstanding shares of Frame Technology, Inc. (“Frame AI”), an AI-powered conversation intelligence platform, for cash consideration of approximately $60.0 million, subject to customary post-closing adjustments and conditions. The acquisition will accelerate the Company's ability to unify structured and unstructured data across the customer journey at scale and empower go-to-market teams to transform conversations into actionable intelligence. The Company is in the process of finalizing the accounting for this transaction and expects to complete the preliminary purchase price allocation in the first quarter of 2025.

2025 Notes Conversions

Between December 31, 2024 and the date of filing this report, the Company settled $89.3 million of the principal balance of the 2025 Notes in cash in response to conversion notices received prior to December 31, 2024.