Freshworks Inc

1. Description of Business

Freshworks Inc. is a software development company that provides software-as-a-service (SaaS) products that provide people-first, AI service software that organizations use to deliver exceptional customer and employee experiences. We are headquartered in San Mateo, California, and have subsidiaries located in the United States, India, Australia, the United Kingdom, Ireland, Germany, France, the Netherlands, and Singapore.

In June 2024, we acquired all outstanding shares of D42 Parent, Inc., an IT asset management company, for approximately $238.1 million. See Note 6—Business Combination.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of Freshworks and its wholly owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation.

Foreign Currency Remeasurement and Transactions

The functional currency of our foreign subsidiaries is the U.S. dollar. Accordingly, each foreign subsidiary remeasures monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenues and expenses are remeasured at the exchange rates in effect on the day the transaction occurred, except for those expenses related to non-monetary assets and liabilities which are remeasured at historical exchange rates. Remeasurement adjustments are recognized in interest and other income, net in the consolidated statements of operations, and have not been material for the years ended December 31, 2024, 2023, and 2022.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the following:

•determination of standalone selling price (SSP) for each distinct performance obligation included in customer contracts with multiple performance obligations;

•allowance for doubtful accounts;

•benefit period of deferred contract acquisition costs;

•capitalization of internal-use software development costs;

•fair value of goodwill;

•useful lives of long-lived assets, including intangible assets;

•valuation of deferred tax assets;

•valuation of employee defined benefit plan and other compensation liabilities;

•fair value of share-based awards; and

•incremental borrowing rate used for operating leases.

Revenue Recognition

We derive revenue from subscription fees, related professional services, and following the acquisition of D42 Parent, Inc. in June 2024, software licenses.

Subscription Revenue

We sell subscriptions for our cloud-based solutions directly to customers and indirectly through channel partners through arrangements that are non-cancelable and non-refundable. Our subscription arrangements do not provide customers with the right to take possession of the software supporting the solutions and, as a result, are accounted for as service arrangements. We record revenue net of sales or value-added taxes.

We sell subscriptions to third-party resellers. The price at which subscriptions are sold to the reseller is typically discounted, as compared to the price at which we would sell to an end customer, in order to enable the reseller to realize a margin on the eventual sale to the end customer. As pricing to the reseller is fixed, and we lack visibility into the pricing provided by the reseller to the end customer, reseller revenue is recorded net of any reseller discounts.

Subscription revenue is primarily comprised of fees paid by our customers for accessing our cloud-based software during the term of the arrangement. Cloud-based services allow customers to use our multi-tenant software without requiring them to take possession of the software. Given that access to the cloud-based software represents a series of distinct services that comprise a single performance obligation that is satisfied over time, subscription revenue is recognized ratably over the contract term beginning on the commencement date of each contract, which is the date that the cloud-based software is made available to customers.

Professional Service Revenue

Professional services revenue is comprised of fees charged for services ranging from product configuration, data migration, systems integration, and training. We recognize professional services revenues as services are performed.

Software License Revenue

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

Customers with Multiple Performance Obligations

Some of our contracts with customers contain both subscriptions and professional services, and software licenses. For these contracts, we account for individual performance obligations separately. The transaction price is allocated to the separate performance obligations on the basis of relative standalone selling price (SSP). We determine SSP by taking into consideration historical selling price of these performance obligations in similar transactions, as well as current pricing practices and other observable inputs including, but not limited to, customer size and geography. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes to SSP.

Cost of Revenue

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

Research and development costs are expensed as incurred and consist primarily of personnel-related expenses (primarily including salaries, related benefits, and stock-based compensation) for our product development employees. Research and development expenses also include non-personnel-related expenses such as third-party services for product development and consulting expenses, depreciation expense related to equipment used in research and development activities, and allocation of our general overhead expenses.

Advertising Costs

Advertising costs are charged to sales and marketing expense in the consolidated statements of operations as incurred. We recognized $41.4 million, $41.2 million, and $47.2 million of advertising costs for the years ended December 31, 2024, 2023, and 2022, respectively.

We issue stock options and restricted stock units (RSUs) to employees, consultants and directors under our 2021 Equity Incentive Plan (2021 Plan) and stock purchase rights granted under the 2021 Employee Stock Purchase Plan (ESPP) to employees based on the estimated fair value on the date of the grant. Stock-based compensation expense related to stock options and RSUs under the 2021 Plan and stock purchase rights under the ESPP is recognized in the consolidated statements of operations on a straight-line basis over the requisite service period, which is the vesting period of the respective awards. Forfeitures are accounted for when they occur.

The fair value of RSUs is based on the closing market price of our Class A common stock on the date of the grant. Prior to the Initial Public Offering (IPO) in 2021, we determined the fair value of the common stock underlying stock options and RSUs by considering numerous objective and subjective factors including, but not limited to: (i) independent third-party valuations, (ii) the prices, rights, preferences, and privileges of our redeemable convertible preferred stock relative to its common stock, (iii) the lack of marketability of the common stock, (iv) current business conditions and financial projections, and (iv) the likelihood of achieving an IPO or sale event. Subsequent to the IPO, the fair values of stock options and the stock purchase rights under the ESPP are estimated using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. These assumptions represent our best estimates and involve inherent uncertainties and the application of our judgment. The main assumptions used in the Black-Scholes option-pricing model include:

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method which represents the average of the contractual term of the option and the weighted-average vesting period of the option. We consider this appropriate as there is not sufficient historical information available to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. The expected term for ESPP is the length of time from the grant date to the date on which the stock is purchased by the employees.

Stock price volatility—For the stock price volatility over the expected term where our common stock has sufficient trading history, we generally estimate the stock price volatility using the historical volatility of our own stock. If our common stock lacks sufficient trading history, the stock price volatility over the expected term is estimated based on the historical volatility of comparable companies with similar characteristics to those of ours.

Risk-free interest rate—The risk-free interest rate is based on the yield of the U.S. treasury debt securities commensurate with the expected term.

Dividend yield—Because we have never paid and have no intention to pay cash dividends on our common stock, the dividend yield iszero.

For the performance-based award granted to the then CEO, now Executive Chairman, with both a service-based vesting condition and a market condition (as discussed further in Note 12 —Stockholders' Equity and Stock-Based Compensation), we determined the fair value of the award by using the Monte Carlo simulation model. The main assumptions used in the Monte Carlo simulation model include stock price volatility, risk-free interest rate, dividend yield and the measurement period, which is the period over which our simulated stock prices are used to evaluate the possibility of achieving the specified stock price targets. Since both vesting conditions have to be met for each tranche of the award to ultimately vest, the associated stock-based compensation expense is recognized over the longer of the derived service period or the requisite service period, using the accelerated attribution method.

In February 2024, the Board approved performance awards (PRSUs) to be granted to certain members of the executive team subject to service and performance-based vesting conditions (referred to as Executive PRSUs in Note 12—Stockholders' Equity and Stock-Based Compensation). The performance-based vesting conditions include revenue and free cash flow targets. The fair value of each Executive PRSU is based on the fair value of our common stock on the date of grant. Stock-based compensation associated with these Executive PRSUs is recognized using the accelerated attribution method over the requisite service period, based on Freshworks' periodic assessment of the probability that the performance will be achieved. If the performance goals are not met as of the end of the performance period, no compensation expense is recognized and any previously recognized compensation expense is reversed.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2024 and 2023, we have recorded a full valuation allowance against our U.S. deferred tax assets.

We recognized the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is more likely than not of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

We recognize interest and penalties related to income tax matters as a component of income tax expense.

Cash and Cash Equivalents

Cash and cash equivalents consist of deposits held at financial institutions, money market funds, as well as highly liquid investments with an original maturity of three months or less when purchased. Cash and cash equivalents are recorded at cost, which approximates fair value.

Marketable Securities

Marketable securities consist primarily of debt securities such as corporate bonds, commercial paper, U.S. treasury securities, U.S. government agency securities and certificates of deposit. These securities are classified as available-for-sale securities at the time of purchase as they represent funds readily available for current operations, and we have the ability and intent to liquidate them at any time to meet our operating cash needs, if necessary. All available-for-sale debt securities are recorded at their estimated fair value, with changes in fair value recognized as unrealized gains or losses in accumulated other comprehensive income. For available-for-sale debt securities in an unrealized loss position, we evaluate whether a current expected credit loss exists based on available information relevant to the credit rating of the security, current economic conditions and reasonable and supportable forecasts. Expected credit losses are recorded in interest and other income, net, on the consolidated statements of income, and any remaining unrealized losses are recognized in accumulated other comprehensive income or loss in the stockholders' equity section of the consolidated balance sheets. Realized gains and losses are determined based on the specific identification method and are reported in interest and other income, net in the consolidated statements of operations. There wereno credit losses or impairment on available-for-sale debt securities recognized for the years ended December 31, 2024, 2023, and 2022.

Marketable securities also included mutual funds comprised of certain term bonds. These mutual funds meet certain criteria for equity investments in accordance with ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. Under this guidance, we measure mutual funds at their estimated fair value, with changes in fair value recognized in interest and other income, net in the consolidated statements of operations.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at the invoiced amount, net of allowance for credit losses. The allowance is based on our assessment of the collectability of accounts and is recorded as an offset to revenue and deferred revenue. We regularly review the adequacy of the allowance by considering the age of each outstanding invoice and the collection history.

Concentrations of Risk

Financial instruments that potentially expose us to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. Our cash and cash equivalents and marketable securities are generally held with large financial institutions and are in excess of the federally insured limits provided on such deposits. In addition, we have cash and cash equivalents held in international bank accounts, which are denominated primarily in euros, British pounds, and Indian rupees.

There were no customers that individually exceeded 10% of our revenue for the years ended December 31, 2024, 2023, and 2022, or that represented 10% or more of our consolidated accounts receivable balance as of December 31, 2024 and 2023.

We primarily rely upon third-party cloud infrastructure partner, Amazon Web Services (AWS), to serve customers and operate certain aspects of its services. Any disruption of this cloud infrastructure partner would impact our operations and our business could be adversely impacted.

Derivative Instruments

We enter into foreign currency forward contracts, all of which were designated as cash flow hedges, in order to manage the volatility of cash flows that relate to cost of revenues and operating expenses denominated in Indian rupee. All derivative instruments are measured at fair value based upon quoted market prices for comparable instruments and as such, classified within Level 2 of the fair value hierarchy. Derivative assets and liabilities are presented on a gross basis on the consolidated balance sheets under prepaid expenses and other current assets and accrued liabilities, respectively.

Gains or losses related to cash flow hedges are recorded as a component of accumulated other comprehensive income (AOCI) on the consolidated statements of stockholders' equity until the forecasted transaction occurs in earnings. When the forecasted transaction occurs, the related gains and losses are reclassified into earnings within the financial statement line item associated with the underlying hedged transaction. If the underlying hedged transaction does not occur, or it becomes probable that the hedged transaction will not occur, the cumulative unrealized gain or loss is reclassified immediately from AOCI into earnings within interest and other income. Changes in the fair value of currency forward exchange contracts due to changes in time value were excluded from the assessment of effectiveness. The initial value of this excluded component is amortized on a straight-line basis over the life of the hedging instrumentand recognized in the financial statement line item to which the hedge relates. A majority of the balance related to foreign exchange derivative instruments included in AOCI at December 31, 2024 is expected to be reclassified into earnings within 12 months.

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

We do not use derivative financial instruments for trading or speculative purposes.

Entering into derivative instruments exposes us to credit risk to the extent that the counterparties are unable to meet the terms of the contract. We mitigate this credit risk by transacting with major financial institutions with high credit ratings. In addition, we have entered into master netting arrangements that mitigate credit risk by permitting net settlement of transactions. As such, our exposure is not considered significant. We do not have any collateral requirements with counterparties.

Deferred contract acquisition costs are incremental costs that are associated with acquiring customer contracts and consist primarily of sales commissions and the associated payroll taxes and certain referral fees paid to third-party resellers. The costs incurred upon the execution of initial and expansion contracts are primarily deferred and amortized over an estimated benefit period ofthree years. The estimated benefit period is determined by taking into consideration our contracts with customers, technology life cycle and other factors. We consider the estimated benefit period to exceed the initial contract term for certain costs because of anticipated renewals and because sales commission rates for renewal contracts are not commensurate with sales commissions for initial contracts. We include amortization of deferred commissions in sales and marketing expense in our consolidated statements of operations. There wasno impairment loss in relation to the incremental selling costs capitalized for the years ended December 31, 2024, 2023, and 2022.

We have elected to apply the practical expedient under Accounting Standards Codification (ASC) No. 340-40—Other Assets and Deferred Costs to account for costs incurred in obtaining a contract with a benefit period of one year or less as commission expenses. Deferred contract acquisition costs are included in sales and marketing expense in our consolidated statements of operations.

Property and Equipment, net

Property and equipment, net, including capitalized internally-developed software, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets as follows:

Capitalized Internal-Use Software

We capitalize costs incurred in our software development projects and implementation of certain enterprise cloud computing services during the application development stage . Costs related to preliminary project activities and post implementation activities are expensed as incurred. Once the development project is available for general release, capitalization ceases, and we estimate the useful life of the asset and begin amortization. Internal-use software and cloud computing services are amortized on a straight-line basis over its estimated useful life.

Long-Lived Assets (Including Goodwill)

Long-lived assets with finite lives include property and equipment, capitalized internal-use software and right-of-use (ROU) assets. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds these estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group.

Goodwill is not amortized but rather is tested for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. We elected to bypass the qualitative assessment, and performed a quantitative goodwill impairment test. Goodwill impairment is recognized when the quantitative assessment results in the carrying value of the reporting unit exceeding its fair value, in which case an impairment charge in the amount of such excess is recorded to goodwill, limited to the amount of goodwill. We didnot recognize any impairment of goodwill during the years ended December 31, 2024, 2023, and 2022.

Deferred Revenue

Deferred revenue consists of customer billings in advance of revenue being recognized from our subscription and professional services arrangements. Customers are invoiced for subscription service arrangements in advance for monthly, quarterly, semi-annual and annual subscription plans. Our payment terms generally provide that customers pay the invoiced portion of the total arrangement fee either in advance or within 30 days from the invoice date.

Net Loss per Share Attributable to Common Stockholders

Basic and diluted net loss per share attributable to common stockholders are presented in conformity with the two-class method required for participating securities. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the number of weighted-average shares of common stock outstanding during the reporting period. Diluted net loss per share attributable to common stockholders adjusts basic net loss per share for the potentially dilutive impact of outstanding stock options, RSUs, PRSUs, and stock purchases rights granted under the ESPP. The dilutive potential shares are computed using the treasury stock method. Because we have reported net losses for all periods presented, all potentially dilutive securities are considered antidilutive, and accordingly, diluted net loss per share is the same as basic net loss per share.

Defined Benefit Plan

Employees in India are entitled to benefits under the Gratuity Act, a defined benefit retirement plan covering eligible employees. The plan requires employers to provide for a lump-sum payment to eligible employees at retirement, death, and incapacitation or on termination of employment, of an amount based on the respective employee’s salary and tenure of employment. Employees in India are also entitled to a defined benefit plan with benefits based on an employee’s accumulated leave balance and salary. Both plans are unfunded arrangements.

Current service costs are accrued in the period to which they relate. The benefit obligations are calculated by a qualified actuary using the projected unit credit method and the unfunded position is recognized as a liability in the consolidated balance sheets. In measuring the defined benefit obligations, we use a discount rate at the reporting date based on yields of local government treasury bills denominated in the same currency in which the benefits are expected to be paid, with maturities approximating the terms of our obligations.

Because the plan is unfunded, no annual contributions are required to be made as per applicable regulations. Disclosures required under ASC 715—Compensation—Retirement Benefits, have been omitted because we have deemed them immaterial to our consolidated financial statements. The benefit plans had a plan benefit obligation of $11.4 million and $11.9 million as of December 31, 2024 and 2023, respectively. The long-term portion for the amount of $9.6 million and $10.5 million is included in other liabilities in the consolidated balance sheets as of December 31, 2024 and 2023, respectively. The current portion for the amount of $1.8 million and $1.4 million is included in accrued expenses in the consolidated balance sheets as of December 31, 2024 and 2023, respectively.

Leases

We lease office space under operating leases with expiration dates through 2032. We determine whether an arrangement constitutes a lease and records lease liabilities and ROU assets on our consolidated balance sheets at the lease commencement date. Lease liabilities are measured based on the present value of the total lease payments not yet paid, discounted based on either the rate implicit in the lease or our incremental borrowing rate (the estimated rate we would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease), whichever is more readily determinable. The incremental borrowing rate is based on an estimate of our expected unsecured borrowing rate for its notes, adjusted for tenor and collateralized security features. Lease liabilities due within 12 months are included within accrued liabilities on our consolidated balance sheets. ROU assets are measured based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the lease commencement date, (ii) initial direct costs incurred, and (iii) tenant incentives received, incurred or payable under the lease. Recognition of rent expense begins when the lessor makes the underlying asset available to us. We do not assume renewals or early terminations of its leases unless it is reasonably certain to exercise these options at commencement and does not allocate consideration between lease and non-lease components.

For short-term leases, we record rent expense in our consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred.

Restructuring Charges

Costs associated with our restructuring plan primarily consist of severance payments, benefits continuation, and other employee separation costs. In general, we record involuntary employee-related exit costs when we communicate to employees that they are entitled to receive such benefits and the amount can be reasonably estimated. Related costs are included in restructuring charges in the consolidated statements of operations. The remaining restructuring liability is included in accrued liabilities in the consolidated balance sheet.

Recent Accounting Pronouncements

Accounting Standards Recently Adopted

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit and loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. This authoritative guidance is required to be applied retrospectively and effective for Freshworks starting in its annual disclosures for 2024 and interim periods starting 2025. We adopted this ASU on January 1, 2024. See Note 11—Segment and Geographic Information for additional details.

Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires entities to provide more information in the rate reconciliation table and about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories. This authoritative guidance should be applied prospectively and will be effective for us starting in our annual disclosures for 2025. Retrospective application is permitted. This guidance is only related to disclosures and is not expected to have a significant impact on our consolidated financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures. Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. The standard provides guidance to expand disclosures related to the disaggregation of income statement expenses, which requires more detailed information about specified categories of expenses included in certain expense captions presented on the face of the income statement. This authoritative guidance is effective for us starting in our annual disclosures for 2027 and interim periods starting 2028. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. This guidance is only related to disclosure and is not expected to have a significant impact on our consolidated financial statements.

3. Cash Equivalents and Marketable Securities

Cash equivalents and available-for-sale debt securities consisted of the following as of December 31, 2024 and 2023 (in thousands):

The following table presents gross unrealized losses and fair values for the securities that were in a continuous unrealized loss position as of December 31, 2024 and 2023 (in thousands):

The amortized cost and fair value of the available-for-sale debt securities based on contractual maturities are as follows (in thousands):

Accrued interest receivable of $3.3 million and $4.4 million was classified asprepaid expenses and other current assets in the consolidated balance sheets as of December 31, 2024 and December 31, 2023, respectively.

In addition to available-for-sale debt securities, marketable securities also include term bond mutual funds, which are measured at fair value. As of December 31, 2024 we didnot have any term bond mutual funds. As of December 31, 2023, the fair value of the term bond mutual funds was $1.6 million. The change in fair value of the term bond mutual funds is recorded in interest and other income, net in the consolidated statements of operations. The realized and unrealized gains recognized in the consolidated statements of operations for the term bond mutual funds were not material during the years ended December 31, 2024, 2023, and 2022.

4. Fair Value Measurements

We measure our financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1—Inputs are observable and reflect quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.

Level 3—Inputs that are unobservable.

Money market funds and U.S. treasury securities are classified within Level 1 because they are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Other debt securities and investments are classified within Level 2 if the investments are valued using model driven valuations which use observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Available-for-sale debt securities are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

We did not have any assets or liabilities subject to fair value remeasurement on a nonrecurring basis as of December 31, 2024 and 2023.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for our financial assets measured at fair value on a recurring basis as of December 31, 2024 and 2023 (in thousands):

The fair value of derivative assets and liabilities as of December 31, 2024 and 2023, and all related unrealized and realized gains and losses during the year ended December 31, 2024 and 2023, were not material. As of December 31, 2024 and 2023, the total notional amount of outstanding designated foreign currency forward contacts were $50.5 million and $55.8 million, respectively.

5. Balance Sheet Components

Property and Equipment, net

The following table summarizes property and equipment, net as of December 31, 2024 and 2023 (in thousands):

The following table summarizes depreciation expense and internal-use software capitalization and amortization expense for the years ended December 31, 2024, 2023 and 2022 (in thousands):

As of December 31, 2024 and 2023, the net carrying value of capitalized internal-use software was $14.5 million and $14.1 million, respectively.

Accrued and Other Liabilities

The following table summarizes accrued liabilities as of December 31, 2024 and 2023 (in thousands):

Noncurrent liabilities include $21.1 million and $22.7 million of long term accrued compensation as of December 31, 2024 and 2023, respectively.

6. Business Combination

In June 2024, we acquired all outstanding shares of D42 Parent, Inc., an IT asset management company. Through the combination, we are able to offer a more comprehensive IT solution for customers. The total purchase price consideration is $238.1 million, which consists of $225.3 million in cash paid, including $11.4 million of cash acquired, $8.9 million in common stock issued, and $3.9 million in assumed and converted stock option awards.

As part of the business combination, we assumed certain unvested, in-the-money options held by D42 Parent, Inc.'s founder, which were converted into 511,770 replacement stock option awards issued pursuant to our 2021 Equity Incentive Plan. These awards have a fair value of $5.7 million and will vesttwo years from the closing date subject to continued employment. The portion of the fair value of the assumed and converted awards related to pre-combination vesting was $3.9 million and is included as consideration discussed above, and the remaining $1.8 million is post-combination expense that will be recognized as compensation expense over the remaining service period. Refer to Note 12—Stockholders' Equity and Stock-Based Compensation.

Transaction costs associated with the acquisition were approximately $2.1 million for the year ended December 31, 2024 and were recorded in general and administrative expense.

We expect to finalize the valuation as soon as is 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 purchase consideration over the fair value of net tangible and identifiable intangible assets and liabilities acquired was recorded as goodwill. The goodwill recognized isnot deductible for U.S. income tax purposes. We expect to derive value from the combination of D42 Parent, Inc.’s existing customer base, IT asset management technology, and trademarks, as well as through other synergies. The deferred tax liability was primarily driven by the fair value of intangible assets. The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the acquisition date and are considered preliminary pending finalization of the valuation pertaining to deferred tax liabilities.

The customer relationships, developed technology, and trademarks are amortized on a straight-line basis over their estimated useful lives of 8 years,6 years, and 1 year, respectively. We used the income approach to estimate the fair value of intangible assets acquired.

We have included the operating results of D42 Parent, Inc. in our consolidated financial statements since the date of the acquisition. The revenue and net loss of D42 Parent, Inc. included in the consolidated statement of operations from the date of acquisition to December 31, 2024 were not material.

The following unaudited supplemental pro forma financial information is provided for informational purposes only and summarizes our combined results of operations as if the acquisition had occurred on January 1, 2023 (in thousands):

The unaudited supplemental pro forma results reflect certain adjustments for the amortization of acquired intangible assets, recognition of stock-based compensation, and acquisition-related transaction expenses. Such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the date indicated, nor are they indicative of our future operating results.

7. Goodwill and Intangible Assets, Net

Goodwill

The change in the carrying amounts of goodwill is presented below (in thousands):

The addition to goodwill during the year ended December 31, 2024 was associated with the acquisition of D42 Parent, Inc.. There wasno changes to goodwill during the year ended December 31, 2023.

Intangible Assets, Net

Acquired intangible assets consist of developed technology, customer relationships, and trademarks and are amortized on a straight-line basis over their estimated useful lives. The following table summarizes acquired intangible assets as of December 31, 2024 (amounts in thousands):

Total amortization of acquired intangible assets for the years ended December 31, 2024, 2023, and 2022 is as follows (in thousands):

As of December 31, 2024, expected future amortization expense related to acquired intangible assets is as follows (in thousands):

8. Leases

We have operating leases primarily for office space. The leases have remaining lease terms ofone toeight years, some of which include options to extend the lease for up tosix years. Our leases do not contain any residual value guarantee.

The following table presents various components of the lease costs (in thousands):

The weighted-average remaining term of our operating leases and the weighted-average discount rate used to measure the present value of the operating lease liabilities are as follows:

The following table presents supplemental information arising from lease transactions. Cash payments related to short-term leases are not included in the measurement of the operating lease liabilities, and as such, are excluded from the amounts below (in thousands):

Maturities of the operating lease liabilities are as follows (in thousands):

As of December 31, 2024, there wereno future payments related to signed leases that have not yet commenced.

9. Commitments and Contingencies

Contractual Commitments

Our contractual commitments primarily consist of third-party cloud infrastructure agreements and service subscription purchase arrangements used to support operations at the enterprise level. Future minimum payments under our non-cancelable purchase commitments as of December 31, 2024 are presented in the table below (in thousands):

Litigation and Loss Contingencies

On November 1, 2022, a purported Company stockholder filed a securities class action complaint in the U.S. District Court for the Northern District of California against us, certain of our current officers and directors, and underwriters of our initial public offering (IPO). On April 14, 2023, the court-appointed lead plaintiff filed a consolidated amended class action complaint. The complaint alleges that defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 by making material misstatements or omissions in offering documents filed in connection with the IPO. The complaint seeks unspecified damages, interest, fees, costs, and rescission on behalf of purchasers and/or acquirers of common stock issued in the IPO. On September 28, 2023, the court issued an order granting in part and denying in part defendants' motion to dismiss. We and the other defendants continue to vigorously defend against the remaining claims in this action.

On March 20, 2023, a purported stockholder derivative complaint was filed in the U.S. District Court for the Northern District of California. The complaint names as defendants our current directors, as well as Freshworks as nominal defendant, and asserts state and federal claims based on some of the same alleged misstatements as the securities class action complaint. The derivative complaint seeks unspecified damages, attorneys’ fees, and other costs. On June 21, 2023, the court stayed the case in light of the pending securities class action. On October 16, 2023, the court extended the stay of the case in light of the pending securities class action. We and the other defendants continue to vigorously defend against the claims in this action.

From time to time, we have been and may be in the future subject to other legal proceedings, claims, investigations, and government inquiries (collectively, legal proceedings) in the ordinary course of business. We have received and may receive claims from third parties asserting, among other things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights. There are no currently pending legal proceedings that we believe will have a material adverse impact on our business or consolidated financial statements.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to customers, business partners, and other parties with respect to certain matters, including losses arising out of intellectual property infringement claims made by third parties, if we have violated applicable laws, if we are negligent or commit acts of willful misconduct, and other liabilities with respect to our products and services and our business. In these circumstances, payment is typically conditional on the other party making a claim pursuant to the procedures specified in the particular contract. We also indemnify certain of our officers, directors and certain key employees while they are serving in good faith in their respective capacities. To date, we have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our consolidated financial statements.

10. Revenue From Contracts with Customers

Disaggregation of Revenue

The following table summarizes revenue by our service offerings (in thousands):

See Note 11—Segment and Geographic Information for revenue by geographic location.

Unbilled Receivables, Deferred Revenue and Remaining Performance Obligations

Unbilled receivables primarily represent revenue recognized in excess of billings from non-cancellable multi-year contract arrangements. As of December 31, 2024 and 2023, we had $6.3 million and $0.2 million of unbilled receivables, respectively. The increase in unbilled receivable is primarily related to the acquisition of D42 Parent, Inc. and its business. Unbilled receivables are included within accounts receivable, net on the consolidated balance sheets.

The aggregate balance of remaining performance obligations as of December 31, 2024 was $525.3 million. We expect to recognize $380.8 million of the balance as revenue in the next 12 months and the remainder thereafter. The aggregate balance of remaining performance obligations represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods.

Deferred revenue consists of customer billings in advance of revenue being recognized from our subscription and professional services arrangements. The following table summarizes the changes in the balance of deferred revenue during the years (in thousands):

(1) Includes deferred revenue and unbilled receivables acquired as part of D42 Parent, Inc. acquisition and changes in unbilled receivable.

(2) As of December 31, 2024 and 2023, non-current deferred revenue of $3.9 million and $0 was included in Other Liabilities in the consolidated balance sheets, respectively.

Revenue recognized during the years ended December 31, 2024, 2023, and 2022 from amounts included in deferred revenue at the beginning of these periods was $265.4 million, $204.8 million, and $158.7 million, respectively.

The change in the balance of deferred contract acquisition costs during the periods presented is as follows (in thousands):

11. Segment and Geographic Information

We operate in a single operating segment composed of the consolidated financial results of Freshworks. Our Chief Executive Officer (CEO) is the chief operating decision maker (CODM) of Freshworks and the key measures of segment profit or loss that our CODM uses to allocate resources and assess performance is our revenue and consolidated net loss. Significant segment expenses reviewed by our CODM for our single operating segment comprise of stock-based compensation, amortization of acquired intangible assets, and other segment expenses. Other segment expenses utilizes operating expenses recognized as research and development, selling and marketing and general and administrative expenses within our consolidated statement of operations less stock-based compensation and amortization of acquired intangible assets, and primarily related to personnel-related costs. Refer to Note 12—Stockholders' Equity and Stock-Based Compensationand Note 7—Goodwill and Intangible Assets, Net for information regarding amounts pertaining tostock-based compensation and amortization of acquired intangibles.

Revenue by geographic location is determined based on the customers' billing address. The following table summarizes revenue by geographic region (in thousands):

Revenue from North America primarily includes revenue from the United States. For the years ended December 31, 2024, 2023 and 2022, revenue generated from the United States was $294.5 million, $235.3 million and $192.2 million, or 41%,39% and 39% of total consolidated revenue, respectively. The United Kingdom, categorized within Europe, Middle East and Africa in the table above, contributed $94.1 million, $75.1 million and $63.8 million or 13%,13% and 13% of total consolidated revenue for the years ended December 31, 2024, 2023 and 2022, respectively.

Long-lived assets consist primarily of property, plant and equipment and ROU assets. The following table summarizes long-lived assets by geographic information (in thousands):

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

12. Stockholders' Equity and Stock-Based Compensation

Common Stock

We havetwo classes of common stock: Class A common stock and Class B common stock. The shares of Class A common stock and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled toone vote. Each share of Class B common stock is entitled toten votes. Class A and Class B common stock are referred to as common stock throughout these notes to the consolidated financial statements, unless otherwise noted. Holders of common stock are entitled to receive any dividends as may be declared from time to time by the board of directors.

Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder. Shares of Class B common stock automatically convert to Class A common stock upon the following: (1) sale or transfer of such share of Class B common stock, except for certain permitted transfers as described in our amended and restated certificate of incorporation; (2) the death of such Class B common stockholder (or nine months after the date of death if the stockholder is our founder); and (3) on the final conversion date, defined as the earlier of (a) the last trading day of the fiscal year following the seventh anniversary of our IPO; or (b) the date specified by a vote of the holders of a majority of the outstanding shares of Class B common stock, voting as a single class.

Share Repurchase

In November 2024, our board of directors (the Board) approved the share repurchase program, which authorized the repurchase of up to $400 million of our outstanding Class A common stock. Under the repurchase program, we may repurchase shares of our outstanding Class A common stock from time to time in the open market, through privately negotiated transactions and/or other means in compliance with the Exchange Act and the rules and regulations thereunder. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares of Class A common stock under this authorization. The timing, manner, price, and amount of any repurchases will be determined by us at our discretion, and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations. The repurchase program may be suspended or discontinued at any time.

During the year ended December 31, 2024 we repurchased a total of 985,234 shares of Class A common stock under this program in open market transactions for an aggregate purchase price of $15.5 million, resulting in an average price of $15.77 per share. As of December 31, 2024, $384.5 million remained available for future share repurchases under the program. All shares of Class A common stock subsequently repurchased were retired. Upon retirement, the par value of the common stock repurchased was deducted from common stock and any excess of repurchase price over par value was recorded entirely to additional-paid-in capital, or in the absence of additional-paid-in capital, to accumulated deficit, in the consolidated balance sheets.

Accumulated Other Comprehensive Income (Loss)

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

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

Equity Compensation Plans

In August 2021, the Board adopted the 2021 Plan and the ESPP, effective upon the IPO. Pursuant to the 2021 Plan, the Board may grant incentive stock options to purchase shares of our common stock, non-statutory stock options to purchase shares of our common stock, stock appreciation rights, restricted stock, restricted stock units (RSUs), performance awards (PRSUs) and other awards. The ESPP enables eligible employees to purchase our Class A common stock. Both the 2021 Plan and ESPP include an automatic increase to their shares reserve on January 1 of each year as set forth in the respective plan documents.

In August 2022, the Compensation Committee of the Board adopted the 2022 Inducement Plan (the Inducement Plan) in accordance with Listing Rule 5635(c)(4) of the Nasdaq Stock Market. Under the Inducement Plan, nonstatutory stock options, stock appreciation rights, restricted stock, RSUs, PRSUs and other awards may be granted as an inducement material for eligible persons to enter into employment with us. Upon adoption, we have initially reserved 10,000,000 shares of Class A common stock for issuance under the Inducement Plan.

In September 2022, we hired a President and granted him 1,732,501 RSUs under the Inducement Plan and stock options to purchase up to 1,815,980 shares of Class A common stock, of which stock options to purchase up to 1,776,780 shares of Class A common stock were granted under the Inducement Plan and the remaining under the 2021 Plan. Each award will vest over four years with 25% of the shares vesting on the first anniversary of the grant date and the remaining 75% of the shares vesting in equal quarterly installments thereafter, subject to continued employment.

Shares of common stock reserved for future issuance were as follows (in thousands):

2021 Employee Stock Purchase Plan

Under the ESPP, the price at which common stock is purchased is equal to 85% of the fair market value of a share of our common stock on the first day of the offering period or the applicable purchase date, whichever is lower. The fair market value of common stock will generally be the closing sales price on the determination date. The ESPP provides an offering period of 24 months, with four purchase periods that are generallysix months long and end on May 15 and November 15 of each year. The following table summarizes the information on shares purchased under the ESPP for the years ended December 31, 2024 and 2023:

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

The ESPP also includes a reset provision for the purchase price if the fair market value of a share of our common stock on the first day of any purchase period is less than or equal to the fair market value of a share of our common stock on the first day of an ongoing offering. If the reset provision is triggered, a new 24-month offering period begins. Each triggering of the reset provision was considered a modification in accordance with ASC 718, Stock Based Compensation, with the modification charge recognized on a straight-line basis over the new offering period. The modifications did not have a material effect on our stock-based compensation expense during the years ended December 31, 2024, 2023, and 2022.

As of December 31, 2024 and 2023, we have withheld $1.1 million and $1.3 million of contributions from its employees.

During the years ended December 31, 2024, 2023 and 2022, we recognized $5.3 million, $7.6 million and $12.2 million of stock-based compensation expense related to the ESPP, respectively.

Determination of Fair Value of the ESPP

We estimate the fair value of the ESPP using the Black-Scholes option-pricing model, which requires certain complex valuation assumption inputs such as expected term, expected stock price volatility, risk-free interest rate and dividend yield.

The fair value of each of thefour purchase periods is estimated separately. The following table summarizes the range of valuation assumptions used in estimating the fair value of the ESPP during the period:

Stock Options

Stock options are generally granted with an exercise price equal to the fair market value of a share of common stock at the date of grant, have a 10-year contractual term, and vest over afour-year period.

Stock option activity during the year ended December 31, 2024 is as follows (in thousands, except per share data):

(1)Aggregate intrinsic value for stock options represents the difference between the exercise price and the per share fair value of our common stock as of the end of the period, multiplied by the number of stock options outstanding, exercisable, or vested.

Total intrinsic value of options exercised during the years ended December 31, 2024, 2023, and 2022 was $5.4 million, $6.8 million, and $5.9 million, respectively.

The weighted-average grant date fair value per share of the assumed and converted stock options related to the D42 Parent, Inc. acquisition was $11.09 for the year ended December 31, 2024, of which approximately $1.8 million was related to post-combination services and will be recognized as stock-based compensation over requisite service period oftwo years (Note 6).

The weighted-average grant date fair value of stock options granted was $8.26 per share during the year ended December 31, 2022. There wereno options granted during the years ended December 31, 2024 and 2023.

Determination of Fair Value of Stock Options

We estimate the fair value of stock options using the Black-Scholes option-pricing model, which requires certain complex valuation assumption inputs such as expected term, expected stock price volatility, risk-free interest rate, and dividend yield. The following table summarizes the valuation assumptions used in estimating the fair value of stock options assumed and granted for the years presented:

Restricted Stock Units

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

RSU activity, which includes PRSUs, during the year ended December 31, 2024 is as follows (in thousands, except per share data):

(1) During the year ended December 31, 2024, shares granted includes 0.9 million shares granted to the Executive Chairman as long-term equity incentive award accounted for as a modification. The weighted average grant date fair value was $69.78 per share. Refer to the Executive Chairman Awards discussion below.

(2) During the year ended December 31, 2024 total shares that vested were 9.7 million, of which 3.7 million shares were withheld for tax purposes.

(3) Shares forfeited includes the cancellation of the 2021 Executive Chairman Performance Award consisting of 6,000,000 PRSUs discussed in the Executive Chairman Awards section below.

The total fair value of vested RSUs during the years ended December 31, 2024, 2023, and 2022 were $180.0 million, $175.3 million, and $235.0 million, respectively.

Performance-Based Awards

Executive Chairman Awards

In May 2019, the Board approved a grant of 166,390 shares PRSUs to our then CEO, now current Executive Chairman. The vesting of these PRSUs is contingent upon the satisfaction of certain milestones. The revenue-related milestone and the liquidity event condition were met prior to December 31, 2021. Upon completion of the milestones, the time-based vesting was the only condition yet to be satisfied over the remaining requisite service period. All shares related to this grant were vested as of December 31, 2023.

In September 2021, the Board approved a grant of 6,000,000 PRSUs to our Executive Chairman, with a time-based service condition beginning January 1, 2022, and a market condition involving five separate stock price targets ranging from $70.00 to $200.00 per share for each of thefive vesting tranches (2021 Executive Chairman Performance Award). The 2021 Executive Chairman Performance Award had a total grant date fair value of $131.0 million.

The fair value of the 2021 Executive Chairman Performance Award was determined at grant date by using the Monte Carlo simulation model, which requires certain complex valuation assumption inputs such as measurement period, expected stock price volatility, risk-free interest rate and dividend yield.

The valuation assumptions using the Monte Carlo simulation model at the date of grant were:

As a result of macroeconomic conditions outside the control of our leadership team, the five separate stock price hurdles were considered by the Board to be too high for the 2021 Executive Chairman Performance Award to have the retention value expected at the time the award was granted. In February 2024, the Board approved the cancellation of the 2021 Executive Chairman Performance Award and the grant of a 2024 Executive Chairman Award with a fair value of $19.0 million, both effective March 1, 2024.

We accounted for the 2024 Executive Chairman Award as a modification. There wereno incremental costs recognized as a result of the modification and the remaining unrecognized stock-based compensation expense from the 2021 Executive Chairman Performance Award of $61.9 million will be recognized over the vesting period of the new 2024 Executive Chairman Award. The 2024 Executive Chairman Award is comprised of 70% time-based RSUs that vest quarterly over four years and 30% PRSUs with the same terms as the Executive PRSUs discussed below.

For the year ended December 31, 2024, we recognized $19.4 million, of stock-based compensation expense related to the 2024 Executive Chairman Award. For the years ended December 31, 2024, 2023 and 2022 we recognized $4.6 million (prior to modification), $28.1 million and $27.6 million of stock-based compensation expense associated with the 2021 Executive Chairman Performance Award, respectively.

Executive PRSUs

In February 2024, the Board approved PRSUs to be granted to certain members of the executive team (Executive PRSUs), subject to service and performance-based vesting conditions. The performance-based vesting conditions include revenue and free cash flow targets over the performance period from January 1 to December 31, 2024, and vest over three years from the grant date.70% and 30% of each Executive PRSU award will be earned based on Freshworks’ achievement of revenue and free cash flow targets, respectively. The performance targets allow our executives to earn up to a maximum of 177.5% of target performance in the aggregate for significant outperformance.

The fair value of each PRSU is based on the fair value of our common stock on the date of grant. Stock-based compensation associated with these Executive PRSUs is recognized using the accelerated attribution method over the requisite service period, based on Freshworks' periodic assessment of the probability that the performance will be achieved. For the year ended December 31, 2024, we recognized $5.0 million of stock-based compensation expense related to the Executive PRSUs.

Total stock-based compensation expense recorded for the years ended December 31, 2024, 2023, and 2022 was as follows (in thousands):

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

(2) Sales and marketing expense for the years ended December 31, 2024, 2023, and 2022 includes $6.5 million, $9.6 million, and $3.2 million, respectively, of stock-based compensation expense associated with RSUs, PRSUs and options granted to the President. After the appointment of the President as our Chief Executive Officer, stock-based compensation expenses were included in General and Administrative.

(3) General and administrative expense includes stock-based compensation associated with RSUs and PRSUs granted to our Executive Chairman of $50.4 million, $55.9 million and $55.9 million for the years ended December 31, 2024, 2023 and 2022, respectively.

As of December 31, 2024, unrecognized stock-based compensation expense related to unvested stock-based awards was as follows (in thousands, except for period data):

13. Restructuring Charges

In November 2024, the Board approved a restructuring plan as a part of our efforts to align our talent with our strategic priorities and to improve operating efficiency. As a result, during the year ended December 31, 2024, we have recorded restructuring charges of $9.7 million in our consolidated statements of operations, which consist of severance costs of $8.1 million and other related-personnel and exit costs of $1.6 million. We expect to complete the restructuring plan by the end of the second quarter of fiscal year 2025.

The following table shows the total amount incurred and accrued related to restructuring charges (in thousands):

The remaining balance of $2.4 million as December 31, 2024, primarily related to severance and is included in accrued liabilities in our consolidated balance sheets.

14. Income Taxes

Our net loss before provision for income taxes for the years ended December 31, 2024, 2023, and 2022 was as follows (in thousands):

The components of the provision for income taxes for the years ended December 31, 2024, 2023, and 2022 were as follows (in thousands):

The following is a reconciliation of the federal statutory income tax rate to our effective tax rate for the years ended December 31, 2024, 2023, and 2022:

The components of our net deferred tax assets as of December 31, 2024 and 2023, were as follows (in thousands):

We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute the business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.

Our valuation allowance increased by $(3.1) million and $8.7 million during the years ended December 31, 2024 and 2023, respectively.

The Tax Cuts and Jobs Act of 2017 (TCJA) made a significant change to Internal Revenue Code Section 174, which went into effect for taxable years beginning after December 31, 2021. The change requires Companies to capitalize specific research and experimental (R&E) expenditures and amortize over five years for U.S. incurred R&E or fifteen years for foreign incurred R&E beginning on January 1, 2022. This mandatory capitalization requirement does not have a material impact on the 2023 cash tax liabilities due to sufficient tax attributes.

We have not provided U.S. income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries because we intend to permanently reinvest such earnings outside the United States.

Net Operating Loss and Credit Carryforwards

As of December 31, 2024, we have U.S. federal net operating loss (NOL) carryforwards of approximately $237.9 million. If not utilized, the federal NOL carryforwards will begin to expire in 2034. For the federal NOL carryforwards arising in tax years beginning after December 31, 2017, which represents the majority of our federal NOL carryforwards, the Tax Act limits our ability to utilize carryforwards to 80% of taxable income; however, these NOLs may be carried forward indefinitely. As of December 31, 2024, the NOL carryforwards for all the states in the United States is $146.8 million. If not utilized, the state NOL carryforwards will begin to expire in 2025.

As of December 31, 2024, we also have federal tax credits carryforwards of $8.1 million. If not utilized, the credits will begin to expire in 2027.

Utilization of the NOL carryforwards may be subject to a substantial annual limitation due to the ownership change provisions of IRC Section 382 and similar state provisions. The annual limitation may result in the expiration of NOL carryforwards before utilization. We continually monitors the impact to net operating losses of any ownership changes.

Unrecognized Tax Benefits

We have adopted authoritative guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in our income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

We recognize financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has no likelihood of being realized upon ultimate settlement with the relevant tax authority. As of December 31, 2024 and 2023, we had gross unrecognized tax benefits of $8.1 million and $5.6 million, respectively, all of which would affect the effective tax rate, if recognized, after consideration of valuation allowance.

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

We recognize interest and penalties related to income tax matters as a component of income tax expense. Accrued interest of $2.2 million and $1.4 million has been recorded as of December 31, 2024 and 2023, respectively.

Our major tax jurisdictions are India and the United States and we also files income tax returns in various U.S. states and foreign jurisdictions. Carryover attributes beginning December 31, 2008, remain open to adjustment by the U.S. federal and state authorities. The U.S. federal, state, and foreign jurisdictions have statutes of limitations that generally range from three to five years. Due to our net losses, substantially all of its federal and state income tax returns are subject to examination since inception. We are under examination in India and have appealed our case to the tribunal court. As of December 31, 2024, we are waiting the results of the appeal. We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years. As the outcome of our tax audits are resolved in a manner inconsistent with management's expectations, we could adjust our provision for income taxes in the future.

15. Net Loss Per Share

Basic net loss per share attributable to common stockholders is computed by dividing the net loss by the number of weighted-average outstanding shares of common stock. Diluted net loss per share attributable to common stockholders is determined by giving effect to all potential common equivalents during the reporting period, unless including them yields an antidilutive result. We consider our stock options and RSUs as potential common stock equivalents, but excluded them from the computation of diluted net loss per share attributable to common stockholders for the periods presented, as their effect was antidilutive.

The rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net loss per share attributable to common stockholders are the same for both Class A and Class B common stock on both an individual and combined basis.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):

The following table summarizes the potential common equivalents that were excluded from the computation of diluted net loss per share attributable to Class A and Class B common stockholders for the periods presented (in thousands):