ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part I, Item 1A within this Annual Report on Form 10-K. A discussion of our financial condition, results of operations, and cash flows for the year ended December 31, 2024 compared to the year ended December 31, 2023 is included in section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, filed on February 12, 2025.
Company Overview
We provide an agentic customer platform that helps marketing, sales, and customer service teams drive business growth. We deliver seamless connection for customer-facing teams with a unified platform that includes three layers: Artificial Intelligence ("AI")-powered agents and engagement hubs, a Smart customer relationship management product (“CRM”), and a connected ecosystem supporting the customer platform with a marketplace of integrations, templates, expert partners, a community network, and an academy of educational content.
Breeze is our AI that powers the customer platform, including our Smart CRM, engagement Hubs, and the connected ecosystem. Our engagement Hubs that enable companies to attract, engage, and delight customers throughout the customer lifecycle include Marketing, Sales, Service, Operations, Content and Commerce. The Smart CRM is the foundational context layer that combines customer data with AI to power the entire customer platform with unified customer profiles and tools to manage and govern your team and business processes. Our customer platform features a central database of lead and customer interactions and integrated applications designed to help businesses build their presence online, attract prospects across channels, convert prospects into leads, close leads into customers, transact with those customers, and delight them so they become promoters of those businesses.
We designed and built our customer platform to serve a broad range of customers globally. It was built to easily and seamlessly integrate third party applications to further customize to an individual company’s industry or needs. Our customer platform starts completely free and grows with our customers to meet their needs at different stages in their life-cycles. It supports multiple languages and currencies and offers an array of sophisticated features, including content partitioning at the enterprise level for companies operating in or serving multiple countries.
We focus on selling to mid-market business-to-business, or B2B, companies, which we define as companies that have between 2 and 2,000 employees. While our customer platform was built to grow with any company, we focus on selling to mid-market businesses because we believe we have significant competitive advantages attracting and serving this market segment. These mid-market businesses seek an integrated, easy-to-implement and easy-to-use solution to reach customers and compete with organizations that have larger marketing, sales, and customer service budgets. We efficiently reach these businesses at scale through our traditional and AI-enhanced engagement strategies, our Solutions Partners, and our “freemium” model. AI-enhanced engagement strategies leverage AI to personalize, automate, and optimize how businesses attract, engage, and retain customers across channels and throughout the customer lifecycle. A Solutions Partner is a service provider that helps businesses with strategy, execution, and implementation of go-to-market activities and technology solutions. Our freemium model attracts customers who begin using our customer platform through our free products and then upgrade to our paid products. As of December 31, 2025, we had 8,882 full-time employees and 288,706 Customers of varying sizes in more than 135 countries, representing many industries.
We primarily sell our customer platform on a subscription basis. Our total revenue increased to $3.1 billion in 2025, from $2.6 billion in 2024, and from $2.2 billion in 2023, representing year-over-year increases of 19% in 2025 and 21% in 2024. We had net income of $45.9 million in 2025 and $4.6 million in 2024, and net losses of $164.5 million in 2023.
We derive most of our revenue from subscriptions to our cloud-based customer platform and related professional services, which consist of customer on-boarding, training and consulting services. Subscription revenue accounted for 98% of our total revenue for the years ended December 31, 2025, 2024, and 2023. We sell multiple product plans at different base prices on a subscription basis, each of which includes our Smart CRM and integrated applications to meet the needs of the various customers we serve. We also generate revenue through usage and consumption-based models. Customers pay additional fees if the number of contacts stored and tracked in the customer’s database exceeds specified thresholds. We also generate revenue based on the purchase of additional subscriptions, products and seats. Most of our Customers’ subscriptions are one year or less in duration.
Subscriptions are billed in advance on various schedules. Because the mix of billing terms for orders can vary from period to period, the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time. Accordingly, we do not believe that change in deferred revenue is an accurate indicator of future revenue.
Many of our customers purchase on-boarding, training, and consulting services, which are designed to help customers enhance their ability to attract, engage and delight their customers using our customer platform. Professional services and other revenue, which includes revenue from Payments, accounted for 2% of total revenue for the years ended December 31, 2025, 2024, and 2023.
We have focused on rapidly growing our business and plan to continue to make investments to help us address some of the challenges facing us to support this growth, such as demand for our customer platform by existing and new customers, significant competition from other customer platform providers and related applications and rapid technological changes in our industry.
We believe that the growth of our business is dependent on many factors, including our ability to expand our customer base, increase adoption of our customer platform within existing customers, develop new products and applications to extend the functionality of our customer platform and provide a high level of customer service. We have invested and intend to continue investing for long-term growth. We intend to continue to invest in sales and marketing to support our growth, including investments in AI-enabled tools for guided selling and content generation designed to drive efficiencies and improve conversion rates. We plan to continue to invest in research and development as we continue to introduce new products and applications to extend the functionality of our customer platform, including machine learning capabilities intended to accelerate innovation and increase productivity. We intend to continue maintaining a high level of customer service and support which we consider critical for our continued success, and investing in AI to support automated ticket resolution. We also plan to continue investing in our data center infrastructure and services capabilities in order to support continued future customer growth. We also expect to continue to incur additional general and administrative expenses as a result of our growth and the infrastructure required to operate as a public company, including continued efforts to automate and streamline processes using AI-enabled tools. We expect to use our cash flow from operations to fund these growth strategies and support our business.
Global Economic Conditions
Our results of operations may be significantly influenced by general macroeconomic conditions, including, but not limited to, the impact of pandemics, geo-political conflicts, foreign currency fluctuations, interest rates, inflation, recession risks, tariffs or other trade restrictions, and existing and new domestic and foreign laws and regulations, all of which are beyond our control. Fluctuations in foreign exchange rates and inflation have had, and may continue to have an adverse impact on our financial condition and operating results in future periods. As we continue to monitor the direct and indirect impacts of these circumstances, the broader implications of these macroeconomic events on our business, results of operations and overall financial position, particularly in the long term, remain uncertain. See Part I, Item 1A. "Risk Factors" for further discussion of the impact of these general macroeconomic factors and risks on our business.
Recent Developments
Revolving Credit Facility
On February 10, 2026, we entered into a Credit Agreement with Bank of America, N.A., as the administrative agent and L/C Issuer, and the banks and other financial institutions or entities party thereto as lenders (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for (i) a five year senior secured revolving credit facility in the amount of up to $500 million and (ii) an uncommitted incremental facility subject to certain conditions. We may use the proceeds of future borrowings under the credit facility to finance working capital, capital expenditures and for other general corporate purposes, including permitted acquisitions and investments. The facility may be drawn as a Base Rate Loan (at the highest of the federal funds rate plus 0.50%, the Bank of America prime rate, or one-month Term SOFR plus 1.00%, all subject to a 1.00% floor, plus an applicable margin ranging from 0.125% to 0.875%) or Term SOFR Loan (SOFR plus an applicable margin ranging from 1.125% to 1.875%). The facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate between 0.125% and 0.300% per annum on the daily undrawn balance.
Our obligations under the Revolving Credit Agreement are secured by substantially all of our assets. The Revolving Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, and, during periods when we do not maintain investment-grade credit ratings, a financial covenant that is tested quarterly and requires us to maintain a certain consolidated leverage ratio, and customary events of default.
2026 Share Repurchase Program
On February 7, 2026, our Board of Directors authorized a share repurchase program for the repurchase of shares of the company’s common stock, in an aggregate amount of up to $1.0 billion (the “2026 Share Repurchase Program”) over a period of up to 24 months.
Key Business Metrics
The following key business metrics are presented in this Annual Report on Form 10-K or in our press releases announcing our financial results which are furnished on Form 8-K. We use these key business metrics to evaluate our business, measure our performance, identify trends affecting our business and results of operations, formulate financial projections and make strategic decisions. These key business metrics may be calculated in a manner different from similar key business metrics used by other companies.
Year Ended December 31,
Customers
Average Subscription Revenue per Customer
Net Revenue Retention
Customers . We believe that our ability to increase our customer base is an indicator of our market penetration, the growth of our business, and our potential future business opportunities as we continue to expand our sales force and invest in marketing efforts. We define our Customers at the end of a particular period as the number of business entities with one or more paid subscriptions to our customer platform, either purchased directly with us or purchased from a Solutions Partner. A single customer may have separate paid subscriptions to our customer platform, but we count these as one Customer if certain customer-provided information such as company name, URL, or email address indicate that these subscriptions are managed by the same business entity.
Average Subscription Revenue per Customer. We believe that our ability to increase the Average Subscription Revenue per Customer is an indicator of our ability to grow the long-term value of our existing customer relationships. We define Average Subscription Revenue per Customer during a particular period as subscription revenue from our Customers during the period divided by the average Customers during the same period.
Net Revenue Retention. We believe that our ability to retain and expand a customer relationship is an indicator of the stability of our revenue base and the long-term value of our Customers. Net Revenue Retention is a measure of the percentage of recurring revenue retained from Customers over a given period of time. Our Net Revenue Retention for a given period is calculated by first dividing Retained Subscription Revenue by Retention Base Revenue in the given period, calculating the weighted average of these rates using the Retention Base Revenue for the period, and then annualizing the resulting rates. In 2025, we adjusted our calculation to remove the impact of commissions owed to Solutions Partners that are no longer eligible to receive commissions due to our change in duration and eligibility of lifetime commissions to better align with the value delivered to customers. We reported Net Revenue Retention of 102.2% in 2024 and 103.9% in 2023 under the previous methodology. A definition of each of the key terms used to calculate Net Revenue Retention is included below.
Retained Subscription Revenue. Contractual Monthly Subscription Revenue of the same cohort of Customers as those that comprise the Retention Base Revenue at the end of the same month.
Retention Base Revenue. Contractual Monthly Subscription Revenue of our Customers as of the beginning of each month.
Contractual Monthly Subscription Revenue. The subscription fees contractually committed to be paid for a full month under our Customer agreements, converted into USD at fixed rates that are held consistent over time, excluding commissions owed to our Solutions Partners.
Key Components of Consolidated Statements of Operations
Revenue
We derive our revenue from two major sources, revenue from subscriptions to our customer platform and professional services and other revenue consisting mainly of on-boarding, training, consulting services fees, and Payments.
Subscription-based revenue is derived from customers using our customer platform for their marketing, sales, service, data, and content management needs. Our customer platform includes a system of record for maintaining a unified view of the customer experience, a system of engagement for efficiently engaging customers through AI agents, SEO, AEO, AI-powered content creation, web content, social, blogging, email, marketing automation, messaging, support ticketing, knowledge base, conversation routing, video hosting, deal progression, prospecting, and data enrichment. Over 2,000 integrations and applications are available for our
users, across a wide range of categories, including integrations with leading social media, email, sales, video, analytics, content and webinar tools. All subscription fees that are billed in advance of service are recorded in deferred revenue. Subscription based revenue is recognized net of consideration paid to Solutions Partners when those Solutions Partners purchase the subscription to our customer platform.
Professional services and other revenue are derived primarily from customer on-boarding, training, consulting services, and Payments. Depending on which Hubs and services a customer purchases, they receive on-boarding guidance or training from technical consultants via web meetings.
Cost of Revenue, Operating and Other Expenses
Cost of Revenue
Cost of subscription revenue consists primarily of managed hosting providers and other third-party service providers, employee-related costs including payroll, benefits and stock-based compensation expense for our customer support team, amortization of capitalized software development costs and acquired technology, and allocated overhead costs, which include facilities costs, depreciation of fixed assets, and costs related to information technology.
Cost of professional services and other revenue consists primarily of personnel costs of our professional services organization, including salaries, benefits, bonuses and stock-based compensation, amortization of capitalized software development costs associated with Payments, as well as professional fees and allocated overhead costs, which we define as facilities, depreciation of fixed assets, and costs related to information technology. It also consists of costs associated with Payments and our other service offerings.
We expect that the cost of subscription and professional services and other revenue will increase in absolute dollars as we continue to invest in data center infrastructure and capitalize software development costs for new offerings to grow our business and scale with AI capabilities. As a result of these investments, over time, we expect gross margins to decline slightly, exclusive of stock-based compensation.
Research and Development
Research and development expenses consist primarily of personnel costs of our development team, including payroll, benefits and stock-based compensation expense, professional and contractor fees and allocated overhead costs. We capitalize certain software development costs that are attributable to developing new products and adding incremental functionality to our customer platform and amortize such costs as costs of subscription and cost of professional services and other revenue over the estimated life of the new product or incremental functionality, which is generally two years. We also capitalize certain development costs that are attributable to developing our internally developed software platforms and amortize such costs throughout the consolidated statement of operations over the estimated life of our internally developed software platforms, which is generally five years. We focus our research and development efforts on improving our products and developing new ones, delivering new functionality and enhancing the customer experience. We believe delivering new functionality for our customers is an integral part of our solution and provides our customers with access to a broad array of options and information critical to their marketing, sales, and customer service efforts. We expect to continue to make investments in and expand our offerings to enhance our customers’ experience and satisfaction and attract new customers. Over time, we expect research and development expenses to increase in absolute dollars as we continue to increase the functionality of our customer platform and decline as a percentage of total revenue, exclusive of stock-based compensation expense.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including sales commissions and incentives, benefits and stock-based compensation expense, marketing programs, including lead generation, costs of our annual INBOUND conference, other brand building expenses, amortization of intangible assets, professional and contractor fees and allocated overhead costs. Sales and marketing expenses also include commissions paid to our Solutions Partners in instances where the end customer purchases and pays for a subscription to our customer platform. We defer certain sales and Solutions Partner commissions related to acquiring new contracts and amortize them ratably over a period of benefit that we have determined to be approximately two to four years.
We plan to continue to invest in sales and marketing to grow our customer base and increase sales to existing customers. This growth will include adding sales personnel and expanding our marketing activities to continue to generate leads and build brand awareness. We expect sales and marketing expenses to increase in absolute dollars as we continue to develop our sales and marketing teams. Over time, we expect sales and marketing expenses will decline as a percentage of total revenue, exclusive of stock-based compensation.
General and Administrative
General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, employee-related information technology, administrative personnel, including payroll, benefits and stock-based compensation expense, professional fees for external legal, accounting and other consulting services, and allocated overhead costs. We expect that general and administrative expenses will increase on an absolute dollar basis as we incur the costs of compliance associated with being a publicly traded company, and remain relatively consistent as a percentage of total revenue, exclusive of stock-based compensation expense, as we focus on processes, systems and controls to enable our internal support functions to scale with the growth of our business.
Restructuring
Restructuring expenses primarily consist of variable lease costs related to properties vacated under our restructuring plan. On January 25, 2023, our 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 our workforce by approximately 7% and a global lease consolidation to create higher density across our workspaces. Future variable facilities related costs for vacated properties will continue to be recorded to restructuring charges. See Note 18 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Other Income (Expense)
Interest income primarily consists of interest earned on invested cash and cash equivalents balances and investments. Interest expense primarily consists of amortization of issuance costs and contractual interest expense related to our 2025 Notes. Other (expense) income primarily consists of the impact of foreign currency transaction gains and losses associated with monetary assets and liabilities and any gains, losses on, or impairments of our strategic investments.
Income Tax Expense
Income tax expense consists of current and deferred taxes for U.S. and foreign jurisdictions.
Results of Operations
The following tables set forth certain consolidated financial data in dollar amounts and as a percentage of total revenue.
Year Ended December 31,
(in thousands)
Revenue:
Subscription
Professional services and other
Total revenue
Cost of revenue:
Subscription
Professional services and other
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring
Total operating expenses
Income (loss) from operations
Other income (expense)
Interest income
Interest expense
Other (expense) income, net
Total other income
Income (loss) before income tax expense
Income tax expense
Net income (loss)
Year Ended December 31,
Revenue:
Subscription
Professional services and other
Total revenue
Cost of revenue:
Subscription
Professional services and other
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring
Total operating expenses
Income (loss) from operations
Total other income
Income (loss) before income tax expense
Income tax expense
Net income (loss)
* Percentages are based on actual values. Totals may not sum due to rounding.
Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024
Revenue
Year Ended December 31,
Change
(in thousands)
Amount
Subscription
Professional services and other
Total revenue
Subscription revenue increased during 2025 due to an increase in Customers, which grew from 247,939 as of December 31, 2024 to 288,706 as of December 31, 2025. Average Subscription Revenue per Customer also increased from $11,343 for the year ended December 31, 2024 to $11,414 for the year ended December 31, 2025. The growth in Customers was primarily driven by increased demand for our products. The increase in Average Subscription Revenue per Customer was primarily driven by increased demand for our Professional and Enterprise products and the impact of foreign currency translation primarily attributable to the decrease in the value of the U.S. Dollar relative to the Euro and British Pound Sterling, offset by continued purchases of our lower-priced Starter products.
The increase in professional services and other revenue during 2025 was primarily driven by Payments.
Cost of Revenue, Gross Profit and Gross Margin Percentage
Year Ended December 31,
Change
(in thousands)
Amount
Total cost of revenue
Gross profit
Gross margin
Total cost of revenue increased during 2025 primarily due to an increase in subscription and hosting costs, amortization of capitalized software development costs, and amortization of acquired technology, offset by decreases in employee-related and allocated overhead expenses. Gross margins remained relatively consistent year-over-year.
Year Ended December 31,
Change
(in thousands)
Amount
Subscription cost of revenue
Percentage of subscription revenue
The increase in subscription cost of revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to the following:
Change
(in thousands)
Subscription and hosting costs
Amortization of capitalized software development costs
Amortization of acquired technology
Employee-related costs
Allocated overhead expenses
Subscription and hosting costs increased primarily due to growth in our Customer base from 247,939 at December 31, 2024 to 288,706 at December 31, 2025. We also saw higher subscription and hosting costs as we continued to support the growth of our customer base, increased usage of our customer platform, and continued investments to expand AI functionality. Amortization of capitalized software development costs increased due to the increased number of developers working on our software platform as we continued to develop new products and increased functionality. Amortization of acquired technology increased due to the amortization of acquired technology associated with our acquisitions in 2025 and later in 2024. Employee-related costs decreased as a result of improved resource alignment and operational efficiencies by leveraging AI to resolve customer inquiries. Allocated overhead expenses decreased primarily due to the decreased proportional allocation of shared company expenses associated with headcount in subscription cost of revenue.
Year Ended December 31,
Change
(in thousands)
Amount
Professional services and other cost of revenue
Percentage of professional services and other revenue
The increase in professional services and other cost of revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to the following:
Change
(in thousands)
Commerce payment processing fees
Amortization of capitalized software development costs
Amortization of acquired technology
Professional fees
Allocated overhead expenses
Employee-related costs
Commerce payment processing fees increased due to higher payment volume and merchant activity. Amortization of capitalized software development costs increased as we continued to increase functionality with our internally built payments solution. Amortization of acquired technology increased due to the amortization of acquired technology associated with our acquisition of Cacheflow in the fourth quarter of 2024. Professional fees increased and employee-related costs decreased as we continue to leverage our Solutions Partners to deliver on-boarding and other professional services. Allocated overhead expenses decreased primarily due to the decreased proportional allocation of shared company expenses associated with headcount in subscription cost of revenue.
Research and Development
Year Ended December 31,
Change
(in thousands)
Amount
Research and development
Percentage of total revenue
The increase in research and development expense for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to the following:
Change
(in thousands)
Employee-related costs
Software and services
Professional fees
Allocated overhead expenses
Hosting expenses
Employee-related costs increased as a result of increased headcount as we continued to grow our engineering organization to develop new products, increase functionality and to maintain our existing customer platform. Software and services expense increased due to an increase in use of AI tools. Professional fees increased due to an increase in the use of third party services and contractors as
we continued to grow our engineering organization. Allocated overhead expenses increased due to an increase in shared company expenses associated with our systems and infrastructure as we continued to grow our business and increased proportional allocation of shared company expenses associated with headcount in research and development. Hosting expense decreased due to incremental spend in the second half of 2024 associated with product development infrastructure that is unrelated to the hosting of our customer platform for paying Customers. In 2025, we launched the data center and the ongoing expenses related to the hosting of our customer platform on that data center are classified as subscription cost of revenue.
Sales and Marketing
Year Ended December 31,
Change
(in thousands)
Amount
Sales and marketing
Percentage of total revenue
The increase in sales and marketing expense for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to the following:
Change
(in thousands)
Employee-related costs
Marketing programs
Professional fees
Allocated overhead expenses
Software and services
Solutions Partner commissions
Employee-related costs increased as a result of increased headcount as we expanded our selling and marketing organizations to grow our customer base. Marketing programs increased due to the timing and size of certain marketing efforts as we made investments in attracting new customers. Professional fees increased due to an increase in the use of third party services and contractors for our marketing efforts. Allocated overhead expenses increased due to an increase in shared company expenses associated with our systems and infrastructure to support our business growth. Software and services cost increased due to an increase in the use of third party software and AI-enabled tools to improve productivity. Solutions Partner commissions decreased as we changed the duration and eligibility of commissions for certain Solutions Partners to better align with the value delivered to customers. The decrease from the change in duration and eligibility of commissions was partially offset by increased revenue generated through our Solutions Partners.
General and Administrative
Year Ended December 31,
Change
(in thousands)
Amount
General and administrative
Percentage of total revenue
The increase in general and administrative expense for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to the following:
Change
(in thousands)
Employee-related costs
Customer credit card fees
Allocated overhead expenses
Professional fees
Employee-related costs increased as a result of increased headcount as we grew our business and required additional personnel to support our expanded operations. Customer credit card fees increased due to increased customer transactions as we continued to grow our business. Allocated overhead expenses increased due to an increase in shared company expenses associated with our systems and infrastructure as we continued to grow our business. Professional fees increased primarily due to increase in the use of third-party services and contractors.
Restructuring
Year Ended December 31,
(in thousands)
$ Change
% Change
Restructuring
Percentage of total revenue
* not meaningful
Restructuring charges in 2025 and 2024 consisted of variable facilities-related costs related to properties vacated under our Restructuring Plan.
Interest Income
Year Ended December 31,
Change
(in thousands)
Amount
Interest income
Percentage of total revenue
The decrease during the year is primarily due to lower average investment balances driven by cash outlays from our 2025 Notes settlements and 2025 Share Repurchase Program and lower yields.
Interest Expense
Year Ended December 31,
Change
(in thousands)
Amount
Interest expense
Percentage of total revenue
* not meaningful
Interest expense decreased due to the early conversion of a portion of our 2025 Notes in the first quarter of 2025 and settlement of the remaining 2025 Notes upon maturity in June 2025.
Other (Expense) Income
Year Ended December 31,
Change
(in thousands)
Amount
Other (expense) income, net
Percentage of total revenue
* not meaningful
The change in other expense during 2025 is primarily due to the following:
Change
(in thousands)
Foreign currency gains and losses
Impairment of strategic investments
Gain on strategic investments
The change in foreign currency gains and losses transactions is primarily attributable to the value of the U.S. Dollar relative to the Euro and British Pound Sterling. The increase in the impairment of strategic investments is due to an impairment of $5.3 million in 2024 compared to $5.7 million in 2025. The decrease in gain on strategic investments is due to gains of $21.2 million from changes in the value of certain strategic investments in 2024 compared to $5.0 million in 2025.
Income Tax Expense
Year Ended December 31,
Change
Amount
(dollars in thousands)
Income tax expense
Effective tax rate
The decrease in the income tax expense is a result of a reduction in U.S. tax expense partially offset by increased foreign tax expense.
On July 4th, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, introducing changes to U.S. tax law. The effects of the OBBBA have been incorporated into the income tax provision computation for the accompanying financial statements for the twelve months ended December 31, 2025 and the impact was not material. The Act includes multiple effective dates, with certain provisions effective in 2025 and others phased in through 2027. We continue to evaluate the impact of the Act's provisions that take effect in future years.
We will continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. However, given our anticipated future earnings, management believes that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that all or a portion of the valuation allowance may no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
Liquidity and Capital Resources
Our principal sources of liquidity to date have been cash and cash equivalents, net accounts receivable, our common stock offerings, and our convertible notes offerings.
The following table shows cash and cash equivalents, working capital, net cash and cash equivalents provided by operating activities, net cash and cash equivalents provided by (used in) investing activities, and net cash and cash equivalents (used in) provided by financing activities for the years ended December 31, 2025, 2024 and 2023:
Year Ended December 31,
(in thousands)
Cash and cash equivalents
Working capital
Net cash and cash equivalents provided by operating activities
Net cash and cash equivalents provided by (used in) investing activities
Net cash and cash equivalents (used in) provided by financing activities
Our cash and cash equivalents at December 31, 2025 were held for working capital purposes. We believe our working capital is sufficient to support our operations for at least the next 12 months. At December 31, 2025, $309.0 million of our cash and cash equivalents was held in accounts outside the United States. We do not assert indefinite reinvestment of our foreign earnings because these earnings have been subject to United States Federal tax. While we have concluded that any incremental tax incurred upon ultimate distribution of these earnings to be immaterial, our current plans do not demonstrate a need to repatriate undistributed earnings to fund our U.S. operations.
Net Cash and Cash Equivalents Provided by Operating Activities
Net cash and cash equivalents provided by operating activities consists primarily of net income (loss) adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization and other non-cash charges, net.
Net cash and cash equivalents provided by operating activities during the year ended December 31, 2025 primarily reflected our net income of $45.9 million, $40.5 million accretion of bond discounts and a $5.5 million gain on strategic investments, offset by non-cash expenses that included $136.3 million of depreciation and amortization, $528.2 million in stock-based compensation, $5.9 million on impairment of strategic investments, and $0.6 million of amortization of debt issuance costs. Working capital sources of cash and cash equivalents primarily included a $183.9 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a $25.9 million decrease in right-of-use assets, a $19.0 million increase in accounts payable related to timing of bill payments, and a $118.0 million increase in accrued expenses and other liabilities. These sources of cash and cash equivalents were offset by a $34.1 million increase in prepaid expenses and other assets, a $36.1 million decrease in operating lease liabilities, a $117.0 million increase in deferred commissions, and a $64.0 million increase in accounts receivable as a result of increased billings to customers.
Net cash and cash equivalents provided by operating activities during the year ended December 31, 2024 primarily reflected our net income of $4.6 million, $51.7 million accretion of bond discounts and a $21.2 million gain on investments, offset by non-cash expenses that included $96.8 million of depreciation and amortization, $504.8 million in stock-based compensation, $5.3 million on impairment of strategic investments, $2.7 million provision for deferred income taxes, and $2.0 million of amortization of debt issuance costs. Working capital sources of cash and cash equivalents primarily included a $131.0 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a $32.3 million decrease in right-of-use assets, and $89.0 million increase in accrued expenses and other liabilities. These sources of cash and cash equivalents were offset by a $4.4 million increase in prepaid expenses and other assets, a $41.5 million decrease in operating lease liabilities, a $4.6 million decrease in accounts payable related to timing of bill payments, a $96.7 million increase in deferred commissions, and a $48.4 million increase in accounts receivable as a result of increased billings to customers.
Net Cash and Cash Equivalents Provided by (Used in) Investing Activities
Our investing activities have consisted primarily of purchases, maturities and sale of investments, property and equipment purchases, business acquisitions, purchase of intangible assets, purchases of and proceeds from strategic investments, and capitalization of software development costs. Capitalized software development costs are related to new products or improvements to our existing software platform that expands the functionality for our customers and for our use.
Net cash and cash equivalents used in investing activities during the year ended December 31, 2025 consisted primarily of cash used for $1.4 billion purchases of investments, $130.6 million of capitalized software development costs, $87.6 million for business acquisitions, $53.2 million of purchased property and equipment, and $32.7 million of purchases of strategic investments, offset by $2.2 billion received related to the maturity of investments and $2.7 million of proceeds from strategic investments.
Net cash and cash equivalents used in investing activities during the year ended December 31, 2024 consisted primarily of cash used for $2.0 billion purchases of investments, $15.5 million of purchases of strategic investments, $40.4 million for acquisition of a business, $37.9 million of purchased property and equipment, $1.2 million purchases of intangible assets, and $89.6 million of capitalized software development costs, offset by $1.7 billion received related to the maturity of investments, $2.0 million of proceeds from sale of investments, and $1.9 million of proceeds from a net working capital settlement.
Net Cash and Cash Equivalents (Used in) Provided by Financing Activities
Our financing activities have consisted primarily of the repayment of our 2025 Notes, repurchases of our common stock, the issuance of common stock under our stock plans, and payments of employee taxes related to the net share settlement of stock-based awards.
Net cash and cash equivalents used in financing activities for the year ended December 31, 2025 consisted of $500.0 million used for repurchases of our common stock, $459.8 million for repayments of the 2025 Notes attributable to the principal, and $21.6
million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by $71.4 million of proceeds related to issuance of common stock under stock plans.
Net cash and cash equivalents provided by financing activities for the year ended December 31,2024 consisted of $75.5 million of proceeds related to issuance of common stock under stock plans, offset by $21.9 million used for payment of employee taxes related to the net share settlement of stock-based awards.
Liquidity and Capital Resources Considerations
Contractual Obligations and Commitments
Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consist of operating lease liabilities that are included in our consolidated balance sheets and vendor commitments associated with agreements that are legally binding. As of December 31, 2025, the total obligation for operating leases was $313.4 million, of which $56.5 million is expected in the next twelve months. As of December 31, 2025, our vendor commitment was $494.7 million, of which $286.5 million is expected in the next twelve months. See Note 12 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Share Repurchase Programs
In May 2025, our Board of Directors authorized a share repurchase program for the repurchase of shares of the our common stock, in an aggregate amount of up to $500 million (the “2025 Share Repurchase Program”) over a period of up to 12 months. All repurchases under the 2025 Share Repurchase Program are made through open market trades pursuant to 10b5-1 plans. In 2025, we repurchased 1.0 million shares of its common stock at an average price of $501.67 per share, for an aggregate repurchase amount of $500.0 million, which completed the 2025 Share Repurchase Program. See Note 14 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
In February 2026, our Board of Directors authorized the 2026 Share Repurchase Program over a period of up to 24 months. As of the date of filing of this report, a total of $1.0 billion remained available for repurchase under the share repurchase program.
Convertible Senior Notes
In 2025, we settled the remaining aggregate principal amount due under the 2025 Notes. See Note 10 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Letters of Credit
As of December 31, 2025, we had a total of $2.7 million in letters of credit outstanding for office space. The cash held for these irrevocable letters of credit is classified as restricted cash and is expected to remain in effect, in some cases, until 2029.
Revolving Credit Facility
On February 10, 2026 we entered into the Revolving Credit Agreement. As of the date of filing of this report, there were no outstanding borrowings under the revolving credit facility.
Our obligations under the Revolving Credit Agreement are secured by substantially all of our assets. The Revolving Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, and, during periods when we do not maintain investment-grade credit ratings, a financial covenant that is tested quarterly and requires us to maintain a certain consolidated leverage ratio, and customary events of default. As of the date of filing of this report, we were in compliance with all financial covenants under the Revolving Credit Agreement.
Off Balance Sheet Arrangements
We have no material off-balance sheet arrangements at December 31, 2025 or 2024 exclusive of items described above and indemnifications of officers, directors and employees for certain events or occurrences while the officer, director or employee is, or was, serving at our request in such capacity.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our reported revenues, results of operations and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet during and as of the reporting periods. These estimates, assumptions and judgments are necessary because future events and their effects on our results and the value of our assets cannot be determined with certainty and are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.
We believe that of our significant accounting policies, which are described in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements, the following accounting policies and specific estimates involve a greater degree of judgment and complexity.
Revenue Recognition
We generate revenue from arrangements with multiple performance obligations, which typically include subscriptions to our online software solutions and professional and other services which include on-boarding, training, consulting services and Payments. Our customers do not have the right to take possession of the online software products. Revenue from online software products and support is recognized ratably over the subscription period beginning on the date the online software product is made available to customers. We recognize revenue from on-boarding, training, consulting services, and Payments as the services are provided. Amounts billed that have not yet met the applicable revenue recognition criteria are recorded as deferred revenue.
We allocate the transaction price to each distinct performance obligation based on the standalone selling price (“SSP”) of each good or service. We calculate SSP for each type of online software product and professional service offering by averaging the selling price of purchases within the trailing four calendar quarters. We generally use four quarters of transaction data to determine SSP as most of our customer arrangements are one year or less and pricing may be subject to change upon each customer’s renewal. In instances where there are not sufficient data points, often due to new product introduction, or the average selling prices for a particular online software product or professional service offering are disparate, we estimate the SSP using other observable inputs, such as similar products or services. If the actual selling price for the sale of an online software product or professional service offering within a multiple performance obligation arrangement substantially differs from the SSP of that offering, we use the relative SSP to allocate the transaction price to the performance obligations in the contract.
Costs to Obtain a Contract with a Customer
Sales commissions earned by our sales force and Solutions Partners are considered incremental, recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be approximately two to four years. The two to four-year period has been determined by taking into consideration 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. While we do not anticipate any significant changes to the two to four year amortization period, if a change did occur it could produce a material impact on our financial statements. For example, if the commitment term of our customer contracts significantly increased, our deferred commission expense asset would increase, and our amortization expense would decrease in the period in which the change occurs. Conversely, if the commitment term of our customer contracts significantly decreased, our deferred commission expense asset would decrease and our amortization expense would increase in the period in which the change occurs.
Capitalized Software Development Costs
Software development costs consist of certain payroll and stock compensation costs incurred to develop functionality for our customer platform and internally-built software platforms, as well as certain upgrades and enhancements that are expected to result in enhanced functionality. We capitalize certain software development costs for new offerings as well as upgrades to our existing software platforms, while costs associated with planning new developments and maintaining our customer platform and internally built software platforms are expensed as incurred. We amortize these development costs over the estimated useful life of two to five years on a straight-line basis. We determined that a two to five year life is appropriate for our internal-use software based on our best estimate of the useful life of the internally developed software after considering factors such as continuous developments in the technology, obsolescence, and anticipated life of the service offering before significant upgrades. 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.
We determine the amount of internal software costs to be capitalized based on the amount of time spent by our developers on projects in the application stage of development. There is judgment involved in estimating the time allocated to a particular project in the application stage. A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods.
Business Combinations
We account for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
Significant judgment is used in determining fair values of assets acquired and liabilities assumed, as well as intangible assets and their estimated useful lives. Fair value determinations are based on, among other factors, estimates of replacement costs, future expected cash flows attributable to the acquired intangible assets and appropriate discount rates used in computing present values. Useful life determinations are generally based on future expected cash flows attributable to the acquired intangible assets. For each acquisition, management applied judgment in estimating the fair values of the acquired developed technology intangible assets. Depending on the nature of the acquired developed technology intangible asset, we employed an income, cost, or market valuation methodology. The judgments applied by management during the valuation process may materially impact the estimates used in allocating the purchase price consideration to the fair value of assets acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to the fair value of assets acquired and liabilities assumed made after the end of the measurement period are recorded within our operating results.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see Recent Accounting Pronouncements in the Notes to Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K.
ITEM 7A. Qualitative and Quantitat ive Disclosures About Market Risk
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue, cost of revenue, and operating expenses denominated in currencies other than the U.S. dollar. Since we translate foreign currencies into U.S. dollars for financial reporting purposes, currency fluctuations can have an impact on our financial results.
We have experienced and will continue to experience fluctuations in our net (loss) income as a result of transaction gains or losses related to revaluing monetary assets and liabilities that are denominated in currencies other than the functional currency of the entities in which they are recorded. Our hedging program allows us to mitigate foreign exchange impacts, such as exposure to currency exchange rates in connection with significant transactions denominated in currencies other than the U.S. dollar, by entering into derivatives transactions such as foreign exchange forwards. See Note 15 in the Notes to Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K.
Interest Rate Sensitivity
Our portfolio of cash and cash equivalents and short- and long-term investments is maintained in a variety of securities, including government agency obligations, corporate bonds and money market funds. Investments are classified as available-for-sale securities and carried at their fair market value with cumulative unrealized gains or losses recorded as a component of accumulated other comprehensive loss within stockholders' equity. Our cash and cash equivalents and short- and long-term investments are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. As our short- and long-term investments are classified as available-for-sale, no gains or losses are recognized in our consolidated statements of operations due to changes in interest rates unless such securities are sold prior to maturity or the decline in fair value is caused by expected credit losses. As of December 31, 2025, a hypothetical increase of 100-basis points in interest rates would not have a material impact on the value of our cash and cash equivalents or short- and long-term investments in our consolidated financial statements. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. We do not currently hedge our interest rate exposure and do not enter into financial instruments for trading or speculative purposes.
ITEM 8. FINANC IAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 238 )
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statement of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of HubSpot, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of HubSpot, Inc. and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Frame AI, Dashworks, and XFunnel from its assessment of internal control over financial reporting as of December 31, 2025 because they were acquired by the Company in purchase business combinations during 2025. We have also excluded Frame AI, Dashworks, and XFunnel from our audit of internal control over financial reporting. Frame AI, Dashworks, and XFunnel are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent less than 1% of each of the related consolidated financial statement amounts as of and for the year ended December 31, 2025.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Capitalized software development costs - estimate of time and related costs eligible for capitalization
As described in Note 2 to the consolidated financial statements, the Company’s consolidated capitalized software development costs, net balance was $213.8 million as of December 31, 2025. The Company capitalizes certain software development costs for new offerings as well as upgrades to existing software platforms. Management determines the amount of internal software costs to be capitalized based on the amount of time spent by 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.
The principal considerations for our determination that performing procedures relating to the estimate of time and related costs eligible for capitalization as capitalized software development costs is a critical audit matter are (i) the significant judgment by management when determining the amount of time to capitalize for projects, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s determination of capitalized costs and management’s judgment related to the amount of time incurred by developers on projects in the application stage.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to capitalized software development costs, including controls over management’s estimate of time and related costs eligible for capitalization. These procedures also included, among others (i) testing management’s process for determining the time and related costs eligible for capitalization in the current year, (ii) evaluating whether the time and related costs were eligible for capitalization, (iii) testing the completeness and accuracy of underlying data used in management’s estimate of eligible time and related costs, and (iv) evaluating the reasonableness of significant assumptions used by management in estimating eligible time and related costs. Evaluating management’s assumptions related to eligible software development time for capitalization involved evaluating whether the assumptions used by management were reasonable considering (i) inquiries with management and IT product development managers in evaluating the software development costs capitalized for a sample of capitalized projects, and (ii) evaluating management’s estimate of hours through inquiry with a sample of individual software developers regarding the nature, timing and extent of time worked on development activities.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2026
We have served as the Company’s auditor since 2016.
HUBSPOT, INC.
CONSOLIDATED B ALANCE SHEETS
(In thousands, except per share amounts)
December 31, 2025
December 31, 2024
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable—net of allowance for credit losses of $ 6,825 and $ 6,088 at December 31, 2025 and 2024, respectively
Deferred commission expense
Prepaid expenses and other current assets
Total current assets
Long-term investments
Property and equipment, net
Capitalized software development costs, net
Right-of-use assets
Deferred commission expense, net of current portion
Other assets
Intangible assets, net
Goodwill
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued compensation costs
Accrued commissions
Accrued expenses and other current liabilities
Operating lease liabilities
Convertible senior notes
Deferred revenue
Total current liabilities
Operating lease liabilities, net of current portion
Deferred revenue, net of current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $ 0.001 par value— 500,000 shares authorized; 54,832 and 52,667
shares issued; 52,555 and 51,767 shares outstanding at December 31, 2025 and
2024, respectively
Treasury stock, $ 0.001 par value— 2,277 and 900 shares held at December 31, 2025
and December 31, 2024, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of the consolidated financial statements.
HUBSPOT, INC.
CONSOLIDATED STATEM ENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
Revenue:
Subscription
Professional services and other
Total revenue
Cost of Revenue:
Subscription
Professional services and other
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring
Total operating expenses
Income (loss) from operations
Other income (expense)
Interest income
Interest expense
Other (expense) income, net
Total other income
Income (loss) before income tax expense
Income tax expense
Net income (loss)
Net income (loss) per share, basic
Net income (loss) per share, diluted
Weighted average common shares used in
computing basic net income (loss) per share:
Weighted average common shares used in
computing diluted net income (loss) per share:
The accompanying notes are an integral part of the consolidated financial statements.
HUBSPOT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Year ended December 31,
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation adjustments
Changes in unrealized loss on investments, net of income taxes
of $ 0 in 2025, 2024, and 2023
Changes in unrealized loss on cash flow hedges, net of income taxes
of $ 177 and $ 101 in 2025 and 2024
Comprehensive income (loss)
The accompanying notes are an integral part of the consolidated financial statements.
HUBSPOT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share amounts)
Common
Stock, $0.001
Par Value
Treasury Stock, $0.001
Par Value
Additional
Paid-In
Accumulated
Other
Comprehensive
Accumulated
Shares
Shares
Capital
Income (Loss)
Deficit
Total
Balances at December 31, 2022
Issuance of common stock under
stock plans
Restricted stock units taxes paid
in cash
Stock-based compensation
Other comprehensive income,
net of tax
Net loss
Balances at December 31, 2023
Issuance of common stock under
stock plans
Restricted stock units taxes paid
in cash
Stock-based compensation
Other comprehensive loss,
net of tax
Net income
Balances at December 31, 2024
Issuance of common stock under
stock plans
Restricted stock units taxes paid
in cash
Repurchases of common stock
Conversion of the 2025 Notes
Settlement of Capped Call Options
Stock-based compensation
Other comprehensive income,
net of tax
Net income
Balances at December 31, 2025
The accompanying notes are an integral part of the consolidated financial statements.
HUBSPOT, INC.
CONSOLIDATED STATEM ENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash and cash equivalents
provided by operating activities, net of acquisitions
Depreciation and amortization
Stock-based compensation
Restructuring charges
Gain on strategic investments
Impairment of strategic investments
(Benefit from) provision for deferred income taxes
Amortization of debt discount and issuance costs
Accretion of bond discount
Unrealized currency translation
Changes in assets and liabilities, net of acquisition
Accounts receivable
Prepaid expenses and other assets
Deferred commission expense
Right-of-use assets
Accounts payable
Accrued expenses and other current liabilities
Operating lease liabilities
Deferred revenue
Net cash and cash equivalents provided by operating activities
Investing Activities:
Purchases of investments
Maturities of investments
Sale of investments
Purchases of property and equipment
Capitalization of software development costs
Purchases of intangible assets
Business acquisitions, net of cash acquired
Proceeds from net working capital settlement
Proceeds from strategic investments
Purchases of strategic investments
Net cash and cash equivalents provided by (used in) investing activities
Financing Activities:
Repayment of 2025 Convertible Notes
Employee taxes paid related to the net share settlement of stock-based awards
Proceeds related to the issuance of common stock under stock plans
Repurchases of common stock
Net cash and cash equivalents (used in) provided by financing activities
Effect on exchange rate changes on cash and cash equivalents
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Supplemental cash flow disclosure:
Cash paid for interest
Cash paid for income taxes
Right-of-use assets obtained in exchange for operating lease facilities
Right-of-use asset reductions related to operating lease terminations
Non-cash investing and financing activities:
Capital expenditures incurred but not yet paid
Settlement of Capped Call Options related to the 2025 Convertible Notes
Asset retirement obligations
The accompanying notes are an integral part of the consolidated financial statements
HUBSPOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Operations
HubSpot, Inc. (the “Company”) provides an agentic customer platform that helps marketing, sales, and customer service teams drive business growth. The Company delivers seamless connection for customer-facing teams with a unified platform that includes three layers: AI-powered agents and engagement hubs, a Smart CRM, and a connected ecosystem supporting the customer platform with a marketplace of integrations, templates, expert partners, a community network, and an academy of educational content.
The AI-powered agents and engagement Hubs that enable companies to attract, engage, and delight customers throughout the customer lifecycle include Marketing, Sales, Service, Operations, Content and Commerce. The Smart CRM is the foundational context layer that combines customer data with AI to power the entire customer platform with unified customer profiles and tools to manage and govern customer teams and business processes.
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.
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”), 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:
Year Ended December 31,
(in thousands, except per share amounts)
Net income (loss)
Weighted-average common shares outstanding—basic
Dilutive effect of share equivalents resulting from stock
options, RSUs, ESPP, PSUs, and the Conversion Options
Weighted-average common shares outstanding-diluted
Net income (loss) per share, basic
Net income (loss) per share, diluted
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, and PSUs. 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.
Since the Company incurred net losses in 2023, 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 Conversion Options were excluded in the calculation of diluted net loss per share as the effect would be anti-dilutive.
The weighted-average number of shares outstanding used in the computation of diluted net income (loss) per share does not include the effect of the following potentially outstanding common stock, as the effect would have been anti-dilutive:
Year Ended December 31,
(in thousands)
Options to purchase common shares
RSUs and PSUs
Conversion Option
ESPP
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 of three 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 if 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, 2025 and 2024 , 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.
Strategic investments that consist of non-controlling equity investments without readily determinable fair values in privately held companies f or which the Company does not have the ability to exercise significant influence are measured under the measurement alternative method of accounting. Under the measurement alternative 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. 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).
T he Company has certain other non-marketable strategic investments that do not qualify for the measurement alternative method of accounting, for which the fair value option has been elected. 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 are recorded in the consolidated statements of operations in other income (expense).
Strategic investments that consist of non-controlling equity investments without readily determinable fair values, in which the Company has significant influence over the investee’s operating and financial policies, are accounted for under the equity method of
accounting . 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 changes in fair value and 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.
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):
Balance
Beginning
of Period
Charged to
Statement of
Operations
Deductions (1)
Balance at
End of
Period
Allowance for credit losses
Year ended December 31, 2025
Year ended December 31, 2024
Year ended December 31, 2023
(1) Deductions include actual accounts written-off, net of recoveries.
Restricted Cash —The Company had restricted cash of $ 2.7 million at December 31, 2025 and $ 4.1 million at December 31, 2024 , 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, 2025 and 2024.
December 31, 2025
December 31, 2024
(in thousands)
Cash and cash equivalents
Restricted cash, included in prepaid expenses and other current assets
and other assets
Total cash, cash equivalents, and restricted cash
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. Cost and accumulated depreciation of fully depreciated property and equipment are removed from the Company’s consolidated balance sheets when they no longer have any future economic benefit. Depreciation is recorded over the following estimated useful lives:
Estimated Useful Life
Employee related computer equipment
2 - 3 years
Computer equipment and purchased software
3 years
Furniture and fixtures
5 years
Internal use software
5 years
Leasehold improvements
Lesser of lease term or useful life
The Company capitalizes certain payroll and stock compensation costs incurred to develop functionality for certain of the Company’s inter n ally 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 did no t recognize an impairment charge.
Intangible Assets — Intangible assets consist of acquired technology, trade name, customer relationships, sublease asset and domain names. 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. In 2023, the Company recognized an impairment of $ 1.6 million. No impairment charges were recognized in 2024 or 2025 .
Goodwill — Goodwill is determined by 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 of one 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, 2025 , the fair value exceeded the carrying value, and as such, there was no impairment of goodwill as of November 30, 2025. There were no triggering events after the measurement date that may indicate impairment as of December 31, 2025. For the years ended December 31, 2025, 2024 and 2023 , the Company did no t 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 determinations are based on, among other factors, estimates of replacement costs, future expected cash flows attributable to the acquired intangible assets and appropriate discount rates used in computing present values. Useful life determinations are generally based on future expected cash flows attributable to the acquired intangible assets. 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 to one 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 advertising expense of $ 144.3 million in 2025, $ 117.8 million in 2024, and $ 105.3 million in 2023 .
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 or 2025.
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 and to hedge certain foreign currency denominated monetary assets or liabilities. 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. For derivative instruments not designated as cash flow hedges, changes in the value of the foreign exchange contracts are recognized in other (expense) income, net 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 and other revenue, which include on-boarding, training, consulting services and Payments. 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:
Identify the customer contract;
Identify performance obligations that are distinct;
Determine the transaction price;
Allocate the transaction price to the distinct performance obligations; and
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 and
other revenue are distinct because the customer benefits from the on-boarding, training, consulting, and Payments 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 observable sales prices for each type of online software product and professional services sold. In instances where there are not sufficient data points, often due to new product introduction, 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 are one year or less . The Company recognizes revenue from on-boarding, training, and consulting services as the services are provided. For services where the performance obligation is to process payments through the Company’s payment solution, revenue is recognized at the time the payment processing obligation is completed. 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. The two to four-year period has been determined by taking into consideration 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, 2025, 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, 2025, 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.
There were no customers that individually exceeded 10% of the Company’s net accounts receivable or 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.
Government Grants — The Company recognizes a benefit from government grants when there is reasonable assurance that the Company will comply with the conditions under the grants and that the grant will be received. The government grants are recorded in the consolidated statement of operations as an offset to the costs the government grants are intended to compensate.
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 the post-implementation-operation stage, including the 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 of two to five 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:
December 31, 2025
December 31, 2024
(in thousands)
Gross capitalized software development costs
Accumulated amortization
Capitalized software development costs, net
Amortization of capitalized software development costs, exclusive of costs recorded within property and equipment, was $ 117.9 million in 2025, $ 74.3 million in 2024, and $ 45.8 million in 2023 . 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 is based on 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.
Share Repurchases — The Company records consideration paid for shares repurchased, along with the associated transaction costs, as a reduction to stockholders’ equity on the consolidated balance sheets.
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 2025:
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 guidance was adopted on January 1, 2025 (Note 16) 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 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 adoption of this standard only impacts annual and quarterly disclosures and is not expected to have a material impact on the Company's consolidated financial statements.
In July 2025, the FASB issued guidance that provides a practical expedient to measure credit losses on current accounts receivable and current contract assets. The practical expedient allows companies to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset when measuring credit losses. The new standard will be effective for the Company for the annual and interim periods beginning January 1, 2026. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In September 2025, the FASB issued guidance which modernizes the accounting for internal-use software costs. The guidance removes all references to software project development stages and clarifies the recognition threshold entities must meet to begin capitalizing costs. The new standard will be effective for the Company for the annual and interim periods beginning January 1, 2028, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In December 2025, the FASB issued guidance to establish authoritative guidance on the recognition, measurement, and presentation of government grants received by business entities. The new standard will be effective for the Company for the annual and interim periods beginning January 1, 2029, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In December 2025, the FASB issued guidance which clarifies and reorganizes interim reporting guidance to improve navigability, applicability, and consistency without changing the fundamental nature or volume of required interim disclosures. The new standard will be effective for the Company for the interim periods beginning January 1, 2028, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have 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. The Company recognized $ 802.7 million of revenue in 2025 that was included in deferred revenue as of December 31, 2024, $ 670.3 million of revenue in 2024 that was included in deferred revenue as of December 31, 2023, and $ 543.2 million of revenue in 2023 that was included in deferred revenue as of December 31, 2022. As of December 31, 2025, approximately $ 1.6 billion of revenue is expected to be recognized from remaining performance obligations for contracts with original performance obligations that exceed one 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 $ 5.9 million and $ 6.4 million were included in accrued expenses and other current liabilities as of December 31, 2025 and December 31, 2024.
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 approximately two to four years . Deferred commission expense during the year ended December 31, 2025 increased by $ 135.7 million as a result of deferring incremental costs of obtaining a contract of $ 323.5 million and was offset by amortization of $ 187.8 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:
Year ended December 31,
Weighted-average remaining lease term:
7.1 years
7.8 years
Weighted-average discount rate:
Operating lease expense, variable lease expense and cash payments related to operating lease liabilities for the 2025, 2024, and 2023 are as follows:
Year ended December 31,
(in thousands)
Operating lease expense
Variable lease expense
Cash payments
The following table provides a reconciliation between non-cancelable lease commitments and lease liabilities as of December 31, 2025 (in thousands) :
Operating leases
Lease commitments (Note 12)
Less: Legally binding minimum lease payments for leases signed but not yet commenced
Less: Operating leases with a duration of 12 months or less
Less: Present value discount
Total lease liabilities
The Company subleases some of its unused spaces to third parties. Operating sublease income generated under all operating lease agreements is as follows:
Year ended December 31,
(in thousands)
Operating sublease income
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, 2025 and December 31, 2024:
December 31, 2025
Level 1
Level 2
Level 3
Total
(in thousands)
Cash equivalents and investments:
Money market funds
Corporate bonds
U.S. Government agency securities
U.S. Treasury securities
Strategic investments
Restricted cash:
Money market funds
Prepaid expenses and other current assets:
Foreign currency derivative assets
Total assets
Accrued expenses and other current liabilities:
Foreign currency derivative liabilities
Total
December 31, 2024
Level 1
Level 2
Level 3
Total
(in thousands)
Cash equivalents and investments:
Money market funds
Commercial paper
Corporate bonds
U.S. Government agency securities
U.S. Treasury securities
Strategic investments
Restricted cash:
Money market funds
Total assets
Accrued expenses and other current liabilities:
Foreign currency derivative liabilities
Total
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, 2025 and 2024, 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.
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, 2025 and 2024:
December 31, 2025
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Aggregate
Fair Value
(in thousands)
Corporate bonds
U.S. Government agency securities
U.S. Treasury securities
Total
December 31, 2024
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Aggregate
Fair Value
(in thousands)
Commercial paper
Corporate bonds
U.S. Government agency securities
U.S. Treasury securities
Total
For all of our securities for which the amortized cost basis was greater than the fair value at December 31, 2025 and 2024, 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, 2025 and 2024 , no allowance for credit losses in investments has been recorded.
The contractual maturities of short-term and long-term investments held as follows:
December 31, 2025
December 31, 2024
Amortized
Cost Basis
Aggregate
Fair Value
Amortized
Cost Basis
Aggregate
Fair Value
( in thousands)
Due within one year
Due after 1 year and within 2 years
Total
Strategic Investments
The Company holds strategic investments in non-marketable equity securities of privately held companies. These investments are included in other assets on the consolidated balance sheets.
The carrying values of Company’s strategic investments broken down by category are as follows:
Year ended December 31,
(in thousands)
Measurement alternative method
Fair value
Equity method
Total carrying value
The following table summarizes the activity associated with the Company’s strategic investments, which is reported on the Company’s consolidated statement of operations as other (expense) income:
Year ended December 31,
(in thousands)
Strategic investments:
Gains
Impairments
Total included in other income (expense)
7. Property and Equipment
Property and equipment consists of the following:
December 31.
(in thousands)
Computer equipment and purchased software
Employee related computer equipment
Furniture and fixtures
Leasehold improvements
Internal-use software
Construction in progress
Total property and equipment
Less accumulated depreciation
Property and equipment, net
Depreciation and amortization expense was $ 34.5 million in 2025, $ 29.7 million in 2024, and $ 29.0 million in 2023.
The Company had capitalized asset retirement costs of $ 5.0 million at December 31, 2025 and $ 4.4 million at December 31, 2024 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 the Company’s leases.
The changes in the asset retirement obligation balance during the years ended December 31, 2025 and December 31, 2024 are as follows:
Year Ended December 31,
(in thousands)
Beginning balance
Additions
Accretion
Updates to estimated cash flows
Ending balance
8. Business Acquisitions
During the year ended December 31, 2025 and 2024, the Company completed multiple acquisitions. Separate financial results and pro forma information were not required for the acquisitions as they were not collectively material.
XFunnel, Inc.
On December 1, 2025 , the Company acquired all outstanding share s of XFunnel, Inc. (“XFunnel”), an Answer Engine Optimization ("AEO") platform. The total cash purchase price for the acquisition was $ 16.5 million, net of cash acquired. There was
approximately $ 12.2 million of post-combination consideration, which is contingent upon post-acquisition employment that will be recognized as compensation expense in the consolidated statement of operations over a period of three years . The transaction costs associated with the acquisition were approximately $ 0.7 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:
Fair value
(in thousands)
Cash
Acquired technology
Goodwill
Accounts payable and other liabilities
Total purchase price
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 leverage XFunnel's platform to strengthen the Company's AEO capabilities within its marketing products, enabling customers to gain insights into how their brand is represented across AI tools and offering actionable recommendations to improve their visibility. 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 $ 1.5 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 of five years on a straight-line basis, which reflects the expected pattern of economic benefit. The amortization expense is recorded to cost of subscription revenue in the consolidated statements of operations.
The Company has included the operating results of XFunnel 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 XFunnel have not been presented as the effect of this acquisition was not material to our financial results.
Dashworks Technologies, Inc.
On May 1, 2025 , the Company acquired all outstanding shares of Dashworks Technologies, Inc. (“Dashworks”), an AI-powered knowledge search assistant. The total cash purchase price for the acquisition was $ 17.8 million, net of cash acquired. There was approximately $ 6.6 million of post-combination consideration, which is contingent upon post-acquisition employment that will be recognized as compensation expense in the consolidated statement of operations over a period of three year s . The transaction costs associated with the acquisition were approximately $ 0.9 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:
Fair value
(in thousands)
Cash
Accounts receivable
Acquired technology
Goodwill
Accrued expenses and other liabilities
Deferred revenue
Total purchase price
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 leverage Dashworks' expertise in deep search and reasoning to advance the Company's vision of equipping every go-to-market team member with an AI assistant and enhancing search and context gathering capabilities across Breeze. 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 $ 1.6 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 of five years on a straight-line basis, which reflects the expected pattern of economic benefit. The amortization expense is recorded to cost of subscription revenue in the consolidated statements of operations.
The Company has included the operating results of Dashworks 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 Dashworks have not been presented as the effect of this acquisition was not material to our financial results.
Frame Technology, Inc.
On January 6, 2025 , the Company acquired all outstanding shares of Frame Technology, Inc. (“Frame AI”), an AI-powered conversation intelligence platform. The total cash purchase price for the acquisition was $ 50.9 million, net of cash acquired. There was approximately $ 8.2 million of post-combination consideration, which is contingent upon post-acquisition employment that will be recognized as compensation expense in the consolidated statement of operations over a period of two years . The Company recorded operating expenses of $ 6.2 million in 2025 related to consideration that had been earned. The transaction costs associated with the acquisition were approximately $ 1.0 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 :
Fair value
(in thousands)
Cash
Accounts receivable
Acquired technology
Goodwill
Accrued expenses and other liabilities
Deferred revenue
Total purchase price
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 Frame AI's capabilities by accelerating its 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 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 $ 6.3 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 of five years on a straight-line basis, which reflects the expected pattern of economic benefit. The amortization expense is recorded to cost of subscription revenue in the consolidated statements of operations.
The Company has included the operating results of Frame AI 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 Frame AI have not been presented as the effect of this acquisition was not material to our financial results.
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 million of post-combination consideration, which is contingent upon post-acquisition employment and will be recognized as compensation expense in the consolidated statement of operations over a period of two years . The Company recorded operating expenses of $ 3.2 million in 2024 and $ 16.4 million in 2025 related to consideration that had been earned. The transaction costs associated with the acquisition were approximately $ 1.4 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 :
Fair value
(in thousands)
Cash
Other current assets
Acquired technology
Goodwill
Accounts payable and accrued expenses
Total purchase price
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 of five 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 of two years . As of December 31, 2025, the con sideration was earned in full and the Company recorded operating expenses of $ 1.0 million in 2025, $ 2.9 million in 2024, and $ 0.2 million in 2023. 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:
Fair value
(in thousands)
Cash
Accounts receivable
Other current and noncurrent assets
Acquired technology
Sublease asset
Goodwill
Accounts payable, accrued expenses, and other liabilities
Deferred revenue
Total purchase price
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 of five 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, 2025 and 2024 consist of the following:
Weighted
Average
Remaining
Useful Life (in Years)
December 31,
(in thousands)
Acquired technology
Domain name
Sublease asset
Other intangible assets
Total intangible assets
Accumulated amortization
Intangible assets, net
The Company has intangible assets acquired through business acquisitions (Note 8). The estimated useful life of acquired technology is two to seven y ears and the estimated useful life of sublease assets is two years . The Company also purchased rights to the 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 $ 12.1 million in 2025, $ 9.6 million in 2024, and $ 5.3 million in 2023. 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, 2025 is as follows:
Amortization
Expense
(in thousands)
Thereafter
Total
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:
(in thousands)
Balance as of December 31, 2023
Effect of foreign currency translation
Acquisitions
Balance as of December 31, 2024
Effect of foreign currency translation
Acquisitions
Balance as of December 31, 2025
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 was fixed at 0.375 % per annum and was 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 was initially convertible into 3.5396 shares of the Company’s common stock (the “Conversion Option of the 2025 Notes”), which was equivalent to an initial conversion price of approximately $ 282.52 per share, subject to adjustment upon the occurrence of certain specified events. Upon conversion, the Company would pay or deliver, as the case may be, cash, shares of the Company’s common stock or combination of cash and shares of the Company’s common stock, at the Company’s election. 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 were 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, and 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.
In 2025, upon the election of holders to convert, the Company settled $ 233.4 million of principal balance of the 2025 Notes in cash and issued 0.5 million shares for the conversion premium in excess of the principal amount. Upon the maturity of the 2025 Notes in June 2025, the Company paid $ 225.6 million to satisfy the remaining aggregate principal amount due and issued 0.4 million shares for the conversion premium in excess of the principal amount. The Company also exercised the Capped Call Options, which the Company net share settled and received 0.4 million shares of its common stock. At settlement, the $ 50.6 million paid for the Capped Call Options was recorded in treasury stock and netted within additional paid-in capital.
The Company recognized interest expense of $ 0.9 million in 2025 and $ 3.7 million in 2024 and 2023.
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 Payments.
The Company operates as one 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 supplemental to those disclosed in these consolidated financial statements that is regularly provided to the CODM. The allocation of resources and assessment of performance of the operating segment is based on consolidated net income (loss) as shown in the consolidated statements of operations. The CODM considers net income (loss) 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:
Year Ended December 31,
(In thousands)
Americas
Europe
Asia Pacific
Total
Percentage of revenues generated outside of the Americas
Revenue derived from customers outside the United States (international) was approximately 48 % of total revenue in 2025, and 47 % of total revenue in 2024 and 2023. Revenues of Americas attributed to the United States were 96 % , 95 % , and 96 % of in the years ended December 31, 2025, 2024 and 2023. Revenues of Europe attributed to Ireland were 50 % , 47 % , and 54 % in the years ended December 31, 2025, 2024 and 2023.
Total long-lived assets by geographic region:
As of December 31, 2025
As of December 31, 2024
(In thousands)
Americas
Europe
Asia Pacific
Total long lived assets
Percentage of long lived assets held outside of the
Americas
Long-lived assets of Americas attributed to the United States were 97 % as of December 31, 2025 and 2024. Long-lived assets of Europe attributed to Ireland were 82 % and 80 % as of December 31, 2025 and 2024 .
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 $ 91.8 million.
Future minimum payments under all operating lease agreements as of December 31, 2025, are as follows:
(in thousands)
Thereafter
Total
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, 2025 are as follows:
(in thousands)
Thereafter
Total
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, 2025 and 2024:
Cumulative
Translation
Adjustment
Unrealized Gain
(Loss) on
Investments
Unrealized
Gain (Loss) on
Derivate
Instruments
Total
(in thousands)
Ending balance at December 31, 2023
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive income, net of tax, to revenue
Ending balance at December 31, 2024
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive income, net of tax, to revenue
Ending balance at December 31, 2025
14. Stockholders’ Equity and Stock-Based Compensation
Common Stock Reserved — As of December 31, 2025 and 2024 , 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):
December 31, 2025
December 31, 2024
RSUs
PSUs
Options
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, 2025 , 0.2 million options to purchase common stock and 0.4 million RSUs remained outstanding under the 2014 Plan.
The Company’s 2024 Stoc k Option and Incentive Plan (the “2024 Plan”) became effective June 11, 2024 after shareholder approval. The Company reserved 3,950,000 shares available for issuance. T he 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, 2025, 1.0 million RSUs and 0.1 million PSUs 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:
Year Ended December 31,
( in thousands)
Options
RSUs
PSUs
ESPP
Total stock-based compensation
(in thousands)
Cost of revenue, subscription
Cost of revenue, service
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
Excluded from stock-based compensation expense is $ 57.5 million of capitalized software development costs in 2025, $ 40.1 million in 2024, and $ 28.2 million in 2023.
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 were no options granted in 2024 or 2025.
Risk-free interest rate (%)
Expected term (years)
Volatility (%)
Expected dividends
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, 2025 is as follows:
Shares (in
thousands)
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Life (in years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding—January 1, 2025
Granted
Exercised
Forfeited/expired
Outstanding—December 31, 2025
Options vested or expected to vest—December 31, 2025
Options exercisable—December 31, 2025
Year Ended December 31,
(in thousands, except per share amounts)
Total intrinsic value of options exercised
Total estimated grant date fair value of options vested
Weighted-average grant date fair value per share of options granted
Total unrecognized compensation cost related to the unvested options was $ 1.4 million at December 31, 2025. That cost is expected to be recognized over a weighted-average period of 0.9 years.
Restricted Stock Units —RSUs vest upon achievement of a time-based service condition over a period of three or four years. As soo n 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 $ 701.8 million at December 31, 2025. That cost is expected to be recognized over a weighted-average period of 2.1 years. As of December 31, 2025, there are 1.4 million RSUs expected to vest with an aggregate intrinsic value of $ 557.5 million .
The following table summarizes the activity related to RSUs for the year ended December 31, 2025:
Shares
(in thousands)
Weighted-Average Grant Date Fair Value Per Share
Unvested and outstanding at January 1, 2025
Granted
Vested
Forfeited
Unvested and outstanding at December 31, 2025
Year Ended December 31,
(in thousands, except per share amounts)
Total intrinsic value of RSUs vested
Total grant date fair value of RSUs vested
Weighted-average grant date fair value per share of RSUs granted
Performance-based Restricted Stock Units —PSUs are eligible to be earned upon the achievement of certain performance targets, as defined in the grant agreements, and satisfaction of service conditions. 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 $ 16.6 million at December 31, 2025. That cost is expected to be recognized over a weighted-average period of 1.9 years. As of December 31, 2025, there are 0.1 million PSUs expected to vest with an aggregate intrinsic value of $ 30.3 million.
The following table summarizes the activity related to PSUs for the year ended December 31, 2025:
Shares
(in thousands)
Weighted-Average Grant Date Fair Value Per Share
Unvested and outstanding at January 1, 2025
Granted
Vested
Forfeited
Unvested and outstanding at December 31, 2025
Year Ended December 31,
Total intrinsic value of PSUs vested
Total grant date fair value of PSUs vested
Weighted-average grant date fair value per share of PSUs granted
Employee Stock Purchase Plan (“ESPP”) — The ESPP authorizes the issuance of up to a total of 2.4 million shares of 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:
Year Ended December 31,
Risk-free interest rate (%)
Expected term (years)
Volatility (%)
Expected dividends
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:
Shares Issued
(in thousands)
Weighted-
Average
Purchase Price
Total Cash
Proceeds
(in thousands)
Share Repurchase Program — On May 6, 2025, the Company’s Board of Directors authorized a share repurchase program for the repurchase of shares of the Company’s common stock, in an aggregate amount of up to $ 500 million (the “2025 Share Repurchase Program”), exclusive of any transaction costs related to such repurchases, over a period of up to 12 months . All repurchases under the 2025 Share Repurchase Program are made through open market trades pursuant to 10b5-1 plans. The 2025 Share Repurchase Program does not obligate the Company to acquire a specified number of shares, and may be suspended, modified, or terminated at any time and will be funded using the Company's cash and cash equivalents. Consideration paid for the shares repurchased is recorded as a reduction to stockholders’ equity on the consolidated balance sheets. The Company completed the 2025 Share Repurchase Program in the third quarter of 2025.
The following table summarizes the stock repurchase activity under the 2025 Share Repurchase Program (in thousands, except per share data):
Year Ended December 31,
Number of shares repurchased
Average stock price per share
Aggregate repurchase amount
15. Derivatives
Cash flow hedges
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 Company is subject to master netting arrangements with certain counterparties of the contracts, under which the Company is allowed to net settle transactions of the same currency. The Company's policy is to present the derivatives 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, 2025, the Company had designated cash flow hedge forward contracts with notional amounts equivalent to $ 42.4 million.
Balance sheet hedges
The Company also enters into foreign currency forward contracts to hedge certain foreign currency denominated monetary assets or liabilities, which are not designated as cash flow hedges. These contracts have maturities of 12 months or less. Changes in the value of the foreign exchange contracts are recognized in other (expense) income, net and are designed to offset the foreign exchange gain or loss on the underlying net monetary assets or liabilities. 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, 2025, the Company had non-designated forward contracts with notional amounts of $ 42.8 million.
The following summarizes the fair value of derivative financial instruments as of December 31, 2025 and 2024:
December 31, 2025
December 31, 2024
(in thousands)
Prepaid expenses and other current assets
Cash flow hedges
Total
Accrued expenses and other current liabilities
Cash flow hedges
Balance sheet hedges
Total
The following table presents the activity of foreign currency forward contracts designated as hedging instruments and the impact of these derivatives on AOCI:
Year Ended December 31,
(in thousands)
Beginning accumulated other comprehensive (income) loss at January 1
Net (income) losses recognized in other comprehensive income,
net of tax
Net income (losses) reclassified from AOCI to earnings
Ending accumulated other comprehensive (income) loss at December 31,
The effect of hedges on the consolidated statements of operations are as follows:
Year Ended December 31,
(in thousands)
Income (losses) reclassified from AOCI related to cash flow hedges
Revenue
Income related to non-designated hedges
Other (expense) income
As of December 31, 2025, the Company estimates the net amount of unrealized income (losses) before tax on the foreign currency contracts expected to be reclassified into revenue over the next 12 months is approximately $ 0.3 million.
16. Income Taxes
Income (loss) before provision for income taxes was as follows:
Year Ended December 31,
(in thousands)
United States
Foreign
Total
The provision for income taxes consists of the following:
Year Ended December 31,
(in thousands)
Current income tax expense
Federal
State
Foreign
Total current income tax expense
Deferred income tax (expense) benefit
Federal
State
Foreign
Total deferred income tax benefit (expense)
Total income tax expense
Year Ended December 31,
(in thousands)
Net income taxes paid
Federal
State
Australia
Belgium
Colombia
France
Germany
Japan
United Kingdom
Other foreign
Total income taxes paid (net of refunds received)
The following reconciles the differences between income taxes computed at the federal statutory rate of 21 % and the provision for income taxes for 2025:
Year Ended December 31, 2025
(in thousands)
U.S. Federal statutory tax rate
U.S. State and local income tax, net of federal (national) income tax effect (1)
Foreign tax effects
Brazil
Canada
Colombia
France
Germany
Ireland
Statutory tax rate difference between Ireland and United States
Non-taxable items
Other
Singapore
United Kingdom
Other foreign jurisdictions
Effect of cross-border tax laws
Foreign tax credits
Tax credits
Research and development credits
Changes in valuation allowances
Non-taxable or non-deductible items
Executive compensation limit
Stock-based compensation
Transaction costs
Other
Changes in unrecognized tax benefits
Other adjustments
Effective tax rate
(1) State taxes in Pennsylvania, New York, New Hampshire, New York City, and Texas made up the majority (greater than 50%) of the tax effect in this category.
The following reconciles the differences between income taxes computed at the federal statutory rate of 21 % and the provision for income taxes for 2024 and 2023:
Year Ended December 31,
(in thousands)
Expected income tax (expense) benefit at the federal statutory rate
State taxes net of federal benefit
Stock-based compensation
Executive compensation limitation
Difference in foreign tax rates
Non-deductible acquisition costs
U.S. tax credits
Foreign withholding taxes
Change in valuation allowance
Non research and development tax reserves
Foreign derived intangible income
Other U.S. and foreign permanent differences
Income tax expense
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:
Year Ended December 31,
(in thousands)
Deferred tax assets:
Net operating loss carryforwards
Research and investment credits
Accruals and reserves
Lease liability
Depreciation
Capitalized software development
Stock-based compensation
Other assets
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Convertible debt
Capitalized costs
Right of use assets
Depreciation
Other liabilities
Total deferred tax liabilities
Valuation allowance
Net deferred tax liabilities
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 $ 56.5 million in 2025, $ 101.3 million in 2024 and $ 127.5 million in 2023.
The following summarizes activity related to valuation allowances on deferred tax assets:
Year Ended December 31,
(in thousands)
Valuation allowance—beginning of the year
Changes to existing valuation allowances—additions to costs
and expenses
Changes to existing valuation allowances—additions to other
accounts (primarily goodwill)
Valuation allowance—end of period
The Company will continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. However, given the anticipated future earnings of the Company, management believes that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that all or a portion of the valuation allowance may no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company is able to actually achieve.
The Company had federal and state net operating loss carryforwards of $ 1.1 billion and $ 866.1 million at December 31, 2025 and $ 640.0 million and $ 723.7 million at December 31, 2024 . The Company also had international net operating loss carryforwards of $ 0.7 million at December 31, 2025 and $ 0.9 million at December 31, 2024 . 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 $ 198.0 million at December 31, 2025 that begin to expire in 2034 . The Company also has state research and investment tax credit carryforwards of $ 91.5 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.
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:
Year Ended December 31,
(in thousands)
Unrecognized benefit—beginning of the year
Gross increases—current period positions
Gross increases—current period business acquisitions
Gross increase (decrease)—prior period positions
Unrecognized benefit—end of period
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. Interest and penalties recognized during the year and cumulatively have been immaterial.
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 2019 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 $ 26.2 million in 2025, $ 23.1 million in 2024, and $ 11.0 million in 2023 .
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. T he Company incurred restructuring charges of $ 4.0 million in 2025 and 2024 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, 2025 , the Company did no t have any remaining liabilities accrued related to the Restructuring Plan.
19. Subsequent Events
Revolving Credit Facility
On February 10, 2026, we entered into a Credit Agreement with Bank of America, N.A., as the administrative agent and L/C Issuer, and the banks and other financial institutions or entities party thereto as lenders (the "Revolving Credit Agreement"). The Revolving Credit Agreement provides for (i) a five year senior secured revolving credit facility in the amount of up to $ 500 million and (ii) an uncommitted incremental facility subject to certain conditions. We may use the proceeds of future borrowings under the credit facility to finance working capital, capital expenditures and for other general corporate purposes, including permitted acquisitions and investments. The facility may be drawn as a Base Rate Loan (at the highest of the federal funds rate plus 0.50 %, the Bank of America prime rate, or one-month Term SOFR plus 1.00 %, all subject to a 1.00 % floor, plus an applicable margin ranging from 0.125 % to 0.875 %) or Term SOFR Loan (SOFR plus an applicable margin ranging from 1.125 % to 1.875 %). The facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate between 0.125 % and 0.300 % per annum on the daily undrawn balance. As of the date of filing this report , there were no outstanding borrowings under the revolving credit facility.
Our obligations under the Revolving Credit Agreement are secured by substantially all of our assets. The Revolving Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, and, during periods when we do not maintain investment-grade credit ratings, a financial covenant that is tested quarterly and requires us to maintain a certain consolidated leverage ratio, and customary events of default. As of the date of filing this report, we were in compliance with all financial covenants under the Revolving Credit Agreement.
2026 Share Repurchase Program
On February 7, 2026 the Company’s Board of Directors authorized a share repurchase program for the repurchase of shares of the Company’s common stock, in an aggregate amount of up to $ 1.0 billion (the “2026 Share Repurchase Program”) over a period of up to 24 months . All repurchases under the program will be made in the open market, through privately negotiated transactions or
other legally permissible means, including pursuant to 10b5-1 plans, and in compliance with applicable securities laws and other requirements. The 2026 Share Repurchase Program will be funded using the Company's working capital. The timing, manner, price, and amount of the 2026 Share Repurchase Program will be subject to the discretion of the Company’s management and does not obligate the Company to acquire a specified number of shares, and may be suspended, modified, or terminated at any time, without prior notice.
