25 First Street
Cambridge, Massachusetts 02141
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~YES ☐ NO~~ ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

There were ~~48,576,188~~49,638,689 shares of the registrant’s Common Stock issued and outstanding as of ~~October~~April 28, ~~2022.~~2023.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and these statements involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances

reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In this Quarterly Report on Form 10-Q, the terms “HubSpot,” “we,” “us,” and “our” refer to HubSpot, Inc. and its subsidiaries, unless the context indicates otherwise.

The risk factors detailed in Item 1A entitled “Risk Factors” in this Quarterly Report on Form 10-Q are the risks that we believe are material to our investors and a reader should carefully consider them. Those risks are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. The following is a summary of the risk factors detailed in Item 1A:


	September 30,			December 31,			March 31,			December 31,
	2022			2021			2023			2022
Assets
Current assets:
Cash and cash equivalents	$	331,659		$	377,013		$	325,159		$	331,022
Short-term investments		952,697			820,962			1,159,554			1,081,662
Accounts receivable — net of allowance for doubtful accounts of $2,512 and $1,768 at September 30, 2022 and December 31, 2021, respectively		166,667			157,362
Accounts receivable — net of allowance for doubtful accounts of $3,466 at March 31, 2023 and $3,266 at December 31, 2022								197,516			226,849
Deferred commission expense		65,010			59,849			76,365			70,992
Prepaid expenses and other current assets		45,060			38,388			63,480			44,074
Total current assets		1,561,093			1,453,574			1,822,074			1,754,599
Long-term investments		152,725			174,895			121,814			112,791
Property and equipment, net		102,628			96,134			107,060			105,227
Capitalized software development costs, net		56,803			39,858			73,068			63,790
Right-of-use assets		251,422			280,828			310,000			319,304
Deferred commission expense, net of current portion		53,240			42,681			80,476			66,559
Other assets		56,402			29,244			66,145			58,795
Intangible assets, net		17,592			10,565			16,702			17,446
Goodwill		45,014			47,075			46,454			46,227
Total assets	$	2,296,919		$	2,174,854		$	2,643,793		$	2,544,738
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	13,318		$	2,773		$	2,958		$	20,883
Accrued compensation costs		63,373			63,836			70,605			62,846
Accrued expenses and other current liabilities		90,827			74,457			131,492			102,122
Convertible senior notes		—			19,630
Operating lease liabilities		32,155			26,364			33,580			35,928
Deferred revenue		468,536			430,414			571,793			539,874
Total current liabilities		668,209			617,474			810,428			761,653
Operating lease liabilities, net of current portion		250,678			283,873			309,037			316,184
Deferred revenue, net of current portion		5,188			4,473			5,474			5,904
Other long-term liabilities		12,424			12,134			17,763			14,546
Convertible senior notes, net of current portion		453,723			383,101
Convertible senior notes								454,712			454,227
Total liabilities		1,390,222			1,301,055			1,597,414			1,552,514
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock		48			47			49			49
Additional paid-in capital		1,550,905			1,436,089			1,734,749			1,647,446
Accumulated other comprehensive loss		(17,511	)		(1,339	)		(7,756	)		(12,890	)
Accumulated deficit		(626,745	)		(560,998	)		(680,663	)		(642,381	)
Total stockholders’ equity		906,697			873,799			1,046,379			992,224
Total liabilities and stockholders’ equity	$	2,296,919		$	2,174,854		$	2,643,793		$	2,544,738

The accompanying notes are an integral part of the consolidated financial statements.


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Revenues:
Subscription	$	435,030		$	328,975		$	1,232,387		$	899,661		$	489,743		$	384,956
Professional services and other		8,928			10,220			28,926			31,688			11,877			10,643
Total revenue		443,958			339,195			1,261,313			931,349			501,620			395,599
Cost of revenues:
Subscription		67,648			57,547			191,466			152,533			68,339			59,384
Professional services and other		14,479			12,059			42,532			34,685			13,707			13,552
Total cost of revenues		82,127			69,606			233,998			187,218			82,046			72,936
Gross profit		361,831			269,589			1,027,315			744,131			419,574			322,663
Operating expenses:
Research and development		114,038			78,473			325,687			218,973			127,683			92,736
Sales and marketing		229,541			170,016			650,936			468,836			250,683			197,134
General and administrative		50,465			36,027			146,309			102,883			57,405			43,947
Restructuring (Note 14)														28,570			—
Total operating expenses		394,044			284,516			1,122,932			790,692			464,341			333,817
Loss from operations		(32,213	)		(14,927	)		(95,617	)		(46,561	)		(44,767	)		(11,154	)
Other expense:
Interest income		4,658			230			7,222			1,046			10,472			515
Interest expense		(923	)		(7,798	)		(2,822	)		(24,376	)		(930	)		(950	)
Other (expense) income		(1,185	)		9,877			(583	)		11,064			(794	)		3,692
Total other income (expense)		2,550			2,309			3,817			(12,266	)
Total other income														8,748			3,257
Loss before income tax expense		(29,663	)		(12,618	)		(91,800	)		(58,827	)		(36,019	)		(7,897	)
Income tax expense		(1,748	)		(1,117	)		(5,313	)		(2,639	)		(2,263	)		(1,444	)
Net loss	$	(31,411	)	$	(13,735	)	$	(97,113	)	$	(61,466	)	$	(38,282	)	$	(9,341	)
Net loss per share, basic and diluted	$	(0.65	)	$	(0.29	)	$	(2.03	)	$	(1.31	)	$	(0.78	)	$	(0.20	)
Weighted average common shares used in computing basic and diluted net loss per share:		48,067			47,044			47,821			46,752			49,395			47,577

The accompanying notes are an integral part of the consolidated financial statements.


	Common Stock, $0.001 Par Value				Treasury Stock, $0.001 Par Value				Additional Paid-In			Accumulated Other Comprehensive			Accumulated						Common Stock, $0.001 Par Value					Treasury Stock, $0.001 Par Value				Additional Paid-In			Accumulated Other Comprehensive			Accumulated
	Shares		$		Shares		$		Capital			Loss			Deficit			Total			Shares			$		Shares		$		Capital			(Loss)			Deficit			Total
Balances at December 31, 2021		47,390	$	47		910	$	—	$	1,436,089		$	(1,339	)	$	(560,998	)		873,799
Balances at December 31, 2022																						49,217		$	49		910	$	—	$	1,647,446		$	(12,890	)	$	(642,381	)		992,224
Issuance of common stock under stock plans		506		1		—		—		20,692			—			—			20,693			260			—		—		—		1,196			—			—			1,196
Restricted stock units taxes paid in cash		—		—		—		—		(7,763	)		—			—			(7,763	)		(4	)		—		—		—		(1,198	)		—			—			(1,198	)
Stock-based compensation		—		—		—		—		130,549			—			—			130,549			—			—		—		—		87,305			—			—			87,305
Conversion of the 2025 Notes		—		—		—		—		(691	)		—			—			(691	)
Conversion of the 2022 Notes		—		—		—		—		(60,422	)		—			—			(60,422	)
Settlement of Convertible Note Hedges		—		—		—		—		60,483			—			—			60,483
Cumulative adjustment from adoption of convertible debt standard (Note 8)		—		—		—		—		(101,167	)		—			31,366			(69,801	)
Cumulative translation adjustment		—		—		—		—		—			(3,025	)		—			(3,025	)		—			—		—		—		—			627			—			627
Unrealized loss on investments, net of income taxes of $0		—		—		—		—		—			(6,653	)		—			(6,653	)
Unrealized gain on investments, net of income taxes of $0																						—			—		—		—		—			4,507			—			4,507
Net loss		—		—		—		—		—			—			(65,702	)		(65,702	)		—			—		—		—		—			—			(38,282	)		(38,282	)
Balances at June 30, 2022		47,896		48		910	$	—		1,477,770			(11,017	)		(595,334	)		871,467
Issuance of common stock under stock plans		193		—		—		—		799			—			—			799
Restricted stock units taxes paid in cash		—		—		—		—		(2,191	)		—			—			(2,191	)
Stock-based compensation		—		—		—		—		74,527			—			—			74,527
Settlement of Warrants		166		—		—		—		—			—			—			—
Cumulative translation adjustment		—		—		—		—		—			(2,793	)		—			(2,793	)
Unrealized loss on investments, net of income taxes of $0		—		—		—		—		—			(3,701	)		—			(3,701	)
Net loss		—		—		—		—		—			—			(31,411	)		(31,411	)
Balances at September 30, 2022		48,255	$	48		910	$	—	$	1,550,905		$	(17,511	)	$	(626,745	)	$	906,697
Balances at March 31, 2023																						49,473		$	49		910	$	—	$	1,734,749		$	(7,756	)	$	(680,663	)	$	1,046,379

The accompanying notes are an integral part of the consolidated financial statements.


	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2022			2021			2023			2022
Operating Activities:
Net loss	$	(97,113	)	$	(61,466	)		(38,282	)	$	(9,341	)
Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities, net of acquisitions
Depreciation and amortization		42,625			33,188			16,570			12,798
Stock-based compensation		199,081			120,847			83,037			45,704
Loss on early extinguishment of 2022 Convertible Notes		—			4,824
Repayment of 2022 Convertible Notes attributable to the debt discount		—			(24,457	)
Restructuring charges								2,281			—
Gain on strategic investments		(4,200	)		(11,739	)		—			(4,221	)
Gain on termination of operating leases		—			(4,276	)
Loss on disposal of fixed assets		—			6,468
Benefit from deferred income taxes		(589	)		(1,321	)
Provision on (benefit from) deferred income taxes								47			(246	)
Amortization of debt discount and issuance costs		1,509			18,115			484			507
(Accretion) amortization of bond discount		(3,267	)		2,943			(8,008	)		585
Unrealized currency translation		480			603			(358	)		703
Changes in assets and liabilities
Accounts receivable		(20,135	)		(2,249	)		30,615			3,552
Prepaid expenses and other assets		(8,863	)		(7,149	)		(20,417	)		(3,927	)
Deferred commission expense		(22,210	)		(24,371	)		(18,539	)		(8,354	)
Right-of-use assets		19,622			26,948			8,483			6,528
Accounts payable		10,660			(11,951	)		(17,873	)		3,625
Accrued expenses and other liabilities		16,455			38,184			24,221			7,135
Operating lease liabilities		(14,589	)		(26,422	)		(9,829	)		(2,318	)
Deferred revenue		63,743			66,825			28,638			29,496
Net cash and cash equivalents provided by operating activities		183,209			143,544			81,070			82,226
Investing Activities:
Purchases of investments		(1,258,919	)		(1,037,331	)		(362,246	)		(435,547	)
Maturities of investments		1,017,306			940,776			287,967			405,219
Sale of investments		124,998			—
Purchases of property and equipment		(31,384	)		(17,399	)		(3,310	)		(9,940	)
Purchases of intangible assets		(10,000	)		—
Acquisition of a business, net of cash acquired		—			(16,810	)
Purchases of strategic investments		(19,872	)		(10,202	)		(6,000	)		(5,046	)
Equity method investment		(1,900	)		(3,100	)
Capitalization of software development costs		(31,350	)		(25,638	)		(15,122	)		(9,722	)
Net cash and cash equivalents used in investing activities		(211,121	)		(169,704	)		(98,711	)		(55,036	)
Financing Activities:
Proceeds from settlement of Convertible Note Hedges related to the 2022 Convertible Notes		60,483			729
Payment for settlement of 2022 Convertible Notes		(79,807	)		(80,428	)
Repayment of 2025 Convertible Notes attributable to the principal		(1,619	)		—			—			(1,619	)
Employee taxes paid related to the net share settlement of stock-based awards		(9,954	)		(11,728	)		(1,198	)		(4,354	)
Proceeds related to the issuance of common stock under stock plans		29,718			34,124			11,254			11,852
Net cash and cash equivalents used in financing activities		(1,179	)		(57,303	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(16,263	)		(6,326	)
Net decrease in cash, cash equivalents and restricted cash		(45,354	)		(89,789	)
Net cash and cash equivalents provided by financing activities								10,056			5,879
Effect of exchange rate changes on cash, cash equivalents and restricted cash								1,722			(1,649	)
Net (decrease) increase in cash, cash equivalents and restricted cash								(5,863	)		31,420
Cash, cash equivalents and restricted cash, beginning of period		380,042			381,152			334,175			380,042
Cash, cash equivalents and restricted cash, end of period	$	334,688		$	291,363		$	328,312		$	411,462
Supplemental cash flow disclosure:
Cash paid for interest	$	885		$	948
Cash paid for income taxes	$	3,883		$	5,340		$	4,063		$	1,683
Right-of-use assets obtained in exchange for operating lease liabilities	$	5,136		$	89,691		$	-		$	3,754
Right-of-use asset reductions related to operating lease terminations	$	—		$	(46,587	)	$	(1,235	)	$	-
Non-cash investing and financing activities:
Issuance of common stock for repayment of 2022 Convertible Notes	$	—		$	480,955
Capital expenditures incurred but not yet paid	$	1,118		$	3,683		$	5,919		$	2,287
Asset retirement obligations	$	1,135		$	71		$	(108	)	$	1,188

The accompanying notes are an integral part of the consolidated financial statements.

3. Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net 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”), the Warrants (defined in Note 8), the Conversion Option of the 2022 Notes, and the Conversion Option of the 2025 Notes (the “Conversion Options”) (Note 8) are considered to be potential common stock equivalents.

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Net loss	$	(31,411	)	$	(13,735	)	$	(97,113	)	$	(61,466	)	$	(38,282	)	$	(9,341	)
Weighted-average common shares outstanding — basic		48,067			47,044			47,821			46,752			49,395			47,577
Dilutive effect of share equivalents resulting from stock options, RSUs, ESPP, Warrants and the Conversion Options		—			—			—			—
Dilutive effect of share equivalents resulting from stock options, RSUs, ESPP, PSUs, Warrants and the Conversion Options														—			—
Weighted-average common shares, outstanding — diluted		48,067			47,044			47,821			46,752			49,395			47,577
Net loss per share, basic and diluted	$	(0.65	)	$	(0.29	)	$	(2.03	)	$	(1.31	)	$	(0.78	)	$	(0.20	)

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

The Company uses the treasury stock method and the average market price per share during the period for calculating any potential dilutive effect of the Warrants. The average stock price for the three months ended ~~September 30, 2022~~March 31, 2023 was $~~317.60~~ ~~and for the nine months ended September 30, 2022 was $388.33~~364.93. 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.

Because the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the calendar quarter ended March 31, 2023 was equal to or greater than 130% of the applicable conversion price of $282.52 on each applicable trading day, the 2025 Notes (defined in Note 8) are convertible at the option of the holders thereof during the calendar quarter ending June 30, 2023. As of April 28, 2023, the Company has not received any conversion notices.

The following table contains all potentially dilutive common stock equivalents.


	As of September 30,				As of March 31,
	2022		2021		2023		2022
	(in thousands)				(in thousands)
Options to purchase common shares		522		717		511		527
RSUs		1,601		1,409		1,698		1,145
Conversion Option of the 2022 Notes and Warrants		844		1,721		—		1,232
Conversion Option of the 2025 Notes		1,625		747		1,625		1,627
PSUs						—		—
ESPP		7		8		—		—

4. 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


	September 30, 2022								March 31, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)								(in thousands)
Cash equivalents and investments:
Money market funds	$	14,743	$	—	$	—	$	14,743	$	14,126	$	—	$	—	$	14,126
Commercial paper		—		19,517		—		19,517		—		20,325		—		20,325
Corporate bonds		—		255,332		—		255,332		—		248,493		—		248,493
U.S. Government agency securities		—		39,154		—		39,154		—		55,175		—		55,175
U.S. Treasury securities		—		793,418		—		793,418		—		957,368		—		957,368
Restricted cash:
Money market funds		—		3,029		—		3,029		—		3,153		—		3,153
Total	$	14,743	$	1,110,450	$	—	$	1,125,193	$	14,126	$	1,284,514	$	—	$	1,298,640


	December 31, 2021								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)								(in thousands)
Cash equivalents and investments:
Money market funds	$	125,940	$	—	$	—	$	125,940	$	11,518	$	—	$	—	$	11,518
Commercial paper		—		28,337		—		28,337		—		16,036		—		16,036
Corporate bonds		—		249,846		—		249,846		—		261,918		—		261,918
U.S. Government agency securities		—		22,466		—		22,466		—		39,965		—		39,965
U.S. Treasury securities		—		698,300		—		698,300		—		876,534		—		876,534
Restricted cash:
Money market funds		—		3,029		—		3,029		—		3,153		—		3,153
Total	$	125,940	$	1,001,978	$	—	$	1,127,918	$	11,518	$	1,197,606	$	—	$	1,209,124

The Company considers all highly liquid investments purchased with an original 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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.

As of ~~September 30, 2022,~~March 31, 2023, the fair value of the 2025 Notes was $~~513.8~~725.5 million. The fair value was determined based on the quoted price of the 2025 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. ~~Upon maturity and settlement of the 2022 Notes on~~

~~June 1, 2022~~13~~, the 2022 Notes are~~ no

~~longer outstanding as of September 30, 2022.~~

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.

Strategic investments consist of non-controlling equity investments in privately held companies. The Company elected the measurement alternative for these investments without readily determinable fair values and for which the Company does not have the ability to exercise significant influence. These investments are accounted for under the cost method of accounting. Under the cost method of accounting, the non-marketable equity securities are carried at cost less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, which is recorded within the statement of operations. The Company holds $~~43.0~~49.6 million of strategic investments without readily determinable fair values at ~~September 30, 2022~~March 31, 2023 and $~~17.8~~43.6 million of strategic investments without readily determinable fair values at December 31, ~~2021.~~2022. These investments are included in ~~prepaid and other current assets and~~ other assets on the consolidated balance sheets.

During the nine months ended September 30, 2022, an acquisition of an entity in which the Company held a strategic investment was completed, which resulted in an observable price change. In the first quarter of 2022, the Company adjusted the fair value of its investment and recognized a gain of $~~4.2~~ ~~million reported in the consolidated statements of operations as other income.~~ There were no ~~other~~ adjustments to the carrying value of the strategic investments resulting from impairments or observable price changes in the ~~nine~~

months ended September 30, 2022. During the nine months ended September 30, 2021, two strategic investments had observable price changes and the fair value of these investments was accordingly adjusted. The Company recognized a gain of $~~10.7~~ ~~million in the~~ three months ended ~~September 30, 2021 and $11.7~~ ~~million in the nine months ended September 30, 2021. The gains are reported in the consolidated statements of operations as other income.~~March 31, 2023.

The following tables summarize the composition of our short- and long-term investments at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


	September 30, 2022									March 31, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses			Aggregate Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Aggregate Fair Value
	(in thousands)									(in thousands)
Commercial paper	$	17,518	$	—	$	—		$	17,518	$	20,325	$	—	$	—		$	20,325
Corporate bonds		260,515		—		(5,183	)		255,332		250,920		96		(2,523	)		248,493
U.S. Government agency securities		40,150		1		(997	)		39,154		55,791		13		(629	)		55,175
U.S. Treasury securities		798,375		17		(4,974	)		793,418		959,613		319		(2,564	)		957,368
Total		1,116,558		18		(11,154	)		1,105,422	$	1,286,649	$	428	$	(5,716	)	$	1,281,361


	December 31, 2021									December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses			Aggregate Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Aggregate Fair Value
	(in thousands)									(in thousands)
Commercial paper	$	25,245	$	—	$	—		$	25,245	$	16,036	$	—	$	—		$	16,036
Corporate bonds		250,443		9		(606	)		249,846		265,875		9		(3,966	)		261,918
U.S. Government agency securities		22,504		—		(38	)		22,466		40,908		1		(944	)		39,965
U.S. Treasury securities		698,446		2		(148	)		698,300		881,428		14		(4,908	)		876,534
Total	$	996,638	$	11	$	(792	)	$	995,857	$	1,204,247	$	24	$	(9,818	)	$	1,194,453

For all of our securities for which the amortized cost basis was greater than the fair value at ~~September 30, 2022,~~March 31, 2023, the Company has concluded that there is no plan to sell the security nor is it more likely than not that the Company would be required to sell the security before its anticipated recovery. In making the determination as to whether the unrealized loss is other-than-temporary, the Company considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity.

Contractual Maturities

The contractual maturities of short-term and long-term investments held at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are as follows:


	September 30, 2022				December 31, 2021				March 31, 2023				December 31, 2022
	Amortized Cost Basis		Aggregate Fair Value		Amortized Cost Basis		Aggregate Fair Value		Amortized Cost Basis		Aggregate Fair Value		Amortized Cost Basis		Aggregate Fair Value
	(in thousands)				(in thousands)				(in thousands)				(in thousands)
Due within one year	$	959,495	$	952,697	$	821,101	$	820,962	$	1,164,216	$	1,159,547	$	1,089,250	$	1,081,662
Due after 1 year through 2 years		157,063		152,725		175,537		174,895		122,433		121,814		114,997		112,791
Total	$	1,116,558	$	1,105,422	$	996,638	$	995,857	$	1,286,649	$	1,281,361	$	1,204,247	$	1,194,453

8. Convertible Senior Notes

~~Adoption of Updated Debt Guidance~~

On January 1, 2022, the Company adopted the new guidance for convertible instruments using a modified retrospective method. Results for reporting periods beginning after December 31, 2021 are presented under the new guidance, while prior period comparative amounts are not adjusted and continue to be reported in accordance with historical guidance.

The new guidance eliminates the bifurcation and separate recognition of the embedded cash conversion feature from the host contract and allows for the entire amount attributable to the debt to be presented as a liability. The carrying amount of the debt liability will be reduced by the issuance costs associated with the debt issuance as a contra-liability. As there is no longer an equity component of the convertible debt, the discount created by accretion of a component of the convertible debt in equity is eliminated and interest expense is reduced. The deferred tax liability recognized as a result of a difference between the carrying amount and tax basis of the 2022 Notes that was recorded to additional paid-in capital as a component of equity was also reversed. There is no change in the accounting for the Capped Call Options, Warrants, or Convertible Note Hedges as they are classified as equity under both the historical and new guidance.

~~As a result of the impact of applying the new guidance, the Company recorded an increase to opening retained earnings of $31.4~~ ~~million as of January 1, 2022, related to the difference in interest expense due to the amortization of the convertible debt discount and~~

reversal of the deferred tax liability under the historical guidance. The resulting impact on the consolidated balance sheet to derecognize the debt issuance cost and conversion option that was allocated to the equity component and to derecognize the remaining convertible debt discount was an increase to debt liability of $~~69.8~~ ~~million, of which $0.5~~ ~~million was recorded to short term debt and $69.3~~ ~~million was recorded to long-term debt, and a decrease in additional paid-in capital of $101.2~~ ~~million.~~

2025 Convertible Senior Notes and Capped Call Options

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

Each $1,000 of principal amount of the 2025 Notes will initially be convertible into 3.5396 shares of the Company’s common stock (the “Conversion Option of the 2025 Notes”), which is equivalent to an initial conversion price of approximately $282.52 per share, subject to adjustment upon the occurrence of certain specified events. On or after March 1, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2025 Notes at any time. The 2025 Notes will be convertible at the option of the holders prior to the close of business on the business day immediately preceding March 1, 2025 under certain circumstances as described in the indenture governing the 2025 Notes (the “Indenture”). Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The Company expects to settle the principal amount of the 2025 Notes in cash. InBecause the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the calendar quarter ended ~~September 30, 2022,~~March 31, 2023 was equal to or greater than 130% of the applicable conversion price on each applicable trading day, the 2025 Notes ~~did not meet~~are convertible at the ~~Conversion Option and are not convertible.~~

~~In accordance with GAAP relating to~~option of the ~~embedded conversion feature,~~holders thereof during the calendar quarter ending June 30, 2023. As of April 28, 2023, the Company ~~bifurcated the~~has not received any conversion ~~feature associated with the 2025 Notes and recorded $96.6~~ million to additional paid-in capital for the conversion feature and the resulting debt discount was being amortized to interest expense. As there is no longer an equity component of the convertible debt under the new standard, the debt issuance cost and conversion option that was allocated to the equity component was derecognized through an adjustment to opening retained earnings upon adoption of the new standard on January 1, 2022.notices.

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


	As of September 30, 2022			As of December 31, 2021			As of March 31, 2023			As of December 31, 2022
	(in thousands)						(in thousands)
Principal	$	459,083		$	459,999		$	459,083		$	459,083
Unamortized debt discount		—			(70,594	)
Unamortized issuance costs		(5,360	)		(5,544	)		(4,371	)		(4,856	)
Net carrying amount	$	453,723		$	383,861		$	454,712		$	454,227

Interest expense related to the 2025 Notes is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
	(in thousands)								(in thousands)
Contractual interest expense	$	431	$	431	$	1,291	$	1,294	$	431	$	431
Amortization of debt discount		—		4,573		—		13,474
Amortization of issuance costs		492		359	$	1,465		1,059		484		481
Total interest expense	$	923	$	5,363	$	2,756	$	15,827	$	915	$	912

In connection with the offering of the 2025 Notes, the Company purchased capped call options (“Capped Call Options”) with respect to its common stock for $50.6 million. The Capped Call Options are purchased call options that give the Company the option to purchase up to approximately 1.6 million shares of its common stock for $282.52 per share, which corresponds to the approximate initial conversion price of the 2025 Notes. The Capped Call Options were purchased in order to offset potential dilution to the Company’s common stock upon any conversion of the 2025 Notes, subject to a cap of $426.44 per share, and expire concurrently with the 2025 Notes. The $50.6 million paid for the Capped Call Options is recorded in stockholders’ equity as a reduction in additional paid-in capital and are not accounted for as separate derivative financial instruments.

2022 Convertible Senior Notes, Convertible Note Hedge and Warrant

In May 2017, the Company issued $350.0 million aggregate principal amount of 0.25% convertible senior notes due June 1, 2022 (the “2022 Notes”) in a private offering and an additional $50 million aggregate principal amount of the 2022 Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers. of the 2022 Notes. The interest rate is fixed at 0.25% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year. The total net proceeds from the debt offering, after deducting initial purchase discounts and debt issuance costs, were approximately $389.2 million. ~~On June 1, 2022, upon the maturity of the 2022 Notes, the Company paid $19.4~~ ~~million to satisfy the aggregate principal amount due and $60.4~~ ~~million for the conversion premium in excess of the principal amount.~~

In connection with the offering of the 2022 Notes, the Company entered into convertible note hedge transactions (the “Convertible Note Hedges”) with certain counterparties in which the Company has the option to purchase (subject to adjustment for certain specified events) up to approximately 4.2 million shares of the Company’s common stock at a price of approximately $94.77 per share. ~~Upon the maturity of the 2022 Notes on June 1, 2022, the Convertible Note Hedges were settled in cash and the Company received approximately $60.5~~ ~~million in cash upon settlement.~~

In addition, the Company sold warrants (the “Warrants”) to certain bank counterparties whereby the holders of the Warrants have the option to initially purchase (subject to adjustment for certain specified events) a total of approximately 4.2 million shares of the Company’s common stock at a price of $115.8 per share.

~~The Warrants began to mature on~~

~~September~~On June 1, 2022, ~~and will be settled on a weekly basis through~~ upon the ~~end~~maturity of the ~~year.~~2022 Notes, the Company paid $19.4 million to satisfy the aggregate principal amount due and $60.4 million for the conversion premium in excess of the principal amount. The remaining Convertible Note Hedges were settled in cash and the Company received approximately $60.5 million in cash upon settlement. In addition, the ~~three months ended September 30, 2022,~~remaining ~~0.3~~1.4 million shares of Warrants were exercised in the fourth quarter of 2022, which the Company net share settled and issued ~~0.2~~0.8 million shares of its common stock. ~~As of September 30, 2022, Warrants giving certain counterparties the option to acquire up to~~ ~~1.1~~ ~~million shares of the Company’s common stock remain outstanding.~~

~~In accordance with GAAP relating to the embedded conversion feature, the Company bifurcated the conversion feature associated with the 2022 Notes and recorded $18.9~~ million to additional paid-in capital for the conversion feature and the resulting debt discount was being amortized to interest expense. As there is no longer an equity component of the convertible debt under the new standard, the debt issuance cost and conversion option that was allocated to the equity component was derecognized through an adjustment to opening retained earnings upon adoption of the new standard on January 1, 2022.

~~Interest expense related to the 2022 Notes is as follows:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

(in thousands)

(in thousands)

Contractual interest expense
$
—

$
26

$
20

$
142

Amortization of debt discount

—

623

—

3,333

Amortization of issuance costs

—

47

44

249

Total interest expense
$
—

$
696

$
64

$
3,724

Cash payments related to operating lease liabilities were $~~8.1~~14.4 million for the three months ended ~~September 30, 2022,~~March 31, 2023 and $~~29.0~~ ~~million for the nine months ended September 30, 2022, $12.3~~7.6 million for the three months ended ~~September 30, 2021, and $~~March 31, 2022.~~38.5~~ ~~million for the nine months ended September 30, 2021.~~

~~In the three months ended September 30, 2021, the Company terminated a lease for certain office facilities in Cambridge, Massachusetts and recorded a gain of $4.3~~ ~~million. In connection with the lease termination, the Company recorded a loss of $6.5~~ ~~million for the disposal of fixed assets. The net loss of $2.2~~ ~~million is reported in the consolidated statements of operations as operating expense.~~

~~13.~~12. Stock-Based Compensation Expense

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
	(in thousands)				(in thousands)				(in thousands)
Options	$	2,551	$	1,407	$	7,692	$	4,575	$	2,707	$	1,999
RSUs		66,520		41,053		182,773		109,488		73,032		40,807
PSUs										3,234		—
Employee stock purchase plan		3,142		2,528		8,616		6,784		4,064		2,898
Total stock-based compensation expense	$	72,213	$	44,988	$	199,081	$	120,847	$	83,037	$	45,704

In the first quarter of 2023, the Compensation Committee of the Board of Directors approved the grant of performance-based restricted stock units (“PSUs”) that are eligible to be earned upon the achievement of a pre-determined revenue growth metric. To the extent earned, 33% of the PSUs will vest in the first quarter of 2024 and the remaining 67% will vest in eight equal quarterly installments thereafter. No PSUs will be earned if the pre-determined revenue growth metric is not achieved, and the overall number of shares that may be earned shall not exceed 150% of the target award. Stock-based compensation costs for PSUs are recognized

using the graded vesting attribution method over the requisite service period.

Effect of stock-based compensation expense on income by line item:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
	(in thousands)				(in thousands)				(in thousands)
Cost of revenue, subscription	$	2,311	$	1,660	$	6,516	$	4,556	$	2,745	$	1,823
Cost of revenue, professional services and other		1,168		748		3,251		2,270		1,087		835
Research and development		28,585		18,449		77,269		45,014		33,324		16,986
Sales and marketing		28,060		17,302		77,113		49,902		30,169		16,869
General and administrative		12,089		6,829		34,932		19,105		15,712		9,191
Total stock-based compensation expense	$	72,213	$	44,988	$	199,081	$	120,847	$	83,037	$	45,704

Capitalized software development costs excluded from stock-based compensation expense is $~~3.4~~4.6 million for the three months ended ~~September 30, 2022, $9.0~~ ~~for the nine months ended September 30, 2022,~~March 31, 2023 and $1.6 million for the three months ended ~~September 30, 2021, and~~March 31, 2022. Also excluded in the three months ended March 31, 2023 is $~~4.7~~1.0 million of stock-based compensation expense incurred in connection with the Restructuring Plan. See Note 14 for ~~the nine months ended September 30, 2021.~~more details.

~~14.~~13. Segment Information and Geographic Data

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 chief operating decision maker (“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. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial

statements. Revenue and long-lived assets by geographic region, based on the physical location of the operations recording the sale or the asset, are as follows:

Revenues by geographical region:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
	(in thousands)												(in thousands)
Americas	$	276,613		$	207,244		$	777,960		$	571,842		$	307,822		$	242,027
Europe		128,934			102,676			373,264			279,412			150,839			119,189
Asia Pacific		38,411			29,275			110,089			80,095			42,959			34,383
Total	$	443,958		$	339,195		$	1,261,313		$	931,349		$	501,620		$	395,599
Percentage of revenues generated outside of the Americas		38	%		39	%		38	%		39	%		39	%		39	%

Revenue derived from customers outside the United States (international) was approximately 46% of total revenue in the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

Total long-lived assets by geographical region:


	As of September 30, 2022			As of December 31, 2021			As of March 31, 2023			As of December 31, 2022
	(in thousands)						(in thousands)
Americas	$	224,861		$	226,848		$	289,138		$	290,977
Europe		118,226			139,846			120,535			123,311
Asia Pacific		10,963			10,268			7,387			10,243
Total long-lived assets	$	354,050		$	376,962		$	417,060		$	424,531
Percentage of long-lived assets held outside of the Americas		36	%		40	%		31	%		31	%

Item 2. 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 appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the SEC on February ~~14, 2022.~~16, 2023. 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 II, Item 1A below.

We provide a cloud-based customer relationship management (“CRM”) Platform. Our CRM Platform is comprised of Marketing Hub, Sales Hub, Service Hub, content management system ("CMS") Hub, and Operations Hub as well as other tools, integrations, and a native payment solution that enable companies to attract, engage, and delight customers throughout the customer experience.

At the core of our CRM Platform is our CRM that our customers use which creates a single view of all interactions a prospective or existing customer has with their marketing, sales and customer service teams. The CRM shares data across every application in the CRM Platform, automatically informing more personalized emails, website content, ads, and conversations, and enables more accurate timing cues for our customer’s internal teams. Our CRM Platform was built to easily and seamlessly integrate third-party applications to further customize to an individual company’s industry or needs. In addition, an end-to-end ~~native~~ payment solution, Payments, is built within our CRM Platform which enables customers to streamline their payment process. We designed and built our CRM Platform to serve a broad range of customers globally. Our CRM 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 two and 2,000 employees. While our CRM 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 proven inbound methodology, our Solutions Partners, and our “freemium” model. 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 CRM Platform through our free products and then upgrade to our paid products. As of ~~September 30, 2022,~~March 31, 2023, we had ~~7,409~~7,055 full-time employees and ~~158,905~~177,298 Customers of varying sizes in more than 120 countries, representing ~~almost every industry.~~many industries.

We derive most of our revenue from subscriptions to our cloud-based CRM 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 three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and 97% of our total revenue for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022. We sell multiple product plans at different base prices on a subscription basis, each of which includes our CRM and integrated applications to meet the needs of the various customers we serve. Customers pay additional fees if the number of contacts stored and tracked in the customer’s database exceeds specified thresholds. We also generate additional revenue based on the purchase of additional subscriptions and products, and the number of account users and subdomains. 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, and utilize other tools and Payments, which are designed to help customers enhance their ability to attract, engage and delight their customers using our CRM Platform. We also generate revenue from a number of revenue-share agreements with other companies based on mutually agreed upon terms. Professional services and other revenue accounted for 2% of total revenue for three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and 3% of our total revenue for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022.

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 CRM Platform by existing and new customers, significant

competition from other providers of marketing, sales, customer service, operations, and content management software and related applications and rapid technological change 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 CRM Platform within existing customers, develop new products and applications to extend the functionality of our CRM Platform and provide a high level of customer service. We ~~expect~~have invested and intend to continue investing for long-term growth. We intend to continue to invest in sales and marketing ~~and expand~~to support our ~~international operations.~~growth. We ~~also expect~~plan to ~~increase our investment~~continue to invest in research and development as we continue to introduce new products and applications to extend the functionality of our CRM Platform. We ~~also~~ intend to maintain a high level of customer service and support which we consider critical for our continued success. 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 both our growth and the infrastructure required to be a public company. We expect to use our cash flow from operations and the proceeds from our convertible debt ~~and prior stock offerings~~ to fund these growth strategies and support our business and do not expect to be profitable in the near term.

~~COVID-19 and Other~~ Global Economic Conditions

Our results of operations can be significantly influenced by general macroeconomic conditions, including, but not limited to, the impact of the COVID-19 pandemic, foreign currency fluctuations, interest rates, inflation, recession risks, existing and new domestic and foreign laws and regulations, all of which are beyond our control. Fluctuations in foreign exchange rates and rising inflation has 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 the section titled “Risk Factors'' included under Part II, Item 1A below for further discussion of the possible impact of these factors and other risks on our business.

Results of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. The data has been derived from the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q which include, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of the financial position and results of operations for the interim periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(dollars in thousands)	2022			2021			2022			2021			2023			2022
Revenues:
Subscription	$	435,030		$	328,975		$	1,232,387		$	899,661		$	489,743		$	384,956
Professional services and other		8,928			10,220			28,926			31,688			11,877			10,643
Total revenue		443,958			339,195			1,261,313			931,349			501,620			395,599
Cost of revenues:
Subscription		67,648			57,547			191,466			152,533			68,339			59,384
Professional services and other		14,479			12,059			42,532			34,685			13,707			13,552
Total cost of revenues		82,127			69,606			233,998			187,218			82,046			72,936
Gross profit		361,831			269,589			1,027,315			744,131			419,574			322,663
Operating expenses:
Research and development		114,038			78,473			325,687			218,973			127,683			92,736
Sales and marketing		229,541			170,016			650,936			468,836			250,683			197,134
General and administrative		50,465			36,027			146,309			102,883			57,405			43,947
Restructuring														28,570			-
Total operating expenses		394,044			284,516			1,122,932			790,692			464,341			333,817
Loss from operations		(32,213	)		(14,927	)		(95,617	)		(46,561	)		(44,767	)		(11,154	)
Other expense:
Interest income		4,658			230			7,222			1,046			10,472			515
Interest expense		(923	)		(7,798	)		(2,822	)		(24,376	)		(930	)		(950	)
Other (expense) income		(1,185	)		9,877			(583	)		11,064			(794	)		3,692
Total other income (expense)		2,550			2,309			3,817			(12,266	)
Total other income														8,748			3,257
Loss before income tax expense		(29,663	)		(12,618	)		(91,800	)		(58,827	)		(36,019	)		(7,897	)
Income tax expense		(1,748	)		(1,117	)		(5,313	)		(2,639	)		(2,263	)		(1,444	)
Net loss	$	(31,411	)	$	(13,735	)	$	(97,113	)	$	(61,466	)	$	(38,282	)	$	(9,341	)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Revenue:
Subscription		98	%		97	%		98	%		97	%		98	%		97	%
Professional services and other		2			3			2			3			2			3
Total revenue		100			100			100			100			100			100
Cost of revenue:
Subscription		15			17			15			16			14			15
Professional services and other		3			4			3			4			3			3
Total cost of revenue		18			21			19			20			16			18
Gross profit		82			79			81			80			84			82
Operating expenses:
Research and development		26			23			26			24			25			23
Sales and marketing		52			50			52			50			50			50
General and administrative		11			11			12			11			11			11
Restructuring														6			-
Total operating expenses		89			84			89			85			93			84
Loss from operations		(7	)		(4	)		(8	)		(5	)		(9	)		(3	)
Total other income (expense)		1			1			0			(1	)
Total other income														2			1
Loss before income tax expense		(7	)		(4	)		(7	)		(6	)		(7	)		(2	)
Income tax expense		(0	)		(0	)		(0	)		(0	)		(0	)		(0	)
Net loss		(7	)%		(4	)%		(8	)%		(7	)%		(8	)%		(2	)%

Three ~~and Nine~~ Months Ended ~~September 30, 2022~~March 31, 2023 Compared to the Three ~~and Nine~~ Months Ended ~~September 30, 2021~~March 31, 2022

Subscription revenue increased during the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 primarily due to the increase in Customers, which grew from ~~128,144~~143,689 as of ~~September 30, 2021~~March 31, 2022 to ~~158,905~~177,298 as of ~~September 30, 2022.~~March 31, 2023. Average Subscription Revenue per Customer increased from ~~$10,536~~$11,030 for the three months ended ~~September 30, 2021~~March 31, 2022 to ~~$11,233~~$11,365 for the three months ended ~~September 30, 2022.~~March 31, 2023. The growth in Customers was primarily driven by increased demand for our ~~lower priced~~lower-priced Starter products. The increase in Average Subscription Revenue per Customer was primarily driven by a continued demand for our Professional and Enterprise products, offset by continued purchases of our ~~lower priced~~lower-priced Starter products and the impact of foreign currency translation primarily attributable to the decline in the value of the Euro and British Pound Sterling relative to the U.S. Dollar.

Professional services and other revenue ~~decreased~~increased during the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 primarily due to ~~lower~~increase in overall services revenue from ~~onboardings~~onboarding and ~~trainings, and lower~~ fees earned from ~~revenue share arrangements with third parties, partially offset by fees earned from Payments and~~ other revenue streams.

Subscription revenue increased during the three months ended September 30, 2022 compared to the same period in 2021 primarily due to the increase in Customers, which grew from 128,144 as of September 30, 2021 to 158,905 as of September 30, 2022. Average Subscription Revenue per Customer increased from $10,305 for the nine months ended September 30, 2021 to $11,162 for the nine months ended September 30, 2022. The growth in Customers was primarily driven by our increased demand for our lower priced Starter products. The increase in Average Subscription Revenue per Customer was primarily driven by a continued demand for our Professional and Enterprise products, offset by continued purchases of our lower priced Starter products and the impact of foreign currency translation primarily attributable to the decline in the value of the Euro and British Pound Sterling relative to the U.S. Dollar.

Professional services and other revenue decreased during the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to non-recurring advertising revenue generated from our acquisition of the Hustle in the first quarter of 2021, lower overall services revenue from onboardings and trainings, and lower fees earned from revenue share arrangements with third parties, partially offset by fees earned from Payments and other revenue streams.

Total cost of revenue for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 increased compared to the same period in ~~2021~~2022 primarily due to an increase in subscription and hosting costs, ~~employee-related costs,~~ amortization of capitalized software development costs, ~~and~~ amortization of acquired technology, offset by ~~a decrease~~decreases in employee-related costs and allocated overhead expenses. ~~Gross margins remained consistent year-over-year.~~The increase in gross margin was primarily driven by benefits from hosting cost efficiencies from infrastructure optimization efforts.

The increase in subscription cost of revenue for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 was primarily due to the following:

Subscription and hosting costs increased primarily due to growth in our Customer base from ~~128,144~~143,689 as of ~~September 30, 2021~~March 31, 2022 to ~~158,905~~177,298 as of ~~September 30, 2022.~~March 31, 2023. We also saw higher subscription and hosting costs as we continued to focus on the security, reliability and performance of our CRM Platform. ~~Employee-related costs increased as a result of increased headcount as we grew our customer support organization to support our customer growth and improve service levels and offerings.~~ 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 certain acquired technology being amortized using a method reflective of the

expected economic benefit consumption over the expected useful life of the asset. Employee-related costs decreased as a result of the workforce reduction under the Restructuring Plan. Allocated overhead expenses decreased primarily due to ~~the reduction of our leased space.~~

Subscription and hosting costs increased primarily due to growth in our Customer base from 128,144 as of September 30, 2021 to 158,905 as of September 30, 2022. We also saw higher subscription and hosting costs as we launched an additional data center in the third quarter of 2021 and continued to focus on the security, reliability and performance of our CRM Platform. Employee-related costs increased as a result of increased headcount as we grew our customer support organization to support our customer growth and improve service levels and offerings. 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 certain acquired technology being amortized using a method reflective of the expected economic benefit consumption over the expected useful life of the asset. Allocated overhead expenses decreased primarily due to the reduction of our leased space.lower cost allocation.

The increase in professional services and other cost of revenue for three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 was primarily due to the following:

~~Employee-related costs increased as a result of increased headcount as we grew our professional services organization to support our customer growth.~~ Allocated overhead and other expenses increased primarily due to increased costs associated with our other service ~~offerings, offset slightly by a decrease in expense from the reduction of our leased space. Professional fees decreased due to a reduction in the use of third-party services and contractors.~~

offerings. Employee-related costs ~~increased~~decreased as a result of increased headcount as we grew our professional services organization to support our customer growth. Allocated overhead and other expenses increased primarily due to increased costs associated with our service offerings, offset slightly by a decrease in expense from the workforce reduction ~~of our leased space. Professional fees decreased due to a reduction in~~under the ~~use of third-party services and contractors.~~Restructuring Plan.

The increase in research and development expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 was primarily due to the following:

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 CRM Platform. 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 expand headcount. In July of 2021, we launched a new data center and the ongoing expenses related to the hosting of our CRM Platform on that data center are classified as subscription cost of revenue. As such, there was no change in hosting expenses.business.

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 CRM Platform. 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 expand headcount. Hosting expense decreased due to incremental spend in the first half of 2021 associated with product development infrastructure that is unrelated to the hosting of our CRM Platform for paying Customers. In July of 2021, we launched a new data center and the ongoing expenses related to the hosting of our CRM Platform on that data center are classified as subscription cost of revenue.

The increase in sales and marketing expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 was primarily due to the following:

Employee-related costs increased as a result of increased headcount as we expanded our selling and marketing organizations to grow our customer base. Solutions Partner commissions increased as a result of increased revenue generated through our Solutions Partners. Marketing programs increased due to the timing and size of certain marketing efforts as we made investments in attracting new customers. 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, offset slightly by a decrease in expense from the reduction of our leased space. Amortization of intangible assets increased primarily due to the purchase of a domain name in the second quarter of 2022.

Employee-related costs increased as a result of increased headcount as we expanded our selling and marketing organizations to grow our customer base. Solutions Partner commissions increased as a result of increased revenue generated through our Solutions Partners. Marketing programs increased due to the timing and size of certain marketing efforts as we continue to make investments in attracting new customers. 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, offset slightly by a decrease in expense from the reduction of our leased space.business. Amortization of intangible assets increased primarily due to the purchase of a domain name in the second quarter of 2022.

The increase in general and administrative expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 was primarily due to the following:

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 continue 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.

~~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~~Restructuring charges were $28.6 million in the three months ended March 31, 2023 due to ~~increased customer transactions as we continue~~the implementation of the Restructuring Plan in the first quarter of 2023. Restructuring costs primarily consisted of $26.8 million of severance, employee related benefits and other costs, and $1.8 million related to ~~grow our business. Allocated overhead expenses increased due to an increase~~facilities. There were no restructuring charges in ~~shared company expenses associated with our systems and infrastructure as we continued to grow our business.~~the three months ended March 31, 2022.

Interest income primarily consists of interest earned on invested cash and cash equivalents balances and investments. The increase during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 is due to an increase in yields on our investment balances.

~~The change in interest expense for the three and nine months ended September 30, 2022 compared to the same period in 2021 is due to the following:~~

Interest expense primarily consists of amortization of the debt discount and issuance costs and contractual interest expense related to our ~~Notes and the loss on early extinguishment of our 2022~~2025 Notes. ~~The decrease in interest expense related to the Notes and loss on extinguishment is primarily due to the adoption of the new convertible debt guidance.~~

Interest expense primarily consists of amortization of the debt discount and issuance costs and contractual interest expense related to our Notes, and the loss on early extinguishment of our 2022 Notes. The decrease in interest expense related to the Notes and loss on extinguishment is primarily due to the adoption of the new convertible debt guidance.remained relatively consistent.

The change in other income during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 is primarily due to the following:

Other (expense) income primarily consists of the impact of foreign currency transaction gains and losses associated with monetary assets and liabilities and any gains or ~~losses~~impairments on our strategic investments. The decrease in gain on strategic investments is due to gains of $4.2 million from observable price changes in the three months ended March 31, 2022. No gains or losses were recorded in the three months ended March 31, 2023. The increase in foreign currency transaction losses is primarily attributable to the decline in the value of the Euro and British Pound Sterling relative to the U.S. Dollar. The decrease in gain on investments is due to an adjustment to the fair value of an investment as a result of an observable price change in the three months ended September 30, 2021, whereas no gain was recognized in the three months ended September 30, 2022.

Other (expense) income primarily consists of the impact of foreign currency transaction gains and losses associated with monetary assets and liabilities and any gains or losses on our strategic investments. The increase in foreign currency transaction losses is primarily attributable to the decline in the value of the Euro and British Pound Sterling relative to the U.S. Dollar. The decrease in gain on investments is due to an adjustment to the fair value of an investment as a result of an observable price change of $4.2 million in the nine months ended September 30, 2022 compared to $11.7 million in the nine months ended September 30, 2021.

Income tax expense consists of current and deferred taxes for U.S. and foreign income taxes. The increase in income tax expense was primarily driven by increased income in jurisdictions outside of the U.S. that are profitable from a tax perspective, the state tax effect of a U.S. federal tax law change in effect from January 1, 2022 that requires the capitalization of research and experimental costs, and lower-than-expected tax benefits associated with stock-based compensation, partially offset by a non-recurring income tax benefit recognized in 2021 relating to the release of a portion of the Company’s valuation allowance. The release was due to recording net deferred tax liabilities related to the Hustle acquisition, which are a source of income to support the realizability of the Company’s pre-existing U.S. deferred tax assets.

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 used in investing activities, and net cash and cash equivalents provided by financing activities

for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

Our cash and cash equivalents at ~~September 30, 2022~~March 31, 2023 were held for working capital purposes. At ~~September 30, 2022, $111.2~~March 31, 2023, $159.2 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.

Cash from operations could be affected by various risks and uncertainties detailed in the section titled “Risk Factors” included under Part II, Item 1A. However, based on our current business plan and revenue prospects, we believe that our existing cash, cash equivalents and investment balances, and our anticipated cash flows from operations will be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve months.

Net cash and cash equivalents provided by operating activities consists primarily of net 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 ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 primarily reflected our net loss of ~~$97.1~~$38.3 million, ~~benefit from deferred income taxes of $0.6 million, $3.3~~$8.0 million accretion of bond discounts, ~~and gains on strategic investments of $4.2 million,~~ offset by non-cash expenses that included ~~$42.6~~$16.6 million of depreciation and amortization, ~~$199.1~~$83.0 million in stock-based compensation, restructuring charges of $2.2 million, and ~~$1.5~~$0.5 million of amortization of debt discount and issuance costs. Working capital sources of cash and cash equivalents primarily included a ~~$63.7~~$28.6 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a ~~$19.6~~$30.6 million decrease in accounts receivable related to increased collection, a $8.5 million increase in right-of-use asset, ~~a $10.7 million increase in accounts payable related to timing of bill payments,~~ and ~~$16.5~~$24.2 million increase in accrued expenses and other liabilities. These sources of cash and cash equivalents were offset by a ~~$8.9~~$20.4 million increase in prepaid expenses and other assets, a ~~$14.6~~$9.8 million decrease in operating lease liabilities, a ~~$22.2~~$18.5 million increase in deferred commissions, and a ~~$20.1~~$17.9 million increase in accounts ~~receivable as a result~~payable related to timing of ~~increased billings to customers.~~bill payments

Net cash and cash equivalents provided by operating activities during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 primarily reflected our net loss of ~~$61.5 million, the portion of the repayment of the 2022 Notes attributable to the debt discount of $24.5~~$9.3 million, benefit from deferred income taxes of ~~$1.3~~$0.2 million, ~~a gain on termination of operating leases of $4.3 million,~~ and ~~aggregate~~ gains on strategic investments of ~~$11.7~~$4.2 million, offset by non-cash expenses that included ~~$33.2~~$12.8 million of depreciation and amortization, ~~$120.8~~$45.7 million in stock-based compensation, ~~$2.9~~$0.6 million amortization of bond discounts, ~~$18.1~~and $0.5 million of amortization of debt discount and issuance ~~costs, loss on disposal of fixed assets of $6.5 million, and $4.8 million of loss on early extinguishment of 2022 Notes.~~costs. Working capital sources of cash and cash equivalents primarily included a ~~$66.8~~$29.5 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a ~~$26.9~~$3.6 million decrease in accounts receivable related to increased collection, a $6.5 million increase in right-of-use asset, a $3.6 million increase in accounts payable related to timing of bill payments, and ~~$38.2~~$7.1 million increase in accrued expenses and other liabilities. These sources of cash and cash equivalents were offset by a ~~$12.0 million increase in accounts payable related to timing of bill payments, a $7.1~~$3.9 million increase in prepaid expenses and other assets, a ~~$26.4~~$2.3 million decrease in operating lease liabilities, and a ~~$24.4~~$8.4 million increase in deferred ~~commissions, and a $2.2 million increase in accounts receivable as a result of increased billings to customers consistent with the overall growth of the business.~~commissions.

Our investing activities have consisted primarily of purchases and maturities of investments, ~~sale of investments,~~ property and equipment purchases, ~~an acquisition of a business, purchase of intangible assets,~~ purchases of strategic investments, ~~an equity method investment~~ 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.

Net cash and cash equivalents used in investing activities during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 consisted primarily of ~~$1.3 billion~~$362.2 million purchases of investments ~~$31.4~~and $3.6 million of purchased property and equipment, ~~$19.9~~$6.0 million of purchases of strategic

investments, ~~$31.4~~and $14.9 million of capitalized software development ~~costs, and a $10.0 million purchase of intangible assets.~~costs. These uses of cash were offset by ~~$1.0 billion~~$288.0 million received related to the maturity ~~of investments and $125.0 million received for sale~~ of investments.

Net cash and cash equivalents used in investing activities during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 consisted primarily of ~~$1.0 billion~~$435.5 million purchases of investments ~~$17.4~~and $9.9 million of purchased property and equipment, ~~a $16.8 million business acquisition, $10.2~~$5.0 million of purchases of strategic investments, ~~$3.1 million in an equity method investment~~ and ~~$25.6~~$9.7 million of capitalized software development costs. These uses of cash were offset by ~~$940.8~~$405.2 million received related to the maturity of investments.

Our financing activities have consisted primarily of the ~~various components of our 2022 Notes repayment,~~ repayment of our 2025 Notes, the issuance of common stock under our stock plans, and payments of employee taxes related to the net share settlement of stock-based awards,.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2023 cash used in financing activities consisted $1.2 million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by $11.3 million of proceeds related to issuance of common stock under stock plans.

For the three months ended March 31, 2022 cash used in financing activities consisted of $1.6 million used for the repayment of the 2025 Notes attributable to the principal ~~$79.8 million payment for settlement of the 2022 Notes,~~ and ~~$10.0~~$4.4 million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by ~~$29.7~~$11.9 million of proceeds related to issuance of common stock under stock ~~plans and $60.5 million of proceeds from settlement of the Convertible Note Hedges.~~

For the nine months ended September 30, 2021 cash used in financing activities consisted of $80.4 million used for repayment of the 2022 Notes attributable to the principal and $11.7 million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by $0.7 million of proceeds from the settlement of the Convertible Note Hedges related to the 2022 Notes and $34.1 million of proceeds related to issuance of common stock under stock plans.

There have been no significant changes in our critical accounting policies and estimates during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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 sheet and vendor commitments associated with agreements that are legally binding. See Note 10 for all obligations the Company is committed to in the notes to the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

For information on recent accounting pronouncements, see Recent Accounting Pronouncements in the notes to the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

As of ~~the date of this report,~~March 31, 2023, we are committed to contribute additional capital of $6.3 million to the Black Economic Development Fund. There were no other material off-balance sheet arrangements exclusive of operating leases 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.

We have foreign currency risks related to our revenue, cost of revenue, and operating expenses denominated in currencies other than the U.S. dollar, primarily the Euro, British Pound Sterling, Australian dollar, Singaporean dollar, Japanese Yen, Colombian Peso and ~~Colombian Peso.~~Canadian 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 as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of

the entities in which they are recorded. While we have not engaged in the hedging of our foreign currency transactions to date, we are

evaluating the costs and benefits of initiating such a program and may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar as we expand our international ~~operation,~~operations, and our risk grows.

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. A sharp rise in interest rates could have an adverse impact on the fair market value of certain securities in our portfolio. We do not currently hedge our interest rate exposure and do not enter into financial instruments for trading or speculative purposes.

In June 2020, we issued $460 million aggregate principal amount of convertible senior notes due June 1, 2025, of which $459.1 million remains outstanding as of ~~September 30, 2022.~~March 31, 2023 the “2025 Notes”). The fair value of ~~our convertible senior notes~~the 2025 Notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the ~~convertible senior notes~~2025 Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The interest and market value changes affect the fair value of ~~our convertible senior notes~~the 2025 Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Generally, the fair values of ~~our senior convertible notes~~the 2025 Notes will increase as interest rates fall and decrease as interest rates rise. Additionally, we carry the ~~convertible senior notes~~2025 Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. The Federal Reserve ~~recently~~has raised, and may continue to raise interest rates in an effort to combat high inflation and may continue to do so in the future. There continues to be uncertainty in the changing market and economic conditions, including the possibility or additional measures that could be taken by the Federal Reserve and other government agencies, related to concerns over inflation risk.

The table below provides a sensitivity analysis of hypothetical 10% changes of our stock price as of ~~September 30, 2022~~March 31, 2023 and the estimated impact on the fair value of the 2025 Notes. The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such an event may have on the fair value of the 2025 Notes.

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or

mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by

management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this Quarterly Report on Form 10-Q and in our other public filings before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this ~~report~~Quarterly Report on Form 10-Q and in our other public filings. The trading price of our common stock could decline due to any of these risks, and, as a result, you may lose all or part of your investment.

We are dependent upon customer renewals, the addition of new customers, increased revenue from existing customers and the continued growth of the market for a CRM Platform.

We derive, and expect to continue to derive, a substantial portion of our revenue from the sale of subscriptions to our CRM Platform. The market for inbound marketing, sales, service, operations and customer ~~service~~management products is still evolving, and competitive dynamics may cause pricing levels to change as the market matures and as existing and new market participants introduce new types of point applications and different approaches to enable businesses to address their respective needs. As a result, we may be forced to reduce the prices we charge for our platform and may be unable to renew existing customer agreements or enter into new customer agreements at the same prices and upon the same terms that we have historically. In addition, our growth strategy involves a scalable pricing model (including freemium versions of our products) intended to provide us with an opportunity to increase the value of our customer relationships over time as we expand their use of our platform, sell to other parts of their organizations, cross-sell our sales products to existing marketing product customers and vice versa through touchless or ~~low-touch~~low touch in product purchases, and upsell additional offerings and features. If our cross-selling efforts are unsuccessful or if our existing customers do not expand their use of our platform or adopt additional offerings and features, our operating results may suffer.

Our subscription renewal rates may decrease, and any decrease could harm our future revenue and operating results.

Our customers have no obligation to renew their subscriptions for our platform after the expiration of their subscription periods, substantially all of which are one year or less. In addition, our customers may seek to renew for lower subscription tiers, for fewer contacts or seats, or for shorter contract lengths. Also, customers may choose not to renew their subscriptions for a variety of reasons. Our renewal rates may decline or fluctuate as a result of a number of factors, including limited customer resources, pricing changes, the prices of services offered by our competitors, adoption and utilization of our platform and add-on applications by our customers, adoption of our new products, customer satisfaction with our platform, mergers and acquisitions affecting our customer base, reductions in our customers’ spending levels or declines in customer activity as a result of economic downturns or uncertainty in financial markets. If our customers do not renew their subscriptions for our platform or decrease the amount they spend with us, our revenue will decline and our business will suffer.

In addition, a subscription model creates certain risks related to the timing of revenue recognition and potential reductions in cash flows. A portion of the subscription-based revenue we report each quarter results from the recognition of deferred revenue

relating to subscription agreements entered into during previous quarters. In addition, we do not record deferred revenue beyond amounts invoiced as a liability on our balance sheet. A decline in new or renewed subscriptions in any period may not be immediately reflected in our reported financial results for that period, but may result

in a decline in our revenue in future quarters. If we were to experience significant downturns in subscription sales and renewal rates, our reported financial results might not reflect such downturns until future periods.

We face significant competition from both established and new companies offering marketing, sales, ~~and~~ customer service, operations and content management software and other related applications, as well as internally developed software, which may harm our ability to add new customers, retain existing customers and grow our business.

The marketing, sales, customer service, operations, and content management software market is evolving, highly competitive and significantly fragmented. With the introduction of new technologies and the potential entry of new competitors into the market, we expect competition to persist and intensify in the future, which could harm our ability to increase sales, maintain or increase renewals and maintain our prices.

We face intense competition from other software companies that develop marketing, sales, customer service, operations, and content management software and from marketing services companies that provide interactive marketing services. Competition could significantly impede our ability to sell subscriptions to our CRM Platform on terms favorable to us. Our current and potential competitors may develop and market new technologies that render our existing or future products less competitive, or obsolete. In addition, if these competitors develop products with similar or superior functionality to our platform, we may need to decrease the prices or accept less favorable terms for our platform subscriptions in order to remain competitive. If we are unable to maintain our pricing due to competitive pressures, our margins will be reduced and our operating results will be negatively affected.

In addition, instead of using our platform, some prospective customers may elect to combine disparate point applications, such as content management, marketing automation, CRM, analytics and social media management. We expect that new competitors, such as enterprise software vendors that have traditionally focused on enterprise resource planning or other applications supporting back office functions, will develop and introduce applications serving customer-facing and other front office functions. This development could have an adverse effect on our business, operating results and financial condition. In addition, sales force automation and CRM vendors could acquire or develop applications that compete with our ~~marketing software~~sales and CRM offerings. Some of these companies have acquired social media marketing and other marketing software providers to integrate with their broader offerings.

Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we have, be able to devote greater resources to the development, promotion, sale and support of their products and services, may have more extensive customer bases and broader customer relationships than we have, and may have longer operating histories and greater name recognition than we have. As a result, these competitors may respond faster to new technologies and undertake more extensive marketing campaigns for their products. In a few cases, these vendors may also be able to offer marketing, sales, customer service and content management software at little or no additional cost by bundling it with their existing suite of applications. To the extent any of our competitors has existing relationships with potential customers for either marketing software or other applications, those customers may be unwilling to purchase our platform because of their existing relationships with our competitor. If we are unable to compete with such companies, the demand for our CRM Platform could substantially decline.

In addition, if one or more of our competitors were to merge or partner with another of our competitors, our ability to compete effectively could be adversely affected. Our competitors may also establish or strengthen cooperative relationships with our current or future strategic distribution and technology partners or other parties with whom we have relationships, thereby limiting our ability to promote and implement our platform. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our business, operating results and financial condition.

We have experienced rapid growth and organizational change in recent periods and expect ~~continued future growth.~~growth of headcount and operations over the long-term. If we fail to manage ~~our~~ growth and organizational change effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately.

~~Our~~Prior to the implementation of our Restructuring Plan in January 2023, our headcount and operations ~~have grown~~grew substantially. ~~For example, we had 7,409 full-time employees as of September 30, 2022, compared with 5,895 as of December 31, 2021.~~ To date, we have opened several international offices. This growth has placed, and will continue to place, a significant strain on our management, administrative, operational and financial infrastructure. While we expect to continue to grow headcount and operations over the long-term, in January 2023, we authorized a workforce reduction impacting approximately 7% of our workforce and began exiting select leases to consolidate our office space. We may be unable to effectively manage the organizational changes we have made in connection with the Restructuring Plan, which could result in difficulty or delays in delivering our products to customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new products and services or enhancing existing products and services, reputational harm, loss of customers, or operational difficulties in executing sales strategies, any of which could adversely affect our business performance and operating results. We anticipate ~~further~~future growth will be required over the long term to address increases in our product offerings and continued expansion. Our success will depend in part upon our ability to recruit, hire, train, manage and integrate qualified managers, technical personnel and employees in specialized roles within our company, including in technology, sales and marketing. Furthermore, as more of our employees work remotely from geographic areas across the globe ~~and more of our employees work remotely~~ on a permanent basis pursuant to our hybrid workplace model, which provides our employees with the option to be fully remote, work full-time from one of our offices, or have the flexibility to work both in the office and ~~remotely),~~remotely, we may need to reallocate our investment of resources and closely monitor a variety of local regulations and requirements, including local tax ~~laws, and we~~laws. We may experience unpredictability in our expenses and employee work culture. If we experience any of these effects in connection with future growth, if our new employees perform poorly, or if we are unsuccessful in recruiting, hiring, training, managing and integrating ~~these~~ new employees, or retaining ~~these or~~ our existing employees, it could materially impair our ability to attract new customers, retain existing customers and expand their use of our platform, all of which would materially and adversely affect our business, financial condition and results of operations.

In addition, ~~to manage the recent growth of our headcount, operations and geographic expansion, we will need to continue to expand~~ our information technology infrastructure, operational, financial and management systems and ~~procedures.~~procedures may not be able to effectively manage changes to our headcount, operations and office space that result from the Restructuring Plan. Our ~~anticipated additional headcount and capital investments will increase~~Restructuring Plan has increased our short-term costs, which ~~will make~~makes it more difficult for us to address any future revenue shortfalls by reducing expenses in the ~~short term.~~short-term. If we fail to successfully manage organizational changes in connection with the Restructuring Plan or our future growth, we will be unable to successfully execute our business plan, which could have a negative impact on our business, results of operations or financial condition.

Failure to effectively develop and expand our marketing, sales, customer service, operations, and content management capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.

To increase Customers and achieve broader market acceptance of our CRM Platform, we will need to continue to expand our marketing, sales, customer service, operations, and content management capabilities, including our sales force and third-party channel partners. We will continue to dedicate significant resources to inbound sales and marketing programs. The effectiveness of our inbound sales and marketing and third-party channel partners has varied over time and may vary in the future and depends on our ability to maintain and improve our CRM Platform. All of these efforts will require us to invest significant financial and other resources. Our business will be seriously harmed if our efforts do not generate a correspondingly significant increase in revenue. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not effective.

The rate of growth of our business depends on the continued participation and level of service of our Solutions Partners.

We rely on our Solutions Partners to provide certain services to our customers, as well as pursue sales of our CRM Platform to customers. To the extent we do not attract new Solutions Partners, or existing or new Solutions Partners do not refer a growing number of customers to us, our revenue and operating results would be harmed. In addition, if our Solutions Partners do not continue to provide services to our customers, we would be required to provide such services ourselves either by expanding our internal team or engaging other third-party providers, which would increase our operating costs.

If we fail to maintain our inbound thought leadership position, our business may suffer.

We believe that maintaining our thought leadership position in inbound marketing, sales, services, operations and content management is an important element in attracting new customers. We devote significant resources to develop and maintain our thought leadership position, with a focus on identifying and interpreting emerging trends in the inbound experience, shaping and guiding industry dialog and creating and sharing the best inbound practices. Our activities related to developing and maintaining our

thought leadership may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in such effort. We rely upon the continued services of our management and employees with domain expertise with inbound marketing, sales, services, operations, and content management, and the loss of any key employees in this area could harm our competitive position and reputation. If we fail to successfully grow and maintain our thought leadership position, we may not attract enough new customers or retain our existing customers, and our business could suffer.

If we fail to further enhance our brand and maintain our existing strong brand awareness, our ability to expand our customer base will be impaired and our financial condition may suffer.

We believe that our development of the HubSpot brand is critical to achieving widespread awareness of our existing and future inbound experience solutions, and, as a result, is important to attracting new customers and maintaining existing customers. In the past, our efforts to build our brand have involved significant expenses, and we believe that this investment has resulted in strong brand recognition in the B2B market. Successful promotion and maintenance of our brands will depend largely on the effectiveness of our marketing efforts and on our ability to provide a reliable and useful CRM Platform at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to successfully promote and maintain our brand, our business could suffer.

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our CRM Platform may become less competitive.

Our future success depends on our ability to adapt and innovate our CRM Platform. To attract new customers and increase revenue from existing customers, we need to continue to enhance and improve our offerings to meet customer needs at prices that our customers are willing to pay. Such efforts will require adding new functionality and responding to technological advancements, which will increase our research and development costs. If we are unable to develop new applications that address our customers’ needs, or to enhance and improve our platform in a timely manner, we may not be able to maintain or increase market acceptance of our platform. Our ability to grow is also subject to the risk of future disruptive technologies. Access and use of our CRM Platform is provided via the cloud, which, itself, was disruptive to the previous enterprise software model. If new technologies emerge that are able to deliver inbound marketing software and related applications at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely affect our ability to compete.

If we fail to offer high-quality customer support, our business and reputation may suffer.

High-quality education, training and customer support are important for the successful marketing, sale and use of our CRM Platform and for the renewal of existing customers. Providing this education, training and support requires that our personnel who manage our online training resource, HubSpot Academy, or provide customer support have specific inbound experience domain knowledge and expertise, making it more difficult for us to hire qualified personnel and to scale up our support operations. The importance of high-quality customer support will increase as we expand our business and pursue new customers. If we do not help our customers use multiple applications within our CRM Platform and provide effective ongoing support, our ability to sell additional functionality and services to, or to retain, existing customers may suffer and our reputation with existing or potential customers may be harmed.

We may not be able to scale our business quickly enough to meet our customers’ growing needs and if we are not able to grow efficiently, our operating results could be harmed.

As usage of our CRM Platform grows and as customers use our platform for additional inbound applications, such as sales and services, we will need to devote additional resources to improving our application architecture, integrating with third-party systems and maintaining infrastructure performance. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and professional services, to serve our growing customer base, particularly as our customer demographics change over time. Any failure of or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues could reduce the attractiveness of our CRM Platform to customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, the issuance of service credits, or requested refunds, which could impede our revenue growth and harm our reputation. Even if we are able to upgrade our systems and expand our staff, any such expansion will be expensive and complex, requiring management’s time and attention. We could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure. Moreover, there are inherent risks associated with upgrading, improving and expanding our information technology systems. We cannot be sure that the expansion and improvements to our infrastructure and systems will be fully or effectively implemented on a timely basis, if at all. ~~These efforts may reduce revenue and our margins and adversely affect our financial results.~~

Our ability to introduce new products and features is dependent on adequate research and development resources. If we do not adequately fund our research and development efforts, we may not be able to compete effectively and our business and operating results may be harmed.

To remain competitive, we must continue to develop new product offerings, applications, features and enhancements to our existing CRM Platform. Maintaining adequate research and development personnel and resources to meet the demands of the market is essential. If we are unable to develop our platform internally due to certain constraints, such as high employee turnover, lack of management ability or a lack of other research and development resources, we may miss market opportunities. Further, many of our competitors expend a considerably greater amount of funds on their research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors’ research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors could materially adversely affect our business.

38The development of next-generation solutions that utilize new and advanced features, including artificial intelligence (“AI”) and machine learning, involves making predictions regarding the willingness of the market to adopt such technologies over legacy solutions. The Company may be required to commit significant resources to developing new products, software and services before knowing whether such investment will result in products or services that the market will accept.

The Company’s inability, for technological or other reasons, some of which may be beyond the Company’s control, to enhance, develop, introduce and monetize products and services in a timely manner, or at all, in response to changing market conditions or customer requirements could have a material adverse effect on the Company’s business, results of operations and financial condition or could result in its products and services not achieving market acceptance or becoming obsolete. In addition, if the Company fails to deliver a compelling customer experience or accurately predict emerging technological trends and the changing needs of customers and end users, or if the features of its new products and services do not meet the demands of its customers or are not sufficiently differentiated from those of its competitors, the Company’s business, results of operations and financial condition could be materially harmed.

Uncertainty around new and emerging AI applications such as generative AI content creation may require additional investment in the development of proprietary datasets and machine learning models, development of new approaches and processes to provide attribution or remuneration to content creators and building systems that enable creatives to have greater control over the use of their work in the development of AI, which may be costly and could impact our profit margin if we are unable to monetize such assets. Developing, testing and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems.

Changes in the sizes or types of businesses that purchase our platform or in the applications within our CRM Platform purchased or used by our customers could negatively affect our operating results.

Our strategy is to sell subscriptions to our CRM Platform to mid-sized businesses, but we have sold and will continue to sell to organizations ranging from small businesses to enterprises. Our gross margins can vary depending on numerous factors related to the implementation and use of our CRM Platform, including the sophistication and intensity of our customers’ use of our platform and the level of professional services and support required by a customer. Sales to enterprise customers may entail longer sales cycles and more significant selling efforts. Selling to small businesses may involve greater credit risk and uncertainty. If there are changes in the mix of businesses that purchase our platform or the mix of the product plans purchased by our customers, our gross margins could decrease and our operating results could be adversely affected.

We have in the past completed acquisitions and may acquire or invest in other companies or technologies in the future, which could divert management’s attention, fail to meet our expectations, result in additional dilution to our stockholders, increase expenses, disrupt our operations or harm our operating results.

We have in the past acquired, and we may in the future acquire or invest in, businesses, products or technologies that we believe could complement or expand our platform, enhance our technical capabilities or otherwise offer growth opportunities. We may not be able to fully realize the anticipated benefits of historical or any future acquisitions. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses related to identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

There are inherent risks in integrating and managing acquisitions. If we acquire additional businesses, we may not be able to assimilate or integrate the acquired personnel, operations and technologies successfully or effectively manage the combined business following the acquisition and our management may be distracted from operating our business. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including: unanticipated costs or liabilities associated with the acquisition; incurrence of acquisition-related costs, which would be recognized as a current period expense; inability to generate sufficient revenue to offset acquisition or investment costs; the inability to maintain relationships with customers and partners of the acquired business; the difficulty of incorporating acquired technology and rights into our platform and of maintaining quality and security standards consistent with our brand; delays in customer purchases due to uncertainty related to any acquisition; the need to integrate or implement additional controls, procedures and policies; challenges caused by distance, language and cultural differences; harm to our existing business relationships with business partners and customers as a result of the acquisition; the potential loss of key employees; use of resources that are needed in other parts of our business and diversion of management and employee resources; ~~the inability to recognize acquired deferred revenue in accordance with our revenue recognition policies;~~ and

use of substantial portions of our available cash or the incurrence of debt to consummate the acquisition. Acquisitions also increase the risk of unforeseen legal liability, including for potential violations of applicable law or industry rules and regulations, arising from prior or ongoing acts or omissions by the acquired businesses which are not discovered by due diligence during the acquisition process. Generally, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our business, results of operations or financial condition.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to goodwill and other intangible assets, which must be assessed for impairment at least annually. If our acquisitions do not ultimately yield expected returns, we may be required to make charges to our operating results based on our impairment assessment process, which could harm our results of operations.

Because our long-term growth strategy involves further expansion of our sales to customers outside the United States, our business will be susceptible to risks associated with international operations.

A component of our growth strategy involves the further expansion of our operations and customer base internationally. We have formed several international entities and may plan to form additional entities in the future. These international operations focus primarily on sales, professional services and support, and select international locations ~~also~~ have development teams. Our current international operations and future initiatives will involve a variety of risks, including:

Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If in the future, we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and operating results will suffer. We continue to implement policies and procedures to facilitate our compliance with U.S. laws and regulations applicable to or arising from our

international business. Inadequacies in our past or current compliance practices may increase the risk of inadvertent violations of such laws and regulations, which could lead to financial and other penalties that could damage our reputation and impose costs on us.

Our Restructuring Plan and associated organizational changes may not adequately reduce our operating costs or improve operating margins, may lead to additional workforce attrition, and may cause operational disruptions.

In January 2023, we implemented our Restructuring Plan, which 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 current workforce by approximately 7% and a lease consolidation to create higher density across our workspaces.

The Restructuring Plan may yield unintended consequences and costs, such as the loss of institutional knowledge and expertise, employee attrition beyond our intended reduction in force, a reduction in morale among our remaining employees, greater-than-anticipated costs incurred in connection with implementing the Restructuring Plan, and the risk that we may not achieve the benefits from the Restructuring Plan to the extent or as quickly as we anticipate, all of which may have a material adverse effect on our results of operations or financial condition. These restructuring initiatives could place substantial demands on our management and employees, which could lead to the diversion of our management’s and employees’ attention from other business priorities. In addition, while certain positions have been eliminated in connection with the Restructuring Plan, certain functions necessary to our reduced operations remain, and we may be unsuccessful in distributing the duties and obligations of departed employees among our remaining employees or to external service providers, which could result in disruptions to our operations. We may also discover that the workforce reduction and other restructuring efforts will make it difficult for us to pursue new opportunities and initiatives and require us to hire qualified replacement personnel, which may require us to incur additional and unanticipated costs and expenses. We may further discover that, despite the implementation of our Restructuring Plan, we may require additional capital to continue expanding our business, and we may be unable to obtain such capital on acceptable terms, if at all. Our failure to successfully accomplish any of the above activities and goals may have a material adverse impact on our business, financial condition, and results of operations.

Social and ethical issues relating to the use of new and evolving technologies, such as AI, in our offerings may result in reputational harm and liability.

Social and ethical issues relating to the use of new and evolving technologies such as AI in our offerings, may result in reputational harm and liability, and may cause us to incur additional research and development costs to resolve such issues. We are increasingly building AI into many of our offerings. As with many innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. If we enable or offer solutions that draw controversy due to their perceived or actual impact on society, we may experience brand or reputational harm, competitive harm or legal liability. Potential government regulation related to AI use and ethics may also increase the burden and cost of research and development in this area, and failure to properly remediate AI usage or ethics issues may cause public confidence in AI to be undermined, which could slow adoption of AI in our products and services. The rapid evolution of AI will require the application of resources to develop, test and maintain our products and services to help ensure that AI is implemented ethically in order to minimize unintended, harmful impact.

If we cannot maintain our company culture as we ~~grow,~~experience changes in our workforce, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success and our business may be harmed.

We believe that a critical component to our success has been our company culture, which is based on transparency and personal autonomy. We have invested substantial time and resources in building our team within this company culture. In January 2023, we authorized a workforce reduction impacting approximately 7% of our workforce as part of our Restructuring Plan. The workforce reduction may make it more difficult to preserve our company culture and may negatively impact employee morale. In 2020, we made the decision to permanently move to a hybrid workplace model, which means our employees have the option to be fully remote, work full-time from one of our offices, or work both in the office and remotely. Preservation of our corporate culture has been made more difficult as athe majority of our ~~work force~~workforce has been working from home, ~~in connection with our hybrid workplace model.~~and may become more difficult due to the changes resulting from the Restructuring Plan. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. As we grow and continue to develop our company infrastructure, and experience organizational change, we may find it difficult to maintain these important aspects of our company culture and our business may be adversely impacted.

We rely on our management team and other key employees, and the loss of one or more key employees could harm our business.

Our success and future growth depend upon the continued services of our management team, including our co-founders, Brian Halligan and Dharmesh Shah, our chief executive officer, Yamini Rangan, and other key employees in the areas of research and

development, marketing, sales, services, operations, content management, and general and administrative functions. From time to time, there may be changes in our management team resulting from the hiring or departure of executives, which could disrupt our business. We also are dependent on the continued service of our existing software engineers and information technology personnel because of the complexity of our platform, technologies and infrastructure. We may terminate any employee’s employment at any time, with or without cause, and any employee may resign at any time, with or without cause. We do not have employment agreements with any of our key personnel. The loss of one or more of our key employees could harm our business.

The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.

To execute our business strategy, we must attract and retain highly qualified personnel. In particular, we compete with many other companies for software developers with high levels of experience in designing, developing and managing cloud-based software, as well as for skilled information technology, marketing, sales and operations professionals, and we may not be successful in attracting and retaining the professionals we need. Also, inbound sales, marketing, services, operations, and content management domain experts are very important to our success and are difficult to replace. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining highly skilled employees with appropriate qualifications. In particular, we have experienced a competitive hiring environment in the Greater Boston area, where we are headquartered and will continue to experience a competitive hiring environment as we recruit for remote talent worldwide. Many of the companies with which we compete for experienced personnel have greater resources than we do. The change by companies to offer a remote or hybrid work environment may increase the competition for such employees from employers outside of our traditional office locations. The workforce reduction we have implemented as part of our Restructuring Plan may negatively impact our ability to attract, integrate, retain and motivate highly qualified employees, and may harm our reputation with current or prospective employees. In addition, if we choose to no longer offer a remote or hybrid work environment, we may face more difficulty in retaining our workforce. Further, labor is subject to external factors that are beyond our control, including our industry’s highly competitive market for skilled workers and leaders, cost inflation, and workforce participation rates. In addition, if our reputation were to be harmed, whether as a result of media, legislative, or regulatory scrutiny or otherwise, it could make it more difficult to attract and retain personnel that are critical to the success of our business.

In addition, in making employment decisions, particularly in the software industry, job candidates often consider the value of ~~the stock options or other~~ equity incentives they are to receive in connection with their employment. If the price of our stock declines, or experiences significant volatility, our ability to attract or retain key employees will be adversely affected. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.

We are exposed to fluctuations in currency exchange rates that could adversely affect our financial results.

We face exposure to movements in currency exchange rates, which may cause our revenue and operating results to differ materially from expectations. As we have expanded our international operations, our exposure to exchange rate fluctuations has increased, in particular with respect to the Euro, British Pound Sterling, Australian Dollar, Singapore Dollar, Japanese Yen, Colombian Peso, and Canadian Dollar. Fluctuations in the value of the U.S. dollar versus foreign currencies may impact our operating results when translated into U.S. dollars. Thus, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign currency exchange rates. As exchange rates vary, revenue, cost of revenue, operating expenses and other operating results, when re-measured, may differ materially from expectations. In addition, our operating results are subject to fluctuation if our mix of U.S. and foreign currency denominated transactions and expenses changes in the future. While we have limited currency exchange exposure to the Russian, Belarusian and Ukrainian currencies, we expect exchange rates with respect to these currencies to be volatile and other exchange rates may also be more volatile than normal as a result of the ongoing conflict between Russia and Ukraine. Such volatility, even when it increases our revenues or decreases our expenses, impacts our ability to predict our future results and earnings accurately. Although we may apply certain strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications. Additionally, as we anticipate growing our business further outside of the United States, the effects of movements in currency exchange rates will increase as our transaction volume outside of the United States increases.

Weakened global economic conditions may harm our industry, business and results of operations.

Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us or the software industry may harm us. The United States and other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, volatility in the banking sector, bankruptcies, inflation and

overall uncertainty with respect to the economy, including with respect to tariff and trade issues. Weak economic conditions or significant uncertainty regarding the stability of financial markets related to stock market volatility, inflation, recession, changes in tariffs, trade agreements or governmental fiscal, monetary and tax policies, among others, could adversely impact our business, financial condition and operating results. Further, weak market conditions have, and could in the future result in, impairment of our investments and long-lived assets.

Further, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector, uncertainty over the future of the Euro zone and volatility in the value of the pound sterling and the Euro and instability resulting from the ongoing conflict between Russia and Ukraine. The effect of the conflict between Russia and Ukraine, including any resulting sanctions, export controls or other restrictive actions that may be imposed against governmental or other entities in, for example, Russia, have in the past contributed and may in the future contribute to disruption, instability and

volatility in the global markets. We have operations, as well as current and potential new customers, throughout ~~most of~~ Europe. If economic conditions in Europe and other key markets for our platform continue to remain uncertain or deteriorate further, it could adversely affect our customers’ ability or willingness to subscribe to our platform, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions or affect renewal rates, all of which could harm our operating results.

More recently, global inflation rates ~~in the U.S.~~ have increased to levels not seen in several decades, which may result in decreased demand for our products and services, increases in our operating costs, including our labor costs, constrained credit and liquidity, reduced government spending and volatility in financial markets. The Federal Reserve ~~has~~and other international government agencies have raised, and may again raise, interest rates in response to concerns over inflation risk. Increases in interest rates on credit and debt that would increase the cost of any borrowing that we may make from time to time and could impact our ability to access the capital markets. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks. In an inflationary environment, we may be unable to raise the sales prices of our products and services at or above the rate at which our costs increase, which could/would reduce our profit margins and have a material adverse effect on our financial results and net income. We also may experience lower than expected sales and potential adverse impacts on our competitive position if there is a decrease in consumer spending or a negative reaction to our pricing. A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth.

There continues to be uncertainty in the changing market and economic conditions, including the possibility of additional measures that could be taken by the Federal Reserve and other domestic and international government agencies, related to concerns over inflation risk. A sharp rise in interest rates could have an adverse impact on the fair market value of certain securities in our portfolio and investments in some financial instruments could pose risks arising from market liquidity and credit concerns, which could adversely affect our financial results.

The current economic downturn may lead to decreased demand for our products and services and otherwise harm our business and results of operations.

Our overall performance depends, in part, on worldwide economic conditions. In recent months, we have observed increased economic uncertainty in the United States and abroad. Impacts of such economic weakness include:

These developments could lead to inflation, higher interest rates, and uncertainty about business continuity, which may adversely affect our business and our results of operations. As our customers react to global economic conditions and the potential for a global recession, we may see them reduce spending on our products and take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity. Reductions in spending on our solutions, delays in purchasing decisions, lack of renewals, inability to attract new customers, as well as pressure for extended billing terms or pricing discounts, would limit our ability to grow our business and could negatively affect our operating results and financial condition.

Risks Related to Our Technical Operations Infrastructure and Dependence on Third Parties

Interruptions or delays in service from our third-party data center providers could impair our ability to deliver our platform to our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.

We currently serve the majority of our platform functions from third-party data center hosting facilities operated by Amazon Web Services ~~located~~ in ~~northern Virginia~~the United States and ~~Frankfurt, Germany and Google Cloud Platform located~~Europe. We also have several colocations which host certain critical services (for example, VPN access) in ~~Frankfurt, Germany.~~various locations around the world. In addition, we ~~serve ancillary functions for~~use Cloudflare Global CDN to optimize content delivery across our customers from third-party data center hosting facilities operated by Rackspace located in Dallas, Texas, with a backup facility in Chicago, Illinois. Our operations depend, in part, on our third-party facility providers’ abilities to protect these facilities against damage or interruption from natural disasters, such as earthquakes and hurricanes, actual or threatened public health emergencies (e.g., COVID-19), power or telecommunications failures, criminal acts and similar events. In the event that any of our third-party facilities arrangements is terminated, or if there is a lapse of service or damage to a facility, we could experience interruptions in our platform as well as delays and additional expenses in arranging new facilities and services.

Additionally, we may be at risk due to the increased frequency of sophisticated cyber-attacks coordinated by foreign nation states. For example, the ongoing conflict between Russia and Ukraine may result in a heightened threat environment and create unknown cyber risks, including increased risk of retaliatory cyber-attacks from Russian actors against U.S.-based companies.locations.

Any damage to, or failure of, the systems of our third-party providers could result in interruptions to our platform. Despite precautions taken at our data centers, the occurrence of spikes in usage volume, a natural disaster, such as earthquakes or hurricane, an act of terrorism, vandalism or sabotage, a decision to close a facility without adequate notice, power or telecommunications failures or other unanticipated problems at a facility could result in lengthy interruptions in the availability of our on-demand software. In the event that any of our third-party facilities arrangements is terminated, or if there is a lapse of service or damage to a facility, we could experience interruptions in our platform as well as delays and additional expenses in arranging new facilities and services. Even with current and planned disaster recovery arrangements, our business could be harmed. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability and cause us to issue credits or cause customers to fail to renew their subscriptions, any of which could materially adversely affect our business.

If our CRM Platform has outages or fails due to defects or similar problems, and if we fail to correct any defect or other software problems, we could lose customers, become subject to service performance or warranty claims or incur significant costs.

Our CRM Platform and its underlying infrastructure are inherently complex and may contain material defects or errors. We release modifications, updates, bug fixes and other changes to our software several times per day, without traditional human-performed quality control reviews for each release. We have from time to time found defects in our software and may discover additional defects in the future. We may not be able to detect and correct defects or errors before customers begin to use our platform or its applications. Consequently, we or our customers may discover defects or errors after our platform has been implemented. Defects or errors could result in product outages and could also cause inaccuracies in the data we collect and process for our customers, or even the loss, damage or inadvertent release of such confidential data. We implement bug fixes and upgrades as part of our regular system maintenance, which may lead to system downtime. Even if we are able to implement the bug fixes and upgrades in a timely manner, any history of product outages, defects or inaccuracies in the data we collect for our customers, or the loss, damage or inadvertent release of confidential data could cause our reputation to be harmed, and customers may elect not to purchase or renew their agreements with us. Furthermore, these issues could subject us to service performance credits (whether offered by us or required by contract), warranty claims or increased insurance costs. The costs associated with product outages, any material defects or errors in our platform or other performance problems may be substantial and could materially adversely affect our operating results.

In addition, third-party applications and features on our CRM Platform may not meet the same quality standards that we apply to our own development efforts and, to the extent they contain bugs, vulnerabilities or defects, they may create disruptions in our customers’ use of our products, lead to data loss, unauthorized access to customer data, damage our brand and reputation and affect the continued use of our products, any of which could harm our business, results of operations and financial condition.

If our information technology systems, including our CRM Platform, have outages or fail due to defects or similar problems, and if we fail to correct any defect or other software problems, it could disrupt our internal operations or services provided to customers, and could reduce our revenue, increase our expenses, damage our reputation and adversely affect our cash flows and stock price.

We rely on our information technology systems, including the sustained and uninterrupted performance of our CRM Platform, to manage numerous aspects of our business, including marketing, sales, content management, customer service and other internal operations. Our information technology systems are an essential component of our business and any disruption could significantly limit our ability to manage and operate our business efficiently.

We are dependent on the continued availability of third-party data hosting and transmission services.

A significant portion of our operating cost is from our third-party data hosting and transmission services, including Amazon Web Services (“AWS”), which hosts the substantial majority of our products and platform. If the costs for such services increase due to vendor consolidation, regulation, contract renegotiation, or otherwise, we may not be able to increase the fees for our CRM Platform or services to cover the changes, which could have a negative impact on our operating results.

Additionally, our customers need to be able to access our platform at any time, without interruption or degradation of performance. AWS runs its own platform that we access, and we are, therefore, vulnerable to service interruptions at AWS. We have experienced, and expect that in the future we may experience interruptions, delays and outages in service and availability due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. In some instances, including because we do not control our service providers, we may not be able to identify the cause or causes of these problems within a period of time acceptable to our customers. Additionally, as our business continues to grow, to the extent that we do not effectively address capacity constraints, through our providers of cloud infrastructure, our results of operations may be adversely affected. In addition, any changes in service levels from our service providers may adversely affect our ability to meet our customers’ requirements, result in negative publicity which could harm our reputation and brand and may adversely affect the usage of our platform.

If we do not or cannot maintain the compatibility of our CRM Platform with third-party applications that our customers use in their businesses, our revenue will decline.

A significant percentage of our customers choose to integrate our platform with certain capabilities provided by third-party application providers using application programming interfaces (“APIs”) published by these providers. The functionality and popularity of our CRM Platform depends, in part, on our ability to integrate our platform with third-party applications and platforms, including CRM, CMS, e-commerce, call center, analytics and social media sites that our customers use and from which they obtain data. Third-party providers of applications and APIs may change the features of their applications and platforms, restrict our access to their applications and platforms, or alter the terms governing use of their applications and APIs and access to those applications and platforms in an adverse manner. Such changes could functionally limit or terminate our ability to use these third-party applications and platforms in conjunction with our platform, which could negatively impact our offerings and harm our business. If we fail to integrate our platform with new third-party applications and platforms that our customers use for marketing, sales, services, operations or content management purposes, or fail to renew existing relationships pursuant to which we currently provide such integration, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate new revenue or maintain existing revenue and adversely impact our business.

We rely on data provided by third parties, the loss of which could limit the functionality of our platform and disrupt our business.

Select functionality of our CRM Platform depends on our ability to deliver data, including search engine results and social media updates, provided by unaffiliated third parties, such as Facebook, Google, LinkedIn and Twitter. Some of this data is provided to us pursuant to third-party data sharing policies and terms of use, under data sharing agreements by third-party providers or by customer consent. In the future, any of these third parties could change its data sharing policies, including making them more restrictive, or alter its algorithms that determine the placement, display, and accessibility of search results and social media updates, any of which could result in the loss of, or significant impairment to, our ability to collect and provide useful data to our customers. These third parties could also interpret our, or our service providers’ data collection policies or practices as being inconsistent with their policies, which could result in the loss of our ability to collect this data for our customers. Any such changes could impair our ability to deliver data to our customers and could adversely impact select functionality of our platform, impairing the return on investment that our customers derive from using our solution, as well as adversely affecting our business and our ability to generate revenue.

Privacy concerns and end users’ acceptance of Internet behavior tracking may limit the applicability, use and adoption of our CRM Platform.

Privacy concerns may cause end users to resist providing the personal data necessary to allow our customers to use our platform effectively. We have implemented various features intended to enable our customers to better protect end user privacy, but these measures may not alleviate all potential privacy concerns and threats. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our ~~platform, especially in certain industries that rely on sensitive personal data.~~platform. Privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. The costs of compliance with, and other burdens imposed by these groups’ policies and actions may limit the use and adoption of our CRM Platform and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance or loss of any such action.

If our or our customers’ security measures are compromised or unauthorized access to data of our customers or their customers is otherwise obtained, our CRM Platform may be perceived as not being secure, our customers may be harmed and may curtail or cease their use of our platform, our reputation may be damaged and we may incur significant liabilities.

Our operations involve the storage and transmission of data of our customers and their customers, including personal data. Our storage is typically the sole source of record for portions of our customers’ businesses and end user data, such as initial contact information and online interactions. Security incidents could result in unauthorized access to, loss of or unauthorized disclosure of this information, litigation, indemnity obligations and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales and harm our customers and our business. Cyber-attacks and other malicious Internet-based activity

continue to increase generally, and cloud-based platform providers of marketing services have been targeted. If our security measures, or those of our service providers, are compromised as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our reputation could be damaged, our business may be harmed and we could incur significant liability. Additionally, if third parties with whom we work, such as vendors or developers, violate applicable laws, our security policies or our acceptable use policy, such violations may also put our customers’ information at risk and could in turn have an adverse effect on our business. In addition, if the security measures of our customers or our service providers are compromised, even without any actual compromise of our own systems, we may face negative publicity or reputational harm if our customers or anyone else incorrectly attributes the blame for such security breaches to us or our systems. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because they change frequently and generally are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to our customers’ data. Additionally, we provide extensive access to our database, which stores our customer data, to our development team to facilitate our rapid pace of product development. If such access or our own operations cause the loss, damage or destruction of our customers’ business data, their sales, lead generation, support and other business operations may be permanently harmed. As a result, our customers may bring claims against us for lost profits and other damages, or such concerns may cause us to limit access by our development team. Additionally, in certain of our subscription agreements with our customers, we agree to indemnify these customers against claims by a third party alleging our breach of confidentiality obligations or our misuse of customer data in violation of the subscription agreement.

Cyber-attacks, denial-of-service attacks, ransomware attacks, business email compromises, computer malware, viruses, and social engineering (including phishing) are prevalent in our industry, the industries of certain of our service providers and our customers' industries. Our internal computer systems and those of our current and any future strategic collaborators, vendors, and other contractors or consultants are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, cybersecurity threats, terrorism, war and telecommunication and electrical failures. Accordingly, if our cybersecurity measures or those of our service providers fail to protect against unauthorized access, attacks (which may include sophisticated cyberattacks), compromise or the mishandling of data by our employees and contractors, then our reputation, customer trust, business, results of operations and financial condition could be adversely affected. Cyber incidents have been increasing in sophistication and frequency and can include third parties gaining access to employee or customer data using stolen or inferred credentials, computer malware, viruses, spamming, phishing attacks, ransomware, card skimming code, and other deliberate attacks and attempts to gain unauthorized access. The techniques used to sabotage or to obtain unauthorized access to our platform, systems, networks, or physical facilities in which data is stored or through which data is transmitted change frequently, and we may be unable to implement adequate preventative measures or stop security breaches while they are occurring. Because the techniques used by threat actors who may attempt to penetrate and sabotage our computer systems change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. Additionally, ~~during the ongoing pandemic, and potentially beyond~~ as remote work and resource access expand, there is an increased risk that we may experience cybersecurity-related events such as ~~COVID-19 themed~~ phishing attacks, exploitation of any cybersecurity flaws that may exist, an increase in the number of cybersecurity threats or attacks, and other security challenges as a result of most of our employees and our service providers continuing to work remotely from non-corporate managed networks. There is also a risk of potential increase in such attacks due to cyberwarfare in connection with the ongoing conflict between Russia and Ukraine, and this could adversely affect our and our suppliers' ability to maintain or enhance key cybersecurity and data protection measures. We have previously been, and may in the future become, the target of cyber-attacks by third parties seeking unauthorized access to our or our customers' data, systems, or infrastructure, or to disrupt our operations or ability to provide our services.

Additionally, it is also possible that unauthorized access to sensitive customer and business data may be obtained through inadequate use of security controls by our customers, suppliers or other vendors. While we are not currently aware of any material impact that the SolarWinds, Log4j, Kaseya, or other recent supply chain attacks had on our business, new information on the scope of such attacks is continuing to emerge and there is a residual risk that we may experience a security breach arising from one of these, or a similar, supply chain attack in the future. Supply chain attacks are becoming increasingly common, and we may not be able to anticipate and prevent negative impacts from such an attack. If we are impacted by a supply chain attack, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product and services could be hindered or delayed.

Recent ~~high-profile security breaches~~cybersecurity incidents and ~~related disclosures of sensitive data by~~compromises affecting large institutions, including an incident that affected us, suggest that the risk of such events is significant, even if privacy protection and security measures are implemented and enforced. ~~If we were to experience a~~A cyber-attack ~~and suffer interruptions in our operations, it~~ could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other disruptions. These cyber-attacks could be carried out by threat actors of all types (including but not limited to nation states, organized crime, other criminal enterprises, individual actors and/or advanced persistent threat groups). In addition, we may experience intrusions on our physical premises by any of these threat actors. To the extent that any

disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, incur significant costs associated with remediation and the implementation of additional security measures, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants, and our competitive position could be harmed. Any breach, loss, or compromise of personal data may also subject us to civil fines and penalties, or claims for damages either under the General Data Protection Regulation (the ~~“GDPR”~~“EU GDPR”), the EU GDPR as incorporated into United Kingdom law, and relevant member state law in the European Union, other foreign laws, and other relevant state and federal privacy laws in the United States.

Many governments have enacted laws requiring companies to notify individuals of data security incidents or unauthorized transfers involving certain types of personal data. In addition, the data processing ~~agreements~~agreement we execute with our customers contractually requires us to notify them of any personal data breach. Under payment card network rules and our contracts with our payment processors, if there is a breach of payment card information that we store, or that is stored by our direct payment card processing vendors, we could be liable to the payment card issuing banks for their cost of issuing new cards and related expenses. Data breaches and other data security compromises experienced by our competitors, by our customers or by us may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business and operating results.

There can be no assurance that any limitations of liability provisions in our contracts for a security breach would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot be sure that our existing ~~general liability~~ insurance coverage ~~and coverage for errors or omissions~~ will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and operating results.

Our business may suffer if it is alleged or determined that our technology infringes the intellectual property rights of others.

The software industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual and proprietary rights. Companies in the software industry, including those in marketing software, are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Many of our competitors and other industry participants have been issued patents and/or have filed patent applications and may assert patent or other intellectual property rights within the industry. Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls,” have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters or notices or may be the subject of claims that our services and/or platform and underlying technology infringe or violate the intellectual property rights of others. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand and cause us to incur significant expenses. Our technologies may not be able to withstand any third-party claims or rights against their use. Claims of intellectual property infringement might require us to redesign our application, delay releases, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling our platform. If we cannot or do not license the infringed technology on reasonable terms or at all, or substitute similar technology from another source, our revenue and operating results could be adversely impacted. Additionally, our customers may not purchase our CRM Platform if they are concerned that they may infringe third-party intellectual property rights. The occurrence of any of these events may have a material adverse effect on our business.

In certain of our subscription agreements with ~~our~~ customers, we ~~generally do not~~ agree to indemnify ~~our~~these customers against ~~any losses or costs incurred in connection with~~ claims by a third party alleging ~~that~~infringement of a ~~customer’s use~~valid patent, registered copyright or registered trademark. However, whether or not a subscription agreement includes an indemnity obligation in favor of ~~our services or platform infringes the intellectual property rights of the third party. There~~a customer, there can be no assurance ~~however,~~ that customers will not assert a common law indemnity claim or that any existing limitations of liability provisions in our contracts would be enforceable or adequate, or would otherwise protect us from any such liabilities or damages with respect to any particular claim. Our customers who are accused of intellectual property infringement may in the future seek indemnification from us under common law or other legal theories. If such claims are successful, or if we are required to indemnify or defend our customers from these or other claims, these matters could be disruptive to our business and management and have a material adverse effect on our business, operating results and financial condition.

If we fail to adequately protect our proprietary rights, in the United States and abroad, our competitive position could be impaired and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.

Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights in our products and services. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our technology and use information that

we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our offerings may be unenforceable under the laws of certain jurisdictions and foreign countries. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our technology and proprietary information may increase.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our platform and offerings.

We may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation, could delay further sales or the implementation of our platform and offerings, impair the functionality of our platform and offerings, delay introductions of new features or enhancements, result in our substituting inferior or more costly technologies into our platform and offerings, or injure our reputation.

Our use of “open source” software could negatively affect our ability to offer our platform and subject us to possible litigation.

A substantial portion of our cloud-based platform incorporates so-called “open source” software, and we may incorporate additional open source software in the future. Open source software is generally freely accessible, usable and modifiable. Certain open source licenses may, in certain circumstances, require us to offer the components of our platform that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of the particular open source license. If an author or other third party that distributes open source software we use were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, including being enjoined from the offering of the components of our platform that contained the open source software and being required to comply with the foregoing conditions, which could disrupt our ability to offer the affected software. We could also be subject to suits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition and require us to devote additional research and development resources to change our products.

We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and our actual or perceived failure to comply with such obligations could harm our business. Compliance with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue.

Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, including the U.S. Federal Trade Commission ~~("FTC"~~(“FTC”), and state attorneys general, and various state, local and foreign ~~agencies.~~agencies, such as the California Privacy Protection Agency and EU data protection authorities. We collect personal data and other data from our customers, prospects, and partners. We also handle personal data about our customers’ customers. We use and share this information to provide services to our customers, to support, expand and improve our business. ~~We may also share customers’ personal data with third parties as authorized by the customer or as described in our privacy policy.~~

The U.S. federal and various state and foreign governments have adopted or proposed limitations on the collection, processing, distribution, use, storage and ~~storage~~safeguarding of personal ~~data of individuals.~~data. In the United States, the FTC and many state attorneys general are applying federal and state privacy and consumer protection laws to impose standards for the online collection, use and dissemination of personal ~~data~~ and ~~other.~~other data. However, these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other requirements or our practices. Any failure or perceived failure by us to comply with

privacy or data security laws, policies, legal obligations or industry standards or any security incident that results in the unauthorized, disclosure, release or transfer of personal data or other customer data may result in governmental enforcement actions, litigation, fines and penalties and/or adverse publicity, and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.

Laws and regulations ~~concerning~~governing privacy, data protection and ~~information security~~cybersecurity are rapidly evolving, and changes to such laws and regulations could require us to change features of our platform or restrict our customers’ ability to collect and use email addresses, page viewing data and other personal data, which may reduce demand for our platform. Our failure to comply with federal, state and

~~international data~~ foreign privacy and cybersecurity laws and regulations could harm our ability to successfully operate our business and pursue our business goals.

For example, the California Consumer Privacy Act (the “CCPA”), as amended by the California Privacy Rights Act (the “CPRA”), among other things, require covered companies to provide new disclosures to California ~~consumers~~residents and afford such ~~consumers~~individuals the ability to ~~opt-out~~opt out of the sales or sharing of ~~personal data.~~

Additionally, a new California ballot initiative, the California Privacy Rights Act ("CPRA"), was passed in November 2020. Effective on January 1, 2023, the CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitivetheir personal data. The ~~CPRA also creates a new state agency that will be vested with authority to implement regulations and enforce the~~ CCPA ~~and the CPRA. It is not yet fully clear how the CCPA and CPRA will be enforced and how certain of its requirements will be interpreted. The effects of the CCPA and CPRA are potentially significant and~~ may require us to modify our data collection or processing practices and policies and to potentially incur substantial costs and expenses in an effort to ~~comply and increase~~comply. In addition to increasing our potential exposure to regulatory enforcement, ~~and/or~~the CCPA also provides for violations and a limited private right of action, which may increase our exposure to civil litigation.

~~Certain other state laws impose similar privacy obligations~~Other states, including Virginia, Colorado, Utah, Connecticut and ~~we also expect that more states may enact legislation similar to the CCPA, which provides consumers with new privacy rights and increases the~~Iowa, have now passed comprehensive privacy and data security laws, which impose obligations ~~of entities handling certain personal data of such consumers. The CCPA has prompted a number of proposals for new federal~~on covered businesses similar – but not identical – to those under the CCPA. Such laws will enter into force in 2023 and state-level privacy legislation. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

For example, on March 2, 2021, Virginia enacted the Consumer Data Protection Act (the “CDPA”). The CDPA will become effective January 1, 2023. The CDPA will regulate how businesses (which the CDPA refers to as “controllers”) collect and share personal data. While the CDPA incorporates many similar concepts of the CCPA and CPRA, there are also several key differences in the scope, application, and enforcement of the law that will change the operational practices of controllers. The new law will impact how controllers collect and process personal sensitive data, conduct data protection assessments, transfer personal data to affiliates, and respond to consumer rights requests.

Also, on July 8, 2021, Colorado’s governor signed the Colorado Privacy Act (“CPA”) into law. The CPA will become effective July 1, 2023. The CPA is similar to Virginia’s CPDA but also contains additional requirements. The new measure applies to companies conducting business in Colorado or who produce or deliver commercial products or services intentionally targeted to its residents of the state that either: (1) control or process the personal data of at least 100,000 consumers during a calendar year; or (2) derive revenue or receive a discount on the price of goods or services from the sale of personal data and process or control the personal data of at least 25,000 consumers. In addition, on March 24, 2022, Utah enacted the Utah Consumer Privacy Act (“UCPA”), which will become effective on December 31, 2023. Also, in May 2022, Connecticut Governor Lamont signed the Connecticut Data Privacy Act (CTDPA) into law. The UCPA and CTDPA draw heavily upon their predecessors in Virginia and Colorado.

~~With the CTDPA, Connecticut became the fifth state to enact a comprehensive privacy law.~~2024. A number of ~~additional~~ other states have proposed ~~bills for comprehensive consumer~~similar or sector specific privacy legislation,; and the U.S. Congress is considering legislation that may preempt some or all of such U.S. state privacy laws, ~~and it is quite possible that certain~~providing a more robust private right of ~~these bills will pass.~~action. The ~~existence~~evolving complexity of comprehensive privacy laws in different states in the country, if enacted, will add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data, and has resulted in and will result in increased compliance costs and/or changes in business practices and policies. At the federal level, there is a significant and potentially transformative bipartisan bill being debated. If passed, this proposed legislation, the American Data Privacy and Protection Act, would help to streamline certain of our privacy obligations, but would also introduce new stringent privacy and data security ~~obligations that would apply to personal data collected from throughout~~legislation in the ~~United States.~~U.S. may complicate our compliance efforts and further increase our risk of regulatory enforcement, penalties and litigation.

In addition, many foreign jurisdictions in which we do business, including the European Union, Japan, United Kingdom, Canada, Australia, and others have laws and regulations dealing with the collection and use of personal data obtained from their residents, which are more restrictive in certain respects than those in the U.S. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of personal data that identifies or may be used to identify an individual. In relevant part, these foreign laws and regulations may affect our ability to engage in lead generation activities by imposing heightened requirements, such as affirmative opt-ins or other consent prior to sending commercial correspondence, obtaining leads or engaging in electronic tracking activities that aid our marketing and business intelligence. We may be required to modify our policies, procedures, and data processing measures in order to address requirements under these or other privacy, data protection, or cyber security regimes, and may face claims, litigation, investigations, or other proceedings regarding them and may incur related liabilities, expenses, costs, and operational losses.

In Japan, for example, the Act on the Protection of Personal Information (“APPI”) of Japan regulates privacy protection issues in Japan. The APPI shares similarities with the GDPR, including extraterritorial application and obligations to provide certain notices and rights to citizens of Japan. In Japan, our email marketing activities are also subject to stringent regulation under the Law Concerning the Proper Transmission of Specified Electronic Mail and the Law for the Partial Amendment to the Law Concerning Specified Commercial Transactions.

In Canada, our collection, use, disclosure, and management of personal information must comply with both federal and provincial privacy laws, which impose separate requirements, but may overlap in some instances. The Personal Information Protection and Electronic Documents Act, or PIPEDA, applies in all Canadian provinces except Alberta, British Columbia and Québec, as well as to the transfer of consumer data across provincial borders. PIPEDA imposes stringent consumer data protection obligations, requires privacy breach reporting, and limits the purposes for which organizations may collect, use, and disclose consumer data. The provinces of Alberta, British Columbia, and Québec have enacted separate data privacy laws that are substantially similar to PIPEDA, but all three additionally apply to our handling of our own employees’ personal data within their respective provinces. Notably, Québec’s Act respecting the protection of personal information in the private sector, or the Private Sector Act, was amended by Bill 64, an Act to modernize legislative provisions as regards the protection of personal information, which introduced major amendments to the Private Sector Act, notably, to impose significant and stringent new obligations on Québec businesses while increasing the powers of Quebec’s supervisory authority. We may incur additional costs and expenses related to compliance with these laws and may incur significant liability if we are not able to comply with these laws. We are also subject to Canada’s anti-spam legislation, or CASL, which includes rules governing commercial electronic messages, which include marketing emails, text messages, and social media advertisements. Under these rules, we must follow certain standards when sending marketing communications, are prohibited from sending them to customers without their consent and can be held liable for violations.

Within the European Union, ~~legislators adopted~~ the EU GDPR, ~~which became effective~~and in ~~May 2018, and which imposes~~the United Kingdom, the EU GDPR as incorporated into the laws of the United Kingdom (the “UK GDPR” together with the EU GDPR, the “GDPR”), impose heightened obligations and risk upon our business and ~~which~~ may substantially increase the penalties to which we could be subject in the event of any non-compliance. ~~In addition, further to~~Non-compliance with the ~~United Kingdom's exit from~~GDPR and the related national data protection laws of the European Union on January 31, 2020, the GDPR ceased to apply in the United Kingdom at the end of the transition period on December 31, 2020. However, as of January 1, 2021, the United Kingdom’s European Union (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020 but subject to certain United Kingdom specific amendments) into United Kingdom law (the “UK GDPR”). The UK GDPR and the UK Data Protection Act 2018 set out the United Kingdom’s data protection regime, which is independent from but aligned to the European Union’s data protection regime. Non-compliance with the UK GDPRMember States may result in monetary penalties of up to ~~£17.5~~€20 million (£17.5 million) or 4% of worldwide annual revenue, whichever is higher. Like the European Union GDPR, the UK GDPR restricts personal data transfers outside the United Kingdom to countries not regarded by the United Kingdom as providing adequate protection (this means that personal data transfers from the United Kingdom to the European Economic Area remain free flowing).

The proliferation of privacy and data protection laws has heightened risks and uncertainties concerning cross-border transfers of personal data and other data, which could impose significant compliance costs and expenses on our business, increase our potential exposure to regulatory enforcement and/or litigation, and have a negative effect on our existing business and on our ability to attract and retain new customers. ~~On July 16, 2020,~~To enable the transfer of personal data outside of the European ~~Court~~Union or United Kingdom, adequate safeguards must be implemented in compliance with data protection laws. On June 4, 2021, the European Commission published new versions of ~~Justice invalidated the EU–US Privacy Shield ruling that facilitated~~its Standard Contractual Clauses (“SCCs”), which are required for all transfers of personal data from the European ~~Economic Area~~Union to third countries (including the U.S). The United Kingdom is not subject to the ~~U.S. because it failed to offer adequate protections~~new SCCs but has its own equivalent, being the international data transfer agreement and/or UK Addendum (“IDTAs”). The IDTAs must be entered into for ~~personal data. The European Court of Justice,~~new contracts, but allow for a transition period until March 21, 2024 for existing contracts. Our customer agreements include the updated SCCs and UK IDTAs. We are in the ~~same decision, deemed that the Standard Contractual Clauses ("SCCs"), approved by the European Commission for transfers~~process of ~~personal data between European Economic Area controllers and non-European Economic Area processors are valid, however the European Court of Justice deemed that transfers made pursuant~~transitioning to the IDTAs for existing contracts, and doing so will require significant effort and cost. Under the new SCCs ~~need~~and IDTAs, companies are also required to ~~be analyzed~~assess the risk of a data transfer on a case-by-case basis ~~to ensure the European Economic Area's standards of data protection are met. Our customer agreements include SCCs. However, as~~by undertaking a ~~result of this decision, companies~~transfer impact assessment, and may be required to adopt additional measures to accomplish transfers of personal data to the United States and other third ~~countries in compliance with the GDPR, and there~~countries. There continue to be concerns about whether the SCCs will face additional challenges. Until the remaining legal uncertainties regarding how to legally continue these transfers are settled, we will continue to face uncertainty as to whether our customers will be permitted to transfer personal data to the United States for processing by us as part of our platform services. Our customers may view ~~alternative~~ data transfer mechanisms and the requirement to undertake a transfer impact assessment as being too costly, too burdensome, too legally uncertain or otherwise objectionable and therefore decide not to do business with us. For example, some of our customers or potential customers who do business in the European Economic Area may require their vendors to host all personal data within the European Economic Area and may decide to do business with one of our competitors who hosts personal data within the European Economic Area instead of doing business with us. In addition, some companies based in Europe may be reluctant to transfer personal data to us for processing outside the European Economic Area because of the burden on some requirements to conduct transfer impact assessments in order to rely on the SCCs as well as the substantial obligations that the recently updated SCCs impose upon data exporters. On March 21, 2022, the United Kingdom adopted new international data transfer agreement templates ("IDTAs")and/or UK Addendum to facilitate transfers of personal data from the United Kingdom. The IDTAs and/or UK Addendumallow for a transition period in which controllers and processors may move to the new forms. We are in the process of transitioning to the IDTAs and UK Addendum and doing so will require significant effort and cost. The European Commission and the U.S. White House announced that they had reached an agreement in principle on a data transfer framework to replace the Privacy Shield 2.0. However, it is too soon to tell how this future framework will evolve and what impact it will have on our cross-border activities. We continue to monitor developments with respect to cross-border transfers and any prospective impacts on our activities.

The regulatory framework governing the collection, processing, storage, use and sharing of certain information, particularly financial and other personal data, is rapidly evolving and is likely to continue to be subject to uncertainty and varying interpretations. In addition to new and strengthened laws and regulations in the U.S., European Union, and United Kingdom, many foreign jurisdictions have passed new laws, strengthened existing laws, or are contemplating new laws regulating personal data. For example, South Africa’s Protection of Personal Information Act came into force on July 1, 2021, and imposes significant new requirements,

with potentially significant penalties for non-compliance, on businesses that operate in South Africa. India is contemplating a new Personal Data Protection Bill that would, among other things, make it challenging to transfer personal data from India to countries outside of India. It is possible that these laws may impose, or may be interpreted and applied to impose, requirements that are inconsistent with our existing data management practices or the features of our services and platform capabilities. Any failure or perceived failure by us, or any third parties with which we do business, to comply with our posted privacy policies, changing consumer expectations, evolving laws, rules and regulations, industry standards, or contractual obligations to which we or such third parties are or may become subject, may result in actions or other claims against us by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the incurrence of significant fines, penalties or other liabilities. In addition, any such action, particularly to the extent we were found to be guilty of violations or otherwise liable for damages, would damage our reputation and adversely affect our business, financial condition and results of operations.

We publicly post documentation regarding our practices concerning the collection, processing, use and disclosure of data. Although we endeavor to comply with our published policies and documentation, we may at times fail to do so or be alleged to have failed to do so. Any failure or perceived failure by us to comply with our privacy policies or any applicable privacy, security or data protection, information security or consumer-protection related laws, regulations, orders or industry standards could expose us to costly litigation, significant awards, fines or judgments, civil and/or criminal penalties or negative publicity, and could materially and adversely affect our business, financial condition and results of operations. The publication of our privacy policy and other documentation that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices, which could, individually or in the aggregate, materially and adversely affect our business, financial condition and results of operations.

If our privacy or data security measures fail to comply with current or future laws and regulations, we may be subject to claims, legal proceedings or other actions by individuals or governmental authorities based on privacy or data protection regulations and our commitments to customers or others, as well as negative publicity and a potential loss of business. Moreover, if future laws and regulations limit our subscribers’ ability to use and share personal data or our ability to store, process and share personal data, demand for our solutions could decrease, our costs could increase, and our business, results of operations and financial condition could be harmed.

We could face liability, or our reputation might be harmed, as a result of the activities of our customers, the content of their websites or the data they store on our servers.

As a provider of a cloud-based inbound marketing, sales and customer service software platform, we may be subject to potential liability for the activities of our customers on or in connection with the data they store on our servers. Although our customer terms of use prohibit illegal use of our services by our customers and permit us to take down websites or take other appropriate actions for illegal use, customers may nonetheless engage in prohibited activities or upload or store content with us in violation of applicable law or the customer’s own policies, which could subject us to liability or harm our reputation. Furthermore, customers may upload, store, or use content on our CRM Platform that may violate our policy on acceptable use which prohibits content that is threatening, abusive, harassing, deceptive, false, misleading, vulgar, obscene, or indecent. While such content may not be illegal, use of our CRM Platform for such content could harm our reputation resulting in a loss of business.

Several U.S. federal statutes may apply to us with respect to various customer activities:

Although these statutes and case law in the United States have generally shielded us from liability for customer activities to date, court rulings in pending or future litigation may narrow the scope of protection afforded us under these laws. In addition, laws governing these activities are unsettled in many international jurisdictions, or may prove difficult or impossible for us to comply with in some international jurisdictions. Also, notwithstanding the exculpatory language of these bodies of law, we may become involved in complaints and lawsuits which, even if ultimately resolved in our favor, add cost to our doing business and may divert management’s time and attention. Finally, other existing bodies of law, including the criminal laws of various states, may be deemed to apply or new statutes or regulations may be adopted in the future, any of which could expose us to further liability and increase our costs of doing business.

Additionally, Payments, our end-to-end payment solution built natively as part of our CRM Platform, is susceptible to potentially illegal or improper uses, including money laundering, terrorist financing, fraudulent or illegal sales of goods or services, piracy of software, movies, music, and other copyrighted or trademarked information, bank fraud, securities fraud, pyramid or ponzi schemes, or the facilitation of other illegal or improper activity. While we engage a third party as our registered payment facilitator, the use of Payments for illegal or improper uses may subject us to claims (including claims brought by our third-party payment processor), government and regulatory requests, inquiries, or investigations that could result in liability, and harm our reputation. Moreover, certain activity that may be legal in one jurisdiction may be illegal in another jurisdiction, and a merchant may be found responsible for intentionally or inadvertently importing or exporting illegal goods, resulting in liability for us. Owners of intellectual property rights or government authorities may seek to bring legal action against providers of payments solutions, including Payments, that are peripherally involved in the sale of infringing or allegedly infringing items. Any threatened or resulting claims could result in reputational harm, and any resulting liabilities, loss of transaction volume, or increased costs could harm our business.

If Payments is used for illegal or improper uses, we may incur substantial losses as a result of claims from merchants and consumers. Allowances for transaction losses that we have established may be insufficient to cover incurred losses. Moreover, if measures to detect and reduce the risk of fraud are not effective and our loss rate is higher than anticipated, Payments and our business could be negatively impacted.

The standards that private entities use to regulate the use of email have in the past interfered with, and may in the future interfere with, the effectiveness of our CRM Platform and our ability to conduct business.

Our customers rely on email to communicate with their existing or prospective customers. Various private entities attempt to regulate the use of email for commercial solicitation. These entities often advocate standards of conduct or practice that significantly exceed current legal requirements and classify certain email solicitations that comply with current legal requirements as spam. Some of these entities maintain “blacklists” of companies and individuals, and the websites, internet service providers and internet protocol addresses associated with those entities or individuals that do not adhere to those standards of conduct or practices for commercial email solicitations that the blacklisting entity believes are appropriate. If a company’s internet protocol addresses are listed by a blacklisting entity, emails sent from those addresses may be blocked if they are sent to any internet domain or internet address that subscribes to the blacklisting entity’s service or purchases its blacklist.

From time to time, some of our internet protocol addresses may become listed with one or more blacklisting entities due to the messaging practices of our customers. There can be no guarantee that we will be able to successfully remove ourselves from those lists. Blacklisting of this type could interfere with our ability to market our CRM Platform and services and communicate with our customers and, because we fulfill email delivery on behalf of our customers, could undermine the effectiveness of our customers’ email marketing campaigns, all of which could have a material negative impact on our business and results of operations.

Existing federal, state and foreign laws regulate Internet tracking software, the senders of commercial emails and text messages, website owners and other activities, and could impact the use of our CRM Platform and potentially subject us to regulatory enforcement or private litigation.

Certain aspects of how our customers utilize our platform are subject to regulations in the United States, European Union and elsewhere. In recent years, U.S. and European lawmakers and regulators have expressed concern over the use of third-party cookies or

web beacons for online behavioral advertising, and legislation adopted recently in the European Union requires informed consent for the placement of a cookie on a user’s device. Regulation of cookies and web beacons may lead to restrictions on our activities, such as efforts to understand users’ Internet usage. New and expanding “Do Not Track” regulations have recently been enacted or proposed that protect users’ right to choose whether or not to be tracked online. These regulations seek, among other things, to allow end users to have greater control over the use of private information collected online, to forbid the collection or use of online information, to demand a business to comply with their choice to opt out of such collection or use, and to place limits upon the disclosure of information to third-party websites. These policies could have a significant impact on the operation of our CRM Platform and could impair our attractiveness to customers, which would harm our business.

Many of our customers and potential customers in the healthcare, financial services and other industries are subject to substantial regulation regarding their collection, use and protection of data and may be the subject of further regulation in the future. Accordingly, these laws or significant new laws or regulations or changes in, or repeals of, existing laws, regulations or governmental policy may change the way these customers do business and may require us to implement additional features or offer additional contractual terms to satisfy customer and regulatory requirements, or could cause the demand for and sales of our CRM Platform to decrease and adversely impact our financial results.

In addition, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 ("CAN-SPAM Act"), establishes certain requirements for commercial email messages and specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source or content. The CAN-SPAM Act, among other things, obligates the sender of commercial emails to provide recipients with the ability to opt out of receiving future commercial emails from the sender. The ability of our customers’ message recipients to opt out of receiving commercial emails may minimize the effectiveness of the email components of our CRM Platform. In addition, certain states and foreign jurisdictions, such as Australia, Canada and the European Union, have enacted laws that regulate sending email, and some of these laws are more restrictive than U.S. laws. For example, some foreign laws prohibit sending unsolicited email unless the recipient has provided the sender advance consent to receipt of such email, or in other words has “opted-in” to receiving it. A requirement that recipients opt into, or the ability of recipients to opt out of, receiving commercial emails may minimize the effectiveness of our platform.

While these laws and regulations generally govern our customers’ use of our CRM Platform, we may be subject to certain laws as a data processor on behalf of, or as a business associate of, our customers. For example, laws and regulations governing the collection, use and disclosure of personal data include, in the United States, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Gramm-Leach-Bliley Act of 1999 and state breach notification laws, and internationally, the GDPR and other privacy and data protection laws. If we were found to be in violation of any of these laws or regulations as a result of government enforcement or private litigation, we could be subjected to civil and criminal sanctions, including both monetary fines and injunctive action that could force us to change our business practices, all of which could adversely affect our financial performance and significantly harm our reputation and our business.

We are subject to governmental export controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.

Our business activities are subject to various restrictions under U.S. export controls and trade and economic sanctions laws, including the U.S. Commerce Department’s Export Administration Regulations and economic and trade sanctions regulations maintained by the U.S. Treasury Department’s Office of Foreign Assets Control. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to civil or criminal penalties and reputational harm. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed, and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions laws prohibit certain transactions with U.S. embargoed or sanctioned countries, governments, persons and entities. These sanctions laws with which we must comply may also change rapidly from time to time as a result of geopolitical events, such as the recent imposition of sanctions on Russia as a result of the conflict between Russia and Ukraine. Although we take precautions to prevent transactions with U.S. sanction targets, the possibility exists that we could inadvertently provide our solutions to persons prohibited by U.S. sanctions. This could result in negative consequences to us, including government investigations, penalties and reputational harm.

We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales, which could harm our business.

State, local, and non-U.S. jurisdictions have differing rules and regulations governing sales, use, value added, ~~Digital Services Tax,~~digital service, and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of such taxes to our CRM Platform in various jurisdictions iscan be unclear. Further, these jurisdictions’ rules regarding tax nexus are complex and vary significantly. As a result, we could face the possibility of tax assessments and audits, and our liability for

these taxes and associated penalties could exceed our original estimates. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not historically done so and do not accrue for such taxes could result in substantial tax liabilities and related penalties for past sales, discourage customers from purchasing our application or otherwise harm our business and operating results.

Changes in tax laws or regulations that are applied adversely to us or our customers could increase the costs of our CRM Platform and adversely impact our business.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. These events could require us or our customers to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our customers to pay fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future customers may elect not to continue or purchase our CRM Platform in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our customers’ and our compliance, operating and other costs, as well as the costs of our platform. Any or all of these events could adversely impact our business, cash flows and financial performance. Furthermore, as our employees continue to work remotely from geographic locations across the United States and internationally, we may become subject to additional taxes and our compliance burdens with respect to the tax laws of additional jurisdictions may ~~be increased.~~increase.

We are a multinational organization faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.

As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, or challenges to our tax positions by tax authorities, any of which could have a material adverse effect on our liquidity, financial condition or operating results. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, or assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable nexus, often referred to as a “permanent establishment” under international tax treaties, any of which could have a material impact on us, our financial condition or our operating results.

We may not be able to utilize a significant portion of our net operating loss carryforwards, which could adversely affect our profitability.

We have incurred losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. As of December 31, ~~2021,~~2022, we had ~~$1.2 billion~~$960.7 million of U.S. federal and ~~$737.8~~$677.0 million of state net operating loss carryforwards due to prior period losses, which, if not utilized, some of which will begin to expire in 2027 for federal purposes and begin to expire in 2023 for state purposes. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability. Under current law, U.S federal and certain state net operating loss carryforwards incurred for periods beginning on or after January 1, 2018 would not expire unused because they can be carried forward indefinitely. Our unused U.S. federal net operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021 may generally be carried back to each of the ~~two~~five taxable years preceding the tax year of such losses, but those losses arising in taxable years beginning after December 31, 2017 may not be carried back. Moreover, for taxable years beginning after December 31, 2017, the deductibility of our U.S. federal net operating losses is limited to 80% of our taxable income in any future taxable year. States have varying carryback and carryforward periods. Moreover, certain states have enacted rules that limit the utilization of loss carryforwards, which also change from time-to-time. In addition, under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be further limited if we experience an “ownership change.” An ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage (by value) within a rolling three-year period. Similar rules may apply under state tax laws. We may have experienced an ownership change in the past, and future issuances of our stock could cause an ownership change. It is possible that any such ownership change could have a material effect on the use of our net operating loss carryforwards or other tax attributes accrued prior to such ownership change, which could adversely affect our profitability.

We generated net losses of ~~$97.1~~$38.3 million and ~~$61.5~~$9.3 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. As of ~~September 30, 2022,~~March 31, 2023, we had an accumulated deficit of ~~$626.7~~$680.7 million. We will need to generate and sustain increased revenue levels in future periods to become profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. We have spent and intend to continue to expend significant funds ~~to grow~~on our marketing, sales, customer service, operations, and content management operations, develop and enhance our CRM Platform, scale our data center infrastructure and services capabilities and expand into new markets. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our

revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this Quarterly Report on Form 10-Q, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the market price of our common stock may significantly decrease.

From time to time, we may invest funds in social impact investment funds, and may receive no return on our investment or lose our entire investment.

From time to time, we may invest in social impact investment funds. ~~For example, in December 2020,~~As of March 31, 2023, we ~~committed $20~~have invested $6.2 million ~~to social impact investing. Our first allocation of those funds was a $12.5 million investment~~ in the Black Economic Development Fund ~~(“BEDF”) by December 2023. As of the date of this report, we have made contributions of $6.3 million in cash for an aggregate of 5% ownership interest~~ and income share in the BEDF. The BEDF is managed by the Local Initiatives Support Corporation (“LISC”), which expects to make investments from the BEDF in the form of bank deposits, bridge financing, and other financing to Black-led businesses, financial institutions, and anchor institutions. In December 2021, we invested the remaining commitment of $7.5 million in support of Minority Depository Institutions to help close the racial wealth, health and opportunity gap. There is no guarantee as to the performance of this investment or any similar investments we make in the future. Depending on the performance of this investment and future investments we may make, we may not receive any return on our investment or we may lose our entire investment, which could have an adverse effect on our business.

We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance, and comparing our operating results on a period-to-period basis may not be meaningful. In addition to the other risks described in this Quarterly Report on Form 10-Q, factors that may affect our quarterly operating results include the following:

We may not be able to accurately forecast the amount and mix of future subscriptions, revenue and expenses and, as a result, our operating results may fall below our estimates or the expectations of public market analysts and investors. If our revenue or operating

results fall below the expectations of investors or securities analysts, or below any guidance we may provide, the price of our common stock could decline.

If we do not accurately predict subscription renewal rates or otherwise fail to forecast our revenue accurately, or if we fail to match our expenditures with corresponding revenue, our operating results could be adversely affected.

Because our recent growth has resulted in the rapid expansion of our business, we do not have a long history upon which to base forecasts of renewal rates with customers or future operating revenue. As a result, our operating results in future reporting periods may be significantly below the expectations of the public market, equity research analysts or investors, which could harm the price of our common stock.

~~Because we generally recognize revenue from subscriptions ratably over the term~~Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial condition and results of ~~the agreement, near term changes in sales may not be reflected immediately in our operating results.~~operations.

We ~~offer~~apply accounting principles and related pronouncements, implementation guidelines and interpretations to a wide range of matters that are relevant to our ~~CRM Platform primarily through a mix of monthly, quarterly~~business, are highly complex and ~~single-year subscription agreements~~involve subjective assumptions, estimates and ~~generally recognize revenue ratably over the related subscription period. As a result, much of the revenue we report~~judgments by our management. Changes in ~~each quarter is derived from agreements entered into during prior months, quarters~~these rules or ~~years. In addition, we do not record deferred revenue beyond amounts invoiced as a liability on our balance sheet. A decline in new~~their interpretation, or renewed subscriptions or marketing solutions agreements in any one quarter is not likely to be reflected immediately in our revenue results for that quarter. Such declines, however, would negatively affect our revenue and deferred revenue balances in future periods, and the effect of significant downturns in sales and market acceptance of our platform, and potential changes in underlying assumptions, estimates or judgments by our ~~rate of renewals, may not be fully reflected in~~management, could significantly change our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our total revenue and deferred revenue balance through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.reported or expected financial performance.

Servicing our debt may require a significant amount of cash. We may not have sufficient cash flow from our business to pay our indebtedness, and we may not have the ability to raise the funds necessary to settle for cash conversions of the Notes or to repurchase the Notes for cash upon a fundamental change, which could adversely affect our business and results of operations.

In June 2020, we incurred indebtedness in the aggregate principal amount of $460.0 million in connection with the issuance of our 0.375% convertible senior notes due June 1, 2025 (the “2025 Notes”). Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance any future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt.

In addition, holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. Upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such

conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered ~~therefore~~therefor or Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture governing the ~~Notes~~notes or to pay any cash payable on future conversions of the Notes as required by such indenture would constitute a default under such indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.

In addition, our indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:

Any of these factors could materially and adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the 2025 Notes is triggered, the holders thereof will be entitled to convert the 2025 Notes respectively, at any time during specified periods at their option. ~~During~~

Because the ~~three months~~last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the calendar quarter ended ~~September 30, 2022,~~March 31, 2023 was equal to or greater than 130% of the applicable conversion price on each applicable trading day, the 2025 Notes ~~did~~are convertible at the option of the holders thereof during the calendar quarter ending June 30, 2023. As of April 28, 2023, the Company has not ~~meet~~received any conversion notices with respect to the ~~Conversion Option and are not convertible.~~2025 Notes. Whether the Notes that remain outstanding will be convertible following the calendar quarter ending ~~September 30, 2022~~March 31, 2023 will depend on the continued satisfaction of this condition or another conversion condition in the future. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

Under Financial Accounting Standards Board (“ FASB”) Accounting Standards Codification 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20, an entity must separately account for the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. ASC 470-20 requires the value of the conversion option of the Notes, representing the equity component, to be recorded as additional paid-in capital within stockholders’ equity in our consolidated balance sheet and as a discount to the Notes, which reduces their initial carrying value. The carrying value of the Notes, net of the discount recorded, will be accreted up to the principal amount of the Notes from the issuance date until maturity, which will result in non-cash charges to interest expense in our consolidated statement of operations. Accordingly, we will report lower net income or higher net loss in our financial results because ASC 470-20 requires interest to include both the current period’s accretion of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the Notes. In addition, convertible debt instruments (such as the Notes) that may be settled entirely or partly cash were accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount.

In August 2020, the FASB ~~published an Accounting Standards Update (“ASU”) 2020-06, which amends~~issued guidance simplifying the accounting ~~standards~~for convertible instruments by reducing the number of accounting models for convertible debt instruments ~~that may be settled entirely or partially in cash upon conversion.~~and convertible preferred stock. The new standard eliminates requirements to separately account for liability and equity components of such convertible debt instruments and requires the use of the if-converted method for calculating the diluted earnings per share for convertible debt instruments. We adopted the

guidance on January 1, 2022, using the modified retrospective method. Future interest expense of the convertible notes will be lower as a result of adoption of this guidance and net loss per share will be computed using the if-converted method for these securities. ~~See Note 8~~

The if-converted method assumes that all of the ~~consolidated financial statements for more details.~~Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. The application of the if-converted method may reduce our reported diluted net income per share to the extent we are profitable, and accounting standards may change in the future in a manner that may otherwise adversely affect our diluted net income per share.

In connection with the offering of the 2025 Notes, we purchased capped call options (“Capped Call Options”) with respect to our common stock for $50.6 million. The counterparties to the Capped Call Options are financial institutions, and we will be subject to the risk that one or more of the counterparties may default, fail to perform or exercise their termination rights under the Capped Call Options. Global economic conditions have, from time to time, resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a counterparty to the Capped Call Options becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transaction. In addition, upon a default, failure to perform or a termination of the Capped Call Options by a counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the counterparties.

Our stock price may be volatile and you may be unable to sell your shares at or above the price you purchased them.

The trading prices of the securities of technology companies, including providers of software via the cloud-based model, have been highly volatile. Since shares of our common stock were sold in our initial public offering in October 2014 at a price of $25.00 per share, our stock price has ranged from $25.79 to $866.00 through ~~September 30, 2022.~~March 31, 2023. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.

In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the rules and regulations of the New York Stock Exchange (the “NYSE”). We expect that

compliance with these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act (“Section 404”), requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. Our compliance with applicable provisions of Section 404 requires that we incur substantial accounting expenses and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm. In addition, as a result of our hybrid culture, many of our employees – including those critical to maintaining an effective system of disclosure controls and internal control over financial reporting – are working, and are expected to continue to work, ~~for the near term,~~ in a remote environment and not in the office environment from which they have historically performed their duties. We have limited experience maintaining effective control systems with our employees working in remote environments, and risks that we have not contemplated may arise and result in our failure to maintain effective disclosure controls or internal control over financial reporting.

Anti-takeover provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions that:

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us in certain circumstances.

Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Catastrophic events could disrupt our business and adversely affect our financial condition and results of operations.

We rely on our network infrastructure and enterprise applications, internal technology systems and website for our development, marketing, operations, support, hosted services and sales activities. In addition, some of our businesses rely on third-party hosted services, and we do not control the operation of third-party data center facilities serving our customers from around the world, which increases our vulnerability. A disruption, infiltration or failure of these systems or third-party hosted services in the event of a major

earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware malfunctions, pandemics (including the COVID-19 pandemic), cyber-attack, war, terrorist attack or other catastrophic event that we do not adequately address, could cause system interruptions, reputational harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data. Any of these events could prevent us from fulfilling our customer demands or could negatively impact a country or region in which we sell our products, which could in turn decrease that country’s or region’s demand for our products. A catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected. The ~~continuing~~adverse effects of any such catastrophic event would be exacerbated if experienced at the same time as another unexpected and adverse event, such as the COVID-19 ~~pandemic are highly unpredictable and could be significant, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.~~pandemic.

The occurrence of regional epidemics or a global pandemic, such as COVID-19, ~~pandemic~~may have an adverse effect on how we and ~~virus containment measures taken by federal~~our customers operate our businesses and ~~state governments have resulted in,~~our operating and financial results. Our operations may ~~continue to result in, business slowdowns or shutdowns, weakened economic conditions, economic uncertainty, and volatility~~ in the ~~financial markets, both regionally and worldwide. During the height~~future be negatively affected by a range of the COVID-19 pandemic , we responded with substantial modifications to employee travel and where employees work, as well as virtualization, postponement, or cancellation of certain events, among other changes. We have re-opened our offices on a staggered, region-by-region basis in accordance with local authority guidelines. Although we have been able to navigate workplace restrictions and limitations with minimal disruptions to our business operations to date, we may further modify our business practices and real estate needs in responseexternal factors related to the ~~risks~~pandemic that are not within our control, including the emergence and ~~negative impacts caused by~~spread of more transmissible variants and the ~~COVID-19 pandemic, but we cannot be certain that these measures will continue to be successful. We continue to actively monitor the situation~~degree of transmissibility and may take further actions to alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders, including in response to outbreaks and variants.

While we have not been materially adversely affected to date, the conditions caused by the pandemic may affect the rate of spending on software products and may adversely affect our customers’ ability or willingness to purchase our offerings; the timing of our current or prospective customers’ purchasing decisions; pricing discounts or extended payment terms; reductions in the amount or duration of customers’ subscription contracts; or increase customer attrition rates, all of which could adversely affect our future sales, operating results and overall financial performance. If the pandemic and its residual effects have a substantial impact on the ability of our customers to purchase our offerings, our results of operations, and overall financial performance may be harmed.

severity thereof. The extent to which global pandemics, such as the COVID-19 pandemic, ~~impacts~~impact our ~~business~~financial condition or results of operations ~~in future periods~~ will depend on ~~multiple~~ factors, ~~that cannot be accurately predicted at this time,~~ such as the duration and scope of the pandemic, ~~future spikes~~as well as whether there is a material impact on the businesses or productivity of COVID-19 infections (including the spread of variants or mutant strains, and the degree of transmissibility and severity thereof), the extent and effectiveness of containment actions, the disruption caused by such actions, and the impact of theseour customers, partners, employee, suppliers and other factors on our employees, customers, partners and vendors. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed. In addition, supply chain disruption and resulting inflationary pressures, a global labor shortage, the ebb and flow of COVID-19, including in specific geographies, and changes in economic policy could impact our outlook.

partners. To the extent that the pandemic ~~adversely affects~~harms our business and ~~financial~~ results ~~it may also have the effect~~ of ~~heightening~~operations, many of the other risks described in this “Risk Factors” section, ~~including, in particular, risks related to our dependence on customer renewals, the addition of new customers and increased revenue from existing customer, risks that our operating results could~~may be negatively affected by changes in the sizes or types of businesses that purchase our platform and the risk that weakened global economic conditions may harm our industry, business and results of operations.heightened.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions.

Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.

Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to invest in future growth opportunities. Additional financing may not be available on favorable terms, if at all. In addition, recent volatility in capital markets and lower market prices for many securities may affect our ability to access new capital through sales of shares of our common stock or issuance of indebtedness, which may materially harm our liquidity, limit our ability to grow our business, pursue acquisitions or improve our operating infrastructure and restrict our ability to compete in our

If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could seriously harm our business and operating results. If we incur debt, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. The Notes are and any additional equity or equity-linked financings would be dilutive to our stockholders. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

While we seek to partner with organizations that mitigate their business risks associated with climate change, we recognize that there are inherent risks wherever business is conducted. Any of our primary locations may be vulnerable to the adverse effects of climate change. For example, our offices globally may experience climate-related events at an increasing frequency, including drought, water scarcity, heat waves, cold waves, wildfires and resultant air quality impacts and power shutoffs associated with wildfire prevention. While this danger has a low-assessed risk of disrupting normal business operations, it has the potential to disrupt employees’ abilities to commute to work or to work from home and stay connected effectively. Furthermore, it is more difficult to mitigate the impact of these events on our employees to the extent they work from home. Climate-related events, including the increasing frequency of extreme weather events and their impact on the U.S.’s, Europe’s and other major regions’ critical infrastructure, have the potential to disrupt our business, our third-party suppliers and/or the business of our customers, and may cause us to experience higher attrition, losses and additional costs to maintain or resume operations. Regulatory developments, changing market dynamics and stakeholder expectations regarding climate change may impact our business, financial condition and results of operations. To inform our

disclosures and take potential action as appropriate, we are working to align our reporting with emerging disclosure and accounting standards such as the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures, the Sustainability Accounting Standards Board and the Global Reporting Initiative as well as potential new disclosure requirements from regulators such as the SEC.

The exhibits listed below are filed or incorporated by reference into this Report.

(1) Incorporated by reference to Exhibit 3.1 to HubSpot, Inc.’s Annual Report on Form 10-K filed on February 24, 2016.

(2) Incorporated by reference to Exhibit ~~3.2 to HubSpot Inc.’s Quarterly Report on Form 10-Q filed on November 5, 2020.~~

~~(3) Incorporated by reference to Exhibit~~ 3.1 to HubSpot Inc.’s Current Report on Form 8-K filed ~~on April 14, 2022.~~with the SEC January 27, 2023.

~~(4)~~(3) Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to ~~Registrant’s~~registrant’s Registration Statement on Form S-1 (SEC file No. 333-198333) filed on September 26, 2014.

* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the ~~Registrant~~registrant specifically incorporates it by reference. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the ~~Registrant~~registrant specifically incorporates it by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


~~25 First Street~~		~~02141~~Two Canal Park
Cambridge, Massachusetts02141
(Address of principal executive offices)		~~(Zip Code)~~


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	HUBS	New York Stock Exchange


Part I — Financial Information

Item 1.	Unaudited Consolidated Financial Statements:
	Unaudited Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	56
	Unaudited Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	67
	Unaudited Consolidated Statements of Comprehensive Loss for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	78
	Unaudited Consolidated Statements of Cash Flows for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	10
	Notes to Unaudited Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2221
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3229
Item 4.	Controls and Procedures	3330

Part II — Other Information

Item 1.	Legal Proceedings	3532
Item 1A.	Risk Factors	3532
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6057
Item 3.	Default Upon Senior Securities	6057
Item 4.	Mine Safety Disclosures	6057
Item 5.	Other Information	6057
Item 6.	Exhibits	6158
Signatures		6259
EX-31.1	CERTIFICATION OF THE CEO PURSUANT TO SECTION 302
EX-31.2	CERTIFICATION OF THE CFO PURSUANT TO SECTION 302
EX-32.1	CERTIFICATION OF THE CEO AND CFO PURSUANT TO SECTION 906


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
	(in thousands)						(in thousands)
Computer equipment and purchased software	$	16,567		$	15,524		$	17,998		$	17,710
Employee related computer equipment		43,504			32,230			45,301			46,399
Furniture and fixtures		20,352			20,180			21,017			21,232
Leasehold improvements		93,626			90,070			97,077			98,427
Internal-use software		29,160			20,616			35,172			32,205
Construction in progress		1,812			4,141			7,020			1,699
Total property and equipment		205,021			182,761			223,585			217,672
Less accumulated depreciation		(102,393	)		(86,627	)		(116,525	)		(112,445	)
Property and equipment, net	$	102,628		$	96,134		$	107,060		$	105,227


	Operating		Operating Leases
	(in thousands)		(in thousands)
Remainder of 2022	$	11,149
2023		43,768
Remainder of 2023			$	39,595
2024		40,497		49,350
2025		40,286		48,953
2026		40,229		49,072
2027				46,320
Thereafter		164,636		196,134
Total	$	340,565	$	429,424


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


	September 30, 2022		September 30, 2021		December 31, 2021
	(in thousands)
Cash and cash equivalents	$	331,659	$	288,334	$	377,013
Restricted cash, included in other assets		3,029		3,029		3,029
Total cash, cash equivalents, and restricted cash	$	334,688	$	291,363	$	380,042


	March 31, 2023		March 31, 2022		December 31, 2022
	(in thousands)
Cash and cash equivalents	$	325,159	$	408,433	$	331,022
Restricted cash, included in prepaid expenses and other current assets and other assets		3,153		3,029		3,153
Total cash, cash equivalents, and restricted cash	$	328,312	$	411,462	$	334,175


	Product related obligations		INBOUND event obligations
	(in thousands)
Remainder of 2022		23,371		1,386
2023		158,886		1,320
2024		178,087		673
2025		195,972		349
2026		220,000		183
Thereafter		187,500		—
Total	$	963,816	$	3,911


	Vendor Commitments
	(in thousands)
Remainder of 2023	$	135,459
2024		201,800
2025		213,422
2026		220,200
2027		187,684
Thereafter		184
Total	$	958,749


	Cumulative Translation Adjustment			Unrealized Gain on Investments			Total
	(in thousands)
Beginning balance at January 1, 2022		(532	)		(807	)		(1,339	)
Other comprehensive loss before reclassifications		(5,818	)		(10,354	)		(16,172	)
Amounts reclassified from accumulated other comprehensive income		—			—			—
Ending balance at September 30, 2022		(6,350	)		(11,161	)		(17,511	)


	Cumulative Translation Adjustment			Unrealized Loss on Investments			Total
	(in thousands)
Beginning balance at January 1, 2023		(3,070	)		(9,820	)		(12,890	)
Other comprehensive gain before reclassifications		627			4,507			5,134
Amounts reclassified from accumulated other comprehensive income		—			—			—
Ending balance at March 31, 2023		(2,443	)		(5,313	)		(7,756	)


	Restructuring liability
	(in thousands)
Beginning balance at January 1, 2023	$	—
Charges		25,793
Payments		(21,903	)
Ending balance at March 31, 2023	$	3,890


	Change
	Three Months			Nine Months
	(in thousands)
Subscription and hosting costs	$	5,943		$	22,402
Employee-related costs		2,178			9,525
Amortization of capitalized software development costs		2,430			6,903
Amortization of acquired technology		59			212
Allocated overhead expenses		(509	)		(109	)
	$	10,101		$	38,933


Hypothetical change in HubSpot stock price	Hypothetical change in HubSpot stock price	Fair value		Estimated change in fair value			Hypothetical percentage increase (decrease) in fair value			Hypothetical change in HubSpot stock price	Fair value		Estimated change in fair value			Hypothetical percentage increase (decrease) in fair value
10% increase		$	577,481	$	63,707			12	%		$	788,016	$	62,509			9	%
No change		$	513,774	$	—			—			$	725,507	$	—			—
10% decrease		$	511,464	$	(2,309	)		(0	)%		$	662,962	$	(62,545	)		(9	)%


Exhibit Number		Exhibit Title

3.1(1)		~~Seventh~~ Amended and Restated Certificate of Incorporation of the Registrant

3.2(2)		~~Third~~Fourth Amended and Restated Bylaws of the Registrant
	~~3.3(3)~~
4.1(3)		~~First Amendment to Third Amended and Restated Bylaws of the Registrant~~

~~4.1(4)~~		Form of Common Stock certificate of the Registrant

31.1**		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2**		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

101.INS**		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document

101.SCH**		Inline XBRL Taxonomy Extension Schema Document

101.CAL**		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104**		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)


HUBSPOT, INC.

By:		/s/ Kate Bueker
Name:		Kate Bueker
Title:		Chief Financial Officer (Principal Financial and Accounting Officer and Authorized Signatory)