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What changed in HUBSPOT INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HUBSPOT INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+345 added−378 removedSource: 10-K (2024-02-14) vs 10-K (2023-02-16)

Top changes in HUBSPOT INC's 2023 10-K

345 paragraphs added · 378 removed · 268 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

158 edited+51 added−86 removed244 unchanged
Biggest changeAny failure or perceived failure by us to comply with privacy or 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.
Biggest changeAny 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. 29 Laws and regulations governing privacy, data protection and 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.
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; and 19 use of substantial portions of our available cash or the incurrence of debt to consummate the acquisition.
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; and use of substantial portions of our available cash or the incurrence of debt to consummate the acquisition.
In addition to the other risks described in this Annual Report on Form 10-K, factors that may affect our quarterly operating results include the following: • changes in spending on marketing, sales, customer service, operations, and content management software by our current or prospective customers; • pricing our CRM Platform subscriptions effectively so that we are able to attract and retain customers without compromising our profitability; • attracting new customers for our marketing, sales, customer service, operations, and content management software, increasing our existing customers’ use of our platform and providing our customers with excellent customer support; • customer renewal rates and the amounts for which agreements are renewed; • global awareness of our thought leadership and brand; • changes in the competitive dynamics of our market, including consolidation among competitors or customers and the introduction of new products or product enhancements; • changes to the commission plans, quotas and other compensation-related metrics for our sales representatives; • the amount and timing of payment for operating expenses, particularly research and development, sales and marketing expenses and employee benefit expenses; • the amount and timing of costs associated with recruiting, training and integrating new employees while maintaining our company culture; • our ability to manage our existing business and future growth, including increases in the number of customers on our platform and the introduction and adoption of our CRM Platform in new markets outside of the United States; • unforeseen costs and expenses related to the expansion of our business, operations and infrastructure, including disruptions in our hosting network infrastructure and privacy and data security; • foreign currency exchange rate fluctuations; • rising inflation in the economies in which we operate and our ability to control costs, including operating expenses; and • general economic and political conditions in our domestic and international markets.
In addition to the other risks described in this Annual Report on Form 10-K, factors that may affect our quarterly operating results include the following: • changes in spending on marketing, sales, customer service, operations, and content management software by our current or prospective customers; • pricing our customer platform subscriptions effectively so that we are able to attract and retain customers without compromising our profitability; • attracting new customers for our marketing, sales, customer service, operations, and content management software, increasing our existing customers’ use of our platform and providing our customers with excellent customer support; 35 • customer renewal rates and the amounts for which agreements are renewed; • global awareness of our thought leadership and brand; • changes in the competitive dynamics of our market, including consolidation among competitors or customers and the introduction of new products or product enhancements; • changes to the commission plans, quotas and other compensation-related metrics for our sales representatives; • the amount and timing of payment for operating expenses, particularly research and development, sales and marketing expenses and employee benefit expenses; • the amount and timing of costs associated with recruiting, training and integrating new employees while maintaining our company culture; • our ability to manage our existing business and future growth, including increases in the number of customers on our platform and the introduction and adoption of our customer platform in new markets outside of the United States; • unforeseen costs and expenses related to the expansion of our business, operations and infrastructure, including disruptions in our hosting network infrastructure and privacy and data security; • foreign currency exchange rate fluctuations; • rising inflation in the economies in which we operate and our ability to control costs, including operating expenses; and • general economic and political conditions in our domestic and international markets.
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.
In addition, third-party applications and features on our customer 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.
Furthermore, as more of our employees work remotely from geographic areas across the globe 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, we may need to reallocate our investment of resources and closely monitor a variety of local regulations and requirements, including local tax laws.
Furthermore, as more of our employees work remotely from geographic areas across the globe 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 17 work both in the office and remotely, we may need to reallocate our investment of resources and closely monitor a variety of local regulations and requirements, including local tax laws.
We have from time to time found defects in our software and may discover in the future additional defects, outages, delays or cessations of service, performance and quality problems or may produce errors in connection with systems integrations, migration work or other causes, which could result in business disruptions and the process of 24 remediating them could be more expensive, time-consuming, disruptive and resource intensive than planned.
We have from time to time found defects in our software and may discover in the future additional defects, outages, delays or cessations of service, performance and quality problems or may produce errors in connection with systems integrations, migration work or other causes, which could result in business disruptions and the process of remediating them could be more expensive, time-consuming, disruptive and resource intensive than planned.
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.
If we fail to integrate our platform with new third-party applications and platforms that our customers use for marketing, sales, services, operations, commerce, 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.
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.
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 27 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.
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.
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 customer platform to decrease and adversely impact our financial results.
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. 40 Anti-takeover provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.
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.
Generally, if we receive a proper notice from, or on behalf, of a copyright owner alleging infringement of copyrighted material located on websites we host, and we fail to expeditiously remove or disable access to the allegedly infringing material or otherwise fail to meet the requirements of the safe harbor provided by the DMCA, the copyright owner may seek to impose liability on us.
Generally, if we receive a 31 proper notice from, or on behalf, of a copyright owner alleging infringement of copyrighted material located on websites we host, and we fail to expeditiously remove or disable access to the allegedly infringing material or otherwise fail to meet the requirements of the safe harbor provided by the DMCA, the copyright owner may seek to impose liability on us.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our revenue and other operating results, including as a result of the addition or loss of any number of customers; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in ratings and financial estimates and the publication of other news by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • changes in operating performance and stock market valuations of cloud-based software or other technology companies, or those in our industry in particular; • price and volume fluctuations in the trading of our common stock and in the overall stock market, including as a result of trends in the economy as a whole; • sales of large blocks of our common stock or the dilutive effect of our Notes or any other equity or equity-linked financings; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business or industry, including data privacy and data security; • lawsuits threatened or filed against us; • changes in key personnel; and • other events or factors, including changes in general economic, industry and market conditions and trends, international disputes, wars (such as the conflict between Russia and Ukraine), and political stability.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our revenue and other operating results, including as a result of the addition or loss of any number of customers; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of us, changes in ratings and financial estimates and the publication of other news by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • changes in operating performance and stock market valuations of cloud-based software or other technology companies, or those in our industry in particular; • price and volume fluctuations in the trading of our common stock and in the overall stock market, including as a result of trends in the economy as a whole; • sales of large blocks of our common stock or the dilutive effect of our Notes or any other equity or equity-linked financings; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business or industry, including data privacy and data security; • lawsuits threatened or filed against us; • changes in key personnel; and • other events or factors, including changes in general economic, industry and market conditions and trends, international disputes, wars (such as the conflict between Russia and Ukraine and the evolving events in Israel and Gaza), and political stability.
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.
Defects or errors could result in product outages and could also cause inaccuracies in the data we collect and process for our 24 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.
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.
Our gross margins can vary depending on numerous factors related to the implementation and use of our customer 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.
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 22 governmental fiscal, monetary and tax policies, among others, could adversely impact our business, financial condition and operating results.
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.
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. 17 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.
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.
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.
The functionality and popularity of our customer 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.
The occurrence of any of these events may have a material adverse effect on our business. 27 In certain of our subscription agreements with customers, we agree to indemnify these customers against claims by a third party alleging infringement of a valid patent, registered copyright or registered trademark.
The occurrence of any of these events may have a material adverse effect on our business. In certain of our subscription agreements with customers, we agree to indemnify these customers against claims by a third party alleging infringement of a valid patent, registered copyright or registered trademark.
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.
Some of these entities maintain “blacklists” of companies and individuals, and the websites, internet service providers and internet protocol 32 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.
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.
In particular, Section 404 of the 39 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 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 36 our operating results on a period-to-period basis may not be meaningful.
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.
Risks Related to Our Business and Strategy 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.
Risks Related to Our Business and Strategy 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 customer platform. We derive, and expect to continue to derive, a substantial portion of our revenue from the sale of subscriptions to our customer 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.
To increase Customers and achieve broader market acceptance of our customer 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.
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 rely on a combination of patents, 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.
In addition, sales automation and CRM vendors could acquire or develop applications that compete with our sales and CRM offerings. Some of these companies have acquired social media marketing and other marketing software providers to integrate with their broader offerings.
In addition, sales force automation and CRM vendors could acquire or develop applications that compete with our sales and CRM offerings. Some of these companies have acquired social media marketing and other marketing software providers to integrate with their broader offerings.
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.
If we are unable to generate such cash 36 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.
We have spent and intend to continue to expend significant funds 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.
We have spent and intend to continue to expend significant funds on our marketing, sales, customer service, operations, and content management operations, develop and enhance our customer platform, scale our data center infrastructure and services capabilities and expand into new markets.
We may terminate any employee’s employment at any 21 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.
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.
Our ability to make scheduled payments of the principal of, 37 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 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.
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.
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 customer platform and for the renewal of existing customers.
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 35 establishment” under international tax treaties, any of which could have a material impact on us, our financial condition or our 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 34 establishment” under international tax treaties, any of which could have a material impact on us, our financial condition or our operating results.
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.
We rely on our information technology systems, including the sustained and uninterrupted performance of our customer platform, to manage numerous aspects of our business, including marketing, sales, content management, customer service and other internal operations.
In the United States, the FTC and many state attorneys general are applying federal and state consumer protection laws to impose standards for the online collection, use and dissemination of personal and other 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 and other 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.
Third-party providers of applications and APIs may change the features of their applications and platforms, restrict 25 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.
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.
Failure to effectively develop and expand our marketing, sales, customer service, operations, commerce and content management capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.
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 believe that maintaining our thought leadership position in inbound marketing, sales, services, operations, commerce and content management is an important element in attracting new customers.
Privacy advocacy groups and the technology and other industries are considering various 25 new, additional or different self-regulatory standards that may place additional burdens on us.
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.
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.
Access and use of our customer 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 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.
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 customer platform if they are concerned that they may infringe third-party intellectual property rights.
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.
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 customer 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 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.
If our information technology systems, including our customer 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.
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.
If we do not or cannot maintain the compatibility of our customer 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.
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 41 their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
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 40 their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
We continue to implement policies and procedures to facilitate our compliance with U.S. laws and regulations applicable to or arising from 20 our international business.
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.
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.
If our customer 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 customer platform and its underlying infrastructure are inherently complex and may contain material defects or errors.
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.
Accordingly, if our cybersecurity measures or those of our service providers fail to protect against unauthorized access, attacks (which may include sophisticated cyber-attacks), 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.
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.
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 customer 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.
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. 43 ITEM 1B.
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. 42 ITEM 1B.
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.
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 (such as 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.
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.
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 customer platform could substantially decline.
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.
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 customer 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.
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.
Blacklisting of this type could interfere with our ability to market our customer 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.
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, 38 using the modified retrospective method.
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, 37 using the modified retrospective method.
Our current international operations and future initiatives will involve a variety of risks, including: • difficulties in maintaining our company culture with a dispersed and distant workforce; • more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal data, particularly in the European Union; • unexpected changes in regulatory requirements, taxes or trade laws; • differing labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future; • global economic uncertainty caused by global political events; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • limited or insufficient intellectual property protection; • international disputes, wars (such as the conflict between Russia and Ukraine), political instability or terrorist activities; and resulting economic instability; • likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S.
Our current international operations and future initiatives will involve a variety of risks, including: • difficulties in maintaining our company culture with a dispersed and distant workforce; • more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal data, particularly in the European Union; • unexpected changes in regulatory requirements, taxes or trade laws; • differing labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions; • global economic uncertainty caused by global political events; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • limited or insufficient intellectual property protection; • international disputes, wars (such as the conflict between Russia and Ukraine and the evolving events in Israel and Gaza), political instability or terrorist activities and resulting economic instability; • likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S.
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.
If we fail to successfully promote and maintain our brand, our business could suffer. 18 If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our customer platform may become less competitive. Our future success depends on our ability to adapt and innovate our customer platform.
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.
The costs of compliance with, and other burdens imposed by these groups’ policies and actions may limit the use and adoption of our customer 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.
If our or our customers’ security measures are compromised or unauthorized access to data of our customers or their customers is otherwise obtained, our customer 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 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.
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, geopolitical conflict, war and telecommunication and electrical failures.
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.
Changes in tax laws or regulations that are applied adversely to us or our customers could increase the costs of our customer 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.
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.
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 customer platform or services to cover the changes, which could have a negative impact on our operating results.
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.
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 customer platform and potentially subject us to regulatory enforcement or private litigation.
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.
These issues could reduce the attractiveness of our customer 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.
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.
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 customer platform.
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.
If we do not help our customers use multiple applications within our customer 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.
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. Our CRM Platform and its underlying infrastructure are inherently complex and may contain material defects or errors.
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. Our customer platform and its underlying infrastructure are inherently complex and may contain material defects or errors.
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.
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 customer platform.
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.
Privacy concerns and end users’ acceptance of Internet behavior tracking may limit the applicability, use and adoption of our customer platform. Privacy concerns may cause end users to resist providing the personal data necessary to allow our customers to use our platform effectively.
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.
While these laws and regulations generally govern our customers’ use of our customer platform, we may be subject to certain laws as a data processor on behalf of, or as a business associate of, our customers.
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.
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 customer platform to customers.
The market for inbound marketing, sales, service, operations and content 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.
The market for inbound marketing, sales, service, operations, commerce and customer 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.
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, distribution, use and storage of personal data of individuals.
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 safeguarding of personal data.
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 strategy is to sell subscriptions to our customer platform to mid-sized businesses, but we have sold and will continue to sell to organizations ranging from small businesses to enterprises.
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.
If Payments is used for illegal or improper uses, we may incur substantial losses as a result of claims from merchants and their buyers, including consumers. Allowances for transaction losses that we have established may be insufficient to cover incurred losses.
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.
These policies could have a significant impact on the operation of our customer platform and could impair our attractiveness to customers, which would harm our business.
State, local, and non-U.S. jurisdictions have differing rules and regulations governing sales, use, value added, digital services, 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 can be unclear.
State, local, and non-U.S. jurisdictions have differing rules and regulations governing sales, use, value added, 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 customer platform in various jurisdictions can be unclear.
In relevant part, these laws and regulations may affect our ability to engage in lead generation activities by imposing heightened requirements, such as affirmative opt-ins or consent prior to sending commercial correspondence or engaging in electronic tracking activities that aid our marketing and business intelligence.
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.
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.
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, geopolitical conflict, vandalism or sabotage, a disruptive cyber attack, 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.
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.
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, including AI and machine learning, which will increase our research and development costs.
As of December 31, 2022, we have invested $6.2 million in the Black Economic Development Fund and $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.
As of December 31, 2023, we have invested $8.5 million in the Black Economic Development Fund and $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.
Additionally, during the COVID-19 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.
Additionally, as remote work and resource access expand, there is an increased risk that we may experience cybersecurity-related events such as 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. Pr operties We occupy approximately 389,000 square feet of office space in Cambridge, Massachusetts pursuant to lease agreements that expire through 2035. We also maintain a number of international offices across the world. In January 2023, we announced our Restructuring Plan and began the process of consolidating our office space and reducing the square footage of our facilities.
Biggest changeITEM 2. Pr operties We occupy approximately 223,000 square feet of office space in Cambridge, Massachusetts pursuant to lease agreements that expire through 2035. We also maintain a number of international offices across the world. In January 2023, we announced our Restructuring Plan and began the process of consolidating our office space and reducing the square footage of our facilities.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSuch returns are based on historical results and are not intended to suggest future performance. 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 HubSpot $ 100 $ 188 $ 268 $ 337 $ 843 $ 1,402 $ 615 S&P 500 Index $ 100 $ 119 $ 112 $ 144 $ 168 $ 213 $ 171 Nasdaq Computer Index $ 100 $ 139 $ 134 $ 201 $ 301 $ 415 $ 267 45 Recent Sales of Unregistered Securities None.
Biggest changeSuch returns are based on historical results and are not intended to suggest future performance. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 HubSpot $ 100 $ 142 $ 179 $ 448 $ 746 $ 327 $ 657 S&P 500 Index $ 100 $ 94 $ 121 $ 140 $ 178 $ 144 $ 178 Nasdaq Computer Index $ 100 $ 96 $ 145 $ 217 $ 299 $ 192 $ 320 45 Recent Sales of Unregistered Securities None.
The following graph shows a comparison of the cumulative total return for our common stock, the Nasdaq Computer Index and the S&P 500 Index for each of the last six fiscal years ended December 31, 2022. The graph assumes an initial investment of $100 in each of the Company’s common stock, the Nasdaq Computer Index and the S&P 500.
The following graph shows a comparison of the cumulative total return for our common stock, the Nasdaq Computer Index and the S&P 500 Index for each of the last six fiscal years ended December 31, 2023. The graph assumes an initial investment of $100 in each of the Company’s common stock, the Nasdaq Computer Index and the S&P 500.
Outstanding Convertible Senior Notes and Capped Call Options In June 2020, we issued $460 million aggregate principal amount of convertible senior notes due June 1, 2025 (the “2025 Notes”), of which $459.1 million of the principal amount remained outstanding as of December 31, 2022.
Outstanding Convertible Senior Notes and Capped Call Options In June 2020, we issued $460 million aggregate principal amount of convertible senior notes due June 1, 2025 (the “2025 Notes”), of which $459.1 million of the principal amount remained outstanding as of December 31, 2023.
Our initial public offering was priced at $25.00 per share on October 8, 2014. As of February 10, 2023, we had 28 holders of record of our common stock.
Our initial public offering was priced at $25.00 per share on October 8, 2014. As of February 9, 2024, we had 23 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended December 31, 2022 2021 2020 (in thousands) Revenue: Subscription $ 1,690,538 $ 1,258,319 $ 853,025 Professional services and other 40,431 42,339 30,001 Total revenue 1,730,969 1,300,658 883,026 Cost of revenue: Subscription 257,513 211,132 130,685 Professional services and other 56,746 47,725 36,274 Total cost of revenue 314,259 258,857 166,959 Gross profit 1,416,710 1,041,801 716,067 Operating expenses: Research and development 442,022 301,970 205,589 Sales and marketing 886,069 649,681 452,081 General and administrative 197,720 144,949 109,225 Total operating expenses 1,525,811 1,096,600 766,895 Loss from operations (109,101 ) (54,799 ) (50,828 ) Other expense: Interest income 15,000 1,173 7,773 Interest expense (3,762 ) (30,282 ) (37,049 ) Other (expense) income (6,829 ) 10,090 (711 ) Total other expense 4,409 (19,019 ) (29,987 ) Loss before income tax expense (104,692 ) (73,818 ) (80,815 ) Income tax expense (8,057 ) (4,019 ) (4,216 ) Net loss $ (112,749 ) $ (77,837 ) $ (85,031 ) 51 Year Ended December 31, 2022 2021 2020 Revenue: Subscription 98 % 97 % 97 % Professional services and other 2 3 3 Total revenue 100 100 100 Cost of revenue: Subscription 15 16 15 Professional services and other 3 4 4 Total cost of revenue 18 20 19 Gross profit 82 80 81 Operating expenses: Research and development 26 23 23 Sales and marketing 51 50 51 General and administrative 11 11 12 Total operating expenses 88 84 87 Loss from operations (6 ) (4 ) (6 ) Total other expense 0 (1 ) (3 ) Loss before income tax expense (6 ) (6 ) (9 ) Income tax expense (0 ) (0 ) (0 ) Net loss (6)% (6)% (10)% * Percentages are based on actual values.
Biggest changeYear Ended December 31, 2023 2022 2021 (in thousands) Revenue: Subscription $ 2,123,479 $ 1,690,538 $ 1,258,319 Professional services and other 46,751 40,431 42,339 Total revenue 2,170,230 1,730,969 1,300,658 Cost of revenue: Subscription 290,802 257,513 211,132 Professional services and other 54,687 56,746 47,725 Total cost of revenue 345,489 314,259 258,857 Gross profit 1,824,741 1,416,710 1,041,801 Operating expenses: Research and development 617,745 442,022 301,970 Sales and marketing 1,068,560 886,069 649,681 General and administrative 249,649 197,720 144,949 Restructuring 96,843 — — Total operating expenses 2,032,797 1,525,811 1,096,600 Loss from operations (208,056 ) (109,101 ) (54,799 ) Other expense: Interest income 58,828 15,000 1,173 Interest expense (3,801 ) (3,762 ) (30,282 ) Other (expense) income (4,673 ) (6,829 ) 10,090 Total other income (expense) 50,354 4,409 (19,019 ) Loss before income tax expense (157,702 ) (104,692 ) (73,818 ) Income tax expense (18,593 ) (8,057 ) (4,019 ) Net loss $ (176,295 ) $ (112,749 ) $ (77,837 ) 51 Year Ended December 31, 2023 2022 2021 Revenue: Subscription 98 % 98 % 97 % Professional services and other 2 2 3 Total revenue 100 100 100 Cost of revenue: Subscription 13 15 16 Professional services and other 3 3 4 Total cost of revenue 16 18 20 Gross profit 84 82 80 Operating expenses: Research and development 28 26 23 Sales and marketing 49 51 50 General and administrative 12 11 11 Restructuring 4 0 0 Total operating expenses 94 88 84 Loss from operations (10 ) (6 ) (4 ) Total other expense 2 0 (1 ) Loss before income tax expense (7 ) (6 ) (6 ) Income tax expense (1 ) (0 ) (0 ) Net loss -8 % -7 % -6 % * Percentages are based on actual values.
Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Professional services and other cost of revenue $ 56,746 $ 47,725 $ 9,021 19 % Percentage of professional services and other revenue 140 % 113 % The increase in professional services and other cost of revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to the following: Change (in thousands) Employee-related costs $ 8,197 Allocated overhead and other expenses 1,707 Professional fees (883 ) $ 9,021 Employee-related costs increased as a result of increased headcount as we grew our professional services organization to support our customer growth.
Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Professional services and other cost of revenue $ 56,746 $ 47,725 $ 9,021 19 % Percentage of professional services and other revenue 140 % 113 % The increase in professional services and other cost of revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to the following: Change (in thousands) Employee-related costs $ 8,197 Allocated overhead and other expenses 1,707 Professional fees (883 ) $ 9,021 57 Employee-related costs increased as a result of increased headcount as we grew our professional services organization to support our customer growth.
Interest Expense Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Interest expense $ (3,762 ) $ (30,282 ) $ (26,520 ) (88 )% Percentage of total revenue * (2 )% * not meaningful The change in interest expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 is due to the following: Change (in thousands) Amortization of the debt discount and issuance costs and contractual interest expense related to our Notes $ (21,628 ) Loss on early extinguishment of 2022 Convertible Notes (4,892 ) $ (26,520 ) 55 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.
Interest Expense Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Interest expense $ (3,762 ) $ (30,282 ) $ (26,520 ) (88 )% Percentage of total revenue * (2 )% * not meaningful The change in interest expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 is due to the following: Change (in thousands) Amortization of the debt discount and issuance costs and contractual interest expense related to our Notes $ (21,628 ) Loss on early extinguishment of 2022 Convertible Notes (4,892 ) $ (26,520 ) 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.
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.
While our customer platform was built to grow with any company, we focus on selling to mid-market businesses because we believe we have significant competitive advantages attracting and serving this market segment. These mid-market businesses seek an integrated, easy-to-implement and easy-to-use solution to reach customers and compete with organizations that have larger marketing, sales, and customer service budgets.
We 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 sell multiple product plans at different base prices on a subscription basis, each of which includes our Smart CRM and integrated applications to meet the needs of the various customers we serve. Customers pay additional fees if the number of contacts stored and tracked in the customer’s database exceeds specified thresholds.
We expect that general and administrative expenses will increase on an absolute dollar basis and remain consistent as a percentage of total revenue, exclusive of stock-based compensation expense, as we focus on processes, systems and controls to enable our internal support functions to scale with the growth of our business.
We expect that general and administrative expenses will increase on an absolute dollar basis and remain relatively consistent as a percentage of total revenue, exclusive of stock-based compensation expense, as we focus on processes, systems and controls to enable our internal support functions to scale with the growth of our business.
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 believe that the growth of our business is dependent on many factors, including our ability to expand our customer base, increase adoption of our customer platform within existing customers, develop new products and applications to extend the functionality of our customer platform and provide a high level of customer service.
We use these key business metrics to evaluate our business, measure our performance, identify trends affecting our business and results of operations, formulate financial projections and make strategic 48 decisions. These key business metrics may be calculated in a manner different than similar key business metrics used by other companies.
We use these key business metrics to evaluate our business, measure our performance, identify trends affecting our business and results of operations, formulate financial projections and make strategic decisions. These key business metrics may be calculated in a manner different than similar key business metrics used by other companies.
Depending on which Hubs and services a customer purchases, they receive onboarding guidance or one-on-one training from one of our on-boarding, inbound consultants, or technical consultants by web meetings. Training is generally sold in connection with a customer’s initial subscription and is billed in advance.
Depending on which Hubs and services a customer purchases, they receive on-boarding guidance or one-on-one training from one of our on-boarding, inbound consultants, or technical consultants by web meetings. Training is generally sold in connection with a customer’s initial subscription and is billed in advance.
Interest expense primarily consists of amortization of the debt discount, issuance costs and contractual interest expense related to our Notes, and the loss on early extinguishment of our 2022 Notes. On January 1, 2022, we adopted the new guidance for convertible instruments which eliminates the recognition of the debt discount and losses on early extinguishment.
Interest expense primarily consists of amortization of the debt discount, issuance costs and contractual interest expense related to our Notes, and the loss on early extinguishment of our 2022 Notes. On January 1, 2022, we adopted the new guidance for convertible instruments 50 which eliminates the recognition of the debt discount and losses on early extinguishment.
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 office space.
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 58 leased office space.
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.
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. 47 Subscriptions are billed in advance on various schedules.
To determine the estimated incremental borrowing rate, we use publicly 64 available credit ratings for peer companies, and estimate the incremental borrowing rate using yields for maturities that are in line with the duration of the lease payments.
To determine the estimated incremental borrowing rate, we use publicly available credit ratings for peer companies, and estimate the incremental borrowing rate using yields for maturities that are in line with the duration of the lease payments.
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 have focused on rapidly growing our business and plan to continue to make investments to help us address some of the challenges facing us to support this growth, such as demand for our customer platform by existing and new customers, significant competition from other providers of marketing, sales, customer service, operations, commerce, and content management software and related applications and rapid technological change in our industry.
Interest expense decreased due to the adoption of the new convertible debt guidance on January 1, 2022, which eliminated the recognition of the debt discount and losses on early extinguishment.
Interest expense decreased due to the adoption of the 59 new convertible debt guidance on January 1, 2022, which eliminated the recognition of the debt discount and losses on early extinguishment.
We capitalize certain software development costs for new offerings as well as upgrades to our existing software platforms, while costs associated with planning new developments and maintaining our CRM Platform software and internally built software platforms are expensed as incurred. We amortize these development costs over the estimated useful life of two to five years on a straight-line basis.
We capitalize certain software development costs for new offerings as well as upgrades to our existing software platforms, while costs associated with planning new developments and maintaining our customer platform and internally built software platforms are expensed as incurred. We amortize these development costs over the estimated useful life of two to five years on a straight-line basis.
Key Components of Consolidated Statements of Operations Revenue We derive our revenue from two major sources, revenue from subscriptions to our CRM Platform and professional services and other revenue consisting mainly of on-boarding, training, and consulting services fees. Subscription based revenue is derived from customers using our CRM Platform for their inbound marketing, sales, service, operations, and content management needs.
Key Components of Consolidated Statements of Operations Revenue We derive our revenue from two major sources, revenue from subscriptions to our customer platform and professional services and other revenue consisting mainly of on-boarding, training, and consulting services fees. Subscription based revenue is derived from customers using our customer platform for their inbound marketing, sales, service, operations, and content management needs.
Revenue from online software products is recognized ratably over the subscription period beginning on the date the online software product is made available to customers. We recognize revenue from on-boarding, training and consulting services as the services are provided. Amounts billed that have not yet met the applicable revenue recognition criteria are recorded as deferred revenue.
Revenue from online software products is recognized ratably over the subscription period beginning on the date the online software product is made available to customers. We recognize revenue from on-boarding, training, consulting services, and Commerce Hub as the services are provided. Amounts billed that have not yet met the applicable revenue recognition criteria are recorded as deferred revenue.
A single customer may have separate paid subscriptions to our CRM Platform, but we count these as one Customer if certain customer-provided information such as company name, URL, or email address indicate that these subscriptions are managed by the same business entity. Average Subscription Revenue per Customer.
A single customer may have separate paid subscriptions to our customer platform, but we count these as one Customer if certain customer-provided information such as company name, URL, or email address indicate that these subscriptions are managed by the same business entity. 48 Average Subscription Revenue per Customer.
Off Balance Sheet Arrangements We have no material off-balance sheet arrangements at December 31, 2022 or 2021 exclusive of items described above and indemnifications of officers, directors and employees for certain events or occurrences while the officer, director or employee is, or was, serving at our request in such capacity.
Off Balance Sheet Arrangements We have no material off-balance sheet arrangements at December 31, 2023 or 2022 exclusive of items described above and indemnifications of officers, directors and employees for certain events or occurrences while the officer, director or employee is, or was, serving at our request in such capacity.
We have invested and intend to continue investing for long-term growth. We intend to continue to invest in sales and marketing to support our growth. We plan to continue to invest in research and development as we continue to introduce new products and applications to extend the functionality of our CRM Platform.
We have invested and intend to continue investing for long-term growth. We intend to continue to invest in sales and marketing to support our growth. We plan to continue to invest in research and development as we continue to introduce new products and applications to extend the functionality of our customer platform.
Capitalized Software Development Costs Software development costs consist of certain payroll and stock compensation costs incurred to develop functionality for our CRM Platform and internally-built software platforms, as well as certain upgrades and enhancements that are expected to result in enhanced functionality.
Capitalized Software Development Costs Software development costs consist of certain payroll and stock compensation costs incurred to develop functionality for our customer platform and internally-built software platforms, as well as certain upgrades and enhancements that are expected to result in enhanced functionality.
We 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.
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 customer platform.
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.
In July of 2021, we launched a new data center and the ongoing expenses related to the hosting of our customer platform on that data center are classified as subscription cost of revenue.
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.
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 customer platform for paying Customers.
We define our Customers at the end of a particular period as the number of business entities with one or more paid subscriptions to our CRM Platform either purchased directly with us or purchased from a Solutions Partner. We do not include in Customers any legacy PieSync products.
We define our Customers at the end of a particular period as the number of business entities with one or more paid subscriptions to our customer platform either purchased directly with us or purchased from a Solutions Partner. We do not include in Customers any legacy PieSync or Clearbit products.
We define Average Subscription Revenue per Customer during a particular period as subscription revenue, excluding revenue from our legacy PieSync products, from our Customers during the period divided by the average Customers during the same period. Net Revenue Retention.
We define Average Subscription Revenue per Customer during a particular period as subscription revenue, excluding revenue from our legacy PieSync and Clearbit products, from our Customers during the period divided by the average Customers during the same period. Net Revenue Retention.
Revenue Recognition We generate revenue from arrangements with multiple performance obligations, which typically include subscriptions to our online software solutions and professional services which include on-boarding, training, and consulting services. Our customers do not have the right to take possession of the online software products.
Revenue Recognition We generate revenue from arrangements with multiple performance obligations, which typically include subscriptions to our online software solutions and professional and other services which include on-boarding, training, consulting services and our Commerce Hub. Our customers do not have the right to take possession of the online software products.
For the year ended December 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 $11.5 million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by $39.9 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 year ended December 31, 2022, cash provided by $39.9 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, offset by $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 $11.5 million used for payment of employee taxes related to the net share settlement of stock-based awards.
Subscription revenue accounted for 98% of our total revenue for the year ended December 31, 2022 and 97% of our total revenue for the years ended December 31, 2021 and 2020.
Subscription revenue accounted for 98% of our total revenue for the years ended December 31, 2023 and 2022, and 97% of our total revenue for the year ended December 31, 2021.
We believe our working capital is sufficient to support our operations for at least the next 12 months. At December 31, 2022, $128.5 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.
We believe our working capital is sufficient to support our operations for at least the next 12 months. At December 31, 2023, $179.8 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.
Amortization of intangible assets increased primarily due to the purchase of a domain name in the second quarter of 2022. 54 General and Administrative Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) General and administrative $ 197,720 $ 144,949 $ 52,771 36 % Percentage of total revenue 11 % 11 % The increase in general and administrative expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to the following: Change (in thousands) Employee-related costs $ 43,111 Customer credit card fees 7,557 Allocated overhead expenses 2,103 $ 52,771 Employee-related costs increased as a result of increased headcount as we grew our business and required additional personnel to support our expanded operations.
General and Administrative Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) General and administrative $ 197,720 $ 144,949 $ 52,771 36 % Percentage of total revenue 11 % 11 % The increase in general and administrative expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to the following: Change (in thousands) Employee-related costs $ 43,111 Customer credit card fees 7,557 Allocated overhead expenses 2,103 $ 52,771 Employee-related costs increased as a result of increased headcount as we grew our business and required additional personnel to support our expanded operations.
COVID-19 and Other Global Economic Conditions Our results of operations may 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.
Global Economic Conditions Our results of operations may be significantly influenced by general macroeconomic conditions, including, but not limited to, the impact of pandemics (such as the COVID-19 pandemic), geo-political conflicts, foreign currency fluctuations, interest rates, inflation, recession risks, existing and new domestic and foreign laws and regulations, all of which are beyond our control.
We capitalize certain software development costs that are attributable to developing new products and adding incremental functionality to our CRM Platform and amortize such costs as costs of subscription revenue over the estimated life of the new product or incremental functionality, which is generally two years.
We capitalize certain software development costs that are attributable to developing new products and adding incremental functionality to our customer platform and amortize such costs as costs of subscription and cost of professional services and other revenue over the estimated life of the new product or incremental functionality, which is generally two years.
Professional fees decreased due to a reduction in the use of third-party services and contractors. 53 Research and Development Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Research and development $ 442,022 $ 301,970 $ 140,052 46 % Percentage of total revenue 26 % 23 % The increase in research and development expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to the following: Change (in thousands) Employee-related costs $ 140,524 Allocated overhead expenses 4,151 Hosting expenses (4,623 ) $ 140,052 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.
Research and Development Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Research and development $ 442,022 $ 301,970 $ 140,052 46 % Percentage of total revenue 26 % 23 % The increase in research and development expense for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to the following: Change (in thousands) Employee-related costs $ 140,524 Allocated overhead expenses 4,151 Hosting expenses (4,623 ) $ 140,052 Employee-related costs increased as a result of increased headcount as we continued to grow our engineering organization to develop new products, increase functionality and to maintain our existing customer platform.
Over time, we expect to gain benefits of scale associated with our costs of hosting our CRM Platform relative to subscription revenues, resulting in improved subscription gross margin, exclusive of stock-based compensation. We expect professional services and other margins to range from a moderate loss to breakeven for the foreseeable future, exclusive of stock-based compensation.
Over time, we expect to gain benefits of scale associated with our costs of hosting our customer platform relative to subscription revenues, resulting in improved subscription gross margin, exclusive of stock-based compensation. We expect professional services and other margins to breakeven for the foreseeable future, exclusive of stock-based compensation.
Interest is payable semi-annually in arrears on June 1 and December 1 of each year for both Notes. See Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
The interest rate is fixed at 0.375% for the 2025 Notes. Interest is payable semi-annually in arrears on June 1 and December 1 of each year for both Notes. See Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
We had net losses of $112.7 million in 2022, $77.8 million in 2021, and $85.0 million in 2020. 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.
We had net losses of $176.3 million in 2023, $112.7 million in 2022, and $77.8 million in 2021. We derive most of our revenue from subscriptions to our cloud-based customer platform and related professional services, which consist of customer on-boarding, training and consulting services.
Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part I, Item 1A within this Annual Report on Form 10-K. Company Overview We provide a cloud-based customer relationship management (“CRM”) Platform.
Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part I, Item 1A within this Annual Report on Form 10-K. Company Overview We provide a customer platform that helps businesses connect and grow better.
Sales and Marketing Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including sales commissions and incentives, benefits and stock-based compensation expense, marketing programs, including lead generation, costs of our annual INBOUND conference, other brand building expenses, amortization of capitalized software development costs associated with our internally built software platforms, amortization of intangible assets, professional and contractor fees and allocated overhead costs.
Sales and Marketing Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including sales commissions and incentives, benefits and stock-based compensation expense, marketing programs, including lead generation, costs of our annual INBOUND conference, other brand building expenses, amortization of intangible assets, professional and contractor fees and allocated overhead costs.
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 reduction of our leased office space.
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 reduction of our leased office space. Professional fees decreased due to a reduction in the use of third-party services and contractors.
Year Ended December 31, 2022 2021 2020 Customers 167,386 135,442 103,994 Average Subscription Revenue per Customer $ 11,163 $ 10,486 $ 9,582 Net Revenue Retention 110.3 % 115.2 % 102.3 % Customers .
Year Ended December 31, 2023 2022 2021 Customers 205,091 167,386 135,442 Average Subscription Revenue per Customer $ 11,384 $ 11,163 $ 10,486 Net Revenue Retention 103.9 % 110.3 % 115.2 % Customers .
General and Administrative General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, employee-related information technology, administrative personnel, including payroll, benefits and stock-based compensation expense, professional fees for external legal, accounting and other consulting services, amortization of capitalized software development costs associated with our internally built software platforms, and allocated overhead costs.
General and Administrative General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, employee-related information technology, administrative personnel, including payroll, benefits and stock-based compensation expense, professional fees for external legal, accounting and other consulting services, and allocated overhead costs.
All subscription fees that are billed in advance of service are recorded in deferred revenue. Subscription based revenue is recognized net of consideration paid to Solutions Partners when those Solutions Partners purchase a subscription to our CRM Platform. Professional services and other revenue are derived primarily from customer on-boarding, training, and consulting services.
Subscription based revenue is recognized net of consideration paid to Solutions Partners when those Solutions Partners purchase a subscription to our customer platform. Professional services and other revenue are derived primarily from customer on-boarding, training, and consulting services.
These sources of cash and cash equivalents were offset by a $31.6 million decrease in lease liabilities, a $30.0 million increase in accounts receivable as a result of increased billings to customers consistent with the overall growth of the business, $19.3 million increase in deferred commissions and a $17.0 million increase in prepaid and other assets. 61 Net Cash and Cash Equivalents Used in Investing Activities Our investing activities have consisted primarily of purchases, maturities and 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.
These sources of cash and cash equivalents were offset by a $10.6 million increase in accounts payable related to timing of bill payments, a $29.5 million decrease in operating lease liabilities, a $32.6 million increase in deferred commissions, a $1.1 million increase in prepaid and other assets, and a $34.1 million increase in accounts receivable as a result of increased billings to customers consistent with the overall growth of the business. 61 Net Cash and Cash Equivalents Used in Investing Activities Our investing activities have consisted primarily of purchases, maturities and sale of investments, property and equipment purchases, business acquisitions, purchase of intangible assets, purchases of strategic investments, an equity method investment and capitalization of software development costs.
Our CRM Platform is a multi-tenant, single code-based and globally available software-as-a-service product delivered through web browsers or mobile applications. We sell our CRM Platform on a subscription basis. Our total revenue increased to $1.7 billion in 2022, from $1.3 billion in 2021, and from $883.0 million in 2020, representing year-over-year increases of 33% in 2022 and 47% in 2021.
Our customer platform is a multi-tenant, globally available software-as-a-service product delivered through APIs, web browsers or mobile applications. We sell our customer platform on a subscription basis. Our total revenue increased to $2.2 billion in 2023, from $1.7 billion in 2022, and from $1.3 billion in 2021, representing year-over-year increases of 25% in 2023 and 33% in 2022.
We also derive revenue from a number of revenue-share agreements with other companies based on mutually agreed upon terms. 49 Cost of Revenue, Operating and Other Expenses Cost of Revenue Cost of subscription revenue consists primarily of managed hosting providers and other third-party service providers, employee-related costs including payroll, benefits and stock-based compensation expense for our customer support team, amortization of capitalized software development costs and acquired technology, and allocated overhead costs, which we define as rent, facilities, depreciation of fixed assets, and costs related to information technology.
Cost of Revenue, Operating and Other Expenses Cost of Revenue Cost of subscription revenue consists primarily of managed hosting providers and other third-party service providers, employee-related costs including payroll, benefits and stock-based compensation expense for our customer support team, amortization of capitalized software development costs and acquired technology, and allocated overhead costs, which we define as facilities, depreciation of fixed assets, and costs related to information technology.
Our freemium model attracts customers who begin using our CRM Platform through our free products and then upgrade to our paid products. As of December 31, 2022, we had 7,433 full-time employees and 167,386 Customers of varying sizes in more than 120 countries, representing many industries.
Our freemium model attracts customers who begin using our customer platform through our free products and then upgrade to our paid products. As of December 31, 2023, we had 7,663 full-time employees and 205,091 Customers of varying sizes in more than 135 countries, representing many industries.
Letters of Credit As of December 31, 2022, we had a total of $3.2 million in letters of credit outstanding substantially in favor of certain landlords for office space. These irrevocable letters of credit are expected to remain in effect, in some cases, until 2029.
Letters of Credit As of December 31, 2023, we had a total of $4.1 million in letters of credit outstanding for office space. These irrevocable letters of credit are expected to remain in effect, in some cases, until 2029.
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 (used in) and provided by 60 financing activities for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 (in thousands) Cash and cash equivalents $ 331,022 $ 377,013 $ 378,123 Working capital 992,946 836,100 1,011,420 Net cash and cash equivalents provided by operating activities 273,174 238,728 88,913 Net cash and cash equivalents used in investing activities (319,658 ) (179,508 ) (215,567 ) Net cash and cash equivalents provided by (used in) financing activities 7,428 (51,469 ) 222,460 Our cash and cash equivalents at December 31, 2022 were held for working capital purposes.
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 (used in) and provided by 60 financing activities for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 (in thousands) Cash and cash equivalents $ 387,987 $ 331,022 $ 377,013 Working capital 915,293 992,946 836,100 Net cash and cash equivalents provided by operating activities 350,971 273,174 238,728 Net cash and cash equivalents used in investing activities (334,766 ) (319,658 ) (179,508 ) Net cash and cash equivalents provided by (used in) financing activities 37,011 7,428 (51,469 ) Our cash and cash equivalents at December 31, 2023 were held for working capital purposes.
Cost of Revenue, Gross Profit and Gross Margin Percentage Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Total cost of revenue $ 314,259 $ 258,857 $ 55,402 21 % Gross profit 1,416,710 1,041,801 374,909 36 % Gross margin 82 % 80 % 52 Total cost of revenue increased during 2022 primarily due to an increase in subscription and hosting costs, employee-related costs, amortization of capitalized software development costs, amortization of acquired technology, offset by a decrease in allocated overhead expenses.
(“Hustle”) in the first quarter of 2021, lower overall services revenue from on-boardings and trainings, and lower fees earned from revenue share arrangements with third parties, partially offset by fees earned from other revenue streams. 56 Total Cost of Revenue, Gross Profit and Gross Margin Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Total cost of revenue $ 314,259 $ 258,857 $ 55,402 21 % Gross profit 1,416,710 1,041,801 374,909 36 % Gross margin 82 % 80 % Total cost of revenue increased during 2022 primarily due to an increase in subscription and hosting costs, employee-related costs, amortization of capitalized software development costs, amortization of acquired technology, offset by a decrease in allocated overhead expenses.
If the actual selling price for the sale of an online software product or professional service offering within a multiple performance obligation arrangement substantially differs from the SSP of that offering, we use the relative SSP to allocate the transaction price to the performance obligations in the contract. 63 Costs to Obtain a Contract with a Customer Sales commissions earned by our sales force are considered incremental, recoverable costs of obtaining a contract with a customer.
If the actual selling price for the sale of an online software product or professional service offering within a multiple performance 63 obligation arrangement substantially differs from the SSP of that offering, we use the relative SSP to allocate the transaction price to the performance obligations in the contract.
For the year ended December 31, 2021, cash used in financing activities consisted of $89.5 million used for repayment of the 2022 Notes attributable to the principal and $17.4 million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by $9.0 million of proceeds from the settlement of the Convertible Note Hedges related to the 2022 Notes and $46.5 million of proceeds related to issuance of common stock under stock plans.
For the year ended December 31, 2021, cash used in financing activities consisted of $89.5 million used for repayment of the 2022 Notes attributable to the principal and $17.4 million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by $9.0 million of proceeds from the settlement of the Convertible Note Hedges related to the 2022 Notes and $46.5 million of proceeds related to issuance of common stock under stock plans. 62 Liquidity and Capital Resources Considerations Contractual Obligations and Commitments Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business.
We also anticipate continuing increases to general and administrative expenses as we incur the costs of compliance associated with being a publicly traded company, including audit and consulting fees. Other Income (Expense) Interest income primarily consists of interest earned on invested cash and cash equivalents balances and investments.
We also anticipate continuing increases to general and administrative expenses as we incur the costs of compliance associated with being a publicly traded company, including audit and consulting fees.
Marketing programs increased due to the timing and size of certain marketing efforts as we continue to make investments in attracting new customers. Solutions Partner commissions increased as a result of increased revenue generated through our partners.
Marketing programs increased due to the timing and size of certain marketing efforts as we made investments in attracting new customers. Solutions Partner commissions increased as a result of increased revenue generated through our Solutions Partners, partially offset by certain costs that are deferred and amortized over two to four years.
Sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be approximately two to four years.
Costs to Obtain a Contract with a Customer Sales commissions earned by our sales force and Solutions Partners are considered incremental, recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be approximately two to four years.
These uses of cash were offset by $1.4 billion received related to the maturity of investments and $10.9 million received for sale of investments.
These uses of cash were offset by $1.5 billion received related to the maturity of investments.
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 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 to fund these growth strategies and support our business.
These sources of cash and cash equivalents were offset by a $10.6 million increase in accounts payable related to timing of bill payments, a $29.5 million decrease in operating lease liabilities, a $32.6 million increase in deferred commissions, a $1.1 million increase in prepaid and other assets, and a $34.1 million increase in accounts receivable as a result of increased billings to customers consistent with the overall growth of the business.
These sources of cash and cash equivalents were offset by a $47.0 million increase in prepaid expenses and other assets, a $36.9 million decrease in operating lease liabilities, a $14.0 million increase in accounts payable related to timing of bill payments, a $81.2 million increase in deferred commissions, and a $57.6 million increase in accounts receivable as a result of increased billings to customers.
Net cash and cash equivalents used in investing activities during the year ended December 31, 2020 consisted primarily of $1.5 billion in purchases of investments, $37.3 million of purchased property and equipment, $2.5 million of purchases of strategic investments, and $21.6 million of capitalized software development costs.
Net cash and cash equivalents used in investing activities during the year ended December 31, 2023 consisted primarily of $1.6 billion purchases of investments, $33.7 million of purchased property and equipment, $12.4 million of purchases of strategic investments, $2.0 million in an equity method investment, $66.4 million of capitalized software development costs, and $142.1 million in a business acquisition.
We plan to continue to invest in sales and marketing to grow our customer base and increase sales to existing customers. This growth will include adding sales personnel and expanding our marketing activities to continue to generate leads and build brand awareness.
This growth will include adding sales personnel and expanding our marketing activities to continue to generate leads and build brand awareness. We expect sales and marketing expenses to increase in absolute dollars as we continue to develop our sales and marketing teams.
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.
Our engagement hubs include Marketing Hub, Sales Hub, Service Hub, Operations Hub, CMS Hub and Commerce Hub, as well as other tools and integrations that enable companies to attract, engage, and delight customers throughout the customer experience.
General and Administrative Year Ended December 31, Change 2021 2020 Amount % (dollars in thousands) General and administrative $ 144,949 $ 109,225 $ 35,724 33 % Percentage of total revenue 11 % 12 % The increase in general and administrative expense for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to the following: Change (in thousands) Employee-related costs $ 20,693 Customer credit card fees 6,608 Allocated overhead expenses 4,626 Professional fees 3,797 $ 35,724 Employee-related costs increased as a result of increased headcount as we continue to grow our business and require additional personnel to support our expanded operations.
General and Administrative Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) General and administrative $ 249,649 $ 197,720 $ 51,929 26 % Percentage of total revenue 12 % 11 % 54 The increase in general and administrative expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to the following: Change (in thousands) Employee-related costs $ 36,633 Customer credit card fees 6,197 Professional fees 5,815 Allocated overhead expenses 3,284 $ 51,929 Employee-related costs increased as a result of increased headcount as we grew our business and required additional personnel to support our expanded operations.
See Note 11 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report. Convertible Senior Notes As of December 31, 2022, the carrying value was $454.2 million for our 2025 Notes. The interest rate is fixed at 0.375% for the 2025 Notes.
As of December 31, 2023, our vendor commitment was $848.7 million, of which $213.2 million is expected in the next twelve months. See Note 11 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report. Convertible Senior Notes As of December 31, 2023, the carrying value was $456.2 million for our 2025 Notes.
Key Business Metrics The following key business metrics are presented in this Annual Report on Form 10-K or in our press releases announcing our financial results which are furnished on Form 8-K.
"Risk Factors" for further discussion of the impact and possible future impacts of pandemics, geo-politcal conflicts, and other general macroeconomic impacts on our business. Key Business Metrics The following key business metrics are presented in this Annual Report on Form 10-K or in our press releases announcing our financial results which are furnished on Form 8-K.
The training is also available to be purchased separately following a customer’s purchase of its initial subscription and our Solutions Partners routinely provide the same training to customers.
The training is also available to be purchased separately following a customer’s purchase of its initial subscription and our Solutions Partners routinely provide the same training to customers. We also derive revenue from Commerce Hub and a number of revenue-share agreements with other companies based on mutually agreed upon terms.
Interest Income Year Ended December 31, Change 2021 2020 Amount % (dollars in thousands) Interest income $ 1,173 $ 7,773 $ (6,600 ) (85 )% Percentage of total revenue * 1 % * not meaningful Interest income primarily consists of interest earned on invested cash and cash equivalents balances and investments.
Interest Income Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Interest income $ 58,828 $ 15,000 $ 43,828 292 % Percentage of total revenue 3 % 1 % Interest income primarily consists of interest earned on invested cash and cash equivalents balances and investments.
Cost of professional services and other revenue consists primarily of personnel costs of our professional services organization, including salaries, benefits, bonuses and stock-based compensation, amortization of capitalized software development costs associated with our internally built software platform, as well as professional fees and allocated overhead costs.
Cost of professional services and other revenue consists primarily of personnel costs of our professional services organization, including salaries, benefits, bonuses and stock-based compensation, amortization of capitalized software development costs associated with our internally built software platform, as well as professional fees and allocated overhead costs, which we define as facilities, depreciation of fixed assets, and costs related to information technology. 49 We expect that the cost of subscription and professional services and other revenue will increase in absolute dollars as we continue to invest in growing our business.
Many of our customers purchase on-boarding, training, and consulting services, as well as other tools and Payments, which are designed to help customers enhance their ability to attract, engage and delight their customers using our CRM Platform.
Many of our customers purchase on-boarding, training, and consulting services, as well as other tools, which are designed to help customers enhance their ability to attract, engage and delight their customers using our customer platform. We also generate revenue from Commerce Hub and a number of revenue-share agreements with other companies based on mutually agreed upon terms.
We defer certain sales commissions related to acquiring new contracts and amortize them ratably over a period of benefit that we have determined to be approximately two to four years. Sales and marketing expenses also include commissions paid to our Solutions Partners in instances where the end customer purchases and pays for a subscription to our CRM Platform.
We defer certain sales and Solutions Partner commissions related to acquiring new contracts and amortize them ratably over a period of benefit that we have determined to be approximately two to four years. We plan to continue to invest in sales and marketing to grow our customer base and increase sales to existing customers.
Net cash and cash equivalents provided by operating activities during the year ended December 31, 2020 primarily reflected our net loss of $85.0 million, the portion of the repayment of the 2022 Notes attributable to the debt discount of $49.0 million, benefit from deferred income taxes of $2.2 million and accretion of bond discounts of $3.7 million, offset by non-cash expenses that included $37.1 million of depreciation and amortization, $121.5 million in stock-based compensation, $10.5 million of loss on early extinguishment of 2022 Notes and $24.9 million of amortization of debt discount and issuance costs.
Net cash and cash equivalents provided by operating activities during the year ended December 31, 2023 primarily reflected our net loss of $176.3 million and $42.9 million accretion of bond discounts, offset by non-cash expenses that included $72.7 million of depreciation and amortization, restructuring charges of $67.3 million, $432.3 million in stock-based compensation, $1.7 million on impairment of strategic investments, and $2.0 million of amortization of debt issuance costs.
Research and Development Year Ended December 31, Change 2021 2020 Amount % (dollars in thousands) Research and development $ 301,970 $ 205,589 $ 96,381 47 % Percentage of total revenue 23 % 23 % The increase in research and development expense for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to the following: Change (in thousands) Employee-related costs $ 83,583 Hosting expenses 4,629 Allocated overhead expenses 4,927 Professional fees 3,242 $ 96,381 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.
Research and Development Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Research and development $ 617,745 $ 442,022 $ 175,723 40 % Percentage of total revenue 28 % 26 % 53 The increase in research and development expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to the following: Change (in thousands) Employee-related costs $ 168,490 Allocated overhead expenses 7,233 $ 175,723 Employee-related costs increased as a result of increased headcount as we continued to grow our engineering organization to develop new products, increase functionality and to maintain our existing customer platform.
Working capital sources of cash and cash equivalents primarily included a $72.6 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a $26.0 million increase in accrued expenses, a $3.7 million increase in accounts payable related to timing of bill payments, and a $31.4 million increase in right-of-use asset.
Working capital sources of cash and cash equivalents primarily included a $109.9 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a $29.2 million increase in right-of-use asset, and $87.1 million increase in accrued expenses and other liabilities.
We expect research and development expenses to increase in absolute dollars as we continue to increase the functionality of our CRM Platform.
Over time, we expect research and development expenses to increase in absolute dollars as we continue to increase the functionality of our customer platform and remain consistent as a percentage of total revenue, exclusive of stock-based compensation expense.
Year Ended December 31, Change 2021 2020 Amount % (dollars in thousands) Subscription cost of revenue $ 211,132 $ 130,685 $ 80,447 62 % Percentage of subscription revenue 17 % 15 % The increase in subscription cost of revenue for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to the following: Change (in thousands) Subscription and hosting costs $ 58,174 Employee-related costs 14,970 Amortization of capitalized software development costs 7,129 Allocated overhead expenses 1,578 Amortization of acquired technology (1,404 ) $ 80,447 Subscription and hosting costs increased primarily due to growth in our Customer base from 103,994 at December 31, 2020 to 135,442 at December 31, 2021.
Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Subscription cost of revenue $ 290,802 $ 257,513 $ 33,289 13 % Percentage of subscription revenue 14 % 15 % The increase in subscription cost of revenue for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to the following: Change (in thousands) Subscription and hosting costs $ 24,374 Amortization of capitalized software development costs 11,243 Amortization of acquired technology 920 Employee-related costs (2,014 ) Allocated overhead expenses (1,234 ) $ 33,289 Subscription and hosting costs increased primarily due to growth in our Customer base from 167,386 at December 31, 2022 to 205,091 at December 31, 2023.
Recent Accounting Pronouncements For information on recent accounting pronouncements, see Recent Accounting Pronouncements in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Adjustments to the fair value of assets acquired and liabilities assumed made after the end of the measurement period are recorded within our operating results. Recent Accounting Pronouncements For information on recent accounting pronouncements, see Recent Accounting Pronouncements in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Professional services and other revenue decreased during 2022 primarily due to non-recurring advertising revenue generated from our acquisition of Hustle Con Media, Inc. (“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 other revenue streams.
Professional services and other revenue decreased during 2022 primarily due to non-recurring advertising revenue generated from our acquisition of Hustle Con Media, Inc.
Sales and Marketing Year Ended December 31, Change 2021 2020 Amount % (dollars in thousands) Sales and marketing $ 649,681 $ 452,081 $ 197,600 44 % Percentage of total revenue 50 % 51 % 58 The increase in sales and marketing expense for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to the following: Change (in thousands) Employee-related costs $ 127,426 Marketing programs 26,653 Solutions Partner commissions 26,703 Allocated overhead expenses 9,617 Professional fees 6,892 Amortization of customer relationships 309 $ 197,600 Employee-related costs increased as a result of increased headcount as we continued to expand our selling and marketing organizations to grow our customer base.
Sales and Marketing Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Sales and marketing $ 1,068,560 $ 886,069 $ 182,491 21 % Percentage of total revenue 49 % 51 % The increase in sales and marketing expense for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to the following: Change (in thousands) Employee-related costs $ 119,846 Marketing programs 44,169 Solutions Partner commissions 14,596 Amortization of intangible asset 1,727 Allocated overhead expenses 2,153 $ 182,491 Employee-related costs increased as a result of increased headcount as we expanded our selling and marketing organizations to grow our customer base.
In addition, an end-to-end 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.
The acquisition of Clearbit will allow us to build enriched B2B records directly into our customer platform. We designed and built our customer platform to serve a broad range of customers globally. Our customer platform starts completely free and grows with our customers to meet their needs at different stages in their life-cycles.
The decrease in interest expense during 2021 was primarily due to the following: Change (in thousands) Amortization of the debt discount and issuance costs and contractual interest expense related to our Notes $ (1,151 ) Loss on early extinguishment of 2022 Convertible Notes (5,616 ) $ (6,767 ) Other (Expense) Income Year Ended December 31, Change 2021 2020 Amount % (dollars in thousands) Other expense $ 10,090 $ (711 ) $ 10,801 1519 % Percentage of total revenue 1 % * * not meaningful Other income (expense) 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.
Other (Expense) Income Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Other (expense) income $ (4,673 ) $ (6,829 ) $ 2,156 (32 )% Percentage of total revenue * * 55 * not meaningful The change in other expense during 2023 is primarily due to the following: Change (in thousands) Gain on strategic investments $ (4,201 ) Impairment of strategic investments 4,159 Foreign currency transaction gains and losses 2,198 $ 2,156 Other expense primarily consists of the impact of foreign currency transaction gains and losses associated with monetary assets and liabilities and any gains or impairments on our strategic investments.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAdditionally, we carry the convertible senior 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 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.
Biggest changeAdditionally, we carry the 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 has raised, and may continue to raise interest rates in an effort to combat high inflation.
We do not currently hedge our interest rate exposure and do not enter into financial instruments for trading or speculative purposes. Market Risk and Market Interest Risk In June 2020, we issued $460.0 million aggregate principal amount of convertible senior notes due June 1, 2025, of which $459.1 million remained outstanding as of December 31, 2022.
We do not currently hedge our interest rate exposure and do not enter into financial instruments for trading or speculative purposes. Market Risk and Market Interest Risk In June 2020, we issued $460.0 million aggregate principal amount of convertible senior notes due June 1, 2025, of which $459.1 million remained outstanding as of December 31, 2023.
The fair value of our convertible senior 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 will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value.
The fair value of the 2025 Notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the 2025 Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value.
The table below provides a sensitivity analysis of hypothetical 10% changes of our stock price as of December 31, 2022 and the estimated impact on the fair value of the 2025 Notes.
The table below provides a sensitivity analysis of hypothetical 10% changes of our stock price as of December 31, 2023 and the estimated impact on the fair value of the 2025 Notes.
The interest and market value changes affect the fair value of our convertible senior 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 will increase as interest rates fall and decrease as interest rates rise.
The interest and market value changes affect the fair value of 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 the 2025 Notes will increase as interest rates fall and decrease as interest rates rise.
The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such event may have on the fair value of the Notes. 2025 Notes Hypothetical change in HubSpot stock price Fair value Estimated change in fair value Hypothetical percentage increase (decrease) in fair value 10% increase $ 605,393 $ 29,280 5 % No change $ 576,112 $ — — 10% decrease $ 534,143 $ (41,969 ) (7 )% 65
The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such event may have on the fair value of the Notes. 2025 Notes Hypothetical change in HubSpot stock price Fair value Estimated change in fair value Hypothetical percentage increase (decrease) in fair value 10% increase $ 853,193 $ (101,222 ) -11 % No change $ 954,414 $ — — 10% decrease $ 1,037,604 $ 83,189 9 % 65
Removed
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 operations, and our risk grows.
Added
Our Board recently approved a hedging program intended to allow us to mitigate foreign exchange impacts, such as exposure to currency exchange rates in connection with significant transactions denominated in currencies other than the U.S. dollar, by entering into derivatives transactions such as foreign exchange forwards. We expect to begin our hedging program in 2024.

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