Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties and our actual results, events or circumstances could differ materially from those described in forward-looking statements. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled "Risk Factors" and other parts of this Quarterly Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless the context otherwise requires, all references in this Quarterly Report to "we," "us," "our," "our company," and "Hinge Health" refer to Hinge Health, Inc. and its consolidated subsidiaries, and references to our "common stock" include our Class A common stock and Class B common stock .Our fiscal year ends on December 31.

Overview

Our vision is to build a new health system that transforms outcomes, experience and costs by using technology to scale and automate the delivery of care.

Hinge Health leverages software, including AI, to largely automate care for joint and muscle health, delivering an outstanding member experience, improved member outcomes, and cost reductions for our clients. We have designed our platform to address a broad spectrum of MSK care-from acute injury, to chronic pain, to post-surgical rehabilitation. Members receive personalized and largely automated MSK care through our AI-powered motion tracking technology and a proprietary electrical nerve stimulation wearable device, all designed and monitored by our AI-supported care team of licensed physical therapists, physicians, and board-certified health coaches. Our platform can help to ease members' pain, improve their function, and reduce their need for surgeries, all while driving health equity by allowing members to engage in their exercise therapy sessions from anywhere and embrace movement as a way of life.

We have developed an efficient go-to-market model by working directly with our partners and clients. We seek to be the best solution on the market, the most validated solution on the market, and the easiest to buy. Our clients are primarily self-insured employers and include many of the nation's leading enterprises across a broad range of industries and sizes. Within this segment, we also serve many public sector self-insured employers, such as state and local city governments and labor unions. In most instances, we partner with clients' health plans, TPAs, PBMs, or other ecosystem entities to reduce the friction of contracting, procurement, security and IT reviews, onboarding, and billing. We also serve health plans' fully-insured and Medicare Advantage populations and federal insurance plans.

We believe that we grow efficiently because of our scalable, repeatable go-to-market model. We sell through our direct sales force and our partners. Once we contract with a client, we are most often the sole digital MSK care provider offered to their contracted lives for an average contract term of three years. For the term of each contract, we are able to enroll, engage, and re-engage the client's eligible lives, driving a recurring, repeatable revenue model. As of June 30, 2025, we had over 50 partners. Our partners include the five largest national health plans by self-insured lives, and the top three PBMs by market share.

Our software-led, AI-powered delivery model not only aims to provide a better experience for our members and a less expensive alternative for our clients, but also allows us to innovate and continuously improve our platform. Our AI-powered motion tracking technology, TrueMotion, allows us to deliver highly scalable care remotely and reduce the human hours associated with traditional physical therapy.

We are a research-led organization and we routinely expand our platform with new programs, capabilities, and features. Over the last three years, we: launched new programs to address six additional affected areas; launched Enso to deliver a non-addictive, non-invasive alternative for pain relief; developed HingeConnect for real-time care interventions and external provider coordination; and integrated TrueMotion technology to replace wearable sensors for our members. In 2022, we launched women's pelvic health, a specialized care program within our chronic program, and, in 2023, we launched a fall prevention program for eligible lives in our Medicare Advantage population.

Recent Developments

Initial Public Offering

In May 2025, we completed our IPO, in which we issued and sold an aggregate of 8,522,528 shares of our Class A common stock, and certain of our stockholders sold 7,193,372 shares of Class A common stock at a public offering price of $32.00 per share. We received aggregate proceeds of $255.7 million, net of underwriting discounts and commissions before deducting offering expenses payable by us. Immediately prior to the completion of the IPO, we amended and restated our certificate of incorporation to provide for

(i) the reclassification of all outstanding shares of our common stock (other than those held by our "Founders and their affiliates) into an equal number of shares of Class A common stock, (ii) the reclassification of all shares of our common stock underlying outstanding equity awards under our 2017 Plan (other than those held by our Founders) into shares of Class A common stock pursuant to an amendment to the 2017 Plan, (iii) the reclassification of all outstanding common stock held by our Founders and their affiliates into an equal number of shares of Class B common stock, (iv) the reclassification of all shares of the Company's common stock underlying outstanding equity awards under our 2017 Plan held by our Founders into shares of Class B common stock pursuant to an amendment to the 2017 Plan, (v) the amendment of the terms of the outstanding Series E preferred stock, to provide that such shares are initially convertible into shares of Class B common stock, (vi) the automatic conversion and reclassification of 42,986,472 of outstanding shares of our redeemable convertible preferred stock, or all outstanding shares of Series A-1, Series A-2, Series B, Series C, Series C-1, and Series D redeemable convertible preferred stock, into an aggregate of 42,986,472 shares of Class B common stock, and (vii) the voluntary conversion of 1,748,504 outstanding shares of Series E preferred stock into the same amount of shares of Class B common stock.

Upon the effectiveness of the IPO Registration Statement, the time based and performance vesting condition of certain RSUs and PRSUs was met, and we recognized $571.4 millionof stock-based compensation expense for the portion of the service period completed by employees and service providers from the grant date through the effectiveness of the IPO Registration Statement, as further described in Note 8, Common Stock, Equity Incentive Plans and Stock-Based Compensationto the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Our Business Model

Go-to-Market Motion-Revenue Generation Process

We have rapidly grown our client base, expanding to approximately 2,350 clients as of June 30, 2025 compared to 1,750 clients as of June 30, 2024 and 2,250 clients as of December 31, 2024 compared to 1,650 clients as of December 31, 2023. This expansion has given us access to an increased number of contracted lives, which grew to approximately 20 million as of December 31, 2024 from 16 million as of December 31, 2023. There are two ways we increase our contracted lives: through new client additions and through accessing additional contracted lives within a current client.

The majority of our revenue is generated from clients who are self-insured employers. We are increasingly diversifying our revenue through our partners into the fully-insured employers and Medicare Advantage markets (whereby the health plan is the client and purchasing entity). Our typical sales cycle is five months between initial engagement and entering into a signed contract with a client; however, our sales cycle can be more than 12 months for larger enterprise clients and fully-insured and Medicare Advantage plans. We sell an annual subscription model, whereby clients only pay for members that engage with our programs. We primarily recognize revenue ratably over the 12 months after an eligible life becomes a member, and as such our revenue has historically been highly predictable.

Depending on a client's needs, we have the ability to contract directly or through one of our many partners. Similarly, we are able to invoice a client directly or submit via claims through a client's health plan. If a client chooses to pay via claims through a health plan, the cost typically comes directly out of their medical budget for the year and is embedded in their medical costs, rather than a separate discretionary budget. Allocation of the spend on Hinge Health to the client's existing healthcare budget enables faster implementation as it avoids a potentially lengthy approval process. Our agreements with partners help us simplify contracting and implementation with clients. In 2025 so far, the vast majority of our contracts were completed via our partners, negating the need for many clients to contract directly with us since many clients can leverage existing contracts through our partners. This is a significant strategic advantage for us as it enables implementation and launch of our platform as quickly as a few weeks after entering into a contract. As a result, most implementations are completed in a 40-100 day period.

Once our platform is launched, clients only pay for the members that engage with our programs. We typically provide various performance guarantees to our clients that may include engagement thresholds, member reported outcomes, and return on investment, where we put a portion of our fees at risk. We have historically paid an immaterial amount related to these performance guarantees. Upon onboarding, a member's paid subscription is for one year. To increase awareness within our clients' employee bases, we have a growth marketing team that engages with our partners and our clients' human resources benefits team in targeted marketing campaigns to encourage eligible lives who would benefit from our platform to enroll.

We are able to bill our clients once an eligible life enrolls in our platform and performs a billable activity, in accordance with our clients' billing arrangements. Some of our clients are billed for the entirety of the members' annual subscriptions, and some are billed in milestone-based payments, based on a subscription fee per member per year. We also offer an engagement-based pricing model in which clients are billed based on an annual upfront platform fee per member plus a fee per each completed session.

The majority of new clients enter into contracts with us in the second half of each calendar year, which aligns with the typical employee benefit enrollment period. We launch our platform for most of these clients in the first half of the following calendar year. We have seen varying levels of intra-year launches since our inception. While some clients choose to sign and launch within the same year, these are generally a much smaller percentage of our business. Due to these patterns and our annual subscription-based model, the timing of our revenue has historically been predictable. Our calculated billings, however, show seasonality with fluctuations based on the timing of new client launches and number of intra-year launches. Historically, our calculated billings are highest in the second quarter of the year, as this is when we are able to bill the majority of clients who entered into contracts in the preceding year. Consequently, our free cash flow is typically highest in the second quarter and is usually lowest in the first quarter due to increased new client onboarding expenses preceding cash inflows in the first quarter, and slowing billings associated with the holidays in the prior fourth quarter. We anticipate that this seasonality will continue, though may fluctuate year to year, and therefore focus on LTM calculated billings as a result. Given the annual subscription model and ratable revenue recognition, however, our quarterly revenue stream has historically been highly predictable and has not displayed the same seasonality trends.

Key Factors Affecting Our Performance

Our business model delivers value for our clients by lowering MSK care costs and driving positive member outcomes. We believe that our business performance and results of operations have been, and will continue to be, affected by many factors, including those below. While these key factors present significant opportunities, they also represent challenges that we must successfully address in order to sustain and grow our business and improve our results of operations.

Ability to Grow and Retain our Client Base and Contracted Lives

Adding new clients is one of the key pillars of our growth strategy. Our partners are a key part of this effort as they assist in the self-insured employer sales process with Hinge Health as their preferred partner. This partnership model allows for simplicity and speed in the contracting and implementation of new clients, including security and IT compliance, billing, and payments, and provides for efficiency in our sales motion as well. While these partnerships are important and enhance our operational efficiency, we can and do engage directly with clients. In addition to self-insured employers, which currently make up the majority of our business, we also serve the fully-insured employers market and the Medicare Advantage and federal insurance plans markets. Our growth and financial results will depend on our ability to efficiently expand access to or acquire more contracted lives in the market segments where we plan to focus our growth efforts, as well as retain our existing clients.

Retaining our existing clients is also integral to our success. Our software-led, AI-powered delivery model aims to provide a better experience for our members and a less expensive alternative for our clients. Once we contract with a client, we are typically the sole digital MSK care provider to their contracted lives for an average contract term of three years. Our 12-month client retention rate was 98% as of December 31, 2024.

Expansion of Members within Existing Clients

We also intend to grow by expanding the number of enrollments of eligible lives within our launched clients. The long-term value of our platform to our clients increases as our clients' eligible lives increase adoption and usage of our platform. We focus on new product adoption, targeted interventions, brand awareness and marketing, and leverage our partnerships and referrals as methods of reaching more of our eligible lives.

Innovation and Client Product Adoption

We are committed to continuous innovation at Hinge Health. We believe the market for digital MSK care is still in its early stages and intend to continue investing for long-term growth. We enable positive member outcomes and proven cost reductions by pairing AI-powered motion tracking technology and wearable pain relief and have continually driven innovations in MSK care since 2014.

These innovations include TrueMotion, our proprietary AI-powered motion tracking technology, Enso, our FDA-cleared, wearable device for lasting pain relief, and HingeConnect, our proprietary AI-driven database for real-time care interventions and external provider coordination. We also launched specialized care for women's pelvic health and a fall prevention program to help adults aged 65 and older improve their physical abilities.

Expansion of Client Base in New Markets

We see opportunities to expand beyond our current markets of self-insured and fully-insured employers, Medicare Advantage plans, and federal insurance plans. We currently primarily cover eligible lives within the United States and we are in the early stages

of our global expansion. We offer our global program in multiple international countries, focused on clients that are United States-based multinational corporations. As we expanded internationally, we have incurred and expect to incur additional costs to develop our global program and address international regulations, including research and development expenses and expenses for third-party professional services. We are also looking to expand into additional government agencies and government healthcare programs such as Medicare and Medicaid.

Sales Cycle and Intra-Year Launches

Given our typical sales cycle, we experience seasonality in our business that has historically resulted in higher calculated billings and related costs during certain periods. A majority of clients enter contracts with us in the second half of each calendar year, in line with the typical employee benefit enrollment period. Most of these clients are launched in the first half of the following calendar year. We have seen varying levels of intra-year launches since our inception. While some clients choose to sign and launch within the same year, these clients represent a much smaller percentage of our clients. We believe that any improvements in the speed at which we can sign and launch new clients can increase our revenue in a given year. Through strategic partnerships with health plans, PBMs, TPAs, and other ecosystem entities, we have streamlined our implementation process to enable activation in a 40-100 day period compared to what we believe is a typically much longer implementation period in healthcare.

Successful Management of Changes to Macroeconomic Conditions

We believe our business is resilient even in difficult macroeconomic conditions given our focus on delivering positive outcomes for our members and ROI for our clients. In tougher economic periods, our business continued to see substantial growth as cost management became an even higher priority for clients. Our cost base is mostly variable, and we maintain strong operational focus with efficiency improvement targets for every function within the company.

In April 2024, we announced a restructuring plan (the "2024 Restructuring Plan") to reduce our workforce by approximately 160 people, or approximately 10% of our workforce, to simplify our operations and better align resources with priorities. Restructuring charges were $7.5 million, which consisted of employee transition, severance payments, and employee benefits. The execution of the 2024 Restructuring Plan was completed by December 31, 2024.

Key Metrics

We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We believe the following metrics are useful in evaluating our business. We present clients and LTM calculated billings on a quarterly basis. We present members and LTM average eligible lives on an annual basis as these metrics may create an inaccurate picture of our business on a quarterly basis primarily due to timing of launches and member enrollments in a given period.

Number of Clients: We view this number as an important metric to assess the performance of our business as an increased number of clients drives growth, increases brand awareness, and helps provide scale to our business. Clients are defined as businesses or organizations, which we call entities, that have at least one active agreement with us at the end of a particular period. Entities that procure our platform through our partners are counted as individual clients. We do not count our partners as clients, unless they also separately have at least one active client agreement with us. When a partner has an agreement with us for their fully-insured population, that partner is deemed to be one client, despite there being multiple fully-insured employers within that entity that have access to our platform.

LTM Calculated Billings: We believe calculated billings on a last 12-months basis helps investors better understand our performance for a particular period given the seasonality in our model due to quarterly fluctuations based on the timing of new client launches and number of intra-year launches. We anticipate that this seasonality will continue and therefore focus on LTM calculated billings. Our revenue generally does not reflect this seasonality and these quarterly fluctuations given that we recognize revenue

ratably over the term that members have access to our platform. LTM calculated billings are defined as total revenue, plus the change in deferred revenue, less the change in contract assets for a given 12-month period.

Members: Growth in the number of members is an indicator of penetration of our platform and programs within clients and expansion of our client base. This metric is a key driver of our calculated billings and provides an indication of our future revenue performance. We calculate the number of members at the end of a particular period based on the total number of eligible lives who have engaged with our platform in the last 12 months and whose engagements have been billed or are contractually eligible to be billed.

LTM Average Eligible Lives: This represents the population to whom we can begin meaningful marketing and promotion. As eligible lives can fluctuate throughout the year given changes in our clients' populations, we take the average of the clients who are live in the first quarter to those who are live at the end of the last quarter in a given 12-month period to best determine the number of lives we had access to convert into members. Our management uses LTM average eligible lives to model the business and measure the enrollment we are able to achieve within our client base. LTM average eligible lives are defined as the average number of eligible lives calculated as the sum of eligible lives as of the first quarter to the end of the last quarter in a given annual period, divided by two.

Components of Results of Operations

Revenue

Revenue is the income generated from member subscription fees paid to access our technology platform to treat and prevent MSK pain. Revenue recognition begins once a billable activity is completed and is typically ratable over the 12-month member subscription period. Due to the timing of our sales cycle, revenue from new clients contracted in a given year is largely recognized in the following year.

Cost of Revenue

Cost of revenue consists of costs that are related to the delivery of our platform. These costs primarily include personnel-related costs, including employee salaries, stock-based compensation, and other related expenses for our care team, support operations personnel, and site reliability engineering personnel. Cost of revenue also includes inventory costs, which are amortized over the member's subscription period, provisions for excess and obsolete inventory, and technology support costs, which include hosting and information technology costs and amortization of internal-use software. In order to support the growth of our business and serve our members and clients, we expect our cost of revenue to increase on an absolute dollar basis as our revenue increases, and we expect our cost of revenue to fluctuate on a quarterly basis and grow on an annual basis.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue and is affected by several factors, including the timing of the acquisition of new clients and launch of our programs, our introduction of new programs, and the extent to which we can increase the efficiency of our technology through ongoing improvements, cost reduction, and operational efficiency. We expect our gross profit to increase on an absolute dollar basis over time primarily due to an increase in revenue and we expect gross margin to fluctuate from quarter to quarter.

Research and Development

Research and development expenses consist primarily of personnel-related costs, including employee salaries, stock-based compensation, and other related expenses for our engineering and product teams that are responsible for enhancing our platform and developing new or enhanced programs. Research and development expenses also include costs for third-party services and contractors and software-related costs. We capitalize internal-use software development costs that qualify for capitalization and appropriately reduce research and development expenses. We expect research and development expenses will increase on an absolute dollar basis as we continue to enhance our platform and develop new and enhanced programs.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related costs, including employee salaries, stock-based compensation, and other related expenses, internal and third-party sales commissions, and marketing and promotional expenses. We amortize third-party sales commissions and amortize a portion of internal sales commissions over the respective benefit periods. We expect sales and marketing expenses will increase on an absolute dollar basis as we continue to grow our business and expand into new markets, and we expect sales and marketing expenses will fluctuate on a quarterly basis to align with our member enrollment trends.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs, including employee salaries, stock-based compensation, and other related expenses for finance, legal, human resources, and other administrative related teams. General and administrative expenses also include third-party professional services for outside legal and accounting services, information technology and software related costs, and other corporate related expenses. We expect general and administrative expenses will increase as we continue to grow our business and incur compliance costs associated with being a publicly-traded company, including legal, audit, insurance, and consulting fees.

Other Income, Net

Other income, net consists primarily of income earned from our cash deposits held in interest-bearing accounts.

Provision For (Benefit From) Income Taxes

Provision for (benefit from) income taxes consists primarily of income taxes in U.S. federal, state, and local jurisdictions and certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.

Results of Operations

The following tables set forth selected unaudited condensed consolidated statements of operations data and such data as a percentage of revenue for each of the periods indicated. The comparisons of our historical results are not necessarily indicative of the results that may be expected in the future, and the quarter-to-quarter comparisons are not necessarily indicative of the results to be expected for the full year or any other period.

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

Revenue

Revenue for the three months ended June 30, 2025 increased by $49.3 million, or 55%, compared to the three months ended June 30, 2024 and revenue for the six months ended June 30, 2025 increased by $90.4 million, or 52%, compared to the six months ended June 30, 2024. The increases in both periods were due to revenue growth from existing clients. Due to the timing of our sales cycle, revenue from new clients contracted in a given year is largely recognized in the following year. As such, our revenue growth in the three months and six months ended June 30, 2025 came from existing clients that were contracted in 2024 or prior. The increase within existing clients was the result of retaining members within, and adding more members to, our existing client base.

Additionally, we had 2,359 clients as of June 30, 2025 compared to 1,785 clients as of June 30, 2024, representing a period-over-period growth rate of 32%. This increase in clients contributed to an increase in revenue of $15.2 million and $19.5 million for three and six months ended June 30, 2025, respectively.

Cost of Revenue

Cost of revenue for the three months ended June 30, 2025 increased by $18.1 million, or 78%, compared to the three months ended June 30, 2024. The increase was primarily due to an increase of $16.4 million in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs. In addition, there was an increase in personnel-related expenses of $1.2 million and a $0.9 million increase from employer taxes related to stock-based compensation expense, which were partially offset by a $0.4 million decrease in inventory costs.

Cost of revenue for the six months ended June 30, 2025 increased by $17.0 million, or 35%, compared to the six months ended June 30, 2024. The increase was primarily due to an increase of $16.4 million in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs. In addition, there was an increase in personnel-related expenses of $1.2 million and a $0.9 million increase from employer taxes related to stock-based compensation expense, which were partially offset by a $1.6 million decrease in inventory costs.

Gross Profit and Gross Margin

Gross margin for the three months ended June 30, 2025 decreased by 4 percentage points compared to the three months ended June 30, 2024. The decrease was due to an increase in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs, partially offset by an increase in efficiencies related to our care team and a decrease in inventory costs.

Gross margin for the six months ended June 30, 2025 increased by 3 percentage points compared to the six months ended June 30, 2024. The increase was due to an increase in efficiencies related to our care team and a decrease in inventory costs, partially offset by the increase in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs.

Operating Expenses

Research and Development

Research and development expenses for the three months ended June 30, 2025 increased by $255.0 million, or 1,023%, compared to the three months ended June 30, 2024. The increase was primarily due to an increase of $248.7 million in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs. In addition, there was an increase of $9.9 million in employer payroll taxes related to stock-based compensation which was partially offset by a decrease of $3.3 million in restructuring expenses as compared to the three months ended June 30, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.

Research and development expenses for the six months ended June 30, 2025 increased by $248.8 million, or 455%, compared to the six months ended June 30, 2024. The increase was primarily due to an increase of $248.7 million in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs. In addition, there was an increase of $9.9 million in employer payroll taxes related to stock-based compensation, which was partially offset by a decrease of $6.5 million in personnel-related costs due to lower headcount and a decrease of $3.3 million in restructuring expenses as compared to the six months ended June 30, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.

Sales and Marketing

Sales and marketing expenses for the three months ended June 30, 2025 increased by $102.3 million, or 228%, compared to the three months ended June 30, 2024. The increase was primarily due to an increase of $95.0 million in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs. In addition, there was an increase of $3.4 million in commissions, $2.6 million from employer payroll taxes related to stock-based compensation expense, $1.6 million in personnel-related costs and $0.5 million in marketing and promotion costs, which were partially offset by a decrease of $1.9 million in expenses as compared to the three months ended June 30, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.

Sales and marketing expenses for the six months ended June 30, 2025 increased by $106.9 million, or 123%, compared to the six months ended June 30, 2024. The increase was primarily due to an increase of $95.0 million in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs. In addition, there was an increase of $6.9 million in commissions, $3.2 million in marketing and promotion costs, and $2.6 million in employer payroll tax expense related to stock-based compensation expense, which were partially offset by a decrease of $1.9 million in expenses as compared to the six months ended June 30, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.

General and Administrative

General and administrative expenses for the three months ended June 30, 2025 increased by $236.9 million, or 1,650%, compared to the three months ended June 30, 2024. The increase was due to an increase of $230.6 million in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs. In addition, there was an increase of $7.1 million from employer payroll tax expense related to stock-based compensation expense which was partially offset by a decrease of $1.5 million in expenses as compared to the three months ended June 30, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.

General and administrative expenses for the six months ended June 30, 2025 increased by $236.3 million, or 743%, compared to the six months ended June 30, 2024. The increase was due to an increase of $230.5 million in stock-based compensation expense, which was related to the satisfaction of certain vesting criteria achieved with the IPO for RSUs and PRSUs. In addition, there was an increase of $7.1 million from employer payroll taxes related to stock-based compensation expense which was partially offset by a decrease of $1.5 million in expenses as compared to the six months ended June 30, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.

Other Income, Net

Other income, net for the three months ended June 30, 2025 decreased $0.3 million compared to the three months ended June 30, 2024, and other income, net for the six months ended June 30, 2025 decreased $0.4 million compared to the six months ended June 30, 2024. The decrease in both periods were primarily due to lower interest earned from our cash, cash equivalents, and marketable securities held in interest-bearing accounts.

Provision for Income Taxes

We recorded a tax benefit of $0.3 million for the three months ended June 30, 2025, compared to a tax provision of $0.4 million for the three months ended June 30, 2024. The tax benefit in the second quarter of 2025 was primarily due to stock-based compensation expense incurred as part of the IPO.

Provision for income taxes for the six months ended June 30, 2025, increased by $0.2 million, or 30%, compared to the six months ended June 30, 2024. This increase was primarily due to an increase in state and foreign taxes.

Non-GAAP Financial Measures

In addition to our results prepared in accordance with GAAP, we believe the following non-GAAP financial measures, including non-GAAP gross profit and gross margin, non-GAAP income (loss) from operations and operating margin, and free cash flow and free cash flow margin included in this Quarterly Report, provide users of our financial information with additional useful information in evaluating our performance and liquidity and allows them to more readily compare our results across periods without the effect of non-cash and other items as detailed below. Additionally, our management and board of directors use our non-GAAP financial measures to evaluate our performance and liquidity, identify trends and make strategic decisions.

There are limitations to the use of the non-GAAP financial measures presented in this Quarterly Report. For example, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. Our non-GAAP financial measures should not be considered in isolation or as alternatives to gross profit, gross margin, income (loss) from operations, net cash provided by (used in) operating activities or any other measure of financial performance calculated and presented in accordance with GAAP.

Non-GAAP Gross Profit and Gross Margin

We define non-GAAP gross profit as gross profit presented in accordance with GAAP, adjusted to exclude non-cash, non-operational and non-recurring items, including excess and obsolete inventory charges related to our AI-powered motion tracking technology transition, stock-based compensation expense, employer payroll tax expense related to stock-based compensation, amortization of intangible assets, and restructuring and other expenses. We define non-GAAP gross margin as non-GAAP gross profit divided by revenue.

The principal limitation of non-GAAP gross profit and non-GAAP gross margin is that they exclude significant expenses that are required by GAAP to be recorded in our consolidated financial statements, including non-cash expenses, and the impact of non-recurring charges that we do not consider to be indicative of our ongoing core operations.

The following table provides a reconciliation of non-GAAP gross profit and non-GAAP gross margin to gross profit and gross margin, which are the most directly comparable financial measures presented in accordance with GAAP:

Non-GAAP Income (Loss) From Operations and Operating Margin

We define non-GAAP income (loss) from operations as income (loss) from operations presented in accordance with GAAP, adjusted to exclude non-cash, non-operational and non-recurring items, including excess and obsolete inventory charges related to our AI-powered motion tracking technology transition, stock-based compensation expense, employer payroll tax expense related to stock-based compensation, amortization of intangible assets, restructuring and other expenses and acquisition-related expenses. We define non-GAAP operating margin as non-GAAP income (loss) from operations divided by revenue.

The principal limitation of non-GAAP income (loss) from operations and non-GAAP operating margin is that they exclude significant expenses that are required by GAAP to be recorded in our consolidated financial statements, including non-cash expenses, and the impact of non-recurring charges that we do not consider to be indicative of our ongoing core operations.

The following table provides a reconciliation of non-GAAP income (loss) from operations and operating margin to income (loss) from operations and operating margin, the most directly comparable financial measures presented in accordance with GAAP:

Free Cash Flow and Free Cash Flow Margin

We define free cash flow as net cash provided by (used in) operating activities plus cash used for employer payroll taxes related to pre-IPO stock-based compensation and less purchases of property, equipment and software (including capitalized internal-use software). We believe that free cash flow is a helpful indicator of liquidity that provides information to management and investors about the amount of cash generated or used by our operations that, after taking into account the employer payroll taxes paid as part of the vesting of shares at IPO as well as investments in property, equipment and software (including capitalized internal-use software), can be used for strategic initiatives, including investing in our business and strengthening our financial position. The principal limitation of free cash flow is that it does not represent the total increase or decrease in our cash balance for a given period. We define free cash flow margin as free cash flow divided by revenue.

The following table provides a reconciliation of free cash flow and free cash flow margin to net cash provided by (used in) operating activities and operating cash flow margin, the most directly comparable financial measures presented in accordance with GAAP:

Liquidity and Capital Resources

We have historically financed our operations primarily through net proceeds from the sale of our redeemable convertible preferred stock and payments received from our clients. In May 2025 we completed our IPO and received aggregate proceeds of $255.7 million, net of underwriting discounts and commissions before deducting offering expenses payable by us. We used substantially all of the proceeds from the IPO to pay employee taxes for the settlement of RSUs and PRSUs.

As of June 30, 2025, our principal sources of liquidity were cash and cash equivalents of $237.2 million, and marketable securities of $176.1 million. Our cash and cash equivalents consist of cash in bank accounts, money market accounts, and other highly liquid investments with original maturities of 90 days or less from the date of purchase. Our marketable securities consist of U.S. treasury securities, investment-grade corporate bonds, government agency securities, and commercial paper. Our primary uses of cash are personnel-related, inventory and selling, marketing and related costs.

We believe our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months, though we may require additional capital resources in the future. Our future capital requirements will depend on many factors, including our growth rate, headcount, sales and marketing activities, research and development activities, the introduction of new features and programs, and acquisitions. If we require additional capital, we may not be able to raise such capital on reasonable terms, or at all.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Operating Activities

Net cash provided by operating activities was $25.1 million for the six months ended June 30, 2025. This primarily related to our net loss of $558.5 million and net cash outflows of $34.7 million due to changes in operating assets and liabilities, adjusted for non-cash charges of $618.4 million. The change in operating assets and liabilities was driven by an increase in accounts receivable of $59.6 million, an increase in deferred commissions of $27.7 million, an increase in prepaid expenses and other current assets of $6.6 million, and an increase in inventory of $3.1 million, partially offset by an increase in deferred revenue of $57.5 million and an increase in accounts payable and accrued liabilities of $7.0 million. The changes were primarily due to the growth of our business, timing of cash receipts from clients, and timing of cash payments to our vendors.

Net cash used in operating activities was $17.7 million for the six months ended June 30, 2024. This primarily related to our net loss of $39.4 million and net cash outflows of $1.9 million due to changes in operating assets and liabilities, adjusted for non-cash charges of $23.5 million. The change in operating assets and liabilities was driven by an increase in accounts receivable of $23.3 million, an increase in deferred commissions of $18.2 million, a decrease in accounts payable of $7.7 million and a decrease in operating lease liability of $2.4 million, partially offset by an increase in deferred revenue of $46.9 million, a decrease in other assets of $.2 million, and a decrease in prepaid expenses and other current assets of $1.3 million. The changes were primarily due to the growth of our business, timing of cash receipts from clients, and timing of cash payments to our vendors.

Investing Activities

Net cash used in investing activities was $17.3 million for the six months ended June 30, 2025, driven by net purchases of marketable securities of $10.7 million, $4.0 million used to purchase a business and $2.6 million used for purchases of property, equipment and capitalized internal-use software.

Net cash provided by investing activities was $18.9 million for the six months ended June 30, 2024, driven by net proceeds from maturities of marketable securities of $20.7 million, offset in part by $1.9 million used for purchases of property, equipment and capitalized internal-use software.

Financing Activities

Net cash used in financing activities was $71.5 million for the six months ended June 30, 2025, consisting of $272.3 million used for employee taxes related to the net settlement of RSUs and PRSUs, $50.0 million related to the repurchase of Series E preferred stock and payments of deferred offering costs of $10.1 million, partially offset by proceeds of $255.7 million from the issuance of common stock in connection with the IPO, net of issuance costs and $4.9 million in proceeds related to the repayment of non-recourse loans.

Net cash provided by financing activities was $0.2 million for the six months ended June 30, 2024, consisting of $0.3 million of proceeds from the exercise of employee stock options partially offset by payments of deferred offering costs of $0.1 million related to our IPO.

Cash Management

We manage our operating cash activities through banking relationships with our domestic and international subsidiaries. We diversify our cash deposits across well-established financial institutions to reduce our exposure to counterparty and concentration risk.

We expect a continued increase in our cash balances as our business continues to grow. We expect to maintain a diversified cash management strategy to primarily include money market funds, highly-liquid debt instruments such as U.S. treasury securities, investment-grade corporate bonds, government agency securities, and commercial paper to reduce our exposure on banking deposits.

Lease Obligations

We enter into various non-cancellable lease agreements for certain office space in the normal course of business. Our non-cancellable lease obligations as of December 31, 2024 were $11.1 million, of which $3.8 million is payable within 12 months. Our non-cancellable lease obligations as of June 30, 2025 were $10.0 million, of which $4.0 million is payable within 12 months.

Other Contractual Obligations

We enter into various non-cancellable agreements with marketing vendors and various service providers. Our noncancellable obligations as of December 31, 2024 and June 30, 2025 were not material for disclosure purposes.

We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements and the related notes thereto, which have been prepared in accordance with GAAP. In preparing the consolidated financial statements, we apply accounting policies and estimates that affect the reported amounts and related disclosures. Inherent in such policies are certain key assumptions and estimates made by management, which we believe best reflect our underlying business and economic conditions. Our estimates are based on historical experience and various other factors and assumptions that we believe are reasonable under the circumstances. We regularly re-evaluate our estimates used in the preparation of the consolidated financial statements based on our latest assessment of the current and projected business and economic environment. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates. There have been no material changes to our critical accounting policies and estimates as described in our Prospectus.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act, and, for so long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that would have been applicable were we a public company that was not an emerging growth company. Such exemptions include, but are not limited to, the exemption to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, the exemption from holding a non-binding advisory vote on executive compensation, and the exemption from stockholder approval of any golden parachute payments not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. If we cease to be an emerging growth company, we will no longer be able to take advantage of these exemptions or the extended transition period for complying with new or revised accounting standards.