Hinge Health Inc.
03/03/2026 | Press release | Distributed by Public on 03/03/2026 15:15
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
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 Annual 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 Annual 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 Annual 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 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 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 most validated and the easiest to buy solution on the market. 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, for our self-insured clients, 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 December 31, 2025, we had over 60 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. According to our estimates based on data from 2025, our platform reduced the number of human care team hours associated with traditional physical therapy by approximately 97%. We have done this while improving our high member satisfaction over time.
We are a research-led organization and routinely expand our platform with new programs, capabilities, and features. Over the last four 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 targeted care support and external provider coordination; and integrated TrueMotion, our proprietary AI-powered motion tracking 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 and began selling a fall prevention program for eligible lives in our Medicare Advantage population. In 2025, we launched our high-performance in-person provider network for MSK care, HingeSelect, which allows us to now provide members with end-to-end MSK care while further reducing costs for members, employers, and health plans.
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. We used substantially all of the proceeds from the IPO to pay employee taxes for the settlement of RSUs and PRSUs. 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 Equity Incentive Plan (the "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 registration statement on Form S-1 relating to our IPO (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 9, Common Stock, Equity Incentive Plans and Stock-Based Compensationto the consolidated financial statements included elsewhere in this Annual Report.
Our Business Model
Go-to-Market Motion-Revenue Generation Process
We have rapidly grown our client base, expanding to 2,830 clients as of December 31, 2025, compared to 2,256 clients as of December 31, 2024, compared to 1,657 clients as of December 31, 2023. This expansion has given us access to an increased number of contracted lives, which grew to approximately 25 million as of December 31, 2025 from 20 million as of December 31, 2024, and 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, 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 an enrollment 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 generally 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 or third 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 97% as of December 31, 2025.
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. In 2025, we launched HingeSelect, our high performance in-person provider network for MSK care. All of our programs are available in use from a single application, with members having the ability to treat multiple indications at one point.
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 U.S. 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 U.S.-based multinational corporations. 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.
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Members | 782,890 | 532,326 | 370,526 | ||||||||||||||
| LTM average eligible lives (in thousands) | 20,105 | 15,747 | 12,181 | ||||||||||||||
| Clients | 2,830 | 2,256 | 1,657 | ||||||||||||||
| LTM calculated billings (in thousands) | $ | 671,418 | $ | 467,504 | $ | 328,827 | |||||||||||
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 market and offer our solutions. 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.
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.
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
For a discussion of our consolidated statement of operations data for the year ended December 31, 2024 compared to December 31, 2023, refer to the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on May 23, 2025.
The following tables set forth selected consolidated statements of operations data and such data as a percentage of revenue for each of the periods indicated.
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Revenue | $ | 587,860 | $ | 390,404 | $ | 292,730 | ||||||||||||||
|
Cost of revenue (1)
|
119,638 | 90,502 | 98,551 | |||||||||||||||||
| Gross profit | 468,222 | 299,902 | 194,179 | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
|
Research and development (1)
|
368,137 | 100,839 | 110,058 | |||||||||||||||||
|
Sales and marketing (1)
|
316,951 | 167,058 | 147,619 | |||||||||||||||||
|
General and administrative (1)
|
329,505 | 63,915 | 67,016 | |||||||||||||||||
| Total operating expenses | 1,014,593 | 331,812 | 324,693 | |||||||||||||||||
| Loss from operations | (546,371) | (31,910) | (130,514) | |||||||||||||||||
| Other income: | ||||||||||||||||||||
| Other income, net | 19,108 | 20,654 | 21,968 | |||||||||||||||||
| Net loss before income taxes | (527,263) | (11,256) | (108,546) | |||||||||||||||||
| Provision for (benefit from) income taxes | 998 | 677 | (405) | |||||||||||||||||
| Net loss | $ | (528,261) | $ | (11,933) | $ | (108,141) | ||||||||||||||
(1)Includes stock-based compensation expense as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Cost of revenue | $ | 18,969 | $ | 97 | $ | 166 | ||||||||||||||
| Research and development | 264,587 | 202 | 495 | |||||||||||||||||
| Sales and marketing | 106,043 | 223 | 511 | |||||||||||||||||
| General and administrative | 253,410 | 217 | 473 | |||||||||||||||||
| Total stock-based compensation | $ | 643,009 | $ | 739 | $ | 1,645 | ||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (as percentage of revenue) | ||||||||||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | ||||||||||||||
| Cost of revenue | 20 | % | 23 | % | 34 | % | ||||||||||||||
| Gross profit | 80 | % | 77 | % | 66 | % | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Research and development | 63 | % | 26 | % | 38 | % | ||||||||||||||
| Sales and marketing | 54 | % | 43 | % | 50 | % | ||||||||||||||
| General and administrative | 56 | % | 16 | % | 23 | % | ||||||||||||||
| Total operating expenses | 173 | % | 85 | % | 111 | % | ||||||||||||||
| Loss from operations | (93) | % | (8) | % | (45) | % | ||||||||||||||
| Other income: | ||||||||||||||||||||
| Other income, net | 3 | % | 5 | % | 8 | % | ||||||||||||||
| Net loss before income taxes | (90) | % | (3) | % | (37) | % | ||||||||||||||
| Provision for (benefit from) income taxes | - | % | - | % | - | % | ||||||||||||||
| Net loss | (90) | % | (3) | % | (37) | % | ||||||||||||||
Note: Totals of percentage of revenue may not sum due to rounding.
Comparison of the Year Ended December 31, 2025 and 2024
Revenue
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||
| Revenue | $ | 587,860 | $ | 390,404 | $ | 197,456 | 51 | % | ||||||||||||||||||
Revenue for the year ended December 31, 2025 increased by $197.5 million, or 51%, compared to the year ended December 31, 2024. The increase was primarily 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, the majority of our revenue growth during the year ended December 31, 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.
Cost of Revenue
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||
| Cost of revenue | $ | 119,638 | $ | 90,502 | $ | 29,136 | 32 | % | ||||||||||||||||||
Cost of revenue for the year ended December 31, 2025 increased by $29.1 million, or 32%, compared to the year ended December 31, 2024. The increase was due to an increase of $18.9 million in stock-based compensation expense, which was primarily related to the satisfaction of certain vesting criteria achieved with the IPO. The increase was also due to an increase of $4.3 million in inventory costs, $4.1 million in hosting costs and $1.7 million in personnel-related costs.
Gross Profit and Gross Margin
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||
|
Gross profit
|
$ | 468,222 | $ | 299,902 | $ | 168,320 | 56 | % | ||||||||||||||||||
| Gross margin | 80 | % | 77 | % | ||||||||||||||||||||||
Gross margin for the year ended December 31, 2025 increased by 3 percentage points compared to the year ended December 31, 2024. The increase was primarily due to an increase in efficiencies related to our care team and supply chain operations, partially offset by an increase in stock-based compensation expense.
Operating Expenses
Research and Development
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||
| Research and development | $ | 368,137 | $ | 100,839 | $ | 267,298 | 265 | % | ||||||||||||||||||
Research and development expenses for the year ended December 31, 2025 increased by $267.3 million, or 265%, compared to the year ended December 31, 2024. The increase was due to an increase of $264.4 million in stock-based compensation expense, which was primarily related to the satisfaction of certain vesting criteria achieved with the IPO. In addition, there was an increase of $11.5 million in employer payroll taxes related to stock-based compensation, which was partially offset by a decrease of $6.0 million in personnel-related costs and a decrease of $3.4 million in restructuring expenses as compared to the year ended December 31, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.
Sales and Marketing
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||
| Sales and marketing | $ | 316,951 | $ | 167,058 | $ | 149,893 | 90 | % | ||||||||||||||||||
Sales and marketing expenses for the year ended December 31, 2025 increased by $149.9 million, or 90%, compared to the year ended December 31, 2024. The increase was due to an increase of $105.8 million in stock-based compensation expense, which was primarily related to the satisfaction of certain vesting criteria achieved with the IPO. In addition, there was an increase of $19.4 million in commissions, $18.7 million in marketing, promotion and enrollment costs, $3.8 million in payroll-related costs and $3.0 million in employer payroll tax expense related to stock-based compensation expense, which were partially offset by a decrease of $1.9 million in restructuring expenses as compared to the year ended December 31, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.
General and Administrative
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||
| General and administrative | $ | 329,505 | $ | 63,915 | $ | 265,590 | 416 | % | ||||||||||||||||||
General and administrative expenses for the year ended December 31, 2025 increased by $265.6 million, or 416%, compared to the year ended December 31, 2024. The increase was due to an increase of $253.2 million in stock-based compensation expense, which was primarily related to the satisfaction of certain vesting criteria achieved with the IPO. In addition, there was an increase of $7.3 million from employer payroll taxes related to stock-based compensation expense and $4.9 million in professional related expenses due to compliance activities, which were partially offset by a decrease of $1.5 million in expenses as compared to the year ended December 31, 2024 when we incurred restructuring expenses related to the 2024 Restructuring Plan.
Other Income, Net
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||
| Other income, net | $ | 19,108 | $ | 20,654 | $ | (1,546) | (7) | % | ||||||||||||||||||
Other income, net for the year ended December 31, 2025 decreased $1.5 million, compared to the year ended December 31, 2024. The decrease was primarily due to lower interest earned on our cash, cash equivalents, and marketable securities held in interest-bearing accounts.
Provision for Income Taxes
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| 2025 | 2024 | $ | % | |||||||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||||||||
| Provision for income taxes | $ | 998 | $ | 677 | $ | 321 | 47 | % | ||||||||||||||||||
Provision for income taxes for the year ended December 31, 2025, increased by $0.3 million, or 47%, compared to the year ended December 31, 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 Annual 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 Annual 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:
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||
| GAAP gross profit | $ | 468,222 | $ | 299,902 | ||||||||||
| GAAP gross margin | 80 | % | 77 | % | ||||||||||
| Non-GAAP adjustments: | ||||||||||||||
|
Excess and obsolete inventory charges (1)
|
- | 1,812 | ||||||||||||
|
Stock-based compensation expense (2)
|
18,969 | 97 | ||||||||||||
|
Employer payroll tax expense related to stock-based compensation |
1,080 | - | ||||||||||||
| Amortization of intangible assets | 854 | 378 | ||||||||||||
| Restructuring and other expenses | - | 691 | ||||||||||||
| Non-GAAP gross profit | $ | 489,125 | $ | 302,880 | ||||||||||
| Non-GAAP gross margin | 83 | % | 78 | % | ||||||||||
(1)Reflects our strategic decision in the first half of 2023 to shift away from providing kits with tablets and wearable sensors. As part of this shift, we began to provide access to our platform through our app on members' personal smartphones or tablets and replaced all sensors for members with our proprietary AI-powered motion tracking technology.
(2)For further stock-based compensation expense details, see the section titled "Non-GAAP Income (Loss) From Operations and Operating Margin" below.
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:
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||
| GAAP income (loss) from operations | $ | (546,371) | $ | (31,910) | ||||||||||
| GAAP operating margin | (93) | % | (8) | % | ||||||||||
| Non-GAAP adjustments: | ||||||||||||||
|
Excess and obsolete inventory charges (1)
|
- | 1,812 | ||||||||||||
|
Stock-based compensation expense (2)
|
643,009 | 739 | ||||||||||||
|
Employer payroll tax expense related to stock-based compensation |
16,612 | (6,253) | ||||||||||||
| Amortization of intangible assets | 854 | 378 | ||||||||||||
| Restructuring and other expenses | - | 8,495 | ||||||||||||
| Acquisition-related expenses | 5,351 | 643 | ||||||||||||
| Non-GAAP income (loss) from operations | $ | 119,455 | $ | (26,096) | ||||||||||
| Non-GAAP operating margin | 20 | % | (7) | % | ||||||||||
(1)Reflects our strategic decision in the first half of 2023 to shift away from providing kits with tablets and wearable sensors. As part of this shift, we began to provide access to our platform through our app on members' personal smartphones or tablets and replaced all sensors for members with our proprietary AI-powered motion tracking technology.
(2)Stock-based compensation expense:
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands) | ||||||||||||||
| Cost of revenue | $ | 18,969 | $ | 97 | ||||||||||
| Research and development | 264,587 | 202 | ||||||||||||
| Sales and marketing | 106,043 | 223 | ||||||||||||
| General and administrative | 253,410 | 217 | ||||||||||||
| $ | 643,009 | $ | 739 | |||||||||||
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 at IPO related to 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:
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||
| Net cash provided by operating activities | $ | 171,441 | $ | 49,002 | ||||||||||
| Operating cash flow margin | 29 | % | 13 | % | ||||||||||
|
Adjustment for employer taxes at IPO related to stock-based compensation |
14,227 | - | ||||||||||||
|
Less purchases of property, equipment and software (including capitalized internal use software) |
(6,064) | (3,773) | ||||||||||||
| Free cash flow | $ | 179,604 | $ | 45,229 | ||||||||||
| Free cash flow margin | 31 | % | 12 | % | ||||||||||
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 December 31, 2025, our principal sources of liquidity were cash and cash equivalents of $208.0 million, and marketable securities of $269.0 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:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 171,441 | $ | 49,002 | |||||||
| Net cash (used in) provided by investing activities | (113,763) | 18,312 | |||||||||
| Net cash used in financing activities | (150,468) | (2,202) | |||||||||
Operating Activities
Net cash provided by operating activities was $171.4 million for the year ended December 31, 2025. This primarily related to our net loss of $528.3 million and net cash outflows of $2.0 million due to changes in operating assets and liabilities, adjusted for non-cash charges of $701.7 million. The change in operating assets and liabilities was driven by an increase in deferred commissions of $63.6 million, an increase in accounts receivable of $26.6 million, an increase in prepaid expenses and other current assets of $15.8 million, and an increase in inventory of $4.8 million, partially offset by an increase in deferred revenue of $83.2 million and an increase in accounts payable and accrued liabilities of $29.4 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 provided by operating activities was $49.0 million for the year ended December 31, 2024. This primarily related to our net loss of $11.9 million and net cash inflows of $13.5 million due to changes in operating assets and liabilities, adjusted for non-cash charges of $47.4 million. The change in operating assets and liabilities was driven by an increase in deferred revenue of $77.2 million, partially offset by an increase in deferred commissions of $38.5 million, a decrease in accounts payable and accrued liabilities of $11.0 million, an increase in prepaid and other assets of $9.2 million, and a decrease in lease liabilities of $4.7 million. The changes in our operating assets and liabilities 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 $113.8 million for the year ended December 31. 2025, driven by net purchases of marketable securities of $103.7 million, $6.1 million used for purchases of property, equipment and capitalized internal-use software and $4.0 million used to purchase a business.
Net cash provided by investing activities was $18.3 million for the year ended December 31, 2024, driven by net proceeds from marketable securities of $22.1 million, offset in part by $3.8 million used for purchases of property, equipment and capitalized internal-use software
Financing Activities
Net cash used in financing activities was $150.5 million for the year ended December 31, 2025, consisting of $295.2 million used for employee taxes related to the net settlement of RSUs and PRSUs, $65.0 million related to the Share Repurchase Program described below, $50.0 million related to the repurchase of Series E preferred stock and payments of deferred offering costs of $10.3 million, partially offset by proceeds of $255.7 million from the issuance of common stock in connection with the IPO, net of issuance costs, $8.1 million in proceeds from our employee share purchase plan, $4.9 million in proceeds related to the repayment of non-recourse loans and $1.4 million in proceeds from the exercise of employee stock options.
Net cash used in financing activities was $2.2 million for the year ended December 31, 2024, consisting of $2.8 million paid for deferred offering costs related to our pending initial public offering, partially offset by $0.6 million of proceeds from the exercise of employee stock options.
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.
Share Repurchase Program
On November 10, 2025, our board of directors approved a Share Repurchase Program with authorization to purchase up to $250.0 million of our Class A Common Stock. As of December 31, 2025, we had repurchased an aggregate of 1,384,485 shares of our Class A common stock under the share repurchase program and had a remaining authorization of approximately $185.0 million for future share repurchases.
Repurchases under the Share Repurchase Program may be made in the open market, in privately negotiated transactions, or by other methods, with the amount and timing of repurchases to be determined at our discretion, depending on market conditions and corporate needs. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of our shares under this authorization. The Share Repurchase Program does not obligate us to acquire any particular amount of Class A Common Stock, and maybe modified, suspended, or terminated at any time at the discretion of our board of directors. We expect to fund repurchases with existing cash and cash equivalents and cash from operations.
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, 2025 were $8.0 million, of which $4.2 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, 2025 and December 31, 2024 were not material for disclosure purposes.
Off-Balance Sheet Arrangements
Wedid not have during the years 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
Our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates.
An accounting policy is deemed critical if it is both important to the portrayal of our financial condition and results and requires us to make difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. An accounting estimate is deemed critical where the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the impact of the estimate on our financial condition or operating performance is material.
We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information of the below critical accounting policies and estimates and our other significant accounting policies, see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report.
Revenue Recognition
We earn revenue from subscription fees by providing access to our platform and programs to treat and prevent MSK pain. We currently sell our subscriptions to our clients and we generate substantially all of our revenue primarily in the U.S.
We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. ASC 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The core principle of ASC 606 is to recognize revenue to depict the transfer of promised goods or services to our customers, which primarily consists of businesses, organizations or partners that have an agreement (collectively, "clients"), in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Further, our members represent an eligible life who has engaged with our platform at any point and whose engagement has been billed or is contractually eligible to be billed.
We apply the principles of ASC 606 and determines revenue recognition by applying the following five steps:
•Identification of the contract, or contracts, with a customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when, or as, we satisfy a performance obligation.
We determine that we have a contract with a customer: (1) when the contract has been approved by us and the client; (2) we can identify each party's rights regarding the services to be transferred and the payment terms for the services; and (3) we have determined that the client has the ability and intent to pay, and (4) our members have engaged with the platform. We apply judgment in determining the client's ability and intent to pay, which is based on a variety of factors, including the client's payment history or, new client reputation and relationship with a health plan partner, as applicable. Our typical contracts have a stated contractual term of three years, however for revenue recognition purposes, the contractual period is one year to align with the member subscription period as there are no enforceable rights and obligations until a subscription period for a member commences upon a first billable activity. After the initial stated contractual term, our contracts renew automatically for additional one-year terms unless notice of termination is given by the customer or by us.
The contracts contain a number of promised goods and services, including access to our platform, technical support, as well as our peripheral products, which includes the Enso device. We have determined our contracts contain three performance obligations which are provided to members; (1) access to the platform that is delivered over time; (2) technical support which is delivered in the same pattern using the output method; and (3) the peripheral products, when and if sent as a part of its platform. As the platform and technical support are provided to the client concurrently over the contract term and have the same pattern of transfer, we have concluded that these performance obligations represent one performance obligation consisting of a series of distinct services over the contract term.
We may provide the Enso device as part of its platform, which remains the legal property of us during the contract term. We determine whether the Enso device is sent to members based on criteria that it controls. If the Enso device is sent to a member as part of our platform, it constitutes a lease component as this device remains the property of us and the member has the right to direct the use of the device during the contract term. Delivery of the device causes a change to the scope of the contract, as both our and our clients' rights have changed. We account for this change as a contract modification resulting in the termination of the old contract and the start of a new contract. Our Enso device qualifies to be accounted for as an operating lease and the pattern of delivery from contract modification date to contract termination is consistent with the timing for non-lease components in the contract. For these client arrangements where the Enso device is leased in combination with services, we consider the arrangement to be predominately a service and thus a combined single performance obligation for purposes of revenue recognition.
The transaction price is a fixed annual fee or a variable fee based on member engagement activity during a service period. Our contracts are billed either (a) after a member's first completed billing activity for fixed annual fee contracts, (b) throughout the service period upon the achievement of cohort milestones, or (c) throughout the service period based upon member engagement activity. When the billable volume varies based upon the achievement of cohort milestones or member engagement activity, the consideration is variable at the time the contract is entered into. When the billable amount varies we estimate the variable consideration per member using the expected value method. The estimate is based on our historical experience with average member usage and cohort milestone achievement and is refreshed quarterly to ensure that a significant reversal in revenue will not occur and the estimates of billable amounts and constraints are adjusted for changes in member behavior over time. To the extent we cannot estimate with reasonable certainty the likelihood that the variable consideration will be achieved, we constrain this portion of the transaction price and recognize it when or as the uncertainty is resolved. Based on historical achievement or member engagement experience and quarterly lookbacks, we adjust revenue when the uncertainty has been resolved. If the actual amounts of consideration received differ from its estimates, we adjust reported revenue in the period such variances become known. For the years ended December 31, 2025, 2024 and 2023 changes to estimated variable consideration were not material.
Members have access to our platform for a 12-month subscription term that begins after the individual has completed their first billable activity on the platform. We do not earn any fees until this point. We recognize revenue for each member ratably over the 12-month member subscription period in order to match the pattern of revenue recognition to the pattern of costs incurred in delivering its platform.
Timing of revenue recognition may differ from the timing of billing. A majority of our clients are billed upfront or throughout the first quarter of the member's subscription period. Our performance obligations are satisfied within 12 months of the member's first billable activity. Our contracts do not contain significant financing components.
Additionally, certain performance guarantees are included in most contracts and are estimated at each reporting period based on our historical performance or other available information. We recognize any estimated adjustments to the contract price for not achieving the performance guarantees as an adjustment to revenue. Payouts on these performance guarantees have been immaterial to date.
Stock-Based Compensation
We measure stock-based compensation awards, including stock options and RSUs, PRSUs and restricted stock awards ("RSAs") based on the estimated fair value of the awards on the date of grant. We record stock-based compensation expense for awards issued to employees and non-employees at fair value with a corresponding increase in additional paid-in capital. Post IPO, we recognize compensation expenses on a straight-line attribution or accelerated attribution method. We recognize forfeitures when they occur. We have not granted stock options since March 2021.
Prior to the completion of the IPO, RSUs vested upon the occurrence of both a service-based condition and a liquidity event. Post IPO, RSUs vest upon the occurrence of a service condition. We started recognizing compensation cost on May 22, 2025, when our registration statement became effective and we recorded the expense for these awards using the accelerated attribution method over the remaining service period because the liquidity-based vesting condition was determined to be probable. The fair value of each RSU grant is based on the fair value of our common stock on the date of grant.
Prior to the completion of the IPO, PRSUs granted are subject to not only a service-based, but also a performance-based vesting condition. Post IPO, PRSUs granted are subject to vest upon achieving a performance condition. The performance condition includes various milestones based on market capitalization thresholds or revenue targets as well as the occurrence of a liquidity event. We started recognizing compensation cost on May 22, 2025, when our registration statement became effective and we recorded the expense for these awards using the accelerated attribution method over the remaining service period because the liquidity-based vesting condition was determined to be probable. The fair market value of the market condition PRSU grants are based on the Monte Carlo simulation model, which incorporates multiple valuation assumptions, including the probability of achieving the market condition, the term of the awards, and the expected common share volatilities. The fair value of each PRSU grant with no market condition is based on the fair value of the Company's common stock on the date of the grant.
The RSAs are considered issued because they are legally issued and have voting and dividends rights. The shares are included in the outstanding common stock on the statement of redeemable convertible preferred stock and stockholders' deficit in the consolidated balance sheets but are excluded in the calculation of basic net loss per share attributable to common stockholders in the consolidated statements of operations and comprehensive loss prior to 2025 because the shares are considered to be contingently returnable shares for accounting purposes.
Prior to our Class A common stock trading on the NYSE, we were required to estimate the fair value of the common stock underlying our stock awards. Significant judgment was required in determining the fair value of our common stock. Given the absence of an active market for our common stock prior to the IPO, management was required to estimate the fair value of our common stock at the time of each grant of a stock-based compensation award. We utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants' Technical Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation to estimate the fair value of our common stock. Each valuation methodology includes estimates and assumptions that require our judgment. These estimates and assumptions include a number of objective and subjective factors in determining the value of our common stock at each grant date, including the following factors:
•Prices paid for our capital stock, which we have sold to outside investors in arm's-length transactions, considering the rights and privileges of the securities sold relative to the common stock;
•Prices paid for shares of our common stock sold in secondary market transactions;
•Valuation performed by an independent valuation specialist;
•Our stage of development and revenue growth;
•The market performance of comparable publicly traded companies;
•Adjustments necessary to recognize a lack of marketability for the common stock underlying the granted RSUs, PRSUs and RSAs;
•The likelihood of achieving a liquidity event for common stock underlying the stock-based awards, such as an IPO or sale of us, given prevailing market conditions; and
•The U.S. and global economic and capital market conditions and outlook.
Common Stock Valuation
Prior to our Class A common stock trading on the NYSE, we were required to estimate the fair value of the common stock underlying our stock awards. Because our common stock was not publicly traded, our management exercised significant judgment in determining the fair value of our common stock on the date of each grant. In determining the fair market value of our common stock, our management considered several objective and subjective factors, as noted above, with input from management and assistance from an independent third-party valuation firm.
In valuing our common stock, we first determined the equity value using both the income and market approach valuation methods. In addition, we also considered values implied by sales of preferred and common stock, if applicable. We then allocated the equity value to our classes of stock using an option pricing method.
The income approach estimated equity value based on the expectation of future cash flows that we will generate. These future cash flows, and an assumed terminal value, are discounted to their present values using a discount rate based on a weighted-average cost of capital that reflects the risks inherent in the cash flows. The market approach estimated equity value based on a comparison of the subject company to comparable public companies in a similar line of business as us. From the comparable companies, a representative market value multiple was determined and then applied to our financial forecasts.
Once we determined an equity value, we used a combination of approaches to allocate the equity value to each of our classes of stock. We have used an option pricing model, which allocates values to each equity class by creating a series of call options on our equity value, with exercise prices based on the liquidation preferences, participation rights, and strike prices of the equity instruments. In determining the estimated fair value of our common stock, we considered the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we also applied a lack of marketability discount to the equity value.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this Annual 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.
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