Omada Health Inc.
03/06/2026 | Press release | Distributed by Public on 03/06/2026 15:33
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 our consolidated financial statements and the related notes included elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from management's expectations as a result of various factors, including, but not limited to, those discussed in the sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements."
Overview
Our mission is to bend the curve. Our hope is that, one day, tomorrow's epidemiologists will notice a bend in disease curves, wonder what might be happening, and conclude that part of that impact has been Omada. As part of that mission, we strive to inspire and enable people to make lasting health changes on their own terms. We launched our initial program in diabetes prevention and weight health in 2012, with the goal of showing that a virtual program could achieve the same clinical results as its in-person archetype. Today, we offer cardiometabolic programs for prediabetes, diabetes, hypertension, and high cholesterol; a physical therapy program to address musculoskeletal ("MSK") conditions; additional support for members taking glucagon-like peptide-1 agonists ("GLP-1") in our cardiometabolic programs ("GLP-1 Care Tracks"); and behavioral health support across all programs. As of December 31, 2025, we had more than 2,000 customers and over 886,000 total members enrolled in one or more programs.
Our virtual care programs are rooted in evidence and combine relationship-based, human-led clinical care with purpose-built technology. We call this approach Compassionate Intelligence. Our Care Teams, composed of health coaches, select relevant specialists, and licensed physical therapists, depending on the program, deliver healthcare to our members within the scope of their credentials. Our prescribing capability also incorporates third-party licensed obesity care providers for prescribing AOMs and related medication management. Omada Care Teams are supported by our proprietary Care Team Platform that is purpose-built to magnify the impact of our Between-Visit Care model and drive operational excellence in a trusted and secure way. Broadly, our integrated technology platform supports activities across the entire lifecycle of our work with customers, channel partners, and members: from benefit eligibility confirmation and enrollment outreach to application and member onboarding, device management and fulfillment, member-facing tools and applications, Care Team tools, data capture and storage, and platform and billing infrastructure. The investments in our technology and Care Team Platform have enabled us to scale and serve nearly two million members since launch, while maintaining the ability to deliver an exceptional member experience, with high clinical quality and consistency.
Key Factors Affecting Our Performance
Key Factors Affecting Our Performance
We believe that our future growth, success, and performance are dependent on many factors, including those set forth below. While these factors present significant opportunities for us, they also represent the challenges that we must successfully address in order to grow our business and improve our results of operations.
Acquisition of New Customers and Channel Partners
We believe there is substantial opportunity to further grow our base of customers and channel partners in our large addressable market. Historically, we have relied on a limited number of customers and channel partners, including employers, health plans, PBMs, health systems, and government entities, for a substantial portion of our total sales. Our customers include employers that cover our programs for their employees and their dependents and health systems that cover our programs for patients, among other types of customers. In addition, our channel partners, which include certain of the health plans, PBMs, and other entities that we work with, operate as resellers of our programs to their employer customers or other end customers, which can limit an end customer's ability to continue purchasing our programs if the customer no longer works with a particular channel partner. Some of the health plans and PBMs we work with as channel partners also cover our programs directly, for a portion of their own members, as our customers.
We seek to grow our business by acquiring more covered lives across multiple buyer categories: selling to new customers and channel partners as well as expanding within our existing channel partners to new lines of business. Our diverse go-to-market strategy affords us flexibility to pursue growth via multiple distinct channels, including through new channels and in lines of business where we have yet to place significant focus, such as Medicare Advantage.
Customer and Channel Partner Retention
Our ability to increase revenue depends on maintaining and deepening relationships with customers and channel partners over time, driving both renewal revenue and expansion revenue as customers and channel partners add new programs to provide to their member base. We have invested and plan to continue to invest across our data, analytics, operations, and customer success capabilities to build the infrastructure that supports our go-to-market approach.
Program Expansion within Existing Customer Base
We believe that the ability to grow the share of revenue that we generate from existing customers is a key driver of long-term growth. We have seen significant expansion over time as existing customers and channel partners have added our newer Diabetes, Hypertension, and Cholesterol programs, and we remain focused on driving multi-program adoption as a key growth lever. We believe there is still opportunity to continue multi-condition expansion.
Member Enrollment
Having served nearly two million members since launch, there is still significant opportunity to enroll more members. We are focused on achieving higher enrollment rates by helping more customers and channel partners adopt our enrollment outreach best practices, including enabling Omada-led enrollment outreach campaigns, implementing strategies to reach individuals with known risk, and evaluating new enrollment strategies and channels.
Member Engagement and Outcomes
Member engagement in our programs and the clinical outcomes and cost savings of our offerings affect the market acceptance and adoption of our programs. Most of our customers pay fees to us based on member enrollment and/or engagement with our programs, and our contracts generally may provide that we are obligated to repay a portion of our fees if our programs fail to deliver certain member engagement targets, clinical outcomes, or cost savings. We are focused on continuing to provide engaging content and tools, foster meaningful personal connections, and demonstrate positive clinical outcomes for our members.
Investments in Growth
We expect to continue to focus on long-term growth of our core business, while selectively investing in areas that enhance our platform, programs, or operations. Though our focus remains on continued progress in our current care areas, we monitor the needs of our customers and channel partners, and we believe we are well positioned to respond to their requirements organically or, where appropriate, to add new capabilities through partnerships and potential acquisitions.
Key Metric
We monitor the following key metric to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Total Members
A member is a person who is enrolled in one of our virtual care programs and generated a billing event in the preceding 12 months. We believe growth in the number of members is a key indicator of the performance of our business for both investors and management as we monitor the performance of our business, as members primarily drive services revenue. The number of members depends, in part, on our ability to successfully market our services to new customers and channel partners, our ability to sell additional programs to existing customers and channel partners, and our ability to promote awareness of our programs among covered individuals and to encourage their enrollment.
| As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Total Members | 886,000 | 572,000 | 391,000 | ||||||||||||||
Key Components of Results of Operations
Revenue
We generate services revenue from our customers by providing access to our virtual care programs in which our Care Teams implement clinically validated behavior change protocols for individuals living with prediabetes and weight management issues, diabetes, and hypertension (collectively referred to as "cardiometabolic" conditions) and MSK conditions over the term of the program. Our MSK program generally includes a fixed, upfront consultation fee and an additional fee for members that opt in to a physical therapist-guided treatment plan. We use a number of pricing models for our cardiometabolic programs. In general, our legacy pricing models for cardiometabolic programs may include a fixed, upfront enrollment fee and include variable monthly fees which are based on either outcomes or milestones for the respective member service period. In general, our latest pricing models for cardiometabolic programs are based on the respective member's level of activity in the program. Each month, members that have completed a minimum number of qualifying activities during an agreed-upon backward-looking measurement period are considered billable members. The length of the measurement period and the qualifying activities may vary based on negotiations with customers and channel partners. Most activity measurement periods are defined as the preceding three or six months, and in most cases, members are considered active if they complete three activities during that period, such as logging in or interacting with the Omada mobile app, sending messages to Omada Care Team members, or recording metrics such as weight, blood pressure, or blood glucose values.
The price for Omada for Diabetes and Omada for Hypertension is generally higher than the price for Omada for Prevention & Weight Health to account for the higher costs of delivering those programs, including additional included devices and increased Care Team support appropriate for those conditions. We typically bill for our services monthly, in arrears. We recognize a portion of revenue upfront upon hardware delivery or initial consultation and the remaining revenue over the period members have access to our virtual care programs. In general, among our members in cardiometabolic programs, members in Omada for Diabetes and Omada for Hypertension remain active and enrolled in our programs for longer periods than members in Omada for Prevention & Weight Health. In addition to the overall number of members, our quarterly revenues reflect the mix of members enrolled in our various programs and the pricing models for these programs.
Sales from or through our top five health plan and PBM partners, including any sales to these entities as customers and sales through these entities as channel partners, represented 77%, 69% and 68% for the years ended December 31, 2025, 2024, and 2023, respectively.
Significant customers and channel partners are those which represent 10% or more of the accounts receivable balance or revenue for the periods presented. Customers and channel partners that accounted for 10% or more of accounts receivable, net as of December 31, 2025 and December 31, 2024, or 10% or more of revenue as of and for the years ended December 31, 2025, 2024 and 2023 were as follows:
| Accounts Receivable, net | Revenue | ||||||||||||||||||||||||||||
| As of December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | 2023 | |||||||||||||||||||||||||
| Partner A | 21 | % | 29 | % | 32 | % | 36 | % | 36 | % | |||||||||||||||||||
| Partner B | 45 | % | 28 | % | 33 | % | 19 | % | 19 | % | |||||||||||||||||||
Each of these health plans or PBMs are affiliates of The Cigna Group.
Cost of Revenue
Cost of revenue consists of expenses that are directly related to or closely correlated to the delivery of our virtual care programs and member support. Cost of services revenue include salaries, share-based compensation expense, bonuses, benefits, travel, and meals and entertainment expenses (collectively, "personnel costs"), data server management expense, hosting costs, connectivity fees for cellular devices, and the amortization of capitalized internal-use software and developed technology. Cost of hardware revenue includes equipment costs, shipping and logistics costs, and provisions for excess and obsolete inventory. Most of the devices delivered in connection with our programs are manufactured in China and may be manufactured in other international markets in the future, and we expect that the prices of these devices may increase as a result of recent tariffs and any new or increased tariffs in the future.
Gross Profit and Gross Margin
Gross profit is total revenue less total cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Gross profit and gross margin have been and will continue to be affected by various factors, including the acquisition of new customers and channel partners, renewals of existing agreements, sales of additional programs to our existing customers, the mix of programs covered by our customers and channel partners and members enrolled in those programs, the timing of members enrolling in our programs, the costs associated with third-party data server management and third-party hosting services, costs of hardware, economies of scale, and the extent to which we introduce new features or functionality or expand our Care Teams and hire other additional personnel.
Operating Expenses
Our operating expenses consist of research and development ("R&D"), sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses. Operating expenses also include professional and consulting services and the allocation of shared general corporate expenses primarily related to technology.
Research and Development
Our R&D expenses support our efforts to add new features and content to our programs and to ensure the reliability and scalability of our virtual care platform. R&D expenses consist primarily of personnel costs and the allocation of shared general corporate expenses primarily related to technology. R&D costs are expensed as incurred.
We expect to make continued investments in our virtual care platform in connection with our future growth.
Sales and Marketing
Sales and marketing expenses consist of personnel costs, commissions for our sales and marketing teams, administrative and marketing fees that we pay to channel partners for their services, promotional marketing materials, and advertising costs. Sales and marketing expenses also include costs for third-party consulting services and the allocation of shared general corporate expenses primarily related to technology.
The sales and marketing teams are responsible for growing and maintaining our relationships with customers and channel partners and increasing enrollments.
General and Administrative
General and administrative expenses consist of personnel costs for our finance, legal, compliance, human resources, and administrative teams, software and infrastructure costs, professional fees, and the allocation of shared general corporate expenses primarily related to technology.
We expect general and administrative expenses to increase in absolute dollars as we grow our operations and incur additional expenses associated with operating as a public company. Increased expenses as a result of operating as a public company include expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations, and other third-party consulting services.
Other Expense, Net
Interest Income
Interest income consists of income earned on our cash and cash equivalents.
Interest Expense
Interest expense consists of interest costs associated with our debt financing, including amortization of debt issuance costs.
Change in Fair Value of Warrant Liabilities
We classify our redeemable convertible preferred stock warrants and common stock warrants as liabilities on our consolidated balance sheets. We remeasure the warrant liabilities to fair value at each reporting date and recognize changes in the fair value of the warrant liabilities in our consolidated statements of operations. We adjusted the warrant liabilities for changes in fair value until the exercise of the redeemable convertible preferred stock warrants and common stock warrants.
Loss on Debt Extinguishment
The loss on debt extinguishment for the year ended December 31, 2025 consisted primarily of unamortized debt issuance costs and prepayment fees related to that certain credit agreement and guaranty, dated as of June 2, 2023, by and among us, the subsidiary guarantors and lenders from time to time party thereto, and MidCap Funding IV Trust ("MidCap"), described in the subsection titled "Liquidity and Capital Resources."
Provision for Income Taxes
We are subject to income taxes in U.S. federal, state, and local jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets, as management has concluded that it is not more likely than not that the deferred tax assets will be realized, primarily due to cumulative losses incurred since inception and the lack of sufficient objectivity verifiable postive evidence of future taxable income.
We account for uncertain tax positions in accordance with Accounting Standards Codification ("ASC") 740-10, Accounting for Uncertainty in Income Taxes. We recognize the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date, and only in an amount more likely than not to be sustained upon review by relevant taxing authorities. Interest and penalties related to uncertain tax positions are classified in the consolidated financial statements as income tax expense.
As of December 31, 2025, the Company remains subject to examination by U,S. federal and state taxing authorities for all tax years since inception, as net operating loss carryforwards remain subject to adjustment.
On July 4, 2025, the One Big Beautiful Bill Act (the "OBBBA") was enacted in the U.S. The OBBBA includes significant provisions, including changes to the treatment of research and development expenditures under section 174, modifications to the business interest expense limitation, and updates to depreciation rules among others. Certain provisions are effective beginning in 2025, while others are phased in through 2027.
Under the OBBBA and newly enacted Section 174A, taxpayers may accelerate the recovery of previously capitalized domestic research and development expenditures that remained unamortized as of 2025, either entirely in 2025 or ratably over 2025 and 2026. The Company has elected to recover these costs ratably over 2025 and 2026 and recognized a deduction of approximately $36.1 million in 2025 to such expenditures.
Certain state jurisdictions have not conformed to the OBBBA or have adopted different approaches to the treatment of Section 174 expenditures. The Company has considered the impact of state conformity in material jurisdictions for purposes of determining its income tax provision. The ultimate tax treatment of these items will be finalized upon the filing of the Company's income tax returns.
Other provisions of the OBBBA, including changes to bonus depreciation and international tax rules, did not have a material impact on the Company's consolidated financial statements due to taxable losses, a full valuation allowance on deferred tax assets, or inapplicability to the Company's operations.
Results of Operations
The following discussion and analysis includes a comparison of our results of operations for the year ended December 31, 2025 to the year ended December 31, 2024, unless otherwise stated. For a comparison of the results of operations for the year ended December 31, 2024 to the year ended December 2023, see the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our prospectus dated June 5, 2025, filed with the SEC on June 9, 2025.
The following table sets forth our results of operations for each of the periods presented:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue | |||||||||||||||||
| Services | $ | 241,043 | $ | 157,789 | $ | 114,531 | |||||||||||
| Hardware | 19,167 | 12,011 | 8,253 | ||||||||||||||
| Total revenue | 260,210 | 169,800 | 122,784 | ||||||||||||||
| Cost of revenue | |||||||||||||||||
|
Services(1)(2)(3)
|
51,839 | 42,520 | 36,735 | ||||||||||||||
| Hardware | 37,432 | 24,403 | 16,078 | ||||||||||||||
| Total cost of revenue | 89,271 | 66,923 | 52,813 | ||||||||||||||
| Gross profit | 170,939 | 102,877 | 69,971 | ||||||||||||||
| Operating expenses | |||||||||||||||||
|
Research and development(1)(3)
|
40,683 | 35,923 | 33,738 | ||||||||||||||
|
Sales and marketing(1)(2)(3)
|
90,044 | 68,053 | 66,249 | ||||||||||||||
|
General and administrative(1)(3)
|
52,184 | 42,555 | 35,981 | ||||||||||||||
| Total operating expenses | 182,911 | 146,531 | 135,968 | ||||||||||||||
| Operating loss | (11,972) | (43,654) | (65,997) | ||||||||||||||
| Other expense, net | |||||||||||||||||
| Interest expense | (2,534) | (4,506) | (4,705) | ||||||||||||||
| Interest income | 5,305 | 805 | 5,775 | ||||||||||||||
| Loss on debt extinguishment | (2,109) | - | (1,536) | ||||||||||||||
| Change in fair value of warrant liabilities | (1,468) | 218 | (1,048) | ||||||||||||||
| Total other expense, net | (806) | (3,483) | (1,514) | ||||||||||||||
| Loss before provision for income taxes | (12,778) | (47,137) | (67,511) | ||||||||||||||
| Provision for income taxes | - | - | - | ||||||||||||||
| Net loss and comprehensive loss | $ | (12,778) | $ | (47,137) | $ | (67,511) | |||||||||||
(1)Includes share-based compensation expense as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Cost of services revenue | $ | 169 | $ | 219 | $ | 87 | |||||||||||
| Research and development | 2,228 | 1,713 | 1,585 | ||||||||||||||
| Sales and marketing | 3,918 | 2,602 | 2,180 | ||||||||||||||
| General and administrative | 6,640 | 4,886 | 4,888 | ||||||||||||||
| Total share-based compensation expense | $ | 12,955 | $ | 9,420 | $ | 8,740 | |||||||||||
(2)Includes amortization of intangible assets as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Cost of services revenue | $ | 1,757 | $ | 1,755 | $ | 1,793 | |||||||||||
| Sales and marketing | 94 | 252 | 251 | ||||||||||||||
| Total amortization of intangible assets | $ | 1,851 | $ | 2,007 | $ | 2,044 | |||||||||||
(3)Includes depreciation and amortization as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Cost of services revenue | $ | 3,293 | $ | 2,406 | $ | 1,974 | |||||||||||
| Research and development | 88 | 83 | 83 | ||||||||||||||
| Sales and marketing | 121 | 118 | 122 | ||||||||||||||
| General and administrative | 138 | 189 | 225 | ||||||||||||||
|
Total depreciation and amortization(i)
|
$ | 3,640 | $ | 2,796 | $ | 2,404 | |||||||||||
(i)Depreciation and amortization includes depreciation of property and equipment and amortization of capitalized internal-use software costs.
Percentage of Revenue Data
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Revenue | |||||||||||||||||
| Services | 93 | % | 93 | % | 93 | % | |||||||||||
| Hardware | 7 | 7 | 7 | ||||||||||||||
| Total Revenue | 100 | 100 | 100 | ||||||||||||||
| Cost of revenue | |||||||||||||||||
| Services | 20 | 25 | 30 | ||||||||||||||
| Hardware | 14 | 14 | 13 | ||||||||||||||
|
Total cost of revenue
|
34 | 39 | 43 | ||||||||||||||
| Gross profit | 66 | 61 | 57 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Research and development | 16 | 21 | 28 | ||||||||||||||
| Sales and marketing | 35 | 41 | 54 | ||||||||||||||
| General and administrative | 20 | 24 | 29 | ||||||||||||||
|
Total operating expenses
|
71 | 86 | 111 | ||||||||||||||
| Operating loss | (5) | (25) | (54) | ||||||||||||||
| Other expense, net | |||||||||||||||||
| Interest expense | (1) | (4) | (4) | ||||||||||||||
| Interest income | 2 | 1 | 5 | ||||||||||||||
| Loss on debt extinguishment | (1) | - | (1) | ||||||||||||||
| Change in fair value of warrant liabilities | (1) | - | (1) | ||||||||||||||
|
Total other expense, net
|
(1) | (3) | (1) | ||||||||||||||
| Loss before provision for income taxes | (6) | (28) | (55) | ||||||||||||||
|
Provision for income taxes
|
- | - | - | ||||||||||||||
| Net loss and comprehensive loss | (6) | % | (28) | % | (55) | % | |||||||||||
Comparison of the years ended December 31, 2025 and 2024
Revenue
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Services | $ | 241,043 | $ | 157,789 | $ | 83,254 | 53 | % | |||||||||||||||
| Hardware | 19,167 | 12,011 | 7,156 | 60 | % | ||||||||||||||||||
| Total revenue | $ | 260,210 | $ | 169,800 | $ | 90,410 | 53 | % | |||||||||||||||
Total revenue increased $90.4 million, or 53%, for the year ended December 31, 2025 compared to the year ended December 31, 2024.
Services revenue increased by $83.3 million, or 53%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by an increase of $82.0 million related to growth in total members, with the average number of total members during the year ended December 31, 2025 increasing by 52% compared to the average for the year ended December 31, 2024 and an increase of $1.5 million driven by higher average fees per member.
Hardware revenue increased by $7.2 million, or 60%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by a 55% increase in total members, reflecting new members enrolled in our programs compared to the prior-year period, which directly drove the number of devices that we delivered.
Cost of Revenue
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Services | $ | 51,839 | $ | 42,520 | $ | 9,319 | 22 | % | |||||||||||||||
| Hardware | 37,432 | 24,403 | 13,029 | 53 | % | ||||||||||||||||||
| Total cost of revenue | $ | 89,271 | $ | 66,923 | $ | 22,348 | 33 | % | |||||||||||||||
Total cost of revenue increased by $22.3 million, or 33%, for the year ended December 31, 2025 compared to the year ended December 31, 2024.
Cost of services revenue increased $9.3 million, or 22%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by a $7.4 million increase in personnel costs related in part to an increase in headcount, a $0.8 million increase in technology support and product costs to support the growth in our total members, and a $0.8 million increase in amortization of capitalized internal-use software costs.
Cost of hardware revenue increased by $13.0 million, or 53%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by a 55% increase in total members, reflecting new members enrolled in our programs compared to the prior-year period, which drove new devices, supplies, fulfillment costs, which include tariffs, compared to the prior period.
Gross Profit and Gross Margin
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Gross profit | $ | 170,939 | $ | 102,877 | $ | 68,062 | 66 | % | |||||||||||||||
| Gross margin | 65.7 | % | 60.6 | % | 5.1 ppt | ||||||||||||||||||
Gross profit increased by $68.1 million, or 66%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, driven by a 55% increase in total members and a decrease in personnel costs per total member needed
to support enrolled members as a result of Care Team efficiency initiatives, as well as the expanded use of supporting technologies, such as tools for Care Team message support.
Gross margin expanded by 5.1 percentage points for the year ended December 31, 2025 compared to the year ended December 31, 2024. The expansion of gross margin was primarily driven by lower personnel costs per total member needed to support enrolled members as a result of Care Team efficiency initiatives, as well as the expanded use of supporting technologies, such as tools for Care Team message support.
Operating Expenses
Research and Development
| Year ending December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Research and development | $ | 40,683 | $ | 35,923 | $ | 4,760 | 13 | % | |||||||||||||||
Research and development expenses increased $4.8 million, or 13%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by a $3.3 million increase in personnel costs related primarily to an increase in headcount and stock-based compensation per employee and a $1.3 million increase in technology infrastructure expenses, professional and outside services costs.
Sales and Marketing
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Sales and marketing | $ | 90,044 | $ | 68,053 | $ | 21,991 | 32 | % | |||||||||||||||
Sales and marketing expenses increased by $22.0 million, or 32%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by a $11.9 million increase in administrative and marketing fees that we paid to channel partners for their services in support of our member enrollments, a $6.5 million increase in personnel costs related primarily to an increase in headcount and increases in compensation expenses per employee, and a $3.9 million increase in other marketing programs and sales commissions, offset by a $0.2 million decrease in professional and outside services.
General and Administrative
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| General and Administrative | $ | 52,184 | $ | 42,555 | $ | 9,629 | 23 | % | |||||||||||||||
General and administrative expenses increased by $9.6 million, or 23%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by a $5.8 million increase in personnel costs related primarily to an increase in headcount, increases in compensation expenses per employee, and increased travel and entertainment costs associated with our IPO, a $1.7 million increase in local taxes, a $1.2 million increase in technology infrastructure expenses, a $0.9 million increase in business insurance expenses and other subscription expenses, a $0.7 million increase in professional and outside services costs related to preparing for public company operations, offset by a $0.6 million decrease in bad debt expense and a $0.3 million decrease in facilities expense due to the expiration of our lease.
Other Expense, Net
Interest Expense
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Interest Expense | $ | 2,534 | $ | 4,506 | $ | (1,972) | (44) | % | |||||||||||||||
Interest expense decreased by $2.0 million, or 44%, for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to the extinguishment of our MidCap Term Facility and MidCap Revolving Facility on July 31, 2025.
Interest Income
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Interest Income | $ | 5,305 | $ | 805 | $ | 4,500 | 559 | % | |||||||||||||||
Interest income increased by $4.5 million, or 559%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by interest earned from the increase in cash and cash equivalents from IPO proceeds.
Loss on Debt Extinguishment
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Loss on debt extinguishment | $ | (2,109) | $ | - | $ | (2,109) | 100 | % | |||||||||||||||
The loss on debt extinguishment increased by $2.1 million, or 100%, for the year ended December 31, 2025 compared to the year ended December 31, 2024 due to the extinguishment of our MidCap Term Facility and MidCap Revolving Facility on July 31, 2025.
Change in Fair Value of Warrant Liabilities
| Year Ended December 31, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Change in fair value of warrant liabilities | $ | 1,468 | $ | (218) | $ | 1,686 | (773) | % | |||||||||||||||
The change in fair value of warrant liabilities increased by $1.7 million, or 773%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by changes in the stock price, expected stock volatility, risk-free rate, and reduction in time to expiry.
Trends
Seasonality
We typically close a higher percentage of sales to new customers, as well as renewals or expansions with existing customers, in the second and third quarters, aligning with benefits enrollment schedules and allowing us to launch our products at the start of the following year. This seasonality generally leads to higher new member enrollment in the first and second quarters, resulting in increased Care Team costs to support the newly enrolled members. These higher new member enrollments also require shipments of new devices to newly enrolled members in the same quarter of enrollment or
the beginning of the following quarter and increased hardware revenue in those periods. These increased costs result in lower overall gross margins in those quarters and there is typically a decrease in these costs in subsequent quarters. After the effects of these early program costs of new enrollments, increases in the number of members will generally be reflected in increased revenue in subsequent quarters as services revenue is generally recognized in arrears after the provision of our virtual care programs begins.
Obesity and Weight Management
The obesity and weight health market is rapidly evolving, with a surge in GLP-1 adoption creating a broader spotlight on obesity and cardiometabolic disease more generally. As these medications draw significant attention-and cost-employers and health plans are under increasing pressure to balance access with affordability, making it difficult for many to offer broad GLP-1 coverage. In this environment, we believe Omada is well positioned to support customers across a range of coverage strategies: for those that cover GLP-1s, our GLP-1 companion programs are designed to help enhance medication effectiveness and durability; for those that do not, our proven prevention and weight health program, together with our broader cardiometabolic offerings, provides an evidence-based path to improving weight and metabolic health without relying on expensive drugs. As a result, increased focus on GLP-1s has contributed to demand for our solutions among both employers that cover these medications and those that do not. In addition, we recently announced the capability to prescribe GLP-1 therapies and other AOM as an extension of our GLP-1 support offerings, reflecting our proactive approach to evolving care models and meeting customer needs, while continuing to innovate on traditional care protocols.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through proceeds from issuance of our redeemable convertible preferred stock, debt financing agreements, and cash generated from the sale of our products and services. As of December 31, 2025, our principal sources of liquidity were cash and cash equivalents of $222.0 million and working capital of $197.2 million. Cash and cash equivalents are composed of cash held in sweep accounts, checking accounts, and money market funds. Our principal use of cash is to fund our operations and invest in R&D to support our growth.
We have generated significant losses from operations and negative cash flows from operating activities in the past, as reflected in our accumulated deficit of $456.7 million as of December 31, 2025. We believe that our current cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months. Our future capital requirements, however, will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and R&D expenditures, the continuing market acceptance of our products and services, and the use of cash to fund potential mergers or acquisitions. In the event that additional financing is required from outside sources, we may seek to raise additional funds through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and on acceptable terms, our business, results of operations, and financial condition could be materially and adversely affected.
In June 2023, we entered into a financing arrangement with Physera, Inc., MidCap Funding IV Trust ("MidCap"), as administrative agent, MidCap Financial Trust, as term loan servicer, certain funds managed by MidCap, as lenders, and the lenders, additional borrowers, and guarantors from time to time party thereto (as amended, restated, amended and restated, supplemented, or otherwise modified from time to time, the "MidCap Credit Agreement"), for a senior secured term loan (the "MidCap Term Facility") in an aggregate principal amount of up to $60.0 million, with up to $30.0 million available upon the initial closing date and up to $30.0 million (the "Second Tranche") available for draw from October 2024 through March 2025 conditional upon achievement of $120.0 million of trailing 12-month revenue (the "Revenue Condition") and $60.0 million liquidity. On March 7, 2025, we entered into an amendment to the MidCap Credit Agreement which, among other things, (i) extended the availability of the Second Tranche until December 31, 2025 and (ii) modified the Revenue Condition to require trailing 12-month revenue of $165.0 million if the Second Tranche were to be advanced during the first fiscal quarter of 2025, $170.0 million if the Second Tranche were to be advanced during the second fiscal quarter of 2025, $175.0 million if the Second Tranche were to be advanced during the third fiscal quarter of 2025, and $180.0 million if the Second Tranche were to be advanced during the fourth fiscal quarter of 2025. Upon the initial closing date of the MidCap Credit Agreement, we drew down on $30.0 million of the MidCap Term Facility and used a portion of the proceeds to repay the outstanding principal balance (including prepayment premium) and accrued interest on a pre-existing credit facility. The MidCap Term Facility was interest-only for 48 months. At the end of the initial interest-only period, we could elect to extend the interest-only period an additional 12 months if we met a certain trailing 12-month revenue level (the "Minimum Net Revenue") and no event of default had occurred and was continuing. The MidCap Credit Agreement also included a revolving line of credit facility (the "MidCap Revolving Facility") allowing for up to $20.0 million in
revolving borrowings. The availability of the MidCap Revolving Facility was calculated as a percentage of our outstanding accounts receivable and inventory balances ("Availability"). We were required to maintain a minimum drawn balance on the MidCap Revolving Facility of no less than 20% of Availability, or we would have been required to pay a fee equal to the MidCap Revolving Facility interest rate on the difference between the amount of revolving loans drawn and 20% of Availability. Upon the initial closing date of the MidCap Credit Agreement, we drew $1.0 million on the MidCap Revolving Facility. The maturity date of the MidCap Term Facility and the MidCap Revolving Facility was June 1, 2028. As of December 31, 2025, the outstanding balance on the MidCap Term Facility and MidCap Revolving Facility was fully repaid.
Interest was charged on any outstanding principal of the MidCap Term Facility at the sum of the one-month forward-looking term SOFR rate plus 0.10% ("Adjusted SOFR"), plus 7.00%, subject to a floor of 2.50%. Interest on the MidCap Revolving Facility was charged at the sum of Adjusted SOFR plus 4.00%, subject to a floor of 2.50%. Both interest rates were reset monthly. The effective interest rate for the years ended December 31, 2025 and 2024, was 10.0% and 14.3%, respectively, on the MidCap Term Facility, and 8.4% and 12.0%, respectively, on the MidCap Revolving Facility.
The MidCap Credit Agreement included customary covenants for a facility of this type, including monthly reporting requirements and, at any time that liquidity was less than 1.50x the outstanding principal balance of the MidCap Term Facility, a financial covenant to maintain minimum trailing 12-month net revenue levels specified in the MidCap Credit Agreement. The MidCap Credit Agreement also contained various covenants that limited our ability to, among other things: sell, transfer, lease, or dispose of our assets subject to certain exclusions; create, incur, assume, guarantee, or assume additional indebtedness, other than certain permitted indebtedness; encumber or permit liens on any of our assets other than certain permitted liens; make restricted payments, including paying cash dividends on, repurchasing or making distributions with respect to any of our capital stock; make specified investments; consolidate, merge with, or acquire any other entity, or sell or otherwise dispose of all or substantially all of our assets; and enter into certain transactions with our affiliates, in each case, subject to certain exceptions, baskets, and thresholds set forth in the MidCap Credit Agreement. As of July 31, 2025, we were in compliance with our financial covenants.
On June 9, 2025, we completed our IPO of 9,085,000 shares of our common stock, which includes the exercise in full by the underwriters of their option to purchase from us 1,185,000 shares of our common stock, at a price to the public of $19.00 per share. The gross proceeds to us from the IPO were $172.6 million and $151.6 million, after deducting $12.0 million underwriting discounts and commissions and $9.0 million estimated offering expenses payable by us. Immediately prior to the closing of the IPO, each outstanding share of our Series A, Series B, Series C, Series C-1, Series D, Series D-1, and Series E redeemable convertible preferred stock, including shares of redeemable convertible preferred stock issued upon the exercise of Series B and Series D redeemable convertible preferred stock warrants, converted into one-third of a share of our common stock.
On July 31, 2025, we used a portion of our IPO proceeds to fully repay outstanding amounts under the MidCap Term Facility and MidCap Revolving Facility with the principal and accrued interest balances of $31.0 million and $0.4 million, respectively. The repayment of the MidCap Term Facility and MidCap Revolving Facility was accounted for as a debt extinguishment. The consideration used to extinguish the MidCap Term Facility and MidCap Revolving Facility and the carrying value of the debt instruments (including unamortized debt issuance costs) resulted in a loss on early extinguishment of debt of $2.1 million included in loss on early extinguishment of debt within our consolidated statements of operations.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 |
2023
|
|||||||||||||||
| (in thousands) | |||||||||||||||||
|
Net cash provided by (used in) operating activities
|
$ | 18,252 | $ | (34,179) | $ | (49,738) | |||||||||||
|
Net cash (used in) investing activities
|
$ | (5,832) | $ | (3,863) | $ | (2,921) | |||||||||||
|
Net cash provided by (used in) financing activities
|
$ | 133,224 | $ | (1,209) | $ | 179 | |||||||||||
Operating Activities
Our largest source of operating cash flows is cash collections from our customers who purchase access to our programs for their members. Our primary use of cash in operating activities is for personnel and related expenses, marketing expenses, and third-party hosting and software costs. We have incurred negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from the sale of redeemable convertible preferred stock, debt financing arrangements and IPO proceeds.
Net cash provided by operating activities during the year ended December 31, 2025 of $18.3 million was the result of a $12.8 million net loss, adjusted for $27.3 million of non-cash adjustments and $3.7 million of net cash outflow from changes in operating assets and liabilities. The non-cash adjustments consisted primarily of $13.0 million of share-based compensation expense, $5.5 million of depreciation and amortization expense, $3.3 million of amortization of deferred commissions, a $2.1 million increase in loss on debt extinguishment, a $1.5 million increase in the fair value of warrant liabilities, a $1.2 million increase in the provision for credit losses, $0.4 million of amortization of operating lease right-of-use assets, and $0.3 million of amortization of debt issuance costs. The net cash inflow from changes in operating assets and liabilities was primarily the result of a $12.4 million increase in accounts receivable, a $10.6 million increase in accrued expenses and other current liabilities, a $3.5 million increase in deferred commissions, a $1.4 million increase in prepaid and other current assets, a $1.2 million increase in inventory and a $0.4 million decrease in operating lease liabilities, partially offset by a $6.3 million increase in accounts payable, a $5.5 million increase in deferred revenue, and a $0.3 million decrease in other non-current assets.
Net cash used in operating activities during the year ended December 31, 2024 of $34.2 million was the result of a $47.1 million net loss, adjusted for $19.5 million of non-cash adjustments and $6.6 million of net cash outflow from changes in operating assets and liabilities. The non-cash adjustments consisted primarily of $9.4 million in share-based compensation expense, $4.8 million of depreciation and amortization expense, $2.6 million of amortization of deferred commissions, $1.8 million increase in the provision for credit losses, $0.7 million of amortization of operating lease right-of-use assets, and $0.4 million of amortization of debt issuance costs, offset by $0.2 million decrease in fair value of warrants. The net cash outflow from changes in operating assets and liabilities was primarily the result of a $8.8 million increase in accounts receivable, a $6.4 million increase in deferred commissions, a $1.9 million increase in prepaid and other current assets, a $0.8 million decrease in operating lease liabilities, partially offset by a $5.3 million increase in accrued expenses and other current liabilities, a $4.6 million increase in deferred revenue, a $0.4 million increase in accounts payable, a $0.4 million decrease in other non-current assets, a $0.3 million decrease in inventory, and a $0.2 million increase in other non-current liabilities.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2025 of $5.8 million was the result of capitalized internal-use software costs of $4.5 million and purchases of property and equipment of $1.3 million.
Net cash used in investing activities during the year ended December 31, 2024 of $3.9 million was the result of purchases of property and equipment of $0.6 million and capitalized internal-use software costs of $3.3 million.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2025 of $133.2 million was the result of $160.5 million of proceeds from the IPO net of underwriting discounts and commissions and $9.4 million of proceeds from the exercise of stock options, partially offset by $31.0 million of repayment of Midcap term facility principal, $4.3 million of payments for offering costs and $1.4 million of payments for debt extinguishment costs.
Net cash used by financing activities for the year ended December 31, 2024 of $1.2 million was the result of $4.5 million of payments for deferred offering costs, partially offset by $3.3 million of proceeds from the exercise of stock options.
Contractual Obligations and Other Commitments
Purchase commitments
Our unconditional purchase commitments primarily consist of technology and cloud services related to our daily business operations. As of December 31, 2025, we had no unconditional purchase commitments due in 2025 and $8.6 million due in 2026 and thereafter. The purchase obligation amounts do not represent the entire anticipated purchases in the future but represent only those items for which we are contractually obligated. The majority of our goods and services are purchased as needed, with no unconditional commitment. For this reason, these amounts do not provide an indication of our expected future cash outflows related to purchases. See Note 7 to our consolidated financial statements included elsewhere in this Form 10-K.
Indemnification Agreements
In the ordinary course of business, we include in our agreements indemnification provisions of varying scope and terms pursuant to which we agree to indemnify customers, channel partners, suppliers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. The term of these indemnification provisions generally survive the termination of the agreements indefinitely. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. No demands have ever been made upon us to provide indemnification under such agreements, and there are no claims under those indemnification terms that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows. As a result, we believe the fair value of these agreements is minimal.
In addition, we have entered into separate indemnification agreements with our directors and certain officers and other employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, and employees.
Emerging Growth Company Status
We qualify as an "emerging growth company" as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: (i) being permitted to present only two years of audited financial statements, in addition to any required interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure in this Form 10-K; (ii) reduced disclosure about our executive compensation arrangements; (iii) not being required to hold advisory votes on executive compensation or to obtain stockholder approval of any golden parachute arrangements not previously approved; (iv) an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and (v) an exemption from compliance with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor's report on the financial statements.
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this Form 10-K. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. Additionally, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption, and therefore, while we are an emerging growth company, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. As a result of this election, our consolidated financial statements may not be comparable to those of other public companies that comply with new or revised accounting pronouncements as of public
company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
Critical Accounting Policies and Estimates
Our consolidated financial statements and the related notes thereto included elsewhere in this Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements in accordance with GAAP requires us to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the related disclosures as of the date of the financial statements, as well as reported amounts of revenue and expenses during the period presented. 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. We believe that of our significant accounting policies, which are described in Note 2 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition, results of operations, and cash flows.
Revenue Recognition
We generate revenue primarily by providing access to our virtual care programs to our customers' members. In our virtual care programs, our Care Teams implement clinically validated behavior change protocols over the term of the program for individuals living with chronic conditions, such as cardiometabolic conditions, or living with MSK conditions. Cardiometabolic programs are also supported by one or more connected third-party devices, which are provided to the members upon enrollment in the programs.
Revenue is recognized when, or as, the performance obligation is satisfied by transferring the control of the promised service to a customer. We recognize a portion of revenue upfront upon hardware delivery and the remaining revenue over the period members have access to our virtual care programs.
Our customers are business entities, such as health plans and self-insured employers, that have contracted with us to offer our virtual care programs to their covered lives. Covered lives, such as employees or their covered dependents, that are enrolled in an Omada program are referred to as members. We generate revenue based on the enrollments of our customers' members and their participation in our virtual care programs. We account for each member enrollment as a separate contract under ASC 606. Our agreements typically provide a termination for convenience by either party, with a notice period generally ranging from 30 to 180 days.
We sell to our customers through our direct sales force and through our channel partners. Channel partners include PBMs and health plans that have commercial relationships with our customers. Pursuant to our agreements with channel partners, some channel partners receive an administrative or marketing fee for their services, and we engage directly with our customers with respect to the provision of our services. Our customer acquisition teams work directly with customers on onboarding and enrollment processes for new members. While health plans are customers for their fully insured populations, they also serve as distribution channels to self-insured entities that contract with us through our relationship with the health plan.
For cardiometabolic programs, the transaction price includes monthly fees which are either activity-, outcome-, or milestone-based fees, as applicable, for the respective member service period and may include an upfront member enrollment fee. Variable consideration related to the activity-, outcome-, or milestone-based fees is estimated at contract inception for the non-cancelable term (ranging from 30 to 180 days) to the extent a significant reversal in revenue will not occur. We use the expected value method, primarily relying on our history, to estimate variable consideration, including service-level agreements and performance guarantees based on clinical outcomes. Changes to estimated variable consideration were not material for the periods presented given the relatively short non-cancelable term.
The estimated transaction price allocated to services is recognized over time during the non-cancelable term as a stand-ready obligation. Contracts that include upfront enrollment fees generally contain a material right related to the discounted renewal option. The allocated value for that right is recognized upon exercise over the estimated benefit period, typically 12 months.
Monthly service fees earned after the non-cancelable contract term are recognized over the period for which we are obligated to perform services for that member.
We recognize the sale of third-party connected devices associated with our services as a separate performance obligation when control transfers, which is generally upon shipment to the member. Associated shipping and handling fees are included in cost of revenue and are recognized as activities to fulfill the promise to transfer the goods.
Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price ("SSP") basis.
When such observable prices are not available, we determine SSP based on information such as pricing objectives and strategies, taking into consideration market conditions and other factors, including customer size, volume purchased, market and industry conditions, product-specific factors, and historical sales of the deliverables.
We apply the practical expedient to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
As of December 31, 2025 and 2024, our future performance obligations beyond one year were not material.
Stock-based Compensation
We account for stock-based compensation in accordance with the authoritative guidance on stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of forfeitures, in the statement of operations over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are estimated based upon our historical experience and we revise the estimates, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.
Determining the grant-date fair value of stock options requires judgment. We estimate the fair value of restricted stock units at our stock price on the grant date. We use the Black-Scholes option-pricing model to determine the fair value of stock options and warrants. The determination of the grant-date fair value using the Black-Scholes model is affected by the fair value of our common stock and assumptions regarding a number of other complex and subjective variables. These assumptions include the expected term of the award, the expected stock price volatility over the expected term of the award, the risk-free interest rate for the expected term of the award, and expected dividends.
Common Stock Valuations
Prior to our IPO, the fair value of the common stock underlying our share-based awards has historically been determined by our board of directors, with input from management and contemporaneous third-party valuations. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:
•the results of contemporaneous valuations performed at periodic intervals by a third-party valuation firm;
•the prices, rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;
•the prices of our redeemable convertible preferred stock and common stock sold to investors in arm's-length transactions;
•our actual operating and financial performance and estimated trends and prospects for our future performance;
•our stage of development;
•the likelihood of achieving a liquidity event, such as an initial public offering, direct listing, or sale of our company, given prevailing market conditions;
•the lack of marketability involving securities in a private company;
•the market performance of comparable publicly traded companies; and
•U.S. and global capital market conditions.
In valuing our common stock, the fair value of our business was determined using various valuation methods, including combinations of the market approach and the income approach with input from management. The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple was determined, which was applied to our operating results to estimate the enterprise value of our company. The market approach also included reference to our own stock transactions when issuances of redeemable convertible preferred stock were made close to the valuation date. The income approach involves applying an appropriate risk-adjusted discount rate to projected cash flows based on forecasted revenue and costs.
Once the enterprise value was determined under the market approach or income approach, we derived the equity value of our company using either an option pricing model ("OPM") or a hybrid method of OPM and the probability weighted expected return method ("PWERM") to allocate that value among the various classes of securities to arrive at the fair value of the common stock. The OPM is based on the Black-Scholes-Merton option pricing model, which allows for the identification for a range of possible future outcomes, each with an associated probability. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise including an IPO as well as non-IPO market-based outcomes. After the equity value is determined and allocated to the various classes of shares, a discount for lack of marketability ("DLOM") is applied to arrive at the fair value of ordinary shares. A DLOM is applied based on the theory that, as an owner of a private company stock, the stockholder has limited opportunities to sell this stock, and any such sale would involve significant transaction costs, thereby reducing overall fair market value.
In addition, we also considered any secondary transactions involving our capital stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange. Factors considered include transaction volume, timing, whether the transactions occurred among unrelated parties, and whether the transactions involved investors with access to our financial information.
Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
For valuations after the completion of our IPO, the board of directors determined the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant. Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.
Redeemable Convertible Preferred Stock and Common Stock Warrants
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. We have issued redeemable convertible preferred stock warrants and common stock warrants which are classified as a liability on the consolidated balance sheets because the redeemable convertible preferred stock warrants are freestanding financial instruments that may require us to transfer assets upon exercise, and the common stock warrants contain a term that may require adjustment to the exercise price. We use the Black-Scholes-Merton option pricing model, which incorporates assumptions and estimates, to value the redeemable convertible preferred stock warrants and common stock warrants. Stock volatility is estimated based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The dividend yield is estimated at 0% based on the expected dividend yield as we do not anticipate paying any cash dividends in the foreseeable future.
Recently Issued Accounting Pronouncements Adopted
For more information on recently issued accounting pronouncements, see Note 2 to our consolidated financial statements included elsewhere in this Form 10-K for more information.
New Accounting Pronouncements Not Yet Adopted
For more information on recently issued accounting pronouncements, see Note 2 to our consolidated financial statements included elsewhere in this Form 10-K for more information.
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