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What changed in Freshworks Inc.'s 10-K — 2022 vs 2023

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

+450 added−403 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-23)

Top changes in Freshworks Inc.'s 2023 10-K

450 paragraphs added · 403 removed · 290 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe majority of our workforce, approximately 4,580 employees, is based in India, where most of engineering, product design, sales and marketing, customer support, and general and administrative personnel are located. Our company headquarters are based in San Mateo, California, where most of our executives are located, and our other global offices are primarily focused on regional sales and marketing activities.
Biggest changeWe’re headquartered in San Mateo, CA and have 13 other offices across the globe with a majority of employees based in India, where we were founded. Major areas of focus in this region include engineering, product design, customer support, in-bound sales and general and administrative personnel.
Products and Capabilities Freshworks provides solutions that serve the needs of users in the CX and ITSM categories, and we have also expanded our offering with Sales and Marketing automation products. These product offerings enable organizations to acquire, engage, and better serve their customers and employees.
Products and Capabilities Freshworks provides solutions that serve the needs of users in the CS and ITSM categories, and we have also expanded our offering with Sales and Marketing automation products. These product offerings enable organizations to acquire, engage, and better serve their customers and employees.
Many of these services do not offer complete solutions—often they provide a feature comparable to a component of our platform (e.g., only customer experience management, only IT service management, only Sales and Marketing). Within CX, we primarily face competition from CX suites, such as Salesforce, Zendesk, and Zoho, legacy vendors, such as Oracle and SAP, and pure-play vendors.
Many of these services do not offer complete solutions—often they provide a feature comparable to a component of our platform (e.g., only customer service management, only IT service management, only Sales and Marketing). Within CS, we primarily face competition from CS suites, such as Salesforce, Zendesk, and Zoho, legacy vendors, such as Oracle and SAP, and pure-play vendors.
Our cybersecurity program is based on the concept of defense-in-depth and focuses on securing data at every layer. Our security posture is maintained by utilizing both enterprise best-of-breed technologies and customized open-source solutions to identify, detect, and prevent cybersecurity threats, as well as 24x7 monitoring for malicious activity.
Our cybersecurity program is based on the concept of defense-in-depth and focuses on securing data at every layer. Our security posture is maintained by utilizing both enterprise technologies and customized open-source solutions designed to identify, detect, and prevent cybersecurity threats, as well as 24x7 monitoring for malicious activity.
We obtain many components from software developed and released by contributors to independent open source components of our platform. Open source licenses grant licensees broad permissions to use, copy, modify, and redistribute our platform. As a result, open source development and licensing practices can limit the value of our software copyright assets.
We obtain many components from software developed and released by contributors to independent open source components of our platform. 10 Table of Contents Open source licenses grant licensees broad permissions to use, copy, modify, and redistribute our platform. As a result, open source development and licensing practices can limit the value of our software copyright assets.
We believe we compete favorably based on the following competitive factors: • designed for the user; • lesser time to realize value of investment; • unified experience; • modern, end-to-end, and extensible platform; • designed for businesses of all sizes; • intelligent, automation-first and AI/ML-powered solutions; • product-led go-to-market motion; 10 Table o f Contents • fast to go-live; • easy and intuitive; and • affordable pricing.
We believe we compete favorably based on the following competitive factors: • designed for the user; • lesser time to realize value of investment; • unified experience; 9 Table of Contents • modern, end-to-end, and extensible platform; • designed for businesses of all sizes; • intelligent, automation-first and AI/ML-powered solutions; • product-led go-to-market motion; • fast to go-live; • easy and intuitive; and • affordable pricing.
It encompasses product security, security architecture and engineering, cloud security, penetration testing, third-party risk management and customer support. Our production network and systems are accessible only to authorized Freshworks personnel. • Efficiency : Our multi-tenant architecture delivers economies of scale, ensuring improved utilization of cloud infrastructure as businesses and customer usage grows.
Our cybersecurity program encompasses product security, 8 Table of Contents security architecture and engineering, cloud security, penetration testing, third-party risk management and customer support. Our production network and systems are accessible only to authorized Freshworks personnel. • Efficiency : Our multi-tenant architecture delivers economies of scale, ensuring improved utilization of cloud infrastructure as businesses and customer usage grows.
We drive potential customers to our website as the 5 Table o f Contents primary channel to learn about our solutions and we offer 21-day free trials of our products, giving potential customers flexibility to try before they buy. • Outbound motion : This approach is focused on mid-market and enterprise organizations.
We drive potential customers to our website as the 4 Table of Contents primary channel to learn about our solutions and we offer 14-day free trials of our products, giving potential customers flexibility to try before they buy. • Outbound motion : This approach is focused on mid-market and enterprise organizations.
We rely on a combination of patents, trademarks, copyrights, trade secrets as well as contractual provisions and restrictions to establish and protect our proprietary rights. As of December 31, 2022, we had twelve issued U.S. patents that expire between 2037 and 2040, and nine pending patent applications.
We rely on a combination of patents, trademarks, copyrights, trade secrets as well as contractual provisions and restrictions to establish and protect our proprietary rights. As of December 31, 2023, we had sixteen issued U.S. patents that expire between 2037 and 2041, and twelve pending patent applications.
Our sales teams are organized by customer size, targeting SMBs with a highly efficient, cost-effective sales organization based in Chennai, in region sales teams focused on our larger customers, and partner-selling teams supporting our partners in other geographies.
We have continually increased investments in our outbound sales and marketing efforts globally. Our sales teams are organized by customer size, targeting SMBs with a highly efficient, cost-effective sales organization based in Chennai, in region sales teams focused on our larger customers, and partner-selling teams supporting our partners in other geographies.
This enables us to disrupt the traditional top-down sales motion, letting users, not executives, designate Freshworks as their software of choice. Our go-to-market approach allows us to respond to how businesses want to buy our products.
Our pricing is transparent, affordable, and easy to understand, reducing the length of sales cycles and increasing the efficiency of marketing and sales. This enables us to disrupt the traditional top-down sales motion, letting users, not executives, designate Freshworks as their software of choice. Our go-to-market approach allows us to respond to how businesses want to buy our products.
Sales and Marketing The foundation of our go-to-market strategy is a highly efficient inbound motion driven by PLG, as well as paid campaigns and search engine optimized (SEO) content marketing and listings across peer review sites to drive organic traffic. Leads are ushered into a trial where they experience in-app cues and functionality that prompts conversion to paying customers.
Sales and Marketing The foundation of our go-to-market strategy is a highly efficient inbound motion driven by PLG, as well as paid campaigns and search engine optimized (SEO) content marketing, affiliates and listings across peer review sites to drive organic traffic.
Therefore, we encourage investors, the media and others interested in our company to review the information we make public in these locations, as such information could be deemed to be material information.
We use these channels to communicate with investors and the public about our company, our products and services and other matters. Therefore, we encourage investors, the media and others interested in our company to review the information we make public in these locations, as such information could be deemed to be material information. 11 Table of Contents
We started with Freshdesk, our customer experience (CX) product, and later expanded our offering to include Freshservice, our IT service management (ITSM) product. Next, we introduced Freshsales and Freshmarketer, our sales force and marketing automation solutions, and Freshchat, our messaging/chat product offering. Currently, more than 63,400 businesses use our software to delight their customers and employees.
We started with Freshdesk, our customer service (CS) product, and later expanded our offering to include Freshservice, our IT and employee service management (ITSM) product. Next, we introduced Freshsales and Freshmarketer, our sales force and marketing automation solutions, and Freshchat, our messaging/chat product offering.
We also offer Freshsales Suite that includes the best of sales force and marketing automation with a unified customer record so businesses can better market and sell to each customer. • Freshsales .
We also offer Freshsales Suite that includes the best of sales force and marketing automation with a unified customer record so businesses can better market and sell to each customer. • Freshsales . Freshsales is an advanced and user-friendly sales automation solution crafted to enhance businesses by boosting revenue growth and fostering strong customer connections.
For employee facing teams, our ITSM product, Freshservice, provides both the intelligence and automation businesses need to give employees the “consumer” like experience they now expect. We also offer additional products, including management of HR and non-IT departments.
For IT and employee-facing teams, our service management product, Freshservice, provides both the intelligence and automation businesses need to give employees the “consumer” like experience they now expect. Freshservice provides a foundation for managing the IT department and extends to other departments like HR and Facilities.
Businesses can use Neo—which provides a low-code development and a hassle-free deployment environment—to extend and integrate Freshworks into their existing solutions and perform advanced analytics to gain insights that help them run their businesses more efficiently. 6 Table o f Contents Freshworks Products Overview Customer Relationship Management (CRM) Product Offerings Freshworks has a unified CRM platform that encompasses Conversational Support, Sales and Marketing.
Businesses can also use Neo's Developer platform and Marketplace to extend and integrate Freshworks into their existing systems and advanced analytics to gain insights that help them run their business more efficiently. 5 Table of Contents Freshworks Products Overview Customer Relationship Management (CRM) Product Offerings Freshworks has a unified CRM platform that encompasses Support, Sales and Marketing.
Our governance process is geared to identify and implement infrastructure and production architecture optimizations, and effectively utilize the capabilities of our technology and cloud vendors. 9 Table o f Contents Research and Development Our engineering and product teams are customer-oriented and work alongside businesses to deliver high value, high-quality features and functionality across the numerous products we support, including customer-requested features that would be valuable across our customer base.
Research and Development Our engineering and product teams are customer-oriented and work alongside businesses to deliver high value, high-quality features and functionality across the numerous products we support, including customer-requested features that would be valuable across our customer base.
Women represented approximately 35% of our global workforce as of December 31, 2022. Employee and leadership development are critical pieces of our talent management strategy. We plan to continue investing in leadership capabilities and employee experiences as we believe that this is a key differentiator for our employer brand and for delivering exceptional business outcomes.
We plan to continue investing in leadership capabilities and employee experiences as we believe that this is a key differentiator for our employer brand and for delivering exceptional business outcomes. As of December 31, 2023, we had a hybrid workforce of approximately 4,900 employees in North America, Europe, Asia and Australia.
The simplicity and powerful functionality underpinning our Freshworks solutions acts as the primary driver of customer acquisition, conversion, and expansion by driving trials of our products that we supplement with our inbound and outbound sales motions. Our pricing is transparent, affordable, and easy to understand, reducing the length of sales cycles and increasing the efficiency of marketing and sales.
Our Business Model Product-led growth (PLG) is the core foundation of Freshworks and has helped us serve organizations of all sizes. The simplicity and powerful functionality underpinning our Freshworks solutions acts as the primary driver of customer acquisition, conversion, and expansion by driving trials of our products that we supplement with our inbound and outbound sales motions.
We layer in both an outbound sales and marketing motion, as well as a partner-led sales distribution strategy to increase success across the breadth of our market opportunity. We have continually increased investments in our outbound sales and marketing efforts globally.
Leads are ushered into a trial where they experience in-app triggers, lifecycle emails and functionality that prompts conversion to paying customers. We layer in both an outbound sales and marketing motion, as well as a partner-led sales distribution strategy to increase success across the breadth of our market opportunity.
We announce material information to the public through a variety of means, including filings with the SEC, press release, public conference calls, our website (freshworks.com) and the investor relations section of our website (ir.freshworks.com). We use these channels to communicate with investors and the public about our company, our products and services and other matters.
We announce material information to the public through a variety of means, including filings with the U.S. Securities and Exchange Commission, press releases, public conference calls, our website (freshworks.com), the investor relations section of our website (ir.freshworks.com), our LinkedIn account (linkedin.com/company/freshworks-inc/), and our X (formerly Twitter) account (@FreshworksInc).
Most recently, we introduced Freshsurvey, a free tool built entirely on the Neo platform that makes it easy to measure NPS and other satisfaction metrics directly within Freshworks products. 8 Table o f Contents Our Platform—Freshworks Neo Freshworks Neo enables customers to extend and integrate Freshworks solutions to mold their business processes today, and adapt to business changes in the future.
Most recently, we introduced Freshsurvey, a free tool built entirely on the Neo platform that makes it easy to measure NPS and other satisfaction metrics directly within Freshworks products. Our Platform—Freshworks Neo Our Neo platform is the AI-powered, enterprise-grade foundation for all Freshworks products.
Businesses from more than 170 countries around the world use Freshworks products to delight their customers and employees every day. As of December 31, 2022, over 50% of our annual recurring revenue (ARR) was from customers with more than 250 employees.
As of December 31, 2023, over 50% of our annual recurring revenue (ARR) was from customers with more than 250 employees. We provide products across multiple markets in order to address the needs of businesses of all sizes that need to digitally transform to delight their customers and employees.
Item 1. BUSINESS Overview Our mission is to make it fast and easy for businesses to delight their customers and employees. We provide businesses of all sizes with modern SaaS products that are designed with the user in mind.
Item 1. Business Overview Our mission is to make it fast and easy for businesses to delight their customers and employees. We deliver modern and innovative AI-guided customer and employee service solutions that enable companies of all sizes to drive delightful engagement and increase productivity.
Freshchat is also commonly included as part of the complete CRM and CX offerings noted above. 7 Table o f Contents Sales and Marketing Product Offerings The products for our Sales and Marketing offering are Freshsales, which businesses use for sales force automation, and Freshmarketer, which businesses use for marketing automation.
Sales and Marketing Product Offerings The products for our Sales and Marketing offering are Freshsales, which businesses use for sales force automation, and Freshmarketer, which businesses use for marketing automation.
Additional Products We also periodically experiment with offering free tools which, if they gain traction, will get integrated into one of our main products.
Freshservice for Business Teams enables non-IT departments like HR, Finance, Facilities, and Legal to benefit from service management and workflow automation. 7 Table of Contents Additional Products We also periodically experiment with offering free tools which, if they gain traction, will get integrated into one of our main products.
By accelerating time to value, increasing productivity, and lowering costs, we provide businesses with a concrete return on their investment in Freshworks. With an increased ability to delight customers and employees, businesses also benefit from improved customer and employee retention, higher net promoter scores (NPS), and better business outcomes.
With an increased ability to delight customers and employees, businesses also benefit from improved retention, higher net promoter scores (NPS), and better business outcomes. Businesses from approximately 170 countries around the world use Freshworks products to delight their customers and employees every day.
All of our products leverage our Freshworks Neo platform, which provides shared services that enable us to rapidly innovate and release new products.
For go-to-market teams, our Sales and Marketing products of Freshsales, Freshmarketer, and Freshsales Suite align users with a unified view of the customer journey to better acquire, engage, and close customers. All of our products leverage our Freshworks Neo platform, which provides shared services that enable us to rapidly innovate and release new capabilities.
Our powerful software delivers the modern functionality and capabilities businesses need, while being intuitive and easy to use, rapid to onboard, agile, and affordable for organizations of all sizes. We build intelligence and automation into our products wherever possible to accelerate user productivity and allow them to quickly meet the increasing demands of their customers and employees.
Currently, more than 67,100 businesses use our software to make engaging customers and employees more efficient and enjoyable. Our enterprise-grade platform and products deliver the modern functionality and capabilities businesses need, while being intuitive and easy to use, rapid to onboard, agile, and affordable for organizations of all sizes.
Our total revenue was $498.0 million, $371.0 million and $249.7 million in the years ended December 31, 2022, 2021 and 2020, respectively, representing year-over-year growth rates of 34% and 49%, respectively. Our Business Model Product-led growth (PLG) is the core foundation of Freshworks and has helped us serve organizations of all sizes.
Our business has grown rapidly in recent periods as our customer base and operations have scaled. Our total revenue was $596.4 million, $498.0 million and $371.0 million in the years ended December 31, 2023, 2022 and 2021, respectively, representing year-over-year growth rates of 20% and 34%, respectively.
For customer facing teams, we offer our CX family of products, including Freshchat, Freshdesk Support Desk, Freshdesk Omnichannel Suite, Freshdesk Contact Center, and Freshdesk Customer Success. These products allow businesses to delight their customers across touchpoints, streamline customer conversations, and automate repetitive tasks.
For customer facing teams, we offer our CS family of products, including Freshworks Customer Service Suite, Freshdesk, Freshchat, Freshcaller, and Freshsuccess. These products allow businesses to deliver effortless, self-service resolutions for their customers, a unified workspace for their agents, and performance insights for their leaders.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective. 11 Table o f Contents Our Culture and Employees As of December 31, 2022, our human capital resources were comprised of approximately 5,400 employees in offices in North America, Europe, and Asia-Pacific.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective. Our Culture and Employees Our mission is to help businesses create delightful customer and employee experiences.
Creating “moments of wow” for employees is a key part of our talent strategy. We focus on supporting our employees not only within their own teams and careers, but also in employee wellness, including a clear focus on physical and mental health. Full-spectrum diversity, equity, and inclusion are key priorities for us.
We embrace a variety of cultures, experiences, styles and backgrounds to get results. Our employee programs, benefits and development programs are designed to reflect our growth mindset culture and play a critical role in our talent management strategy. We focus on supporting our employees not only within their own teams and careers, but also in employee wellness.
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We provide products across multiple markets in order to address the needs of businesses of all sizes that need to digitally transform to delight their customers and employees. Our business has grown rapidly in recent periods as our customer base and operations have scaled.
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We build intelligence and automation into our products wherever possible to accelerate user productivity and allow them to quickly meet the increasing demands of their customers and employees. By accelerating time to value, increasing productivity, and lowering costs, we provide businesses with a concrete return on their investment in Freshworks.
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These products and capabilities are relatively nascent, but we believe they provide evidence of our continued focus on innovation and will be growth opportunities for Freshworks in the future. For go-to-market teams, our Sales and Marketing products of Freshsales, Freshmarketer, and Freshsales Suite align users with a unified view of the customer journey to better acquire, engage, and close customers.
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Freddy AI, our generative AI-powered platform service, enables businesses to more efficiently deliver customer and employee delight at scale.
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Customer Experience (CX) Product Offerings The main product line of our CX offerings is Freshdesk. It is a multi-product offering that includes all capabilities that customers expect in an "omni-channel" offering, including: • Freshdesk Support Desk .
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Customer Service (CS) Product Offerings The flagship product of our CS offerings is the Freshworks Customer Service Suite. It combines AI-powered, self-service bots, a conversational agent workspace, and powerful ticketing capabilities that allow our customers to deliver seamless, effortless experiences to their clients and consumers.
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Freshdesk Support Desk enables businesses to delight their customers at every service engagement touchpoint across traditional channels like email as well as modern channels like messaging and social media. Freshdesk Support Desk helps agents resolve complex issues through its powerful collaboration, tools, intelligent automation and provision of a unified view of the customer.
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Freshworks also offers various products to address specific use cases. • Freshworks Customer Service Suite . Customer Service Suite is an all-in-one customer service solution supercharged with AI. The Suite provides automated, personalized self-service on every channel, including web, chat, mobile messaging, email, and social.
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Freshdesk also helps improve agent productivity through omniroute technology that balances agent workload intelligently across channels and agent availability, native field service management tools, and embedded collaboration within a customer record.
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With a full customer context and AI-powered assistance, agents deliver fast resolutions and empathetic customer service. Unified performance reports and proactive insights and recommendations allow leaders to make data-driven decisions and take action faster. With an all-in-one solution, our customers realize impact fast and experience higher returns on their technology investments. • Freshdesk.
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Freshdesk Support Desk also has native technology that scales with the customer, including multilingual support capabilities and prescriptive analytics that support better insights and business decisions. • Freshdesk Contact Center. Freshdesk Contact Center provides agents with a modern, cloud-based telephony system to connect with customers that supports complex call-flows, number and call management, IVR, and routing needs.
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Freshdesk is a ticketing-centric customer service solution supercharged with AI. Freshdesk provides advanced ticketing capabilities, self-service experiences powered by knowledge bases and portals, and easy collaboration across teams. Companies can provide support across email, portals, knowledge bases, and social channels. Customers effortlessly self-serve through knowledge bases and branded portals.
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Freshdesk Contact Center also provides a live dashboard and reports along with other agent productivity tools. • Freshdesk Omnichannel Suite. Freshdesk Omnichannel Suite, an integrated suite of Freshdesk Support Desk, Freshchat, and Freshdesk Contact Center solutions, delivers a single, unified customer experience that moves with the customer across multiple support channels.
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Agents deliver fast resolutions with AI-powered assistance tools, such as suggested responses and conversation summaries. Easy-to-use collaboration tools allow agents to collaborate with subject matter experts and different departments to get more complex issues resolved. Freshdesk makes customer service fast and easy for businesses looking for a ticket-centric customer service solution with enterprise-grade capabilities. • Freshcaller.
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Customer experience agents that use Freshdesk Omnichannel Suite are able to engage and track customers across digital and traditional channels to provide a superior customer experience to delight customers. • Freshdesk Customer Success. Freshdesk Customer Success helps customer success managers at B2B subscription companies proactively manage their customers to increase customer retention and delight. Messaging/Chat Product Offerings • Freshchat.
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Freshcaller is a cloud-based telephony solution that helps teams deliver fast resolutions over voice as a channel. Freshcaller supports complex call-flows, number and call management, IVR, and advanced routing. Companies boost call deflection with AI-driven voice bots. Leaders improve service delivery with live dashboards, productivity reports, and live tracking.
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Freshchat provides agents with a modern conversational user interface to proactively engage with their customers across web, mobile, and social messaging applications. Our Freshchat bot technology allows businesses to provide self service to customers by automating commonly performed transactions and providing answers to frequently asked questions.
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Freshcaller is often included as part of the complete CS as well as Sales & Marketing offerings. • Freshsuccess. Freshsuccess is a customer success solution that helps B2B companies better retain and expand revenue within their customer base.
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Freshsales enables increased seller productivity by providing a multi-tiered approach to automating sales workflow and processes (including emails, telephony, appointments tasks and other information) all within a salesperson’s personalized activity dashboard. Freshsales also provides configure-price-quote functionality to quickly create quotes and AI-driven pipeline management to help salespeople predict deals performance and make smarter decisions to accelerate the sales cycle.
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It helps teams proactively address potential attrition risks and identify upsell opportunities with an actionable view of customer data, such as customer health, support, and communications history. Freshsuccess boosts team productivity by standardizing customer outreach, automating tasks, and streamlining reporting. Messaging/Chat Product Offerings • Freshchat.
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Freshsales has the capability to provide out-of-the-box dashboards, real-time insights and the ability to create customer reports and metrics to measure efficiency. • Freshmarketer .
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Freshchat provides agents with a modern conversational experience to proactively engage customers across digital messaging channels such as WhatsApp, Google Business Messages, SMS, and more. Freshchat enables automated and personalized self-service for fast resolutions. When an issue requires agent support, a customer is 6 Table of Contents seamlessly transferred to an agent.
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Freshmarketer allows businesses to proactively drive stronger lead generation and conversion through delivery of personalized campaigns with specific target audiences, use of lead generation bots to provide relevant and valuable content to potential customers, and better targeting of the right audiences to improve conversion opportunities.
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Agents are equipped with a full customer context and AI productivity tools to deliver fast resolutions. Leaders gain unified dashboards and reports to drive team performance. Freshchat is commonly included as part of the complete CS, Sales & Marketing, and ITSM offerings.
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Freshmarketer also allows businesses to drive acquisition, nurturing, or retention initiatives by enabling them to build and automate multi-channel marketing journeys for different audience segments and to run conversion optimization processes for increased website performance. • Freshsales Suite.
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With its powerful feature set, Freshsales simplifies sales workflows, from lead generation to deal finalization and even Configure-Price-Quote. Boasting features like contact and opportunity management, AI-driven insights, and forecasting, Freshsales empowers sales teams to operate more intelligently, thereby improving productivity and morale.
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Freshsales Suite, an integrated suite of Freshsales and Freshmarketer solutions, delivers a single unified sales and marketing solution that allows businesses to engage and track customers across their buying journey. Freshsales Suite includes a unified customer record for better engagement across each customer touchpoint.
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Powered by the unified customer record and the neo platform, sellers have instant access to 360-degree customer data, facilitating personalized, contextual interactions. Freshsales is a trusted choice for businesses of varying sizes, offering the flexibility and scalability necessary to adapt to dynamic market conditions and excel in today's competitive landscape. • Freshmarketer .
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IT Service Management (ITSM) Product Offerings The main product of our ITSM offering is Freshservice, which helps IT organizations ensure the allocation and availability of technology throughout the company. Freshservice capabilities increase employee productivity and job satisfaction so that each employee can best contribute to desired business outcomes.
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Freshmarketer is a cutting-edge marketing automation solution that empowers businesses to redefine their marketing strategies. Tailor personalized campaigns to specific target audiences, leverage intelligent automation for timely and relevant interactions, and optimize conversion strategies seamlessly. From streamlined customer acquisition to strategic nurturing and retention initiatives, Freshmarketer enhances every aspect of your marketing efforts.
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Freshservice is an all-in-one, intuitive service management solution that integrates several traditionally disparate technologies, such as IT Service Management, IT Operations Management, IT Asset Management, Project & Portfolio Management, and Enterprise Service Management, into a single unified solution. • Freshservice enables organizations to use its AI-powered service management capabilities to streamline IT service delivery, including unified incident management for holistic handling of incidents, knowledge management and change management.
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With a relentless focus on data-driven insights and efficient workflows, Freshmarketer transforms your marketing landscape. Embrace the future of marketing automation with Freshmarketer – a powerful and intuitive platform designed for unparalleled success in today's dynamic business environment • Freshsales Suite. The Freshsales Suite, a seamless integration of Freshsales and Freshmarketer solutions, goes beyond traditional sales and marketing tools.
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Freshservice supports employee productivity by enabling internal teams to onboard new employees into an organization quickly and with Freshservice's multi-channel approach for self-service, employees are able to interact with service desks across departments using their channel of choice.
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This comprehensive suite offers businesses a unified platform, facilitating cohesive engagement and detailed tracking of customers throughout their entire buying journey. With a robust 360-degree customer data approach, the Freshsales Suite provides a holistic view, ensuring businesses have a comprehensive understanding of customer interactions.
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Freshservice also offers various efficiency capabilities such as asset management tools for the efficient utilization of assets, integrated project management for collaboration and efficiency across an organization, integrated alert management for timely resolution of service-impacting incidents, powerful dashboards and reporting functionality for greater insights to improve service delivery and virtual agent capabilities that gives employees the option to use self-service with chatbots to rapidly resolve employee service requests.
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This unified solution, powered by a consolidated customer record, enables businesses to elevate their engagement strategies across each touchpoint in the customer journey, resulting in more informed and personalized interactions.
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Recent additions are service-aware IT Operations capabilities, that automates the processing of large amounts of machine-based system monitoring data and automating response and resolution to service disruptions. • Freshservice for Business Teams is a new offering introduced in late 2022 that enables business teams outside of IT to benefit from service management and workflow automation.
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IT and Employee Service Management (ITSM) Product Offerings Freshservice is a unified, AI-powered solution with essential IT and employee service management capabilities that empower our customers to provide reliable services company-wide. • Freshservice, leveraging the power of AI, transforms the way end users, agents, and decision-makers work by replacing forms, lists, and queries with conversational, collaborative, and omnichannel experiences.
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Non-IT departments such as HR, Finance, Facilities, and Legal, all grapple with a high volume of employee requests that can be easily managed through service management principles. Freshservice for Business Teams enables admins in each non-IT department to manage those requests through their own interface that is tailored for the needs of their individual department.
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Freshservice includes virtual agents that help employees resolve issues, make requests, and answer questions without contacting the service desk. Freshservice increases agent productivity by automating routine work like summarizing tickets, generating responses, and creating consistent tone and clarity of responses.
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In addition, it provides a set of common, shared services to rapidly innovate and release new products.
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Leveraging AI, Freshservice enables decision-makers with actionable insights through a conversational data mining and analysis approach. • Freshservice delivers the capabilities leaders need to manage the IT estate, including ITSM, IT Operations Management (ITOM), and IT Asset Management (ITAM), on the same platform, enabling collaboration across teams.
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Key components of our Neo platform include a developer platform, enterprise services, foundational services, and the Freshworks Marketplace: • Our developer platform enables businesses and developer partners to build, deploy and run feature-rich apps using product APIs, webhooks, and the Freshworks low code serverless application stack.
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Freshservice streamlines IT service delivery, providing a unified approach to incident, request, knowledge, change, and problem management. Our service-aware IT operations management provides integrated alert management by processing large amounts of machine-based system monitoring data to put the focus on critical areas and drive fast resolution. Asset management helps optimize the assets used to provide services on-premises, hybrid, and cloud.
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The platform enables businesses to extend the Freshworks products to serve their specific needs and integrate easily into their existing applications and, in turn, daily workflows. • Enterprise services include: unified customer record to improve context and insight, easy custom object creation, analytics to increase insight and collaboration capabilities to improve teamwork. • Foundational services include: events notifications to synchronize and trigger across business systems, enterprise grade security, customer conversation channels to broadly engage with customers and Neo Admin Center for unified control of platform services. • The marketplace includes private and public apps to integrate Freshworks products with their existing ecosystem.
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Freshservice also offers powerful dashboards and reporting functionality to improve service delivery. • Freshservice for Business Teams provides a unified employee service experience while ensuring the secure separation of departmental data.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

164 edited+104 added−67 removed321 unchanged
Biggest changeIf our sites, networks, and systems, or those of third parties upon which we rely, are or were to experience security incidents or breaches affecting our confidential information or the confidential information of our users, customers, or other third parties, we could experience damage to our reputation and brand, and material harm to our business and results of operations. 19 Table o f Contents We collect, receive, access, store, process, generate, use, transfer, disclose, share, make accessible, protect, secure, and dispose of (collectively, Process or Processing) a large amount of information from our users, customers, and our own employees, including personally identifiable and other sensitive and confidential information necessary to operate our business, for legal and marketing purposes, and for other business-related purposes.
Biggest changeIn the ordinary course of business, we and the third parties upon which we rely collect, receive, access, store, process, generate, use, transfer, disclose, share, make accessible, protect, secure, and dispose of (collectively, Process or Processing) a large amount of information from our users, customers, and our own employees, including personal information and other sensitive and confidential information including proprietary and confidential business data, trade secrets, intellectual property, sensitive third-party data, business plans, transactions, and financial information (collectively, Sensitive Information).
While we have implemented security measures, technical controls, and contractual precautions designed to identify, detect, and prevent unauthorized Processing of our data, our security measures, as well as those of our third-party service providers, could fail or may be insufficient, resulting in the unauthorized access to or the disclosure, modification, misuse, unavailability, destruction, or loss of our or our customers’ data or other sensitive information.
While we have implemented security measures, technical controls, and contractual precautions designed to identify, detect, and prevent unauthorized Processing of Sensitive Information, our security measures, as well as those of our third-party service providers, could fail or may be insufficient, resulting in the unauthorized access to or the disclosure, modification, misuse, unavailability, destruction, or loss of our or our customers’ data or other Sensitive Information.
If customers pay for their subscription plans with stolen credit cards, we could incur substantial third-party vendor costs for which we may not be reimbursed or be able to recover.
If customers pay for their subscription plans with stolen credit cards, we could incur substantial third-party vendor costs for which we may not be reimbursed or able to recover.
While we maintain a policy requiring our employees, consultants, independent contractors, and third parties who are engaged to develop any material intellectual property for us to enter into confidentiality and invention assignment agreements to control access to and use of our proprietary information and to ensure that any intellectual property developed by such employees, contractors, consultants, and other third parties are assigned to us, we cannot guarantee that the confidentiality and proprietary agreements or other employee, consultant, or independent contractor agreements we enter into adequately protect our intellectual property rights and other proprietary information.
While we maintain a policy requiring our employees, consultants, independent contractors, and third parties who are engaged to develop any material intellectual property for us to enter into confidentiality and invention assignment agreements to control access to and use of our proprietary information and to ensure that any intellectual property developed by such employees, contractors, consultants, and other third parties are assigned to us, we cannot guarantee that the confidentiality and invention assignment agreements or other employee, consultant, or independent contractor agreements we enter into adequately protect our intellectual property rights and other proprietary information.
In addition, changes in tax laws or regulations could be enacted or existing tax laws or regulations could be applied to us or our customers in a manner that could increase the costs of our products and harm our business. Further, existing tax laws, regulations could be interpreted, modified or applied adversely to us.
In addition, changes in tax laws or regulations could be enacted or existing tax laws or regulations could be applied to us or our customers in a manner that could increase the costs of our products and harm our business. Further, existing tax laws and regulations could be interpreted, modified or applied adversely to us.
Because of the 10-to-1 voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent as little as 10% of the combined voting power of all outstanding shares of our Class A common stock and Class B common stock.
Because of the 10-to-1 voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent as little as 10% of all outstanding shares of our Class A common stock and Class B common stock.
We may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash for any such acquisition which would limit other potential uses for our cash.
We may not successfully evaluate or utilize the acquired technology or accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash for any such acquisition which would limit other potential uses for our cash.
Factors that could cause fluctuations in the trading price of our Class A common stock include the risk factors set forth in this section as well as the following: • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of technology stocks; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • sales of shares of our Class A common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors, particularly in light of the significant portion of our revenue derived from a limited number of customers; • changes in our financial, operating or other metrics, regardless of whether we consider those metrics as reflective of the current state or long-term prospects of our business, and how those results compare to securities analyst expectations, including whether those results fail to meet, exceed, or significantly exceed securities analyst expectations, particularly in light of the significant portion of our revenue derived from a limited number of customers; • announcements by us or our competitors of new products, applications, features, or services; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; 38 Table o f Contents • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • actual or perceived privacy or data security incidents; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses, applications, products, services, or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • any significant change in our management; and • general political and economic conditions and slow or negative growth of our markets.
Factors that could cause fluctuations in the trading price of our Class A common stock include the risk factors set forth in this section as well as the following: • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of technology stocks; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • sales of shares of our Class A common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors, particularly in light of the significant portion of our revenue derived from a limited number of customers; • changes in our financial, operating or other metrics, regardless of whether we consider those metrics as reflective of the current state or long-term prospects of our business, and how those results compare to securities analyst expectations, including whether those results fail to meet, exceed, or significantly exceed securities analyst expectations, particularly in light of the significant portion of our revenue derived from a limited number of customers; • announcements by us or our competitors of new products, applications, features, or services; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • actual or perceived privacy or data security incidents; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses, applications, products, services, or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • any significant change in our management; and • general political and economic conditions and slow or negative growth of our markets.
A failure to establish and maintain an effective system of disclosure controls and internal control over financial reporting, could adversely affect our ability to produce timely and accurate financial statements or comply with applicable regulations.
A failure to maintain an effective system of disclosure controls and internal control over financial reporting, could adversely affect our ability to produce timely and accurate financial statements or comply with applicable regulations.
A finding that our privacy policies are, in whole or part, inaccurate, incomplete, deceptive, unfair, or misrepresentative of our actual practices, a failure or perceived failure by us to comply with Data Protection Laws or Data Protection Obligations or any data compromise that results in the unauthorized release or transfer of business or personal information or other user or customer data, may increase our compliance and operational costs, limit our ability to market our products or services and attract new and retain current customers, limit or eliminate our ability to Process data, and result in domestic or foreign governmental enforcement actions and fines, litigation, significant costs, expenses, and fees (including attorney fees), cause a material adverse impact to business operations or financial results, and otherwise result in other material harm to our business.
A finding that our privacy policies are, in whole or part, inaccurate, incomplete, deceptive, unfair, or 28 Table of Contents misrepresentative of our actual practices, a failure or perceived failure by us to comply with Data Protection Laws or Data Protection Obligations or any data compromise that results in the unauthorized release or transfer of business or personal information or other user or customer data, may increase our compliance and operational costs, limit our ability to market our products or services and attract new and retain current customers, limit or eliminate our ability to Process data, and result in domestic or foreign governmental enforcement actions and fines, litigation, significant costs, expenses, and fees (including attorney fees), cause a material adverse impact to business operations or financial results, and otherwise result in other material harm to our business.
If we fail to effectively manage these risks associated with sales cycles and sales to large customers, our business, financial condition, and results of operations may be affected.
If we fail to effectively manage these risks associated with sales cycles and sales to large customers, our business, financial condition, and results of operations may be adversely affected.
In addition to the foregoing, a breach of the EU GDPR or UK GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our Processing of our data, enforcement notices, assessment notices (for a compulsory audit), and/or other corrective action, such as class action brought by classes of data subjects or by consumer protection organizations authorized at law to represent their interests.
In addition to the foregoing, violations of the EU GDPR or UK GDPR could result in regulatory investigations, reputational damage, orders to cease/change our Processing of our data, enforcement notices, assessment notices (for a compulsory audit), and/or other corrective action, such as class action brought by classes of data subjects or by consumer protection organizations authorized at law to represent their interests.
Beginning in January 2023, we entered into foreign exchange forward contracts to hedge a portion of our forecasted foreign currency expenses denominated in Indian Rupee. Our hedging program is designed to reduce, but does not eliminate, the risk that our earnings and cash flows may be adversely affected by changes in exchange rates.
In 2023, we entered into foreign exchange forward contracts to hedge a portion of our forecasted foreign currency expenses denominated in Indian Rupee. Our hedging program is designed to reduce, but does not eliminate, the risk that our earnings and cash flows may be adversely affected by changes in exchange rates.
From time to time, there may be changes in our senior management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. Our senior management and key employees are employed on an at-will basis. We currently do not have “key person” insurance on any of our employees.
From time to time, there have been and may in the future be changes in our senior management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. Our senior management and key employees are employed on an at-will basis. We currently do not have “key person” insurance on any of our employees.
We have a limited operating history at our current scale, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful. We have been growing rapidly in recent periods and, as a result, have a relatively short history operating our business at its current scale.
We have a limited operating history at our current scale, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful. We have been growing significantly in recent periods and, as a result, have a relatively short history operating our business at its current scale.
As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Our typical sales cycle for mid-market and enterprise customers is approximately 90 days, as compared to 30 days for SMB customers.
As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Our typical sales cycle for mid-market and enterprise customers is approximately 150 days, as compared to 30 days for SMB customers.
The invasion of Ukraine and the retaliatory measures that have been taken, and could be taken in future, by the United States, NATO, and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could adversely affect our business, including preventing us from performing existing contracts, pursuing new business opportunities, or receiving payments for services already provided to customers.
The Russia-Ukraine conflict and the measures that have been taken, and could be taken in future, by the United States, NATO, and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could adversely affect our business, including preventing us from performing existing contracts, pursuing new business opportunities, or receiving payments for services already provided to customers.
If we are unable to continue to meet the demands of users and customers to keep up with trends in preferences for CX, ITSM, or CRM products, or to achieve more widespread market acceptance of our products, our business, results of operations, and financial condition would be harmed.
If we are unable to continue to meet the demands of users and customers to keep up with trends in preferences for CS, ITSM, or CRM products, or to achieve more widespread market acceptance of our products, our business, results of operations, and financial condition would be harmed.
In addition, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause or causes of action arising under the Securities Act of 1933, as amended, including all causes of action asserted against any defendant to such complaint.
In addition, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any 44 Table of Contents complaint asserting a cause or causes of action arising under the Securities Act of 1933, as amended, including all causes of action asserted against any defendant to such complaint.
We are continually under review by the Indian tax authorities and have not received any assessments to date that would have a material impact to our financial statements. Our ability to receive dividends and other payouts from our Indian subsidiaries is subject to Indian legal restrictions and withholding tax.
We are continually under review by the Indian tax authorities and have not received any assessments to date that would have a material impact to our financial statements. Our ability to receive dividends and other payouts from our Indian subsidiary is subject to Indian legal restrictions and withholding tax.
Our business will be harmed if any key provider of such software systems: • discontinues or limits our access to its software or APIs; • modifies its terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers; • changes how information is accessed by us or our customers; • establishes more favorable relationships with one or more of our competitors; or • develops or otherwise favors its own competitive offerings over our products.
Our business will be harmed if any key provider of such software systems: • discontinues or limits our access to its software or APIs; • modifies its terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers; 23 Table of Contents • changes how information is accessed by us or our customers; • establishes more favorable relationships with one or more of our competitors; or • develops or otherwise favors its own competitive offerings over our products.
In addition, some current and potential customers, particularly larger organizations, may develop or acquire their own tools or continue to rely on traditional tools and software for their CX, ITSM, or CRM needs, which would reduce or eliminate their demand for our products.
In addition, some current and potential customers, particularly larger organizations, may develop or acquire their own tools or continue to rely on traditional tools and software for their CS, ITSM, or CRM needs, which would reduce or eliminate their demand for our products.
South Asia has from time to time experienced instances of civil unrest, terrorist attacks and hostilities among neighboring countries. To the extent that such unrest affects or involve India, our business may be significantly impacted due to the extent of our operations in India.
South Asia has from time to time experienced instances of civil unrest, terrorist attacks and hostilities among neighboring countries. To the extent that such unrest affects or involves India, our business may be significantly impacted due to the extent of our operations in India.
We believe our revenue growth depends on a number of factors, including, but not limited to, our ability to: • attract new customers; • grow or maintain our net dollar retention rate, expand usage within organizations, and sell additional subscriptions; • gain continued acceptance and use of our products both inside and outside of the United States; • expand the features and capabilities of our products; • provide excellent customer experience and customer service; • price our subscription plans effectively; • continue to successfully expand our sales force; • maintain the security and reliability of our products; • successfully compete against and withstand competitive pressure from established companies and new market entrants; • increase awareness of our brand on a global basis; and • comply with existing and new applicable laws and regulations.
We believe our revenue growth depends on a number of factors, including, but not limited to, our ability to: • attract new customers; • grow or maintain our net dollar retention rate, expand usage within organizations, and sell additional subscriptions; • gain continued acceptance and use of our products both inside and outside of the United States; • expand the features and capabilities of our products, including artificial intelligence (AI) and machine learning features; • provide excellent customer experience and customer service; • price our subscription plans effectively; • continue to successfully expand our sales force; • maintain the security and reliability of our products; • successfully compete against and withstand competitive pressure from established companies and new market entrants; • increase awareness of our brand on a global basis; and • comply with existing and new applicable laws and regulations.
In addition, we may find that these efforts are more expensive than we currently anticipate or that they may not result in increases in our revenue. We have experienced rapid growth in recent periods, and our recent growth rates may not be indicative of our future growth. We have experienced rapid growth in recent periods.
In addition, we may find that these efforts are more expensive than we currently anticipate or that they may not result in increases in our revenue. We have experienced significant growth in recent periods and our recent growth rates may not be indicative of our future growth.
If customers do not renew their subscriptions, renew on less favorable terms, or fail to add more users, or if we fail to upgrade trial customers to our paid subscription plans, or expand the adoption of our products within and across organizations, our revenue may decline or grow less quickly than anticipated, which would harm our business, results of operations, and financial condition.
If customers do not 18 Table of Contents renew their subscriptions, renew on less favorable terms, or fail to add more users, or if we fail to upgrade trial customers to our paid subscription plans, or expand the adoption of our products within and across organizations, our revenue may decline or grow less quickly than anticipated, which would harm our business, results of operations, and financial condition.
In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock holdings represent less than 50% of the outstanding shares of our common stock.
In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even though their stock holdings represent less than 50% of the outstanding shares of our common stock.
There are provisions in our amended and restated certificate of incorporation and amended and restated bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by our stockholders, such as: • establishing a classified board of directors so that not all members of our board of directors are elected at one time; • permitting the board of directors to establish the number of directors and fill any vacancies and newly created directorships; • providing that directors may only be removed for cause; • prohibiting cumulative voting for directors; 43 Table o f Contents • requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • authorizing the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • eliminating the ability of stockholders to call special meetings of stockholders; • prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; and • our dual class common stock structure as described above.
There are provisions in our amended and restated certificate of incorporation and amended and restated bylaws (as each may be amended from time to time) that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by our stockholders, such as: • establishing a classified board of directors so that not all members of our board of directors are elected at one time; • permitting the board of directors to establish the number of directors and fill any vacancies and newly created directorships; • providing that directors may only be removed for cause; • prohibiting cumulative voting for directors; • requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • authorizing the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; • eliminating the ability of stockholders to call special meetings of stockholders; • prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; and • our dual class common stock structure as described above.
If we are unable to comply with such regulations on a timely basis, we may be subjected to sanctions, fines, or other regulatory actions. We cannot assure you that our costs of complying with current and future labor laws and other regulations will not adversely affect our business, results of operations, or financial condition.
If we are unable to comply with such regulations on a timely basis, we may be subjected 29 Table of Contents to sanctions, fines, or other regulatory actions. We cannot assure you that our costs of complying with current and future labor laws and other regulations will not adversely affect our business, results of operations, or financial condition.
The features and functionality we provide within our solutions enable our customers to promote customer self-service and otherwise efficiently and cost-effectively address product support requests without the need for substantial human interaction. As a result of these features, customer agent staffing requirements may be minimized, and our revenue may be decreased.
The features and functionality we provide within our solutions enable our customers to promote customer self-service and otherwise efficiently and cost-effectively address product support requests without the need for substantial human interaction. As a result of these features, customer agent staffing requirements may be minimized, and our revenue may be adversely affected.
Actual or perceived security breaches or attacks on our systems or those of our third-party service providers may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants and may require notification under applicable data privacy regulations or contractual obligations, or for customer relations or publicity purposes, which could result in additional reputational harm, costly litigation (including class action litigation), material contract breaches, liability, settlement costs, loss 20 Table o f Contents of sales, regulatory scrutiny, actions or investigations, a loss of confidence in our business, systems and Processing, a diversion of management’s time and attention, and significant fines, penalties, assessments, fees, and expenses.
Actual or perceived security breaches or attacks on our systems or those of our third-party service providers can cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants and may require notification under applicable data privacy regulations or contractual obligations, or for customer relations or publicity purposes, which could result in additional reputational harm, costly litigation (including class action litigation), material contract breaches, liability, settlement costs, loss of sales, regulatory scrutiny, actions or investigations, a loss of confidence in our business, systems and Processing, a diversion of management’s time and attention, and significant fines, penalties, assessments, fees, and expenses.
Within CX, we primarily face competition from CX suites, such as Salesforce and Zendesk, and legacy vendors, such as Oracle and SAP. Within ITSM, we primarily face competition from traditional vendors, such as ServiceNow, BMC, Ivanti/Cherwell, and modern pure-play vendors, such as Atlassian.
Within CS, we primarily face competition from CS suites, such as Salesforce and Zendesk, and legacy vendors, such as Oracle and SAP. Within ITSM, we primarily face competition from traditional vendors, such as ServiceNow, BMC, Ivanti/Cherwell, and modern pure-play vendors, such as Atlassian.
Our pricing model may impact our customer’s pricing decisions and adoption of our subscription plans and negatively impact our overall revenue. In the future we may be required to reduce our prices or develop new pricing models, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow.
Our pricing model may impact our customer’s pricing decisions and adoption of our subscription plans and negatively impact our 25 Table of Contents overall revenue. In the future we may be required to reduce our prices or develop new pricing models, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow.
In addition, we will face risks in doing business internationally that could adversely affect our business and results of operations, including: • the need to localize and adapt our products for specific countries, including translation into foreign languages and associated expenses; • data privacy laws that impose different and potentially conflicting obligations with respect to how personal information is Processed or require that customer data be stored in a designated territory; • difficulties in staffing and managing foreign operations; • regulatory and other delays and difficulties in setting up and maintaining foreign operations; • different pricing environments, longer sales cycles, longer accounts receivable payment cycles, and collections issues; • new and different sources of competition; • weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights; • laws and business practices favoring local competitors; • compliance challenges related to the complexity of multiple, conflicting, and changing governmental laws and regulations, including employment, tax, privacy, and data protection laws and regulations; • increased financial accounting and reporting burdens and complexities; • declines or increases in the values of foreign currencies, primarily the Indian Rupee, British Pound, and Euro, relative to the U.S. dollar; • restrictions on the transfer of funds; • potentially adverse tax consequences; • the cost of and potential outcomes of any claims or litigation; 33 Table o f Contents • future accounting pronouncements and changes in accounting policies; • changes in tax laws or tax regulations; • public health or similar issues, such as a pandemics or epidemics; and • regional and local economic and political conditions, including military actions affecting Russia, Ukraine and/or surrounding regions.
In addition, we will face risks in doing business internationally that could adversely affect our business and results of operations, including: • the need to localize and adapt our products for specific countries, including translation into foreign languages and associated expenses; • data privacy laws that impose different and potentially conflicting obligations with respect to how personal information is Processed or require that customer data be stored in a designated territory; • difficulties in staffing and managing foreign operations; • regulatory and other delays and difficulties in setting up and maintaining foreign operations; • different pricing environments, longer sales cycles, longer accounts receivable payment cycles, and collections issues; • new and different sources of competition; • weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights; • laws and business practices favoring local competitors; • compliance challenges related to the complexity of multiple, conflicting, and changing governmental laws and regulations, including employment, tax, privacy, and data protection laws and regulations; • increased financial accounting and reporting burdens and complexities; • declines or increases in the values of foreign currencies, primarily the Indian Rupee, British Pound, and Euro, relative to the U.S. dollar; • restrictions on the transfer of funds; • potentially adverse tax consequences; • the cost of and potential outcomes of any claims or litigation; • future accounting pronouncements and changes in accounting policies; • changes in tax laws or tax regulations; • public health or similar issues, such as a pandemics or epidemics; and • regional and local economic and political conditions, including the evolving events in Russia, Ukraine, Israel, Gaza, and/or surrounding regions.
Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller organizations, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales.
Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller organizations, such as longer sales cycles, more complex customer 15 Table of Contents requirements, substantial upfront sales costs, and less predictability in completing some of our sales.
The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. Our failure to successfully manage our international operations and the associated risks effectively could limit the future growth of our business. In particular, the majority of our software development operations are in India.
The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. 32 Table of Contents Our failure to successfully manage our international operations and the associated risks effectively could limit the future growth of our business. In particular, the majority of our software development operations are in India.
If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable open source license, we could expend substantial time and resources to re-engineer some or all of our software or be required to incur significant legal expenses defending against such allegations and 32 Table o f Contents could be subject to significant damages, enjoined from the sale of our products that contained the open source software, and required to comply with the foregoing conditions, including public release of certain portions of our proprietary source code.
If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable open source license, we could expend substantial time and resources to re-engineer some or all of our software or be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software, and required to comply with the foregoing conditions, including public release of certain portions of our proprietary source code.
O ur growth may continue to be impacted by macroeconomic factors beyond our control, including, but not limited to rising interest rates, foreign exchange rate volatility, COVID-19 pandemic related factors, global geopolitical uncertainties, and supply-chain issues. Further, as we operate in a rapidly changing industry, widespread acceptance and use of our products are critical to our future growth and success.
O ur growth may continue to be impacted by macroeconomic factors beyond our control, including, but not limited to rising interest rates, foreign exchange rate volatility, global geopolitical uncertainties, and supply-chain issues. Further, as we operate in a rapidly changing industry, widespread acceptance and use of our products are critical to our future growth and success.
Under the EU GDPR we may be subject to fines of up to €20 million or up to 4% of the total worldwide annual group turnover of the preceding financial year (whichever is higher) for major violations and up to the greater of £17.5m or up to 4% of annual global revenues in respect of the UK GDPR.
For example, under the EU GDPR, we may be subject to fines of up to €20 million or 4% of the total worldwide annual group turnover of the preceding financial year (whichever is higher) and up to the greater of £17.5m or 4% of annual global revenues in respect of the UK GDPR.
We are subject to various labor laws, regulations, and standards in India. Non-compliance with and changes in such laws may adversely affect our business, results of operations, and financial condition. By virtue of having a significant number of employees in India, we are required to comply with various labor and industrial laws in India, which change regularly.
Non-compliance with and changes in such laws may adversely affect our business, results of operations, and financial condition. By virtue of having a significant number of employees in India, we are required to comply with various labor and industrial laws in India, which change regularly.
The Department of Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India is also in the process of legislating a national e-commerce policy, which will address e-commerce regulation and data protection. The timing or impact of this policy, which remains in draft form, is not yet certain.
The Department of Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India is also in the process of legislating a national e-commerce 30 Table of Contents policy, which will address e-commerce regulation and data protection. The timing or impact of this policy, which remains in draft form, is not yet certain.
Because some patent applications may not be public for a period of time, there is also a risk that we could adopt a technology without knowledge of a pending patent application, which technology would infringe a third-party patent once that patent is issued. We also rely on unpatented proprietary technology.
Because some patent applications may 35 Table of Contents not be public for a period of time, there is also a risk that we could adopt a technology without knowledge of a pending patent application, which technology would infringe a third-party patent once that patent is issued. We also rely on unpatented proprietary technology.
Our risks are likely to increase as we continue to expand, grow our customer base, and Process increasingly large amounts of proprietary and sensitive data. Additionally, policing unauthorized use of our know-how, technology and intellectual property is difficult and may not be effective.
Our risks are likely to increase as we continue to expand, grow our customer base, and Process increasingly large amounts of Sensitive Information. Additionally, policing unauthorized use of our know-how, technology and intellectual property is difficult and may not be effective.
Although we are not currently subject to any such investigations, if investigations targeted at other companies result in determinations that practices we follow are unlawful, including practices related to use of machine- and customer-generated data or artificial intelligence, we could be required to change our products and services or alter our business operations, which could harm our business.
Although we are not currently subject to any such investigations, if investigations targeted at other companies result in determinations that practices we follow are unlawful, including practices related to use of machine- and customer-generated data or generative AI, we could be required to change our products and services or alter our business operations, which could harm our business.
Demand for our products is affected by a number of factors, some of which are beyond our control, such as the rate of adoption of our products within an organization, the timing of development and release of new products by our competitors; the development and acceptance of new features, integrations, and capabilities for our products; price, product, and service changes by us or our competitors; technological changes and developments within the markets we serve; growth, 24 Table o f Contents contraction, and rapid evolution of our market; and general economic conditions and trends.
Demand for our products is affected by a number of factors, some of which are beyond our control, such as the rate of adoption of our products within an organization, the timing of development and release of new products by our competitors; the development and acceptance of new features, integrations, and capabilities for our products; price, product, and service changes by us or our competitors; technological changes and developments within the markets we serve; growth, contraction, and rapid evolution of our market; and general economic conditions and trends.
Any errors or defects in third-party software could result in errors or a failure of our products or mobile applications. Any of the foregoing would disrupt the distribution and sale of subscriptions to our products and harm our business, results of operations, and financial condition.
Any errors or defects in third-party software could result in errors or a failure of our products or mobile applications. Any of the 36 Table of Contents foregoing would disrupt the distribution and sale of subscriptions to our products and harm our business, results of operations, and financial condition.
The market for customer experience (CX), IT service management (ITSM), and customer relationship management (CRM) products is rapidly evolving and increasingly competitive, fragmented, and subject to rapidly changing technology, shifting user and customer needs, new market entrants, and frequent introductions of new products and services.
The market for customer service (CS), IT service management (ITSM), and customer relationship management (CRM) products is rapidly evolving and increasingly competitive, fragmented, and subject to rapidly changing technology, shifting user and customer needs, new market entrants, and frequent introductions of new products and services.
As a regular part of our business, we Process business and personal information belonging to our users, customers, suppliers, partners, consultants, leads and employees.
As a regular part of our business, we Process Sensitive Information belonging to our users, customers, suppliers, partners, consultants, leads and employees.
Our existing NOLs may be subject to limitations arising from transactions that have occurred since our inception, which may trigger such an ownership change pursuant to Section 382. In the future, we may experience ownership changes as a result of subsequent shifts in our stock ownership, some of which may be outside of our control.
Our existing net operating losses may be subject to limitations arising from transactions that have occurred since our inception, which may trigger such an ownership change pursuant to Section 382. In the future, we may experience ownership changes as a result of subsequent shifts in our stock ownership, some of which may be outside of our control.
The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions.
The 38 Table of Contents taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions.
Macroeconomic uncertainties, including inflationary pressures, supply chain disruptions, labor shortages, significant volatility in global markets, recession risks, and the COVID-19 pandemic have in the past and may continue to adversely affect our business, future results of operations, and financial condition, the effects of which remain uncertain.
Macroeconomic uncertainties, including inflationary pressures, supply chain disruptions, labor shortages, significant volatility in global markets, and recession risks, have in the past adversely affected and may continue to adversely affect our business, future results of operations, and financial condition, the effects of which remain uncertain.
Despite our efforts to maintain the security, privacy, integrity, confidentiality, availability, and authenticity of our Processing, information, and IT networks and systems, we or our third-party vendors may not be able to anticipate or implement effective preventive and remedial measures against all data security and privacy threats.
Despite our efforts to maintain the security, privacy, integrity, confidentiality, availability, and authenticity of our Processing, information, and IT networks and systems, we or our third-party vendors have not in the past and may not in the future be able to anticipate or implement effective preventive and remedial measures against all data security and privacy threats.
Our quarterly results of operations, including the levels of our revenue, deferred revenue, working capital, and cash flows, may vary significantly in the future, such that period-to-period comparisons of our results of operations may not be meaningful.
Our quarterly results of operations, including the levels of our revenue, deferred revenue, working capital, and cash flows, have varied significantly in the past and may vary significantly in the future, such that period-to-period comparisons of our results of operations may not be meaningful.
Whether our Indian subsidiaries will pay us dividends in the future and the amount of any such dividends, if declared, will depend on a number of factors, including future earnings, financial condition and performance, cash flows, working capital requirements, capital expenditures and other factors considered relevant by us and the boards of our Indian subsidiaries.
Whether our Indian subsidiary will pay us dividends in the future and the amount of any such dividends, if declared, will depend on a number of factors, including future earnings, financial condition and performance, cash flows, working capital requirements, capital expenditures and other factors considered relevant by us and the board of our Indian subsidiary.
Based on shares of common stock held as of December 31, 2022, our directors, executive officers, and holders of more than 5% of our Class A common stock or Class B common stock, and their respective affiliates held in the aggregate approximately 90% of the voting power of our outstanding capital stock, and our Chief Executive Officer, Mr.
Based on shares of common stock held as of December 31, 2023, our directors, executive officers, and holders of more than 5% of our Class A common stock or Class B common stock, and their respective affiliates held in the aggregate approximately 86% of the voting power of our outstanding capital stock, and our Chief Executive Officer, Mr.
Many patent applications in the United States may not be public for a period of time after they are filed, and since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we will be the first creator of inventions covered by any patent application we make or that we will be the first to file patent applications on such inventions.
Many patent applications in the United States may not be public for a period of time after they are filed, and since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we will be the first to file patent applications on such inventions.
For the fiscal year ended December 31, 2022, 57% of our revenue was generated from customers outside North America. Besides India and the United States, we have sales and marketing operations primarily in Australia, Canada, France, Germany, Netherlands, Singapore and the United Kingdom.
For the fiscal year ended December 31, 2023, 55% of our revenue was generated from customers outside North America. Besides India and the United States, we have sales and marketing operations primarily in Australia, Canada, France, Germany, Netherlands, Singapore and the United Kingdom.
If our key business metrics are not accurate representations of our business, if we discover material inaccuracies with respect to these figures, or if investors perceive there to be inaccuracies, our stock price could decline, we may be, and currently are, subject to stockholder litigation, 14 Table o f Contents our reputation may be significantly harmed, and our business, results of operations, and financial condition could be materially adversely affected.
If our key business metrics are not accurate representations of our business, if we discover material inaccuracies with respect to these figures, or if investors perceive there to be inaccuracies, our stock price could decline, we may be, and currently are, subject to stockholder litigation, our reputation may be significantly harmed, and our business, results of operations, and financial condition could be materially adversely affected.
A significant portion of our costs are expensed as incurred, while revenue is recognized over the life of the agreement with the applicable customer. 16 Table o f Contents Our business depends substantially on our customers renewing their subscriptions and purchasing additional subscriptions from us. Any decline in our customer retention would harm our future operating results.
A significant portion of our costs are expensed as incurred, while revenue is recognized over the life of the agreement with the applicable customer. Our business depends substantially on our customers renewing their subscriptions and purchasing additional subscriptions from us. Any decline in our customer retention would harm our future operating results.
Additionally, if these new systems, 40 Table o f Contents controls, or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting.
Additionally, if these new systems, controls, or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting.
Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC.
Our independent registered public accounting firm is required to formally attest to the effectiveness of our internal control over financial reporting and any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC.
In addition, while we maintain a policy prohibiting our employees from using the confidential information of third parties or former employers (without their express permission) in performing their work for us, we cannot guarantee that the policies or 30 Table o f Contents processes we have enacted will prevent employees from acting without our knowledge in contravention of such policies.
In addition, while we maintain a policy prohibiting our employees from using the confidential information of third parties or former employers (without their express permission) in performing their work for us, we cannot guarantee that the policies or processes we have enacted will prevent employees from acting without our knowledge in contravention of such policies.
Our quarterly financial results may fluctuate due to a variety of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to: • the level of demand for our products; • our ability to grow or maintain our net dollar retention rate, expand usage within organizations, and sell subscriptions; • the timing and success of new features, integrations, capabilities, and enhancements by us to our products, or by our competitors to their products, or any other changes in the competitive landscape of our market; • our ability to achieve continued acceptance and use of our products; • errors in our forecasting of the demand for our products, which would lead to lower revenue, increased costs, or both; • the amount and timing of operating expenses and capital expenditures, as well as entry into operating leases, that we may incur to maintain and expand our business and operations and to remain competitive; • the timing of expenses and recognition of revenue; • security breaches, technical difficulties, or interruptions to our products; • pricing pressure as a result of competition or otherwise; • the continued ability to hire high quality and experienced talent in a fiercely competitive environment; • the timing of the grant or vesting of equity awards to employees, directors, or consultants; • seasonal buying patterns for software spending; • declines or increases in the values of foreign currencies, primarily the Indian Rupee, British Pound, and Euro, relative to the U.S. dollar; • changes in, and continuing uncertainty in relation to, the legislative or regulatory environment; • legal and regulatory compliance costs in new and existing markets; • costs and timing of expenses related to the potential acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs; • health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases or viruses; • adverse litigation judgments, other dispute-related settlement payments, or other litigation-related costs; and • general economic conditions in either domestic or international markets, including inflationary pressures and geopolitical uncertainty and instability and their effects on software spending. 15 Table o f Contents Any one or more of the factors above may result in significant fluctuations in our quarterly results of operations, which may negatively impact the trading price of our Class A common stock.
Our quarterly financial results have and may continue to fluctuate due to a variety of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to: • the level of demand for our products; • our ability to grow or maintain our net dollar retention rate, expand usage within organizations, and sell subscriptions; • the timing and success of new features, integrations, capabilities, and enhancements by us to our products, or by our competitors to their products, or any other changes in the competitive landscape of our market; • our ability to achieve continued acceptance and use of our products; • errors in our forecasting of the demand for our products, which would lead to lower revenue, increased costs, or both; • the amount and timing of operating expenses and capital expenditures, as well as entry into operating leases, that we may incur to maintain and expand our business and operations and to remain competitive; • the timing of expenses and recognition of revenue; • security breaches, technical difficulties, or interruptions to our products; • pricing pressure as a result of competition or otherwise; • the continued ability to hire high quality and experienced talent in a fiercely competitive environment; • the timing of the grant or vesting of equity awards to employees, directors, or consultants; • seasonal buying patterns for software spending; • declines or increases in the values of foreign currencies, primarily the Indian Rupee, British Pound, and Euro, relative to the U.S. dollar; • changes in, and continuing uncertainty in relation to, the legislative or regulatory environment; • legal and regulatory compliance costs in new and existing markets; • costs and timing of expenses related to the potential acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs; • health epidemics, influenza, and other highly communicable diseases or viruses; • adverse litigation judgments, other dispute-related settlement payments, or other litigation-related costs; and • general economic conditions in either domestic or international markets, including inflationary pressures and geopolitical uncertainty and instability and their effects on software spending.
If we are unable to meet the stated service-level commitments, including failing to meet the uptime and delivery requirements under our customer subscription agreements, we may be obligated to provide these customers with service credits which could 21 Table o f Contents significantly affect our revenue in the periods in which the uptime or delivery failure occurs and the credits are applied.
If we are unable to meet the stated service-level commitments, including failing to meet the uptime and delivery requirements under our customer subscription agreements, we may be obligated to provide these customers with service credits which could significantly affect our revenue in the periods in which the uptime or delivery failure occurs and the credits are applied.
Our actual or perceived failure to comply with Data Protection Laws and Data Protection Obligations could also subject us to litigation, claims, proceedings, actions, or investigations by governmental entities, authorities, or regulators that could require changes to our business practices, diversion of resources and the attention of management from our business, regulatory oversights and audits, discontinuance of necessary Processing, or other remedies that adversely affect our business.
Our actual or perceived failure to comply with Data Protection Laws and Data Protection Obligations could also subject us to litigation, claims (including class-action claims and mass arbitration demands), proceedings, actions, or investigations by governmental entities, authorities, or regulators that could require changes to our business practices, diversion of resources and the attention of management from our business, regulatory oversights and audits, discontinuance of necessary Processing, or other remedies that adversely affect our business.
Any provision in our amended and restated certificate of incorporation or our amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
Any provision in our amended and restated certificate of incorporation or our amended and restated bylaws (as each may be amended from time to time) or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
In addition, because we believe a substantial percentage of subscriptions to our products are shorter than many comparable SaaS companies and because we have many variations of billing cycles, our deferred revenue may be a less meaningful indicator of our future financial results as compared to other SaaS companies.
In addition, because we believe a substantial percentage of subscriptions to our products are shorter than many comparable SaaS companies and because we have many variations of billing cycles, our remaining performance obligations may be a less meaningful indicator of our future financial results as compared to other SaaS companies.
Fluctuations in the value of foreign currencies relative to the U.S. dollar, have in the past and may in the future continue to adversely affect our revenue, operating expenses and results of operations due to transactional and translational remeasurement 25 Table o f Contents that is reflected in our earnings.
Fluctuations in the value of foreign currencies relative to the U.S. dollar, have in the past and may in the future continue to adversely affect our revenue, operating expenses and results of operations due to transactional and translational remeasurement that is reflected in our earnings.
In addition, various other countries regulate the import and export of certain encryption and other technology, including through 34 Table o f Contents import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit the ability of organizations to use our products in those countries.
In addition, various other countries regulate the import and export of certain encryption and other technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit the ability of organizations to use our products in those countries.
If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price and trading volume of our Class A common stock to decline.
If one or more of the analysts who cover us cease coverage of us or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price and trading volume of our Class A common stock to decline.
We may engage in merger and acquisition activities, which would require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our business, results of operations, and financial condition.
We have in the past and may in the future engage in merger and acquisition activities, which would require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our business, results of operations, and financial condition.
Unless we are able to continue to increase the efficiency and productivity of our employees over the long term, wage increases may negatively affect our financial performance. 28 Table o f Contents For instance, in September 2020, the Government of India passed new legislation relating to social security and wages called the Code for Social Security, 2020 (the Social Security Code).
Unless we are able to continue to increase the efficiency and productivity of our employees over the long term, wage increases may negatively affect our financial performance. For instance, in September 2020, the Government of India passed new legislation relating to social security and wages called the Code on Social Security, 2020 (the Social Security Code).
As a result, our executive officers, directors, and other affiliates and potentially our Chief Executive Officer on his own have significant influence over our management and affairs and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of the company or our assets, for the foreseeable future.
As a result, these stockholders, acting together, and potentially our Chief Executive Officer on his own have significant influence over our management and affairs and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of the company or our assets, for the foreseeable future.
We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to 39 Table o f Contents compliance activities.
We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities.
Any of these events would have a material adverse effect on our business, results of operations, and financial condition. 31 Table o f Contents Our failure to obtain or maintain the right to use certain of our intellectual property would negatively affect our business.
Any of these events would have a material adverse effect on our business, results of operations, and financial condition. Our failure to obtain or maintain the right to use certain of our intellectual property would negatively affect our business.
In addition, some of our competitors may be able to disrupt the operations or compatibility of our products with their products or services, or exert strong business influence on our ability to, and terms on 22 Table o f Contents which we, operate our products.
In addition, some of our competitors may be able to disrupt the operations or compatibility of our products with their products or services, or exert strong business influence on our ability to, and terms on which we, operate our products.
Risks Related to International Operations Our international operations and sales to customers outside the United States expose us to risks inherent in international operations and sales. We have a significant portion of our operations in India. As of December 31, 2022, approximately 4,580 of our employees reside in India, representing approximately 85% of our total employee population.
Risks Related to International Operations Our international operations and sales to customers outside the United States expose us to risks inherent in international operations and sales. We have a significant portion of our operations in India. As of December 31, 2023, approximately 4,100 of our employees reside in India, representing approximately 84% of our total employee population.
Export Administration Regulations, administered by the Department of Commerce’s Bureau of Industry and Security, U.S. Customs regulations, and economic and trade sanctions regulations maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control, which we refer to collectively as Trade Controls.
Export Administration Regulations, administered by the Department of Commerce’s Bureau of Industry and Security, U.S. Customs regulations, and economic and trade sanctions regulations maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control, (collectively, Trade Controls).
In many cases, the ultimate tax determination is uncertain because it is not clear how new and existing statutes might apply to our business. New legislation could require us to incur substantial costs, including costs associated with tax calculation, collection, and remittance and audit 35 Table o f Contents requirements, and could adversely affect our business and results of operations.
In many cases, the ultimate tax determination is uncertain because it is not clear how new and existing statutes might apply to our business. New legislation could require us to incur substantial costs, including costs associated with tax calculation, collection, and remittance and audit requirements, and could adversely affect our business and results of operations. Furthermore, the U.S.
While we have historically transacted in U.S. dollars with our customers and vendors, we have transacted in some foreign currencies with such parties and for our payroll in those foreign jurisdictions where we have operations, and expect to continue to transact in more foreign currencies in the future.
We face exposure to foreign currency exchange rate fluctuations. While we have historically transacted in U.S. dollars with our customers and vendors, we have transacted in some foreign currencies with such parties and for our payroll in those foreign jurisdictions where we have operations, and expect to continue to transact in more foreign currencies in the future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe may continue to open up satellite offices in strategic locations to gain access to new talent markets and to facilitate business operations. We believe that the facilities we occupy are suitable to meet our current needs. 44 Table o f Contents
Biggest changeWe may continue to open up satellite offices in strategic locations to gain access to new talent markets and to facilitate business operations. We believe that the facilities we occupy are suitable to meet our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings On November 1, 2022, a purported Company stockholder filed a securities class action complaint in the U.S. District Court for the Northern District of California against us, certain of our current officers and directors, and underwriters of the IPO.
Added
Item 3. Legal Proceedings The information required to be set forth under this Item 3 is incorporated by reference to Note 8. Commitments and Contingencies — Litigation and Loss Contingencies in the notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Item 4.
Removed
The complaint alleges that defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 by making material misstatements or omissions in offering documents filed in connection with the IPO. The complaint seeks unspecified damages, interest, fees, costs, and rescission on behalf of purchasers and/or acquirers of common stock issued in the IPO.
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Mine Safety Disclosures None. 48 Table of Contents Part II
Removed
We and the other defendants intend to vigorously defend against the claims in this action. In addition, from time to time, we are involved in various other legal proceedings arising from the normal course of business activities.
Removed
There are no other pending or threatened legal proceedings at this time to which we are a party that, in our opinion, is likely to have a material adverse effect on our future financial results of operations.
Removed
However, the results of litigation and claims are inherently unpredictable and regardless of the outcome, litigation can have an adverse impact on us because of costly defense and settlement expenses, diversion of management and employee resources to defend such claims and other factors. Item 4. Mine Safety Disclosures None. 45 Table o f Contents Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following graph compares (i) the cumulative total stockholder return on our Class A common stock from September 22, 2021 (the date that our Class A common stock commenced trading on the NASDAQ Capital Market) through December 31, 2022 with (ii) the cumulative total return of the Standard & Poor's (S&P) 500 Index and the S&P 500 Information Technology Index over the same period, assuming the investment of $100 in our Class A common stock and in both of the other indices on September 22, 2021 and the reinvestment of dividends.
Biggest changeThe following graph compares (i) the cumulative total stockholder return on our Class A common stock from September 22, 2021 (the date that our Class A common stock commenced trading on the Nasdaq Capital Market) through December 31, 2023 with (ii) the cumulative total return of the NASDAQ Composite Index, the Standard & Poor's (S&P) 500 Index and the S&P 500 Information Technology Index over the same period, assuming the investment of $100 in our Class A common stock and in both of the other indices on September 22, 2021 and the reinvestment of dividends.
As discussed above, we have never declared or paid a cash dividend on our Class A common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future. 46 Table o f Contents Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. Use of Proceeds None. Item 6. Reserved
As discussed above, we have never declared or paid a cash dividend on our Class A common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future. 49 Table of Contents Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. Use of Proceeds None. Item 6. Reserved
As of February 16, 2023, there were 57 and 81 registered holders of our Class A and Class B common stock, respectively.
As of February 13, 2024, there were 36 and 49 registered holders of our Class A and Class B common stock, respectively.

Item 7. Management's Discussion & Analysis

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

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Biggest changeThis increase was primarily due to $42.1 million in stock-based compensation expense (which reflects the increase related to the cumulative stock-based compensation expense in connection with our IPO, net of the absence in the current period of stock-based compensation expense of $27.4 million recognized in connection with the 2020 Equity Transactions as described above), $11.9 million in personnel-related costs due to annual compensation adjustments and higher headcount, $4.5 million in professional services fees, comprised primarily of legal, accounting, and consulting fees, $3.9 million related to a legal settlement, $1.9 million in directors and officers insurance, $0.5 million in software license fees, $0.5 million in other taxes and licenses, and $0.7 million in other individually immaterial costs.
Biggest changeThis increase was primarily due to increases of $6.0 million in personnel-related costs due to compensation adjustments, $4.9 million in professional services fees, comprised primarily of legal, accounting, and consulting fees, $2.7 million in tax reserves in accordance with ASC 450, partially offset by a decrease of $3.3 million in directors and officers insurance.
Key business metrics and our financial performance are impacted by various factors discussed below, including fluctuations in the value of foreign currencies relative to the U.S. dollar. We also review customer data used for calculating these key business metrics on an ongoing basis and make the necessary modifications resulting from such review.
Key business metrics and our financial performance are impacted by various factors discussed below, including fluctuations in the value of foreign currencies relative to the U.S. dollar. We also review customer data used for calculating these key business metrics on an ongoing basis and make necessary modifications resulting from such review.
To calculate net dollar retention rate as of a particular date, we first determine "Entering ARR," which is ARR from the population of our customers as of 12 months prior to the end of the reporting period. We then calculate the "Ending ARR" from the same set of customers as of the end of the reporting period.
To calculate net dollar retention rate as of a particular date, we first determine "Entering ARR," which is ARR from the population of our customers as of 12 months prior to the end of the reporting period. We then calculate the "Ending ARR" which is ARR from the same set of customers as of the end of the reporting period.
We exclude the following items from one or more of our non-GAAP financial measures, including the related income tax effect of these adjustments: • Stock-based compensation expense. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this expense provides meaningful supplemental information regarding operational performance.
We exclude the following items from one or more of our non-GAAP financial measures, including the related income tax effect of these adjustments: • Stock-based compensation expense. We exclude stock-based compensation, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this expense provides meaningful supplemental information regarding operational performance.
However, our gross profit and gross margin may fluctuate from period to period due to the timing and extent of our investments in third-party hosting capacity, expansion of our cloud-based infrastructure, and customer support, and professional services organizations, as well as the amortization of costs associated with capitalized internal-use software.
However, our gross profit and gross margin may fluctuate from period to period due to the timing and extent of our investments in third-party hosting capacity, expansion of our cloud-based infrastructure, customer support, and professional services organizations, as well as the amortization of costs associated with capitalized internal-use software.
Investing Activities Net cash used in investing activities of $284.8 million for the year ended December 31, 2022 consisted of $272.7 million in purchases, net of maturities and sales, of marketable securities, $7.0 million in purchases, net of proceeds from sale of property and equipment, and $5.1 million related to the capitalization of internal-use software.
Net cash used in investing activities of $284.8 million for the year ended December 31, 2022 consisted of $272.7 million in purchases, net of maturities and sales of marketable securities, $7.0 million in purchases, net of proceeds from sale of property and equipment and $5.1 million related to the capitalization of internal-use software.
Financing Activities Net cash used in financing activities of $156.4 million for the year ended December 31, 2022 consisted primarily of $167.2 million in payment of withholding taxes on net share settlement of equity awards, partially offset by $10.9 million in proceeds from issuance of common stock under employee stock purchase plan, net.
Net cash used in financing activities of $156.4 million for the year ended December 31, 2022 consisted primarily of $167.2 million in payment of withholding taxes on net share settlement of equity awards, partially offset by $10.9 million in proceeds from issuance of common stock under our employee stock purchase plan, net.
For the years ended December 31, 2022 and 2021, we recorded a provision for income taxes of $11.3 million, and $10.5 million, respectively, on loss before taxes of $220.8 million and $181.5 million, respectively. The effective tax rates for the years ended December 31, 2022 and 2021 were (5.1)% and (5.8)% respectively.
For the years ended December 31, 2022 and 2021, we recorded provision for income taxes of $11.3 million and $10.5 million, respectively, on loss before taxes of $220.8 million and $181.5 million, respectively. The effective tax rates for the years ended December 31, 2022 and 2021 were (5.1)% and (5.8)% respectively.
As of December 31, 2022, we have two primary products with over $100 million in ARR, Freshdesk and Freshservice. We intend to invest in growing our research and development team to extend the functionality of our solutions and continue to bring new solutions to market. Our investments in our Neo platform have helped us accelerate the pace of innovation.
As of December 31, 2023, we have two primary products with over $100 million in ARR, Freshdesk and Freshservice. We intend to invest in growing our research and development team to extend the functionality of our solutions and continue to bring new solutions to market. Our investments in our Neo platform have helped us accelerate the pace of innovation.
Net cash provided by operating activities of $11.5 million for the year ended December 31, 2021 reflects our net loss of $192.0 million, adjusted for non-cash items such as stock-based compensation of $173.4 million, gain realized on sale of non-marketable equity investment of $23.8 million, depreciation and amortization of $13.3 million, amortization of deferred contract acquisition costs of $12.8 million, deferred income taxes of $1.9 million, premium amortization on marketable securities of $1.8 million, and net cash inflows of $28.0 million from changes in operating assets and liabilities.
Net cash provided by operating activities of $11.5 million for the year ended December 31, 2021 reflects our net loss of $192.0 million, adjusted for non-cash items such as stock-based compensation of $173.4 million, gain realized on sale of non-marketable equity investment of $23.8 million, depreciation and amortization of $13.3 million, amortization of deferred contract acquisition costs of $12.8 million, deferred income taxes of $1.9 million, discount amortization on marketable 64 Table of Contents securities of $1.8 million and net cash inflows of $28.0 million from changes in operating assets and liabilities.
We believe that our market remains largely underserved. We intend to invest aggressively in our direct and indirect sales and marketing capabilities, including investments in our outbound sales motion. We have been global from our earliest product sales and our global footprint continues to expand, with customers in more than 170 countries.
We believe that our market remains largely underserved. We intend to invest aggressively in our direct and indirect sales and marketing capabilities, including investments in our outbound sales motion. We have been global from our earliest product sales and our global footprint continues to expand, with customers in approximately 170 countries.
We plan to support more languages, recruit partners, hire sales and customer experience personnel in additional countries as needed, and expand our presence in countries where we already operate.
We plan to support more languages, recruit partners, hire sales and customer service personnel in additional countries as needed, and expand our presence in countries where we already operate.
We evaluate our estimates, assumptions, and judgments on an ongoing basis. Our significant accounting policies are discussed in detail in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 8 of Part II of this 10-K.
We evaluate our estimates, assumptions, and judgments on an ongoing basis. 53 Table of Contents Our significant accounting policies are discussed in detail in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in Item 8 of Part II of this 10-K.
We believe that the number of customers that contribute more than $5,000 in ARR is an indicator of our success in expanding upmarket to larger businesses. We also run focused programs to acquire startup and incubator customers.
We believe that 51 Table of Contents the number of customers that contribute more than $5,000 in ARR is an indicator of our success in expanding upmarket to larger businesses. We also run focused programs to acquire startup and incubator customers.
We define non-GAAP net loss as GAAP net loss, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangibles, acquisition-related expenses, and gain on sale of non-marketable equity investments, net of their related tax effects.
We define non-GAAP net income (loss) as GAAP net loss, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangibles, and gain on sale of non-marketable equity investments, net of their related tax effects.
Since inception, we have funded our operations primarily with financing through the issuance of redeemable convertible preferred and common stock to investors, and in September 2021, we completed our IPO that generated net proceeds of approximately $1.1 billion. As of December 31, 2022, we had an accumulated deficit of $3.5 billion.
Since inception, we have funded our operations primarily with financing through the issuance of redeemable convertible preferred and common stock to investors, and in September 2021, we completed our IPO that generated net proceeds of approximately $1.1 billion. As of December 31, 2023, we had an accumulated deficit of $3.6 billion.
The preparation of these consolidated financial statements requires our management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the applicable periods.
The preparation of these consolidated financial statements requires our management to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue, costs and expenses and related disclosures during the applicable periods.
These customers represented 48% of total ARR as of December 31, 2022, illustrating the large opportunity we have to sell additional products to our current customer base and drive growth. We continue to increase the number of customers that have entered into larger subscriptions with us.
These customers represented 47% of total ARR as of December 31, 2023, illustrating the large opportunity we have to sell additional products to our current customer base and drive growth. We continue to increase the number of customers that have entered into larger subscriptions with us.
The net cash outflows from changes in operating assets and liabilities were due to increases of operating assets of $28.6 million in deferred contract acquisition costs, $18.9 million in accounts receivable, $8.1 million in 59 Table o f Contents prepaid expenses and other assets and a decrease of $8.8 million in operating lease liabilities; partially offset by increases in operating liabilities of $45.5 million in deferred revenue and $7.7 million in accrued and other liabilities.
The net cash outflows from changes in operating assets and liabilities were due to increases of operating assets of $28.6 million in deferred contract acquisition costs, $18.9 million in accounts receivable, $8.1 million in prepaid expenses and other assets and a decrease of $8.8 million in operating lease liabilities; partially offset by increases in operating liabilities of $45.5 million in deferred revenue and $7.7 million in accrued and other liabilities.
Lease liabilities are measured based on the present 62 Table o f Contents value of the total lease payments not yet paid, discounted based on either the rate implicit in the lease or the Company's incremental borrowing rate (the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease), whichever is more readily determinable.
Lease liabilities are measured based on the present value of the total lease payments not yet paid, discounted based on either the rate implicit in the lease or the Company's incremental borrowing rate (the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease), whichever is more readily determinable.
In particular, stock-based compensation expense is not comparable across companies due to the variety of valuation methodologies and assumptions. • Employer payroll taxes on employee stock transactions.
In particular, stock-based compensation expense is not comparable across companies given the variety of valuation methodologies and assumptions. • Employer payroll taxes on employee stock transactions.
For the year ended December 31, 2022, we had approximately 26% of revenue exposure related to the Euro and British Pound Sterling. If these conditions persist, they could have a material adverse impact on our results and our ability to accurately predict our future results and earnings.
For the years ended December 31, 2023 and 2022, we had approximately 27% and 26%, respectively, of revenue exposure related to the Euro and British Pound Sterling. If these conditions persist, they could have a material adverse impact on our results and our ability to accurately predict our future results and earnings.
Monthly subscriptions represented 20%, 24%, and 28% of ARR as of December 31, 2022, 2021 and 2020 respectively. The net dollar retention rate for customers on monthly contracts has generally been lower than our overall net dollar retention rate.
Monthly subscriptions represented 17%, 20%, and 24% of ARR as of December 31, 2023, 2022 and 2021 respectively. The net dollar retention rate for customers on monthly contracts has generally been lower than our overall net dollar retention rate.
See the section titled “Risk Factors” for further discussion of the challenges and risks we have encountered and could encounter related to these macroeconomic events. 47 Table o f Contents Key Factors Affecting Our Performance The growth and future success of our business depends on many factors.
See the section titled “Risk Factors” for further discussion of the challenges and risks we have encountered and could encounter related to these macroeconomic events. Key Factors Affecting Our Performance The growth and future success of our business depends on many factors.
Our approach to acquiring new customers allows us to benefit from user-driven, organic adoption of our products across organizations of all sizes, as well as enable our customers to standardize on our products across the organization. As of December 31, 2022 and 2021, we had more than 63,400 and 56,000 paying customers, respectively.
Our approach to acquiring new customers allows us to benefit from user-driven, organic adoption of our products across organizations of all sizes, as well as enable our customers to standardize on our products across the organization. As of December 31, 2023 and 2022, we had more than 67,100 and 63,400 paying customers, respectively.
December 31, 2022 2021 2020 Number of customers contributing more than $5,000 in ARR 17,722 14,814 11,570 ARR from customers contributing more than $5,000 in ARR as a percent of total ARR 87 % 85 % 82 % Net dollar retention rate 108 % 114 % 111 % Number of Customers Contributing More Than $5,000 in ARR We define our total customers contributing more than $5,000 in annual recurring revenue (ARR) as of a particular date as the number of business entities or individuals, represented by a unique domain or a unique email address, with one or more paid subscriptions to one or more of our products that contributed more than $5,000 in ARR.
December 31, 2023 2022 2021 Number of customers contributing more than $5,000 in ARR 20,261 17,722 14,814 ARR from customers contributing more than $5,000 in ARR as a percent of total ARR 89 % 87 % 85 % Net dollar retention rate 108 % 108 % 114 % Number of Customers Contributing More Than $5,000 in ARR We define our total customers contributing more than $5,000 in annual recurring revenue (ARR) as of a particular date as the number of business entities or individuals, represented by a unique domain or a unique email address, with one or more paid subscriptions to one or more of our products that contributed more than $5,000 in ARR.
Macroeconomic and Other Factors Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, geopolitical developments, and the ongoing impacts of the COVID-19 pandemic have impacted and may continue to impact business spending and the overall economy, and in turn our business. These macroeconomic events could adversely affect demand for our products and services.
Macroeconomic and Other Factors Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, and geopolitical developments have impacted and may continue to impact business spending and the overall economy, and in turn our business. These macroeconomic events could adversely affect demand for our products and services.
Subscription Revenue Subscription revenue is primarily comprised of fees paid by our customers for accessing our cloud-based software during the term of the arrangement. Our cloud-based services allow customers to use the multi-tenant software without requiring them 61 Table o f Contents to take possession of the software.
Subscription Revenue Subscription revenue is primarily comprised of fees paid by our customers for accessing our cloud-based software during the term of the arrangement. Our cloud-based services allow customers to use the multi-tenant software without requiring them to take possession of the software.
Our operating activities resulted in cash outflows of $2.5 million for the year ended December 31, 2022. Our other material cash requirements are related to the settlement of future contractual obligations associated with operating leases and other service subscription agreements (as described in Contractual Obligations below).
Our operating activities resulted in cash inflows of $86.2 million for the year ended December 31, 2023. Our other material cash requirements are related to the settlement of future contractual obligations associated with operating leases and other service subscription agreements (as described in Contractual Obligations below).
Our net dollar retention rate of 114% for the year ended December 31, 2021 reflects the expansion within existing customers and the sale of additional products to these customers.
Our net dollar retention rate of 108% for the year ended December 31, 2023 reflects the expansion within existing customers and the sale of additional products to these customers.
In addition, as part of our regular review of customer data that includes reviewing customers purchasing our products via resellers so we can properly attribute them as end customers, we may make adjustments that could impact the calculation of net dollar retention.
In addition, as part of our regular review of customer data that includes reviewing customers purchasing our products via resellers so we can properly attribute them as end customers, we may make adjustments that could impact the calculation of net dollar retention. Our net dollar retention rate was 108% as of December 31, 2023 and 2022.
No single customer 48 Table o f Contents accounted for more than 1% of ARR and our top 10 customers represented less than 5% of ARR as of December 31, 2022, and we have no significant concentration in a specific industry vertical.
No single customer accounted for more than 1% of ARR and our top 10 customers represented less than 5% of ARR as of December 31, 2023, and we have no significant concentration in a specific industry vertical.
Our other contractual obligations have commitments outstanding through December 2025. Off-Balance Sheet Arrangements As of December 31, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
During the year ended December 31, 2022, 43%, 39%, and 18% of our revenue was derived from customers in North America; Europe, Middle East and Africa; and the rest of the world, respectively. We have a significant opportunity to further expand globally.
During the year ended December 31, 2023, 45%, 38%, and 17% of our revenue was derived from customers in North America; Europe, Middle East and Africa; and the rest of the world, respectively. We have a significant opportunity to further expand globally.
As of December 31, 2022 and 2021, 17,722 and 14,814 of our customers contributed more than $5,000 in ARR, respectively, demonstrating the broad appeal of our products to customers of all sizes and geographies, and as of December 31, 2022 and 2021, customers contributing more than $5,000 in ARR represented 87% and 85% of total ARR, respectively.
As of December 31, 2023 and 2022, 20,261 and 17,722 of our customers contributed more than $5,000 in ARR, respectively, demonstrating the broad appeal of our products to customers of all sizes and geographies, and as of December 31, 2023 and 2022, customers contributing more than $5,000 in ARR represented 89% and 87% of total ARR, respectively.
We had 1,908 customers each contributing $50,000 or more in ARR as of December 31, 2022, representing an increase of 35% year-over-year from 1,416 customers as of December 31, 2021. As of December 31, 2022 and December 31, 2021, customers contributing more than $50,000 in ARR represented approximately 44% and 41% of total ARR, respectively.
We had 2,497 customers each contributing $50,000 or more in ARR as of December 31, 2023, representing an increase of 31% year-over-year from 1,908 customers as of December 31, 2022. As of December 31, 2023 and December 31, 2022, customers contributing more than $50,000 in ARR represented approximately 48% and 44% of total ARR, respectively.
Prior to our IPO, the fair value of our common stock on the date of the grant was determined based on independent third-party valuations as there was no public market, and there was no stock-based compensation expense recognized from the RSUs as the liquidity event-related performance condition was not probable.
Forfeitures are accounted for when they occur. 54 Table of Contents Prior to our IPO, the fair value of our common stock on the date of the grant was determined based on independent third-party valuations as there was no public market, and there was no stock-based compensation expense recognized from the RSUs as the liquidity event-related performance condition was not probable.
Free cash flow is a measure to determine, among other things, cash available for further investments in our business and potential acquisitions of businesses. 51 Table o f Contents The following table presents a reconciliation of free cash flow to net cash provided by (used in) operating activities, the most directly comparable measure calculated in accordance with GAAP for each of the periods presented (in thousands): Year Ended December 31, 2022 2021 2020 Net cash provided by (used in) operating activities $ (2,525) $ 11,460 $ 32,530 Less: Purchases of property and equipment (7,129) (5,565) (4,383) Capitalized internal-use software (5,116) (3,552) (4,631) Free cash flow $ (14,770) $ 2,343 $ 23,516 Net cash used in investing activities $ (284,827) $ (420,296) $ (11,425) Net cash provided by (used in) financing activities $ (156,354) $ 1,058,369 $ (1,909) Components of Our Results of Operations Revenue Substantially all of our revenue is derived from subscriptions, which is comprised of fees paid by customers for accessing our cloud-based software products during the term of the subscription.
Free cash flow is a measure to determine, among other things, cash available for strategic initiatives, including further investments in our business and potential acquisitions of businesses. 56 Table of Contents The following table presents a reconciliation of free cash flow to net cash provided by (used in) operating activities, the most directly comparable measure calculated in accordance with GAAP for each of the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Net cash provided by (used in) operating activities $ 86,178 $ (2,525) $ 11,460 Less: Purchases of property and equipment (2,069) (7,129) (5,565) Capitalized internal-use software (6,271) (5,116) (3,552) Free cash flow $ 77,838 $ (14,770) $ 2,343 Net cash provided by (used in) investing activities $ 158,499 $ (284,827) $ (420,296) Net cash provided by (used in) financing activities $ (60,619) $ (156,354) $ 1,058,369 Components of Our Results of Operations Revenue Substantially all of our revenue is derived from subscriptions, which is comprised of fees paid by customers for accessing our cloud-based software products during the term of the subscription.
We incurred operating losses of $233.4 million, $204.8 million and $56.1 million in the years ended December 31, 2022, 2021 and 2020, respectively, and our net losses were $232.1 million, $192.0 million and $57.3 million in the years ended December 31, 2022, 2021 and 2020, respectively.
We incurred operating losses of $170.2 million, $233.4 million and $204.8 million in the years ended December 31, 2023, 2022 and 2021, respectively, and our net losses were $137.4 million, $232.1 million and $192.0 million in the years ended December 31, 2023, 2022 and 2021, respectively.
The following tables present a reconciliation of our GAAP loss from operations to our non-GAAP loss from operations and our GAAP net loss to our non-GAAP net loss for each of the periods presented (in thousands): Non-GAAP Loss from Operations Year Ended December 31, 2022 2021 2020 Loss from operations $ (233,372) $ (204,782) $ (56,112) Non-GAAP adjustments: Stock-based compensation expense 207,696 173,443 43,280 Employer payroll taxes on employee stock transactions 1,827 8,754 — Amortization of acquired intangibles 1,591 4,329 4,268 Acquisition-related expenses — — 304 Non-GAAP loss from operations $ (22,258) $ (18,256) $ (8,260) Non-GAAP Net Loss Year Ended December 31, 2022 2021 2020 Net loss $ (232,132) $ (191,995) $ (57,294) Non-GAAP adjustments: Stock-based compensation expense 207,696 173,443 43,280 Employer payroll taxes on employee stock transactions 1,827 8,754 — Amortization of acquired intangibles 1,591 4,329 4,268 Acquisition-related expenses — — 304 Gain on sale of non-marketable equity investments — (23,830) — Income tax adjustments 1,978 1,802 — Non-GAAP net loss $ (19,040) $ (27,497) $ (9,442) Free Cash Flow We define free cash flow as net cash provided by (used in) operating activities, less purchases of property and equipment and capitalized internal-use software costs.
The following tables present a reconciliation of our GAAP loss from operations to our non-GAAP income (loss) from operations and our GAAP net loss to our non-GAAP net income (loss) for each of the periods presented (in thousands): Non-GAAP Income (Loss) from Operations Year Ended December 31, 2023 2022 2021 Loss from operations $ (170,172) $ (233,372) $ (204,782) Non-GAAP adjustments: Stock-based compensation expense 210,707 207,696 173,443 Employer payroll taxes on employee stock transactions 3,711 1,827 8,754 Amortization of acquired intangibles 303 1,591 4,329 Non-GAAP income (loss) from operations $ 44,549 $ (22,258) $ (18,256) Non-GAAP Net Income (Loss) Year Ended December 31, 2023 2022 2021 Net loss $ (137,436) $ (232,132) $ (191,995) Non-GAAP adjustments: Stock-based compensation expense 210,707 207,696 173,443 Employer payroll taxes on employee stock transactions 3,711 1,827 8,754 Amortization of acquired intangibles 303 1,591 4,329 Gain on sale of non-marketable equity investments — — (23,830) Income tax adjustments 1,398 1,978 1,802 Non-GAAP net income (loss) $ 78,683 $ (19,040) $ (27,497) Free Cash Flow We define free cash flow as net cash provided by (used in) operating activities, less purchases of property and equipment and capitalized internal-use software costs.
Our gross margin increased to 81% from 79% as we increased revenue and realized benefits from economies of scale primarily related to our third party hosting costs. 55 Table o f Contents Operating Expenses Year Ended December 31, Change 2022 2021 $ % (dollars in thousands) Research and development $ 135,543 $ 120,407 $ 15,136 13 % Sales and marketing 343,207 260,345 82,862 32 % General and administrative 156,849 117,022 39,827 34 % Total operating expenses $ 635,599 $ 497,774 $ 137,825 The increases in our operating expenses in the year ended December 31, 2022 compared to the year ended December 31, 2021 were primarily driven by personnel-related costs due to higher headcount to support the growth of our business, compensation adjustments and changes in stock-based compensation expense.
Operating Expenses Year Ended December 31, Change 2022 2021 $ % (dollars in thousands) Research and development $ 135,543 $ 120,407 $ 15,136 13 % Sales and marketing 343,207 260,345 82,862 32 % General and administrative 156,849 117,022 39,827 34 % Total operating expenses $ 635,599 $ 497,774 $ 137,825 The increases in our operating expenses in the year ended December 31, 2022 compared to the year ended December 31, 2021 were primarily driven by personnel-related costs due to higher headcount to support the growth of our business, compensation adjustments, and changes in stock-based compensation expense. 62 Table of Contents Research and Development Research and development expense increased by $15.1 million, or 13%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Our total revenue was $498.0 million, $371.0 million and $249.7 million in the years ended December 31, 2022, 2021 and 2020, respectively, representing year-over-year growth rates of 34% and 49%, respectively.
Our total revenue was $596.4 million, $498.0 million and $371.0 million in the years ended December 31, 2023, 2022 and 2021, respectively, representing year-over-year growth rates of 20% and 34%, respectively.
We measure the rate of expansion within our customer base using net dollar retention rate (as defined under Key Business Metrics ), and we believe that our net dollar retention rate demonstrates a significant rate of expansion within our existing customer base. As of December 31, 2022 and 2021, our net dollar retention rate was 108% and 114%, respectively.
We measure the rate of expansion within our customer base using net dollar retention rate (as defined under Key Business Metrics ), and we believe that our net dollar retention rate demonstrates our rate of expansion within our existing customer base. As of December 31, 2023 and 2022, our net dollar retention rate remained flat at 108%.
All other research and development costs are expensed as incurred. 52 Table o f Contents We believe that continued investment in our products is important for our growth, and as such, we expect that our research and development expenses will continue to increase in dollar amount for the foreseeable future, however, we expect it to decline as a percentage of revenue over the longer term.
All other research and development costs are expensed as incurred. 57 Table of Contents We believe that continued investment in our products is important for our growth, and as such, we expect that our research and development expenses will continue to increase in dollar amount for the foreseeable future.
Research and Development Research and development expense increased by $15.1 million, or 13%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Research and Development Research and development expense increased by $2.2 million, or 2%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2022 2021 2020 Net cash provided by (used in) operating activities $ (2,525) $ 11,460 $ 32,530 Net cash used in investing activities $ (284,827) $ (420,296) $ (11,425) Net cash provided by (used in) financing activities $ (156,354) $ 1,058,369 $ (1,909) Operating Activities Net cash used in operating activities of $2.5 million for the year ended December 31, 2022 reflects our net loss of $232.1 million, adjusted for non-cash items such as stock-based compensation of $207.7 million, depreciation and amortization of $11.5 million, amortization of deferred contract acquisition costs of $18.5 million, non-cash lease expense of $6.2 million, premium amortization on marketable securities of $1.6 million, and net cash outflows of $11.1 million from changes in operating assets and liabilities.
Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Net cash provided by (used in) operating activities $ 86,178 $ (2,525) $ 11,460 Net cash provided by (used in) investing activities $ 158,499 $ (284,827) $ (420,296) Net cash provided by (used in) financing activities $ (60,619) $ (156,354) $ 1,058,369 Operating Activities Net cash provided by operating activities of $86.2 million for the year ended December 31, 2023 reflects our net loss of $137.4 million, adjusted for non-cash items such as stock-based compensation of $210.7 million, depreciation and amortization of $12.1 million, amortization of deferred contract acquisition costs of $24.0 million, non-cash lease expense of $7.7 million, premium amortization on marketable securities of $15.7 million, and net cash outflows of $14.1 million from changes in operating assets and liabilities.
Of the total increase in revenue, approximately $35.4 million was attributable to revenue from new customers acquired during the year ended December 31, 2021, net of contraction and churn, and approximately $86.0 million was attributable to revenue from existing customers as of December 31, 2020, net of contraction and churn.
Of the total increase in revenue, approximately $62.2 million was attributable to revenue from existing customers as of December 31, 2023, net of contraction and churn, and approximately $36.2 million was attributable to revenue from new customers acquired during the year ended December 31, 2023, net of contraction and churn.
We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the respective awards. Forfeitures are accounted for when they occur.
We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the respective awards.
The net cash inflows from changes in operating assets and liabilities were due to increases in operating liabilities of $36.4 million in deferred revenue and $24.9 million in accrued and other liabilities, partially offset by increases in assets of $14.3 million in deferred contract acquisition costs, $9.9 million in accounts receivable, and $8.2 million in prepaid expenses and other assets.
The net cash outflows from changes in operating assets and liabilities were due to increases of operating assets of $27.0 million in deferred contract acquisition costs, $27.0 million in accounts receivable, $7.4 million in prepaid expenses and other assets and decreases of $12.9 million in operating lease liabilities and $2.4 million in accounts payable; partially offset by increases in operating liabilities of $60.8 million in deferred revenue and $1.8 million in accrued and other liabilities.
The $0.8 million increase in tax expense was due to a $1.7 million increase in foreign taxes due to higher pre-tax earnings and foreign sales, partially offset by a decrease in unrecognized tax benefit of $0.9 million for the year ended December 31, 2022.
The $0.8 million increase in tax expense was due to a $1.7 million increase in foreign taxes due to higher pre-tax earnings and foreign sales, partially offset by a decrease in unrecognized tax benefit of $0.9 million for the year ended December 31, 2022. 63 Table of Contents Liquidity and Capital Resources As of December 31, 2023 we had cash and cash equivalents of $488.1 million and marketable securities of $699.5 million.
Other income (expense), net decreased primarily due to a $23.8 million gain from the sale of non-marketable equity investments and $0.9 million of benefit from the release of interest and penalties accrued for indirect taxes recorded during fiscal 2021 that did not recur in fiscal 2022, partially offset by $1.3 million in decrease in foreign exchange loss during fiscal 2022. 56 Table o f Contents Provision for Income Taxes Year Ended December 31, Change 2022 2021 $ % (dollars in thousands) Provision for income taxes $ 11,342 $ 10,516 $ 826 8 % We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions.
Other income (expense), net decreased primarily due to a $23.8 million gain from the sale of non-marketable equity investments and $0.9 million of benefit from the release of interest and penalties accrued for indirect taxes recorded during fiscal 2021 that did not recur in fiscal 2022, partially offset by $1.3 million in decrease in foreign exchange loss during fiscal 2022.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
Professional services revenue is recognized as services are performed. Our subscription arrangements are available in monthly, quarterly, semi-annual, and annual plans, and we typically invoice for the full term in advance. Our payment terms generally require the customers to pay the invoiced amount in advance or within 30 days from the invoice date.
Professional services revenue is recognized as services are performed. We generally enter into subscription agreements with our customers on monthly, annual, or multi-year terms and invoice customers in advance in either monthly or annual installments. Our payment terms generally require the customers to pay the invoiced amount in advance or within 30 days from the invoice date.
For the years ended December 31, 2021 and 2020, we recorded provision for income taxes of $10.5 million and $4.0 million, respectively, on loss before taxes of $181.5 million and $53.3 million, respectively. The effective tax rates for the years ended December 31, 2021 and 2020 were (5.8)% and (7.6)% respectively.
For the years ended December 31, 2023 and 2022, we recorded a provision for income taxes of $13.7 million, and $11.3 million, respectively, on loss before taxes of $123.8 million and $220.8 million, respectively. The effective tax rates for the years ended December 31, 2023 and 2022 were (11.0)% and (5.1)% respectively.
Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as stock-based compensation, and changes in our valuation allowance. 53 Table o f Contents Results of Operations The following tables sets forth our consolidated statements of operations data for the periods presented (in thousands): Year Ended December 31, 2022 2021 2020 Revenue $ 497,999 $ 371,022 $ 249,659 Cost of revenue (1) 95,772 78,030 52,492 Gross profit 402,227 292,992 197,167 Operating expenses: Research and development (1) 135,543 120,407 69,210 Sales and marketing (1) 343,207 260,345 133,277 General and administrative (1) 156,849 117,022 50,792 Total operating expenses 635,599 497,774 253,279 Loss from operations (233,372) (204,782) (56,112) Interest and other income, net 12,582 23,303 2,833 Loss before income taxes (220,790) (181,479) (53,279) Provision for income taxes 11,342 10,516 4,015 Net loss $ (232,132) $ (191,995) $ (57,294) __________________ (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2022 2021 2020 Cost of revenue $ 7,039 $ 5,604 $ — Research and development 36,413 45,162 15,890 Sales and marketing 64,328 53,169 7 General and administration 99,916 69,508 27,383 Total stock-based compensation expense $ 207,696 $ 173,443 $ 43,280 Recognition of Stock-Based Compensation Prior to our initial public offering (IPO), there was no stock-based compensation expense recognized from our equity awards as the liquidity event-related performance condition was not probable.
Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as stock-based compensation, and changes in our valuation allowance. 58 Table of Contents Results of Operations The following tables sets forth our consolidated statements of operations data for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Revenue $ 596,432 $ 497,999 $ 371,022 Cost of revenue (1) 103,369 95,772 78,030 Gross profit 493,063 402,227 292,992 Operating expenses: Research and development (1) 137,756 135,543 120,407 Sales and marketing (1) 357,781 343,207 260,345 General and administrative (1) 167,698 156,849 117,022 Total operating expenses 663,235 635,599 497,774 Loss from operations (170,172) (233,372) (204,782) Interest and other income, net 46,403 12,582 23,303 Loss before income taxes (123,769) (220,790) (181,479) Provision for income taxes 13,667 11,342 10,516 Net loss $ (137,436) $ (232,132) $ (191,995) __________________ (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2023 2022 2021 Cost of revenue $ 6,774 $ 7,039 $ 5,604 Research and development (1) 37,524 36,413 45,162 Sales and marketing (2) 66,755 64,328 53,169 General and administration (3) 99,654 99,916 69,508 Total stock-based compensation expense $ 210,707 $ 207,696 $ 173,443 (1) Stock-based compensation expense recorded to research and development in the consolidated statements of operations excludes amounts that were capitalized for internal-use software.
Net cash used in investing activities of $11.4 million for the year ended December 31, 2020 consisted of $5.1 million net payment for acquisitions, $4.6 million related to the capitalization of internal-use software, $4.4 million in purchases of property and equipment, $1.8 million acquisition of intangibles, offset by $4.4 million proceeds, net of purchases, from maturities and sales of marketable securities.
Investing Activities Net cash provided by investing activities of $158.5 million for the year ended December 31, 2023 consisted of $166.7 million in proceeds from maturities and sales, net of purchases of marketable securities; partially offset by $2.0 million in purchases, net of proceeds from sale of property and equipment, and $6.3 million related to the capitalization of internal-use software.
As disclosed in Notes 8 and 9 to the consolidated financial statements included elsewhere in this report, our operating leases included short-term and long-term commitments of $6.8 million and $28.2 million, respectively. Our other contractual obligations included short-term and long-term commitments of $46.2 million and $58.9 million respectively. Our operating leases expire on varying dates through 2031.
As disclosed in Notes 7 and 8 to the consolidated financial statements included elsewhere in this report, our operating leases included short-term and long- 65 Table of Contents term commitments of $2.7 million and $26.8 million, respectively. Our other contractual obligations included short-term and long-term commitments of $63.7 million and $273.8 million respectively.
Sales commissions are considered incremental costs incurred to obtain contracts with customers, and these costs are deferred and amortized over the expected benefit period of three years. Marketing activities include online lead generation, advertising, and promotional events.
Sales commissions that are considered incremental costs incurred to obtain contracts with customers, are deferred and amortized over the expected benefit period of three years. Marketing activities include online lead generation, advertising, and promotional events. We expect to continue to make significant investments as we expand our customer acquisition, retention efforts and in-person marketing events and associated business travel.
Sales and Marketing Sales and marketing expense increased by $127.1 million, or 95%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Sales and Marketing Sales and marketing expense increased by $14.6 million, or 4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
General and Administrative General and administrative expense increased by $66.2 million, or 130%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
General and Administrative General and administrative expense increased by $10.8 million, or 7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operation of our business. • Acquisition-related expenses.
We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operation of our business. 55 Table of Contents • Gain on sale of non-marketable equity investments.
Interest and Other (expense) Income, Net Interest and other income, net primarily consists of interest income from our investment portfolios, amortization of premium or discount on marketable securities, and foreign currency gains and losses.
Interest and Other Income, Net Interest and other income, net primarily consists of interest income from our investment portfolios, amortization of premium or discount on marketable securities, and foreign currency gains and losses. Provision for Income Taxes Provision for income taxes consists primarily of income taxes related to U.S. states and foreign jurisdictions in which we conduct business.
We also sell professional services that include product configuration, data migration, systems integration, and training. Professional services revenue is recognized as services are performed. Our customer base and operations have scaled over time.
We generally enter into subscription agreements with our customers on monthly, annual, or multi-year terms and invoice customers in advance in either monthly or annual installments. We also sell professional services that include product configuration, data migration, systems integration, and training. Professional services revenue is recognized as services are performed. Our customer base and operations have scaled over time.
Net cash provided by operating activities of $32.5 million for the year ended December 31, 2020 reflects our net loss of $57.3 million, adjusted for non-cash items such as stock-based compensation of $43.3 million, depreciation and amortization of $11.2 million, amortization of deferred contract acquisition costs of $7.7 million, deferred income taxes of $2.4 million and net cash inflows of $28.9 million from changes in operating assets and liabilities.
Net cash used in operating activities of $2.5 million for the year ended December 31, 2022 reflects our net loss of $232.1 million, adjusted for non-cash items such as stock-based compensation of $207.7 million, depreciation and amortization of $11.5 million, amortization of deferred contract acquisition costs of $18.5 million, non-cash lease expense of $6.2 million, premium amortization on marketable securities of $1.6 million, and net cash outflows of $11.1 million from changes in operating assets and liabilities.
We exclude gains on the sale of non-marketable equity investments from certain of our non-GAAP financial measures because we believe they are unrelated to our ongoing operating performance and are not expected to recur in our continuing operating results. 50 Table o f Contents Non-GAAP Loss From Operations and Non-GAAP Net Loss We define non-GAAP loss from operations as GAAP loss from operations excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangibles, and acquisition-related expenses.
We exclude gains on the sale of non-marketable equity investments from certain of our non-GAAP financial measures because we believe they are unrelated to our ongoing operating performance and are not expected to recur in our continuing operating results.
During the year ended December 31, 2020, as described in Note 10 to our consolidated financial statements included elsewhere in this report, we facilitated certain secondary equity transactions from which we recognized stock-based compensation expense for shares that were repurchased at excess value. 54 Table o f Contents The following table sets forth our consolidated statements of operations data for the periods presented, as a percentage of revenue: Year Ended December 31, 2022 2021 2020 Revenue 100 % 100 % 100 % Cost of revenue 19 21 21 Gross profit 81 79 79 Operating expense: Research and development 27 32 28 Sales and marketing 69 70 53 General administrative 32 32 20 Total operating expenses 128 134 101 Loss from operations (47) (55) (22) Interest and other income, net 2 6 1 Loss before income taxes (45) (49) (21) Provision for income taxes 2 3 2 Net loss (47) % (52) % (23) % Comparison of Fiscal Years Ended December 31, 2022 and 2021 Revenue Year Ended December 31, Change 2022 2021 $ % (dollars in thousands) Subscription services $ 485,322 $ 360,506 $ 124,816 35 % Professional services $ 12,677 $ 10,516 $ 2,161 21 % Total revenue $ 497,999 $ 371,022 $ 126,977 34 % Revenue increased by $127.0 million, or 34%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
During the year ended December 31, 2021, stock-based compensation expense recognized included a cumulative charge associated with certain RSUs for which the service-based vesting condition had been satisfied upon the completion of the liquidity event. 59 Table of Contents The following table sets forth our consolidated statements of operations data for the periods presented, as a percentage of revenue: Year Ended December 31, 2023 2022 2021 Revenue 100 % 100 % 100 % Cost of revenue 17 19 21 Gross profit 83 81 79 Operating expense: Research and development 23 27 32 Sales and marketing 60 69 70 General administrative 29 32 32 Total operating expenses 112 128 134 Loss from operations (29) (47) (55) Interest and other income, net 8 2 6 Loss before income taxes (21) (45) (49) Provision for income taxes 2 2 3 Net loss (23) % (47) % (52) % Comparison of Fiscal Years Ended December 31, 2023 and 2022 Revenue Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Subscription services $ 582,868 $ 485,322 $ 97,546 20 % Professional services $ 13,564 $ 12,677 $ 887 7 % Total revenue $ 596,432 $ 497,999 $ 98,433 20 % Revenue increased by $98.4 million, or 20%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Key Business Metrics We monitor and review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions.
Our culture is a critical part of our success, and attracting and retaining the best available talent will help us make customer delight easy and continue our growth trajectory. 52 Table of Contents Key Business Metrics We monitor and review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions.
This increase was primarily due to increases of $53.2 million in stock-based compensation expense, $41.9 million in personnel-related costs due to annual compensation adjustments and higher headcount, $22.8 million in higher advertising, branding and event costs, $5.3 million in reseller commissions, and $4.3 million in software license fees.
This increase was primarily due to increases of $22.7 million in personnel-related costs due to compensation adjustments, $2.4 million in stock-based compensation expense, $1.2 million in travel related expenses for sales and marketing events, partially offset by decreases of $7.3 million in advertising, branding and event costs, $3.6 million in reseller commissions, and $2.1 million in professional services fees.
Ending ARR includes upsells, cross-sells, and renewals during the measurement period and is net of any contraction or attrition over this period. 49 Table o f Contents For monthly subscriptions, we take the recurring revenue run-rate of such subscriptions for the last month of the period and multiply it by 12 to get to ARR.
For monthly subscriptions, we take the recurring revenue run-rate of such subscriptions for the last month of the period and multiply it by 12 to get to ARR.
We have a significant opportunity to expand within our existing customer base and substantially increase the number of customers that purchase multiple Freshworks products. As of December 31, 2022, approximately 24% of our customers purchased two or more Freshworks products, which includes customers on our Freshdesk Omnichannel Suite and Freshsales Suite subscription plans counting as customers who purchased multiple products.
As of December 31, 2023, approximately 26% of our customers purchased two or more Freshworks products, which includes customers on our Freshworks Customer Service Suite and Freshsales Suite subscription plans counting as customers who purchased multiple products.
We currently have more than 63,400 businesses using our software to delight their customers and employees. We generate revenue primarily from the sale of subscriptions for accessing our cloud-based software products over the contract term. Our subscription arrangements are available in monthly, quarterly, semi-annual, and annual plans, and we typically invoice for the full term in advance.
We currently have more than 67,100 businesses using our software to make engaging customers and employees more efficient and enjoyable. 50 Table of Contents We generate revenue primarily from the sale of subscriptions for accessing our cloud-based software products over the contract term.
Cost of Revenue and Gross Margin Year Ended December 31, Change 2021 2020 $ % (dollars in thousands) Cost of revenue $ 78,030 $ 52,492 $ 25,538 49 % Gross Margin 79 % 79 % Cost of revenue increased by $25.5 million, or 49%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Cost of Revenue and Gross Margin Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Cost of revenue $ 103,369 $ 95,772 $ 7,597 8 % Gross margin 83 % 81 % Cost of revenue increased by $7.6 million, or 8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Comparison of Fiscal Years Ended December 31, 2021 and 2020 Revenue Year Ended December 31, Change 2021 2020 $ % (dollars in thousands) Subscription services $ 360,506 $ 242,879 $ 117,627 48 % Professional services $ 10,516 $ 6,780 $ 3,736 55 % Total revenue $ 371,022 $ 249,659 $ 121,363 49 % Revenue increased by $121.4 million, or 49%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Comparison of Fiscal Years Ended December 31, 2022 and 2021 Revenue Year Ended December 31, Change 2022 2021 $ % (dollars in thousands) Subscription services $ 485,322 $ 360,506 $ 124,816 35 % Professional services $ 12,677 $ 10,516 $ 2,161 21 % Total revenue $ 497,999 $ 371,022 $ 126,977 34 % Revenue increased by $127.0 million, or 34%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
We then divide the Ending ARR by the Entering ARR to arrive at our net dollar retention rate.
We then divide the Ending ARR by the Entering ARR to arrive at our net dollar retention rate. Ending ARR includes upsells, cross-sells, and renewals during the measurement period and is net of any contraction or attrition over this period.
We expect that the value of the remaining performance obligations will change from one period to another for several reasons, including new contracts, timing of renewals, cancellations, contract modifications and foreign currency fluctuations. 60 Table o f Contents We believe that fluctuations in remaining performance obligations are not necessarily a reliable indicator of future revenue and we do not utilize it as a key management metric internally.
As of December 31, 2023, remaining performance obligations totaled $418.9 million, which comprised $266.4 million of deferred revenue and $152.5 million of unbilled revenue. We expect that the value of the remaining performance obligations will change from one period to another for several reasons, including new contracts, timing of renewals, cancellations, contract modifications and foreign currency fluctuations.
This increase was primarily due to increases of $5.6 million in stock-based compensation expense, $6.9 million in third-party hosting costs, $5.7 million in personnel-related costs due to annual compensation adjustments and higher headcount, $1.9 million in software license fees, $1.6 million increase in professional fees including legal costs, $1.5 million in cloud voice service costs, $1.4 million in payment gateway fees, and approximately $1.1 million in amortization of capitalized internal-use software.
This increase was primarily due to increases of $4.0 million in third-party hosting costs, $3.4 million in software license fees, $1.9 million in amortization of internally capitalized software, partially offset by decreases of $1.0 million in amortization of developed technology and $0.8 million in professional fees including legal costs.
Contractual Obligations and Commitments Our principal commitments consist of operating lease obligations for office space and contractual obligations under third-party cloud infrastructure agreements and service subscription agreements. As of December 31, 2022, our estimated future contractual obligations totaled $140.0 million, of which $34.9 million and $105.1 million were operating lease commitments and other contractual obligations, respectively.
As of December 31, 2023, our estimated future contractual obligations totaled $367.0 million, of which $29.5 million and $337.5 million were operating lease commitments and other contractual obligations, respectively.
Net cash used in financing activities of $1.9 million for the year ended December 31, 2020 consisted primarily of $2.2 million in payments for acquisition-related liabilities. Remaining Performance Obligations on Customer Contracts We generally enter into subscription agreements with our customers on monthly, annual, or multi-year terms and invoice customers in advance in either monthly or annual installments.
Remaining Performance Obligations on Customer Contracts We generally enter into subscription agreements with our customers on monthly, annual, or multi-year terms and invoice customers in advance in either monthly or annual installments. A small portion of our annual contracts may have billing terms that are different from their subscription terms, and most of our multi-year contracts are invoiced annually.
The performance condition was satisfied upon the completion of the IPO in September 2021, and we began to recognize stock-based compensation expense. During the year ended December 31, 2021, stock-based compensation expense recognized included a cumulative charge associated with certain RSUs for which the service-based vesting condition had been satisfied upon the completion of the liquidity event.
Recognition of Stock-Based Compensation Prior to our initial public offering (IPO), there was no stock-based compensation expense recognized from our equity awards as the liquidity event-related performance condition was not probable. The performance condition was satisfied upon the completion of the IPO in September 2021, and we began to recognize stock-based compensation expense.
Additionally, foreign currency exchange rate fluctuations have negatively impacted our revenue growth in 2022. Recently, the U.S. dollar has strengthened significantly against certain foreign currencies in the markets in which we operate, particularly against the Euro and British Pound Sterling.
Foreign currency exchange rate fluctuations negatively impacted our revenue growth in 2022, but in 2023, the United States Dollar weakened against the Euro and British Pound contributing to positive impacts in our revenue. However the volatility in the foreign currency market still exists, and could impact our results of operations.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+2 added−0 removed6 unchanged
Biggest changeGains or losses on these contracts are generally recognized in income at the time the related transactions being hedged are recognized. We do not use foreign exchange contracts for speculative trading purposes and we may enter into other hedging transactions in the future if our exposure to foreign currency becomes more significant.
Biggest changeWe do not use foreign exchange contracts for speculative trading purposes and we may enter into other hedging transactions in the future if our exposure to foreign currency becomes more significant. We monitor our exposures in other currencies and assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.
Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. Foreign Currency Exchange Risk The functional currency of our foreign subsidiaries is the U.S. dollar. The majority of our sales is derived in U.S. dollars.
Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. Foreign Currency Exchange Risk The functional currency of our foreign subsidiaries is the U.S. dollar. The majority of our sales are derived in U.S. dollars.
Based on a sensitivity analysis we have performed as of December 31, 2022, an adverse 10% foreign currency exchange rate change applied to total monetary assets and liabilities denominated in currencies other than the U.S. dollar would not have a material effect on our net losses.
Based on a sensitivity analysis we have performed as of December 31, 2023, an adverse 10% foreign currency exchange rate change applied to total monetary assets and liabilities denominated in currencies other than the U.S. dollar would not have a material effect on our net losses.
Based on an interest rate sensitivity analysis we have performed as of December 31, 2022, a hypothetical 100 basis points favorable or adverse movement in interest rates would not have a material effect in the combined market value of our cash and cash equivalents and marketable securities. 63 Table of Contents
Based on an interest rate sensitivity analysis we have performed as of December 31, 2023, a hypothetical 100 basis points favorable or adverse movement in interest rates would not have a material effect in the combined market value of our cash and cash equivalents and marketable securities. 67 Table of Contents
We monitor our exposures in other currencies and assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis. Interest Rate Risk Our cash, cash equivalents, and marketable securities primarily consist of deposits held at financial institutions, highly liquid money market funds, and investments in U.S. government securities, corporate bonds, commercial paper, and mutual funds.
Interest Rate Risk Our cash, cash equivalents, and marketable securities primarily consist of deposits held at financial institutions, highly liquid money market funds, and investments in U.S. treasury securities, U.S. government agency securities, corporate bonds 66 Table of Contents and commercial paper.
Fixed rate securities may have their market value adversely affected due to a rise in interest rates.
Our investments are subject to market risk due to changes in interest rates, which may affect our interest income and the fair value of our investments. Fixed rate securities may have their market value adversely affected due to a rise in interest rates.
We had cash and cash equivalents of $304.1 million and marketable securities of $843.4 million as of December 31, 2022. We do not enter into investments for trading and speculative purposes. Our investments are subject to market risk due to changes in interest rates, which may affect our interest income and the fair value of our investments.
We had cash and cash equivalents of $488.1 million and marketable securities of $699.5 million as of December 31, 2023. We do not enter into investments for trading and speculative purposes. The carrying amount of our cash equivalents reasonably approximate fair value, due to the maturities of three months or less of these instruments.
Added
Gains or losses on these contracts are generally recognized in income at the time the related transactions being hedged are recognized. As of December 31, 2023, the total notional amount of outstanding designated foreign currency forward contracts was $55.8 million.
Added
The fair value of derivative assets and liabilities as of December 31, 2023, and all related unrealized and realized gains and losses during the year ended December 31, 2023 were not material.

Other FRSH 10-K year-over-year comparisons