10q10k10q10k.net

What changed in Freshworks Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Freshworks Inc.'s 2023 and 2024 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 2024 report.

+413 added−431 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-16)

Top changes in Freshworks Inc.'s 2024 10-K

413 paragraphs added · 431 removed · 314 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

39 edited+17 added−26 removed41 unchanged
Biggest changeLeveraging 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.
Biggest changeFreshservice delivers the capabilities IT leaders need to manage the entire IT estate, including IT Service Management (ITSM), IT Operations Management (ITOM), and IT Asset Management (ITAM), on the same platform, enabling collaboration across teams without complexity. Freshservice streamlines IT service delivery, providing a unified approach to incident, request, knowledge, change, and problem management.
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.
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; 9 Table of Contents • fast to go-live; • easy and intuitive; and • affordable pricing.
Our partner ecosystem consists of channel partners, independent software vendors (ISV) partners and marketplace partners, including developers. Once a business has purchased a subscription to one of our products, we activate our customer success programs that are aligned with the size and scale of each customer and are designed to ensure businesses are getting the most out of their subscription.
Our partner ecosystem consists of channel resellers, independent software vendors (ISV) and marketplace partners, including developers. Once a business has purchased a subscription to one of our products, we activate our customer success programs that are aligned with the size and scale of each customer and are designed to ensure businesses are getting the most out of their subscription.
Key components of our Neo platform include an AI engine, a Developer platform, the Freshworks Marketplace, analytics service and unified customer experience services. • Freddy AI is Freshworks' native AI engine that brings the power of generative AI to all Freshworks products.
Key components of our platform include an AI engine, a Developer platform, the Freshworks Marketplace, analytics service and unified customer experience services. • Freddy AI is Freshworks' native AI engine that brings the power of generative AI to all Freshworks products.
Technology Freshworks products are cloud-native SaaS systems that are based on modern, proven technologies—Ruby on Rails, Java, and MySQL. Leveraging these and other open source technologies, our systems are built to operate as independent ‘pods’ of compute, storage, and database infrastructure. Our products are hosted in AWS regions in the United States, EU, India, and Australia.
Technology Freshworks products are cloud-native SaaS systems that are based on modern, proven technologies—Ruby on Rails, Java, and MySQL. Leveraging these and other open source technologies, our systems are built to operate as independent ‘pods’ of compute, storage, and database infrastructure. Our products are hosted in AWS regions in the United States, EU, India, Australia, and the United Arab Emirates.
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.
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 act 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.
These services include Neo Admin Center to centrally manage security and billing for our products, UCR to power a holistic view of the customer, Custom Objects to bring in the customers’ business critical data into our products and Conversations to unify B2B and B2C channels.
These services include an Admin Center to centrally manage security and billing for our products, UCR to power a holistic view of the customer, Custom Objects to bring in the customers’ business critical data into our products and Conversations to unify B2B and B2C channels.
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.
Our cybersecurity program 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.
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 drive potential customers to our website as the 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 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 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.
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.
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 seamlessly transferred to an agent.
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.
As of December 31, 2024, over 60% 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.
Customers are able to gain personalized support via Freddy Self Service, contextual user assistance via Freddy Copilot, and actionable insights via Freddy Insights. • The Developer platform allows businesses to extend the Freshworks product experience by enabling them to build apps with our toolkits and comprehensive documentations, supported by a thriving community.
Customers are able to gain personalized support via Freddy AI Agent, contextual user assistance via Freddy Copilot, and actionable insights via Freddy Insights. • The Developer platform allows businesses to extend the Freshworks product experience by enabling them to build apps with our toolkits and comprehensive documentations, supported by a thriving community.
We provide digital onboarding directly or with partners to all customers. We conduct health checks and business reviews, monitor customer satisfaction and NPS, and identify gaps to proactively address any concerns. Our customer success team is also responsible for customer renewals and for identifying expansion opportunities.
We provide digital onboarding directly or with partners to all customers. We conduct health checks and business reviews, monitor customer satisfaction and Net Promoter Scores, and identify gaps to proactively address any concerns. Our customer success team is also responsible for customer renewals and for identifying expansion opportunities.
We rely on efficient search marketing and word of mouth to encourage individual users or small teams within an organization to discover, try, and purchase our products.
We rely on efficient search marketing and word of mouth to encourage individual users or small teams 4 Table of Contents within an organization to discover, try, and purchase our products.
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.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective. 10 Table of Contents Our Culture and Employees Our mission is to help businesses create delightful customer and employee experiences.
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.
We embrace a variety of cultures, experiences, styles and backgrounds to get results. Our employee benefits and programs reflect our growth mindset culture and our talent management strategy. We focus on supporting our employees not only within their own teams and careers, but also in employee wellness.
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.
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, 2024, we had eighteen issued U.S. patents that expire between 2037 and 2043, and sixteen pending patent applications.
Our Employee Resource Groups are designed to promote inclusiveness and give everyone a chance to contribute their knowledge, skills, and unique perspectives. Our social impact initiatives include the STS Software Academy and on-going support of our communities in times of need.
Our global Women's 360 Employee Resource Group and affinity groups promote inclusiveness and give everyone a chance to contribute their knowledge, skills, and unique perspectives. Our social impact initiatives include the STS Software Academy and on-going support of our communities in times of need.
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.
Our business has grown significantly in recent periods as our customer base and operations have scaled. Our total revenue was $720.4 million, $596.4 million and $498.0 million in the years ended December 31, 2024, 2023 and 2022, respectively, representing year-over-year growth rates of 21% and 20%, respectively.
We utilize our outbound motion in conjunction with our inbound efforts to help accelerate the adoption of our products, and the increased usage of our products within existing customers. • Partner ecosystem : Our growing partner ecosystem enriches our offerings, scales our geographic coverage, and helps us reach a broader audience than we would be able to reach on our own, thus amplifying our go-to-market investments.
We utilize our outbound motion in conjunction with our inbound efforts to help accelerate the adoption of our products, and the increased usage of our products within existing customers. • Partner ecosystem : Our growing partner ecosystem enriches our offerings, scales our geographic coverage, and helps us reach more EX and CX buyers, thus amplifying our go-to-market investments.
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.
Organizations can also use the Freshworks 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 Solutions Overview Customer Experience Offerings Freshworks has a unified platform for CX that includes products for Customer Service (CS) and Sales & Marketing automation (S&M).
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.
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. For IT and employee-facing teams, we offer our AI-powered EX family of products, including Freshservice, Freshservice for Buisness Teams and Device42.
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.
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. 8 Table of 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.
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.
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).
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.
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 and consistent services company-wide. • Freshservice .
Freddy AI, our generative AI-powered platform service, enables businesses to more efficiently deliver customer and employee delight at scale.
This includes Freddy AI, our generative AI-powered suite of services, that enable organizations to more efficiently deliver customer and employee delight at scale.
Available Information Our website address is located at freshworks.com , and our investor relations website is located at ir.freshworks.com . We file electronically with the U.S.
Major areas of focus in this region include engineering, product design, customer support, in-bound sales and general and administrative personnel. Available Information Our website address is located at freshworks.com , and our investor relations website is located at ir.freshworks.com . We file electronically with the U.S.
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.
Products and Capabilities Freshworks provides solutions that serve the needs of users in the CX and EX categories. These product offerings enable organizations to acquire, engage, and better serve their customers and employees. For customer-facing teams, we offer our AI-powered, CX family of products, including Freshdesk, Freshdesk Omni, Freshchat, Freshsales, and Freshmarketer.
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.
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. It also helps our customers manage major incidents, get on-call management and track service health.
Within ITSM, we primarily face competition from traditional vendors, such as ServiceNow, BMC, Ivanti/Cherwell, and modern pure-play vendors, such as Atlassian. Within Sales and Marketing, we primarily face competition from full-featured vendors, such as Salesforce, HubSpot, and Microsoft Dynamics, legacy vendors, such as Oracle, SAP, and Sage, and pure-play vendors.
For our EX products, we primarily face competition from traditional vendors, such as ServiceNow, BMC, Ivanti/Cherwell, and modern pure-play vendors, such as Atlassian.
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.
Freshservice is our unified IT Management platform that combines IT Service management, IT Operations management, IT Asset Management and Employee Service Management on the same platform. Freshservice provides both the intelligence and automation organizations need to give employees the “consumer” like experience they now expect.
We’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.
As of December 31, 2024, we had a hybrid workforce of approximately 4,400 employees in North America, Europe, Asia and Australia. We’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.
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.
With Freshservice for Business Teams, this platform also extends to non-IT departments like HR, Facilities and Legal. All of our products leverage the Freshworks platform, which provides shared services that enable us to rapidly innovate and release new capabilities.
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.
Freshservice also utilizes Freddy AI Copilot and is designed to increase agent productivity by automating routine work like summarizing tickets, generating responses, and creating consistent tone and clarity of responses. • Freshservice for Business Teams . Freshservice for Business Teams provides a unified employee service experience while ensuring the secure separation of departmental data.
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 .
With powerful AI capabilities, Freshsales helps sales teams prioritize high-intent leads, scale personalized outreach, and identify critical deals to take the next best action to accelerate sales cycles. 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 .
They function as a behavioral compass to guide us to long term goals, on good days and the not-so-good days and are pivotal to creating our Freshworks culture and drive our business performance. • We focus on our customers. We build and deliver solutions that exceed our customer expectations.
That goal starts at home with our own team – and we strive to help our people succeed and build fulfilling careers. Our steady growth comes from a set of principles that guide us and shape our Freshworks culture and drive our business performance. • We focus on our customers. We build and deliver solutions that exceed our customer expectations.
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.
Built to deliver exceptional customer experiences and employee experiences, Freddy AI has helped users in customer support and IT autonomously resolve service requests. Businesses from approximately 170 countries around the world use Freshworks products to delight their customers and employees every day.
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.
Freshservice can leverage virtual agents called Freddy AI Agents designed to provide always-on, trustworthy and conversational service to help employees resolve issues, make requests, and answer questions without contacting the service desk.
Removed
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.
Added
Item 1. Business Overview We provide people-first, AI service software that organizations use to deliver exceptional customer and employee experiences. We provide our solutions in two product families: Customer Experience (CX) and Employee Experience (EX). CX products include Freshdesk, Freshdesk Omni, Freshchat, Freshsales, and Freshmarketer. EX products include Freshservice, Freshservice for Business Teams and Device42.
Removed
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.
Added
Our generative AI offerings, Freddy AI Agent and Freddy AI Copilot, further enhance the customer and employee experience. Freddy AI Agent offers always-on, autonomous, personalized resolutions to customer and employee queries. Freddy AI Copilot provides always-on contextual assistance for customer support, employee support, marketing and sales use cases, designed to boost productivity.
Removed
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.
Added
Currently, over 72,000 companies use Freshworks' uncomplicated solutions to increase employee efficiency and customer loyalty. Our solutions and platform are enterprise-grade without the enterprise complexity. Our fresh approach to EX and CX software is designed to be easy to use and ready to scale and to deliver rapid time to value to companies of all sizes.
Removed
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.
Added
With an increased ability to delight customers and employees, Freshworks' customers have improved retention, achieved higher customer satisfaction scores and better business outcomes. Our secure and native AI enables businesses to stay ahead of the curve with the latest technologies and is designed to deliver a tangible return on investment.
Removed
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.
Added
Customer Service Product Offerings Freshworks offers various products to address specific use cases across CS. These are: • Freshdesk Omni . Freshdesk Omni, formerly known as Customer Service Suite, brings everything businesses need to deliver seamless omnichannel support into a single solution that is quick to deploy, easy to use, and simple to manage.
Removed
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.
Added
Plus, powerful AI capabilities help deliver exceptional support at scale by quickly solving customer issues, supercharging agent productivity, and providing proactive insights to managers and leaders. Businesses can transform the customer experience and resolve issues faster than ever before with Freshdesk Omni. • Freshdesk. Freshdesk is a comprehensive ticketing and case management solution that lets businesses resolve customer issues fast.
Removed
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.
Added
Businesses can delight customers with easy email experiences and self-service across dedicated portals and their websites, all powered by a robust knowledge base. They can intelligently route tickets and collaborate seamlessly with team members to ensure quick and accurate resolutions. Freshworks' powerful AI means customer service agents get more done, and customers get exceptional service every time. • Freshchat.
Removed
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.
Added
Freddy AI Agent for CS provides always-on, conversational assistance to customers, enabling customers to resolve issues quickly and efficiently across channels. Available in multiple languages, Freddy AI Agent is designed to be easy to deploy and manage.
Removed
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.
Added
Businesses can simply connect their knowledge sources (documents, PDFs, public URLs) to get started, with no requirement for complex decision tree flows or heavy setup efforts.
Removed
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.
Added
Freddy AI Copilot acts as a coach and collaborator that 6 Table of Contents helps boost agent productivity and performance by summarizing tickets and conversations, suggesting responses, and providing quality coaching and feedback after every interaction Sales and Marketing Automation Offerings Freshworks also offers a sales automation product Freshsales and a marketing automation product called Freshmarketer. • Freshsales .
Removed
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.
Added
Freshsales is an easy-to-use, AI-powered sales CRM that helps businesses enhance productivity and drive revenue growth. The powerful CRM transforms the sales experience with 360-degree customer context, equipping sales teams with real-time relevant information. It offers personalized engagement, accurate forecasting, and intelligent workflows to improve sales performance and deliver exceptional customer experiences.
Removed
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.
Added
Freshmarketer is an easy-to-use marketing automation platform designed to help businesses attract, nurture, convert, and retain customers. It empowers businesses to connect with customers across their preferred channels—email, SMS, WhatsApp, or social media — driving higher engagement.
Removed
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.
Added
With AI-driven campaign creation, advanced segmentation and personalization, real-time automated journeys, and in-depth analytics and reporting, Freshmarketer enables businesses to maximize their marketing ROI. Additionally, it offers conversational marketing tools like live chat and chatbots, along with features for landing page customization and conversion rate optimization, making it a complete solution for all marketing requirements.
Removed
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.
Added
Asset management helps gain infrastructure visibility and optimize the assets used to provide services on-premises, hybrid, and cloud. Freshservice also offers powerful dashboards and analytics functionality to improve service delivery. Freshservice harnesses the power of AI to transform the way employees, service agents, and business leaders work by replacing forms, lists, and queries with conversational, collaborative, and omnichannel experiences.
Removed
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.
Added
Freshservice for Business Teams enables non-IT departments like HR, Finance, Facilities, and Legal to benefit from service management and workflow automation. • Device42 . D42 Parent, Inc., a Freshworks company, provides advanced IT discovery and dependency mapping. Device42 is designed to continuously discover, map, and provide complete visibility across on-premises and cloud IT environments.
Removed
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.
Added
With its built-in AI capabilities and reporting, Device42 helps customers get answers fast and insights that help them solve problems faster, maintain compliance requirements, reduce risk, and ensure business continuity. 7 Table of Contents The Freshworks Platform The Freshworks platform is the AI-powered, enterprise-grade foundation for all Freshworks products.
Removed
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.
Added
For our CX products, with regards to CS, we primarily face competition from CS suites, such as Salesforce, Zendesk, and legacy vendors, such as Oracle and SAP, and with regards to customer relationship management, we primarily face competition from full-featured vendors, such as Salesforce, HubSpot, and Microsoft Dynamics, legacy vendors, such as Oracle, SAP, and Sage.
Removed
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.
Removed
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.
Removed
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.
Removed
For example, we introduced Freshping, which gives businesses the capabilities to monitor their website’s availability and get multichannel alerts if their website goes down, and Freshstatus, which allows businesses to create a custom branded website status page for internal or external viewing to communicate website uptime and availability.
Removed
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.
Removed
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.
Removed
That goal starts at home with our own team – and we strive to help our people succeed by continuously finding better, more human ways to work. CEO and Founder Girish Mathrubootham, said, “From the beginning, I wanted to build a company optimized for employee happiness; we want our employees to have the best experience of their life at Freshworks.

… 2 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

161 edited+48 added−46 removed382 unchanged
Biggest changeOur 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.
Biggest changeOur quarterly financial results have and may continue to fluctuate due to a variety of factors, many of which are outside of our control and have been, and may continue to 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; • the continued ability to hire high quality and experienced talent in a fiercely competitive environment; • pricing pressure as a result of competition or otherwise; • 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; • general economic conditions in either domestic or international markets, including inflationary pressures and geopolitical uncertainty and instability and their effects on software spending; • security breaches, technical difficulties, or interruptions to our products; • the timing of the grant or vesting of equity awards to employees, directors, or consultants; • 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 acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs; • adverse litigation judgments, other dispute-related settlement payments, or other litigation-related costs; and • health epidemics, influenza, and other highly communicable diseases or viruses.
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.
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. We have experienced significant growth in recent periods.
If such third parties interfere with the distribution of our mobile applications, our business would be adversely affected. We rely on third parties maintaining open digital marketplaces, including the Apple App Store and Google Play, which make our mobile applications for our Freshdesk, Freshchat, Freshcaller, Freshservice, and Freshsales, products available for download.
If such third parties interfere with the distribution of our mobile applications, our business would be adversely affected. We rely on third parties maintaining open digital marketplaces, including the Apple App Store and Google Play, which make our mobile applications for our Freshservice, Freshdesk, Freshchat, Freshcaller, and Freshsales products available for download.
We do not intend to pay dividends for the foreseeable future. We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business.
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business.
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.
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; 39 Table of Contents • 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.
Significant assumptions and estimates used in preparing our consolidated financial statements include those related to the useful lives and carrying values of long-lived assets, allowance for doubtful accounts, stock-based compensation expense, the expected benefit period of deferred contract acquisition costs, the fair value of our employee defined benefit and other compensation liabilities, and valuation of deferred tax assets.
Significant assumptions and estimates used in preparing our consolidated financial statements include those related to the useful lives and carrying values of long-lived assets, allowance for doubtful accounts, stock-based compensation expense, the benefit period of deferred contract acquisition costs, the fair value of our employee defined benefit and other compensation liabilities, and valuation of deferred tax assets.
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.
Beginning 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.
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.
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 130 to 150 days, as compared to 30 days for SMB customers.
Our business is subscription based, and customers are not obligated to and may not renew their subscriptions after their existing subscriptions expire. In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions when the initial contract term expires and add additional users to their subscriptions.
Our business is primarily subscription based, and customers are not obligated to and may not renew their subscriptions after their existing subscriptions expire. In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions when the initial contract term expires and add additional users to their subscriptions.
As a result, subject to the satisfaction of applicable exercise periods and applicable volume and restrictions that apply to affiliates, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding RSU awards are available for immediate resale in the United States in the open market.
As a result, subject to the satisfaction of applicable exercise periods and applicable volume and restrictions that apply to affiliates, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding RSU or PRSU awards are available for immediate resale in the United States in the open market.
Accordingly, while we are unable to ascertain with certainty the impact, financial or otherwise, due to these changes, it is possible that our wage costs in India may increase as a result of these changes when they become effective.
While we are unable to ascertain with certainty the impact, financial or otherwise, due to these changes, it is possible that our wage costs in India may increase as a result of these changes when they become effective.
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.
In addition, we will face risks in doing business internationally that could adversely affect our business and results of operations, including: • 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; • the request to localize and adapt our products for specific countries, including translation into foreign languages and associated expenses; • public health or similar issues, such as a pandemics or epidemics; and 30 Table of Contents • regional and local economic and political conditions, including the evolving events in Russia, Ukraine, Israel, Gaza, and/or surrounding regions.
If our information technology, systems, or those of third parties upon which we rely, or our data are or were to be compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits, and other adverse consequences.
If our information technology, systems, or those of third parties upon which we rely, or our data are or were to be compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits, loss of customers or sales, and other adverse consequences.
In India, the Digital Personal Data Protection Act, 2023 (Data Protection Act) deals with processing of all personal information in digital form, whether collected digitally or offline and digitalized later for processing.
In India, the Data Protection Act deals with processing of all personal information in digital form, whether collected digitally or offline and digitalized later for processing.
Additionally, the providers of generative AI tools could use inputs to further train the third parties’ AI/ML model. Not all providers offer an option to opt-out of such usage, and, even where we do opt-out, we cannot guarantee that the opt-out will be fully effective.
Additionally, the providers of generative AI tools could use inputs to further train the third parties’ AI and machine learning (AI/ML) model. Not all providers offer an option to opt-out of such usage, and, even where we do opt-out, we cannot guarantee that the opt-out will be fully effective.
For example, the EU General Data Protection Regulation (EU GDPR), the EU GDPR as it forms part of UK law by virtue of section 3 of the European Union (Withdrawal) Act 2018 (UK GDPR), Australia’s Privacy Act, and India’s new privacy legislation, the Digital Personal Data Protection Act (DPDP), impost strict requirements for Processing personal information.
For example, the EU General Data Protection Regulation (EU GDPR), the EU GDPR as it forms part of UK law by virtue of section 3 of the European Union (Withdrawal) Act 2018 (UK GDPR), Australia’s Privacy Act, and India’s new privacy legislation, the Digital Personal Data Protection Act, 2023 (Data Protection Act), impost strict requirements for Processing personal information.
Although we have guidelines with respect to our employees’ use of generative AI tools that encourage the review of certain use cases at the executive level, we do not have processes in place to track and evaluate our employees’ use of generative AI tools and cannot guarantee that all uses will be in accordance with our guidelines.
Although we have guidelines with respect to our employees’ use of generative AI tools that encourage the review of certain use cases at the executive level, we do not have processes in place to track and evaluate our employees’, personnel’ and vendors’ use of generative AI tools and cannot guarantee that all uses will be in accordance with our guidelines.
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.
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.
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.
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.
The use of generative AI may lead to challenges, concerns and risks that are significant or that we may not be able to predict, especially if our use of these technologies in our products and services becomes more important to our operations over time.
The rapid evolution of AI and the use of generative AI may lead to challenges, concerns and risks that are significant or that we may not be able to predict, especially if our use of these technologies in our products and services becomes more important to our operations over time.
Risk Factors Summary Below is a summary of the principal factors that make an investment in our Class A common stock speculative or risky: • We have a history of losses, and we may not be able to achieve profitability or, if achieved, sustain profitability. • We have experienced significant growth in recent periods, and our recent growth rates may not be indicative of our future growth. • 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. • Macroeconomic uncertainties, including inflationary pressures, supply chain disruptions, labor shortages, significant volatility in global markets, and recession risks 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. • Our quarterly results may fluctuate significantly and may not meet our expectations or those of investors or securities analysts. • Sales efforts to large customers, which are a growing part of our business involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations.
Risk Factors Summary Below is a summary of the principal factors that make an investment in our Class A common stock speculative or risky: • We have a history of losses, and we may not be able to achieve profitability or, if achieved, sustain profitability. • 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. • Macroeconomic uncertainties, including inflationary pressures, supply chain disruptions, labor shortages, significant volatility in global markets, and recession risks 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. • Our quarterly results may fluctuate significantly and may not meet our expectations or those of investors or securities analysts. • Sales efforts to large customers, which are a growing part of our business involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations.
Consequently, our financial performance and the market price of our Class A common stock will be affected by changes in exchange rates and controls, interest rates, changes in government policies, including taxation policies, and other social and economic developments in or affecting India.
Consequently, our financial performance and the market price of our Class A common stock will be affected by changes in exchange rates and controls, interest rates, changes in labor law, changes in government policies, including taxation policies, and other social and economic developments in or affecting India.
Although we maintain disaster response plans, such events could require significant time to resume operations to deliver our services to our customers, could decrease demand for our services, could cause us to incur substantial expense and may cause reputational harm, delays in our sales efforts, delays in our products’ development, breaches of data security, and loss of critical data, all of which would harm our business, results of operations, and financial condition.
Although we maintain disaster response plans, such events could require significant time to resume operations to deliver our services to our customers, could decrease demand for our services, could cause us to incur substantial expense and may cause reputational harm, delays in our sales efforts, delays in our products’ development, breaches of data security, and loss of critical 45 Table of Contents data, all of which would harm our business, results of operations, and financial condition.
Remote work has become more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers, and devices outside our premises or network, including working at home, while in transit and in public locations.
Remote work has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers, and devices outside our premises or network, including working at home, while in transit and in public locations.
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.
O ur growth may continue to be impacted by macroeconomic factors beyond our control, including, but not limited to high interest rates, inflation, 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.
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.
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.
Additionally, our India subsidiary is subject to Indian foreign exchange controls that regulate borrowing in foreign currencies. Such regulatory restrictions limit our financing sources and could constrain our ability to obtain financing on competitive terms and refinance existing indebtedness. In addition, we cannot assure you that the required approvals will be granted to us without onerous conditions, or at all.
Additionally, our India subsidiary is subject to Indian foreign exchange controls that regulate borrowing in foreign currencies. Such regulatory restrictions limit our financing sources and could constrain our ability to obtain financing on competitive terms. In addition, we cannot assure you that the required approvals will be granted to us without onerous conditions, or at all.
For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering.
For the avoidance of doubt, this provision is intended to benefit and 44 Table of Contents may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering.
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.
We have in the past and may in the future engage in merger and acquisition activities, which require significant management attention, and could disrupt our business, dilute stockholder value, and adversely affect our business, results of operations, and financial condition.
Moreover, large customers may demand greater price concessions or other more favorable terms. 17 Table of Contents We track certain key business metrics, which are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and materially adversely affect our stock price, business, results of operations, and financial condition.
Moreover, large customers may demand greater price concessions or other more favorable terms. We track certain key business metrics, which are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and materially adversely affect our stock price, business, results of operations, and financial condition.
Data integrity problems or other issues may also be discovered during or as a result of the implementation which, if not corrected, could impact our business or financial results. If we are unable to successfully design and implement our information system enhancements, our financial position, results of operations and cash flows could be negatively impacted.
Data integrity problems or other issues may also be discovered during or as a result of the implementation which, if not corrected, could impact our business or financial results. If we are unable to successfully design and implement our information system enhancements, our financial position, 42 Table of Contents results of operations and cash flows could be negatively impacted.
Data Privacy Framework and the UK extension thereto (which allows for transfers to relevant U.S.-based organizations who, like us, self-certify compliance and participate in the Framework), the EEA and UK’s standard contractual clauses, and the UK’s International Data Transfer Agreement / Addendum, these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal information to 27 Table of Contents the United States.
Data Privacy Framework and the UK extension thereto (which allows for transfers to relevant U.S.-based organizations who, like us, self-certify compliance and participate in the Framework), the EEA and UK’s standard contractual clauses, and the UK’s International Data Transfer Agreement / Addendum, these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal information to the United States.
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.
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.
During times of war and other major geopolitical conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our services.
During times of war and other major geopolitical conflicts, we and the third parties upon which we rely 20 Table of Contents may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our services.
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.
As a result, these stockholders, acting together, and potentially our Executive Chairman 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.
Our business operations are subject to interruption by natural disasters such as earthquakes, monsoons, cyclones, floods, extreme heat, and other effects of climate change, pandemics such as COVID-19, and other catastrophic events such as fire, power loss, terrorism, political unrest, telecommunications failure, vandalism, cyberattacks, geopolitical instability, war, and other events beyond our control.
Our business operations are subject to interruption by natural disasters such as earthquakes, monsoons, cyclones, tsunamis, floods, extreme heat, and other effects of climate change, pandemics, and other catastrophic events such as fire, power loss, terrorism, political unrest, telecommunications failure, vandalism, cyberattacks, geopolitical instability, war, and other events beyond our control.
Developing, testing and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems. Additionally, we rely on third parties to develop products that are complementary to ours in order to retain existing customers and attract new customers.
Developing, testing and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems. 16 Table of Contents Additionally, we rely on third parties to develop products that are complementary to ours in order to retain existing customers and attract new customers.
Any reduction in the number of users directed to our website could reduce our revenue or require us to increase our sales and marketing expenditures. We rely on third parties maintaining open digital marketplaces to distribute our mobile applications for our Freshdesk, Freshchat, Freshcaller, Freshservice, and Freshsales products.
Any reduction in the number of users directed to our website could reduce our revenue or require us to increase our sales and marketing expenditures. 24 Table of Contents We rely on third parties maintaining open digital marketplaces to distribute our mobile applications for our Freshservice, Freshdesk, Freshchat, Freshcaller, and Freshsales products.
The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, the price of our securities would likely decline.
The analysts’ estimates are based upon their own opinions and are often different 40 Table of Contents from our estimates or expectations. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, the price of our securities would likely decline.
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.
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.
There can be no assurance that our business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations, litigation or changes to laws and regulations in the future. We may need additional capital, and we cannot be sure that additional financing will be available.
There can be no assurance that our business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations, litigation or changes to laws and regulations in the future. 43 Table of Contents We may need additional capital, and we cannot be sure that additional financing will be available.
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.
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.
The incentives to attract, retain, and motivate employees provided by our equity awards, or by other compensation arrangements, may not be as effective as in the past. 19 Table of Contents Many of the companies with which we compete for experienced personnel have greater resources than we have.
The incentives to attract, retain, and motivate employees provided by our equity awards, or by other compensation arrangements, may not be as effective as in the past. Many of the companies with which we compete for experienced personnel have greater resources than we have.
The Data Protection Act requires companies collecting and dealing with high volumes of personal information and who are notified as significant data fiduciaries, to fulfil certain additional obligations such as appointment of a data protection officer for grievance redressal and an independent data auditor to evaluate compliance with the Data Protection Act.
The Data Protection Act requires companies collecting and dealing with 28 Table of Contents high volumes of personal information and who are notified as significant data fiduciaries, to fulfil certain additional obligations such as appointment of a data protection officer for grievance redressal and an independent data auditor to evaluate compliance with the Data Protection Act.
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.
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.
Uncertainty around new and emerging AI applications, such as generative AI content creation, may require additional investment in the development of proprietary datasets, machine learning models and systems to test for accuracy, bias and other variables, which are often complex.
Uncertainty around new and emerging AI applications, such as generative AI content creation, has required and may continue to require additional investment in the development of proprietary datasets, machine learning models and systems to test for accuracy, bias and other variables, which are often complex.
Furthermore, delays or complications with respect to the transition of critical business functions from one third-party product to another, or any errors or defects in third-party hardware, software, or infrastructure could result in errors or a failure of our products, which could harm our business and results of operations.
Furthermore, delays or complications with respect to the transition of critical business functions from one third-party product to another, or any errors 23 Table of Contents or defects in third-party hardware, software, or infrastructure could result in errors or a failure of our products, which could harm our business and results of operations.
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.
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.
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.
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.
The trading price of our Class A common stock has been and will likely continue to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our Class A common stock.
The trading price of our Class A common stock may be volatile, and you could lose all or part of your investment. The trading price of our Class A common stock has been and will likely continue to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control.
Under its consolidated foreign direct investment policy (FDI Policy) and India’s Foreign Exchange Management Act, 1999 and the rules and regulations thereunder, particularly the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, each as amended (FEMA), the Government of India has specific requirements with respect to the level of foreign investment permitted in certain business sectors both without (known as the automatic route) and with (known as the approval route) prior regulatory approval, as well as the pricing of such investments, downstream investments by Indian companies owned or controlled by foreign entities, and the transfer of ownership or control of Indian companies in sectors with caps on foreign investment from resident Indian persons or entities to non-residents of India.
The ownership of Indian companies by non-residents is regulated by the Government of India and the Reserve Bank of India (RBI).Under its consolidated foreign direct investment policy, 2020 (FDI Policy) and India’s Foreign Exchange Management Act, 1999 and the rules and regulations thereunder, particularly the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, each as amended (FEMA), the Government of India has specific requirements with respect to the level of foreign investment permitted in certain business sectors both without (known as the automatic route) and with (known as the approval route) prior regulatory approval, as well as the pricing of such investments, downstream investments by Indian companies owned or controlled by foreign entities, and the transfer of ownership or control of Indian companies in sectors with caps on foreign investment from resident Indian persons or entities to non-residents of 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.
South Asia has from time to time experienced instances of civil unrest, natural disasters, terrorist attacks and hostilities among neighboring countries. To the extent that such interruptions or unrest affects or involves India, our business may be significantly impacted due to the extent of our operations in India.
If the protection of our intellectual property rights is inadequate to prevent use or misappropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our products and methods of operations.
If the protection of our intellectual property rights is inadequate to prevent use or misappropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more 34 Table of Contents effectively mimic our products and methods of operations.
The loss of key personnel may cause disruptions in, and harm to, our operations and have an adverse effect on our ability to grow our business and our results of operations and financial condition. In addition, to execute our business model, we must attract and retain highly qualified personnel.
The 19 Table of Contents loss of key personnel may cause disruptions in, and harm to, our operations and have an adverse effect on our ability to grow our business and our results of operations and financial condition. In addition, to execute our business model, we must attract and retain highly qualified personnel.
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.
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.
The performance of the internet and its acceptance as a business tool has been harmed by “viruses,” “worms,” and similar malicious programs and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure.
The 32 Table of Contents performance of the internet and its acceptance as a business tool has been harmed by “viruses,” “worms,” and similar malicious programs and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure.
Furthermore, there is an increasing number of open-source software license types, almost none of which have been tested in a court of law, resulting in a dearth of guidance regarding the proper legal interpretation of such license types.
Furthermore, there is an increasing number of open-source software license types, almost none of which have been tested in a court of law, resulting in a dearth of guidance regarding the proper legal interpretation of such 35 Table of Contents license types.
We cannot guarantee that others will not independently develop technology with the same or similar functions to any proprietary technology we rely on to conduct our business and differentiate ourselves from our competitors. Unauthorized parties may also attempt to copy or obtain and use our technology to develop applications with the same functionality as our solutions.
We cannot guarantee that others will not independently develop technology with the same or similar functions to any proprietary technology we rely on to conduct our business and differentiate ourselves from our competitors. Unauthorized parties may also 22 Table of Contents attempt to copy or obtain and use our technology to develop applications with the same functionality as our solutions.
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.
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.
Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
Accordingly, these risks could be particularly difficult to eliminate or manage, and, if not addressed, could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
We also rely on third-party service providers to provide other products, services, parts, or otherwise to operate our business. Our ability to monitor these third parties’ information security practices is limited, and these 20 Table of Contents third parties may not have adequate information security measures in place.
We also rely on third-party service providers to provide other products, services, parts, or otherwise to operate our business. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place.
If we are ultimately unable to achieve or improve profitability at the level or during the time frame anticipated by securities or industry analysts and our stockholders, the trading price of our Class A common stock may decline. We recognize revenue over the term of our customer contracts.
If we are ultimately unable to achieve or 18 Table of Contents improve profitability at the level or during the time frame anticipated by securities or industry analysts and our stockholders, the trading price of our Class A common stock may decline. We recognize revenue from subscriptions over the term of our customer contracts.
In particular, the European Economic Area (EEA) and the UK have significantly restricted the transfer of personal information to the United States and other countries whose privacy laws it generally believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
In particular, the European Economic Area (EEA) and the UK have significantly restricted the transfer of personal information to the United States and other countries whose privacy laws it generally believes are inadequate. Other jurisdictions may adopt or have already adopted similarly stringent data localization and cross-border data transfer laws.
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.
If we are unable to continue to meet the demands of users and customers to keep up with trends in preferences for CX or EX products, or to achieve more widespread market acceptance of our products, our business, results of operations, and financial condition would be harmed.
The development and use of AI/ML present various privacy and security risks that may impact our business. AI/ML are subject to Data Protection Laws, as well as increasing regulation and scrutiny. Several jurisdictions around the globe, including the EU and certain US states, have proposed or enacted laws governing AI/ML.
The development and use of AI/ML present various privacy and security risks that may impact our business. AI/ML are subject to Data Protection Laws, as well as increasing regulation and scrutiny. Several jurisdictions around the globe, including the EU and certain US states, have proposed or enacted laws governing AI/ML, for example, the EU's Artificial Intelligence Act.
Certain states also impose stricter requirements for processing certain personal information, including sensitive information, such as conducting data privacy impact assessments. These state laws allow for statutory fines for noncompliance.
Certain states also impose stricter requirements for processing certain personal information, 27 Table of Contents including sensitive information, such as conducting data privacy impact assessments. These state laws allow for statutory fines for noncompliance.
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.
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.
The CCPA provides for administrative fines of up to $7,500 per intentional violation and allows private litigants affected by certain data breaches to recover significant statutory damages. Similar laws are being considered in several other states, as well as at the federal and local levels, and we expect more states to pass similar laws in the future.
The CCPA provides for fines and allows private litigants affected by certain data breaches to recover significant statutory damages. Similar laws are being considered in several other states, as well as at the federal and local levels, and we expect more states to pass similar laws in the future.
Finally, as the market for our products matures, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically.
Finally, as the market for our products matures, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. We face exposure to foreign currency exchange rate fluctuations.
Further, any such framework changes, such as the mandate on recurring credit and debit card payments that went into effect on September 30, 2021, may adversely affect our results of operations. Changes in the taxation system in India could adversely affect our business.
Further, any such framework changes, such as the mandate on recurring credit and debit card payments that went into effect on September 30, 2021, may adversely affect our results of operations.
Due to these potential inaccuracies or flaws, the model could be biased and could lead us to make decisions that could bias certain individuals (or classes of individuals), and adversely impact their rights, employment, 22 Table of Contents and ability to obtain certain pricing, products, services, or benefits, including exposure to reputational and competitive harm, customer loss, and legal liability.
Since we may use AI outputs to make certain decisions, due to these potential inaccuracies or flaws, the model could be biased and could lead us to make decisions that could bias certain individuals (or classes of individuals), and adversely impact their rights, employment, and ability to obtain certain pricing, products, services, or benefits, including exposure to reputational and competitive harm, customer loss, and legal liability.
If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators, or other adverse consequences.
Regulators in the United States are increasingly scrutinizing these statements, and if these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, misleading, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators, or other adverse consequences.
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.
Based on shares of common stock held as of December 31, 2024, 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 81.0% of the voting power of our outstanding capital stock, and our Executive Chairman, Mr.
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.
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, 2024, approximately 3,700 of our employees reside in India, representing approximately 83% of our total employee population.
Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation (including class action claims) and mass arbitration demands; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse business consequences.
The actual or perceived failure by us or by the third parties with whom we work to comply with such obligations could lead to regulatory investigations or actions; litigation (including class action claims) and mass arbitration demands; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States. Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
There is an increasing focus from certain investors, regulators, customers, employees, and other stakeholders concerning ESG matters. Some investors may use these non-financial performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to ESG are inadequate.
There is continuing debate among certain investors, regulators, customers, employees, and other stakeholders concerning ESG matters. Some investors may use these non-financial performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to ESG are not in line with their philosophy.
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.
In addition, some current and potential customers, particularly larger organizations, may develop or acquire their own tools or continue to rely on traditional 26 Table of Contents tools and software for their CX or EX needs, which would reduce or eliminate their demand for our products.
For example, in the year ended December 31, 2023, we increased our operating expenses to $663.2 million as compared to $635.6 million for the year ended December 31, 2022, while continuing to generate a net loss of $137.4 million in the year ended December 31, 2023.
For example, in the year ended December 31, 2024, we increased our operating expenses to $745.7 million as compared to $663.2 million for the year ended December 31, 2023, while continuing to generate a net loss of $95.4 million in the year ended December 31, 2024.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce, and the global economy, and thus could harm our business.
Catastrophic events, including climate change, natural disasters and other events beyond our control, may disrupt our business. Natural disasters or other catastrophic events may cause damage or disruption to our employees, operations, international commerce, and the global economy, and thus could harm our business.

… 175 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

2 edited+0 added−0 removed14 unchanged
Biggest changeThe Audit Committee receives reports as part of its quarterly meetings from our CISO concerning our significant cybersecurity threats and risk and the processes we have implemented to address them. Our board also receives periodic reports (at least annually) from our CISO regarding the our overall cybersecurity landscape, including material related to cybersecurity threats, risk, and mitigation.
Biggest changeThe Audit Committee receives reports as part of its quarterly meetings from our CISO concerning our significant cybersecurity threats and risk and the processes we have implemented to address them. Our board also receives periodic reports (at least annually) from our CISO regarding the overall cybersecurity landscape, including material related to cybersecurity threats, risk, and mitigation.
Depending on the environment, we implement and maintain various technical, physical, and organizational measures, processes, standards, and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: dedicated cybersecurity staff, including a 24X7 security operations center monitoring for and responding to threat activity, incident response plans and processes, vulnerability management, secure software development, static and dynamic code scanning for vulnerabilities, open-source software scanning, internal and third-party penetration testing, a bug bounty program, internal audit and assurance of security controls, disaster recovery/business continuity plans, attainment and maintenance of industry-standard security certifications, identity and access management, asset management, tracking and disposal, encryption, access controls, third-party risk management, phish testing and reporting, employee security awareness training, and maintaining cybersecurity insurance.
Depending on the environment, we implement and maintain various technical, physical, and organizational measures, processes, standards, and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: dedicated cybersecurity staff, including a 24/7 security operations center monitoring for and responding to threat activity, incident response plans and processes, vulnerability management, secure software development, static and dynamic code scanning for vulnerabilities, open-source software scanning, internal and third-party penetration testing, a bug bounty program, internal audit and assurance of security controls, disaster recovery/business continuity plans, attainment and maintenance of industry-standard security certifications, identity and access management, asset management, tracking and disposal, encryption, access controls, third-party risk management, phish testing and reporting, employee security awareness training, and maintaining cybersecurity insurance.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed0 unchanged
Biggest changeWe also maintain additional offices in the United States and internationally, including Denver, Seattle, our principal engineering facility in Chennai, India and other offices in London, The United Kingdom; Paris, France; Berlin, Germany; Utrecht, The Netherlands; Bangalore and Hyderabad, India; and Sydney and Melbourne, Australia. These offices are leased, and we do not own any real property.
Biggest changeWe also maintain additional offices in the United States and internationally, including Denver, Seattle, and West Haven; our principal engineering facility in Chennai, as well as offices in Bangalore and Hyderabad in India; and other offices in London, United Kingdom; Paris, France; Berlin, Germany; Utrecht, Netherlands; and Sydney and Melbourne, Australia.
Item 2. Properties Our headquarters office is located in San Mateo, California, where we lease more than 20,000 square feet pursuant to a lease that expires in July 2026.
Item 2. Properties Our headquarters office is located in San Mateo, California, where we lease more than 20,000 square feet under a lease that expires in July 2026.
We 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.
These offices are leased, and we do not own any real property. We 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

1 edited+0 added−0 removed1 unchanged
Biggest changeItem 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.
Biggest changeItem 3. Legal Proceedings The information required to be set forth under this Item 3 is incorporated by reference to Note 9—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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+5 added−0 removed6 unchanged
Biggest changeAs of February 13, 2024, there were 36 and 49 registered holders of our Class A and Class B common stock, respectively.
Biggest changeOur Class B common stock is not listed on any stock exchange nor traded on any public market. As of February 14, 2025, there were 34 and 37 registered holders of our Class A and Class B common stock, respectively.
The 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.
The 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, 2024 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. 49 Table of 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.
Added
Issuer Purchases of Equity Securities The following table summarizes repurchase of our Class A common stock made by or on behalf of us or any of our "affiliated purchasers" as defined in Rule 10b-19(a)(3) under the Exchange Act during each month during the three months ended December 31, 2024 (in thousands, except share amount and average price paid per share amount): Period by fiscal month Total number of shares repurchased (1) Average price paid per share (2) Total number of shares repurchased as part of publicly announced plans or programs (3) Approximate dollar value of shares that may yet be purchased under the plans or programs (3) October 1, 2024 - October 31, 2024 — $ — — $ — November 1, 2024 to November 30, 2024 — $ — — $ 400,000 December 1, 2024 to December 31, 2024 985,234 $ 15.77 985,234 $ 384,465 Total 985,234 985,234 (1) All of the shares purchased during the three months ended December 31, 2024 were acquired pursuant to our publicly announced share repurchase program described in footnote 3 below.
Added
(2) The average price paid per share includes brokerage commissions. (3) On November 6, 2024, we publicly announced that our board of directors had approved a share repurchase program, which authorized the repurchase of up to $400 million of our outstanding Class A common stock.
Added
Under the repurchase program, we may repurchase shares of our outstanding Class A common stock from time to time in the open market, through privately negotiated transactions and/or other means in compliance with the Exchange Act and the rules and regulations thereunder.
Added
Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares of common stock under this authorization.
Added
The timing, manner, price, and amount of any repurchases will be determined by us at our discretion, and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations. The repurchase program may be suspended or discontinued at any time. 50 Table of Contents Use of Proceeds None.

Item 7. Management's Discussion & Analysis

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

98 edited+29 added−45 removed41 unchanged
Biggest changeDuring 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.
Biggest change(3) General and administrative expense includes stock-based compensation expense associated with RSUs and PRSUs primarily granted to the Executive Chairman of $50.4 million, $55.9 million and $55.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. 60 Table of Contents The following table sets forth our consolidated statements of operations for the periods presented, as a percentage of revenue: Year Ended December 31, 2024 2023 2022 Revenue 100 % 100 % 100 % Cost of revenue 16 17 19 Gross profit 84 83 81 Operating expense: Research and development 23 23 27 Sales and marketing 54 60 69 General administrative 25 29 32 Restructuring charges 2 — — Total operating expenses 104 112 128 Loss from operations (20) (29) (47) Interest and other income, net 7 8 2 Loss before income taxes (13) (21) (45) Provision for income taxes 1 2 2 Net loss (14) % (23) % (47) % Comparison of Fiscal Years Ended December 31, 2024 and 2023 Revenue Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Subscription services, software licenses and maintenance $ 710,744 $ 582,868 $ 127,876 22 % Professional services $ 9,676 $ 13,564 $ (3,888) (29 %) Total revenue $ 720,420 $ 596,432 $ 123,988 21 % Revenue increased by $124.0 million, or 21%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
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.
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.
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.
Financing Activities Net cash used in financing activities of $60.6 million for the year ended December 31, 2023 consisted primarily of $68.0 million in payment of withholding taxes on net share settlement of equity awards, partially offset by $7.3 million in proceeds from issuance of common stock under our employee stock purchase plan, net.
Net cash used in financing activities of $60.6 million for the year ended December 31, 2023 consisted primarily of $68.0 million in payment of withholding taxes on net share settlement of equity awards, partially offset by $7.3 million in proceeds from issuance of common stock under our employee stock purchase plan, net.
Stock-Based Compensation We issue stock options and RSUs to employees, consultants, and directors, and stock purchase rights granted under the Employee Stock Purchase Plan (ESPP) to employees based on their estimated fair value on the date of the grant.
Stock-Based Compensation We issue stock options and RSUs to employees, consultants, and directors, and stock purchase rights granted under the 2021 Employee Stock Purchase Plan (ESPP) to employees based on their estimated fair value on the date of the grant.
The associated stock-based compensation expense is recognized over the longer of the derived service period or the requisite service period, using the accelerated attribution method. Changes in the assumptions, which are subjective and generally require significant analysis and judgement to develop, can materially affect the valuation of our equity awards and impact how much stock-based compensation expense is recognized.
The associated stock-based compensation expense is recognized over the longer of the derived service period or the requisite service period, using the accelerated attribution method. Changes in the assumptions, which are subjective and generally require significant analysis and judgment to develop, can materially affect the valuation of our equity awards and impact how much stock-based compensation expense is recognized.
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.
As of December 31, 2024, 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.
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.
Professional services revenue is recognized as services are performed. We generally enter into subscription and software license 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.
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.
As of December 31, 2024, 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.
Sales and marketing expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for our sales personnel, sales commissions for our sales force and reseller commissions for our channel sales partners, as well as costs associated with marketing activities, travel and entertainment costs, software license fees, and rental of office premises.
Sales and marketing expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for our sales personnel and certain executives, sales commissions for our sales force and reseller commissions for our channel sales partners, as well as costs associated with marketing activities, travel and entertainment costs, software license fees, and rental of office premises.
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 commissions that are considered incremental costs incurred to obtain contracts with customers, are deferred and amortized over the 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 marketing events and associated business travel.
The ultimate impact on our business and operations remains highly uncertain, and it is not possible for us to predict the duration and extent to which this will affect our business, productivity of our employees, future results of operations, and financial condition.
The ultimate impact on our business and operations remains highly uncertain, and it is not possible for us to predict the duration and extent to which this will affect our business, future results of operations, and financial condition.
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.
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, 2024, and we have no significant concentration in a specific industry vertical.
Non-GAAP Income (Loss) From Operations and Non-GAAP Net Income (Loss) We define non-GAAP income (loss) from operations as GAAP loss from operations excluding stock-based compensation expense, employer payroll taxes on employee stock transactions and amortization of acquired intangibles.
Non-GAAP Income (Loss) From Operations and Non-GAAP Net Income (Loss) We define non-GAAP income (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 restructuring charges.
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 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 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 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.
The incremental borrowing rate is based on an estimate of the Company's expected unsecured borrowing rate for its notes, adjusted for tenor and collateralized security features. We estimate the incremental borrowing rate using yields for maturities that are in line with the duration of the lease payments.
The incremental borrowing rate is based on an estimate of our expected unsecured borrowing rate for our notes, adjusted for tenor and collateralized security features. We estimate the incremental borrowing rate using yields for maturities that are in line with the duration of the lease payments.
Given our subscription-based business model, the effects of the macroeconomic conditions may not be fully reflected in our revenue until future periods.
Given our business model is primarily subscription-based, the effects of the macroeconomic conditions may not be fully reflected in our revenue until future periods.
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.
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 rate. Our net dollar retention rate was 103% and 108% as of December 31, 2024 and 2023, respectively.
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.
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 our incremental borrowing rate (the estimated rate we 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.
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.
These customers represented 46% of total ARR as of December 31, 2024, 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.
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.
Monthly subscriptions represented 14%, 17%, and 20% of ARR as of December 31, 2024, 2023 and 2022, respectively. The net dollar retention rate for customers on monthly contracts has generally been lower than our overall net dollar retention rate.
Research and development expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for engineering and product development employees, software license fees, rental of office premises, third-party product development services and consulting expenses, and depreciation expense for equipment used in research and development activities.
Research and development expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for engineering and product development employees and 58 Table of Contents certain executives, software license fees, rental of office premises, third-party product development services and consulting expenses, and depreciation expense for equipment used in research and development activities.
We believe we will meet longer term expected future cash requirements and obligations through a combination of our existing cash and cash equivalents balances, cash flow from operations, and issuances of equity securities or debt offerings.
We believe we will meet longer term expected future cash requirements and obligations through a combination of our existing cash available balances, cash flow from operations, and issuances of equity securities or debt offerings, as needed.
Recent Accounting Pronouncements See “Summary of Significant Accounting Policies” in Note 2 of the notes to our consolidated financial statements for more information.
Recent Accounting Pronouncements See “Summary of Significant Accounting Policies” in Note 2 of the notes to our consolidated financial statements for more information. 64 Table of Contents
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 then divide the Ending ARR by the Entering ARR to arrive at our net dollar retention rate. Ending ARR includes upsells, cross-sells, renewals, and expansion as a result of acquisitions during the measurement period and is net of any contraction or attrition over this period.
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.
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, 2024 and 2023, we had more than 72,200 and 67,100 paying customers, respectively.
We expect our net dollar retention rate could fluctuate in future periods due to a number of factors, including our expected growth, the level of penetration within our customer base, our ability to upsell and cross-sell products to existing customers, and our ability to retain our customers.
We expect our net dollar retention rate could fluctuate in future periods due to a number of factors, including, but not limited to, difficult macroeconomic conditions, our expected growth, the level of penetration within our customer base, our ability to upsell and cross-sell products to existing customers, and our ability to retain our customers.
Significant judgement is used to determine the expected benefit period by taking into consideration the Company’s technology life cycle and an estimated customer relationship period, including expected contract renewals.
Significant judgment is used to determine the benefit period by taking into consideration our technology life cycle and an estimated customer relationship period, including expected contract renewals.
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.
Our net dollar retention rate of 103% for the year ended December 31, 2024 reflects the expansion within existing customers and the sale of additional products to these customers.
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.
During the year ended December 31, 2024, 46%, 38%, and 16% 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.
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.
We exclude the following items from one or more of our non-GAAP financial measures: • 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.
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.
For each of the years ended December 31, 2024, 2023, and 2022 we had approximately 27%, 27%, and 26%, 51 Table of Contents respectively, of revenue exposure related to the euro and British pound. If adverse conditions arise, 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 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.
For the years ended December 31, 2024 and 2023, we recorded a provision for income taxes of $4.5 million, and $13.7 million, respectively, on loss before taxes of $90.8 million and $123.8 million, respectively. The effective tax rates for the years ended December 31, 2024 and 2023 were (5.0)% and (11.0)% respectively.
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.
December 31, 2024 2023 2022 Number of customers contributing more than $5,000 in ARR 22,558 20,261 17,722 ARR from customers contributing more than $5,000 in ARR as a percent of total ARR 90 % 89 % 87 % Net dollar retention rate 103 % 108 % 108 % 53 Table of Contents 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.
The Company considers the expected benefit period to exceed the initial contract term for certain costs because of anticipated renewals and because sales commission rates for renewal contracts are not commensurate with sales commissions for initial contracts.
We consider the estimated benefit period to exceed the initial contract term for certain costs because of anticipated renewals and because sales commission rates for renewal contracts are not commensurate with sales commissions for initial contracts.
Our professional services are generally billed in advance along with the related subscription arrangements. Cost of Revenue Cost of revenue consists primarily of personnel-related expenses (including salaries, related benefits, and stock-based compensation expense) for employees associated with our cloud-based infrastructure, payment gateway fees, voice, product support, and professional services organizations, as well as costs for hosting capabilities.
Cost of Revenue Cost of revenue consists primarily of personnel-related expenses (including salaries, related benefits, and stock-based compensation expense) for employees associated with our cloud-based infrastructure, payment gateway fees, voice, product support, and professional services organizations, as well as costs for hosting capabilities.
General and administrative expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for certain executives and other general and administrative personnel, third-party professional services fees; including consulting, legal, audit, and accounting services, travel and entertainment costs, accounting, legal, human resources, and recruiting personnel, costs of director and officer insurance, costs associated with acquisitions of businesses, software license fees, and rental of office premises.
General and administrative expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for certain executives and other general and administrative personnel, third-party professional services fees, costs of director and officer insurance, and costs associated with acquisitions of businesses, software license fees, and rental of office premises.
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.
As of December 31, 2024 and 2023, 22,558 and 20,261 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, 2024 and 2023, customers contributing more than $5,000 in ARR represented 90% and 89% of total ARR, respectively.
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.
We record revenue net of sales or value-added taxes. 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.
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%.
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. Our net dollar retention rate was 103% and 108% as of December 31, 2024 and December 31, 2023, respectively.
We maintain a full valuation allowance on our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.
We maintain a full valuation allowance on our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. Provision for income taxes could also include changes in valuation allowance.
We define annual recurring revenue (ARR) as the sum total of the subscription revenue we would contractually expect to recognize over the next 12 months from all customers at a point in time, assuming no increases, reductions, or cancellations in their subscriptions.
We define annual recurring revenue (ARR) as the sum total of the subscription, software license, and maintenance revenue we would contractually expect to recognize over the next 12 months from all customers at a point in time, assuming no increases, reductions, or cancellations in their subscriptions, and assuming that revenues are recognized ratably over the term of the contract.
Upon the completion of the IPO, the performance condition became probable, and we began to recognize stock-based compensation expense. We also granted a performance-based award with both a service-based vesting condition and a market condition involving a certain range of stock price targets, and the fair value of such award was determined by using the Monte-Carlo simulation model.
We also granted a performance-based award with both a service-based vesting condition and a market condition involving a certain range of stock price targets, and the fair value of such award was determined by using the Monte-Carlo simulation model.
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.
As of December 31, 2024, approximately 36% of our customers purchased two or more Freshworks products, which includes customers on our Freshdesk Omni and Freshsales Suite subscription plans counting as customers who purchased multiple products.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP).
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.
General and Administrative General and administrative expense increased by $12.9 million, or 8%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
We believe our existing cash, cash equivalents and marketable securities, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
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.
We incurred operating losses of $138.6 million, $170.2 million and $233.4 million in the years ended December 31, 2024, 2023 and 2022, respectively, and our net losses were $95.4 million, $137.4 million and $232.1 million in the years ended December 31, 2024, 2023 and 2022, respectively.
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.
Research and Development Research and development expense increased by $26.8 million, or 19%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
We capitalize a portion of our research and development expenses that meet the criteria for capitalization of internal-use software.
We capitalize a portion of our research and development expenses that meet the criteria for capitalization of internal-use software. All other research and development costs are expensed as incurred.
This 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.
This increase was primarily due to increases of $7.1 million in personnel-related costs due to compensation adjustments, $5.8 million in stock-based compensation expenses, $1.1 million in professional services fees, comprised primarily of legal, accounting, and consulting fees, partially offset by decreases of $1.7 million in tax reserves in accordance with ASC 450 and $1.6 million in directors and officers insurance.
Professional Services Revenue Professional services revenue is comprised of fees charged for services ranging from product configuration, data migration, systems integration and training. Professional services revenue is recognized as services are performed and represents less than 5% of total revenue. Customers with Multiple Performance Obligations Some of our contracts with customers contain both subscriptions and professional services.
Professional Services Revenue Professional services revenue is comprised of fees charged for services ranging from product configuration, data migration, systems integration and training. Professional services revenue is recognized as services are performed and represents less than 5% of total revenue.
The net cash inflows from changes in operating assets and liabilities were due to increases of $56.0 million in deferred revenue, $17.7 million in accrued and other liabilities, and $2.0 million in accounts payable, partially offset by increases in assets of $24.2 million in deferred contract acquisition costs, $17.5 million in accounts receivable, and $5.9 million in prepaid expenses and other assets.
The net cash inflows from changes in operating assets and liabilities were due to increases of operating liabilities of $54.8 million in deferred revenue and $14.5 million in accrued and other liabilities; partially offset by increases in operating assets of $34.5 million in deferred contract acquisition costs, $17.1 million in accounts receivable, $1.4 million in prepaid expenses and other assets and decreases of operating liabilities of $4.3 million in operating lease liabilities and $2.2 million in accounts payable.
Leases The Company determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use (ROU) assets on its consolidated balance sheets at the lease commencement date.
Leases We determine whether an arrangement constitutes a lease and record lease liabilities and right-of-use assets on our consolidated balance sheets at the lease commencement date.
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.
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, 2024 2023 2022 Loss from operations $ (138,610) $ (170,172) $ (233,372) Non-GAAP adjustments: Stock-based compensation expense 216,706 210,707 207,696 Employer payroll taxes on employee stock transactions 3,223 3,711 1,827 Amortization of acquired intangibles 8,160 303 1,591 Restructuring charges 9,664 — — Non-GAAP income (loss) from operations $ 99,143 $ 44,549 $ (22,258) Non-GAAP Net Income (Loss) Year Ended December 31, 2024 2023 2022 Net loss $ (95,368) $ (137,436) $ (232,132) Non-GAAP adjustments: Stock-based compensation expense 216,706 210,707 207,696 Employer payroll taxes on employee stock transactions 3,223 3,711 1,827 Amortization of acquired intangibles 8,160 303 1,591 Restructuring charges 9,664 — — Income tax adjustments (12,017) 1,398 1,978 Non-GAAP net income (loss) $ 130,368 $ 78,683 $ (19,040) 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.
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.
This increase was primarily due to increases of $16.9 million in personnel-related costs due to compensation adjustments, $4.7 million amortization of acquired intangible assets, $4.0 million in advertising, branding and event costs, $2.7 million in travel related expenses for events, $2.3 million in reseller commissions, $2.3 million in professional services fees, and $1.3 million in software license fees, partially offset by a decrease of $3.5 million in stock-based compensation expense.
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.
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 restructuring charges, and income tax adjustments.
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.
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.
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.
Our customer base and operations have scaled over time. Our total revenue was $720.4 million, $596.4 million and $498.0 million in the years ended December 31, 2024, 2023 and 2022, respectively, representing year-over-year growth rates of 21% and 20%, 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.
We had approximately 3,053 customers each contributing $50,000 or more in ARR as of December 31, 2024, representing an increase of 22% compared to 2,497 customers as of December 31, 2023. As of December 31, 2024 and December 31, 2023, customers contributing more than $50,000 in ARR represented approximately 50% and 48% of total ARR, respectively.
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.
Sales and Marketing Sales and marketing expense increased by $33.0 million, or 9%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
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.
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. 59 Table of Contents Results of Operations The following tables set forth our consolidated statements of operations data for the periods presented (in thousands): Year Ended December 31, 2024 2023 2022 Revenue $ 720,420 $ 596,432 $ 497,999 Cost of revenue (1) 113,330 103,369 95,772 Gross profit 607,090 493,063 402,227 Operating expenses: Research and development (1) 164,590 137,756 135,543 Sales and marketing (1) 390,817 357,781 343,207 General and administrative (1) 180,629 167,698 156,849 Restructuring charges 9,664 — — Total operating expenses 745,700 663,235 635,599 Loss from operations (138,610) (170,172) (233,372) Interest and other income, net 47,773 46,403 12,582 Loss before income taxes (90,837) (123,769) (220,790) Provision for income taxes 4,531 13,667 11,342 Net loss $ (95,368) $ (137,436) $ (232,132) __________________ (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2024 2023 2022 Cost of revenue $ 6,565 $ 6,774 $ 7,039 Research and development (1) 41,512 37,524 36,413 Sales and marketing (2) 63,219 66,755 64,328 General and administration (3) 105,410 99,654 99,916 Total stock-based compensation expense $ 216,706 $ 210,707 $ 207,696 (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.
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.
Of the total increase in revenue, approximately $74.3 million was attributable to revenue from existing customers as of December 31, 2023, net of contraction and churn, and approximately $49.7 million was attributable to revenue from new customers acquired during the year ended December 31, 2024, net of contraction and churn, as well as all revenue from D42 Parent, Inc. during the year.
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.
Financing Activities Net cash used in financing activities of $67.3 million for the year ended December 31, 2024 consisted primarily of $60.3 million in payment of withholding taxes on net share settlement of equity awards, $13.7 million cash paid to repurchase shares of our common stock; partially offset by $6.6 million in proceeds from issuance of common stock under our employee stock purchase plan, net.
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.
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. 57 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, 2024 2023 2022 Net cash provided by (used in) operating activities $ 160,646 $ 86,178 $ (2,525) Less: Purchases of property and equipment (9,177) (2,069) (7,129) Capitalized internal-use software (5,485) (6,271) (5,116) Free cash flow, including restructuring costs (1) $ 145,984 $ 77,838 $ (14,770) Net cash provided by (used in) investing activities $ 38,803 $ 158,499 $ (284,827) Net cash used in financing activities $ (67,260) $ (60,619) $ (156,354) (1) Free cash flow includes $7.3 million of restructuring costs paid during the year ended December 31, 2024.
Non-GAAP Financial Measures In addition to our results determined in accordance with U.S. generally accepted accounting principles (GAAP), we believe the following non-GAAP financial measures are useful in evaluating our operating performance: non-GAAP loss from operations, non-GAAP net loss, and free cash flow.
Non-GAAP Financial Measures In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial measures are useful in evaluating our operating performance: non-GAAP income (loss) from operations, non-GAAP net income (loss), and free cash flow. We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes.
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.
Investing Activities Net cash provided by investing activities of $38.8 million for the year ended December 31, 2024 consisted of $267.1 million in proceeds from maturities and sales, net of purchases of marketable securities; partially offset by $213.9 million cash paid for the business combination, net of cash acquired, $8.9 million in purchases, net of proceeds from sale, of property and equipment, and $5.5 million related to the capitalization of internal-use software.
We determine SSP by taking into consideration historical selling price of these performance obligations in similar transactions, as well as current pricing practices and other observable inputs including, but not limited to, customer size and geography. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes to SSP.
The transaction price is allocated to the separate performance obligations on the basis of relative standalone selling price (SSP). We determine SSP by taking into consideration historical selling price of these performance obligations in similar transactions, as well as current pricing practices and other observable inputs including, but not limited to, customer size and geography.
Provision for Income Taxes Year Ended December 31, Change 2023 2022 $ % (dollars in thousands) Provision for income taxes $ 13,667 $ 11,342 $ 2,325 20 % 61 Table of Contents We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions.
Provision for Income Taxes Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Provision for income taxes $ 4,531 $ 13,667 $ (9,136) (67 %) We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions.
(2) Sales and marketing expense for the years ended December 31, 2023 and 2022 includes $9.6 million and $3.2 million, respectively, of stock-based compensation expense associated with RSU and options granted to the President in September 2022.
(2) Sales and marketing expense for the years ended December 31, 2024, 2023, and 2022 includes $6.5 million, $9.6 million, and $3.2 million , respectively, of stock-based compensation expense associated with RSUs, PRSUs and options granted to the President. After the appointment of the President as our Chief Executive Officer, stock-based compensation expenses were included in General and Administrative.
The effective tax rates differ from the statutory rate of 21% primarily due to nondeductible compensation and change in the valuation allowance. The $2.3 million increase in tax expense was mainly due to an increase in foreign taxes caused by higher pre-tax earnings from foreign subsidiaries and an increase in unrecognized tax benefit.
The effective tax rates differ from the statutory rate of 21% primarily due to nondeductible compensation and change in the valuation allowance. The $9.1 million decrease in tax expense was primarily related to the tax benefit of $14.3 million from D42 Parent, Inc. acquisition, partially offset by higher tax expenses due to higher pre-tax earnings from foreign subsidiaries.
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.
Cost of Revenue and Gross Margin Year Ended December 31, Change 2024 2023 $ % (dollars in thousands) Cost of revenue $ 113,330 $ 103,369 $ 9,961 10 % Gross margin 84 % 83 % Cost of revenue increased by $10.0 million, or 10%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Deferred Contract Acquisition Costs Deferred contract acquisition costs are incremental costs that are associated with acquiring customer contracts and consist primarily of sales commissions and the associated payroll taxes and certain referral fees paid to independent third parties.
Judgment is also used to estimate the contract's transaction price and allocate it to each performance obligation. Deferred Contract Acquisition Costs Deferred contract acquisition costs are incremental costs that are associated with acquiring customer contracts and consist primarily of sales commissions and the associated payroll taxes and certain referral fees paid to third party resellers.
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.
This increase was primarily due to increases of $2.8 million in amortization of developed technology, $1.8 million in software license fees, $1.6 million in third-party hosting costs, $1.3 million in professional service fees, and $1.2 million in personnel-related costs.
Non-GAAP financial measures have limitations in their usefulness to investors and should not be considered in isolation or as substitutes for financial information presented under GAAP. Non-GAAP financial measures have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles.
Non-GAAP financial measures have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles.
On constant currency basis, our net dollar retention rate was 107% as of December 31, 2023 which was a decrease from prior year primarily due to lower expansion within existing customers driven by macroeconomic pressures.
On constant currency basis, our net dollar retention rate was 105% which was a decrease from prior year primarily due to lower expansion within existing customers driven by macroeconomic pressures offset by the addition of Device42 and a slight improvement in 52 Table of Contents our overall churn rate.
Subscription revenue is recognized ratably over the contract term beginning on the commencement date of each subscription, which is the date that the cloud-based software is made available to customers. Professional services revenue comprises less than 5% of total revenue and includes fees charged for product configuration, data migration, systems integration, and training.
Software license revenue is recognized upon making the software available to the customer and maintenance revenue is recognized as support and updates are provided, which is generally ratably over the contract term. Professional services revenue comprises less than 5% of total revenue and includes fees charged for product configuration, data migration, systems integration, and training.
Our general and administrative expenses are expected to 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. This percentage may fluctuate from period to period depending upon the timing and amount of our general and administrative expenses.
We expect to increase personnel-related and professional service expenses associated with ongoing compliance and reporting obligations and costs to broaden our IT related infrastructure. Our general and administrative expenses are expected to 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.
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.
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. With the acquisition of D42 Parent, Inc. in June 2024, we also sell software licenses with associated maintenance.

… 92 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−0 removed8 unchanged
Biggest changeWe 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.
Biggest changeWe 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. 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.
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.
The fair value of derivative assets and liabilities as of December 31, 2024, and all related unrealized and realized gains and losses during the year ended December 31, 2024 were not material.
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
Based on an interest rate sensitivity analysis we have performed as of December 31, 2024, 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. 65 Table of Contents
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.
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, 2024, the total notional amount of outstanding designated foreign currency forward contracts was $50.5 million.
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.
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 and commercial paper. We had cash and cash equivalents of $620.3 million and marketable securities of $449.8 million as of December 31, 2024.
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 a sensitivity analysis we have performed as of December 31, 2024, a hypothetical 10% foreign currency exchange rate change applied to total monetary assets and liabilities denominated in currencies other than the U.S. dollar would result in a gain or loss of approximately $8.1 million.
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.
Fixed rate securities may have their market value adversely affected due to a rise in interest rates.

Other FRSH 10-K year-over-year comparisons