Freshworks Reports Fourth Quarter and Full Year 2021 Results

Freshworks Inc., a leading software company empowering businesses to delight their customers and employees, today announced financial results for its fourth quarter and full year ended December 31, 2021.

“We had a strong finish to the year as we surpassed $100 million in quarterly revenue and achieved 44% year-over-year growth in the fourth quarter”, said Girish Mathrubootham, CEO and founder of Freshworks. “I’m incredibly proud of our employees for their focus and dedication as we continue to innovate on our products, put customers first, and execute as a public company”.

Fourth Quarter 2021 Financial Summary Results

• Revenue: Total revenue was $105.5 million, representing growth of 44% compared to the fourth quarter of 2020.
• GAAP (Loss) from Operations: GAAP (loss) from operations was $(56.4) million, compared to $(3.4) million in the fourth quarter of 2020.
• Non-GAAP (Loss) from Operations: Non-GAAP (loss) from operations was $(10.7) million, compared to $(2.3) million in the fourth quarter of 2020.
• GAAP Net (Loss) Per Share: GAAP basic and diluted net (loss) per share was $(0.28) based on 269.5 million weighted-average shares outstanding, compared to $(15.41) based on 77.2 million weighted-average shares outstanding in the fourth quarter of 2020.
• Non-GAAP Net (Loss) Per Share: Non-GAAP basic and diluted net (loss) per share was $(0.06) based on 269.5 million weighted-average shares outstanding, compared to $(0.01) based on 77.2 million weighted-average shares outstanding in the fourth quarter of 2020.
• Net Cash Provided by Operating Activities: Net cash provided by operating activities was $4.8 million, compared to $13.5 million in the fourth quarter of 2020.
• Free Cash Flow: Free cash flow was $2.8 million, compared to $11.9 million in the fourth quarter of 2020.
• Cash, Cash Equivalents and Marketable Securities: Cash, cash equivalents, and marketable securities were $1.3 billion as of December 31, 2021.

Full Year 2021 Financial Summary Results

• Revenue: Total revenue was $371.0 million, representing growth of 49% compared to 2020.
• GAAP (Loss) from Operations: GAAP (loss) from operations was $(204.8) million, compared to $(56.1) million in 2020.
• Non-GAAP (Loss) from Operations: Non-GAAP (loss) from operations was $(18.3) million, compared to $(8.3) million in 2020.
• GAAP Net (Loss) Per Share: GAAP basic and diluted net (loss) per share was $(21.73) based on 130.7 million weighted-average shares outstanding, compared to $(21.03) based on 76.9 million weighted-average shares outstanding in 2020.
• Non-GAAP Net (Loss) Per Share: Non-GAAP basic and diluted net (loss) per share was $(0.21) based on 130.7 million weighted-average shares outstanding, compared to $(0.12) based on 76.9 million weighted-average shares outstanding in 2020.
• Net Cash Provided by Operating Activities: Net cash provided by operating activities was $11.5 million, compared to $32.5 million in 2020.
• Free Cash Flow: Free cash flow was $2.3 million, compared to $23.5 million in 2020.

A description of non-GAAP financial measures is contained in the section titled “Explanation of Non-GAAP Financial Measures” below and a reconciliation of GAAP to non-GAAP financial measures is contained in the tables below.

Fourth Quarter Key Metrics and Recent Business Highlights

• Number of customers contributing more than $5,000 in ARR was 14,814, an increase of 28% year-over-year.
• Net dollar retention rate was 114%, compared to 117% in the third quarter of 2021 and 111% in the fourth quarter of 2020.
• Welcomed new customers to the Freshworks community including: British Museum, Databricks, Humanscale, Jollyroom, KaDeWe, Nation Safe Drivers, StyleSeat, Wheel Pros, and more.
• Included in The Forrester Wave: Enterprise Service Management, Q4 2021, as a “Strong Performer”.
• Named one of The 100 Best Large Companies to Work for in 2022 in San Francisco and Colorado by BuiltIn.
• Refresh, the Freshworks annual user conference held virtually in November, attracted over 18,000 registrants.

Financial Outlook

We are providing estimates for the first quarter and full year 2022 based on current market conditions and expectations. We emphasise that these estimates are subject to various important cautionary factors referenced in the section entitled “Forward-Looking Statements” below, including risks and uncertainties associated with the ongoing COVID-19 pandemic.

For the first quarter and full year 2022, Freshworks currently expects the following results:

First Quarter 2022

Total revenue of $107.0 million – $109.0 million

Non-GAAP loss from operations of $(12.5) million – $(10.5) million

Non-GAAP net loss per share⁽¹⁾ of $(0.07) – $(0.05)

Full Year 2022

Total revenue of $486.5 million – $495.0 million

Non-GAAP loss from operations of $(56.5) million – $(48.5) million

Non-GAAP net loss per share⁽¹⁾ of $(0.23) – $(0.19)

⁽¹⁾ Non-GAAP net loss per share was estimated assuming 278.1 million and 286.5 million weighted-average shares outstanding for the first quarter and full year 2022, respectively.

These statements are forward-looking and actual results may differ materially. Refer to the “Forward-Looking Statements” safe harbor section below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Freshworks has not reconciled its estimates for non-GAAP loss from operations to GAAP loss from operations or non-GAAP net loss per share to GAAP net loss per share due to the uncertainty and potential variability of expenses that may be incurred in the future. Accordingly, a reconciliation is not available without unreasonable effort. Freshworks has provided a reconciliation of other GAAP to non-GAAP financial measures in the financial statement tables for its fourth quarter and full year 2021 non-GAAP results included in this press release.

Lock-Up Release

As disclosed in the final prospectus dated September 21, 2021 relating to Freshworks’ initial public offering, beginning at the opening of trading on Monday, February 14, 2022, all remaining shares subject to the terms of certain lock-up agreements entered into by Freshworks’ directors and officers and certain holders of Freshworks’ common stock with the underwriters of Freshworks’ initial public offering will become eligible for sale in the public market, subject to any trading limitations on shares held by affiliates of Freshworks, continued vesting of any unvested equity awards and Freshworks’ Insider Trading Policy.

Webcast and Conference Call Information

Freshworks will host a conference call for investors on February 10, 2022 at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss the company’s financial results and business highlights. Investors are invited to listen to a live audio webcast of the conference call by visiting the investor relations website at ir.freshworks.com. A replay of the audio webcast will be available shortly after the call on the Freshworks Investor Relations website and will be available for twelve months thereafter.

Explanation of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), this press release and the accompanying tables contain non-GAAP financial measures, including, non-GAAP gross profit, non-GAAP gross margin, non-GAAP sales and marketing expense, non-GAAP research and development expense, non-GAAP general and administrative expense, non-GAAP loss from operations, non-GAAP operating margin, non-GAAP net loss per share, non-GAAP net loss attributable to common stockholders, and free cash flow. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP.

We use these non-GAAP measures in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. We believe these non-GAAP measures provide investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our operating results. We believe these non-GAAP measures are useful in evaluating our operating performance compared to that of other companies in our industry, as they generally eliminate the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance.

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. The non-GAAP measures we use may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP items excluded from these non-GAAP financial measures.

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. In particular, stock-based compensation expense is not comparable across companies given the variety of valuation methodologies and assumptions.
• Employer payroll taxes on employee stock transactions. We exclude the amount of employer payroll taxes on equity awards from certain of our non-GAAP financial measures because they are dependent on our stock price at the time of vesting or exercise and other factors that are beyond our control and do not correlate to the operation of the business.
• Amortisation of acquired intangibles. We exclude amortisation of acquired intangibles, which is a non-cash expense, from certain of our non-GAAP financial measures. Our expenses for amortization of acquired intangibles are inconsistent in amount and frequency because they are significantly affected by the timing, size of acquisitions, and the allocation of purchase price. We exclude these amortisation expenses because we do not believe these expenses have a direct correlation to the operation of our business.
• Acquisition-related expenses. We exclude transaction, integration, and retention expenses that are directly related to business combinations from certain of our non-GAAP financial measures because we believe that excluding these items provides meaningful supplemental information regarding operational performance and investors to make more meaningful comparisons between our operating results and those of other companies.
• Gain on sale of non-marketable equity investments. We exclude gains on sale of non-marketable equity investments from certain of our non-GAAP financial measures because we believe they are unrelated to our ongoing operating performance and are not expected to recur in our continuing operating results.

We define free cash flow as net cash (used in) provided by operating activities, less purchases of property and equipment and capitalised internal-use software. We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash from our core operations after purchases of property and equipment. 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.

Operating Metrics

Number of Customers Contributing More Than $5,000 in ARR. We define ARR as the sum total of the revenue we would contractually expect to recognise over the next 12 months from all customers at a point in time, assuming no increases, reductions or cancellations in their subscriptions. We define our total customers contributing more than $5,000 in 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.

Net Dollar Retention Rate. To calculate net dollar retention rate as of a given date, we first determine Entering ARR, which is ARR from the population of our customers as of 12 months prior to the end of the reporting period. We then calculate the Ending ARR from the same set of customers as of the end of the reporting period. 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.