Summary
Freshworks reported first quarter revenue of $137.7 million, up 20% from $114.6 million in the prior-year quarter. Growth was 23% after adjusting for constant currency. Management attributed roughly $15.7 million of the increase to new customers acquired during the trailing twelve months and about $7.4 million to existing customers, net of contraction and churn.
Gross profit rose to $112.5 million from $92.2 million, and gross margin improved to 81.7% from 80.5%. The company credited economies of scale and ongoing work on its cost structure. GAAP operating loss widened to $48.1 million from $47.1 million, yet operating margin improved to -34.9% from -41.1% because revenue grew faster than the loss. Net loss narrowed to $42.7 million from $49.1 million, and diluted net loss per share narrowed to $0.15 from $0.18.
The non-GAAP picture turned positive for the first time. Non-GAAP income from operations was $3.9 million, the first quarter of non-GAAP operating profit as a public company, compared with a loss of $0.6 million a year earlier. Non-GAAP net income per share was $0.03 against a loss of $0.01. Stock-based compensation remains the largest reconciling item between the two sets of numbers.
Cash generation improved sharply. Operating cash flow was $11.5 million, up from $1.4 million. Capital expenditures fell to $0.4 million from $1.4 million. Free cash flow, which the company defines as operating cash flow less purchases of property and equipment and capitalized internal-use software, was $9.1 million compared with negative $1.4 million. Deferred revenue rose 26.5% to $220.6 million, and remaining performance obligations rose 29.4% to $325.6 million.
Customer metrics were mixed. Customers contributing more than $5,000 in ARR reached 18,441, up 18% year over year. Net dollar retention rate slipped to 107% from 115% a year earlier and 108% in the fourth quarter of 2022. Management tied the decline to lower expansion within existing customers under macroeconomic pressure. Monthly subscriptions made up 19% of ARR, down from 23%.
Guidance for the second quarter of 2023 points to revenue growth of 15% to 17%, or 16% to 18% in constant currency. Non-GAAP loss from operations is expected between $2.0 million and $0.0 million, with non-GAAP net income per share of $0.00 to $0.02. For the full year 2023, revenue growth is guided to 16% to 19%, or 17% to 19% in constant currency. Full year non-GAAP income from operations is expected between $2.0 million and $8.0 million, and non-GAAP net income per share between $0.08 and $0.12. The company raised the midpoint of its full year non-GAAP operating profit outlook to $5 million.
Risks remain. About 26% of revenue carries exposure to the Euro and British Pound Sterling. Management flagged inflation, market volatility and geopolitical developments as pressures that could affect customer spending and renewal decisions, and it noted that the effects of weaker conditions may not show up in revenue until future periods because of the subscription model. The company also pointed to its history of net losses. On the operational side, Freshworks named Pradeep Rathinam as Chief Revenue Officer and added senior leaders across product strategy, go-to-market, channels and sales. It announced GPT-based conversational enhancements to its Freddy assistant. New customers included Fila, Johnsonville, the Los Angeles Dodgers, Smyths Toys, Sonata Software and the City of Escondido.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $137.7M | $133.2M | +3.4% | $114.6M | +20.1% |
| Gross profit | $112.5M | $108.0M | +4.1% | $92.2M | +21.9% |
| Gross margin | 81.7% | 81.1% | +0.6 pp | 80.5% | +1.2 pp |
| Research & development | $32.9M | $34.7M | -5.2% | $30.7M | +7.0% |
| Sales & marketing | $86.8M | $94.8M | -8.5% | $71.5M | +21.5% |
| General & administrative | $40.9M | $39.1M | +4.5% | $37.2M | +10.0% |
| Total operating expenses | $160.6M | $168.6M | -4.8% | $139.4M | +15.2% |
| Operating income (loss) | -$48.1M | -$60.6M | +20.6% | -$47.1M | -2.1% |
| Operating margin | -34.9% | -45.5% | +10.6 pp | -41.1% | +6.2 pp |
| Net income (loss) | -$42.7M | -$55.5M | +23.1% | -$49.1M | +13.0% |
| Net margin | -31.0% | -41.7% | +10.7 pp | -42.8% | +11.8 pp |
| Diluted EPS | -$0.15 | -$0.19 | +$0.04 | -$0.18 | +$0.03 |
| Net retention rate | 107.0% | 108.0% | -1.0 pp | 115.0% | -8.0 pp |
Risks
MD&A states the net dollar retention rate decreased to 107% as of March 31, 2023 from 115% as of March 31, 2022 primarily due to lower expansion within existing customers driven by macroeconomic pressures. Macroeconomic uncertainties could further reduce business spending and demand.
Risk factors emphasize that customers have no obligation to renew and that the company has experienced reduced renewal rates and increased churn, particularly within SMB customers on month-to-month subscriptions. Monthly subscriptions represented 19% of ARR as of March 31, 2023.
The risk factor marked with an asterisk describes increasing ransomware and supply-chain attacks and states the company and its third-party providers have been compromised in the past and may be in the future. A breach could cause data loss, regulatory fines, litigation, and reputational harm.
The risk factor marked with an asterisk details expanding U.S. state privacy laws such as CCPA and CPRA, with civil penalties up to $7,500 per violation and private rights of action for data breaches. Compliance may require modifying data processing practices and incurring substantial costs.
Risk factors state the CX, ITSM, and CRM markets are highly competitive and fragmented, naming Salesforce, Zendesk, Oracle, SAP, ServiceNow, Atlassian, HubSpot, and Microsoft Dynamics. Competitors may have greater resources and use aggressive pricing, which could reduce revenue, gross margin, and market share.
Risk factors highlight intense competition for executive, engineering, sales, and other personnel in the San Francisco Bay Area and India, and note that equity award incentives may be less effective as the company matures. Failure to attract and retain personnel could impair growth.
Risk factors state a substantial portion of business and operations are in India, subjecting the company to regulatory, economic, social, and policy uncertainties, labor laws, and Indian foreign exchange controls that limit financing sources.
Risk factors state substantially all revenue is derived from Freshdesk, Freshservice, and Freshsales, so demand for these products is critical. If demand declines or customers develop their own tools, business and results of operations would be harmed.
Risk factors note sales to large customers involve longer sales cycles, with typical mid-market and enterprise sales cycles of approximately 90 days versus 30 days for SMB customers, and more complex requirements. This can increase upfront costs and reduce predictability.
MD&A states approximately 26% of revenue exposure was related to the Euro and British Pound Sterling for the quarter ended March 31, 2023, and foreign currency exchange rate fluctuations negatively impacted revenue growth in 2022. The company began hedging a portion of forecasted Indian Rupee expenses in January 2023.
Risk factors disclose the recent implementation of a new ERP system and human capital management platform and warn that disruptions during design or implementation could affect order processing, invoicing, collections, and internal control over financial reporting.
Risk factors state executive officers, directors, holders of more than 5% of capital stock, and their affiliates beneficially owned approximately 56.6% of total shares and 89% of voting power as of March 31, 2023, concentrating control and limiting other stockholders' influence.
SaaS KPIs
All quarters →Net Dollar Retention Rate
Non-GAAP Operating Margin
Number of Customers Contributing More Than $5,000 in ARR
Free Cash Flow
Remaining Performance Obligations
ARR from Customers Contributing More Than $5,000 in ARR as a Percentage of Total ARR
Total Customers
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from Freshworks Inc.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.