Summary
Freshworks reported second quarter fiscal 2022 revenue of $121.4 million, up 37% from the prior-year quarter. Growth was 40% after adjusting for constant currency, a gap that shows how much the stronger dollar weighed on reported results. Year-to-date revenue reached $236.1 million, up 40% from the first six months of 2021. Gross profit climbed to $97.4 million from $69.6 million a year earlier, and gross margin rose to 80.2% from 78.8%. Management credited economies of scale in third-party hosting costs for the improvement.
The bottom line moved the other way. The GAAP operating loss widened to $67.4 million from $6.4 million in the prior-year quarter, and the operating margin fell to -55.5% from -7.3%. Net loss was $69.8 million against $7.4 million a year earlier, and the year-to-date net loss reached $118.8 million compared with $9.8 million in the first half of 2021. Diluted net loss per share was $0.24, narrower than the $7.79 loss reported a year ago, a comparison shaped by the share count change that followed the September 2021 IPO. Stock-based compensation expense of $50.1 million drove much of the cost growth, including $13.9 million sitting in general and administrative expense from awards granted primarily to the CEO. General and administrative expense rose 386% and sales and marketing expense rose 84%, both reflecting higher headcount and post-IPO equity costs.
Cash generation turned negative. Net cash used in operating activities was $6.8 million in the quarter, down from $0.9 million provided a year earlier, and the year-to-date figure was $5.5 million used versus $8.7 million provided. Free cash flow, a non-GAAP measure defined as operating cash flow less purchases of property and equipment and capitalized internal-use software, was negative $10.2 million against negative $1.1 million in the prior-year quarter. Capital expenditures were $2.0 million, up from $0.8 million. The balance sheet stays liquid, with cash and cash equivalents of $590.1 million and marketable securities of $584.0 million, or $1.2 billion in total at June 30, 2022. Deferred revenue, current portion only, was $182.8 million, and remaining performance obligations totaled $266.8 million, made up of that deferred revenue plus $84.0 million of unbilled amounts.
Customer metrics softened. The number of customers contributing more than $5,000 in annual recurring revenue reached 16,212, up 22% year over year and 25% on a constant currency basis. Net dollar retention was 111%, or 115% adjusted for constant currency, down from 115% in the first quarter of 2022 and 118% in the second quarter of 2021. That slide matters because expansion inside the installed base carries much of the growth story, and a weaker retention rate limits how much new business has to be signed just to hold the line.
Guidance for the third quarter of 2022 puts the top line at $124.5 million to $126.5 million, growth of 29% to 31%, or 31% to 33% on a constant currency basis. The company expects a non-GAAP operating loss of $14.5 million to $12.5 million and a non-GAAP net loss per share of $0.07 to $0.05. For the full fiscal year 2022, the top line is guided to $493.0 million to $497.0 million, growth of 33% to 34%, with a non-GAAP operating loss of $42.5 million to $38.5 million and a non-GAAP net loss per share of $0.18 to $0.16. Management flagged inflation, global market volatility, the Russia-Ukraine conflict, the ongoing pandemic, and foreign currency swings as factors that could delay customer purchasing and renewal decisions and lengthen sales cycles. The company also carries a history of net losses, an accumulated deficit of $3.4 billion, and $154.6 million of contractual obligations, including $31.4 million of operating lease commitments.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $121.4M | $114.6M | +5.9% | — | — |
| Gross profit | $97.4M | $92.2M | +5.6% | — | — |
| Gross margin | 80.2% | 80.5% | -0.3 pp | — | — |
| Research & development | $34.3M | $30.7M | +11.7% | — | — |
| Sales & marketing | $90.0M | $71.5M | +26.0% | — | — |
| General & administrative | $40.4M | $37.2M | +8.7% | — | — |
| Total operating expenses | $164.7M | $139.4M | +18.2% | — | — |
| Operating income (loss) | -$67.4M | -$47.1M | -42.9% | — | — |
| Operating margin | -55.5% | -41.1% | -14.4 pp | — | — |
| Net income (loss) | -$69.8M | -$49.1M | -42.2% | — | — |
| Net margin | -57.4% | -42.8% | -14.6 pp | — | — |
| Diluted EPS | -$0.24 | -$0.18 | -$0.06 | — | — |
| Customers | 58,000 | — | — | — | — |
| Net retention rate | 111.0% | 115.0% | -4.0 pp | — | — |
Risks
GAAP operating loss widened to $67.4 million in Q2 FY2022 from $6.4 million in Q2 FY2021, and net loss widened to $69.8 million from $7.4 million. MD&A attributes increases in operating expenses primarily to stock-based compensation recognized after the IPO, including $50.1 million in Q2 FY2022 and $96.8 million for the six months ended June 30, 2022.
Net dollar retention rate was 111% as of June 30, 2022 compared with 118% as of June 30, 2021. MD&A notes it could fluctuate due to growth, penetration within the customer base, ability to upsell and cross-sell, and ability to retain customers.
MD&A states inflation, significant volatility of global markets and geopolitical conflicts have led to further economic disruption and expose the company more to foreign currency fluctuations, and that subscription-model effects may not be fully reflected in revenue until future periods. In Q2 FY2022, interest and other expense included a $1.8 million unfavorable foreign exchange movement in the U.S. dollar.
Operating cash flow decreased to $(5.5) million for the six months ended June 30, 2022 from $8.7 million for the six months ended June 30, 2021, and free cash flow was $(11.6) million for the six months ended June 30, 2022. MD&A reports net cash used in operating activities of $5.5 million YTD, driven by net loss of $118.8 million offset by non-cash stock-based compensation of $96.8 million.
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
Total Customers
Net Dollar Retention Rate (constant currency)
Summary, forecast, risks and KPIs are extracted from Freshworks Inc.'s SEC filings for Q2 FY2022 (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.