Summary
Freshworks reported third quarter revenue of $128.8 million, up 33% from the prior-year quarter, and 37% after adjusting for constant currency. Year-to-date revenue was $364.8 million, up 37.4% from the prior-year period. Gross profit was $104.6 million for the quarter, up 40.6%, and $294.2 million year to date, up 41.5%. Gross margin rose to 81.2% from 77.0% a year earlier, up 4.2 percentage points. Year-to-date gross margin was 80.6%, up 2.3 percentage points. The company pointed to more agents enabled under customer accounts, more products sold to existing customers, and new customer additions as the drivers.
Net dollar retention was 107%, or 113% adjusting for constant currency. That compares with 117% in the third quarter of 2021 and 111% in the second quarter of 2022. Customers contributing more than $5,000 in annual recurring revenue totaled 16,713, up 19% year over year and 23% adjusting for constant currency.
GAAP operating loss was $58.3 million for the quarter, and the loss narrowed 58.4% from the prior-year quarter. GAAP net loss was $57.8 million, and the loss narrowed 46.1%. Diluted GAAP net loss per share was -$0.20, and the loss per share narrowed 99.2%. Non-GAAP loss from operations was $3.1 million, compared with $1.5 million a year earlier. Non-GAAP net loss per share was -$0.01, compared with -$0.04. Non-GAAP gross margin was 82.8%, compared with 82.7%.
The year-to-date picture is different. GAAP operating loss was $172.8 million, and the loss widened 16.4%. GAAP net loss was $176.7 million, and the loss widened 50.7%. Diluted GAAP net loss per share was -$0.62, and the loss per share narrowed 98.1%. Operating cash flow was -$4.2 million for the quarter, down 106.4%, and -$9.7 million year to date, down 246.5%. Free cash flow, a non-GAAP measure, was -$7.2 million for the quarter and -$18.8 million year to date. Capital expenditures were $1.9 million in the quarter, up 50.2%, and $5.3 million year to date, up 30.4%.
Deferred revenue was $191.0 million, up 33.4% from the prior-year quarter. Remaining performance obligations were $277.4 million, up 39.4%. Management said the remaining performance obligations figure moves with new contracts, renewal timing, cancellations, contract modifications and currency shifts, and that it is not used as a key internal metric. Cash, cash equivalents and marketable securities were $1.2 billion as of September 30, 2022.
Product work continued through the quarter. Freshworks launched Freshservice for Business Teams to extend IT service management solutions to non-IT departments, added AI-powered suggestion functionality in Freshchat, and introduced real-time lead scoring inside Freshsales and Freshmarketer. It held its first Global Developer Summit for customers building on the Freshworks Neo Platform and appointed Dennis Woodside as President and a member of the board.
Guidance covers the fourth quarter and the full fiscal year 2022. For the fourth quarter, Freshworks expects revenue of $129.2 million to $131.2 million, year-over-year growth of 22% to 24%, and 27% to 28% adjusting for constant currency. For the full year 2022, the company expects revenue of $494.0 million to $496.0 million, growth of 33% to 34%, and 36% to 37% adjusting for constant currency. Fourth quarter non-GAAP loss from operations is guided to $8.5 million to $10.5 million, and the full year figure to $28.0 million to $30.0 million. Non-GAAP net loss per share is guided to $0.03 to $0.05 for the fourth quarter and $0.11 to $0.13 for the full year.
The main risk flagged is currency. About 26% of revenue is exposed to the Euro and British Pound Sterling, and the strengthening dollar held back reported growth. Management expects lower revenue growth than in past periods if current currency conditions persist, and noted that subscription model effects may not show up in revenue until future periods. Other listed risks include inflation, market volatility, geopolitical conflict, a history of net losses, the push toward profitability, and the possibility that customers slow purchasing and renewal decisions, which could lengthen sales cycles.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $128.8M | $121.4M | +6.0% | $96.6M | +33.3% |
| Gross profit | $104.6M | $97.4M | +7.4% | $74.4M | +40.6% |
| Gross margin | 81.2% | 80.2% | +1.0 pp | 77.0% | +4.2 pp |
| Research & development | $35.9M | $34.3M | +4.6% | $57.1M | -37.2% |
| Sales & marketing | $86.9M | $90.0M | -3.5% | $96.8M | -10.2% |
| General & administrative | $40.1M | $40.4M | -0.7% | $60.8M | -33.9% |
| Total operating expenses | $162.9M | $164.7M | -1.1% | $214.6M | -24.1% |
| Operating income (loss) | -$58.3M | -$67.4M | +13.5% | -$140.3M | +58.4% |
| Operating margin | -45.3% | -55.5% | +10.2 pp | -145.2% | +99.9 pp |
| Net income (loss) | -$57.8M | -$69.8M | +17.1% | -$107.4M | +46.1% |
| Net margin | -44.9% | -57.4% | +12.5 pp | -111.2% | +66.3 pp |
| Diluted EPS | -$0.20 | -$0.24 | +$0.04 | -$24.72 | +$24.52 |
| Customers | 60,000 | 58,000 | +3.4% | — | — |
| Net retention rate | 107.0% | 111.0% | -4.0 pp | 117.0% | -10.0 pp |
Risks
The U.S. dollar strengthened significantly against the Euro and British Pound Sterling, and approximately 26% of revenue is exposed to those currencies. The company expects lower revenue growth compared to past results if these foreign currency conditions persist.
Net dollar retention rate was 107% as of September 30, 2022, compared with 117% as of September 30, 2021, which may pressure future growth if expansion within existing customers slows or churn increases.
Operating loss widened to $172.8 million for the nine months ended September 30, 2022 from $148.4 million in the prior-year period, and net loss widened to $176.7 million from $117.3 million. The company had an accumulated deficit of $3.4 billion as of September 30, 2022.
Operating cash flow was negative $9.69 million for the nine months ended September 30, 2022, down 246.5% from $6.62 million provided in the prior-year period, and free cash flow was negative $18.8 million for the nine months.
Stock-based compensation expense was $150.7 million for the nine months ended September 30, 2022, and general and administrative expense included $41.8 million associated with RSUs and PRSUs primarily granted to the CEO in September 2021, which may dilute stockholders and obscure operating performance.
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
Non-GAAP Gross Margin
Total Customers
Net Dollar Retention Rate (constant currency)
Summary, forecast, risks and KPIs are extracted from Freshworks Inc.'s SEC filings for Q3 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 2, 2026.