Summary
Freshworks reported third quarter fiscal 2023 revenue of $153.6 million, up 19% year over year, or 18% on a constant currency basis. Gross profit rose 21.7% to $127.3 million. Gross margin expanded to 82.9%, up 1.7 percentage points. GAAP operating loss narrowed to $38.7 million, an improvement of $19.6 million. Net loss narrowed to $31.0 million, an improvement of $26.8 million. Diluted EPS improved to -$0.11, an improvement of $0.09. Operating cash flow was $23.9 million, an improvement of $28.1 million. Free cash flow was $22.1 million, compared with negative $7.2 million. Capital expenditures fell to $0.28 million, down 85.4%. Operating margin was -25.2%, up 20.0 percentage points.
Non-GAAP profitability turned positive. Non-GAAP income from operations was $17.4 million, compared with a non-GAAP loss from operations of $3.1 million. Non-GAAP diluted net income per share was $0.08, compared with a non-GAAP net loss per share of $0.01. Deferred revenue was $246.1 million, up 28.9%. Remaining performance obligations were $375.8 million, up 35.5%. The company also reported year-to-date revenue of $436.3 million, up 19.6%, and year-to-date operating cash flow of $55.3 million, an improvement of $65.0 million. Year-to-date net loss was $109.4 million, an improvement of $67.3 million. Year-to-date gross margin was 82.5%, up 1.9 percentage points. Year-to-date operating margin was -29.8%, up 17.5 percentage points.
Operational metrics showed mixed trends. Customers contributing more than $5,000 in annual recurring revenue reached 19,551, up 17% year over year. Net dollar retention rate was 108%, flat with 108% in the second quarter of 2023 and up from 107% in the third quarter of 2022. On a constant currency basis, net dollar retention rate was 106%, down from 107% a year earlier. Management attributed the decline to lower expansion within existing customers driven by macroeconomic pressures. Monthly subscriptions represented 18% of annual recurring revenue, down from 21%. Revenue exposure to the Euro and British Pound was about 27%. The company unveiled an AI-powered Customer Service Suite and appointed new executives.
Guidance for the fourth quarter of 2023 includes non-GAAP income from operations of $5.5 million to $8.5 million and non-GAAP net income per share of $0.04 to $0.06. For the full year 2023, non-GAAP income from operations is expected at $38.5 million to $41.5 million, and non-GAAP net income per share at $0.23 to $0.25. The company raised the full year 2023 midpoint for non-GAAP operating profit to $40 million. It said revenue growth rates are adjusted for constant currency to give better visibility into underlying business trends.
Risks remain. Macroeconomic uncertainties include inflationary pressures, volatility in global markets, geopolitical developments, and foreign exchange fluctuations. These factors could affect demand and make forecasting difficult. The company has a history of net losses and may need additional financing. The net dollar retention rate could fluctuate due to expansion, upsell, cross-sell, and retention. The company also faces execution risk as it invests in product innovation and generative AI.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $153.6M | $145.1M | +5.8% | $128.8M | +19.3% |
| Gross profit | $127.3M | $120.2M | +5.9% | $104.6M | +21.7% |
| Gross margin | 82.9% | 82.9% | +0.0 pp | 81.2% | +1.7 pp |
| Research & development | $34.9M | $34.2M | +2.1% | $35.9M | -2.7% |
| Sales & marketing | $90.7M | $88.0M | +3.1% | $86.9M | +4.4% |
| General & administrative | $40.5M | $41.4M | -2.1% | $40.1M | +0.8% |
| Total operating expenses | $166.0M | $163.5M | +1.5% | $162.9M | +1.9% |
| Operating income (loss) | -$38.7M | -$43.3M | +10.5% | -$58.3M | +33.5% |
| Operating margin | -25.2% | -29.8% | +4.6 pp | -45.3% | +20.0 pp |
| Net income (loss) | -$31.0M | -$35.7M | +13.0% | -$57.8M | +46.3% |
| Net margin | -20.2% | -24.6% | +4.4 pp | -44.9% | +24.7 pp |
| Diluted EPS | -$0.11 | -$0.12 | +$0.01 | -$0.20 | +$0.09 |
| Customers | 66,000 | 65,000 | +1.5% | 60,000 | +10.0% |
| Net retention rate | 108.0% | 108.0% | ±0.0 pp | 107.0% | +1.0 pp |
Risks
Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, geopolitical developments, and the impacts of COVID-19, have impacted and may continue to impact business spending and demand. MD&A notes that because of the subscription-based model, effects may not be fully reflected in revenue until future periods.
For the quarters ended September 30, 2023, June 30, 2023 and September 30, 2022, approximately 27%, 27% and 26% of revenue exposure was related to the Euro and British Pound. Volatility in the foreign currency market still exists and could adversely affect results and forecasting.
Net dollar retention rate was 108% as of September 30, 2023; on a constant currency basis it was 106%, a decrease from 107% as of September 30, 2022, primarily due to lower expansion within existing customers driven by macroeconomic pressures.
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
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 Q3 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 2, 2026.