Summary
Freshworks finished fiscal 2023 with fourth quarter revenue of $160.1 million, up 20.2% from the prior-year quarter. Full year revenue was $596.4 million, up 19.8%. Growth held near 20% on both a reported and a constant currency basis, with the quarter's constant currency growth at 19%.
Profitability improved on nearly every line. Fourth quarter gross profit was $133.1 million, up 23.2%, and full year gross profit was $493.1 million, up 22.6%. Gross margin rose to 83.1% in the quarter from 81.1%, and to 82.7% for the year from 80.8%. The operating loss narrowed to $40.0 million in the quarter from $60.6 million a year earlier, and to $170.2 million for the full year from $233.4 million. Operating margin improved to -25.0% from -45.5% in the quarter. Net loss narrowed to $28.1 million from $55.5 million, and to $137.4 million from $232.1 million for the year. Full year diluted EPS was -$0.47, compared with -$0.82 in 2022.
Cash generation was the standout. Operating cash flow was $30.9 million in the quarter, up from $7.2 million, and $86.2 million for the year versus negative $2.5 million in 2022. Free cash flow, a non-GAAP measure, was $28.6 million in the quarter and $77.8 million for the year. Capital expenditures fell to $1.1 million in the quarter, down 41.4%, and to $2.1 million for the year, down 71.0%. Deferred revenue stood at $266.4 million, up 29.6%, and remaining performance obligations were $418.9 million, up 38.9%. Cash, cash equivalents and marketable securities totaled $1.19 billion at December 31, 2023.
Customers contributing more than $5,000 in annual recurring revenue reached 20,261, up 14% year over year. Net dollar retention rate was 108%, flat with both the third quarter of 2023 and the fourth quarter of 2022. On a constant currency basis the rate was 107%, down from 110% a year earlier, which management ties to lower expansion within existing customers under macroeconomic pressure. The company ended the year with more than 67,100 paying customers and 2,497 customers spending $50,000 or more in ARR, up 31%. Customers buying two or more products made up 26% of the base and 47% of ARR.
Guidance for the first quarter of 2024 calls for revenue growth of 18% to 19% and non-GAAP income from operations of $12.5 million to $14.5 million. For the full year 2024, the company guides to revenue growth of 18% to 19%, non-GAAP income from operations of $52.0 million to $60.0 million, and non-GAAP net income per share of $0.29 to $0.31. The outlook assumes exchange rates as of February 2, 2024.
Risks remain familiar. Management flags macroeconomic uncertainty, inflationary pressures and foreign currency volatility, noting that about 27% of 2023 revenue was exposed to the Euro and British Pound. Monthly subscriptions represented 17% of ARR, and that cohort has historically shown lower retention than the overall base. The company also carries a history of net losses and an accumulated deficit of $3.6 billion, and it says its net dollar retention rate could fluctuate as penetration, upsell and churn shift. Contractual obligations totaled $367.0 million as of December 31, 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $160.1M | $153.6M | +4.3% | $133.2M | +20.2% |
| Gross profit | $133.1M | $127.3M | +4.6% | $108.0M | +23.2% |
| Gross margin | 83.1% | 82.9% | +0.2 pp | 81.1% | +2.0 pp |
| Research & development | $35.8M | $34.9M | +2.7% | $34.7M | +3.4% |
| Sales & marketing | $92.3M | $90.7M | +1.8% | $94.8M | -2.7% |
| General & administrative | $45.0M | $40.5M | +11.2% | $39.1M | +15.0% |
| Total operating expenses | $173.1M | $166.0M | +4.3% | $168.6M | +2.7% |
| Operating income (loss) | -$40.0M | -$38.7M | -3.4% | -$60.6M | +33.9% |
| Operating margin | -25.0% | -25.2% | +0.2 pp | -45.5% | +20.5 pp |
| Net income (loss) | -$28.1M | -$31.0M | +9.5% | -$55.5M | +49.4% |
| Net margin | -17.5% | -20.2% | +2.7 pp | -41.7% | +24.1 pp |
| Diluted EPS | -$0.47 | -$0.11 | -$0.36 | -$0.19 | -$0.28 |
| Net retention rate | 108.0% | 108.0% | ±0.0 pp | 108.0% | ±0.0 pp |
Risks
Net loss was $137.4 million for FY2023, narrowed from $232.1 million in FY2022, and accumulated deficit was $3.6 billion as of Dec 31, 2023. The company does not expect to be profitable in the near future.
Total revenue grew 20% in FY2023 to $596.4 million, down from 34% growth in FY2022, and the risk factors state the revenue growth rate has declined more recently and may continue to decline. The company expects revenue growth rate may continue to decline due to maturation of the business.
Macroeconomic uncertainties including inflation, recession risks, and foreign exchange volatility have impacted business spending. Net dollar retention rate was flat at 108% as of Dec 31, 2023 and 2022, and on constant currency basis decreased to 107% due to lower expansion within existing customers driven by macroeconomic pressures.
The company deploys generative AI in certain products and services, which may lead to flawed or biased outputs, intellectual property issues, confidentiality breaches, and evolving regulatory scrutiny. The risk factors note it does not have formal policies and procedures to review and track employees', personnel', and vendors' use of generative AI.
The market for customer service, ITSM, and CRM products is highly competitive and fragmented, with competitors including Salesforce, Zendesk, Oracle, SAP, ServiceNow, BMC, Atlassian, HubSpot, Microsoft Dynamics, and Sage. Competitors may offer lower prices or more favorable terms, pressuring revenue, gross margin, and market share.
Larger customers are a growing part of the business, with sales cycles of approximately 150 days for mid-market and enterprise customers versus 30 days for SMB customers. Customers contributing more than $50,000 in ARR increased 31% year-over-year to 2,497 and represented 48% of total ARR as of Dec 31, 2023.
A substantial portion of business and operations are located in India, including engineering, product, and inside sales resources, subjecting the company to regulatory, economic, social, and policy uncertainties and labor laws in India. Indian foreign exchange controls also limit financing sources.
Competition for executive officers, software engineers and product managers with AI and machine learning backgrounds, sales personnel, and other key personnel is intense, particularly in the San Francisco Bay Area and India. Volatility in the stock price could harm hiring and retention efforts.
The business depends on customers renewing subscriptions and purchasing additional subscriptions. Net dollar retention rate was flat at 108% as of Dec 31, 2023 and 2022, and the company has experienced reductions in renewal rates and increased churn rates, particularly within SMB customers on month-to-month subscriptions.
Key business metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies may harm reputation and stock price. The company states it may be, and currently is, subject to stockholder litigation related to these metrics.
SaaS KPIs
All quarters →Net Dollar Retention Rate
Non-GAAP Operating Margin
Free Cash Flow
Non-GAAP Gross Margin
Customers Contributing More Than $5,000 in ARR
Monthly subscriptions as % of ARR
Paying Customers
Customers Contributing $50,000 or More in ARR
Summary, forecast, risks and KPIs are extracted from Freshworks Inc.'s SEC filings for Q4 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.