Earnings Call Transcript - FRSH Q3 2021

Operator, Operator

Good afternoon, and welcome to the Freshworks Third Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call is being recorded. I will now like to introduce your host for today's conference, Joon Huh, Vice President of Investor Relations. You may proceed.

Joon Huh, Vice President of Investor Relations

Thank you. Good afternoon and welcome to Freshworks third quarter 2021 earnings conference call. Joining me today are Girish Mathrubootham, Freshworks Chief Executive Officer, and Tyler Sloat, Freshworks Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our third quarter 2021 performance and our financial outlook for our fourth quarter and full year 2021. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Freshworks' current expectations and estimates about its business and industry, management's beliefs, and certain assumptions made by the company as of the date hereof, all of which are subject to change. These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For a discussion of material risks and other important factors that could affect our results, please refer to today’s earnings release, our final prospectus related to our Initial Public Offering filed with the SEC on September 21, 2021, and our other periodic filings with the Securities and Exchange Commission. Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this presentation, except as required by law. During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures are included in our earnings release, which is available on our investor relations website at ir.freshworks.com. I encourage you to visit our Investor Relations site to access our earnings release, periodic SEC reports, a replay of today's call, or to learn more about Freshworks. And with that, let me turn the call over to Girish.

Girish Mathrubootham, Chief Executive Officer

Thank you, Joon, and good afternoon everyone. Welcome to our first earnings call as a public company. We met many of you during our roadshow, but for those of you that are new to the Freshworks story, I would like to start by sharing our mission. Freshworks makes it fast and easy for every business to delight their customers and their employees. We do that by offering modern and intuitive customer engagement and employee engagement software. Freshworks is a global software company with customers in over 120 countries and more than 4,400 employees who operate out of 13 offices globally. We have three main product lines: Freshdesk for omni-channel customer experience, Freshservice for IT Service Management and Employee Engagement, and Freshsales Suite for sales and marketing automation. All of our products utilize services from our Neo platform, which provides shared services for rapid innovation. We design our products to deliver delight to the frontline users of our software. Additionally, they are designed for rapid onboarding, quick time to value, and offer a lower total cost of ownership. Our fresh approach to business software is what got us to where we are and will continue to differentiate us in three large established markets, with a total addressable market of $120 billion. So let me quickly summarize our first quarter as a public company. Freshworks had another good quarter of growth in Q3. Total revenue for the quarter was $96.6 million, growing 46% year-over-year. We now have over 14,000 paying customers who are paying us more than $5,000 in annual recurring revenue and driving the vast majority of our business. We saw strong expansion activity from our existing customers and made real improvements on gross retention, resulting in a net dollar retention rate of 117%. Our CFO, Tyler Sloat, will offer more details on that shortly. Our product-led growth strategy continues to be the biggest driver of new business for us. This is augmented by an outbound sales team and a partner network to serve our customers from SMB to larger enterprises. We define our SMB market as companies with up to 250 employees. Anything greater we define as mid-market and enterprise. Freshworks continues to grow and attract larger customers, and today we have a majority of our business coming from mid-market. In Q3 we added more than 50 new channel partners globally in addition to extending our ISV partnerships. We are very pleased with the positive customer response to our products and are proud of the continued industry validation we are receiving. In Q3 Freshworks was recognized by Gartner as a challenger in the 2021 Magic Quadrant for IT Service Management Tools. This follows their early recognition of Freshworks as a visionary in the 2021 Magic Quadrant for the CRM Customer Engagement Center. Additionally, TrustRadius recognized us for top IT Asset Management and ITSM in 2021. This quarter, our modern, intuitive, and easy-to-use products continue to make their way into companies of all sizes, gaining recognition and delivering value for businesses across many industries. We welcome Fortune 500 companies like Philips and Toyota Connected India, who are using Freshservice to enable IT Service Management. Fast-growing tech companies like ForgeRock, Lucidworks, and Smashburger, a restaurant chain headquartered in Denver, have implemented Freshservice to connect their global employees with IT support. Scotch and Soda, a global fashion retailer, is also using Freshservice to enable IT functions for more than its 1,500 team members. Today, as every business is looking to engage with customers online, our Freshdesk product continues to see greater adoption. For example, the world's largest international beauty retailer, Watsons, implemented Freshdesk to help support their online buyers, while Hunter College in New York relies on Freshdesk to help current and prospective students during their admissions and registration process. We will be highlighting many of our customers next week at our Refresh Conference on November 11. We hope you can join us online to learn about our latest product innovations and hear from customers on how Freshworks' promise of delight made easy helps their businesses. Last month, I had the opportunity to travel to India and spend two weeks in our office in Chennai. It was energizing to be back for the first time since 2020. I was able to meet new employees and work side-by-side with many of our product and engineering leaders. It was great to hear that many of our employees are excited to come back to the office, which is why I am happy to announce that as of yesterday we are fully reopening our offices in Chennai, with our other global offices to follow shortly. In Q3 we continued to invest in the strong teams we have in place, welcoming hundreds of new employees. We promoted Pam Sergeeff to Chief Legal Officer of Freshworks, further adding to the breadth of our executive team. We strengthened our board by adding two industry veterans, Zach Nelson, former CEO of NetSuite, and Jennifer Taylor, Chief Product Officer at Cloudflare, as Independent Directors. In closing, I want to thank our employees, customers, and partners for helping us get to where we are today. We believe we have huge opportunities to keep growing and delighting more customers every quarter. I will now turn it over to Tyler to share more on our financial results.

Tyler Sloat, Chief Financial Officer

Thanks G, and a warm welcome to all of you joining us on the webcast. We enjoyed meeting many of you, our shareholders and analysts over the last few months as we went through the IPO process. I look forward to our public company journey together in the coming years. For our initial call as a public company, let me cover a few different areas today. First, I’ll review our business model and provide a financial framework for how we think about managing Freshworks. Next, I'll cover the highlights from our third quarter, including key operating metrics and financial results; and finally, I'll close with our views on our journey ahead and our guidance for Q4 and full year 2021. As G mentioned earlier, we offer three main product lines, two of which are at scale: Freshdesk for the customer support market and Freshservice for the IT service management market. We're in the early stages and continue to scale our third main product line, Freshsales, and we are optimistic about the long-term opportunity in the sales and marketing automation space. With these three product lines, we also have three go-to-market motions, starting with a highly efficient inbound product-led growth motion, as companies find our products through digital channels and online search. We couple a product-led growth motion with our outbound motion, which includes field sales reps to help serve our larger customers in the bid market and above. The third leg of our go-to-market motion is our partner ecosystem around the world that helps expand our reach to serve our customers where they are located. Our business model is supported by an efficient financial framework that allows us to continue investing for growth while making the incremental improvements to drive operating leverage in the business. This provides us the flexibility to invest and double down on key areas of our business while maintaining a healthy marketing structure. Starting with cost of revenue and gross margins, we're running at really healthy levels. Our non-GAAP gross margins have averaged around 80% over the last several quarters, and they improved to over 82% in Q3. I'll cover more on that later. Looking at our operating expenses, we managed our sales and marketing spend through a number of internal efficiency metrics, comparing our sales and marketing costs to our incremental revenue. We regularly benchmark our efficiency metrics versus our peers. We are also making R&D investments to continue driving our product development and technical innovation cycles. Because we are able to tap technical talent in areas like Chennai, we can invest in a meaningful yet efficient manner. For G&A costs, we're increasing investment this year as we have a number of public company costs, some of which will be ongoing. More importantly, we expect to gain operating leverage over time as we scale the business. With our broad product offerings across three big markets, we have a huge market opportunity, so we will continue investing to drive long-term growth for Freshworks. Turning to our Q3 results, we delivered another solid quarter of growth in our first quarter as a public company. As a reminder, I’ll focus most of my discussion around our non-GAAP numbers for Q3 results. These non-GAAP numbers exclude the impact of stock-based compensation and related expenses, amortization of acquired intangibles, historical acquisition-related expenses, and other adjustments. In Q3, we delivered healthy revenue growth of 46% year-over-year, resulting in $96.6 million for the quarter. While the revenue growth rate is lower relative to Q2, this is very much expected as our Q2 growth benefited meaningfully from a favorable comparison arising from a COVID-impacted quarter last year. As I mentioned earlier, our non-GAAP gross margins increased to over 82%. This is primarily driven by more efficient spending on certain service provider agreements and ongoing improvements for infrastructure spend in the quarter. While we're pleased with the improvement in the quarter, we generally target our non-GAAP gross margins in the 80% range as we manage the business. Our non-GAAP operating expenses increased by $28.5 million versus the prior period – prior year to $81.4 million. This is mainly driven by increased investments in our teams for R&D, sales marketing, and G&A as we meaningfully added to our Freshworks family over the past 12 months. More specifically, in marketing, we increased our advertising, branding, PR, and event costs by $5.5 million compared to last year, as we created more awareness for our products in the marketplace. In G&A, we made important investments in personnel and infrastructure to prepare for operations as a public company. All this led to a non-GAAP operating loss of $1.5 million for Q3 as we improved our non-GAAP operating margin by 4.5% quarter-over-quarter. Looking at our GAAP operating expenses, I should note that we have a large impact from stock-based compensation and related expenses of $138 million in Q3. This was related to our IPO, which resulted in a significant RC vesting event, and a large catch-up expense for SPC. Going forward, we expect SPC to be at more normalized levels of approximately $45 million per quarter. Turning to our key operating metrics, we continue to see good business momentum in the quarter. We saw robust expansion activity as our net dollar retention rate was 117% for Q3, up 8 percentage points compared to the prior year. Our customer teams are making good improvements to our gross retention rate, and we have benefited from an FX tailwind of 1% year-over-year. As a reminder, we calculate net dollar retention rate on a trailing 12-month basis comparing our customers' beginning and ending ARR. Given the customer segments we operate in, including SMB, we believe our business model supports a 110% plus net dollar retention rate longer-term. Our second key operating metric, customers contributing more than $5,000 in ARR grew to 14,079 or 31% year-over-year, which reflects a net add of over 3,300 customers. These customers consistently drive the vast majority of our business and represent 84% of our ARR. Similar to our Q2 results, when we look at larger customers, those that contribute more than $50,000 in ARR, this number grew 73% to 1,263 and reflects a net add of over 525 customers, representing 39% of our ARR. We're pleased to see that our easy-to-use products continue to resonate with customers and organizations of all sizes around the globe. Moving to our balance sheet and cash flow items. Our calculated billings, which is the sum of our revenue and change in deferred revenue in the quarter, was $109.3 million in Q3, growing 41% year-over-year. Similar to the revenue growth dynamic, we expected calculated billings growth for Q3 to be lower than Q2 due to a favorable comparison for Q2 last year. While our billings duration mix had a minimal impact on the growth rate in Q3, we had a headwind of a few percentage points to growth related to reserves and commissions. In terms of cash, we ended the quarter with more than $1.3 billion in cash and cash equivalents. This includes net proceeds from the IPO of $1.07 billion, free cash flow of negative $4.2 million, and an additional $24 million in proceeds from the sale of an earlier investment in a private company. Today we have a strong balance sheet to support the growth of our business. We have had really healthy growth throughout the year, and we continue to support that with an efficient financial model. Even with growth investments and increased public company expenses in Q4, we expect to be roughly free cash flow breakeven for the quarter. Lastly, our diluted share count as of the end of the quarter, September 30, 2021, was approximately 323 million shares. Some final thoughts before I turn to our financial outlook. We have a huge opportunity in front of us. We are playing in large established markets of customer support, ITSM, and sales and marketing. We're seeing good momentum in our product adoption and gaining more market recognition. We are adding both new and larger customers and seeing robust expansion across our customer base. We are investing to fuel our growth as we go after this massive opportunity. 2021 continues to be a big investment year for us. We are adding to our go-to-market teams around the world to expand our market presence. We are investing in the ongoing innovation of our easy-to-use products, and we're creating the infrastructure to operate efficiently and deliver value as a public company. Looking ahead to Q4, this includes an increase in our expense base resulting from ongoing investments in our personnel, higher infrastructure and insurance costs as a public company, and increased marketing and events costs as travel opens up. Now, let me turn to our estimates for the fourth quarter and full year 2021. For the fourth quarter of 2021, we expect revenue to be in the range of $99 million to $101 million, non-GAAP loss from operations to be in the range of $13.5 million to $11.5 million, and non-GAAP net loss per share to be in the range of $0.07 to $0.05, assuming weighted average shares outstanding of approximately 269.1 million. For the full year 2021, we expect revenue to be in the range of $364.5 million to $366.5 million, non-GAAP loss from operations to be in the range of $21 million to $19 million, and non-GAAP net loss per share in the range of $0.22 to $0.20, assuming weighted average shares outstanding of approximately 130.4 million. Let me close by saying that we are excited about a great journey ahead and look forward to partnering with our shareholders. And with that, let us take your questions.

Operator, Operator

Thank you. Our first question comes from a line of Brad Sills from Bank of America Securities. You may begin.

Brad Sills, Analyst

Oh great! Thanks guys. Congratulations on the nice results to your first quarter as a public company. I wanted to ask about the enterprise activity that you saw in the quarter. It sounds like you're seeing some traction there with some of the larger accounts. Could you remind us kind of where the focus is in the up-market business? Where do you draw the line and where is the opportunity for the company from here?

Girish Mathrubootham, Chief Executive Officer

Hi Brad! Thanks for the question. So we continue to focus across three go-to-market motions. We have our product-led inbound growth motion, where the majority of the customers there are SMB customers, which are companies of less than 250 employees. However, we also get teams from larger enterprises come inbound and they are handed off to our mid-market sales teams. So we have our mid-market field teams in the U.S. and Europe, predominantly. They go after larger accounts. If you look at the split, it's still around 60/40 mid-market to SMB approximately, and we are seeing in Q3 specifically, customers who paid us more than 50K in ARR, that number grew 73% year-over-year.

Brad Sills, Analyst

That's great to hear. Thank you so much. And then, one more if I may please. Just on the Neo Platform, I know there's an aggressive roadmap to build out more modules within the stack that you have, and then in other categories like sales which you mentioned is early. Where is the focus in the near term, and are there some deliverables that we should be keeping an eye out on for product extensions and additions going forward? Thank you.

Girish Mathrubootham, Chief Executive Officer

Yeah, our vision for the Neo Platform is to continue to execute on three major business benefit drivers: One for our customers, we want Neo to offer a unified product experience. Whatever services that we offer in terms of single sign-on or a 360-degree view of the customer across sales and marketing and eventually support, custom objects, and a bunch of other services, Neo Platform allows customers to have a better unified experience. For developers and SI partners, Neo Platform offers a marketplace where they can build apps and today we have more than 1,100 public apps, and customers have built thousands of private apps to extend the power of the Freshworks platform. So that is also an area where we continue to invest in the capabilities that can be accomplished in an app. You’ll also see some exciting announcements at a press conference next week. The third area for our own internal developers encompasses what we call foundational services; all of our products can use services like email processing at scale, chat message handling, and more, all of which are part of the Neo platform, which gives us product velocity and innovation. So across all of these three areas, we continue to execute on the Neo platform.

Brad Sills, Analyst

Thanks, great to hear. Thanks so much, Girish.

Tyler Sloat, Chief Financial Officer

Thanks, Brad.

Operator, Operator

And our next question will come from the line of Stan Zlotsky from Morgan Stanley. You may begin.

Stan Zlotsky, Analyst

Perfect! Thank you so much guys and congratulations on your first public quarter; very well done. Maybe I'm just following up, a little bit more detail on Brad’s question. As you look into Q4, what are you seeing in your pipeline as far as the demand for the up-market portion of your business across all the different products that you have? And then I have a quick follow-up for a financial question.

Girish Mathrubootham, Chief Executive Officer

So, thanks Stan. I think we are always looking at ways to improve our pipeline, and so we have a mix of programs across our different go-to-market motions. Our marketing teams and sales teams are investing in events together, increasing word of mouth, and so we are launching some new campaigns to boost omni-channel customer service as well as IT and employee engagement in a post-pandemic world. We have multiple targets for new business and expansion, and while we don’t have a specific number to give out for the pipeline, there is a lot of activity that we are doing to improve pipeline across both inbound and mid-market.

Stan Zlotsky, Analyst

Got it. But just more broadly, what are you seeing as far as your customers’ budgets as you go into Q4? Are you seeing any weakness or is it just steady momentum compared to what you've seen through Q2 and Q3 now?

Tyler Sloat, Chief Financial Officer

Hey Stan, this is Tyler. No, we’re seeing steady momentum. I mean, we have some seasonality in our business, specifically in our mid-market and enterprise business, and that's where we track pipeline, which is solid globally right now. However, our presence is mainly in North America and Europe, and that's where we have our field reps out there. As a reminder, we also have this product-led growth inbound motion, and that's not something you consider in your pipeline; it's more about how many customers are in trial, which typically convert in less than 30 days. We’re tracking both to gauge the growth and it’s strong.

Stan Zlotsky, Analyst

Okay, perfect! Very helpful. And Tyler, since you’re already on, regarding net revenue retention, you mentioned it was elevated and you talked about the 110 level as kind of more normalized. How should we think about the path from 117 to more normalized 110, or alternately, is there a possibility that this will continue to stay elevated for quite some time as you continue to sell this broad portfolio of products you have, as well as just the trailing 12-month nature of the metric?

Tyler Sloat, Chief Financial Officer

Yeah, no, we have discussed this before. We do expect to drop more to the 110 plus kind of low teens for net dollar retention. We expect declines there to reach that longer-term number. That being said, we're super pleased with the quarter and the performance. The investments we've made in the product and in customer success, and the way we’re engaging with our customers has helped our gross retention. We're making incremental improvements and our expansion motion is also performing well, primarily through organic growth and cross sells.

Stan Zlotsky, Analyst

Perfect! Thanks guys.

Girish Mathrubootham, Chief Executive Officer

Thanks Stan.

Operator, Operator

Our next question will come from the line of Mark Murphy from J.P. Morgan. Your line is open.

Mark Murphy, Analyst

Yes, thank you! I'll add my congrats. Girish, are there any products that you're incubating outside of the three or four main products you usually refer to, which are particularly exciting in terms of market potential? I think we see some of them alluded to from time to time, like Freshteam, Freshping, Freshrelease, and Freshcaller. There are a bunch of others that are a little less in the spotlight and I'm just wondering how you feel about some of those incubating products?

Girish Mathrubootham, Chief Executive Officer

Yeah, thanks Mark. So let me first say that we have plenty of opportunity in the three main product categories, which are in three really large markets. But as a company focused on innovation, we'd always like to bring more innovation to the market. If you look at Freshteam, that is an incubation product in a very large HRMS market, but it's still very early days for us, so we are not really pushing it heavily yet. And if you mention Freshping and Freshrelease, they serve as premium products acting as lead generation tools for us, attracting the right set of customers who could later on be upsold to Freshservice. Freshrelease is more of a project management tool that integrates into Freshservice, sold as part of Freshservice as a unified ITSM product with project management. In summary, Freshteam is really the incubation product in the HR space. It could be big in the future, but right now it's still in incubation.

Mark Murphy, Analyst

Okay, got it! Thank you. And then Tyler, as a quick follow-up, what was the effect that created a few points of headwind on the billings results? I didn’t quite hear that description. And then do you happen to have the RPO numbers or do we wait until the 10-Q is released for this?

Tyler Sloat, Chief Financial Officer

Yeah, so hey Mark, let me start with the second piece on RPO. It will be in the 10-Q. It's $199 million for the quarter. Again, RPO is not super meaningful for us because we're not signing many contracts that are greater than one year, but it is higher than deferred revenue. In terms of calculated billings, right, $109.3 million, I mentioned that we had a little bit of headwind related to reserves and things like that. Last year in Q2, which was COVID-impacted, we reserved out a lot, and then in Q3, a lot of that reversed. So now, we're running more on our normal run rate, but it doesn’t give as much benefit as we got the previous year, leading to a few points of headwind. In general, we expect billings to track with revenue growth.

Mark Murphy, Analyst

Understood, thank you.

Operator, Operator

Our next question will come from the line of Brent Thill from Jefferies. You may begin.

Unidentified Analyst, Analyst

Hi! This is Brent Thill. Congratulations on a strong first quarter! I wanted to start by asking Girish about the expansion opportunity, particularly with the larger customers. It's impressive that you achieved 73% growth, but could you elaborate on the products they were adopting and whether there’s a chance to sell them multiple products from your suite?

Girish Mathrubootham, Chief Executive Officer

Sure, thanks. There are two parts to this. First, let me talk about the enterprise or larger customers. We predominantly land larger customers with either Freshdesk or Freshservice. Most of our top large customers for Freshworks are Freshdesk omni-channel customers, typically scaled B2C companies where agent volumes and automation needs are high, and support through digital channels is increasing due to digital transformation. Freshservice, being more mid-market, also plays into larger customers. We primarily land most of the mid-market and above deals with either Freshdesk omni-channel or Freshservice. Now, in terms of expansion, the primary expansion motion for both these products is the addition of agents. It's worth noting that these two products serve different roles, and there's no natural cross-sell motion between them. However, we are already seeing some signs of expansion with our Freshsales product that is newer. We can sell Freshsales into existing Freshdesk customers, where they are able to purchase Freshdesk and Freshsales, or sometimes Freshsales and Freshmarket along with Freshdesk. So we see that cross-sell motion continuing as Freshsales matures and gains more traction.

Unidentified Analyst, Analyst

That's very helpful. And maybe one for Tyler. I wanted to dig in a little bit onto Stan’s question earlier around net dollar retention. As we head into 2022, should we expect this elevated level to continue, especially as you see the improvement on gross retention? Could you maybe talk a little bit about that?

Girish Mathrubootham, Chief Executive Officer

Yeah, thanks! We do expect longer-term net dollar retention to be in the range of 110 to low teens. We're making every effort possible to continue to delight our existing customers and encourage them to adopt more of our products and use the products they currently have. Right now, I think we're doing a good job in that area, but we would expect that number to come down.

Unidentified Analyst, Analyst

Got it. Thank you.

Operator, Operator

Our next question will come from the line of Scott Berg from Needham. You may begin.

Scott Berg, Analyst

Hi Girish and Tyler, congrats on the new quarter, and thanks for taking my questions. I have two here for Girish. I wanted to talk about the partner impact in the quarter. You mentioned signing more than 50 new partners in the third quarter, but how would you characterize the overall impact of your partners on the new sales in the quarter?

Girish Mathrubootham, Chief Executive Officer

If you look at the partner impact on our overall business, I would say that partners contribute to approximately 15% of our business. That number hasn’t really moved much from what we discussed during the roadshow. Our inbound product-led growth brings in about 55% of new business for us, our outbound accounts for around 30%, and then partners contribute 15%. We are constantly adding partners and have a lot of app developer partners, but we are highlighting the channel partners who actually resell our products.

Scott Berg, Analyst

Got it, helpful, thank you. Then Tyler, on billings in the quarter, any sense on what the mix looks like between monthly billings and annual billing? Did that shift significantly in the quarter versus what we’ve seen in the last couple of quarters?

Tyler Sloat, Chief Financial Officer

Hey Scott, there wasn't really any shift in terms of the tenure of the billings mix. We've previously stated that it’s around 60% annual, and that's about the same as it was in the quarter.

Scott Berg, Analyst

Awesome! That's all I have. Congrats on a good quarter. Thanks everyone.

Tyler Sloat, Chief Financial Officer

Thanks Scott.

Operator, Operator

Our next question comes from the line of Raimo Lenschow from Barclays. You may begin.

Raimo Lenschow, Analyst

Hey! Thank you, and congrats from me as well. Can you talk a little bit about the customer growth and what we are expecting there in terms of obviously things getting better out there? How do you think about that growth trajectory? Maybe it’s more a question for Tyler here actually, and then I have one follow-up.

Tyler Sloat, Chief Financial Officer

Yeah, no, we’re pleased with customer growth. Obviously, Raimo, we're focused on all segments of the business. We’ve got a long tail of SMBs that we’re closing efficiently. Then we have our field presence targeting larger organizations in the mid-market and low enterprise in the partner segment. When you look at our growth in the greater than 5K and then the growth in the greater than 50K, you are seeing solid growth. Our revenue growth, however, is not just coming from customer growth; we’ve also done a good job at increasing ARPA across our customer base. Our growth vectors are bringing in new customers and getting our existing customers to buy more, and we've been doing well on both fronts.

Raimo Lenschow, Analyst

Okay, perfect! Thank you. Then Girish, more for you. With your innovation engine in place, you can see what applications in the enterprise are working and mirror that to the SMB level. Can you talk about the opportunity to add more functionality? You’ve already mentioned some of the products being incubated, etc. But can you elaborate on that opportunity?

Girish Mathrubootham, Chief Executive Officer

Broadly, looking at industry trends, we see a consolidation of customer service channels, particularly omni-channel customer service, where companies aim to blend traditional support channels with modern digital channels and bring automation into those channels. In the ITSM sector, we clearly see a trend toward modern employee engagement, especially with employees working from home. We want to enable them to get what they need from the business efficiently and maintain IT workflows. The most significant opportunity we see is breaking down silos between sales, marketing, and support, creating a 360-degree product vision. Large enterprises are investing in customer data platforms and attempting to integrate their Sales Cloud, Marketing Cloud, and Service Cloud to build a comprehensive customer profile. We believe that customer 360 will evolve into its own product category, and more businesses will seek to understand their customers better, requiring an integrated product experience. This trend allows us to sell more to customers, as currently they buy for sales, marketing, or support separately. We can offer them a complete solution and are architected to be plug-and-play so customers can start where they want and add more as necessary.

Raimo Lenschow, Analyst

Perfect! Thank you. Sounds exciting.

Tyler Sloat, Chief Financial Officer

Thanks, Raimo.

Girish Mathrubootham, Chief Executive Officer

Thank you.

Operator, Operator

Our next question will come from the line of Brian Schwartz from Oppenheimer. You may begin.

Brian Schwartz, Analyst

Yeah, hi! Thanks for taking my questions. Congratulations on your first quarter! I have a follow-up on the resellers added in the quarter. Was there a specific geography or specific market segments that these new channel partners focus on?

Girish Mathrubootham, Chief Executive Officer

There isn't a specific geography that is noteworthy. We generally aim to add partners across the globe, but we tend to add more in non-English speaking markets, as it helps us reach and service their customers better. Our revenue mix today shows that North America accounts for about 42% of our revenue, while Europe, the Middle East, and Asia contribute about 40% plus, and the rest of the world is 16%. Therefore, we are still heavily international, around 58% to 60% of our business.

Brian Schwartz, Analyst

Thank you. And the one follow-up question I had was just related to the two markets that you focus on. Was there any divergence in what you saw in terms of bookings between the business in North America versus the business in Europe and Asia? Thanks.

Tyler Sloat, Chief Financial Officer

No. Hey Brian! This is Tyler. It was consistent. We didn’t see any movement in one area versus another this quarter. If anything, we've got our inbound motion that is completely global, accessing nearly every single country out there. Our field presence is primarily in Europe and North America, with a smaller presence in areas like Australia. In terms of our bookings, we expect more of it to come from mid-market to enterprise in North America and Europe, which it does.

Brian Schwartz, Analyst

Thank you for taking my questions.

Tyler Sloat, Chief Financial Officer

You bet, Brian.

Operator, Operator

Our next question will come from the line of Brent Bracelin from Piper Sandler. You may begin.

Brent Bracelin, Analyst

Good afternoon and happy Diwali! Girish, there's a clear talent shortage in the U.S. This has emerged as a new risk factor for a lot of growth companies. I'd be curious to hear if you're seeing a similar talent shortage scenario in Chennai. It seems like having a large engineering footprint in India could be an advantage, but I’d just love to hear your thoughts on the talent, your hiring ability, particularly given your footprint there in Chennai.

Girish Mathrubootham, Chief Executive Officer

Happy Diwali to you too, Brent! Talent is crucial globally, and we're observing that demand is high. I believe our location advantage in Chennai offers access to high-quality talent, which is a strategic advantage. All of our R&D is there, which helps us attract talent. We are recognized as one of the most preferred SaaS startups to work for in India, and definitely the best one in Chennai. I would consider those as advantages for us. However, with the start-up activity happening, there remains a demand for talent, but I think we are likely better off than most companies thanks to our Chennai base.

Brent Bracelin, Analyst

Helpful color there. I guess Tyler, a follow-up for you. I know Freshdesk and Freshservice are the product stars here. But I'm curious about the momentum you're seeing. I know it’s early with Freshsales, but are you seeing that expand the land footprint for new customers? Are you seeing that being kind of cross-sold in the installed base? Any early color around Freshsales and the early kind of wins you have there? Is there a cohort or pattern developing on the types of customers embracing Freshsales? That would be helpful. Thanks.

Tyler Sloat, Chief Financial Officer

Hey Brent! We are seeing growth all around Freshsales. We have customers who are selecting Freshsales at large scales. One of our active motions involves analyzing our Freshdesk customers and urging them to take advantage of Freshsales and Freshmarket. This gives them a unified view of their customers, from which we are getting really promising initial feedback. For customers in the SMB to mid-market segments, it’s an attractive solution due to its straightforward onboarding and usability. While we predict the larger motions to be primarily in the SMB to mid-market, there are larger enterprises also implementing our solutions. It's still early.

Brent Bracelin, Analyst

Definitely appreciate the feedback there. That color is super helpful. Thank you again.

Tyler Sloat, Chief Financial Officer

You bet.

Operator, Operator

And our next question will come from the line of Brian Peterson from Raymond James. You may begin.

Brian Peterson, Analyst

Thanks for taking the question and congrats on a really strong quarter. If you think about the SMB opportunity, I'm curious about what you're seeing in terms of customers potentially looking at this customer 360 vision. Are they at the point where they are looking to buy multiple products at the same time or is it still an environment where they start with one, see the vision, and add on? I'm wondering when you see that potentially changing for the smaller customers out there. Thank you.

Girish Mathrubootham, Chief Executive Officer

Currently, customers are purchasing from two or three different vendors. A common example would be a small to medium-sized B2C brand trying to sell online, where they first buy a support solution, and then they often want to purchase a marketing solution to run campaigns on digital platforms like WhatsApp or Instagram, as applicable. They also usually have some automation and self-service bots for customer support. They are buying two to three products from various providers. If we can offer this as a suite strategy where customers can have a combined solution, it would be beneficial. They're not necessarily calling it 360 yet, but they are seeking ways to engage customers through a single platform. This shift is happening as we speak.

Brian Peterson, Analyst

Great! Thank you.

Operator, Operator

Thank you. Our next question will come from the line of DJ Haynes from Canaccord. You may begin.

DJ Haynes, Analyst

Hey guys! Thanks for taking the questions. Girish, how much of the traction up-market would you say is a pull versus a push motion today? If you think about the go-to-market investments that you're making, is there an emphasis on any one of the three sales channels that you’ve highlighted?

Girish Mathrubootham, Chief Executive Officer

It’s both; a lot of the pull comes from our product-led growth motion. As I mentioned, 55% of our new business comes through our inbound channel, but not all of that is SMB. Some of it comes from teams in larger companies, which contributes to our inbound growth. We also have a mid-market team that is outbound and running events and campaigns to generate leads. Therefore, we have investments in go-to-market strategies targeting larger customers that involve both push and pull strategies.

DJ Haynes, Analyst

Okay, got it. And Tyler, you received a handful of questions on billings. Given that you're still new to the public markets, could you just discuss the usefulness of billings as a leading indicator on growth? Some companies say billings are good indicators on a rolling four-quarter basis, while others advise not to pay much attention. Where do you stand?

Tyler Sloat, Chief Financial Officer

In general, and thanks for the question DJ, billings will track our revenue growth in the longer term. During our roadshow, we indicated that if we saw any significant anomalies in billings, we’d call them out. Our calculated billings grew by 41%, and we did already call out some anomalies leading to headwinds. However, we were pleased with the results. If we observe any notable shifts in our billing mix, particularly regarding how customers are paying us—be it monthly or annually—that could present some anomalies in the billings number, and we’ll clarify those changes during our calls.

DJ Haynes, Analyst

Yeah, perfect! That makes sense. Congrats on getting the first one out there. Thanks, guys.

Tyler Sloat, Chief Financial Officer

Thanks a lot.

Girish Mathrubootham, Chief Executive Officer

Thank you.

Operator, Operator

Our next question will come from the line of Pat Walravens from JMP Securities. You may begin.

Pat Walravens, Analyst

Great! Thank you. One for each of you, if that's okay. So G, I love that you went with Zach Nelson as a board member. I'm sure most people on this call know, but anyway, he ran NetSuite for 15 years before it was sold to Oracle. I'm sure you had your choice of people to put in that seat, and I would love to hear what factors led you to choose Zach.

Girish Mathrubootham, Chief Executive Officer

Zach is a fantastic leader with great public company experience. He has seen scale while taking NetSuite to around $1 billion in revenue and beyond, and even post-acquisition from Oracle, he led it well. He adds to our board's capabilities regarding public company governance and expertise. Importantly, Zach is not overcommitted to numerous boards; he has the time to mentor us. NetSuite was the original SaaS company serving many SMB mid-market customers, so his domain experience is incredibly valuable. We're glad Zach was available to join us.

Pat Walravens, Analyst

Yeah, great. And then Tyler, two sort of quick ones for you. Firstly, you’re not guiding specifically, but any comments you can make about how investors should think about growth next year would be appreciated. And then also, just a quick summary on the early lock-up release, just to keep that on top of people's minds.

Tyler Sloat, Chief Financial Officer

We are not commenting on next year's guidance right now. Obviously, we will provide that as we conclude our Q4 results. In terms of the early lock-up, we put out a press release on Friday. This initiative was part of the S1 and negotiated as part of our going public process. We will trigger a 20% unlock across our employee base on Thursday, but it is essential to note that this encompasses the base of prior shareholders. Not all shares are expected to hit the market on Thursday. However, we do anticipate some shares related to sales for tax purposes of RSUs, which should be executed.

Pat Walravens, Analyst

Great! Thank you very much.

Girish Mathrubootham, Chief Executive Officer

Thanks, Pat.

Operator, Operator

Thank you. Your next question will come from the line of Rob Oliver from Baird. You may begin.

Rob Oliver, Analyst

Great! Thanks guys for taking my question. Thanks, Girish, thanks, Tyler. Just one and then a quick follow-up. There's evident mid-market strength from you guys, and I know Freshservice has been your primary landing product. But just wondering if you're noticing any shifts in that land with the Freshdesk product being so strong and in high demand as mid-sized companies strive to digitally transform. How do those relative pipelines look heading into Q4?

Girish Mathrubootham, Chief Executive Officer

Both products operate in large markets, and we are experiencing healthy growth across both. In comparison, Freshservice seems to be growing a little faster than Freshdesk because of its smaller base, while Freshdesk remains our largest product. We see continued demand for both, as they cater to entirely different buyer dynamics. In the Freshservice market, we are the best alternative to ServiceNow and are garnering a lot of mid-market demand. On the Freshdesk side, we have a more varied customer base that includes SMBs and larger enterprises.

Rob Oliver, Analyst

Got it. That’s helpful, Girish. I know you mentioned at the outset that you guys have the user conference next week, which many public market investors will be attending for the first time. So I was curious, or Tyler, if there's anything you wanted to point to. I know there was a question earlier about Neo. It may be a little early to discuss, but just curious if there’s anything we should keep our eyes out for next week in Vegas.

Girish Mathrubootham, Chief Executive Officer

I would like to invite all of you to join us virtually, as we have some exciting announcements, customer stories, and platform-related news to share. The event will primarily be virtual, and we're limiting physical attendance due to COVID-19, but we would love for you to attend.

Rob Oliver, Analyst

Great! Thanks again.

Tyler Sloat, Chief Financial Officer

Thanks, Rob.

Operator, Operator

Thank you. We have Alex Zukin from Wolfe Research as your next question. Your line is open.

Joshua Tilton, Analyst

Hi, this is Joshua Tilton on for Alex. Thanks for taking my questions. First, could you just comment on what you're seeing from a demand perspective, and maybe compare relative to pre-pandemic levels?

Tyler Sloat, Chief Financial Officer

Hey Joshua, this is Tyler. Demand is strong. We were growing well pre-pandemic, and all our historical numbers indicate that we are still growing at an incredible pace. Clearly, we saw some pain on the SMB side due to COVID in specific verticals like hospitality and travel, but as we've discussed, the growth rates from when we emerged from COVID in Q3 of last year have shown acceleration due to digital transformation—which is central to what we do—especially since our products are straightforward to use and onboard. Many customers are taking advantage of this growth, and it’s ongoing.

Joshua Tilton, Analyst

As a quick follow-up, any thoughts on the competitive landscape? Specifically, which of your competitors are you seeing your win rates improve against across your three product areas?

Girish Mathrubootham, Chief Executive Officer

If you look at our three product areas and our two primary go-to-market motions, in the product-led motion, we mainly compete in Freshdesk with players like Zendesk or Service Cloud on the enterprise side, and legacy players like Oracle or SAP. We don’t tightly track win rates with inbound sales, as it generally involves assisted buying rather than conservative selling. However, in mid-market, specifically, we keep track of win rates and are winning against Zendesk in Freshdesk. In Freshservice, we often compete against Atlassian or ServiceNow, and we have been able to capture wins against them. We’re still assessing win rates at different levels, but I can discuss the competition we see in each market.

Joshua Tilton, Analyst

Thank you.

Operator, Operator

Thank you. I'm not showing any further questions in the queue. Thank you for participating in today's conference. This concludes today’s program. You may all disconnect. Everyone have a great day.