Freshworks Inc 10-Q for FY2025 Q1
Freshworks Inc. (FRSH)
10-Q
2025-04-29
For: 2025-03-31
View Original
Added on
April 07, 2026
About this 10-Q
Freshworks Inc filed this 10-Q on April 29, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $196.27M
- up 18.9% from $165.14M a year earlier
- Net loss
- $1.3M
- compared with a net loss of $23.33M a year earlier
- Diluted EPS
- $0.00
- compared with -$0.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2025
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ________ to ________
Commission file number 001-40806
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices and Zip Code)
(650 ) 513-0514
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 25, 2025, the number of shares of the registrant’s Class A common stock outstanding was 241,553,184 and the number of shares of the registrant’s Class B common stock outstanding was 53,459,559 .
FRESHWORKS INC.
TABLE OF CONTENTS
| Page | |||||||||||
| ITEM 1. | |||||||||||
| ITEM 2. | |||||||||||
| ITEM 3. | |||||||||||
| ITEM 4. | |||||||||||
| ITEM 1. | |||||||||||
| ITEM 1A. | |||||||||||
| ITEM 2. | |||||||||||
| ITEM 3. | |||||||||||
| ITEM 4. | |||||||||||
| ITEM 5. | |||||||||||
| ITEM 6. | |||||||||||
1
As used in this report, the terms “Freshworks,” “registrant,” “we,” “us,” and “our” mean Freshworks Inc. and its subsidiaries unless the context indicates otherwise.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
•our expectations regarding our annual recurring revenue (ARR), revenue, expenses, and other operating results;
•our ability to acquire new customers and successfully retain existing customers;
•our ability to increase the number of users who access our platform;
•our ability to increase usage of existing products;
•our ability to effectively manage our growth;
•our ability to achieve or sustain profitability;
•future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
•the costs and success of our sales and marketing efforts, and our ability to maintain and enhance our brand;
•the estimated addressable market opportunity for existing products and new products;
•our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
•our ability to effectively manage our growth, including any international expansion;
•our ability to successfully integrate acquired businesses, including D42 Parent, Inc.;
•the effects of macroeconomic uncertainties, including high interest rates, foreign exchange rate volatility, global geopolitical uncertainties, inflationary pressures, and other macroeconomic factors beyond our control;
•our ability to protect our intellectual property rights and any costs associated therewith;
•our ability to compete effectively with existing competitors and new market entrants; and
•the size and growth rates of the markets in which we compete.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very
2
competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
Statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject, based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
Where You Can Find More Information
We announce material information to the public through a variety of means, including filings with the U.S. Securities and Exchange Commission, press releases, public conference calls, our website (freshworks.com), the investor relations section of our website (ir.freshworks.com), our LinkedIn account (linkedin.com/company/freshworks-inc/), and our X (formerly Twitter) account (@FreshworksInc). We use these channels to communicate with investors and the public about our company, our products and services and other matters. Therefore, we encourage investors, the media and others interested in our company to review the information we make public in these locations, as such information could be deemed to be material information.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
FRESHWORKS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
| March 31, 2025 | December 31, 2024 | |||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Marketable securities | ||||||||||||||
Accounts receivable, net of allowance of $ | ||||||||||||||
| Deferred contract acquisition costs | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Operating lease right-of-use assets | ||||||||||||||
| Deferred contract acquisition costs, noncurrent | ||||||||||||||
| Goodwill | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Deferred tax assets | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued liabilities | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Income tax payable | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Operating lease liabilities, non-current | ||||||||||||||
| Other liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
Commitments and contingencies (Note 8) | ||||||||||||||
| Stockholders' equity: | ||||||||||||||
Preferred stock, $ | ||||||||||||||
Class A common stock, $ | ||||||||||||||
Class B common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive income (loss) | ( | |||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Total stockholders' equity | ||||||||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| Revenue | $ | $ | ||||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expense: | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
Restructuring charges | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Loss from operations | ( | ( | ||||||||||||||||||||||||
| Interest and other income, net | ||||||||||||||||||||||||||
Income (loss) before income taxes | ( | |||||||||||||||||||||||||
Provision for income taxes | ||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||||||||||||||
| Net loss per share - basic and diluted | $ | $ | ( | |||||||||||||||||||||||
| Weighted average shares used in computing net loss per share - basic and diluted | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Change in unrealized gain or loss on marketable securities | ( | ( | |||||||||||||||||||||
| Net change on cash flow hedges | |||||||||||||||||||||||
| Total other comprehensive income | ( | ||||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
| Three Months Ended March 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase and retirement of common stock, including excise tax | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2025 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of December 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances as of March 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of deferred contract acquisition costs | |||||||||||
| Non-cash lease expense | |||||||||||
| Stock-based compensation | |||||||||||
Discount amortization on marketable securities | ( | ( | |||||||||
| Deferred income taxes | ( | ||||||||||
| Other | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Deferred contract acquisition costs | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Accrued and other liabilities | ( | ||||||||||
| Deferred revenue | |||||||||||
| Operating lease liabilities | ( | ||||||||||
Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Capitalized internal-use software | ( | ( | |||||||||
| Purchases of marketable securities | ( | ( | |||||||||
| Maturities and redemptions of marketable securities | |||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Payment of withholding taxes on net share settlement of equity awards | ( | ( | |||||||||
Repurchase of common stock | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
Reconciliation of cash, cash equivalents and restricted cash to condensed consolidated balance sheets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid expenses and other current assets | |||||||||||
| Restricted cash included in other assets | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for taxes | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease obligations, net of modifications | $ | $ | |||||||||
| Stock-based compensation capitalized as internal-use software | $ | $ | |||||||||
Excise tax liability accrued for common stock repurchased | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
FRESHWORKS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements of Freshworks Inc. and its subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation.
The accompanying condensed consolidated balance sheet as of March 31, 2025, the condensed consolidated statements of operations, of comprehensive loss, of cash flows, and of stockholders’ equity for the three months ended March 31, 2025 and 2024, and the related notes to such condensed consolidated financial statements are unaudited. These unaudited condensed consolidated financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our financial position as of March 31, 2025 and our results of operations and cash flows for the three months ended March 31, 2025 and 2024. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 20, 2025.
Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the following:
•determination of standalone selling price (SSP) for each distinct performance obligation included in customer contracts with multiple performance obligations;
•allowance for doubtful accounts;
•benefit period of deferred contract acquisition costs;
•capitalization of internal-use software development costs;
•fair value of goodwill;
•useful lives of long-lived assets, including intangible assets;
•valuation of deferred tax assets;
•valuation of employee defined benefit plan and other compensation liabilities;
•fair value of share-based awards; and
9
•incremental borrowing rate used for operating leases.
Concentrations of Risk
Financial instruments that potentially expose us to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. Our cash, cash equivalents and marketable securities are generally held with large financial institutions and are in excess of the federally insured limits provided on such deposits. In addition, we have cash and cash equivalents held in international bank accounts, which are denominated primarily in euros, British Pounds, and Indian Rupees.
There were no customers that individually exceeded 10% of our revenue for the three months ended March 31, 2025 and 2024 or that represented 10% or more of our consolidated accounts receivable balance as of March 31, 2025.
We primarily rely upon our third-party cloud infrastructure partner, Amazon Web Services, to serve customers and operate certain aspects of its services. Any disruption of this cloud infrastructure partner would impact our operations and our business could be adversely impacted.
Significant Accounting Policies
Our significant accounting policies are described in the Annual Report on Form 10-K for the year ended December 31, 2024. There have been no significant changes to these policies that have had a material impact on the condensed consolidated financial statements and the related notes for the three months ended March 31, 2025.
Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires entities to provide more information in the rate reconciliation table and about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories. This authoritative guidance should be applied prospectively and will be effective for us starting in our annual disclosures for 2025. Retrospective application is permitted. This guidance is only related to disclosures and is not expected to have a significant impact on our condensed consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures. Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. The standard provides guidance to expand disclosures related to the disaggregation of income statement expenses, which requires more detailed information about specified categories of expenses included in certain expense captions presented on the face of the income statement. This authoritative guidance is effective for us starting in our annual disclosures for 2027 and interim periods starting 2028. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. This guidance is only related to disclosure and is not expected to have a significant impact on our condensed consolidated financial statements.
10
2. Cash Equivalents and Marketable Securities
Cash equivalents and available-for-sale debt securities consisted of the following as of the periods presented below (in thousands):
| March 31, 2025 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | — | $ | — | $ | |||||||||||||||||
| U.S. treasury securities | ( | ||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Total cash equivalents | ( | ||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| U.S. treasury securities | ( | ||||||||||||||||||||||
| U.S. government agency securities | ( | ||||||||||||||||||||||
| Corporate debt securities | ( | ||||||||||||||||||||||
Certificates of deposit | |||||||||||||||||||||||
| Total debt securities | ( | ||||||||||||||||||||||
| Total cash equivalents and debt securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | — | $ | — | $ | |||||||||||||||||
| Total cash equivalents | |||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| U.S. treasury securities | ( | ||||||||||||||||||||||
| U.S. government agency securities | ( | ||||||||||||||||||||||
| Corporate debt securities | ( | ||||||||||||||||||||||
Certificates of deposit | |||||||||||||||||||||||
| Total debt securities | ( | ||||||||||||||||||||||
| Total cash equivalents and debt securities | $ | $ | $ | ( | $ | ||||||||||||||||||
The following table presents gross unrealized losses and fair values for the securities that were in a continuous unrealized loss position as of the periods presented below (in thousands):
| March 31, 2025 | |||||||||||||||||||||||||||||||||||
| Less than 12 months | Greater than 12 months | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||||
| U.S. treasury securities | $ | $ | ( | $ | $ | $ | $ | ( | |||||||||||||||||||||||||||
| U.S. government agency securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Corporate debt securities | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
11
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||||
| U.S. treasury securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| U.S. government agency securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Corporate debt securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
The amortized cost and fair value of the available-for-sale debt securities based on contractual maturities are as follows (in thousands):
| March 31, 2025 | |||||||||||||||||||||||
| Amortized Cost | Fair Value | ||||||||||||||||||||||
| Due within one year | $ | $ | |||||||||||||||||||||
| Due after one year but within five years | |||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
3. Fair Value Measurements
We measure our financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are observable and reflect quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2—Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.
Level 3—Inputs that are unobservable.
We did not
12
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table represents the fair value hierarchy for our financial assets measured at fair value on a recurring basis as of the periods presented below (in thousands):
| March 31, 2025 | |||||||||||||||||||||||
| Fair Value Measured Using | |||||||||||||||||||||||
| Level 1 | Level 2 | Total | |||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | ||||||||||||||||||||
| U.S. treasury securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
| U.S. treasury securities | |||||||||||||||||||||||
| U.S. government agency securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
Certificates of deposit | |||||||||||||||||||||||
| Total financial assets | $ | $ | $ | ||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Fair Value Measured Using | |||||||||||||||||||||||
| Level 1 | Level 2 | Total | |||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | ||||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
| U.S. treasury securities | |||||||||||||||||||||||
| U.S. government agency securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
Certificates of deposit | |||||||||||||||||||||||
| Total financial assets | $ | $ | $ | ||||||||||||||||||||
The fair value of derivative assets and liabilities as of March 31, 2025, and all related unrealized and realized gains and losses during the three months ended March 31, 2025, were not material. As of March 31, 2025 and December 31, 2024, the total notional amount of outstanding designated foreign currency forward contracts was $62.7 million and $50.5 million, respectively.
13
4. Balance Sheet Components
Property and Equipment, net
The following table summarizes property and equipment, net as of the periods presented below (in thousands):
| March 31, 2025 | December 31, 2024 | ||||||||||
| Computers | $ | $ | |||||||||
| Capitalized internal-use software | |||||||||||
| Office equipment | |||||||||||
| Furniture and fixtures | |||||||||||
| Motor vehicles | |||||||||||
| Leasehold improvements | |||||||||||
| Construction in progress | |||||||||||
| Total property and equipment | |||||||||||
| Less: accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
The following table summarizes depreciation expense and internal-use software capitalization and amortization during the periods presented below (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
Capitalization of costs associated with internal-use software | |||||||||||||||||||||||
Amortization expense of capitalized internal-use software | |||||||||||||||||||||||
Depreciation expense | |||||||||||||||||||||||
As of March 31, 2025 and December 31, 2024, the net carrying value of capitalized internal-use software was $16.3 million and $14.5 million, respectively.
Accrued Liabilities
The following table summarizes accrued liabilities as of the periods presented below (in thousands):
| March 31, 2025 | December 31, 2024 | ||||||||||
| Accrued compensation | $ | $ | |||||||||
| Accrued reseller commissions | |||||||||||
| Accrued advertising and marketing expenses | |||||||||||
| Advanced payments from customers | |||||||||||
| Accrued taxes | |||||||||||
| Operating lease liabilities, current | |||||||||||
| Contributions withheld for employee stock purchase plan | |||||||||||
Unsettled share repurchases | |||||||||||
| Other accrued expenses | |||||||||||
| Total accrued liabilities | $ | $ | |||||||||
Noncurrent liabilities include $20.0 million and $21.1 million of long term accrued compensation as of March 31, 2025 and December 31, 2024, respectively.
14
5. Business Combinations
In June 2024, we acquired all outstanding shares of D42 Parent, Inc., an IT asset management company, for $238.1 million. This consideration included a combination of approximately $225.3 million in cash, $8.9 million in common stock issued, and $3.9 million in assumed and converted stock option awards. Through the combination, we expect to offer a more comprehensive IT solution for customers. The identifiable assets and liabilities acquired are primarily $140.8 million of goodwill, $99.0 million of intangible assets, and $(1.7 ) million in other net assets and liabilities. The assets acquired and liabilities assumed were recorded at fair value. The valuation pertaining to deferred tax liabilities is considered preliminary and we expect to finalize it in the second quarter of 2025, which is within one year from the acquisition date.
We have included the operating results of D42 Parent, Inc. in our condensed consolidated financial statements since the date of the acquisition.
The following unaudited supplemental pro forma financial information is provided for informational purposes only and summarizes the combined results of operations as if the acquisition had occurred on January 1, 2023 (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||
Revenue | $ | $ | |||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||||||||
The unaudited supplemental pro forma results reflect certain adjustments for the amortization of acquired intangible assets, recognition of stock-based compensation, and acquisition-related transaction expenses. Such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the date indicated, nor is it indicative of our future operating results.
6. Intangible Assets, Net
Acquired intangible assets consist of developed technology, customer relationships and trademarks and are amortized on a straight-line basis over their estimated useful lives. The following tables summarize acquired intangible assets as of the periods presented below:
| March 31, 2025 | |||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Net Carrying Value | Weighted Average Remaining Useful Life | ||||||||||||||||||||
| (amounts in thousands) | (in years) | ||||||||||||||||||||||
| Developed technology | $ | $ | ( | $ | |||||||||||||||||||
| Customer relationships | ( | ||||||||||||||||||||||
Trademarks | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | $ | |||||||||||||||||||
15
| December 31, 2024 | |||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Net Carrying Value | Weighted Average Remaining Useful Life | ||||||||||||||||||||
| (amounts in thousands) | (in years) | ||||||||||||||||||||||
| Developed technology | $ | $ | ( | $ | |||||||||||||||||||
| Customer relationships | ( | ||||||||||||||||||||||
Trademarks | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | $ | |||||||||||||||||||
Amortization of acquired intangible assets is as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Cost of revenue | $ | $ | |||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Total amortization expense | $ | $ | |||||||||||||||||||||
As of March 31, 2025, expected future amortization expense related to acquired intangible assets is as follows (in thousands):
| Year Ending December 31, | Amortization Expense | |||||||
| Remainder of 2025 | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
Thereafter | ||||||||
| Total future amortization | $ | |||||||
7. Leases
We have operating leases primarily for office space. The leases have remaining lease terms of to seven years , some of which include options to extend the lease for up to an additional six years . Our leases do not contain any residual value guarantee.
The following table presents various components of the lease costs (in thousands):
| Operating Leases | Three Months Ended March 31, | |||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| Operating lease cost | $ | $ | ||||||||||||||||||||||||
| Short-term lease cost | ||||||||||||||||||||||||||
| Variable lease cost | ||||||||||||||||||||||||||
Total lease cost | $ | $ | ||||||||||||||||||||||||
16
The weighted-average remaining term of our operating leases and the weighted-average discount rate used to measure the present value of the operating lease liabilities are as follows:
| Lease Term and Discount Rate | March 31, 2025 | March 31, 2024 | ||||||||||||
| Weighted-average remaining lease term (in years) | ||||||||||||||
| Weighted-average discount rate | % | % | ||||||||||||
The following table presents supplemental information arising from lease transactions. Cash payments related to short-term leases are not included in the measurement of the operating lease liabilities, and as such, are excluded from the amounts below (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| Supplemental Cash Flow Information: | 2025 | 2024 | ||||||||||||||||||||||||
Cash payments included in the measurement of operating lease liabilities, net of tenant allowance receipts | $ | $ | ||||||||||||||||||||||||
As of March 31, 2025, maturities of the operating lease liabilities are as follows (in thousands):
| Operating Leases | ||||||||
| Remainder of 2025 | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | |||||||
| Present value of operating lease liabilities | $ | |||||||
8. Commitments and Contingencies
Other Contractual Commitments
Our other contractual commitments primarily consist of third-party cloud infrastructure agreements and service subscription purchase arrangements used to support operations at the enterprise level. As of March 31, 2025, other contractual commitments totaling $274.0 million remain outstanding under these agreements through 2029.
Litigation and Loss Contingencies
On November 1, 2022, a purported Company stockholder filed a securities class action complaint in the U.S. District Court for the Northern District of California against us, certain of our current officers and directors, and underwriters of our initial public offering (IPO). On February 8, 2023, the court-appointed lead plaintiff and lead counsel. On April 14, 2023, lead plaintiff filed an amended complaint. The amended complaint alleges that defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 by making material misstatements or omissions in offering documents filed in connection with our IPO. The amended complaint seeks unspecified damages, interest, fees, costs, and rescission on behalf of purchasers and/or acquirers of common stock issued in our IPO. On September 28, 2023, the court issued an order granting in part and denying in part defendants' motion to dismiss. On January 16, 2025, we filed a motion for summary judgment, which the court granted and entered judgment in our and the other defendants’ favor on April 10, 2025. Plaintiff has until May 12, 2025 to file a notice of appeal.
17
On March 20, 2023, a purported stockholder derivative complaint was filed in the U.S. District Court for the Northern District of California. The complaint names as defendants our current directors, as well as Freshworks, as nominal defendant, and asserts state and federal claims based on some of the same alleged misstatements as the securities class action complaint. The derivative complaint seeks unspecified damages, attorneys’ fees, and other costs. On June 21, 2023, the court stayed the case in light of the pending securities class action. On October 16, 2023, the court extended the stay of the case in light of the pending securities class action. We and the other defendants continue to vigorously defend against the claims in this action.
From time to time, we have been and may be in the future subject to other legal proceedings, claims, investigations, and government inquiries (collectively, legal proceedings) in the ordinary course of business. We have received and may receive claims from third parties asserting, among other things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights. There are no currently pending legal proceedings that we believe will have a material adverse impact on our business or condensed consolidated financial statements.
Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to customers, business partners, and other parties with respect to certain matters, including losses arising out of intellectual property infringement claims made by third parties, if we have violated applicable laws, if we are negligent or commit acts of willful misconduct, and other liabilities with respect to its products and services and its business. In these circumstances, payment is typically conditional on the other party making a claim pursuant to the procedures specified in the particular contract. We also indemnify certain of our officers, directors and employees while they are serving in good faith in their respective capacities. To date, we have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in its condensed consolidated financial statements.
9. Revenue From Contracts with Customers
We primarily derive revenue from subscription fees and related professional services, as well as through sale of software licenses with associated maintenance and professional services.
We sell subscriptions and software licenses directly to customers and indirectly through channel partners with arrangements that are non-cancelable and non-refundable. Our subscription arrangements do not provide customers with the right to take possession of the software supporting the solutions and, as a result, are accounted for as service arrangements. Subscription revenue is recognized ratably over the contract term when the cloud-based software is made available to customers.
Software license revenue is generally sold as bundled arrangements that include the rights to a software license and maintenance and cloud-based software in some cases. For software licenses sold with maintenance and professional services, revenue from the software license is recognized when the software is made available to the
18
customer and maintenance revenue is recognized as support and updates are provided, which is generally ratably over the contract term.
Professional services revenue is comprised of fees charged for services ranging from product configuration, data migration, systems integration, and training. We recognize professional services revenues as services are performed.
We record revenue net of sales or value-added taxes.
Disaggregation of Revenue
The following table summarizes revenue by our product and service offerings during the periods presented (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
Subscription services, software licenses and maintenance | $ | ||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||
| Total revenue | $ | $ | |||||||||||||||||||||
See Note 10 for revenue by geographic location.
Unbilled Receivables, Deferred Revenue and Remaining Performance Obligations
Unbilled receivables primarily represent revenue recognized in excess of billings from non-cancellable multi-year contract arrangements. As of March 31, 2025 and December 31, 2024, we had $7.2 million and $6.3 million of unbilled receivables, respectively. Unbilled receivables are included within accounts receivable, net on the condensed consolidated balance sheets.
Deferred revenue consists of customer billings in excess of revenue being recognized. As of March 31, 2025 and December 31, 2024, non-current deferred revenue of $3.8 million and $3.9 million, respectively, was included in Other liabilities on the condensed consolidated balance sheet.
Revenue recognized during the three months ended March 31, 2025 and 2024 from amounts included in deferred revenue at the beginning of these periods was $144.5 million and $121.9 million, respectively.
The aggregate balance of remaining performance obligations as of March 31, 2025 was $541.9 million. We expect to recognize $395.6 million of the balance as revenue in the next 12 months and the remainder thereafter. The aggregate balance of remaining performance obligations represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods.
Deferred Contract Acquisition Costs
The change in the balance of deferred contract acquisition costs during the periods presented is as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Balance at beginning of the period | $ | $ | |||||||||||||||||||||
| Add: Contract costs capitalized during the period | |||||||||||||||||||||||
| Less: Amortization of contract costs during the period | ( | ( | |||||||||||||||||||||
| Balance at end of the period | $ | $ | |||||||||||||||||||||
19
10. Segment and Geographic Information
We operate in a single operating segment composed of the condensed consolidated financial results of Freshworks. Our Chief Executive Officer (CEO) is the chief operating decision maker (CODM) of Freshworks and the key measures of segment profit or loss that our CODM uses to allocate resources and assess performance is our revenue and consolidated net loss. Significant segment expenses reviewed by our CODM for our single operating segment comprise of stock-based compensation, amortization of acquired intangible assets, and other segment expenses. Other segment expenses utilize operating expenses recognized as research and development, selling and marketing, and general and administrative expenses within our condensed consolidated statement of operations less stock-based compensation and amortization of acquired intangible assets, and primarily related to personnel-related costs. Refer to Note 11—Stockholders' Equity and Stock-Based Compensation and Note 6—Intangible Assets, Net for information regarding amounts pertaining to stock-based compensation and amortization of acquired intangibles.
Revenue by geographic location is determined based on the customers' billing address. The following table summarizes revenue by geographic location (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| North America | $ | $ | |||||||||||||||||||||
| Europe, Middle East and Africa | |||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total revenue | $ | $ | |||||||||||||||||||||
Revenue from North America consists primarily of revenue from the United States. For the three months ended March 31, 2025 and 2024, revenue generated from the United States was $82.4 million and $65.9 million, or approximately 42 % and 40 % of total consolidated revenue, respectively.
The United Kingdom, included within Europe, Middle East and Africa in the table above, contributed $27.2 million and $21.2 million, or approximately 14 % and 13 % of total consolidated revenue for the three months ended March 31, 2025 and 2024, respectively.
Long-lived assets consist primarily of property, plant and equipment and ROU assets. The following table summarizes long-lived assets by geographic information (in thousands):
| March 31, 2025 | December 31, 2024 | |||||||||||||
| North America | $ | $ | ||||||||||||
| Europe, Middle East and Africa | ||||||||||||||
| Asia Pacific | ||||||||||||||
| Total long-lived assets | $ | $ | ||||||||||||
Long-lived assets in North America are primarily located in the United States, and long-lived assets in Asia Pacific are primarily located in India.
11. Stockholders' Equity and Stock-Based Compensation
Share Repurchase
In November 2024, our board of directors (the Board) approved the share repurchase program, which authorized the repurchase of up to $400 million of our outstanding Class A common stock. During the three months ended March 31, 2025 we repurchased a total of 6,732,390 shares of Class A common stock under this program in open market transactions for an aggregate purchase price of $111.8 million, resulting in an average price of $16.60 per share. As of March 31, 2025, $272.7 million remained available for future share repurchases under the program. All shares of Class A common stock subsequently repurchased were retired. Upon retirement, the par value of the
20
common stock repurchased was deducted from common stock and any excess of repurchase price over par value was recorded entirely to additional-paid-in capital, or in the absence of additional-paid-in capital, to accumulated deficit, in the condensed consolidated balance sheets.
Equity Compensation Plans
In August 2021, the Board adopted the 2021 Equity Incentive Plan (the 2021 Plan) and the 2021 Employee Stock Purchase Plan (ESPP). Pursuant to the 2021 Plan, the Board may grant incentive stock options to purchase shares of our common stock, non-statutory stock options to purchase shares of our common stock, stock appreciation rights, restricted stock, restricted stock units (RSUs), performance restricted stock units (PRSUs) and other awards. The ESPP enables eligible employees to purchase shares of our Class A common stock. Both the 2021 Plan and ESPP include an automatic increase to their shares reserve on January 1 of each year as set forth in the respective plan documents.
In August 2022, the Compensation Committee of the Board adopted the 2022 Inducement Plan (the Inducement Plan) in accordance with Listing Rule 5635(c)(4) of the Nasdaq Stock Market. Under the Inducement Plan, nonstatutory stock options, stock appreciation rights, restricted stock, RSUs, PRSUs and other awards may be granted as an inducement material to an eligible person's entering into employment with us.
Shares of common stock outstanding and reserved for future issuance were as follows (in thousands):
| March 31, 2025 | |||||||||||
| 2011 Stock Plan: | |||||||||||
| Options, RSUs and PRSUs outstanding | |||||||||||
| 2021 Equity Incentive Plan: | |||||||||||
Options, RSUs and PRSUs outstanding (1) | |||||||||||
| Shares reserved for future award issuances | |||||||||||
| 2022 Inducement Plan: | |||||||||||
| Options and RSUs outstanding | |||||||||||
| Shares reserved for future award issuances | |||||||||||
| 2021 Employee Stock Purchase Plan | |||||||||||
| Shares reserved for future award issuances | |||||||||||
Total awards outstanding and shares of common stock reserved for issuance | |||||||||||
(1)Outstanding shares include the 2025 Executive PRSUs as discussed below, based on 100
2021 Employee Stock Purchase Plan
Under the ESPP, the price at which common stock is purchased is equal to 85 % of the fair market value of a share of our common stock on the first day of the offering period or the applicable purchase date, whichever is lower. The fair market value of common stock will generally be the closing sales price on the determination date. The ESPP provides an offering period of 24 months, with four purchase periods that are generally six months long and end on May 15 and November 15 of each year. We did not issue any shares under the ESPP during the three months ended March 31, 2025 and 2024, respectively.
The ESPP also includes a reset provision for the purchase price if the fair market value of a share of our common stock on the first day of any purchase period is less than or equal to the fair market value of a share of our common stock on the first day of an ongoing offering. If the reset provision is triggered, a new 24 -month offering period begins. Each triggering of the reset provision was considered a modification in accordance with ASC 718, Stock Based Compensation, and the modification charge recognized on a straight-line basis over the new offering period. Historically, the reset provision has been triggered by stock price declines, and the resulting modification have not been material on our stock-based compensation expense.
21
Stock-based compensation expense related to the ESPP was $0.9 million and $1.2 million for the three months ended March 31, 2025 and 2024, respectively.
Stock Options
Stock options are generally granted with an exercise price equal to the fair market value of a share of common stock on the date of grant, have a 10 -year contractual term, and vest over a four-year period.
| Share Information: | Number of Shares (in thousands) | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) (1) | ||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | ||||||||||||||||||||||||
| Stock options exercised | ( | $ | ||||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | ||||||||||||||||||||||||
| Options vested and expected to vest as of March 31, 2025 | $ | $ | ||||||||||||||||||||||||
| Options exercisable as of March 31, 2025 | $ | $ | ||||||||||||||||||||||||
(1)Aggregate intrinsic value for stock options represents the difference between the exercise price and the per share fair value of our common stock as of the end of the period, multiplied by the number of stock options outstanding, exercisable, or vested.
Restricted Stock Units
RSUs are granted at fair market value as of the date of the grant and typically vest over a four-year period.
RSU activity, which includes PRSUs, during the three months ended March 31, 2025 was as follows:
| Share Information: | Number of Shares | Weighted-Average Grant Date Fair Value Per Share | ||||||||||||
| (in thousands, except per share data) | ||||||||||||||
Unvested, as of December 31, 2024 | $ | |||||||||||||
Granted | $ | |||||||||||||
Vested (1) | ( | $ | ||||||||||||
Forfeited/Cancelled | ( | $ | ||||||||||||
Unvested, as of March 31, 2025 | $ | |||||||||||||
(1) During the three months ended March 31, 2025, total shares that vested were $2.5 million, of which $1.0 million were withheld for tax purposes.
The total fair value of vested RSUs during the three months ended March 31, 2025 and 2024 was $55.6 million and $45.1 million, respectively.
Performance-Based Awards
Executive Chairman Awards
In September 2021, the Board approved a grant of 6,000,000 PRSUs to the Company’s then CEO, now current Executive Chairman, with a time-based service condition beginning January 1, 2022, and a market condition involving five separate stock price hurdles ranging from $70.00 to $200.00 per share for each of the five vesting tranches (2021 Executive Chairman Performance Award). In February 2024, the Board approved the cancellation of the 2021 Executive Chairman Performance Award and the grant of a new 2024 Executive Chairman Award, both effective March 1, 2024. The 2024 Executive Chairman Award comprised of 70 % time-based RSUs that vest quarterly over four years and 30 % PRSUs with terms consistent with the 2024 Executive PRSUs discussed below.
22
The 2024 Executive Chairman Award is considered a modification and the remaining unrecognized stock-based compensation expense of $61.9 million from the 2021 Executive Chairman Performance Award will be recognized over the vesting period of the modified awards. For the three months ended March 31, 2025 and 2024, we recognized $5.2 million and $1.9 million, respectively, of stock-based compensation expense related to the 2024 Executive Chairman Award. As of March 31, 2025, the performance conditions for this award have been met and time-based vesting was the only condition yet to be satisfied over the remaining requisite service period.
Executive PRSUs
In March 2025 and February 2024, the Board approved the grant of PRSUs to certain members of the executive team (Executive PRSUs), subject to service and performance-based vesting conditions. The performance-based vesting conditions include revenue and free cash flow targets for each respective performance year, from January 1 to December 31, and vest over three years 70 30 173.6 % of target performance in the aggregate for significant outperformance.
The fair value of each PRSU is based on the fair value of our common stock on the date of grant. Stock-based compensation associated with these Executive PRSUs is recognized using the accelerated attribution method over the requisite service period, based on our periodic assessment of the probability that the performance will be achieved. For the three months ended March 31, 2025 and 2024, we recognized $1.9 million and $0.6 million of stock-based compensation expense related to the Executive PRSUs, respectively.
Stock-Based Compensation
Total stock-based compensation expense recorded for the three months ended March 31, 2025 and 2024 was as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Cost of revenue | $ | $ | |||||||||||||||||||||
Research and development(1) | |||||||||||||||||||||||
Sales and marketing | |||||||||||||||||||||||
General and administrative(2) | |||||||||||||||||||||||
| Stock-based compensation, net of amounts capitalized | |||||||||||||||||||||||
| Capitalized stock-based compensation | |||||||||||||||||||||||
Total stock-based compensation expense | $ | $ | |||||||||||||||||||||
(1) Stock-based compensation expense recorded to research and development in the condensed consolidated statements of operations excludes amounts that were capitalized for internal-use software.
(2) General and administrative expense includes stock-based compensation associated with RSUs and PRSUs granted to our Executive Chairman of $11.3 million and $13.5 million for the three months ended March 31, 2025 and 2024, respectively.
As of March 31, 2025, unrecognized stock-based compensation expense related to unvested stock-based awards was as follows (in thousands, except for period data):
23
| March 31, 2025 | ||||||||||||||
| Unrecognized Stock-Based Compensation | Weighted-Average Period to Recognize Expense (in years) | |||||||||||||
| RSUs and PRSUs | $ | |||||||||||||
| Stock options | ||||||||||||||
| ESPP | ||||||||||||||
| Total unrecognized stock-based compensation expense | $ | |||||||||||||
12. Restructuring Charges
In November 2024, the Board approved a restructuring plan as a part of our efforts to align our talent with our strategic priorities and to improve operating efficiency. As a result, during the three months ended March 31, 2025, we recorded restructuring charges of $0.4 million in our condensed consolidated statements of operations. The restructuring plan is substantially complete and any remaining liability as of March 31, 2025 is expected to be paid by the end of the second quarter of 2025.
The following table shows the total amount incurred and accrued related to restructuring charges (in thousands):
| Amount | ||||||||
| Accrued restructuring costs as December 31, 2024 | $ | |||||||
| Restructuring charges incurred during the period | ||||||||
| Amounts paid during the period | ( | |||||||
| Other | ( | |||||||
| Accrued restructuring costs as of March 31, 2025 | $ | |||||||
13. Income Taxes
14. Net Loss Per Share
Basic net loss per share attributable to common stockholders is computed by dividing the net loss by the number of weighted-average outstanding shares of common stock. Diluted net loss per share attributable to common stockholders is determined by giving effect to all potential common equivalents during the reporting period, unless including them yields an antidilutive result. We consider our stock options and RSUs as potential common stock equivalents, but excluded them from the computation of diluted net loss per share attributable to common stockholders for the three months ended March 31, 2025 and 2024, as their effect was antidilutive.
The rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net loss per share attributable to common stockholders, are the same for both Class A and Class B common stock on both an individual and combined basis.
24
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders - basic and diluted | |||||||||||||||||||||||
| Net loss per share attributable to Class A and Class B common stockholders - basic and diluted | $ | $ | ( | ||||||||||||||||||||
The following table summarizes the potential common equivalents that were excluded from the computation of diluted net loss per share attributable to Class A and Class B common stockholders for the periods presented (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| RSUs and PRSUs | ||||||||||||||||||||||||||
| Stock options | ||||||||||||||||||||||||||
| ESPP | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2024 included in the Annual Report on Form 10-K. As described in the section titled “Special Note About Forward-Looking Statements,” the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Risk Factors.”
Overview
We provide people-first, AI service software that organizations use to deliver exceptional customer and employee experiences. We provide our solutions in two product families: Customer Experience (CX) and Employee Experience (EX). CX products include Freshdesk, Freshdesk Omni, Freshchat, Freshsales, and Freshmarketer. EX products include Freshservice, Freshservice for Business Teams and Device42. Our latest generative AI solutions, Freddy AI Agent and Freddy AI Copilot, further enhance the customer and employee experience. Freddy AI Agent offers always-on, autonomous, personalized resolutions to customer and employee queries. Freddy AI Copilot provides always-on contextual assistance for customer support, employee support, marketing and sales use cases to boost productivity.
We generate revenue primarily from the sale of subscriptions for accessing our cloud-based software products over the contract term. We generally enter into subscription agreements with our customers on monthly, annual, or multi-year terms and invoice customers in advance in either monthly or annual installments. We also sell professional services that include product configuration, data migration, systems integration, and training. With the acquisition of D42 Parent, Inc. in 2024, we also sell software licenses with associated maintenance.
Our customer base and operations have scaled over time. Our total revenue was $196.3 million and $165.1 million in the three months ended March 31, 2025 and 2024, respectively, representing year-over-year growth of 19%. We incurred operating losses of $10.4 million and $32.2 million for three months ended March 31, 2025 and 2024, respectively.
Macroeconomic and Other Factors
Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, tariffs, the threat of new or increased tariffs, escalating trade tensions, and geopolitical developments have impacted and may continue to impact business spending and the overall economy, and in turn our business. These macroeconomic events could adversely affect demand for our products and services. For example, during the recent quarters, our net dollar retention rate was adversely impacted by lower expansion within existing customers driven by macroeconomic pressures and we expect these pressures to persist for the foreseeable future. Additionally, foreign currency exchange rate fluctuations negatively impacted our revenue growth historically and volatility in the foreign currency market still exist. For each of the quarters ended March 31, 2025, December 31, 2024 and March 31, 2024, we had approximately 27%, 27% and 28%, respectively, of revenue exposure related to the euro and British Pound. If adverse conditions arise, they could have a material adverse impact on our results and our ability to accurately predict our future results and earnings.
Given our business model is primarily subscription-based, the effects of the macroeconomic conditions may not be fully reflected in our revenue until future periods. The ultimate impact on our business and operations remains highly uncertain, and it is not possible for us to predict the duration and extent to which this will affect our business, future results of operations, and financial condition.
26
Key Business Metrics
We monitor and review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions. Key business metrics and our financial performance are impacted by various factors discussed below, including fluctuations in the value of foreign currencies relative to the U.S. dollar. We also review customer data used for calculating these key business metrics on an ongoing basis and make necessary modifications resulting from such review. We believe these key business metrics provide meaningful supplemental information for management and investors in assessing our operating performance.
| As of March 31, | ||||||||||||||||||||
| 2025 | 2024 | % Growth | ||||||||||||||||||
| Number of customers contributing more than $5,000 in ARR | 23,275 | 20,549 | 13 | % | ||||||||||||||||
| ARR from customers contributing more than $5,000 in ARR as a percentage of total ARR | 90 | % | 89 | % | ||||||||||||||||
| Net dollar retention rate | 105 | % | 106 | % | ||||||||||||||||
Number of Customers Contributing More Than $5,000 in ARR
We define our total customers contributing more than $5,000 in annual recurring revenue (ARR) as of a particular date as the number of business entities or individuals, represented by a unique domain or a unique email address, with one or more paid subscriptions to one or more of our products that contributed more than $5,000 in ARR. We believe that the number of customers that contribute more than $5,000 in ARR is an indicator of our success in attracting, retaining, and expanding with larger businesses.
Net Dollar Retention Rate
Our net dollar retention rate measures our ability to increase revenue across our existing customer base through expansion of users and products associated with a customer as offset by our churn and contraction in the number of users and products associated with a customer. To calculate net dollar retention rate as of a particular date, we first determine “Entering ARR,” which is ARR from the population of our customers as of 12 months prior to the end of the reporting period. We then calculate the “Ending ARR,” which is ARR from the same set of customers as of the end of the reporting period. We then divide the Ending ARR by the Entering ARR to arrive at our net dollar retention rate. Ending ARR includes upsells, cross-sells, renewals and expansion as a result of acquisitions during the measurement period and is net of any contraction or attrition over this period.
We define ARR as the sum total of subscription, software license, and maintenance revenue we would contractually expect to recognize over the next 12 months from all customers at a point in time, assuming no increases, reductions, or cancellations in their subscriptions, and assuming that revenues are recognized ratably over the term of the contract. For monthly subscriptions, we take the recurring revenue run-rate of such subscriptions for the last month of the period and multiply it by 12 to get to ARR. While monthly subscribers as a group have historically maintained or increased their subscriptions over time, there is no guarantee that any particular customer on a monthly subscription will renew its subscription in any given month, and therefore the calculation of ARR for these monthly subscriptions may not accurately reflect revenue to be received over a 12-month period from such customers, and net dollar retention rate may reflect a higher rate than the actual rate if customers on monthly subscriptions choose not to renew during the course of the 12 months. Monthly subscriptions represented 14% and 16% of ARR as of March 31, 2025 and 2024, respectively. The net dollar retention rate for customers on monthly contracts has generally been lower than our overall net dollar retention rate. In addition, as part of our regular review of customer data that includes reviewing customers purchasing our products via resellers so we can properly attribute them as end customers, we may make adjustments that could impact the calculation of net dollar retention rate.
Our net dollar retention rate was 105% as of March 31, 2025, which was a decrease from 106% as of March 31, 2024 primarily due to lower expansion within existing customers driven by macroeconomic pressures, offset by the addition of Device42 and a slight improvement in our overall churn rate. We expect our net dollar retention rate
27
could fluctuate in future periods due to a number of factors, including, but not limited to, difficult macroeconomic conditions, our expected growth, the level of penetration within our customer base, our ability to upsell and cross-sell products to existing customers, and our ability to retain our customers.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. generally accepted accounting principles (GAAP), we believe the following non-GAAP financial measures are useful in evaluating our operating performance: non-GAAP income from operations, non-GAAP net income, and free cash flow. We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe these non-GAAP financial measures may be helpful to investors because they provide consistency and comparability with past financial performance.
Non-GAAP financial measures have limitations in their usefulness to investors and should not be considered in isolation or as substitutes for financial information presented under GAAP. Non-GAAP financial measures have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. As a result, our non-GAAP financial measures are presented for supplemental informational purposes only.
We exclude the following items from one or more of our non-GAAP financial measures:
•Stock-based compensation expense. We exclude stock-based compensation, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this expense provides meaningful supplemental information regarding operational performance. In particular, stock-based compensation expense is not comparable across companies given the variety of valuation methodologies and assumptions.
•Employer payroll taxes on employee stock transactions. We exclude the amount of employer payroll taxes on equity awards from certain of our non-GAAP financial measures because they are dependent on our stock price at the time of vesting or exercise and other factors that are beyond our control and do not believe these expenses have a direct correlation to the operation of the business.
•Amortization of acquired intangibles. We exclude amortization of acquired intangibles, which is a non-cash expense, from certain of our non-GAAP financial measures. Our expenses for amortization of acquired intangibles are inconsistent in amount and frequency because they are significantly affected by the timing, size of acquisitions, and the allocation of purchase price. We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operating performance of our business.
•Restructuring charges. We exclude restructuring charges, which primarily consist of employee severance and other employee termination benefits associated with the restructuring plan initiated in November 2024, from our non-GAAP financial measures, because we do not believe these expenses have a direct correlation to the operating performance of our business.
•Income tax effect and adjustments. We exclude the income tax effect of the above adjustments and income tax effect associated with acquisitions from our non-GAAP financial measures. We exclude these costs because we do not believe these expenses have a direct correlation to the operating performance of our business.
Non-GAAP Income From Operations and Non-GAAP Net Income
We define non-GAAP income from operations as GAAP loss from operations, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangibles, and restructuring charges.
28
We define non-GAAP net income as GAAP net loss, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, restructuring charges, and amortization of acquired intangibles, and income tax adjustments.
The following tables present a reconciliation of our GAAP loss from operations to our non-GAAP income from operations and our GAAP net loss to our non-GAAP net income for each of the periods presented (in thousands):
Non-GAAP Income from Operations
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Loss from operations | $ | (10,416) | $ | (32,167) | |||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Stock-based compensation expense | 51,664 | 52,442 | |||||||||||||||||||||
| Employer payroll taxes on employee stock transactions | 1,199 | 1,481 | |||||||||||||||||||||
| Amortization of acquired intangibles | 3,514 | — | |||||||||||||||||||||
Restructuring charges | 405 | — | |||||||||||||||||||||
Non-GAAP income from operations | $ | 46,366 | $ | 21,756 | |||||||||||||||||||
Non-GAAP Net Income
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Net loss | $ | (1,304) | $ | (23,325) | |||||||||||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Stock-based compensation expense | 51,664 | 52,442 | |||||||||||||||||||||
| Employer payroll taxes on employee stock transactions | 1,199 | 1,481 | |||||||||||||||||||||
| Amortization of acquired intangibles | 3,514 | — | |||||||||||||||||||||
| Restructuring charges | 405 | — | |||||||||||||||||||||
| Income tax adjustments | 410 | 349 | |||||||||||||||||||||
Non-GAAP net income | $ | 55,888 | $ | 30,947 | |||||||||||||||||||
Free Cash Flow
We define free cash flow as net cash provided by operating activities, less purchases of property and equipment and capitalized internal-use software costs. We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash from our core operations after purchases of property and equipment. Free cash flow is a measure to determine, among other things, cash available for strategic initiatives, including further investments in our business and potential acquisitions of businesses.
29
The following table presents a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable measure calculated in accordance with GAAP for each of the periods presented (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
Net cash provided by operating activities | $ | 57,973 | $ | 40,619 | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Purchases of property and equipment | (1,296) | (739) | |||||||||||||||||||||
| Capitalized internal-use software | (2,772) | (1,207) | |||||||||||||||||||||
Free cash flow, including restructuring costs(1) | $ | 53,905 | $ | 38,673 | |||||||||||||||||||
| Net cash provided by (used in) investing activities | $ | 46,231 | $ | (37,771) | |||||||||||||||||||
| Net cash used in financing activities | $ | (130,273) | $ | (22,954) | |||||||||||||||||||
(1) Free cash flow includes $1.5 million of restructuring costs paid during the three months ended March 31, 2025.
Components of Our Results of Operations
Revenue
Substantially all of our revenue is derived from subscriptions, which is comprised of fees paid by customers for accessing our cloud-based software products during the term of the subscription. Subscription revenue is recognized ratably over the contract term beginning on the commencement date of each subscription, which is the date that the cloud-based software is made available to customers. We also sell software licenses with associated maintenance and professional services based on product offerings introduced upon the acquisition of D42 Parent, Inc. in June 2024. Software license revenue is recognized upon making the software available to the customer and maintenance revenue is recognized as support and updates are provided, which is generally ratably over the contract term.
Professional services revenue comprises less than 5% of total revenue and includes fees charged for product configuration, data migration, systems integration, and training. Professional services revenue is recognized as services are performed.
We generally enter into subscription and software license agreements with our customers on monthly, annual, or multi-year terms and invoice customers in advance in either monthly or annual installments. Our payment terms generally require the customers to pay the invoiced amount in advance or within 30 days from the invoice date. Our maintenance and professional services are generally billed in advance along with the related subscription and software license arrangements.
Cost of Revenue
Cost of revenue consists primarily of personnel-related expenses (including salaries, related benefits, and stock-based compensation expense) for employees associated with our cloud-based infrastructure, payment gateway fees, voice, product support, and professional services organizations, as well as costs for hosting capabilities. Cost of revenue also includes third-party license fees, amortization of acquired technology intangibles, amortization of capitalized internal-use software, and allocation of general overhead costs such as facilities and information technology.
We expect our cost of revenue to continue to increase in dollar amount as we invest additional resources in our cloud-based infrastructure and customer support and professional services organizations. However, our gross profit and gross margin may fluctuate from period to period due to the timing and extent of our investments in third-party hosting capacity, expansion of our cloud-based infrastructure, customer support, and professional services organizations, as well as the amortization of costs associated with capitalized internal-use software.
30
Overhead Allocation
We allocate shared costs, such as facilities costs (including rent, utilities, and depreciation on capital expenditures related to facilities shared by multiple departments), information technology costs, and certain administrative personnel costs to all departments based on headcount and location. Allocated shared costs are reflected in each of the expense categories described below, in addition to cost of revenue as described above.
Operating Expenses
Research and Development. Research and development expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for engineering and product development employees and certain executives, software license fees, rental of office premises, third-party product development services and consulting expenses, and depreciation expense for equipment used in research and development activities. We capitalize a portion of our research and development expenses that meet the criteria for capitalization of internal-use software. All other research and development costs are expensed as incurred.
We believe that continued investment in our products is important for our growth, and as such, we expect that our research and development expenses will continue to increase in dollar amount for the foreseeable future, but such expenses as a percentage of revenue may fluctuate from period to period depending upon the timing and amount of these expenses.
Sales and Marketing. Sales and marketing expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for our sales personnel and certain executives, sales commissions for our sales force and reseller commissions for our channel sales partners, as well as costs associated with marketing activities, travel and entertainment costs, software license fees, and rental of office premises. Sales commissions that are considered incremental costs incurred to obtain contracts with customers are deferred and amortized over the benefit period of three years. Marketing activities include online lead generation, advertising, and promotional events.
We expect to continue to make significant investments as we expand our customer acquisition, retention efforts and marketing events and associated business travel. As a result, we expect that our sales and marketing expenses will continue to increase in dollar amount for the foreseeable future, however, we expect it to decline as a percentage of revenue over the longer term. This percentage may fluctuate from period to period depending upon the timing and amount of these expenses.
General and Administrative. General and administrative expense consists primarily of personnel-related costs, including salaries, related benefits, and stock-based compensation expense for certain executives and other general and administrative personnel, third-party professional services fees, costs of director and officer insurance, and costs associated with acquisitions of businesses, software license fees, and rental of office premises.
We expect to increase personnel-related and professional service expenses associated with ongoing compliance and reporting obligations and costs to broaden our IT related infrastructure. Our general and administrative expenses are expected to continue to increase in dollar amount for the foreseeable future, however, we expect it to decline as a percentage of revenue over the longer term. This percentage may fluctuate from period to period depending upon the timing and amount of our general and administrative expenses.
Restructuring Charges. Restructuring charges primarily consist of employee severance and other employee termination benefits associated with the restructuring plan that we initiated in November 2024. Refer to Note 12—Restructuring Charges of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Interest and Other Income (Expense), Net
Interest and other income (expense), net primarily consists of interest income from our investment portfolios, amortization of premium or discount on marketable securities, and foreign currency gains and losses.
31
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of income taxes related to U.S. states and foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. Provision for (benefit from) income taxes could also include changes in valuation allowance. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as stock-based compensation, and changes in our valuation allowance.
Results of Operations
The following table sets forth our condensed consolidated statements of operations data for the periods presented (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Revenue | $ | 196,273 | $ | 165,143 | |||||||||||||||||||
Cost of revenue(1) | 29,878 | 25,890 | |||||||||||||||||||||
| Gross profit | 166,395 | 139,253 | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
Research and development(1) | 40,001 | 34,684 | |||||||||||||||||||||
Sales and marketing(1) | 89,158 | 94,642 | |||||||||||||||||||||
General and administrative(1) | 47,247 | 42,094 | |||||||||||||||||||||
Restructuring charges | 405 | — | |||||||||||||||||||||
| Total operating expenses | 176,811 | 171,420 | |||||||||||||||||||||
| Loss from operations | (10,416) | (32,167) | |||||||||||||||||||||
Interest and other income, net | 12,969 | 12,795 | |||||||||||||||||||||
Income (loss) before income taxes | 2,553 | (19,372) | |||||||||||||||||||||
Provision for income taxes | 3,857 | 3,953 | |||||||||||||||||||||
| Net loss | $ | (1,304) | $ | (23,325) | |||||||||||||||||||
__________________
(1)Includes stock-based compensation expense as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Cost of revenue | $ | 1,518 | $ | 1,521 | |||||||||||||||||||
Research and development(1) | 9,213 | 8,666 | |||||||||||||||||||||
Sales and marketing | 13,409 | 17,301 | |||||||||||||||||||||
General and administrative(2) | 27,524 | 24,954 | |||||||||||||||||||||
| Total stock-based compensation expense | $ | 51,664 | $ | 52,442 | |||||||||||||||||||
(1) Stock-based compensation expense recorded to research and development in the condensed consolidated statements of operations excludes amounts that were capitalized for internal-use software.
(2) General and administrative expense includes stock-based compensation associated with RSUs and PRSUs granted to our Executive Chairman of $11.3 million and $13.5 million for the three months ended March 31, 2025 and 2024, respectively.
32
The following table sets forth our condensed consolidated statements of operations data for the periods presented, as a percentage of revenue:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Revenue | 100 | % | 100 | % | |||||||||||||||||||
| Cost of revenue | 15 | 16 | |||||||||||||||||||||
| Gross profit | 85 | 84 | |||||||||||||||||||||
| Operating expense: | |||||||||||||||||||||||
| Research and development | 20 | 21 | |||||||||||||||||||||
| Sales and marketing | 45 | 57 | |||||||||||||||||||||
| General administrative | 25 | 25 | |||||||||||||||||||||
Restructuring charges | — | — | |||||||||||||||||||||
| Total operating expenses | 90 | 103 | |||||||||||||||||||||
| Loss from operations | (5) | (19) | |||||||||||||||||||||
| Interest and other income, net | 6 | 8 | |||||||||||||||||||||
Income (loss) before income taxes | 1 | (11) | |||||||||||||||||||||
Provision for income taxes | 2 | 2 | |||||||||||||||||||||
| Net loss | (1) | % | (13) | % | |||||||||||||||||||
Comparison of the Three Months Ended March 31, 2025 and 2024
Revenue
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
Subscription services, software licenses and maintenance | 194,193 | $ | 162,569 | $ | 31,624 | 19 | % | ||||||||||||||||
| Professional services | 2,080 | 2,574 | (494) | (19) | % | ||||||||||||||||||
| Total revenue | $ | 196,273 | $ | 165,143 | $ | 31,130 | 19 | % | |||||||||||||||
Revenue increased by $31.1 million, or 19%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Of the total increase in revenue, approximately $8.4 million was attributable to revenue from existing customers as of March 31, 2024, net of contraction and churn, and approximately $22.7 million was attributable to revenue from new customers acquired during the twelve months ended March 31, 2025, net of contraction and churn, as well as all revenue from Device42 during the quarter. Our net dollar retention rate of 105% as of March 31, 2025 reflects the expansion within existing customers and the sale of additional products to these customers. Our net dollar retention rate decreased from 106% as of March 31, 2024 primarily due to lower expansion within existing customers driven by macroeconomic pressures, offset by the addition of Device42 and a slight improvement in our overall churn rate. The majority of our revenue continues to be generated from subscription services.
Cost of Revenue and Gross Margin
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 29,878 | $ | 25,890 | $ | 3,988 | 15 | % | |||||||||||||||
| Gross Margin | 85 | % | 84 | % | |||||||||||||||||||
33
Cost of revenue increased by $4.0 million, or 15%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This was primarily due to increases of $1.2 million in amortization of acquired developed technologies, $1.1 million in personnel-related costs primarily due to annual compensation adjustments and changes in retirement benefit obligations for employees in India, $1.0 million in subscription and third-party hosting fees as we increase our capacity to serve our increasing customer base. Our gross margin increased to 85% for the three months ended March 31, 2025 from 84% in the same period of the prior year, as we increased our revenue and continue to realize benefits from economies of scale primarily related to our third-party hosting costs.
Operating Expenses
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Research and development | $ | 40,001 | $ | 34,684 | $ | 5,317 | 15 | % | |||||||||||||||
| Sales and marketing | 89,158 | 94,642 | (5,484) | (6) | % | ||||||||||||||||||
| General and administrative | 47,247 | 42,094 | 5,153 | 12 | % | ||||||||||||||||||
Restructuring charges | 405 | — | 405 | 100 | % | ||||||||||||||||||
| Total operating expenses | $ | 176,811 | $ | 171,420 | $ | 5,391 | 3 | % | |||||||||||||||
The $5.4 million or 3%, increase in our operating expenses for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily driven by changes in personnel and related stock-based compensation costs, as well as higher amortization of developed technologies, offset by lower advertisement, marketing and branding costs.
Research and Development
Research and development expense increased by $5.3 million, or 15%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily driven by an increase of $3.8 million in personnel-related costs and $0.5 million in stock-based compensation expense. The increase in personnel-related costs was mainly driven by the acquisition of D42 Parent, Inc., annual compensation adjustments, changes in retirement benefit obligations for employees in India and higher variable incentive compensation, partially offset by higher capitalization of internally developed software costs.
Sales and Marketing
Sales and marketing expense decreased by $5.5 million, or 6%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This was primarily driven by decreases of $3.9 million in stock-based compensation expense primarily impacted by the restructuring and transition of our President to CEO mid 2024, $2.5 million in advertisement, marketing and branding costs, $1.1 million in personnel-related costs and $0.8 million in travel expenses; partially offset by an increase of $2.1 million in amortization of acquired intangible assets related to the acquisition of D42 Parent, Inc.. The decrease in personnel-related costs was primarily driven by reduced headcount following the restructuring, offset by annual compensation adjustments and changes in retirement benefit obligations for employees in India.
General and Administrative
General and administrative expense increased by $5.2 million, or 12%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This was primarily driven by increases of $2.6 million in stock-based compensation expense, primarily due to transition of our President to CEO mid 2024 and $2.0 million in
34
personnel-related costs primarily due to annual compensation adjustments and higher variable incentive compensation.
Restructuring charges
Restructuring charges of $0.4 million for the three months ended March 31, 2025, consisted of employee severance and termination benefits related to the restructuring plan that we initiated in November 2024.
Interest and Other Income (Expense), Net
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Interest income | $ | 11,294 | $ | 13,907 | $ | (2,613) | (19) | % | |||||||||||||||
| Other income (expense), net | 1,675 | (1,112) | 2,787 | * | |||||||||||||||||||
Interest and other income, net | $ | 12,969 | $ | 12,795 | $ | 174 | 1 | % | |||||||||||||||
*not meaningful
Interest income decreased by $2.6 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to lower balances maintained in our marketable securities portfolios.
Other income (expense), net changed by $2.8 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to changes in foreign exchange rates in British Pound, Indian Rupee, and euro against the U.S. dollar.
Provision for Income Taxes
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
Provision for income taxes | $ | 3,857 | $ | 3,953 | $ | (96) | (2) | % | |||||||||||||||
We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the three months ended March 31, 2025 and 2024, we recorded a provision for income taxes of $3.9 million and $4.0 million on income (loss) before taxes of $2.6 million and $(19.4) million, respectively.
Liquidity and Capital Resources
As of March 31, 2025, our principal sources of liquidity were cash and cash equivalents of $594.2 million and marketable securities of $401.1 million, which were primarily held for working capital resources.
As of March 31, 2025, we had an accumulated deficit of $3.7 billion. Our operating activities resulted in cash inflows of $58.0 million for the three months ended March 31, 2025.
Our material cash requirements from known contractual obligations consists of our obligations under operating leases for office space and contractual obligations for third-party cloud infrastructure. See Note 7 — Leases and Note 8 — Commitments and Contingencies for additional discussion of our principal contractual commitments.
In November 2024, our board of directors approved the share repurchase program, which authorized the repurchase of up to $400 million of our outstanding Class A common stock. For the three months ended March 31, 2025, we repurchased a total of 6.7 million shares of Class A common stock under this program in open market transactions for an aggregate purchase price of $111.8 million. As of March 31, 2025, $272.7 million remained available for future share repurchases.
35
As of March 31, 2025, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of our existing cash available balances, cash flow from operations, and issuances of equity securities or debt offerings, as needed. Our future capital requirements will depend on many factors, including the rate of our revenue growth, the timing and extent of spending on research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and other business initiatives and the continuing market adoption of our products. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing in connection with such activities. If we raise additional funds through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our equity securities and could contain covenants that restrict our operational flexibility. Any additional equity or convertible debt financing may be dilutive to stockholders. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all.
The following table summarizes our cash flows for the periods presented (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Net cash provided by operating activities | $ | 57,973 | $ | 40,619 | |||||||
| Net cash provided by (used in) investing activities | 46,231 | (37,771) | |||||||||
| Net cash used in financing activities | (130,273) | (22,954) | |||||||||
Cash Flows from Operating Activities
Net cash provided by operating activities of $58.0 million for the three months ended March 31, 2025 reflects our net loss of $1.3 million, adjusted for non-cash items such as stock-based compensation of $51.7 million, amortization of deferred contract acquisition costs of $7.6 million, depreciation and amortization of $6.4 million, and non-cash lease expense of $2.3 million; offset by $1.9 million from discount amortization of marketable securities and 0.5 million from changes in deferred income taxes. Additionally, net cash outflows from changes in operating assets and liabilities were $6.3 million. The net cash outflows from changes in operating assets and liabilities were due to an increase of $15.3 million in prepaid expenses and other assets, an increase of $8.7 million in deferred contract acquisition costs; offset by a decrease of $10.6 million in accounts receivable and an increase of $7.0 million in deferred revenue.
Net cash provided by operating activities of $40.6 million for the three months ended March 31, 2024 reflects our net loss of $23.3 million, adjusted for non-cash items such as stock-based compensation of $52.4 million, amortization of deferred contract acquisition costs of $6.7 million, net cash inflows of $4.1 million from changes in operating assets and liabilities, depreciation and amortization of $3.0 million and non-cash lease expense of $2.0 million; offset by $4.6 million from discount amortization of marketable securities. The net cash inflows from changes in operating assets and liabilities were due to a decrease in operating assets of $12.9 million in accounts receivable; offset by increases in operating assets of $7.1 million in deferred contract acquisition costs and $6.6 million in prepaid expenses and other assets; and an increase in operating liabilities of $9.5 million in deferred revenue, offset by decreases in operating lease liabilities of $2.8 million and $2.0 million in accounts payable.
Cash Flows from Investing Activities
Net cash provided by investing activities of $46.2 million for the three months ended March 31, 2025 consisted of $50.3 million in maturities and redemptions of marketable securities, net of purchases; offset by $2.8 million in capitalized internal-use software and $1.3 million in purchases of property and equipment.
36
Net cash used in investing activities of $37.8 million for the three months ended March 31, 2024 consisted of $35.9 million in purchases of marketable securities, net of proceeds from maturities and sales, $1.2 million in capitalized internal-use software and $0.7 million in purchases of property and equipment.
Cash Flows from Financing Activities
Net cash used in financing activities of $130.3 million for the three months ended March 31, 2025 consisted of $113.6 million cash paid to repurchase shares of our common stock and $16.7 million in payment of withholding taxes on net share settlement of equity awards.
Net cash used in financing activities of $23.0 million for the three months ended March 31, 2024 consisted of $23.0 million in payment of withholding taxes on net share settlement of equity awards
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates, assumptions and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change the results from those reported. We evaluate our estimates, assumptions, and judgments on an ongoing basis.
There have been no changes to our critical accounting policies and estimates during the three months ended March 31, 2025 as compared to those disclosed in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on Form 10-K filed with the SEC on February 20, 2025.
Recent Accounting Pronouncements
See Note 1—Basis of Presentation and Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. In addition, we are subject to broader market risk that is created by the global market disruptions and uncertainties resulting from macroeconomic challenges, geopolitical events, tariffs, trade and other international disputes.
Foreign Currency Exchange Risk
The functional currency of our foreign subsidiaries is the U.S. dollar. The majority of our sales are derived in U.S. dollars. Our operating expenses incurred by our foreign subsidiaries are denominated in their respective local currencies, and remeasured at the exchange rates in effect on the transaction date. Additionally, fluctuations in foreign exchange rates may result in the recognition of transaction gains and losses in our condensed consolidated statements of operations. Our condensed consolidated results of operations and cash flows are, therefore, subject to foreign exchange rate fluctuations, particularly changes in the Indian Rupee, British Pound and euro, and may be adversely affected in the future due to changes in foreign exchange rates. Based on a sensitivity analysis we have performed as of March 31, 2025, an adverse 10% foreign currency exchange rate change applied to total monetary assets and liabilities denominated in currencies other than the U.S. dollar would result in a gain or loss of approximately $9.2 million.
To reduce the risk that our earnings and cash flows will be adversely affected by changes in exchange rates, we entered into foreign exchange forward contracts to hedge a portion of our forecasted foreign currency expenses denominated in Indian Rupee. Gains or losses on these contracts are generally recognized in income at the time the
37
related transactions being hedged are recognized. As of March 31, 2025, the total notional amount of outstanding designated foreign currency forward contracts was $62.7 million. The fair value of derivative assets and liabilities as of March 31, 2025, and all related unrealized and realized gains and losses during the three months ended March 31, 2025 and 2023 were not material.
We do not use foreign exchange contracts for speculative trading purposes and we may enter into other hedging transactions in the future if our exposure to foreign currency becomes more significant. We monitor our exposures in other currencies and assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.
Interest Rate Risk
Our cash, cash equivalents, and marketable securities primarily consist of deposits held at financial institutions, highly liquid money market funds, and investments in U.S. treasury securities, U.S. government agency securities, corporate bonds, and commercial paper. We had cash and cash equivalents of $594.2 million and marketable securities of $401.1 million as of March 31, 2025. We do not enter into investments for trading or speculative purposes. The carrying amount of our cash equivalents reasonably approximate fair value, due to the maturities of three months or less of these instruments. Our investments are subject to market risk due to changes in interest rates, which may affect our interest income and the fair value of our investments. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of our expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our marketable securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.
Based on an interest rate sensitivity analysis we have performed as of March 31, 2025, a hypothetical 100 basis points favorable or adverse movement in interest rates would not have a material effect in the combined market value of our cash and cash equivalents and marketable securities.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
In June 2024, we completed the acquisition of D42 Parent, Inc. As part of our ongoing integration activities, we are in the process of reviewing the internal control structure of D42 Parent, Inc. and, if necessary, will make appropriate changes as it continues to integrate D42 Parent, Inc. into the Company’s overall internal control over financial reporting process. We expect to complete the integration activities related to internal control over financial reporting for D42 Parent, Inc. during fiscal year 2025.
Except as noted above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
38
Inherent Limitations on Effectiveness of Controls
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
39
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required to be set forth under this Item 1 is incorporated by reference to Note 8. Commitments and Contingencies — Litigation and Loss Contingencies in the notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
You should carefully consider the risks and uncertainties described under the section “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on February 20, 2025 as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment decision. These identified risks and uncertainties may have a material adverse effect on our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also become important factors that affect our business. There have been no material changes from the risks and uncertainties previously disclosed under the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Use of Proceeds
None.
Issuer Purchases of Equity Securities
Stock repurchase activity during the three months ended March 31, 2025 was as follows (in thousands, except number of shares and average price paid per share):
Period by fiscal month | Total number of shares repurchased (1) | Average price paid per share (2) | Total number of shares repurchased as part of publicly announced plans or programs (3) | Approximate dollar value of shares that may yet be purchased under the plans or programs (3) | |||||||||||||||||||||||||
January 1, 2025 - January 31, 2025 | 1,594,274 | $ | 16.70 | 1,594,274 | $ | 357,839 | |||||||||||||||||||||||
February 1, 2025 - February 28, 2025 | 2,625,229 | $ | 17.68 | 2,625,229 | $ | 311,419 | |||||||||||||||||||||||
March 1, 2025 - March 31, 2025 | 2,512,887 | $ | 15.41 | 2,512,887 | $ | 272,696 | |||||||||||||||||||||||
Total | 6,732,390 | 6,732,390 | |||||||||||||||||||||||||||
(1) All of the shares purchased during the three months ended March 31, 2025 were acquired pursuant to our publicly announced share repurchase program described in footnote 3 below.
(2) The average price paid per share includes brokerage commissions and excludes excise tax.
(3) On November 6, 2024, we publicly announced that our board of directors had approved a share repurchase program, which authorized the repurchase of up to $400 million of our outstanding Class A common stock. Under the repurchase program, we may repurchase shares of our outstanding Class A common stock from time to time in the open market, through privately negotiated transactions and/or other means in compliance with the Exchange Act and the rules and regulations thereunder. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares of common stock under this authorization. The timing, manner, price, and amount of any repurchases will be determined by us at our discretion, and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations. The repurchase program may be suspended or discontinued at any time.
40
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
41
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2025, our officers (as defined in Rule 16a-1(f) under the Exchange Act) and directors adopted or terminated
| Name | Title | Action | Adoption Date | Expiration Date | Total number of shares of Class A common stock to be sold | |||||||||||||||||||||
Up to | ||||||||||||||||||||||||||
Up to | ||||||||||||||||||||||||||
Up to | ||||||||||||||||||||||||||
Up to | ||||||||||||||||||||||||||
(1) Plan adopted in accordance with Rule 10b5-1(c)(1)(ii)(D)(2)
42
ITEM 6. EXHIBITS
The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||||||||||||||||||||||||||
| 3.1 | 8-K | 001-40806 | 3.1 | September 24, 2021 | ||||||||||||||||||||||||||||||||||
| 3.2 | S-1/A | 333-259118 | 3.4 | September 13, 2021 | ||||||||||||||||||||||||||||||||||
| 10.1 | X | |||||||||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||||||||
32.1# | X | |||||||||||||||||||||||||||||||||||||
| 32.2# | X | |||||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document | X | ||||||||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents | X | ||||||||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | X | ||||||||||||||||||||||||||||||||||||
__________________
# The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the SEC and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Freshworks Inc. | ||||||||||||||
| Date: | April 29, 2025 | By: | /s/ Dennis Woodside | |||||||||||
Dennis Woodside | ||||||||||||||
Chief Executive Officer and President (Principal Executive Officer) | ||||||||||||||
| Date: | April 29, 2025 | By: | /s/ Tyler Sloat | |||||||||||
| Tyler Sloat | ||||||||||||||
| Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) | ||||||||||||||
| Date: | April 29, 2025 | By: | /s/ Philippa Lawrence | |||||||||||
| Philippa Lawrence | ||||||||||||||
| Chief Accounting Officer (Principal Accounting Officer) | ||||||||||||||
44
Exhibit 10.1
FRESHWORKS INC.
CASH INCENTIVE PLAN
(Adopted on April 19, 2021)
(As Amended on February 13, 2025)
1. Purposes of the Plan. The Plan is intended to increase stockholder value and the success of the Company by motivating Employees to (a) perform to the best of their abilities, and (b) achieve the Company’s objectives.
2. Definitions.
(a) “Affiliate” means any corporation or other entity (including, but not limited to, partnerships and joint ventures) controlled by the Company.
(b) “Actual Award” means, as to any Performance Period, the actual award (if any) payable to a Participant for the Performance Period, subject to the Committee’s authority under Section 3(e) to modify the award.
(c) “Board” means the Board of Directors of the Company.
(d) “Code” means the United States Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder will include such section or regulation, any valid regulation promulgated thereunder, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(e) “Committee” means the committee appointed by the Board (pursuant to Section 5) to administer the Plan. Unless and until the Board otherwise determines, the Board’s Compensation Committee will administer the Plan and be considered the Committee for purposes of the Plan.
(f) “Company” means Freshworks Inc., a Delaware corporation, or any successor thereto.
(g) “Employee” means, unless otherwise determined by the Committee, any employee of the Company or an Affiliate, whether such individual is so employed at the time the Plan is adopted or becomes so employed subsequent to the adoption of the Plan.
(h) “Participant” means as to any Performance Period, an Employee who has been selected by the Committee for participation in the Plan for that Performance Period.
(i) “Performance Period” means the period of time for the measurement of the performance criteria that must be met to receive an Actual Award, as determined by the Committee in its sole discretion. A Performance Period may be divided into one or more shorter periods if, for example, but not by way of limitation, the Committee desires to measure some performance criteria over 12 months and other criteria over 3 months.
(j) “Plan” means this Cash Incentive Plan (including any appendix attached hereto) and as hereafter amended from time to time.
(k) “Target Award” means the target award, at 100% target level of achievement, payable under the Plan to a Participant for the Performance Period, as determined by the Committee in accordance with Section 3(b).
3. Selection of Participants and Determination of Awards.
(a) Selection of Participants. The Committee, in its sole discretion, will select the Employees who will be Participants for any Performance Period. Participation in the Plan is in the sole discretion of the Committee, on a Performance Period by Performance Period basis. Accordingly, an Employee who is a Participant for a given Performance Period in no way is guaranteed or assured of being selected for participation in any subsequent Performance Period or Periods.
(b) Determination of Target Awards. The Committee, in its sole discretion, will establish a Target Award for each Participant, which may be a percentage of a Participant’s annual base salary as of the beginning or end of the Performance Period or a fixed dollar amount.
(c) Discretion to Determine Performance Criteria. Notwithstanding any contrary provision of the Plan, the Committee will, in its sole discretion, determine the performance criteria applicable to any Target Award which may include, without limitation: earnings (including earnings per share and net earnings); earnings before interest, taxes and depreciation; earnings before interest, taxes, depreciation and amortization; total stockholder return; return on equity or average stockholder’s equity; return on assets, investment, or capital employed; stock price; margin (including gross margin); income (before or after taxes); operating income measures; operating income after taxes; pre-tax profit; operating cash flow; operating margin; sales or revenue targets; increases in revenue or product revenue; annual recurring revenue; net new annual recurring revenue (ARR); expenses and cost reduction goals; improvement in or attainment of working capital levels; attainment of research and development milestones; economic value added (or an equivalent metric); market share; cash flow; cash flow per share; share price performance; debt reduction; bookings measures; customer satisfaction; stockholders’ equity; capital expenditures; debt levels; operating profit or net operating profit; workforce diversity; growth of net income or operating income; billings; net billings; financing; regulatory milestones; stockholder liquidity; corporate governance and compliance; intellectual property; personnel matters; progress of internal research; progress of partnered programs; partner satisfaction; budget management; partner or collaborator achievements; internal controls, including those related to the Sarbanes-Oxley Act of 2002; investor relations, analysts and communication; implementation or completion of projects or processes; employee retention; number of users, including unique users; strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property); establishing relationships with respect to the marketing, distribution and sale of the Company’s products; supply chain achievements; co-development, co-marketing, profit sharing, joint venture or other similar arrangements; individual performance criteria; and corporate development and planning goals. As determined by the Committee, the performance criteria may be based on generally accepted accounting principles (GAAP) or Non-GAAP results and any actual results may be adjusted by the Committee for one-time items, unbudgeted or unexpected items and/or payments of Actual Awards under the Plan when determining whether the performance criteria have been met. The goals may be on the basis of any factors the Committee determines relevant, and may be on an individual, divisional, business unit or Company-wide basis. The performance criteria may differ from Participant to Participant and from award to award. Failure to meet the goals will result in a failure to earn the Target Award, except as provided in Section 3(e).
(d) Determination of Actual Awards. Each Performance Period, the Committee, in its sole discretion, will determine each Participant’s Actual Award based on achievement of the performance criteria established by the Committee and set forth on Annex A (Officer Plan) and Annex B (Non-Officer Plan), as applicable.
(e) Discretion to Modify Awards. Notwithstanding any contrary provision of the Plan, the Committee may, in its sole discretion and at any time, increase, reduce or eliminate a Participant’s Actual Award. The Actual Award may be below, at or above the Target Award, in the Committee’s discretion. The Committee may determine the amount of any reduction on the basis of such factors as it deems relevant, and will not be required to establish any allocation or weighting with respect to the factors it considers.
4. Payment of Awards.
(a) Right to Receive Payment. Each Actual Award will be paid solely from the general assets of the Company. Nothing in this Plan will be construed to create a trust or to establish or evidence any Participant’s claim of any right other than as an unsecured general creditor with respect to any payment to which he or she may be entitled.
(b) Timing of Payment. To receive an Actual Award a Participant must be employed in good standing by the Company or any Affiliate on the date the Actual Award is paid. Accordingly, an Actual Award is not considered earned until paid. It is the intent that this Plan be exempt from, or comply with, the requirements of Code Section 409A so that none of the payments to be provided hereunder will be subject to the additional tax imposed under Code Section 409A, and any ambiguities herein will be interpreted to so comply. Each payment under this Plan is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).
(c) Form of Payment. Each Actual Award will be paid in cash (or its equivalent).
5. Plan Administration.
(a) Committee is the Administrator. The Plan will be administered by the Committee. The Committee will consist of not less than two (2) members of the Board. The members of the Committee will be appointed from time to time by, and serve at the pleasure of, the Board.
(b) Committee Authority. It will be the duty of the Committee to administer the Plan in accordance with the Plan’s provisions. The Committee will have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (i) determine which Employees will be granted awards, (ii) prescribe the terms and conditions of awards, (iii) interpret the Plan and the awards, (iv) adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees who are foreign nationals or employed outside of the United States, (v) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and (vi) interpret, amend or revoke any such rules.
(c) Decisions Binding. All determinations and decisions made by the Committee, the Board, and any delegate of the Committee pursuant to the provisions of the Plan will be final, conclusive, and binding on all persons, and will be given the maximum deference permitted by law.
(d) Delegation by Committee. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to one or more directors, officers or employees of the Company.
(e) Indemnification. Each person who is or will have been a member of the Committee will be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any award, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she will give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.
6. General Provisions.
(a) Tax Withholding. The Company or an Affiliate may withhold all applicable taxes from any Actual Award, including any federal, state, local and foreign taxes. Payments will be made, and applicable taxes will be withheld, based on the location in which Participant provided services during the Performance Period. If Participant provided services in multiple locations during the Performance Period, any Actual Award and associated taxes will be apportioned to each such location based on the number of days of service in each such location as compared to the total calendar days in the fiscal quarter or the Performance Period, as applicable.
(b) No Effect on Employment or Service. Nothing in the Plan will interfere with or limit in any way the right of the Company to terminate any Participant’s employment or service at any time, with or without cause. Except as otherwise required by law, employment with the Company and its Affiliates is on an at-will basis only. The Company expressly reserves the right, which may be exercised at any time and without regard to when during a Performance Period such exercise occurs, to terminate any individual’s employment with or without cause, and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant.
(c) Participation. No Employee will have the right to be selected to receive an award under this Plan, or, having been so selected, to be selected to receive a future award.
(d) Successors. All obligations of the Company under the Plan, with respect to awards granted hereunder, will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company.
(e) Nontransferability of Awards. No award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, or by the laws of descent and distribution. All rights with respect to an award granted to a Participant will be available during his or her lifetime only to the Participant.
7. Amendment, Termination, and Duration.
(a) Amendment, Suspension, or Termination. The Committee, in its sole discretion, may amend or terminate the Plan, or any part thereof, at any time and for any reason. The amendment, suspension or termination of the Plan will not, without the consent of the Participant, alter or impair any rights or obligations under any Actual Award theretofore earned by such Participant. No award may be granted during any period of suspension or after termination of the Plan.
(b) Duration of Plan. The Plan will commence on the date specified herein, and subject to Section 7(a) (regarding the Committee’s right to amend or terminate the Plan), will remain in effect until terminated.
8. Legal Construction.
(a) Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also will include the feminine; the plural will include the singular and the singular will include the plural.
(b) Severability. In the event any provision of the Plan will be held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included.
(c) Requirements of Law. The granting of awards under the Plan will be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(d) Governing Law. The Plan will be construed in accordance with and governed by the laws of the State of Delaware, but without regard to its conflict of law provisions.
(e) Bonus Plan. The Plan is intended to be a “bonus program” within the meaning of United States Department of Labor Regulation Section 2510.3-2(c) and will be construed and administered in accordance with such intention.
(f) Captions. Captions are provided herein for convenience only, and will not serve as a basis for interpretation or construction of the Plan.
ANNEX A
FRESHWORKS INC.
CASH INCENTIVE PLAN
(Officer Plan)
1.Effective Date; Performance Period. The Cash Incentive Plan for Officers (the “Officer Plan”) is effective for fiscal year 2025, and the Performance Period for the Officer Plan begins on January 1, 2025 and ends on December 31, 2025. The Officer Plan is limited in time and expires automatically on December 31, 2025. All benefits under the Officer Plan are voluntary benefits. Participating in the Officer Plan during fiscal year 2025 does not convey any entitlement to participate in the Officer Plan or similar plans in the future.
2.Administration. The Officer Plan shall be administered by the Committee in accordance with the Cash Incentive Plan to which the Officer Plan is attached as Annex A.
3.Eligibility. An Employee is eligible to participate in the Officer Plan if the Employee meets each of the following requirements:
(a)The Employee (i) is the Company’s Chief Executive Officer or President; (ii) holds a “CXO” title and reports to the Chief Executive Officer prior to the last fiscal quarter of the Performance Period or (iii) holds a “Senior Vice President” title prior to the last fiscal quarter of the Performance Period.
(b)The Employee does not participate in a sales incentive or commission plan offered by the Company or an Affiliate.
(c)The Employee is not on a performance improvement plan at the time Actual Awards are determined and has not received written notice of warning or other disciplinary action during the Performance Period that remains in effect at the time Actual Awards are determined.
(d)The Employee is actively employed and in good standing (i.e., has not given notice of resignation, is not serving out a period of contractual or statutory notice, or is not on garden leave) at the time Actual Awards are determined and has not received written notice of warning or other disciplinary action during the Performance Period that remains in effect at the time Actual Awards are determined.
4.Performance Criteria. Subject to Section 3(b) of the Cash Incentive Plan, achievement of the following two performance criteria (Net New ARR and Non-GAAP Operating Margin (each as defined below)) shall determine the performance multiplier used to calculate Actual Awards under Section 5.
(a)Quarterly Net New ARR Targets. The Company has established Net New ARR targets for each quarter of 2025 that will apply for purposes of determining 70% of the company performance multiplier to be used in calculating the Actual Award for each quarter payable to the Participant pursuant to Section 5. Such targets are reflected in the 2025 Annual Operating Plan previously approved by the Board and the Chief Financial Officer shall report the achievement against target each quarter.
(b)ARR Multiplier. The Net New ARR company performance multiplier (the “ARR Multiplier”) that will be used to determine the applicable portion of the Actual Award payable under Section 5 for each quarter of the Performance Period shall be based on the Company’s actual Net New ARR achievement for such quarter relative to the applicable Net New ARR target for such quarter, as determined in the sole and absolute discretion of the Committee. The ARR Multiplier will be calculated using interpolation of actual achievement of Net New ARR (out to three decimal points) versus target to determine the applicable Attainment Range relative to the Payout Range, in accordance with the following:
| Attainment Range | Payout Range | ||||||||||||||||||||||
| 0% | < | 75.0% | 0% | ||||||||||||||||||||
| 75% | < | 85.0% | 50.0% | < | 69.9% | ||||||||||||||||||
| 85% | < | 95.0% | 70.0% | < | 84.9% | ||||||||||||||||||
| 95% | < | 100.0% | 85.0% | < | 99.9% | ||||||||||||||||||
| 100% | < | 105.0% | 100.0% | < | 114.9% | ||||||||||||||||||
| 105% | < | 110.0% | 115.0% | < | 129.9% | ||||||||||||||||||
| 110% | < | 115.0% | 130.0% | < | 139.9% | ||||||||||||||||||
| 115% | < | 120.0% | 140.0% | < | 144.9% | ||||||||||||||||||
| 120% | < | 125.0% | 145.0% | < | 150.0% | ||||||||||||||||||
| 125% | or higher | 150.0% | |||||||||||||||||||||
The final ARR Multiplier will be rounded to one decimal point.
Interpolation Calculation Methodology
For purposes of the Officer Plan, “Net New ARR” means Bookings less Churn and excludes the impact of FX and ARR from acquisitions (as such terms are used in the ordinary course by the Company’s finance group and as determined by the Company’s Chief Financial Officer).
(c)Quarterly Non-GAAP Operating Margin Targets. The Company has established Non-GAAP Operating Margin targets for each quarter of 2025 that will apply for purposes of determining 30% of the company performance multiplier to be used in calculating the Actual Award for each quarter payable to the Participant pursuant to Section 5. The Chief Financial Officer shall report the achievement against the targets listed below that have been established for each quarter.
(d)Non-GAAP Operating Margin Multiplier. The Non-GAAP Operating Margin company performance multiplier (the “Operating Margin Multiplier”) that will be used to determine the applicable portion of the Actual Award payable under Section 5 for each quarter of the Performance Period shall be based on the Company’s actual Non-GAAP Operating Margin achievement for such quarter relative to the applicable Non-GAAP Operating Margin target for such quarter, as determined in the sole and absolute discretion of the Committee. The Non-GAAP Operating Margin threshold is 1.5% less than the Non-GAAP Operating Margin Target for the applicable quarter (the “Operating Margin Threshold”). The Operating Margin Multiplier will either be (i) zero percent (0%) if the specified Non-GAAP Operating Margin achievement for the applicable quarter is below the Operating Margin Threshold for the applicable quarter (which will result in the applicable portion of the Actual Award for the applicable quarter, as determined under Section 5, being $0); or (ii) one hundred percent (100%) if the specified Non-GAAP Operating Margin achievement for the applicable quarter is at or exceeds the Operating Margin Threshold for the applicable quarter. The Non-GAAP Operating Margin Targets and Operating Margin Thresholds for each quarter are as set forth below:
| Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | |||||||||||
| Target | 19.4% | 14.2% | 17.1% | 19.2% | ||||||||||
| Multiplier of 0% if Attainment is: | Less than 17.9% | Less than 12.7% | Less than 15.6% | Less than 17.7% | ||||||||||
| Multiplier of 100% if Attainment is: | 17.9% or higher | 12.7% or higher | 15.6% or higher | 17.7% or higher | ||||||||||
For purposes of the Officer Plan, “Non-GAAP Operating Margin” means non-GAAP Operating Income/(Loss) as a percentage of Revenue and excludes the impact of stock-based compensation, amortization of acquired intangibles, and acquisition-related expenses (as such terms are used in the ordinary course by the Company’s finance group and as determined by the Company’s Chief Financial Officer). For purposes of calculating Non-GAAP Operating Margin, the following costs shall not be included to the extent they were not already included in the 2025 Annual Operating Plan previously approved by the Board: (i) costs associated with any merger or acquisition activity, including but not limited to purchase price, compensation related costs of equity issued in connection therewith or legal or accounting costs associated with such activities; (ii) costs associated with unanticipated litigation or the settlement of litigation-related claims; (iii) costs associated with employment-related claims, settlement or payment of severance amounts outside of the ordinary course as deemed appropriate by the Company’s Chief Financial Officer; (iv) costs related to tax settlements or assessments; (v) any acceleration of payments or write-offs of lease payments related to abandonment or reduction of real estate leases due to unforeseen workforce changes; (vi) costs related to the Company’s decision to implement debt, convert credit facilities or other financing arrangements; and
(vii) any other unforeseen costs incurred by the Company with the advance approval of the Board due to change of strategy or expansion of the business (as all such terms are used in the ordinary course by the Company’s finance group and as determined by the Company’s Chief Financial Officer).
5.Determination of Actual Awards. Subject to Section 3(e) of the Cash Incentive Plan, for each quarter of the Performance Period the Committee shall determine each Participant’s Actual Award in accordance with the following formula:
Actual Award = [(Target Award / 4)) x (applicable ARR Multiplier) x (70%)] + [(Target Award / 4)) x (applicable Operating Margin Multiplier) x (30%)]
6.Payment of Awards.
(a)Continued Employment Requirement. Notwithstanding anything to the contrary herein, a Participant must be actively employed by the Company or any Affiliate on the payment date in order to be eligible to receive any payment hereunder. For the avoidance of doubt, Employees who are on a contractual or statutory notice period at the time of payment shall not be eligible to receive any payment hereunder.
(b)Timing of Payment. The Company shall pay each Participant’s Actual Award (if any) on a quarterly basis as soon as practicable following the determination of Actual Awards.
(c)Prorated Payments. Each Participant’s Actual Award shall be prorated to account for (i) the Participant becoming eligible to participate in the Officer Plan after the beginning of the Performance Period, (ii) the Participant not being eligible to participate in the Officer Plan during unpaid time off during the Performance Period (including but not limited to any leave of absence, subject to applicable law), or (iii) to account for changes to the Participant’s Target Award during the Performance Period. Such proration shall be based on the number of days of eligibility, the number of days the Participant worked during the Performance Period (i.e., was not on unpaid time off or leave of absence), or the number of days with the applicable Target Award, as applicable, in each case compared to the total calendar days in the fiscal quarter or the Performance Period, as applicable.
(d)Right to Offset and Recoupment. To the extent permitted or required by applicable law, the Company may offset against any compensation or other amounts owed by the Company to the Participant any amounts erroneously paid to the Participant under the Officer Plan for whatever reason. Any amounts paid hereunder will be subject to the Company’s Incentive Compensation Recoupment Policy and any other compensation recoupment or clawback policy adopted by the Company, in each case, as in effect from time to time.
(e)Tax Considerations. If an amount repaid to the Company under this Section 6 will not be fully deductible by the Participant, the Committee may, in its discretion, reduce the amount to be repaid by the amount determined by the Committee to reasonably take into account the adverse tax consequences of such repayment to the Participant.
7.Governing Documents; Entire Agreement. The Officer Plan shall be subject to the terms and conditions set forth in the Cash Incentive Plan to which it is attached as Annex A. Any
capitalized term that is used but not defined in the Officer Plan shall have the definition ascribed to such term in the Cash Incentive Plan. The Officer Plan, together with the Cash Incentive Plan, is the entire agreement between the Company and each Participant regarding the subject matter of the Officer Plan and supersedes all prior cash incentive plans, whether with the Company or any Affiliate, or any written or verbal representations regarding the subject matter of the Officer Plan or the Cash Incentive Plan.
ANNEX B
FRESHWORKS INC.
CASH INCENTIVE PLAN
(Non-Officer Plan)
1.Effective Date; Performance Period. The Cash Incentive Plan for Non-Officers (the “Non-Officer Plan”) is effective for fiscal year 2025, and the Performance Period for the Non-Officer Plan begins on January 1, 2025 and ends on December 31, 2025. The Non-Officer Plan is limited in time and expires automatically on December 31, 2025. All benefits under the Non-Officer Plan are voluntary benefits. Participating in the Non-Officer Plan during fiscal year 2025 does not convey any entitlement to participate in the Non-Officer Plan or similar plans in the future.
2.Administration. Administration of the Non-Officer Plan has been delegated by the Committee to the Company’s Chief Financial Officer and Chief People Officer (the “Non-Officer Plan Committee”). The Non-Officer Plan shall be administered by the Non-Officer Plan Committee in accordance with the Cash Incentive Plan to which the Non-Officer Plan is attached as Annex B; provided, that references to the “Committee” in the Cash Incentive Plan shall be deemed to refer to the Non-Officer Plan Committee, other than for purposes of Section 7 of the Cash Incentive Plan.
3.Eligibility. An Employee is eligible to participate in the Non-Officer Plan if the Employee meets each of the following requirements:
(a)The Employee is not a participant in the Officer Plan.
(b)The Employee does not participate in a sales incentive or commission plan offered by the Company or an Affiliate.
(c)The Employee is not on a performance improvement plan at the time Actual Awards are determined and has not received written notice of warning or other disciplinary action during the Performance Period that remains in effect at the time Actual Awards are determined.
(d)The Employee is actively employed and in good standing (i.e., has not given notice of resignation, is not serving out a period of contractual or statutory notice, or is not on garden leave) at the time Actual Awards are determined and has not received written notice of warning or other disciplinary action during the Performance Period that remains in effect at the time Actual Awards are determined.
4.Performance Criteria. Subject to Section 3(b) of the Cash Incentive Plan, achievement of the following two performance criteria (Net New ARR and Non-GAAP Operating Margin (each, as defined below)) shall determine the performance multiplier used to calculate Actual Awards under Section 5.
(a)Quarterly Net New ARR Targets. The Company has established Net New ARR targets for each quarter of 2025 that will apply for purposes of determining 70% of the company performance multiplier to be used in calculating the company performance component of
each Actual Award for each quarter payable to the Participant pursuant to Section 5. Such targets are reflected in the 2025 Annual Operating Plan previously approved by the Board and the Chief Financial Officer shall report the achievement against target each quarter. For clarity, for the Non-Officer Plan, the ARR Multiplier is only applicable with respect to Quarterly Payments of the Actual Award Based on Company Performance Component as described further under Section 5.
(b)ARR Multiplier. The Net New ARR company performance multiplier (the “ARR Multiplier”) that will be used to determine the applicable portion of the Actual Award payable under Section 5 for each quarter of the Performance Period shall be based on the Company’s actual Net New ARR achievement for such quarter relative to the applicable Net New ARR target for such quarter, as determined in the sole and absolute discretion of the Committee. The ARR Multiplier will be calculated using interpolation of actual achievement of Net New ARR (out to three decimal points) versus target to determine the applicable Attainment Range relative to the Payout Range, in accordance with the following:
| Attainment Range | Payout Range | ||||||||||||||||||||||
| 0% | < | 75.0% | 0% | ||||||||||||||||||||
| 75% | < | 85.0% | 50.0% | < | 69.9% | ||||||||||||||||||
| 85% | < | 95.0% | 70.0% | < | 84.9% | ||||||||||||||||||
| 95% | < | 100.0% | 85.0% | < | 99.9% | ||||||||||||||||||
| 100% | < | 105.0% | 100.0% | < | 114.9% | ||||||||||||||||||
| 105% | < | 110.0% | 115.0% | < | 129.9% | ||||||||||||||||||
| 110% | < | 115.0% | 130.0% | < | 139.9% | ||||||||||||||||||
| 115% | < | 120.0% | 140.0% | < | 144.9% | ||||||||||||||||||
| 120% | < | 125.0% | 145.0% | < | 150.0% | ||||||||||||||||||
| 125% | or higher | 150.0% | |||||||||||||||||||||
The final ARR Multiplier will be rounded to one decimal point.
Interpolation Calculation Methodology
For purposes of the Non-Officer Plan, “Net New ARR” means Bookings less Churn and excludes the impact of FX and ARR from acquisitions (as such terms are used in the ordinary course by the Company’s finance group and as determined by the Company’s Chief Financial Officer).
(c)Quarterly Non-GAAP Operating Margin Targets. The Company has established Non-GAAP Operating Margin targets for each quarter of 2025 that will apply for purposes of determining 30% of the company performance multiplier to be used in calculating the company performance component of each Actual Award for each quarter payable to the Participant pursuant to Section 5. The Chief Financial Officer shall report the achievement against the targets listed below that have been established for each quarter. For clarity, for the Non-Officer Plan, the Operating Margin Multiplier is only applicable with respect to Quarterly Payments of the Actual Award Based on Company Performance Component as described further under Section 5.
(d)Non-GAAP Operating Margin Multiplier. The Non-GAAP Operating Margin company performance multiplier (the “Operating Margin Multiplier”) that will be used to determine the applicable portion of the Actual Award payable under Section 5 for each quarter of the Performance Period shall be based on the Company’s actual Non-GAAP Operating Margin achievement for such quarter relative to the applicable Non-GAAP Operating Margin target for such quarter, as determined in the sole and absolute discretion of the Committee. The Non-GAAP Operating Margin threshold is 1.5% less than the Non-GAAP Operating Margin Target for the applicable quarter (the “Operating Margin Threshold”). The Operating Margin Multiplier will either be (i) zero percent (0%) if the specified Non-GAAP Operating Margin achievement for the applicable quarter is below the Operating Margin Threshold for the applicable quarter (which will result in the applicable portion of the Actual Award for the applicable quarter, as determined under Section 5, being $0); or (ii) one hundred percent (100%) if the specified Non-GAAP Operating Margin achievement for the applicable quarter is at or exceeds the Operating Margin Threshold for the applicable quarter. The Non-GAAP Operating Margin Targets and Operating Margin Thresholds for each quarter are as set forth below:
| Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | |||||||||||
| Target | 19.4% | 14.2% | 17.1% | 19.2% | ||||||||||
| Multiplier of 0% if Attainment is: | Less than 17.9% | Less than 12.7% | Less than 15.6% | Less than 17.7% | ||||||||||
| Multiplier of 100% if Attainment is: | 17.9% or higher | 12.7% or higher | 15.6% or higher | 17.7% or higher | ||||||||||
For purposes of the Non-Officer Plan, “Non-GAAP Operating Margin” means non-GAAP Operating Income/(Loss) as a percentage of Revenue and excludes the impact of stock-based compensation, amortization of acquired intangibles, and acquisition-related expenses (as such terms are used in the ordinary course by the Company’s finance group and as determined by the Company’s Chief Financial Officer). For purposes of calculating Non-GAAP Operating Margin, the following costs shall not be included to the extent they were not already included in the 2025 Annual Operating Plan previously approved by the Board: (i) costs associated with any merger or acquisition activity, including but not limited to purchase price, compensation related costs of equity issued in
connection therewith or legal or accounting costs associated with such activities; (ii) costs associated with unanticipated litigation or the settlement of litigation-related claims; (iii) costs associated with employment-related claims, settlement or payment of severance amounts outside of the ordinary course as deemed appropriate by the Company’s Chief Financial Officer; (iv) costs related to tax settlements or assessments; (v) any acceleration of payments or write-offs of lease payments related to abandonment or reduction of real estate leases due to unforeseen workforce changes; (vi) costs related to the Company’s decision to implement debt, convert credit facilities or other financing arrangements; and (vii) any other unforeseen costs incurred by the Company with the advance approval of the Board due to change of strategy or expansion of the business (as all such terms are used in the ordinary course by the Company’s finance group and as determined by the Company’s Chief Financial Officer).
(c)Individual Performance. The individual performance multiplier (the “Individual Multiplier”) used to determine the individual performance component of each Actual Award under Section 5 shall be determined in the sole and absolute discretion of the Non-Officer Plan Committee, with input from the Participant’s supervisors, according to the following guidelines (which also may be changed in the sole and absolute discretion of the Non-Officer Plan Committee):
| Individual Performance Rating | Individual Multiplier | ||||
| MVP | 1.2x-1.5x | ||||
| Champion | 1.0x-1.2x | ||||
| Key Contributor | 0.8x-1.0x | ||||
| Emerging Contributor | 0.0x - 0.5x | ||||
| Getting By | 0.0x | ||||
5.Determination of Actual Awards. Subject to Section 3(e) of the Cash Incentive Plan, the Non-Officer Plan Committee shall determine each Participant’s Actual Award as follows.
(a)Participants at the Senior Vice President, Vice President or Senior Director Level or Equivalent. For each Participant employed at the level of Vice President or Senior Director or their equivalent (including those employed at levels PM7 to PM9 or IC7 to IC9), the Non-Officer Plan Committee shall determine such Participant’s Actual Award in accordance with the following:
i.Quarterly Payments Based on Company Performance Component: For each quarter of the Performance Period, the company performance component of the Actual Award payable to the Participant with respect to the company
performance component for such quarter shall be determined in accordance with the following formula:
Actual Award = [(80% of Target Award / 4)) x (applicable ARR Multiplier) x 70%] + [(80% of Target Award / 4)) x (applicable Operating Margin Multiplier) x 30%]
ii.Annual Payment Based on Individual Performance Component: The individual performance component of the Actual Award payable to the Participant for the Performance Period shall be determined in accordance with the following formula:
Actual Award = (20% of Target Award) x (applicable Individual Multiplier)
(b)Participants at the Director or Senior Manager Level or equivalent. For each Participant employed at the level of Director or Senior Manager or their equivalent (including those employed at levels PM5 to PM6 or IC5 to IC6), the Non-Officer Plan Committee shall determine such Participant’s Actual Award in accordance with the following:
i.Quarterly Payments Based on Company Performance Component: For each quarter of the Performance Period, the company performance component of the Actual Award payable to the Participant for such quarter shall be determined in accordance with the following formula:
Actual Award = [(60% of Target Award / 4)) x (applicable ARR Multiplier) x 70%] + [(60% of Target Award / 4)) x (applicable Operating Margin Multiplier) x 30%]
ii.Annual Payment Based on Individual Performance Component: The individual performance component of the Actual Award payable to the Participant for the Performance Period shall be determined in accordance with the following formula:
Actual Award = (40% of Target Award) x (applicable Individual Multiplier)
(c)Participants at the Manager or Individual Contributor Level or Equivalent. For each Participant employed at the level of Manager or Individual Contributor or their equivalent (including those employed at levels PM4 and below or IC4 and below that are eligible for participation in the plan), the Non-Officer Plan Committee shall determine such Participant’s Actual Award in accordance with the following:
i.Quarterly Payments Based on Company Performance Component: For each quarter of the Performance Period, the company performance component of the
Actual Award payable to the Participant for such quarter shall be determined in accordance with the following formula:
Actual Award = [(50% of Target Award / 4)) x (applicable ARR Multiplier) x 70%] + [(50% of Target Award / 4)) x (applicable Operating Margin Multiplier) x 30%]
ii.Annual Payment Based on Individual Performance Component: The individual performance component of the Actual Award payable to the Participant for the Performance Period shall be determined in accordance with the following formula:
Actual Award = (50% of Target Award) x (applicable Individual Multiplier)
6.Payment of Awards.
(a)Continued Employment Requirement. Notwithstanding anything to the contrary herein, a Participant must be actively employed by the Company or any Affiliate on the payment date in order to be eligible to receive any payment hereunder. For the avoidance of doubt, Employees who are on a contractual or statutory notice period at the time of payment shall not be eligible to receive any payment hereunder.
(b)Timing of Payment. The Company shall pay each Participant’s Actual Award (if any) as soon as practicable following the determination of Actual Awards. Any payments with respect to the company performance component of the Actual Award will be made on a quarterly basis, and any payments with respect to the individual performance component will be made on an annual basis.
(c)Prorated Payments. Each Participant’s Actual Award shall be prorated to account for (i) the Participant becoming eligible to participate in the Non-Officer Plan after the beginning of the Performance Period, (ii) the Participant not being eligible to participate in the Non-Officer Plan during unpaid time off during the Performance Period (including but not limited to any leave of absence, subject to applicable law), or (iii) to account for changes to the Participant’s Target Award. Such proration shall be based on the number of days of eligibility, the number of days the Participant worked during the Performance Period (i.e., was not on unpaid time off or leave of absence), or the number of days with the applicable Target Award, as applicable, in each case compared to the total calendar days in the fiscal quarter or the Performance Period, as applicable.
(d)Right to Offset and Recoupment. To the extent permitted or required by applicable law, the Company may offset against any compensation or other amounts owed by the Company to the Participant any amounts erroneously paid to the Participant under the Non-Officer Plan for whatever reason. Any amounts paid hereunder will be subject to the Company’s Incentive Compensation Recoupment Policy and any other compensation recoupment or clawback policy adopted by the Company, in each case, as in effect from time to time.
(e)Tax Considerations. If an amount repaid to the Company under this Section 6 will not be fully deductible by the Participant, the Non-Officer Plan Committee may, in its
discretion, reduce the amount to be repaid by the amount determined by the Non-Officer Plan Committee to reasonably take into account the adverse tax consequences of such repayment to the Participant.
7.Governing Documents; Entire Agreement. The Non-Officer Plan shall be subject to the terms and conditions set forth in the Cash Incentive Plan to which it is attached as Annex B. Any capitalized term that is used but not defined in the Non-Officer Plan shall have the definition ascribed to such term in the Cash Incentive Plan provided, however, that references to the “Committee” in the Cash Incentive Plan shall be deemed to refer to the Non-Officer Plan Committee, other than for purposes of Section 7 of the Cash Incentive Plan. The Non-Officer Plan, together with the Cash Incentive Plan, is the entire agreement between the Company and each Participant regarding the subject matter of the Non-Officer Plan and supersedes all prior cash incentive plans, whether with the Company or any Affiliate, or any written or verbal representations regarding the subject matter of the Non-Officer Plan or the Cash Incentive Plan.
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULES 13A-14(A) AND 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis Woodside, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Freshworks Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 29, 2025 | By: /s/ Dennis Woodside | ||||
Dennis Woodside Chief Executive Officer and President (Principal Executive Officer) | |||||
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULES 13A-14(A) AND 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tyler Sloat, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Freshworks Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 29, 2025 | By: /s/ Tyler Sloat | ||||
Tyler Sloat Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) | |||||
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Freshworks Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2025 as filed with the Securities and Exchange Commission on the date hereof, to which this Certificate is attached as Exhibit 32.1 (the “Report”), I, Dennis Woodside, Chief Executive Officer and President of the Company, do hereby certify, to the best of my knowledge and pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
In Witness Whereof, the undersigned has set his hands hereto as of the date set forth below.
Date: April 29, 2025 | By: /s/ Dennis Woodside | ||||
Dennis Woodside Chief Executive Officer and President (Principal Executive Officer) | |||||
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Freshworks Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2025 as filed with the Securities and Exchange Commission on the date hereof, to which this Certificate is attached as Exhibit 32.2 (the “Report”), I, Tyler Sloat, Chief Operating Officer and Chief Financial Officer of the Company, do hereby certify, to the best of my knowledge and pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
In Witness Whereof, the undersigned has set his hands hereto as of the date set forth below.
Date: April 29, 2025 | By: /s/ Tyler Sloat | ||||
Tyler Sloat Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) | |||||
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.