Freshworks(FRSH) - 2024 Q2 - Quarterly Results

Freshworks Q2 2024 Earnings Release Second Quarter 2024 Financial Highlights Freshworks achieved solid Q2 2024 results with 20% revenue growth to $174.1 million, narrowing GAAP net loss, and significantly increased cash flows - CEO Dennis Woodside highlighted the company's increasing financial discipline and ability to meet customer needs with AI-powered solutions, positioning Freshworks to seize a massive market opportunity[24] Q2 2024 Key Financial Results (vs. Q2 2023) | Financial Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $174.1M | $145.1M | +20% YoY | | GAAP Loss from Operations | $(43.8)M | $(43.3)M | +1.2% | | Non-GAAP Income from Operations | $13.1M | $11.7M | +12.0% | | GAAP Net Loss Per Share | $(0.07) | $(0.12) | Improved | | Non-GAAP Net Income Per Share | $0.08 | $0.07 | +14.3% | | Net Cash from Operating Activities | $36.3M | $19.9M | +82.4% | | Free Cash Flow | $32.8M | $18.1M | +81.2% | - As of June 30, 2024, the company maintained a strong liquidity position with cash, cash equivalents, and marketable securities totaling $1.02 billion[5] Second Quarter Key Metrics and Recent Business Highlights Freshworks increased high-value customers by 14% to 21,744, maintained a 106% net dollar retention rate, and completed the Device42 acquisition while expanding AI capabilities Q2 2024 Key Operating Metrics | Metric | Q2 2024 | YoY Change | | :--- | :--- | :--- | | Customers with >$5,000 ARR | 21,744 | +14% | | Net Dollar Retention Rate | 106% | (vs. 108% in Q2 2023) | - Significant business developments in the quarter include: Completed the acquisition of Device42 on June 6, 2024, to bolster IT offerings; expanded global infrastructure by launching a new AWS-powered data center in the UAE; grew adoption of AI tools, with over 1,200 customers using Freddy Copilot and 900 using Freddy Self Service; and welcomed new customers such as Kayak, Paul Smith UK, and San Diego Unified School District[28] Financial Outlook Freshworks forecasts continued revenue growth for Q3 and full-year 2024, projecting 17-19% and 18.5-19.5% YoY growth, with positive non-GAAP income Q3 2024 and Full Year 2024 Financial Outlook | ($ in millions, except per share data) | Third Quarter 2024 | Full Year 2024 | | :--- | :--- | :--- | | Revenue | $180.0 - $183.0 | $707.0 - $713.0 | | Year-over-year growth | 17% - 19% | 18.5% - 19.5% | | Non-GAAP income from operations | $13.0 - $15.0 | $60.0 - $66.0 | | Non-GAAP net income per share | $0.07 - $0.08 | $0.32 - $0.34 | - The financial estimates for Q3 and the full year 2024 include the expected results from the recently acquired Device42, Inc.[7] Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Q2 2024, including statements of operations, balance sheets, and cash flows Condensed Consolidated Statements of Operations Q2 2024 revenue increased to $174.1 million, with gross profit at $146.0 million, resulting in a GAAP operating loss of $(43.8) million and a net loss of $(20.2) million Q2 2024 vs. Q2 2023 Statement of Operations (in thousands) | Line Item | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Revenue | $174,131 | $145,079 | | Gross Profit | $145,956 | $120,218 | | Total Operating Expenses | $189,743 | $163,507 | | Loss from Operations | $(43,787) | $(43,289) | | Net Loss | $(20,184) | $(35,658) | Condensed Consolidated Balance Sheets As of June 30, 2024, Freshworks reported total assets of $1.54 billion, total liabilities of $428.5 million, and total stockholders' equity of $1.12 billion, reflecting the Device42 acquisition Key Balance Sheet Items (in thousands) as of June 30, 2024 | Account | Amount | | :--- | :--- | | Cash and cash equivalents | $310,266 | | Marketable securities | $708,848 | | Total Assets | $1,543,584 | | Total Liabilities | $428,485 | | Total Stockholders' Equity | $1,115,099 | Condensed Consolidated Statements of Cash Flows Q2 2024 net cash from operating activities increased to $36.3 million, while investing activities used $(182.7) million, primarily for a business acquisition, and financing activities used $(11.4) million Cash Flow Summary for Q2 2024 vs. Q2 2023 (in thousands) | Cash Flow Activity | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,336 | $19,895 | | Net cash provided by (used in) investing activities | $(182,724) | $2,800 | | Net cash used in financing activities | $(11,364) | $(10,952) | - The significant cash outflow in investing activities was due to the acquisition of a business, net of cash acquired, for $213.9 million[20] Reconciliation of GAAP to Non-GAAP Measures This section details the reconciliation of Q2 2024 GAAP to non-GAAP financial measures, showing adjustments from GAAP operating loss to non-GAAP income and GAAP net loss to non-GAAP net income Reconciliation of GAAP Operating Loss to Non-GAAP Operating Income (Q2 2024, in thousands) | Description | Amount | | :--- | :--- | | GAAP loss from operations | $(43,787) | | Stock-based compensation expense | $55,139 | | Employer payroll taxes on employee stock transactions | $785 | | Amortization of acquired intangibles | $976 | | Non-GAAP income from operations | $13,113 | Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Q2 2024, in thousands) | Description | Amount | | :--- | :--- | | GAAP net loss | $(20,184) | | Stock-based compensation expense | $55,139 | | Other adjustments (payroll taxes, amortization) | $1,761 | | Income tax adjustments | $(13,729) | | Non-GAAP net income | $22,987 | Reconciliation of GAAP to Non-GAAP EPS (Q2 2024) | Description | Amount | | :--- | :--- | | GAAP net loss per share - diluted | $(0.07) | | Non-GAAP adjustments per share | $0.15 | | Non-GAAP net income per share - diluted | $0.08 | Explanation of Non-GAAP Financial Measures and Operating Metrics Freshworks uses non-GAAP measures to provide clearer operational performance insights by excluding non-cash expenses, and tracks key operating metrics like Net Dollar Retention Rate for business health - The primary purpose of using non-GAAP measures is to facilitate period-to-period comparisons and evaluate performance against other industry companies by eliminating certain variable or non-cash items[10] - Key items excluded from GAAP measures to arrive at non-GAAP figures include: Stock-based compensation expense, Amortization of acquired intangibles, and Employer payroll taxes on employee stock transactions[12][13][34] - Free cash flow is defined as net cash from operating activities minus purchases of property and equipment and capitalized internal-use software, used as an indicator of liquidity and cash available for strategic initiatives[35] Forward-Looking Statements This section provides a standard safe harbor disclaimer for forward-looking statements, including financial outlook, which are subject to risks and uncertainties that may cause actual results to differ materially - Forward-looking statements pertain to the company's financial outlook, the value of its products, and the results of product innovation efforts[38] - Investors are warned not to place undue reliance on these statements as they are subject to risks including global economic conditions, customer retention, and the ability to manage growth[16][38]