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美國
證券交易委員會
華盛頓特區20549
表格 10-Q
(標記一個)
 ☒
根據1934年證券交易法第13或15(d)條款的季度報告。
截至2024年6月30日季度結束 2024年9月30日
或
☐
根據1934年證券交易法第13或15(d)條款的過渡報告
過渡期從________到________
委員會文件編號 001-40806
Freshworks Inc.
（依憑章程所載的完整登記名稱）
特拉華州
2950小單Delaware Street, 201套房
33-1218825
(成立地或組織其他管轄區)
San Mateo, 加州 CA 94403
（聯邦稅號）
(主要執行辦公室的地址和郵政編碼)
(650) 513-0514
(註冊公司之電話號碼，包括區號)
不適用
(如與上次報告不同，列明前名稱、前地址及前財政年度)
根據1973年證券交易法第12(b)條規定註冊的證券：
每種類別的名稱交易標的（s）每個註冊交易所的名稱
A類普通股，每股面值$0.00001
FRSH納斯達克股票交易所 LLC
請勾選選項，表示以下事項：（1）在過去12個月內（或如此短的時期內，發行者必須提交此類報告的時期），已根據1934年證券交易法第13條或第15(d)條提交了所有所需提交的報告；以及（2）在過去90天內已受到此類提交要求的限制。是☒ 否 ☐
請勾選表示：申報人在過去12個月內(或其應當提交此类文件的縮短期間內)，是否已提出每份互動數據文件，該提交根據Regulation S-t第405條規定(本章232.405條)。是☒不 ☐
請勾選指示登記者是否為大型快速提交人、快速提交人、非快速提交人、較小的報告公司或新興成長型公司。請參閱交易所法規120億2條，了解「大型快速提交人」、「快速提交人」、「較小的報告公司」和「新興成長型公司」的定義。



大型加速歸檔人
☒
加速歸檔人
☐
非加速報表提交者
☐
小型報告公司
☐
新興成長型企業
☐
        
如果一家新興成長公司，請勾選選項來指示申報人是否已選擇不使用根據《交易所法》第13(a)條所規定的任何新或修訂財務會計準則的延伸過渡期。☐
請勾選是否該登記申報者為殼公司（根據交易所法案規則120億2）。 是 ☐ 否 ☒
截至2024年11月1日，申報人的A類普通股股份數為 232,984,740 而B類普通股股份數為 69,869,756.



FRESHWORKS INC.
目 錄
頁面
項目一。
第二項。
第三項
第四項
項目一。
第一項。
第二項。
第三項
第四項
第五項。
第六項。
1

關於前瞻性聲明的特別注意事項
本季度報告表格10-Q中包含根據1934年修訂版證券交易法（《交易法》）第21E條的意義，關於我們和我們的行業涉及重大風險和不確定性的前瞻性陳述。在本季度報告表格10-Q中除歷史事實陳述外的所有陳述，包括關於我們未來營運和財務狀況、業務策略和管理層未來營運計劃和目標的陳述均屬前瞻性陳述。在某些情況下，前瞻性陳述可能通過詞語如「預期」、「相信」、「考慮」、「繼續」、「可能」、「估計」、「預期」、「打算」、「可能」、「計劃」、「潛在」、「預測」、「項目」、「應」、「目標」、「將」或「將會」或這些詞語的負面形式或其他類似的術語或用語來識別。這些前瞻性陳述包括但不限於有關以下事項的陳述：
•我們對我們的年度循環營業收入（ARR）、營業收入、費用和其他營運成果的期望；
•我們有能力吸引新客戶並成功地保留現有客戶；
•我們增加使用我們平台的用戶數的能力；
•我們增加現有產品使用率的能力;
•我們有效管理企業成長的能力；
•我們實現或維持盈利能力的能力；
•我們業務的未來投資，我們預期的資本支出，以及我們對資金需求的估計；
•我們銷售和營銷工作的成本和成功，以及我們維護和增強品牌的能力;
•現有產品和新產品的估計可開發市場機會;
•我們對關鍵人員的依賴以及我們辨識、招募和留住技術人員的能力；
•我們有效管理成長能力，包括任何國際擴張；
•我們成功整合收購的企業能力，包括D42 Parent, Inc.；
•宏觀經濟不確定性的影響包括高利率期貨、匯率期貨波動、全球政治不確定性、通脹壓力，以及我們無法控制的其他宏觀經濟因素；
•我們保護知識產權的能力和相關費用；
•我們與現有競爭對手和新市場進入者有效競爭的能力；和
•我們競爭的市場規模和增長率。
您不應該依賴前瞻性聲明來預測未來事件。我們基於對可能影響我們業務、財務狀況和營運結果的未來事件和趨勢的當前期望和預測來提出本季度報告表格10-Q中所包含的前瞻性聲明。這些前瞻性聲明中描述的事件結果受風險、不確定性和其他因素的影響，這些因素在我們截至2023年12月31日的年度報告表格10-k中的“風險因素”部分以及本季度報告表格10-Q的其他地方有所描述。此外，我們運營在一個競爭激烈且快速變化的環境中。新的風險和不確定性不時出現，我們無法預測所有可能影響本季度報告表格10-Q中的前瞻性聲明的風險和不確定性。前瞻性聲明中反映的結果、事件和情況
2

前瞻性陳述可能無法實現或發生，實際結果、事件或情況可能與前瞻性陳述中描述的有重大差異。
此外，「我們相信」等聲明反映了我們對相關主題的信念和意見。這些聲明是基於我們截至此季度10-Q表的日期可獲得的信息而作出的。雖然我們認爲此類信息提供了這些聲明的合理基礎，但該信息可能有限或不完整。我們的聲明不應被閱讀爲表明我們已對所有相關信息進行了詳盡的調查或審查。這些聲明本質上是不確定的，投資者應謹慎對待這些聲明，不要過度依賴這些聲明。
此季度10-Q表中所作的前瞻性聲明僅涉及聲明所作的日期的事件。我們不承擔更新此季度10-Q表中所作的任何前瞻性聲明以反映此季度10-Q表的日期之後發生的事件或情況或反映新信息或突發事件的義務，除非法律另有規定。我們可能無法實際實現所披露的計劃、意圖或預期，並且您不應過度依賴我們的前瞻性聲明。我們的前瞻性聲明不反映任何未來收購、合併、剝離、合資或投資的潛在影響。
Where You Can Find More Information
我們通過多種方式向公衆披露重要信息，包括向美國證券交易委員會的申報、新聞稿、公開電話會議、我們的網站（freshworks.com）、我們網站的投資者關係部分（ir.freshworks.com）、我們的LinkedIn帳戶（linkedin.com/company/freshworks-inc/）以及我們的X（前身爲Twitter）帳戶（@FreshworksInc）。我們利用這些渠道與投資者和公衆溝通有關我們公司、我們的產品和服務及其他事務。因此，我們鼓勵投資者、媒體和其他對我們公司感興趣的人士查看我們在這些地方發佈的信息，因爲這些信息可能被視爲重要信息。
3

第一部分. 財務信息
項目1.基本報表（未經審計）
FRESHWORKS INC.
簡明合併資產負債表
(以千爲單位，除股份和每股金額外)
(未經審計)
2024 年 9 月 30 日2023 年 12 月 31 日
資產
流動資產：
現金和現金等價物$391,101 $488,121 
有價證券663,883 699,506 
減去美元備抵後的應收賬款7,530 和 $8,562
99,169 97,179 
遞延合同購置成本25,056 22,908 
預付費用和其他流動資產53,575 47,832 
流動資產總額1,232,784 1,355,546 
財產和設備，淨額26,150 22,747 
經營租賃使用權資產29,862 32,749 
遞延合同購置成本，非當期21,654 19,764 
無形資產，淨額94,432 — 
善意147,014 6,181 
遞延所得稅資產9,527 10,013 
其他資產13,761 9,772 
總資產$1,575,184 $1,456,772 
負債和股東權益
流動負債：
應付賬款$6,956 $3,485 
應計負債73,733 56,608 
遞延收入296,089 266,399 
應繳所得稅1,152 722 
流動負債總額377,930 327,214 
經營租賃負債，非流動25,531 26,795 
其他負債36,697 30,501 
負債總額440,158 384,510 
承付款和或有開支（注9）
股東權益：
優先股，$0.00001 每股面值； 10,000,000 已獲授權的股份； 零 已發行和流通的股份
— — 
A 類普通股，$0.00001 每股面值； 1,000,000,000 已獲授權的股份； 232,730,114 和 208,940,016 已發行和流通的股份
2 2 
B 類普通股，$0.00001 每股面值； 350,000,000 已獲授權的股份； 69,847,416 和 87,754,921 已發行和流通的股份
1 1 
額外的實收資本4,847,178 4,713,522 
累計其他綜合收益（虧損） 1,822 (754)
累計赤字(3,713,977)(3,640,509)
股東權益總額1,135,026 1,072,262 
負債和股東權益總額$1,575,184 $1,456,772 
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
September 30,		Nine Months Ended
September 30,
2024202320242023
Revenue$186,575 $153,550 $525,849 $436,321 
Cost of revenue29,806 26,263 83,871 76,360 
Gross profit156,769 127,287 441,978 359,961 
Operating expense:
Research and development47,885 34,885 123,562 101,922 
Sales and marketing101,253 90,673 300,143 265,458 
General and administrative46,495 40,464 133,091 122,712 
Total operating expenses195,633 166,022 556,796 490,092 
Loss from operations(38,864)(38,735)(114,818)(130,131)
Interest and other income, net13,929 10,993 39,971 31,688 
Loss before income taxes(24,935)(27,742)(74,847)(98,443)
Provision for (benefit from) income taxes
5,024 3,291 (1,379)10,912 
Net loss$(29,959)$(31,033)$(73,468)$(109,355)
Net loss per share - basic and diluted$(0.10)$(0.11)$(0.24)$(0.37)
Weighted average shares used in computing net loss per share - basic and diluted302,096 294,146 299,931 292,103 
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
September 30,		Nine Months Ended
September 30,
2024202320242023
Net loss$(29,959)$(31,033)$(73,468)$(109,355)
Other comprehensive income:
Available-for-sale securities:
Change in unrealized loss on marketable securities3,139 1,483 2,541 3,169 
Net change on cash flow hedges(288)(734)35 (630)
Total other comprehensive income2,851 749 2,576 $2,539 
Comprehensive loss$(27,108)$(30,284)$(70,892)$(106,816)
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 September 30, 2024
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated DeficitTotal Stockholders'
Equity
SharesAmount
Balances as of June 30, 2024300,961 $3 $4,800,143 $(1,029)$(3,684,018)$1,115,099 
Issuance of common stock upon exercise of stock options12 — 3 — — 3 
Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes1,605 — (11,540)— — (11,540)
Stock-based compensation— — 58,572 — — 58,572 
Other comprehensive income— — — 2,851 — 2,851 
Net loss— — — — (29,959)(29,959)
Balances as of September 30, 2024302,578 $3 $4,847,178 $1,822 $(3,713,977)$1,135,026 
Three Months Ended September 30, 2023
Common StockAdditional
Paid-in
Capital		Accumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balances as of June 30, 2023292,839 $3 $4,644,686 $(5,641)$(3,581,395)$1,057,653 
Issuance of common stock upon exercise of stock options61 — 16 — — 16 
Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes1,961 — (24,510)— — (24,510)
Stock-based compensation— — 55,609 — — 55,609 
Other comprehensive income
— — — 749 — 749 
Net loss— — — — (31,033)(31,033)
Balances as of September 30, 2023294,861 $3 $4,675,801 $(4,892)$(3,612,428)$1,058,484 
7
FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
Nine Months Ended September 30, 2024
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive (Income (Loss)
Accumulated DeficitTotal Stockholders' Equity
SharesAmount
Balances as of December 31, 2023296,695 $3 $4,713,522 $(754)$(3,640,509)$1,072,262 
Issuance of common stock upon exercise of stock options133 — 39 — — 39 
Issuance of common stock and options in connection with acquisition
687 — 12,874 — — 12,874 
Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes4,755 — (48,897)— — (48,897)
Issuance of common stock under employee stock purchase plan, net of shares withheld and retired for taxes308 — 3,630 — — 3,630 
Stock-based compensation— — 166,010 — — 166,010 
Other comprehensive income— — — 2,576 — 2,576 
Net loss— — — — (73,468)(73,468)
Balances as of September 30, 2024302,578 $3 $4,847,178 $1,822 $(3,713,977)$1,135,026 
Nine Months Ended September 30, 2023
Common StockAdditional
Paid-in
Capital		Accumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balances as of December 31, 2022289,093 $3 $4,562,319 $(7,431)$(3,503,073)$1,051,818 
Issuance of common stock upon exercise of stock options205 — 61 — — 61 
Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes5,196 — (52,380)— — (52,380)
Issuance of common stock under employee stock purchase plan, net of shares withheld and retired for taxes367 — 4,312 — — 4,312 
Stock-based compensation— — 161,489 — — 161,489 
Unrealized loss on marketable securities— — — 2,539 — 2,539 
Net loss— — — — (109,355)(109,355)
Balances as of September 30, 2023294,861 $3 $4,675,801 $(4,892)$(3,612,428)$1,058,484 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
20242023
Cash Flows from Operating Activities:
Net loss$(73,468)$(109,355)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization13,052 9,098 
Amortization of deferred contract acquisition costs20,667 17,600 
Non-cash lease expense6,607 5,692 
Stock-based compensation166,290 160,067 
Discount amortization on marketable securities
(12,972)(12,108)
Deferred income taxes(13,801)113 
Other321 110 
Changes in operating assets and liabilities:
Accounts receivable6,602 (10,003)
Deferred contract acquisition costs(24,705)(19,147)
Prepaid expenses and other assets(7,733)(11,793)
Accounts payable3,122 (3,219)
Accrued and other liabilities10,188 (3,150)
Deferred revenue26,959 40,459 
Operating lease liabilities(1,845)(9,052)
Net cash provided by operating activities
119,284 55,312 
Cash Flows from Investing Activities:
Purchases of property and equipment(4,110)(990)
Proceeds from sale of property and equipment86 91 
Capitalized internal-use software(3,574)(5,075)
Purchases of marketable securities(566,638)(653,679)
Maturities and redemptions of marketable securities617,796 805,933 
Business combination, net of cash acquired(213,905)— 
Net cash provided by (used in) investing activities(170,345)146,280 
Cash Flows from Financing Activities:
Proceeds from issuance of common stock under employee stock purchase plan, net3,630 4,312 
Proceeds from exercise of stock options39 61 
Payment of withholding taxes on net share settlement of equity awards(49,627)(51,782)
Net cash used in financing activities(45,958)(47,409)
Net increase (decrease) in cash, cash equivalents and restricted cash(97,019)154,183 
Cash, cash equivalents and restricted cash, beginning of period488,216 304,158 
Cash, cash equivalents and restricted cash, end of period$391,197 $458,341 
Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets:
Cash and cash equivalents$391,101 $458,249 
Restricted cash included in prepaid expenses and other current assets3 — 
Restricted cash included in other assets93 92 
Total cash, cash equivalents and restricted cash$391,197 $458,341 
Supplemental cash flow information:
Cash paid for taxes$8,130 $9,893 
Non-cash investing and financing activities:
Operating lease right-of-use assets obtained in exchange for operating lease obligations, net of modifications$3,973 $4,914 
Stock-based compensation capitalized as internal-use software$1,117 $1,422 
Issuance of common stock and options in connection with acquisition
$12,874 $— 
The accompanying notes are an integral part of these condensed consolidated financial statements.
9

FRESHWORKS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
Freshworks Inc. (Freshworks, or the Company) is a software development company that provides software-as-a-service (SaaS) products that deliver modern and innovative AI-guided customer and employee service solutions that enable companies of all sizes to drive delightful engagement and increase productivity. The Company was incorporated in Delaware in 2010 and is headquartered in San Mateo, California.
On June 6, 2024, the Company acquired all outstanding shares of D42 Parent, Inc., (Device42), an IT asset management company, for approximately $238.1 million. See Note 6—Business Combinations.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Consolidated Financial Statements
The accompanying condensed consolidated balance sheet as of September 30, 2024, the condensed consolidated statements of operations, of comprehensive loss, of cash flows, and of stockholders’ equity for the three and nine months ended September 30, 2024 and 2023, 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 the Company’s financial position as of September 30, 2024 and its results of operations and cash flows for the three and nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 16, 2024.
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;
10

•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
•incremental borrowing rate used for operating leases.
Concentrations of Risk
Financial instruments that potentially expose the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. The Company’s 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, the Company has 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 the Company’s revenue for the three and nine months ended September 30, 2024 and 2023 or that represented 10% or more of the Company’s consolidated accounts receivable balance as of September 30, 2024.
The Company primarily relies upon its 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 the Company's operations and its business could be adversely impacted.
Significant Accounting Policies
The Company's significant accounting policies are described in the Annual Report on Form 10-K for the year ended December 31, 2023. 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 and nine months ended September 30, 2024, except for the addition of the following revenue recognition policy for the business acquired in June 2024 (see Note 6):
Software license revenue is generally sold as bundled arrangements that include the rights to a software license and maintenance. For these contracts, the transaction price is allocated to the separate performance obligations on the basis of relative standalone selling price. Software license revenue consists of term licenses and is recognized upfront, upon making the software available to the customer. The associated software maintenance revenue is generally recognized ratably over the contract term as support and updates are provided to the customers over the term of the arrangement.
Recent Accounting Pronouncements
There have been no recently issued accounting pronouncements that are expected to have a material impact on the Company's condensed     consolidated financial statements.
2. Revenue From Contracts with Customers
The Company primarily derives revenue from subscription fees and related professional services. The Company also sells software licenses with associated maintenance and professional services based on product offerings introduced upon the acquisition of Device42 in the quarter ended June 30, 2024.
The Company sells subscriptions and software licenses directly to customers and indirectly through channel partners with arrangements that are non-cancelable and non-refundable. The Company’s subscription arrangements
11

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.
The Company records revenue net of sales or value-added taxes.
Disaggregation of Revenue
The following table summarizes revenue by the Company’s product and service offerings (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Subscription services, software licenses and maintenance
$184,409 $150,033 $518,582 $425,755 
Professional services2,166 3,517 7,267 10,566 
Total revenue$186,575 $153,550 $525,849 $436,321 
See Note 13 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 September 30, 2024 and December 31, 2023, the Company had $5.7 million and $0.2 million of unbilled receivables, respectively. Unbilled receivables are included within accounts receivable, net on the condensed consolidated balance sheet. Deferred revenue consists of customer billings in excess of revenue being recognized. As of September 30, 2024, non-current deferred revenue of $3.3 million was included in Other Liabilities on the condensed consolidated balance sheet. As of December 31, 2023, the Company did not have any non-current portion of deferred revenue.
Revenue recognized during the three months ended September 30, 2024 and 2023 from amounts included in deferred revenue at the beginning of these periods was $136.1 million and $109.5 million, respectively. Revenue recognized during the nine months ended September 30, 2024 and 2023 from amounts included in deferred revenue at the beginning of these periods was $252.8 million and $192.6 million, respectively.
The aggregate balance of remaining performance obligations as of September 30, 2024 was $488.9 million. The Company expects to recognize $358.0 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 September 30,Nine Months Ended September 30,
2024202320242023
Balance at beginning of the period$46,036 $40,962 $42,672 $39,675 
Add: Contract costs capitalized during the period7,803 6,391 24,705 19,147 
Less: Amortization of contract costs during the period(7,129)(6,131)(20,667)(17,600)
Balance at end of the period$46,710 $41,222 $46,710 $41,222 

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3. Cash Equivalents and Marketable Securities
Cash equivalents and available-for-sale debt securities consisted of the following as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash equivalents:
Money market funds$286,574 $— $— $286,574 
U.S. treasury securities15,467 2 — 15,469 
Corporate debt securities9,292 — — 9,292 
Total cash equivalents311,333 2 — 311,335 
Debt securities:
U.S. treasury securities308,194 1,265 (9)309,450 
U.S. government agency securities227,208 709 (18)227,899 
Corporate debt securities68,717 273 (9)68,981 
Certificates of deposit
57,553 — — 57,553 
Total debt securities661,672 2,247 (36)663,883 
Total cash equivalents and debt securities$973,005 $2,249 $(36)$975,218 
December 31, 2023
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash equivalents:
Money market funds$77,832 $— $— $77,832 
U.S. treasury securities239,727 22 — 239,749 
U.S. government agency securities8,388 1 — 8,389 
Corporate debt securities36,905 — — 36,905 
Total cash equivalents362,852 23 — 362,875 
Debt securities:
U.S. treasury securities264,554 339 (398)264,495 
U.S. government agency securities366,946 571 (824)366,693 
Corporate debt securities66,777 72 (109)66,740 
Total debt securities698,277 982 (1,331)697,928 
Total cash equivalents and debt securities$1,061,129 $1,005 $(1,331)$1,060,803 
The following table presents gross unrealized losses and fair values for the securities that were in a continuous unrealized loss position as of September 30, 2024 and December 31, 2023 (in thousands):
13

September 30, 2024
Less than 12 monthsGreater than 12 monthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. treasury securities$11,657 $(1)$11,443 $(8)$23,100 $(9)
U.S. government agency securities10,657 — 37,753 (18)48,410 (18)
Corporate debt securities— — 9,942 (9)9,942 (9)
Total$22,314 $(1)$59,138 $(35)$81,452 $(36)
December 31, 2023
Less Than 12 Months12 Months or GreaterTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. treasury securities$60,869 $(159)$42,667 $(239)$103,536 $(398)
U.S. government agency securities145,594 (364)80,455 (460)226,049 (824)
Corporate debt securities14,749 (59)12,934 (50)27,683 (109)
Total$221,212 $(582)$136,056 $(749)$357,268 $(1,331)
The amortized cost and fair value of the available-for-sale debt securities based on contractual maturities are as follows (in thousands):
September 30, 2024
Amortized CostFair Value
Due within one year$543,010 $544,074 
Due after one year but within five years118,662 119,809 
Total$661,672 $663,883 
Accrued interest receivable of $4.1 million and $4.4 million was classified in prepaid expenses and other current assets in the condensed consolidated balance sheet as of September 30, 2024 and December 31, 2023, respectively.
In addition to available-for-sale debt securities, marketable securities also include term bond mutual funds, which are measured at fair value. As of September 30, 2024, we did not have any term bond mutual funds. As of December 31, 2023, the fair value of the term bond mutual funds was $1.6 million. The change in fair value of the term bond mutual funds is recorded in interest and other income, net in the condensed consolidated statements of operations. The realized and unrealized gains recognized in the condensed consolidated statements of operations were not material during the three and nine months ended September 30, 2024 and 2023.
4. Fair Value Measurements
The Company measures its 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 the Company has 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.
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Level 3—Inputs that are unobservable.
Money market funds and U.S. treasury securities are classified within Level 1 because they are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Other debt securities and investments are classified within Level 2 if the investments are valued using model driven valuations which use observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Available-for-sale debt securities are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.
The Company did not have any assets or liabilities subject to fair value remeasurement on a nonrecurring basis as of September 30, 2024 and December 31, 2023.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
Fair Value Measured Using
Level 1Level 2Total
Financial assets:
Cash equivalents:
Money market funds$286,574 $— $286,574 
U.S. treasury securities15,469 — 15,469 
Corporate debt securities— 9,292 9,292 
Marketable securities:
U.S. treasury securities309,450 — 309,450 
U.S. government agency securities— 227,899 227,899 
Corporate debt securities— 68,981 68,981 
Certificates of deposit
— 57,553 57,553 
Total financial assets$611,493 $363,725 $975,218 
December 31, 2023
Fair Value Measured Using
Level 1Level 2Total
Financial assets:
Cash equivalents:
Money market funds$77,832 $— $77,832 
U.S. treasury securities239,749 — 239,749 
U.S. government agency securities— 8,389 8,389 
Corporate debt securities— 36,905 36,905 
Marketable securities:
U.S. treasury securities264,495 — 264,495 
U.S. government agency securities— 366,693 366,693 
Corporate debt securities— 66,740 66,740 
Term bond mutual funds— 1,578 1,578 
Total financial assets$582,076 $480,305 $1,062,381 
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The fair value of derivative assets and liabilities as of September 30, 2024, and all related unrealized and realized gains and losses during the three and nine months ended September 30, 2024, were not material. As of September 30, 2024, the total notional amount of outstanding designated foreign currency forward contracts was $62.1 million.

5. Balance Sheet Components
Property and Equipment, net
The following table summarizes property and equipment, net as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024December 31, 2023
Computers$18,740 $17,188 
Capitalized internal-use software32,950 28,259 
Office equipment5,075 4,357 
Furniture and fixtures9,505 8,886 
Motor vehicles508 808 
Leasehold improvements7,441 5,768 
Construction in progress2,909 751 
Total property and equipment77,128 66,017 
Less: accumulated depreciation and amortization(50,978)(43,270)
Property and equipment, net$26,150 $22,747 
The following table summarizes depreciation expense and internal-use software capitalization and amortization for the three and nine months ended September 30, 2024 and 2023 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Capitalization of costs associated with internal-use software
1,529 2,048 4,691 6,498 
Amortization expense of capitalized internal-use software
1,410 1,327 4,206 3,699 
Depreciation expense
1,337 1,658 4,278 5,097 
As of September 30, 2024 and December 31, 2023, the net carrying value of capitalized internal-use software was $14.6 million and $14.1 million, respectively
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Accrued Liabilities
The following table summarizes accrued liabilities as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024December 31, 2023
Accrued compensation$24,501 $20,976 
Accrued reseller commissions11,391 9,641 
Accrued advertising and marketing expenses4,531 2,095 
Advanced payments from customers4,981 4,265 
Accrued taxes12,217 10,964 
Operating lease liabilities, current5,627 2,699 
Contributions withheld for employee stock purchase plan3,226 1,298 
Other accrued expenses7,259 4,670 
Total accrued liabilities$73,733 $56,608 
Noncurrent liabilities include $23.1 million and $22.7 million of long term accrued compensation as of September 30, 2024 and December 31, 2023, respectively.
6. Business Combinations
In June 2024, the Company acquired all outstanding shares of Device42, an IT asset management company. Through the combination, the Company will be able to offer a more comprehensive IT solution for customers. The total purchase price consideration is $238.1 million, which consists of $225.3 million in cash paid, including $11.4 million of cash acquired, $8.9 million in common stock issued, and $3.9 million in assumed and converted stock option awards. The purchase price is subject to customary post-closing adjustments and conditions.
As part of the business combination, the Company assumed certain unvested, in-the-money options held by Device42's founder, which were converted into 511,770 replacement stock option awards issued pursuant to the Company's 2021 Equity Incentive Plan. These awards have a fair value of $5.7 million and will vest two years from the closing date subject to continued employment The portion of the fair value of the assumed and converted awards that was related to pre-combination vesting was $3.9 million and is included as part of the consideration discussed above, and the remaining $1.8 million is post-combination expense that will be recognized as compensation expense over the remaining service period. Refer to Note 10—Stockholders' Equity and Stock-Based Compensation for valuation of options.
The transaction costs associated with the acquisition were approximately $2.0 million for the nine months ended September 30, 2024 and were recorded in general and administrative expense.
The Company expects to finalize the valuation as soon as is practicable, but not later than one year from the acquisition date. The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the date of acquisition:
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Amount
(in thousands)
Assets acquired:
Cash
$11,432 
Trade accounts and other receivables
8,916 
Prepaid expenses and other current assets
1,792 
Customer relationships
67,600 
Developed technology
30,700 
Trademarks
700 
Goodwill
140,833 
Total
$261,973 
Liabilities assumed:
Accounts payable and other current liabilities
$3,510 
Deferred revenue
6,080 
Deferred tax liability
14,278 
Total
$23,868 
Total purchase price consideration
$238,105 
The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets and liabilities acquired was recorded as goodwill. The goodwill recognized is not deductible for U.S. income tax purposes. The Company expects to derive value from the combination of Device42’s existing customer base, IT asset management technology, and trademarks, as well as through other synergies. The deferred tax liability was primarily driven by the fair value of intangible assets. The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the acquisition date and are considered preliminary pending finalization of the valuation pertaining to deferred tax liabilities.
The customer relationships, developed technology, and trademarks will be amortized on a straight-line basis over their estimated useful lives of 8 years, 6 years, and 1 year, respectively. The Company used the income approach to estimate the fair value of intangible assets acquired.
The Company has included the operating results of Device42 in its condensed consolidated financial statements since the date of the acquisition. The revenue and net income of Device42 included in the condensed consolidated statement of operations from the date of acquisition to September 30, 2024 were not material.
The following unaudited supplemental pro forma financial information is provided for informational purposes only and summarizes the Company's combined results of operations as if the acquisition had occurred on January 1, 2023 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Revenue
$186,575 $162,341 $541,021 $462,380 
Net loss$(29,494)$(34,311)$(78,387)$(121,117)
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 the Company's future operating results.
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7. Goodwill and Intangible Assets, Net
The change in the carrying amounts of goodwill during the nine months ended September 30, 2024 is presented below (in thousands):
Balance as of December 31, 2023$6,181 
Goodwill acquired (Note 6)
140,833 
Balance as of September 30, 2024$147,014 
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 September 30, 2024:

September 30, 2024
Gross AmountAccumulated AmortizationNet Carrying ValueWeighted Average Remaining Useful Life
(amounts in thousands)(in years)
Developed technology$41,196 $(12,134)$29,062 5.7
Customer relationships69,200 (4,306)64,894 7.7
Trademarks
700 (224)476 0.7
Total$111,096 $(16,664)$94,432 

Amortization of acquired intangible assets is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Cost of revenue$1,289 $— $1,639 $158 
Sales and marketing2,303 — 2,929 145 
Total amortization expense$3,592 $— $4,568 $303 
As of September 30, 2024, expected future amortization expense related to acquired intangible assets is as follows (in thousands):
Year Ending December 31,Amortization Expense
2024 (remaining three months)$3,592 
2025
13,854 
2026
13,553 
2027
13,553 
2028
13,591 
Thereafter
36,289 
Total future amortization$94,432 
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8. Leases
The Company has operating leases primarily for office space. The leases have remaining lease terms of one to eight years, some of which include options to extend the lease for up to an additional six years. The Company's leases do not contain any residual value guarantee.
The following table presents various components of the lease costs (in thousands):
Operating LeasesThree Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Operating lease cost$2,904 $2,652 $8,968 $7,644 
Short-term lease cost137 76 354 322 
Variable lease cost947 823 2,807 2,394 
    Total lease cost
$3,988 $3,551 $12,129 $10,360 
The weighted-average remaining term of the Company's 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 RateSeptember 30, 2024September 30, 2023
Weighted-average remaining lease term (in years)4.55.1
Weighted-average discount rate9.0 %8.7 %
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 September 30,Nine Months Ended September 30,
Supplemental Cash Flow Information:2024202320242023
Cash payments included in the measurement of operating lease liabilities$733 $4,472 $4,734 $10,879 
Operating right-of-use assets obtained in exchange for lease obligations, net of modifications
(628)4,914 3,973 4,914 
As of September 30, 2024, maturities of the operating lease liabilities are as follows (in thousands):
Operating Leases
Remainder of 2024$1,084 
202511,038 
20268,839 
20277,119 
20286,992 
Thereafter6,116 
Total lease payments41,188 
Less: imputed interest(10,030)
Present value of operating lease liabilities$31,158 
As of September 30, 2024, there were no material future payments related to signed leases that have not yet commenced.
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9. Commitments and Contingencies
Other Contractual Commitments
The Company's 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 September 30, 2024, other contractual commitments totaling $292.2 million remain outstanding under these agreements through 2028.
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 the Company, certain of its current officers and directors, and underwriters of the Company's initial public offering (IPO). On April 14, 2023, the court-appointed lead plaintiff filed a consolidated amended class action complaint. The 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 the IPO. The complaint seeks unspecified damages, interest, fees, costs, and rescission on behalf of purchasers and/or acquirers of common stock issued in the IPO. On September 28, 2023, the court issued an order granting in part and denying in part defendants' motion to dismiss. The Company and the other defendants continue to vigorously defend against the remaining claims in this action.
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 the Company’s current directors, as well as the Company, 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. The Company and the other defendants continue to vigorously defend against the claims in this action.
From time to time, the Company has 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. It has 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 the Company believes will have a material adverse impact on the business or condensed consolidated financial statements.
Indemnifications
In the ordinary course of business, the Company enters into contractual arrangements under which the Company agrees 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 the Company has violated applicable laws, if the Company is negligent or commits 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. The Company also indemnifies certain of its officers, directors and certain key employees while they are serving in good faith in their respective capacities. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements.
10. Stockholders' Equity and Stock-Based Compensation
Equity Compensation Plans
In August 2021, the board of directors (the Board) adopted the 2021 Equity Incentive Plan (the 2021 Plan) and the 2021 Employee Stock Purchase Plan (ESPP), effective upon the IPO. Pursuant to the 2021 Plan, the Board may
21

grant incentive stock options to purchase shares of the Company’s common stock, non-statutory stock options to purchase shares of the Company’s common stock, stock appreciation rights, restricted stock, restricted stock units (RSUs), performance awards (PRSUs) and other awards. The ESPP enables eligible employees to purchase shares of the Company's 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 the Company.
Shares of common stock outstanding and reserved for future issuance were as follows (in thousands):
September 30, 2024
2011 Stock Plan:
Options, RSUs and PRSUs outstanding3,015 
2021 Equity Incentive Plan:
Options, RSUs and PRSUs outstanding (1)
21,894 
Shares reserved for future award issuances79,196 
2022 Inducement Plan:
Options and RSUs outstanding3,021 
Shares reserved for future award issuances6,535 
2021 Employee Stock Purchase Plan
Shares reserved for future award issuances13,166 
Total awards outstanding and shares of common stock reserved for issuance
126,827 
(1)Outstanding shares include the Executive PRSUs and 2024 Executive Chairman Award, as discussed below, based on 100% achievement of target performance.

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 the Company’s 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. The Company issued 308,059 and 367,319 shares under the ESPP in the nine months ended September 30, 2024 and 2023, respectively, in each case net of shares withheld and retired to satisfy withholding tax requirements for certain employees in jurisdictions outside the United States. The weighted average purchase price per share was $11.85 with aggregate net proceeds of $3.6 million in the nine months ended September 30, 2024, and the weighted average purchase price was $11.87 with aggregate net proceeds of $4.3 million in the nine months ended September 30, 2023.
The ESPP also includes a reset provision for the purchase price if the fair market value of a share of the Company's common stock on the first day of any purchase period is less than or equal to the fair market value of a share of the Company's common stock on the first day of an ongoing offering. If the reset provision is triggered, a new 24-month offering period begins. The reset provision under the ESPP was triggered in May 2022, November 2022 and May 2024. Each triggering of the reset provision was considered a modification in accordance with ASC 718, Stock Based Compensation, with the modification charge recognized on a straight-line basis over the new offering period. The modifications did not have a material effect on the Company's stock-based compensation expense during the three and nine months ended September 30, 2024 and 2023.
22

Stock-based compensation expense related to ESPP was $1.5 million in each of the three months ended September 30, 2024 and 2023, and $4.0 million and $6.0 million for the nine months ended September 30, 2024 and 2023, respectively.
Determination of Fair Value of the ESPP
The Company estimates the fair value of the ESPP using the Black-Scholes option-pricing model, which requires certain complex valuation assumption inputs such as expected term, expected stock price volatility, risk-free interest rate, and dividend yield. The fair value of each of the four purchase periods is estimated separately. The following table summarizes the range of valuation assumptions used in estimating the fair value of the ESPP during the period:
Valuation Assumption InputsNine Months Ended September 30, 2024Nine Months Ended September 30, 2023
Expected term (in years)
0.5 - 2.0
0.5 - 1.5
Stock price volatility
48.3% - 57.2%
58.1% - 77.3%
Risk-free interest rate
4.8% - 5.4%
4.5% - 5.3%
Dividend yield
—%
—%
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 PriceWeighted-Average Remaining Contractual Term (in years)
Aggregate Intrinsic Value (in thousands) (1)
Balance as of December 31, 20232,395 $10.39 7.0$31,368 
Assumed and converted options from acquisition (Note 6)
512 $3.26 
Stock options exercised(134)$0.29 
Stock options cancelled / forfeited / expired— $— 
Balance as of September 30, 20242,773 $9.56 7.5$9,188 
Options vested and expected to vest as of September 30, 20242,773 $9.56 7.5$9,188 
Options exercisable as of September 30, 20241,353 $9.23 5.7$4,981 
(1)Aggregate intrinsic value for stock options represents the difference between the exercise price and the per share fair value of the Company’s common stock as of the end of the period, multiplied by the number of stock options outstanding, exercisable, or vested.

The weighted-average grant date fair value per share of the assumed and converted stock options related to the Device42 acquisition was $11.09 for the nine months ended September 30, 2024, of which approximately $1.8 million was related to post-combination services and will be recognized as stock-based compensation over requisite service period of two years (Note 6).
Determination of Fair Value of the Stock Options
The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires certain complex valuation assumption inputs such as expected term, expected stock price volatility, risk-free interest rate, and dividend yield. There were no stock options granted during the nine months ended September 30, 2024, other than the stock options assumed as part of the Device42 acquisition in June 2024. The following table summarizes the range of valuation assumptions used in estimating the fair value of the stock options assumed during the period:
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Valuation Assumption InputsNine Months Ended September 30, 2024
Expected term (in years)6.0
Stock price volatility65%
Risk-free interest rate4.29%
Dividend yield—%
Restricted Stock Units
RSUs are granted at fair market value at the date of the grant and typically vest over a four-year period.
RSU activity, which includes PRSUs, during the nine months ended September 30, 2024 was as follows:
Share Information:Number of SharesWeighted-Average Grant Date Fair Value Per Share
(in thousands, except per share data)
Unvested, as of December 31, 2023
26,755 $18.44 
Granted (1)
15,442 $19.78 
Vested (2)
(7,606)$17.95 
Forfeited/Cancelled (3)
(9,434)$19.83 
Unvested, as of September 30, 2024
25,157 $18.89 
(1) During the nine months ended September 30, 2024, shares granted includes 0.9 million shares granted to the Executive Chairman as long-term equity incentive award accounted for as a modification. The weighted average grant date fair value was $69.78 per share. Refer to the Executive Chairman Awards discussion below.
(2) During the nine months ended September 30, 2024, total shares that vested were 7.6 million, of which 2.8 million were withheld for tax purposes.
(3) Shares forfeited includes the cancellation of the 2021 Executive Chairman Performance Award consisting of 6,000,000 PRSUs discussed in the Executive Chairman Awards section below.

The total fair value of vested RSUs during the three months ended September 30, 2024 and 2023 was $47.8 million and $50.7 million, respectively. For the nine months ended September 30, 2024 and 2023, the total fair value of vested RSUs was $136.5 million and $137.1 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). The 2021 Executive Chairman Performance Award had a total grant date fair value of $131.0 million. During the nine months ended September 30, 2024, the Company recognized $4.6 million related to this 2021 Executive Chairman Performance Award prior to the modification effective March 1, 2024 discussed below. During the three and nine months ended September 30, 2023, the Company recognized $7.1 million and $21.0 million of stock-based compensation expense related to this 2021 Executive Chairman Performance Award, respectively.
As a result of macroeconomic conditions outside the control of the Company’s leadership team, the five separate stock price hurdles were considered by the Board to be too high for the 2021 Executive Chairman Performance Award to have the retention value expected at the time the award was granted. In February 2024, the
24

Board approved the cancellation of the 2021 Executive Chairman Performance Award and the grant of a 2024 Executive Chairman Award with a fair value of $19.0 million, both effective March 1, 2024.
The Company accounted for the 2024 Executive Chairman Award as a modification. There were no incremental costs recognized as a result of the modification and the remaining unrecognized stock-based compensation expense from the 2021 Executive Chairman Performance Award of $61.9 million will be recognized over the vesting period of the new 2024 Executive Chairman Award. The 2024 Executive Chairman Award comprised of 70% time-based RSUs that vest quarterly over four years and 30% PRSUs with the same terms as the Executive PRSUs discussed below. For the three and nine months ended September 30, 2024, the Company recognized $5.9 million and $13.6 million, respectively, of stock-based compensation expense related to the 2024 Executive Chairman Award.
Executive PRSUs
In February 2024, the Board approved PRSUs to be granted 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 over the performance period from January 1 to December 31, 2024, and vest over three years from the grant date. 70% and 30% of each Executive PRSU award will be earned based on the Company’s achievement of revenue and free cash flow targets, respectively. The performance targets allow the Company's executives to earn up to a maximum of 177.5% of target performance in the aggregate for significant outperformance.
The fair value of each PRSU is based on the fair value of the Company's 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 the Company's periodic assessment of the probability that the performance will be achieved. For the three and nine months ended September 30, 2024, the Company recognized $1.6 million and $4.1 million of stock-based compensation expense related to the Executive PRSUs, respectively.
Stock-Based Compensation
Total stock-based compensation expense recorded for the three and nine months ended September 30, 2024 and 2023 was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Cost of revenue$1,830 $1,710 $5,033 $5,137 
Research and development(1)
13,454 9,623 32,475 28,662 
Sales and marketing
15,303 18,757 50,980 51,786 
General and administrative(2)
28,122 25,035 77,802 74,482 
Stock-based compensation, net of amounts capitalized58,709 55,125 166,290 160,067 
Capitalized stock-based compensation361 484 1,117 1,422 
Total stock-based compensation expense
$59,070 $55,609 $167,407 $161,489 
(1)     Stock-based compensation expense recorded to research and development in the 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 former CEO (now Executive Chairman) of $12.1 million and $14.1 million for the three months ended September 30, 2024 and 2023, respectively, and $38.3 million and $41.8 million for the nine months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, unrecognized stock-based compensation expense related to unvested stock-based awards was as follows (in thousands, except for period data):
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September 30, 2024
Unrecognized Stock-Based CompensationWeighted-Average Period to Recognize Expense
(in years)
RSUs and PRSUs$426,596 2.6
Stock options8,669 1.8
ESPP7,525 1.0
Total unrecognized stock-based compensation expense$442,790 
11. Net Loss Per Share
Basic net loss per share attributable to common stockholders is computed by dividing the net loss by the number of weighted-average outstanding shares of common stock. Diluted net loss per share attributable to common stockholders is determined by giving effect to all potential common equivalents during the reporting period, unless including them yields an antidilutive result. The Company considers its stock options and RSUs as potential common stock equivalents, but excluded them from the computation of diluted net loss per share attributable to common stockholders for the three and nine months ended September 30, 2024 and 2023, as their effect was antidilutive.
The rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis to each class of common stock and the resulting basic and diluted net loss per share attributable to common stockholders, are the same for both Class A and Class B common stock on both an individual and combined basis.
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Numerator:
Net loss$(29,959)$(31,033)$(73,468)$(109,355)
Denominator:
Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders - basic and diluted302,096 294,146 299,931 292,103 
Net loss per share attributable to Class A and Class B common stockholders - basic and diluted$(0.10)$(0.11)$(0.24)$(0.37)
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 and Nine Months Ended September 30,
20242023
RSUs and PRSUs25,157 29,262 
Stock options2,773 2,550 
ESPP331 241 
Total28,261 32,053 
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12. Income Taxes
The Company's quarterly tax provision and estimates of its annual effective tax rate are estimates due to several factors, including changes in pre-tax income (or loss), the mix of jurisdictions to which such income relates, discrete items (such as windfalls or shortfalls from stock-based compensation) in the period offset with our valuation allowance. The provision for (benefit from) income taxes was $5.0 million and $3.3 million for the three months ended September 30, 2024 and 2023, respectively; and the income tax benefit was $1.4 million and the income tax expense was $10.9 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in provision for income taxes during the three months ended September 30, 2024, was primarily due to an increase in profit before tax in certain foreign jurisdictions. The change in provision for income taxes for the nine months ended September 30, 2024 compared to the same period in the prior year is primarily due to a tax benefit of $14.3 million from the Device42 acquisition in the current year, partially offset by higher tax expenses due to higher foreign profits before tax.
The increase in tax benefit of $14.3 million is primarily due to the net deferred tax liability generated from the acquisition of Device42, which provided sufficient taxable income to release valuation allowance.
13. Geographic Information
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 September 30,Nine Months Ended September 30,
2024202320242023
North America$86,363 $68,847 $239,300 $194,158 
Europe, Middle East and Africa71,455 59,128 202,828 168,332 
Asia Pacific22,986 21,111 67,830 61,497 
Other5,771 4,464 15,891 12,334 
Total revenue$186,575 $153,550 $525,849 $436,321 
Revenue from North America consists primarily of revenue from the United States. For the three months ended September 30, 2024 and 2023, revenue generated from the United States was $76.9 million and $60.1 million, or approximately 41% and 38% of total consolidated revenue, respectively. For the nine months ended September 30, 2024 and 2023, revenue generated from the United States was $213.1 million and $171.3 million, or 41% and 39% of total consolidated revenue, respectively.
The United Kingdom, included within Europe, Middle East and Africa in the table above, contributed $24.6 million and $19.4 million, or approximately 13% and 12% of total consolidated revenue for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, revenue generated from the United Kingdom was $68.0 million and $54.9 million, or 13% and 12% of the total consolidated revenue, 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):
September 30, 2024December 31, 2023
North America$19,342 $22,635 
Europe, Middle East and Africa7,139 2,244 
Asia Pacific29,531 30,617 
Total long-lived assets$56,012 $55,496 
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.
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14. Subsequent Events
Share Repurchase Program
In November 2024, the Board of Directors of the Company approved a stock repurchase program for the repurchase of up to $400 million of the Company’s outstanding Class A common stock. Under the repurchase program, the Company may repurchase shares of the Company’s 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. The timing, manner, price, and amount of any repurchases will be determined by the Company at its 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.
Restructuring
In November 2024, the Company committed to a restructuring plan (the Plan) to better align the Company's talent with its strategic priorities and to improve operating efficiency. The Company estimates that this will result in approximately 13% reduction in headcount and approximately $11 million to $13 million in charges in the fourth quarter of 2024, consisting primarily of cash expenditures for separation-related payments, employee benefits and related costs. The Company expects that the Plan will be substantially complete by the end of the fiscal year ending December 31, 2024.


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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, 2023 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
Our mission is to make it fast and easy for businesses to delight their customers and employees.
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, 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.
In June 2024, we acquired all outstanding shares of D42 Parent, Inc., (Device42), an IT asset management company for approximately $238.1 million, which primarily consisted of $225.3 million in cash, and approximately $12.9 million of common stock and stock options. Our consolidated financial statements and key business metrics as of and for the three and nine months ended September 30, 2024 include Device42 since the acquisition date.
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 Device42 in the quarter ended June 30, 2024, we also sell software licenses with associated maintenance.
Our customer base and operations have scaled over time. Our total revenue was $186.6 million and $153.6 million in the three months ended September 30, 2024 and 2023, respectively, representing year-over-year growth of 22%; and $525.8 million and $436.3 million in the nine months ended September 30, 2024 and 2023, respectively, representing year-over-year growth of 21%. We incurred operating losses of $38.9 million and $38.7 million for three months ended September 30, 2024 and 2023, respectively; and $114.8 million and $130.1 million for the nine months ended September 30, 2024 and 2023, respectively.
Macroeconomic and Other Factors
Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, 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 may still exist. For each of the quarters ended September 30, 2024, June 30, 2024 and September 30, 2023, we had approximately 27% 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.
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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, productivity of our employees, future results of operations, and financial condition.
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 September 30,
20242023% Growth
Number of customers contributing more than $5,000 in ARR22,35919,55114 %
ARR from customers contributing more than $5,000 in ARR as a percentage of total ARR90 %88 %
Net dollar retention rate107 %108 %
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 15% and 18% of ARR as of September 30, 2024 and 2023, 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
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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 107% as of September 30, 2024, which was a decrease from 108% as of September 30, 2023 primarily due to lower expansion within existing customers driven by macroeconomic pressures, offset by a favorable foreign currency impact, the addition of Device42 and a slight improvement in our overall churn rate. We expect our net dollar retention rate 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.
•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.
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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, and amortization of acquired intangibles.
We define non-GAAP net income as GAAP net loss, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, and amortization of acquired intangibles, net of their related tax effects.
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 September 30,Nine Months Ended September 30,
2024202320242023
Loss from operations$(38,864)$(38,735)$(114,818)$(130,131)
Non-GAAP adjustments:
Stock-based compensation expense58,709 55,125 166,290 160,067 
Employer payroll taxes on employee stock transactions523 1,008 2,789 2,766 
Amortization of acquired intangibles3,592 — 4,568 303 
Non-GAAP income from operations
$23,960 $17,398 $58,829 $33,005 

Non-GAAP Net Income
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Net loss$(29,959)$(31,033)$(73,468)$(109,355)
Non-GAAP adjustments:
Stock-based compensation expense58,709 55,125 166,290 160,067 
Employer payroll taxes on employee stock transactions523 1,008 2,789 2,766 
Amortization of acquired intangibles3,592 — 4,568 303 
Income tax adjustments708 479 (12,672)1,617 
Non-GAAP net income
$33,573 $25,579 $87,507 $55,398 
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.
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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 September 30,Nine Months Ended September 30,
2024202320242023
Net cash provided by operating activities
$42,329 $23,913 $119,284 $55,312 
Less:
Purchases of property and equipment(1,056)(278)(4,110)(990)
Capitalized internal-use software(1,168)(1,564)(3,574)(5,075)
Free cash flow$40,105 $22,071 $111,600 $49,247 
Net cash provided by (used in) investing activities$50,150 $102,144 $(170,345)$146,280 
Net cash used in financing activities$(11,640)$(24,029)$(45,958)$(47,409)
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. The Company also sells software licenses with associated maintenance and professional services based on product offerings introduced upon the acquisition of Device42 in the quarter ended June 30, 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.
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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 expected 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, including consulting, legal, audit, and accounting services, travel and entertainment costs, accounting, legal, human resources, and recruiting personnel, costs of director and officer insurance, costs associated with acquisitions of businesses, software license fees, and rental of office premises.
As a publicly traded company, 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.
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.
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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 consolidated statements of operations data for the periods presented (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Revenue$186,575 $153,550 $525,849 $436,321 
Cost of revenue(1)
29,806 26,263 83,871 76,360 
Gross profit156,769 127,287 441,978 359,961 
Operating expenses:
Research and development(1)
47,885 34,885 123,562 101,922 
Sales and marketing(1)
101,253 90,673 300,143 265,458 
General and administrative(1)
46,495 40,464 133,091 122,712 
Total operating expenses195,633 166,022 556,796 490,092 
Loss from operations(38,864)(38,735)(114,818)(130,131)
Interest and other income, net
13,929 10,993 39,971 31,688 
Loss before income taxes(24,935)(27,742)(74,847)(98,443)
Provision for (benefit from) income taxes
5,024 3,291 (1,379)10,912 
Net loss$(29,959)$(31,033)$(73,468)$(109,355)
__________________
(1)Includes stock-based compensation expense as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Cost of revenue$1,830 $1,710 $5,033 $5,137 
Research and development(1)
13,454 9,623 32,475 28,662 
Sales and marketing
15,303 18,757 50,980 51,786 
General and administrative(2)
28,122 25,035 77,802 74,482 
Total stock-based compensation expense$58,709 $55,125 $166,290 $160,067 
(1)     Stock-based compensation expense recorded to research and development in the 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 $12.1 million and $14.1 million for the three months ended September 30, 2024 and 2023, respectively, and $38.3 million and $41.8 million for the nine months ended September 30, 2024 and 2023, respectively.
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The following table sets forth our condensed consolidated statements of operations data for the periods presented, as a percentage of revenue:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Revenue100 %100 %100 %100 %
Cost of revenue16 17 16 18 
Gross profit84 83 84 82 
Operating expense:
Research and development26 23 23 23 
Sales and marketing54 59 57 61 
General administrative25 26 25 28 
Total operating expenses105 108 105 112 
Loss from operations(21)(25)(21)(30)
Interest and other income, net7 7 8 7 
Loss before income taxes(14)(18)(13)(23)
Provision for (benefit from) income taxes
3 2 — 2 
Net loss(17)%(20)%(13)%(25)%
Comparison of the Three Months Ended September 30, 2024 and 2023
Revenue
Three Months Ended September 30,Change
20242023$%
(dollars in thousands)
Subscription services, software licenses and maintenance
$184,409 $150,033 $34,376 23 %
Professional services2,166 3,517 (1,351)(38)%
Total revenue$186,575 $153,550 $33,025 22 %
Revenue increased by $33.0 million, or 22%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Of the total increase in revenue, approximately $9.7 million was attributable to revenue from existing customers as of September 30, 2023, net of contraction and churn, and approximately $23.3 million was attributable to revenue from new customers acquired during the twelve months ended September 30, 2024, net of contraction and churn, as well as all revenue from Device42 during the quarter. Our net dollar retention rate of 107% as of September 30, 2024 reflects the expansion within existing customers and the sale of additional products to these customers. Our net dollar retention rate decreased from 108% as of September 30, 2023 primarily due to lower expansion within existing customers driven by macroeconomic pressures, offset by a favorable foreign currency impact, the addition of Device42 and a slight improvement in our overall churn rate. The majority of our revenue continues to be generated from subscription services.
Cost of Revenue and Gross Margin
Three Months Ended September 30,Change
20242023$%
(dollars in thousands)
Cost of revenue$29,806 $26,263 $3,543 13 %
Gross Margin84 %83 %
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Cost of revenue increased by $3.5 million, or 13%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This was primarily due to increases of $1.4 million in amortization of acquired developed technologies and internally capitalized software, $0.9 million in personnel-related costs, $0.8 million in third-party hosting costs and $0.5 million in professional and consulting expenses. Our gross margin increased to 84% for the three months ended September 30, 2024 from 83% in the same period of the prior year, as we increased our revenue and continue to realize benefits from economies of scale primarily related to our third-party hosting costs.
Operating Expenses
Three Months Ended September 30,Change
20242023$%
(dollars in thousands)
Research and development$47,885 $34,885 $13,000 37 %
Sales and marketing101,253 90,673 10,580 12 %
General and administrative46,495 40,464 6,031 15 %
Total operating expenses$195,633 $166,022 $29,611 18 %
The $29.6 million, or 18%, increase in our operating expenses for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was primarily driven by increases in personnel-related costs due to annual compensation adjustments, stock-based compensation expense, amortization of developed technologies, advertisement, marketing and branding costs, and professional services fees.
Research and Development
Research and development expense increased by $13.0 million, or 37%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily driven by an increase of $7.1 million in personnel-related costs, $3.8 million in stock-based compensation expense, $0.7 million in professional services and subscription costs, and $0.5 million in web-hosting charges.
Sales and Marketing
Sales and marketing expense increased by $10.6 million, or 12%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This was primarily driven by increases of $8.5 million in personnel-related costs, $2.3 million in amortization of acquired intangible assets, $1.2 million in advertisement, marketing and branding costs, $0.6 million in reseller commissions, and $0.5 million in travel expenses, partially offset by a decrease of $3.5 million in stock-based compensation expense.
General and Administrative
General and administrative expense increased by $6.0 million, or 15%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This was primarily driven by increases of $3.1 million in stock-based compensation expense, $2.5 million in personnel-related costs and $0.6 million in professional services fees, partially offset by decrease of $0.5 million in directors and officers' insurance.
Interest and Other Income (Expense), Net
Three Months Ended September 30,Change
20242023$%
(dollars in thousands)
Interest income$12,389 $12,245 $144 1 %
Other income (expense), net1,540 (1,252)2,792 *
Interest and other income, net
$13,929 $10,993 $2,936 27 %
*not meaningful
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Other income (expense), net changed by $2.8 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to a favorable impact from changes in foreign exchange rates in British Pound and euro against the U.S. dollar.
Provision for Income Taxes
Three Months Ended September 30,Change
20242023$%
(dollars in thousands)
Provision for income taxes
$5,024 $3,291 $1,733 53 %

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the three months ended September 30, 2024 and 2023, we recorded a provision for income taxes of $5.0 million and $3.3 million on loss before taxes of $24.9 million and $27.7 million, respectively. The increase in provision for income taxes during the three months ended September 30, 2024, was primarily due to an increase in profit before tax in certain foreign jurisdictions.
Comparison of the Nine Months Ended September 30, 2024 and 2023
Revenue
Nine Months Ended September 30,Change
20242023$%
(dollars in thousands)
Subscription services, software licenses and maintenance
$518,582 $425,755 $92,827 22 %
Professional services7,267 10,566 (3,299)(31)%
Total revenue$525,849 $436,321 $89,528 21 %
Revenue increased by $89.5 million, or 21%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Of the total increase in revenue, approximately $46.2 million was attributable to revenue from existing customers as of September 30, 2023, net of contraction and churn, and approximately $43.3 million was attributable to revenue from new customers acquired during the twelve months ended September 30, 2024, net of contraction and churn, as well as all revenue from Device42 since the date of the acquisition. Our net dollar retention rate of 107% as of September 30, 2024 reflects the expansion within existing customers and the sale of additional products to these customers. The substantial majority of our revenue continues to be generated from subscription services.
Cost of Revenue and Gross Margin
Nine Months Ended September 30,Change
20242023$%
(dollars in thousands)
Cost of revenue$83,871 $76,360 $7,511 10 %
Gross Margin84 %82 %
Cost of revenue increased by $7.5 million, or 10%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This was primarily due to increases of $2.0 million in amortization of developed technologies and internally capitalized software, $1.9 million in third-party hosting costs, $1.4 million in software license fees and $1.0 million in professional service fees. Our gross margin increased to 84% for the nine months ended September 30, 2024 from 82% in the same period of the prior year, as we increased our revenue and realized benefits from economies of scale primarily related to our third-party hosting costs.
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Operating Expenses
Nine Months Ended September 30,Change
20242023$%
(dollars in thousands)
Research and development$123,562 $101,922 $21,640 21 %
Sales and marketing300,143 265,458 34,685 13 %
General and administrative133,091 122,712 10,379 8 %
Total operating expenses$556,796 $490,092 $66,704 14 %
The $66.7 million, or 14%, increase in our operating expenses in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily driven by increases in personnel-related costs due to annual compensation adjustments, net of certain changes in employee incentives, changes in stock-based compensation expense, advertising, marketing and branding expenses and professional fees.
Research and Development
Research and development expense increased by $21.6 million, or 21%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This was primarily driven by increases of $12.1 million in personnel-related costs, $3.8 million in stock-based compensation expense, $1.5 million lower capitalization for internally developed software, $0.9 million in professional services fees, $0.8 million in software license fees, $0.7 million in web hosting costs, $0.7 million in travel expenses and $0.6 million in rent expenses.
Sales and Marketing
Sales and marketing expense increased by $34.7 million, or 13%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This was primarily driven by increases of $15.7 million in personnel-related costs, $6.5 million in advertisement, marketing and branding costs, $3.1 million in reseller commissions, $3.0 million in travel expenses, $2.8 million in amortization of acquired intangible assets, $2.0 million in professional services fees, $0.9 million in subscription costs and $0.6 million in rent expenses, partially offset by $0.8 million in stock-based compensation expense.
General and Administrative
General and administrative expense increased by $10.4 million, or 8%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This was primarily driven by increases of $4.9 million in personnel-related costs, $3.3 million in stock-based compensation expense, $2.9 million in professional services fees, comprised primarily of legal, accounting and consulting fees and $0.5 million in software license fees, partially offset by decreases of $1.6 million in directors and officers' insurance and $1.0 million in tax-related costs.
Interest and Other Income (Expense), Net
Nine Months Ended September 30,Change
20242023$%
(dollars in thousands)
Interest income$40,071 $32,767 $7,304 22 %
Other income (expense), net(100)(1,079)979 (91)%
Interest and other income, net$39,971 $31,688 $8,283 26 %

Interest income increased by $7.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to an increase in interest rates and increased interest income earned on larger balances maintained in our marketable securities portfolios.
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Other income (expense), net changed by $1.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to a favorable impact from changes in foreign exchange in British Pound against the U.S. dollar.
Provision for (Benefit from) Income Taxes
Nine Months Ended September 30,Change
20242023$%
(dollars in thousands)
Provision for (benefit from) income taxes
$(1,379)$10,912 $(12,291)*
*not meaningful

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. The benefit from income taxes was $1.4 million and the income tax expense was $10.9 million for the nine months ended September 30, 2024 and 2023, respectively. The net increase in tax benefit of $12.3 million was primarily related to a tax benefit of $14.3 million from the Device42 acquisition in the current year, partially offset by higher tax expenses due to higher foreign profits before tax.
The increase in tax benefit of $14.3 million in this period is primarily due to the net deferred tax liability generated from the acquisition of Device42, which provided sufficient taxable income to release valuation allowance.
Liquidity and Capital Resources
As of September 30, 2024, we had cash and cash equivalents of $391.1 million and marketable securities of $663.9 million. Our marketable securities consist primarily of U.S. treasury securities, U.S. government agency securities, corporate debt securities, and certificates of deposit.
Since inception, we have funded our operations primarily with financing through the issuance of redeemable convertible preferred and common stock to investors and through our IPO in September 2021. As of September 30, 2024, we had an accumulated deficit of $3.7 billion. Our operating activities resulted in cash inflows of $119.3 million for the nine months ended September 30, 2024. In November 2024, we committed to a restructuring plan that is expected to incur charges in the fourth quarter of 2024, consisting primarily of cash expenditures for separation-related payments, employee benefits and related costs. See Note 14—Subsequent Events.
Our other material cash requirements are related to the settlement of future contractual obligations associated with operating leases and other service subscription agreements (as described in Contractual Obligations and Commitments below).
We believe our existing cash, cash equivalents and marketable securities, 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 and cash equivalents balances, cash flow from operations, and issuances of equity securities or debt offerings. 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.
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The following table summarizes our cash flows for the periods presented (in thousands):
Nine Months Ended September 30,
20242023
Net cash provided by operating activities
$119,284 $55,312 
Net cash provided by (used in) investing activities(170,345)146,280 
Net cash used in financing activities(45,958)(47,409)
Cash Flows from Operating Activities
Net cash provided by operating activities of $119.3 million for the nine months ended September 30, 2024 reflects our net loss of $73.5 million, adjusted for non-cash items such as stock-based compensation of $166.3 million, amortization of deferred contract acquisition costs of $20.7 million, depreciation and amortization of $13.1 million, and non-cash lease expense of $6.6 million; offset by 13.8 million from changes in deferred income taxes and $13.0 million from discount amortization of marketable securities. Additionally, net cash inflows from changes in operating assets and liabilities were $12.6 million. The net cash inflows from changes in operating assets and liabilities were due to a decrease of $6.6 million in accounts receivable and increases in operating liabilities of $27.0 million in deferred revenue, $10.2 million in accrued and other liabilities and $3.1 million in accounts payable; offset by increases in operating assets of $24.7 million in deferred contract acquisition costs and $7.7 million in prepaid expenses and other assets; and a decrease of $1.8 million in operating lease liabilities.
Net cash provided by operating activities of $55.3 million for the nine months ended September 30, 2023 reflects our net loss of $109.4 million, adjusted for non-cash items such as stock-based compensation of $160.1 million, amortization of deferred contract acquisition costs of $17.6 million, depreciation and amortization of $9.1 million and non-cash lease expense of $5.7 million; offset by $12.1 million from discount amortization of marketable securities and net cash outflows of $15.9 million from changes in operating assets and liabilities. The net cash outflows from changes in operating assets and liabilities were due to increases in operating assets of $19.1 million in deferred contract acquisition costs, $11.8 million in prepaid expenses and other assets, $10.0 million in accounts receivable; and a decrease in operating liabilities of $9.1 million in lease liabilities, $3.2 million in accrued and other liabilities, and $3.2 million in accounts payable; offset by an increase in operating liabilities of $40.5 million in deferred revenue.
Cash Flows from Investing Activities
Net cash used in investing activities of $170.3 million for the nine months ended September 30, 2024 consisted of $213.9 million cash paid for the business combination, net of cash acquired, $4.1 million in purchases of property and equipment, $3.6 million in capitalized internal-use software, offset by $51.2 million in maturities and sales of marketable securities, net of purchases.
Net cash provided by investing activities of $146.3 million for the nine months ended September 30, 2023 consisted of $152.3 million in proceeds from maturities and sales, net of purchases of marketable securities; offset by $5.1 million in capitalized internal-use software and $1.0 million in purchases of property and equipment.
Cash Flows from Financing Activities
Net cash used in financing activities of $46.0 million for the nine months ended September 30, 2024 consisted of $49.6 million in payment of withholding taxes on net share settlement of equity awards; offset by $3.6 million of proceeds from the issuance of common stock under our employee stock purchase plan, net of taxes withheld.
Net cash used in financing activities of $47.4 million for the nine months ended September 30, 2023 consisted of $51.8 million in payment of withholding taxes on net share settlement of equity awards; offset by $4.3 million of proceeds from the issuance of common stock under our employee stock purchase plan, net of taxes withheld.
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Remaining Performance Obligations on Customer Contracts
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. A small portion of our annual contracts may have billing terms that are different from their subscription terms and most of our multi-year contracts are invoiced annually. As of September 30, 2024, remaining performance obligations totaled $488.9 million, which comprised $299.4 million of deferred revenue and $189.5 million of unbilled amounts.
We expect that the value of the remaining performance obligations will change from one period to another for several reasons, including new contracts, timing of renewals, cancellations, contract modifications and foreign currency fluctuations. We believe that fluctuations in remaining performance obligations are not necessarily a reliable indicator of future revenue and we do not utilize it as a key management metric internally.
Contractual Obligations and Commitments
Our principal commitments consist of operating lease obligations for office space and contractual obligations under third-party cloud infrastructure agreements and service subscription agreements.
As of September 30, 2024, our estimated future contractual obligations totaled $323.4 million, of which $31.2 million and $292.2 million were operating lease commitments and other contractual obligations, respectively. See Note 8—Leases and Note 9—Commitments and Contingencies in the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from data breaches or intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, or condensed consolidated statements of cash flows.
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 and nine months ended September 30, 2024 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 16, 2024, except for the addition of the following revenue recognition policy for the business acquired in June 2024:
Software license revenue are generally sold as bundled arrangements that include the rights to a software license and maintenance. For these contracts, the transaction price is allocated to the separate performance obligations on the basis of relative standalone selling price. Software license revenue consists of term licenses and is recognized upfront, upon making the software available to the customer. The associated software maintenance revenue is
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generally recognized ratably over the contract term as support and updates are provided to the customers over the term of the arrangement.
Recent Accounting Pronouncements
See Note 1—Business, 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.
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 September 30, 2024, 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 not have a material effect on our financial statements.
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 related transactions being hedged are recognized. As of September 30, 2024, the total notional amount of outstanding designated foreign currency forward contracts was $62.1 million. The fair value of derivative assets and liabilities as of September 30, 2024, and all related unrealized and realized gains and losses during the three and nine months ended September 30, 2024 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, and corporate bonds. We had cash and cash equivalents of $391.1 million and marketable securities of $663.9 million as of September 30, 2024. 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.
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Based on an interest rate sensitivity analysis we have performed as of September 30, 2024, 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, 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.
Consistent with SEC guidance that an assessment of a recently acquired business may be omitted from management’s evaluation of disclosure controls and procedures in the year of acquisition, our management excluded from such evaluation an assessment of the effectiveness of our internal control over financial reporting related to Device42. Device42, which we acquired on June 6, 2024, represented less than 2% of our consolidated total assets as of September 30, 2024 and less than 3% of our consolidated revenues for the nine months ended September 30, 2024.
Changes in Internal Control over Financial Reporting
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.
The Company is in the process of reviewing the internal control structure of Device42 and, if necessary, will make appropriate changes as it continues to integrate Device42 into the Company’s overall internal control over financial reporting process.
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.
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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 9. 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, 2023 filed with the SEC on February 16, 2024 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, 2023.
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
On November 5, 2024, our board of directors approved a stock repurchase program for 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. The timing, manner, price, and amount of any repurchases will be determined by the Company at its 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2024, our officers (as defined in Rule 16a-1(f) under the Exchange Act) and directors adopted or terminated the contracts, instructions or written plans for the purchase or sale of the Company's securities, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act, as set forth in the table below.
NameTitleActionAdoption DateExpiration Date
Total number of shares of Class A common stock to be sold
Sameer GandhiDirector
Adoption(1)(2)
September 13, 2024November 28, 2025
Up to 150,000 shares
Rathna Girish MathruboothamExecutive Chairman and Chairman of the Board of Directors
Adoption(2)
September 18, 2024October 31, 2025
Up to 2,500,000 shares(3)
Barry PadgettDirector
Adoption
September 17, 2024September 4, 2025
Up to 16,933 shares
Mika YamamotoChief Customer and Marketing OfficerAdoptionSeptember 17, 2024December 31, 2025
Up to 140,241 shares(4)
(1) This 10b5-1 trading arrangement was adopted by The Potomac Trust, dated 9/21/2001, of which Mr. Gandhi is a co-trustee.
(2) Plan adopted in accordance with Rule 10b5-1(c)(1)(ii)(D)(2)
(3) The actual number of shares that will be sold under the Rule 10b5-1 trading plan will be reduced by the number of shares sold in accordance with an existing plan after August 21, 2024, but prior to its expiration on December 15, 2024.
(4) The shares that may be sold under the Rule 10b5-1 trading plan include (i) up to 6,399 shares of our Class A Common Stock currently owned by Ms. Yamamoto and (ii) up to 133,842 shares of our Class A Common Stock that are subject to restricted stock unit awards previously granted to Ms. Yamamoto that may vest and be released to Ms. Yamamoto on or prior to December 31, 2025 upon the satisfaction of the applicable service-based vesting conditions. The actual number of shares that will be released to Ms. Yamamoto pursuant to the restricted stock unit awards and sold under the Rule 10b5-1 trading arrangement will be net of the number of shares withheld to satisfy tax withholding obligations arising from the vesting of such shares and is not yet determinable. The actual number of shares that will be subject to the Rule 10b5-1 trading plan is not yet determinable.


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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 DescriptionFormFile No.ExhibitFiling DateFiled Herewith
3.18-K001-408063.1September 24, 2021
3.2S-1/A333-2591183.4September 13, 2021
31.1X
31.2X
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.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Extension Label Linkbase DocumentX
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX
104Cover 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.

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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:November 6, 2024By:
/s/ Dennis Woodside
Dennis Woodside
Chief Executive Officer and President (Principal Executive Officer)

Date:November 6, 2024By:/s/ Tyler Sloat
Tyler Sloat
Chief Operating Officer and Chief Financial Officer (Principal Financial Officer)

Date:November 6, 2024By:/s/ Philippa Lawrence
Philippa Lawrence
Chief Accounting Officer (Principal Accounting Officer)
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