Freshworks Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) 67 Consolidated Balance Sheets 70 Consolidated Statements of Operations 72 Consolidated Statements of Comprehensive Loss 73 Consolidated Statements of Stockholders' Equity 74 Consolidated Statements of Cash Flows 75 Notes to Consolidated Financial Statements 77 66 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Freshworks Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Freshworks Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively, referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue — Refer to Note 2 and Note 10 to the financial statements Critical Audit Matter Description The Company predominately derives its revenue from subscription contracts providing access to the Company’s cloud-based software solutions and related professional services. The Company’s cloud-based software solutions allow customers to use the software without requiring them to take possession of the software and, as a result, are recognized ratably over the contract term. In some cases, the Company will negotiate contractual terms and conditions with customers that deviate from the standard contractual terms and conditions (“non-standard contracts”). We determined the identification of performance obligations in non-standard contracts to be a critical audit matter. Significant auditor judgment was required to audit the evaluation of the Company’s assessment of the identification of distinct performance obligations in non-standard contracts. 67 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to evaluating the Company’s assessment of the identification of distinct performance obligations in non-standard contracts included the following, among others: • We obtained an understanding of the Company’s process for reviewing non-standard contracts and tested the effectiveness of internal controls related to the review of contract terms and identification of distinct performance obligations. • We selected a sample of non-standard contracts and performed the following: ◦ Obtained and reviewed the non-standard contracts and other documents (i.e., purchase orders and invoices) that were part of the arrangement. ◦ Tested management’s identification and evaluation of distinct performance obligations. /s/ Deloitte & Touche LLP San Jose, California February 20, 2025 We have served as the Company's auditor since 2018. 68 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Freshworks Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Freshworks Inc. and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 20, 2025, expressed an unqualified opinion on those financial statements. As described in Management’s Report on Internal Controls over Financial Reporting , management excluded from its assessment the internal control over financial reporting at D42 Parent Inc., which was acquired on June 6, 2024, and whose financial statements constitute less than 2% of consolidated total assets and approximately 3% of consolidated revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2024. Accordingly, our audit did not include the internal control over financial reporting at D42 Parent, Inc. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP San Jose, California February 20, 2025 69 Table of Contents Consolidated Financial Statements FRESHWORKS INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 620,315 $ 488,121 Marketable securities 449,750 699,506 Accounts receivable, net of allowance of $ 8,885 and $ 8,562 122,910 97,179 Deferred contract acquisition costs 26,106 22,908 Prepaid expenses and other current assets 46,346 47,832 Total current assets 1,265,427 1,355,546 Property and equipment, net 25,893 22,747 Operating lease right-of-use assets 36,891 32,749 Deferred contract acquisition costs, noncurrent 22,534 19,764 Goodwill 147,014 6,181 Intangible assets, net 90,840 — Deferred tax assets 8,499 10,013 Other assets 14,786 9,772 Total assets $ 1,611,884 $ 1,456,772 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,619 $ 3,485 Accrued liabilities 81,933 56,608 Deferred revenue 323,435 266,399 Income tax payable 728 722 Total current liabilities 407,715 327,214 Operating lease liabilities, non-current 30,221 26,795 Other liabilities 36,027 30,501 Total liabilities 473,963 384,510 Commitments and contingencies (Note 9) Stockholders' equity: Preferred stock, $ 0.00001 par value per share; 10,000,000 shares authorized as of December 31, 2024 and 2023, respectively; zero shares issued and outstanding as of December 31, 2024 and 2023 — — Class A common stock, $ 0.00001 par value per share; 1,000,000,000 shares authorized as of December 31, 2024 and 2023; 244,965,000 and 208,940,016 shares issued and outstanding as of December 31, 2024 and 2023, respectively 2 2 Class B common stock, $ 0.00001 par value per share; 350,000,000 shares authorized as of December 31, 2024 and 2023; 58,417,396 and 87,754,921 shares issued and outstanding as of December 31, 2024 and 2023, respectively 1 1 70 Table of Contents FRESHWORKS INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2024 2023 Additional paid-in capital 4,874,133 4,713,522 Accumulated other comprehensive loss ( 338 ) ( 754 ) Accumulated deficit ( 3,735,877 ) ( 3,640,509 ) Total stockholders' equity 1,137,921 1,072,262 Total liabilities and stockholders' equity $ 1,611,884 $ 1,456,772 The accompanying notes are an integral part of these consolidated financial statements. 71 Table of Contents FRESHWORKS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 2024 2023 2022 Revenue $ 720,420 $ 596,432 $ 497,999 Cost of revenue 113,330 103,369 95,772 Gross profit 607,090 493,063 402,227 Operating expense: Research and development 164,590 137,756 135,543 Sales and marketing 390,817 357,781 343,207 General and administrative 180,629 167,698 156,849 Restructuring charges 9,664 — — Total operating expenses 745,700 663,235 635,599 Loss from operations ( 138,610 ) ( 170,172 ) ( 233,372 ) Interest and other income, net 47,773 46,403 12,582 Loss before income taxes ( 90,837 ) ( 123,769 ) ( 220,790 ) Provision for income taxes 4,531 13,667 11,342 Net loss ( 95,368 ) ( 137,436 ) ( 232,132 ) Net loss attributable to common stockholders $ ( 95,368 ) $ ( 137,436 ) $ ( 232,132 ) Net loss per share attributable to common stockholders - basic and diluted $ ( 0.32 ) $ ( 0.47 ) $ ( 0.82 ) Weighted-average shares used in computing net loss per share attributable to common stockholders - basic and diluted 300,843 293,087 284,587 The accompanying notes are an integral part of these consolidated financial statements. 72 Table of Contents FRESHWORKS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year Ended December 31, 2024 2023 2022 Net loss $ ( 95,368 ) $ ( 137,436 ) $ ( 232,132 ) Other comprehensive income (loss), net of taxes: Changes in unrealized loss on marketable securities 1,310 7,105 ( 6,684 ) Net change on cash flow hedging ( 894 ) ( 428 ) — Total other comprehensive income (loss), net of taxes: $ 416 $ 6,677 $ ( 6,684 ) Comprehensive loss $ ( 94,952 ) $ ( 130,759 ) $ ( 238,816 ) The accompanying notes are an integral part of these consolidated financial statements. 73 Table of Contents FRESHWORKS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' (Deficit) Equity Shares Amount Balances as of January 1, 2022 273,294 $ 3 $ 4,509,724 $ ( 747 ) $ ( 3,270,941 ) $ 1,238,039 Issuance of common stock upon exercise of stock options 407 — 109 — — 109 Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for tax purposes 14,570 — ( 167,745 ) — — ( 167,745 ) Issuance of common stock under employee stock purchase plan, net of shares withheld and retired for taxes 822 10,870 10,870 Stock-based compensation — — 209,361 — — 209,361 Unrealized loss on marketable securities — — — ( 6,684 ) — ( 6,684 ) Net loss — — — — ( 232,132 ) ( 232,132 ) Balances as of December 31, 2022 289,093 3 4,562,319 ( 7,431 ) ( 3,503,073 ) 1,051,818 Issuance of common stock upon exercise of stock options 360 — 88 — — 88 Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for tax purposes 6,615 — ( 68,621 ) — — ( 68,621 ) Issuance of common stock under employee stock purchase plan, net of shares withheld and retired for taxes 627 — 7,271 — — 7,271 Stock-based compensation — — 212,465 — — 212,465 Unrealized loss on marketable securities — — — 6,677 — 6,677 Net loss — — — — ( 137,436 ) ( 137,436 ) Balances as of December 31, 2023 296,695 $ 3 $ 4,713,522 $ ( 754 ) $ ( 3,640,509 ) $ 1,072,262 Issuance of common stock upon exercise of stock options 338 — 89 — — 89 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 tax purposes 6,078 — ( 59,629 ) — — ( 59,629 ) Issuance of common stock under employee stock purchase plan, net of shares withheld and retired for taxes 569 — 6,643 — — 6,643 Repurchase and retirement of common stock ( 985 ) — ( 15,535 ) — — ( 15,535 ) Stock-based compensation — — 216,169 — — 216,169 Other comprehensive income — — — 416 — 416 Net loss — — — — ( 95,368 ) ( 95,368 ) Balances as of December 31, 2024 303,382 $ 3 $ 4,874,133 $ ( 338 ) $ ( 3,735,877 ) $ 1,137,921 The accompanying notes are an integral part of these consolidated financial statements. 74 Table of Contents FRESHWORKS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 2022 Cash Flows Operating Activities: Net loss $ ( 95,368 ) $ ( 137,436 ) $ ( 232,132 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 19,415 12,144 11,504 Amortization of deferred contract acquisition costs 28,556 23,965 18,532 Non-cash lease expense 8,842 7,736 6,195 Stock-based compensation 216,706 210,707 207,696 Discount on amortization on marketable securities ( 15,992 ) ( 15,652 ) ( 1,627 ) Deferred income taxes ( 12,642 ) ( 1,322 ) ( 2,405 ) Other 1,397 119 816 Changes in operating assets and liabilities: Accounts receivable ( 17,145 ) ( 26,982 ) ( 18,892 ) Deferred contract acquisition costs ( 34,524 ) ( 26,962 ) ( 28,560 ) Prepaid expenses and other assets ( 1,393 ) ( 7,411 ) ( 8,141 ) Accounts payable ( 2,204 ) ( 2,423 ) 77 Accrued and other liabilities 14,454 1,839 7,746 Deferred revenue 54,808 60,773 45,453 Operating lease liabilities ( 4,264 ) ( 12,917 ) ( 8,787 ) Net cash provided by (used in) operating activities 160,646 86,178 ( 2,525 ) Cash Flows from Investing Activities: Purchases of property and equipment ( 9,177 ) ( 2,069 ) ( 7,129 ) Proceeds from sale of property and equipment 279 110 137 Capitalized internal-use software ( 5,485 ) ( 6,271 ) ( 5,116 ) Purchases of marketable securities ( 620,573 ) ( 842,803 ) ( 848,560 ) Sales of marketable securities — — 92,786 Maturities and redemptions of marketable securities 887,664 1,009,532 483,055 Business combination, net of cash acquired ( 213,905 ) — — Net cash provided by (used in) investing activities 38,803 158,499 ( 284,827 ) Cash Flows from Financing Activities: Proceeds from issuance of common stock under employee stock purchase plan, net 6,643 7,271 10,870 Proceeds from exercise of stock options 89 88 109 Payment of withholding taxes on net share settlement of equity awards ( 60,299 ) ( 67,978 ) ( 167,224 ) Payment of deferred offering costs — — ( 109 ) Repurchase of common stock ( 13,693 ) — — Net cash used in financing activities ( 67,260 ) ( 60,619 ) ( 156,354 ) Net increase (decrease) in cash, cash equivalents and restricted cash 132,189 184,058 ( 443,706 ) Cash, cash equivalents and restricted cash, beginning of period 488,216 304,158 747,864 Cash, cash equivalents and restricted cash, end of period $ 620,405 $ 488,216 $ 304,158 Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets: Cash and cash equivalents $ 620,315 $ 488,121 $ 304,083 Restricted cash included in prepaid expenses and other current assets 3 — 3 Restricted cash included in other assets 87 95 72 Total cash, cash equivalents and restricted cash $ 620,405 $ 488,216 $ 304,158 75 Table of Contents Supplemental cash flow information: Cash paid for taxes $ 11,949 $ 12,034 $ 13,412 Non-cash investing and financing activities: Operating lease right-of-use assets obtained in exchange for operating lease obligations $ 13,275 $ 7,461 $ 14,903 Stock-based compensation capitalized as internal-use software $ 1,358 $ 1,758 $ 1,665 Issuance of common stock and options in connection with acquisition $ 12,874 $ — $ — Payables related to unsettled common stock repurchases $ 1,840 $ — $ — The accompanying notes are an integral part of these consolidated financial statements. 76 Table of Contents FRESHWORKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business Freshworks Inc. is a software development company that provides software-as-a-service (SaaS) products that provide people-first, AI service software that organizations use to deliver exceptional customer and employee experiences. We are headquartered in San Mateo, California, and have subsidiaries located in the United States, India, Australia, the United Kingdom, Ireland, Germany, France, the Netherlands, and Singapore. In June 2024, we acquired all outstanding shares of D42 Parent, Inc., an IT asset management company, for approximately $ 238.1 million. See Note 6—Business Combination. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of Freshworks and its wholly owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation. Foreign Currency Remeasurement and Transactions The functional currency of our foreign subsidiaries is the U.S. dollar. Accordingly, each foreign subsidiary remeasures monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenues and expenses are remeasured at the exchange rates in effect on the day the transaction occurred, except for those expenses related to non-monetary assets and liabilities which are remeasured at historical exchange rates. Remeasurement adjustments are recognized in interest and other income, net in the consolidated statements of operations, and have not been material for the years ended December 31, 2024, 2023, and 2022. Use of Estimates The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the following: • determination of standalone selling price (SSP) for each distinct performance obligation included in customer contracts with multiple performance obligations; • allowance for doubtful accounts; • benefit period of deferred contract acquisition costs; • capitalization of internal-use software development costs; • fair value of goodwill; • useful lives of long-lived assets, including intangible assets; • valuation of deferred tax assets; • valuation of employee defined benefit plan and other compensation liabilities; • fair value of share-based awards; and • incremental borrowing rate used for operating leases. Revenue Recognition We derive revenue from subscription fees, related professional services, and following the acquisition of D42 Parent, Inc. in June 2024, software licenses. 77 Table of Contents Subscription Revenue We sell subscriptions for our cloud-based solutions directly to customers and indirectly through channel partners through arrangements that are non-cancelable and non-refundable. Our subscription arrangements do not provide customers with the right to take possession of the software supporting the solutions and, as a result, are accounted for as service arrangements. We record revenue net of sales or value-added taxes. We sell subscriptions to third-party resellers. The price at which subscriptions are sold to the reseller is typically discounted, as compared to the price at which we would sell to an end customer, in order to enable the reseller to realize a margin on the eventual sale to the end customer. As pricing to the reseller is fixed, and we lack visibility into the pricing provided by the reseller to the end customer, reseller revenue is recorded net of any reseller discounts. Subscription revenue is primarily comprised of fees paid by our customers for accessing our cloud-based software during the term of the arrangement. Cloud-based services allow customers to use our multi-tenant software without requiring them to take possession of the software. Given that access to the cloud-based software represents a series of distinct services that comprise a single performance obligation that is satisfied over time, subscription revenue is recognized ratably over the contract term beginning on the commencement date of each contract, which is the date that the cloud-based software is made available to customers. Professional Service Revenue Professional services revenue is comprised of fees charged for services ranging from product configuration, data migration, systems integration, and training. We recognize professional services revenues as services are performed. Software License Revenue Software license revenue is generally sold as bundled arrangements that include the rights to a software license and maintenance and cloud-based software in some cases. 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. Customers with Multiple Performance Obligations Some of our contracts with customers contain both subscriptions and professional services, and software licenses. For these contracts, we account for individual performance obligations separately. The transaction price is allocated to the separate performance obligations on the basis of relative standalone selling price (SSP). We determine SSP by taking into consideration historical selling price of these performance obligations in similar transactions, as well as current pricing practices and other observable inputs including, but not limited to, customer size and geography. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes to SSP. Cost of Revenue Cost of revenue consists mainly of personnel-related expenses (primarily including salaries, related benefits, and stock-based compensation) for employees associated with our cloud-based infrastructure, payment gateway fees, voice, product support, and professional service organizations, as well as costs incurred by us for third-party hosting capabilities. Cost of revenue also includes third-party license fees, amortization of acquired intangibles, amortization of capitalized internal-use software, and allocation of general overhead expenses such as facilities and information technology. Research and Development Research and development costs are expensed as incurred and consist primarily of personnel-related expenses (primarily including salaries, related benefits, and stock-based compensation) for our product development employees. Research and development expenses also include non-personnel-related expenses such as third-party services for product development and consulting expenses, depreciation expense related to equipment used in research and development activities, and allocation of our general overhead expenses. Advertising Costs Advertising costs are charged to sales and marketing expense in the consolidated statements of operations as incurred. We recognized $ 41.4 million, $ 41.2 million, and $ 47.2 million of advertising costs for the years ended December 31, 2024, 2023, and 2022, respectively. 78 Table of Contents Stock-Based Compensation We issue stock options and restricted stock units (RSUs) to employees, consultants and directors under our 2021 Equity Incentive Plan (2021 Plan) and stock purchase rights granted under the 2021 Employee Stock Purchase Plan (ESPP) to employees based on the estimated fair value on the date of the grant. Stock-based compensation expense related to stock options and RSUs under the 2021 Plan and stock purchase rights under the ESPP is recognized in the consolidated statements of operations on a straight-line basis over the requisite service period, which is the vesting period of the respective awards. Forfeitures are accounted for when they occur. The fair value of RSUs is based on the closing market price of our Class A common stock on the date of the grant. Prior to the Initial Public Offering (IPO) in 2021, we determined the fair value of the common stock underlying stock options and RSUs by considering numerous objective and subjective factors including, but not limited to: (i) independent third-party valuations, (ii) the prices, rights, preferences, and privileges of our redeemable convertible preferred stock relative to its common stock, (iii) the lack of marketability of the common stock, (iv) current business conditions and financial projections, and (iv) the likelihood of achieving an IPO or sale event. Subsequent to the IPO, the fair values of stock options and the stock purchase rights under the ESPP are estimated using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. These assumptions represent our best estimates and involve inherent uncertainties and the application of our judgment. The main assumptions used in the Black-Scholes option-pricing model include: Expected term— The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method which represents the average of the contractual term of the option and the weighted-average vesting period of the option. We consider this appropriate as there is not sufficient historical information available to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. The expected term for ESPP is the length of time from the grant date to the date on which the stock is purchased by the employees. Stock price volatility— For the stock price volatility over the expected term where our common stock has sufficient trading history, we generally estimate the stock price volatility using the historical volatility of our own stock. If our common stock lacks sufficient trading history, the stock price volatility over the expected term is estimated based on the historical volatility of comparable companies with similar characteristics to those of ours. Risk-free interest rate— The risk-free interest rate is based on the yield of the U.S. treasury debt securities commensurate with the expected term. Dividend yield— Because we have never paid and have no intention to pay cash dividends on our common stock, the dividend yield is zero . For the performance-based award granted to the then CEO, now Executive Chairman, with both a service-based vesting condition and a market condition (as discussed further in Note 12 — Stockholders' Equity and Stock-Based Compensation ), we determined the fair value of the award by using the Monte Carlo simulation model. The main assumptions used in the Monte Carlo simulation model include stock price volatility, risk-free interest rate, dividend yield and the measurement period, which is the period over which our simulated stock prices are used to evaluate the possibility of achieving the specified stock price targets. Since both vesting conditions have to be met for each tranche of the award to ultimately vest, the associated stock-based compensation expense is recognized over the longer of the derived service period or the requisite service period, using the accelerated attribution method. In February 2024, the Board approved performance awards (PRSUs) to be granted to certain members of the executive team subject to service and performance-based vesting conditions (referred to as Executive PRSUs in Note 12— Stockholders' Equity and Stock-Based Compensation ). The performance-based vesting conditions include revenue and free cash flow targets. The fair value of each Executive PRSU is based on the fair value of our common stock on the date of grant. Stock-based compensation associated with these Executive PRSUs is recognized using the accelerated attribution method over the requisite service period, based on Freshworks' periodic assessment of the probability that the performance will be achieved. If the performance goals are not met as of the end of the performance period, no compensation expense is recognized and any previously recognized compensation expense is reversed. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are 79 Table of Contents expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2024 and 2023, we have recorded a full valuation allowance against our U.S. deferred tax assets. We recognized the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is more likely than not of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We recognize interest and penalties related to income tax matters as a component of income tax expense. Cash and Cash Equivalents Cash and cash equivalents consist of deposits held at financial institutions, money market funds, as well as highly liquid investments with an original maturity of three months or less when purchased. Cash and cash equivalents are recorded at cost, which approximates fair value. Marketable Securities Marketable securities consist primarily of debt securities such as corporate bonds, commercial paper, U.S. treasury securities, U.S. government agency securities and certificates of deposit. These securities are classified as available-for-sale securities at the time of purchase as they represent funds readily available for current operations, and we have the ability and intent to liquidate them at any time to meet our operating cash needs, if necessary. All available-for-sale debt securities are recorded at their estimated fair value, with changes in fair value recognized as unrealized gains or losses in accumulated other comprehensive income. For available-for-sale debt securities in an unrealized loss position, we evaluate whether a current expected credit loss exists based on available information relevant to the credit rating of the security, current economic conditions and reasonable and supportable forecasts. Expected credit losses are recorded in interest and other income, net, on the consolidated statements of income, and any remaining unrealized losses are recognized in accumulated other comprehensive income or loss in the stockholders' equity section of the consolidated balance sheets. Realized gains and losses are determined based on the specific identification method and are reported in interest and other income, net in the consolidated statements of operations. There were no credit losses or impairment on available-for-sale debt securities recognized for the years ended December 31, 2024, 2023, and 2022. Marketable securities also included mutual funds comprised of certain term bonds. These mutual funds meet certain criteria for equity investments in accordance with ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. Under this guidance, we measure mutual funds at their estimated fair value, with changes in fair value recognized in interest and other income, net in the consolidated statements of operations. Accounts Receivable and Allowance for Credit Losses Trade accounts receivable are recorded at the invoiced amount, net of allowance for credit losses. The allowance is based on our assessment of the collectability of accounts and is recorded as an offset to revenue and deferred revenue. We regularly review the adequacy of the allowance by considering the age of each outstanding invoice and the collection history. Concentrations of Risk Financial instruments that potentially expose us to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. Our cash and cash equivalents and marketable securities are generally held with large financial institutions and are in excess of the federally insured limits provided on such deposits. In addition, we have cash and cash equivalents held in international bank accounts, which are denominated primarily in euros, British pounds, and Indian rupees. There were no customers that individually exceeded 10% of our revenue for the years ended December 31, 2024, 2023, and 2022, or that represented 10% or more of our consolidated accounts receivable balance as of December 31, 2024 and 2023. We primarily rely upon third-party cloud infrastructure partner, Amazon Web Services (AWS), to serve customers and operate certain aspects of its services. Any disruption of this cloud infrastructure partner would impact our operations and our business could be adversely impacted. 80 Table of Contents Derivative Instruments We enter into foreign currency forward contracts, all of which were designated as cash flow hedges, in order to manage the volatility of cash flows that relate to cost of revenues and operating expenses denominated in Indian rupee. All derivative instruments are measured at fair value based upon quoted market prices for comparable instruments and as such, classified within Level 2 of the fair value hierarchy. Derivative assets and liabilities are presented on a gross basis on the consolidated balance sheets under prepaid expenses and other current assets and accrued liabilities, respectively. Gains or losses related to cash flow hedges are recorded as a component of accumulated other comprehensive income (AOCI) on the consolidated statements of stockholders' equity until the forecasted transaction occurs in earnings. When the forecasted transaction occurs, the related gains and losses are reclassified into earnings within the financial statement line item associated with the underlying hedged transaction. If the underlying hedged transaction does not occur, or it becomes probable that the hedged transaction will not occur, the cumulative unrealized gain or loss is reclassified immediately from AOCI into earnings within interest and other income. Changes in the fair value of currency forward exchange contracts due to changes in time value were excluded from the assessment of effectiveness. The initial value of this excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in the f inancial statement line item to which the hedge relates. A majority of the balance related to foreign exchange derivative instruments included in AOCI at December 31, 2024 is expected to be reclassified into earnings within 12 months. Derivative instruments are classified in the consolidated statements of cash flows as cash from operating activities, which reflect the classification of the underlying hedged transactions. We do not use derivative financial instruments for trading or speculative purposes. Entering into derivative instruments exposes us to credit risk to the extent that the counterparties are unable to meet the terms of the contract. We mitigate this credit risk by transacting with major financial institutions with high credit ratings. In addition, we have entered into master netting arrangements that mitigate credit risk by permitting net settlement of transactions. As such, our exposure is not considered significant. We do not have any collateral requirements with counterparties. Deferred Contract Acquisition Costs Deferred contract acquisition costs are incremental costs that are associated with acquiring customer contracts and consist primarily of sales commissions and the associated payroll taxes and certain referral fees paid to third-party resellers. The costs incurred upon the execution of initial and expansion contracts are primarily deferred and amortized over an estimated benefit period of three years . The estimated benefit period is determined by taking into consideration our contracts with customers, technology life cycle and other factors. We consider the estimated benefit period to exceed the initial contract term for certain costs because of anticipated renewals and because sales commission rates for renewal contracts are not commensurate with sales commissions for initial contracts. We include amortization of deferred commissions in sales and marketing expense in our consolidated statements of operations. There was no impairment loss in relation to the incremental selling costs capitalized for the years ended December 31, 2024, 2023, and 2022. We have elected to apply the practical expedient under Accounting Standards Codification (ASC) No. 340-40—Other Assets and Deferred Costs to account for costs incurred in obtaining a contract with a benefit period of one year or less as commission expenses. Deferred contract acquisition costs are included in sales and marketing expense in our consolidated statements of operations. Property and Equipment, net Property and equipment, net, including capitalized internally-developed software, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets as follows: Estimated Useful Life Computers 3 years Capitalized internal-use software 3 years Office equipment, furniture and fixtures 5 years Motor vehicles 5 years Leasehold improvements Lesser of lease term or 5 years Capitalized Internal-Use Software 81 Table of Contents We capitalize costs incurred in our software development projects and implementation of certain enterprise cloud computing services during the application development stage . Costs related to preliminary project activities and post implementation activities are expensed as incurred. Once the development project is available for general release, capitalization ceases, and we estimate the useful life of the asset and begin amortization. Internal-use software and cloud computing services are amortized on a straight-line basis over its estimated useful life. Long-Lived Assets (Including Goodwill) Long-lived assets with finite lives include property and equipment, capitalized internal-use software and right-of-use (ROU) assets. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds these estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group. Goodwill is not amortized but rather is tested for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. We elected to bypass the qualitative assessment, and performed a quantitative goodwill impairment test. Goodwill impairment is recognized when the quantitative assessment results in the carrying value of the reporting unit exceeding its fair value, in which case an impairment charge in the amount of such excess is recorded to goodwill, limited to the amount of goodwill. We did no t recognize any impairment of goodwill during the years ended December 31, 2024, 2023, and 2022. Deferred Revenue Deferred revenue consists of customer billings in advance of revenue being recognized from our subscription and professional services arrangements. Customers are invoiced for subscription service arrangements in advance for monthly, quarterly, semi-annual and annual subscription plans. Our payment terms generally provide that customers pay the invoiced portion of the total arrangement fee either in advance or within 30 days from the invoice date. Net Loss per Share Attributable to Common Stockholders Basic and diluted net loss per share attributable to common stockholders are presented in conformity with the two-class method required for participating securities. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the number of weighted-average shares of common stock outstanding during the reporting period. Diluted net loss per share attributable to common stockholders adjusts basic net loss per share for the potentially dilutive impact of outstanding stock options, RSUs, PRSUs, and stock purchases rights granted under the ESPP. The dilutive potential shares are computed using the treasury stock method. Because we have reported net losses for all periods presented, all potentially dilutive securities are considered antidilutive, and accordingly, diluted net loss per share is the same as basic net loss per share. Defined Benefit Plan Employees in India are entitled to benefits under the Gratuity Act, a defined benefit retirement plan covering eligible employees. The plan requires employers to provide for a lump-sum payment to eligible employees at retirement, death, and incapacitation or on termination of employment, of an amount based on the respective employee’s salary and tenure of employment. Employees in India are also entitled to a defined benefit plan with benefits based on an employee’s accumulated leave balance and salary. Both plans are unfunded arrangements. Current service costs are accrued in the period to which they relate. The benefit obligations are calculated by a qualified actuary using the projected unit credit method and the unfunded position is recognized as a liability in the consolidated balance sheets. In measuring the defined benefit obligations, we use a discount rate at the reporting date based on yields of local government treasury bills denominated in the same currency in which the benefits are expected to be paid, with maturities approximating the terms of our obligations. Because the plan is unfunded, no annual contributions are required to be made as per applicable regulations. Disclosures required under ASC 715—Compensation—Retirement Benefits, have been omitted because we have deemed them immaterial to our consolidated financial statements. The benefit plans had a plan benefit obligation of $ 11.4 million and $ 11.9 million as of December 31, 2024 and 2023, respectively. The long-term portion for the amount of $ 9.6 million and $ 10.5 million is included in other liabilities in the consolidated balance sheets as of December 31, 2024 and 2023, respectively. The current portion for the amount of $ 1.8 million and $ 1.4 million is included in accrued expenses in the consolidated balance sheets as of December 31, 2024 and 2023, respectively. 82 Table of Contents Leases We lease office space under operating leases with expiration dates through 2032. We determine whether an arrangement constitutes a lease and records lease liabilities and ROU assets on our consolidated balance sheets at the lease commencement date. Lease liabilities are measured based on the present value of the total lease payments not yet paid, discounted based on either the rate implicit in the lease or our incremental borrowing rate (the estimated rate we would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease), whichever is more readily determinable. The incremental borrowing rate is based on an estimate of our expected unsecured borrowing rate for its notes, adjusted for tenor and collateralized security features. Lease liabilities due within 12 months are included within accrued liabilities on our consolidated balance sheets. ROU assets are measured based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the lease commencement date, (ii) initial direct costs incurred, and (iii) tenant incentives received, incurred or payable under the lease. Recognition of rent expense begins when the lessor makes the underlying asset available to us. We do not assume renewals or early terminations of its leases unless it is reasonably certain to exercise these options at commencement and does not allocate consideration between lease and non-lease components. For short-term leases, we record rent expense in our consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred. Restructuring Charges Costs associated with our restructuring plan primarily consist of severance payments, benefits continuation, and other employee separation costs. In general, we record involuntary employee-related exit costs when we communicate to employees that they are entitled to receive such benefits and the amount can be reasonably estimated. Related costs are included in restructuring charges in the consolidated statements of operations. The remaining restructuring liability is included in accrued liabilities in the consolidated balance sheet. Recent Accounting Pronouncements Accounting Standards Recently Adopted In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit and loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. This authoritative guidance is required to be applied retrospectively and effective for Freshworks starting in its annual disclosures for 2024 and interim periods starting 2025. We adopted this ASU on January 1, 2024. See Note 11—Segment and Geographic Information for additional details. Accounting Standards Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires entities to provide more information in the rate reconciliation table and about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories. This authoritative guidance should be applied prospectively and will be effective for us starting in our annual disclosures for 2025. Retrospective application is permitted. This guidance is only related to disclosures and is not expected to have a significant impact on our consolidated financial statements. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures. Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. The standard provides guidance to expand disclosures related to the disaggregation of income statement expenses, which requires more detailed information about specified categories of expenses included in certain expense captions presented on the face of the income statement. This authoritative guidance is effective for us starting in our annual disclosures for 2027 and interim periods starting 2028. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. This guidance is only related to disclosure and is not expected to have a significant impact on our consolidated financial statements. 83 Table of Contents 3. Cash Equivalents and Marketable Securities Cash equivalents and available-for-sale debt securities consisted of the following as of December 31, 2024 and 2023 (in thousands): December 31, 2024 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash equivalents: Money market funds $ 507,655 $ — $ — $ 507,655 Total cash equivalents 507,655 — — 507,655 Debt securities: U.S. treasury securities 215,773 612 ( 17 ) 216,368 U.S. government agency securities 144,474 321 ( 12 ) 144,783 Corporate debt securities 62,070 101 ( 21 ) 62,150 Certificates of deposit 26,449 — — 26,449 Total debt securities 448,766 1,034 ( 50 ) 449,750 Total cash equivalents and debt securities $ 956,421 $ 1,034 $ ( 50 ) $ 957,405 December 31, 2023 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash equivalents: Money market funds $ 77,832 $ — $ — $ 77,832 U.S. treasury securities 239,727 22 — 239,749 U.S. government agency securities 8,388 1 — 8,389 Corporate debt securities 36,905 — — 36,905 Total cash equivalents 362,852 23 — 362,875 Debt securities: U.S. treasury securities 264,554 339 ( 398 ) 264,495 U.S. government agency securities 366,946 571 ( 824 ) 366,693 Corporate debt securities 66,777 72 ( 109 ) 66,740 Total debt securities 698,277 982 ( 1,331 ) 697,928 Total cash equivalents and debt securities $ 1,061,129 $ 1,005 $ ( 1,331 ) $ 1,060,803 84 Table of Contents The following table presents gross unrealized losses and fair values for the securities that were in a continuous unrealized loss position as of December 31, 2024 and 2023 (in thousands): December 31, 2024 Less than 12 months Greater than 12 months Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. treasury securities $ 13,819 $ ( 16 ) $ 4,993 $ ( 1 ) $ 18,812 $ ( 17 ) U.S. government agency securities 8,197 ( 7 ) 9,995 ( 5 ) 18,192 ( 12 ) Corporate debt securities 7,998 ( 19 ) 5,982 ( 2 ) 13,980 ( 21 ) Total $ 30,014 $ ( 42 ) $ 20,970 $ ( 8 ) $ 50,984 $ ( 50 ) December 31, 2023 Less than 12 months Greater than 12 months Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. treasury securities $ 60,869 $ ( 159 ) $ 42,667 $ ( 239 ) $ 103,536 $ ( 398 ) U.S. government agency securities 145,594 ( 364 ) 80,455 ( 460 ) 226,049 ( 824 ) Corporate debt securities 14,749 ( 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): December 31, 2024 Amortized Cost Fair Value Due within one year $ 396,130 $ 396,898 Due after one year but within five years 52,636 52,852 Total $ 448,766 $ 449,750 Accrued interest receivable of $ 3.3 million and $ 4.4 million was classified as prepaid expenses and other current assets in the consolidated balance sheets as of December 31, 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 December 31, 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 consolidated statements of operations. The realized and unrealized gains recognized in the consolidated statements of operations for the term bond mutual funds were not material during the years ended December 31, 2024, 2023, and 2022. 85 Table of Contents 4. Fair Value Measurements We measure our financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 —Inputs are observable and reflect quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date. Level 2 —Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. Level 3 —Inputs that are unobservable. 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. We did not have any assets or liabilities subject to fair value remeasurement on a nonrecurring basis as of December 31, 2024 and 2023. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table represents the fair value hierarchy for our financial assets measured at fair value on a recurring basis as of December 31, 2024 and 2023 (in thousands): December 31, 2024 Fair Value Measured Using Level 1 Level 2 Total Financial assets: Cash equivalents: Money market funds $ 507,655 $ — $ 507,655 Marketable securities: U.S. treasury securities 216,368 — 216,368 U.S. government agency securities — 144,783 144,783 Corporate debt securities — 62,150 62,150 Certificates of deposit — 26,449 26,449 Total financial assets $ 724,023 $ 233,382 $ 957,405 86 Table of Contents December 31, 2023 Fair Value Measured Using Level 1 Level 2 Total Financial assets: Cash equivalents: Money market funds $ 77,832 $ — $ 77,832 U.S. treasury securities 239,749 — 239,749 U.S. government agency securities — 8,389 8,389 Corporate debt securities — 36,905 36,905 Marketable securities: U.S. treasury securities 264,495 — 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 The fair value of derivative assets and liabilities as of December 31, 2024 and 2023, and all related unrealized and realized gains and losses during the year ended December 31, 2024 and 2023, were not material. As of December 31, 2024 and 2023, the total notional amount of outstanding designated foreign currency forward contacts were $ 50.5 million and $ 55.8 million, respectively. 5. Balance Sheet Components Property and Equipment, net The following table summarizes property and equipment, net as of December 31, 2024 and 2023 (in thousands): December 31, 2024 2023 Computers $ 19,694 $ 17,188 Capitalized internal-use software 34,255 28,259 Office equipment 6,700 4,357 Furniture and fixtures 10,066 8,886 Motor vehicles 400 808 Leasehold improvements 7,847 5,768 Construction in progress 13 751 Total property and equipment 78,975 66,017 Less: accumulated depreciation and amortization ( 53,082 ) ( 43,270 ) Property and equipment, net $ 25,893 $ 22,747 The following table summarizes depreciation expense and internal-use software capitalization and amortization expense for the years ended December 31, 2024, 2023 and 2022 (in thousands): Year Ended December 31, 2024 2023 2022 Capitalization of costs associated with internal-use software $ 6,843 $ 8,029 $ 6,781 Amortization expense of capitalized internal-use software 5,631 5,106 3,193 Depreciation expense 5,623 6,735 6,720 As of December 31, 2024 and 2023, the net carrying value of capitalized internal-use software was $ 14.5 million and $ 14.1 million, respectively. 87 Table of Contents Accrued and Other Liabilities The following table summarizes accrued liabilities as of December 31, 2024 and 2023 (in thousands): December 31, 2024 2023 Accrued compensation $ 28,269 $ 20,976 Accrued reseller commissions 11,569 9,641 Accrued advertising and marketing expenses 4,414 2,095 Advanced payments from customers 4,487 4,265 Accrued taxes 14,747 10,964 Operating lease liabilities, current 8,073 2,699 Contributions withheld for employee stock purchase plan 1,127 1,298 Unsettled share repurchases 1,840 — Other accrued expenses 7,407 4,670 Total accrued liabilities $ 81,933 $ 56,608 Noncurrent liabilities include $ 21.1 million and $ 22.7 million of long term accrued compensation as of December 31, 2024 and 2023, respectively. 6. Business Combination In June 2024, we acquired all outstanding shares of D42 Parent, Inc., an IT asset management company. Through the combination, we are 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. As part of the business combination, we assumed certain unvested, in-the-money options held by D42 Parent, Inc.'s founder, which were converted into 511,770 replacement stock option awards issued pursuant to our 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 related to pre-combination vesting was $ 3.9 million and is included as 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 12—Stockholders' Equity and Stock-Based Compensation. Transaction costs associated with the acquisition were approximately $ 2.1 million for the year ended December 31, 2024 and were recorded in general and administrative expense. We expect 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: 88 Table of Contents 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 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. We expect to derive value from the combination of D42 Parent, Inc.’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 are amortized on a straight-line basis over their estimated useful lives of 8 years, 6 years, and 1 year, respectively. We used the income approach to estimate the fair value of intangible assets acquired. We have included the operating results of D42 Parent, Inc. in our consolidated financial statements since the date of the acquisition. The revenue and net loss of D42 Parent, Inc. included in the consolidated statement of operations from the date of acquisition to December 31, 2024 were not material. The following unaudited supplemental pro forma financial information is provided for informational purposes only and summarizes our combined results of operations as if the acquisition had occurred on January 1, 2023 (in thousands): Year Ended December 31, 2024 2023 Revenue $ 735,591 $ 631,608 Net loss ( 99,999 ) ( 151,546 ) 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 are they indicative of our future operating results. 89 Table of Contents 7. Goodwill and Intangible Assets, Net Goodwill The change in the carrying amounts of goodwill is presented below (in thousands): Balance as of December 31, 2023 $ 6,181 Goodwill acquired 140,833 Balance as of December 31, 2024 $ 147,014 The addition to goodwill during the year ended December 31, 2024 was associated with the acquisition of D42 Parent, Inc.. There was no changes to goodwill during the year ended December 31, 2023. Intangible Assets, Net Acquired intangible assets consist of developed technology, customer relationships, and trademarks and are amortized on a straight-line basis over their estimated useful lives. The following table summarizes acquired intangible assets as of December 31, 2024 (amounts in thousands): December 31, 2024 Gross Amount Accumulated Amortization Net Carrying Value Weighted Average Remaining Useful Life (in years) Developed technology $ 41,196 $ ( 13,423 ) $ 27,773 5.4 Customer relationships 69,200 ( 6,433 ) 62,767 7.4 Trademarks $ 700 $ ( 400 ) $ 300 0.4 Total $ 111,096 $ ( 20,256 ) $ 90,840 Total amortization of acquired intangible assets for the years ended December 31, 2024, 2023, and 2022 is as follows (in thousands): Year Ended December 31, 2024 2023 2022 Cost of revenue $ 2,927 $ 158 $ 1,191 Sales and marketing $ 5,233 145 400 Total amortization expense $ 8,160 $ 303 $ 1,591 As of December 31, 2024, expected future amortization expense related to acquired intangible assets is as follows (in thousands): Year Ending December 31, 2025 $ 13,854 2026 13,553 2027 13,553 2028 13,591 2029 13,553 Thereafter 22,736 Total future amortization $ 90,840 90 Table of Contents 8. Leases We have 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 six years . Our leases do not contain any residual value guarantee. The following table presents various components of the lease costs (in thousands): Year Ended December 31, Operating Leases 2024 2023 Operating lease cost $ 12,093 $ 10,415 Short-term lease cost 489 415 Variable lease cost 3,842 3,190 Total lease cost $ 16,424 $ 14,020 The weighted-average remaining term of our operating leases and the weighted-average discount rate used to measure the present value of the operating lease liabilities are as follows: December 31, Lease Term and Discount Rate 2024 2023 Weighted-average remaining lease term (in years) 4.34 5.21 Weighted-average discount rate 9.0 % 9.1 % 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): Year Ended December 31, Supplemental Cash Flow Information: 2024 2023 Cash payments included in the measurement of operating lease liabilities $ 6,808 $ 15,526 Operating ROU assets obtained in exchange for lease obligations 13,275 7,461 Maturities of the operating lease liabilities are as follows (in thousands): Year Ending December 31: Operating Leases 2025 $ 12,032 2026 11,278 2027 9,522 2028 8,628 2029 4,335 Thereafter 3,590 Total lease payments 49,385 Less: imputed interest ( 11,091 ) Present value of operating lease liabilities $ 38,294 As of December 31, 2024, there were no future payments related to signed leases that have not yet commenced. 91 Table of Contents 9. Commitments and Contingencies Contractual Commitments Our contractual commitments primarily consist of third-party cloud infrastructure agreements and service subscription purchase arrangements used to support operations at the enterprise level. Future minimum payments under our non-cancelable purchase commitments as of December 31, 2024 are presented in the table below (in thousands): Year ending December 31, Contractual Commitments 2025 $ 64,753 2026 72,045 2027 73,569 2028 68,319 2029 133 Total $ 278,819 Litigation and Loss Contingencies On November 1, 2022, a purported Company stockholder filed a securities class action complaint in the U.S. District Court for the Northern District of California against us, certain of our current officers and directors, and underwriters of our initial public offering (IPO). On 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. We 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 our current directors, as well as Freshworks as nominal defendant, and asserts state and federal claims based on some of the same alleged misstatements as the securities class action complaint. The derivative complaint seeks unspecified damages, attorneys’ fees, and other costs. On June 21, 2023, the court stayed the case in light of the pending securities class action. On October 16, 2023, the court extended the stay of the case in light of the pending securities class action. We and the other defendants continue to vigorously defend against the claims in this action. From time to time, we have been and may be in the future subject to other legal proceedings, claims, investigations, and government inquiries (collectively, legal proceedings) in the ordinary course of business. We have received and may receive claims from third parties asserting, among other things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights. There are no currently pending legal proceedings that we believe will have a material adverse impact on our business or consolidated financial statements. Indemnifications In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to customers, business partners, and other parties with respect to certain matters, including losses arising out of intellectual property infringement claims made by third parties, if we have violated applicable laws, if we are negligent or commit acts of willful misconduct, and other liabilities with respect to our products and services and our business. In these circumstances, payment is typically conditional on the other party making a claim pursuant to the procedures specified in the particular contract. We also indemnify certain of our officers, directors and certain key employees while they are serving in good faith in their respective capacities. To date, we have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our consolidated financial statements. 92 Table of Contents 10. Revenue From Contracts with Customers Disaggregation of Revenue The following table summarizes revenue by our service offerings (in thousands): Year Ended December 31, 2024 2023 2022 Subscription services, software licenses and maintenance $ 710,744 $ 582,868 $ 485,322 Professional services 9,676 13,564 12,677 Total revenue $ 720,420 $ 596,432 $ 497,999 See Note 11—Segment and Geographic Information 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 December 31, 2024 and 2023, we had $ 6.3 million and $ 0.2 million of unbilled receivables, respectively. The increase in unbilled receivable is primarily related to the acquisition of D42 Parent, Inc. and its business. Unbilled receivables are included within accounts receivable, net on the consolidated balance sheets. The aggregate balance of remaining performance obligations as of December 31, 2024 was $ 525.3 million. We expect to recognize $ 380.8 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 revenue consists of customer billings in advance of revenue being recognized from our subscription and professional services arrangements. The following table summarizes the changes in the balance of deferred revenue during the years (in thousands): Year Ended December 31, 2024 2023 2022 Balance at beginning of the year (2) $ 266,399 $ 205,626 $ 160,173 Add: Billings during the year (1) 781,309 657,205 543,452 Less: Revenue recognized during the year ( 720,420 ) ( 596,432 ) ( 497,999 ) Balance at end of the year (2) $ 327,288 $ 266,399 $ 205,626 (1) Includes deferred revenue and unbilled receivables acquired as part of D42 Parent, Inc. acquisition and changes in unbilled receivable. (2) As of December 31, 2024 and 2023, non-current deferred revenue of $ 3.9 million and $ 0 was included in Other Liabilities in the consolidated balance sheets, respectively. Revenue recognized during the years ended December 31, 2024, 2023, and 2022 from amounts included in deferred revenue at the beginning of these periods was $ 265.4 million, $ 204.8 million, and $ 158.7 million, respectively. Deferred Contract Acquisition Costs The change in the balance of deferred contract acquisition costs during the periods presented is as follows (in thousands): Year Ended December 31, 2024 2023 2022 Balance at beginning of the year $ 42,672 $ 39,675 $ 29,647 Add: Contract costs capitalized during the year 34,524 26,962 28,560 Less: Amortization of contract costs during the year ( 28,556 ) ( 23,965 ) ( 18,532 ) Balance at end of the year $ 48,640 $ 42,672 $ 39,675 11. Segment and Geographic Information We operate in a single operating segment composed of the consolidated financial results of Freshworks. Our Chief Executive Officer (CEO) is the chief operating decision maker (CODM) of Freshworks and the key measures of segment profit 93 Table of Contents or loss that our CODM uses to allocate resources and assess performance is our revenue and consolidated net loss. Significant segment expenses reviewed by our CODM for our single operating segment comprise of stock-based compensation, amortization of acquired intangible assets, and other segment expenses. Other segment expenses utilizes operating expenses recognized as research and development, selling and marketing and general and administrative expenses within our consolidated statement of operations less stock-based compensation and amortization of acquired intangible assets, and primarily related to personnel-related costs. Refer to Note 12— Stockholders' Equity and Stock-Based Compensation and Note 7— Goodwill and Intangible Assets, Net for information regarding amounts pertaining to stock-based compensation and amortization of acquired intangibles. Revenue by geographic location is determined based on the customers' billing address. The following table summarizes revenue by geographic region (in thousands): Year Ended December 31, 2024 2023 2022 North America $ 329,934 $ 266,331 $ 216,112 Europe, Middle East and Africa 277,851 229,983 193,899 Asia Pacific 91,442 83,109 74,948 Other 21,193 17,009 13,040 Total revenue $ 720,420 $ 596,432 $ 497,999 Revenue from North America primarily includes revenue from the United States. For the years ended December 31, 2024, 2023 and 2022, revenue generated from the United States was $ 294.5 million, $ 235.3 million and $ 192.2 million, or 41 %, 39 % and 39 % of total consolidated revenue, respectively. The United Kingdom, categorized within Europe, Middle East and Africa in the table above, contributed $ 94.1 million, $ 75.1 million and $ 63.8 million or 13 %, 13 % and 13 % of total consolidated revenue for the years ended December 31, 2024, 2023 and 2022, 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): December 31, 2024 2023 North America $ 20,052 $ 22,635 Europe, Middle East and Africa 8,391 2,244 Asia Pacific 34,341 30,617 Total long-lived assets $ 62,784 $ 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. 12. Stockholders' Equity and Stock-Based Compensation Common Stock We have two classes of common stock: Class A common stock and Class B common stock. The shares of Class A common stock and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes. Class A and Class B common stock are referred to as common stock throughout these notes to the consolidated financial statements, unless otherwise noted. Holders of common stock are entitled to receive any dividends as may be declared from time to time by the board of directors. Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder. Shares of Class B common stock automatically convert to Class A common stock upon the following: (1) sale or transfer of such share of Class B common stock, except for certain permitted transfers as described in our amended and restated certificate of incorporation; (2) the death of such Class B common stockholder (or nine months after the date of death if the stockholder is our founder); and (3) on the final conversion date, defined as the earlier of (a) the last trading day of the fiscal year following the seventh anniversary of our IPO; or (b) the date specified by a vote of the holders of a majority of the outstanding shares of Class B common stock, voting as a single class. 94 Table of Contents Share Repurchase In November 2024, our board of directors (the Board) approved the share repurchase program, which authorized the repurchase of up to $ 400 million of our outstanding Class A common stock. Under the repurchase program, we may repurchase shares of our outstanding Class A common stock from time to time in the open market, through privately negotiated transactions and/or other means in compliance with the Exchange Act and the rules and regulations thereunder. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares of Class A common stock under this authorization. The timing, manner, price, and amount of any repurchases will be determined by us at our discretion, and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations. The repurchase program may be suspended or discontinued at any time. During the year ended December 31, 2024 we repurchased a total of 985,234 shares of Class A common stock under this program in open market transactions for an aggregate purchase price of $ 15.5 million, resulting in an average price of $ 15.77 per share. As of December 31, 2024, $ 384.5 million remained available for future share repurchases under the program. All shares of Class A common stock subsequently repurchased were retired. Upon retirement, the par value of the common stock repurchased was deducted from common stock and any excess of repurchase price over par value was recorded entirely to additional-paid-in capital, or in the absence of additional-paid-in capital, to accumulated deficit, in the consolidated balance sheets. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) is comprised of two components — unrealized gains or losses on available-for-sale debt securities and net changes in cash flow hedges. The following tables shows the changes in the components of accumulated other comprehensive (loss) income: Year Ended December 31, 2024 2023 2022 Beginning balance $ ( 754 ) $ ( 7,431 ) $ ( 747 ) Unrealized gains (losses) on available-for-sale debt securities 1,310 7,105 ( 6,684 ) Net change on cash flow hedging ( 894 ) ( 428 ) — Net impact to other comprehensive (loss) income in current period 416 6,677 ( 6,684 ) Ending balance $ ( 338 ) $ ( 754 ) $ ( 7,431 ) Equity Compensation Plans In August 2021, the Board adopted the 2021 Plan and the ESPP, effective upon the IPO. Pursuant to the 2021 Plan, the Board may grant incentive stock options to purchase shares of our common stock, non-statutory stock options to purchase shares of our common stock, stock appreciation rights, restricted stock, restricted stock units (RSUs), performance awards (PRSUs) and other awards. The ESPP enables eligible employees to purchase our Class A common stock. Both the 2021 Plan and ESPP include an automatic increase to their shares reserve on January 1 of each year as set forth in the respective plan documents. In August 2022, the Compensation Committee of the Board adopted the 2022 Inducement Plan (the Inducement Plan) in accordance with Listing Rule 5635(c)(4) of the Nasdaq Stock Market. Under the Inducement Plan, nonstatutory stock options, stock appreciation rights, restricted stock, RSUs, PRSUs and other awards may be granted as an inducement material for eligible persons to enter into employment with us. Upon adoption, we have initially reserved 10,000,000 shares of Class A common stock for issuance under the Inducement Plan. In September 2022, we hired a President and granted him 1,732,501 RSUs under the Inducement Plan and stock options to purchase up to 1,815,980 shares of Class A common stock, of which stock options to purchase up to 1,776,780 shares of Class A common stock were granted under the Inducement Plan and the remaining under the 2021 Plan. Each award will vest over 95 Table of Contents four years with 25 % of the shares vesting on the first anniversary of the grant date and the remaining 75 % of the shares vesting in equal quarterly installments thereafter, subject to continued employment. Shares of common stock reserved for future issuance were as follows (in thousands): December 31, 2024 2011 Stock Plan: Options, RSUs and PRSUs outstanding 1,867 2021 Equity Incentive Plan: Options and RSUs outstanding 19,776 Shares reserved for future award issuances 81,101 2022 Inducement Plan: Options and RSUs outstanding 2,723 Shares reserved for future award issuances 6,664 2021 Employee Stock Purchase Plan Shares reserved for future award issuances 12,972 Total awards outstanding and shares of common stock reserved for issuance 125,103 2021 Employee Stock Purchase Plan Under the ESPP, the price at which common stock is purchased is equal to 85 % of the fair market value of a share of our common stock on the first day of the offering period or the applicable purchase date, whichever is lower. The fair market value of common stock will generally be the closing sales price on the determination date. The ESPP provides an offering period of 24 months, with four purchase periods that are generally six months long and end on May 15 and November 15 of each year. The following table summarizes the information on shares purchased under the ESPP for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 2022 Net shares issued under ESPP (1) 569,003 627,371 822,423 Weighted average purchase price $ 11.81 $ 11.88 $ 13.33 Aggregate net proceeds (in thousands) $ 6,643 $ 7,271 $ 10,870 (1) Net of shares withheld and retired to satisfy withholding tax requirements for certain employees in jurisdictions outside the United States The ESPP also includes a reset provision for the purchase price if the fair market value of a share of our common stock on the first day of any purchase period is less than or equal to the fair market value of a share of our common stock on the first day of an ongoing offering. If the reset provision is triggered, a new 24-month offering period begins. Each triggering of the reset provision was considered a modification in accordance with ASC 718, Stock Based Compensation , with the modification charge recognized on a straight-line basis over the new offering period. The modifications did not have a material effect on our stock-based compensation expense during the years ended December 31, 2024, 2023, and 2022. As of December 31, 2024 and 2023, we have withheld $ 1.1 million and $ 1.3 million of contributions from its employees. During the years ended December 31, 2024, 2023 and 2022, we recognized $ 5.3 million, $ 7.6 million and $ 12.2 million of stock-based compensation expense related to the ESPP, respectively. Determination of Fair Value of the ESPP We estimate 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. 96 Table of Contents 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: Year Ended December 31, Valuation Assumption Inputs 2024 2023 2022 Expected term (in years) 0.5 - 2.0 0.5 - 1.5 0.5 - 2.0 Stock price volatility 48.3 % - 57.2 % 47.4 % - 77.3 % 55.8 % - 84.5 % Risk-free interest rate 4.29 % - 5.41 % 4.47 % - 5.38 % 1.54 % - 4.62 % Dividend yield 0.00 % 0.00 % 0.00 % Stock Options Stock options are generally granted with an exercise price equal to the fair market value of a share of common stock at the date of grant, have a 10-year contractual term, and vest over a four-year period. Stock option activity during the year ended December 31, 2024 is as follows (in thousands, except per share data): Share Information: Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1) Balance as of December 31, 2023 2,395 $ 10.39 7.0 $ 31,368 Assumed and converted options from acquisition (Note 6) 512 $ 3.26 Stock options exercised ( 338 ) $ 0.26 Balance as of December 31, 2024 2,569 $ 10.3 7.4 $ 15,066 Options vested and expected to vest as of December 31, 2024 2,569 $ 10.3 7.4 $ 15,066 Options exercisable as of December 31, 2024 1,262 $ 11.08 6.3 $ 6,425 (1) Aggregate intrinsic value for stock options represents the difference between the exercise price and the per share fair value of our common stock as of the end of the period, multiplied by the number of stock options outstanding, exercisable, or vested. Total intrinsic value of options exercised during the years ended December 31, 2024, 2023, and 2022 was $ 5.4 million, $ 6.8 million, and $ 5.9 million, respectively. The weighted-average grant date fair value per share of the assumed and converted stock options related to the D42 Parent, Inc. acquisition was $ 11.09 for the year ended December 31, 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). The weighted-average grant date fair value of stock options granted was $ 8.26 per share during the year ended December 31, 2022. There were no options granted during the years ended December 31, 2024 and 2023. Determination of Fair Value of Stock Options We estimate the fair value of stock options 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 following table summarizes the valuation assumptions used in estimating the fair value of stock options assumed and granted for the years presented: Year Ended December 31, Valuation Assumption Inputs 2024 2022 Expected term (in years) 6.0 6.1 Stock price volatility 65.0 % 65.0 % Risk-free interest rate 4.29 % 3.37 % 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. 97 Table of Contents RSU activity, which includes PRSUs, during the year ended December 31, 2024 is as follows (in thousands, except per share data): Share Information: Number of Shares Weighted-Average Grant Date Fair Value Unvested, as of December 31, 2023 26,755 $ 18.44 Granted (1) 17,482 $ 19.01 Vested (2) ( 9,747 ) $ 18.47 Forfeited/Cancelled (3) ( 12,693 ) $ 19.02 Unvested, as of December 31, 2024 21,797 $ 18.54 (1) During the year ended December 31, 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 year ended December 31, 2024 total shares that vested were 9.7 million, of which 3.7 million shares 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 years ended December 31, 2024, 2023, and 2022 were $ 180.0 million, $ 175.3 million, and $ 235.0 million, respectively. Performance-Based Awards Executive Chairman Awards In May 2019, the Board approved a grant of 166,390 shares PRSUs to our then CEO, now current Executive Chairman. The vesting of these PRSUs is contingent upon the satisfaction of certain milestones. The revenue-related milestone and the liquidity event condition were met prior to December 31, 2021. Upon completion of the milestones, the time-based vesting was the only condition yet to be satisfied over the remaining requisite service period. All shares related to this grant were vested as of December 31, 2023. In September 2021, the Board approved a grant of 6,000,000 PRSUs to our Executive Chairman, with a time-based service condition beginning January 1, 2022, and a market condition involving five separate stock price targets 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. The fair value of the 2021 Executive Chairman Performance Award was determined at grant date by using the Monte Carlo simulation model, which requires certain complex valuation assumption inputs such as measurement period, expected stock price volatility, risk-free interest rate and dividend yield. The valuation assumptions using the Monte Carlo simulation model at the date of grant were: Valuation Assumption Inputs Measurement period (in years) 7.0 Stock price volatility 60.0 % Risk-free interest rate 1.12 % Dividend yield — % As a result of macroeconomic conditions outside the control of our 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 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. We 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 is 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. 98 Table of Contents For the year ended December 31, 2024, we recognized $ 19.4 million, of stock-based compensation expense related to the 2024 Executive Chairman Award. For the years ended December 31, 2024, 2023 and 2022 we recognized $ 4.6 million (prior to modification), $ 28.1 million and $ 27.6 million of stock-based compensation expense associated with the 2021 Executive Chairman Performance Award, respectively. 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 Freshworks’ achievement of revenue and free cash flow targets, respectively. The performance targets allow our 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 our common stock on the date of grant. Stock-based compensation associated with these Executive PRSUs is recognized using the accelerated attribution method over the requisite service period, based on Freshworks' periodic assessment of the probability that the performance will be achieved. For the year ended December 31, 2024, we recognized $ 5.0 million of stock-based compensation expense related to the Executive PRSUs. Stock-Based Compensation Total stock-based compensation expense recorded for the years ended December 31, 2024, 2023, and 2022 was as follows (in thousands): Year Ended December 31, 2024 2023 2022 Equity awards: Cost of revenue $ 6,565 $ 6,774 $ 7,039 Research and development (1) 41,512 37,524 36,413 Sales and marketing (2) 63,219 66,755 64,328 General and administrative (3) 105,410 99,654 99,916 Stock-based compensation, net of amounts capitalized 216,706 210,707 207,696 Capitalized stock-based compensation 1,358 1,758 1,665 Total stock-based compensation expense $ 218,064 $ 212,465 $ 209,361 (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) Sales and marketing expense for the years ended December 31, 2024, 2023, and 2022 includes $ 6.5 million, $ 9.6 million, and $ 3.2 million , respectively, of stock-based compensation expense associated with RSUs, PRSUs and options granted to the President. After the appointment of the President as our Chief Executive Officer, stock-based compensation expenses were included in General and Administrative. (3) General and administrative expense includes stock-based compensation associated with RSUs and PRSUs granted to our Executive Chairman of $ 50.4 million, $ 55.9 million and $ 55.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024, unrecognized stock-based compensation expense related to unvested stock-based awards was as follows (in thousands, except for period data): December 31, 2024 Unrecognized Stock-Based Compensation Weighted-Average Period to Recognize Expense (in years) RSUs and PSUs $ 349,675 2.6 Stock options 7,503 1.6 ESPP 5,392 1.1 Total unrecognized stock-based compensation expense $ 362,570 13. Restructuring Charges In November 2024, the Board approved a restructuring plan as a part of our efforts to align our talent with our strategic priorities and to improve operating efficiency. As a result, during the year ended December 31, 2024, we have recorded 99 Table of Contents restructuring charges of $ 9.7 million in our consolidated statements of operations, which consist of severance costs of $ 8.1 million and other related-personnel and exit costs of $ 1.6 million. We expect to complete the restructuring plan by the end of the second quarter of fiscal year 2025. The following table shows the total amount incurred and accrued related to restructuring charges (in thousands): Amount Accrued restructuring costs as of December 31, 2023 $ — Restructuring charges incurred during the period 9,664 Amounts paid during the period 7,314 Accrued restructuring costs as of December 31, 2024 $ 2,350 The remaining balance of $ 2.4 million as December 31, 2024, primarily related to severance and is included in accrued liabilities in our consolidated balance sheets. 14. Income Taxes Our net loss before provision for income taxes for the years ended December 31, 2024, 2023, and 2022 was as follows (in thousands): Year Ended December 31, 2024 2023 2022 Domestic $ ( 130,763 ) $ ( 165,144 ) $ ( 252,261 ) Foreign 39,926 41,375 31,471 Total $ ( 90,837 ) $ ( 123,769 ) $ ( 220,790 ) The components of the provision for income taxes for the years ended December 31, 2024, 2023, and 2022 were as follows (in thousands): Year Ended December 31, 2024 2023 2022 Current: Domestic $ 3,381 $ 2,810 $ 2,137 Foreign 13,792 12,179 11,610 Deferred: Domestic ( 14,165 ) — — Foreign 1,523 ( 1,322 ) ( 2,405 ) Total provision for income taxes $ 4,531 $ 13,667 $ 11,342 The following is a reconciliation of the federal statutory income tax rate to our effective tax rate for the years ended December 31, 2024, 2023, and 2022: Year Ended December 31, 2024 2023 2022 Federal income tax 21.0 % 21.0 % 21.0 % Stock-based compensation ( 23.9 ) ( 16.9 ) ( 1.6 ) Change in valuation allowance 4.3 ( 6.4 ) ( 22.4 ) Foreign tax rate differential ( 4.9 ) — — Earnings from foreign subsidiaries ( 2.1 ) ( 1.8 ) ( 1.2 ) Uncertain tax positions ( 3.2 ) ( 2.1 ) — U.S. taxes on foreign operations 3.5 ( 4.8 ) — Other items 0.3 — ( 0.9 ) Total provision for income taxes ( 5.0 ) % ( 11.0 ) % ( 5.1 ) % 100 Table of Contents The components of our net deferred tax assets as of December 31, 2024 and 2023, were as follows (in thousands): December 31, 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 58,907 $ 81,373 Foreign tax credit carryforwards 8,489 5,999 Capitalized R&E under IRC 174 98,274 65,478 Stock-based compensation 6,705 3,672 Accruals and reserves 9,965 8,948 Depreciation and amortization — 3,328 Allowance for uncollectible accounts 412 1,003 Operating lease liability 9,518 6,877 Total deferred tax assets 192,270 176,678 Less: valuation allowance ( 151,738 ) ( 154,788 ) Deferred tax assets, net of valuation allowance 40,532 21,890 Deferred tax liabilities: Commissions ( 6,102 ) ( 5,926 ) Depreciation and amortization ( 17,159 ) — Operating lease right-of-use assets ( 8,772 ) ( 5,951 ) Net deferred tax assets $ 8,499 $ 10,013 We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute the business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed. Our valuation allowance increased by $( 3.1 ) million and $ 8.7 million during the years ended December 31, 2024 and 2023, respectively. The Tax Cuts and Jobs Act of 2017 (TCJA) made a significant change to Internal Revenue Code Section 174, which went into effect for taxable years beginning after December 31, 2021. The change requires Companies to capitalize specific research and experimental (R&E) expenditures and amortize over five years for U.S. incurred R&E or fifteen years for foreign incurred R&E beginning on January 1, 2022. This mandatory capitalization requirement does not have a material impact on the 2023 cash tax liabilities due to sufficient tax attributes. We have not provided U.S. income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries because we intend to permanently reinvest such earnings outside the United States. Net Operating Loss and Credit Carryforwards As of December 31, 2024, we have U.S. federal net operating loss (NOL) carryforwards of approximately $ 237.9 million. If not utilized, the federal NOL carryforwards will begin to expire in 2034. For the federal NOL carryforwards arising in tax years beginning after December 31, 2017, which represents the majority of our federal NOL carryforwards, the Tax Act limits our ability to utilize carryforwards to 80% of taxable income; however, these NOLs may be carried forward indefinitely. As of December 31, 2024, the NOL carryforwards for all the states in the United States is $ 146.8 million. If not utilized, the state NOL carryforwards will begin to expire in 2025. As of December 31, 2024, we also have federal tax credits carryforwards of $ 8.1 million. If not utilized, the credits will begin to expire in 2027. Utilization of the NOL carryforwards may be subject to a substantial annual limitation due to the ownership change provisions of IRC Section 382 and similar state provisions. The annual limitation may result in the expiration of NOL carryforwards before utilization. We continually monitors the impact to net operating losses of any ownership changes. 101 Table of Contents Unrecognized Tax Benefits We have adopted authoritative guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in our income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We recognize financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has no likelihood of being realized upon ultimate settlement with the relevant tax authority. As of December 31, 2024 and 2023, we had gross unrecognized tax benefits of $ 8.1 million and $ 5.6 million, respectively, all of which would affect the effective tax rate, if recognized, after consideration of valuation allowance. The following table presents a reconciliation of the beginning and ending amount of the unrecognized tax benefits (in thousands): Year Ended December 31, 2024 2023 Unrecognized gross tax benefits at the beginning of the period $ 5,634 $ 3,647 Increases related to prior year tax positions 449 — Decreases related to prior year tax positions — ( 22 ) Increases in current year unrecognized benefits 2,061 2,009 Unrecognized gross tax benefits at the end of the period $ 8,144 $ 5,634 We recognize interest and penalties related to income tax matters as a component of income tax expense. Accrued interest of $ 2.2 million and $ 1.4 million has been recorded as of December 31, 2024 and 2023, respectively. Our major tax jurisdictions are India and the United States and we also files income tax returns in various U.S. states and foreign jurisdictions. Carryover attributes beginning December 31, 2008, remain open to adjustment by the U.S. federal and state authorities. The U.S. federal, state, and foreign jurisdictions have statutes of limitations that generally range from three to five years. Due to our net losses, substantially all of its federal and state income tax returns are subject to examination since inception. We are under examination in India and have appealed our case to the tribunal court. As of December 31, 2024, we are waiting the results of the appeal. We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years. As the outcome of our tax audits are resolved in a manner inconsistent with management's expectations, we could adjust our provision for income taxes in the future. 15. Net Loss Per Share Basic net loss per share attributable to common stockholders is computed by dividing the net loss by the number of weighted-average outstanding shares of common stock. Diluted net loss per share attributable to common stockholders is determined by giving effect to all potential common equivalents during the reporting period, unless including them yields an antidilutive result. We consider our stock options and RSUs as potential common stock equivalents, but excluded them from the computation of diluted net loss per share attributable to common stockholders for the periods presented, 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 102 Table of Contents 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): Year Ended December 31, 2024 2023 2022 Numerator: Net loss $ ( 95,368 ) $ ( 137,436 ) $ ( 232,132 ) Net loss attributable to Class A and Class B common stockholders - basic and diluted $ ( 95,368 ) $ ( 137,436 ) $ ( 232,132 ) Denominator: Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders - basic and diluted 300,843 293,087 284,587 Net loss per share attributable to Class A and Class B common stockholders - basic and diluted $ ( 0.32 ) $ ( 0.47 ) $ ( 0.82 ) 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): Year Ended December 31, 2024 2023 2022 RSUs and PRSUs 21,797 26,755 32,253 Stock options 2,569 2,395 2,758 ESPP 96 109 124 Total 24,462 29,259 35,135 103 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.