Girish Mathrubootham - Chief Executive Officer Tyler Sloat - Chief Financial Officer Joon Huh - Vice President of Investor Relations.

Good afternoon, and welcome to the Freshworks Third Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this call is being recorded.

I will now like to introduce your host for today's conference, Joon Huh, Vice President of Investor Relations. You may proceed. .

Thank you. Good afternoon and welcome to Freshworks third quarter 2021 earnings conference call. Joining me today are Girish Mathrubootham, Freshworks Chief Executive Officer and Tyler Sloat, Freshworks Chief Financial Officer.

The primary purpose of today's call is to provide you with information regarding our third quarter 2021 performance and our financial outlook for our fourth quarter and full year 2021.

Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on Freshworks current expectations and estimates about its business and industry, management's beliefs and certain assumptions made by the company as of the date hereof, all of which are subject to change.

These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements.

For a discussion of material risks and other important factors that could affect our results, please refer to today’s earnings release, our final prospectus related to our Initial Public Offering filed with the SEC on September 21, 2021 and our other periodic filings with the Securities and Exchange Commission.

Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this presentation, except as required by law. During the course of today's call, we will refer to certain non-GAAP financial measures.

Reconciliations between GAAP and non-GAAP financial measures are included in our earnings release, which is available on our investor relations website at ir.freshworks.com. I encourage you to visit our Investor Relations site to access our earnings release, periodic SEC reports, a replay of today's call or to learn more about Freshworks.

And with that, let me turn the call over to Girish. .

Thank you, Joon, and good afternoon everyone. Welcome to our first earnings call as a Public Company. We met many of you during our road-show, but for those of you that are new to the Freshworks story, I would like to start by sharing our mission. Freshworks makes it fast and easy for every business to delight their customers and their employees.

We do that by offering modern and intuitive customer engagement and employee engagement software. Freshworks is a global software company with customers in over 120 countries and more than 4,400 employees who operate out of 13 offices globally.

We have three main product lines, Freshdesk for omni-channel customer experience, Freshservice for IT Service Management and Employee Engagement, Freshsales Suite for sales and marketing automation. All of our products utilize services from our Neo platform, which provides shared services for rapid innovation.

We design our products to deliver delight to the frontline users of our software. Additionally, they are designed for rapid onboarding, quick time to value and offer a lower total cost of ownership.

Our fresh approach to business software is what got us to where we are and what will continue to differentiate us in three large established markets, with a total addressable market of $120 billion. So let me quickly summarize our first quarter as a public company. Freshworks had another good quarter of growth in Q3.

Total revenue for the quarter what $96.6 million, growing 46% year-over-year. We now have over 14,000 paying customers who are paying us more than $5,000 in annual recurring revenue and driving the vast majority of our business.

We saw strong expansion activity from our existing customers and made real improvement on gross retention, resulting in a net dollar retention rate of 117%. Our CFO, Tyler Sloat, will offer more details on that shortly. Our product led growth strategy continues to be the biggest driver of new business for us.

This is augmented by an outbound sales team and a partner network to serve our customers from SMB to larger enterprises. We define our SMB market as companies with up to 250 employees. Anything greater we define as mid-market and enterprise.

Freshworks continues to grow and attract larger customers, and today we have a majority of our business coming from mid-market and about. In Q3 we added more than 50 new channel partners globally in addition to extending our ISV partnerships.

We are very pleased with the positive customer response to our products and are proud of the continued industry validation we are receiving. In Q3 Freshworks was recognized by Gartner as a challenger in the 2021 Magic Quadrant for IT Service Management Tools.

This follows their early recognition of Freshworks as a visionary in the 2021 Magic Quadrant for the CRM Customer Engagement Center. Additionally, TrustRadius recognized us for top IT Asset Management and ITSM in 2021.

This quarter, our modern, intuitive and easy to use products continue to make their way into companies of all sizes, gaining recognition and delivering value or businesses across many industries. We welcome Fortune 500 companies like Philips and Toyota Connected India, who are using Freshservice to enable IT Service Management.

Fast growing tech companies like ForgeRock, Lucidworks and Smashburger, a restaurant chain headquartered in Denver implemented Freshservice to connect their global employees with IT support. Scotch and Soda, a global fashion retailer is also using Freshservice to enable IT functions for more than its 1,500 team members.

Today, as every business is looking to engage with customers online, our Freshdesk product continues to see greater adoption.

For example, the world's largest international beauty retailer Watsons implemented Freshdesk to help support their online buyers, while Hunter College in New York relies on Freshdesk to help current and prospective students during their admissions and registration process.

We will be highlighting many of our customers next week at our Refresh Conference on November 11. We hope you can join us online to learn about our latest product innovations and hear from customers on how Freshworks promise of delight made easy helps their businesses.

Last month, I had the opportunity to travel to India and spend two weeks in our office in Chennai. It was energizing to be back for the first time since 2020. I was able to meet new employees and work side-by-side with many of our product and engineering leaders.

It was great to hear that many of our employees are excited to come back to the office, which is why I am happy to announce that as of yesterday we are fully reopened our offices in Chennai with our other global offices to follow shortly. In Q3 we continued to invest in the strong teams we have in place, welcoming hundreds of new employees.

We promoted Pam Sergeeff to Chief Legal Officer of Freshworks, further adding to the breadth of our executive team. We strengthened our bored by adding two industry veterans, Zach Nelson former CEO of NetSuite and Jennifer Taylor, Chief Product Officer at Cloudflare as Independent Directors.

In closing, I want to thank our employees, customers and partners for helping us get to where we are today. We believe we have huge opportunities to keep growing and delighting more customers every quarter. I will now turn it over to Tyler to share more on our financial results. .

Thanks G, and a warm welcome to all of you joining us on the webcast. We enjoyed meeting many of you, our shareholders and analysts over the last few months as we went through the IPO process. I look forward to our public company and journey together in the coming years.

For our initial call as a public company, let me cover a few different areas today. First, I’ll review our business model and provide a financial framework for how we think about managing Freshworks.

Next I'll cover the highlights from our third quarter, including key operating metrics and financial results; and finally, I'll close with our views on our journey ahead and our guidance for Q4 and full year 2021. As G mentioned earlier, we offer three main product lines, two of which are at scale.

Freshdesk for the customer support market, and Freshservice with IT service management market. We're in the early stages and continue to scale our third main product line, Freshsales and we are optimistic about the long term opportunity in the sales and marketing automation space.

With these three product lines, we also have three go-to-market motions, starting with a highly efficient inbound Product-Led Growth motion as companies find our products through digital channels and online search.

We coupled a POG motion with our outbound motion, which includes field sales reps to help serve our larger customers in the bid market and above. The third leg of our go-to-market motion is our partner ecosystem, around the world that helps expand our reach to serve our customers where they are located.

Our business model supported by an efficient financial framework that allows us to continue investing for growth, while making the incremental improvements to drive operating leverage in the business. This provides us the flexibility to invest and double down on key areas of our business, while maintaining a healthy marketing structure.

Starting with cost of revenue and gross margins, we're running at really healthy levels. Our non-GAAP gross margins have averaged around 80% over the last several quarters and they improved over 82% in Q3. I'll cover more on that later.

Looking at our operating expenses, we managed our sales and marketing spend through a number of internal efficiency metrics, comparing our sales and marketing costs to our incremental revenue. We regularly benchmark our efficiency metrics versus our peers.

We are also making R&D investments to continue driving our product development and technical innovation cycles. Because we are able to top technical talent in areas like Chennai, we can invest in a meaningful yet efficient manner.

For G&A costs, we're increasing investment this year as we have a number of public company costs, some of which will be ongoing. More importantly, we expect to gain operating leverage over time as we scale the business.

With our broad product offerings across three big markets, we have a huge market opportunity, so we will continue investing to drive long term growth for Freshworks. Turning to our Q3 results. W delivered another solid quarter of growth in our first quarter as a public company.

As a reminder, I’ll focus most of my discussion around our non-GAAP numbers for Q3 results. These non-GAAP numbers exclude the impact of stock based compensation and related expenses, amortization of acquired intangibles, historical acquisition related expenses and other adjustments.

In Q3 we delivered healthy revenue growth of 46% year-over-year, resulting in $96.6 million for the quarter. While the revenue growth rate is lower relative to Q2, this is very much expected as our Q2 growth benefited meaningfully from a favorable comparison arising from a COVID impacted quarter last year.

As I mentioned earlier, our non-GAAP gross margins increased over 82%. This is primarily driven by more efficient spend on certain service provider agreements and ongoing improvements for infrastructure spend in the quarter.

While we're pleased with the improvement in the quarter, we generally target our non-GAAP gross margins in the 80% range as we manage the business. Our non-GAAP operating expenses increased by $28.5 million versus the prior period – prior year to $81.4 million.

This is mainly driven by increased investments in our teams for R&D, sales marketing and G&A as we meaningfully added to our Freshworks family over the past 12 months.

More specific marketing, we increased our advertising branding PR and event cost by $5.5 million compared to last year, as we created more awareness for our products in the marketplace. In G&A we made important investments in personnel and infrastructure to prepare for operations as a public company.

All this led to a non-GAAP operating loss of $1.5 million for Q3 as we improved our non-GAAP operating margin by 4.5% quarter-over-quarter. Looking at our GAAP operating expenses, I should note that we have a large impact from stock based compensation and related expenses of $138 million in Q3.

This was related to our IPO which resulted in a significant RC vesting event, and a large catch up expense for SPC. Going forward we expect SPC to be more normalized – to be at more normalized levels of approximately $45 million per quarter. Turning to our key operating metrics, we continue to see good business momentum in the quarter.

We saw robust expansion activity as our net dollar retention rate was 117% for Q3, up 8 percentage points compared to the prior year. Our customer teams are making good improvements to our gross retention rate and we have benefited from an FX tailwind of 1% year-over-year.

As a reminder, we calculate net dollar retention rate on a trailing 12 month basis comparing our customers beginning and ending ARR. Given the customer segments we operate in, including SMB, we believe our business model supports 110% plus net dollar retention rate longer term.

Our second key operating metrics, customers contributing more than $5,000 in ARR grew to 14,079 or 31% year-over-year, which reflects a net add of over 3,300 customers. These customers consistently drive the vast majority of our business and represent 84% of our ARR.

Similar to our Q2 results, when we look at larger customers, those that contribute more than $50,000 in ARR, this number grew 73% to 1,263 and reflects a net add of over 525 customers representing 39% of our ARR. We're pleased to see that our easy to use products continue to resonate with customers and organizations of all sizes around the globe.

Moving to our balance sheet and cash flow items. Our calculated billings, which is the sum of our revenue and change in deferred revenue in the quarter was $109.3 million in Q3, growing 41% year-over-year.

Similar to the revenue growth dynamic, we expected calculated billings growth for Q3 to be lower than Q2 due to the favorable comparison for Q2 last year. While our billings duration mix had a minimal impact on the growth rate in Q3, we had a headwind of a few percentage points to growth related to reserves and commissions.

In terms of cash, we ended the quarter with more than $1.3 billion in cash and cash equivalents. This includes a net proceeds from the IPO of $1.07 billion, free cash flow of negative $4.2 million, an additional $24 million in proceeds from the sale of an earlier investment in a private company.

Today we have a strong balance sheet to support the growth of our business. We have had really healthy growth throughout the year and we continue to support that with an efficient financial model. Even with growth investments and increase public company expenses in Q4, we expect to be roughly free cash flow breakeven for the quarter.

Lastly, our diluted share count as of the end of the quarter, September 30, 2021, was approximately $323 million shares. Some final thoughts before I turn to our financial outlook. We have a huge opportunity in front of us. We are playing in large established markets of customer support, ITSM and sales and marketing.

We're seeing good momentum in our product adoption and gaining more market recognition. We are adding both new and larger customers and seeing robust expansion across our customer base. We are investing to fuel our growth as we go after this massive opportunity. 2021 continues to be a big investment year for us.

We are adding to our go-to-market teams around the world to expand our market presence. We are investing in the ongoing innovation of our easy-to-use products and we're creating the infrastructure to operate efficiently and deliver value as a public company.

Looking ahead to Q4, this includes an increase in our expense base resulting from ongoing investments in our personnel, higher infrastructure and insurance costs as a public company and increased marketing and events costs as travel opens up. Now, let me turn to our estimates for the fourth quarter and full year 2021.

For the fourth quarter of 2021 we expect revenue to be in the range of $99 million to $101 million. Non-GAAP loss from operations to be in the range of $13.5 million to $11.5 million and non-GAAP net loss per share to be in the range of $0.07 to $0.05, assuming weighted average shares outstanding of approximately $269.1 million.

For the full year 2021 we expect revenue to be in the range of $364.5 million to $366.5 million, non-GAAP loss from operations to be in the range of $21 million to $19 million and non-GAAP net loss per share in the range of $0.22 to $0.20, assuming weighted average shares outstanding of approximately 130.4 million.

Let me close by saying that we are excited about a great journey ahead and look forward to partnering with our shareholders. And with that, let us take your questions.

Operator?.

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

Oh great! Thanks guys. Congratulations on nice results to your first quarter as a public company. I wanted to ask about the enterprise activity that you saw in the quarter. It sounds like you're seeing some traction there with some of the larger accounts.

Could you remind us kind of where the focus is in the up market business? Where do you draw the line and where is the opportunity for the company from here?.

Hi Brad! Thanks for the question. So we continue to focus across three go-to-market motions. So we have our product led inbound growth motion, which the majority of the customers there are SMB customers, which is companies of less than 250 employees.

But having said that, we also get teams from larger enterprises come inbound and they are handed off to our mid-market sales teams. So we have our mid-market, field teams in the region in U.S., Europe predominantly. They go after larger accounts.

So if you look at the split, it’s still is around I would say 60/40 mid-market to SMB approximately, so… and we are seeing if you look at Q3 specifically, I think customers who paid us more than 50K ARR, that grew, that number grew at 73% year-over-year. .

That's great to hear. Thank you so much. And then, one more if I may please. Just on, with the Neo Platform, I know there's a aggressive roadmap to build out, more modules within the stack that you have, and then in other categories like sales which you mentioned is early.

Where is the focus in the near term, and are there some deliverables that we should be kind of keeping an eye out on for product extensions and adds going forward. Thank you. .

One for our customers, we want Neo to offer a unified product expedient. So whatever services that we offer in terms of single sign-on or a 360 degree view of the customer across sales and marketing and eventually support custom objects and a bunch of other services, Neo Platform allows customers to have a better unified expedient.

For developers and SI partners Neo Platform offers a market place where they can build apps and today we have more than 1,100 public apps and customers can build – have built thousands of private apps to extend the power of Freshworks platform.

So that is also an area where we continue to invest in the capabilities of what can be accomplished in an app, so – and you’ll also see some exciting announcements at a press conference next week.

And the third is for our own developers, internal developers, where we have what is known as foundational services; where all of our products can use like services like email processing at scale or chat messages, listening to chats, all of that is part of Neo platform which gives us product velocity and innovation.

So across all of these three areas we continue to execute on the Neo platform..

Thanks great to hear. Thanks so much Girish. .

Thank you, Brad..

Thanks Brad..

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

Perfect! Thank you so much guys and congratulations on your first public quarter; very well done. Maybe I'm just following up, a little bit more detail on Brad’s question.

As you look into the big Q, what are you seeing in your pipeline as far as the demand for the up market portion of your business across all the different products that you have and then I have a quick follow up for a financial question?.

So, thanks Stan. I think we are always looking at ways to improve our pipeline and so we have a mix of programs across our different go-to-market motions.

So like our marketing teams and sales teams are kind of investing in the events together, increasing word of mouth, so we are bringing up some new campaigns to take the omni-channel customer service or even IT engagement, employee engagement in a post pandemic world.

So we have multiple targets for new and expansion, so I think we don't have a specific number to give out for pipeline, but there is a ton of activity that we are doing to see how we can improve pipeline across both inbound and mid-market..

Got it. But just maybe more broadly right, what are you seeing as far as your customers’ budgets as you go into Q4.

You know, are you seeing any weakness or is it just you know steady momentum versus what you've seen through Q2 and Q3 now?.

Hey Stan, this is Tyler. No, we’re seeing stage momentum.

I mean we have some seasonality in our business, specifically in our mid-market and enterprise business and from that, that's where we do track pipe obviously and it's solid you know globally right now, but you know our presence is mainly in North America and Europe and that's where we have our field reps out there.

As a reminder, you know we also have this progged like growth inbound motion, and that's not really something you consider in your pipe. It's more about how many customers are in trial and those trials typically convert less than 30 days. So we're tracking both obviously to be able to get a sense of it and growth is good, it's solid. .

Okay, perfect! Very helpful. And Tyler, since you’re already on, net revenue retention, you know obviously in a state elevated very impressive on June 17 in the quarter and you talked about the 110 level as the kind of more normalized.

But how should we think about the past from this 117 to more normalized 110 or you know alternatively is there a possibility that this would continue to stay elevated for quite some time as you continue to sell this really broad portfolio of products you have, as well as just the trailing 12 month nature of the metric. .

Yeah, no, we had talked down the road, so just remember that. We do expect to be more this 110 plus kind of low teen’s net dollar retention. We do expect declines there to get to that kind of longer term number. That being said, we're super pleased with the quarter and the performance.

I think the investments we've made, you know obviously in the product, but also in customer success and the way we’re engaging with our customers has helped us on the gross retention and we said we've been making improvements on that incrementally, and then our expansion motion is doing really well as well. That is primarily agents, right.

That's a very organic motion, but also cross sells. .

Perfect! Thanks guys..

Thanks Stan..

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

Yes, thank you, I'll add my congrats. Girish, are there any products that you're incubating that are outside of the three or four main products you usually refer to, which are particularly exciting in terms of market potential. I think we see some of them alluded to from time-to-time, Freshteam, Freshping, Freshrelease, Freshcaller.

There’s a bunch of others that are a little less in the spotlight and I'm just wondering how you feel about some of those incubating products?.

Yeah, thanks Mark. So let me first say that we have plenty of opportunity in the three main product categories, which were playing in three really large markets.

But as a company that's focused on innovation, we'd always like to bring more innovation to the market, and primarily the – if you look at Freshteam, so that is an incubation product in another very large market, which is HRMS, but it's still very early days for us and so we are not really – let call it like it’s still in incubation, right, so… And I think if you mention Freshping and Freshrelease, they are more like premium products which act as lead gen machines for us, where we are bringing the right set of customers like people who are monitoring websites, IT folks who could later on be upsold to Freshservice.

So that’s the primary reason for Freshping and Freshstatus. Freshrelease is more of a project management tools that’s integrate into Freshservice. That’s sold as part of Freshservice as a unified ITSM product with project management. So Freshteam is really the incubation product that is in HR space.

It could be like big in future, but right now it’s in incubation. .

Okay, got it, thank you. And then Tyler, as a quick follow up, what was the effect that I think you said created a few points of headwind on the billings results. I just didn’t quite hear that description.

And then do you happen to have the RPO numbers or do we wait until the 10-Q is released for this?.

Yeah so, hey Mark, let me start with the second piece of RPO. It will be in the 10-Q. Its $199 million for the quarter. Again, RPO is not super meaningful for us, because we're not signing a ton of contracts that are greater than one year, but it is higher than deferred revenue, so that number is out there.

In terms of calculated billings, right, $109.3 million and I said hey! We had a little bit of headwinds on kind of reserves and things like that. What that is, is last year in Q2, which was COVID impacted, we had to reserve out a ton of stuff, and then in Q3 a lot of that got reversed.

And so then you look at the compare now, we're kind of running more in our normal run rate, but it actually is not as much of a benefit as we got last year, so that gives you a few points of headwind there, which I think we’ll come out of. In general, we expect you know billings to kind of track with revenue growth. .

Understood, thank you. .

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

Hi! This is [inaudible] on the Brent Thill. Congrats on a great first quarter! I wanted to first ask a question to Girish. Girish, maybe talk a little bit about that expansion opportunity, specifically with the larger customers.

You know it's impressive that you had this 73% growth, but could you talk a little bit about what products they were adopting and is there an opportunity there to sell them multiple products within the suite that you have?.

Sure, thanks love [ph]. So okay, there are two parts alike. Let me first talk about the enterprise or the larger customers. So predominantly we land larger customers with either Freshdesk or Freshservice.

So if you look at most of the top, large customers for Freshworks, they are all Freshdesk omni-channel customers, who are usually think of them as scaled B2C companies where the agent volumes are high and automation needs are high, and the support through digital channels also is increasing because of digital transformation, so.

And Freshservice being more mid-market, we also see that segment play into typically larger customers. So we land most of the mid-market and above deals with either Freshdesk omni-channel or with Freshservice. Now, in terms of expansion, like the primary expansion motion for both these products is addition of agents.

Now – and also these two products, it worth understanding that they are complementary products and there's no natural cross-sell motion between these two. But moving forward, like what we expect to see is, and we are already seeing some signs of that as our Freshsales product that is new.

We are able to actually sell Freshsales into an existing Freshdesk customer, where they are able to buy Freshdesk and Freshsales or sometimes Freshsales and Freshmarket along with Freshdesk. So that is a cross-sell motion that we think will continue to happen as our Freshsales product matures and gets more adoption. .

That's very helpful. And maybe one for Tyler. I wanted to dig in a little bit onto Stan’s question earlier around net dollar retention.

As we head into 2022, should we be expecting this elevated level to continue, especially as you see the improvement on gross retention, could you maybe talk a little bit around that?.

Yeah, thanks love [ph]. No, we do expect longer term to be kind of this 110 to low teen’s net dollar retention business. Obviously we're going to make every effort possible to continue to delight our existing customers and also get them to adopt more of our products and use the products that they have.

And right now I think we're doing a good job at that, but we would expect that number to come down. .

Got it. Thank you. .

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

Hi Girish and Tyler, congrats on the new question – excuse me, congrats on the new quarter and thanks for taking my questions. I guess two here Girish. I wanted to talk about the partner impact in the quarter.

You mentioned signing more than 50 new partners in the third quarter, but how would you characterize the overall impact of your kind of other partners on the new sales in the quarter?.

So I think Scott, if you look at the partner impact on our overall business, I would say that partners contribute to approximately 15% of our business. That number hasn’t really moved much from what we talked during the roadshow.

So I think our inbound PSG brings in about 55% of new business for us, our outbound is around 30 and then partners contribute to 15%. But we are constantly adding partners and again, we have a ton of app developer partners, but here we are calling out the channel partners who actually resell our products. .

Got it, helpful, thank you.

And then Tyler, on the billings in the quarter, any sense on what the mix looks like between monthly billings and annual billing for the shift significantly in the quarter versus you know what we’ve seen in the last couple of quarters?.

Hey Scott, no there wasn't really any shift in kind of the tenure of the billings mix. I think we've broken that out in the past, its 60% something as annual and that's about the same as it was in the quarter. .

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

Thanks Scott..

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

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

Yeah, no, we’re pleased with customer growth. Obviously Raimo we're focused on all segments of the business, so we've got this long tail of SMB’s that we’re closing and we think we figured out how to do that really efficiently.

We – and then we have our kind of our field presence that we're closing you know larger organizations in the mid-market and low enterprise in the partner segment. When you look at our growth, you know in the greater than 5K and then the growth in greater than 50K, you are seeing solid growth.

Now, the other thing though to mention is that, you know our revenue growth is not just coming from the customer growth. We’ve actually done a pretty good job at increasing ARPA across our customer base.

So then our growth vectors are really bringing in new customers, but also getting the customers that we have to buy more and we've been doing well on both fronts. .

Okay, perfect! Thank you. And then Girish more for you. Like if you think you – you know you have a real innovation engine out there, because you can see what applications on the enterprise are working and you can kind of to some degree kind of think about what's needed in the SMB and mirror that like.

Can you talk a little bit about like, you know the opportunity there to add more functionality and you know we talked already earlier about some of the products and incubation, etc. But like how do you see that kind of opportunity in the long run? Thank you. .

Yeah, so I think a broadly if look at where the industry is moving, so that are - like if you look at the world of customer service, so we are looking at a consolidation of customer service channels, like omni-channel customer service, where companies are trying to blend in traditional channels of support with modern digital channels and bringing in automation in those channels, so that is definitely a trend.

If you look at ITSM, in the Freshservice market. So clearly you can see modern employee engagement, especially when employees are working from home, how do you like enable them to get whatever they want from the business and keep the IT workflows running, so that's a trend.

But the most, the biggest opportunity and trend that we see is the breaking down of the silos between sales and marketing and support with a 360 degree product vision and you can see large enterprises buying a customer data platform and trying to integrate their Sales Cloud and their Marketing Cloud and their Service Cloud to kind of build the custom 360 profile.

So we think that customer 360 will become a product category on its own and more and more businesses will start to, like want to understand their customers better and want a product experience for that.

That is what we see as a big opportunity and that allows us to sell more to customers, because today they are, the buying centers are still buying for sales or marketing or support.

But we'll be able to offer them a more complete solution and the good news is we are architected to as a plug-and-play where customers can start where they want, but then add on more. So I think that is where the industry is going. .

Perfect! Thank you. Sounds exciting. .

Thanks Raimo. .

Thank you. .

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

Yeah, hi! Thanks for taking my questions. Congratulations on your first quarter! I had a follow up on the resellers that you added in the quarter. I was just wondering if there is a specific geography or specific market segments that these new channel partners are focused on. .

I think there is no specific geography that is worth calling out. So we generally kind of focus on adding partners across the globe, but there tends to be like – in non-English speaking markets is where we tend to add more partners, because it helps us reach and service their customers better.

But if you look at our revenue mix today, like we are – like what would traditionally be called international by a company, like everything outside of North America. So that is close to – I would say – like for us North America is 42% of revenue. Europe, Middle East and Asia is about 40% plus approximately, and the rest of the world is 16%.

So we are still heavily International, so around close to approximately 58%, 60% international. .

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

No. Hey Brian! This is Tyler. No, it was really consistent. We didn’t see any kind of movement in one area versus another this quarter. I think if anything you know, we've got our inbound motion which is completely global, right. That is just accessing kind of, you can imagine almost every single country out there.

And then our field presence is really Europe and North America primarily with smaller presence in areas like Australia. And so just in terms of our bookings, we would expect from the mid-market to enterprise, more of it to come from North America and Europe which it does. .

Thank you for taking my questions. .

You bet Brian. .

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

Good afternoon and happy Diwali! Girish there's a clear talent shortage in the U.S. This has emerging as new risk factor for a lot of growth companies. I'd be curious to hear if you're seeing a similar talent shortage scenario in Chennai.

I mean, outside looking in it seems like having a large engineering footprint in India could be an advantage, but I’d just love to hear your thoughts on the talent, your ability to hire, particularly given your footprint there in Chennai..

Yeah, happy Diwali to you too Brent. So I think, globally every couple understands that talent is super critical right, and I think we are seeing – we really think that our location advantage with having access to a high quality talent in India is a strategic advantage for us. We have like all of our R&D there, and so we are able to kind of attract.

So we are the most preferred SaaS start up to work for in India now and definitely the best one in Chennai. So I think those are what I would call as advantages for us.

But if you look at the start up activity that’s happening etc., so I think every company, and also the post pandemic world, like there is always a demand for talent and I think we are probably better off than most companies, thanks to our advantage of being based in Chennai. .

Helpful color there. I guess Tyler a follow-up for you here. I know Freshdesk and Freshservice are the products stars here. But I'll be curious around the momentum you're seeing.

I know it’s early with Freshsales, but are you seeing that expand the land footprint for new customers? Are you seeing that being kind of cross sold in the installed base? Any sort of early color around Freshsales and the early kind of wins you have there? Is there any sort of like cohort or pattern developing on the type of customers that are embracing Freshsales would be helpful? Thanks..

Hey Brent! We are actually – so it's all of the about there. We have customers who are coming in at pretty large scale and choosing Freshsales as their CRM of choice. One of our active motions is looking at our Freshdesk customers and really having them take the advantage of having Freshsales and Freshmarket.

So they have this unified view of their customer which we are seeing you know really good initial feedback on. And then, you know obviously for customers in the SMB all the way up, it’s a very attractive solutions, because it's so easy on-board and really, really use quickly.

And so to answer your question, I think the larger motions are probably going to be on the SMB to the mid-market, but there's definitely some larger companies that we are winning there as well. It's early though, I’d like to say. .

Definitely appreciate the feedback there, I appreciate it certainly. But color there is super helpful. Thank you again. .

You bet. .

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

Thanks for taking the question and congrats on a really strong quarter. Just one from me. If you think about the SMB opportunity out there, I'm curious what you're seeing in terms of customers potentially looking at this customer 360 vision.

Are they at the point where they are looking to buy multiple products at the same time or are we still in an environment where it's kind of starting with one, seeing the vision and adding on. Obviously that maybe some sort of an evolution, but I'm curious, when you see that potentially changing for the smaller customers out there? Thank you. .

Yeah. Thanks Brian. I think, see today customers are – like even if they are buying from three different vendors, they are buying three products. Like a good example would be like a SMB B2C brand that's trying to sell online, right.

So they are, when they are trying to support customers on digital channels, so they are buying a support solution and then they may want to buy a marketing solution to run marketing campaigns on like digital channels like WhatsApp or Instagram or text messaging based on which part of the world they are in.

And they also have bots and automation for like self-service of customer. So they are buying like two or three different products. So if we have, like what we offer is a suite strategy for customers to be able to buy, like a combined solution.

They are not just calling it 360, these SMB customer, but they are looking at how can we engage with customers and have one platform to engage with customers. So I think its happening as we speak. .

Great! Thank you. .

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

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

So, I think it’s kind of both, where a lot of it is – the pull happen through our product laid growth motion. As I already mentioned, 55% of our new business comes through our inbound channel, but not all of that is SMB, right. So some of it is teams from larger companies, so that is part of it, feeding.

But we also have a mid-market team which is going outbound, running events and campaigns, generating leads. So it is like we have investments in GTM to go after larger customers. We also have product led motion contributing to that, so it's a mix of both. .

Okay, got it. And Tyler, you got a handful of questions on billings. And just given you're still new to the public markets, maybe you could just talk about like the usefulness of billings as a leading indicator on growth. I mean some companies say like, yeah it's pretty good if you look at it on a rolling four quarter basis.

Other companies say like, no don't pay any attention.

Like where do you guys stand on that?.

I think in general, and thanks for the question DJ. I think in general billings will track our revenue growth in the longer term. For us what we had said in the roadshow, if we saw any extreme anomalies in billings, we’ll call them out. Our calculated billings were you know 41% and they, I did say already.

So we called out the anomalies that we saw, that created some headwinds in the billings number, but in general we were pleased, really pleased with the results.

For us, if we see a meaningful change in our billing mix, meaning that the way customers are paying us, whether that’s annual or monthly, because unlike a lot of enterprise software companies who have mainly annual or even sometimes multi-year payments up front, we have a mix of customer, right.

We have this long tail of SMB and a lot of those customers are paying us monthly. And so if we see a change in that, that would cause some anomalies in the billings number, we will call it out on the calls. .

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

Thanks a lot. .

Thank you. .

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

Great! Thank you. One for each of you, if that’s okay. So G, I love that you went with Zach Nelson as a Board Member. I’m sure most people on this call know, but anyway he ran NetSuite for 15 years before it was sold to Oracle.

And I'm sure you had your choice of people to put in that seat, and I would just love to hear what the factors were that caused you to pick Zach. .

No, first of all Zach is a fantastic leader with great public company experience. Has seen scale taking NetSuite to like $1 billion of revenue and beyond and even post the acquisition from Oracle he was leading it. Really adds to our Board capability in terms of having like good public company experience, and adding to our governance.

I think, more importantly Zach is not on like five or six Boards. Like he has the time to spend with and mentor us. NetSuite if you think, was the original, the first like SaaS Company selling to a lot of SMB midmarket customers. So that experience and the domain experience, all of that, it was super hard.

We were glad that Zach was available for us, right. And so I think he is an incredible mentor. .

Yeah, great. And then Tyler two sort of quick ones for you. First of all, you're not guiding to specifically, but any comments that you can make about how investors should think about growth next year, I think would be generally appreciated.

And then also, just any sort of quick summary on the early lock up release, just so that’s on top of people's minds. .

Okay, yeah for sure. Thanks Pat. So we are not commenting on next year right now. Obviously I think we’ll do that as we end our Q4. But for in terms of the early lock-up, we put out a press release on Friday. This was something that was part of the S1 and negotiated as part of going public. We trigger a 20% unlock across our employee base.

That will come on Thursday, but what’s you know important to note, that’s across the entire base of prior shareholders, which clearly that's not all going to hit the market on Thursday. The one thing that we know will hit the market is just the sale recovers for tax purposes of RCUs and that should be executed. .

Great! Thank you very much. .

Thanks Pat. .

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

Great! Thanks guys for taking my question. Thanks Girish, thanks Tyler. Just one and then a quick follow up. Obviously a lot of mid-market strength here from you guys, and you know I know Freshservice where you guys have traditionally landed.

But just wondering on a couple of fronts, whether you're noticing any shift on that land with the Freshdesk product being so strong and heavily in demand as mid-sized companies try to digitally transform and kind of how those relative pipelines look headed into Q4. And then I just had a quick follow up. Thanks. .

Yeah, I think both products operate in large markets and we are seeing healthy growth across both. So in terms of comparison, I think Freshservice probably, like is growing a little bit faster than Freshdesk because of the smaller base, and so Freshdesk being our largest product.

But we see continued demand, because these are two completely different set of buyers, different dynamics. So I think in Freshservice market, I think we are the best alternative to service now, and we are seeing a lot of demand from the mid-market where we are getting pulled into those deals.

In Freshdesk side, I think it’s a little bit more fragmented where we have companies or customers of all sizes, right, from SMBs to the really large companies coming to us. And so, it's a more diverse set of customer base. .

Got it. That’s helpful Girish. And then you know, I know you mentioned at the outset that you guys have the user conference next week and probably for a lot of investors that will be, public market investors that will be the first one they’ve attended.

So just curious Girish from our perspective, or Tyler if there is anything you guys wanted to point to. I know there was a question earlier about Neo, maybe a little early to get a lot there, because just was curious from a product evolution perspective, platform perspective, if there's anything we should keep our eyes out for next week in Vegas.

Thanks guys. .

Yeah, I think I would like to invite all of you to join virtually, and so we have some exciting announcements, customer stories and platform announcements to make. So it’s mostly virtual. We are limiting the physical presence due to COVID, but I would like to invite you to attend. .

Great! Thanks again. .

Thanks Rob. .

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

Hi, this is Joshua Tilton on for Alex. Thanks for taking my questions. First I was hopping, could you just comment on what you are seeing from a demand perspective, and if you could just maybe compare in contrast relative to pre-pandemic levels. .

Hey Joshua, this is Taylor, I’ll take that. Demand is strong. I mean we, you know in pre-pandemic it was strong. We are growing fast then. I mean all our historical numbers are there and I think we're still growing at an incredible pace.

Clearly we saw in the SMB side as we went through COVID, there was customers who experienced pain specific to some verticals, hospitality, travel, things like that. But as we talked about you know the growth rates and how last quarter benefited from a strong or a weak prior year, we also talked about how we came out of it in Q3 of last year.

I know a lot of our customers came out of it, and then we saw acceleration even from digital transformation, which is just kind of core to what we do, specifically because our products are so easy to use and get on board. So we saw a lot of customers take advantage of that, and I think that's still continuing today. .

And maybe just as a quick follow up, any comments on the competitive landscape? Maybe if you could just mention which of your competitors are you seeing your win rates go up against across your three product areas?.

So I think if you really look at our three product areas and look at it across three, our primarily two go-to-market motion. So in the product led motion, like predominantly in Freshdesk we compete against say Zendesk or we compete against Service Cloud on the enterprise side or legacy players like Oracle or SAP.

So on the inbound side we don't track a lot of win rates because customers come online and they, it's more assisted buying rather than conservative selling. So we see wins across, in mid-markets specifically we track all of these win rates, but we see deals that we win against Zendesk in Freshdesk.

In Freshservice we actually win against Atlassian or ServiceNow, meaning we go on to back-off with ServiceNow, so we have won against them. So we don’t have any win rates to disclose per say, because we are still tracking it at different levels. But I can talk to you about who are the competition that we see in each one of these markets. .

Thank you. .

[End of Q&A]:.

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