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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 001-40806
Freshworks Inc.
(Exact name of registrant as specified in its charter)
Delaware
2950 S Delaware Street, Suite 201
33-1218825
(State or other jurisdiction of incorporation or organization)
San Mateo, CA 94403
(I.R.S. Employer Identification No.)
(Address of Principal executive offices)
(650) 513-0514
Registrant's telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.00001 per share
FRSHThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ☒   No  ☐ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
        
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   ☐      No  
As of October 28, 2022, the number of shares of registrant’s Class A common stock outstanding was 161,102,744 and the number of shares of the registrant’s Class B common stock outstanding was 126,814,106.




FRESHWORKS INC.
TABLE OF CONTENTS
Page
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
1


SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding our annual recurring revenue (ARR), revenue, expenses, and other operating results;
our ability to acquire new customers and successfully retain existing customers;
our ability to increase the number of users who access our platform;
our ability to increase usage of existing products;
our ability to effectively manage our growth, including any international expansion;
the effects of fluctuations in the value of foreign currencies relative to the U.S. dollar;
our ability to achieve or sustain profitability;
future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
the costs and success of our sales and marketing efforts, and our ability to maintain and enhance our brand;
the estimated addressable market opportunity for existing products and new products;
our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
our ability to protect our intellectual property rights and any costs associated therewith;
the effects of the coronavirus, or COVID-19, pandemic or other public health crises;
our ability to operate our business and effectively manage our growth under evolving and uncertain macroeconomic conditions, such as high inflation and recessionary environments;
our ability to compete effectively with existing competitors and new market entrants; and
the size and growth rates of the markets in which we compete.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
Where You Can Find More Information
We announce material information to the public through a variety of means, including filings with the U.S. Securities and Exchange Commission, press releases, public conference calls, our website (freshworks.com) and the investor relations section of our website (ir.freshworks.com). We use these channels to communicate with investors and the public about our company, our products and services and other matters. Therefore, we encourage investors, the media and others interested in our company to review the information we make public in these locations, as such information could be deemed to be material information.
3


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FRESHWORKS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
September 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$432,313 $747,861 
Marketable securities719,218 575,679 
Accounts receivable, net of allowance of $5,500 and $6,030
56,835 51,756 
Deferred contract acquisition costs18,282 14,640 
Prepaid expenses and other current assets42,431 31,440 
Total current assets1,269,079 1,421,376 
Property and equipment, net23,381 21,478 
Operating lease right-of-use assets28,821 — 
Deferred contract acquisition costs, noncurrent17,598 15,007 
Intangible assets, net579 1,894 
Goodwill6,181 6,181 
Deferred tax assets5,396 6,284 
Other assets12,050 10,592 
Total assets$1,363,085 $1,482,812 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$3,873 $6,321 
Accrued liabilities57,447 55,829 
Deferred revenue190,969 160,173 
Income tax payable65 1,023 
Total current liabilities252,354 223,346 
Operating lease liabilities, non-current24,630 — 
Other liabilities26,098 21,427 
Total liabilities303,082 244,773 
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.00001 par value per share; 10,000,000 shares authorized as of September 30, 2022 and December 31, 2021; zero shares issued and outstanding as of September 30, 2022 and December 31, 2021
  
Class A common stock, $0.00001 par value per share; 1,000,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 150,644,801 and 50,554,821 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
2  
Class B common stock, $0.00001 par value per share; 350,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 136,437,496 and 222,739,562 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
1 3 
4

FRESHWORKS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
September 30, 2022December 31, 2021
Additional paid-in capital4,516,386 4,509,724 
Accumulated other comprehensive loss (8,790)(747)
Accumulated deficit(3,447,596)(3,270,941)
Total stockholders' equity1,060,003 1,238,039 
Total liabilities and stockholders' equity$1,363,085 $1,482,812 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)




Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue$128,760 $96,614 $364,829 $265,542 
Cost of revenue24,179 22,236 70,616 57,632 
Gross profit104,581 74,378 294,213 207,910 
Operating expense:
Research and development35,871 57,087 100,885 91,377 
Sales and marketing86,865 96,785 248,369 188,155 
General and administrative40,133 60,759 117,723 76,785 
Total operating expenses162,869 214,631 466,977 356,317 
Loss from operations(58,288)(140,253)(172,764)(148,407)
Interest and other income, net2,249 22,923 2,609 23,428 
Loss before income taxes(56,039)(117,330)(170,155)(124,979)
Provision for (benefit from) income taxes1,804 (9,915)6,500 (7,720)
Net loss(57,843)(107,415)(176,655)(117,259)
Accretion of redeemable convertible preferred stock (2,264,838) (2,646,662)
Net loss attributable to common stockholders - basic and diluted$(57,843)$(2,372,253)$(176,655)$(2,763,921)
Net loss per share attributable to common stockholders - basic and diluted$(0.20)$(24.72)$(0.62)$(32.96)
Weighted average shares used in computing net loss per share attributable to common stockholders - basic and diluted286,697 95,930 283,258 83,860 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net loss$(57,843)$(107,415)$(176,655)$(117,259)
Other comprehensive loss:
Unrealized loss on marketable securities(2,481)(18)(8,043)(431)
Comprehensive loss$(60,324)$(107,433)$(184,698)$(117,690)
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited)
Three Months Ended September 30, 2022
Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders'
(Deficit) Equity
SharesAmountSharesAmount
Balances as of June 30, 2022 $ 285,558 $3 $4,475,669 $(6,309)$(3,389,753)$1,079,610 
Issuance of common stock upon exercise of stock options— — 34 — 3 — — 3 
Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes— — 1,490 — (13,230)— — (13,230)
Stock-based compensation— — — — 53,944 — — 53,944 
Unrealized loss on marketable securities— — — — — (2,481)— (2,481)
Net loss— — — — — — (57,843)(57,843)
Balances as of September 30, 2022 $ 287,082 $3 $4,516,386 $(8,790)$(3,447,596)$1,060,003 
Three Months Ended September 30, 2021
Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Deficit
SharesAmountSharesAmount
Balances as of June 30, 2021153,938 $3,276,920 77,756 $1 $— $(2)$(3,088,790)$(3,088,791)
Accretion of redeemable convertible preferred stock— 2,264,838 — — (2,264,838)— — (2,264,838)
Conversion of redeemable convertible preferred stock into common stock upon initial public offering(153,938)(5,541,758)153,938 2 5,541,756 — — 5,541,758 
Issuance of common stock upon initial public offering, net of underwriting discount and offering expenses— — 31,350 — 1,062,453 — — 1,062,453 
Issuance of common stock upon exercise of stock options— — 73 — 12 — — 12 
Stock-based compensation— — — — 124,717 — — 124,717 
Unrealized loss on marketable securities— — — — — (18)— (18)
Net loss— — — — — — (107,415)(107,415)
Balances as of September 30, 2021 $ 263,117 $3 $4,464,100 $(20)$(3,196,205)$1,267,878 

8

FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited)
Nine Months Ended September 30, 2022
Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders'
(Deficit) Equity
SharesAmountSharesAmount
Balances as of December 31, 2021 $ 273,294 $3 $4,509,724 $(747)$(3,270,941)$1,238,039 
Issuance of common stock upon exercise of stock options— — 389 — 106 — — 106 
Issuance of common stock upon vesting and settlement of restricted stock units, net of shares withheld for taxes— — 12,889 — (152,330)— — (152,330)
Issuance of common stock under employee stock purchase plan, net of shares withheld and retired for taxes— — 510 — 6,959 — — 6,959 
Stock-based compensation— — — — 151,927 — — 151,927 
Unrealized loss on marketable securities— — — — — (8,043)— (8,043)
Net loss— — — — — — (176,655)(176,655)
Balances as of September 30, 2022 $ 287,082 $3 $4,516,386 $(8,790)$(3,447,596)$1,060,003 
Nine Months Ended September 30, 2021
Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Deficit
SharesAmountSharesAmount
Balances as of December 31, 2020153,938 $2,895,096 77,619 $1 $ $411 $(2,697,153)$(2,696,741)
Accretion of redeemable convertible preferred stock— 2,646,662 — — (2,264,869)— (381,793)(2,646,662)
Conversion of redeemable convertible preferred stock into common stock upon initial public offering(153,938)(5,541,758)153,938 2 5,541,756 — — 5,541,758 
Issuance of common stock upon initial public offering, net of underwriting discount and offering expenses— — 31,350 — 1,062,453 — — 1,062,453 
Issuance of common stock upon exercise of stock options— — 210 — 43 — — 43 
Stock-based compensation— — — — 124,717 — — 124,717 
Unrealized loss on marketable securities— — — — — (431)— (431)
Net loss— — — — — — (117,259)(117,259)
Balances as of September 30, 2021 $ 263,117 $3 $4,464,100 $(20)$(3,196,205)$1,267,878 
The accompanying notes are an integral part of these condensed consolidated financial statements.
9

FRESHWORKS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
20222021
Cash Flows from Operating Activities:
Net loss$(176,655)$(117,259)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization8,574 9,792 
Amortization of deferred contract acquisition costs13,321 9,085 
Non-cash lease expense4,463 — 
Stock-based compensation150,652 124,259 
Premium amortization on marketable securities564 1,206 
Gain realized on sale of marketable securities and non-marketable equity investment (23,835)
Change in fair value of equity securities(75)(100)
Deferred income taxes309 (11,721)
Other1,468 133 
Changes in operating assets and liabilities:
Accounts receivable(5,256)(10,039)
Deferred contract acquisition costs(19,554)(17,032)
Prepaid expenses and other assets(12,374)(14,823)
Accounts payable(1,962)(542)
Accrued and other liabilities3,874 18,517 
Deferred revenue30,796 38,975 
Operating lease liabilities(7,837)— 
Net cash (used in) provided by operating activities(9,692)6,616 
Cash Flows from Investing Activities:
Purchases of property and equipment(5,288)(4,056)
Proceeds from sale of property and equipment132 565 
Capitalized internal-use software(3,828)(3,050)
Sale of non-marketable equity investment 23,979 
Purchases of marketable securities(538,501)(154,828)
Sales of marketable securities92,786 36,831 
Maturities and redemptions of marketable securities293,625 112,554 
Net cash (used in) provided by investing activities(161,074)11,995 
Cash Flows from Financing Activities:
Proceeds from initial public offering, net of underwriting discounts 1,069,348 
Proceeds from issuance of common stock under employee stock purchase plan, net7,011  
Proceeds from exercise of stock options98 43 
Payment of withholding taxes on net share settlement of equity awards(151,716) 
Payment of deferred offering costs(109)(5,472)
Payment of acquisition-related liabilities (900)
Net cash (used in) provided by financing activities(144,716)1,063,019 
Net (decrease) increase in cash, cash equivalents and restricted cash(315,482)1,081,630 
Cash, cash equivalents and restricted cash, beginning of period747,864 98,331 
Cash, cash equivalents and restricted cash, end of period$432,382 $1,179,961 
Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets:
Cash and cash equivalents$432,313 $1,179,958 
Restricted cash included in prepaid expenses and other current assets3  
Restricted cash included in other assets66 3 
Total cash, cash equivalents and restricted cash$432,382 $1,179,961 
Supplemental cash flow information:
Cash paid for taxes$9,550 $6,981 
Non-cash investing and financing activities:
Operating lease right-of-use assets obtained in exchange for operating lease obligations$8,968 $ 
Stock-based compensation capitalized as internal-use software$1,275 $458 
Deferred offering costs$ $1,423 
Accretion of redeemable convertible preferred stock$ $2,646,662 
The accompanying notes are an integral part of these condensed consolidated financial statements.
10


FRESHWORKS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.Business, Basis of Presentation and Summary of Significant Accounting Policies
Description of business
Freshworks Inc. (Freshworks, or the Company) is a software development company that provides modern software-as-a-service (SaaS) products that are designed with the user in mind. The Company was incorporated in Delaware in 2010 and is headquartered in San Mateo, California.
In September 2021, the Company completed its initial public offering (IPO), in which it issued and sold 31,350,000 shares of its newly authorized Class A common stock at $36.00 per share. The Company received proceeds of approximately $1.1 billion from the IPO, net of underwriters’ discounts and offering expenses.
Upon completion of the IPO, certain shares of Class B common stock then outstanding (excluding shares of Class B common stock issued upon conversion and reclassification of the redeemable convertible preferred stock described below) were automatically converted to Class A common stock on a one-to-one basis, unless an option to remain as Class B common stock was elected by the holder. In addition, all shares of redeemable convertible preferred stock then outstanding were converted into 153,937,730 shares of common stock on a one-to-one basis and then reclassified into Class B common stock.
Upon the Company's IPO, the liquidity event condition was met for all restricted stock units (RSUs). RSUs that had already met the service condition at that date were entitled to one share of Class B common stock for each vested RSU.
In September 2021, the Company also completed a 10-for-one forward stock split of the Company's authorized, issued and outstanding stock. All share and per share information included in the accompanying condensed consolidated financial statements and notes thereto have been adjusted on a retrospective basis to reflect the stock split.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Consolidated Financial Statements
The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations, of comprehensive loss, of cash flows, and of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2022 and 2021, and the related notes to such condensed consolidated financial statements are unaudited. These unaudited condensed consolidated financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2022 and its results of operations and cash flows for the three and nine months ended September 30, 2022 and 2021. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
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The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 23, 2022.
Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the following:
determination of standalone selling price (SSP) for each distinct performance obligation included in customer contracts with multiple performance obligations;
allowance for doubtful accounts;
expected benefit period of deferred contract acquisition costs;
capitalization of internal-use software development costs;
fair value of acquired intangible assets and goodwill;
useful lives of long-lived assets;
valuation of deferred tax assets;
valuation of employee defined benefit plan;
fair value of share-based awards, including performance-based awards; and
incremental borrowing rate used for operating leases.
Risk and Uncertainties
The COVID-19 pandemic has already had an adverse effect on the global economy and the ultimate societal and economic impact thereof still remains uncertain. Additionally, inflationary pressures, significant volatility in the global markets and geopolitical conflicts have also led to further economic disruption. These macroeconomic uncertainties could adversely affect demand for the Company’s products and services, lead to longer sales cycles, reduce the value or duration of subscriptions, negatively impact collections of accounts receivable, reduce expected spending from new customers, cause some of the existing customers to go out of business, not expand or grow their businesses and affect contraction or attrition rates of the Company’s customers, all of which could adversely affect the Company’s business, results of operations, and financial condition. The Company is not aware of any specific event or circumstances related to the pandemic, or other events that would require it to update estimates or judgments or adjust the carrying value of its assets or liabilities. Actual results could differ from those estimates and any such differences may be material to the consolidated financial statements.
Concentrations of Risk
Financial instruments that potentially expose the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. The Company’s cash 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, the Company has cash and cash equivalents held in international bank accounts, which are denominated primarily in Euros, British Pounds, and Indian Rupees.
There were no customers that individually exceeded 10% of the Company’s revenue for the three and nine months ended September 30, 2022 and 2021 or that represented 10% or more of the Company’s consolidated accounts receivable balance as of September 30, 2022.
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The Company primarily relies upon its third-party cloud infrastructure partner, Amazon Web Services, to serve customers and operate certain aspects of its services. Any disruption of this cloud infrastructure partner would impact the Company's operations and its business could be adversely impacted.
Significant Accounting Policies
The Company's significant accounting policies are described in the Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to these policies that have had a material impact on the condensed consolidated financial statements and the related notes for the three and nine months ended September 30, 2022, with the exception of the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) as described below. See also Recently Adopted Accounting Pronouncements for more detail on the adoption.
Leases
The Company leases office space under operating leases with expiration dates through 2031. The Company determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use (ROU) assets on its condensed 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 the Company's incremental borrowing rate (the estimated rate the Company 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. Lease liabilities due within 12 months are included within accrued liabilities on the Company's condensed consolidated balance sheets. The incremental borrowing rate is based on an estimate of the Company's expected unsecured borrowing rate for its notes, adjusted for tenor and collateralized security features. 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 the Company. The Company does 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, the Company records rent expense in its condensed consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred.
Recent Accounting Pronouncements
New accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) under its Accounting Standards Codification (ASC) or ASU and adopted by the Company as of the specified effective date.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as ROU assets with corresponding lease liabilities and eliminates certain real estate-specific provisions. The Company adopted this standard effective January 1, 2022 on a modified retrospective basis, and as such, results in comparative periods were not restated. As a result of the adoption, the Company recognized operating ROU assets of $24.3 million and operating lease liabilities of $28.8 million in its condensed consolidated balance sheets on the adoption date. The Company has elected certain available practical expedients, which allow it to forego the reassessments of (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification of any expired or existing leases, and (iii) initial direct costs for any existing leases. The Company has also elected to combine lease and non-lease components for commercial lease arrangements. Additionally, the Company elected not to recognize operating ROU assets and the associated operating lease liabilities for leases with a term of 12 months or less from the lease commencement date.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets by requiring an allowance to be recorded as an offset to the amortized cost
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of such assets. The standard primarily impacts the amortized cost of the Company's available-for-sale debt securities. The Company adopted this standard on January 1, 2022 using the modified retrospective approach, which did not result in a material impact on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The standard eliminates certain exceptions related to the approach for intraperiod tax allocation and the methodology for calculating income taxes in an interim period. The standard also simplifies aspects of accounting for franchise taxes and enacted changes in tax or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis for goodwill. The Company adopted this standard effective January 1, 2022, which did not result in a material impact on its condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. ASU 2021-08 will become effective for the Company on January 1, 2023, to be applied prospectively to business combinations occurring on or after the effective date of the ASU, with early adoption permitted. The Company adopted this standard effective January 1, 2022, which did not result in a material impact on its condensed consolidated financial statements.
2.Revenue From Contracts with Customers
Revenue
The Company derives revenue from subscription fees and related professional services. The Company sells subscriptions for its cloud-based solutions directly to customers and indirectly through channel partners through arrangements that are non-cancelable and non-refundable. The Company’s 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. The Company records revenue net of sales or value-added taxes.
Disaggregation of Revenue
The following table summarizes revenue by the Company’s service offerings (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Subscription services$125,508 $94,312 $355,298 $257,827 
Professional services3,252 2,302 9,531 7,715 
Total revenue$128,760 $96,614 $364,829 $265,542 
See Note 12 for revenue by geographic location.

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Deferred Revenue and Remaining Performance Obligations
Deferred revenue consists of customer billings in advance of revenue being recognized from the Company’s subscription and professional services arrangements.
Revenue recognized during the three months ended September 30, 2022 and 2021 from amounts included in deferred revenue at the beginning of these periods was $86.2 million and $61.6 million, respectively. Revenue recognized during the nine months ended September 30, 2022 and 2021 from amounts included in deferred revenue at the beginning of these periods was $146.9 million and $95.6 million, respectively.
The aggregate balance of remaining performance obligations as of September 30, 2022 was $277.4 million. The Company expects to recognize $218.7 million of the balance as revenue in the next 12 months and the remainder thereafter. The aggregate balance of remaining performance obligations represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods.
Deferred Contract Acquisition Costs
The change in the balance of deferred contract acquisition costs during the periods presented is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Balance at beginning of the period$33,592 $23,604 $29,647 $18,273 
Add: Contract costs capitalized during the period6,913 6,032 19,554 17,032 
Less: Amortization of contract costs during the period(4,625)(3,416)(13,321)(9,085)
Balance at end of the period$35,880 $26,220 $35,880 $26,220 

3.Cash Equivalents and Marketable Securities
Cash equivalents and available-for-sale debt securities consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash equivalents:
Money market funds$266,193 $— $— $266,193 
U.S. treasury securities44,363 4  44,367 
U.S. government agency securities80,225 14 (1)80,238 
Corporate debt securities4,889   4,889 
Total cash equivalents395,670 18 (1)395,687 
Debt securities:
U.S. treasury securities421,677 11 (4,434)417,254 
U.S. government agency securities201,499 1 (3,277)198,223 
Corporate debt securities103,358  (1,108)102,250 
Total debt securities726,534 12 (8,819)717,727 
Total cash equivalents and debt securities$1,122,204 $30 $(8,820)$1,113,414 
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December 31, 2021
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash equivalents:
Money market funds$684,485 $— $— $684,485 
U.S. treasury securities22,000   22,000 
U.S. government agency securities4,286  (1)4,285 
Corporate debt securities15,998   15,998 
Total cash equivalents726,769  (1)726,768 
Debt securities:
U.S. treasury securities442,715 2 (432)442,285 
U.S. government agency securities75,725  (159)75,566 
Corporate debt securities54,335 17 (175)54,177 
Total debt securities572,775 19 (766)572,028 
Total cash equivalents and debt securities$1,299,544 $19 $(767)$1,298,796 
The following table presents gross unrealized losses and fair values for the securities that were in a continuous unrealized loss position as of September 30, 2022 (in thousands):
September 30, 2022
Less than 12 monthsGreater than 12 monthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. treasury securities$361,963 $(4,316)$8,885 $(118)$370,848 $(4,434)
U.S. government agency securities196,721 (3,277)  196,721 (3,277)
Corporate debt securities40,458 (847)14,604 (261)55,062 (1,108)
Total$599,142 $(8,440)$23,489 $(379)$622,631 $(8,819)
As of December 31, 2021, the securities in a continuous unrealized loss position for 12 months or longer were not material.
The amortized cost and fair value of the available-for-sale debt securities based on contractual maturities are as follows (in thousands):
September 30, 2022
Amortized CostFair Value
Due within one year$542,730 $538,146 
Due after one year but within five years183,804 179,581 
Total$726,534 $717,727 
Accrued interest receivable of $1.8 million was classified in prepaid expenses and other current assets in the condensed consolidated balance sheet of as September 30, 2022.
In addition to available-for-sale debt securities, marketable securities also include term bond mutual funds, which are measured at fair value. As of September 30, 2022 and December 31, 2021, the fair value of the term bond mutual funds was $1.5 million and $3.7 million, respectively.
The change in fair value of the term bond mutual funds is recorded in interest and other income, net in the condensed consolidated statements of operations. The realized and unrealized gains recognized in the condensed
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consolidated statements of operations for the term bond mutual funds were not material during the three and nine months ended September 30, 2022 and 2021.
Prior to September 2021, the Company had non-marketable equity investments in privately held entities which have no readily determinable fair values. These investments were recorded at cost, less impairment. In September 2021, the Company sold its interest in a privately held entity for proceeds totaling $24.0 million, resulting in a gain of $23.8 million, which was recorded in interest and other income, net, in the condensed consolidated statements of operations.
4.Fair Value Measurements
The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are observable and reflect quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.
Level 3—Inputs that are unobservable.
Money market funds and U.S. treasury securities are classified within Level 1 because they are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Other debt securities and investments are classified within Level 2 if the investments are valued using model driven valuations which use observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Available-for-sale debt securities are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.
The Company did not have any assets or liabilities subject to fair value remeasurement on a nonrecurring basis as of September 30, 2022 and December 31, 2021.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022
Fair Value Measured Using
Level 1Level 2Total
Financial assets:
Cash equivalents:
Money market funds$266,193 $ $266,193