With a 19% increase in consolidated sales to $153.6 million, Freshworks plans to reach $1 billion in revenue by 2026

 With a 19% increase in consolidated sales to $153.6 million, Freshworks plans to reach $1 billion in revenue by 2026

In Q3, Freshworks' non-GAAP income increased to $17 million, compared to a $3.1 million loss the previous year. Starting in Q1 of 2024, the company intends to monetize its Freddy AI products.

Freshworks, a Software-as-a-Service (SaaS) company listed on the Nasdaq, announced on November 1st, 2023, that its consolidated revenue for the third quarter of 2023 increased by 19% year over year to $153.6 million. This revenue exceeded the company's own projections of $149–$151 million, thanks to the addition of new customers and the retention of large ones.

In the third quarter of 2022, the company's non-GAAP loss from operations was $3.1 million, while its non-GAAP income from businesses was $17.4 million.

"We delivered another solid quarterly of performance and we outperformed the market's estimates across major key macroeconomic metrics," Freshworks Chief Executive Officer The work of Girish Mathrubootham said on the corporation's November 1st results call.

According to Dennis Woodside, the company's chief financial officer, the company's expansion drivers for the quarter include adding new clients, particularly big ones. He made this announcement during the results call.

"The company added approximately 1000 net customers during the quarter raising the overall number to 66,600 individuals of Freshworks...we are targetting larger and higher producing customers and in Q3 customers that generated more than $50,000 in ARR grew 32% year-on-year" , stated Woodside.

The firm said that its goal of generating $1 billion in sales by 2026 is being approached by the growth drivers.

"The combination of significant clients and the SMB opportunity gives us an outstanding GTM strategy and we believe this will fastrack accelerate us to the goal of reaching $1 billion in turnover in the next three years," said Woodside.

Direct rival of Freshworks, Zoho, claimed to have generated $1 billion in sales in 2022.

More important metrics

In the third quarterly period of 2022, Freshworks' GAAP (Loss from Operations) was $58.3 million, whereas it was $38.7 million in 2022.

Freshworks recorded $145 million in sales and $11 million in non-GAAP profit for the second quarter of 2023.

Generally Accepted Accounting Principles, or GAAP for short, is a set of widely accepted principles and guidelines for financial reporting in accounting. On the other hand, the effect of payroll taxes on employee stock transactions, amortization of acquired intangibles, along with other adjustments is not included in non-GAAP financial statements.

The company's operational costs for the quarter were $166 million, of which $90 million was allocated to sales and marketing.

Compared to a loss of $57 million in the third quarter of 2022, the company's net loss for the reviewed quarter was $32 million.

macroeconomic strain

Customers providing over $5,000 in ARR accounted for 19,551 of the total, up 17% from the previous year but growing at a quarterly rate. 19,105 clients contributed more than $5,000 in ARR (Annual Recurring Revenue) during the second quarter of 2023.

The net dollar retention rate of the firm, a crucial indicator of the spending power of current clients, increased by 108% in Q3 but remained stagnant. This indicates that the company is maintaining the same rate of client retention from the previous quarter.

This occurs at a time when the SaaS ecosystem as a whole is slowing down. Big transactions have cooled down, and current clients are reconsidering how much they are paying on SaaS products.

"The effects of macroeconomic pressure have been taken into account in our calculations... Mathrubootham said on the call, "We anticipate the pressure to have an impact on our expansion revenue, but other variables are driving us in the right path.

Freshworks reported a negative free cash flow of $7.2 million in the third quarter of 2022. As of September 30, 2023, the company's cash, cash equivalents, and marketable securities were valued at $1.16 billion.

Getting Paid for AI Products

The company said in the earnings announcement that it unveiled an AI-powered customer assistance Suite that unites self-service bots, agent-led speaking messaging, and an automated ticketing leadership solution by combining Freshchat, Freshdesk, and the company's generative artificial intelligence technology, Freddy AI. This, despite the fact that the company committed to making huge investments in AI last quarter.

"We will start making money from the Freddy AI chat capabilities from Q1 of the coming year," Mathrubootham said.

Prospects

Despite Q4 sales showing a marginal gain of $156-$159 million, Freshworks projects its entire revenue to reach $593-$596 million in 2023.

From an earlier estimate of $24–$32 million, the business has raised its non-GAAP operating income expectation to $38.5 to $41 million.

Additionally, the company raised its free cash flow projections for the whole year by $15 million to $75 million.