Freshworks surpasses $500 million ARR in 2022, plans to break even by Q3 of 2023

In Q4, Freshworks added approximately 1,800 new customers and ended up with more than 63,400 total customers, said CEO Girish Mathrubootham

Nasdaq-listed software-as-a-service major Freshworks reported consolidated revenue from operations of $498 million for the full year 2022, up around 34 percent year-on-year, with its annual recurring revenue (ARR) for 2022 exceeding $500 million mainly on account of new business wins.

During the fourth quarter ended December 2022, the company reported a revenue of $133 million, up nearly 26 per cent year-on-year.

“In this environment, as companies are seeking greater value for their IT spend, we are seeing that Freshworks' value proposition resonates more than ever. In Q4, we added approximately 1,800 new customers to our growing base and ended up with more than 63,400 total customers,” said the company’s Chief Executive Officer Girish Mathrubootham while announcing the fourth quarter results on February 8.

The company’s new customer base include players like the San Francisco 49ers, Finchoice, Mahindra, Supara, St. Marche, and Yulu Bikes.

“Despite macroeconomic uncertainty throughout the year, I am pleased with our focus on product innovation, expansion, and new business which drove revenue growth and improved cash flow. We will continue this focus into 2023,” Mathrubootham added.

During Q4 of 2022, GAAP loss from operations was at $60.6 million, compared to $56.4 million in the fourth quarter of 2021. The firm’s non-GAAP loss from operations stood at $2.8 million, compared to $10.7 million in the fourth quarter of 2021. GAAP refers to Generally Accepted Accounting Principles.

For the full year of 2022, the company’s non-GAAP loss from operations widened nearly 21 percent to $22.3 million, compared to $18.3 million in 2021.
However, Freshworks is planning to break-even during Q3 of 2023.

“As such, we expect non-GAAP operating loss to improve to negative $6 million in Q2, near breakeven in Q3, and then turn positive by Q4. And we plan to maintain sustained profitability in the years ahead,” Mathrubootham said.

The company’s free cash flow during Q4 of 2022 was around $4.0 million, compared to $2.8 million in the fourth quarter of 2021.

The company’s net dollar retention was 110 percent on a constant-currency basis or 108 percent as reported and was largely in line with our commentary from the prior quarter.

“We are seeing better win rates, competitive win rates in Q4 than we did in Q3, both for Freshdesk and for Freshservice. And we're getting involved in more deals,” said President Dennis Woodside during the earnings call.

Macroeconomic impacts

Talking about the overall macroeconomic conditions, Woodside said that the company’s smaller customers continue to feel the pressure as churn rates increased slightly for the SMB segment, leading to slower growth.
“Overall, churn for the company remained relatively stable, ticking up less than 100 basis points in the quarter…In Q3 and Q4, we were able to keep gross churn relatively stable but do see potential risk of churn increasing slightly going into 2023,” he added.

2023 Outlook and focus areas

Freshworks has forecasted revenue of $575 - $590 million for the next full year of 2023, an 15 percent-18 percent rise compared to 2022. For the first quarter of 2023, Freshworks expects revenue to be in the range of $133 million to $135 million, growing 16 percent to 18 percent YoY.
“Looking ahead to Q1 of 2023, our preliminary estimate for calculated billings growth is 20 percent on a constant-currency basis or 17 percent as reported basis on current FX rates. For the full year 2023, we expect calculated billings growth to be similar to our expected revenue growth for the year of approximately 17 percent,” Freshworks said in a statement.

The company also expects to generate about $10 million of free cash flow for the year with approximately $3 million in Q1.