Freshworks Posts Adjusted Operating Profit For The First Time In Q1 2023

Listed SaaS unicorn Freshworks reported an adjusted operating profit for the first time in the January-March quarter of 2023, posting a non-GAAP (Generally Acceptable Accounting Practices) profit of $3.88 Mn during the quarter.

For non-GAAP numbers, Freshworks adjusts revenue and related growth rates for constant currency to provide a framework for assessing business performance excluding the effect of foreign currency rate fluctuations. 

The company’s overall net loss stood at $42.66 Mn in the first quarter of 2023, a decline of over 13% from $49.06 Mn in the year-ago quarter. 

The SaaS unicorn’s total revenue grew over 20% to $137.69 Mn during the quarter under review from $114.64 Mn a year ago.

The company posted a net loss of $60.6 Mn in the December quarter of 2022, while its total revenue stood at $133.2 Mn.

Meanwhile, total operating expenses rose over 15% to $160.56 Mn in Q1 2023 from $139.37 Mn in Q1 2022. Similarly, the cost of revenue, which includes stock-based compensation expense, rose nearly 13% to $25.24 Mn in Q1 2023 from $22.40 Mn in the corresponding quarter of the previous year.

Sales and marketing expenses accounted for the biggest chunk of expenses. Freshworks spent $86.81 Mn on marketing in Q1 2023, up 21% from $71.47 Mn in the year-ago quarter.

Freshworks also spent $32.86 Mn on research and development in Q1 2023 as against $30.72 Mn in Q1 2022.

“Freshworks had a strong quarter of execution in Q1,” said Girish Mathrubootham, founder and CEO of Freshworks. “We exceeded our financial estimates for revenue growth and delivered our first quarter of non-GAAP operating profit as a public company. More companies are taking advantage of the opportunity to buy software that is designed to scale to meet their IT and customer needs.” 

Freshworks said that the number of customers contributing more than $5,000 in annual recurring revenue (ARR) stood at 18,441 in Q1, an increase of 18% year-on-year (YoY) and 19% adjusting for constant currency.

The new customers included names such as Fila, Johnsonville, Los Angeles Dodgers, Smyths Toys, Sonata Software, and The City of Escondido, the SaaS unicorn said.

At the same time, Freshworks estimated its revenue to come at $140 Mn-$142.5 Mn in the quarter ending June 30, 2023, a growth of 15%-17% YoY. It sees its revenue for the full year 2023 rising 16%-19% to $580 Mn- $592.5 Mn.

While the company achieved non-GAAP profitability for the first time in the March quarter, it came at a cost. Freshworks is among the nearly 100 Indian startups that have laid off employees since the start of 2022, as per Inc42’s ‘Indian Startup Layoff Tracker’. 

The SaaS unicorn carried out two retrenchments in December 2022 and March 2023. 

Freshworks’ cofounder and CTO Shanmugam Krishnasamy also quit late in 2022, leaving the SaaS unicorn operating without a CTO for the past few months.