Business 4 min read By Arthur Ellington
Freshworks passes $1 billion in ARR with 30% fewer staff
Freshworks CEO Dennis Woodside says the software company has crossed $1 billion in annual recurring revenue after cutting smaller projects and shifting resources toward its IT software business.
Freshworks has passed $1 billion in annual recurring revenue, chief executive Dennis Woodside told Fortune, a milestone he described as a clear sign of scale for a software business. The company ended its third quarter on 30 September with about $992 million in ARR and crossed the $1 billion mark in October after closing its acquisitions of Torii and Robusta. Freshworks does not disclose how much of its ARR came from those deals.
The company started about 15 years ago in Chennai, India, as a help-desk tool for small businesses. Woodside took over as chief executive in May 2024 from founder Girish Mathrubootham, and said the business has added about $250 million in ARR since then. ARR measures contracted subscription revenue over the next 12 months, so it runs ahead of reported sales. Separately, the company reported $18.3 million in GAAP net income for the third quarter, its second straight profitable quarter, along with a record adjusted free cash flow of $73.9 million. Woodside said Freshworks expects to remain GAAP profitable going forward.
Reaching that position, Woodside said, required deciding what the company would stop doing. Freshworks wound down a number of smaller projects in order to concentrate on the areas with the largest potential, the biggest markets and the strongest competitive advantage. "You have to be willing to make those hard choices of what's not going to be important in two years, in five years," he said, adding that companies must then invest in the areas that will matter. He acknowledged that the decisions can be difficult.
Shortly after taking over, Woodside said, the board asked him to revisit the strategy because of the rise of AI. The company was founded on customer support software under the Freshdesk name, and Woodside said there was strong attachment to that business. He moved resources toward IT software for larger companies, which he called the EX business. Freshworks closed its purchase of the IT asset-management company Device42 on 6 June 2024, and has since bought FireHydrant, Torii and Robusta.
EX made up 59% of ARR, or $588 million, as of 30 September, up from 35% at the company's 2021 IPO, and grew 22% from a year earlier, according to the company. The customer-service business, known as CX, accounted for $404 million. Woodside said the company had pursued many small ideas and now needs larger ones to reach a billion dollars in ARR. He cited Freshping, Freshteams and Freshsurvey as projects deemphasised in favour of Freshservice, which was already generating several hundred million dollars in ARR when he became chief executive.
The shift reflects a wider debate about how established companies adapt to AI. Two senior McKinsey partners, Alex Panas and Michael Park, argued in an interview that few firms have rethought how work is done around the technology. Park described a product development process in which a cross-functional team working with an AI agent identifies points of agreement and disagreement, rather than passing ideas through marketing, HR and operations in sequence. Woodside said such restructuring is unpleasant because it means telling people that their work is ending, noting that winding down a product is hard for the people who built it.
Source: fortune.com
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