Freshworks has passed $1 billion in annual recurring revenue, CEO Dennis Woodside told Fortune. The software company, which started about 15 years ago in Chennai, India, as a help-desk tool for small businesses, ended its third quarter on Sept. 30 with about $992 million in annual recurring revenue. It crossed $1 billion in October after closing its acquisitions of Torii and Robusta, the company said. Freshworks doesn’t disclose how much of its ARR came from acquisitions.
“$1 billion in ARR is a really important milestone for any software business,” Woodside said in an interview ahead of the results. “It’s a good indication of scale.”
Woodside took over as CEO in May 2024 from founder Girish Mathrubootham. “I think we’ve added about $250 million in ARR in that time period,” he said. ARR measures contracted subscription revenue over the next 12 months, so it runs ahead of reported sales. Earlier today, Freshworks reported $18.3 million in GAAP net income for the third quarter, its second straight profitable quarter, along with adjusted free cash flow of $73.9 million, a record. “We’ll be GAAP profitable this quarter and going forward,” Woodside said. The company has described sustained GAAP profitability as a goal.
Getting there meant deciding what Freshworks would stop doing. “We wound up stopping a bunch of smaller projects,” Woodside said, to “really focus on the business that had the biggest potential, has the biggest market, where we have the most distinctive 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,” Woodside argued. “And then invest in those areas that are going to be important,” he said. “I think that can be hard to do.”
Some of this is standard management theory, skating to where the puck is moving and seeing around the corner, but it has a counterintuitive element that thought leaders in the space argue isn’t appreciated by enough companies.
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In an interview at McKinsey’s global headquarters at 3 World Trade Center, two senior partners echoed Woodside’s advice. “AI is everywhere except in the EBIT line,” Alex Panas, who leads McKinsey’s industry practices globally, joked, describing what’s around boardrooms and echoing the famous Robert Solow paradox about the computer age appearing everywhere except in the productivity statistics.
Michael Park, a senior partner in Singapore who co-leads the firm’s technology, media and telecom practice, chimed in. “The number of companies that have really rethought how they’re doing work today, and then changing it to be whatever it should be or could be with AI, is very small.” He shared the example of product development. In the old way, an idea moved down a line: marketing built a business case and PowerPoints, then HR weighed in, then operations. In the new way, a cross-functional team works separately with an AI agent and after a few weeks, Park said, the agent tells them, “There’s like 20 things you guys agree on. But there’s five things that you disagree on.” Then the team meets about those five things.
