Nasdaq-listed SaaS company Freshworks has announced a major restructuring initiative that will result in layoffs impacting 13% of its global workforce, equivalent to approximately 660 employees. This latest measure, revealed in a letter from CEO Dennis Woodside, is part of Freshworks’ strategic focus on optimizing operations and aligning its resources with key growth areas. As part of this plan, the California-based company will incur restructuring costs ranging from $11 million to $13 million in the fourth quarter of 2024.
With over 5,000 employees worldwide, Freshworks’ decision to reduce its workforce will impact staff across its main operational bases, including the United States and India. The company aims to complete this restructuring by the end of its fiscal year on December 31, 2024. The initiative underscores Freshworks’ need to streamline functions, consolidate resources, and prioritize high-growth areas, according to Woodside.
Strategic Restructuring Focused on Core Business Areas
Freshworks, which has grown rapidly since its founding in 2010, initially targeted small and medium businesses (SMB) with its customer relationship management (CRM) solutions. However, CEO Woodside’s recent strategic assessment, conducted at the request of the company’s board after his appointment in May 2024, identified three critical business pillars: employee experience (EX), artificial intelligence (AI), and customer experience (CX).
Woodside explained that restructuring efforts were designed to simplify operations, optimize resources, and focus on the company’s fastest-growing segments. “We began by combining teams focused on CX products, including support, sales, and marketing, reallocating resources to strengthen our EX business,” he noted, adding that this approach would enhance Freshworks’ long-term impact.
Freshworks’ Financial Moves: Layoffs and Share Buybacks
In addition to workforce reductions, Freshworks has announced a $400 million share buyback program, though it has yet to provide a specific timeline for the initiative. The share buyback signals Freshworks’ confidence in its stock, which rose by 5.23% on Wednesday to close at $13.09.
The buyback program is seen as a measure to bolster investor confidence amid ongoing cost-cutting measures. By reducing its workforce and buying back shares, Freshworks aims to improve its operating margins, reduce expenditures, and reinforce its financial standing as it pivots to focus on high-priority areas in EX, AI, and CX.
Freshworks’ Financial Performance and Market Position
Despite the layoffs, Freshworks reported a solid financial performance in the third quarter of 2024. The company posted a revenue increase of 22%, reaching $186.6 million compared to $153.6 million in Q3 2023. For Q4, Freshworks projects revenue between $187.8 million and $190.8 million, putting it on track for annual revenue growth of around 20%, with full-year revenue expected to fall between $713 million and $716.6 million.
Moreover, Freshworks has seen steady growth in its customer base. As of Q3, the number of customers contributing over $5,000 in annual recurring revenue (ARR) reached 22,359, marking a 14% year-over-year increase. This growing customer base indicates the sustained demand for Freshworks’ products among SMBs, which form a core segment of its market.
Over the past two years, Freshworks has taken strides to improve its operational efficiency and achieve profitability, according to CFO Tyler Sloat. The company’s efforts to generate non-GAAP operating income and deliver free cash flow have positioned it for growth. However, Sloat indicated there was still room for improvement in aligning the company’s resources around its core business pillars.
In Q3, Freshworks shifted a number of technical resources to support the EX business, a move Sloat described as central to Freshworks’ strategic review. Non-GAAP income excludes certain non-recurring and non-cash expenses, providing a clearer picture of Freshworks’ operational performance.
Freshworks’ recent restructuring plan follows a series of layoffs over the past two years, including job cuts in March and June 2023, as well as in December 2022. The latest round of layoffs represents the company’s most significant reduction in headcount and reflects Freshworks’ commitment to recalibrating its strategy under Woodside’s leadership.
Founded in Chennai and currently headquartered in both Chennai and San Mateo, California, Freshworks has grown into a major player in the SaaS industry. It serves over 68,000 customers worldwide, including high-profile clients like American Express, Bridgestone, Databricks, Fila, Nucor, and Sony.
As it moves forward, Freshworks is betting on its strategic focus areas in EX, AI, and CX to drive future growth and strengthen its competitive positioning. By aligning its workforce and resources with these priorities, the company hopes to build a stronger foundation for long-term success in the rapidly evolving SaaS market.
In his letter, Woodside assured employees that Freshworks’ restructuring efforts were designed with careful consideration of the company’s future direction. He emphasized that these changes would ultimately support Freshworks’ mission to create better experiences for customers and employees alike.
