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Freshworks’ Management Shake-Up – C-Suite Transitions

  • May 16, 2024

Turnaround scenarios are known for their potential to yield impressive results, but it’s no easy feat to steer a company back on track once it’s lost its footing. Even with a new management team at the helm, regaining market share or profitability can be a daunting challenge. We’ve delved into the stories of numerous turnaround CEOs before, and now, Freshworks joins the list as the latest addition.

Freshworks (FRSH): $13.94

MarketCap: $4.17B

Enterprise Value: $2.98B

Key Insights

  • Freshworks announced the company’s founder and CEO, Girish Mathrubootham, will transition to the new role of Executive Chairman.
  • Freshworks’ President, Dennis Woodside, was promoted to the role of CEO & President.
  • Since its public listing in 2021, the company’s share price has tanked by about 70%.
  • The company is yet to record a net profit but has set its sights on $1 billion in revenue by 2026.

Company Profile

Freshworks Inc., a SaaS company, specializes in cloud-based solutions for CRM, IT service management, and e-commerce marketing. Founded in Chennai, India, it relocated its headquarters to San Mateo, California, in 2018. The company serves over 67,000 clients worldwide, including American Express, Blue Nile, Bridgestone, Databricks, Fila, and OfficeMax.

Company profile
Investor Presentation

 

Leadership Transition

During the Q1 2024 earnings call on May 1, 2024, Mr. Mathrubootham revealed that he would be stepping down as CEO and move into the role of Executive Chairman at Freshworks. At the same time, Mr. Woodside, who’s currently the President, is stepping up as the new Chief Executive Officer. A technical founder stepping down was not anticipated by the market and the stock responded with a big drop from $18.25 to $14.67.

Girish Mathrubootham

Girish MathruboothamFreshworks went public on the Nasdaq in September 2021, marking it as the first India-born SaaS firm to trade on a US exchange.

Freshworks made its debut with a valuation of $13 billion at the close of its first trading day. The company raised $1.03 billion by selling 28.5 million shares at $36 per share. The shares opened at a 21% premium to the IPO price and closed the day 32% higher, at $47.55.

During Mr. Mathrubootham’s tenure, Freshworks expanded its global reach, serving over 67,000 customers worldwide. The company now has a workforce of approximately 4,900 employees across 13 global locations.

However, every success story encounters its share of challenges. In March, the Freshworks board rescinded an award of 6 million shares to Mathrubootham, originally slated for distribution in tranches until 2029, contingent upon specific share price milestones being achieved. The decision was attributed to challenges stemming from macroeconomic conditions deemed “entirely outside the control of the company’s leadership.” However, Mr. Mathrubootham will be entitled to a new annual long-term equity incentive award with a fair value of $19 million. He currently maintains a 4.3% ownership stake in the company.

In his letter to his employees, Mr. Mathrubootham mentions that he recruited Mr. Woodside to Freshworks, hoping that one day he would eventually step into the role of the CEO, indicating a well-thought-out succession plan. Regarding their division of responsibilities, he explains that over the past six quarters or so, Mr. Mathrubootham was focused on the product while Mr. Woodside handled go-to-market strategies.

Dennis Woodside

Dennis WoodsideMr. Woodside assumed the role of president at Freshworks in September 2022, concurrently serving on the board.

Bringing a wealth of experience to the table, Mr. Woodside’s previous tenure as CEO of Motorola Mobility during Google’s ownership from 2012 to 2014 underscored his adept leadership abilities. During this period, he orchestrated a significant turnaround by assembling a new management team, reshaping product strategies, and reigniting growth in the mobile device sector, ultimately leading to its acquisition by Lenovo.

Before his tenure at Motorola Mobility, Mr. Woodside served in senior management roles across various geographical regions. Notably, his role as Chief Operating Officer at Dropbox (DBX) saw significant revenue growth from $300 million to $1.4 billion and the company raised over $1 billion in an IPO in 2018.

Before joining Freshworks, Mr. Woodside held a position on the board of its competitor, ServiceNow.

Under Mr. Woodside’s leadership, Freshworks strategically pivoted its focus towards mid-market and enterprise clients, seeking to broaden its customer base and secure high-value accounts.

Mr. Woodside didn’t stop at redefining strategy. In 2022, he brought on board Pradeep Rathinam as Chief Revenue Officer. More recently, the company welcomed Mika Yamamoto as Chief Customer and Marketing Officer, poaching her from F5 Networks.

Valuation

Since its public listing in 2021, Freshworks has recorded a consistent rise in revenue every quarter, handily beating revenue estimates for 11 straight quarters. The story for the company’s stock was, however very different. The company’s share price has tanked by about 70% and is down 41% since the beginning of this year, which has been of particular concern to the board.

The company has a market cap of $4.11 billion and an enterprise value of $2.92 billion, with $1.18 billion in net cash on the balance sheet. The company trades at 4.18 times forward sales, is GAAP unprofitable, but is free cash flow positive. As is usually the case with tech companies, stock-based compensation expense is high.

Freshworks stock price
Source: InsideArbitrage

 

Earnings estimate
Source: SeekingAlpha

Based on the investor’s earnings call, Mr. Woodside believes the reason for the stock’s decline is attributed to concerns about the impact of generative AI on customer support and software operations. The company slightly adjusted its revenue guidance downward by around $5 million due to broader economic factors, particularly interest rate fluctuations affecting small businesses.

Freshworks has been facing challenges in translating its revenue growth into net income but the trend appears to be in the right direction.

Freshworks balance sheet
Source: InsideArbitrage

Peers

The table below provides a comparison of four Freshworks peers.

Peers comparison

AI Wave

Beyond routine cyclical fluctuations, all software-as-a-service (SaaS) enterprises now confront the evolving landscape shaped by AI-driven technologies. While Freshworks has already integrated some of these capabilities, competition within this domain remains fierce.

A critical consideration lies in the composition of Freshworks’ customer base, with over 51,000 clients categorized as small and medium-sized businesses (SMBs), defined by companies with up to 250 employees. This segment represents the primary target audience for transitioning to off-the-shelf AI-driven tools.

Freshworks, like many software companies, is integrating “generative” AI technology into its platform. Generative AI is poised to enhance the performance of “virtual agents” utilized in customer support. Freshworks recently unveiled new AI solutions, including Freddy Copilot aimed at facilitating customer service.

The company has implemented two strategies for monetizing AI. For Co-pilot, customers are charged $29 per seat to access AI features, resulting in a 30% increase in productivity upon deployment, which commenced midway through Q1 with favorable adoption rates. Additionally, Freddy Self Serve automates responses to common customer inquiries, with charges based on a per-session model. While still in the early stages of monetization, these initiatives are integral to Freshworks’ AI roadmap, which comprises three pillars: Freddy Self-Service, Freddy Co-pilot, and Freddy Insights.

Revenue Goal

In the 2023 Q3 earnings report, the company estimated that it would generate $1 billion in revenue by 2026, with a strategic focus on attracting larger and higher-yielding customers. Mr. Woodside confirmed that he is committed to continuing the journey of growth toward becoming a $1 billion revenue company and beyond in a LinkedIn post.

Freshworks Acquisition Strategy

Freshworks announced a partnership with Device42 18 months ago, aimed at enhancing sales strategies. Consequently, Device42 was co-sold alongside Freshservice in applicable deals, sparking discussions of an acquisition. Looking forward, Freshworks is keen on scouting for companies excelling in IT, support, and AI sectors. With a substantial balance sheet and ample cash reserves, they are well-positioned to leverage these opportunities to their advantage.

First Quarter 2024 Results (Press Release) (Investor Presentation)

Freshworks Reports First Quarter 2024 Results

Recent Business Highlights

  • Number of customers contributing more than $5,000 in ARR was 20,549, an increase of 11% year-over-year and 12% adjusting for constant currency.
  • Net dollar retention rate was 106% (106% adjusting for constant currency), compared to 108% in the fourth quarter of 2023.
  • Announced the entry into a definitive agreement to acquire Device42, an IT asset management company
Revenue by quarter
Investor Presentation
Net Dollar Retention
Investor Presentation

 

Income loss
Investor Presentation
Outlook
Investor Presentation

Addressing the reduced overall revenue forecast for 2024, Mr. Mathrubootham stated that,

Girish response

Conclusion

Freshworks has been on my watchlist since the company went public and this CEO transition came as a big surprise to me. A combination of a new CEO and a new strategy to target larger enterprise customers translate into increased execution risk and this was reflected in the big drop in the stock price.

If the company doesn’t falter and continues on the current trajectory of growth, it will reach an inflection point and turn profitable. The downward revenue guidance revision does not support that thesis. I continue to remain very interested in the company at these levels and will follow the company’s progress to see if this management and strategy transition is successful.


Sudden departures

CEO

  1. PARA: Paramount Global President, Chief Executive Officer Bob Bakish resigns effective April 29, 2024.
  2. CHGG: Chegg President, Chief Executive Officer Dan Rosensweig effective June 1, 2024, transition to Executive Chair.
  3. FRSH: Freshworks Chief Executive Officer Rathna Girish Mathrubootham transitioned from Chief Executive Officer of the company to Executive Chairman effective May 1, 2024.
  4. GPC: Genuine Parts Chief Executive Officer Paul D. Donahue retires effective June 3, 2024.
  5. KORE: Kore Group Holdings President and Chief Executive Officer Romil Bahl resigns effective May 3, 2024.
  6. AMPS: Altus Power Co-Chief Executive Officer Lars Norell resigns effective April 26, 2024.
  7. PETS: Petmed Express President and Chief Executive Officer Mathew Hulett resigns effective April 29, 2024.
  8. IPGP: IPG Photonics Chief Executive Officer Dr. Eugene Scherbakov resigns effective June 5, 2024.
  9. GVP: GSE Systems Chief Executive Officer and President Kyle Loudermilk resigns effective April 30, 2024.
  10. CSLR: Complete Solaria Chief Executive Officer Chris Lundell resigns effective April 24, 2024.
  11. AKTX: Akari Therapeutics President and Chief Executive Officer Rachelle Jacques resigns effective May 1, 2024.
  12. U: Unity Software Interim Chief Executive Officer and President resigns and becomes Executive Chairman effective May 15, 2024.
  13. PTON: Peloton Interactive President and Chief Executive Officer Barry McCarthy resigns effective May 2, 2024.
  14. IRBT: Irobot Interim Chief Executive Officer Glen Weinstein resigns effective May 6, 2024.
  15. FNKO: Funko Interim Chief Executive Officer Michael Lunsford resigns effective May 8, 2024.
  16. ATNF: 180 Life Sciences Chief Executive Officer James Woody resigns effective May 7, 2024.
  17. PIII: P3 Health Partners Chief Executive Officer and President Sherif Abdou resigns effective May 8, 2024.
  18. XPOF: Xponential Fitness Chief Executive Officer Anthony Geisler was removed by the Company’s Board of Directors from his duties and suspended indefinitely. The Company received notice on May 7, 2024 of an investigation by the United States Attorney’s Office for the Central District of California.
  19. MITK: Mitek Systems terminates Chief Executive Officer Scipio Carnecchia effective May 9, 2024.
  20. SMTI: Sanara MedTech Chief Executive Officer Zachary Fleming resigns effective May 10, 2024.

CFO

  1. SNTI: Senti Biosciences Chief Financial Officer Deborah Knobelman resigns effective May 3, 2024.
  2. DUOT: Duos Technologies Chief Financial Officer Andrew Murphy resigns effective April 30, 2024.
  3. MANU: Manchester United Plc.  Chief Financial Officer Cliff Baty resigns.
  4. ANVS: Annovis Bio Chief Financial Officer Henry Hagopian resigns effective April 30, 2024.
  5. LUNA: Luna Innovations Chief Financial Officer George Gomez-Quintero resigns effective May 1, 2024.
  6. AXIL: AXIL Brands Chief Financial Officer Monica Diaz Brickell resigns effective April 30, 2024.
  7. CURI: CuriosityStream Chief Financial Officer Peter Westley resigns effective June 1, 2024.
  8. VRM: Vroom Chief Financial Officer Robert Krakowiak resigns effective May 7, 2024.
  9. BROS: Dutch Bros Chief Financial Officer Charles Jemley resigns effective May 7, 2024.
  10. ANIK: Anika Therapeutics Chief Financial Officer Michael Levitz resigns effective June 3, 2024.
  11. WWW: Wolverine World Wide Chief Financial Officer Michael Stornant retires effective May 2, 2024.
  12. ALIT: Alight Global Chief Financial Officer Katie Rooney resigns effective May 8, 2024.
  13. VSEC: VSE Corp. Chief Financial Officer Stephen Griffin resigns effective May 3, 2024.
  14. KWR: Quaker Houghton terminates Chief Financial Officer Shane Hostetter effective May 9, 2024.
  15. SVV: Savers Value Village Chief Financial Officer Jay Stasz resigns effective May 6, 2024.
  16. EVC: Entravision Communications terminates Chief Financial Officer Christopher Young effective May 9, 2024.
  17. LSDI: Lucy Scientific Discovery Chief Financial Officer Brian Zasitko resigns effective May 3, 2024.
  18. RMCF: Rocky Mountain Chocolate Factory Chief Financial Officer Allen Arroyo resigns effective May 6, 2024.

General Counsel/Chief Legal Officer

  1. AMR: Alpha Metallurgical Resources General Counsel Roger Nicholson resigns effective May 31, 2024.
  2. MDC: M.D.C. Holdings General Counsel Michael Kaplan resigns effective June 3, 2024.
  3. AWH: Aspira Women`s Health General Counsel Minh Merchant resigns effective May 6, 2024.
  4. RITM: Rithm Capital Chief Legal Officer Philip Sivin transitions to a different role effective April 30, 2024.
  5. ACNT: Ascent Industries terminates Chief Legal Officer Douglas Tackett effective April 30, 2024.
  6. MGPI: MGP Ingredients Chief Legal Officer Curtis Landherr resigns effective May 31, 2024.
  7. LUV: Southwest Airlines Chief Legal & Regulatory Officer Mark Shaw resigns effective June 1, 2024.

Others

  1. EVC: Entravision Communications terminates Chief Strategy and Business Development Officer Juan Saldívar von Wuthenau effective May 9, 2024.
  2. ITRM: Iterum Therapeutics Chief Medical Officer Sailaja Puttagunta resigns effective May 31, 2024.
  3. VRPX: Virpax Pharmaceuticals Chief Medical Officer Jeffrey Gudin resigns effective May 2, 2024.
  4. WRAP: Wrap Technologies President Kevin Mullins resigns effective May 23, 2024.
  5. AREN: Arena Group Holdings President Manoj Bhargava resigns effective April 26, 2024.
  6. BWB: Bridgewater Bancshares President Jerry Baack resigns effective April 26, 2024.
  7. CCLD: CareCloud President Hadi Chaudhry resigns effective May 1, 2024.
  8. ATNF: 180 Life Sciences Chief Scientific Officer Jonathan Rothbard resigns effective May 7, 2024.
  9. KO: Coca-Cola Chief Accounting Officer Mark Randazza transitions to the role of Senior Vice President and Assistant Controller effective June 1, 2024.
  10. ARAY: Accuray Chief Accounting Officer Gina Corradetti resigns effective May 17, 2024.
  11. KINS: Kingstone Cos. Chief Accounting Officer Michelle Gage resigns effective April 26, 2024.
  12. TCPC: BlackRock TCP Capital Chief Operating Officer Nik Singhal resigns effective May 2, 2024.
  13. LPRO: Open Lending Chief Information Officer Thinh Nguyen resigns effective May 2, 2024.
  14. MVST: Microvast Holdings Chief Revenue Officer Sascha Kelterborn resigns effective April 26, 2024.
  15. AKTX: Akari Therapeutics terminates Chief Operating Officer Melissa Bradford-Klug effective May 1, 2024.
  16. NRDS: Nerdwallet Chief Business Officer Kevin Yuann resigns effective May 17, 2024.
  17. LUNA:  Luna Innovations terminates Chief Technology Officer Brian Soller effective May 1, 2024.

Appointments 

1. Aspen Technology (AZPN): $221.30

 

On May 7, 2024, Aspen Technology announced the appointment of David Baker as Chief Financial Officer, effective June 3, 2024.

 

 

 

MarketCap: $14.01BAvg. Daily Volume (30 days): 273,941Revenue (TTM): $1.11B
Net Income Margin (TTM): -2.46%ROE (TTM): -0.21%Net Cash: $14.73M
P/E: N/AForward P/E: 30.86EV/EBIDTA (TTM): 37.82
P/S (TTM): 12.82P/B (TTM): 1.0952 Week Range: $161.32 – $224.77

2. Coca-Cola Co (KO): $63.13

 

On May 2, 2024, The Coca-Cola Company announced that Erin May was appointed to the additional role of Chief Accounting Officer effective June 1, 2024.

 

 

 

MarketCap: $271.96BAvg. Daily Volume (30 days): 13,099,072Revenue (TTM): $46.07B
Net Income Margin (TTM): 23.41%ROE (TTM):  39.31%Net Debt: $26.85B
P/E: 25.36Forward P/E: 22.42EV/EBIDTA (TTM): 20.49
P/S (TTM): 5.94P/B (TTM): 10.2952 Week Range: $50.74 – $63.76

3. Cognex (CGNX): $47.44

 

On May 1, 2024, the Board of Directors of the company appointed Dennis Fehr as Chief Financial Officer of the company, effective May 3, 2024.

 

 

 

MarketCap: $8.15BAvg. Daily Volume (30 days): 1,087,806Revenue (TTM): $847.22M
Net Income Margin (TTM): 11.76%ROE (TTM): 6.79%Net Cash: $201.03M
P/E: 83.18Forward P/E: 49.26EV/EBIDTA (TTM): 56.35
P/S (TTM): 9.69P/B (TTM): 5.4752 Week Range: $33.90 – $58.77

4. Unity Software (U): $22.38

 

On May 1, 2024, Unity Software announced the appointment of Matthew S. Bromberg as Chief Executive Officer and President, effective May 15, 2024.

 

 

 

MarketCap: $8.75BAvg. Daily Volume (30 days): 8,174,240Revenue (TTM): $2.15B
Net Income Margin (TTM): -40.05%ROE (TTM): -24.32%Net Debt: $1.19B
P/E: N/AForward P/E: N/AEV/EBIDTA (TTM): N/A
P/S (TTM): 3.99P/B (TTM): 2.7552 Week Range: $21.60 – $50.08

5. Genuine Parts Co. (GPC): $155.01

 

On April 29, 2024, Genuine Parts Company announced that William P. Stengel, II, is appointed as Chief Executive Officer of the company, effective June 3, 2024.

 

 

 

MarketCap: $21.59BAvg. Daily Volume (30 days): 1,272,564Revenue (TTM): $23.11B
Net Income Margin (TTM): 5.46%ROE (TTM): 30.19%Net Debt: $3.90B
P/E: 17.27Forward P/E: 15.67EV/EBIDTA (TTM): 11.88
P/S (TTM): 0.94P/B (TTM): 4.9052 Week Range: $124.63 – $167.19

Departures

1.  Datadog (DDOG): $118.47

 

On May 7, 2024, Datadog announced that Amit Agarwal would resign from his position as President of the Company, effective December 31, 2024.

MarketCap: $39.63BAvg. Daily Volume (30 days): 4,846,434Revenue (TTM): $2.26B
Net Income Margin (TTM): 5.11%ROE (TTM): 6.21%Net Cash: $1.82B
P/E: N/AForward P/E: 70.42EV/EBIDTA (TTM): 16.57
P/S (TTM): 18.86P/B (TTM): 17.9952 Week Range: $77.81 – $138.61

2.  Genuine Parts Co. (GPC): $155.01


On April 29, 2024, Genuine Parts Company announced that Paul D. Donahue would retire as Chief Executive Officer of the company, effective June 3, 2024.

MarketCap: $28.01BAvg. Daily Volume (30 days): 3,716,686Revenue (TTM): $10.90B
Net Income Margin (TTM): 12.44%ROE (TTM): 15.27%Net Cash: $2.45B
P/E: 21.22Forward P/E: 20.76EV/EBIDTA (TTM): 12.88
P/S (TTM): 2.63P/B (TTM): 3.1952 Week Range: $4.34 – $6.45

3. Paramount Global (PARA): $12.56

On April 29, 2024,  Paramount Global announced that Bob Bakish, President and CEO, is stepping down from his role as CEO and from the Board of Directors.

 

MarketCap: $8.75BAvg. Daily Volume (30 days): 22,367,803Revenue (TTM): $30.07B
Net Income Margin (TTM): -0.15%ROE (TTM): -2.90%Net Debt: $13.42B
P/E: N/AForward P/E: 12.76EV/EBIDTA (TTM): 24.41
P/S (TTM): 0.27P/B (TTM): 0.3852 Week Range: $10.07 – $17.24

4. Coca-Cola Co (KO): $63.13

 

On May 2, 2024, The Coca-Cola Company announced that Chief Accounting Officer Mark Randazza transitions to the role of Senior Vice President and Assistant Controller effective June 1, 2024.

 

MarketCap: $271.96BAvg. Daily Volume (30 days): 13,099,072Revenue (TTM): $46.07B
Net Income Margin (TTM): 23.41%ROE (TTM):  39.31%Net Debt: $26.85B
P/E: 25.36Forward P/E: 22.42EV/EBIDTA (TTM): 20.49
P/S (TTM): 5.94P/B (TTM): 10.2952 Week Range: $50.74 – $63.76

5. Unity Software (U): $22.38


On May 1, 2024, Unity Software announced that Interim Chief Executive Officer and President Jim Whitehurst will resign and become Executive Chairman of the Board, as Senior Advisor to the company, effective May 15, 2024.

MarketCap: $8.75BAvg. Daily Volume (30 days): 8,174,240Revenue (TTM): $2.15B
Net Income Margin (TTM): -40.05%ROE (TTM): -24.32%Net Debt: $1.19B
P/E: N/AForward P/E: N/AEV/EBIDTA (TTM): N/A
P/S (TTM): 3.99P/B (TTM): 2.7552 Week Range: $21.60 – $50.08

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