Shares of Freshworks (FRSH -2.94%) are sinking in Wednesday's trading. The customer-relationship-management (CRM) software stock was down 8.4% at 10:30 a.m. ET despite the recent publication of first-quarter results that came in ahead of the market's expectations on key fronts.
Freshworks published its Q1 results after the market closed yesterday, posting top- and bottom-line results that topped analyst targets. The company reported a non-GAAP (adjusted) loss per share of $0.01 on revenue of $114.6 million, while the average analyst estimate had called for an adjusted loss of $0.05 per share on sales of $108.24 million.
Freshworks' sales rose roughly 42% year over year in the first quarter, and the company posted an adjusted gross margin of 82.2% -- up from 80.5% in the prior-year period. The business posted a net-dollar-based revenue retention rate of 115% in the period, which means that existing customers increased their spending 15% on average compared to the prior-year period. However, free cash swung from an inflow of $4.8 million in last year's quarter to a $1.8 million outflow in this year's period.
For the second quarter, management is guiding for sales to be between $117 million and $119 million, suggesting a relatively small jump on a sequential basis. The company expects to post an adjusted loss per share between $0.06 and $0.08 in the period.
For the full year, Freshworks is guiding for an adjusted loss per share between $0.16 and $0.18 on revenue between $495.5 million and $501.5 million. While the company's midpoint guidance for Q2 points to a loss that will potentially be $0.01 above its previously issued target, the new full-year guidance looks significantly better than the previous range calling for an adjusted loss per share between $0.19 and $0.23.
Investors have generally been selling out of growth-dependent software stocks, and it seems the improved sales and earnings outlook for the year wasn't impressive enough given the free-cash performance in Q1. Freshworks now has a market capitalization of roughly $4.2 billion and trades at approximately 8.6 times this year's expected sales.