Freshworks, Inc. Q3 FY2024 earnings call

• The company had a strong Q3 with revenue growth of 22% Y/Y to $186.6M and free cash flow of $40.1M (21% margin).
• EX business: ARR grew 40% Y/Y, won 16+ new and expansion deals over $100k ARR, shifted over 200 technical resources to EX product and engineering teams.
• AI products: Freddy self-service and Copilot gaining adoption; paid Copilot customers >1,700, ARR grew Q/Q; Freddy AI agent in public beta.
• CX business: ARR nearly 10% Y/Y growth, improved net customer adds, lowest churn in CX products; cross-selling between CX and EX.
• Workforce realignment: ~13% headcount reduction, ~$11M-$13M charge in Q4, to be excluded from non-GAAP operating results.

Freshworks' Q3 2024 showed strong performance across segments. The EX business, including ITSM, ESM, and Device42, had over $390 million in ARR with a year-over-year growth rate of over 40%. The CX business finished with over $360 million in ARR, growing nearly 10% year-over-year. Device42 contributed approximately $8.8 million to Q3 revenue. Revenue overall grew 22% year-over-year to $186.6 million, and free cash flow was $40.1 million, with a free cash flow margin of 21% for the quarter.

• Q4 2024: Revenue expected to be in the range of $187.8M to $190.8M (17%-19% Y/Y growth), non-GAAP op income $22M-$24M.
• Full year 2024: Revenue expected $713.6M-$716.6M (20% Y/Y growth), non-GAAP op income $80.8M-$82.8M.
• Full year 2025: Preliminary revenue growth low to mid-teens, non-GAAP op margin >16%, free cash flow margin >25%.
• Board authorized up to $400M share repurchase program.

• Macroeconomic uncertainties, ability to sustain growth, innovate, control costs, meet customer demand.

Q: Rob Morelli asks about SMB sector trends and how it fared vs initial expectations.

A: Dennis Woodside says there were positive signs in SMB, with net adds increasing (800 net customers in Q3), due to focused product investments, sale/service efforts, and positive conversion from free to paid plans.

Q: Rob Morelli asks about headcount reduction areas.

A: Dennis Woodside says it was pretty broad-based, with some focus on sales/marketing to target bigger opportunities, and focus on EX, AI, and CX priorities.

Q: Brent Thill asks about split of macro vs internal execution.

A: Dennis Woodside says EX success in moving up market, AI adoption (half of large deals have Copilot), and CX improvements are due to internal execution more than macro.

Q: Elizabeth Porter asks about Freddy uplift to deal sizes and rollout motion.

A: Dennis Woodside says Freddy is rolled out across all segments, attach rates on larger deals >50%, and Freddy AI agent is easy to set up and use.

Q: Michael Funk asks about change in spend/contract value with AI adoption and incremental margin.

A: Dennis Woodside says it's net expansion in ACV, and Tyler Sloat says incremental margins are similar, with focus on maintaining gross margins.