Freshworks, Inc. Q4 FY2024 earnings call

Key Points

• Q4 revenue grew 22% year-over-year to $194.6 million, beating estimates. Non-GAAP operating margin was 21% and adjusted free cash flow was $41.7 million.
• Added over 2,600 net customers in Q4, the largest quarterly increase in four years. Welcomed notable customers like Mesa Airlines, New Balance, and Sophos.
• EX business surpassed $400 million in ARR, growing 35% on constant currency basis. Investments in EX are paying off with up-market momentum, including growth in ITSM, ITAM, ITOM, and ESM.
• AI is a tailwind, with Freddy Copilot ending the year with over 2,200 customers, reflecting 30% growth quarter-over-quarter. Monetization of Copilot is ahead of internal targets.
• CX business had over 58,200 customers generating over $360 million in ARR, growing at 7% on constant currency basis. Saw conversion of free-to-paid customers, especially in SMB segment.

In Q4, total revenue increased to $194.6 million, growing 22% year-over-year. The EX business surpassed $400 million in ARR and grew 35% year-over-year on a constant currency basis. The CX business ended the quarter with over 58,200 customers generating over $360 million in ARR, growing at 7% year-over-year on a constant currency basis. Device42 revenue contribution was approximately $10.3 million for the quarter. EX represents a significant driver of growth, with over 75% of its ARR coming from mid-market and enterprise companies with 250 or more employees.

Forward-Looking Guidance

• First quarter of 2025: Revenue expected to be in the range of $190 million to $193 million, growing 15% to 17% year-over-year. Non-GAAP income from operations in range of $32.5 million to $34.5 million, non-GAAP net income per share in range of $0.12 to $0.14.
• Full year 2025: Revenue expected to be in the range of $809 million to $821 million, growing 12% to 14% year-over-year. Non-GAAP income from operations in range of $131 million to $139 million, non-GAAP net income per share in range of $0.52 to $0.54. Expect higher revenue growth rates in first half compared to second half due to Device42 acquisition anniversary.

Risks

• Ability to sustain growth, innovate, reach long-term revenue goals, meet customer demand, and control costs and improve operating efficiency. Macro-economic uncertainties and other factors that could cause actual results to differ from forward-looking statements.

Q: Brent Bracelin with Piper Sandler asked about the growth potential of EX and if it could sustain 20% plus growth.

A: Dennis Woodside said the opportunity is huge, targeting mid-market and lower end of enterprise, and Device42 is an accelerant with a doubled pipeline entering Q1.

Q: David Haynes with Canaccord Genuity asked about 50K+ customer adds and the Unisys partnership.

A: Dennis Woodside explained the 50K+ metric was affected by FX and other factors, and Unisys partnership is exciting with plans to build an MSP around Freshservice.

Q: Elizabeth Porter with Morgan Stanley asked about NRR and SMB demand.

A: Dennis Woodside said innovation cycle is starting, Freddy products have healthy attach rates, and SMB demand is stable to improving.

Q: Noah Herman with JPMorgan asked about guidance for CX and Freshservice.

A: Tyler Sloat said guidance is based on annualizing Device42 acquisition and operating margin nuances around merit cycle.

Q: Patrick Walravens with Citizens JMP asked about AI advances and implications.

A: Dennis Woodside said competition is good, testing various LLMs, balancing cost, performance, and data security.

Q: Rob Morelli with Needham & Company asked about go-to-market investments.

A: Dennis Woodside said investments are balanced across CX and EX, allocated where momentum is seen.

Q: Brent Thill with Jefferies asked about ACV uplift for Freddy Copilot.

A: Tyler Sloat said progress is positive but dollars not broken out yet, Dennis Woodside added expansion options with AI and other products.

Q: Rob Oliver with Baird asked about Device42 milestones and competitive opportunity.

A: Dennis Woodside mentioned revamped integration and cloud version of Device42, and it's helping in winning deals in mid-market and lower enterprise.

Q: Ryan MacWilliams with Barclays asked about net retention shape and Device42 revenue contribution.

A: Tyler Sloat said net retention is expected to be relatively consistent, and Device42 revenue is integrated with Freshservice and not broken out separately.