Freshworks, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Imperatives: Investing in Employee Experience (EX, largest/fastest-growing business), delivering AI capabilities across products/platform, accelerating growth for Customer Experience (CX) solutions.
• Q1 Financial Results: Revenue grew 19% Y/Y to $196.3M, non-GAAP operating margin 24%, adjusted free cash flow margin 28%, Rule of 47 achieved. Net dollar retention 105% on constant currency, ended Q1 with over 73,300 customers.
• EX Growth: EX business surpassed $420M ARR, 33% Y/Y growth, driven by upmarket success, expansion in employee service management, Device42 adoption, and industry verticals.
• AI Adoption: Customers realizing tangible business value from AI, Copilot and AI Agents driving productivity and deflection. Freddy AI Insights launched in beta.
• CX Performance: CX business grew 7% Y/Y on constant currency, customers attracted by easy-to-use product, lower TCO, and AI features. Cross-sell success with customers, product improvements like Freshchat enhancements.
• Partner Program: Launched new global partner program with expanded reseller and services offerings to provide more predictability for partners.

Segment Performance

• Employee Experience (EX): Surpassed $420 million in ARR, grew 33% Y/Y on constant currency basis, ended Q1 with ~18,700 customers. ARR from mid-market and enterprise companies over 75%.
• AI Adoption: Freddy Copilot included in 3 of top 10 new deals, ~2,700 Copilot customers (Q1 net adds >500), Freddy AI Agent had ~1,600 customers, Freddy AI Insights in public beta. Customers seeing 30%+ productivity improvement from Copilot and 50%-70% deflection rates from AI Agents.
• Customer Experience (CX): Ended Q1 with ~59,000 customers, over $370 million in ARR, 7% Y/Y growth on constant currency basis. CX win rate vs competitors like Zendesk increased, customers attracted by easy-to-use product, lower TCO, and AI features.

Guidance

• Q2 2025: Revenue expected to be $197.3M - $200.3M (13%-15% Y/Y growth). Non-GAAP income from operations $27.8M - $29.8M, non-GAAP net income per share $0.10 - $0.12.
• Full Year 2025: Expected adjusted free cash flow ~$210M, with ~$50M in Q2 and higher in Q3/Q4. Calculated billings growth expected 13% Y/Y on as-reported basis and 14% on constant currency basis.
• Billings: Q1 calculated billings grew 16% Y/Y, Q2 estimated 11%-12% growth, full-year 13% as-reported and 14% constant currency growth.

Risks

• Macroeconomic uncertainties affecting ability to sustain growth, innovate, reach long-term revenue goals, meet customer demand, and control costs.
• Uncertainty in market volatility and economic conditions impacting business performance.

Question and Answer Q: Rob Oliver of Baird asked about Device42 pipeline and CX agent/seats.

A: Dennis Woodside said Device42 had strong quarter with majority business from existing base for upsell and new deals, CX agent count and AI adoption increasing.

Q: Elizabeth Porter of Morgan Stanley asked about Freddy Insights pricing and AI contribution.

A: Dennis Woodside said AI monetization includes consumption-based for CX, seat-based for AI Agent, and Insights in enterprise plan; AI integral to business but will detail more at Investor Day.

Q: Scott Berg of Needham & Company asked about partner program changes.

A: Dennis Woodside said partner program changed to industry-standard transfer pricing model for resellers, enabling more opportunities.

Q: Brent Thill of Jefferies asked about pipeline and sales team change.

A: Dennis Woodside said pipeline strong with many enterprise wins, interim sales leader in place with plan to hire full-time head.

Q: David Hynes of Canaccord Genuity asked about AI adoption in installed base.

A: Dennis Woodside said focus on broadening AI adoption through product launches and case studies to drive broader deployment.

Q: Brent Bracelin of Piper Sandler asked about expense management.

A: Tyler Sloat said watching expenses closely, placing bets across field, with annual compensation uplift in Q2 and plan to lean in during volatile times.