Freshworks Inc. Q3 FY2025 earnings call

• Freshworks delivered outstanding Q3 results, with revenue up 15% Y/Y to $215.1 million, non-GAAP operating margin at 21%, and free cash flow margin at 27%.
• Key growth drivers include investing in Employee Experience, AI capabilities, and customer experience. EX has over $480 million in ARR with 24% Y/Y growth, CX has over $390 million in ARR with 8% Y/Y growth.
• Launched Freshservice for Business Teams as a stand-alone ESM solution, saw over 40% Y/Y increase in new and expansion deals over $50,000 in ARR, and welcomed Enrique Ortegon as SVP and GM of Americas Field Sales.
• Over 50 AI-driven applications in use, Freddy AI showing strong growth with ARR doubling Y/Y, Copilot usage up over 130% Y/Y, and net retention rate at 105% for CX and EX.

Freshworks' EX (Employee Experience) segment achieved over $480 million in ARR, with 24% year-over-year growth on an as-reported basis and 23% on a constant currency basis. The CX (Customer Experience) segment grew to over $390 million in ARR, with 8% year-over-year growth on an as-reported basis and 7% on a constant currency basis. Total Q3 revenue was $215.1 million, a 15% year-over-year increase on both as-reported and constant currency bases.

• Q4 2025 revenue expected to be $217 million to $220 million, growing 12%-13% Y/Y. Full-year 2025 revenue expected $833.1 million to $836.1 million, growing ~16% Y/Y.
• Non-GAAP operating income for Q4 expected $30.6 million to $32.6 million, and full-year $167 million to $169 million.
• Anticipate Q1 2026 operating margin to be slightly better than Q4 2025, then linear ramp-up through 2026, ending Q4 2026 with over 23% operating margin.

• Risks include ability to sustain growth, innovate, reach long-term revenue goals, meet customer demand, and control costs. Macroeconomic uncertainties and market volatility could impact results.

Q: Scott Berg of Needham & Company asked about selling ESM as a stand-alone solution and sales force changes.

A: Dennis Woodside said it's been a strong value proposition, no new sales force, and built on existing marketing methodologies.

Q: Scott Berg asked about buyback program.

A: Tyler Sloat said the inaugural buyback was completed, and they're committed to continued capital allocation strategy including possible buybacks.

Q: Mark Heatzig of Wolfe Research asked about monetization vs adoption with Freddy AI.

A: Dennis Woodside explained different monetization levers for Freddy AI agent, Copilot, and Insights, with session-based pricing currently making sense but open to evolution.

Q: Patrick Walravens of Citizens Bank asked why Freshworks is an AI winner.

A: Dennis Woodside said they're the system of record for customers, have native workflows, security, and can tap into best-of-breed models, making them well-positioned for AI success.

Q: Oscar of Morgan Stanley asked about government exposure.

A: Dennis Woodside said no impact from government shutdown, as government business is from state/local entities with no seen changes.

Q: Brent Thill of Jefferies asked about Q4 investment.

A: Tyler Sloat said it's for building pipe in EX field, majority in marketing and demand gen.

Q: Johnathan McCary of Raymond James asked about AI deployments across customer sizes.

A: Dennis Woodside said AI paid footprint is even across SMB, mid-market, and enterprise, with Copilot leading and AI agent seeing uptick.

Q: Robert Oliver of Baird asked about ITSM win rates and pipeline.

A: Dennis Woodside said they're competing well in lower end of enterprise and upper mid-market, with improved go-to-market and demand gen, and more $100k+ deals now.