Freshworks Inc. Q4 FY2025 earnings call

• Q4 marks a historic inflection point with Freshworks achieving profitability for the full year and record free cash flow. - The business performed exceptionally well in 2025, with quarter after quarter top and bottom line expectations met or exceeded. - In employee experience, Freshservice evolved into a world-class unified service platform via acquisitions, winning mid-market and enterprise deals, and Freddie AI is a tangible revenue engine. - In customer experience, Freshdesk was simplified, improving time to value and retention, with the Freshdesk Omni platform launched. - Q4 2025 total revenue increased to $222.7 million, growing 14% year over year on an as-reported basis, and 13% on a constant currency basis. Non-GAAP operating income was $41.6 million, representing a non-GAAP operating margin of nearly 19%.

The EX business crossed the $500 million ARR mark in Q4, reaching approximately $510 million in ARR, representing 26% year over year growth on an as-reported basis and 22% on a constant currency basis. The CX business is at $395 million in ARR, reflecting year over year growth of 9% on an as-reported basis and 5% on a constant currency basis. Device 42 ended 2025 with over $40 million in ARR. ESM contributed greatly to Q4 success, with $40 million in ARR in Q4 nearly doubling ARR year over year.

• For 2026, revenue is expected to be in the range of $952 million to $960 million, growing approximately 13.5% to 14.5% year over year. - Non-GAAP income from operations is expected to be in the range of $181 million to $189 million and non-GAAP net income per share to be in the range of 55 to fifty seven cents. - Expect revenue growth to accelerate in the second half of 2026. - Fire Hydrant acquisition is expected to have an immaterial impact on 2026 revenue growth and approximately one point of headwind on non-GAAP operating margin. - Expect to generate free cash flow of $250 million for 2026, with a free cash flow margin of 25-26% for Q1 and full year 2026 respectively.

• Ability to sustain growth, innovate, reach long-term revenue goals, meet customer demand, and control costs and improve operating efficiency. - Macroeconomic environment uncertainties and market volatility. - Risks related to actual results differing materially from forward-looking statements due to various assumptions and factors.

Q: Congrats on the quarter. Nice to see the durable IPEX growth. I am gonna actually ask about the CX side of the business. I think there was some optimism that AI could drive a little bit faster growth there that it didn't play out in Q4. Can you just talk about some of the factors maybe creating some headwinds in that side of the business and kinda what you're doing to rectify those?

A: Yeah. Well, first of all, thanks for the question. As you know, our investment really is focused on that EX side of the business and then, of course, AI. The big move that we've made recently on the CX side has been to unify our conversation and ticketing capabilities in a new platform, which we released in Q4, and we're in the process now of upgrading all of our customers onto that. That'll give us a single code base to innovate off of, which we know will allow us to move faster on that side of the business. And drive both retention and expansion. I wouldn't say there was any meaningful trend in Q4. Remember, we lapped an initiative that we had last year called free to paid. So that accounted for some of the growth change. But, you know, we're managing that business to kinda grow where it is now, which is in that mid-single-digit range. While we invest over in that EX side, which is where we're seeing the growth, where we're seeing the move upmarket work quite well for us. So I wouldn't think that I don't think that Q4 was anything outside of our expectations. And if you look at our plan for next year, it's pretty consistent with where we think for this year, where we think we're gonna grow that business this year.

Q: Yep. Okay. Makes sense. And then, Tyler, maybe a follow-up for you. If we think about kinda intermediate-term targets that you have out there, you know, call it 14, 15% growth, Today, you're getting about a third of that from that revenue retention. Right? I think it's 104 on a currency-adjusted basis. Does that feel like the right ratio to drive durable 14, 15% growth, like a third from expansion and two-thirds from net new? Or do we need to see NRR inflect higher to drive that growth durability?

A: So where we're at right now, DJ, I think, you know, that is the rate that it's at. But as we've talked about, you know, our EX business is growing a lot faster than our CX business as well. EX has a better net dollar retention, kinda makeup to it. Along with the fact that we've been adding different mechanisms to grow within the EX portfolio, specifically ESM products, our device 42 products. And then, you know, now with our recent acquisition of Fire Hydrant, later than in this year, you know, hopefully, a new SKU on the ITOM side. That's all, you know, on top of the Freddie copilot ads that we have. As the mix shift continues to change, you know, we're gonna expect to see that gonna see some benefit from net dollar retention. We did say you know, for the first quarter, really, that we're gonna see some upside on net dollar retention in Q1 moving up to $1.05. Is what we said. And that's the first time we've seen that in a while then. You know, that confidence is driven, really largely on the results that we're seeing on the EX side.