Freshworks (FRSH) Q2 Revenue Up 18%

Key Points

• Revenue (GAAP) reached $204.7 million, surpassing the consensus estimate

• Non-GAAP earnings per share were $0.18, well above the $0.11 estimate Non-GAAP earnings per share more than doubled from the prior year.

• Non-GAAP operating income and free cash flow saw sharp increases.

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Freshworks (NASDAQ:FRSH), a business software provider specializing in customer support and IT service management solutions, reported its second-quarter 2025 financial results on July 29, 2025. The announcement featured GAAP revenue of $204.7 million, outpacing analyst expectations of $198.8 million, and non-GAAP earnings per share of $0.18, widely exceeding the predicted $0.11 non-GAAP figure. Freshworks also reported a significant increase in non-GAAP profitability and adjusted free cash flow. The quarter was marked by operational improvements, continued AI product rollout, and rising adoption of its AI-powered solutions.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

What Freshworks Does and Where It’s Focusing

Freshworks delivers a suite of cloud-based software to companies for customer engagement, support, and IT service management. Its flagship products include IT service management tools (known as Freshservice), customer support ticketing (Freshdesk), and a newer family of artificial intelligence (AI) solutions called Freddy AI.

In recent periods, Freshworks has leaned into artificial intelligence to differentiate its offerings in the software-as-a-service (SaaS) market. The company’s focus areas are building integrated AI-driven features across its software, using a product-led growth strategy (which means acquiring and expanding customers mainly through easy-to-use, self-serve products), and competing on ease of deployment and cost. Key business success factors include sustained customer growth, high rates of customer spending retention, maintaining competitive technology, and compliance with global data privacy standards.

Quarter in Detail: Financials, Key Metrics, and Product Moves

Freshworks outperformed both revenue and non-GAAP profitability estimates. The revenue figure represented 18% year-over-year growth. Non-GAAP operating income surged sharply compared to the prior year, while non-GAAP margins improved across the board.

Profitability gains were evident: non-GAAP income from operations was $44.8 million, compared to $13.1 million in the second quarter of 2024. Operating cash flow (GAAP) climbed to $58.6 million, Adjusted free cash flow increased 65% year-over-year. The free cash flow margin improved to 26.5%.

The company’s gross margin (GAAP)—a measure of how well it controls direct costs—was 84.8%, up from 83.8 % a year ago. Non-GAAP operating margin reached 21.9%. Non-GAAP operating margin reached 21.9%, up from 7.5% in the prior year quarter. These expansions were supported by ongoing discipline in controlling operating expenses relative to revenue.

Freshworks continued to report growth in its key customer segment: those generating more than $5,000 in annual recurring revenue, with the number of such customers reaching 23,975, an increase of 10% year-over-year. This customer group remains essential, representing the core of long-term revenue retention and expansion. Net dollar retention—an industry metric that reflects whether existing customers are increasing, decreasing, or maintaining spending—held steady at 106%.

Artificial intelligence developments stood out. The Freddy AI suite, which includes Freddy AI Copilot (an AI productivity aid for employees) and Freddy AI Agent (an always-on AI customer support platform), passed $20 million in annual recurring revenue. Freshworks launched the Freddy AI Agent Studio, a no-code tool allowing businesses to create their own AI-powered automation agents.

From a market perspective, Freshworks highlighted new marquee customer wins and a notable multi-year partnership with McLaren Racing. The partnership includes adoption of Freshservice as the IT service management solution for the motorsports team. These references boost the company’s visibility in enterprise sales and support its effort to compete with larger SaaS vendors like Salesforce and Zendesk, which also offer customer support software platforms.

There were no major one-time items distorting results for the quarter. Cash and cash equivalents plus marketable securities were $926.2 million. Freshworks remains without a dividend and instead, it continued to invest in growth and technology infrastructure.

Within its product suite, Freshworks debuted Freshservice Journeys, an AI-assisted feature designed to streamline employee service management. Management promoted ongoing deployment of Freddy AI modules into both customer support (Freshdesk) and employee support (Freshservice), underpinning the push for outcomes from AI, rather than just hype.

Looking Ahead: Guidance and Points for Investors to Watch

Management raised financial guidance for both the next quarter and full fiscal 2025. It now expects revenue between $207.0 million and $210.0 million for Q3 2025, up 11–12% year over year. Full-year revenue is projected in the $822.9 million to $828.9 million range, for 14–15 % growth. Non-GAAP operating income is anticipated to rise to $153.0–$157.0 million. Forecasted non-GAAP earnings per share are $0.56–$0.58.

The updated outlook implies that growth rates are moderating as the business matures, in line with industry patterns for SaaS providers scaling towards $1 billion in annual revenue, with operating discipline expected to continue even as operating expenses may increase in the second half as personnel investments and marketing spend return to a normal cadence. The company did not declare or adjust any dividend payout.

Other important watchpoints include competitive dynamics, as larger software companies roll out their own AI features, and the pace at which customers adopt new AI-driven modules within the Freshworks product family. Management did not flag any material exposure to economic risk in the quarter but did reference future spending increases, which could place a ceiling on continued margin expansion if not offset by equally rapid revenue growth.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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