Freshworks (FRSH) Q1 2026 Earnings Transcript

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DATE

Tuesday, May 5, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer and President — Dennis Woodside
• Chief Operating Officer and Chief Financial Officer — Tyler Sloat

TAKEAWAYS

• Total Revenue -- $228.6 million, up 16% year over year, or 14% on a constant currency basis.
• Employee Experience (EX) ARR -- Over $540 million, growing 27% year over year as reported and 25% in constant currency.
• Customer Expansion -- Customers with more than $100 thousand in ARR grew 29% year over year and now represent approximately 39% of total ARR.
• Customer Cohorts ($50K+) -- Customers with over $50 thousand in ARR grew 22% year over year and account for more than 55% of total ARR.
• EX Net Dollar Retention -- Achieved 111% as reported and 109% in constant currency; overall company NDR reached 106% as reported, 105% in constant currency.
• Freddie AI Copilot Customer Growth -- Exceeded 80% year over year, with attach rates over 65% in new deals with ARR above $30 thousand.
• Customer Experience (CX) ARR -- Ended at over $395 million, up 6% year over year as reported and 4% in constant currency.
• Freshdesk Omni Migration -- Over 80% of CX customer base migrated, with ARPA for new Freshdesk Omni customers at 2.5 times the prior platform.
• Non-GAAP Gross Margin -- 80.3%, consistent with prior quarters.
• Non-GAAP Operating Margin -- 18%, nearly three points above internal guidance, with non-GAAP operating income of $41 million.
• Free Cash Flow -- $55.8 million in Q1, representing a 24% margin and $0.20 per share, up 8% from the prior year.
• Share Repurchase -- 5.7 million shares repurchased for $45.4 million, with 2% reduction in shares outstanding year over year.
• Calculated Billings -- $235 million, up approximately 16% year over year as reported and 13.5% in constant currency; Q2 billings growth projected at 14.5%.
• Headcount Reduction -- Announced a global workforce reduction of approximately 11%, tied to efficiency and organizational streamlining.
• Restructuring Charges -- $8 million expected, with the majority recognized in Q2.
• Q2 2026 Guidance -- Revenue expected between $232 million and $235 million (13%-15% growth); non-GAAP operating income of $41 million to $43 million; non-GAAP net income per share projected at $0.13 on approximately 280 million shares.
• 2026 Full-Year Outlook -- Revenue of $958 million; adjusted free cash flow margin estimated at 24%-27.5%; adjusted free cash flow per share of $0.94, representing 24% growth over fiscal 2025.
• EX Focus -- EX ARR projected to exceed 60% of total ARR by year end, driven by continued upmarket wins and expansion business.
• AI Monetization Initiatives -- New EX AI products, including AI Agent Studio and MCP Gateway, will allow customizable agentic workflows and open integration with third-party AI, with explicit plans for future monetization.

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RISKS

• Chief Operating Officer Sloat said, "we are reducing our global headcount by approximately 11%," with $8 million in one-time restructuring charges, indicating operational and workforce challenges.
• Chief Operating Officer Sloat stated, "we are adopting a prudent outlook and anticipate CX ARR to grow in the low single digits in 2026," signaling slowing growth in the CX segment.

SUMMARY

Freshworks Inc. (NASDAQ:FRSH) launched 2026 with revenue, non-GAAP operating profit, and free cash flow all surpassing initial company projections while executing strategic restructuring and capital allocation programs. Management highlighted sizable upmarket customer wins, as both the EX and AI segments delivered significant ARR expansion and new logo momentum. The company communicated an explicit intent to compound adjusted free cash flow per share by at least 20% annually over the next three years, reinforced by predictive guidance and corresponding share repurchases. Guidance for the CX business signals anticipated challenges, as only low single-digit ARR growth is forecast despite successful migration to Freshdesk Omni and enhanced ARPA.

• Chief Executive Officer Woodside said, "FireHydrant, which advances our vision for an AI-enabled service ops platform," with its integration expected to complete over the course of 2026.
• EX pipeline activity is increasing with a field-driven, enterprise-focused sales approach, supported by new product launches, including cloud-based ITAM and AI Agent Studio for extended agentic AI workflows.
• Professional services revenue for the quarter was approximately $2 million, aligning with internal expectations for facilitating successful customer onboarding and adoption.
• Freshworks Inc. ended the quarter with $780 million in cash and investments, supporting continued share repurchases and strategic investment initiatives.
• Pricing actions implemented during the quarter were "not material" to guidance, with growth primarily attributed to new business in the EX segment.

INDUSTRY GLOSSARY

• EX (Employee Experience): Freshworks Inc.'s suite focused on service, operations, and asset management for internal-facing enterprise workflows, primarily via the Freshservice platform.
• CX (Customer Experience): Freshworks Inc.'s offering for external customer support and engagement, largely delivered through the Freshdesk platform.
• ARR (Annual Recurring Revenue): Total value of all active subscription contracts normalized on an annual basis.
• ARPA (Average Revenue Per Account): The average recurring revenue generated per account, providing insight into upmarket and cross-sell activity.
• Freshdesk Omni: The unified version of Freshworks Inc.'s CX product line, now supporting generative AI features and customer migrations.
• Freddie AI / Copilot: Proprietary AI module providing automation and productivity enhancements throughout Freshworks Inc. platforms.
• ITAM (IT Asset Management): Solution for tracking and managing hardware and software assets as part of service operations.
• Device42: Acquired ITAM company whose capabilities have been integrated into Freshservice; legacy licenses are a noted revenue headwind.
• MCP Gateway: API tool allowing integration of third-party AI agents and cross-platform workflow orchestration, announced during the call.
• GSI (Global System Integrator): Large firms providing implementation/services; Freshworks Inc.'s GSI engagement is described as "nascent."
• ESM (Enterprise Service Management): Expansion of ITSM practices across non-IT business functions with workflow and automation capabilities.

Full Conference Call Transcript

Dennis Woodside, Freshworks Inc.'s chief executive officer and president, and Tyler Sloat, Freshworks Inc.'s chief operating officer and chief financial officer. The primary purpose of today's call is to provide you with information regarding our first quarter 2026 performance and our financial outlook for our second quarter and full year 2026. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate, and market volatility, and certain other assumptions made by the company, all of which are subject to change. These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain our growth, to innovate, to reach our long-term revenue goals, to meet customer demand, and to control costs and improve operating efficiency.

For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our most recently filed Form 10-Ks, and other periodic filings with the SEC. Freshworks Inc. assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law. During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our Investor Relations website at ir.freshworks.com.

I encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports, and a replay of today's call to learn more about Freshworks Inc. For presentation purposes today, Dennis' financial comments will be on an as-reported basis. Tyler will be providing financial comments on an as-reported and constant currency basis. I will now turn the call over to Dennis.

Dennis Woodside: Good afternoon, everyone, and thank you for joining us. Freshworks Inc. delivered a strong start to 2026, exceeding expectations across revenue, profitability, and free cash flow. Our Q1 revenue grew 16% year over year, above the high end of our estimates. Non-GAAP operating margin was 18%, nearly three points above our estimate, and adjusted free cash flow margin was 24%. Once again, we achieved rule of 40. In Q1, we signed the two largest deals in Freshworks Inc. history, including our first seven-figure EX ARR deal. Customers with more than $100 thousand in ARR grew 29% year over year, and customers with more than $50 thousand in ARR grew 22% year over year.

This demonstrates our continued success in serving mid-market and enterprise customers. Freshworks Inc. is the AI-enabled unified service operations platform that is fast to deploy, intuitive to use, and enables every employee to be more productive. We entered 2026 with clear goals: expanding our EX business, monetizing AI at scale, and profitably growing our CX business, as we grow Freshworks Inc. to a $1 billion ARR company and beyond. Now let's look at the results for each of these areas in Q1. Our EX business represents the primary and largest growth opportunity. EX ARR grew 27% year over year in Q1, with both new and expansion business coming in ahead of our expectations.

We are attracting a fast-growing base of mid-market companies and enterprises choosing Freshservice for enterprise-grade capabilities, fast time to value, and lower complexity in implementation. Most notably, in Q1, a global leader in nutrition replaced our largest competitor with Freshservice in what represents the largest new customer deal in our company's history. They were seeking a solution that could handle enterprise-grade scale without sacrificing the intuitive experience necessary to manage their complex workflows. Following that historic win, Piedmont Healthcare also selected Freshservice over our largest competitor, citing our significantly lower total cost of ownership, faster implementation, and enterprise capabilities.

Finally, Reed, the UK's number one specialist recruitment company, moved to Freshworks Inc. to achieve a faster and more collaborative enterprise IT experience. These wins underscore a clear trend: organizations are increasingly choosing our platform for its ability to deliver sophisticated results without the traditional overhead. Freshworks Inc.'s ability to deliver enterprise-grade outcomes without the implementation drag and administrative burden of legacy systems is exactly why we are displacing vendors whose products have become too expensive and complex for mid-market and enterprise customers to maintain. We are also expanding our right to win by integrating and broadening our EX offerings.

In March, we launched a new Freshservice ITAM experience, bringing Device42 capabilities natively into Freshservice and making it easier for customers to use in a single cloud experience. We also completed the acquisition of FireHydrant, which advances our vision for an AI-enabled service ops platform that unifies service, asset, and operational data. We will complete the integration of FireHydrant over the course of 2026. Moving on to our AI progress, Freddie AI continues to be embedded throughout our platform, enhancing customer outcomes today while building toward a long-term monetization opportunity. Freddie AI Copilot is one of our fastest-growing products, with strong customer growth, new business attach rates, and higher expansion among AI customers.

In Q1, Freddie AI Copilot customer growth exceeded 80% year over year, and the attach rate growth in new deals over $30 thousand in ARR was above 65%. Specifically in our EX business in Q1, our customer penetration for AI surpassed 20%, nearly doubling year over year, and roughly a third of all new EX customers in Q1 had Copilot attached. AmeriShore, a commercial insurance provider and EX customer, has been able to transform service delivery within a single platform using Freshservice's AI-driven workflows and Freddie Insights. With Freshservice for business teams, the use case has expanded beyond IT into legal, HR, underwriting, and marketing, saving thousands of hours in 2025 alone and cutting employee onboarding resolution time by 97%.

We look forward to detailing more about our future AI strategy and EX product innovations at our Refresh event next week. Turning to our customer experience business, we continued to deliver durable growth with CX ARR up 6% year over year in Q1. We are making progress in this business through go-to-market discipline, platform integration, and increased market fit enabled by our AI capabilities. A leading provider of lender-placed insurance solutions consolidated a fragmented stack of JSM, Genesys, and SharePoint into a single Freshworks Inc. platform. By unifying ticketing, automation, and AI in one place, the team reduced manual effort, improved operational visibility, and gained a clear path to scaling support.

Over 80% of our CX customer base has now migrated to the new Freshdesk Omni platform. This successful replatforming is more than just improving for customers; it is the foundational work to enable the next wave of generative AI capabilities in our CX products and accelerate margin accretion. Since we began offering Freshdesk Omni at the end of last year, ARPA is 2.5 times higher for new Freshdesk Omni customers compared to the prior platform. In lockstep with our focus on durable growth from our EX and CX businesses, we remain committed to driving structural operating efficiencies that support enterprise-grade scale and long-term profitability.

Q1 non-GAAP operating margin reached 18%, nearly three points above our estimate, reflecting the disciplined execution we expect to sustain throughout 2026. Today, we announced some workforce changes we are making to the company in Q2 to consolidate overlapping go-to-market efforts, streamline our product development process, and apply AI and automation across our business. These actions enable us to focus energy on our momentum in EX and accelerate Freshworks Inc.'s competitiveness. Tyler will provide the financial impact and updates to our outlook in his remarks. Turning to capital allocation, our operating model continues to deliver durable free cash flow.

This operational strength allows us to take a balanced approach to capital allocation, reinvesting in high-return growth opportunities while also returning capital to shareholders. In February, our board authorized a new $400 million share repurchase program, reflecting our confidence in the intrinsic value of our business. In Q1, we reduced shares outstanding by approximately 2%. We remain confident in our ability to compound adjusted free cash flow and drive long-term shareholder returns. Overall, Freshworks Inc. achieved significant progress in Q1, accelerating our momentum with profitable growth fueled by our EX opportunities. By structurally shifting our operating model over the last two years, we have established a durable framework that balances top-line performance with capital efficiency.

Our long-term focus is on compounding adjusted free cash flow per share. Having more than doubled this metric over the last two years, we are now positioned to compound adjusted free cash flow per share by at least 20% annually over the next three years. We will share more details on the operational drivers and our long-term vision at the Refresh event next week. I will now turn it over to Tyler to walk through our financials.

Tyler Sloat: Thanks, Dennis, and thanks, everyone, for joining on the call and via webcast today. We kicked off 2026 with strong results, exceeding our expectations on revenue, non-GAAP operating income, and free cash flow. Our Q1 performance reflects accelerating momentum and strong retention in EX, increasing success in the enterprise market, and disciplined operational execution across the business. For our call today, I will cover the Q1 2026 financial results, provide background on the key metrics, and close with our forward-looking commentary and expectations for Q2 and full year 2026. As a reminder, most of my discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses, restructuring charges, and other adjustments.

I will also talk about our adjusted free cash flow, which excludes the cash outlay related to the costs associated with the Q2 restructuring announced earlier today. To provide greater transparency into our underlying business performance, I will also include constant currency comparisons throughout today's call. Starting with the income statement, we had a strong first quarter. Total revenue reached $228.6 million, up 16% year over year as reported, or 14% on a constant currency basis. Within this total, professional services revenue was approximately $2 million. Professional services revenue grew in line with our internal expectations and is a key component of our overall customer success strategy, ensuring successful deployment and adoption of our platform.

EX continues to be our primary growth engine, and EX ARR ended at over $540 million, growing 27% year over year on an as-reported basis and 25% on a constant currency basis. This performance was supported by strong expansion and new logo activity, including the two largest new business contracts in our history. These large wins validate our enterprise readiness and competitive positioning in market. Looking ahead, we anticipate EX ARR to grow in the mid-twenties and EX ARR to be over 60% of total ARR by year-end. Turning to our CX business, we ended Q1 with over $395 million in ARR, up 6% year over year on an as-reported basis and 4% on a constant currency basis.

The replatforming work we are doing to Freshdesk Omni to improve product consistency, support AI adoption, and increase the competitiveness of our platform is on track and will enable efficiency gains for the CX business over time. We have a disciplined focus on our CX business as we complete our customer migration and tighten alignment with our ideal customer profile. Going forward, we are adopting a prudent outlook and anticipate CX ARR to grow in the low single digits in 2026. Moving to margins, we demonstrated the durability of our business model by maintaining a non-GAAP gross margin of 80.3% in Q1, consistent with prior quarters.

Our non-GAAP operating income for the first quarter reached $41 million, translating to a non-GAAP operating margin of approximately 18%. This performance surpassed the high end of our initial expectations for the quarter. The key drivers behind this result were twofold: strong top-line performance and continued efficiency gains realized across various lines of our operating expenses. We are structurally continuing to shift our business towards GAAP profitability, with strategic efficiency gains driving a meaningful improvement in margins throughout the year. As Dennis noted, we announced some operational changes to our workforce that we are making to consolidate overlapping organizational efforts, streamline our product development process, and increase the leverage of AI and automation across our business.

As a result of these actions, we are reducing our global headcount by approximately 11%. We anticipate taking one-time restructuring charges of $8 million, with the vast majority in Q2. In a moment, I will discuss our updated Q2 and full year estimates that incorporate the financial impact of these actions. Moving to operating metrics, net dollar retention was 106% on an as-reported basis and 105% on a constant currency basis, a one-point acceleration from the prior quarter. Within this, we are demonstrating strong momentum in the expansion growth of our EX business. Q1 EX net dollar retention achieved 111% on a reported basis and 109% on a constant currency basis.

Going forward, we expect to sustain net dollar retention of approximately 105% on a constant currency basis for Q2 2026. As a reminder, this excludes any impact from Device42 legacy customers. Moving on, I would like to provide some additional color on results from our customer cohorts. Customers contributing more than $50 thousand in ARR grew 22% year over year as reported and 20% on a constant currency basis. This cohort represents over 55% of our total ARR. Customers contributing more than $100 thousand in ARR grew 29% year over year as reported and 26% on a constant currency basis. This cohort represents approximately 39% of our total ARR.

Double-digit growth in our larger customer cohorts was driven by the strong performance within EX, which we believe validates our strategy to increase our focused investments on mid-market and our enterprise EX customers. The accelerating growth we are achieving tells us we are structurally well positioned to capture a disproportionate share of the future EX market and sustain durable growth from our most strategic customers. Now let's turn to calculated billings, balance sheet, and cash items. Calculated billings came in at $235 million in Q1, up approximately 16% year over year as reported and 13.5% on a constant currency basis. For Q2, we estimate billings growth of approximately 14.5% on both an as-reported and constant currency basis.

Looking ahead, we expect billings growth to be in line with revenue growth for 2026. Our cash position remains strong. In Q1, we generated $55.8 million in free cash flow, representing a 24% margin and slightly better than our expectations. Adjusted free cash flow per share was $0.20, an 8% increase over the prior year. This metric underscores our operational efficiency and our disciplined approach to converting growth into tangible shareholder value. Turning to our capital structure, we view share repurchases as part of a disciplined capital allocation framework and a reflection of our confidence in the long-term opportunity ahead.

In Q1, we repurchased 5.7 million shares for $45.4 million, while utilizing an additional $7 million to offset dilution through the net settlement of vested equity. We ended Q1 with approximately 318 million fully diluted shares outstanding, down 2% year over year. Included within this was approximately 279 million basic shares outstanding, which also declined year over year. We ended the quarter with $780 million in cash and investments, providing ample financial firepower to continue our repurchase program while investing in future growth. Now on to our forward-looking estimates. As a reminder, our non-GAAP net income projections for 2026 assume a tax rate of 24%.

For Q2 2026, we expect revenue to be in the range of $232 million to $235 million, growing approximately 13% to 15% year over year; non-GAAP income from operations to be in the range of $41 million to $43 million; and non-GAAP net income per share to be approximately $0.13, assuming weighted average shares outstanding of approximately 280 million shares. For the full year 2026, we expect revenue to be in the range of $958 million to [inaudible]. This results in adjusted free cash flow margin of 24% to 27.5% for Q2 and full year 2026, respectively. Our full year 2026 outlook for adjusted free cash flow per share is $0.94, up 24% compared to fiscal 2025.

As a reminder, cash used for stock repurchases is reflected in our financing activities and is excluded from our adjusted free cash flow calculations. Finally, our forward-looking estimates are based on FX rates as of 05/01/2026 and do not take into account any impact from currency moves. Overall, Freshworks Inc. delivered a strong start to 2026, establishing a solid foundation for the year ahead. We remain confident in our ability to consistently exceed our goals as we drive durable growth and expanding profitability. To that end, our internal metric that best aligns with our strategic priorities and long-term shareholder value creation is growth in adjusted free cash flow per share.

Over the last two years, we have more than doubled our adjusted free cash flow per share results. More importantly, we have laid the foundation to compound adjusted free cash flow per share by at least 20% annually over the next three years. We look forward to sharing more details on this metric, the operational drivers behind it, and our long-term vision at our upcoming financial analyst session at our Refresh event next week. Thank you. Operator, we are ready for Q&A.

Operator: Thank you. We will now open the call for questions. Please limit yourself to one question. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Scott Berg at Needham & Company. Your line is open. Please go ahead.

Analyst: Hi, everyone. This is Lucas Mekop on for Scott Berg. Thanks for taking the questions. On the employee experience end of things, what drove the variance to the high end of your implied year-over-year constant currency revenue growth here in the first quarter? Historically, that has tended to skew towards the higher end, so I am just trying to understand any changes in the quarter here.

Dennis Woodside: Hey, it is Dennis here. First of all, I think we continue to see real momentum in the EX business, and the move upmarket is working. You see that in a couple of different ways. If you look at our growth of accounts that are spending more than $100 thousand with us, that is up 29% year over year. We had our biggest deal ever, the biggest land ever, a large nutrition company that was a 10-year customer of one of our competitors, that is moving over to us for all the reasons that we have talked about in the past: enterprise-grade scale, much faster time to value, easier-to-manage platform, and AI capabilities.

We had our second-largest land ever with a large healthcare provider, very similar story. So the upmarket motion continues to drive the overall EX business. We have built over the last couple of years a platform that extends from service management to operations management, now with FireHydrant, to asset management. We brought the Device42 capabilities into the cloud and launched that last quarter, and then into ESM. That is what customers are looking for, in particular in the mid-market, that customer from 5 thousand to 20 thousand employees. We call these mid-market or agile enterprises that are looking for a provider that can keep up with them. That market is big, and we are continuing to work there. Tyler?

Tyler Sloat: Yes, and Lucas, thank you for the question. In general, EX is doing really well. It is organically accelerating growth, and that is something we are really proud of. We have been talking about it for a couple of years now, and we are seeing great product-market fit, and you are seeing it now evidenced in some of the larger customers choosing us over our biggest competitor.

Analyst: Got it. Thanks. That is helpful. And then just a quick follow-up. We know you were reviewing pricing changes earlier in the year. Do you have any updated view on the impact of pricing changes on your full-year guidance?

Tyler Sloat: We did have pricing changes, but I would say they are not material to our guidance. We are going through a normal process with our customers as they renew, which is more of a CPI-type increase that any other software company would do. This is something we put in place a year and a half ago. In general, there is not an impact to our guidance because of pricing changes. The impact is really because the new business is going really well on the EX side.

Analyst: Understood. Thank you.

Operator: Your next question comes from the line of Morgan Stanley. Your line is open. Please go ahead.

Analyst: Hi, you have got Oscar Saavedra on for Elizabeth Porter. Thank you for taking my question. I want to stick with Freshservice. Nice to see the wins that you called out against your largest competitor. As we think about that opportunity, how would you characterize the pipeline building?

Dennis Woodside: The pipeline going into last quarter looked pretty strong as well.

Tyler Sloat: I think it is a continuation from what we saw coming into the year. We talked about building out this field motion over the last year. Last year was about putting the leaders in place, and those leaders started filling out the roles underneath them. These are sales reps and also CSMs and ASMs who can engage larger customers. We are building that muscle, and part of that is the pipeline muscle as well. Yes, we are seeing a really strong pipeline in the field for EX in particular.

Analyst: Got it. Maybe a follow-up around seat expansion. There is a big debate about lower headcount among customers, but your NRR picked up quarter over quarter on constant currency. Can you share some details on whether that was more of an upsell driver or if you also saw strong seat expansion?

Dennis Woodside: We saw strong new business wins, and we saw strong seat expansion as well. Remember, our product portfolio is broadening. We have additional seats accessible to us outside of the core IT department through ESM. ESM has been a big growth driver for us over the last year. We have asset growth; through advanced ITAM, that monetizes on an asset base, so you pay for every piece of software or hardware that is cataloged by the system. We are in a position of taking share. We are not defending a large market share accumulated over a long period of time.

We are taking share from the bigger players, which creates an opportunity for us to gain seats regardless of what the overall market is doing. We have not seen seat erosion; seat growth continues to be a meaningful driver of our business. Our business model is evolving. We have consumption-based offerings like Freddie AI Agent. We have asset-based offerings like advanced ITAM. We have resolution-based or other offerings that are based on more transactional value. We think the model will continue to evolve over the course of the remainder of the year, and we are excited about new products coming out next week that will enhance the monetization story, particularly around AI.

Analyst: Very clear. Thank you very much.

Tyler Sloat: Thanks, Oscar.

Operator: Your next question comes from the line of Citizens JMP. Your line is open. Please go ahead.

Analyst: Thank you for taking the question. This is Austin Cole on for Patrick Walravens. Dennis, could you double click into what allowed you to win that largest deal? And in the upmarket motion, what is the level of interest in the AI solutions and in Copilot?

Dennis Woodside: Customers in that mid-market and lower end of enterprise space are looking for an enterprise-grade platform that extends from service management through to operations management, asset management, and ESM. They are looking for a solution that is very fast in terms of time to value. They want a solution that has proven itself in the ability to transition other large, similar customers from more legacy platforms onto our platform, get them up and running fast, and make them successful. They are looking for AI functionality today as well as the roadmap, and they appreciate the ability to have choice in the platform as to how they want to consume AI over time.

Some want to lead with provisioning their agents with Copilot; others want to go directly into agentic AI. At our event next week, Refresh for EX specifically, we will be announcing a number of product enhancements that lean into this enterprise motion and the ability to offer our customers more choice. We are going to be rolling out AI Agent Studio for EX, which allows our customers to build their own agentic capabilities directly in our platform. That will come with 20 preconfigured workflows for things like onboarding and offboarding, provisioning software, changing passwords, and so forth.

We are also announcing alongside that our MCP Gateway, which will allow customers that want to bring their own AI or build agents in cloud, build agents in ChatGPT, to do so and take advantage of the data and information that is in our platform through MCP calls, which we will monetize over time. We have a lot going on that will continue that drumbeat upmarket. We launched our cloud-based version of IT Asset Management, advanced ITAM, a month ago. That is available for all of our customers now. We have many customers that are cloud-first and do not want an on-prem product; Device42 historically was on-prem, so that opens up another avenue of growth.

With FireHydrant, we have a new integration with Freshservice where you can see your incident response data all through Freshservice. That is another vector of growth that we are opening up this quarter. The EX motion continues to be strong, driving the business with 27% year-over-year growth this past quarter. We see EX continuing to be a bigger part of our business, the majority of the business overall, and really driving growth. We have oriented the company around that in terms of investment on the go-to-market side and on the engineering and product side, and that is what we are leaning into to drive growth for the full business.

Analyst: Great. Thank you.

Operator: Your next question comes from the line of Canaccord Genuity. Your line is open. Please go ahead.

Analyst: Hey, guys, it is actually DJ. Dennis, I hear largest deals ever, I hear the pipeline is fantastic, signs of organic acceleration. Why the decision to restructure now, and where will those optimizations mostly be focused?

Dennis Woodside: Overall, we are building an agile company that can deliver strong free cash flow per share growth while fueling the EX business that is growing at 27% year over year. There are a couple of reasons we did it now. First, we recently consolidated our go-to-market strategy. We had, I would not say equal, but a more equal focus on inbound versus outbound, and we are increasingly focusing on the EX business, which is primarily an outbound motion, and focusing on CX acquisition with better unit economics. That led us to rebalance our teams and spend more toward EX, and to run the CX business to drive profitability and cash that we are reinvesting back in EX.

Second, over the last year to year and a half, we have invested a lot in changing the way we build product to embed AI into the development process, which has resulted in much shorter cycle times. Over half of our code is originated in AI today. Like many other software companies, that is changing how we build products, how fast we can build products, and the number of people that we need to build products. Third, throughout the business we have been investing in automation and AI to streamline the way we do business and move faster. All of those contributed to the decision to restructure.

It sets us up well for the rest of the year, allows us to continue to invest in growth initiatives around EX, and continue to run the CX business for profitability and efficiency.

Analyst: Okay. And then, Tyler, a follow-up for you. What does dollar-based net retention look like if we were to adjust for the EX business? I do not need a point estimate, but broadly, where are we?

Tyler Sloat: Net dollar retention for EX is still over 110%, coming in right around 111% as reported and 109% at constant currency. It is really solid, and that includes a little bit of headwind that we are still facing from Device42 legacy churn. Those are multiyear contracts, and we have been talking about that since we bought Device42. We are pleased with the EX NDR, and as EX continues to grow faster on a weighted average basis, it helps overall NDR. We saw a slight acceleration to overall NDR this quarter as a result. We are also introducing more products that will be upsell capabilities against our core Freshservice.

Analyst: Perfect. Thank you, guys.

Operator: The next question comes from the line of Wolfe Research. Your line is open. Please go ahead.

Analyst: Hey, guys. Thanks for taking my question. First on the financials, Tyler, it looks like you accelerated revenue and billings growth constant currency in the quarter, and you are guiding for accelerating constant currency billings growth next quarter. Anything one-time in nature you would call out this quarter? And why were you in line with your constant currency revenue guide rather than ahead of it at the high end?

Tyler Sloat: There really was not any one-time. In past quarters, we have called out significant Device42 deals that would have had accelerated revenue on the front end. In fact, we have had some churn on Device42, which is somewhat of a headwind against revenue growth because as those deals renew, we had upfront sums on the old term license structure. So no one-time positives there; it was just really good execution, and we see good go-forward execution as well. We rolled through the beat for the year. We are quite positive on what happened in the quarter specific to EX. We are being prudent about our estimates for CX going forward.

We are internally optimistic, but externally, we want to be prudent about that. In general, we think we had a really good quarter.

Analyst: As a follow-up for Dennis, there is a lot of noise in the market about some vendors going more upmarket and others downmarket. What are you seeing in your lanes from competitors, both higher and lower? And is AI anxiety having any impact on sales cycles? It does not seem to be for you given the larger deals you are closing.

Dennis Woodside: We do not see any AI anxiety slowing or impacting deals. As we said in the prepared comments, most of our larger deals now are coming in with an AI component, and AI is core to the pitch, the discussion, and the roadmap. But customers are coming over not just for AI; they are coming for the full platform. They need full capability across different departments within IT and outside of IT to make the switch. On the competitive side, we have not seen major changes in dynamics. On the EX side, the primary competitors on the large side are ServiceNow and Atlassian, and then there is a long fragmented tail with Ivanti, Cherwell, BMC, and others.

On the CX side, it tends to be more fragmented—Zendesk and a bunch of smaller players—and I would not say that has changed dramatically. We are confident in our ability to win against those larger competitors on the EX side. We closed many deals this past quarter—our largest deal ever and our second-largest deal ever were both multiyear customers of our largest competitor. There are many other deals every quarter that come in against them. If you are a company in the 5 thousand to 20 thousand employee range, we have the right product, and that is becoming more apparent to the market. On CX, competitive dynamics are similar to how they have been. AI is more prevalent in conversations.

We are purposely focusing our CX team on customers within the SMB, commercial, and mid-market space where we have strong unit economics and strong expansion dynamics. We are no longer chasing micro deals at the lower end of the market, which we had in the past. That is why you are seeing more efficiency as the focus there. With the replatforming, there are positive signs. We have over 2.5 times ARPA for new customers signing up for Freshdesk Omni. If we can keep that trend going and realize the price increases from migrating customers from other products onto the single Freshdesk Omni product, that will flow through to the CX line over time.

We are being conservative in how we view the rest of the year; our guide implies low single-digit growth for the CX business because we want to see how it plays out over the next quarter or so. Overall, we are set up for a good year. We raised our non-GAAP operating profit by something like $26 million, and we see the ability to really drive a profitable business with mid- to high-teens growth overall over the course of multiple quarters.

Operator: Your next question comes from the line of Raymond James. Your line is open. Please go ahead.

Analyst: Thanks, guys, and I will keep it to one. Dennis, I wanted to get an update on your channel efforts. How big are those bookings or generation today? As you build out the broader EX suite, does that change the tenor of conversations with channel partners and how you could expand that base over time?

Dennis Woodside: Most of our channel partners are regional service providers that historically may have specialized in JSM or Ivanti or BMC, but they are the more regional players, and they are very important. They are driving meaningful business for us. We do have a couple of GSIs that we have been working with—Unisys is one—but I would say that is quite nascent. We brought in a new channel leader who is focused on moving that business up and focusing on GSIs. There is interest because customers on the lower side of the enterprise market are looking for choice, and we have a great product. We will continue to invest in the channel.

The dynamics right now are favorable on the regional side. The GSI side is really nascent.

Operator: Your next question comes from the line of Piper Sandler. Your line is open. Please go ahead.

Analyst: Hey, guys. Thanks for taking my question. I do not want to get ahead of ourselves here, but you mentioned in the prepared remarks the potential of opening up the platform to third-party agents, and a couple of other enterprise software companies have talked about potential monetization of third-party AI agents. How should we think about that potential within the platform? And it is good to see some of these large EX displacements—how should we think about the repeatability of these over time? Thank you.

Dennis Woodside: On the EX displacements, we have been winning these bigger deals for a while and highlighting them every quarter. We will continue to do that. The metrics show up in the customer count over $100 thousand in ARR, which is up 29% year over year. You can calculate ARPA for the business as a whole, and that has been growing nicely. We think it is completely repeatable—we are repeating it every quarter. Our pipeline is bigger this quarter than last quarter and meaningfully larger than it was a year ago. That is what is driving our business now: the upmarket motion and these larger accounts.

On MCP, or opening up the platform, next week at our Refresh EX event we will reveal our MCP Gateway, which is a way for customers who want to create an analytics platform broader than EX—combining data from multiple systems, putting it in a data lake, and applying AI on top—to pull and put information in our system. We will monetize it over time, but it is a way for us to participate in AI that our customers are driving outside of our AI. It allows customers to have choice in how they build their business and take advantage of AI.

In some cases, they will use our Copilot or our AI Agent; in other cases, they will build their own agents that interact with the data and systems we built within Freshservice to both extract data and drive actions within Freshservice. We are building a system that is open to that and that can monetize both approaches over time. We will have more details next week at the launch.

Operator: There are no further questions.

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