Freshworks Inc.

Good day, and thank you for standing by. Welcome to FreshWorks' third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, June Hung, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Freshworks' third quarter 2024 earnings conference call. Joining me today are Dennis Woodside, Freshworks' Chief Executive Officer and President, and Tyler Sloat. FreshWorks Chief Operating Officer and Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our third quarter 2024 performance and our financial outlook for our fourth quarter and full year 2024, as well as our preliminary outlook for full year 2025. 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 FreshWorks' current expectations and estimates about its business and industry, including our financial outlook, macroeconomic uncertainties, management's beliefs, the timing and amount of future repurchases of our Class A common stock, the anticipated benefits, costs, and the timing of our workplace realignment and associated reduction in headcount, 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 our 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 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-K, and our other periodic filings with the SEC. Freshworks 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, a replay of today's call, or to learn more about Freshworks. And with that, let me turn it over to Dennis.

Thanks, June, and thank you, everyone, for joining us today on the call. I'm pleased to report that we had a strong third quarter. We outperformed across all our key metrics and exceeded our previously provided estimates for growth and profitability. The Q3 results reflect our focus on product innovation, operational discipline, and our strategic imperatives. Revenue grew 22% year over year to $186.6 million, and we generated free cash flow of $40.1 million, resulting in a free cash flow margin of 21% for the quarter. We nearly doubled our free cash flow compared to last year, representing a margin improvement of more than 700 basis points year over year. Adding our revenue growth and free cash flow margin for Q3, we exceeded the rule of 40 in the quarter. We're proud of the operational efficiencies we're creating while scaling our business. We ended the quarter with more than 69,600 total customers with a net add of more than 800 customers. This represents the highest organic net ads for customers in the last four quarters. We welcomed notable customers onto the Freshworks platform, including Republic Airways, University of Oxford, Champion X, the City of Bellevue, Fairbank One, and Textile Fashion Group, to name a few. Last quarter, we outlined our three key strategic imperatives to drive durable, profitable growth as we scale the business. The first imperative is that we invest in our largest, fastest growing employee experience business. This includes ITSM, ITAM, IT Operations, and ESM. Our second imperative is to continue delivering AI capabilities across our platform to increase productivity for our customers in employee experience and in customer experience. Our third imperative is to accelerate growth for our customer experience solutions, which include our customer service and sales and marketing products. Today, I'll share proof that our strategy is working. I'll start with our first pillar, EX. Our EX business is strong with over 390 million in ARR and a year-over-year growth rate of over 40% in Q3. Today, more than 17,800 customers are using our EX solutions to deliver exceptional IT and employee service management. By prioritizing investments in EX, we are moving up market and winning more mid-market and enterprise deals. We won 16 new and expansion deals over $100,000 in ARR in EX, including several against our largest competitor in Q3. Mid-market and large companies who rely on enterprise-grade software to compete at a global scale are choosing us over the competition. These companies operate in every sector, including public and private enterprises. They choose Freshworks to do what our competitors cannot, arm them with powerful yet affordable software that's as easy to implement as it is to use. This is our winning formula. They tell us that they're tired of being forced into oversized solutions that are hard to implement and operate. Our expanded capabilities have earned us the right to compete in larger deals, and we're winning many of them. Leading innovators across industries are using our AI-powered EX software to deliver exceptional employee experiences. In education, Georgetown, University of Pennsylvania, Pitzer, University of Aberdeen, Brunel University, and many more are using Fresh Service. For example, the University of Oxford chose Fresh Service and Freddie Copilot for its simplicity and ability to scale with the university's ITSM needs across IT, finance, and HR teams. Professional sports teams, including premier league football clubs, major league baseball teams, NFL franchises, and Formula One racing teams are choosing our software. In retail, customers like Carrefour Belgium, Paul Smith, and Textile Fashion Group have chosen Freshworks to overhaul their ITSM solutions. We're also creating more value from the Device 42 acquisition by cross-selling advanced ITAM capabilities to existing fresh service customers. We're expanding our ability to win deals in a broader group of large, mature companies. One example is Republic Airways, a large regional airline that also contracts with major airlines such as American, Delta, and United. We won this deal against our largest competitor in IT. this customer needed better visibility and control over their IT assets and configurations. Using Fresh Service and Device 42, Republic Airways now has a consolidated view of its numerous IT and hardware assets, which allows it to meet FAA compliance and resolve incidents more efficiently. In line with our strategy, we are prioritizing more R&D investment for EX to fuel our high-growth business. In Q3, we shifted over 200 technical resources from other areas to our EX product and engineering teams. These resources are now accelerating our product development of ITSM and ESM capabilities, including new change management features, enterprise-grade access and control functionality, and new Freddie AI capabilities. By adding these resources to EX, we have significantly pulled forward our product roadmap, in some cases up to four quarters. We're winning in EX and we're excited about our business momentum. Our AI products are gaining significant adoption and usage, and we are seeing monetization momentum quarter over quarter. As a reminder, we offer two AI products that are generally available today. Freddie Self Service to deflect frontline questions and Freddie Copilot to assist agents. We monetize Freddie Self Service on a per session basis and monetize Copilot through a per seat add-on of $29 per month. In Q3, paid Copilot adoption grew more than 35% over the previous quarter to over 1,700 paying customers. These customers can achieve more than 30% reduction in resolution time with Copilot while improving customer satisfaction. We increased attach rates for Copilot in new deals over $30,000 in ARR to more than 50% and SMB customers continue to attach at double digit rates. ARR from Copilot grew meaningfully quarter over quarter with a slight majority coming from the EX business. We're still early on, but we continue to monetize Copilot ahead of our initial expectations. One example of a customer finding great value with Copilot is Razorpay, a leading payment gateway services company in India with over 5 million customers. They needed an AI solution to scale their customer support without compromising quality. By implementing Freddie Copilot, they achieved remarkable results, automating 70% of routine queries and reducing resolution times by 30%. Our AI products enabled them to handle 20% more customer interactions while simultaneously improving first contact resolution and boosting customer satisfaction scores. Freddie Self Service continues to show positive momentum. We have more than 1,100 paying customers that are using Freddie Self Service for customer support. The number of paying customers has doubled since the beginning of the year, as many are realizing deflection rates of more than 40 to 50%. ARR from Self Service grew nearly 10% quarter over quarter in Q3. Customers are turning to us because they are looking for a robust platform of support solutions with leading AI capabilities that can help them scale. Bringer Nature is a global publishing company with more than 10,000 employees across 50 countries. Their customer agents were manually fielding a high number of queries from around the globe, so they needed an automated solution to help them address the high volume of L1 queries. With the adoption of self-service, they were able to deflect the low-level support queries while achieving a CSAT score of 90%. Finally, we recently announced the public beta of Freddie AI Agent. This marks a new generation of autonomous frontline agents powered by Freddie AI. Our Freddie AI Agent provides users with always-on, trustworthy, and conversational service that can resolve service issues quickly, efficiently, and without human intervention. While automation capabilities have been available to our CX customers for years, Freddie AI Agent represents the new generation of self-service capabilities and is now available for both our CX and EX customers. A key differentiator is that customers can set up Freddie AI Agent in minutes by simply pointing it to their knowledge base public URLs, support facts, or policy documents. Our AI agents don't require prescriptive button-like flows that are time-consuming to load and rigid in user experience. Instead, Freddie AI agents engage in a personalized, human-like conversation with memory and advanced reasoning to clarify queries, retain context, and have multi-turn conversations. For more complex issues, the AI agents can intelligently triage and seamlessly pass these to a human agent. Following months of testing in our own environment and with select customers, we have received valuable feedback and seen impressive business outcomes. For example, the large UK-based retailer Hobbycraft uses Freddie AI Agent to accurately respond to the wide and complex range of customer product questions. With minimal training, they went live and created instant customer support outside of normal business hours and across geographies. Another customer, B-Checks, deployed their autonomous agents within 20 minutes. We will directly monetize usage of the CX version of Freddie AI Agent as soon as it moves from public beta to general availability, which is expected in Q1 of 2025. The EX version of Freddie AI Agent will be included exclusively in the enterprise plan for fresh service. We will indirectly monetize this via higher win rates and mix shift towards the enterprise plan. Turning to our CX business, I'm happy to say that growth improved in Q3. Our CX business finished with over $360 million in ARR, growing nearly 10% year over year. We also improved our net customer ads in CX, doubling our net ads from the prior quarter. The most significant gains were from our international regions, driven by reduced churn and improved conversion of free to paid agents. In fact, Q3 was the lowest churn quarter ever for our customer support products. Our goal is to continue improving customer retention through product improvements and targeted outreach aimed at reducing term. We ended the quarter with over 56,100 CX customers. We are seeing several opportunities to cross-sell CX to EX customers and vice versa. We saw this with the city of Bellevue in Washington State. The city provides essential municipal services and has over 1,600 employees. Initially, they chose FreshService to monitorize their service management operations, and now they've added FreshDesk Omni to create tailored workflows for external service requests. Another example of a cross-sell is Travel Counselors, which has over 2,000 employees in six countries. After seeing productivity gains with Freshdesk, they adopted Freshservice and are now actively using Freshworks AI-powered solutions across their customer and employee experiences. Furthermore, we are seeing signs that AI is a net tailwind to our CX business. The vast majority of companies are looking to their trusted software partner like Freshworks to provide the latest AI capabilities. This is demonstrated by the increasing customer adoption each quarter and the growing attach rates for both co-pilot and self-service. The vast majority of companies we hear from are not planning to build their own internal AI solutions or plugging in small unproven vendors to deliver the latest AI capabilities. Our AI capabilities are already helping us win new deals and creating more expansion opportunities. In fact, CX customers represent a large portion of our co-pilot customers and all of our Freddie self-service revenue today, including many B2C customers. At the same time, our total agent count continues to grow. We are laser focused on building our business to deliver AI innovations and accelerate monetization, both through a consumption model like Freddie self-serve bots and a per seat model with Freddie co-pilot. We believe this will position us to be an AI winner in the future. In line with our strategy, we combined our customer service and sales and marketing units into a single CX team across product management, engineering, and marketing in Q3. In addition, we are focused on simplifying our core Freshdesk product experience to improve the ease of implementation and maintenance and thereby increase the time to value. As part of our efforts, we are building on our core ticketing foundation to create a more seamless experience for support teams. We also introduced new collaborator features to improve response times and CSAT scores. We're excited about all the progress we have made in executing on our strategy this past quarter. We're confident in our ability to deliver sustained long-term growth and we're bullish about our future. To reaffirm our confidence in the company strategy, we announced earlier today the board authorization for a share repurchase program of up to $400 million. We have a strong balance sheet with over $1 billion in cash. We are streamlining the business, and we expect to generate substantially higher cash flows in the coming years. We view this as a great investment opportunity to buy Freshworks shares at today's levels. Even after the share repurchase activity, we will maintain a very healthy balance sheet with well over $600 million in cash, which gives plenty of capital to invest organically in the business or through strategic acquisitions. Now, let me turn it over to Tyler to cover the financial details.