Freshworks Inc.

Welcome to Freshworks First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Jun He, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to FreshWorks first quarter 2025 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 first quarter 2025 performance and our financial outlook for our second quarter and 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 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, the timing of future repurchases of our Class A common stock, 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 rate, 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 other periodic filings with 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.

Thank you, Jim. Freshworks had another fantastic quarter. we outperformed all our financial metrics for growth and profitability in Q1. We continue to see that our uncomplicated customer and employee service solutions are winning against outdated legacy software vendors. Companies are choosing our AI powered solutions to remove complexity, improve efficiency and unlock growth. We continue to demonstrate our ability to drive growth and profitability for the business. In Q1, Revenue grew 19% year over year to $196.3 million, and we delivered a non-GAAP operating margin of 24% and adjusted free cash flow margin of 28%, beating our financial estimates once again. Adding our revenue growth and adjusted free cash flow margin for Q1, we achieved a rule of 47 in the quarter. In driving profitability, we significantly expanded our non-GAAP operating margin by more than 10 percentage points compared to last year. We added over 1,000 net customers in the quarter, including large customers such as Freudenberg Group and All3 Media. We also expanded with our customers as we maintained a net dollar retention of 105% on a constant currency basis in line with the last two quarters. We ended the quarter with over 73,300 customers. We've continued to deliver strong revenue growth each quarter and drive profitability as we execute on our strategy. As a reminder, our three strategic imperatives are, one, investing in employee experience, or EX, which is our largest, fastest-growing business in ITSM, ITAM, ITOM, and ESM. Two, delivering AI capabilities across our products and platform that drive productivity improvements for our customers. Three, accelerating growth for our customer experience or CX solutions. Here's how ongoing execution of our strategy led to strong Q1 results. First, on employee experience, our focus to drive upmarket growth is paying off. Q1 was another strong quarter for our EX business. We surpassed 420 million in ARR and grew 33% year-over-year on a constant currency basis. We ended the quarter with approximately 18,700 customers in EX. We believe that several factors are driving growth in EX. Our continued upmarket success, our expansion with employee service management, the ongoing demand for device 42 from our accounts, and our success in specific industry verticals, such as professional sports and educational institutions. More than 75% of the ARR in our EX business comes from mid-market and enterprise companies. Large companies and organizations like Dave & Buster's, ITV in Europe, the State of Hawaii, and Dynatrace have cited the fast time to value that our fresh service products deliver. New mid-market and enterprise companies like Travis Perkins and the largest home building supply wholesaler in the UK are turning to Freshworks and leaving our IT competitors on a regular basis. Sophos, All3 Media, Nexstar Media Group, Kayak all chose Freshworks over Legacy Solutions. For example, cybersecurity leader Sophos needed a user-friendly ITSM solution with less complexity and a lower total cost of ownership. These differentiators, coupled with the ability to procure via AWS Marketplace, made switching from the legacy provider to our uncomplicated solution an easy decision. Another example. The largest title company in the U.S. chose Fresh Service to replace ServiceNow, which was their legacy provider of nearly a decade. Frustrated with poor user experience, low adoption, and manual inefficiencies, they opted for our uncomplicated, intuitive solution that could be easily managed and trusted by internal teams. Since switching to Freshworks, they have noted achieving faster ticket resolution, improved SLA compliance through modular workflows, and significant cost savings. The second factor driving our EX business is success in enterprise service management. ESM has become a key lever for expansion and an important component in new and existing deals. Customer adoption for fresh service for business teams has nearly doubled over the past 12 months. customers are using fresh service in other areas of their businesses, including HR, marketing, and finance, to deliver amazing service experiences. For example, EDF Renewables, a leading power provider with more than 35 years in renewable energy and nearly 5,000 employees in over 20 countries, wanted to streamline their IT service management, asset management, and change management processes. EDF chose fresh service because of its ease of use, seamless integrations, and codeless customization. They are leveraging workspaces within Fresh Service to manage different departments outside of IT, like facilities, ensuring that each department has a tailored environment to operate in. The integration with Microsoft Teams and the use of AI agents reduce manual intervention and routine tasks, resulting in higher employee satisfaction. The third EX growth driver is our advanced ITAM offering with Device 42. In Q1, two of the top five largest deals had a Device 42 component. For example, a large multinational tech company recently chose Device 42 with Fresh Service for business teams and Freddie AI agents over ServiceNow. They wanted a scalable, agile, AI-native offering that would deliver faster time to value. Our integrated platform, powered by Fresh Service and Device 42, provides a unified modern experience for IT and employees. Our EX success is also being driven by our momentum in specific industries. We're expanding our professional sports leadership position outside of the U.S. to include top Bundesliga football clubs in Germany, VfB Stuttgart, VfL Bochum, and TSG Hoffenheim. In education, We added Kent State, who has achieved a 95% CSAT with fresh service, and D'Youville University, who has seen improved asset management accuracy and reduced average resolution times to under 24 hours since using our solutions. Simply put, Freshworks helps midsize and larger enterprise organizations scale and compete at a global level. Next, on AI adoption. Customers have moved from AI experimentation to realizing tangible business value and returns on their investments. Freddie Copilot was included in three of the top 10 new deals in Q1. Nearly half of all new large deals over $30,000 ARR had Copilot attached in Q1. For new SMB customers, we continued to see double digit attach rates with increases quarter over quarter. We ended the quarter with more than 2,700 co-pilot customers, reflecting quarterly net ads of more than 500, or 23% growth quarter over quarter. Organizations are adopting Freddie AI because they see Freshworks successfully taking customers from AI experimentation to execution. Benson's for Beds, which uses co-pilot with both Fresh Desk and Fresh Service, saw a 54% improvement in resolution times. our AI offering has proven to be rapid, measurable, and transformative for a business balancing growth with seamless customer and employee experiences. In education, school administrations are increasingly using AI to handle repetitive tasks and streamline operations so that they can improve student outcomes. San Ramon Valley High, for example, uses Copilot with Fresh Service to save 50% of their IT management time every year. Freddie AI Agent became generally available for CX customers in Q1 and represents the next generation of self-service capabilities. We added approximately 250 customers and finished the quarter with over 1,600 customers using Freddie AI Agent. In CX, AI Agents were instrumental in the deflection of L1 queries and creating triage of multiple issues to help improve overall customer service operations for our customers. As Freddie AI Agents became generally available for EX customers in Q2, we expect to see improved momentum in these numbers going forward. We already have approximately 1,000 customers using Freddie AI Agent for EX needs. A leader from a top healthcare company shared that AI Agents cut response times in half from four minutes to just two, while autonomously handling over 70% of inquiries. This allowed human agents to focus on complex issues, boosting first call resolution by 30% and raising CSAT from 82% to 94%, all while cutting operational costs by 25%. Finally, for managers, we launched Freddie AI Insights into public beta at the end of Q1. Freddie AI Insights is an AI-powered intelligence partner for leaders delivering fast, proactive, and actionable insights, enabling smarter decisions, agility, and sustained growth. I look forward to sharing more in upcoming quarters. Here at Freshworks, we use AI to drive performance and accelerate results across our own business. Our finance team uses AI to analyze our cloud infrastructure spend and identify savings opportunities. Our billing team uses Freddie Copilot to summarize billing inquiries. Our engineering teams have developed an AI agent specifically for highly technical escalations. We continue to push the boundaries on what's possible today because AI is delivering results and driving efficiency. And we were recently recognized by Gartner once again as an emerging leader in their innovation guide for generative AI. We are in the next stage of generative AI and have moved from output to outcome. While some other vendors may sell vaporware, Freshworks is the ROI-driven AI solution, turning AI hype into real results. Turning to CX, we saw growth and retention in our flagship business and one of our two core offerings. We ended the quarter with approximately 59,000 CX customers, generating over 370 million in ARR, reflecting 7% year-over-year growth on a constant currency basis, similar to the prior two quarters. Our CX win rate against competitors like Zendesk increased sequentially over the prior quarter. We know that exceptional customer experiences drive loyalty, while complexity drives them away. Customers are choosing Freshdesk over others because our product is easy to use, provides a lower total cost of ownership, and delivers new AI features to improve productivity and efficiency. Companies of all sizes, such as 2Cows, Maison du Monde, Landmark Group, and Cineworld are leaving legacy software competitors and coming to us. NASDAQ Europe has relied on Freshdesk for over four years to deliver high-quality support to clients across multiple countries. With several Freshdesk instances, their teams depend on the core automation features and SLA policies to consistently meet their high customer service standards. In 2024, NASDAQ Europe achieved a 97% resolution SLA and a 93% CSAT. Freshdesk's uncomplicated and efficient platform continues to be a critical part of their support infrastructure as they scale and serve complex cross-border markets. Our CX products are expanding in numerous ways. First, CX customers are adopting our AI products. Customers have seen a 40% to 45% productivity improvement due to reduction in ticket resolution and response times from Freddie AI agents. For example, Panasonic North America chose Freshworks as part of their strategy to drive continuous improvement. Freddie AI Agent handles over 75% of their customer queries, a path to reduce customer effort scores and increase customer satisfaction. Another CX customer, Drive, uses Freddie AI Agents to deliver detailed explanations, relevant article links, and clear and actionable information to their customers which has significantly reduced response times. Another expansion path is CX customers also buying our CX solutions and vice versa. We continue to see cross-sell success with customers like Trinity College, finance company Premfina, and the popular German football club, VFB Stuttgart, who initially used Freshdesk to provide stellar customer experiences then expanded to EX. On the product front, we launched several improvements to FreshChat in Q1, including enhanced integration with Apple Messaging for Business. Customers can now use Apple Messaging for Business as a support channel and provide exceptional customer service with FreshChat, Freshdesk, and Freddie AI Agents. We also released the FreshChat OAuth authorization, which makes it easy to integrate apps and reduces security risks. We believe these product improvements drive improved customer experience and retention. We recently announced enhancements to our global partner program with expanded reseller and services offerings designed to give partners more predictability in building long-term Freshworks practices. We have more than 500 transacting partners, including global partners such as Guerrilla Services, SHI International, Unisys, Accession, and Climb. In recognition of our growth and innovation, Climb recently named Freshworks its Strategic Vendor of the Year. We're leveraging partners at every step of the customer relationship. For example, we teamed up with a preferred partner to help one of our longtime EX customers drive a major IT operations initiative. Our collaborative approach helped reduce our customers' resolution times by 30%. As partners become a larger part of our business, we expect to see increased efficiencies in our go-to-market efforts and overall business. Once again, I'm excited to capture the opportunity in front of us. Particularly in the current economic environment, we expect our enterprise-grade software to be a strong competitive advantage because it delivers results fast and has a lower total cost of ownership. We'll provide more product updates at our virtual Refresh Summit in June and updates to our long-term strategic plan at Investor Day in September, where we will expound on our vision to help customers realize their full potential with the transformative power of AI. Thank you to our customers, partners, employees, and shareholders for your ongoing support. Now, let me turn it over to Tyler to go through the operational and financial details.