Executive Summary

Freshworks delivered a strong Q1 2025: revenue $196.3M (+19% y/y), non-GAAP operating margin 23.6%, and non-GAAP diluted EPS $0.18; all outperformed internal estimates and consensus, with FY25 guidance raised across revenue, non-GAAP operating income, and EPS .
Consensus beat: revenue $196.3M vs $191.9M (+$4.4M, +2.3%); EPS $0.18 vs $0.129 (+$0.051, +39.5%) as operating discipline, upmarket EX momentum, and AI attach drove upside; billings also healthy at $203.3M . Values retrieved from S&P Global*.
Guidance: Freshworks raised FY25 revenue to $815.3–$824.3M (from $809–$821M), non-GAAP op income to $139.5–$147.5M (from $131–$139M), and EPS to $0.56–$0.58 (from $0.52–$0.54); Q2 guide introduced (rev $197.3–$200.3M; EPS $0.10–$0.12) with a margin step-down on seasonal comp/expense timing .
Stock narrative catalysts: EX ARR “>$420M” (+33% y/y cc), stable NDR at 105%, accelerating AI monetization (2,700 Copilot customers; 1,600+ AI Agent customers), and a more leverageable partner model; watch Q2 margin step-down and second-half growth deceleration as Device42 laps .

What Went Well and What Went Wrong

What Went Well
- Upmarket EX momentum: EX ARR surpassed $420M (+33% y/y cc), with ~18,700 EX customers and notable competitive displacements of legacy vendors, elevating mix and ARPA .
- AI adoption and monetization: ~2,700 Copilot customers (+500 q/q) and >1,600 AI Agent customers; AI products cited as improving productivity 40–45% and deflecting 50–70% of L1 inquiries; launched Freddy AI Insights (beta) .
- Profitability/FCF: Non-GAAP op margin 23.6% and adjusted FCF $55.4M (28.2% margin), aided by operational discipline and timing; Rule of 47 (growth + FCF margin) achieved .
What Went Wrong
- Seasonality/timing to pressure Q2 margins: Management flagged annual compensation resets and spend shifts into Q2 and H2, guiding a sequential margin step-down despite efficiency progress .
- CX growth slower than EX: CX at “>$370M” ARR grew ~7% y/y cc; management continues to push cross-sell and AI attach to offset seat-driven deceleration .
- Reinvestment vs. near-term leverage: While Q1 margins outperformed, management plans to “lean in” on S&M in volatile macro to capture share, moderating near-term operating leverage .

Financial Results

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Millions)	$186.6	$194.6	$196.3
Non-GAAP Diluted EPS ($)	$0.11	$0.14	$0.18
Non-GAAP Operating Margin (%)	12.8%	20.7%	23.6%
GAAP Operating Margin (%)	(20.8)%	(12.2)%	(5.3)%
Non-GAAP Gross Margin (%)	85.7%	86.3%	86.2%

Consensus vs Actual (Q1 2025):

Metric	Consensus	Actual	Surprise
Revenue ($USD Millions)	$191.9*	$196.3	+$4.4 (+2.3%)
EPS (Primary/Non-GAAP) ($)	$0.129*	$0.18	+$0.051 (+39.5%)
Values retrieved from S&P Global*.

KPIs and Cash Flow:

KPI	Q3 2024	Q4 2024	Q1 2025
Customers >$5k ARR (count)	22,359	22,558	23,275
Net Dollar Retention (%)	107% (105% cc)	103% (105% cc)	105% (105% cc)
Calculated Billings ($M)	—	—	$203.3
Net cash from operations ($M)	$42.3	$41.4	$58.0
Adjusted FCF ($M)	$40.1	$41.7	$55.4
OCF Margin (%)	23%	21%	29.5%
Adjusted FCF Margin (%)	21%	21%	28.2%
Total customers (approx.)	—	—	>73,300

Segment/Business Mix (reported qualitatively by management):

Segment	ARR ($M)	Y/Y Growth (cc)	Customers (approx.)
Employee Experience (EX)	>$420	+33%	~18,700
Customer Experience (CX)	>$370	~+7%	~59,000

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	FY 2025	$809.0 – $821.0	$815.3 – $824.3	Raised
Non-GAAP Income from Operations ($M)	FY 2025	$131.0 – $139.0	$139.5 – $147.5	Raised
Non-GAAP EPS ($)	FY 2025	$0.52 – $0.54	$0.56 – $0.58	Raised
Revenue ($M)	Q2 2025	—	$197.3 – $200.3	New
Non-GAAP Income from Operations ($M)	Q2 2025	—	$27.8 – $29.8	New
Non-GAAP EPS ($)	Q2 2025	—	$0.10 – $0.12	New

Management noted Q2 margin step-down due to annual comp cycle and spend timing; Device42 acquisition anniversary implies higher 1H growth than 2H .

Earnings Call Themes & Trends

Topic	Q3 2024 (prior-2)	Q4 2024 (prior-1)	Q1 2025 (current)	Trend
AI initiatives	Unveiled Freddy AI Agent for CX/EX	—	2,700 Copilot (+500 q/q), 1,600+ AI Agent; launched AI Insights (beta); strong ROI use-cases	Increasing adoption/monetization
EX upmarket push	—	—	EX ARR >$420M (+33% y/y cc); wins vs ServiceNow, enterprise case studies	Strengthening
CX performance	NDR 107% (105% cc); solid growth	NDR 103% (105% cc)	CX ARR >$370M (~+7% y/y cc); attach of AI agents improving productivity	Stable but slower than EX
Efficiency/realignment	Announced 13% headcount reduction; $400M buyback authorization	Restructuring charges recognized in Q4	Non-GAAP margin 23.6% in Q1; plan to reinvest S&M in Q2/H2	Margin up, reinvestment near term
Partner ecosystem	—	Strategic agreement with Unisys	New global partner program; Climb “Strategic Partner of the Year”	Channel leverage ramping
Macro commentary	—	—	No material macro change; category “must-have” and better TCO vs incumbents	Neutral/constructive

Management Commentary

“We outperformed all our financial metrics for growth and profitability in Q1... revenue grew 19% y/y to $196.3 million, … non-GAAP operating margin of 24% and adjusted free cash flow margin of 28%.” — Dennis Woodside, CEO .
“Our EX business… surpassed $420 million in ARR and grew 33% y/y (cc)… more than 75% of the ARR in our EX business comes from mid-market and enterprise companies.” .
“We ended the quarter with more than 2,700 Copilot customers… added ~250 customers and finished with over 1,600 customers using Freddy AI Agent.” .
“Calculated billings grew to $203.3 million… initial estimate for Q2 billings growth is 11%–12%.” — Tyler Sloat, COO & CFO .
“For Q2 we expect non-GAAP income from operations $27.8–$29.8M… and for FY25 we are raising revenue to $815.3–$824.3M and EPS to $0.56–$0.58.” .

Q&A Highlights

Device42 momentum and pipeline: “Two of our top 5 deals were Device42 deals… majority of the business is co-sold into our base and new wins; best quarter in number of deals so far” .
AI monetization model: Seat-based adders for Copilot ($29/seat/mo), consumption-based for AI Agent (session packs), and Insights bundled in enterprise plan (beta); broader breakout potentially at Investor Day .
Margin cadence: Q2 step-down driven by annual comp cycle and spend timing; reinvestment in S&M amid volatile macro to capture share .
NDR stability: 105% in Q1 better than plan; churn progress steady; expansion shifting from agent adds to broader product attach .
Macro: Category is “must-have”; better TCO vs legacy vendors; no material change seen in demand vs Q4; pull-ins were mainly from Q2 .
Partner/channel: New global partner program with industry-standard economics; Unisys signed; pipeline building in mid-market .

Estimates Context

Q1 2025 vs S&P Global consensus: revenue $196.3M vs $191.9M*, EPS $0.18 vs $0.129* — both beats, with EPS outperformance reflecting higher operating margin and expense timing . Values retrieved from S&P Global*.
Street context: Q2 2025 consensus revenue ~$198.9M* and EPS ~$0.114* align with company guidance ranges; FY25 consensus ~$834.8M* exceeds management’s raised midpoint, suggesting potential for modest upward revisions to EPS on continued margin execution. Values retrieved from S&P Global*.

Key Takeaways for Investors

Execution remains strong: consecutive beats, expanding non-GAAP margins, and robust FCF provide room to reinvest while raising FY25 outlook .
Mix shift to EX: faster-growing, higher-ARPA EX segment (+33% y/y cc) is lifting growth quality and competitive win rates versus legacy platforms .
AI is monetizing now: significant customer adoption of Copilot and AI Agents with tangible productivity/deflection benefits supports durable attach and upsell .
Channel leverage: revamped partner program and marquee SIs (e.g., Unisys) should extend reach and efficiency, particularly in mid-market enterprise .
Near-term watch items: Q2 margin step-down (seasonality and spend timing); second-half growth deceleration as Device42 laps; monitor NDR around ~105% and billings cadence .
Trading setup: Positive skew from raised FY25 guidance and AI/EX momentum; near-term prints may show seasonal margin dip—pullbacks could be buyable if NDR/billings remain intact .

Notes on non-GAAP: Freshworks excludes stock-based compensation, employer payroll taxes on equity, amortization of acquired intangibles, restructuring charges, and certain tax effects; reconciliations are provided in the release .

Footnote on estimates: Values retrieved from S&P Global*.

Freshworks Inc. (FRSH)·Q1 2025 Earnings Summary