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FI

Freshworks Inc. (FRSH)·Q2 2025 Earnings Summary

Executive Summary

  • Freshworks delivered strong top-line and profit metrics: revenue grew 18% year-over-year to $204.7M, non-GAAP operating margin reached 21.9%, and adjusted free cash flow margin was 26.5%, all ahead of prior estimates .
  • Results beat Wall Street consensus: revenue by ~$5.7M and non-GAAP diluted EPS by $0.07; guidance was raised for FY 2025 revenue and non-GAAP operating income while Q3 guidance is in-line with consensus ranges (values retrieved from S&P Global).*
  • KPIs improved: net dollar retention rose to 106% (as-reported) from 105% in Q1; customers >$5k ARR reached 23,975 (+10% YoY); calculated billings grew 15% YoY to $213.1M .
  • AI momentum is a core narrative: Freddy Copilot and AI Agent crossed $20M ARR; Copilot is attached to over 55% of large deals, with ongoing launches in agentic AI capabilities; management flagged sustained adoption and monetization levers into 2026 .
  • Catalysts: raised FY guidance, visible H2 pipeline, partner channel expansion (touching >1/3 of ARR), and Investor Day on Sept. 11; near-term focus includes increased H2 spend to capture opportunity .

What Went Well and What Went Wrong

What Went Well

  • Revenue and profitability outperformed: $204.7M revenue (+18% YoY), non-GAAP operating income $44.8M, 21.9% non-GAAP operating margin, adjusted FCF $54.3M with 26.5% margin .
  • KPIs strengthened: net dollar retention 106% (as-reported) vs. 105% in Q1; >$5k ARR customers 23,975 (+10% YoY) .
  • AI adoption ramping: “ARR from Copilot and AI Agent crossed $20M,” and “Freddy Copilot was included in more than 55% of our new large customer deals” .
    • Quote: “Freshworks delivered an outstanding Q2, surpassing expectations across growth and profitability.”
    • Quote: “Customers are no longer just experimenting with AI… driving measurable transformative results.”

What Went Wrong

  • GAAP metrics remain loss-making despite improvement: GAAP loss from operations of $(8.7)M and GAAP diluted net loss per share $(0.01) .
  • Gross expansion pressures persist; Device42 partner-base churn modestly pressured NDR (~0.67pt headwind) with improvement expected as integration progresses .
  • H2 spend will increase (personnel, brand, S&M) which may compress operating margin vs. Q2 levels despite growth opportunities .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$194.6 $196.3 $204.7
GAAP Net Loss Per Share ($USD)$(0.07) $0.00 $(0.01)
Non-GAAP Diluted EPS ($USD)$0.14 $0.18 $0.18
GAAP Operating Margin (%)(12.2)% (5.3)% (4.2)%
Non-GAAP Operating Margin (%)20.7% 23.6% 21.9%
GAAP Gross Margin (%)84.9% 84.8% 84.8%
Non-GAAP Gross Margin (%)86.3% 86.2% 86.1%
Operating Cash Flow Margin (%)21.3% 29.5% 28.6%
Adjusted Free Cash Flow Margin (%)21.4% 28.2% 26.5%
KPIsQ4 2024Q1 2025Q2 2025
Net Dollar Retention (as-reported)103% 105% 106%
Customers >$5k ARR22,558 23,275 23,975
Calculated Billings ($USD Millions)——$213.1
Cash, Cash Equivalents + Marketable Securities ($USD Millions)$1,070 $1,000 $926.2
Q2 2025 Actual vs. ConsensusQ2 2025
Revenue ($USD Millions)$204.7 vs $198.94* → Beat
Non-GAAP Diluted EPS ($USD)$0.18 vs $0.114* → Beat

Values with asterisk retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2025$815.3–$824.3 $822.9–$828.9 Raised
Non-GAAP Income from Operations ($USD Millions)FY 2025$139.5–$147.5 $153.0–$157.0 Raised
Non-GAAP Net Income per Share ($USD)FY 2025$0.56–$0.58 $0.56–$0.58 Maintained
Revenue ($USD Millions)Q3 2025—$207.0–$210.0 New
Non-GAAP Income from Operations ($USD Millions)Q3 2025—$31.2–$33.2 New
Non-GAAP Net Income per Share ($USD)Q3 2025—$0.12–$0.14 New

Notes: Guidance based on FX rates as of July 25, 2025; FX could add $1.5–$2.5M to FY revenue; higher H2 spend expected (personnel, brand, S&M) .

Earnings Call Themes & Trends

TopicQ4 2024 (Prev-2)Q1 2025 (Prev-1)Q2 2025 (Current)Trend
AI/Technology InitiativesAI narrative present; efficiency focus Global partner program and continued AI investment Agentic AI platform launched; Copilot attach >55%; AI ARR >$20M Accelerating adoption and monetization
EX Product PerformanceShare gains vs legacy vendors Continued momentum; >$5k ARR customers +13% YoY EX ARR >$450M; 24% YoY (as-reported), 22% cc growth; Journeys GA Strong growth with new ESM features
CX Product PerformanceCX expansion noted —CX ARR >$380M; 11% YoY (as-reported), 8% cc; large enterprise wins (Honda EU) Improving growth; enterprise traction
Partner ChannelUnisys strategic agreement New global partner program Partners touched >1/3 of ARR; second GSI added Increasing partner-driven pipeline
Macro/TariffsMixed macro backdrop —Diversified exposure; limited tariff impact; demand strong Stable; supportive demand
Device42 Integration2024 results include Device42 post-acq —Cloud version planned Q1 2026; NRR headwind ~0.67pt from partner churn Integration ongoing; product roadmap defined
NDR Trajectory103% (105% cc) 105% 106% (104% cc); Q3 outlook ~105% Improving as churn eases

Management Commentary

  • “Freshworks delivered another strong quarter, exceeding our previously provided financial estimates in Q2 with 18% year-over-year revenue growth to $204.7 million, a 29% operating cash flow margin, and 27% adjusted free cash flow margin.” — Dennis Woodside .
  • “We expanded our non-GAAP operating margin to 22%, and delivered a strong adjusted free cash flow margin of 27%.” — Tyler Sloat .
  • “Over 5,000 customers are now paying for our Copilot and AI Agent products and ARR from these two SKUs crossed $20 million in Q2.” — Dennis Woodside .
  • “Partners touched more than one-third of our ARR in Q2… we have onboarded over 130 new partners.” — Dennis Woodside .
  • “We expect spending to increase in the second half… incremental investments in sales and marketing to capture the growth opportunities ahead.” — Tyler Sloat .

Q&A Highlights

  • AI Agent and Copilot adoption: AI pacing at or slightly ahead of internal expectations; Copilot has a solid attach motion, while agentic capabilities are early with pricing resolution later in the fall .
  • Guidance construct and growth mix: Q3 guide at 11–12% growth; Device42 anniversary affects compares; EX growth remains strong; reserve, usage, and PS components factor into revenue .
  • Partner channel: >1/3 bookings impacted; moving to larger GSIs (e.g., Unisys), driving larger, more mature customers with expansion opportunity .
  • Macro/tariffs: diversified revenue base with limited tariff exposure; demand across regions and industries remained healthy .
  • Device42 roadmap: Cloud version targeted for Q1 2026; can be ~one-third of multi-hundred-thousand-dollar deal value; helps move upmarket and cross-sell .
  • NRR trends: Q2 in-line with expectations; Device42 partner churn a ~0.67pt headwind; Q3 outlook ~105% (as-reported) .
  • H2 operating margin: spending to increase (timing, brand, go-to-market) but efficient growth remains focus; pipeline visibility supports slight acceleration in Q4 billings .

Estimates Context

PeriodMetricConsensusActual/GuideSurprise
Q2 2025Revenue ($USD Millions)198.94*204.68 +5.74
Q2 2025Non-GAAP Diluted EPS ($USD)0.114*0.18 +0.066
PeriodMetricConsensusCompany GuidanceContext
Q3 2025Revenue ($USD Millions)208.80*$207.0–$210.0 In-line
Q3 2025Non-GAAP Diluted EPS ($USD)0.128*$0.12–$0.14 In-line

Values with asterisk retrieved from S&P Global.*

Implications: Results warrant upward estimate revisions for FY revenue and non-GAAP operating income given the guide raise; near-term quarterly estimates appear aligned with Q3 guidance ranges .

Key Takeaways for Investors

  • Freshworks posted a clean beat on Q2 revenue and EPS with improving NDR and disciplined cost control — supportive of multiple expansion ahead of Investor Day .
  • FY 2025 guidance raised for revenue and non-GAAP operating income; Q3 guide sits in-line with consensus, suggesting steady execution with H2 spend to drive growth .
  • AI is the durable growth lever: Copilot attach >55% in large deals, AI ARR >$20M, and Agentic AI launching with enterprise use cases (email automation, unified search, insights) .
  • Partner channel scaling (>1/3 ARR touched), plus Device42 strengthens EX deals and roadmap (cloud in Q1 2026), positioning FRSH upmarket for larger, multi-product wins .
  • Cash generation remains strong (Q2 OCF margin 28.6%, adj FCF margin 26.5%); share repurchases continue to offset dilution, supporting shareholder returns .
  • Watch near-term: increased H2 spending could temper margin optics; FX tailwinds could modestly benefit FY revenue; Device42 integration to improve retention gradually .
  • Trade setup: Near-term strength driven by guide raise and AI adoption narrative; medium-term thesis rests on EX/CX cross-sell, agentic AI monetization, and partner-driven enterprise penetration .

Additional Data Points and References

  • Professional services revenue contributed $2.7M in Q2; FX tailwinds added >2pts to ARR (~$18M) .
  • Total customers “over 74,600”; large customer cohort >$50k ARR grew 22% YoY to 3,460 .
  • Public sector traction and European enterprise deployments (e.g., Honda Motor Europe) highlight regional maturity .
  • McLaren Racing partnership expands brand visibility with Freshservice deployment; branding on cars and kits .