Fiscal 2025 Guidance
Q: What are your assumptions for fiscal 2025 guidance?
A: Tyler Sloat explained they are targeting low to mid-teens revenue growth for next year, with a focus on achieving over 25% free cash flow margin ,. They are in the midst of planning and note that they will lap the Device42 acquisition, making year-over-year comparisons more challenging in the back half of the year. They are accelerating investments in AI and the EX side, which could impact future projections. More detailed guidance will be provided at the end of the year ,.

Balancing Growth and Profitability
Q: How are you balancing growth versus profitability?
A: Tyler Sloat stated they are focused on efficiency and producing cash, aiming for mid-teens non-GAAP operating margins and over 25% free cash flow margin next year. While they are committed to bringing profit to the bottom line, they are also investing in growth areas, particularly in AI and doubling down on their strategy.

CX Business Growth
Q: How is the CX business performance improving?
A: Dennis Woodside noted that the CX business saw ARR growth increase to 10% in Q3, up from 7%. This improvement is due to focused product investments, operational improvements, and reduced churn, which was at an all-time low in Q3 ,. Seat additions are continuing, and they are optimistic about this trend continuing into next year ,.

AI Product Freddy Adoption
Q: How is Freddy impacting deal sizes and customer adoption?
A: Dennis Woodside mentioned that Freddy is being adopted across all segments, with substantial uptake among SMBs. Attach rates on larger deals (over $30,000) for Copilot, part of Freddy, are now over 50%, up from last quarter. Customers are experiencing up to 30% improvement in speed of resolution, enabling them to scale faster. The number of paid customers for Freddy self-service has doubled since the beginning of the year.

Device42 Integration and M&A Opportunities
Q: What are your plans regarding Device42 and potential M&A?
A: Dennis Woodside emphasized that Device42 presents a huge opportunity, particularly in IT Asset Management (ITAM) ,. They are focusing on integrating Device42 with Freshservice, aiming for a cloud-based version by late next year. They've seen real good progress in the first months post-acquisition, with Device42's pipeline being the largest it's ever been ,. They remain on the lookout for acquisitions to fill roadmap gaps and scale faster.

Impact of Macro Environment
Q: How does the macro environment versus internal execution affect your performance?
A: Dennis Woodside indicated that while it's hard to separate macro factors from their own efforts, much of their success is due to internal work, particularly in EX and AI adoption. They have seen widespread adoption of Copilot, now in half of all large deals, and improvements in CX through better product experience and converting free users to paid.

Net Dollar Retention
Q: Is macro improvement needed to get back to 110% NDR?
A: Dennis Woodside believes that an improvement in the macro environment is not required to drive growth. They have been focusing on reducing churn, which reached an all-time low in Q3 for CX. Tyler Sloat added that they're working on expanding with customers beyond agent additions, through AI products and Device42, and are in control of improving NDR.

SMB Sector Trends
Q: What trends are you seeing in the SMB sector?
A: Dennis Woodside reported positive signs in Q3, with net customer adds increasing from 400 three quarters ago, to 600, and now 800. This is due to product investments, sales efforts, reduced churn, and converting free users to paid plans. They see value in AI and conversational solutions, particularly on the CX side, and are excited about future prospects.

Customer Adoption of AI
Q: What are customers looking to achieve with AI, and what challenges do they face?
A: Dennis Woodside explained that customers want to empower their agents with AI tools for better productivity and accuracy. They are adopting Copilot to improve agent productivity by 30% or more. Customers also seek to deflect routine queries using AI agents, freeing human agents for more complex tasks. Freshworks is well-positioned to meet these needs with their AI solutions.

Employee Reduction
Q: Were any areas more impacted by the reduction in force?
A: Dennis Woodside stated that the reductions were broad-based, but there were marginal cuts in sales and marketing to focus efforts on fewer markets and bigger opportunities. The aim is to focus teams on key areas: EX, AI capabilities across all products, and reviving CX business growth.

AI Impact on Revenue and Margins
Q: How does AI adoption affect spending and margins?
A: Dennis Woodside noted that AI adoption leads to net expansion in ACV, as customers are adding AI products they didn't have before. Copilot is monetized as a per-seat add-on at $29 per seat per month, and Freddy self-service is monetized on a consumption basis. Tyler Sloat added that incremental margins from AI are similar, and they're focused on maintaining gross margins in the low to mid-80s percent range.