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Freshworks Inc. (FRSH)·Q3 2025 Earnings Summary

Executive Summary

  • FRSH delivered a clean beat-and-raise quarter: revenue grew 15% YoY to $215.1M and topped S&P Global consensus by ~3% ($215.1M vs $208.8M*), while non-GAAP diluted EPS of $0.16 beat by ~25% ($0.13*), driven by disciplined cost control and stronger EX demand .
  • Profitability and cash flow execution remained strong: non-GAAP operating margin expanded to 21% (from 12.8% in 3Q24), with operating cash flow margin of 29.5% and adjusted FCF margin of 26.6% .
  • Guidance raised for FY25 across revenue, non-GAAP operating income, and non-GAAP EPS; Q4 guide is balanced as management plans a one-time marketing reinvestment to seed 2026 pipeline while keeping margin guardrails intact .
  • Strategic catalysts: accelerating EX (>$480M ARR, +24% YoY), AI adoption and monetization (AI ARR doubled; Copilot ARR +160% YoY; higher pricing ahead for vertical AI agents), and strengthening large-deal velocity, with >$50k ARR deals up >40% YoY .

What Went Well and What Went Wrong

What Went Well

  • Clear beat on top line and earnings: revenue $215.1M (+15% YoY) and non-GAAP EPS $0.16 exceeded management’s prior targets and S&P consensus; non-GAAP operating margin reached 21% as execution remained tight .
  • Durable cash generation: operating cash flow $63.5M (29.5% margin) and adjusted FCF $57.2M (26.6% margin) underscored quality of earnings and collections strength .
  • Strategic momentum in AI and EX: AI ARR doubled; Copilot ARR +160% YoY with higher attach in larger deals; EX surpassed $480M ARR (+24% YoY) with ESM ARR >$35M and Device42 embedded in half of the top 10 deals; management plans higher AI agent pricing aligned with value delivered (deflection rates 50–80%) .

What Went Wrong

  • Net Dollar Retention edged down to 105% (as-reported), from 106% in Q2 and 107% a year ago; Device42 remains a ~60 bps drag, though management expects gradual improvement .
  • GAAP profitability still negative this quarter (GAAP operating loss $(7.5)M; GAAP EPS $(0.02)), reflecting stock-based compensation and amortization; non-GAAP remains the primary profitability measure .
  • Q4 margin to face a planned one-time marketing spend headwind as FRSH reinvests to build EX/AI pipeline; additionally, a $1M one-time Device42 revenue in Q3 will not repeat in Q4 .

Financial Results

Quarterly Results (actuals)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$196.3 $204.7 $215.1
Non-GAAP Diluted EPS ($)$0.18 $0.18 $0.16
GAAP EPS ($)$0.00 $(0.01) $(0.02)
YoY Revenue Growth (%)19% 18% 15%

Q3 2025 vs S&P Global Consensus

MetricActualS&P Global Consensus
Revenue ($USD Millions)$215.1 $208.8*
Non-GAAP Diluted EPS ($)$0.16 $0.13*

Values with asterisks retrieved from S&P Global.

Margins and Cash Flow (quarterly)

MetricQ1 2025Q2 2025Q3 2025
GAAP Gross Margin (%)84.8% 84.8% 84.7%
Non-GAAP Gross Margin (%)86.2% 86.1% 86.0%
Non-GAAP Operating Margin (%)23.6% 21.9% 21.0%
Operating Cash Flow Margin (%)29.5% 28.6% 29.5%
Adjusted Free Cash Flow Margin (%)28.2% 26.5% 26.6%

KPIs and Balance Sheet

KPIQ1 2025Q2 2025Q3 2025
Customers >$5k ARR (count)23,275 23,975 24,377
Net Dollar Retention (as reported)105% 106% 105%
Calculated Billings ($USD Millions)——$224
Cash, Cash Equivalents & Marketable Securities ($USD Millions)$1,000+ (as of 3/31/25) $926.2 (as of 6/30/25) $813.2 (as of 9/30/25)
Adjusted Free Cash Flow ($USD Millions)$55.4 $54.3 $57.2
Fully Diluted Shares (approx., period-end)——~309M

Segment/ARR Highlights (Q3 2025)

Segment MetricQ3 2025
Employee Experience (EX) ARR>$480M; +24% YoY (as-reported; +23% cc)
Customer Experience (CX) ARR>$390M; +8% YoY (as-reported; +7% cc)
ESM ARR>$35M; doubled YoY
AI ARRDoubled YoY; Copilot ARR +160% YoY

Guidance Changes

Q4 2025 Guidance (as issued Nov 5, 2025)

MetricPeriodCurrent Guidance
Revenue ($M)Q4 2025$217.0 – $220.0
Non-GAAP Income from Operations ($M)Q4 2025$30.6 – $32.6
Non-GAAP Diluted EPS ($)Q4 2025$0.10 – $0.12 (WASO ~284.5M)

Note: One-time $1M Device42 benefit in Q3 will not repeat in Q4; Q4 also includes a planned one-time marketing reinvestment impacting margins modestly .

FY 2025 Guidance Changes

MetricPeriodPrevious Guidance (7/29)Current Guidance (11/5)Change
Revenue ($M)FY 2025$822.9 – $828.9 $833.1 – $836.1 Raised
Non-GAAP Income from Operations ($M)FY 2025$153.0 – $157.0 $167.0 – $169.0 Raised
Non-GAAP Diluted EPS ($)FY 2025$0.56 – $0.58 $0.62 – $0.64 (WASO ~293.9M) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2025, Q1 2025)Current Period (Q3 2025)Trend
AI/MonetizationQ2: Launched Freddy AI Agent Studio; AI Copilot + Agent ARR >$20M; next-gen agentic platform announced in June . Q1: Outperformance; new partner program (no AI metrics disclosed) .AI ARR doubled; Copilot ARR +160% YoY; AI agents deflect 50–80% of tickets; higher agent pricing planned for vertical agents .Accelerating monetization and usage; pricing power emerging.
ESM/EX expansionQ2: EX momentum highlighted; Journeys launched .ESM ARR >$35M; Business Teams now standalone to land outside IT .Broadening land-and-expand; larger TAM.
Up-market wins/large dealsQ2: Partners leading more large implementations .>40% YoY increase in >$50k ARR new/expansion deals; strongest ITSM win rates in 2 years .Improving competitive position and deal size.
Device42Q2: Acquisition synergy messaging; integrations referenced .Included in half of top 10 deals; on-prem one-time revenue uplift in Q3; cloud release targeted for Q1 2026 .Integration deepening; cloud launch a 2026 accelerant.
NDR/ChurnQ2: NDR 106% (as-reported) .NDR 105% (as-reported); Device42 ~60 bps drag; outlook ~105% in Q4 .Stabilizing; mix shift to EX supportive.
Capital allocationQ2: Buyback ongoing .$400M program completed; 27.9M shares repurchased (avg $14.35); ongoing net settlements .Share count actively managed; cash still robust.
Macro/regulatoryQ1: Not highlighted.No federal shutdown impact; exposure is mainly state/local/education .Neutral.

Management Commentary

  • “Freshworks once again exceeded our previously issued estimates across growth and profitability metrics…Businesses are realizing that AI belongs in the software their teams use every day” — Dennis Woodside, CEO .
  • “Our non-GAAP operating income for Q3 came in at $45.2 million…reflecting our continued top-line momentum and effective cost management” — Tyler Sloat, COO & CFO .
  • “AI ARR has doubled year-over-year…Freddy Copilot ARR grew 160% year-over-year and was included in over 60% of our new customer deals over $30,000” — Dennis Woodside .
  • “We are expanding enterprise service management access by making Freshservice for Business Teams available as an independent product for non-IT functions” — Dennis Woodside .

Q&A Highlights

  • ESM as standalone: No separate salesforce required; strategy is to land in HR/Finance/Legal when ITSM is locked with a competitor, preserving optionality to displace incumbents at renewal .
  • AI monetization: Mix of session-based agents and per-seat Copilot; pricing being raised for agentic verticals given strong deflection value; not yet resolution-based pricing .
  • Q4 reinvestment: Majority in marketing/demand gen focused on EX; one-time spend to front-load 2026 pipeline; margin linearity outlined for 2026 with Q1 the low point and exit >23% .
  • Large-deal momentum: >$100k ARR deals increasingly common; improved win rates vs larger incumbents; Device42 cloud in Q1’26 to broaden opportunity .
  • Buyback posture: $400M program completed; ongoing dialogue with board on future capital returns; continued net settlement to manage dilution .

Estimates Context

  • Q3 actuals vs S&P Global consensus: revenue $215.1M vs $208.8M* (beat); non-GAAP diluted EPS $0.16 vs $0.13* (beat). Management highlighted ~3 points above the high end of prior internal estimates and 5-pt margin outperformance .
  • Q4 setup: Guidance revenue range ($217–$220M) broadly brackets S&P consensus of ~$218.8M*, and non-GAAP EPS guide ($0.10–$0.12) aligns with ~$0.11*; one-time Q3 Device42 revenue and planned Q4 reinvestment embedded .
  • FY25 raised guidance should prompt upward revisions to revenue, non-GAAP operating income, and EPS models; management reaffirmed 2026 growth (13–14%) and GAAP profitability by YE26 .

Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Beat-and-raise with high-quality cash generation; non-GAAP operating leverage is durable even as FRSH reinvests for growth .
  • EX/ESM momentum and AI monetization are the primary growth vectors; vertical AI agents and higher pricing raise the monetization ceiling into 2026 .
  • Large-deal velocity and up-market competitiveness continue to improve; Device42 integration is resonating and cloud launch in Q1’26 is a potential catalyst .
  • NDR stable at ~105% with a manageable Device42 drag; mix shift toward EX should be a medium-term tailwind for retention/expansion .
  • Q4 guide is prudent and pipes 2026; watch for marketing ROI and any incremental AI pricing updates at/after product events .
  • Capital returns are credible (buyback completion, dilution management) with balance sheet flexibility (~$813M cash & investments) .

Supporting Press Releases (post-Q3)

  • Freshservice for Business Teams made standalone to accelerate ESM lands outside IT, with ESM ARR >$35M and doubling YoY .
  • New Freshservice and Freshdesk AI capabilities announced at Refresh (DEX integrations, Intelligent Routing, Command Center, Vertical AI Agents) aimed at faster resolution, deflection, and proactive insights .