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Freshworks Inc. (FRSH)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue grew 22% year over year to $194.6M; non-GAAP operating margin expanded to ~21% and non-GAAP diluted EPS reached $0.14, exceeding the company’s prior Q4 guidance ranges for revenue, margin and EPS .
  • Net cash from operations was $41.4M and adjusted free cash flow was $41.7M (21.4% margin), underscoring disciplined execution and cash generation; cash and marketable securities ended at $1.07B .
  • KPIs: customers contributing >$5k ARR rose to 22,558 (+11% YoY), while reported net dollar retention was 103% (105% constant currency), down from Q3’s 107% (reported) on FX headwinds and continued expansion pressure .
  • 2025 guidance: revenue $809–$821M (+12–14%), Q1 revenue $190–$193M (+15–17%), non-GAAP op income $131–$139M and non-GAAP EPS $0.52–$0.54; management sees higher growth in 1H as Device42 anniversaries and margin progression through 2025 (Q1–Q4 margin cadence 17%, 13%, 16%, 19%) .

What Went Well and What Went Wrong

What Went Well

  • Strong Q4 beat vs guidance: revenue $194.6M (guided $187.8–$190.8), non-GAAP op income $40.3M (guided $22–$24), non-GAAP EPS $0.14 (guided $0.09–$0.10), reflecting cost discipline and execution .
  • EX momentum and AI traction: EX ARR surpassed $400M with ~35% YoY constant-currency growth; Freddy Copilot exceeded 2,200 customers, >50% attach on new $30k+ deals; Freddy AI Agent >1,300 paying customers .
  • Device42 synergy: ~$10.3M Q4 revenue contribution; 3 of top 10 Q4 deals included Device42; pipeline doubled QoQ entering Q1 .

Management quote: “We outperformed all our key metrics and exceeded our previously provided estimates… revenue growing 22% YoY to $194.6 million, operating cash flow margin of 21%, and adjusted free cash flow margin of 21%” — Dennis Woodside .

What Went Wrong

  • Net dollar retention declined to 103% (reported) on FX and ongoing expansion pressure (agents), with constant-currency NDR at 105%; management guides ~103–104% near-term .
  • FX headwind: strengthening USD reduced ARR growth by 3 percentage points ($17.5M ARR reduction) in Q4, with reported metrics more exposed given ~40% revenue from Europe and ~15% from RoW .
  • $50k+ customer adds metric slower despite larger deals; mix shift to fewer, bigger wins and tough comp impacted the count, though ARPA in that cohort increased .

Financial Results

Core P&L and Margin Metrics (USD)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$174.1 $186.6 $194.6
GAAP Diluted EPS ($)$(0.07) $(0.10) $(0.07)
Non-GAAP Diluted EPS ($)$0.08 $0.11 $0.14
GAAP Gross Margin (%)83.8% 84.0% 84.9%
Non-GAAP Gross Margin (%)85.0% 85.7% 86.3%
Non-GAAP Operating Margin (%)7.5% 12.8% 20.7%
Adjusted Free Cash Flow ($USD Millions)$32.8 $40.1 $41.7
Adjusted Free Cash Flow Margin (%)19.0% 21.0% 21.4%

KPIs and Balance Sheet

KPIQ2 2024Q3 2024Q4 2024
Net Dollar Retention (Reported, %)106% 107% 103%
Net Dollar Retention (Constant Currency, %)106% 105% 105%
Customers >$5k ARR (Count)21,744 22,359 22,558
Customers >$50k ARR (Count)N/A3,053 3,053
Cash & Marketable Securities ($USD Billions)$1.02 $1.05 $1.07

Guidance Changes

MetricPeriodPrevious GuidanceCurrent/ActualChange
Revenue ($M)Q4 2024$187.8–$190.8 $194.6 Raised/Beat
Non-GAAP Income from Operations ($M)Q4 2024$22.0–$24.0 $40.3 Raised/Beat
Non-GAAP Diluted EPS ($)Q4 2024$0.09–$0.10 $0.14 Raised/Beat
Revenue ($M)FY 2024$713.6–$716.6 $720.4 Raised/Beat
Non-GAAP Income from Operations ($M)FY 2024$80.8–$82.8 $99.1 Raised/Beat
Non-GAAP Diluted EPS ($)FY 2024$0.38–$0.39 $0.43 Raised/Beat
Revenue ($M)Q1 2025N/A$190.0–$193.0 New
Non-GAAP Income from Operations ($M)Q1 2025N/A$32.5–$34.5 New
Non-GAAP Diluted EPS ($)Q1 2025N/A$0.12–$0.14 New
Revenue ($M)FY 2025N/A$809.0–$821.0 New
Non-GAAP Income from Operations ($M)FY 2025N/A$131.0–$139.0 New
Non-GAAP Op Margin by Quarter (%)FY 2025N/A~17%, 13%, 16%, 19% (Q1–Q4) New
Free Cash Flow ($M)FY 2025N/A~$210 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
AI/Technology InitiativesFreddy Copilot >1,200 customers; Freddy Self Service ~900; AWS UAE data center launch Unveiled Freddy AI Agent for CX/EX; CTO appointment Freddy Copilot >2,200; >50% attach on large new deals; Freddy AI Agent >1,300 paying; monetization to accelerate in 2025 Accelerating adoption and monetization
Device42 (ITAM)Acquisition closed June 6; strategy to enhance ITAM Integration theme present; no revenue breakout ~$10.3M Q4 revenue; 3/10 top deals attached; pipeline doubled; Freshservice integration launched; cloud version slated late ’25/early ’26 Strengthening synergy and upsell
EX (ITSM/ESM) MomentumNot broken out; steady growth backdrop Company focus; restructuring to prioritize EX EX ARR >$400M; ~35% cc growth; ESM attach ~25%; strong up-market wins (e.g., ServiceNow displacements) Robust up-market traction
CX/SMB DemandFree-to-paid conversion initiative began mid-Q3, pipeline building Free-to-paid conversion noted; CX steady growth CX ARR >$360M; ~7% cc growth; >2,000 CX net adds from conversions; attach paths via AI and EX cross-sell Stabilizing growth, boosted by conversions
Tariffs/Macro/FXFX details not highlighted FX rates context in CC; business outlook raised Strengthening USD: 3pt ARR headwind ($17.5M); guidance based on Feb 7 FX FX headwind pressure
Regulatory/LegalNone notedNone notedNone notedStable
Partnerships/ChannelsNew regional datacenter; leadership hires Share repurchase program; restructuring; channel expansion New Unisys strategic agreement; >500 active partners touching ~1/3 ARR; MSP functionality roadmap Expanding partner leverage

Management Commentary

  • “Our strategy to drive durable and profitable growth is working… investing in EX… delivering AI capabilities… accelerating growth for our customer experience solutions” — Dennis Woodside .
  • “We expanded our non-GAAP operating margin by 800 bps QoQ to 21%… adjusted free cash flow 46% YoY to $41.7M… reflects successful execution” — Tyler Sloat .
  • “Competition among LLMs is good for us… build our tech stack to test various LLMs… balancing cost, performance, data security” — Dennis Woodside .
  • “We repurchased $15.5M of our shares in Q4 at an average price of $15.77… committed to appropriate capital allocation” — Tyler Sloat .

Q&A Highlights

  • EX growth sustainability: Management sees large mid-market opportunity with ServiceNow displacements, Device42 and AI as accelerants; pipeline for Device42 doubled QoQ .
  • Margin and capital allocation: Efficiency focus continues; selective M&A considered; ongoing share repurchases and net-settles to manage dilution .
  • $50k+ customer adds: Fewer but larger deals; FX exposure and tough comp impacted count; ARPA in cohort up .
  • MSP opportunity: Unisys partnership initiating co-sell and MSP build; product roadmap with MSP-specific features (multi-account management) and >1,000 MSPs already on product .
  • NDR outlook and expansion: Reported 103%/cc 105%; continued pressure on agent addition; focus on add-ons (Freddy, Device42, ESM) to supplement expansion .

Estimates Context

  • S&P Global consensus estimates for FRSH could not be retrieved at this time due to data-access limits; therefore, a formal Street beat/miss analysis relative to consensus is unavailable. Values that would normally be sourced from S&P Global are not included here. The company did, however, exceed its own Q4 guidance ranges for revenue, non-GAAP operating income, and non-GAAP EPS .
  • If you want, I can re-run the S&P Global pull later to incorporate consensus comparisons and update this section.

Key Takeaways for Investors

  • Execution is improving: Q4 beat vs company guidance with notable margin expansion; cash generation strong (adj. FCF $41.7M, 21.4% margin) .
  • EX is the growth engine: EX ARR >$400M with ~35% cc growth, strong up-market wins and rising ESM attach; Device42 broadens TAM and increases win rates .
  • AI monetization early but promising: Freddy Copilot attach >50% in large deals; >1,300 paying customers for Freddy AI Agent; trajectory supportive of upsell/expansion in 2025 .
  • FX remains a headwind and NDR pressure persists: reported NDR 103% vs 107% in Q3 on FX and slower agent expansion; management guiding ~103–104% near term .
  • 2025 setup: revenue +12–14%, margin cadence improving through the year as merit cycle passes and scale benefits accrue; FCF ~$210M targeted .
  • Capital allocation supportive: buyback deployment ($15.5M in Q4) and ongoing net-settles to offset dilution; $1.07B cash/marketable securities provides flexibility .
  • Near-term trading: Expect sensitivity to FX updates, NDR trajectory, and AI monetization disclosures; mid-year Investor Day could be a catalyst for AI and Device42 metrics .