Revenue: $196.3 million, a 19% year-over-year increase. Non-GAAP Operating Margin: 24%, expanded by over 10 percentage points compared to last year. Adjusted Free Cash Flow Margin: 28%, with adjusted free cash flow of $55.4 million, a 43% year-over-year growth. Net Dollar Retention: 105% on a constant currency basis. Total Customers: Over 73,300, with more than 1,000 net new customers added in the quarter. EX Business ARR: Over $420 million, a 33% year-over-year growth on a constant currency basis. CX Business ARR: Over $370 million, a 7% year-over-year growth on a constant currency basis. Calculated Billings: $203.3 million, a 16% year-over-year growth on an as-reported basis. Cash, Cash Equivalents, and Marketable Securities: $1 billion. Share Repurchase: $111.8 million repurchased at an average price of $16.60 per share.

Warning! GuruFocus has detected 5 Warning Signs with FRSH.

Release Date: April 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Freshworks Inc (NASDAQ:FRSH) reported a 19% year-over-year revenue growth to $196.3 million in Q1 2025. The company achieved a non-GAAP operating margin of 24% and an adjusted free cash flow margin of 28%, surpassing financial estimates. Freshworks Inc (NASDAQ:FRSH) added over 1,000 net customers in the quarter, including large enterprises like Freudenberg Group and All3Media. The company maintained a net dollar retention rate of 105% on a constant currency basis, consistent with the previous two quarters. Freshworks Inc (NASDAQ:FRSH) saw significant growth in its Employee Experience (EX) business, surpassing $420 million in ARR with a 33% year-over-year growth.

Negative Points

Despite strong performance, Freshworks Inc (NASDAQ:FRSH) faces uncertainties in the macroeconomic environment and market volatility. The company anticipates increased expenses in Q2 due to annual merit cycles and investments in sales and marketing, which may impact operating margins. Freshworks Inc (NASDAQ:FRSH) is experiencing competitive pressure from legacy software vendors, which could affect market share. The company is navigating through a period of market volatility and economic uncertainty, which could impact future performance. Freshworks Inc (NASDAQ:FRSH) is dealing with internal changes, such as the departure of a key sales executive, which could pose challenges in maintaining sales momentum.

Q & A Highlights

Q: Can you provide an update on Device42 and its impact on platform wins? Also, how is the CX business performing in terms of agent and seat growth? A: Dennis Woodside, CEO, explained that Device42 had a great quarter, primarily driving platform wins through upselling to existing customers and new deals. Two of the top five deals included Device42. In the CX business, agent count and AI solution adoption continue to grow, with optimism about the future of AI Agent and Insights products.

Story Continues

Q: How are internal AI-driven operational efficiencies impacting your spending plans and margin expansion confidence? A: Dennis Woodside, CEO, noted that AI has been integral in driving productivity and margin expansion, with over 70 AI instances enhancing team productivity. Headcount has decreased by 20% over the last two years, contributing to improved cash flow margins. Tyler Sloat, CFO, added that they plan to continue investing in sales and marketing, leveraging AI efficiencies.

Q: What changes are being made to the global partner program, and what impact might this have on fiscal 2025? A: Dennis Woodside, CEO, stated that the partner program has shifted to a more industry-standard model, allowing partners to build services around Freshworks products. This change aims to create more opportunities for partners and is expected to drive growth, particularly in the mid-market segment.

Q: Can you discuss the strategy for driving AI adoption in the installed base, particularly on the CX side? A: Dennis Woodside, CEO, emphasized the potential for broader AI adoption, noting that while 2,700 customers use Copilot, there are 73,000 total customers. The focus is on demonstrating AI success and expanding deployments. Upcoming product introductions at the June Refresh Event are expected to further accelerate AI adoption.

Q: How is the macroeconomic environment affecting Freshworks, and what are your expectations for the full year? A: Dennis Woodside, CEO, stated that Freshworks operates in must-have categories, and their products are more cost-effective than competitors, making them attractive in tighter economic times. Tyler Sloat, CFO, mentioned that while there was a 2% billing benefit from pull-ins, the full-year guidance remains unchanged, with no significant macro impact observed so far.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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