Freshworks Stock

Welcome to Freshworks Second Quarter 2026 Earnings Conference Call. Joining me today are Dennis Woodside, Freshworks' Chief Executive Officer and President; and Tyler Sloat, Freshworks' Chief Operating Officer and Chief Financial Officer.

The primary purpose of today's call is to provide you with the information regarding our second quarter 2026 performance and our financial outlook for our third quarter and full year 2026. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroconomic environment in which we operate and market volatility, and certain other assumptions made by the company, all of which are subject to change. These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements.

Such risks include, but are not limited to, our ability to sustain growth, to innovate, to reach our long-term revenue goals to meet customer demand and to control costs and improve operating efficiency. For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release our most recently filed Form 10-K and other periodic filings with the SEC.

Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law. During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our Investor Relations website at ir.freshworks.com. I encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports and a replay of today's call to learn more about Freshworks. I will now turn the call over to Dennis. Please go ahead.

Good afternoon, everyone, and thank you for joining us. Freshworks is the AI-powered unified service operations platform for the modern agile enterprise. In Q2, we delivered another quarter of strong growth and profitability. Revenue was $237.4 million, up 16% year-over-year. Our non-GAAP operating margin was 24%. We have now achieved Rule of 40 for 8 straight quarters. We are growing our business with discipline quarter after quarter. In Q2, we also achieved a meaningful financial milestone. We reported positive GAAP net income ahead of our previously given expectations. GAAP profitability is no longer just a goal. It is here, and it is funding our investments in EX and AI.

And we expect to sustain our [indiscernible] profitability. At our investor event during [ refresh ] in May, we laid out 5 key messages about the durability of our business. Before I get into the quarter, I want to remind everybody of those messages. First, we are an EX first company. When Freshworks went public, 35% of our total ARR came from our employee experience business. By year-end 2026, we expect EX ARR will exceed 60%. Now the market opportunity in EX is significant. The total addressable market we are pursuing spans ITSM, ITAM, ITOM and ESM and is roughly $45 billion, growing 13% a year.

We are focused on businesses with up to 20,000 employees, which represent about 60% of that overall total addressable market. It's large, fragmented and no single player in this segment holds more than a 20% share. That leaves plenty of room for Freshworks to win. Second, we are a category leader with agile enterprises and in the mid-market.

Freshservice has over 20,000 customers globally with EX ARR up 5x from where we started at the beginning of 2021 just 5 years ago. Freshservice serves companies that carry the complexity of an enterprise but require the speed and agility of a modern platform. Recently, Gartner named Freshworks a leader in the 2026 Magic Quadrant for IT service management platforms. We feel our positioning as a leader by Gartner highlights a clear shift in the market. We're focused on giving agile enterprises the depth and scale they need alongside domain-specific AI so that they can move at the speed of their business while staying firmly intro. Third, AI is a tailwind, enabling growth in our business.

Over 7,000 customers are paying for an AI SKU. Our Copilot attach rate on larger deals exceeds 70%, our products allow customers to adapt to an agentic world quickly and achieve measurable IT efficiencies faster.

Fourth, we are profitable and scaling. We're demonstrating operating leverage and purposefully concentrating our investment to expand our EX business. And our fifth key message, we are committed to capital efficiency and prudent capital management. Tyler will cover this in more detail as we bring together how Q2 delivered on all 5 of these key objectives.

Now let's look at the results from the quarter, starting with EX. Our EX business demonstrated continued growth and large deal traction. EX ARR grew 24% on a constant currency basis, ending the quarter at $567 million, and representing approximately 59% of total ARR. Why are we able to consistently grow EX? Two reasons. First, large customers are actively choosing Freshworks to displace incumbents that no longer serve them. Take [ Seagate ], a global leader in hard drives with 30,000 employees. After 14 years with a legacy provider, they struggled to extract value from AI and we're unable to adapt workflows as the business evolves, and we're paying for dedicated specialists just to manage the complex system.

They evaluated the market, they chose Freshservice and we're live in 3 months. that speed to value is what Freshworks delivers. Another example is American Oncology Network, a nationwide cancer care network supporting over 140 clinic locations. They implemented Freshservice for IT, Freshservice for business teams and Freddy AI Copilot in under 30 days. Today, their EX platform has expanded to 7 business departments beyond [ IP ], and it takes just 1 administrator less than 2 hours per week to manage the entire environment. That upmarket momentum shows in our numbers. Customers contributing more than $100,000 in ARR, grew 25% year-over-year and now represent roughly 40% of total ARR.

We believe that's the clearest evidence our enterprise motion is working and it's accelerating, not slowing down. Second, we are expanding our right to win by broadening our EX platform. Fresh Service ITAM makes infrastructure visible and actionable giving IT teams the context they need for unified service operations. Our offering is powered by Device42, a company we acquired a little over 2 years ago. And today, we offer both on-prem and cloud native advanced ITAM products. About 1/3, a large new EX land now include ITAM. And in Q2, we had the strongest new logo quarter for this business yet. We are actively serving new Freshservice ITAM cloud customers on our platform, such as drive time and [ radio France ]. Our enterprise service management crossed $50 million in ARR this quarter growing 67% year-over-year.

ESM continues to be a major long-term growth vector for Freshworks as [ 1/5 ] of new EX seats are coming from outside IT. Our investment in fire hydrant showed results this quarter. [ Fire hydro ] generated its first 6-figure expansion deal since owning Freshworks and was 1 of our top 3 largest deals of the quarter. This customer is a global cybersecurity leader that chose to consolidate their alerting and incident management on to [indiscernible].

Stepping back, Freshworks [indiscernible] business is in the strongest position in the company's history. We are winning against [indiscernible] and legacy providers expanding our customer base with new platform offerings, growing deal sizes and strengthening our market leadership. Now let's talk about how we are innovating with AI. Freddy AI continues to be embedded throughout our platform, delivering real value for customers while building towards the long-term monetization opportunity. At [ refresh ], we launched 2 new AI products for fresh service. Freddy AI agent studio, a no-code environment for rapidly building domain-specific AI agents, and MCP Gateway, which connects fresh service intelligence, AI tools customers already use, including Claude and Microsoft CoPilot.

Despite being available for a short time, we have hundreds of customers using both products in our early access program today. The productivity gains our customers are experiencing with AI are substantial and real. Agents using Freddy AI copilot handle 50% more tickets. That means they are 50% more productive. That's huge for customers. Freddy AI agent deflection rates averaged 50% and reach as high as 80% for mature deployments. With Freddy customers are changing the economics of how they run service operations. And we are monetizing AI, copilot attach rate for new deals above $30,000 exceeded 70%. Eligible EX customers paying for CoPilot increased to 22% of our installed base in the quarter. and EX customers with AI continue to carry higher NDR well above total company NDR. [ ICOR ] demonstrates what Freddy AI can do at enterprise scale, a global BPO with more than 40,000 employees, [ iCore ] had a mandate to modernize and automate. They replaced a legacy on-premise system with Freshservice and Freddy AI, now they have an agentic AI solution that is fully automated 35% of their IT service delivery and cut monthly ticket volume by 39%.

Turning to the results and highlights of our CX business in Q2. We're seeing steady ARR growth and significant progress on our platform migration. CX ARR grew 4% on a constant currency basis, ending the quarter at $400 million. As of Q2, over 90% of Freshdesk customers have migrated to the new platform. Freshdesk [ Omni ] is delivering measurable value for our mid-market customers. They are reporting real efficiency gains, including up to 97% first contact resolution, 60% higher agent productivity and 95% CSAT.

These customers are benefiting from an AI-ready platform that provides the unified context needed to deliver better AI alums. In Q2, CX AI agent sessions and conversations on Freshdesk Omni were both up quarter-over-quarter and more than fivefold year-over-year. Take fleet claims, a U.K.-based motor fleet accent management company. They have reported that they have been able to use our e-mail AI to resolve about 10% of their tickets without any agent involvement and amplified the importance of being able to respond faster than ever, especially outside business hours.

Our CX organization is now fully aligned to drive efficiency and customer value. As of July 1, we've consolidated our CX organization in India. Our GTM product and engineering teams are all co-located in driving that business. Looking ahead, we're encouraged by our Q2 CX developments and have a positive outlook on our ongoing growth opportunities for this business.

Taken together, our EX momentum and a more disciplined CX business confirmed that Freshworks is delivering on our mission while investing in our future. As we announced last week, I'm pleased to welcome Ryan Manning to Freshworks as Chief Product and Technology Officer. Ryan will bring deep product and engineering leadership, having built and scaled category-leading platforms across service management and [ CRM ]. He joins us from BMC Helix, where he served as Chief Product Officer, with prior leadership roles at [indiscernible] and ServiceNow. Our platform is stronger and broader than ever.

AI monetization is taking shape, and our financial model is delivering solid results. We are the AI-powered unified service operations platform for the modern agile enterprise and Q2 delivered on that. I'll now turn it over to Tyler to discuss our financials.

Thanks, Dennis, and thanks, everyone, for joining on the call today. We had a strong second quarter, our seventh consecutive quarter exceeding revenue expectations, and we achieved positive GAAP net income ahead of plan. For our call today, I'll cover the Q2 2026 financial results provide context on key metrics and close with our updated outlook for Q3 and the full year 2026. As a reminder, most of my discussion will be focused on non-GAAP financial results.

I will provide comparisons on both an as reported and at constant currency basis where available. Starting with the income statement. Total revenue reached $237.4 million in Q2, up 16% year-over-year as reported and up 15% on a constant currency basis, above the high end of our estimates range. Professional services revenue was approximately $3 million, slightly higher than prior quarters.

EX continues to be our primary growth engine. EX ARR ended Q2 at $567 million, growing 23% year-over-year as related and 24% on a constant currency basis. As Dan covered, the growing breadth of our platform that covers ESM, ITAM and ITOM is enabling us to win business well beyond core ITSM, and is broadening the EX growth base.

Looking ahead, we continue to expect EX ARR to grow in the mid-20s and to exceed $600 million exiting 2026. Turning to our CX business. CX ARR ended Q2 at $400 million, growing 3% year-over-year as reported and 4% on a constant currency basis. This performance reflects the deliberate operating plan we have in place to run CX with a focus on profitability and for steady-state growth. The actions we took in May have facilitated better efficiency and focus in our CX business and the Freshdesk Omni platform is demonstrating strong market fit for our mid-market IDP.

We continue to expect CX ARR to grow in the low single digits for the full year 2026. Moving to margins. Non-GAAP gross margin at 86% remains consistent with prior quarters. Non-GAAP operating income for Q2 reached $55.9 million, well above estimates. This performance reflects continued top line leverage as well as the partial impact of restructuring savings. Most notably, we achieved positive GAAP net income this quarter.

Q2 GAAP net income was $3.2 million, with GAAP EPS of $0.01 and non-GAAP EPS of $0.17. We set a goal to reach GAAP profitability by the end of 2026, and we achieved this ahead of schedule. To be clear about how we're allocating the benefit of operating leverage in our model. As organic growth remains our top capital priority, our first use is continued investment in EX sales capacity and AI R&D.

We invested in both of these areas in the first half of the year, and we intend to continue to invest in the second half to support our accelerating growth opportunities in [ EX ].

Turning to operating metrics. Net dollar retention was 104% as reported and 105% on a constant currency basis in Q2. Excluding the legacy Device42 customers, Net dollar return was 106% constant currency, exceeding expectations. Within this, EX NDR, excluding legacy Device42 customers, was over 111% on a constant currency basis.

Looking ahead, we expect NDR and EX NDR on a constant currency basis to be roughly the same for Q3. Moving on to customer cohorts. Customers contributing more than $50,000 in ARR and grew 18% year-over-year as reported 19% on a constant currency basis. This cohort now represents over 55% of our total ARR. Customers contributing more than $100,000 in ARR, grew 25% year-over-year as reported and 26% on a constant currency basis. This cohort represents approximately 40% of total ARR.

The growth rate of this cohort and mix of total ARR reflects the sustained upmarket shift in our business and validates our strategy of concentrating our ICP in mid-market and agile enterprise customers. and driving an EX multiproduct motion across core ITSM, ITAM, ITOM and ESM improving win rates and deal sizes and new business across the EX portfolio and creating a flywheel for expansion opportunities gives us confidence in sustaining the mid-20s EX growth trajectory.

Now on to billings, balance sheet and cash. Calculated billings reached $245.8 million in Q2, growing 15% year-over-year as reported and 16% on a constant currency basis. For Q3, we estimate billings growth of approximately 13% as reported and 14% on a constant currency basis. Looking ahead, we expect billings growth to be in line with revenue growth for 2026. Adjusted free cash flow was $57.7 million in Q2, which was above our previously given estimates. Q2 adjusted free cash flow margin was approximately 24% and adjusted free cash flow per share was $0.21. We remain on track to meet or exceed our full year adjusted free cash flow per share target of $0.94.

Capital allocation, our framework is to invest in high-return [ EX ] growth first and return excess capital to shareholders second. Year-to-date, we have deployed over $200 million toward our stock repurchase program and reduced shares outstanding by 7%. In Q2, we repurchased approximately 18.3 million shares for $159 million, while utilizing an additional $10 million to offset dilution through our net cash settlement of equity, we ended Q2 with approximately 296 million fully diluted shares and approximately 263 million basic shares outstanding. At the time of our IPO in 2021, we had approximately 323 million fully diluted shares outstanding. We have reduced our fully diluted share count by 8.3% over the past 5 years. We ended the quarter with $665 million in cash and investments with no debt, providing ample financial capacity to continue our repurchase program while still prioritizing investments in future growth.

Now on to our forward-looking estimates. Our non-GAAP net income projections for 2026 assume a tax rate of 24%. For the third quarter of 2026, we expect revenue in the range of $244.5 million to $245.5 million growing approximately 14% year-over-year on an as-reported basis and approximately 14% to 15% on a constant currency basis.

Within this, we are including a $0.5 million headwind from FX, compared to our initial estimates at the beginning of the year. Non-GAAP income from operations in the range of $59 million to $61 million and non-GAAP net income per share of approximately $0.18 assuming weighted average shares outstanding of approximately 266 million shares. For the full year 2026, we expect revenue in the range of $963.5 million to $966.5 million, growing approximately 15% year-over-year or 14% to 15% on a constant currency basis.

Within this, we are including a $2 million FX headwind compared to our initial estimates at the beginning of the year. Non-GAAP income from operations in the range of $222 million to $228 million, and non-GAAP income per share to be in the range of $0.66 to $0.68, assuming a weighted average shares outstanding of approximately [ 263 million ] shares. We expect to generate approximately $265 million in adjusted free cash flow. This resulted in adjusted free cash flow margin target of 27.5% for the full year of 2026.

We remain on track to meet or exceed our full year adjusted free cash flow per share target of $0.94, up 24% from fiscal 2025. As a reminder, cash used for stock repurchases is reflected in our financing activities and is excluded from our invested free cash flow calculations. Our forward-looking estimates are based on FX rates as of August 1, 2026, and do not take into account any impact from currency moves.

Our full year 2026 revenue estimates include $2 million FX headwind. In closing, we delivered strong top line and bottom line performance in Q2, and we remain confident in our ability to achieve our 2026 financial and operational plans. EX remains our primary and largest growth opportunity. Our AI monetization strategy is on track and our CX business is now best positioned for steady-state growth. We are profitable and have the operating leverage to fund our EX platform growth and expansion to meet the demand momentum driving us into the second half of the year. Operator, let's open it up to Q&A.

[Operator Instructions] Your first question comes from the line of David Hynes with Canaccord Genuity.

Great. This is Luke on for DJ. So I'm curious, you guys have always won on the on the enterprise grade without the costs without the complexity of the bigger guys in the space. I'm curious, as you think about layering in you've layered in Device42. You have [ fire hydrant ] now, maybe you have some security ops down the road. Like how do you think about keeping the product in the implementation experience of [indiscernible] from getting to complex potentially weakening that differentiation over time.

Yes. Thanks for the question. It's Dennis. That's 1 of the key areas that our engineering and product teams really, really focus on is how to -- how do we maintain that usability, easy to use, fast time to value, intuitiveness of the product that where we are as we continue to expand the capability of the platform, the enterprise readiness of the platform and so forth. And we work really hard at making that work. We pride ourselves in the focus that we have on design and UX. We've made a lot of strides in unifying our overall design language across all of our products.

For Device42, for example, that product today is now fully available in the cloud. If you go into Freshservice and you're an admin, it appears as a tab as other product would the design language is the same as what Freshservice is all about. It's the way you navigate through the product is the same. Data is pulled seamlessly from the asset management capabilities and the CMDB into the fresh service module. And so the advent can see all that in 1 place. So that's really important. And that approach that we're going to take to fire hydrant as well later this year. So I think it's something that is critical for us. It's going to remain critical for us to continue to focus on that usability as we broaden the platform.

Yes. Yes, super helpful. And maybe just a follow-up. One thing that our team has been hearing more of with this new wave of AI native or at least potential new wave of AI native service management vendors they're positioning as an intelligent layer that maybe sits on top of whatever ITSM vendor a customer has already the figure is basically you can modernize the employee experience without ripping out something like, say, a service now, for example. I'm curious, are you starting to hear discussions around that? And how do you think about competing against that approach?

Yes. We're cognizant of the startups out there. We have not seen them competitively that much, if at all. And our what we're seeing customers want is a system of record that has the kind of control and security that they need that has AI integrated into it in a way that's usable, that's easy for them to get up and running, that's easier for them to configure. And that's consistent with what we've been building all along in the core fresh service products. So our AI agent studio, which we launched in May for EX, already has over [indiscernible] customers on it. You might remember, we launched that product into EA, and we have not priced it yet. The intention is to price that fall. That will be a session-based pricing model. But that is an example of customers getting value out of our product immediately and really looking to us to provide that experience layer.

So I understand, of course, we're very well aware of the startups coming into the space. But as of yet, we have not seen them make a lot of traction. I think it's going to be hard because to do AI well, you need to understand the operating environment. You need to understand the workflows that already exist, the controls that already exist in the operating environment. And that's what we've spent over a decade building.

Your next question comes from the line of Patrick Walravens with Citizens.

Congratulations to you guys on the results. Dennis, I saw that Gartner came out with their new Magic Quadrant I mean, just like a week ago, and it was nice to see Freshworks in the leaders cart. I think it's been a long time since they've had 1 of these for ITSM. Does that -- how much does that help? Does that help with lead generation -- and I saw Ian posted it? I'm just wondering what that actually ends up doing for you guys?

So look, we think it helps a lot now. In part, the reason we're in the Magic Quadrant is because Gartner has gone out and talked to a lot of customers and understands the value that we've been able to provide for those customers, the capabilities of the product and how that's evolved over time. But we're quite happy with that result.

Look, I think -- we've got a lot of ways of driving interest in the business. We've seen a lot more large accounts come in the door that are referred by analysts referred by other customers. We've got a large cohort now of bigger customers that are on our side and helping us recruit the next generation of customers. You see that in the numbers. You see that in the number of $100,000 accounts growing 26% year-over-year. 40% of our business is now coming from those customers spending over $100,000. We closed our first $1 million deal back in Q1. We continue to see a lot of momentum among much larger deals. And those are the kind of -- that's the kind of evidence, I think that shows that the work that we put into building this complete platform that can handle [ service ] operations from frontline employee questions to solving problems when they arise through fire hydrant and our advanced asset management.

So all those things are what IT departments want in particular in the segment that we're focused on. which is those agile enterprises up to 20,000 employees. They don't have the resources necessarily or want to be spending the time and money on managing a more complicated system.

They want something that's going to work for them that they're going to be able to modify, that's modern and that's what we provide. So I think the Gartner validates all of that, and we're very happy about that, very proud of that, but we have a lot of work ahead of us, too.

Your next question comes from the line of Tamjid Chowdhury with Guggenheim Securities.

I guess the first one, it seems like there's a strong momentum in EX from ITAM and ESM cross-sell. That's good to see. Can you talk about how much runway remains for those products within your existing EX customer base? And what penetration looks like today versus where you think it can go?

Yes. So we outlined at our investor event almost a year ago. We believe both of those businesses will be $100 million businesses in the course of the next 2 years. We've got every single quarter, proof points that we're gaining momentum there. [ BSM ] grew 67% in the quarter. Our ITAM products that were attached in over 1/3 of our larger deals Often, ITAM is a quick follow-on after an ITSM land. So it's a good upsell once you've got the customer in the door. And really with where we're going with our IT operations, that intersection between ITAM and ops is really important because to do -- to respond to incidents as well, you need to understand the asset base.

So we think that those are actually self-reinforcing. And as we get more momentum with fire hydrant, we integrate that product. We put more and more focus behind that as well. That's going to help even more that ITAM business. ITM actually accelerated this past quarter. I think we had our best quarter ever for asset management. we launched the new --the cloud-based version of Asset Management last quarter. And we already are tapping into a whole slew of customers that otherwise would not have bought an on-prem product.

So the hypothesis there was that there were lots of customers, some of which were smaller than the typical Device42 customer that would be interested in the product. That turned out to be true. We beat our internal goals by wide margin. So we think there's a long way to go. And if we look at the penetration of the existing base for ESM in particular, we're really, really early in driving that business overall. So we're going to continue to stay focused there. We're going to continue to invest in capability for teams out [ out of ] IT. A lot of our focus has been in HR capabilities, things like onboarding and offboarding workflows out of the box. We're facing more on teams like facilities, teams like finance. Those teams also have lots of internal employee service needs, and we can build capabilities out of the box that are agentic that expand and allow us to tap into another team. So those are huge areas for us. We're very excited about both.

And then 1 quick follow-up. Constant currency NDR has been stable sequentially at about [ 105 ]. While it seems like a Freddy AI copilot attach rate is strong. I think you mentioned over 71% of new enterprise deals. While we understand that it doesn't directly -- the attach rate doesn't directly flow to NDR. It likely reflects broader product demand that should also drive Freddy expansion into your existing base? Are you seeing that translate into upsell activity yet? And when should we expect it to show up in NDR?

Yes. So you're right, the NDR has been pretty consistent from a constant currency basis. and slightly improving in some cases. The Freddy attach rates for [indiscernible] , as you indicated, but absolutely, it is 1 of our strong expansion motions. Now it is harder to get existing customers to adopt CoPilot because they have existing way to work.

But we have kind of prescriptive sales plays around it. And we do expect that to continue to be 1 of our larger expansion motions going forward. I can't say when the impact to NDR is there, but as a percentage of expansion, it is actually increasing.

Your next question comes from the line of Taylor McGinnis with UBS.

I'd love to ask on the EX business. So a slight decel in 2Q to 24% constant currency. So Tyler, could you just maybe talk about, as we look into the back half and the comfort in sustaining mid-20s growth, what some of the drivers are there? Are there any incremental growth opportunities that could potentially lead to an acceleration in that business? Maybe you could just help us unpack the confidence there.

Taylor. So 25% in Q1, 24% constant currency. This is up from 22% at the end of the year. We had a really good quarter, and EX continues to be the driver of growth. And so I just think that the 25% to 24%, there's a little bit of noise there, but it's nothing outside of what we expected and we're very confident still on mid-20s growth.

As Dennis mentioned, like we're seeing larger and larger deals, and the pipeline is reflecting that. That's on the new business side. On the expansion side, we just talked about the attach rates on kind of ITAM and ESM where about 20% of seats are ESM and about 1/3 of the lands include ITAM, but that means still 2/3 still have Device42 as the potential to sell. We just kind of went live last quarter with what we call advanced ITAM Cloud, which is Device42 on the cloud, which really opens up the potential for our entire existing base that wasn't using asset management previously.

Fire hydrant is a brand new product for us. We haven't talked about when the full integration is going to be done, but we have been selling it. And 1 of our biggest lands in Q2 was a fire hydro stand-alone. And that's just going to open up opportunities to kind of cross-sell ITSM, ESM and others into that account, but also as that muscle build is just another way that we can go land with another EX product with kind of a different buying segment. So yes, we're confident on the mid-20s growth, and X continues to be a driver of that growth for the whole company.

And just to add something to that. look, if the market itself, the market that we're focused on that mid-market, lower end of the enterprise, that's about 60% of the overall market, and it's still fairly fragmented. No single competitor have more than 20% share. So that's a big opportunity for us. we're seeing the momentum. Obviously, Gartner validates, we've got the product. We've got the customers saying good things about us, all that's good. And now we have this platform where there's multiple ways to win, right? So we land with ITSM, expand with -- into ITAM, into ops in the ESM and AI. All those things are really building momentum. So you're seeing a lot of that come together and I think all of that gives a lot of optimism to the team here about the second half.

Perfect. And then my next question is just to look at the performance in the quarter. There was a nice 1 point acceleration on a constant currency basis for revenue. So maybe you could just unpack what drove to the upside there? And then secondly, as we look into the back half, the guide is really strong on a revenue basis. So any bigger drivers of that in the second half compared to what you guys saw in the first half?

Yes. Let me start and then Tyler will jump in. I would just echo what I said, which is we just see a lot of momentum on the EX side given that the product strategy, the go-to-market strategy are all kind of coming together. We also have confidence in that. We've cracked the code on pipeline. I mean, a year ago, we were a little bit more challenged, I would say, around pipeline.

But we entered the year and first -- right out of the gate first quarter, second quarter did really well in generating new pipeline. So that pipeline is maturing and is kind of coming due, so to speak, in the second half of the year. So that gives us [ content ]. And this was the second order actually in a row that we accelerated revenue slightly. I think we were -- went from 13% to 14%, 14% to 15%. So yes, so far so good this year, and we're optimistic about back half and Tyler maybe talk about the [indiscernible] .

Yes, I think just about everything that Dennis just said, Taylor. We talked about in the beginning of the year that kind of rep pipe building, but it's really Again, a lot of the momentum we're seeing on the EX side in that kind of what we call agile enterprise and the high mid-market. And we're quickly becoming the product of choice for those companies, and it's just starting to build on itself.

Your next question comes from the line of Patrick Schulz with Baird. Patrick. Please go ahead.

Maybe could you just touch on the [ liminarity ] of demand throughout the quarter? How does the demand environment and pipeline build compare versus last quarter? Are you seeing any impact on sales cycles as customers maybe back and reassess for their AI investor going?

No, we're not seeing any impact on sales cycles or decisions or anything like that in terms of AI. Like I know you're referring to some things that happened, I guess, with some other vendors, but that's -- we're not seeing that at all. I would say the linearity is pretty similar to what we've been seeing in prior quarters where as we go up market more of the -- more of the deals going in at the back half of the quarter, but nothing unusual. And I wouldn't say that the buying cycles are unusual, considering [ again ], we're moving upmarket. AI actually is more of a motivator for people to think about their [indiscernible] and most of our business is coming from another vendor. It could be a small player, but often it's a very large player.

So they are faced with a decision often as to, okay, what are we going to do about AI, we're going to migrate to the incumbent vendors platform. Sometimes that requires an upgrade in plan. It certainly requires cost. So it often provokes a discussion as to, well, maybe we should go to market and see what else is out there. And again, a lot of times, you talk about that [ Seagate ] 14 year customer or a competitor, 14 years ago we didn't do this.

So they're going out to market now and they're seeing -- they're calling Gartner, they're calling their peers and they're hearing about us, and we're getting in the mix. So I think that, that's driving more of our business than anything else is that customers are saying we need to do [indiscernible] something on AI, that's leading to a discussion. Do we stick with the incumbent, and that's leading to us to get a shot at winning. So all that's been pretty good for us.

Okay. Yes, yes. That's very helpful. And I appreciate the commentary you guys provided around ITAM this quarter. I wanted to dive a little bit deeper there and maybe better understand how important it is that an enterprise-grade ITAM solution as you move further out market. Did you expect that ITAM and Device42 will become a leading driver of new logos? Or is it still more of a cross-sell opportunity? And then just as we think about Device42, maybe just give an update on the cloud transition and how much of that business is still on-prem license.

You want to take the second part, Tyler? I'll take the first.

Yes. So I think the -- for the on-prem business is part of the reason we're still calling out some of that legacy churn. The migration of those customers, there is no actual purposeful migration. We're not forcing customers to ingrate over to the cloud. In fact, there's a lot of customers who want an on-prem version, and we're going to continue to sell that for the foreseeable future. the new ITAM cloud version, which is advanced ITAM, is essentially at parity with the on-premise. That was the whole goal and point. and that's now available to the existing installed base and any new customer who doesn't want the on-prem. So we kind of offer both now.

So on the first part of the question, customers aren't buying just in ITSM. They're buying the full capability to power their IT apartment, especially upmarket. And asset management ESM ops, all that -- that's -- those are table stakes. You have to have that. And if you look at our larger deals, typically, it's multiple components right out of the box. And so I think it's less about -- is it something that you land with and helps you compete? It's absolutely essential for us to continue to move up market. Customers are coming off products that have those capabilities, and they expect that. And that's why we've invested in those areas to build a complete solution [indiscernible] platform. And again, you see the numbers working.

Your next question comes from the line of Scott Berg with Needham & Company.

Nice quarter. Apologies I did jump on [ light ]. I hope this was an at least. But I attended the [ refresh ] event in May. And 1 of the things I thought was interesting is some of the commentary around partners and those individuals that are involved in your partner program and how it's maturing really evolving into more of a long-term account ownership kind of strategy instead of just something that was more transactional in nature I guess as that structure continues to evolve, do you see that driving, I guess, better retention, better expansion opportunities with your customers if those partners do maintain that ownership or should we see some other benefit to come from that program?

So I would say it's both new business, retention and expansion, those things benefit when we have a partner. We know when we have partners to our retention rates are higher, for sure. We know when we have parts involved, the extension happens faster. And we know in the sales cycle, we have a partner involved, the close rates are higher. So all of those things are really important for us. We've been purposeful about cultivating a select group of partners that can help us and have the expertise to actually manage our business, which is a little different than some of our competitors in terms of what's required on an ongoing basis, what's required for migration.

And a lot of our focus has been fewer but higher leverage partners, especially on the EX side. Partners like Unisys, which we talked about in the past, CGI, which we've talked about in the past. So those are -- that's where we're really focused in making sure that those partners that are really investing in the capabilities to serve our customers well, are continuously kept up to speed on our products and that we're collaborating in those customer situations, both to help them grow their business and they can help us grow our business.

That's helpful, Dan. And then from a follow-up perspective, the partners that we did speak with seem to be very positive. I don't know, you guys are doing product-wise and win rate wise, you certainly are making an impact up there. I guess, how do you think about that partner impact on that business today? And where should that be if you look out maybe 12 or 24 months as you lean into this more. Is this more than 50% of your business, 75% of maybe some of your leads and interactions? Or is it maybe having a more muted impact longer term?

I think It will continue to grow as we continue to grow up market because you get into these larger companies where they do have -- they're coming off of a deployment that's been around for a while, often, their partner understands that deployment quite well if they have an existing partner or they need somebody to help them move off and configure the new system in the way that they want it. That does take work. And that does take expertise.

So -- and then they want that system to continue grow with them over time. So I think that does create a greater opportunity for partners. It's hard to say whether that's 50%, 60% down the road. I think right now, about 40% of our business is partner influence in some way, shape or form. But we're investing there. We have a new -- relatively newer head of our partner team, who's done a great job of building that -- starting to kind of build out that I would say, next level of partner program, and we're going to continue to invest there.

Your next question comes from the line of Matt VanVliet with Cantor.

I guess, first, if we think about the magnitude of either expansion or just deal size growth when Freddy is attached, where do those sit today and now with a couple of more products and more along the way, what should we expect over the next couple of years in terms of deal size growth just from adding those extra capabilities through Freddy?

Yes, that's a great question. I think -- in terms of the 1 metric you can look -- we look at is [ ARPA ] growth. That's been double digit for some time now. We look at the attach rate on new deals internally. We look at attach rate overall. We have over accounts paying for a SKU for AI today. As AI infuses itself across the platform the pricing model is going to continue to evolve.

So today,. there are elements of our AI capabilities that are embedded into our higher-priced plans like Insights is available for our enterprise plans. There are elements that are add-ons. So copilot today is an add-on. And then there are elements that are consumption-based. AI agent is a consumption-based product. There are elements that we've introduced that we haven't yet monetized. So for EX we introduced AI Agent Studio in May, and we've chosen not to monetize it because we want to get a lot of customers on it, using it. We want to keep building the capabilities and at some point in the fall, we will monetize it on a usage basis.

And so I think the models are going to continue to evolve. What's most important for us is it helping us win. That's what we really look at. And in every competitive situation, whether it's an upsell just retaining the customers that you have or expanding AI is essential to the RFP. It's not the only thing that you need in order to win. You need a lot more than that. But you absolutely need to have [indiscernible] game.

And that's why we've been investing so much in AI. And these bigger customers would never come us if they didn't both believe in what we delivered today and believe in where the road map is going. That's super important for them.

So yes, I think it's hard to say like, okay, how much is it be AI-driven. But we have a lot of confidence in the overall business. We have a lot of -- we put the number out there, $1.4 billion ARR in the next couple of years. That's up from where we thought we would be a year ago. We wouldn't have done that if we did think we had confidence. We see it in the pipeline numbers. We see it in these large customers who are super happy with us. So all of that gives us confidence that the plan is working, and AI is an important part of it, but there's a lot more than just AI.

Very helpful. And then I guess as you look at maybe the CX business, you talked about a lot more efficiencies there and consolidating some of the organization around India. Curious how much internal usage of AI is driving that efficiency? And how much more can be unlocked as that becomes maybe a little bit more of a on cruise control of running that business and having a little bit more customer-led growth.

Yes. So it sounds like 2 questions really, it's kind of our internal use, but also the CX business. CX business, the big change we made this quarter at the end of last quarter is we consolidated the teams that are driving CX into India. Most of that business is SMB. Most of that business was inbound. So most of the team was already there. But now there's a single go-to-market team that is driving that business.

And that's going to create a lot more focus around retention, in particular, around ensuring that we're focused on the right customers in the past, any customer was a good enough customer and that [indiscernible] in us acquiring a lot of smaller customers that churned. We're not doing that anymore. So the new business acquisition motion is focused very much on, call it, the higher end of SMB and mid-market. And we would expect, over time, that will help our retention rates. We've made a big investment in the CX product in moving to our new Freshdesk Omni. We have multiple products in the past. Now a customer can get onto 1 product and seamlessly migrate -- or sorry, seamlessly upgrade from an e-mail-based ticketing experience to 1 involving chat and conversational and voice and 1 involving AI. That's important for upsell and for retention as well.

So we're optimistic about the fact that we've got 90% of our customers now on that new platform, we've got the go-to-market motion much more focused that we're going to be able to get some goodness out of that CX business. And then from an internal standpoint, AI has been suffused across every part of our business. Our entire product development life cycle has changed. We now have designers who can work in Sigma create a product and [indiscernible] , push it directly to code. He built the hooks between our production environment in [indiscernible] , -- so the code comes out and compliant with our internal coating requirements. The process for doing QA is highly automated with AI now. And so that's resulted in a meaningfully shorter cycle times, about 30% faster we're shipping on basically a 2-week cycle now, which we were not doing before for AI products in particular.

It's changed our support business as well. We've implemented our AI e-mail agent internally to handle the questions that we get from our own customers about billing, and we saw about 30% of those questions were completely handled through AI in the when we turned it on.

So I think it's transforming many businesses. It's certainly transforming us. It's helped us drive our overall profitability of the business. GAAP profitable this quarter. That's ahead of where we thought we would be. Cash flow looks good. And so all of that, I think, is good for us. And I make sure that my team is using AI and everything we do, whether it's preparing for this call or doing a presentation to the company, AI's front and center. So I think it's just a part of how we're doing business now. It's maybe a little less dramatic than it was a year ago because it now is how people are used to working.

Your next question comes from the line of Alex Zukin with Wolfe Research, LLC.

Most of mine have been asked, but I want to double down on Taylor's question because I actually think it's really important. If you look at the net new ARR growth for the EX business, in the first half. It looks like it's about 14%. I think the guide for the second half implies 16% -- or sorry, 18%. So if I think about -- Tyler, you mentioned some noise on why net new ARR for that business was down year-over-year, but I just want to better understand that a little bit? And like what are you seeing in the pipeline to give you the confidence to guide for acceleration of net new ARR in that business for the second half?

We -- so Alex, thanks for the question. So back to what I said to Taylor, right, like she was asking about, hey, '25 versus '24, and I said, "Hey, there's -- we're really confident on mid-20s growth for EX. And we just talked about that at our refresh in April there's a little bit of nuances like in terms of quarter-to-quarter, but the EX business is doing really, really well. And we wouldn't keep repeating that if we didn't think we had that strength.

I think there's a whole end of avenues to grow outside of new logo, which we talked about the pipes that were already growing that we come into Q1 had the strongest pipe kind of ever. but really the expansion products that we're bringing to fruition. Again, fire hydrant new on the ITOM side and Device42 advanced cloud version now being available. So we're very confident what we've seen in the first half of the year, and we expect to continue to see that through the back half of the year. We -- as a whole, we had already talked about what we're seen for the backside. We just rolled through our $4 million beat, and that already encompassed a $2 million FX headwind. So it would have been a $6 million for the back half of the year if we didn't see that FX. So again, we're super confident EX is still the driver of growth. CX is stable at 4% right now.

Yes. Just to emphasize, like this is a beat and raise quarter. I know we didn't emphasize that, but you count that FX headwind, and we rolled that beat in and we raised by an additional $2 million.

Got it. Helpful. And then the other thing that we noticed is -- and again, I think you talked about this, but stock-based comp 16% of revenues down from 19% in Q1. What's driving that strong decline? And how do we think about the outlook for the rest of the year and really beyond and any changes that you're making there would be good [indiscernible] unpack. Go ahead.

I'll start with, and Dennis can add to it. So I think this is not something new for us, right? We've been talking for a couple of years now about how we were going to be looking at our total P&L from a GAAP perspective and the biggest component of that -- the hurdle we had to get to, to get to GAAP profitability, which we hit this quarter, which is a couple of quarters earlier than we expected was going to be SBC.

Some of the bigger drops in SBC is that we've kind of -- we've gone through all of the brands now and like we've taken off that tail. And so really, what we're flowing through on the SBC is like our ongoing kind of new grants and focal. And that's the place that we've had added a lot of the discipline under Dennis' leadership, and we're going to continue to do that. We're constantly looking -- working with our total benefits folks, making sure that we are being, number 1, really competitive, so we can bring on the best but number two, using equity really prudently as we go forward. At the same time, we're just looking at total like when we want everybody focused on free cash flow per share. And that's kind of the North Star metric that we talked about. And in the call, we talked about how we've reduced that considerably in terms of fully diluted shares since we've gone public. But Dennis, if you want to...

Yes, I just -- look, I'd pay attention to it, it's important. I think it's important internally that we reward performance with equity -- but at the same time, in the past, we've been, I would say, a little bit broad in how we thought about it. And we've put in place basically performance managed process to make sure that we're using that. We're thinking of that equity as a really scarce resource, and we're making sure that the people have the biggest impact, see the biggest grants. And that, by definition, is going to create a more, I would say, a more prudent approach to how we're managing things. And Tyler shared where we think we'll be in the next couple of years, and we take that very seriously, and that's what we're going to do. So I think it's a continuation of a trend that we've put in place for a while now.

We have reached the end of the Q&A session. I will now turn the call back to Dennis Woodside's CEO, for closing remarks.

All right. I just want to thank everybody for joining the call today. And just to emphasize, Q2 overall for us, reinforced every 1 of the 5 priorities that we laid out of a refresh. I demonstrated that EX first momentum that category leadership for the mid-market and the agile enterprise. I think we showed that AI is an expanding tailwind to our growth. and that we've been disciplined around profitability and how we're managing capital. So thanks, everybody. Look forward to speaking to everybody next quarter. Bye.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Freshworks First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Kate Scolnick, VP of Investor Relations. Kate, please go ahead.

Thank you. Good afternoon, and welcome to Freshworks First Quarter 2026 Earnings Conference Call. Joining me today are Dennis Woodside, Freshworks' Chief Executive Officer and President; and Tyler Sloat, Freshworks' Chief Operating Officer and Chief Financial Officer.

The primary purpose of today's call is to provide you with information regarding our first quarter 2026 performance and our financial outlook for our second quarter and full year 2026. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate and market volatility and certain other assumptions made by the company, all of which are subject to change.

These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain our growth, to innovate, to reach our long-term revenue goals, to meet customer demand and to control costs and improve operating efficiency. For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our most recently filed Form 10-K and other periodic filings with the SEC. Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law.

During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our Investor Relations website at ir.freshworks.com. I encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports and a replay of today's call to learn more about Freshworks. For presentation purposes today, Dennis' financial comments will be on an as-reported basis. Tyler will be providing financial comments on an as-reported and constant currency basis.

I will now turn the call over to Dennis. Please go ahead.

Good afternoon, everyone, and thank you for joining us. Freshworks delivered a strong start to 2026, exceeding expectations across revenue, profitability and free cash flow.

Our Q1 revenue grew 16% year-over-year, above the high end of our estimates. Non-GAAP operating margin was 18%, nearly 3 points above our estimate and adjusted free cash flow margin was 24%. And once again, we achieved Rule of 40. In Q1, we signed the 2 largest deals in Freshworks history, including our first 7-figure EX ARR deal. Customers with more than $100,000 in ARR grew 29% year-over-year and customers with more than $50,000 in ARR grew 22% year-over-year. This demonstrates our continued success in serving mid-market and enterprise customers.

Freshworks is the AI-enabled unified service operations platform that is fast to deploy, intuitive to use and enables every employee to be more productive. We entered 2026 with clear goals: expanding our EX business, monetizing AI at scale and profitably growing our CX business. Now let's look at the results for each of these areas in Q1. As we grow Freshworks to a $1 billion ARR company and beyond, our EX business represents the primary and largest growth opportunity.

In Q1, EX ARR grew 27% year-over-year with both new and expansion business coming in ahead of our expectations. We are attracting a fast-growing base of mid-market companies and enterprises choosing Freshservice for enterprise-grade capabilities, fast time to value and lower complexity in implementation. Most notably, in Q1, a global leader in nutrition replaced our largest competitor with Freshservice in what represents the largest new customer deal in our company's history. They were seeking a solution that could handle enterprise-grade scale without sacrificing the intuitive experience necessary to manage their complex workflows.

Following that historic win, Piedmont Healthcare also selected Freshservice over our largest competitor, citing our significantly lower total cost of ownership, faster implementation and enterprise capabilities. Finally, Reed, the U.K.'s #1 specialist recruitment company, moved to Freshworks to achieve a faster and more collaborative enterprise IT experience. These wins underscore a clear trend. Organizations are increasingly choosing our platform for its ability to deliver sophisticated results without the traditional overhead.

Freshworks' ability to deliver enterprise-grade outcomes without the implementation drag and administrative burden of legacy systems is exactly why we are displacing vendors whose products have become too expensive and complex for mid-market and enterprise customers to maintain. We are also expanding our right to win by integrating and broadening our EX offerings.

In March, we launched a new Freshservice ITAM experience, bringing Device 42 capabilities natively into Freshservice and making it easier for customers to use in a single cloud experience. We also completed the acquisition of FireHydrant, which advances our vision for an AI-enabled service ops platform that unifies service, asset and operational data. We will complete the integration of FireHydrant over the course of 2026.

Moving on to our AI progress. Freddy AI continues to be embedded throughout our platform, enhancing customer outcomes today while building toward a long-term monetization opportunity. Freddy AI Copilot is one of our fastest-growing products with strong customer growth, new business attach rates and higher expansion among AI customers. In Q1, Freddy AI Copilot customer growth exceeded 80% year-over-year and the attach rate growth in new deals over $30,000 in ARR was above 65%. Specifically, in our EX business in Q1, our customer penetration for AI surpassed 20%, nearly doubling year-over-year. And roughly 1/3 of all new EX customers in Q1 had Copilot attached.

Amerisure, a commercial insurance provider and EX customer has been able to transform service delivery within a single platform using Freshservice's AI-driven workflows and Freddy Insights. With Freshservice for business teams, the use cases expanded beyond IT into legal, HR, underwriting and marketing, saving thousands of hours in 2025 alone and cutting employee onboarding resolution time by 97%. We look forward to detailing more about our future AI strategy and EX product innovations at our refresh event next week.

Turning to our customer experience business. We continue to deliver durable growth with CX ARR up 6% year-over-year in Q1. We are making progress in this business through go-to-market discipline, platform integration and increased market fit enabled by our AI capabilities. A leading provider of lender-placed insurance solutions consolidated a fragmented stack of JSM, Genesys and SharePoint into a single Freshworks platform. By unifying ticketing, automation and AI in one place, the team reduced manual effort, improved operational visibility and gained a clear path to scaling support.

Over 80% of our CX customer base has now migrated to the new Freshdesk Omni platform. This successful replatforming is more than just improving consistency for customers. It is the foundational work to enable the next wave of generative AI capabilities in our CX products and accelerate margin accretion. Since we began offering Freshdesk Omni at the end of last year, ARPA is 2.5x higher for new Freshdesk Omni customers compared to the prior platform. In lockstep with our focus on durable growth from our EX and CX businesses, we remain committed to driving structural operating efficiencies that support enterprise-grade scale and long-term profitability.

Q1 non-GAAP operating margin reached 18%, nearly 3 points above our estimate, reflecting the disciplined execution we expect to sustain throughout 2026. Today, we announced some workforce changes we are making to the company in Q2 to consolidate overlapping go-to-market efforts, streamline our product development process and apply AI and automation across our business. These actions enable us to focus energy on our momentum in EX and accelerate Freshworks' competitiveness. Tyler will provide the financial impact and updates to our outlook in his remarks.

Turning to capital allocation. Our operating model continues to deliver durable free cash flow. This operational strength allows us to take a balanced approach to capital allocation, reinvesting in high-return growth opportunities while also returning capital to shareholders. In February, our Board authorized a new $400 million share repurchase program, reflecting our confidence in the intrinsic value of our business. In Q1, we reduced shares outstanding by approximately 2%. We remain confident in our ability to compound adjusted free cash flow and drive long-term shareholder returns.

Overall, Freshworks achieved significant progress in Q1, accelerating our momentum with profitable growth fueled by our EX opportunities. By structurally shifting our operating model over the last 2 years, we have established a durable framework that balances top line performance with capital efficiency. Our long-term focus is on compounding adjusted free cash flow per share. Having more than doubled this metric over the last 2 years, we are now positioned to compound adjusted free cash flow per share by at least 20% annually over the next 3 years. We will share more details on the operational drivers and our long-term vision at the refresh event next week.

I'll now turn it over to Tyler to walk through our financials.

Thanks, Dennis, and thanks, everyone, for joining on the call and via webcast today. We kicked off 2026 with strong results, exceeding our expectations on revenue, non-GAAP operating income and free cash flow. Our Q1 performance reflects accelerating momentum and strong retention in EX, increasing success in the enterprise market and disciplined operational execution across the business.

For our call today, I'll cover the Q1 2026 financial results, provide background on the key metrics and close with our forward-looking commentary and expectations for Q2 and full year 2026. As a reminder, most of my discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses, restructuring charges and other adjustments. I will also talk about our adjusted free cash flow, which excludes the cash outlay related to the costs associated with the Q2 restructuring announced earlier today.

To provide greater transparency into our underlying business performance, I will also include constant currency comparisons throughout today's call. Starting with the income statement. We had a strong first quarter. Total revenue reached $228.6 million, up 16% year-over-year as reported or 14% on a constant currency basis. Within this total, professional services revenue was approximately $2 million.

Professional services revenue grew in line with our internal expectations and is a key component of our overall customer success strategy, ensuring successful deployment and adoption of our platform. EX continues to be our primary growth engine, and EX ARR ended at over $540 million, growing 27% year-over-year on an as-reported basis and 25% on a constant currency basis. This performance was supported by strong expansion and new logo activity, including the 2 largest new business contracts in our history. These large wins validate our enterprise readiness and competitive positioning upmarket.

Looking ahead, we anticipate EX ARR to grow in the mid-20s and EX ARR to be over 60% of total ARR by year-end. Turning towards our CX business. We ended Q1 with over $395 million in ARR, up 6% year-over-year on an as-reported basis and 4% on a constant currency basis. The replatforming work we are doing to Freshdesk Omni to improve product consistency, support AI adoption and increase the competitiveness of our platform is on track and will enable efficiency gains for the CX business over time. We have a disciplined focus on our CX business as we complete our customer migration and tighten alignment with our ideal customer profile. Going forward, we are adopting a prudent outlook and anticipate CX ARR to grow in the low single digits in 2026.

Moving to margins. We demonstrated the durability of our business model by maintaining a non-GAAP gross margin of 86.3% in Q1, consistent with prior quarters. Our non-GAAP operating income for the first quarter of 2026 reached $41 million, translating to a non-GAAP operating margin of approximately 18%. This performance surpassed the high end of our initial expectations for the quarter. The key drivers behind this result were twofold: strong top line performance and continued efficiency gains realized across various lines of our operating expenses.

We are structurally continuing to shift our business towards GAAP profitability and strategic efficiency gains, driving a meaningful improvement in margins throughout the year. As Dennis noted, today, we announced some operational changes to our workforce that we are making to consolidate overlapping organizational efforts, streamline our product development process and increase the leverage of AI and automation across our business.

As a result of these actions, we are reducing our global headcount by approximately 11%. We anticipate taking onetime restructuring charges of approximately $8 million with the vast majority in Q2. In a moment, I will discuss our updated Q2 and full year estimates that incorporate the financial impact of these actions.

Moving to operating metrics. Net dollar retention was 106% on an as-reported basis and 105% on a constant currency basis, a 1 point acceleration from the prior quarter. Within this, we are demonstrating strong momentum in the expansion growth of our EX business. Q1 EX net dollar retention achieved 111% on an as-reported basis and 109% on a constant currency basis. Going forward, we expect to sustain net dollar retention of approximately 105% on a constant currency basis for Q2 2026. As a reminder, this excludes any impact from D42 legacy customers.

Moving on, I'd like to provide some additional color on results from our customer cohorts. Customers contributing more than $50,000 in ARR grew 22% year-over-year as reported and 20% on a constant currency basis. This cohort now represents over 55% of our total ARR. Customers contributing more than $100,000 in ARR grew 29% year-over-year as reported and 26% on a constant currency basis. This cohort represents approximately 39% of our total ARR.

Double-digit growth in our larger customer cohorts was driven by the strong performance within EX, which we believe validates our strategy to increase our focused investments on mid-market and enterprise EX customers. The accelerating growth we are achieving tells us we are structurally well positioned to capture a disproportionate share of the future EX market and sustained durable growth from our most strategic customers.

Now let's turn to calculated billings, balance sheet and cash items. Calculated billings came in at $235 million in Q1, up approximately 16% year-over-year as reported and 13.5% on a constant currency basis. For Q2, we estimate billings growth of approximately 14.5% on both an as-reported and constant currency basis. Looking ahead, we expect billings growth to be in line with revenue growth for 2026. Our cash position remains strong.

In Q1, we generated $55.8 million in free cash flow, representing a 24% margin and slightly better than our expectations. Adjusted free cash flow per share was $0.20, an 8% increase over the prior year. This metric underscores our operational efficiency and our disciplined approach to converting growth into tangible shareholder value.

Turning to our capital structure. We view share repurchases as part of a disciplined capital allocation framework and a reflection of our confidence in the long-term opportunity ahead. In Q1, we repurchased 5.7 million shares for $45.4 million, while utilizing an additional $7 million to offset dilution through the net settlement of vested equity. We ended Q1 with approximately 318 million fully diluted shares outstanding, down 2% year-over-year.

Included within this was approximately 279 million basic shares outstanding, which also declined year-over-year. We ended the quarter with $780 million in cash and investments, providing ample financial firepower to continue our repurchase program while investing in future growth. Now on to our forward-looking estimates. As a reminder, our non-GAAP net income projections for 2026 assume a tax rate of 24%. For the second quarter of 2026, we expect revenue to be in the range of $232 million to $235 million, growing approximately 13% to 15% year-over-year.

Non-GAAP income from operations to be in the range of $41 million to $43 million and non-GAAP net income per share to be approximately $0.13, assuming weighted average shares outstanding of approximately 280 million shares. For the full year 2026, we expect revenue to be in the range of $958 million to $964 million, growing approximately 14% to 15% year-over-year. non-GAAP income from operations to be in the range of $207 million to $215 million and non-GAAP net income per share to be in the range of $0.61 to $0.63, assuming weighted average shares outstanding of approximately 281 million shares.

Looking ahead, for the full year 2026, we expect to generate approximately $265 million of adjusted free cash flow. Within this, we expect to generate adjusted free cash flow of approximately $57 million in Q2. This results in adjusted free cash flow margin of 24% and 27.5% for Q2 and full year 2026, respectively. Our full year 2026 outlook for adjusted free cash flow per share is $0.94, up 24% compared to fiscal 2025. As a reminder, cash used for stock repurchases is reflected in our financing activities and is excluded from our adjusted free cash flow calculations. Finally, our forward-looking estimates are based on FX rates as of May 1, 2026, and do not take into account any impact from currency moves.

Overall, Freshworks delivered a strong start to 2026, establishing a solid foundation for the year ahead. We remain confident in our ability to consistently exceed our strategic goals as we drive durable growth and expanding profitability. To that end, our internal metric that best aligns with our strategic priorities and long-term shareholder value creation is growth in adjusted free cash flow per share.

Over the last 2 years, we have more than doubled our adjusted free cash flow per share results. More importantly, we have laid the foundation to compound adjusted free cash flow per share by at least 20% annually over the next 3 years. We look forward to sharing more details on this metric, the operational drivers behind it and our long-term vision at our upcoming financial analyst session at our refresh event next week.

Thank you. Operator, we are ready for Q&A.

[Operator Instructions] Your first question comes from Scott Berg at Needham & Company.

Lucas on for Scott Berg. On the employee experience side of things, what kind of drove the variance to the high end of your implied year-over-year constant currency revenue growth here in the first quarter? Historically, that's kind of tended to skew towards the higher end. So just trying to understand any changes in the quarter here.

It's Dennis here. So first of all, I think we just continue to see real momentum on that EX business and the move upmarket is working. And you see that in a couple of different ways. If you look at our growth of accounts that are spending more than $100,000 with us, that's up 29% year-over-year. We had our biggest deal ever, biggest land ever, a large nutrition company that was a 10-year customer of one of our competitors that is moving over to us for all the reasons that we've talked about in the past, enterprise-grade scale, much faster time to value, easier to manage the platform, AI capabilities.

We had actually our second largest land ever with a large health care provider, very similar story. So the upmarket motion just continues to drive the overall EX business. We have built over the last couple of years, a platform that extends from service management to operations management now with FireHydrant to asset management. We brought the device 42 capabilities into the cloud. We launched that last quarter and then into ESM.

And that's what customers are looking for, in particular, in the mid-market, that customer that's from 5,000 to 20,000 employees. We call these mid-market or agile enterprises that are looking for a provider that really can keep up with them. And that market is big, and we're continuing to work there. Tyler?

Yes. And Lucas, thank you for the question. In general, EX is doing really, really well. It organically is accelerating growth, and that's something we're really proud of. We've been talking about it for a couple of years now, and we're seeing great product market fit, and you're seeing it now evidenced in some of the larger customers choosing us over our biggest competitor.

Got it. That's helpful. And then just a quick follow-up. We know you guys were kind of reviewing pricing changes earlier in the year. Do you guys have any kind of updated view on the impact kind of on pricing changes that kind of the impact on your full year guidance?

We had pricing changes, but I would say they're not material to our guidance, right? We're going through a normal process with our customers as they renew, which is more of a CPI type of increase that any other software company would do. This is something we put in place 1.5 years ago. But in general, there's not an impact to our guidance because of pricing changes. The impact is really because the new business is going really well on the EX side.

Your next question comes from the line of Elizabeth Porter at Morgan Stanley.

It's Oscar Saavedra on for Elizabeth. Maybe I want to stick with the Freshservice. Nice to see those -- the wins that you called out against your largest competitor. As we think about that and that opportunity, how would you characterize the pipeline building? And sort of I'd imagine a bit longer sales cycles, but anything you can share on how that's looking?

Yes. So the pipeline going into this quarter looks fantastic. The pipeline going into the last quarter looks pretty strong as well. We're seeing, like I said, just continued momentum in the larger end of the deal cycle. We still have a lot of kind of midsized deals that come in every quarter, but we're pretty happy with how the pipeline is shaping up this quarter. Everything looks good. Anything to add, Tyler?

No. I think it's just a continuation from what we saw coming into the year. We talked about that we've been building out this field motion over the last year and last year was about kind of putting the leaders in and those leaders started filling out the roles underneath them. And these are sales reps and also CSMs and AMs who can actually engage with larger customers. We're building that muscle and part of that is a pipeline muscle as well. And yes, we're seeing really, really strong pipeline in the field for EX in particular.

Got it. Got it. And maybe a follow-up around seat expansion, a big debate around whether -- there's lower headcount among customers, but your NRR ticked up quarter-over-quarter on constant currency. So I was wondering if you can share some details on whether that was more of an upsell driver or you also saw strong seat expansion?

So we saw strong new business wins. We saw strong seat expansion as well. And remember, our product portfolio is broadening. We have additional seats that are accessible to us outside of the core IT department through ESM. ESM has been a big growth driver for us over the last year. We've talked about that in the past. We have asset growth. So through Advanced ITAM, that monetizes on an asset base. So you pay for every piece of software, piece of hardware that's cataloged by the system.

And remember, we're in a position of taking share. We are not in a position of defending a large market share that we've accumulated over a long period of time. We very much are taking share from the bigger players. So that creates an opportunity for us to gain seats regardless of what the overall market is doing. We have not seen seat erosion.

Seat growth for us continues to be a meaningful driver of our business. And our business model is evolving. We have consumption-based offerings like Freddy AI Agent. We have asset-based offerings like Advanced ITAM. We have resolution-based or other offerings that are based on more transactional value. So we think the model will continue to evolve over the course of the remainder of the year. And we're excited about some new products that we've got coming out next week that also will enhance the monetization story, particularly around AI.

Your next question comes from the line of Patrick Walravens at Citizens.

This is Austin Cole on for Pat. Dennis, I was wondering if you could just maybe kind of double-click into that, what allowed you to win that largest deal and then to the extent that in this upmarket motion that there's interest in the AI solutions, I mean, Copilot would be helpful.

Sure. So customers in that mid-market and kind of lower end of enterprise space are looking for an enterprise-grade platform that extends from service management through to operations management, asset management and ESM. They're looking for a solution that's going to be very fast in terms of time to value. They're looking for a solution that has proven itself as -- in the ability to transition other large similar customers from some of these more legacy platforms onto our platform and then get them up and running fast and make them successful.

They're looking for that AI functionality today as well as the road map. And they appreciate the ability to have choice in the platform as to how they want to consume AI over time. So some want to lead with provisioning their agents with Copilot, others want to go directly into agentic AI.

One of the things that we're going to do next week, our event next week is Refresh for EX specifically. We're going to be announcing a number of product enhancements that are leaning into this enterprise motion, leaning into the ability to offer our customers more choice. We're going to be rolling out AI Agent Studio for EX, which allows our customers to build their own agentic capabilities directly in our platform. That will come with 20 preconfigured workflows for things like onboarding and offboarding, provisioning software, changing passwords and so forth.

And we're also announcing alongside that our MCP Gateway, which will allow customers that want to bring their own AI or build agents in clog, build agents in ChatGPT to do so. and take advantage of the data and information that's in our platform through MCP calls, which we will monetize over time. So we have a lot going on that is going to continue that drumbeat upmarket.

Like I said, we've launched our cloud-based version of IT Asset Management, Advanced ITAM a month ago. That's available for all of our customers now. We have a lot of customers that are cloud first. They don't want an on-prem product. Device42 historically was on-prem. So that opens up another avenue of growth. And then FireHydrant, we have a new integration with Freshservice. You can see your data for instance, incident response all through Freshservice. That's another vector of growth that we're opening up this quarter.

So that EX motion continues to be strong. That's driving the business, 27% year-over-year growth this past quarter. We see that continuing to be a bigger part of our business, continuing to be the majority of the business overall and really drive the growth. We've oriented the company around that in terms of investment on the go-to-market side, investment on the engineering and product side. And that's what we're leaning into. That's what we're going to drive growth for the full business.

Your next question comes from the line of DJ Hynes at Canaccord.

Dennis, so I hear largest deals ever. I hear pipeline is fantastic, signs of organic acceleration. Why the decision to restructure now? And I guess, where will those optimizations mostly be focused?

Yes. Look, I think overall, we're building an agile company that can deliver strong free cash per share growth while fueling that EX business that's growing at 27% year-over-year. A couple of reasons that we did it now. I think the first was we recently consolidated our go-to-market strategy. We had, I wouldn't say equal, but a more equal focus on inbound versus outbound. And we're increasingly focusing on that EX business, which is primarily an outbound motion and focusing on CX -- acquiring CX customers with better unit economics. So that's led us to rebalance our teams more towards EX and to rebalance our spend more towards EX.

And then really to run that CX business to drive profitability, drive cash that we're reinvesting back in EX. I think the second is we've, over the last year, 1.5 years, invested a lot in changing the way we build product to embed AI into the development process, which has resulted in much shorter cycle times. About over half of our code is originated in AI today. And like many other software companies, that is definitely changing how we build products, how fast we can build product and the amount of people that we need to build products. So that would really be the second.

And then throughout the whole business, we've been investing in automation and AI to streamline the way we do business, to move faster. All of those things contributed to the decision to actually do the restructuring. And it sets us up well for the rest of the year. It allows us to continue to invest in growth initiatives around that EX business and then continue to run the CX business for profitability and to be super efficient.

Yes. Yes. Okay. And then, Tyler, a follow-up for you. What does dollar-based net retention look like if we were to just look at the EX business? I don't need like a point estimate, but just broad strokes, like where are we with dollar-based net retention on EX?

Yes. No, I think we said it for net dollar retention for EX is still over 110%, coming in right around 111% and 109% at constant currency. It's really, really solid. And that includes a little bit of headwind that we're still facing from the Device42 legacy churn. Those are multiyear contracts. So we've been talking about that since we bought Device42. So we're really pleased about that. And we've been saying that on a weighted average basis, as EX continues to grow faster, this is going to help us out.

And we saw a slight acceleration to overall NDR this quarter as a result, right? So EX NDR is good, and we're now just introducing more and more products that are going to be upsell capabilities against our core Freshservice.

The next question comes from the line of Alex Zukin at Wolfe Research.

Maybe just first on the financials, Tyler, it looks like kind of you did accelerate revenue accelerate billings growth constant currency in the quarter. You're guiding for accelerating constant currency billings growth next quarter. Anything onetime in nature that you would kind of call out this quarter? And then maybe why -- was there anything that made it such that you were kind of in line with your constant currency revenue guide rather than ahead of it or at the high end?

Yes. There really wasn't any onetime. In the past quarters, we've called out if we had any significant Device42 deals that would have had accelerated revenue on the front end. In fact, we've been talking about we've had some churn on Device42, which actually is somewhat of a headwind against revenue growth because as those deals renew, we get kind of upfront sums on that old term license stuff.

So no onetime events there on the -- on a positive. It was just really good execution and go-forward execution as well, right? We rolled through the beat for the year. We're really quite positive on what happened in the quarter specific to EX. We're being really prudent about our estimates for CX going forward. We are internally optimistic, but externally, we want to be prudent about that. But in general, we think we had a really good quarter.

Perfect. And then just maybe as a follow-up for you, kind of a lot of noise in the market these days about some vendors going more upmarket, some vendors going more down market. Just what are you seeing kind of generally in kind of your swim lanes from competitors, both higher and lower? And then maybe any consensus view on just the AI anxiety, if that's having an impact on sales cycles. It doesn't seem to be for you guys given the larger deals that you're closing, but any kind of color there would be helpful.

Yes, I'll start with the second part. We don't see any AI anxiety slowing deals or impacting deals. In fact, as we said in the prepared comments, most of our larger deals now are coming in with an AI component. And AI is core to the pitch, the discussion on road map, all of that matters for the customers that are coming over. But at the same time, customers are coming over not just for AI. They're coming for the full platform. that I've been talking about. They need the same -- the full capability across different departments within IT and outside of IT to make the switch. I think on the competitive side, it's -- we haven't seen any major changes in competitive dynamics.

On the EX side, the primary competitors are on the kind of large side, ServiceNow and Atlassian. And then there's a long fragmented tail between Avanti Sharewell, BMC and a bunch of others. On the CX side, it tends to be more fragmented, Zendesk and then a bunch of smaller players. And I haven't seen that -- I wouldn't say that, that's changed dramatically. We're really confident about our ability to win against those larger competitors on the EX side.

We have many deals that we closed this past quarter. I highlighted a couple, the largest deal ever for us, second largest deal ever, both multiyear customers of our largest competitor, but there's many, many other deals every single quarter that come in against them, where if you are a company that's in that, let's say, 5,000 to 20,000 employee range, we've got the right product for you, and that's becoming more and more apparent to the market. I think on the CX side, competitive dynamics are kind of similar to the way that they have been.

AI certainly is more prevalent in those conversations. We're purposely focusing our CX team on the customers within the sort of SMB, commercial and kind of mid-market space, where we have a strong unit economics, there's strong expansion dynamics. We're no longer chasing micro deals, smaller deals in the lower end of that market, which in the past, we had. That's why you're seeing more efficiency be the focus there.

And I think with the replatforming, there's some real positive signs. We have over 2.5x ARPA for new customers that are signing up for new Freshdesk Omni. That is a really positive sign. If we can kind of keep that trend going, if we can realize the price increases that do come from migrating customers from other products onto that single Freshdesk Omni product, that will flow through to the CX line over time. We are being conservative in how we view the rest of the year. Our guide implies low single-digit growth for that CX business because we want to see how it plays out over the course of the next quarter or so.

So I think overall, we're set up for a good year. We raised our non-GAAP operating profit by something like $26 million, and we see the ability to really drive a profitable business with that mid- to high teens growth overall over the course of multiple quarters.

Your next question comes from the line of Brian Peterson at Raymond James.

I'll keep it to one. So Dennis, maybe just wanted to understand or get an update on your channel efforts. How big are those bookings or pipeline generation today? And as you kind of build out the broader EX suite, does that change the tenor of what those conversations are like with some of your channel partners and how you could expand that base over time?

Yes. Thanks for the question. I would say most of our channel partners are regional service providers that historically may have specialized in JSM or Ivanti, BMC, but they're more of the regional players. And they're very important. They're driving meaningful business for us. We do have a couple of GSIs that we've been working with Unisys is one. And -- but I would say that that's quite nascent. We brought in a new channel leader who is very much focused on moving that business up and focusing on the GSI.

There is interest for sure because there's a realization that the customers in that sort of lower side of the enterprise market are looking for choice, and we have a great product. So I think we're going to continue to invest in the channel there. But I would say the dynamics right now are pretty favorable in the more regional side of things. The GSI side is really nascent.

Your next question comes from the line of Billy Fitzsimmons at Piper Sandler.

Dennis, I don't want to get ahead of ourselves here, but you kind of mentioned in the prepared remarks the potential of monetization of you talked about kind of opening up the platform to third-party agents. And there's a couple of other enterprise software companies who have talked about like the potential monetization of third-party AI agents. Just how -- again, I don't want to get ahead of ourselves, but how should we think about that potential within the platform? And then good to see some of these kind of large EX displacements. How should we think about like the repeatability of these kind of over time?

Yes. So I would say on the EX displacements, we just we've been doing this for a while where we've been winning these bigger deals and highlighting them to you every quarter. We'll continue to do that. I think the metrics where it shows up, look at that customer count of over $100,000 customers, and that's up 29% year-over-year. You can calculate the ARPA for the business as a whole. That's been growing really nicely. So we think it is completely repeatable. We're repeating it every single quarter.

Our pipeline is bigger this quarter than last quarter, meaningfully larger than it was a year ago. So that's what's driving our business now, this upmarket motion in these larger accounts.

On MCP or on opening up the platform, next week at our Refresh EX event, we'll reveal our -- basically our MCP gateway, which is a way for customers who might want to do create an analytics platform that is broader than EX. They might want to combine data from multiple systems and put it in a data lake and apply AI on top of that.

So they're going to be needing to pull and put information in our system. That's what we're sharing, which is an MCP gateway, we'll monetize it over time. But it's a way for us to participate in AI that our customers are driving outside of our AI. And it allows our customers to have some choice in how they want to build their business and take advantage of AI. In some cases, they'll use our Copilot or they'll use our AI agent.

In other cases, they'll want to build their own agents that interact with the data and the systems that we've built within Freshservice and both extract data and drive actions within Freshservice. So we're building a system that's open to that and that over time can monetize both of those, and we'll have a lot more details next week at the launch.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Yes. So good morning. Thank you, everybody, for joining us on day 3 of the Morgan Stanley TMT Conference. My name is Oscar Saavedra. I sit in the Software Equity Research team here at Morgan Stanley, and I am here on behalf of Elizabeth Porter. I am pleased to have with us today returning guests, President and CEO of Freshworks, Dennis Woodside, thank you for being here.

Yes. Thanks for having me.

Before we get started, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please direct them to your Morgan Stanley research -- I mean, sales representative. And with that, let's get started.

All right.

Yes. Thank you for being here, Dennis, again. Maybe a good way to start would be to sort of level set the conversation, especially for folks who may be newer to the Freshworks story, just can you give us a quick overview of the key problem that Freshworks is solving for customers today? And as you move more into mid-market and enterprise, what's sort of driving more of those companies to pick you as -- for their IT service management?

Yes. So I've been CEO now for about 22 months. And in that time, we've really undergone a pretty meaningful transformation. Our business now is predominantly an EX business serving an IT department of a mid-market company, mid-market, lower end of enterprise. Think about a 5,000-person company like New Balance or larger companies like Nucor Steel, Steel Dynamics, Bridgestone Tire, these are companies that have very complex IT needs. They need a system that bridges ITSM and IT operations management and asset management. And then they also need help desk capability outside of IT, workflow capability outside of IT, but they don't have the same resources as a Fortune 50 company.

They need to be more nimble. They have typically smaller IT teams. They typically are more budget constrained. They need a product that's offering them much faster time to value than the incumbents than a ServiceNow or an Atlassian or Ivanti Cherwell, and it needs to be AI-enabled. So that's where we've really taken the business. Our EX business today crossed over $0.5 billion last year in ARR. It's growing at about 26% year-over-year. So that's the growth engine of the business. What we've layered on top of that and now really is integrated into the product is AI.

Of our 75,000 customers, 8,000 are using AI. We've got good penetration, about 10% of our customers. It's a long way to go to continue to drive that. But we have AI products for first-line support for the agent to enable the agent to be more productive and for managers. And that's really been a big growth engine for us as well, crossed $25 million in ARR last quarter, nearly doubled year-over-year.

And then the third part of the story is really where we came from, which is customer support and our CX business. The primary product there is Freshdesk. That's a little over a $400 million ARR business. Growth last quarter was about 8%. We're going -- undergoing a pretty meaningful transition from a set of 4 separate products within that family to a single product called Freshdesk Omni, which allows you to have conversational interactions with your customers, much easier to upgrade, much easier to add AI.

That upgrade is ongoing right now. We'll have about 40,000 of our 55,000-ish customers migrated to that new platform by the end of April. So that's a thumbnail sketch of the business. I think the growth really is in that mid-market customer. That market is huge. It's relatively underserved by the larger incumbents, and that's really what we're going for. We're going to build a big business there.

Got it. Got it. That's a very helpful sort of overview. Maybe building on that, talked pretty openly for a while now, that focus on employee experience. It's showing, like you said, $510 million in ARR, growing 22% year-over-year in constant currency. It's approximately 56% of the business, growing much faster than the rest. Maybe looking back, what was the original insight that sort of made you say, hey, like this is where we should focus on. And then as you lean into that, from what you've learned, like is EX structurally a more advantageous market? Or is it more of a function that you found sort of a wedge and have been uniquely able to execute against that opportunity?

Yes. So EX is structurally a much more advantageous market for a couple of reasons. First, from a competitive standpoint, you have ServiceNow serving the largest enterprises, and they do a very good job there. You have then a fragmented set of legacy players like Ivanti Cherwell, BMC that come from an on-prem world. They haven't necessarily innovated at the same rate as we have. And then you have Atlassian, which has a good presence in much more developer-centric companies.

But then you have a lot of other companies, customers -- prospective customers out there that just aren't well served by the models that exist. And our product for that mid-market customer is the best product in the market. It offers the fastest time to value. It's the lowest overall total cost. It's the most complete solution on a single code base across what an IT department needs. They need service management to answer questions from their employees, increasingly AI-driven. They need that asset management. They need to understand all the software and hardware in their estate, the relationships that all of those assets have with one another.

They use that to root cause problems when systems go down. They need operations management, which is the ability to respond to outages and instances and resolve them quickly. And increasingly, that's predictive and AI enabled. And then they want to be able to extend that outside of the IT department to finance and legal and HR and so forth. So that's what we've built. And for that mid-market customer, like a New Balance, that solution really makes sense for them.

It's nimble, it's fast, it's easy to get up and running. You don't need like consultants or specialists to actually keep it up and running as your workflow changes. It becomes the system of record for IT with all of the interactions between both assets, software and people all embedded in our system. And so as AI comes in, that information, that data, all those workflows become super important to training AI to resolve questions without the agent altogether. So that's where we're heading, and that's really what's been powerful about that part of the business. That's the future of our business.

Got it. Got it. Maybe staying with what's driving customer decisions. I want to zoom out and maybe talk about the AI debate, right? There's obviously been a lot of investor concerns around AI disrupting the SaaS landscape. One argument you hear is if enterprises can just spin up internal applications quickly with AI, maybe they won't need to buy as much software from vendors like you. When you hear that, what do you think people are missing? And specifically to Freshworks, what is it about your product that you view as difficult to replicate? And maybe lastly, how does that shape your thinking and how you best deliver value in a world...

Yes. So I think there's 3 arguments that are very prevalent. One is that seats are going to go away; two is that the LLMs are going to take all the business; and three is the start-ups are going to take the business. We have to be super paranoid about all 3, but we think we have got actually a very good answer to all 3. I think on the first with seats, as our -- we're seeing as our AI becomes more and more effective, it is taking the questions that otherwise would be answered by humans and it's answering them by itself, both just a simple Q&A and agentic.

That is monetized in a very different way for us. It's monetized on a consumption basis. And that model scales quite nicely. So we're pretty comfortable with how that model is going to evolve over time to enable our customers to get more value out of the software that they have. Now to the start-up point, the reason that, that works so well in our system is because our AI has access to all of the underlying data, all of the underlying workflow. It's trained on all that underlying data, customer-specific as well as the entire corpus of customers that we have.

So a start-up can come and they can potentially suck information out of a system of record to train their model for that specific customer, but they're not going to have access to 75,000 customers and the corpus of information that we have. And a ticket, which is the information a start-up might have through an API call is a small portion of the total amount of data that is resident in our system. A lot of the data that's in our system is not surfaced through a simple API call or in a ticket. That's the data that actually makes us able to answer questions better, take action better than a start-up that's trying to build on top.

So seats, it's all about pricing and packaging. Start-ups are competition, but we have a basis for competing because we've got such a large repository of data that we can train our AI on. And then the LLMs, we just -- I think that's the one where we just don't see it. You see some customers building very specialized applications through an LLM, but you don't see them trying to replicate the functionality of a full-fledged IT suite that's powering the entire IT department. There's all kinds of things you would need to do around security, and we have over 1,000 integrations for the EX products. That's very hard to do. It's taken us over a decade to build all that.

And furthermore, customers don't want to do that. If you think about our classic customer, one of them is called Vermeer Corporation. They're based in Iowa. Typical customer for us, 5,000 people, company has been around 100 years. They make wood chippers, they make agricultural-heavy machinery. Their business is not building their own ITSM. That's the last thing they want to do. If they have any spare capacity, they're certainly not going to go wide code that. So I don't see that, that is necessarily what is going to change our world, especially with that mid-market customer that has a lot of other things that they can do with their very spare IT resources.

Of course, we watch it. We partner and we have -- we built our AI so we can switch to any LLM that we want. We have -- for different use cases, we call on different models. We call, in some cases, on our own models, on small models where the economics justify it. In other cases, we'll call on Azure OpenAI. In other cases, we'll call on other models as well. So we have access to the state-of-the-art from a model standpoint. It's really about creating the kind of environment for our customers where they can actually get work done, and that's what they want.

Got it. Got it. Maybe putting a finer point on the headcount risk part of the equation. When you talk to customers, what are they telling you? How are they actually thinking about that -- the balance between their AI investments and also leveraging the increased productivity with their hiring plans?

Yes. So let me just give you some data on the headcount side. So we've had Copilot in market for about 18 months. And so we have thousands of customers that have bought Copilot, that's the product that allows -- that improves the productivity of agents by answering questions basically for them, giving -- suggesting answers to them and allows them to summarize conversations very easily, a bunch of functionality for the agent, make them more productive.

Our NDR for customers that have adopted Copilot for at least a year is 116%, right? The NDR for the company is 105%. NDR for EX is 110%. So customers that have used Copilot, that have adopted Copilot, they're actually expanding at a faster rate. Now whether that's seat expansion or AI expansion, we have asset pricing for Device42, it doesn't really matter. But the point is they're actually expanding their business with us, right? So we can talk about seat count. I look at that as a really positive sign because we still are pretty low in the penetration of our AI. The earliest adopters of AI, they have found real value out of it, and they've grown their relationship with us over time. So I think that's kind of where I would start from in terms of the argument on seats. The -- what was the other part of your question?

Just sort of how the customers are rationalizing those -- their hiring plans?

Yes. So I think we see a couple of different modes, I'd say, 3. There are a class of customers that are growing quite quickly that have decided, we're just not going to hire more customer support reps in particular. There are class of customers that are saying, hey, for cost reasons, I've got to reduce staff. And then there is class of customers that are saying, I'm going to take what used to be a cost center and turn it into a revenue center. It just depends on the customer. And either way, we can serve those needs and we can make money because we're monetizing AI in multiple different ways.

Like I said, the consumption model for the L1 agent, for Copilot, it's an adder on the seat license. And then when you get into other products like asset management, it's an asset-based fee. So multiple different ways of monetizing. And I also -- we're constantly looking at this. I don't think that if you come back in 2 years, the monetization is going to look the same at all. I think we're going to be looking at seat models. We're going to be looking at token pricing. A lot of things will change in the next couple of years. But we're pretty confident in our relationship with our customers and the value that we're providing to the customers that we're going to figure out a model that works for them and for us.

Got it. Okay. Maybe zooming out one step further, let's say, AI doesn't replace the need for Freshworks. I guess investor worries still on the value capture, right, and that AI will still chip away the pricing power over time. And so when you think about the next, call it, 3 to 5 years, like how do you see AI affecting the margins of what has historically been a high-margin business? And how do you...

Yes. Well, I don't think AI is going to chip away at the value. What AI is doing is allowing our customers potentially to substitute software for people, and that's a huge value exchange. And for our customers, it's -- the cost of an IT rep or the opportunity cost of an IT rep doing a low-value activity is huge. So if we can take those low-value activities away from those very high-value IT agents so that the IT agent who's trained in the systems of the company can do higher-value work, they can work on projects that are more closer to revenue, all that stuff, that's hugely valuable to the customer, and we'll be able to capture value from that.

So I don't -- I just don't -- I don't agree that AI is necessarily going to erode pricing power. It actually gives us an opportunity to create more value for our customers ultimately, and that's -- and they're going to be willing to pay for that.

Got it. Okay.

Again, look at the NDR, right? Copilot and NDR is actually much higher than the company overall. That shows that our customers are getting value.

Got it. Yes. No, makes total sense. Maybe bringing it back to the business and EX and what you're seeing competitively. It's been growing really nicely, mid-20%. You talked about improving win rates recently and including the replacement of decades-long incumbents. When you take a step back, what is driving -- beyond the sweet spot of the 5,000 to 20,000 employees, maybe the higher enterprise, what is driving them to reevaluate their ITSM approach?

Yes. So first, in that mid-market, so let's define the mid-market, roughly 500 to 20,000 employees. That's about the same size. It's a lot more companies, but that's about the same size as the true enterprise segment, like 21,000, 20,000 and up. So that's -- just to give you a sense of scale, that's a huge opportunity just right there. The reason -- if you are a Seagate or a Nucor or a New Balance and you needed to make a decision, let's say, 5 years ago on what's your core IT platform, platform that's powering IT, you could go cloud first, which was ServiceNow or you could be on-prem, right? There wasn't -- a lot of the legacy players didn't have cloud versions of their software yet or they were in the process of building them.

So of course, if you're kind of looking forward, you would go with ServiceNow. We didn't have a product that was anywhere near that capability yet. Now today, we do. And customers are seeing that, and we have lots of reference cases. There are some industries where like if you look at heavy industry, doing incredibly well. If you look at -- we have 1,000 universities, we have 1,000 professional services firms, like in law firms, we're the de facto standard. We have 1/3 of the NFL teams, 1/3 of the MLB teams. We have a bunch of professional sports leagues, 1/3 of the F1 teams. So we have proof, right? We have lots of customer references now.

And so customers that are coming up, contracts coming up ending, they're starting to say, you know what, I'm going to look around because this is expensive. And it requires real resources on my team just to keep the system up and running. And in some cases, if they want to go to AI, they got to switch SKUs, and that's another upgrade, that's another cost. So that's provoking a bake-off in an RFP process, and we get in the mix, and we're winning more and more of these big deals.

We entered -- if you look at our business from 50,000 and up accounts, that grew 28% last quarter. If you look at our pipeline coming into this quarter, it was the best pipeline we've ever had for 100,000-plus deals. Last Friday, we closed the biggest deal in company history, which is a large -- very large health system with millions of customers themselves. And that -- again, that was a win against our biggest competitor. So we're pretty confident in our ability to win in that segment. It's really ours to lose.

Got it. And when you think about like the go-to-market investments that you have to make to sort of go after those opportunities, like how are you thinking about that?

Well, I think we've spent the last 20 months since I became CEO, really building that go-to-market muscle and building kind of the team that can actually go after those larger and larger deals. And that's everything from the sales reps to the account management, customer success, building out the engineering team that can serve those larger and larger accounts.

We've brought in engineering leaders from Atlassian and ServiceNow and all the big players to ensure that we can continue to move upmarket. And you just see it in the numbers, right? You see it in that growth rate of the larger accounts. You see it in the wins every quarter that we keep announcing. So I'm pretty confident that's going to continue.

Got it. Another interesting part of the EX business is Device42.

Yes.

It's showing up more and more in the story. It has now reached over $40 million in ARR, and it seems to be getting pulled into a growing portion of larger deals. How do you think about Device42's role over the next few years, both as part of landing new customers as well as a driver for further expansion into your installed base?

Yes. So our -- from a product standpoint, when we go into an account to sell, we -- our prospects and our current customers, they don't just buy helpdesk, right? They're buying a system to power their entire IT department. So they want the IT service management module to work well with IT operations management and asset management and then ultimately outside of IT as well. So that's what we've built over time.

Device42 is an important part of that because Device42 is very good at, in particular, on-prem asset detection, asset management relationship mapping. And that information about -- I mean, we're managing literally tens of millions of assets. We have some customers that are by themselves managing millions of assets in Device42. That by itself is super important for AI because you understand the relationship between all these pieces of software and hardware. You can understand when an item fails, how does that impact the rest of items in the catalog. That's super important. So most customers in that mid-market space, when they're evaluating a switch of a platform, they're looking at all of that.

So Device42 has allowed us to win more and more of these bigger deals. It's in about 1/3 of our largest deals in new lands. The big deal that I just talked about, the largest deal we've ever done last week, that has an asset management module associated with it as well as AI. And so increasingly, the relationship that we have with our customers from day 1 is across multiple departments within IT. It's powering multiple use cases. It's not a straightforward seat model because you have seats for agents, but for Copilot, it's consumption-based; for asset management, it's asset-based.

And then we bought another company called FireHydrant, which is operations management. And that's also based on calls or instance. And that allows the IT department to detect instances before they happen, get ahead of it. And when they do happen, manage them. Also needs a strong tie into the asset base in order to do that. So the system really is coming together as a complete system that can compete in that larger and larger account segment. And that's been really important for us. Device42 by itself crossed $40 million in ARR. But that's not the whole story because it has allowed us to continue to move upmarket and continue to win these larger deals.

Got it. Got it. And maybe to close the loop on EX, maybe you can talk about Freshservice for Business Teams. You recently made it something that you can sell directly into HR, finance, facilities and legal, even if IT is using a different system. Can you share any early feedback on that direct sales motion? And over time, do you see this ESM product primarily as a stand-alone expansion or does it also help create a path to broader ITSM?

Yes, it's both. So we -- the product that we have, Freshservice for business teams, it's a segregated workspace for an HR team. So an HR team, common use case is onboarding and offboarding employees. We have -- an example, we have a security guard company with like, I think, 15,000 security guards, a lot of turnover. They have to onboard security guards all the time. There's -- that's a very IT and HR-intensive process. You have to provision a device or you have to provision software, so forth.

And so that -- we've been pulled into those use cases over time and build a separate product just for that. We launched that product about 3 years ago. The market outside of IT is almost as large as the market in IT. If you look at the TAM for that use case. So -- and we're just getting started there. We crossed $40 million in ARR for Freshservice for business teams. That business is growing incredibly fast. But if the TAM is as equally as large, that's still less than 10% of our total EX revenue. So that opportunity is huge.

We see the stand-alone SKU as an ability to get into a customer that maybe their contract is not up for renewal with their incumbent ITSM for another year or so, but they don't want to increase the vendor dependency on that same vendor because they might be thinking about, well, you know what, in the future, we might make a change.

So for departments outside of IT, they might provision that Freshservice for business teams alongside whatever current system they have. And then when the contract comes up, we've proven value to that other department, and we can get into the core IT department. So that's how we're looking at the stand-alone portion. But by and large, the majority of our business is all attached now. And it's all -- I mean, New Balance is a good example where we started in IT, did a great job for the IT department. They get asked for a similar product to manage workflow and automate AI outside of IT, and they bring us into that other department.

Got it. Got it. Maybe going back to Freddy AI. There's a target for that to become a $100 million ARR business over time. You shared some good proof points around 8,000 customers using AI, exceeding $25 million in AI ARR, nearly doubling year-over-year. What needs to go right for you to reach that $100 million in ARR target? And what does that mean for adoption across your installed base?

I think we're going to see, as I was saying earlier, a lot of different pricing models come with AI. There's going to be experimentation around different pricing models. The models we have today are consumption based on the L1 agent, seat-based for Copilot and then we embed insights into our highest plan, our enterprise plan. I can see over time that evolving to potentially be token-based for some of those products. I could see us evolving so that we actually expose more functionality that's currently in Copilot in other parts of the plans to entice customers to move into a paid experience with the product.

And we -- on the agent side, we launched in November our Agentic AI Studio for the customer support product line. The pricing there is about $0.50 per session, which loosely equates with the resolution. And that naturally scales with consumption over time. So I think all those together, Copilot alone could be a $100 million business, the AI agent alone could be $100 million business, no doubt in the next couple of years.

It's really a matter of us continuing to innovate, continuing to deliver value. Our customers need to come along. It takes -- the actual adoption by the customer takes time. They need to get comfortable with the fact that an agent, an AI agent is going to handle what formerly was an interaction that a human handled. Some customers are ready now. Some customers are going to take some time. So I think those things are all coming together. We're clearly on that path to getting it to $100 million business.

Got it. And on that point about pricing $0.50 per interaction, that's an increase from $0.10 previously. And so I wanted to get your thoughts on what you saw that sort of let you know -- like what proof points you saw that said, hey, customers are willing to pay for that?

Yes. Well, the experience prior to them was not an agentic experience. So what we launched were out-of-the-box agentic experiences for 4 verticals: travel, fintech, e-commerce and logistics. And so out of the box, you can create an experience like changing my flight or returning an item and so forth without any kind of human intervention. And that's really valuable for our customers, right? That's real time and money that humans are spending on pretty low-value activity that they don't necessarily want to be spending their time on. So we're -- our pricing is really now in line, if not much more competitive than, let's say, a Fin or Salesforce. I think Fin is at $0.95 and Salesforce is at $2 per session or per interaction, so.

Got it. Okay. Maybe the other part of the business, the customer experience. You've been pretty clear that the bigger focus is employee experience, but you're also working through that platform migration. Can you give us an update of where you are in that migration to Freshdesk Omni? And as we think about how you're running the business today from a product development standpoint, how are you allocating investments between EX and CX today?

Yes. So as of today, about 2/3 of our investment is on -- 2/3 to 3/4 of investment is on EX and about 1/3 to 1/4 is on CX in terms of engineering resources, marketing, sales and all that. The CX business, our product line was -- we basically have 4 products that were serving a very similar need. We've unified that into Freshdesk Omni that provides conversational experiences. So if I want to interact with -- if I'm a customer, I want to interact with my -- one of our customers through chat or WhatsApp or any other surface, you can do it all in one place. The agencies, all the interactions in one pane, so they don't contact switch.

The admin can actually manage a single experience. So we didn't have that before. Now we do. So that's what launched in November. Like I said, we're expecting to have over 4,000 customers migrated, upgraded into that new experience by the end of April. It's price -- we also changed the pricing for all of our products. We took the price up for Freshdesk Omni because the value really is there.

So we want to get through that migration. We think that retention should be higher, expansion should be higher because it's just much easier to experience the next kind of the better product or the next product within the product line. And so that migration and that upgrade is actually going quite well. I think for the way we're managing that business is it's more of an SMB business. It's more of a high-velocity transaction. It's actually very measurable because most of the sales are just coming in, inbound and we close them very quickly, but they're smaller deals. And the target market there is more of an SMB. That's where that product is really resonating.

So I think it's going to continue to be a good business for us. I think we're going to continue to use the kind of the cash that, that business generates and invest it into the EX business because over time, that's a business that's addressing a much bigger market. We have a much clearer right to win. We have a product that really is resonating. And the customers expand at higher rates, retain at higher rates, all goodness on that side of the business.

Got it. I mean as that platform strategy plays out, and I think you previously mentioned that your win rates there are improving...

On EX.

On non-CX?

I mean CX is -- again, it's inbound, but it's not the same. You're not actually going head-to-head into a field sale in the same way.

Okay. Maybe are there like any signals that you're looking for that may surprise you to the upside that maybe tell you like, hey, maybe invest a little more in CX or is that...

I think we'll see how the upgrade goes to the new Freshdesk Omni and then we'll decide. But again, I think it contributes to the overall profitability story. Remember, we did 27% free cash margin last year. We had our first GAAP profitable year last year. We're aiming for GAAP profitability in the second half of this year as well on a consistent basis. We generated -- we're forecasting to generate close to $250 million in free cash this year. We have $700-plus million in cash on the balance sheet, and we just did a $400 million buyback.

So it's -- the CX business is a contributor to the overall profitability story, which really is that we're being efficient with our use of cash. We're -- in terms of our kind of our stock price, we see a huge opportunity to go into the stock right now given the current levels. That's why we announced the buyback. And I think it really is the way to think of the business going forward in 3 or 4 years, it's going to be an EX dominant business, and that opportunity is the one that we're really going after.

Got it. Okay. And when thinking about the upmarket expansion, are there any particular verticals or segments of the market where you're seeing the strongest traction today? And how is that sort of shaping where you invest next?

It's -- our customer base is not concentrated in any single industry. 45% of our revenues in the U.S., 40% is in Europe and then 15% around the world. I wouldn't say that there's any specific area that we're sort of like focusing the product on, doubling down on. We do very well in certain verticals. Of course, we kind of lean in there from a sales and marketing standpoint. But every company in the world, every mid-market company in the world needs a system to manage all of their IT operations, their assets, their incident response, their service management, and that's what we provide. So that opportunity is huge.

Got it. And you previously highlighted the partners becoming more important part of the process. Particularly as you support larger, more complex deployments, how is that strategy evolving?

So we have thousands of partners. I think what we're doing -- what we've done in the last year is try to be more selective about the partners that really are going to help us push upmarket. Historically, we had lots of partners that were more at the SMB end of the market. Those are still important. But increasingly, investment is around partners like Unisys, which have a much bigger customer base. They have a lot of mid-market customers. Those mid-market customers are open to considering a different solution than what they have now, and they're building a business around our product.

Got it. And maybe just to close out, as you look at 2026 and beyond, what are you sort of more excited about? And what are you keeping your eye on in terms of potential risk?

I think we spent a lot of time on how AI evolves and what can AI do beyond just answering and addressing simpler questions, how can AI actually help with more complex problems, how can AI be much more predictive in understanding what's going on in an IT environment or in the customer support environment and be involved more in helping craft decisions that advance our customers' businesses. That's what they're looking for.

Awesome. Thank you very much.

Thank you.

Hello, everyone. Thank you for joining us, and welcome to the Freshworks Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Kate Scolnick, VP of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to Freshworks Fourth Quarter and Full Year 2025 Earnings Conference Call.

Joining me today are Dennis Woodside, Freshworks Chief Executive Officer and President; and Tyler Sloat, Freshworks Chief Operating Officer and Chief Financial Officer.

The primary purpose of today's call is to provide you with information regarding our fourth quarter and full year 2025 performance and our financial outlook for our first quarter and full year 2026. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate and market volatility and certain other assumptions made by the company, all of which are subject to change.

These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain our growth, to innovate, to reach our long-term revenue goals, to meet customer demand and to control operating efficiency. For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our most recently filed Form 10-K and other periodic filings with the SEC. Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law.

During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our Investor Relations website at ir.freshworks.com. I encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports, and a replay of today's call or to learn more about Freshworks.

And with that, let me turn it over to Dennis.

Thanks, Kate. I am thrilled to share that Q4 marks a historic inflection point for Freshworks. For the first time in our company's history, we achieved profitability for the full year and generated record free cash flow, a testament to our disciplined execution, product innovation and operational excellence. I'm also happy that we remain on track for sustained growth and profitability exiting 2026.

First, I'll start by summarizing the year. Our business performed exceptionally well in 2025. Quarter after quarter, we achieved or exceeded our top and bottom line expectations throughout the year. In employee experience, we continued winning in the mid-market and enterprise. We successfully are evolving Freshservice into a world-class unified service platform by natively integrating Device42 and acquiring FireHydrant, we have brought ITSM, ITOM, ITAM, and ESM under one cohesive roof. This one platform advantage has enabled us to aggressively win bigger deals.

We're winning the mid-market with a continued roster of displacements, whether it's equipment shares high-growth [ debut ] on NASDAQ or a global sustainability consultancy's global scale, we are winning. Most notably, a global semiconductor company recently abandoned a decade-long ServiceNow environment for Freshservice, projecting a 30% cost savings and 20% to 30% faster resolution times, powered by Freddy AI. Freddy AI is proving that AI at Freshworks is a tangible revenue engine. Customers like iPostal1 are using Freddy AI Agent Studio to resolve 54% of queries automatically and seeing a 99% improvement in interaction speed.

When Vermeer Corporation cut their resolution times by 50% using Freddy AI, they drove customer satisfaction up to 95% in sparked enterprise-wide adoption. We brought stabilization to the CX business. We did this by continuing to simplify our core Freshdesk product experience to make it easier to implement and maintain. We improve time to value, customer retention, and our customers are also staying longer because they are seeing tangible results with AI features in Freshdesk.

Now let's recap Q4. Q4 was a significant capstone to our fiscal year. Freshworks delivered an outstanding quarter with results that surpassed expectations once again. We have outperformed our estimates across growth and profitability metrics for 5 consecutive quarters. And in Q4, we also achieved profitability. We grew Q4 revenue over 14% year-over-year on an as-reported basis, nearly $3 million above the high end of our estimates. We ended the year at $907 million in annual recurring revenue, which represents 18% growth year-over-year on an as-reported basis and over 14% growth on a constant currency basis.

Non-GAAP operating margin expanded to 19%, nearly 5 points above our estimates. Our free cash flow margin was 25%, and this was the sixth straight quarter we achieved a Rule of 40. We saw an upmarket momentum surge with our enterprise cohorts outpacing overall growth, proving our ability to consistently win and scale within the world's most complex organizations. As of Q4, we now have over 1,500 customers with greater than $100,000 in ARR, an increase of 28% year-over-year and over 3,700 customers with greater than $50,000 in ARR, an increase of 23% year-over-year. For our first strategic priority in employee experience, we crossed the $0.5 billion milestone as of the end of 2025, reaching $510 million in ARR. That represents 26% year-over-year growth on an as-reported basis and 22% year-over-year on a constant currency basis.

Now we are witnessing a generational shift where midsize and larger enterprise organizations expect sophisticated software that can handle their complex needs and get fast time to value. Freshservice is uniquely positioned to fill this gap left by legacy providers like ServiceNow. We are capturing a growing share of organizations that demands robust AI native service management that can be deployed in weeks, not years. We believe this is a massive and growing opportunity for us. We saw great success in our Device42 offering as a solution for larger enterprises with complex IT asset management needs.

Device42 ended 2025 with over $40 million in ARR as a result of quality new deals and expansions, including cross-sell from our Freshservice customer base. In Q4, we saw a 30% attach rate of Device42 to our top 50 new EX deals, including our 3 largest deals in the quarter. We have a wide range of customers like Holiday Inn Club Vacation, Dell EMC and SoftBank Group, who use our Freshservice advanced ITAM platform to provide them with a detailed and unified view of their entire infrastructure. supporting their most critical IT services.

Our ESM product known as Freshservice for Business Teams, contributed greatly to our Q4 success. ESM continues to be one of our fastest-growing businesses and exceeded $40 million in ARR in Q4, nearly doubling ARR year-over-year. Today, 1 in 4 eligible Freshservice customers also uses Freshservice for Business Teams for their non-IT needs. We believe both our ITAM and ESM businesses are well on track to achieve our target of over $100 million in ARR.

We are bolstering the scope of our EX business with the acquisition of FireHydrant in early January of 2026. FireHydrant, a leader in AI-powered IT incident management and response software brings large customers like British Petroleum, Palo Alto Networks and SNC Limited into the Freshservice ecosystem. This acquisition opens an $8 billion addressable market in IT operations management, or ITOM, and sets the groundwork for our expansion into AI ops. We will provide updates as we progress through integration of FireHydrant into Freshservice's unified platform over the course of this year.

With all these components, we provide a unified service operations platform for sophisticated global IT teams and beyond. Our ITSM is enterprise-grade for service management. Device42 provides world-class asset management capabilities soon to be in the cloud. Freshservice for Business Teams enables any department in any company to deliver amazing service. And FireHydrant forms the basis for growth in ITOM. We are really excited to have all these pieces of the puzzle together now.

Our second strategic priority, Freddy AI, continued to advance in 2025 with over 8,000 customers using Freddy AI. AI is not just a feature in our products. It's a stand-alone revenue line, delivering measurable value to our customers, which ended 2025 with over $25 million in ARR and remains on a path to reach $100 million in ARR by 2028. Freddy AI agent conversations were up over 80% to $3.5 million in Q4 in CX, and Freddy AI Agent deflected more than 50% of tickets for CX and EX customers. Since Freddy Insights became generally available to EX customers in June of 2025, 1,000 customers have already adopted and are active on the product. In customers with more than $30,000 in ARR, we continue to see Freddy AI copilot attach rates of over 50% and copilot customer growth more than doubled year-over-year. Another clear indication that AI is driving long-term value for our customers is the net dollar retention rate for Copilot customers in Q4, which improved significantly from 112% last quarter to 116% and remains significantly higher than our overall base for both EX and CX.

For our last strategic priority, we drove continued execution in our customer experience business and our AI-driven Freshdesk Omni platform road map. In Q4, we continued to see healthy demand in our flagship Freshdesk business. We ended the year with $395 million in ARR and 9% year-over-year growth on an as-reported basis and 5% growth on a constant currency basis. We continue to improve retention quarter-over-quarter as a result of product simplification, adoption efforts and innovation. We believe Freshdesk Command Center, the unified Freshdesk Omni workspace we launched in December, positions us well to sustain growth, quickly deliver new AI-native capabilities across our entire customer base and deliver increasing value for all customer service needs.

We entered 2026 with clear goals that are built upon our 3 strategic pillars: first, expanding EX, continued to increase our 20-plus percent ARR growth rate in EX fueled by continued focus and investment in our unified employee experience service platform; second, monetizing AI at scale, continued disciplined innovation in AI as a current revenue driver and stay on track to deliver $100 million in AI-driven ARR over the next 3 years; and third, improving retention in CX, focused on our unified platform to drive retention and efficiency in our customer service business.

Freshworks' 2025 results bring me confidence in our march towards $1 billion in annual recurring revenue this year and $1.3 billion by 2028. The opportunity ahead of us is tremendous, and I want to thank our customers, partners and employees for an incredible 2025 and for the collaboration ahead in 202. The best is yet to come.

Now I'll hand it over to Tyler to walk through the financial results in detail.

Thanks, Dennis, and thanks, everyone, for joining on the call and via webcast today.

We closed 2025 with a strong fourth quarter, exceeding expectations across both revenue and profitability. These results capped a year of significant financial progress and continued innovation that reinforces our confidence in our long-term strategy. As we build meaningful momentum into 2026, we are well positioned to drive top-line growth with a clear focus on winning in a very large EX market, executing an efficient operating model and delivering strong cash generation.

For our call today, I'll cover the Q4 and full year 2025 financial results, provide background on the key metrics and close with our forward-looking commentary and expectations for Q1 and full year 2026. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses, restructuring charges, the release of our deferred tax asset valuation allowance and other adjustments. We will also talk about our adjusted free cash flow, which excludes the cash outlay related to restructuring costs. To provide greater transparency into our underlying business performance, we will also include constant currency comparisons throughout today's call.

Starting with the income statement. Q4 total revenue increased to $222.7 million, growing 14% year-over-year on an as-reported basis and 13% on a constant currency basis. Professional services revenue ticked up modestly quarter-over-quarter to $2.5 million as a result of strong bookings and earlier-than-expected project kickoffs and milestones achieved in the fourth quarter. Our EX business crossed the $0.5 billion ARR mark in Q4, reaching approximately $510 million in ARR, representing 26% year-over-year growth on an as-reported basis and 22% on a constant currency basis. We finished the year strong across the EX portfolio with both ESM and advanced ITAM, each exceeding $40 million in ARR. Our CX business is at $395 million in ARR, reflecting year-over-year growth of 9% on an as-reported basis and 5% on a constant currency basis. We continue to drive solid growth in CX as we focus on unifying our technology and customer base around our AI-led Freshdesk Omni platform.

Moving to margins. We maintained a non-GAAP gross margin of 86.8% in Q4. Included in the Q4 cost of service is a $1.5 million credit from our AWS contract. Excluding this item, non-GAAP gross margin for Q4 was in line with prior quarters in 2025. Non-GAAP operating income for Q4 was $41.6 million, representing a non-GAAP operating margin of nearly 19%. We which was ahead of our prior expectations. These strong results were driven by top line outperformance and continued gains in operational efficiency. GAAP net income for Q4 was $191.4 million.

In Q4, our GAAP net income was favorably impacted by 2 items. First, there was a favorable impact of $41.1 million from a onetime reduction for fiscal year 2025 stock-based compensation related to our Executive Chairman's departure. Additionally, there was a favorable impact of $151.7 million from a onetime income tax benefit for the release of a valuation allowance on our U.S. deferred tax assets. This is a result of our improved profitability over the course of fiscal 2025, leading us to conclude that our valuation allowance on these deferred tax assets is no longer necessary. Achieving GAAP profitability for the first time in our company history is a significant milestone that demonstrates the healthy and profitable trajectory of our business.

Looking ahead, we remain on track to hit sustainable GAAP profitability in Q4 of 2026. Reflecting our trajectory of consistent profitability, we are adopting a long-term projected tax rate of 24%. We believe this rate provides an accurate representation of our long-term tax profile and should be utilized for all non-GAAP financial modeling. There is no cash impact associated with these onetime benefits, and they are excluded from our non-GAAP net income.

Moving to operating metrics. Net dollar retention was 108% on an as-reported basis and a strong 104% on a constant currency basis, in line with prior expectations. This includes a headwind of around 70 basis points from Device42, similar to prior quarters. As we look ahead, the strengthening demand and momentum we see within our EX business gives us increased confidence in our expansion trends. As a result, we expect net dollar retention to improve to approximately 105% on a constant currency basis in Q1 2026.

We ended Q4 with nearly 75,000 total customers. As noted last quarter, we continue to focus our efforts on moving upmarket, and we'll discontinue reporting this metric on a quarterly basis as we believe larger customer measures better reflect the trajectory of how we manage our business. The number of customers contributing more than $5,000 in ARR as of the end of Q4 grew 10% year-over-year on an as-reported basis and 8% on a constant currency basis to 24,762 customers. This customer cohort continues to represent over 90% of our ARR. The number of customers contributing more than $50,000 in ARR grew 23% year-over-year on an as reported basis and 19% on a constant currency basis to 3,760 customers. This cohort now represents nearly 55% of our ARR.

For our larger customer cohorts, the number of customers contributing more than $100,000 in ARR grew meaningfully to over 1,500 customers, representing 28% year-over-year growth on an as-reported basis and 22% on a constant currency basis. We also closed 2025 with 15 customers paying us over $1 million in ARR.

Now let's turn to calculated billings, balance sheet and cash items. Calculated billings were $259.6 million in Q4, representing strong year-over-year growth of 17% on an as-reported basis and 13% on a constant currency basis. Our calculated billings were impacted by slightly lower contract duration from Device42 and fewer [ foreign ] renewals than we've historically seen in Q4. Looking ahead, we expect billings to be in line or slightly better than revenue growth for 2026. For Q1, we are estimating calculated billings growth of approximately 13% year-over-year on an as-reported and constant currency basis. For the full year, we are estimating calculating billings growth of approximately 14% year-over-year on an as reported and constant currency basis.

Turning to our cash items. We generated $56.2 million in free cash flow in Q4, outperforming expectations due to strong cash collections and disciplined execution. This resulted in a free cash flow margin of 25%, which represents a nearly 4 percentage point improvement year-over-year. For the year, adjusted free cash flow margin was 27%, representing an over 5 percentage point improvement compared to the prior year.

We are proud of the excellent progress we have made in our cash generation over the last 3 years, going from negative free cash flow in 2022 to over $223 million in 2025. Looking ahead, we expect to generate free cash flow of $55 million for Q1 of 2026 and see linear quarter-to-quarter improvements thereafter, reflecting our focus on consistent operating performance and disciplined expense management. For the full year 2026, we expect to generate approximately $250 million of free cash flow. We expect this will represent a free cash flow margin of 25% and 26% for Q1 and full year 2026, respectively.

Fully diluted share count as of December 31, 2025, was approximately 308 million shares, a decrease of 6% year-over-year. The fully diluted calculation includes 283 million basic shares outstanding, which also represents a decrease compared to the prior year. We continue to manage and offset share count dilution by net settling invested equity amounts. During Q4, we used approximately $11 million for that purpose. In 2026, we will continue to net settle invested equity amounts and expect Q1 cash usage of approximately $11 million. And for the full year, cash usage of approximately $54 million at current stock price levels. This activity is reflected in our financing activities and is excluded from our adjusted free cash flow calculation. We ended the quarter with cash, cash equivalents, marketable securities and restricted cash of nearly $844 million.

Now on to our forward-looking estimates. As a reminder, our non-GAAP net income projections assume a tax rate of 24%. For the first quarter of 2026, we expect revenue to be in the range of $222 million to $225 million, growing 13% to 15% year-over-year. Non-GAAP income from operations to be in the range of $33 million to $35 million, and non-GAAP net income per share to be in the range of $0.10 to $0.12, assuming weighted average shares outstanding of approximately 287.4 million shares.

For the full year 2026, we expect revenue to be in the range of $952 million to $960 million, growing approximately 13.5% to 14.5% year-over-year. Non-GAAP income from operations to be in the range of $181 million to $189 million and non-GAAP net income per share to be in the range of $0.55 to $0.57, assuming weighted average shares outstanding of approximately 291.5 million shares.

Our financial outlook is based on a few assumptions that we would like to call out for modeling purposes. First, we are increasing our fiscal year '26 revenue growth expectation from what we outlined at our Investor Day last September, reflecting the strength and growth opportunities we are seeing in the business, particularly in EX. We expect revenue growth to accelerate in the second half as we further build on that momentum.

Using the midpoint of the range for Q1 estimates, we expect revenue growth rates of approximately 14% in Q1, Q2 and Q3 and 14.5% in Q4. As a reminder, last year's Q3 revenue had a $1 million benefit from Device42 that we do not anticipate this year. In December, we announced our acquisition of FireHydrant and closed the deal on January 1. We believe the acquisition will meaningfully enhance our ITOM capabilities, allowing our customers to quickly respond to incidents. We expect FireHydrant to have an immaterial impact on our Q1 and fiscal year 2026 revenue growth and approximately 1 point of headwind on our Q1 and fiscal year 2026 non-GAAP operating margin. We have taken these factors into account in our estimates.

For our non-GAAP operating margin, we expect approximately 15% in Q1 using the midpoint of our guide. For the subsequent quarters, we expect operating margins to increase by approximately 200 basis points in Q2 and will exit the year at roughly 23.5% in Q4. This reflects a shift in the timing of our annual merit increase process as well as other administrative changes. As we have previously mentioned, we also continue to be on track to achieve GAAP profitability exiting the year. Finally, our forward-looking estimates are based on FX rates as of February 6, 2026, and do not take into account any impact from currency moves.

To close, 2025 was a year of meaningful progress as we sharpened execution and strengthened our financial foundation to support our growth engine. As we look ahead to 2026, we see a compelling opportunity to build on this progress by continuing to invest with discipline expand our uncomplicated AI-powered EX and CX solutions and scale the business in a durable and profitable way. With a clear strategy, a strong operating model and a motivated global team, we are confident in our ability to drive sustained growth in our business.

Thank you for your continued support and confidence in Freshworks. And with that, let us take your questions. Operator?

[Operator Instructions] Your first question comes from David Hynes with Canaccord Genuity. Please go ahead.

Congrats on the quarter. Nice to see the durable [ IT EX ] growth. I'm going to actually ask about the CX side of the business. I think there was some optimism that AI can drive a little bit faster growth there that didn't play out in Q4. Could you just talk about some of the factors maybe creating some headwinds in that side of the business and kind of what you're doing to rectify those?

Yes. Well, first of all, thanks for the question. As you know, we've been -- our investment really is focused on that EX side of the business and then, of course, AI. The big move that we've made recently on the CX side has been to unify our conversational and ticketing capabilities in a new platform, which we released in Q4, and we're in the process now of upgrading all of our customers on to that. That will give us a single code base to innovate off of which we know will allow us to move faster on that side of the business and drive both retention and expansion.

I wouldn't say there was any like meaningful trend in Q4. Remember, we lapped the -- an initiative that we had last year called Free to Paid. So that accounted for some of the growth change, but we're managing that business to kind of grow where it is now, which is in that mid-single-digit range, while we invest over in that EX side, which is where we're seeing the growth, where we're seeing the move up market work quite well for us. So I wouldn't think that -- I don't think that Q4 was anything outside of our expectations. And if you look at our plan for next year, it's pretty consistent with where we think -- for this year, where we think we're going to grow that business this year.

Yes. Okay. Makes sense. And then Tyler, maybe a follow-up for you. Look, when we think about kind of intermediate-term targets that you have out there, call it, 14%, 15% growth. Today, you're getting about 1/3 of that from that revenue retention, right? I think it's $104 million on a currency adjusted basis. Does that feel like the right ratio to drive durable 14%, 15% growth, like 1/3 from expansion and 2/3 from net new? Or do we need to see NRR inflect higher to drive that growth durability?

So where we're at right now, DJ. I think that is the rate that it's at. But as we've talked about, our EX business is growing a lot faster than our CX business as well, EX has a better net dollar retention kind of make up to it, along with the fact that we have been adding different mechanisms to grow within the EX portfolio, specifically ESM products, our Device42 products. And then now with our recent acquisition of FireHydrant later in this year, hopefully, a new SKU on the ITOM side, that's all on top of the Freddy copilot ads that we have.

As the mix shift continues to change, we're going to expect to see that we're going to see some benefit from net dollar retention. We did say for the first quarter really that we're going to see some upside on net dollar retention in Q1, moving up to $105 million. is what we said. And that's the first time we've seen that in a while. And that confidence is driven really largely on the results that we're seeing on the EX side.

Your next question is from Elizabeth Porter with Morgan Stanley.

You got Oscar Saavedra on for Elizabeth. And congrats on the strong performance on the EX side of the house, really nice to see a cross in the [ $110 million ]. I wanted to touch on Device42. You highlighted the 30% attach rate across your top [ 6 ] new EX deals. As we think about 2026 and the updated guide you gave for '27. How should we think about that attach rate trending? How should we think about it going higher? And then what's the typical incremental ACV uplift when you include those versus Freshservice alone.

Yes, I'll take the first part of the question. I think Device42 is a piece of the bigger puzzle. We've built a platform that can power all the needs of a mid-market IT department, from ITSM to ITAM, now we're building out ITOM and then ESM. So Tyler mentioned this, those are the growth levers that we see enabling us to sustain this mid-20 growth rate for EX for a long time to come. We said at our Analyst Day back in September, ITAM is a business that is on track to drive $100 million in ARR for us over the next couple of years. We crossed $40 million this past quarter. It's -- the Device42 product is integral to our continued motion upmarket because larger organizations need that asset management capability really to power their IT department. So it's not just an attach on a net new sale. It's important for retention. It's important for expansion. And it's really been so far a huge success for us in terms of enabling us to kind of continue to move upmarket.

Tyler can comment on some of the specifics in terms of...

Yes. And Oscar, I just want to add also, we still have not launched the native cloud offering of Device42, that which is -- which we've been working on since kind of we brought on the company. and that's still on track to launch at the beginning of Q2 here. And that's going to be an initial phase of cloud because what we've been selling so far is still the on-prem.

The ARPU of Device42, we haven't disclosed, but you could tell from our Q3 disclosure about the $1 million that we had in Q3 of last year that we don't expect to repeat necessarily. That was a stand-alone Device42 deal. It wasn't a $1 million deal because of the term license we recognized more upfront, but it was very significant, as you can imagine. And so the ARPUs can go anywhere from the $20,000 level all the way up to the multiple hundreds of thousands for Device42 depending on the size of the organization that we're serving. But what you're seeing is that this is just another piece of a broader platform that we feel that is a holistic offering across all of EX and adding ITOM to is something that our customer has been asking for that we're really excited about.

Your next question is from Alex Zukin with Wolfe Research. Please go ahead.

Dennis, maybe one for you. Just as you think about Freddy AI tailwinds to growth that you saw in calendar '25, and you look at those for calendar '26, maybe just help us understand kind of what those could be. And also to the extent that folks plug in alternative solutions, agentic solutions into your platform. Maybe just remind us how do you monetize or how can you monetize that as well? And then I have got a quick follow-up for Tyler.

Yes. So AI for us, as we kind of shared in the remarks earlier, we crossed the 8,000 customer mark for customers that are paying for AI. In terms of revenue, we crossed $25 million in ARR as well, and that nearly doubled year-over-year. So we've got good momentum. We've got, I would say, a good start. We still got 75,000 customers. So we have a long way to go in terms of driving full penetration.

We launched our AI agent studio in late November. So that is in the market now. We've got hundreds of customers using that product to create their own agents on the customer support side. And we're bringing that into EX later in the first half of this year. So we -- in some ways, we're really getting started on the agentic side because our pricing prior to that was all focused on the old structured bots. We increased our pricing to $0.50 an interaction from $0.10 an interaction. We're just starting to see that flow through in terms of ARR. And we -- as that product scales, we think that, that's going to create significant upside in our overall AI business. Copilot continues to grow. We continue to see productivity improvements at 30% plus among customers that use copilot. So that, I think, is going to continue to drive increased penetration as capabilities there improve.

So all of these are either upsells to existing customers or included in deals, especially in large deals where over half of our customers are taking AI from the start. And it's really core to our sales motion now. It's what customers expect. And as far as the customers that might be experimenting with over-the-top solutions, we don't see it that much. We tend to be the first port of call for that midsized enterprise company that's looking to understand how AI can benefit their business, both on the IT and the CX side. Of course, we've got to put out a competitive product, but we've got the right to win with every one of those customers.

Understood. And then maybe, Tyler, on the guidance, obviously, nice to see outperformance there versus consensus. In terms of both the billings guide for next year as well as the revenue guide. Maybe just remind us and compare and contrast the level of conservatism that you're putting in there versus a year ago kind of how we should think about that, particularly as we get through the year? And then any color on billings seasonality you gave us kind of the revenue seasonality, but some billings seasonality would be helpful, too.

Yes. I mean, for the conservatism, Alex, as you know, first guide of the year is the toughest for the whole year because you have the least amount of visibility. Now clearly, just 1.5 quarters ago at Investor Day, we had guided to 13% to 14% growth for all of 2026. And essentially, we're saying that's now 14%. We wouldn't put that out there if we weren't confident in that. We are really excited about our EX opportunity. It's a strategy that we've been very clear about for 1.5 years now. that we're executing against, and it's working. And we're clearly the leader in that segment of the market that we're attacking right now. We're going to continue to go attack that and make that our priority.

So clearly, we wouldn't have put out the number right now if we didn't feel good that we can go execute against it. And hopefully, as we go throughout the year, we'll be able to update as we perform.

Your next question is from Scott Berg with Needham & Company.

I just wanted to follow up on the guidance question there. You're clearly getting some good momentum with Freddy in particular from the AI perspective is. How do we think about the impact on guidance this year? I know it's still a small amount, $25 million in ARR exiting the year. But should we expect a material contribution to that next year from what you're seeing in the pipeline? Or you're still a little measured there?

Yes. So Scott, I think our biggest opportunity on Freddy is still on our existing installed base. If you actually look at the numbers we've put out on attach rates on new business, specifically for larger deals, we're still over 50%. That means that as companies are choosing us as a new customer, part of the reason they're choosing us is because of what they see on our Freddy capabilities. and that is real time. And as a reminder, the dollars we put out on our AI revenue is purely on the SKUs that we sell. And so it doesn't include things like AI agent on EX right now because that's included in some of our plans. We're not trying to do an allocation there.

The products are working. We have 8,000 customers now. The growth rates there are good, and we still feel we're very confident that these can each be a $100 million product, AI agent and copilot in the next 3 years. And we think that's going to continue to be a lever of growth. That being said, the other areas that we have, including ESM, where we've really only had that as a stand-alone product for 1 quarter, we're very excited about that as well. on our capability to go expand with existing customers but also land there. And we just have to keep proving that out and think that, that could actually be a really good tailwind into the year.

Got it. Helpful there. And then Dennis, your market sales motion is clearly going well. as you move your ITSM kind of products and solutions up there with Device42, et cetera. I mean, by my math, your customers above $50,000, I think you grew that net new comp by over 30% or roughly 30% year-over-year. I guess as you look at '25 versus '24, and I know you had Device42 for the entire year. But outside of that, is there anything else to really call out that's kind of driving some of the extra strength of upmarket?

Yes. Well, a number of things. First of all, that midsized enterprise is looking for choice and they're looking for a platform that satisfies all of the different needs that you have in running a midsized enterprise IT department from ITSM to ITOM to ITAM to ESM. And that's what we built over the last couple of years.

If you think about a lot of the decisions that were made 2 or 3 years ago to stay with BMC or Vontier, ServiceNow, we were not in the market the way we are now. And those customers are coming up for renewal. They're looking around. They're seeing the recognition that we have. From Forrester and Gartner, they're seeing all the customer references that we now have from large meaningful companies that have made the switch. They're talking to the CIOs of those companies that have made the switch. We've got a really positive referral cycle going and they're seeing the value. And so we -- that market, by our estimates, the mid-market of -- in the TAM we're competing in is as large as the true enterprise, think of [ the G2K ]. It's a lot more companies, but it's a massive TAM. And in many ways, we're just getting started in terms of getting that referral network going, the messaging going all that, and that's just creating this momentum.

That market for us is enormous. And I know there's a lot of talk about the impact of AI and how is AI going to affect seat-based pricing. For us, it's a share gain. So we're taking seats with every win that we make. We've always been in a competitive market. We've always had to take share from bigger players and that's what we continue to be able to do. If you look at the growth rate for ESM at 22%, we think we're the fastest-growing player in that midsized market. And so some of these fears that seats are going to erode because of AI. We've got multiple ways of monetizing the relationship we have with the customer. But more importantly, we're not the incumbent that has a lot to lose. We're the attacker who's taking share, and that is going to continue to be true for some time.

So we think that the market that we're playing in that EX site, you add AI to that, you add these capabilities that we've been building out. It's just a huge opportunity for us. And that's why you see us talking about the investment that we're making there. We're running CX lean to enable us to invest in that EX opportunity and really leaning into it. And that's what you're just going to see every quarter this year.

[Operator Instructions] Our next question is from Rob Oliver with Baird.

Great. Dennis, for you, and this is, I guess, a follow-up to Scott's question. So on that Freshservice plus Device42 side, clearly, you guys have shown meaningful large win stand-alone on D42 and sort of proven it out and simultaneously, you guys are seeing a ton of momentum upmarket on the Freshservice side. Can you talk a little bit about the sort of the combined go-to-market there. where you are today, where you need to be in terms of your ability to have all hands on deck and kind of rowing oars at the same pace in order to compete for these deals? And is that something that's already done and ready to go today as we enter '26?

Yes. So I think we're all feeling pretty confident in the sales and marketing motion. If we internally look at our win rates, it's consistent improvement quarter-over-quarter in our win rates against our largest competitors really good predictability in the business compared to where we were 18 months ago. And you see that in our numbers. You see that in our ability to consistently beat the top end of our estimates. And that -- so I think the sales motion we got nailed down. I think where we're really focused is stitching all the product pieces together in a way that makes sense for our customers. So the first step there is bringing Device42 fully to cloud, and that's happening later this quarter. That's going to open up a slightly different market for us because if you're a cloud-first company, you don't want an on-prem solution, and that's what Device42 has been up until now. So that will open up another set of customers for us.

FireHydrant is the next piece of that. Now we've got to build out the integration plan, but we have a lot of customers that work with us that are looking for a more modern solution for IT operations management, incidence response and ultimately much more proactive incident detection our primary customers over in the IT department, but a lot of these customers are over in the technology organization. And that's an interesting adjacency for us where customers are using Freshservice to in some cases become alerted to instances that as they're happening. In other cases, they're using Device42 to understand the kind of the relationship of assets to one another and get ahead of problems before they happen there.

So ITOM is a natural complement. A lot of our customers are looking for an integrated solution. That's what we're going to deliver in the back half of this year, and that's another natural next step. And then ESM. Our ESM capabilities are getting better all the time. We said -- it used to be 1 in 5, now it's 1 in 4 of our eligible customers are using ESM that's great, but that means we have a lot more customers to go after in departments like finance and legal and HR.

So building out the capabilities there, bringing genetic AI into those workflows, those are huge opportunities for us. And now we can offer our ESM product to companies that might not have Freshservice that might be stuck for a little bit longer on a legacy solution for their IT department because of contractual reasons, but want to lessen vendor dependency on that incumbent wants something that's more flexible for them that meets their needs better, and ESM is a great entry point into those types of customers where we can prove ourselves, earn the trust of the customer. And then when that ITSM contracts up for renewal, we can win it.

So we've got a lot of levers on that side of the business, and there's a lot more that we're excited about going into to continue to build out that platform to serve larger and larger customers.

Your next question is from Patrick Walravens with Citizens.

Great. This is Austin Cole on for Pat. Dennis, you mentioned the just the work to do to help penetrate the customer base with Freddy AI, and it sounds like there's a lot of momentum there. But what are -- what do you kind of see as the 2 or 3 big bucket items in terms of increasing that penetration?

Yes. So the focus now is very much on building out the agent capabilities of our AI agent studio. We focused initially that set of launches on CX just because there's much more quarries to be handled through AI or on the customer support use case than an employee use case, but the employee use case is super important, too. And we'll be coming out with prepackaged workflows and automation later in the first half of the year that's focused there. But that's a really good business for us because it just scales the usage. And we've already seen customers that have adopted on the CX side. Once they get going, the usage spirals up for them. They get the benefit of deflecting a ton of inbound. They answer questions faster. CSAT often goes up. and they're perfectly happy paying the session-based pricing that we have set in the market.

So I think that on the AI-side agentic, L1, agentic in particular, is, I think, a growth lever that we're going to really see if it takes off this year. Copilot is a little steadier, right? That's a very clear value proposition. We've got lots of customer examples that are working for us. And so that also is scaling about half of our customers among the 8,000 are copilot customers. We've got a long way to go. And then we're investing in AI across the product portfolio to be much more proactive in delivering service. Insights is an example of that, where a manager can come in, they can see their service desk understand exactly what's going on. The AI suggests areas to look into, anomalies, those sorts of things, the agent can troubleshoot in a natural -- or the manager can troubleshoot in a natural language way to understand any kind of issues or problems in the data. They don't have to hunt and peck through a bunch of Power BI dashboards. So that proactive service delivery is really where we see AI taking us, and there's a lot of places we can go from there.

Your next question is from Brian Peterson with Raymond James.

This is Johnathan McCary on for Brian here. So kind of dovetailing off that last question. So I wanted to ask about sort of -- are you guys seeing a halo effect in the business where you're having a customer that's coming live on the CX or the EX side, and realize there's some difference there on the ideal customer profile. But they're seeing a lot of value from the Freddy products on one side of the business and that actually brings them back to the table and unlock the cross-sell opportunity on the other side.

We're definitely seeing the impact of AI in terms of driving greater expansion and retention. So our for customers that are taking our AI paid SKUs was 116% last quarter. And I think that's up from like 112% the prior quarter. So you think about that, if we can eventually, all of our customers are going to use AI. We know that. If we can continue to drive that penetration and continue to see those kinds of results, that's fantastic for our business. It tells us that our customers are seeing value both on EX and CX from the AI capabilities that we're bringing to market, and they're expanding at a much faster rate than those without AI. So it's a critical imperative for us to get as many customers as possible on.

In terms of like what are the things that we have to do to get there, a lot of it is about education, right? We have a broad spectrum of customers. Right now, I'd say AI adoption isn't confined to any specific industry or any specific size of customers. It's pretty broad. But there's still a lot of customers out there that are hesitant or need to be educated on how the data is being used and all that stuff. And that's what our go-to-market teams do every single day. And that's why you're seeing the 50% attach rate on new deals, that's why Tyler is constantly pushing the teams to drive penetration to the existing base because we know once customers get onto our AI. They see the value. They see the business cases very clear and that just enhances their relationship with us and leads to a lot of positive upside.

Your next question is from Taylor McGinnis with UBS.

Tyler, just on the guide. If I look at the 4Q numbers, it looks like 13% constant currency growth across revenue and billings and then the high end of the guide going into 2026 implies an acceleration. So could you just unpack for us what gives you comfort in that outlook when you think about each of the individual pieces? And as a second part to that, we look at the CX business and knowing that you guys are making this platform change, is there a potential to see any tailwind from that as we get through 2026?

Thanks, Taylor, for the question. So you're right. We are guiding to some slight acceleration, right, even into the back half of the year. on the revenue side. And it really is just coming off of the confidence that we have driven by EX performance. And we just had another great quarter, and we strung 4 great quarters together. And we know that the attributes of that customer base are really, really strong. And now we're starting to push a whole bunch of other products into that customer base and some that we never had before. And so the confidence is really driven by the execution and the continued momentum and things like pipeline, right, where we're seeing more $100,000 deals than we've ever seen in pipe currently. And this all gives us a lot of confidence.

To be honest, on the CX side, we've been very, very clear now for a number of quarters, like our main focus is to bring all of our customers on to our new platform, our new Freshdesk Omni platform. And we're being relatively conservative in our expectations on growth from the CX side of the house until we get through all that. Now that being said, we're still closing new customers every single quarter, a lot of them the AI adoption is continuing, and we're getting really good feedback. But from what we've built in, we're being relatively conservative in what we expect in terms of CX growth. A lot of the confidence or all the confidence is coming from EX and our expectations there.

Our last question will be from Billy Fitzsimmons with Piper Sandler.

[ Steer ] from the metrics healthy momentum of market, and I want to focus on maybe mid-market specifically. And I won't focus on mass market because obviously, it's probably hard to disaggregate [ back ] given the shift in strategic priority. But in terms of mid-market, I bring this up because in a couple of prints this cycle, there are some narratives around kind of the health of a sub enterprise-type customers and some other companies in the software space called that weakening macro or potential higher [ passive ] customer acquisition. Just curious if you can kind of comment on some of the metrics you're seeing in real time for the, call it, like sub enterprise-type customers exiting 2025 and kind of what you're baking in 2026 in terms of the guide.

Yes. Yes. So we'll just define -- the way we define mid-market call it, a 5,000-person company, that's kind of the sweet spot, maybe $1 billion to $3 billion in revenue. That's what we're growing our business off of. That's what the sweet spot for us. That's where our growth is coming from right now. So we're not seeing anything negative at all. In fact, as Tyler alluded to, we entered this quarter with the best pipeline we've ever had from that segment of the business. That's what our field market -- field motion is primarily focused on. And that's where we have a really strong position in in EX in particular, where increasingly those customers are turning to us as the solution that makes sense.

So we think that, that's a large segment over time that is going to continue to grow with us, if anything, if those customers are squeezed for cost or efficiency or anything like that, they're going to turn to us more than they would to a legacy platform like a BMC or [ onto ] your ServiceNow which are much more expensive, not just from a licensing cost, but they're expensive to run. They're expensive to keep up and running and keep current with their business processes. Their AI takes longer to implement. All that is much easier on our platform. That's why the growth is coming from there.

You can see it in our over $50,000 customer count and the percentage of our revenue that's coming from over $50,000 customers. Tyler alluded to a number of customers over $1 million. I mean all that is coming from that mid-market, which is where we're orienting the company. That's what we're focusing on. That's where our growth is going to continue to come from. And those customers expanded higher rates they retain at higher rates, everything is good there. We're in the middle of that journey to move the entire company to focus on that part of the market is super important for us.

This today concludes today's call. Thank you for attending. You may now disconnect.

Good day, and thank you for standing by. Welcome to to the Freshworks Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Brian Lan, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to Freshworks Third Quarter 2025 Earnings Conference Call. Joining me today are Dennis Woodside, Freshworks' Chief Executive Officer and President; and Tyler Sloat, Freshworks' Chief Operating Officer and Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our third quarter 2025 performance and our financial outlook for our fourth quarter and full year 2025.

Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate and market volatility and certain other assumptions made by the company, all of which are subject to change. These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain our growth, to innovate, to reach our long-term revenue goals, to meet customer demand and to control costs and improve operating efficiency. For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our most recently filed Form 10-K and other periodic filings with the SEC. Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law.

During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our Investor Relations website at ir.freshworks.com. I encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports and a replay of today's call or to learn more about Freshworks. And with that, let me turn it over to Dennis.

Thank you, Brian. Freshworks delivered an outstanding Q3, marking the third consecutive quarter this year that we surpassed our estimates across growth and profitability metrics. We grew Q3 revenue 15% year-over-year to $215.1 million on both an as-reported and constant currency basis, approximately 3 points above the high end of our previously issued estimates. Non-GAAP operating margin expanded to 21%, 5 points above our estimate. Our free cash flow margin was 27%, and we added a fifth straight quarter of Rule of 40 plus.

We ended the quarter with nearly 75,000 customers, including new logos such as global auto manufacturer, Stellantis; multinational bank, Societe Generale; the Pennsylvania Gaming Control Board; and Travis Perkins plc, the U.K.'s leading distributor of building materials. Our positive results also reflect significant expansion deals with existing customers like Wiley, the Access Group and iRhythm Technologies. In Q3, we saw a more than 40% year-over-year increase in the number of new and expansion deals with greater than $50,000 in ARR.

Our strategy has focused on 3 key growth drivers: investing in employee experience; delivering AI capabilities across our products and accelerating adoption; and driving continued expansion in customer experience. At our Investor Day in September, we outlined our path to $1.3 billion in ARR in the next 3 years, and we continue to make progress towards our goal of ESM, AI and ITAM, each generating over $100 million in ARR.

Before we dive into the results, I want to speak to the transformative AI opportunity ahead for Freshworks. We have over 50 AI-driven applications in the hands of customers right now, and the direct monetization of these products demonstrates that we are driving incremental growth and that customers are realizing tangible outcomes from our AI. The headline here is that businesses need the right foundation, workflow, data and security that all work together, and that's what we provide. Companies will continue to rely on us because we have the operational context, data connections and governance needed to manage full-service functions like customer support and IT service at scale. Security, privacy and compliance are already built into our architecture. That's what makes our AI enterprise-ready compared to general purpose AI.

Employee experience continues to lead in durable growth, achieving over $480 million in ARR. That represents 24% year-over-year growth on an as-reported basis and 23% year-over-year growth on a constant currency basis, an acceleration from Q2. Three primary growth drivers that contributed to these results include expansion into departments outside of IT, continued growth upmarket and deepening our foothold in IT asset management with Device42.

Enterprise service management continues to be an important expansion lever as customers increasingly use Freshservice in areas of their business outside of IT. Our ESM solution, Freshservice for Business Teams, has doubled its annual recurring revenue in the past year and exceeded $35 million in ARR in Q3. Customers like Databricks, RingCentral and Qualcomm are using our ESM offering to automate workflows and deliver more personalized employee experiences at scale.

As of Q3, 1 in every 4 eligible Freshservice customers are using Freshservice for Business Teams. To meet the surging customer demand, today, we announced that we are expanding enterprise service management access by making Freshservice for Business Teams available as an independent product for non-IT functions. With a stand-alone product, we are no longer limited to using IT as our entry point, and we can now sell directly to HR, finance, facilities and legal, even if an organization is already locked into another ITSM tool.

Second, we continue to move upmarket with midsized and enterprise customers. In Q3, ARR from customers who spend more than $100,000 with us grew 25% year-over-year. The steady flow of new product innovations like employee journeys, our AI-powered onboarding and offboarding capability and increased adoption of business teams contributed to the momentum of these larger customers.

Freshworks is positioned as a clear alternative to legacy players, and we continue to displace incumbents. In Q3, we delivered our highest ITSM competitive win rates in 2 years as customers selected Freshservice for its ease of use, fast deployment and lower total cost of ownership. Freshworks has an established track record in ITSM. Mid-market and enterprise organizations want speed and simplicity, and Freshworks delivers. One example is Holt Cat, the largest U.S. dealer of Caterpillar equipment, who saw significant improvement in efficiency and productivity as agents were able to handle nearly 10,000 tickets within 6 months and bring their average ticket resolution time to under 5 hours.

The third growth lever in EX is our advanced IT asset management offering expansion with Device42. In Q3, we closed our biggest Device42 new deal to date with the largest U.S.-based sporting goods retailer. Device 42's deep integration with Freshservice and its differentiated discovery engine made it the clear choice for enterprises that are seeking real-time visibility and control. The momentum is evident as half of our top 10 largest deals in the quarter included a Device42 component.

In addition to these 3 growth drivers, we're deepening our presence across key verticals. For example, in Q3, we doubled our law firm customer count reaching over 1,000. In sports, we want to congratulate the Los Angeles Dodgers, one of several major League Baseball teams that rely on Freshservice on winning back-to-back World Series and also the McLaren Formula One team for winning back-to-back Constructors Championships.

Finally, we continue to drive greater efficiency and focus on our go-to-market motion. On the leadership front, we welcomed Enrique Artagon as Senior Vice President and General Manager of America Field Sales. Enrique's experience leading high-performing sales organizations will help sharpen our execution, accelerate growth and strengthen our GTM discipline across North and South America.

Now let's talk about our AI tailwind. Freddy AI continues to be a growth driver and expansion opportunity across EX and CX and is delivering exceptional results for thousands of customers who are seeing tangible business value and returns quickly after adoption. As we stated before, we believe this can be a $100 million stand-alone revenue stream over the next 3 years.

AI is becoming a core productivity engine for every team, not just for IT. And here's why Freshworks is winning. Our products sit where real work happens in customer support, IT, HR and operations, helping businesses automate tasks, resolve issues faster and deliver better experiences with less effort. Our AI is deeply embedded in how our customers work every day. It's writing replies, classifying tickets, generating insights and increasingly taking action on behalf of employees and customers.

The results speak for themselves. AI ARR has doubled year-over-year. Customers are now using Freddy AI to resolve millions of problems every week. And our new AI agents are performing real work across industries from handling returns in e-commerce to managing employee requests in HR. As a testament to our AI momentum, we have seen AI agent usage expand more than sixfold in the past 7 months, while our existing AI Copilot solutions continue to double in usage 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, a 5-point increase from the prior quarter. We also saw double-digit attach rates again for new SMB customers in Q3. The number of customers using Copilot grew significantly too by over 130% year-over-year.

Travis Perkins plc upgraded from legacy complexities to service efficiency with Freshservice and Freddy AI Copilot. Travis Perkins is now able to provide best-in-class IT service management to 17,000 employees across 1,400 locations while improving operational execution, optimizing costs and increasing productivity for HR and IT teams.

These Freddy Copilot customers stick with us. Their net retention rate is 112% in Q3 for both CX and EX, higher than our overall base and a tangible sign that AI is driving deeper engagement and long-term value. We believe this tailwind will continue to strengthen our growth trajectory. The number of Freddy AI agent sessions grew over 70% in Q3, and we have seen 650,000 sessions per month since launch. Freddy AI Agent deflected more than 50% of tickets for CX and EX customers. Those who had early access to Agentic workflows that we launched in June are seeing their average deflection rate jump to 65% with a handful of customers seeing 80% of service issues resolved by AI Agent.

We're seeing positive feedback from customers who have had early access in Q3 to several products we announced at our June refresh event. For example, Gale's Bakery, a midsized U.K. cafe chain with over 170 locations, used Freddy AI Agent Studio for Freshdesk to build AI agents. These Freddy AI agents now handle 1,000 inquiries per month to deflect more than 1/3 of total volume. Employees are freed from repetitive work and can dedicate more time to more complex customer cases like allergies, ingredients or complaints that require personal care.

Next week, we'll share new product announcements across our entire portfolio at Refresh North America on November 13 in San Francisco and at our Virtual Summit on November 18. This includes new vertical Agentic AI agents that bring our growth strategy to life, demonstrating how we're executing through AI innovation that expands our addressable market and deepens customer value.

Our third imperative, customer experience, grew to over $390 million in ARR, representing 8% growth year-over-year on an as-reported basis and 7% on a constant currency basis. Q3 growth was driven by deeper product adoption and customer sentiment that Freshdesk is easier to implement and use than the legacy alternatives. To build momentum, we refocused our CX products, and we'll be announcing a new unified experience at refresh next week, a single workspace that consolidates Freshdesk, Freshchat and all of our Freddy AI products for customer support teams. This hub centralizes all conversations, context and tools to help agents resolve inquiries and get work done more efficiently. This will be a force multiplier for frontline support teams, helping them improve the speed and quality of customer service.

Freddy AI continues to be an expansion driver for CX with measurable impact for customers using Freddy AI agents in Freshdesk. For example, Birds Eye, a leading German outdoor retailer, uses Freddy AI agents to automatically retrieve real-time order data and provide status updates, return label and invoices with customers in seconds. This has significantly reduced ticket volume and improved response times, driving higher satisfaction and greater trust in the Bird's Eye brand. The potential of Agentic workflows is tremendous. Traditionally, building AI agents like this took months, designing customer support workflows, training data and endless testing. Our prebuilt AI agents help our customers deploy on day 1 to handle tasks like expediting orders, processing returns or checking delivery status. That means faster setup, faster results and a better customer experience from the start.

While SMB and commercial segments continue to turn to Freshdesk, we are also seeing larger implementations with midsized and enterprise organizations like the University of Pennsylvania, who consolidated its finance support into a single hub with Freshworks. In just 6 months, the university processed more than 30,000 service tickets, streamlining workflows and improving stakeholder satisfaction. We believe customers of all sizes continue to choose Freshworks CX solutions for its AI-driven efficiency and uncomplicated customer support experience.

Around the world, businesses are choosing software that delivers real outcomes, speed, simplicity and measurable ROI, and that's exactly where we stand out. Our enterprise-grade products deliver faster time to value and lower total cost of ownership, aligning perfectly with what today's buyers demand. With solid momentum behind us, we're leaning into the global opportunity ahead to expand our pipeline, acquire new customers and fuel durable growth.

Thank you to our customers, partners, employees and shareholders for your ongoing support. Now let me turn it over to Tyler to go through the operational and financial details.

Thanks, Dennis, and thanks, everyone, for joining on the call and via webcast today. We are very pleased that we continued our streak of outperforming across both growth and profitability during the third quarter. We once again exceeded our revenue, non-GAAP operating income and adjusted free cash flow expectations. This strong overperformance reflects the continued demand for our AI-powered and uncomplicated EX and CX solutions. Our consistent execution and financial discipline position us well to capture the significant long-term opportunities ahead.

For our call today, I'll cover the Q3 2025 financial results, provide background on the key metrics and close with our forward-looking commentary and updated expectations for Q4 and full year 2025. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses, restructuring charges and other adjustments. We will also talk about our adjusted free cash flow, which excludes the cash outlay related to restructuring costs. To provide greater transparency into our underlying business performance, we will also include constant currency comparisons throughout today's call.

Starting with the income statement. Q3 total revenue increased to $215.1 million, growing 15% year-over-year on both an as-reported and constant currency basis. Revenue outperformance includes a onetime $1 million contribution coming from our on-premise Device42 business. Professional services revenue modestly declined quarter-over-quarter to just over $2 million, consistent with our ongoing shift in leveraging our partner network as we scale our business.

In 2025, we saw partner involvement expand significantly across our largest deals. Partners helped to lead implementations for over half of our ARR deals greater than $50,000, a notable increase from last year, underscoring the success of our robust and growing partner ecosystem.

Our EX business accelerated in Q3, growing to over $480 million in ARR, representing growth of 24% year-over-year on an as-reported basis and 23% year-over-year on a constant currency basis. Our faster growth was driven by strength across our entire EX portfolio as we saw positive momentum in not only ITSM, but also meaningful progress in ESM, advanced ITAM and AI, each of which we believe can eventually be $100 million ARR businesses.

Our CX business increased to over $390 million in ARR, reflecting growth of 8% on an as-reported basis and 7% year-over-year on a constant currency basis. We continue to see healthy and predictable demand for our Freshdesk products.

Moving to margins. We maintained a non-GAAP gross margin of 86% in Q3 as we continue to scale our business efficiently. Our non-GAAP operating income for Q3 came in at $45.2 million, representing a non-GAAP operating margin of 21% and ahead of our prior expectations, reflecting our continued top line momentum and effective cost management.

Moving to operating metrics. Our net dollar retention came in at 105% on an as-reported basis and 104% on a constant currency basis, both in line with our expectations. Just like last quarter, Device42 represented a small drag of 60 basis points to net dollar retention. We expect Device42 retention to improve gradually as we continue to scale the business with our ITSM offering.

Looking ahead, we estimate net dollar retention of approximately 105% on an as-reported basis and 104% on a constant currency basis for Q4. As of the end of Q3, the number of customers contributing more than $5,000 in ARR grew 9% year-over-year on both an as-reported and constant currency basis to 24,377 customers. This customer cohort continues to represent over 90% of our ARR. For our larger customer cohort, as of the end of Q3, the number of customers contributing more than $50,000 in ARR grew 20% year-over-year on an as-reported basis and 19% on a constant currency basis to 3,612 customers. This cohort represents over 50% of our ARR as we have continued to move upmarket successfully.

For total customers, we added over 260 net new customers in the quarter and have nearly 75,000 customers as of the end of September 30. Given the continued success of our upmarket strategy and our focus on mid-market and enterprise customers, we believe total customer count is no longer a meaningful indicator of our performance. Starting with the release of Q1 results next year, we would discontinue reporting this metric on a quarterly basis and shift our focus to larger customer measures that better reflect how we manage the business and its trajectory.

Now let's turn to calculated billings, balance sheet and cash items. Our calculated billings grew to $224 million in Q3, representing growth of 14% year-over-year on both an as-reported and constant currency basis, matching our prior expectation on an as-reported basis and coming in ahead of our constant currency forecast of 13%.

Looking ahead to Q4 2025, our initial estimate for calculated billings growth is 17.5% year-over-year on an as-reported basis and 14% on a constant currency basis. For the full year 2025, we expect calculated billings growth to be approximately 16% year-over-year on an as-reported basis and 14% on a constant currency basis, both of which are in line with our expectations from last quarter.

Moving to our cash items. We generated $57.2 million in adjusted free cash flow in Q3, driven by continued operational discipline and strong collections. This resulted in an adjusted free cash flow margin of 27%, which represents an over 5 percentage point improvement year-over-year. For the full year 2025, we now expect to generate approximately $222 million of adjusted free cash flow with approximately $55 million in Q4.

As a reminder, we successfully completed our inaugural $400 million share repurchase program after buying back an additional 12 million shares in Q3 at an average price of $13.28 per share. In total, we repurchased approximately 27.9 million shares at an average price of $14.35. We continue to manage and offset share count dilution by net settling vested equity amounts. During Q3, we used approximately $15 million for that purpose. This activity is reflected in our financing activities and is excluded from our adjusted free cash flow calculations. Looking ahead, we will continue to net settle vested equity amounts and expect Q4 cash usage of approximately $12 million at current stock price levels. For the full year, we expect to use approximately $58 million to net settle vested equity amounts. We ended the quarter with cash, cash equivalents and marketable securities of approximately $813 million.

Turning to our share count as of September 30, 2025. We had approximately 309 million fully diluted shares, which represents a decrease of 7% year-over-year. The fully diluted calculation includes 282 million basic shares outstanding, which represents a decrease compared to both the prior year and quarter. It also includes 24.5 million shares related to unvested RSUs and PRSUs and over 2 million shares related to outstanding options. We remain committed to thoughtfully managing our share count dilution over time.

Now on to our forward-looking estimates. For the fourth quarter of 2025, we expect revenue to be in the range of $217 million to $220 million, growing 12% to 13% year-over-year. Adjusting for constant currency using FX rates from Q4 of last year, this reflects growth of 11% to 13% year-over-year; non-GAAP income from operations to be in the range of $30.6 million to $32.6 million; and non-GAAP net income per share to be in the range of $0.10 to $0.12, assuming weighted average shares outstanding of approximately 284.5 million shares. For the full year 2025, we expect revenue to be in the range of $833.1 million to $836.1 million, growing approximately 16% year-over-year on both an as-reported and constant currency basis; non-GAAP income from operations to be in the range of $167 million to $169 million; and non-GAAP net income per share to be in the range of $0.62 to $0.64, assuming weighted average shares outstanding of approximately 293.9 million shares.

Our financial outlook is based on a few assumptions that we would like to call out. First, our forward-looking estimates are based on FX rates as of October 31, 2025, and do not take into account any impact from currency moves. As a reminder, we had a $1 million revenue benefit in Q3 related to a large Device42 deal that we would not expect to repeat in Q4. Secondly, given our strong operating and go-to-market execution this year, we are strategically reinvesting a portion of our earnings outperformance to further build on that momentum. As such, we anticipate a onetime increase in spending during Q4 to expand our pipeline and drive customer acquisition with a modest corresponding impact on operating margins. These planned investments are reflected in our financial outlook and position us well for continued growth.

Looking beyond Q4, we are reaffirming the long-term model we outlined at our Investor Day in September. Based on our current forecast, we continue to expect full year 2026 revenue growth of 13% to 14%, and we remain on track to achieve GAAP profitability by end of year. As a reminder, the fourth quarter has historically been our largest bookings quarter and a good indicator for us. So we will follow our typical cadence of providing a more detailed outlook for 2026 on our next earnings call.

With that said, let me provide some additional color on our operating margin linearity for the full fiscal year 2026. We anticipate that our Q1 2026 operating margin will be slightly better than Q4 2025 and represent the low point for next year. This is driven by the strategic decision to move the timing of our annual merit increase process from April to January as well as the reset of U.S. payroll taxes and the start of new benefit plans. Following this Q1 low point, we project a subsequent linear ramp-up throughout the remainder of fiscal year 2026, culminating in an operating margin exiting Q4 2026 at over 23%.

Our results underscore the exceptional execution and financial discipline our global team has demonstrated throughout the year. As we get ready to close out 2025, we remain focused on continuing that momentum and thoughtfully reinvesting in our growth to capture the multitude of significant opportunities ahead. We appreciate your continued confidence in Freshworks as we execute on our strategy to deliver long-term profitable growth. And with that, let us take your questions. Operator?

[Operator Instructions] Our first question will be coming from Scott Berg of Needham & Company.

Really nice results here in the quarter. Dennis, I wanted to talk about the announcement today, you're selling ESM as a stand-alone solution. That's certainly not news to us that we're paying attention at the Analyst Day. I just want to hear kind of, I guess, how you're thinking about that solution? Is this going to be sold with, a, I guess, a separate sales force now as you're selling it stand-alone, it's going to be sold with the same sales folks that you're using? And any changes to, I don't know, pricing or I guess, whatever the marketing message looks like around that in the stand-alone environment?

Yes. Thanks, Scott. So first of all, we launched Freshservice for Business Teams in 2022. We had a lot of demand outside of core IT departments for a service desk solution. And that, as you know, has been a huge driver for us. We crossed $35 million in ARR. That business has doubled year-over-year. About 1/4 of our customers now for Freshservice customers now are using Freshservice for Business Teams in some way, shape or form. So it's a really strong value proposition. And what we've seen is some prospects where they might be locked into a contract for their core ITSM with a larger incumbent, they don't necessarily want to increase their vendor dependency on that incumbent. They want to preserve optionality to potentially move to us at a later date, but they need a solution now for the teams outside of IT, and that's why we launched this. In those cases, we can sell to them now. We can preserve that optionality, get to know them a little bit. So when that contract does come up for renewal for core ITSM, we're there, and they've had a positive experience with us.

There's no new sales force around this. We already have a pretty well-worn try-to-buy way of getting a lot of customers started. So all of our typical outbound and inbound marketing methodologies apply here. It's going to be the same sales force we have. So we think we'll get a lot of scale out of that. And this is on top of the core ESM business that we have, the product that is attached to Freshservice. We think that alone, when we talked about this at Analyst Day, that alone has a path to $100 million. This is additive to that. So we're launching it today. We'll have more next quarter in terms of early traction, but we're pretty positive about where this is going to go, just given the success of the products that we've had in the market already.

Excellent. And then from a follow-up perspective, maybe this is for Tyler, is it's around your buyback program expired in the quarter. You've certainly been buying back some shares at higher levels. I didn't see that repeated here, which I kind of almost expected, I guess, in the quarter or at least an expansion of those efforts. Should we take that as maybe an indication or a shift in your capital allocation strategy? Or maybe there's something more on just on a timing basis there. Any details there would be great.

Yes. Thanks, Scott. Yes, so we finished the inaugural buyback in [ Q3. ] So we just finished it 1.5 months ago. That was authorized a year ago for $400 million, and we completed that. And we were happy to get that done. I think the weighted average price is just over $14. We are committed to working with the Board on a continued capital allocation strategy. We've always said we've been open to M&A. If that come forward, we're obviously going to invest in the business where that's needed, but we're producing a lot of cash flow now. And we'll continue to talk about the Board about other uses of capital, including other buybacks. We are still doing our net settles, and we provide the data there. And so we're still spending money every single quarter on net settlements, and that's been outside of the buyback. So that will be a continual discussion that we will have with the Board.

And our next question will be coming from Alex Zukin of Wolfe Research.

This is Mark on for Alex Zukin at Wolfe. Congrats on great results. Can you just give us a little bit more color on how you're balancing the monetization versus adoption play with the Freddy AI suite of tools? Any way we should think about how that might change with the new agent capabilities?

Yes. So just to recap our strategy, we have a Freddy AI agent, which is a consumption-based model for CX, where our customers pay us on a per session basis. We have Freddy Copilot, which is a per seat license adder. And then we have our Freddy Insights, which is only available in the enterprise plan. So different products have different monetization levers and paths.

For AI agents, we've historically priced those based on sessions with our Agentic AI agents coming out in a matter of weeks. We have revisited pricing. We're not revealing that now, but we are going to be more in line with industry pricing, which is considerably higher than where our pricing historically has been. We think that the market will support that based on what we've seen in early access with some customers seeing up to 80% deflection rates based on their use of AI agents. What's coming in a couple of weeks are agents that are focused on very specific verticals like fintech, like travel, logistics, e-commerce that take action on behalf of the end customer, and we know that those interactions are quite valuable.

We're not quite at the point to move to full resolution-based pricing and frankly, neither are our customers. So the session-based pricing makes a lot of sense for where we are now. We're always open to evolving that as our customers ask us to and as customer demand warrants, but you will see a meaningful price change with that, the launch of those products, which will allow us to monetize it quite well.

And our next question will be coming from Patrick Walravens of Citizens Bank.

Congratulations on the third quarter in a row this year. So the big question I still get, Dennis, believe it or not, is for investors who are just looking at Freshworks, they still want to know, is it an AI winner or an AI loser. And I see lots of evidence that it should be in the winner's camp, including your $100 million target and what you just talked about actually is really interesting about the specific verticals for agents. But just to make it easier for people, if you're going to boil it down to 2 or 3 key points that you would make on that topic, why Freshworks as an AI winner? What are they? What would you lay out?

So first of all, look, we are the system of record for our customers in IT and in customer support. We have the native workflows that they're running their business off of. And that is super important for all of what we're focused on. The products that we ship have ready-made skills, guardrails, governance, things that our customers all need in order to run their support and IT departments, and that's what they demand. So there's a mean that, oh, everybody is going to go directly to OpenAI or to Anthropic to build their solutions. That's just not going to happen in such complex environments as Seagate's IT department or some of these others. The customers need the AI to be integrated into their workflow. They need the security. And we can tap into the best-of-breed models as the LLMs evolve by tapping into Anthropic for coding or Gemini for image and so forth. So we think that we're actually really well positioned as the market evolves and as customers continue to adopt AI to succeed there.

Our next question will be coming from Elizabeth Porter of Morgan Stanley.

This is Oscar on for Elizabeth. Congrats on a great quarter. I wanted to ask in terms of government exposure for Freshworks tends to be more state and local. But I just wanted to check if you have seen any impact from the government shutdown, either in the form of longer sales cycles or smaller deals and either directly or indirectly, if it has pressured any small businesses within CX.

Yes, it's Dennis. So we've seen no impact whatsoever. We do not have large federal government exposure. Our government business comes from state and local entities, municipalities, universities, none of which we've seen at least any kind of change. We actually landed quite a few governments and universities this last quarter, and we've seen quite a bit of expansion there. So we really just have not seen any impact at all from the shutdown or any of the federal issues.

Our next question will be coming from Brent Thill of Jefferies.

Tyler, I apologize if you covered this, but this onetime investment you're talking about in Q4, can you articulate a little in more detail what that is?

Yes. This is really -- Brent, this is kind of reflecting on the fact that we've now strung together 4 really, really good quarters and really see a very strong demand environment for our EX products in the field specifically. And so because we've also done really, really well on our efficiencies this year, where we beat our operating kind of margin goals and consistently every quarter said, hey, part of it's timing, we're going to reinvest. But just keeping, we actually, at the beginning of this quarter, did release spend specific to building pipe for EX in the field because the market opportunity is there. And we're still beating our goals, but we actually decided to release that spend for the year. It's more onetime just for Q4, not repeated. That's why we also kind of give the linearity for operating margins for next year as well.

And I'm sorry, where does that go? Into reps, marketing? Like what's the...

Yes. It's -- majority of it is marketing, and it's really pipe and demand gen efforts.

Okay. I got some good ideas. We'll talk later about the campaign. It has to do with Rogers. Freddie Fresh. The -- and just for Dennis, when you talk about that 25% growth above $100,000, it seems like the referenceability is building really well. Like what do you -- what are kind of the next milestones? It's been going well. It seems like it's headed in the right direction. But what are the next kind of hurdle that you'd like to see cross where you're like, okay, we're clearly on a continued trajectory and not that you aren't. It's just like what's the next stop, if you will?

Yes. Look, I think we've got a really good sweet spot in customers ranging from 5,000 to 20,000 employees. That's where there's a ton of business out there that's looking for a solution that is enterprise grade, that is faster time to value that's got AI built in. And we're going to continue focusing there.

I think in terms of where we're headed, we talked in the Analyst Day about continuing to drive our EX business in the low to mid-20s in terms of growth. You saw a slight tick up in growth on a constant currency basis this quarter. We're going to keep pressing these larger and larger deals every single quarter. For us, the attach rate for D42, that's an important metric that we look at, how many of our larger deals are including Device42.

We have a big milestone coming up in Q1 where we expect to release Device42 on cloud. Once we do that, we'll be able to tap into another segment of the market that doesn't want to go on-prem with any solution. They want everything to be in cloud. It will also make it easier for us to upsell our existing customers into Device42 as a product. That's going to be another accelerant to growth.

So we've got a lot of positive, I would say, momentum and positive accelerants to that business. And Tyler was just talking about the demand gen investment we're making in Q4, that's all going into the EX business and into AI, but that really is a huge driver for us as well. So I think EX has a lot of kind of positive momentum behind it, and we're just going to keep leaning into it every single quarter.

[Operator Instructions] Our next question will be coming from Brian Peterson of Raymond James.

This is Jonathan McCary on for Brian. So I wanted to ask on some of the AI deployments in your customer base. Can you talk about the appetite for that and how that may differ between the SMB and then the more mid-market and enterprise customers? I'm curious specifically if you're seeing that it's more important piece of the conversation in certain parts of the customer base or SMBs versus enterprises are moving from pilots to kind of forward deployments quickly. Just I'd be curious how that differs across the different customer sizes.

Yes. So as we look at our AI paid footprint, it's actually pretty even across SMB, mid-market and enterprise. We've seen traction across all 3. And different companies are in different stages of understanding AI and adopting. In terms of products, the product that clearly is leading for us has been Copilot. That's the product that for us is both most mature functionally. And if you think from a customer standpoint, that's the first port of call where you still have a human in the loop, they still have some control. So they feel more comfortable going there first. But what we've seen in the last couple of months is really an uptick in AI agent. And we think with the launch of our Agentic capabilities in CX in particular, that's really going to take off, and we're going to lean into it heavily. That, plus the fact that we're going to monetize at a much higher rate than we have before, we've been, I would say, quite underpriced relative to the market when it comes to our AI agent capabilities. That, we think, is going to create a big opportunity for us going into next year.

So I think overall, the customers, there's not one vertical. There's not -- it's not an SMB or mid-market enterprise issue. It's relatively even across CX and EX in terms of the monetization opportunities today. And we just think every one of our customers over time is going to need the AI that we offer. We're a little over 5,000 customers that are paying for AI now. That's just going to continue to grow. It's a core part of how we're selling now.

Very helpful. And then maybe one for Tyler here. It's good to see the continued strength in EX, the slight acceleration there. Just hoping, can you unpack the growth a bit in terms of what's trending, how NRR is trending there versus net new and kind of where you think that should head longer term as you look to continue the low 20s growth profile?

Yes. I mean we're growing across all segments of the business, right? We talked about how ITSM core is strong, but also ESM that we gave out the number of over $35 million now. Device42, we've talked about as well, and then the Copilot components within there. If you look at how that's going to trend, you asked about NRR, our EX products have always had strong NRR. Device42 is a little bit of a drag because of the stuff we inherited when we made that acquisition. But we also said, hey, we expect that to actually start coming up. And we've also said that EX has kind of always had enterprise-grade net dollar retention numbers -- I'm sorry, churn numbers, which is single -- high single digits. And that continues, and it's just a very, very strong product.

And our next question will be coming from Rob Oliver of Baird.

Dennis, I wanted to go back to the ITSM win rates that you called out, I think the best in 2 years, and that's also coming, I think, as you've really pivoted the business up towards that mid-market or upper end of mid-market. And just wanted to get a sense from you for kind of what the biggest key differentiators have been there in terms of repositioning for that opportunity? And then as you look at kind of your pipeline today, how you feel about the pipeline as it sets up relative to the competition and kind of what's winning when you go head-to-head with some potentially bigger players at the low end of their stack? And then I had a quick follow-up question.

Yes, sure. So look, what we've built over the last couple of years is a complete enterprise-grade solution for -- that helps an IT department drive their operations, power their operations and deliver great employee service. And that's what we're selling. That's what's working in the marketplace. So enterprise-grade product that has the kind of security and extensibility that you'd expect and that can work in a large account, the kind of extensibility outside of core ITSM. That's why Device42 is super important for us. Typically, buyers are looking for their ITSM and their asset management solution all in one. That's what we provide now. The functionality outside of IT, that's also something that everybody looks for when they're making these decisions.

2 years ago, 2.5 years ago, the product wasn't there. So a lot of this momentum has happened relatively recently. A lot of customers are looking for choice in that market. There hasn't been a lot of choice. The largest provider is very focused on the biggest customers in the market or the biggest companies in the market. And that leaves a lot of room for us to compete in that kind of lower end of enterprise, upper end of mid-market.

Think of New Balance with 5,000 or 6,000 employees or Seagate with 20,000 employees or we had a customer this time through Flowserve was about 20,000 employees. These are sophisticated customers. They've got sophisticated IT departments, but they're looking for something that's more modern, more flexible, enterprise-grade AI built in, and that's what we have.

So I think we're just going to continue to invest in our capabilities and functionality there. We've got our customer advisory board next week. We've got 40 customers coming in, and we're going to hear from them on what -- share our road map, talk about what can we do to move faster to solve more of their needs. We got a lot of ideas last year at our cab that we put into practice and launched an innovation that has delivered and that has helped us continue to move upmarket.

And then at the same time, the whole go-to-market side of things has matured as well. That's why we're confident in investing more in Q4 in demand gen because we have a much better sense for how investment in demand gen connects to actual return. And we feel if we do that now, we'll just get a head start on Q1 because we've got a really good pipeline going into the last quarter.

In terms of the pipeline, I would say that when we look at -- when I looked at pipeline, let's say, 18 months ago, a $100,000 deal was a big deal and we made a big deal about it. Now we have tons of $100,000 deals. That's not an unusual deal anymore. The bigger deals are $0.5 million lands. And the other thing is that we would be invited into those $0.5 million RFPs 2 years ago, and we would often lose. And we'd win the $100,000 deal or the $30,000 deal, we lose the $500,000 deal. This last quarter, I don't -- I can't recall a deal over $200,000 were involved with that. Now it may have happened, but nothing that I was involved in was a loss. So I think we're just getting better at competing and winning for those larger deals and the capability is there, the functionality is there. All that's a winning combination for us.

Great. That's really helpful. And then, Tyler, I apologize if you touched on this at all, but that net revenue retention number is kind of really stabilized in that kind of 104% to 105% range on a constant currency basis for the last 3 quarters, and you guys are getting some market momentum. I realize trailing indicator, but how you think about that kind of leveling off and potentially starting to improve and what kind of visibility you have into that?

Yes. We're pleased with the progress we've made there, both on the expansion products we've introduced, and we think ESM is going to be a new land, but then have a much bigger expansion opportunity once we start landing with that if we can bring in Freshservice, but obviously, with Device42 and others and on what we've been doing on churn. We've been talking about churn for a year now, how we've just been getting a little bit better incrementally, and that's not something that moves really quickly.

We guided to essentially the same amount for Q4, which is stable. And obviously, at the end of the year, based on what we learned this quarter in terms of expansion in the pipe, we'll guide for next year. But yes, I feel like it's heading in the right direction. And then we've been talking about this as the mix shift of our business continues to move more towards EX, and that is the majority of our business now, the attributes of that business are much better, and we will get a tailwind from that at some point.

And this concludes today's conference call. You may disconnect.

[Presentation]

All right. Can you hear me? Oh, great. Good morning, everyone. As you can see, today, we're all about how Freshworks uncomplicates. It's great to see so many of you in person, and I'd also like to thank everyone joining us via the live webcast. I'm Brian Lan, Director of Investor Relations here at Freshworks. And on behalf of the entire leadership team, it's my pleasure to welcome you to Freshworks Investor Day 2025.

We have a full agenda lined up. But before we dive in, let me quickly cover a few housekeeping items. Okay. First is our all-important disclaimer slides, the highlight of the show here. Over the course of the presentation today, we will make some forward-looking statements. And as a reminder, actual results may materially differ from expectations. You can find the associated risks and disclosures, along with the reconciliation of our GAAP and non-GAAP results in the presentation, which will be made available on our Investor Relations website at ir.freshworks.com and in our public SEC filings.

Okay. With that out of the way, here is today's agenda. Dennis, our CEO and President, will kick us off to discuss our company's vision for durable growth driven by AI and uncomplicated solutions. He will then walk us through our product innovation and strategy in EX, AI and CX. Our Chief Product Officer, Srini, will also showcase demos of our products in action. We'll take a quick 10-minute break, and then Ian, our Chief of Global Field Operations, will go through our go-to-market strategy. Afterwards, you'll hear directly from our customers in a panel hosted by our Chief Customer and Marketing Officer, Mika. We'll wrap up the prepared section with Tyler, our COO and CFO, who will provide the financial overview and updates. Finally, we will conclude the day with Q&A with our speakers, followed by a network lunch.

So lots of exciting stuff to get through. So with that, let me welcome our CEO and President, Dennis Woodside.

All right. Welcome, everybody. Welcome, everybody in the room. Thank you to our investors for supporting us and our analysts for covering us. We've got an exciting day today. So it's been 2 years since our last Investor Day. And in that time, we've accomplished a lot. We're going to talk a lot about that.

Three years ago, I joined Freshworks as President because I saw a clear path for driving durable growth. We had these amazing products. We had these amazing customers. We were addressing the needs of thousands of customers around the world in customer support and in IT. And I saw a real opportunity to expand on what the company had built and deliver more meaningful value for our customers.

Now what I've observed is that for decades, customers have been forced to choose between really lightweight tools that just don't scale with their business as they grow and heavyweight platforms that bury IT and customer support teams. The complexity, the high cost, we heard these from prospects. We heard this from customers. And despite the arrival of GenAI, too many business software vendors are repeating that same playbook, right? You hear about the months that it takes to implement AI now, ROI that's not happening, pricing that's very opaque.

At Freshworks, we take a very different path, and you're going to hear about that throughout the morning. We build enterprise-grade products that are easy to use and easy to deploy and to scale, software that delivers measurable value in weeks, not months or years. So our vision has never been clearer. We are poised to be the uncomplicated AI native service platform for organizations who are looking for easy-to-use software to deliver exceptional customer and employee experiences. That's what we do.

Today, over 74,000 companies have chosen us over much larger competitors like ServiceNow and Zendesk and Salesforce to remove complexity from their business, drive efficiency and drive growth. Businesses like TaylorMade Golf have chosen Freshworks over our competition because we offer enterprise-grade alternatives that are easy to use and get value from.

Now our customer base today is highly diverse. It includes Fortune 500 companies like Panasonic, who you'll hear from today, and S&P Global. Some of the largest media and entertainment companies, including AMC Networks. High-tech leaders like Seagate and Databricks and RingCentral, and you'll hear from RingCentral today as well. Leading universities like the University of Pennsylvania, the University of Aberdeen, UCLA. And more than 1,000 government entities from local municipalities like the city of Bellevue in Washington, to California's Franchise Tax Board. All of these organizations trust Freshworks today.

Now many of you have been following our journey since our IPO in 2021, but some of you in the room and some of you virtually are newer to our story. So I just want to give a quick primer of our products and our business before looking forward. So we compete in two large, growing and adjacent markets, each at different stages of maturity in our business. We compete in IT and employee service, and we call that employee experience or EX, you'll hear the term EX referred to throughout the day.

The second is customer service, and we call that customer experience as well. So in employee experience, Freshservice is our AI-powered platform for managing IT and employee services, IT assets and operations. In customer experience, Freshdesk is our modern AI-powered customer service solution that streamlines these operations for support. And of course, at Freshworks, we've been building AI into our products since 2018. With the rise of GenAI, we brought offerings to market like Freddy AI Copilot for frontline teams, Freddy Insights for managers and Freddy AI Agents for autonomous customer and employee support. So that's our portfolio today.

Now in the last 2 years, we've delivered on the commitments that we made at the last Investor Day. Our first commitment was to scale the business with an innovative portfolio. We've made significant progress on product innovation, especially in AI, and we're going to show you that today. Second, we said we put the company on a path to durable growth. We've shown compelling growth momentum, going from about $560 million in recurring revenue then, 2 years ago, to around $840 million in recurring revenue as of the last quarter. We reached the Rule of 40 milestone ahead of schedule, achieving Rule of 45 in our most recent quarter.

The third commitment was around AI monetization. We've built a $20 million recurring revenue AI business from the ground up. AI monetization doubled in the last year. The fourth commitment we made was to expand the market by continuing to move upmarket and serving larger and larger customers. We have truly evolved from being seen primarily at our IPO as an SMB-focused SaaS provider to one that's recognized as a leading mid-market and enterprise SaaS company successfully competing against much larger competitors.

Okay. Finally, strategic M&A and the use of capital. We said we would leverage M&A to grow faster, and we did that with the acquisition of Device42. We successfully completed that acquisition in June of '24, and we fully integrated them into our sales motion into our offering. So in the 2 years since we last did our Investor Day, our business has evolved significantly. Today, the majority of our revenue is driven by mid-market and enterprise customers, and that mix continues to shift upward. These larger customers represent high-value relationships, multiproduct adoption and offer a very long runway for growth.

Now we're starting to see this flywheel of mid-market and enterprise customers switching from and choosing us over legacy providers like ServiceNow. You see that in our numbers, 25% growth in revenue across the segment of customers who spend more than $100,000 on this. That's both for EX and for CX. Deals that are more than $100,000 now make up 1/3 of our revenue.

Today, we have 70 customers that spend more than $0.5 million with us, and we have a dozen that spend more than $1 million. So we're truly moving upmarket rapidly. Okay, across all our products, all segments, we win and expand because we offer a unified experience that enables customers to consolidate fractured tech stacks. Our products are uncomplicated, they're easy to use, they're easy to train on, they're easy to maintain. Talk to any customer, that's one of the first things they'll say.

We create much faster time to value than our competition. We don't require scores of consultants to get to value. That's super important. Some of our customers come from solutions that require 5, 10 people just to keep them up and running. As a result, the total cost of ownership of our solutions can be a fraction of that of our competition. And we've proven that we can innovate more rapidly than many of our competitors, and you're going to see those innovations today.

Now this isn't just me talking. This is some of the things that our customers say, you'll hear these things throughout the day. But what I want you to do is hear from the customers directly. So let's play the video.

[Presentation]

All right. Great. So we'll hear more from customers throughout the day. We have a couple more videos. We've got some customers coming up on stage. But I think that's a good taste of what we work with, the kind of businesses that we work with every day and the value that we're delivering.

Okay. My last point before I talk about where we're going really is about the team. We have the best team to lead Freshworks through the next chapter of growth. Each of these leaders, some of which you'll see today in action, has helped us deliver on our commitments over the last couple of years. They've also assembled world-class teams in their function. They are proven executives from some of the world's most respected software companies like Google, Oracle, ServiceNow, SAP. And they've all successfully scaled businesses through critical growth phases and bring deep functional expertise to Freshworks.

But what really sets them apart is their commitment to competing and winning. And we are in a competitive market. We compete every day for every customer that we win. They've built their careers at companies that have had to compete. They've defined categories, disrupted markets, and they've delivered results. Now they're bringing that same energy, that same competitive fire to Freshworks. Very proud to have this team here. All right. Now if there's only a few things that I want people to take away today, here's what they are. The first is that we're positioned to win in an $80 billion market by continuing to move upmarket. We have the products right now to do that.

The second is our EX business, in particular, can sustain 20% growth for years, and we're going to show you how we can do that. The third is that AI is driving measurable monetization right now. We're not playing games with how we report the numbers, and it's going to be a catalyst to growth in both EX and CX for years to come. The fourth is that we're going to continue to be disciplined about how we allocate cash to support our growth. And the last, which Tyler will get into, is that we're on track to achieve over $1.3 billion in recurring revenue by 2028 with best-in-class cash flow and operating margins.

Now we're going to talk about how we're going to get there. Okay. I'm going to talk about the market opportunity and what we call our growth algorithm first, and then we're going to go through the three major product areas, EX, AI and CX. All right. The total addressable market for -- where we compete for EX and CX software is estimated by Gartner to be about $80 billion. It's a huge market.

Now we are positioned to serve the mid-market and the lower end of enterprise in particular, better than anybody out there. That market is huge. In the U.S. alone, the mid-market and what we call the lower end of enterprise accounts for more than $10 trillion of economic activity. And every one of those businesses needs to automate their customer support operations and their IT operations. Software in that sector is not optional. So these businesses are in a unique position. They've got unique challenges. They've got the same sophisticated demands as a Fortune 100 company.

They're typically global businesses. They face the same complexity, the same customer expectations as much larger companies, but they typically don't have the resources, and they don't want to spend the money to manage software. They're looking for something that's enterprise-grade without the enterprise complexity, and that's fast time to value and overall lower total cost. And that segment is where we're winning. They're already turning to us. So this is where we win. This is where our growth is going to continue to accelerate. Now this is how we think about growth going forward. We think about a growth algorithm with three components.

The first is building on our core products, which is Freshservice and Freshdesk, to increase market share. This is all about strengthening those flagship offerings, maturing them into unified full suite platforms to deliver on the needs of larger and larger customers. In EX, that means we're going to continue to build deeper integrations, we're going to offer vertical solutions. We're already seeing success in verticals like education. We're going to deepen our enterprise capabilities there. In CX, that means offering more advanced ticketing capabilities and continuing to rapidly innovate on the core Freshdesk platform.

Okay. The second element to the growth algorithm is scaling our add-on products, and this is very important. By add-on products, I mean ESM, IT Asset Management and Freddy AI. Each of these three products has product market fit today. It's core to our selling motion. It's core to our upsell motion. And each of them today has over $20 million in recurring revenue, some much more than $20 million. Importantly, each product has a path to $100 million in recurring revenue within the next 3 years. AI, much more than that. And each product is a natural add-on to a Freshservice or a Freshdesk deployment. It fills the need that nearly all of our customers have today.

The third component of the algorithm is expanding into new adjacencies, finding the next business that can get to $20 million and eventually get to $100 million. We're going to place strategic bets that become the scale businesses of tomorrow. There are several adjacent product areas that customers regularly ask us to help them with. These are areas like AIOps, workforce engagement and SecOps. They are natural extensions of the product that we've already built. Now some of these products we can build ourselves. Others, we may look to acquire.

Now customers are looking to us to provide this capability because they want a single platform that they can support their -- that they can run their support and IT teams on, and they trust us. Okay. Now that you've seen where we're going, I'm going to -- we're going to take a deeper look into each product category. And to help me do that, Srini Raghavan is going to come up in a second to show you the product. I'm going to explain what we're doing in each of the three areas, and then Srini will show. So a little show and tell or tell and show.

All right. So we're going to start with EX. So our multiproduct EX portfolio includes Device42, Freshservice for Business Teams, which is our ESM product, and more than 300 integrations. We create scalable workflows across departments in IT, HR, finance, facilities and many more. And these products are enterprise-grade, they're positioned to serve the needs of enterprise customers. As companies modernize their IT departments, Freshservice is becoming deeply embedded in how they run their company. That's very important. So Freshservice today, it's much more than an IT help desk tool.

It's a platform for managing work across the entire department. And these are some of the needs that we fill with Freshservice. So we've built over the last couple of years, deep capabilities that larger organizations need to manage complex IT operations. And these are companies like Sophos Software and Nucor Steel and Seagate. They're leaders in their field, they're scaling fast, they're demanding. AI is deeply embedded today in these workflows. AI is core to what Freshservice does, and you'll see that in the demos. And the results have been wins for customers, more efficient agents, happier employees and lower costs, some of the data points are on the slide here.

So at this point, Freshservice truly is mission-critical for our customers. Now the investments we've made to improve the Freshservice product over the last 2 years have paid off. Our EX portfolio now accounts for $450 million in recurring revenue. And we're winning larger and larger customers, over a 30% increase in Freshservice customers with more than $100,000 in annual revenue. Our customers are using our product at scale. We saw a 50% growth in tickets created in the last year. That just shows you that the product is important. It's getting used, and we are moving upmarket, which you see in the ARPA figure.

More importantly, customers are seeing value. They're improving the productivity of their service teams, they're unlocking growth, right? They're driving sustained bottom line savings. These are just some of our customers with some of the results that they've seen, and they've reported back to us. Very proud of what we've been able to deliver. And you can see here, these organizations are organizations you've heard of, they're leading in their fields. And what we're doing for them is critical to their success.

Let me just share two examples real quick. Okay. The first is Databricks. Databricks, super innovative AI company. They can work with any software provider in the world. They chose us. They unified nine departments on a single ITSM platform with Freshservice. And the product did so well for them in IT that they've expanded outside of IT to power multiple departments in their service needs as well. You see some of the results that they've driven, but super proud to have them as a customer.

Another example is Coherent. And again, think about where we came from. We came from a place of -- when the company was started, we were an SMB company. Coherent has 30,000 employees worldwide. They're also a beneficiary of AI. They're a global leader in networking manufacturing. They transitioned all of their IT workflows off of competing products, including ServiceNow, to Freshservice in under 4 months. Let's hear directly from that customer.

[Presentation]

All right. So that's a great example of a customer where we landed with IT with Freshservice. We saw an opportunity to help them with onboarding and offboarding, super important workflow for them. IT is very much involved in that. They're talking to us about facilities as well, and they're working with us on AI. So good example of how we're going to grow the business and that growth algorithm network.

Let me ask Srini to come up and show you the products. Srini?

Thank you, Dennis, and good morning to everybody. So there're three key takeaways. I'm going to do demos of all three areas that Dennis talked about in his first section for EX, AI and CX. And I'm going to do that in the form of the personas that we serve, which is #1 is IT, #2 is HR, and #3 is support.

And I want you to take away three things. From all the demos that I do, there are three takeaways. #1 is what Dennis mentioned earlier, which is we deliver uncomplicated solutions, which is, from a product perspective, the way it manifests itself for the two flagship products that we have, Freshservice and Freshdesk, is Freshservice provides a single pane of glass for our IT and the HR personas. Freshdesk provides a single pane of glass to the support customers. What that leads to is the uncomplication, which then leads to faster implementation cycles that Dennis mentioned, faster time to value. And finally, it leads to total cost of ownership being lower.

So #1 key takeaway is uncomplicated solutions. #2 is it helps the customer outcomes. The customer outcomes is what you heard from Big Bus Tours, which is it helps them innovate, automate and make the operations go faster. That's the second key takeaway. Third one is sort of an easter egg. How many of you here have seen the movie Click? It's an Adam Sandler movie. Okay. We're going to provide the click button. We provide the click button to our personas to make it go faster and find needles in the haystack. So those are the key takeaways. So I was told that some of you may not pay as much attention to demos, but there is an easter egg because I'm going to do a pop quiz.

You all are going to ask questions to me later and others, so I'm going to do a pop quiz on the demos, right after demos. Okay. All right. So to get this going, I'm going to introduce a fictitious customer, ModeMax. It's Mode Max, but it's really ModeMax is how it's spelt. ModeMax is a leading global retailer which is headquartered in Chicago, Illinois. They have an online business, and they have physical stores. They have about 80-plus stores. And their business, they have thousands of customers across the world and thousands of employees across the world.

So what this results in is a large and scaled IT operations to support their technology needs, scale HR operations because they have a lot of employees around the world. And its support operations because there's a lot of customer requests that they get, okay? So this is a complex customer with complex needs. And what I'm going to show you is why ModeMax chose Freshworks to achieve the outcomes that I mentioned, to simplify, automate and innovate their operations across IT, HR and support, including our core solutions, Freshdesk and Freshservice, and our Agentic AI solutions.

All right. Let's start with IT. Some of you are from larger companies, and you guys all use various types of devices. There's a lot of IT operation that goes on. So this customer -- IT needs to support third-party software, customer support software, sales software, homegrown software, and they have to support various collaboration tools. So it is a very complex endeavor for a customer like ModeMax because they have global locations, et cetera. They have to manage devices, things go down, things go up. So it is a very complex operation.

All right. The CIO. I'm going to introduce the personas as I go along. The IT, the #1 persona that we serve is CIO, okay? The CIO has faster and better -- the mandate that they have is providing faster and better employee experience. #2 is to modernize their IT operations with AI. And finally, doing this security and compliance are top of mind. Any questions on IT? We actually have an IT expert in this audience. Our COO and CFO, Tyler, runs our IT. So any questions on IT, you should direct them towards Tyler.

Okay. All right. Now let me talk about the first demo. What you're going to see here today is first one is Freshservice. As Dennis mentioned, it's a unified product with embedded IT service management, ITSM, IT operations management and IT asset management. These are the three things. And IT asset management is powered by Device42, it's natively integrated with Freshservice.

So as I said, first key takeaway, unified experience, everything is within Freshservice, and Freddy AI is part of it. Freddy AI, as Dennis mentioned earlier, has three components. Component #1 is Copilot, which is helping the agents to be more effective. #2 is Insights, which helps the leader find the needle in the haystack. And finally, it's the AI Agent, which helps automate their operations.

What you're about to see is -- for ModeMax, they have a lot of -- as I said, they have 80-plus stores around the world and e-commerce operations. Their point of sales system has gone down. Think holiday season, think a retailer point-of-sale solution goes down. Well, that's chaos because they are losing revenue. And you will see how they recover from this failure really fast using the capabilities of Freshservice. #1, it's -- you will see how they find the needle in the haystack, why did the system go down. Pop quiz for you as you watch the demo, I'll ask the question, what was the root cause of why the system went down. So be prepared to answer that.

Our product AI Insights surfaces the -- surfaces why it went down. And #2 is our Freshservice, think of it as the command center. Freshservice is the IT command center. It sort of showcases everything and it helps orchestrate between the service desk, the NOC, network operations center, how everybody swarms together to find the problem and solve the problem. And finally, what you're about to see is Copilot helping the service desk agents to be way more effective and productive, okay? So those are the three things that you're going to see. So without further ado, let's watch the demo.

[Presentation]

So every time I watch this video, it's like this happy woman that comes at the end, she's really happy after shopping, right? Most people are. So pop quiz, what was the root cause for why the system went down? Sorry?

POS.

Yes. Exactly. POS issue, the database was down because the firmware upgrade happened, and the database went down. That's like the root cause of why the issue happened, and they were able to find the needle in the haystack. AI Insights showed this, and then there were -- and Device42 showed exactly, pinpointed out what happened. And finally, they were able to resolve the issue. And then they created a document, let's say, yes, okay, this is why it went down so that it can be used as a reference for the future, okay? So that is the power of uncomplicated solution within single pane of glass.

Okay. So Freshworks is sort of transforming the IT with this unified IT part solution. What are the outcomes that we deliver? As I said, there are three personas within IT that get value from the solution. #1 is CIOs and the IT leaders. It's integrated with multiple third-party enterprise systems, which Dennis talked about is we're continuing to expand the [indiscernible] with enterprise systems so that there is a single pane of glass. #2 is service teams. They have a single pane of glass. Any agent in IT, they can access the information from a single pane of glass within Freshservice, and Freddy Copilot helps them be more effective.

IT agents come and go. And when the new person comes in, they can access information instantly through Copilot, helps them, hey, this kind of ticket was solved in the past. So here's a similar ticket so they can resolve issues faster. And finally, the most important constituent is probably all the people in the room and the employees that work in the companies, right? You want instant service, and a higher employee satisfaction is what it does. Those are the three outcomes that we drive for our customers.

Okay, that was IT. Now let's go to my favorite persona, HR, because JJ is sitting there, our Head of HR. And we'll show you how we solve Freshservice for Business Teams solves HR issues. The ModeMax HR team, as I said, it's a global company, has people in many locations. That includes their corporate employees, and it includes their retail store employees. And employees move from one location to another. They move -- people come, people go, there's a lot of activities that happen. Onboarding, offboarding, parental leave, PTO. Like this is -- JJ will tell you that this is a big help, right? And HR needs to coordinate between legal, IT, facilities. There's a lot of coordination that happens.

The process as it stands right now at ModeMax is sort of -- it's error prone, it's very slow. And there's a lot of discrepancies that happen. So this is where Freshservice for Business Teams comes in. What we call as -- what Dennis referred to in his presentation as Enterprise Service Management, ESM. It's embedded with Freddy AI, the capabilities of Freddy AI described earlier. What you're about to see is how ESM Journeys' capability. It's a core capability called Journeys.

We introduced this in June of this year. How that integrates with the third-party system, Workday. Most of the HR information usually sits in Workday. It integrates with Workday, and it automates the employee needs such as onboarding, offboarding, training. And it orchestrates between the multiple departments that I mentioned, right? So now without further ado, let's see this in action. The Easter egg here -- sorry, hold on, but don't play the video. The Easter egg here is I want you to answer what is the language that was translated. Let's do it.

[Presentation]

All right. I'm going to skip the question; it looks like we're running a little bit over. So let's keep going for the three key takeaways. Like I said, similar to IT, the ESM product serves three different personas. Freshservice for Business Teams serves three personas. #1 is HR leader, which is a person like J.J. It helps -- Freshservice Journeys is used by the HR team to automate their processes, and it's integrated with the enterprise systems, so it automates their workflows.

#2 is for the service teams. There's a lot of agents that serve the end customers when they have questions. So Freddy Copilot helps them, and Freddy AI Agent helps answer questions. So higher agent productivity. And finally, for the employees, it's seamless access. And there are so many questions that people have. And today, they just send e-mails, they submit tickets in portal, et cetera. So it helps employees get faster service. So those are the key benefits that the personas get.

Okay. It was not just ModeMax that's getting these benefits. There's a lot of brands that you see here, some of which Dennis talked about, customers such as Coherent and you -- retail giants such as Carrefour, AMEX Global Business Travel, Smartsheet whom you heard from earlier and probably TaylorMade Golf, they all get -- they all are using Freshworks services.

And you're going to hear from RingCentral. Actually, the [indiscernible] before I joined Freshworks. I was at RingCentral before this. And you're going to hear from Vineet Sachdev, the Head of IT, on how RingCentral is using this. All right. With that, I think this is the show me the money part, like the Jerry Maguire. Dennis is going to talk about the growth trajectory.

Great. Thanks, Srini. Okay. So how are we going to sustain growth of Freshservice over the next several years? So I'm going to talk about -- just about the catalyst for sustaining 20% plus growth through EX. And I'm going to do it through the lens of that growth algorithm that I talked about earlier.

The first is and you saw that in the demos. We are going to continue to infuse AI across our core IT and service operations workflows. We see a lot of opportunities to enhance the value of the product, solve more problems using AI. We're also going to expand with vertical offerings with a focus on education, health care and government. Those three segments, we're making tremendous progress in now. In all three, we've got literally over 1,000 customers each. And we see the opportunity to make the product smarter, make the product more integrated into those environments. And we're going to continue to invest in and build advanced integrations and advanced capabilities into the core Freshservice product, ITSM and IT operations management.

The second is our add-on products. We're going to continue to scale our IT asset management product and Device42. You heard a lot about Enterprise Service Management, Freshservice for Business Teams and then AI, all three are breakout businesses within Freshservice. Now within the next several months, we're going to launch a cloud-native IT asset management product based on Device42. We're also going to launch a stand-alone ESM product. Today, you need a Freshservice instance in order to buy ESM, but lots of customers come to us and they say, I want to start outside of IT and eventually, we'll move into IT. So that will open up new growth avenues for us. And we're going to continue to accelerate Freddy AI adoption with more and more capability in Copilot and then with deeper Agentic capabilities as well.

Okay. The third are adjacencies in areas that are attractive to us where customers are asking us to offer more. One is AIOps, another is SecOps. There are several other spaces that -- we see the opportunity to expand our product, they're natural add-ons to what we do. These can be expansions through partnership, organic and inorganic growth. So you'll see more there over the course of the next couple of years.

All right. Let's turn to AI. All right. So today, we have more than 5,000 paying customers that are actively using Freddy AI to drive efficiency, productivity and innovation. Now our AI monetization isn't just growing at scale, it's doubling. Like I said earlier, we doubled our recurring revenue. The $20 million doubled over the last year, and we don't see that slowing down. Now that represents direct monetization of AI Agent and of Copilot. AI Agent, we monetize on the CX side, we included in the enterprise package for EX. And then Copilot, we will monetize in both EX and in CX. As you saw in the demos, we have other AI capabilities that are embedded across the products as well, but those are not included in that $20 million figure. And that early traction, coupled with our very large customer base, signals to us that we've got a very long runway ahead to monetize AI.

Now we continue to build on the rich feature set across our suite of AI products. In June, we launched many new AI innovations for both EX and CX at our semi-annual Refresh event. And our customers are already seeing value from these. And I think this is one of the points that we make is fast time to value. We have 1 customer, a major sports retailer in Europe that implemented AI Agents, and 2 weeks after implementing, they already were seeing 44% of their agent conversations being handled and resolved through GenAI. Compare that to some of our competitors, where implementation of AI can take a very long time. We're going to continue this rapid pace of innovation, and you're going to see more innovation at the next Refresh event, which is going to be held here in San Francisco in November. Welcome to come to that.

Now across -- importantly, across all of our AI products, we're seeing strong adoption. We've doubled the number of paying customers in the last year, and usage is also strong. We're seeing about 40 million monthly ticket assists by Copilot. Millions of AI agent conversations are being handled since we GA-ed that product just in February. And the most important metric is the impact that those products have on our customers' businesses. And you see some of the examples here. They're seeing significant improvements in response times and in ticket deflection rates.

And just two examples, and then we'll show you the product in action. One, you saw in the opening video, a company called Big Bus Tours, they're the world's largest open top site-seeing operator. They turned their -- and the -- our customer didn't say this in the video, but they turned their customer service center from a cost center to a profit center. They freed up their agents' time, and those agents turned from service activity to selling. So when a customer calls in with a question, it's an opportunity to upsell them into another tour or a higher paid product. Revenue directly created now from the service department exceeds the total cost of running it, and that's because of Freddy AI.

That's the kind of story that we can enable with AI. And that customer support is going to work going forward. Another example is ClickFunnels. So ClickFunnels migrated 21 million records seamlessly onto Freshdesk, no downtime, minimal disruption, very fast. And then with Freddy AI Agent, they saw faster resolution times while improving the actual -- their customer satisfaction score. And that's not uncommon either.

All right. So now I'm going to ask Srini to come up, and we're going to take a look at the product in action.

Thank you, Dennis. So before we see the product in action, I'm going to touch on a couple of things on AI. This AI field has evolved significantly, as all of you know. And I've been doing this for 6 years. I was at Five9 before this running the AI product portfolio there. Menu-driven chatbots have been there for a while, for like 15 years. Problem with menu-driven chatbots was the deflections was low. Then we had NLP-driven bots, which were answering questions. The challenge with NLP was the implementation cycles were very longer. Then we had LLM-driven Q&A, which was -- this is a post ChatGPT movement where a lot of the questions were answered, implementation cycles got shorter, but Q&A was the main thing.

And we had our products in each of these areas. We had our chatbots. We had our AI Self Service, then we introduced AI Agents last year. Now we're in the Agentic AI era with actions, which is what we introduced this past June at our Refresh event. We are seeing much higher deflection rates with actions because now customers can not only get answers, but they can take action. Think of actions as in any system where you cannot just get order details from a third-party system or cancel your orders, change the address, like that.

So we have evolved Freddy AI to be the AI -- to be the Agentic AI platform. What does this mean? What it means is three key things. #1, you have domain-specific AI agents. Back to the theme of uncomplicated and having a unified platform you can have a single platform, which is the AI Agent Studio, where you have out-of-the-box AI agents for verticals and functions, verticals, such as e-commerce, functions such as IT and HR. And #2 is the Agentic workflows are enabled with actions, which is they can reason, AI agents can now reason, orchestrate and act, just like humans can. So AI agents have become a lot more powerful. And they can do it across different channels, such as WhatsApp, Microsoft Teams, Slack, WebChat, et cetera.

So here's an example of the type of actions that these AI agents can take for different industries. So take, for example, e-commerce. As I said, you can -- think of your favorite experience when you go to your e-commerce website, you want to cancel an order, or you want to expedite an order. I want to change the address, like these types of things, they can do it by connecting with third-party systems, like order management systems, like Shopify or shipping systems such as Ship-Right (sic) [ Shiprocket ], et cetera. And you're going to see that in action shortly. Or in case of an HR, instead of a human answering these complex questions, based on standard operating procedures, they can take actions in their system of record, such as Workday, okay? The possibilities are just endless.

Back to our favorite customer, ModeMax. The third persona that I'm going to touch on is support. As Dennis mentioned in his two customer examples that he gave, ClickFunnels and Big Bus Tours. Similar to that, ModeMax has a sprawling e-commerce business. And how they are using Agentic AI to automate their growing support needs. ModeMax, just like many customers out there, they have a mandate to implement AI and use AI. However, they're struggling. There are thousands of start-ups that claim to have AI solutions, but they're all point solutions. And then there are large software vendors where the implementation cycles are longer. Just to implement AI takes a long time, and to get value out of it takes even longer. Then they are concerned with increasing the throughput and service quality of their existing software and their people. And finally, they need to upskill their people in an AI-first world, okay?

So these are the challenges that they're grappling with. Okay. What you're about to see shortly is how the AI Agent Studio delivered the uncomplicated solution to ModeMax. And the way they're doing it is it doesn't take an IT person to implement AI. What you're going to see is a support supervisor who logs into the agent -- AI Agent Studio that we launched and creates a bot, and he can launch the bot as well, okay? So it's very simple, and it's integrated with third-party systems such as Shopify and shipping systems such as Ship-Right (sic) [ Shiprocket ].

So without further ado, let's see how.

[Presentation]

Looks like we are having a video challenge. Should we keep going? Sorry, we wait or keep going. All right, should we keep going. All right; we'll keep going. I think we'll come back and play this AI Agent Studio. Actually, we'll see a continuation of this in the CX because the CX section demo will actually show you how the bots are being used.

All right. So what is the benefit with that -- the three personas that I said? The three personas in this case that get benefits from AI are, one is the business leaders because the Agent Studio is integrated with other third-party systems like Workday, Shopify, Ship-Right (sic) [ Shiprocket ] et cetera. And they can launch agents out of the box. If you're an e-commerce company and you want order status, you can launch the e-commerce agent structure. You don't have to code a bunch of things. Service teams, they can use AI Agent Studio and figure out what are the things that I want to automate. There may be things that they actually want to reach a human being. So they may not want to automate that.

They will automate things that -- they can choose to automate what they want to automate. And AI Copilot is going to help the service agents to be more effective. And one of the examples that you saw was -- it helps me write summarization of tickets or it helps me find similar tickets, et cetera. So those types of things are -- is where Copilot helps, and it helps lower the service costs and improve the service quality. And finally, the customers and employees, they can get services in their channel of choice, whether it's Slack or Microsoft or Chat or WhatsApp, et cetera. So they will be much more happier, and you'll get much more faster services is what they get.

Okay. I think I'm going to -- okay, these are the brands, Big Bus Tours, you saw in Dennis' section, and Clopay, these are the CX customers. Coherent is an EX customer that's using our AI solutions, and there are many more customers. I think I'm going to pass it on to Dennis, unless we can play the video. Okay. It looks like it may be challenging.

Showing the video up here. Are we going to play the video or not? We're going to play the video.

[Presentation]

One point I want to make on that video is how easy it is to actually get up and running. And if you talk to customers who are working with or have in the past worked with some of our competitors, that's a huge challenge. It can take months to get the AI to actually work for them. And we have example after example of customers getting up and running fast with what we've built. That's a core part of our value proposition. You'll hear the term forward deployed engineers with some of our competitors. That means there's someone doing custom work just for you to get the AI to work. That's not how we think at all.

All right. So how are we going to make this into a big business? We are confident that our AI business will reach over $100 million of recurring revenue in the next 3 years. Today, we have more than 5,000 paying customers for Freddy. We've got a customer base of more than 74,000. We believe that every one of those customers is going to need what we've shown is going to need AI both for their agents and for their customers. And both AI and AI Agent have multiple levers to make them each $100 million businesses on their own. That's how big this opportunity is.

Copilot can be a $100 million product just by driving penetration within our existing base. Remember, we -- Copilot is $29 additional per seat per month for both CX and EX, and we're very early in the penetration of that product across our customer base. AI Agent can become a $100 million product on its own as we increase adoption, we increase the capabilities, we increase the Agentic capabilities to take more and more actions on behalf of our customers. That creates huge savings for our customers, and we can build a big business on that. So AI, we're very bullish on. We're excited about where it's going. We're excited about the early traction. We just got to keep executing.

One important point, our AI revenue is real revenue. It's reflective of real traction with our customers. We're very transparent about the financial metrics. You'll see other companies that play some games and do fund allocation strategies to try to attribute revenue to AI that might be from -- really from other products or they're including acquisition revenue or just making very vague statements. We're very clear. This is directly paid revenue for our Copilot SKU and for our agents.

Okay. The last component to our product strategy is customer experience. Now over the last year, we've refocused the CX product and go-to-market efforts on our core Freshdesk product. We've consolidated our product portfolio around a unified Freshdesk solution, which is going to allow us to scale faster. We've also applied AI across the whole product set. AI is sparking a resurgence in growth in Freshdesk. We saw growth tick up slightly in the last quarter, particularly among mid-market accounts.

Now Freshdesk started as an SMB-focused product. We're making the product and go-to-market investments to bring that product to the enterprise too over time, and we're seeing results right now. So today, over half of our largest accounts are both Freshdesk and Freshservice customers. Customers are expanding from CX to EX and vice versa. An example of that is a company called Momentum Software. They decided to replace ServiceNow with Freshservice. And after they had a really good experience in IT, they decided to use Freshdesk for their CX environment.

So the opportunity going forward is to bring Freshdesk more aggressively to that mid-market and enterprise customer. We've seen that work with a Freshservice business, and it's going to work for Freshdesk. Freshdesk is delivering results for our customers right now. These are just a few examples of customers who have seen higher CSAT scores, they've seen better operating metrics, lower costs, overall happy customers after implementing Freshdesk. And you can see a range of size of companies, NAVBLUE, which I believe is a division of Airbus. Bridgestone Tire, Decathlon, all these are bigger companies, you have small companies in there as well.

Now one example is Satair Group. Satair is also a division of Airbus, they've achieved a 40% faster ticket handling time after going to Freshdesk, which is a significant increase in efficiency. They handle mission-critical aerospace logistics. So if you're Lufthansa Airlines, you need a part for your Airbus, you work through Satair to work the logistics out and make sure the part gets to the plane as fast as possible. Freshdesk ensured or enabled them to unify their global operations, give them visibility into requests around the world and deliver for their customers.

Okay. With that, let me ask Srini to come up one last time to show you the product in action.

Thank you, Dennis. So back to our favorite customer, ModeMax. So what you saw so far are three demos where Freshservice product -- for the first two, IT and HR personas where Freshservice infused with AI was used. What you saw in the demo in the AI section was the support persona. And we actually have a support persona person in the room. Mika, who's our Chief Customer and Support Officer, their team internally uses Freshdesk and AI Agents as well. And in the support, I'm going to show you Freshdesk Omni product infused with AI. That is the single product, single platform that we are using.

So ModeMax CX teams. This chart should be the same as what you saw in IT, except the channels here, the complication that ModeMax faces is they're getting these customer support issues from their web, from e-mail, from phone, from WhatsApp, et cetera. So they have to grapple with all these channels, and they need to serve all these customers. And the information in these multiple systems, it's in their support systems, CRMs. There's many, many systems that they need to grapple with.

Similar to CIO that we saw in IT, in CX, the mandates that the CX leader has are to deliver seamless omnichannel support. That is the #1 thing. Because you may start in web and then you go to e-mail, then you go to chat, like the context should be maintained. So the omnichannel support is important. And a single -- from an agent perspective, omnichannel support is important because the agent needs to maintain context to talk to these different channels.

And second is the volumes. Service volumes continually keep growing up. And the business can't keep up with it. And the challenge there is you have people who are frustrated and just hang up and they just don't do reach out and they churn. And then there is services attrition. The services attrition is real. A 1/3 of the employees who work in the customer support churn every 6 months or so. So you're literally having a new employee base every 6 months. And these people take time to come up to speed, and that's the challenge that they need to tackle. These are the challenges.

So what you saw in the previous demo that we showed in AI was the support supervisor created an AI agent in our AI Agent Studio. What you're about to see here is what ModeMax has done is they have taken the chatbot, and they have actually personalized it. Internally, they call it AskMax. AskMax is a branded AI agent. It's integrated with Freshdesk Omni, which is their platform that they use for omnichannel support. You will see not only how that AI agent helps with chat conversations but also e-mails. There are billions of e-mails that flow through our system. And you will see how the e-mail AI agent is able to answer questions, chat agent is able to answer the questions.

And everything is within the Freshdesk Omni platform. And invariably, there will be questions that will be come to the human agents. You will see how the Copilot is going to help the service agents dissolve the issues faster. Because this is the last section, I'm actually going to bring back my pop quiz. I want you to answer which language is the agent automatically translating. Agent doesn't speak the language, but he gets the question from a different language than the one he speaks. But Copilot helps solve the problem. So I want to ask the question at the end of this demo.

[Presentation]

So what was the language that was translated? Anybody paid attention? Yes. Whoever said that you're going to get an iPhone Air. It's in the back. I'm just kidding.

Okay. All right. So let's recap. So what you just saw was what is the agent command center, Freshdesk Omni as an agent command center, where AI is helping the users, the end users to get timely support because you have the AI Agent Studio integrated with Freshdesk Omni, and it's helping the end users. And it's also helping the humans to get -- to deliver service faster, which is the agents. And it's transformed the complete customer support operations because you have operations across the world, some agents may speak the language. In this case, the customer was French, and the agent was not speaking French, but they can still respond. So it's making the agent experience much more easier and employee experience much more -- much better, okay?

So three personas, just like how we had in IT and HR. In CX, there are three personas that we sell. #1 is the CX and ops leaders. For them, it's an omnichannel CX platform, back to what we started with, what Dennis said, a unified platform, a single pane of glass is what the leaders get. Second is for the service teams, we have a unified service desk where they can access all the omnichannel conversations in a single place and they have access to the AI Agent Studio, which as they see, I'm getting these repeat questions, I'm going to launch an agent for it so that I don't get these repeat questions often. And finally, for the customers, they can get their answers through multiple channels like e-mail and chat, et cetera. So it's -- then you build deep customer loyalty. So these are the three benefits that our customers get from using our solution.

And it's not just ModeMax. A lot of other customers that you already saw, for example, you saw Panasonic, who you're going to hear later today. And Frasers Group, which is an e-commerce company, Bridgestone Tires, Solidaris, et cetera. And probably the financial analyst's favorite, GameStop. Everybody knows why GameStop is a favorite for financial analysts. Okay. So lots of customers that are getting benefit.

I think with that, I'm going to transition to Dennis. Thank you.

Thanks, Srini. Okay. As with EX, I'm going to run through the growth algorithm for CX. As with EX, we're focused on hardening our product for the demands of enterprise customers. And that means building ticketing depth, expanding into multimodal experiences, things like text, voice and beyond, all in one unified workspace. The second element to growing the CX business really is to scale into add-on products. We see a lot of opportunities to add capabilities into CX today. Over the next year, we're going to launch hundreds of AI-enabled workflows.

In CX, that's going to enable actions as Srini showed like returning orders or changing flights without human intervention. And those are monetized based on consumption. And we plan to offer voice AI agents as well, which will be tightly integrated with Freshdesk. The third are opportunities to expand in markets that are adjacent to CX. We can do this organically through acquisition or through partnership areas that we're exploring include CCaaS, workforce engagement, field service management. There are many opportunities in spaces directly next to what we provide today.

Okay. To step back, for the company, let me just summarize our growth strategy. So our growth strategy is to mature our core products with deeper capabilities to continue to win share in the mid-market and in that lower end of enterprise, to scale our investments in add-on products with demonstrated product market fit, and then to make a handful of strategic bets to expand into new adjacencies over the next couple of years. Freshworks is truly built for this moment. We are and we will continue to be the uncomplicated service platform. We've got the right strategy. We've got the right team. We've got the right products to capture a massive and growing opportunity.

Now after we come back from a short break, you're going to hear more from the leaders who are turning that vision into reality. So let's take a break. I think we're back in 10 minutes. All right. Thank you.

[Break]

All right. Great. We're about to kick off the second part of today's agenda. Up next, Ian, our Chief of Global Field Operations, will walk us through how we are scaling our go-to-market strategy worldwide. Following that, we'll welcome two of our amazing customers for a moderated panel discussion hosted by Mika, our Chief Customer and Marketing Officer. So let's get started, and I'll hand it off to Ian.

Good morning, everybody. I hope you enjoyed a nice cup of coffee or maybe even a cup of tea, which is also very welcome. Hey, look, thanks so much for taking the time today. One of the things I wanted to do before I start running through our go-to-market strategy is to really talk about one of the things I do a lot, which is talk to prospects, talk to customers, talk to our partners and understand where the market is, what's working, what's resonating and where the challenges are. And there's a couple of points that continually come up. Some of these won't be a surprise. They want to reduce the complexity. They want to drive efficiency. They want to use technology to deliver a better service. They want to have better agent efficiency.

But there's one that's increasingly being said more and more, relationship. They want a relationship with the people who are providing these solutions and these offerings, so they feel like it's a true partnership. They want to feel that we're there to help them so we can help guide them and use our experience of our collective knowledge to be able to deliver the experience they require and to test and challenge some of their thesis. And it's one of those trends I think we're going to continue to see, how does the vendor engage with the customer and how do we engage with the prospects and how do we talk to the partners to drive the resolutions we require.

So if we have a look at Freshworks, we've broken into three areas for the go-to-market strategy. We have the field sales motion, our inside sales motion and our partner ecosystem. As Dennis mentioned, we're growing our field sales motion within region, very focused and targeted environment. The inside sales motion is a massively scalable and effective operational unit for us as well. Our partner ecosystem continues to give us the depth and breadth and subject matter expertise in those areas where we require help or support, or we just haven't yet targeted as a direct contact point. The partners continually deliver for us.

If we have a look at the go-to-market from a -- where do we have people in region, where are people actually sitting for us? You can see on the map here, there's one region, EMEA, Europe, I remember those days, particularly dear to my heart. North America continues to be our largest environment, continuing to deliver and to grow, and we continue to put a thoughtful expansion into those regions where we see it's appropriate for the market and for the demand and for our customer base. The rest of the areas, we work with our partners. That's the point of the partner ecosystem, so they can engage with us and help us deliver a more effective global reach and deliver to the customers that we serve.

So let's talk about our customers that we serve. And again, as we mentioned earlier on, we're super excited at the traction and the momentum that we're seeing in this mid-market and upper market environment for us. It really is exciting, not only for me as the revenue leader, but also for the team who are engaging with the customers, who are having the conversations. And if you look at the names that are up on this slide, it's just a small subset of the accounts we work with. And what I can say is when I'm talking to prospects, particularly, there's one thing that's increasingly becoming obvious. They're disenfranchised with their legacy provider. They don't feel they have that partnership. They don't feel like they have that relationship.

They don't feel like -- it's a combining of two thought processes to drive a better execution level. That's what my team are really good at. They are really good at building that relationship and execution. And if you hear from the customers later on, hopefully, that will come out and you'll see that we really are embedded into what they're achieving and how they're trying to drive their goals. The byproduct of that is that we're winning more deals. We're winning larger deals. And we're also expanding those and continually working with the customer on their needs and their opportunities. So I'm going to take you through a journey. Now this is just one journey.

Our sales motion has multiple journeys, but this is one of a classic motion that we go through. And this is where we land and then we look at working with the partner and the customer and how do we then continue to grow. So this is a multibillion-dollar U.S. credit union. It's got 600 employees. It's a nice environment for us. And we land, and we have IT agent optimization. Why? Well, pretty common that there's legacy tools in place that may not be effective, may not be delivering. Sometimes, actually, they don't even have tools, and we're just replacing spreadsheets and e-mail and just all the legacy environments that you have.

So we can get in and we can talk and then we can work with the customer. And the key is then how quickly can you get up and running. Not just selling them the solution, but how quickly can you actually get them active. Because that helps on the return of investment and helps on the total cost of ownership, but it also helps because we deliver value quickly. And that's then where we have the opportunity to expand our footprint. Now when we expand the footprint, it could be one of two things. It could be the fact that there's more agents because the customer is growing, so they just need more people by default, so they have more agents.

Or it could be there are other departments see that we're working, and they want to involve themselves inside the offering as well. But it gives us an opportunity to continue that relationship and continue the conversations. And then typically, we do see expansion outside of the core IT, hence, ESM stand-alone. It's one of the greatest tractions points we have. It gives us the ability to talk to all of our existing customers about a new offering, a new solution, a new capability. And many a time, you'll find that they are excited and they're coming to us requesting because they love the experience that they have with the Freshworks team.

As we continue the journey, more things pop up. A new priority comes in, could be asset management. It could be Enterprise Service Management. It could be the adoption of AI. And one of the things that we see is that agent addition and adoption of AI go hand-in-hand. Many organizations are using our AI technology to make the agent more efficient, to give them a better working environment, to give them a better ramping if they're new, just to help them grow and develop inside the organization and give them access to new technologies and capabilities.

And then mergers and acquisitions. Very classic. Or it could be cross departmental. This is a journey that we see our ability to not only just land a customer and build that relationship, but to continue to grow that customer and to continue to look at the total cost of -- sorry, the total ownership across the entire time. It's essential for us. The only way we can do this is by having the relationship. The relationship is key. The technology is super important, and the delivery and the execution have to go hand in hand. So that's the field sales motion, very in front of people talking and meeting.

In our SMB motion, it's slightly different. This is an engine built for volume and velocity. And this enables us to serve over 58,000 customers with remarkable efficiency. It is highly efficient. It's targeted and scalable. And as a go-to-market motion, it's one that you can see we continue to grow. The growth is great. The conversion is great. But the AI adoption in our SMB market space is also fascinating because it shows that irrespective of been mid-market, enterprise or SMB, the need for AI is ubiquitous across all those regions and all those segments. And it gives us the ability to continue to grow agent count whilst helping be more efficient with our AI technologies.

I'll give you an example iPostal1. So this is a virtual mailbox provider with 3,000-plus locations. Pandemic hit, and they grew rapidly. And the change that they had was they had a lot of legacy tools and a lot of legacy applications. They had to optimize. They had to find a different way to serve this newfound customer base. So they had to act at speed, and they had to act at scale. And they had to ensure also that the brand was consistent in the delivery of the support because it's so essential to engage with organizations.

So they started with Freshsales, Freshservice, Freshdesk, and built an environment out that enabled them to deliver the results that you can see on the screen, a 50% deflection rate, enabling their agents to be more effective on the more complex, more hard to resolve environment. And also to build that brand relationship with the people that you engage with. So it gave them the opportunity to really then grow and expand their footprint. And then other teams, other departments also engaged because they saw the value of the relationship and how it brings value to both parties. It's a great example of how you can continue to look at legacy systems, optimize and deliver strong results.

Now we couldn't do this without our partner ecosystem. Our partner ecosystem is super important to us. As you see on the map, we do have opportunities for areas where we don't have current physical presence. The partners are a great force multiplier for us. They're a fantastic growth engine for us. They're fantastic at delivering bespoke subject matter expertise, local experience, be it in language or be it in technology or be it in a particular use case that they have. This is a motion we're embracing across all segments. So it's across SMB, mid-market and enterprise. We have a rapidly expanding partner base. And as you can see, there's a great breadth of portfolio of the partners we have, ranging from someone like Gorilla Services, who do phenomenal work for us in the European organization, to Unisys, to CDW.

When we look at CDW, this partnership has been going for just over a year, great relationship with them as an organization. They really do cover all of the market segments that we're interested in as well. They have access to people we don't have access to because their client base is so wide and varied. That's a win-win for both of us. But they have a need to be able to have a solution that can deliver an uncomplicated environment for their customer base because their customer base is saying the same thing. The complexity is hurting. The complexity is stifling them, and it's not enabling them to deliver. This is where companies like CDW and the rest of our partners bring this value-added service to help people through that journey, and we're delighted to be on that journey with them.

So to summarize, we have three motions. The field sales where we're really investing in the people and the time. I am so proud of my field sales organization and the way that they're building their relationships with their customers. It enables us just to continually grow that. We are bringing in additional talent. The talent we have coming in the organization is so exciting, layering it on top of the current employees we've got who are absolutely maximizing the potential, it is such a great time for us as an organization.

The inside sales team that continues just to deliver. They continue to look at all of the ways they can generate opportunities and drive success, and that is so just overwhelmingly fun to work with, to be honest with you. The reach is phenomenal. And the growth multiplier is the partner ecosystem. That's where we're really going to focus our time. We're going to continue to work with our partnerships. The growth is there inside the base. We now have to continue to help them, onboard them, develop and then go to market and build this market out as much as Freshworks can see the potential for that.

With that, I appreciate your time. Thank you very much. So thank you. So it gives me great pleasure to welcome Mika to the stage, who is going to talk to a couple of our customers. Mika?

Good morning. Thank you for being here. You've heard thematically through all [indiscernible] is to make it uncomplicated for organizations of all sizes around the world to offer delightful experiences to their customers and their employees and accelerate that delight and business results through AI. And so we're going to be joined today with two customers who represent the employee and customer experiences. And they're going to share with us the tangible benefits that they're seeing with AI.

So we're going to be joined by Michelle Esgar, who is the Head of Marketing and Customer Experience at Panasonic, a customer -- consumer electronics division. And we are also going to be joined by Vineet Sachdev, who is the Head of IT at RingCentral. So please join me in welcoming them on stage.

Thank you for being here. So we're going to get to know you a little bit, just to understand your companies, and we'll start with you, Michelle. Can you just tell us a bit about yourself, your role, some of the business challenges and opportunities that you're facing?

Sure, sure. So for a very, very long time, Panasonic Consumer Electronics was a sales company in the United States. And so our job was essentially to move boxes from Japan into the retailer. Obviously, the environment has changed dramatically. And so now we are learning how to become a brand, how to build our own relationships with customers and how to customize that experience for each individual category of business that we have.

Awesome. How do you measure success? I mean, what if the President of your organization say, Michelle, you've got to nail these measures of success?

Yes. Yes. And I think that it's very telling that I'm running both our marketing and our post-purchase experience. Because what used to have been, let's say, an SLA for the support side would have been time to resolution. Now what we're really looking at is building loyalty with those customers. It's return visits to the website. It's engagement in our e-mails.

Awesome. Vineet, now over to you. At RingCentral, what adventures are you up to at RingCentral in terms of opportunities, challenges? And how do you -- how does your leadership team hold you accountable in terms of measures of success?

First of all, thank you for having me. Good morning, everyone. My name is Vineet, and I am the Head of IT at RingCentral. And my mission is to fundamentally transform IT with the power of AI. And a bit about RingCentral, we empower businesses to collaborate via a phone conversation, video meetings, SMS and extract conversational intelligence via AI.

So talking about in the context of Freshworks, one of the main challenges started in the world of pandemic, when overnight, we had to transform the company and move thousands of employees to remote locations. And the key to success or how I'm measured against that is general employee experience and can I significantly decrease the manual workloads that my IT organization had to do.

Got you. Minor detail, no problem. So Vineet, we'll start with you in terms of the next question, and that is why Freshworks, why did you pick Freshworks? And how do we -- if you think of what you're accountable to deliver, how do we help you succeed in that area?

So we started this journey in 2019, just around the pandemic time. And we had a legacy system, and Ian mentioned that, and I had a chuckle thinking about that. It was quite clunky and had massive amount of customization. And we were looking for a vendor that truly delivers a product, not a platform and ask me to develop the product. And I think that was the big decision factor for us that I can take something and deploy at mass scale in the matter of weeks and start seeing the results.

Excellent. And so Michelle, I mean, why Freshworks? As we -- as you think about the challenges you face, why did you pick Freshworks?

Yes. When I walked in the room here yesterday and I saw uncomplicates everywhere, that resonated really deeply because we have what I thought was a very simple problem in terms of our data, which was just a multi-multi relationship. So in other words, we have thousands of SKUs, and each one relates to a lot of different questions, and then you have thousands of questions, and each one relates to multiple SKUs. And there was not a solution provider out there that could help me do that in a simple way. And Fresh could, to some extent, do it natively but more importantly, had a really, really flexible API so that I could build out into what we needed to do with our data in an easy way.

And so how has it helped you with the success metrics that you're held accountable to?

Well, I mean, we started integrating AI chatbots very early with Fresh, and they're already handling 80% of our chat interactions. So immediately, that's a big win. And it's not even about the efficiency there. It's really about the time that it's opening for my team and my resources to then go that extra mile and stop using support in a defensive way and start using support more on offense as an opportunity to connect with customers.

So we'll continue this conversation about AI. We'll go to you, Vineet, and talk about as you think about AI, how is your attitude towards adopting AI evolved over this last year? I think we've observed that it's one of the most -- the acceleration in terms of going from pilot to production has actually definitely been something unprecedented. So how have you thought about AI in terms of using it? And how has it helped you in terms of efficiencies and again meet your business goals?

What a profound transformation we all are observing right now in the industry, way larger than the mobile first and the SaaS-first and everything else we have seen in our lives. See -- listen, in the last 12 to 18 months, we have come a long way from experimentation to this is the only way forward. And I'm not viewing AI as, hey, how I can extract 20% more efficiency or productivity for my employees. AI has given me an opportunity to fundamentally rethink every business process we have, whether it touches GTM, customer support, innovation or finance. And that opportunity has never existed. So I'm living, breathing, eating AI day in and day out and reimagining every aspect of employee experience.

And so how is Freshworks from an AI standpoint helps you with this?

Listen, we have already deployed Freddy, and we have seen a significant improvement in the agent productivity. So thank you, your amazing product team. But that is just the beginning. There is so much more we can do by joining hands. When you have a like-minded vendor, you can -- being from a reactive IT organization to truly proactive and become a business partner to our business because IT classically has been in a ticket taking mode. You tell me what you want me to deliver, and I'll deliver for you. This is the first time I have an opportunity where I can be proactive and be a business partner.

Excellent. So Michelle, for you, you mentioned AI a second ago. If you could go into a little more about how your attitude has shifted and Panasonic's attitude has shifted towards AI and how Freshworks has helped you with that?

So I don't know how up to date everybody is on what Panasonic has been up to lately. We are shooting this on Panasonic cameras. So I do appreciate that. But we're not like the -- just kind of the TV company anymore. That's the reality. Each line of business that we have, we have very, very unique kind of a customer. So for example, Lumix, which is our high-end camera line, that is a customer that by no means whatsoever wants to call us, right? They want to go on a forum, and they want to have a 2-way conversation with other users.

They kind of don't want to talk to us at all, whereas -- and I'm going to throw a shocking number out here, but we still sell $35 million worth of landline phones every year. So cordless landline phones. And that customer is an aging demographic. And the -- 90% of what they call us about is already in the manual. But to be fair, the manual is in like size 4 font, and I can barely read it. So they certainly can't. And a lot of times, they just want to talk to somebody. And so when I think about AI and what it used to be, okay, how do we just sort of get the scale down to a place where we can handle it. Now it's getting really exciting, like Vineet said.

It's -- there're unlimited possibilities to how I'm going to be able to uniquely serve each of these customers and really give them like an incredible, like a delightful experience. I mean, we know that if a customer buys a product from us and everything goes well and they're happy with the product, there's about 78% likely to recommend us to a friend. If a customer has a product, that product breaks and they call us and they have a phenomenal experience with us, they're actually 82% likely to recommend us. So that support experience, it's probably the #1 opportunity for us to engage with customers in a one-on-one way and really build something loyal. And so that's where AI gets exciting.

Excellent. And so if you think about this and you think ahead and you think of all that you've gone through, I think all you've gone through even just over the last year, Ian had mentioned that one of our key areas that we want to focus on a lot as a company is on our product and innovation, but also on the relationship we established with you. So how has your relationship with us evolved as your needs have evolved? So how has Freshworks helped you support your business needs as you've evolved?

So this is actually really interesting. When we first signed up for Fresh, I sort of feel like we snuck in the back door. Like we had conversations, and we had account conversations, but I think who we were -- we had originally just sort of however we reached the sales didn't necessarily understand Panasonic is Panasonic, like the scale of our business. And so we just had a normal like I think the way that you would onboard like a really small customer. And then somebody, I guess, looked through and, oh my God. Panasonic is working with us. And then from that point on, it was just outstanding.

I mean we -- never mind the customization, but we did the partnership lead program. And they came for a couple of days with our team, really mapped out our vision, customized that for us. I mean, where we landed on our vision was actually like a Japanese concept of customer experience that resonated so well with the rest of my exec team. So I think that the entire team was so impressed with the way that Fresh started to like to build this relationship. So we maybe started not traditionally how you would expect, but we ended in a very good place.

Most excellent. How about you, Vineet? How has our relationship evolved in terms of Freshworks and RingCentral as your needs have evolved?

Listen, when you are running an IT organization of a $2.5 billion company, you have a lot of vendors in your portfolio. We do a lot of buys and build type of strategy. And you always value a vendor who is like-minded, and they are thinking about the endgame, as you are. So having that alignment, having that flexibility that I can pick up the phone, I can reach out to the organization and where the -- I'm not being just being sold the next thing, that's priceless. And we have that incredible relationship.

And because of that, we -- the journey that started just as an ITSM for IT organization, we have expanded that to the entire company, whether it is procurement or HR or sales operations. We have not only expanded the footprint, but we have also expanded how we have integrated this platform across all of enterprise applications. So it has evolved into a truly enterprise orchestration platform for me. And that's where it stands out from all other relationships I have.

Extraordinary. Just last night, we were talking about how we could even go even further to expand that, so we're excited about that. So we're going to think into the future now, and I'll start with you, Vineet, is, if you think in the future and you could pave the path and forecast the future, which we all wish we could do, I'm sure, how do you see and how would you like Freshworks to participate? I mean, what do you see the biggest need from us that you'd like to see from us to be able to make you successful?

Excellent questions. So listen, when again, I'm going to go back when you're running an IT organization and you have a complex, complex needs -- before I started this job, trust me, I had long lustrous hair here and now I have none left. That's what the complexity of the job does. I want to join hands with Freshworks. And I want to double down on Agentic AI and move away from this concept that, hey, I'm giving you an AI agent that is going to make your life 20% better. It is not about how I can increase the efficiency and productivity of an agent.

I want the AI to become truly autonomous, where we start detecting proactively where the problem is and not wait for somebody to report it to me. So again, my -- if I have forward-looking vision, I will say, let's double down on Agentic AI. And Agentic AI just isn't generative AI, it is where agents are truly taking actions proactively.

Awesome. Well, we look forward to that with you. Michelle, you've got your magic wand, your crystal ball. If you look into the future, how do you want us to be able to participate in that future?

I mean, I definitely think like Vineet said, that word proactive is really key. Panasonic, the consumer business is actually a very small piece of the portfolio in North America. We have so many different solution-oriented businesses that we work in. Obviously, we are all circling around AI and how we use AI. And so where I see Freshworks kind of growing in this partnership is helping us to predict what's going to come next.

What does Panasonic need to be doing and how can we support each other and create new solutions and new pathways and new ways of serving that no one's even -- it's not on anyone's radar right now. Because there's little obvious things. We know that AI needs to read our manuals for us, so we don't need to manually write content. We know we're going to want an avatar that can interact with you realistically and help you with your camera. But I have no idea what's going to be after that. And I think that's a place where Freshworks can really step in, and we can kind of hold hands together.

Awesome. We look forward to that as well. Thank you very much for being here. Let's give them a round applause for being here. Thank you so much. Thank you for the time. So with that, we are going to have our last speaker, saving the best for last, and that is Tyler, our CFO and COO is going to come up and give us some remarks. Let's welcome Tyler.

Vineet, Michelle, thank you for being here. And also, thank you for your partnership and telling your story a little bit. Mika, that was a great kind of Q&A. Just -- I think it's a representative of some of the journeys that we've gone through with our customers, and you're going to see that. Specifically, Michelle's point, right, on the engagement model and how it's evolved over time and how we engage with larger and larger companies now.

You heard from Dennis earlier today that we've made really good progress in the last 2 years since our last Investor Day, progress both on the top line. And we've painted out a lot of what our growth algorithm is today. And hopefully, you can see how we've gotten to where we are today, but also the opportunity set that's in front of us that we're really excited about. What we haven't spent as much time talking about is how we've been able to do that really, really efficiently. And at the same time, really thought about profitable growth, and that's where we talk about the Rule of 40.

The AI component, if you've seen our growth, we think, is going to come from our two main products, but AI is going to be integral to both of that. And when we talk about $20 million, Dennis is right. It's not any kind of allocation or games. These are actually the value of the SKUs that are being purchased from us. And yet the penetration rate that we have so far is what we view one of our other massive opportunities because the feedback that we're getting from our customers is that this is providing true value. So we have long ways to go.

Then lastly, just the evolution of where we are as a company. We're now -- 60% of our ARR is coming from that mid-market enterprise customer base. I want to spend the next few minutes double clicking into a couple of things, mainly #1, that growth algorithm that we've been talking about all day, how we've gotten here, but also what we think the opportunity set is. Second, that -- journey that we've made to profitability and also that path to GAAP profitability that we see right around the corner. And then lastly, I'm going to give an update to kind of our 3-year model going through 2028. We've already put up the number of the $1.3 billion in ARR and how we're going to get there, but I'll just do a double-click into that really quickly.

So first, it's about growth. And if you can see the CAGR since our IPO is over 20%. The last couple of years, this has really been anchored by the massive opportunity we have in EX. And we believe that this is a durable 20% growing product in a massive market. At the same time, we've got another really big product at scale at CX, and we've been making really, really good progress there. On the EX side, what we didn't talk about earlier is that as we've been continuing to innovate, we've been getting pulled into larger and larger deals and larger organizations. And that's representative in our ARPA increase. And just in the last year alone, we've got a 14% increase in ARPA.

On the CX side, we really are on the new business, we have been focused on the SMB kind of mid-market space, yet we're still seeing increased ARPA in that space as well. And both product lines have been doing really well. When I talk about getting pulled into larger and larger customers, this is all about the feature functionality that we continue to deliver. And then we have companies like Panasonic that you just heard coming to Freshworks and wanting to use Freshworks for their customer and employee service needs. As you can see, we now have 80% of our customer base on the EX side coming from that mid-market and enterprise customer and almost 50% from our CX side of the house.

What does this mean for the actual kind of makeup of our customer base? We put some of the stats out there earlier on one of the Dennis' slides, and we give the greater than $5,000 and the greater than $50,000 pretty much every single quarter now. When we look at it, the greater than $50,000 over the last 4 years has had a CAGR of 31%, right? And that's now over 50% of our customer base is paying us greater than -- ARR is paying us greater than $50,000. But what we've talked a little bit less about is the $100,000 and now we're giving out the $500,000 and $1 million customer base.

Where -- over 70 customers over $500,000, Ian mentioned this a little bit earlier. But he also gave you kind of a trajectory of a real customer. And that's actually pretty typical. Our kind of sweet spot of land in that kind of mid-market and enterprise space is around $100,000 to $300,000. We are seeing those $500,000 deals now, but the majority of the customers are evolving into that. What that means is that as we land and we can create an efficient machine here, we have the capacity to grow with our customers, and we're continuing to see that. That's reflected in the cohorts that we have.

So this is something that I think is really interesting as a CFO. And when I came 5 years ago, it was back to then because it continues to maintain. But every single annual cohort since 2012 is positive, meaning that the churn that we have, which we do have chunks we sell to the SMB, is being outweighed by the expansion. In fact, in the last couple of years, the cohorts are very healthy, and you can see that in this chart right here. When you think about, okay, how does this get reflected in net dollar retention. We are at 104 right now. And as a reminder, as we called out in our last call, that actually had about 2/3 of a point pressure from Device42 and the base of business that we inherited there. But we've been around that 104, 105 range now for about 1.5 years.

We believe through 2028, without doing anything really different, as the mix shift continues to shift to EX, if we keep EX at around 110 net dollar retention that it's at right now and we don't even make that much improvement on CX or it hovers -- not much improvement, any improvement on EX, it hovers right around $100, we're going to be at $106. We're not happy about $106, but we are actually building that into our model when we talk about the 1.3, that's what we put in. But we view that there's huge upside on top of that. And we've already painted out what some of those upsides are in our growth algorithm.

We've talked about, okay, we're going to get to $1 billion just based on our core EX and CX, but we actually think we have multiple products that could each be $100 million products, ESM, ITAM, and AI. In fact, we painted out how AI, we think could be each Copilot and Agent, each $100 million product, but we're only including $100 million in that growth algorithm. That's going to be our upside to our net dollar retention going forward. Again, as the mix shift continues where we are at, get to 65% as with normal growth rates right now, we're experiencing, that's what's going to happen in the next 3 years.

Now growth is our priority. We've been talking about growth kind of all morning long, and we've been digging into a growth algorithm by each product and kind of demonstrating, okay, how are we going to get to this $1.3 billion. But the reality is we've been focused on growth while also focus on a ton of efficiencies internally. In fact, every single group in the company is utilizing tools and systems to drive efficiencies in how we operate. And we've been able to drive a lot of efficiencies into our entire business model. In fact, in the first half of this year, we hit one of our kind of early milestones of what we talked about 2 years ago at Investor Day to get to 20% non-GAAP operating margin and over 25% free cash flow margin.

In fact, for the first half of the year, we're 23% and 27% for both of those things. We're going to continue to drive these efficiencies while we invest in growth. We've also said there's going to be a three-step process to profitability. The first step we've talked about is to get consistently free cash flow positive, which we've done. The second step is the consistent non-GAAP operating profit. And then the third is to get to GAAP profitability. Two years ago at our Investor Day, we said, hey, we plan to be GAAP profitable by the end of 2026. We are on track to still hit that goal by Q4 of next year to get to GAAP profitability.

And we're very proud of that, right? Because it's not just about the non-GAAP things that we're looking at. It's also about the impacts to whatever the GAAP numbers are. When you think about the major impact, it is about equity. We have been -- we think stock is a really important tool when we actually think about compensation, but we've actually been very, very prudent about how we've been using that over the last couple of years. And there's a couple of things we've been doing. #1 is natural, which is the amortization of our pre-IPO stock, which we've been talking about to investors as that filters through.

The second is the use of equity to really drive down stock-based compensation to what we think can be sustainably below 20% when we get to 2028. We've coupled that with two different things. One is the use of capital to do net settled repurchases, which we've been doing since we went public, which is really important, and it's a good use of capital. The second thing which we announced at the end of Q3 last year was our initial share buyback of $400 million. And I'm happy to announce that in August, we actually completed that $400 million buyback, buying back almost 10% of our outstanding shares at an average price of just over $14.

We're going to continue to look at uses of capital in this way, right? We've talked about M&A as something that we're going to continue to look at, and Device42 is the first one that we really did last year of any substance. We're going to look -- we're going to continue to do our net settles on RSUs. We're going to also continue to talk to our Board and management about future buybacks and things like that. We're able to do this because we've been driving profitability and efficiencies throughout the business, which has also allowed us to drive a lot of cash. We're very proud of the fact that we have turned it from burning capital a year after we went public to now, this year, going to be producing over $200 million in free cash flow.

And that's something we are proud of because we have a very efficient go-to-market motion. We have a predictable customer base, and it's a healthy customer base that has gotten healthier over time, and we've talked about how churn is reduced over time, but also just the quality of the customer base as we've moved up to that mid-market enterprise base has gotten better and better. This also is included in the amount of customers who are paying us annually in advance, which gives us cash before expense, which has allowed us to produce more cash ahead of non-GAAP operating profit. We now -- at the end of the quarter, we ended at $900 million.

And this is going to give us a lot of optionality as we go forward to execute against those things that I just mentioned from a capital allocation perspective. So when you couple growth and our free cash flow margin, the other thing that we're very proud of is that we've actually hit the goal on Rule of 40 an entire year before we said we were 2 years ago. So we said this was going to be a 2025 event 2 years ago, and we actually hit it at the end of last year. And we're not going to look back, right? You'll see coming forward, like the goal is to be 40-plus and that mix of growth and free cash flow margin to continue as we go forward.

This slide is up here. I just want to remind everyone; we're not making any updates to our projections that we just made at the end of the quarter about a month ago for Q3 and for the full year. But I can say we were very, very happy with our Q2 and Q1 performance, actually Q4 as well, and we've strung together three really great quarters. What that means for us is that we're actually feeling pretty good about where we sit across our peer set in SMID. But that's actually not where we really want to be. As you can see, we think the opportunity is growth, and we think the opportunity is all on the upside. So what can we do better across all of these metrics going forward?

Well, the first thing is starting with growth. right? We've talked about how we're going to hit $1.3 billion in ARR by 2028. And we said, okay, $1 billion of that is going to come from just our core products and the natural growth across those core products. And again, we view EX as a sustainable 20% grower for the foreseeable future. We also have multiple adjacencies that are already in place, whether it's ITAM, AI, across Copilot and Agentic or ESM. Dennis already mentioned that ESM right now is an attach for us. So we only sell it to Freshservice customers that are already buying Freshservice.

We're -- we've been talking about how we are going to be launching ESM as stand-alone SKU, which is going to open up a huge opportunity for us to go engage with customers, potential customers that could be customers of some of our competitors and allow us to get in there, prove our value and actually get us as an entry point into broader opportunities. When we get to 2028, this is what we think we're going to look like. We're going to be at that $1.3 billion. We're going to have 65% of our ARR coming from EX, and we're going to have 70% of our ARR actually coming from those mid-market enterprise customers. Now this is just the trajectory that we're already on.

This does not assume some big inflection point of things that are going to happen. This is just continuing to execute like we have been over the last couple of quarters in the last year and continuing on this trajectory. And I already painted out where the NDR is how it's going to get to $106. That $1.3 billion is going to translate to $1.2 billion of revenue for that year and also translate to roughly $340 million of free cash flow. When I said Rule of 40 is not where we're stopping. we want to be a Rule of 40 plus. This is what I was talking about, where by the end of 2028, our expectation at a 15% to 16% growth rate -- and I'll show you how that stacks up here in a second for 2028 and a 28% to 30% margin on free cash flow, how we get to a Rule of 45.

So how do we get there, right? And what is the evolution right now? So 2025 is the estimates that we provided on our last call and where we're going to be. Now I want to make a little indicator that the 15% growth, as a reminder, we purchased Device42 in the middle of 2024. So 2024 only includes half a year of revenue for Device42. So when you actually look at normalized growth without that half year is 12%. We already see a path of how to get to 13% to 14% next year on the trajectory that we're doing and based on what we've already closed for the first half of this year.

And then we are confident that we'll be able -- as mix shift changes and the EX becomes a bigger part of our business on how we're going to get the 14 to 15 and 15 to 16. At the same time, we are committed to profitable growth. Yet we are going to fund growth. And we view that we can actually drive those growth levers while also driving efficiencies across every single line item, but not dramatic efficiencies at this point. But that -- by doing that, we're already so efficient, that that's going to drive us to the 20% to 30% free cash flow margin as well as the GAAP net margin of 1% to 2% by the end of 2028.

We're posting all of this, right? So all this entire deck, I hear the clicks happening, and this is all going to be online. So let me summarize again. And Dennis already put this up here, right? We are focused on growth because we -- the reason we are is that we view we have the right to win in a very massive segment of the market, and that right is actually increased in every single quarter as we continue to innovate and we have customers continue to come to us for their service needs across EX and CX. EX has really been the backbone of our growth over the last couple of years, and we expect that to continue with a massive opportunity. And that, we view could be a 20% durable grower.

That being said, AI across EX and CX are very, very important. You saw all the things that we have actually are doing on the CX side. Yet the reality is we've been pretty prudent in how we built that into the model on how to get to $1.3 billion and pretty prudent on how we think about net dollar retention. We were going to let these things play out, but we're already seeing some of the progress there. Disciplined capital allocation is going to continue, right? We said we've been very open to M&A.

M&A with the way we've looked at it historically, are things that could accelerate road map items and adjacencies that just make sense for us and think about much more about tech and teams, and we're going to continue that, but we're also going to use our capital prudently and also return it back to shareholders if that makes sense as well. We're going to continue to look at that. We've already proven that we will do it. And lastly, we're on track to have a really, really good business model, $1.3 billion in ARR by the end of 2028 and to exceed Rule of 40. And you just saw Rule of 45, if everything plays out the way we think, you will hear. Okay.

There's a lot of data. I know I went through that relatively quickly, but we've been talking about growth all morning long. We've been talking about the growth algorithm, and this is the way we think internally. And we are excited about continuing to provide metrics, which we've been doing over the last couple of quarters that gives you guys all an idea of how we're making progress against the way we're running the business internally. What we're going to do right now is we're going to take a 10-minute break, okay? We're going to put some chairs up here, and then we're going to have about 45 minutes of Q&A before we break for lunch, okay? Again, thank you all for being here, both in person and online, and we're looking forward to your questions.

All right. Thank you so much, Tyler. Actually, we're doing really great on time. So after a break, we'll start Q&A a little bit early. We'll start at 11:00. So thank you.

[Break]

Thank you so much, everyone. Really appreciate it. Okay. So we have about 40 minutes for Q&A and then we'll wrap up little before noon for lunch. We do have a couple of mic runners here. So if you could raise your hands, we'll help direct. In order to get through as many questions as we can, well try to limit yourself to one question, if possible. Please also state your name and your firm clearly into the mic so that everyone on the webcast can hear before you ask your questions. So let's get started.

DJ Hynes from Canaccord. First, thanks for the event. Very concise, very comprehensive. So I appreciate that. I'm going to break the rules, Brian, right off the bat and ask two. Dennis, I'd love to hear you talk about AI monetization. And as you roll out more Agentic capabilities that kind of call to action, how are you thinking about consumption and pricing and kind of how that contributes to the growth matrix?

And then I'll ask the second one just right up front, Tyler, which will be directed at you. Just the acceleration in growth over the next couple of years, I think it's about 3 points of organic growth. You called out NRR improving by 2, which implies real durability in that kind of customer add portion of the growth metric. Just maybe talk about what gives you confidence in that?

So I'll start on AI. So our AI model today, I think if you were to roll the clock back a year, 18 months ago, there's still a lot of uncertainty in the market. What are buyers willing to pay? How is this market going to evolve? I think we have a lot more clarity now on how the pricing is evolving. So for us, our customers want to make their agents more productive. They want AI to do that, they're willing to pay. And because they see the value.

And so there, the model of a seat addition on top of our Pro or enterprise plan for CoPilot. That has traction. That's something that we're scaling quite well. We know how to sell it. And I see that as continuing to be a big driver of growth for us because ultimately, everybody is going to need the AI capabilities that we build. We're not sitting still with Copilot every month we released capability into Copilot that makes it more compelling.

[indiscernible] makes it just have greater value for the agent and for the customer. So I think that's a very clear path. And the customers like the predictability of that model and they like that they can budget for it.

On the AI agent front, we've priced that as a consumption-based model. Our customers buy packs of sessions. A session is an interaction over 24 hours with -- between one of their customers or employees. And the AI agent. As we build out Agentic workflows into that product, as we're able to do things like return an order, change of flight, complex actions we're going to price those appropriately.

So historically, we've priced pretty aggressively about $0.10 a session. As we go into GA with our Agentic product, that pricing is going to change. You have Salesforce has a sticker price of $2 a session or interaction, I think Intercom's at $0.95. So we'll find a price that's much more aligned with value and the value that's actually being created for the customer.

And that's where that hockey stick of growth can happen because you saw the volume of tickets that we get just in fresh service, and I think it's in the billions in Freshdesk. If we're handling a small portion of those through AI, and we're monetizing AI at $0.50 per session, that's a meaningful revenue stream for us. And again, customers are getting more comfortable with the idea that a portion of their value is variable and will evolve with consumption. They're used to paying for like consumption-oriented pricing to Databricks and AWS. So we've shown and we believe that the market is willing to take that path for the AI agent product.

And then for other elements of AI, we're just being smart about where we put them, what goes in the enterprise, kind of the Pro plan, where do we give customers a taste of AI that they then can sort of think, well, if I do make the upgrade, if I do go to the enterprise plan, I'm going to get even more value. So it's not just in those two areas that we're offering AI as you -- I think you saw in a lot of the demos.

Yes. So DJ, I'll take the second half of the question, which was really the confidence in the growth model and what we painted out there. So we spent a lot of time talking about how we're going to get to $1.3 billion, right, with $1 billion from our core products and then $300 million from -- $100 million each from these other products.

Net dollar retention is a component of it, but I also painted out for net dollar retention to go to 106% we actually -- it's just the current run rates that we're on. So it's going to be a mix shift change and assuming that we'll be able to maintain that roughly 110% were on, on EX and that CX will be hovering around 100%. And so it's actually not assuming any improvements there.

To get to the $1.3 billion, we clearly have to continue to execute on the EX side, but it really is our belief that this is a durable 20% grower. And also not assuming there's going to be some big inflection point to growth in that happening. So it really is about the mix shift of the EX becoming 75% of our kind of -- or 70% of our total ARR base.

To be honest, we've been probably a little bit conservative on the CX side, right? We view it's a massive opportunity there, but we obviously want to see this play out. We've already made considerable progress over the last year, but we want to have every single quarter kind of add on to itself.

And so based on the performance that we've even seen in the last three quarters, Q4, Q1 and Q2, which we've been very open, have been really good quarters for us. We already see a path to how to get there for next year. And we will obviously update as we go along, but we're pretty confident that we can do it.

Great. Maybe another one for Tyler. On the operating margin side, you talked about how you're not going to see...

I'm sorry, can you state your name?

Elizabeth Porter, Morgan Stanley. On the operating margin side, you noticed that you're going to continue to see efficiencies, but maybe just sort of more modest pace. And we've talked a lot about how AI is driving a ton of efficiencies for your customers. So I wanted to hear a little bit about how AI is driving efficiencies internally. When we could see that start to move the needle on operating margin? Or is it just a matter of, look, we're really pushing the investment on R&D and go to markets, maybe that doesn't quite show up?

Mika Yamamoto, why don't you take that?

Yes. So we're using AI across the board from marketing through to support. We're using first-party products as well as third-party products. And we've seen great efficiency gains. So for example, 50% reduction in cycle times with our engineers. So we can get more code done with the engineers that we have. If you look at website development, we're able to produce website -- new web pages in a matter of hours versus a matter of weeks.

From a sports organization standpoint, we're seeing 25% increase in productivity among our agents. We've been able to enjoy seeing that bringing on new agents. We're able to reduce the amount of time it takes them to get fully productive and ramped, move from six months to three months. And we expect, as we continue to invest in AI, that we'll expect to see those efficiencies increase.

So if you think about how we're redeploying assets, we're -- from a support standpoint, we're looking at -- we used to straight line essentially and say, look, we're straight-lining how many agents we need based on how many customers we anticipate we're going to grow by next year.

We're actually not growing from an OpEx standpoint as we're able to actually grow the OpEx for support at a decelerating rate compared to how we were straight lining before. And then still redeploy some of the savings into higher skilled employees to be able to handle more complex problems and, frankly, move it to upper -- the upper end of the market to offer premium support and support of our biggest customers, without adding on to our cost -- into our cost model.

So it's been incredibly efficient for us, and we've been able to, again, redeploy and still have bottom line savings, and we anticipate we'll continue to see that in the future.

I echo my sentiments on the day. Like DJ, one question, two parts, maybe. Scott Berg with Needham.

The question is on the enterprise kind of market side on the CX -- or excuse me, on the EX part of the business, -- when I look at all the information disclosures, to me, that's where most of the "risk" and in the numbers is in the next two or three years is -- but I guess my questions there are, one, is what else are you seeing from the demand on the sales side that gives you the confidence that Ex can continue to grow at 20-plus percent, which is predominantly in those areas.

And then secondly, your largest competitor upmarket there is talking a lot about agent-to-agent functionality over the last couple of weeks and a month in particular. It's kind of a product or functionality area that we're seeing some larger customers ask more about. I didn't hear any of that commentary on the product side today. So we'd love to hear how you're maybe trying to attack that a little.

I didn't hear the word that you said that was kind of the key to the second part of that?

Agent-to-agents.

Agent-to-agent. Okay. So on the enterprise side. So what gives us confidence that we can continue to move up market. I think if we just look at the pipeline that I look at and Ian and Mika look at every week, the deals that we close every week the size of those deals, the velocity of those deals. Two years ago, $100,000 were talking about this earlier, $100,000 deal for us that was kind of a big deal.

Now it's pretty routine. I mean -- and these are lands. And you see the logos that we're talking about. You don't you don't win a customer like Coherent or a customer like Seagate and Nucor steel. And in every one of those cases, you're replacing that competitor without having a product that is truly performing in a large sophisticated demanding environment.

So I see many, many, many more customers that look like Coherent that look like Seagate, and we're also seeing it in -- they're coming in chunks. So if you talk about legal services, for example, we have hundreds of law firms. And when I was talking to a CIO of a law firm recently, and you typically offer, well, you just talk to this, they already know, like we're the standard in the legal for law firms or large law firms like Covington & Burling and so forth. And that's happening. It's happening in education. You're seeing it in government.

Typically, these are organizations that are pressed for resources. They can't afford the [ Cadillac ], and they're looking for a product that is just faster time to value, everything that we said -- and that's what we built. So to me, the confidence comes from just seeing the trajectory over the course of the last, let's say, two years, and knowing that there's a lot more customers that look like the ones that we have that, over time, are going to make the decision to move away from a legacy platform on to us.

On the second agent-to-agent, look, I think there's a lot of noise out there about what the world is going to look like in five years. I think we've taken the deliberate approach of sharing with you what we're doing right now and what our customers are seeing right now, real value and where we're going in the near term.

So for us, the priority is very much broadening the -- our ability in Agentic. Launching a large set of Agentic-oriented workflows allow businesses regardless of the size to take actions that their customers and their employees are trying -- are currently using humans to take. That's the focus.

That's the real value over the next 12 months and maybe some -- in some distant future, there's an agent-to-agent world that matters. But right now, what our customers are asking us to do is take the workload off of their employees of common use cases, common actions that their customers and their employees want to take.

Matt VanVliet from Cantor. I guess on that topic, as we think about the deployment of Agentic and the monetization effort you've talked through already is straightforward and gaining traction. But over time, there has to be whether you want to call it cannibalization or kind of moving revenue from one pocket to another. So what's sort of built into the forecast of maybe the actual seat-based model is on somewhat of a flat or slow growth. The Agentic side really takes over.

How should we think about that mix shifting within your targets? And how do you prevent some of that kind of bottom of the bucket leaking out as you add more over the top beyond just shifting usage from one to another to make it one agent plus one human is more than just the combination of the two?

Yes. I think, yes, over time, like as the technology has evolved, the only point is that actually you were able to drive a lot of efficiencies for our customer base. Also I think that's why our pricing and packaging is going to evolve as well. And we've actually been pretty prudent about that, and Dennis already talked about instead of throwing out a whole bunch of new pricing packaging and doing it repeatedly and having to change it. We've been trying to be pretty thoughtful and engaging with our customers on it.

The way we think about from a modeling perspective, right, the biggest impact initially is going to be kind of that expansion. Agent expansion increase, right will be kind of replaced through whether it's session packs if we continue that pricing or copilot additions. And the way we thought about the pricing is how do we actually get to a model where it's kind of a win-win-win, where the very end customers win because they're getting a better experience. Our customers are winning because they're actually saving money, and that money saved is going to be at the cost of what they would have as an additional employee versus what they have to pay us additionally and then what we win because we actually get incremental revenue.

So far, we've thought about it as kind of like 80-20 model where we would like our customers to get 80% of the benefit and we'll take 20%. But I do think that's going to evolve as well. And it's evolving as the technologies get better.

Taylor McGinnis with UBS. I want to talk about -- and this is maybe piggybacking off the last question, the path to $1 billion in the core -- so maybe, Tyler, first question for you would just be what does the core look like in terms of ARR today? And what is that growth rate? And then as we look ahead, how do you think about the mix between EX and CX within that?

And then, Dennis, maybe for you. When we think about the growth there, there's lots of concerns on the durability of seat-based models, right? So when you think about what's going to continue to push that accelerating growth, how are you thinking about the durability of that versus net new logo adds, which just sounds like you guys are really excited about. So those individual moving pieces based on what you're hearing from your customers?

Yes, I'll answer the first part of the question. So we put out the ARR values for EX and CX as a whole. And we've talked about, okay, we have $20 million of AI revenue right now. We haven't broken out the other components of it so far. And that's something where I said, hey, we're kind of -- now that we've said, hey, we've got $100 million going to come from different products and clearly, we're going to start thinking about how do we actually educate the investor base and what that's going to be.

I'd say from the AI side, it's relatively even from a Copilot perspective across CX and EX, but the AI agent tends to be more CX, which it makes sense -- for us because that's on the customer support side. And we expect that to continue for now.

On the Device42, you can see what we inherited from that business from an ITAM perspective, but the rationale on making that acquisition was two things, really: one, increased win rates as we go kind of compete at the enterprise level, which we're seeing, and that has been playing out as well as penetration of our existing installed base. And I'd say we're relatively early on that penetration side. And we have -- that's also an area that we feel confident, especially as we move that product to the cloud. That's going to be a much more relevant solution for our existing installed base.

And then ESM, we've talked about that we don't even land with ESM today. It's a pure add-on to a fresh service customer. And that's going to be a huge opportunity, I think, for us going forward. So -- as we think about, okay, what is the core right now? We haven't broken out by pulling all those pieces out that something we'll think about, but we do believe, just because EX and what we're seeing from an enterprise-grade customer coming to us now, the market opportunity is absolutely there. Again, we've been relatively conservative on our expectations on CX growth.

So on seats, look, we're not the lumbering incumbent with millions of seats today. A lot of our seat growth can come through share gain. Even that said, the customers of ours that are using -- that are the most aggressive users of AI, we're still seeing seat count grow. So I think we think about the overall value that we can provide to the customer.

Today, we have a model that is mixed. We have seats, we have [ C adders ]. We have asset-based pricing for ITS Management. We have consumption-based product for our AI agent. So I think that mix will continue to evolve over time and continue to shift as the value that we provide to customers comes in different forms and through different products.

But I'm pretty comfortable with that at the end of the day, you think about the problem that IT has, the complexity that they have to deal with the problem that the support center has and the complexity they need to deal with the value that we're providing is absolutely huge for them and we'll be able to monetize it over time.

Brian Peterson from Raymond James. So you mentioned a couple of the different slides that there are adjacencies that you could potentially target through M&A. So I'd be curious -- what is your appetite for M&A? And how do we think about the potential contribution to that $1.3 billion target from an organic?

Yes, I'll answer the last piece and you can answer the first. We have not assumed any M&A in that -- in those dollars. Anything that we do would have to be incremental.

So I think, look, the -- we're exploring different areas all the time. And in some cases, we're asking ourselves, well, what would it take to build the next level of capability in an area that our customers are asking us to get into. And -- in some cases, we're looking at companies that might be providing a good product in that area and thinking about bringing them in.

So it's not the kind of thing that we can say with certainty exactly what path we're going to take, but we know that these spaces that are adjacent to the core EX product and the core CX product, they're really important for delivering the overall service that the customer is looking for and the value that the customer is looking for. And we have a right to play there because we're already providing so much value and really automating so many of their operations.

So I think it's more about as we build our portfolio out as -- our customer base continues to evolve up. Those needs are becoming more and more apparent. And Device42 was an example where we already had an asset management product. It was great for cloud assets and cloud discovery, we didn't have capability on-prem the way that Device42 is. And in that case, we decided the right path was to acquire the company embedded into our solution and bring it to market. So that's the kind of path that we are constantly evaluating and looking at.

Madeline Brooks, Bank of America. Two questions for you. The first one is if you kind of take a look at everything that we've talked about today from the product side, the go-to-market side, I think there's really a lot to like landing bigger, getting more strategic in enterprises, reinvigorating the channel as well. But at the same time, when I think about the growth that was put up there, it was kind of still teetering around that 13% to 15% versus seeing a true acceleration, right?

I'm just wondering if there's anything baked into that guide, whether it be continued macro weakness or maybe because you're going into enterprise, those deal cycles are longer, that we should think about in that guide? Or is it more just conservatism because it's early innings. And then one follow-up question as well.

Yes. So I'll take that. So again, we want to paint a picture of something we view as very achievable, but also how we're going to get there. And right now, that's really on the back of EX over the next couple of years, so we do believe it's a 20% grower. We painted out how we think we can get to the $100 million each on those adjacencies, which we think is very, very achievable.

On the AI side, on the Freddy side, $100 million on each product, but we built in $100 million there. Again, CX, we've actually been pretty prudent in how we've modeled that out. And we are very optimistic on the things that we're doing that are actually going to be really valuable for our customer base, but that one we want to play out and make sure we're executing against it every single quarter.

And then just a quick follow-up to kind of on that enterprise side, as you go more upmarket and you're really building out your enterprise sales force. Can you talk about on the go-to-market side, how you're thinking about capacity and productivity as it relates to the targets that you put up?

Yes, absolutely. Thank you. So I mean, we continue to review all of our capacity models and our productivity and also the efficiency of the organization as well. So as we look at the markets we should embrace and continue to expand into. I have a very clear go-to-market strategy that looks at the opportunity and the time that it will take us to land the customers and expand them. And that all bakes into a capacity model where I can look at the capacity and the capability versus the revenue we'll receive from it as well. .

So when I look at the market, the enterprise and mid-market segments are exciting for us. We're moving into -- we're seeing good traction with them. The pipeline continues to be delivered for them as well. The sales cycle isn't demonstrably longer than the majority of the business inside these segments as well. And the other part to it is we're just getting more momentum and it's getting more exciting, and we know that we can win these opportunities.

The final thing I'd say is, people are starting to come to us as well with the problem. So I was talking to a prospect the other day and a classic disenfranchise organization where they felt that they were no longer relevant to the company that they were using, and our relationship and the way that we engage with them and that's becoming our reputation is that they knew we would look after them, but also give them a very rapid environment where they could get up and running quickly. And that then takes the risk away of moving from the legacy vendors to a vendor such as Freshworks.

One of the things that Ian and Mika have done in the last year or so is to create a much more predictable engine in that mid-market and enterprise motion. Our SMB motion had been pretty predictable, right? We have leads, you convert them, and that drives sales. We are getting much better at being able to see how much pipeline do we have, how is that going to convert in that field sales motion as well. And that gives us a lot of confidence and helps us plan capacity, all the things around efficiency that Tyler shows.

The free cash flow doesn't just happen. It's a combination of the AI, enabling our service department and needing fewer people there, being more efficient there. It's a combination of getting more productive among sales reps as we go upmarket. The attainment is higher, all those things are coming together.

Okay. We have a question here from webcast here. So I think this is directed to you, Srini. So for your AI product in, how are you feeling about the product velocity and the R&D muscle within AI? Yes, product development velocity and R&D muscle within AI?

Look, as I said in my presentation, we've been doing the air innovation for a while now. So over the last 10 years, we sort of evolved from the menu based AI agents to LLM-based QA tonow Agentic AI. So we're sort of constantly improving the velocity. We so my partner and god Murali is here. He's the CTO and the engineering team is continuing to drive the -- continuing to drive and accelerate the innovation velocity, which is why you saw everything that you saw. We introduced the LLM based bots last year in September, we introduced the Agentic AI capabilities in June and watch out in November. So some of the things that you talked about, Scott, on A2A and stuff, there's more news coming up in November. So we're continuing to accelerate those.

Yes. And if you think about that's a reflection of how we're delivering. And if the question is about what are we doing internally to be able to do that. We have been driving a lot of efficiencies, but at the same time, we are spending money on tools. And we are going to continue to do that, to enable every single function to have access to kind of whatever the latest and greatest is.

And so that is, I think, a really, really smart trade-off to make, and we've been doing it across every single function. Both our own products, obviously, that we deploy internally in use, but also every software vendor that we purchased from kind of demanding from them that they deliver the same way our customers demand from us to deliver.

Great.

DJ Hynes from Canaccord again. I want to ask about the unbundling of ESM and just -- are you -- maybe this is a question that bleeds into sales as well. Are you able to go out now and seize the market and try and build a pipeline of customers that may be interested in a stand-alone ESM product before they look to IT? And Dennis, any update on the time line as to when you think that may be ready to go to market?

Yes. So the -- we run into situations where we're competing for the core ITSM replacement. And some customers are ready to do that, and we get very close and some customers are ready to do that. Some customers are not ready to do that. But they don't want to double down on their investment with whatever vendor they're using and they want to create optionality in the future.

And that's an opportunity for us, okay, maybe this time through, we're not going to get that ITSM opportunity, but we are going to have the opportunity outside of that core IT because they don't want to increase their dependency or they're thinking about provisioning a team outside of IT, their ITSM contract with another vendor, it doesn't come up for another year. They're going to choose us instead of choosing the incumbent vendor because they don't want to deepen their dependency on a vendor that they might not want to commit to for the long run.

So we hear that all the time. And that's where we haven't been able to -- our product because it's bundled today with Freshservice, we have not been able to do that. So that's the opportunity that we see as potentially really interesting.

And the other thing is teams outside of IT companies are very different. In some cases, HR department might just decide to buy a tool on their own, come to our website. We have a lot of smaller businesses that just going to come to the website and buy the product. We can't offer it alone today. So that changes by the end of the year [indiscernible].

So Q4 this year, we'll have that product. Yes. The second piece of the muscle, which maybe one of you guys can speak to is that you said, can you seed it? We already have a lot of customers, in fact, our attach on ESM for new business for Freshservice is pretty high. And so we already know the demand is there across all these different functions. I think it's going to start with HR, you guys can speak to that, and we will have to build a muscle on how to go sell directly to HR. We've already been starting to think about that.

We actually had an event recently in New York, where in terms of seeding, we had some HR professionals that we invited. One of the HR professionals was from a massive East Coast university. And he -- and they don't have actually our ITSM product and he found out that we had this -- we are going to go forward with the stand-alone ESM product, and he was really interested in terms of engaging with us. We do really well with larger universities. And so he was interested. So we're starting to put -- dip our toe on the water to say, "Hey, if we put the word out and we put it out to that market, will they be interested, and it seems like as we start seeding before in advance of November, that seems to be the case in terms of seeing some interest.

Matt VanVliet from Cantor. I guess you talked about some of the verticalization of the product. And I want to know kind of how much of that is more just go-to-market focus versus the development side. What will you continue to invest in to sort of build out not only the depth of those verticals you picked today, but maybe the successes that you see there to move into even more verticalization and what the proof points will be internally to say, yes, we want to pursue this with more aggressiveness or we've picked out the verticals we have and the rest of it is more better served by a more horizontal team?

Yes. Verticals for us is -- there's not a lot of heavy lift in terms of what we need to do to go into vertical. For example, a good example is ESM. ESM is a product like Freshservice's business teams, [indiscernible] management, it's being used for the HR teams as you heard. And the things that we need to do on the front is integrations. So the integrations to, for example, Workday. So as we go into these verticals and some of the integrations that you saw when I talked about the Agentic AI, we're doing these vertical-specific integrations and function-specific integrations. So investment is mainly in integrating to third-party systems, which is not that much of a heavy lift for us.

So we naturally get pulled into some of the names, like what Dennis talked about in his presentation, like education vertical is where we see a lot of demand. There -- there's not much of a -- lot of customization that we need to. But there are some horizontal stack verticals where you need to do vertical specific integration. So it's not that much of a heavy lift opportunity to go into industry verticals.

And in some cases, there's certifications that you need for education, for example, where there's a special -- specific channel to reach the market. So it's a combination, having the right integrations, having the right certifications, having the right go-to-market for the three that we're focused on right now.

Patrick Schulz at Baird. You guys spent quite a bit of time talking about the partner ecosystem, how that can become a growth multiplier. So just curious what you guys are thinking are some of the key unlocks to get more partners on board especially as you guys are dropping further upmarket. And then do you guys have a goal for how much, I guess, new ARR bookings should be coming through that partner channel?

Yes. Great. Thank you. So from a partner perspective, we actually released a new partner program this year. So we've been revisiting the program that we had and where we wanted to move in a partner direction. You saw on the slide that we're increasing partners coming to join us as well on that journey as well. So we see a natural traction from there as well. I think we've been far more efficient with the way that we're onboarding and enabling the partners as well to ensure that they have the right level of knowledge and relevance of the conversation that we're moving forward with as well.

If we look at the partners I engage with, they're also excited to work with us because of what we can offer them as well. So we know there's a win-win situation here where they enjoy the opportunity to go and talk to their customer base about the delivery we could do.

With regards to how we build that out, we're excited that the opportunity is to drive into it and have a look at it. But yes, we envisage more and more contribution coming from the partner network.

Austin Cole, Citizens. I know you've said, Tyler, that you're being conservative on the CX side. But when I think about 20% durable growth on EX and the ARR target out there, I think it implies a pretty modest kind of decel. So can you remind us maybe some of the cross wins in there? And then what are some of the upsides in terms of Agentic AI? It seems like a lot of use cases there. So can you just parse out for us kind of what are some of the moving pieces are on the CX side?

Yes. I mean -- so yes, I've said, hey, we're really confident on the EX side and the 20% durable growth there for that product. We're actually really confident on the CX side as well with everything that we're doing. And a lot of what you saw today is all of the product innovation that we're bringing forward. And quite frankly, AI is going to be kind of a key component to that. But we did not build a lot of that into that go-forward model, right? We want to make sure that we are executing every single quarter against that and then be able to have the proof points to be able to bring that out.

AI, we already talked about what we need to do to get each one of those product lines to $100 million, and it really is about additional uptake against our existing customer base and additional usage against our existing customer base. It doesn't really count on us doing some big stair step outside of that. And if you look at the $20 million that we've already disclosed, that's in a pretty recent period of time. And so when we have confidence over the next three years that we'll be able to achieve that. We're viewing that we have some runway to go do it.

Scott with Needham again here. On the strategic bet side, you mentioned a couple of different times, Contact Center as a Service, voice channels, I guess what's kind of exciting about that relative to the overall product portfolio today, especially with most of the focus being on the EX side versus the CX side?

So we have a contact center product already. It's called Freshcaller. It is sold as part of Freshdesk today, Freshdesk Omni, so it functions well. So we're seeing a lot of demand from our CX customers. So all the customers we've been talking to, they're sort of asking us for a wise solution.

And the product plan there is potentially -- could go partner with somewhere. We don't have to necessarily build. They're asking for integrated solution as part of the overall CX solution. So that's where that comes in. And some of the other companies have done it fairly well as well. So probably that's a playbook there versus continuing to build.

I think if you look at our customer base, you heard from Panasonic, our customers still have a lot of workloads coming in through voice, and they want to create an integrated experience for customer support that includes voice as well. And that's why we get asked to bring that in. Our current solution, Freshcaller is a basic solution. It's a little like ITAM where for a smaller business, it's fine, but for a large organization, they need something that's much more complex.

I don't envision us necessarily building that, but that is an area where we could partner. We could bring a partner in to our sales cycle in the market and build a business there as well. And importantly, that's what our customers are asking for our solution to expand our larger ones to be able to enable those workloads in a way that our current Freshcaller product is not able to do. So that's -- those areas are interesting because they expand the scale and size of the customers that we can actually go after. The larger customers are expecting that from their solution.

Yes. So just one more thing to add is it's not just a core contact center. It's also the AI agents, the voice AI agents as well. Like you deploy an AI agent on all the channels, you want to deploy it on voice as well. So with the large customers, even on the EX side, they want to have the service on the voice side as well. So you'll see some of the innovations on the AI agent side and the voice side.

Okay. I think we have maybe time for one more question.

DJ, again, so maybe I can just ask kind of a rapid up question. So you made the case today for accelerating revenue growth, really healthy cash generation. Stock is super cheap, right? So clearly, investors are nervous about something, whether it's seat-based models, disruptive AI start-ups, whatever it may be. Maybe you could touch on what you're seeing competitively, if anything, from that AI disruptive cohort. And then broadly, like what do you think investors are missing on the story?

So I'll talk about the AI cohort. So we have not -- for the most part, we have not seen our customers kind of running to some of the newer start-ups for AI. And if you look at like Sierra or some of the other competitors in that, Moveworks in the space, a lot of what their strategy has been is start with a very large enterprise, put your engineers in their place of business and design -- codesign the product with the customer. That's not what our customers want. Our customers want -- you heard it from RingCentral. They want a product. They want to be able to get up and running with a product that we have done all the hard work. We've thought it through, not them, and we're not asking them to build the product for us.

So there is certainly a cohort of customers that want to do -- want to be first and want to do what Sierra is doing and what some of the start-ups are doing, by and large, most start-ups, that's how they're building their product. That's not our ethos. That's not our culture. Our culture has always been out of the box, easy to use, easy to get time to value. So there might be exceptions where a customer or two is evaluating a Moveworks, evaluating a Sierra, but we don't think that that's the majority of our customer base and where we've built our business, and we think that's a very, very large set of customers.

So that's kind of how -- that's what we're seeing, and that's why we're talking about, look, we've doubled real revenue up at a scale that's bigger than a lot of the start-ups that are out there that are in AI that are getting these rich valuations. So I think we're pretty confident that we're off to a good start.

We have to innovate like fast and often to continue to build on what we've started. But I'm pretty confident that our customers, when we have the innovation, they're going to be very open to looking to us first. They don't want to go cobble together a bunch of start-ups and hope it works. They want to work with a trusted provider that's already powering a big part of their operations. What was the second part of your question?

[indiscernible].

I mean maybe, Tyler, you can opine on to that and to close it. But look, I think what we've seen in the last year is the stock price kind of bounced up and down and been more affected by external memes around AI and how AI is going to affect things and somebody will say something and all of a sudden, the stock price changes.

So I don't have a great answer to you. For us, we focus on executing, right? We focus on everything you heard today, driving that business, delivering results. We've done a good job in the last couple of years of doing what we said we're going to do. We're going to do what we -- we're going to spend the next couple of years doing what we just said we're going to do. And over time, the market will figure it out.

Yes. I mean I guess I'll wrap it up, DJ. So look, we spent today in my mind reiterating what we've already been talking about for a year. Dennis was appointed CEO a little over a year ago. We came out with a very clear strategy. We took it seriously internally, and we've been very open about what we're trying to go accomplish. And I feel like every single quarter, we've actually been making progress against that strategy.

That being said, yes, I think that there is a bear case around AI, which came out a couple of years ago. The thing is we might be a recipient of that bear case, but we've actually been demonstrating that we are going to be in the middle of it and actually be a beneficiary, and that's what we're trying to show.

I also think that there's a misunderstanding of what our EX opportunity is and how durable that growth opportunity can be for us. And then that CX, as we've been making progress, which we've been talking about every single quarter, how that could be really truly additive to our entire story. At the same time, there's not many companies who have been putting up the same profit metrics that we have and then using that capital to do what we did, which is essentially just buy back nearly 10% of our stock.

There's things that have been happening like in our last earnings, which I thought were very, very positive, where we had a pre-IPO company distribute almost 5% of the stock the week before our earnings, right? Those things don't help. But in the long run, they actually do because there's a lot more liquidity out in the market and ways for things to actually not have an impact in the future for us.

For us, we are actually really, really positive about what we're doing every single quarter. We think we have a great opportunity here, and we're actually demonstrating it now every single quarter. And -- but we have to actually be in a position to go show me, right? We're show-me stock. And that's what we're all competitors up here and we all want to win. And so that's what we're applying to go do.

Okay. Well, thank you so much. That concludes our presentation today. And now we can all head downstairs for lunch. And thank you again for joining us in person and on the webcast.

Thank you.