Snapshot
Freshworks Inc. reported $205M of revenue in Q2 2025, up 17.5% year over year, with diluted EPS of $-0.01 and an operating margin of -4.2%.
- Revenue
- $205M
- YoY growth
- +17.5%
- Diluted EPS
- $-0.01
- Operating margin
- -4.2%
$205M
Revenue
+17.5%
YoY growth
$-0.01
Diluted EPS
-4.2%
Operating margin
01 Key takeaways
What management said
- •The primary purpose of today's call is to provide you with information regarding our second quarter 2025 performance and our financial estimates for our third quarter and full year 2025.
- •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.
- •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.
- •We grew Q2 revenue 18% year-over-year to $204.7 million, expanded our non-GAAP operating margin to 22%, and delivered a strong adjusted free cash flow margin of 27%.
- •Collectively, these results clearly illustrate our ability to balance strong growth with profitability.
- •Our strategy has focused on three key growth areas: investing in Employee Experience or EX, delivering AI capabilities across our products and accelerating adoption, and driving continued expansion in Customer Experience or CX.
- •Our first lever in this area is growth in the mid-market and enterprise, together representing more than 3/4 of ARR.
- •We continue to displace legacy competitors as organizations choose Freshservice because we reduce complexity, accelerate efficiency, and enable tangible growth through our AI-powered platform.
- •The second EX growth driver and expansion lever is our enterprise service management solutions.
- •Michaels onboarded 900 agents, migrated over three years of ticket history, and deployed Freshservice across IT, HR, and facilities to streamline incident management, asset tracking, employee journeys, and vendor risk.
- •Our third growth driver in EX is our advanced ITAM offering with Device42.
What went well
- •Q2 revenue grew 18% year-over-year to $204.7 million as reported and 17% constant currency, surpassing top-line estimates.
- •Non-GAAP operating margin expanded to 22%, an increase of over 14 percentage points compared to a year ago and ahead of prior expectations.
- •Adjusted free cash flow grew 65% year-over-year to $54.3 million, a 27% margin (over 7 percentage point improvement YoY).
- •EX grew to over $450 million in ARR (24% YoY as reported, 22% constant currency) with over 19,000 customers.
- •CX accelerated to over $380 million in ARR (11% as reported, 8% constant currency), driven by healthy Freshdesk momentum and stronger execution.
- •Over 5,000 customers now paying for Copilot and AI Agent, with combined ARR from those two SKUs crossing $20 million, more than doubling year-over-year; over 3,300 Copilot customers, up 21% sequentially.
- •Freddy Copilot included in more than 55% of new large customer deals (over $30,000), with double-digit attach rates for new SMB customers.
- •Net dollar retention of 106% as reported and 104% constant currency, ahead of/in line with expectations.
- •Major EX displacements including Steel Dynamics replacing ServiceNow and Kayak replacing JIRA Service Management; new logos Seagate, Covington & Burling, Reed, and AEP Energy.
- •Launched multiple agentic AI innovations: Freddy AI Agent Studio for Freshdesk, Freddy AI Agent for email, Freddy AI Agent for unified search, and Freddy AI Insights GA.
- •Freshservice Benchmark report showed Copilot users reduced resolution time by 76% and first response time by 41%, and AI Agent users saw 65% ticket deflection and over 400,000 hours of agent time saved.
What went wrong
- •EX growth moderated this quarter as the company lapped the anniversary of the Device42 acquisition from last June.
- •Device42 was a headwind to net dollar retention of just over 0.67 percentage point, primarily due to anticipated churn in its partner business.
- •Gross expansion trends remain pressured, though churn rates are steadily improving.
- •Guidance implies Freshworks will not maintain a Rule of 40 model in the second half of the year, after two consecutive quarters of doing so organically.
- •Net dollar retention remains in the low-100s with management not ready to call a bottom; AI is not expected to become a meaningful growth catalyst until 2026.
- •Q3 revenue guidance of 12% growth at the high end implies a deceleration from the 18% just reported, prompting analyst questions.
Guidance changes
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Performance breakdown
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Earnings call themes & trends
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