Freshworks delivered a beat-and-raise second quarter of 2026, growing revenue 16% year over year to $237.4 million at a 24% non-GAAP operating margin and achieving the Rule of 40 for an eighth straight quarter, while reporting its first positive GAAP net income ($3.2 million; GAAP EPS $0.01, non-GAAP EPS $0.17) ahead of its year-end goal. Growth was powered by the Employee Experience (EX) business - now ~59% of ARR and up 24% in constant currency to $567 million - with ESM crossing $50 million ARR (+67%), a record ITAM (Device42) quarter aided by the new Advanced ITAM Cloud, FireHydrant's first six-figure expansion, and a Gartner 2026 Magic Quadrant ITSM leader placement; customers over $100,000 ARR grew 25% to ~40% of ARR as Freshworks displaced legacy incumbents. AI monetization advanced (7,000+ AI-SKU customers, 70%+ Copilot attach on larger new deals, 50-80% agent deflection, new Freddy AI Agent Studio and MCP Gateway products supporting Claude and Microsoft Copilot). The softer spots were the deliberately profitability-focused CX business, up just 4% constant currency to $400 million ARR (guided to low-single-digit full-year growth), modest net dollar retention of 104-105% as Copilot adoption in the existing base lags new-deal attach, and still-thin GAAP profitability. Freshworks generated $57.7 million of adjusted free cash flow, returned over $200 million to shareholders year to date (shares down ~7%) with $665 million of cash and no debt, and cut stock-based comp to 16% of revenue as IPO grants rolled off. Management raised full-year guidance to $963.5-966.5 million revenue (~15% growth, a ~$6 million underlying raise absorbing a $2 million FX headwind), $222-228 million non-GAAP operating income, $0.66-0.68 non-GAAP EPS, and ~$265 million adjusted free cash flow ($0.94 per share, up 24%), reaffirming a mid-20s% EX growth trajectory toward a $1.4 billion ARR ambition.
Thank you. Good afternoon and 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 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 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 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 eight 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 GAAP profitability. At our investor event during Refresh in May, we laid out five 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%. 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 represents 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 five 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 in control. 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. 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 five of these key objectives. 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, were unable to adapt workflows as the business evolves, and were paying for dedicated specialists just to manage the complex system. They evaluated the market. They chose Freshservice and were live in three 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 seven business departments beyond IT, and it takes just one administrator less than two hours per week to manage the entire environment. That up-market 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. Freshservice 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 two years ago, and today we offer both on-prem and cloud-native Advanced ITAM products. About a 1/3 of large new EX lands now include ITAM, and in Q2, we have the strongest new logo quarter for this business yet. We are actively serving new Freshservice ITAM cloud customers on our platform, such as DriveTime 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 one-fifth of new EX seats are coming from outside IT. Our investment in FireHydrant showed results this quarter. FireHydrant generated its first six-figure expansion deal since joining Freshworks and was one of our top three largest deals of the quarter. This customer is a global cybersecurity leader that chose to consolidate their alerting and incident management onto FireHydrant. Stepping back, Freshworks EX business is in the strongest position in the company's history. We are winning against incumbent and legacy providers, expanding our customer base with new platform offerings, growing deal sizes, and strengthening our market leadership. 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 two new AI products for Freshservice. Freddy AI Agent Studio, a no-code environment for rapidly building domain-specific AI agents. MCP Gateway, which connects Freshservice intelligence to 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 average 50% and reach as high as 80% for mature deployments. With Freddy AI, customers are changing the economics of how they run service operations.
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 continued to carry higher NDR well above total company NDR. iQor demonstrates what Freddy AI can do at enterprise scale. A global BPO with more than 40,000 employees, iQor had a mandate to modernize and automate. They replaced a legacy on-premises system with Freshservice and Freddy AI. Now, they have an agentic AI solution that has 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 are 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 outcomes. In Q2, CX AI agent sessions and conversations on Freshdesk Omni were both up 60% quarter-over-quarter, and more than five-fold year-over-year. Take Fleet Claims, a U.K.-based motor fleet accident management company. They have reported that they have been able to use our email 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 have consolidated our CX organization in India. Our GTM, product, and engineering teams are all co-located and driving that business. Looking ahead, we are 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 confirm that Freshworks is delivering on our mission while investing in our future.
As we announced last week, I am 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 Coupa and ServiceNow. Our platform is stronger and broader than ever.
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 will 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 a 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 reported and 24% on a constant currency basis. As Dennis 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 ICP. 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 are 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 retention 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 grew 18% year-over-year as reported, and 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 multi-product motion across core ITSM, ITAM, ITOM and ESM. Improving win rates and deal sizes in new business across the EX portfolio and creating a flywheel for expansion opportunities gives us confidence in sustaining the mid-20s% EX growth trajectory. 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. On 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've reduced our fully diluted share count by 8.3% over the past five 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. 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-$245.5 million, growing approximately 14% year-over-year on a as reported basis, and approximately 14%-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-$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-$966.5 million, growing approximately 15% year-over-year or 14%-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-$228 million, and non-GAAP income per share to be in the range of $0.66-$0.68, assuming a weighted average shares outstanding of approximately 273 million shares. We expect to generate approximately $265 million in adjusted free cash flow. This results in an 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 adjusted 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 a $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 AI expansion to meet the demand momentum driving us into the second half of the year. Operator, let's open it up to Q&A.