Q1 2025 Earnings Presentation April 29, 2025 © 2025 Freshworks Inc. All rights reserved. Disclaimer This presentation has been prepared by Freshworks Inc. ("Freshworks") for informational purposes only and not for any other purpose. Nothing contained in this presentation is, or should be construed as, a recommendation, promise, or representation by Freshworks or any officer, director, employee, agent, or advisor of Freshworks. This presentation does not purport to be all inclusive or to contain all of the i ...

This quarterly report represents an earnings surprise of 38.46%. A quarter ago, it was expected that this company would post earnings of $0.10 per share when it actually produced earnings of $0.14, delivering a surprise of 40%. Freshworks Inc. (FRSH) came out with quarterly earnings of $0.18 per share, beating the Zacks Consensus Estimate of $0.13 per share. This compares to earnings of $0.10 per share a year ago. These figures are adjusted for non-recurring items. Over the last four quarters, the company h ...

Financial Data and Key Metrics Changes - In Q1 2025, revenue grew 19% year over year to $196.3 million, with a non-GAAP operating margin of 24% and an adjusted free cash flow margin of 28% [8][31][34] - The non-GAAP operating margin expanded by more than 10 percentage points compared to the previous year [8] - Adjusted free cash flow increased by 43% year over year to $55.4 million [31][38] Business Line Data and Key Metrics Changes - Employee Experience (EX) business achieved over $420 million in ARR, growing 33% year over year [10][33] - Customer Experience (CX) business reached over $370 million in ARR, reflecting 7% year over year growth [23][33] - The company added over 1,000 net customers in Q1, ending with over 73,300 total customers [9][36] Market Data and Key Metrics Changes - Net dollar retention remained stable at 105% on a constant currency basis [9][35] - The number of customers contributing more than $5,000 in ARR grew 13% year over year to 23,275 [35] - The number of customers contributing more than $50,000 in ARR increased by 24% year over year to 3,217 [35] Company Strategy and Development Direction - The company focuses on three strategic imperatives: investing in employee experience, delivering AI capabilities across products, and accelerating growth for customer experience solutions [9][10] - The integration of Device 42 into existing offerings is enhancing the value proposition and driving new business [52] - The company is committed to leveraging AI to improve operational efficiency and customer satisfaction [22][30] Management Comments on Operating Environment and Future Outlook - Management noted no significant changes in demand due to macroeconomic conditions, emphasizing the necessity of their solutions for efficiency [49][90] - The company expects to continue benefiting from its competitive pricing and uncomplicated solutions compared to legacy providers [51][92] - Future guidance includes revenue expectations for Q2 2025 in the range of $197.3 million to $200.3 million, growing 13% to 15% year over year [41] Other Important Information - The company repurchased $111.8 million of its shares in Q1, continuing its capital allocation strategy [39] - The launch of Freddie AI Insights is expected to enhance decision-making capabilities for managers [21][80] Q&A Session Summary Question: Update on Device 42 and CX growth - Management confirmed strong demand for Device 42, with significant contributions to new business and upsell opportunities [52] - CX continues to see growth in agent count and AI adoption, with optimism about future developments [54] Question: Operational efficiencies from AI - Management highlighted over 70 instances of AI products enhancing productivity and driving margin expansion [58] - The company plans to continue investing in AI to optimize operations and improve margins [60] Question: Changes to the partner program - The company is moving to a transfer pricing model for resellers to create more opportunities for partners [66] - There is strong interest from partners, particularly in mid-market segments [68] Question: Market strength and pipeline characterization - The pipeline remains strong, with numerous enterprise wins and a growing recognition of the company's offerings in the market [100]

Financial Performance - Total revenue for the three months ended March 31, 2025, was $196.3 million, representing a year-over-year growth of 19% from $165.1 million in the same period of 2024[104] - Revenue for the three months ended March 31, 2025, was $196.3 million, a 19% increase from $165.1 million in the same period of 2024[136] - Gross profit increased to $166.4 million, with a gross margin of 85% for Q1 2025, up from 84% in Q1 2024[141] - Non-GAAP income from operations for the three months ended March 31, 2025, was $46.4 million, compared to $21.8 million in 2024[118] - Free cash flow for the three months ended March 31, 2025, was $53.9 million, an increase from $38.7 million in 2024[120] - The company incurred operating losses of $10.4 million for the three months ended March 31, 2025, compared to $32.2 million in 2024[104] Customer Metrics - The number of customers contributing more than $5,000 in annual recurring revenue (ARR) increased to 23,275, a growth of 13% from 20,549 in 2024[108] - Monthly subscriptions represented 14% of ARR as of March 31, 2025, down from 16% in 2024[111] - The net dollar retention rate decreased to 105% as of March 31, 2025, down from 106% in the same period of 2024, primarily due to lower expansion within existing customers[112] - The net dollar retention rate was 105% as of March 31, 2025, reflecting expansion within existing customers despite a decrease from 106% in the prior year[140] Expenses - Research and development expenses rose by $5.3 million, or 15%, totaling $40.0 million for Q1 2025, driven by increased personnel-related costs[144] - Sales and marketing expenses decreased by $5.5 million, or 6%, totaling $89.2 million for Q1 2025, primarily due to lower stock-based compensation and marketing costs[145] - General and administrative expenses increased by $5.2 million, or 12%, totaling $47.2 million for Q1 2025, mainly due to higher stock-based compensation and personnel-related costs[146] - Total operating expenses for Q1 2025 were $176.8 million, a 3% increase from $171.4 million in Q1 2024[143] Cash Flow and Liquidity - Net cash provided by operating activities for the three months ended March 31, 2025, was $58.0 million, an increase from $40.6 million in the same period of 2024[157] - As of March 31, 2025, the company had cash and cash equivalents of $594.2 million and marketable securities of $401.1 million, totaling $995.3 million in liquidity[152] - The company reported an accumulated deficit of $3.7 billion as of March 31, 2025[152] - Net cash used in financing activities for the three months ended March 31, 2025, was $130.3 million, primarily due to share repurchases[162] - The company repurchased 6.7 million shares of Class A common stock for $111.8 million under its share repurchase program, with $272.7 million remaining for future repurchases as of March 31, 2025[154] - The company had net cash provided by investing activities of $46.2 million for the three months ended March 31, 2025, mainly from maturities and redemptions of marketable securities[160] Market and Economic Conditions - The company expects macroeconomic pressures to continue impacting demand for its products and services in the foreseeable future[106] - A 10% adverse change in foreign currency exchange rates could result in a gain or loss of approximately $9.2 million[167] - As of March 31, 2025, the total notional amount of outstanding designated foreign currency forward contracts was $62.7 million[169] - A hypothetical 100 basis points movement in interest rates would not have a material effect on the combined market value of cash and cash equivalents and marketable securities[172] Other - The acquisition of D42 Parent, Inc. in 2024 expanded the company's product offerings to include software licenses with associated maintenance[103] - Interest and other income, net, was $13.0 million for Q1 2025, a slight increase of 1% compared to $12.8 million in Q1 2024[149] - Restructuring charges of $0.4 million were recorded for Q1 2025, related to the restructuring plan initiated in November 2024[148] - For the three months ended March 31, 2025, the provision for income taxes was $3.9 million, a decrease of 2% from $4.0 million in the same period of 2024[151]

[Freshworks First Quarter 2025 Results](index=1&type=section&id=Freshworks%20First%20Quarter%202025%20Results) Freshworks reports strong Q1 2025 financial performance, exceeding estimates and providing a positive outlook [First Quarter 2025 Financial Summary Results](index=1&type=section&id=First%20Quarter%202025%20Financial%20Summary%20Results) Freshworks reported strong Q1 2025 results, exceeding financial estimates with revenue growing 19% year-over-year to $196.3 million. The company demonstrated significant improvement in profitability and cash flow, with non-GAAP income from operations more than doubling to $46.4 million and adjusted free cash flow increasing to $55.4 million. Key business metrics showed a 13% increase in customers contributing over $5,000 in ARR and a net dollar retention rate of 105% - Freshworks outperformed its financial estimates in Q1, with **revenue growing 19% YoY** to **$196.3 million**, an **operating cash flow margin of 30%**, and an **adjusted free cash flow margin of 28%**[3](index=3&type=chunk) Q1 2025 Key Financial Metrics (vs. Q1 2024) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenue | $196.3M | $165.1M | | GAAP (Loss) from Operations | $(10.4)M | $(32.2)M | | Non-GAAP Income from Operations | $46.4M | $21.8M | | GAAP Net (Loss) Per Share | $0.00 | $(0.08) | | Non-GAAP Net Income Per Share | $0.18 | $0.10 | | Net Cash from Operating Activities | $58.0M | $40.6M | | Adjusted Free Cash Flow | $55.4M | $38.7M | Q1 2025 Key Operating Metrics | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Customers > $5,000 ARR (YoY Growth) | 13% | - | 13% | | Net Dollar Retention Rate | 105% | 103% | 106% | - The company welcomed new customers including All3Media, Broad River Retail, and Veracode, and launched a new global partner program to expand offerings for resellers and service delivery[7](index=7&type=chunk) [Financial Outlook](index=3&type=section&id=Financial%20Outlook) Freshworks provided its financial outlook for the second quarter and full year 2025. For Q2, the company expects revenue between $197.3 million and $200.3 million, representing 13-15% YoY growth. For the full year, revenue is projected to be between $815.3 million and $824.3 million, a 13-14% YoY increase. Non-GAAP income from operations is also guided for both periods Q2 and Full Year 2025 Financial Outlook | ($ in millions, except per share data) | Second Quarter 2025 | Full Year 2025 | | :--- | :--- | :--- | | Revenue | $197.3 - $200.3 | $815.3 - $824.3 | | Year-over-year growth (constant currency) | 13% - 15% | 13% - 15% | | Non-GAAP income from operations | $27.8 - $29.8 | $139.5 - $147.5 | | Non-GAAP net income per share | $0.10 - $0.12 | $0.56 - $0.58 | - The company has not reconciled its non-GAAP financial estimates to GAAP due to the uncertainty and potential variability of future expenses, making a reconciliation unavailable without unreasonable effort[10](index=10&type=chunk) [Financial Statements](index=8&type=section&id=Financial%20Statements) This section details Freshworks' Q1 2025 financial position, operational performance, and cash flows, including GAAP reconciliations [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the first quarter of 2025, Freshworks reported revenue of $196.3 million, a 19% increase from $165.1 million in Q1 2024. The company significantly reduced its loss from operations to $(10.4) million from $(32.2) million a year prior. Net loss also narrowed substantially to $(1.3) million, or $0.00 per share, compared to a net loss of $(23.3) million, or $(0.08) per share, in the same period last year Statement of Operations Summary (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $196,273 | $165,143 | | Gross Profit | $166,395 | $139,253 | | Loss from Operations | $(10,416) | $(32,167) | | Net Loss | $(1,304) | $(23,325) | | Net Loss Per Share | $0.00 | $(0.08) | [Condensed Consolidated Balance Sheets](index=9&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, Freshworks held $1.0 billion in cash, cash equivalents, and marketable securities. Total assets stood at $1.54 billion, while total liabilities were $479.4 million. Total stockholders' equity was reported at $1.06 billion Balance Sheet Summary (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $594,243 | $620,405 | | Marketable securities | $401,078 | $442,272 | | Total Assets | $1,541,180 | $1,610,010 | | Total Liabilities | $479,350 | $475,830 | | Total Stockholders' Equity | $1,061,830 | $1,134,180 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2025, Freshworks generated $58.0 million in net cash from operating activities, an increase from $40.6 million in Q1 2024. Investing activities provided $46.2 million in cash, primarily from maturities of marketable securities. Financing activities used $130.3 million, largely due to a $113.6 million repurchase of common stock. This resulted in a net decrease in cash of $26.1 million for the quarter Statement of Cash Flows Summary (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $57,973 | $40,619 | | Net cash provided by (used in) investing activities | $46,231 | $(37,771) | | Net cash used in financing activities | $(130,273) | $(22,954) | | Net decrease in cash | $(26,069) | $(20,106) | [Reconciliation of GAAP to Non-GAAP Measures](index=11&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) This section details the adjustments made to reconcile GAAP figures to non-GAAP metrics. For Q1 2025, a GAAP operating loss of $(10.4) million was adjusted, primarily for $51.7 million in stock-based compensation, to arrive at a non-GAAP income from operations of $46.4 million. Similarly, a GAAP net loss of $(1.3) million was adjusted to a non-GAAP net income of $55.9 million. Adjusted free cash flow for the quarter was calculated at $55.4 million Reconciliation of GAAP Loss from Operations to Non-GAAP Income from Operations (Q1 2025, in thousands) | Description | Amount | | :--- | :--- | | **GAAP loss from operations** | **$(10,416)** | | Stock-based compensation expense | $51,664 | | Employer payroll taxes on employee stock transactions | $1,199 | | Amortization of acquired intangibles | $3,514 | | Restructuring charges | $405 | | **Non-GAAP income from operations** | **$46,366** | Computation of Adjusted Free Cash Flow (Q1 2025, in thousands) | Description | Amount | | :--- | :--- | | **Net cash provided by operating activities** | **$57,973** | | Less: Purchases of property and equipment | $(1,296) | | Less: Capitalized internal-use software | $(2,772) | | Add: Restructuring costs paid | $1,493 | | **Adjusted free cash flow** | **$55,398** | [Supplementary Information](index=4&type=section&id=Supplementary%20Information) This section explains Freshworks' non-GAAP financial measures, operating metrics, and forward-looking statements [Explanation of Non-GAAP Financial Measures and Operating Metrics](index=4&type=section&id=Explanation%20of%20Non-GAAP%20Financial%20Measures%20and%20Operating%20Metrics) The company uses non-GAAP financial measures to supplement its GAAP results, believing they provide better insight into its operational performance. Key adjustments include excluding stock-based compensation, amortization of acquired intangibles, and restructuring charges. The report also defines key operating metrics used to evaluate the business, such as Annual Recurring Revenue (ARR), the number of customers contributing over $5,000 in ARR, and Net Dollar Retention Rate - Non-GAAP measures are used to assess performance by excluding items such as stock-based compensation, employer payroll taxes on stock transactions, amortization of acquired intangibles, and restructuring charges[16](index=16&type=chunk)[21](index=21&type=chunk) - Adjusted free cash flow is defined as net cash from operating activities, less purchases of property/equipment and capitalized software, plus restructuring charges. It is used as an indicator of liquidity and cash generation from core operations[17](index=17&type=chunk) - Key operating metrics include the number of customers with over **$5,000 in Annual Recurring Revenue (ARR)** and the **Net Dollar Retention Rate**, which measures revenue from existing customers over a 12-month period[18](index=18&type=chunk)[19](index=19&type=chunk) [Forward-Looking Statements](index=6&type=section&id=Forward-Looking%20Statements) This section serves as a safe harbor notice, cautioning that the press release contains forward-looking statements, including the financial outlook for Q2 and the full year 2025. It highlights that these statements are based on current expectations and are subject to risks and uncertainties, such as economic conditions and customer purchasing decisions, which could cause actual results to differ materially - The report contains forward-looking statements regarding financial estimates, business plans, and the value of its products. These are subject to risks and uncertainties that could cause actual results to differ[22](index=22&type=chunk) - Investors are cautioned not to place undue reliance on these statements, as they are based on information available as of the date of the release and the company is not obligated to update them[23](index=23&type=chunk)

Core Viewpoint - Freshworks Inc. reported strong financial results for Q1 2025, with a revenue increase of 19% year-over-year, driven by the adoption of its AI service software solutions by businesses [2][6]. Financial Summary - Total revenue for Q1 2025 was $196.3 million, up from $165.1 million in Q1 2024, marking a 19% growth [6]. - GAAP loss from operations improved to $(10.4) million from $(32.2) million in the same quarter last year [6]. - Non-GAAP income from operations was $46.4 million, compared to $21.8 million in Q1 2024 [6]. - GAAP net loss per share was $0.00, an improvement from $(0.08) in Q1 2024 [6]. - Non-GAAP diluted net income per share increased to $0.18 from $0.10 year-over-year [6]. - Net cash provided by operating activities was $58.0 million, up from $40.6 million in Q1 2024 [6]. - Adjusted free cash flow reached $55.4 million, compared to $38.7 million in the prior year [6]. Key Metrics and Business Highlights - The number of customers contributing more than $5,000 in ARR increased by 13% year-over-year to 23,275 [6]. - The net dollar retention rate was 105%, slightly down from 106% in Q1 2024 [6]. - Freshworks onboarded several new customers, including All3Media and Broad River Retail [6]. - A new global partner program was launched to enhance offerings for resellers and service delivery [6]. Financial Outlook - For Q2 2025, revenue is expected to be between $197.3 million and $200.3 million, reflecting a year-over-year growth of 13% to 15% [7]. - Full-year 2025 revenue is projected to be between $815.3 million and $824.3 million, with a similar growth rate [7]. - Non-GAAP income from operations for Q2 2025 is estimated to be between $27.8 million and $29.8 million [7].

Core Viewpoint - Freshworks Inc. is set to announce its financial results for the first quarter of 2025 on April 29, 2025, with a live audio webcast to discuss the results and business highlights [1][2]. Group 1: Financial Results Announcement - The financial results for the first quarter ended March 31, 2025, will be announced after market close on April 29, 2025 [1]. - A live audio webcast will take place at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time on the same day [2]. - The webcast will be accessible via Freshworks' investor relations website, and a replay will be available afterward [2]. Group 2: Company Overview - Freshworks Inc. specializes in uncomplicated service software aimed at enhancing customer and employee experiences [3]. - The company serves over 72,000 clients, including notable names like Bridgestone, New Balance, Nucor, S&P Global, and Sony Music [3]. - Freshworks emphasizes a people-first approach to AI, which aims to improve employee effectiveness and organizational productivity [3].

Core Insights - Freshworks has launched a new global partner program aimed at resellers and service delivery partners to enhance customer value and accelerate time to value [1][2] - The program is designed to simplify the business process for partners, offering flexible monetization options and a quicker return on investment [2] Group 1: Program Features - The revamped partner program includes over 500 transacting partners, facilitating Freshworks' expansion in Asia, Latin America, North America, and Europe [2] - Partners can choose from various sales engagement models, including one-time commissions or ongoing revenue opportunities as authorized resellers or service providers [5] - A new offering for service delivery partners includes training, certifications, and direct engagement with Freshworks' sales teams [5] Group 2: Partner Benefits - Partners benefit from a people-first approach that empowers them to manage the full customer lifecycle with specialized enablement and direct access to Freshworks experts [5] - Premier resellers receive recurring margins on sales, control over billing and renewals, and enhanced customer relationships [5] - Increased regional sales support, marketing development funds, and technical enablement training are provided to partners to ensure their success [5] Group 3: Partner Testimonials - Climb Channel Solutions recognized Freshworks as a leader in the ITSM market, enabling them to deliver innovative solutions for digital transformation [4] - Gorilla Services emphasized the alignment of values with Freshworks, allowing them to deliver results to European customers quickly [4] - Whitlock appreciated the clarity and structure of the program, which supports their go-to-market strategy [4]

Group 1 - Freshworks Inc. is positioned as a strong investment opportunity for the year, particularly in serving mid-market organizations [1] - The company is expected to benefit from increased investments in Customer Experience (CX) and Employee Experience (EX) by these organizations [1] - The analysis is backed by the author's extensive experience in financial markets and institutions, focusing on undervalued companies [1]

Group 1 - Freshworks Inc. (FRSH) has experienced a significant decline of 18.8% over the past four weeks, but it is now in oversold territory, indicating a potential trend reversal [1] - The Relative Strength Index (RSI) for FRSH is currently at 20.42, suggesting that the heavy selling pressure may be exhausting itself [5] - Analysts have raised their earnings estimates for FRSH, with a 21.3% increase in the consensus EPS estimate over the last 30 days, which typically correlates with price appreciation [6] Group 2 - FRSH holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, indicating a strong potential for a turnaround [7]