Freshworks (FRSH) Q2 Revenue Up 18%

Core Viewpoint - Freshworks reported strong Q2 2025 financial results, exceeding revenue and earnings expectations, driven by operational improvements and AI product adoption [1][5][14] Financial Performance - GAAP revenue reached $204.7 million, surpassing estimates of $198.8 million, marking a 17.6% year-over-year increase from $174.1 million [2][5] - Non-GAAP earnings per share were $0.18, significantly above the expected $0.11 and up 125% from $0.08 in Q2 2024 [2][5] - Non-GAAP income from operations was $44.8 million, a 241.2% increase from $13.1 million in the same quarter last year [2][6] - Adjusted free cash flow increased by 65.5% year-over-year to $54.3 million, with operating cash flow climbing to $58.6 million, up 61.4% [2][6] Profitability Metrics - Gross margin improved to 84.8%, up from 83.8% a year ago, while non-GAAP operating margin reached 21.9%, up from 7.5% [7][6] - Free cash flow margin improved to 26.5%, reflecting effective cost control relative to revenue [6] Customer Growth - The number of customers generating over $5,000 in annual recurring revenue increased by 10% year-over-year to 23,975, indicating strong long-term revenue retention potential [8] - Net dollar retention remained steady at 106%, reflecting stable customer spending [8] AI Developments - The Freddy AI suite surpassed $20 million in annual recurring revenue, showcasing the success of AI-driven solutions [9] - Freshworks launched the Freddy AI Agent Studio, a no-code tool for businesses to create AI-powered automation agents [9] Market Positioning - Freshworks secured a multi-year partnership with McLaren Racing, enhancing its visibility in enterprise sales and competing against larger SaaS vendors [10][11] - The company continues to focus on integrating AI features across its software offerings, utilizing a product-led growth strategy [4] Future Guidance - Management raised revenue guidance for Q3 2025 to between $207.0 million and $210.0 million, projecting 11-12% year-over-year growth [14] - Full-year revenue is expected to be in the range of $822.9 million to $828.9 million, indicating 14-15% growth [14] - Non-GAAP operating income is anticipated to rise to $153.0–$157.0 million, with earnings per share forecasted at $0.56–$0.58 [14] Competitive Landscape - The company faces competitive dynamics as larger software firms introduce their own AI features, which may impact customer adoption rates of Freshworks' AI modules [16]