Freshworks Q1 Earnings Call Highlights

Key Points

• Freshworks reported Q1 revenue of $228.6 million (up 16% YoY), delivered non‑GAAP operating income of $41 million (18% margin) and free cash flow of $55.8 million (24% margin), and guided Q2 revenue of $232–$235 million and full‑year revenue of $958–$964 million.
• The company is leaning on Employee Experience (EX) as its growth engine—EX ARR grew 27% to over $540 million, included the two largest deals in company history (its first seven‑figure EX ARR deal), and saw rapid AI adoption with Freddy AI Copilot customers up >80% YoY and EX AI penetration above 20%.
• Freshworks announced workforce reductions of about 11% with ~$8 million in one‑time charges, while pursuing capital return via a $400 million buyback (Q1 repurchases: 5.7M shares for $45.4 million) and finishing the quarter with roughly $780 million in cash and investments.

Freshworks NASDAQ: FRSH reported first-quarter 2026 results that management said exceeded expectations on revenue, profitability, and free cash flow, driven by continued momentum in its employee experience (EX) business and ongoing operational efficiency efforts.

First-quarter results and key metrics

Chief Executive Officer and President Dennis Woodside said Freshworks “delivered a strong start to 2026,” with revenue up 16% year-over-year. Chief Operating Officer and Chief Financial Officer Tyler Sloat reported total revenue of $228.6 million, up 16% as reported, or 14% in constant currency. Professional services revenue was about $2 million, which Sloat described as a component of Freshworks’ customer success strategy.

Freshworks posted a non-GAAP gross margin of 86.3% and non-GAAP operating income of $41 million, translating to an 18% non-GAAP operating margin. Woodside said non-GAAP operating margin was nearly three points above the company’s estimate, while adjusted free cash flow margin was 24%. Sloat said free cash flow was $55.8 million, also representing a 24% margin, and adjusted free cash flow per share was $0.20, up 8% year-over-year.

Calculated billings were $235 million, up about 16% as reported and 13.5% in constant currency. Sloat said the company expects billings growth to be in line with revenue growth for 2026.

On retention, Sloat said net dollar retention was 106% as reported and 105% in constant currency, a one-point acceleration from the prior quarter. EX net dollar retention was 111% as reported and 109% in constant currency, which Sloat said includes “a little bit of headwind” from Device42 legacy churn.

EX growth accelerates as Freshworks highlights large wins and platform expansion

Freshworks continued to position EX—anchored by Freshservice—as its main growth engine. Woodside said EX ARR grew 27% year-over-year in Q1, and Sloat reported EX ARR ended the quarter at over $540 million (27% as reported; 25% constant currency). Woodside also said the company signed the two largest deals in its history, including its first seven-figure EX ARR deal.

Woodside attributed the EX performance to upmarket momentum and competitive displacements. He cited a “global leader in nutrition” that replaced Freshworks’ “largest competitor” with Freshservice in what he called the company’s largest new customer deal ever. He also highlighted Piedmont Healthcare and U.K. recruitment company Reed as additional competitive wins.

During Q&A, Woodside said the upmarket motion is increasingly focused on mid-market and “agile enterprise” customers, which he described as organizations with roughly 5,000 to 20,000 employees. He said those customers are seeking enterprise-grade capabilities along with fast deployment and lower complexity. Sloat said EX is “organically accelerating growth,” and both executives said the EX pipeline entering the second quarter “looks fantastic.”

Freshworks also pointed to product broadening and integration as part of its EX strategy:

• Woodside said Freshworks launched a new Freshservice IT asset management (ITAM) experience that brings Device42 capabilities natively into Freshservice.
• Woodside said the company completed its acquisition of FireHydrant and plans to integrate it over the course of 2026.

Sloat said the company anticipates EX ARR to grow in the “mid-20s” and expects EX to be “over 60% of total ARR by year-end.”

AI adoption and upcoming product announcements

Woodside emphasized that Freddy AI is being embedded across the platform and described Freddy AI Copilot as one of Freshworks’ fastest-growing products. He said Freddy AI Copilot customer growth exceeded 80% year-over-year in Q1, and attach rate growth in new deals over $30,000 in ARR was above 65%. In EX, he said AI penetration surpassed 20%, “nearly doubling year-over-year,” and about a third of new EX customers in Q1 had Copilot attached.

Woodside cited Amerisure as an example of AI-enabled outcomes, saying the customer expanded Freshservice beyond IT into legal, HR, underwriting, and marketing, “saving thousands of hours in 2025 alone” and reducing employee onboarding resolution time by 97%.

On the call, Woodside said Freshworks will provide more detail on AI strategy at its Refresh event. He also previewed new EX announcements, including an AI Agent Studio for EX with “20 pre-configured workflows” and an MCP gateway intended to allow customers to connect third-party agents to Freshworks’ data and workflows. Woodside said Freshworks expects to monetize these capabilities over time.

Addressing a question about whether “AI anxiety” is affecting buying decisions, Woodside said the company is not seeing AI slow deals and that AI is “core to the pitch,” while also emphasizing customers are switching for broader platform reasons beyond AI.

CX business trends and re-platforming progress

Freshworks’ customer experience (CX) business posted slower growth than EX but remained positive. Woodside said CX ARR increased 6% year-over-year in Q1. Sloat reported CX ARR ended the quarter at over $395 million (6% as reported; 4% constant currency).

The company said it is advancing its CX strategy through platform integration and re-platforming to Freshdesk Omnichannel. Woodside said over 80% of the CX customer base has migrated to the new Freshdesk Omnichannel, calling it foundational work to enable future generative AI capabilities and “accelerate margin accretion.” He also said that since Freshdesk Omnichannel became available at the end of last year, ARPA is 2.5 times higher for new Freshdesk Omnichannel customers compared to the prior platform.

Looking ahead, Sloat said the company is taking a “prudent outlook” and expects CX ARR to grow in the “low single digits” in 2026 as it completes customer migrations and aligns more tightly to its ideal customer profile.

Restructuring, capital allocation, and outlook

Freshworks announced workforce changes that Sloat said will reduce global headcount by approximately 11%. Sloat said the company expects one-time restructuring charges of about $8 million, “with the vast majority in Q2.” Woodside said the changes are intended to consolidate overlapping go-to-market efforts, streamline product development, and increase use of AI and automation across the business. In response to an analyst question about restructuring despite strong demand signals, Woodside said Freshworks is rebalancing teams toward EX and leveraging AI in development, noting that “over half of our code is originated in AI today.”

On capital allocation, Woodside noted a $400 million share repurchase program authorized in February. Sloat said Freshworks repurchased 5.7 million shares for $45.4 million in Q1 and used an additional $7 million to offset dilution via net settlement of vested equity. The company ended the quarter with $780 million in cash and investments and about 318 million fully diluted shares outstanding, down about 2% year-over-year.

For guidance, Sloat said Freshworks expects second-quarter revenue of $232 million to $235 million and full-year revenue of $958 million to $964 million. The company guided to Q2 non-GAAP income from operations of $41 million to $43 million and full-year non-GAAP income from operations of $207.2 million to $215 million. It also projected Q2 non-GAAP net income per share of about $0.13 and full-year non-GAAP EPS of $0.61 to $0.63.

Sloat said the company expects approximately $265 million of adjusted free cash flow in 2026 and about $57 million in Q2, implying adjusted free cash flow margins of 27.5% for the full year and 24% for Q2. Both Woodside and Sloat reiterated a longer-term objective to compound adjusted free cash flow per share by at least 20% annually over the next three years, with additional details expected at the company’s Refresh event.

About Freshworks NASDAQ: FRSH

Freshworks, Inc is a global provider of cloud-based customer engagement software designed to help businesses streamline customer support, sales, marketing, and IT service operations. The company's integrated suite of solutions enables organizations of all sizes to deliver seamless experiences across multiple channels, including email, chat, phone, and social media. Freshworks' platform is built on modern, user-friendly interfaces and offers native automation, AI-powered insights, and analytics to improve efficiency and customer satisfaction.

The company's flagship product, Freshdesk, serves as a helpdesk solution for customer support teams, while Freshservice addresses IT service management needs.

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