Freshworks Q2 Earnings Call Highlights

Key Points

• Freshworks delivered a strong second quarter: Revenue rose 16% year over year to $237.4 million, while the company achieved GAAP profitability earlier than expected with $3.2 million in net income. Non-GAAP operating margin reached 24%, and Freshworks maintained its “rule of 40” performance for the eighth consecutive quarter.
• Employee experience and AI drove growth: EX ARR increased 23% to $567 million, while enterprise service management ARR grew 67% to more than $50 million. More than 7,000 customers paid for AI products, and Freddy AI Copilot was attached to over 70% of new deals above $30,000.
• Freshworks maintained an optimistic outlook: The company expects approximately 15% full-year revenue growth, $222 million to $228 million in non-GAAP operating income, and about $265 million in adjusted free cash flow. CX growth remains modest at 3%, as the company prioritizes profitability and focuses on larger customers.

Freshworks NASDAQ: FRSH reported second-quarter 2026 revenue of $237.4 million, up 16% year over year on a reported basis and 15% in constant currency, as the company highlighted continued growth in its employee experience, or EX, business and an earlier-than-expected move to GAAP profitability.

Chief Executive Officer and President Dennis Woodside said Freshworks posted a 24% non-GAAP operating margin and achieved the “rule of 40” for the eighth consecutive quarter. The company recorded GAAP net income of $3.2 million, or $0.01 per share, ahead of its prior goal to reach GAAP profitability by the end of 2026. Non-GAAP earnings per share were $0.17.

“GAAP profitability is no longer just a goal. It is here,” Woodside said, adding that the company expects to sustain GAAP profitability while funding investments in EX and artificial intelligence.

EX business remains Freshworks’ primary growth engine

EX annual recurring revenue reached $567 million at quarter-end, increasing 23% year over year as reported and 24% on a constant-currency basis. The segment represented about 59% of total ARR. Freshworks expects EX ARR to grow in the mid-20% range and exceed $600 million by the end of 2026.

Woodside said the company is gaining traction with larger organizations seeking alternatives to legacy service-management systems. Customers generating more than $100,000 in ARR grew 25% year over year on a reported basis, or 26% in constant currency, and accounted for approximately 40% of total ARR.

The company cited Seagate, which selected Freshservice after using a legacy provider for 14 years, and American Oncology Network, which deployed Freshservice for IT and business teams alongside Freddy AI Copilot. Woodside said Freshworks is benefiting from demand among “agile enterprises” with up to 20,000 employees that need enterprise capabilities without the complexity of larger platforms.

Freshworks also pointed to expanding adoption of adjacent EX products. Enterprise service management crossed $50 million in ARR, growing 67% year over year, while roughly one-fifth of new EX seats came from outside IT. About one-third of larger new EX customer wins included IT asset management products, and the company said the quarter was its strongest new-logo period to date for that business.

The company’s FireHydrant incident-management business generated its first six-figure expansion deal since being acquired by Freshworks and was among the company’s three largest deals of the quarter, according to Woodside.

AI products show adoption and monetization progress

Freshworks said more than 7,000 customers are paying for an AI SKU, while the Freddy AI Copilot attach rate on new deals above $30,000 exceeded 70%. Among eligible EX customers, 22% were paying for Copilot during the quarter.

Woodside said agents using Freddy AI Copilot handle 50% more tickets, while Freddy AI Agent deflection rates average 50% and can reach 80% in mature deployments. The company launched Freddy AI Agent Studio and MCP Gateway for Freshservice at its Refresh event in May. Hundreds of customers are using the products in early access, and Woodside later said Agent Studio had more than 1,000 customers using it. Freshworks expects to introduce session-based pricing for Agent Studio in the fall.

Chief Operating Officer and Chief Financial Officer Tyler Sloat said AI is becoming a larger source of expansion activity, although it can take time for existing customers to adopt Copilot because they have established workflows. EX customers using AI continue to have net dollar retention above the companywide rate, Freshworks said.

CX business grows modestly as company focuses on efficiency

Customer experience, or CX, ARR totaled $400 million, up 3% year over year as reported and 4% in constant currency. Freshworks continues to expect low-single-digit CX ARR growth for the full year as it operates the segment with an emphasis on profitability and steady-state growth.

More than 90% of Freshdesk customers had migrated to the Freshdesk Omni platform as of the second quarter. Woodside said CX AI agent sessions and conversations on Freshdesk Omni rose 60% sequentially and more than fivefold from a year earlier.

Freshworks consolidated its CX organization in India as of July 1, bringing go-to-market, product and engineering teams together. Woodside said the company is focusing new customer acquisition on the higher end of the small-business market and the mid-market, rather than pursuing smaller customers that historically carried higher churn.

Margins, cash flow and outlook

Non-GAAP gross margin was 86%, while non-GAAP operating income reached $55.9 million. Adjusted free cash flow was $57.7 million, representing a 24% margin. Net dollar retention was 104% as reported and 105% in constant currency; excluding legacy Device42 customers, constant-currency NDR was 106%. EX NDR excluding those customers was above 111%.

Freshworks repurchased approximately 18.3 million shares for $159 million during the quarter and used another $10 million to offset equity dilution through net cash settlement. The company ended the period with $665 million in cash and investments and no debt.

• Third-quarter revenue outlook: $244.5 million to $245.5 million, representing approximately 14% year-over-year growth.
• Third-quarter non-GAAP operating income outlook: $59 million to $61 million.
• Full-year revenue outlook: $963.5 million to $966.5 million, or approximately 15% growth year over year.
• Full-year non-GAAP operating income outlook: $222 million to $228 million.
• Full-year adjusted free cash flow outlook: approximately $265 million, for a 27.5% margin.

Sloat said the full-year revenue outlook incorporates a $2 million foreign-exchange headwind compared with the company’s initial expectations for the year. He said Freshworks remains focused on investing first in EX sales capacity and AI research and development, while using excess capital for shareholder returns.

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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