From Nasdaq: 2025-02-12 00:00:16

Freshworks (NASDAQ: FRSH) held its Q4 2024 Earnings Call on Feb 11, 2025, reporting revenue growth of 22% year over year to $194.6 million. The company added over 2,600 net customers in Q4, including Mesa Airlines, New Balance, and Sophos. Freshworks achieved a non-GAAP operating margin of 21% and generated adjusted free cash flow of $41.7 million. The company is focusing on investing in employee experience, delivering AI capabilities, and accelerating growth for customer experience solutions. Freshworks saw significant growth in its EX business, surpassing $400 million in ARR and growing 35% year over year.

For more information, visit Freshworks’ investor relations site to access earnings releases and reports. CEO Dennis Woodside highlighted the company’s strong Q4 performance, with over 72,200 customers choosing Freshworks software for their business needs. The company’s strategy to drive durable and profitable growth is working, with a focus on EX and AI capabilities. Freshworks is positioned for continued success and growth in the coming years. Freshworks is gaining momentum as more mid-market and enterprise customers opt for their software over larger IT competitors who overcharge and underserve. Major companies and city governments are switching to Freshworks, like a hard drive manufacturer who ditched ServiceNow after 13 years. Freshworks’ EX business is growing with over 75% of ARR coming from mid-market and enterprise clients. Freshworks also saw success with ESM in Q4, with Alterra Mountain Company and Coherent utilizing Freshservice for various departments. Additionally, Freshworks is focused on AI, with more than 2,200 customers using Freddy Copilot and positive results seen with businesses like AdaptHealth. Freshworks, a leading customer engagement software company, reported strong momentum in its CX business, with over 58,200 customers and generating $360 million in ARR. The company saw 7% year-over-year growth in this segment. Freshdesk, a Freshworks product, was adopted by Airbus subsidiary Satair, resulting in a 40% reduction in ticket handling time. Freshworks also made updates to Freshdesk’s support admin features and supervisor experience in Q4, leading to stable retention rates from Q3. The company welcomed a new chief product officer and SVP of product management to its leadership team, aiming to drive innovation in CX and EX products.

Freshworks also announced a strategic partnership with Unisys, a global SI partner, who chose Freshservice as their modern IT solution. Unisys will initially resell Freshworks products and plans to leverage them for an MSP offering in the future. Freshworks has over 500 active partners globally and expects increased efficiencies in go-to-market efforts through strategic partnerships. The company aims to drive new avenues of growth and attract a more diverse pool of customers through its partner strategy.

In Q4, Freshworks reported outstanding financial results, surpassing top-line and bottom-line estimates. The company expanded its non-GAAP operating margin by 800 basis points quarter over quarter to 21% and grew adjusted free cash flow by 46% year over year to $41.7 million. Freshworks remains confident in its ability to drive profitable growth and deliver results efficiently with its enterprise-grade software. The company saw a notable shift in FX rates in Q4 due to the strengthening of the U.S. dollar. In Q4, revenue was up to $194.6 million, growing 22% reported and 21% constant-currency. Device42 contributed $10.3 million. EX business surpassed $400 million in ARR, growing 33% year over year. CX business is over $360 million in ARR, growing 6%. Net dollar retention was 103% reported, 105% constant-currency. Customers over $5,000 in ARR grew 11% reported, 13% constant-currency to 22,558 customers. Calculated billings grew 23% year over year to $222.5 million. Adjusted free cash flow for Q4 was $41.7 million with a margin of 21%.

For the full year 2025, expected free cash flow is $210 million. $15.5 million of shares were repurchased in Q4. Net-settling vested equity amounts used $11 million in the quarter and $60 million for the full year 2024. The company expects Q1 cash usage of $18 million with full-year usage of $71 million for net-settled equity. Cash, cash equivalents, and securities amount to $1.07 billion. Share count growth is less than 1% from the prior year. Revenue for Q1 2025 is estimated at $190-193 million, growing 15-17% year over year. Full-year revenue is projected at $809-821 million, growing 12-14% year over year. Non-GAAP net income per share is expected to be $0.12-$0.14 for Q1 and $0.52-$0.54 for the full year. The company anticipates higher revenue growth rates in the first half of the year compared to the second half.

The EX business, focused on the mid-market and lower end of enterprise, is a $400 million ARR business with 20%+ organic growth. The company aims to sustain growth by providing enterprise-grade solutions without complexity, targeting companies with 250-20,000 employees. The market potential is significant, particularly in the U.S. alone, where the mid-market represents approximately $10 trillion in economic activity. Device42, a recent addition to the company’s offerings, is expected to drive growth with its asset management and security features. The company is proud of its performance in Q4, with an op margin milestone of over 20%. Despite this, they are focused on efficiency and considering opportunities for inorganic growth through acquisitions while reinvesting in the business. The company also plans to continue executing share repurchases and investing in growth areas. The CEO explains that the slowdown in customer adds over $50K in revenue was impacted by FX exposure, lapping against a strong prior-year Q4, and landing larger deals. The company is excited about the MSP opportunity with Unisys and is investing in functionality to support this market. Freshworks executives discussed the pressure on NRR, with challenges in expansion. However, they highlighted the growth in net adds, driven by AI products like Freddy. The company sees AI adoption accelerating this year, offering a big opportunity for growth. While NDR came in at 105%, showing improvement, expansion rates for agent addition are still declining. Freshworks plans to focus on monetizing AI products, targeting new business and existing customers. SMB demand is stable to improving, with AI playing a key role in efficiency for larger SMBs. Overall, Freshworks remains optimistic for 2025, with a focus on growth and sustainability in their various product offerings. In the latest earnings call, the company discussed driving efficiencies and expected operating margin improvements in the second half of the year. They also highlighted the impact of AI advancements on customer offerings and cost considerations. The company continues to invest in CX and EX markets based on opportunity and momentum. The 50% attach rate for Freddy Copilot is impressive, but specific ACV uplift figures have not been disclosed yet. The company plans to provide more details on monetization strategies during their upcoming Investor Day. Expansion opportunities include adding Freddy AI Agent for L1 support and Freddy AI Copilot for agent productivity. Freshworks executives discussed the company’s growth and expansion opportunities during a recent conference call. They highlighted the success of Device42, an IT asset management solution that has helped drive consistent growth in the business. The company has achieved key milestones, including the launch of a revamped integration between Freshservice and Device42. Device42 has played a significant role in winning deals, with 3 of the top 10 deals involving the solution. Freshworks plans to continue bundling Device42 with Freshservice as a united product, making it challenging to distinguish revenue between the two. The company anticipates continued growth and a positive outlook for the future. 1. The Motley Fool reports on the latest stock market trends, with no position in the mentioned stocks.

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Read more at Nasdaq: Freshworks (FRSH) Q4 2024 Earnings Call Transcript