• Revenue: $194.6 million in Q4, a 22% year-over-year increase.
• Non-GAAP Operating Margin: 21% for Q4.
• Adjusted Free Cash Flow: $41.7 million in Q4, with a margin of 21%.
• Net Dollar Retention: 105% on a constant currency basis.
• EX Business ARR: Surpassed $400 million, growing 35% year-over-year on a constant currency basis.
• CX Business ARR: Over $360 million, growing 7% year-over-year on a constant currency basis.
• Gross Margin: Over 86% for Q4, a 200 basis point improvement from the prior year.
• Customers: Over 72,200 total customers, with a net addition of over 2,600 in Q4.
• Calculated Billings: $222.5 million in Q4, a 23% year-over-year increase.
• Cash and Equivalents: $1.07 billion at the end of Q4.

• Warning! GuruFocus has detected 3 Warning Signs with FRSH.

Release Date: February 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Freshworks Inc (NASDAQ:FRSH) reported a strong Q4 with revenue growth of 22% year-over-year, reaching $194.6 million, surpassing previous estimates.
• The company achieved a non-GAAP operating margin of 21% and generated an adjusted free cash flow of $41.7 million, reflecting a 21% margin.
• Freshworks Inc (NASDAQ:FRSH) added over 2,600 net customers in Q4, marking the largest quarterly increase in four years.
• The EX business surpassed $400 million in ARR, growing 35% year-over-year on a constant currency basis.
• The company is seeing strong momentum in AI adoption, with over 2,200 customers using Freddy Copilot and a 50% attach rate for new deals over $30,000.

Negative Points

• Freshworks Inc (NASDAQ:FRSH) faced a 3 percentage point negative impact on ARR growth due to foreign exchange fluctuations.
• Net dollar retention was reported at 103% due to FX impact, slightly below expectations.
• The company anticipates continued pressure on expansion, with net dollar retention expected to be around 104% in Q1.
• The guidance for 2025 indicates a slowdown in revenue growth, with expectations of 12% to 14% year-over-year growth.
• Freshworks Inc (NASDAQ:FRSH) is facing challenges in the competitive landscape, particularly from large SaaS vendors like ServiceNow.

Q & A Highlights

Q: How are you thinking about the growth potential for the EX business as you start to anniversary Device42? Can you sustain 20%-plus growth? A: Dennis Woodside, President, Director: The opportunity is huge, especially in the mid-market and lower end of enterprise. Our EX business is focused on companies with 250 to 20,000 employees. These companies need ITAM, ITOps, and other solutions we offer. ServiceNow is a major competitor, but our product offers enterprise-grade capabilities without the complexity. We had over 40 $100,000 wins last quarter, indicating strong market response. Device42 and AI are expected to accelerate growth in 2025.

Q: With over $1 billion in cash, would you consider more M&A to complement and help accelerate the product roadmap while maintaining growth? A: Tyler Sloat, Chief Financial Officer: We are open to inorganic opportunities as they arise. Device42 was our first substantial acquisition in six years, and we are optimizing its integration. We will continue share repurchases and net-settles. We plan to reinvest in the business, focusing on growth areas while maintaining efficiency.

Q: Can you explain the slowdown in $50,000-plus customer adds and its relation to IT ESM business performance? A: Dennis Woodside, President, Director: The slowdown was influenced by FX impact, a strong prior year Q4, and a shift towards landing larger deals but fewer in number. We had our most deals over $200,000 in Q4, indicating strong upmarket momentum. The ARPA for the $50,000-plus cohort is up, reflecting positive growth.

Q: What is the opportunity for the MSP market, and are you ready from a product perspective to support MSP customers? A: Dennis Woodside, President, Director: We are excited about the Unisys partnership, which will involve co-selling and building an MSP around Freshservice. We have been investing in MSP functionality and have over 1,000 MSPs using our product. We have releases planned to enhance MSP capabilities, indicating a large opportunity in this space.

Q: How do you view the SMB demand environment, and what is your outlook for 2025? A: Dennis Woodside, President, Director: The demand is stable to improving, with ARR for CX showing consistent growth. SMBs are constrained by high interest rates but are realizing the efficiency benefits of AI. Our focus is on SMBs with 100-200 employees, and we are optimistic about 2025, given the progress in Q4.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.