Right, welcome back. We have Tyler from Freshworks. He has been at the company now since 2020?
Yes. It's been a couple of years.
Yeah.
Great conference.
Tyler and I have known each other for a while. He's been a fixture in the software industry and tech industry for quite a while. It's great to have you back, and thanks for supporting the conference. I think a lot of people know the Freshworks story, but maybe in your abbreviated 40,000-foot view, bring everyone up to speed kind of where you're at today versus maybe a few years ago. The strategy has shifted a little bit.
Sure.
Teams come in, growth rate's been really good. Just bring us up to speed on where you're at now.
Yeah, so let me start. Just Freshworks. I think most people know who we are, but I still, every once in a while, get, you know, are you the food delivery business? We are not. Enterprise software company really founded 15 years ago as Freshdesk for customer support software. And then a few years after that, realized a lot of our customers were using our desk product internally for IT. We said, you actually need a purpose-built solution for that. We built Freshservice and changed the name to Freshworks. And that's who we are today. Really focusing on two main categories: CX products and EX products. So products focused on the customer and products focused on the employee. And now very, very much focused on kind of AI, human-enabled AI products that we think, you know, we've had AI for years and years, but now everything is kind of changing.
We feel that we're at the forefront of it. Brent just mentioned things shifted a little bit. I joined the company five and a half years ago. We went public four years ago. We really went public on Freshdesk. It was a very rapidly growing product and doing very well, competing against Zendesk, Salesforce, and others. Freshservice was a little bit kind of the side story as we also have this other product. Things have shifted. Today, Freshservice is now greater than 50% of our ARR, growing faster and doing really, really well, and really just kind of starting to own that mid-market low-enterprise space as the number one alternative underneath ServiceNow. We are completely leaning into that. Freshdesk is still there. It is a $370 million ARR product, kind of growing at high single digits.
Really our focus right there is, okay, how can we get this thing back to kind of double-digit growth? We think the market is growing around kind of low to mid-teens. We need to get that back to that range. We're kind of refocusing on the SMB low-mid market for that space, but very much focused on the AI products that we're bringing forth as well.
That's great. I mean, with your new leader, it feels like the pace has picked up. Maybe share kind of, you know, since Dennis has been on board, what's happened, that transformation and what you're seeing. I mean, both at the top and bottom line have been, you're moving at a faster cadence.
Yeah, I would say that, we appointed Dennis Woodside, we, the board appointed Dennis Woodside, our CEO, last May. Essentially a year ago. He had joined as our president about a year and a half before that. It was kind of a kind of a natural known transition from Girish, who was our co-founder CEO, who hired me five and a half years ago. Dennis really came in, he's got great operational chops. He had actually been on the board of ServiceNow for, I think, four years. He had been the CEO of Dropbox. He had been the CEO of Google, Motorola division of Google. Ran a lot of sales for Google for years before that. He really comes in with a lot of operational rigor.
I think that is one of the biggest changes, where it's really truly about focus and how do we actually take Freshworks with incredible products and our legacy now, you know, nearing a billion dollars to truly focused on like that multi-billion dollar company. What is the management team we need? What is the leadership we need? What is the strategy we need? The board appointed him CEO and they said, hey, you have 90 days to come back with a strategy. We did. We're very open about it with the market. That strategy that we kind of talked about after our Q2 call was really going to be EX first.
We're going to lean into this and really focus our field motion, which is our outbound NGO sales motion, on really trying to capture as much of that market as possible because we do think we have an opportunity set there. Next is AI across all products. We have three AI products. We have a Freddy Copilot product. We have a Freddy AI Agent product. And we have a Freddy Insights product. I can talk about those in a minute. It is really AI across all products. CX, really making sure that we are focused on the ICP and kind of making sure that we can bring that whole product group back to growth. That is what we've been executing against since. Coming out of the year, refocused a lot of the teams.
You're starting to see some of the traction already start to take hold on some of those things. At the same time, we also did our first acquisition. We kind of closed it very shortly after we named Dennis as CEO. That was Device42, which is an ITAM solution, really, which is part of our EX offerings, making us more competitive in that enterprise space so that we can confidently go in and compete against ServiceNow for that low enterprise.
That was comprehensive. Thank you. Maybe if we go into the EX segment, you mentioned over 50% of your ARR still growing at this really, really strong rate. You know, everyone asks like, how much is left there? Like what are you seeing? What are the drivers? Maybe help us better understand the next leg of this move.
Yeah, I think you're right. EX has been doing great. A lot of it is because it's just positioned very well competitively. A lot of it is because we've been innovating on this product for years now, really listening to customers and just focused on staying true to our roots, which is kind of building for ease of use, building for the end user, but at the same time adding feature functionality that makes us relevant to that low enterprise mid-market customer. In that space, you have some legacy providers in kind of the BMC, Helix, Remedy stuff, and the Ivanti ShareWell, which are going through their own issues in terms of on-premise solutions moving to cloud, which has been a great kind of tailwind for us as that cloud migrations happen. Customers naturally will look at alternatives.
You've got players that are kind of more at the SMB to low mid-market space, which is really JSM from Atlassian and ManageEngine. You have some point kind of competitors, and they have ServiceNow. There is just this big void of providing really easy to deploy, really easy to use enterprise-grade software at a great value. We are filling that void. Now as we've continued to innovate, we're actually starting to just get pulled into larger and larger deals at that low enterprise. In terms of capability for growth, we absolutely feel we have a long ways to go there. I think the thing is we're not big yet, right? We're at a $420 million ARR product at a great growth rate. Our capability to kind of move the needle on that, we don't have to do anything exceptional.
We did have to kind of fill out some gaps. One of those gaps was in ITAM to get to enterprise-grade ITAM. That was a true builder-buy situation. There were not that many independent players out there. Device42 was by far the best. That acquisition has done really well in terms of what the thesis was. There are adjacencies that we have been talking about going into, which is really ITAM, deeper into ITAM and security operations. Those will come, and we do not have to have those to grow. The other thing that is doing really well is Freshservice for business teams, which is ESM applications. Enterprise service management is selling kind of workflow and ticketing into other functions outside of IT. It starts usually with HR, but it is also procurement, facilities, and finance. Right now, we cannot even, we do not land with ESM.
It's actually truly just an upsell product on Freshservice that will become a true land product. That, I think, will be one of our big Trojan horse kind of products where we can go into divisions of ServiceNow companies and go sell to their HR, get them up and running really, really fast, provide them a solution that truly works, and then be able to proliferate out from there. We are pretty excited about what the opportunity is for our EX products.
One of the questions I get is the categories you're in have been around for a long time. They're not new. Everyone asks, is there like a killer app or is there something new you're developing that can take these markets that have been around and re-energize them? Maybe it's Freddy. I don't know if you named it after Freddy Freeman, who.
We did it.
Okay [but now]
Yeah,
like what's the secret exciting sauce that gets these established markets that have been around forever to kind of.
Yep.
I equated everything goes through evolutions. The reason that Freshworks even exists was because of Freshdesk. And it was an experience that G had in a personal support experience that he had that was just really horrible. Then he looked at the solutions that are out there and he's like, there can be something better. That really led to a conversational-first support. Truly omnichannel where the whole world is changing. It's going to come from Twitter and everything that's being put out there in social is going to have an influence on companies. You better be able to go reach your consumer where they are as opposed to forcing them into an email channel or something like that. That was Desk's opportunity. It continues to be Desk's opportunity. The world is clearly going to agentic. We are big proponents of that.
We think that that is going to be, it's not going to be a killer app, but it is going to change the way software is delivered and how end users use. We've had, so you said Freddy, we've actually had Freddy for years. It was all NLP models that we had built. Yes, the game is different now because you have to build off of LLMs and they're much more powerful and they're truly conversational. They actually are truly agentic, meaning that the software can now go take actions on behalf of what an agent usually had to do. That is going to be the big difference that's going to happen. We are building all that and we feel that we're at the forefront and we're delivering that to our customers today. What is next after that? I'm not sure.
I think that this is actually a big progression that's going to be with us. The things that are going to change are things around pricing and packaging. Really the stacks of software that you have. You will still need the software at its core that is going to be the system of record and that has to have things like audibility and things like that. The solutions that are within that software I think are going to change.
If you had like a killer app inside the family of your solutions, what would that be? What would it be?
Freshservice at its core is doing incredibly well. The killer app for us historically has been a software very focused on the end user and time to value. Meaning like the holy grail software in my mind is building for an SMB, which means that there's no implementation. You can just turn it on and it just works and it's seamless. That's what we started with. We serviced the SMB to start and that's what you have to build. If you add feature functionality as you go, but you stay true to that core, then you're going to have a killer app. We give an example of a 15-year ServiceNow customer that is a big hardware name that everybody would know that we just took out and were able to get them live within six months on Freshservice.
That is a Herculean feat when you think about a company like that, a multi-multi-billion dollar company. To be able to rip out a legacy software to be able to go do that. Now, when you combine that with agentic AI and you keep true to the capabilities that we can now turn on AI for companies like overnight and be able to tie into their backend systems and just make it work, that's going to be the killer app.
That's great. You mentioned you're not giving up on Freshdesk or the CX side, but what's happening there? What needs to happen to get that back to double-digit growth?
Yeah, I think it's twofold. I don't actually think it's super complicated. I think the first thing is just pure execution, which we're already working on. CX for us, even though our largest customers tend to be CX customers, they tend to be companies that we closed at a very small amount, let's call it $50,000- $100,000, and they're now million dollar customers just because they've grown with us over time. And/or they proliferate to other divisions and things like that. At the core, our new business is still going to be focused on that SMB low mid-market space. In order to do that, we have to make sure that PLG motion is truly working. It's one area I think we probably ignored if you look back over the last five years. We did not really change the trial journey. We didn't really focus on that.
Yet our customers have changed. We are now very focused on doing that. When I say execution, it's execution on the sales motion and the rigor of that sales assist for PLG, which we hired Mika and she's had a year now and she's actually been making huge strides on that. It's execution on focusing on kind of what is that 80% or 90% of issues that a lot of your little customers might have had, which are bugs and things like that. We've cleaned out the majority of that over the last six months. It is going to be execution on conversion rates on that top of funnel. Just doing those three things, which is not like new feature functionality necessarily, that's just kind of like blocking and tackling. Very focused on that.
When you overlay all the agentic capabilities on top of that and make sure we're staying true to the DNA that are described, then that is just going to have growth. As you do that, like that whole market, that whole world is changing. One of the biggest questions we have is like, oh, are you seeing disruption in your agent counts because of your AI capabilities? We are saying no, we're not right now. Meaning like we can't point to a customer that is downsold because they become so much more efficient with all the Copilot capabilities. That being said, Copilot actually has great adoption rates and it's continuing to get better as well as AI agent. Maybe those customers would have grown more without it, but we are supplementing it with the actual ASPs we're getting on the Copilot stuff.
We're going to do all of that execution, blocking, and tackling while continuing to innovate specifically on AI. That's what's going to get us to double digits growth.
If you think about AI this year, can you break it out and say it's going to be XYZ% of the growth or XYZ millions of dollars of revenue? Or are we still 2026, 2027 until we're going to get to a point where it's really material?
Yeah, what we've been breaking out every single quarter in terms of the traction on our AI products is really more the utility and the amount of customers who are using it. We've also said we've been holding to ASPs and been getting pretty good traction on the prices that we've been charging. In terms of materiality of revenue, it's not quite there yet, but we have our investor day on September 11. We said, okay, that's the time we'll probably be breaking out some stuff and giving some visions for what AI is going to mean from a materiality perspective. I do think it's going to be interesting when you look at AI as a revenue stream because over time, my expectation, it's more personal opinion than anything else, is that it's going to become commoditized.
Like if you do not have these capabilities in your products, you will not compete. When that happens, it's like, can you actually end up charging extra for these things or are they going to be included as part of what you're buying? When they're included, if they are truly efficient, then the pricing and packaging will eventually change. Probably moving away from agent-based models to some type of consumption-based models, some type of resolution-based models. The reality is the AI products probably aren't quite there yet to purely move to those. We have half consumption, half add-on at this point. We are going to continue to move towards that. The AI agent is pure consumption because there's no human there, right? The whole point of the AI agent is for it to go solve its own problems.
We sell session packs and those are doing great. We will give an update in September on it.
Has it been slower or faster than you thought?
I think it's as expected.
As expected.
Yeah, as expected. But it's.
Because there was a lot of hype a year ago.
Yes.
Everyone was like, we have massive like AI digestion. And like in the last three months, no one's asked me an AI question.
I mean.
It seems like we went through this over-enlightened phase and too much excitement and now it's like everyone.
We've always had that expectation. I mean, again, we've had AI products for years. They're completely different AI products now and much more valuable for the end user. Yet it's interesting, we go talk to our customers and they say, hey, we love these products and they're really helping us, but do not forget about traditional core functionality. We still need all of your basic ticketing and stuff like that. We had a customer of ours that everybody knew was a big customer and they came out and said they were going to move everything to their own AI. Our stock actually dropped by like 5-10% that day just based on that thing. As tangential, what the impact to us is that customer is still a customer and they actually renewed and upgraded, right?
It's not going to happen overnight as everybody expected, but it absolutely is happening. You just have to be part of the journey.
Overall AI growth around 19%, but you got it to 13-15%?
You're asking what's the difference?
Yeah, like, yeah.
Just as a reminder, we did buy this company, Device42. Device42 is a term licensed product. We have a journey. We've been pretty explicit about how we're going to move that to the cloud. As that's a term licensed product, it does provide a little bit of lumpiness in terms of the revenue recognition that we take a little bit upfront. We're also going to anniversary that acquisition. Growth rates, which we've been very, very open about, will change at the end of Q2 because that acquisition gets anniversary and then you start to take in that growth rate, right? A lot of the difference is because of that lumpiness.
What do you think the overall and stable environment your end market grows at?
We're not super excited right now about talking about 13-14% growth for end of year. It does indicate a slight acceleration as we go through the back half of the year. We're confident about that. We had a really good Q1. We beat our numbers in Q1. We took that all the way through for the year. We did a raise for the year. We didn't raise by more than the beat because we think prudence is a good thing right now. We're very confident in how we're doing and we feel like the business is going really, really well. Our markets are growing faster than we are. We feel there's no reason we shouldn't be back to a 20% grower, but we actually have to go through the journey to get there. We're not there right now, right?
We have not given an update on more like a three-year model, which we did two years ago at our investor day in September. We will be giving an update. What does a longer-term vision look for us?
You think high teens, low 20s is not.
We have to take it in piece parts. Our CX business right now is high single digits, right? I said, okay, what do we have to do to get it to double digits? What do we have to get it back to market, which is like mid-teens for CX, I think. On the EX business, yes, that has a capability to continue to grow at a fast pace. Now it's a larger product. On a weighted average basis, it's going to provide a little bit more. Longer term, we haven't updated any of those growth rates, but the markets are there. We just need to go execute. We're not that big. We don't have to go close $20 million-$30 million deals to grow right now.
Again, we'll update in September, but our very much focus is, okay, let's just take it step by step as opposed to try to get to an end goal today. Let's just take incremental steps.
Billion dollars on the balance sheet. I mean, it's healthy. 20% of your market cap. Everyone's like, why let it sit there?
We are doing a buyback. We are actively doing one right now. We announced it at the end of Q3. We have been talking about how much we have been executing against it. You are right. We went from two and a half years ago to burning $17 million that year in free cash flow. We said this year we are going to produce over $200 million in free cash flow. We pride ourselves on being efficient and operating efficiently. We want to do both, right? We want to grow at the top line, but continue to be efficient. We are not a bank. We know that, yeah, we have a billion in the bank. We are producing a lot of cash. We have to do something with it. We have been doing net settles on RSUs since we went public.
That has been between $60 million-$120 million a year that we have been using off our balance sheet. Now we are actually adding to that with the $400 million buyback that we had announced. We are going to continue to have a capital allocation strategy that makes sense for us and makes sense for shareholders. We have also said we would be very open to acquiring companies if it makes sense. When we look at that, it is like, okay, we want to be able to have the capacity to do that for deals that make sense. Device42 is a great example of that. Everything is out there, but I think we are doing the right things right now.
Any questions from the audience? Last couple of minutes here.
I try to be very comprehensive in my answers.
You are very comprehensive. You're very clear. Thank you for being clear. I guess your heritage and advantage of India, is it still over 80% in India?
In terms of total employee base, yes. So the company was always been a U.S. company, but founded out of India. And unlike other companies who might offshore things to India, I kind of equate it that our first offshore employee was in the U.S., which means every single function was built ground up in India. Now that has changed over time where we have this inbound motion that is completely run out of India, which handles the SMB kind of commercial segment of our business. We have an outbound field motion, which is really synonymous with EX for new business. That is NGO sales. When you build that out, you have presence all over now. As you build out presence, you have to have support on different functions. We have our headquarters are in San Mateo, California.
A lot of our leadership is here, but every single function is represented in India. That provides us a great cost advantage. It also provides us a capability from a go-to-market perspective to attack that long tail of SMB, which is very difficult to do efficiently. All of R&D is in India. Sales, part of it is in India for the inbound. As we grow, we are very focused on making sure we have the right people in the right places. Fundamentally, at the end of last year, we just had too many people. We had solved problems by throwing bodies at it as opposed to thinking about automation and really building systems for scale. We did a reduction and it had nothing to do with cost optimization.
It had everything to do, let's be much more focused and efficient in the way we operate as a business. It was 13% of headcount and we didn't even miss a beat, right? I think we're trying to be right now very prudent about how we hire. We have less headcount than we did last year. We have a lot of open headcount we're trying to hire, but again, it's about focusing on hiring the right people in the right roles.
Thank you, Tyler. Appreciate you sharing that story.
Thanks for having us, man.
Story. Yeah, good to see you.