We have with us the CFO of the company. Tyler is a regular here at the Oppenheimer Tech Conference. Thank you very much for coming back.
Thanks for having us, Matt.
Really appreciate it. Tyler, maybe for some of the new listeners in the audience who may not be as familiar with Freshworks' story, maybe just to level set the discussion, can you share from a 20,000 feet view a brief company background and the problems that the company is solving?
Absolutely. For folks who don't know us, we're not a food delivery business. We are a software company. Freshworks was founded in 2010, so about 15 years old, with Freshdesk as our main product line. That's evolved over the years. Today, we build AI-powered software that kind of plays in two big markets: EX and CX. EX are employee-facing products, and CX are customer-facing products. We're selling into IT and customer support teams. The whole goal is to make them more efficient and effective. We have over 74,000 customers now, and competing in different spaces across that EX and CX landscape. EX is our fastest growing product. It is kind of doing really, really well.
We are the number one alternative for ITSM underneath ServiceNow and really focused on that 5,000 - 10,000 employee organizations, really providing them enterprise-grade software that's really easy to use, really easy to implement with a great ROI. That's been our focus for years on that side. That's now a $450+ million business growing over 20%, 22% constant currency, about 19,000 customers there. Our CX business is still really meaningful, where they are of over $380 million. That was an 8% grower this past quarter, a slight uptick from 7% the quarter before. That has 60,000 customers. The CX business is really selling from that long tail of SMB all the way up to very large organizations, but really landing mainly with the SMB, kind of mid-market, low mid-market. Our growth opportunity is really EX right now. We're very focused on that.
We are selling in, as I mentioned, focusing on that 5,000 - 10,000, but going up to 20,000 person organizations and all the way down to companies with 250 people. We are going to be, we will be their very first IT solution that they procure. The playbook has not been, it's been kind of the same. Build great software focused on the end user, which really means great usability and user experience. Over time, add feature functionality so that we will be a credible alternative for very large customers. Customers like Seagate, that was a long time, I think 10+ year ServiceNow customer that has migrated over to Freshservice. That's who we are, Freshservice. We were founded out of India. Our headquarters are in California. We still have a lot of our employee base in India, a lot of our engineering.
We handle all of our SMB commercial sales out of India. Over the past couple of years, I've been building out our field sales presence across North America and Europe primarily. Hopefully that's a good summary, Brian.
It is. Thank you for level setting. You reported Q2 earnings a couple of weeks ago, and you had a really good quarter. You exceeded your guidance and you raised your annual targets. You had a good Q1 too. From a look back, tell us what's working so well for the business here in 2025.
Yeah, I would say we even had a great Q4. I feel like we strong, you know, three really good quarters together. Specific to this year, too, coming out into the year, kind of doing exactly what we said we're going to do and really executing. We feel really good after the first half of the year. What have we been doing is a question. A year ago, a little bit over a year ago, Dennis was appointed CEO and the board said, "Hey, you need to have 90 days to come back with a strategy." We took it very seriously.
That strategy, which we've been executing against, which we've been very clear about, is EX first and really making sure that we are kind of taking advantage of this opportunity that's right in front of us from a competitive dynamic perspective, from the breadth of our software perspective, and really trying to provide a great solution for that TAM that I talked to, that ICP I talked about. Second is AI across all of our products. We gave out our AI number this past quarter on $20 million. We broke that out for the first time. We've been talking about the traction that we've been getting on the attach rates for new business and things like that. It's starting to happen and it's going well.
The third is kind of a refocus on our CX business, focusing on execution, focusing on really being a great cleanup, that SMB mid-market space, and really focusing on that POG motion. That's what we've been doing as well. Look at those three things. We're trying not to overcomplicate it. Really, it's been about focus and execution across those three parameters.
Sounds good. Can we talk about the moat and kind of your right to win in the market? Why are you winning? What is the competitive moat in differentiation? You've got ServiceNow talks about excitement, new logos in your market. Atlassian's pushing into customer service. What gives Freshworks the right to win in the markets you compete in?
Yeah, again, we're not trying to overcomplicate, provide great software that's really easy to use and implement at a great price. That's been the DNA of the company since we were founded. On the CX side, what does that mean? It's like at the core of it, it's ticketing still. Both of our softwares are must-have softwares. We are not, you know, for companies of any scale, you have to have these two products. You have to have a customer support solution if you're selling any product to customers that you need to engage with. If you want to get this on scale, you have to have a solution that's going to help you manage your employee base and help them do their jobs. From that perspective, we're in a great spot, right? Our TAMs are not going to go away. These are must-have softwares.
The software will evolve with AI capabilities and other new feature functionality that evolves over time. The software itself, we're still going to be needed. On the CX side, our right to win is really around providing a really seamless, easy solution with great integrations and ticketing for everybody from the SMB all the way up, but really focused on that SMB low mid-market. It's an incredibly crowded space. We know that. It's really focused on making sure we're focusing on customers who are going to see a lot of value both on the B2B and B2C side. Whether that's a trial-based product, meaning that you can start with a trial and within 20 days, that trial just gets converted to production. That's just a testament that there are no heavy implementations. It just works and you're going. Integrations are out of the box and it's really clean.
On the Freshservice side, a little bit different because we're selling, this is a true enterprise sales motion. When you look at who we're competing against, our number one competitor there is absolutely ServiceNow, but competing against the low end that goes probably the commercial space of ServiceNow, that 10,000 - 20,000 person organization. At the same time, there's still a ton of legacy out there in the BMC Remedy vanity shareholder space. Then players like Atlassian, who are kind of at the lower end with their JSM product. All of those different vendors I mentioned all have different reasons why those customers would switch to us. At the core, it's providing enterprise-grade software that does everything you really need. It may not have every single bell and whistle that ServiceNow has.
That's a benefit because without the complexity, without having the four admins having to manage the software, without having the GSI having to do the deep, deep implementation and customization, it just works and it does what you need. At the same time, we've added a whole bunch of enterprise capabilities, specifically like Device42 with enterprise-grade asset management. These are the things that are just going to make us more and more relevant to those larger enterprises. We're going to continue to progress and we're going to innovate at the same time, injecting AI across all of our product lines, which is going to keep us at the forefront of that. At the end, that's going to be why we're winning.
Tyler, we did get a question on the field from the improvement in the stabilization to slight acceleration in the CX business that you recently reported. Are you seeing any change in seat count trends, or what is driving that stabilization to slight acceleration in your CX business?
Yeah, and I would call it stabilization as opposed to real acceleration. We have been talking about the reduction of the expansion rate specific to agent addition for over two years now, before any ChatGPT announcements came out. It had really more to do with coming out of COVID when everybody was hiring like crazy and then all of a sudden, companies started kind of resizing. We have been talking about that for a long time. We have been very focused on, okay, how do we make sure we can grow with our customer base without having to rely on that expansion rate continuing to increase? On the CX side, what has led to really that stabilization? First is just sales execution. Sales execution is both on new customers, but also on engaging with our existing customers and really getting them focused on adoption and utility of the products.
A lot of that is just the rigor in who we've hired, how we manage the teams, and how we engage with our customer base. The second is really a cleanup of and a focus on a lot of the things we're seeing from customers and making sure we're being super responsive and innovating on fixing all the things that are out there. We have been doing that for the last year. That all leads to better adoption and better churn rates. We have been talking about Freshdesk having kind of best ever churn rates, and that's really one of the reasons of that stabilization. On the sales execution side, that's our new business. Our top of funnel has always been relatively healthy, but conversion rates, and that's one that we talked about.
We haven't done much on the POG side of the house, especially the trial, to really innovate on that side, and that's the stuff that we've been starting to do. The third thing is really AI and really injecting AI agent capabilities on the front end and copilot capabilities for the agents and innovating very fast there, and then making sure our customers see that, but also injecting that into the sales cycle, helping us to win deals. We have talked about the attach rates. Both are larger deals of greater than $30,000 and then also the SMB side of the house where those are high, high teens in terms of attach rate to new business. These are all things that have led to the CX stabilization, I would say. Again, I wouldn't call it acceleration. We went from 7% - 8%.
I think it's still going to stay around that level. In fact, Q4 we've said, hey, it's going to be a little bit tougher compared because we had a free-to-paid initiative last Q4. In general, we feel okay about how the CX stabilization is going with all those efforts that we've put in place.
Great. Bringing it back to how you think about investing in the two different business segments, the go-to-market investments, how do you balance that? You've got a large CX business, you have a large EX business. How do you balance the product, the go-to-market investments in the different segments?
Yeah.
We'll start there.
Yeah, so as a reminder, Brian, we have two different sales motions and two different leaders. We have Mika, who's our Chief Customer and Marketing Officer. Mika owns all the marketing globally, but she also owns all of our SMB commercial sales, which is by far the majority inbound and all run out of India. That's across all products, but mainly CX. Then we have Ian, who's our Chief Field Officer, who runs all of our field sales operations globally. It tends to be on new business, mainly EX, and just in terms of the customers that we're dealing with. We have been really clear our opportunity is on EX for growth. When we say that, okay, what does that mean?
It means that a lot of the investments that we're going to be making are building out the enterprise-grade sales capability in the field, which we're, I'd say, early days still in doing. It's not a muscle that the company has had historically because we started as selling really to the SMB low mid-market. As Freshservice has evolved over the years, we now need to be really good at selling it to enterprise. We're building out that muscle today, and a lot of our investments will be there. In line with that, you have to build a pipeline for that. A lot of that is going to be driven by field marketing or outbound marketing, going to engage with CIOs.
Everything from our customer advisory board stuff that we are now a year into and doing this, maybe a year and a half, all the way through to the field marketing stuff that we're doing to go get more brand awareness out there. That is where a lot of our focus is going to be. At the same time, we're still very focused on driving top of funnel inbound, which feeds both CX and EX. When we think about marketing, it's like, how are we optimizing for that demand gen machine to make sure that we are still driving pipeline across both products, but across the ICPs that we think are going to have the most traction? That's the way we think about it. EX first, it's in line of strategy and optimizing for opportunities set there, but still trying to optimize for top of funnel inbound for CX.
Is it fair to assume also, at least just thinking about customer lifetime values, that the opportunity is bigger in EX in terms of the long-term customer lifetime value margin profile for businesses as they scale?
Yeah, right now we've been really open. EX is doing really well, and we believe this is a durable 20%+ grower. It's growing over 20% now, even with the Device42 kind of lapping that acquisition, making the comparison harder. When you look at all the characteristics of that business, it has higher net dollar retention, lower churn, has a higher lifetime value for sure. Cost of acquisition, if you think about fields, is a little bit higher, but the deals are bigger. When you actually look at the LTV and the LTV to CAC, it's much better. When we are looking at capital allocation decisions, we're clearly going to lead towards EX to make sure that we are going to fund that for growth, and we've been doing that. At the same time, CX is still a very meaningful business.
Specifically on top of funnel, the whole goal there is you have to make it much more of a POG motion. You can drive inbound, but conversion rates have to go up, and conversion rates have to be as low touch as possible to make the sales effort as low so that you're really just spending kind of marketing dollars. After that, the conversion will just happen, and then once a customer lands, theoretically, they will expand with you. That has been a lot of our focus. You're spot on. EX, a lot of prioritization there. The economics of that business are great, and we are very well competitively positioned in a very big market there. We want to lean in and capture that.
Great. Let's shift the subject here to AI. Clearly, topic call. You know, whether AI is an accelerant or a risk to your business. Maybe I'd start out with the first question. Looks like it's an accelerant because your business was an early evangelist for AI and quickly gone from 0 - $20 million in ARR in your AI business. How has the uptake of the AI products been compared to your expectations?
First, absolutely, we think it's going to be an accelerant. I would say it's a risk for anybody who doesn't have it. At the end of the day, if you don't have deep AI capabilities in your product across both of our product lines, you're not going to be able to compete. We've known this. We've had AI for years, right? Well before any, you know, kind of LLM ChatGPT announcements. They were all hard-coded bot kind of AI capabilities. Now we look at what we're building on the copilot side and the true agentic side as kind of being at the forefront of AI, but also really focused on providing value to our customers to increase their utility of our products, but also make it a lot easier for them to do their jobs, to service their customers or their employees. That's going to continue to be our focus.
You then look, as we come out with new feature functionality and new products, the pricing and packaging is what is going to evolve a lot from an external perspective because it has to be something that makes sense for us as a company providing these capabilities, but also makes sense for our customers. What we've been trying to do is not come out with new pricing and packaging and then having to change it, you know, a quarter later, which a lot of our competitors have done, which I think is super confusing for customers.
What we're doing, like even with our new AI, our agentic AI capabilities that we released in June, they're all in kind of in limited release right now, making sure that, okay, everything our customers are adopting the way we think they should, that they're providing a lot of utility, and then actually engaging a lot with our customers on talking about pricing and packaging and what that should be. As a result, it should all be a tailwind for us, but it also should be a tailwind for our customers in terms of their savings. It's really who's going to get what portion of that new wallet that's being created, essentially. Savings on one side and then increased revenue for us. These are the things that are going to evolve over time.
Maybe I could ask you the right to win question in AI. How is Freshworks AI differentiated from other services-focused suppliers' AI technologies?
Yeah, I'd say you can put it in a couple of buckets. There are some companies that are coming out and just saying we are only an AI business. If you look at those, I don't think you can point to anything that's replacing a software. They are sitting on top of other folks' software. MoveWorks is mainly sitting on top of ServiceNow. ServiceNow buys them because that is what they saw happening. For us, our right to win is looking at the software we provide that, again, is must-have software, but then injecting AI across all of that software to make it super easy for our customers to use, but also get a lot of value on. In doing so, potentially over time, allowing our customers to realize savings in terms of headcount and other things. That is the way we're approaching it.
We've approached it on two fronts right now, or three fronts. You've got copilot features, which is really focused on making the agents much more productive at their jobs. You have agentic AI agent features, which is at the front end. We do not charge for it on the EX side because it's a captive audience in terms of it's only dealing with your employee base, which is a finite group. It typically is kind of easy to solve things, or should be easy to solve things that your employees are asking internally to IT. What's the Wi-Fi password in the office I just walked into? Things like that. That is on Slack and Teams. Our monetization on the EX side is really on copilot, and then our third on insights. For CX, it's going to be the opposite.
The agentic features are the ones that are really going to be the first line of defense for our customers to engage with their customers. Really, the opportunity set is how do you actually solve the majority of the end customer's issues without any human intervention? Literally start to take actions, which is the new agentic capabilities. For the B2C businesses, these are things like, you know, what is my order status? How do I cancel my order? How do I change my shipping address? How do I do a return? All these kind of things without having to talk to a human. That is evolving really, really fast. When you look at it, it's like looking at every kind of component of the action internally and how do we optimize, help our customers optimize for that.
That's where we feel like we have the right to win because we have, first of all, the audience with 75,000, near 75,000 customers using our products. We can engage with them, and we have a ton of capability with data. We have a lot of data to be able to optimize for those AI capabilities through that engagement. We can also do a lot of testing because we have a lot of data on utility and efficiency. That's our challenge, but also our opportunity set, which we feel we are taking advantage of.
Tyler, a question came in from the field, just in regards to how customers, how your AI technologies are impacting hiring among your customers. Maybe I'll just read the question straightforward. As more customers adopt your copilot and generative AI solutions, what are you seeing in terms of seat count? Are your customers slowing hiring and/or reducing headcount with the productivity gains that they're realizing with your AI technologies?
Yeah, so our agent counts are still going up across both product lines. The number of agents is still going up across both product lines. What's not happening right now is that you see kind of mass reductions in agent counts because the AI capabilities are taking over. That being said, we don't really know if customers would have been hiring more agents and hiring more individuals to service their customer base or their employee base. They haven't had to because of the efficiencies that they're seeing from the AI capabilities. That's the first thing. I can't speak to the hiring rates internally. Second thing is over time, absolutely, the agent counts should go down or they should stay flat if a customer is growing really, really fast.
As a result, that's where I said pricing and packaging has to evolve so that we are going to be rewarded for the capabilities that we're providing our customers. They also should have a lot of savings because they don't have to hire. The cost of that hire should far outweigh the amount we get, but both should win. Logically, for their end customers and their employees, they should win too because it should be a much better customer experience and employee experience. That is the ultimate goal, right, of any company that's providing AI capabilities, that the company provider is being rewarded, the customers are saving money, and the end employees and customers are actually getting a better experience. That's the holy grail. A lot of that will be realized through pricing and packaging.
Let's switch over to the EX business here. The business has been focusing on moving up market here and has been successful so far, selling into larger size businesses, larger deal sizes. We talked about higher lifetime customer values. I guess the question is, why does the up market look underserved, you know, and ripe for disruption? Maybe a follow-up question could be, how would you rate the company's progress so far?
I'd say why does the up market look underserved? I think you have one entrenched player in ServiceNow that really is very, very focused on the super large enterprise that is going to pay them the tens of millions of dollars. As such, they have a very heavy software that's very heavy, hard to maintain and administer, and very expensive. You have a lot of old technologies that are out there that are legacy, that are just not loading anymore or innovative. Yet they're still in, and a lot of them are on premise, and the replacement cycles aren't super rapid. As things come about in terms of degradation of those products, it is an opportunity for us.
In the space, there's just for EX an opportunity for, kind of a lack of a better word, a fresh player to come in with really easy-to-use software that is built on a modern stack that is going to be super easy to administer, yet provide you all those enterprise-grade features, which is what our game plan has been from the very beginning, which I think that the promise of SaaS is, right, something that's super easy to implement and use, yet gives you all the feature functionality. What I say is if you build for the end user, which really means building for the SMB, and then over time you stay true to that DNA as you add feature functionality and as you innovate, then you kind of start to get pulled into deals from larger companies who want to look at you as an alternative.
That's what we've been doing subtly with Freshservice in particular for years now, but just kind of slowly, not trying to go sell to those mega enterprises, but really being pulled in. Now we're in a mode where we are going to go sell, but really focused on that kind of mid-market low enterprise space because we feel we do have the right to win there. As such, we will get pulled into the much larger deals, the 20,000, 30,000 employee organizational deals, where we will win some of those deals, and we have been highlighting some of them. That isn't necessarily the ICP. We feel very comfortable that the TAM in that 5,000 to 10,000 employee org, and then the halo up to 20,000 is a massive TAM that we have the right to win in Freshservice, and we're going to continue to try to capture market there.
Maybe the follow-up question is, where are we on the sales efficiency curve, you know, for the company's initiative to move up market? Are there still changes needed to optimize the sales organization and the platform to service that market?
Yeah, so we announced that Ian Tickle is our Global Field Officer. He's already hired his replacement in Europe, in London. There will absolutely still be kind of investments on the field side. I'd say we're still relatively early days on building out the entire field structure on truly getting into an enterprise sales motion. That isn't just salespeople, it's the SEs that support it. It's the outbound pipeline machine that really becomes predictable. It's the CSMs and AMs and all the enablement that surrounds it. We've been working on that. We also hired a Global SE Leader a couple of months ago, who is already having a really good impact. These are all things that have not been part of the DNA of the company historically that we're building as we go. I don't think it's, we're not reinventing anything here. We have an opportunity.
We also have a lot of folks coming inbound who want these jobs that see in their own companies that we're winning and want to be part of a winning team. That's our thing now, it's about execution and building it out. From an investment perspective, absolutely, it costs some money. We built all of that in. We said we're going to lean into some of these costs. We have the opportunity because we've also been doing well. In the first half of the year, we beat all of our numbers. The question is, okay, we've been open and we're going to take some of that as we reinvest it. Still overperforming as a result. I think you should expect us to continue to do that.
In terms of product trends, I think you mentioned you have almost 75,000 customers today. How penetrated is the customer base on a product basis?
From the EX side, I think it's, you know, we're not there yet. We have a lot of runway to go. Again, at the low end, we are selling to, you know, employee organizations of like 250 people. We are going to be their very first EX solution, and they can just put it in and start going immediately. At the high end, we're closing deals of 20,000, 30,000 employee organizations and doing, you know, full rip and replaces of ServiceNow or, you know, BMC Remedy or something like that. There's greenfield on one side, there's legacy replacement in the middle, and then there's, you know, taking enterprise share from players at the high end. In that space, that TAM is there and it's growing. At the same time, it's about adjacency.
When we think about EX, we've got Device42, which gets us, you know, enterprise-grade asset management capabilities that customers need. We also have been rolling out ESM, which is employee service management. That's selling to functions outside of IT, starting really with HR. Then you typically move to kind of finance and facilities. That's a massive TAM and one we're just starting on. Also, one that we've been pretty open about. We have the ESM capabilities, but we don't have the pre-built workflows and things like that. Customers are buying. Once we get a lot of those workflows in there as well, starting landing with that product, which we don't today. All we do is sell it into our Freshservice customers.
That I think is a huge opportunity for us, whether it's going to be a Trojan horse opportunity to get into really large organizations and prove out that we can meet that need and then move into Freshservice or an expansion of opportunity into other Freshservice accounts that are out there. From that perspective, I think we have a long ways to go. We're still pretty small, right? We're not, you know, ServiceNow can make their, you know, that's one deal for us to make a quarter, right? From that perspective, that's fine. We're just going to keep trudging along and try to, you know, grow at a faster pace.
No, it sounds good. The strategy sounds very similar with ServiceNow. We've seen how successful they've been moving into adjacencies. Tyler, I had a question that came in from the field on the M&A strategy. I guess the question, as I'll just read it, what is more interesting from an M&A perspective within that EX business? Is it going deeper into security operations, or going deeper into IT operations? Or maybe there's a third leg here in going deeper into adjacencies and building out workflows into different adjacencies. Possible stack rank, what looks most interesting?
No, I mean, I think Device42 is a great example. It was the first deal we've really done. The company had bought, we had bought companies in the past. I've been here five and a half years. It's the first deal we did since I've been here. We closed one right before I joined. They had really tended to be really small teams in the past. Device42 was the first that was a true technology out of the box that we could take and sell with a customer base. It was a great example of an adjacency that we knew we needed. We needed enterprise-grade ITAM. We have Freshservice that has a light ITAM solution. It was really a build or buy. How long does it take us to get there? Could we accelerate that? When we look at the adjacencies specific to Freshservice, we've talked about security operations.
We've talked about ITOM. We talked about some other areas that we could move into. It's going to be, those will be build or buy conversations. We have to stay true, we have to have a strategy of how this makes sense for our customer base. As a SaaS provider, I have to have a vision for how we would actually make it a seamless product, which we painted out that vision for Device42 as well. On top of that, there's also a whole bunch of AI acceleration stuff that we've said we've been open to look at. These are companies that could accelerate workflow building and everything else. We've always been consistent that we will look at M&A and we'll consistently look at it. We have a team dedicated to looking into opportunities that work very close with our product group. We'll be open to it.
It just has to make sense from an efficiency perspective, but also from a product strategy perspective. We're going to stay true to that. It's not something that we're adding companies every single quarter. We've just been consistently looking, working with the product group, working with our product roadmap, and talking to a lot of companies, both on the inbound and the outbound side.
Maybe to finish it up with the last question that came in from the field too, it is about the Investor Day. Next month, for everyone who's listening, on September 11th in San Francisco, Freshworks is going to be holding an Investor Day. It's been a couple of years since they've had their last Investor Day. Clearly, this is going to be a special event. Is there any previews maybe for investors, what they could expect next month from the event?
Yeah, so everyone, thank you for the plug. And Brian, thank you for the extra highlights. Yes, September 11th, Investor Day. It's a Thursday in San Francisco. We hope everybody can attend either in person or virtually. We did our last Investor Day two years ago. That was our first Investor Day after going public. At that time, we kind of painted out some three-year visions and gave a little bit more information by product on what we're doing. I think this is just going to be an update to that. We've been subtly giving out more. Like we give the ARR ranges now every quarter of what the products are doing. We can give a little bit more information on our AI capabilities.
I would just consider Investor Day number one kind of be a, you know, there's going to be a product session to see kind of where we're going product-wise and product strategy-wise. We just did a lot of this at our refresh event in London in June. A lot of that is, you know, we'll kind of reshow for the investors and make sure everybody saw everything we announced. From a kind of a long-range plan, we'll do an update. The last one we did was two years ago, and that was a three-year plan. We have to update that now with everything we're doing and kind of what some of our goals are financially. We're obviously going to talk about some of that. We'll give some go-to-market updates as well.
Hopefully, it's going to be a very valuable use of time for folks to give a little bit more insight into how we're doing and then, you know, product-wise as well. We're looking forward to it.
We are out of time. I want to make sure to keep Tyler on track because he's got a full day of meetings here ahead of him. I want to thank you very much for presenting Freshworks. It was great to see you again.
Yeah, you too, Brian. Thanks for having us, man. Always good to see you. Thanks, buddy.