Greetings! I want to thank everyone who's dialed in for today's presentation. It's day two of the Oppenheimer's 26th Annual Technology, Internet, and Communication Conference. I'm thrilled to have with me Freshworks, and presenting for the company is the Chief Financial Officer, Tyler Sloat. Tyler, welcome, we're really glad to have you here. It's been a really good year here for the business, maybe we have some new listeners on the call here today. Is it okay to maybe just, in terms of level-setting the discussion, share with the audience from a really high, 20,000-feet view, you know, a brief company background and, and the problems the company is solving for your customers?
Absolutely. First of all, Brian, thanks for having us. We're excited to be here. We've been doing this a long time with you, so it's great, another year. Freshworks. Freshworks, we're a software company. We were founded in 2010, kind of when the promise of SaaS was supposed to be, you know, modern, fast, great user experience software. What our founder had seen, first of all, driven by a customer service experience that he experienced himself, is that, you know, a lot of these softwares actually become pretty bloated and weren't, you know, had gone away from that promise. He says, "It's time to build something new." We started with Freshdesk, which was, you know, kind of a modern alternative to support software at the time.
Really thinking about the end user, not necessarily the C-suite, but really the users of the product, and really designing it for them. Over time, we've stayed true to that DNA, meaning that that's reflective in the usability of the product, the user experience, but also the onboarding, but also what we consider it to be kind of the TCO. You know, really thinking about the SMB first and building for that customer base. What has happened then over time is that we've continued to innovate, and we have a technical advantage because a lot of our employee base is in India, and it always has been. We were founded out of India, but really always been a US company, but founded out of India, and the heartbeat of our company is still in Chennai.
That technical advantage allows us to innovate really, really fast, and that's been, also our ability to have multiple products, but also to be able to keep ahead in terms of what the latest in innovation is. We moved from customer support software, and really thinking about, you know, the customer first and the user of the software itself, but really, how, how are customers engaging with their vendors, which really turned to more conversational messaging as opposed to traditional ticketing, which has been a, a big focus of ours. We saw a bunch of our customers using our support software, Freshdesk, for internal IT use, and we said, "Okay, that's great, but you actually really need a purpose-built solution." We built Freshservice from scratch, to be, you know, a purpose-built ITSM solution.
That is now, you know, a product that's really positioned competitively really, really well, and there's great market dynamics for our Freshservice product, which we've said is our fastest-growing product and our largest contributor to ARR. We then think there's the same opportunity in, in CRM, and so we, you know, started with Freshsales, and then added Freshmarketer to it. Now we have, you know, brought over with our announcement last week, you know, our Freshchat product onto what we call our UCR, which is our Unified Customer Record, and fully integrated that with Freshdesk. We can provide a seamless solution for marketing all the way through to support for our customers, which we're very, very excited about.
Three, three main product lines playing in huge markets, servicing, kind of the SMB all the way up to the enterprise, but really more low enterprise is what we're, we're really focused on, and doing it on a global basis. We think we have a huge opportunity in front of us and, and a great opportunity to grow.
That was a great back- background. That was perfect level set for our conversation. Let me ask you another kind of broad question here. Just what are some of the things that have you most excited these days for Freshworks?
Yeah. First of all, I'm really proud of our Q2 performance. We've been able to, you know, let's call it weather any kind of macro pressures over the last year and a half. We actually started talking about it at the end of our Q1 2022 call, which we've said, "Hey, we, we see some pressure on expansion, and SMB globally is seeing some pressure." We may never come out of that. New businesses continue to be strong, even though our expansion motion has come down a bit. At the same time, we've kind of moved to, you know, operational efficiency. We really put up great numbers on, on free cash flow and on GAAP operating income, and we're gonna continue to do that while focusing on growth. I think the execution across the board has been really exciting.
The things I get most excited about are the continued innovation that we're doing, some of the AI initiatives that we have rolled out, but also, you know, the new products outside of AI, like Freshservice for Business Teams, which is playing in the ITSM space, but the adjacent functions for internal employee-facing products that we have. You know, those are huge markets that we're really just starting to, to go into and getting good reception from our current customer base. Lots of things to be excited about.
great. I want to ask you just a question on how you balance the investment side of the growth initiatives. You talked about you have these 3 big product lines. We'll even call them product fa- families. How do you ma- how do you balance the investment, the product investment, the go-to-market investment, in these different business segments? Then since you're the CFO, if we do see a mix shift at all in these different product lines, you know, does that have a potential impact on the margins?
Yeah, so we have 3 main products that you just described. We also have 3 go-to-market motions. We have an inbound motion, which really feeds 100% of our SMB customer base. SMB for us is 250 employees and below, and also that bleeds over and feeds some of our mid-market and enterprise customer pipeline as well. We have an outbound motion, which is really, think of it as, you know, field sales, that we've built out presence mainly throughout North America and Europe, but parts of Asia as well, that are, are, you know, more traditional sales. So there's, you know, SDRs, building pipe BDRs, SDRs, SEs, sales reps. They tend to be more inside sales than, than big enterprise reps, but that's an outbound motion.
Then we have a partner motion that we're, you know, have hundreds of partners globally that we're really utilizing primarily in geos that we don't have physical presence, or in areas that can supplement, you know, our, our onboarding and things like that. So think about these 3 products across 3 go-to-market motions. When I think about investment, right? We have been building out the field, which is probably the biggest investment when you think about human capital, for the last 2 years. It really has been kind of a new muscle for the company, 'cause the company was built on inbound SMB first, and then kind of moved up from there. So we, we have a lot of what I would call an almost sunk cost, really, we have it there.
Coming into this year, we had the opportunity to tweak a lot of that. We talked about, okay, we're making changes to some of the, the, the, the, the field motions that we're doing. We're making sure we're being efficient there. We've added a lot of new leadership there, but we already had invested a lot, so it was a lot of tweaking as opposed to new investment. I think we've done a really good job of say, "Okay, let's make those tweaks." It doesn't mean spending more, hiring more necessarily. It really means making sure we have the right people in the right places.
On the inbound side, it has a lot to do with digital and how we build that, that, that top end of the funnel, as well as optimizing for organic search, then optimizing for what would drive the PLG motion, which is that product-led growth, which is really the in-trial experiences, and we're very focused on that. Then we've also hired a new head of partners over the last, you know, kind of six to nine months, and he's building out a team. Really, I think there's a lot of upside what we can do with our, with our partner group. When we think about go-to-market, we are absolutely continuing to fund, you know, fund and invest in go-to-market, and we'll continue to do so, but we've been very focused on efficiencies there and what we get back for every dollar we put in.
On the other functions, last year, we talked about, like. I, I already mentioned one of, you know, one of our advantages that we have access to a highly technical human capital base in India, and we have been hiring, you know, really a lot, kind of quarter-over-quarter. If you look at how many employees we have, you know, on a per-revenue basis compared to some of our, our, say, Bay Area SaaS peers, we're, we're much higher. That's also what's been allowed us to have three, you know, main products, and being able to innovate like that. What we were able to do is really, okay, let's make sure we, we're hiring really prudently, hiring the right people, and being pretty selective.
We did slow down some hiring, which has helped us, but we didn't have to do any dramatic changes in the inverse of hiring or letting go. That's really been, you know, something we're gonna continue to progress on. This balance of bottom-line efficiency versus growth, it is about, hey, thinking about how can we do both, right? How can we continue to become more efficient, produce more cash, produce more non-GAAP operating income, but also make sure we are, you know, fueling our go-to-market motions, which we do think we have the capability to do both. What I've said is that the changes that we've made to free cash flow and non-GAAP operating income this year, they won't be as dramatic next year, right? We shouldn't expect that.
We will continue to progress, then theoretically, how do we, you know, grow revenue faster than we grow our expense lines? It's just a good rule of thumb, I think.
Yep. No, sounds good. Glad you pointed that out, too. You don't want our models up at 200% operating margins in five years.
Mm-hmm.
Yeah, on it. Tyler, can I, I wanna just ask you the, the macro update question. I know our, our listeners are interested in it, maybe I'll phrase it this way. You know, the business reported really strong 2Q results last week, last week. What can you share with us in terms of, you know, what you're seeing or monitoring in terms of demand trends across your, your core end markets and, and possibly geographies, if you could shed any light on that?
Yeah. I think if you look broadly when we say macro, we talked about the biggest impact starting at the beginning of last year. When you think about one of the biggest drivers for growth for us was expansion. The expansion, so we land, you know, we can land relatively small and then really grow with our customer base. The expansion motion was really driven by agent addition. As a customer hires new employees, so if they're on a support side, they're hiring new support agents, things like that. If it's on the Freshservice side, they're hiring new IT individuals, they are having to buy new, new agents. That slowed down, you know, pretty dramatically over last year, and we've been pretty open about that.
As a result, our expansion motion, then our net dollar retention decreased, right? We were at, you know, kind of this 115, 114 when public we said, "Hey, think of us as a 110 net dollar retention," 'cause that's where we think the, the normal rate is, and we're now at 107, 108, and we think it's gonna come down to 105, 106, just the way the numbers work. That has been an impact to us. The flip side, though, we've been able to really have some really great progress on new customer growth, and that new customer will fuel future expansion. The biggest impact to us from macro has been on that expansion motion.
I think we've weathered that pretty well, and we were the, one of the first ones to talk about it over a year ago, and really have built it all into, you know, our numbers now. Going forward, what we're very focused on is how do we grow with our customer base outside of agent addition? So that's either gonna be a combination of cross-selling, which I don't think we've done an incredible job of in the past, and I think we have, you know, we have a huge opportunity there. Moving customers up the edition stack, you know, to get access to increased feature functionality. Adding new products, clearly, is, is another one that we can, you know, gain more revenue from our customers if we provide them, you know, access to great new products.
The last one is a little bit of price taking, which we've never really used price as a leverage in the past, we've, you know, done it slightly, a little bit with one of our products this year and really seen very little impact in terms of churn or anything else. When you look at that, that's how we're trying to, you know, look at macro and say, "Okay, how can we rejuvenate expansion?" Assuming that, you know, customers are, aren't gonna just go back to hiring. If they go back to hiring, that's great, we will be able to benefit from that, but we shouldn't be able to count on that. When you look at, you know, broader, like, what areas?
I'd say APMEA, like, you know, kind of the broader APAC regions probably have had the highest impact from a macro. Initially, at the beginning of last year, it was really Europe, and I think that, you know, it feels better now there. North America, you know, is strong. I think for us, what's interesting is that we're playing in such three huge markets, and we're still relatively small across all those markets. We have plenty areas to grow regardless of what's happening from a macro perspective on a new business side. So we just have to continue to be really good at innovating and then getting great at bringing those products to market.
Yeah, That, that was real helpful, Tyler. I appreciate that. Let's bring it back to a company-specific initiative in terms of the move-up market and that strategy. Again, it's been more than a year. The business has been focusing on moving upmarket, acquiring larger-sized business, bigger-sized deals. A couple questions on that. I'll just start with the first one: Why does that market look underserved or at least ripe for disruption these days?
Yeah. I do want to clarify, when we talk about, you know, moving upmarket, it's not like we're focused on, say, Fortune 500 or something like that. We're really focused on the Fortune 500,000, right? It's driven by two things. Number one, we now have the right to go engage with larger customers 'cause our products have the feature functionality and everything that those customers need. That, that's our first thing, specifically Freshservice and Freshdesk. Freshservice, which has been a huge driver of growth for us, is just really positioned well competitively. If you think about ServiceNow, which has been very open about focusing on very, very large companies, you think about at the lower end, you've got Jira Service Management, and you've got ManageEngine, which is really focused on, you know, a lot of SMBs.
Then you have a lot of legacy on the side, which is the BMC, Ivanti, Cherwell, Remedy kind of stuff. We are regarded as kind of the number one SaaS enterprise alternative outside of ServiceNow, and we have been leaning in and absolutely will continue to take advantage of that. Been getting, you know, great response from customers, whether it's takeouts of legacy or customers, you know, getting off of ServiceNow because we can demonstrate that we can do what they need while saving them a ton of money or greenfield. We're seeing, you know, at the high end of SMB, SMB for us is 250 employees and below.
At that high end of SMB, you know, companies who are purchasing their first ITSM solution, we can come in there, give it to them at a great price, but also get them live very, very quickly, which is in the DNA of how we build software. You know, demonstrate over time that we can, you know, provide them all the feature functionality that we need. It's just really, really well, competitively positioned at Freshservice. Freshdesk is kind of same thing, right? There's been a lot of noise in that whole support market, you know, from Zendesk kind of going private. Salesforce is still the behemoth, but what's really happening is that the whole market has changed because the way end users or end customers engage with their vendors has completely changed.
Just move away from ticketing and email and calling to more conversational support, and that's something that, you know, G and our product leader saw years ago, and that's why we moved more to things like Freshchat and then supporting mediums like WhatsApp and Apple Business Chat and things like that. Now with, you know, a lot of our new AI stuff around what we call Freddy Self Service and trying to enable a lot of those, those interactions to be, you know, solved seamlessly, which is best for the end customer as well as our, our customers.
That is where we are leaning in, and that's where we think the market will continue to go, and then we feel like, "Okay, we saw this, so we started building it." It has allowed some point players to come up, but we are the ones that still can provide a full omnichannel experience, where we have traditional ticketing through our Desk product, now chat and capabilities to bring your own caller, or we have a Freshcaller product and have this full omnichannel experience. We're excited about continuing to lean in there and capture more market there as well.
How far along are you in terms of the sales efficiency curve, you know, for this initiative? Are there still meaningful changes that are needed to optimize the sales organization or even the platform to serve, you know, slightly larger customers than they did in the past?
Yeah, I mean, we've built out the field, kind of mainly North America and Europe, but I'd say we're tweaking, right? We're gonna continue to tweak and make changes, and I think that's necessary. It really is focused on, do we have the right people in the right places, but are we attacking the markets in the right places? Can we change the way we market? Can we shift dollars from digital to field to programs, everything else? We're gonna continue to tweak along those lines. We're also very focused on that inbound, and how do we continue to optimize inbound? Which is very important for us, especially capturing the SMB. That's a continual journey, right? You have to continually look at your, your, your in-app experiences through trial, everything else, and continue to tweak those.
You have to look at how you optimize for organic search. We're not done at all. Do I think we still have efficiencies to go? Absolutely. I, I don't think we're as efficient as we can be, but that being said, I also believe, and I know we need to make investments to be able to get there. We're not gonna sacrifice growth for profits. We're gonna try to do both, and we're gonna continue to invest, but we are gonna push the teams to be as efficient as possible.
Hello, let's talk a little bit about products and, and kind of the trends. You've done a great job, you know, level setting all the different products that the company talks about. Maybe we'll start with penetration. How do you think about the, the product penetration opportunity within the install base? Is, is there an average per product or, or a package that how you think about that opportunity?
Do you mean the, for current customers, like how?
Yeah.
DPUI?
Current install base, how do you expand the penetration or even move them up in, into higher price tiers? How much room do you, do you see there?
Yeah, I think there's, there's space. I mean, again, the different products act differently. Freshdesk plays from, from, which is Customer Service Suite, plays from the SMB all the way up. Actually, our largest customers tend to be support customers who are B2C businesses with high agent counts. A lot of those customers started with, you know, you know, whether they started as small companies and grew, or we started with divisions of support, and we've actually expanded. That opportunity, it's still part of our sales motion. We're not landing with huge deals, and we oftentimes don't land with with, like, a full company thing if it's a very large... We have some very large customers in terms of very big customers, we might have smaller deployments there.
I think we have a huge opportunity to go prove success and then go proliferate that out. On Freshservice, it's a little bit different, though, where we are taking over, you know, kind of a full ITSM capability for a lot of our customers. On the same side, we're also landing, in some cases, in subs that might be ServiceNow shops.
Mm
... that, that group, like, they couldn't spend $1 million to go put in a, a small IT solution internally. We can get in there for $50,000 and demonstrate that to them, then we use that as a Trojan horse to get in, to prove out success throughout the entire organization. That is like... we're just scratching the surface on that kind of stuff. Now with Freshservice for Business Teams, which really is a new product over the last couple of quarters, that one is another way we can enter, 'cause that's gonna enter into the HR departments, into the finance departments, the procurement departments, the facilities departments, and demonstrate success there. Then, you know, we'll hopefully proliferate. Even if it's just within those other functions, that'll be just fine because there's a lot of revenue to be gained there.
I think there's tons of opportunity. I talked about, you know, 2 other things, is like, we'll add on products, we're gonna continue to do that and get the add-ons. Right now, we're at 25% of our customer base had used more than 1 product. That really is driven by add-ons. It's not really customers using more than 1 of our persona products or 1 of our 3 main. Cross-selling, which should be across those 3 main, we haven't been incredibly good at it, we're now starting to focus on that, that, I think, is a huge opportunity for us. Price, like I mentioned earlier, like, we've been, Part of the DNA of the company is really provide great software at a great value, that's gonna continue.
What that's meant is that over time, like, you know, we've added feature functionality for years across all of our products. We haven't necessarily increased price or, or asked more from the customers who have been there for years. Freshservice, in particular, which we've innovated a ton on, we said, "Okay," you know, at the beginning of this year, we raised prices by, like, 4%. Then we looked at our customer base, and as they've come up for renewal, I don't think about it as raising prices, I just think about more reducing discounts. Ones that had, you know, really dramatic discounts, where we've given them a, a, a ton of new functionality over the years, it's like, ask them to pay a slightly more amount. We've gotten very little pushback on that.
I think that is just emblematic of, okay, there's a lot of value to me there. That continues, right? I mean, like, we're not continuing to increase price, but Freshservice tends to be annual deals, and so every quarter, think about it as like 25% is coming up for renewal. That's gonna continue, and then obviously, the new customers that we're bringing on board, they're, they're paying a slightly different price. This is all being reflected in, you know, higher ARPUs across the board every single quarter, for, for, you know, the, the recent history, and we're gonna continue to, to try to push that.
Rob-
I do want to be clear, though, Brian, on that, 'cause I've had some vendors come to us where we've had some renewals of software that prices are literally going up 50%, 100%, and I, I think that's egregious. What it's doing is it's really making CFOs think about, "Hey, I'm gonna get off this product, because I don't think that's a great partnership." We are not doing that, and we don't have any intention of doing that.
Yeah, that's really sticking it to the customer.
Mm-hmm. I think so.
Good for you. Good for Freshworks business. Hey, wanted to switch topics now and wanted to talk about Freddy, and I'm not talking about Freddie Mercury from Queen.
Mm-hmm
... but, talking about your, your generative AI platform. You know, you had a big, big announcement. You've been in AI for, for, for a long time, the, the business. You know, I guess it's 2 months ago, it was in June, you announced significant product updates and expansion to the Freddy AI platform. Maybe we'll just start level setting. Can you maybe share some of the common use cases? You know, we can understand the real-life value creation of AI in your end market.
Yeah, so as you mentioned, we've had Freddy, which is, like, our little name for our kind of internal AI. Freddy has been driven mainly from, you know, all the data that we have internally, so think about it as a small language model. Now with ChatGPT, it's like, okay, how do we take all the data we have internally, but then supplement it, obviously, with what we can learn from ChatGPT and segregate out those things? I wanna be clear, we're not sharing any of our customer data out. We have the segregation. Really create products that are gonna provide a lot more value to our customers, and so we really have announced three different things. First is Freddy Self Service, the next is Freddy Copilot, and the third is Freddy Insights.
Let me go through each one, 'cause you asked, like, how is this gonna be reflected in the products? Think about these as not products, but more features and functionalities and things like that. Freddy Self Service is really gonna be utilized most in chat, what I anticipate, and right now, we have our Freshchat product, which we changed the pricing on last week, that really, you know, came with a whole bunch of bot sessions entitled. When you bought a Freshchat user, you got a bunch of bot sessions, and then as you, as you use those, you had to buy new packs of bots. The bots are what enables a, a end customer conversation to happen with, you know, our customers on, let's call it, level one, level two type of support things without any human intervention, right?
You ask a question, it can reply back to you immediately, understanding what you're asking and giving you a, an intelligent response. With new ChatGPT, those responses can be much more intelligent, much more insightful, and then combining that with our, obviously, internal knowledge about that customer themselves, and then everything we know about support, being able to really provide our customers a way to really efficiently engage with their end customers and doing a great experience. Our expectation is that, is that this is gonna increase bot usage. What we've done is we changed the entitlements on bots, so that when you buy a Freshchat user, you actually get a lot fewer bots included and increase the price on additional bot packs. Historically, we've actually not been focused on monetizing bots. We've really been focused on the utilization of bots.
We wanted our customers to use it. As you know, for AI, you have to train all these models, so the more usage you have, the more they get trained, and then the smarter they get. So we've been very focused on that. Now we're saying, "Okay, Freddy Self Service, the monetization is gonna come through bot sessions primarily. We've just, you know, increased the price." This is already. The price has already been rolled out. We haven't announced when exactly all of the AI features are gonna be in Freddy Self Service or available through Freddy Self Service and bots. It's already starting. We're already beta-ing this a lot with our customers. I wanna be clear that because we just changed the price, this is gonna be reflective.
This is for new customers coming on board. As companies come up for renewal, we'll be, you know, migrating them to the, the latest and greatest of chat and then, you know, essentially changing price, but it's gonna take a while for that to filter through. I haven't built any expectations into our numbers on this, but I'm really excited about what can happen there. The second is Freddy Copilot, and the thing about Freddy Copilot is the first one was Freddy Self Service, how do we create a end customer experience through self-service? Second is, for agents, how can we actually make them much better at their jobs?
Freddy Copilot essentially is gonna be, you know, think about it as an assistant sitting with the agent and doing things like auto-complete or rephraser, you know, natural language conversion into different languages and things like that. That capability, we, we said, "Okay, the price is gonna be an add-on pack of $29.99 or $29," and that's gonna be available. We haven't announced a date. That'll be, you know, become GA, hopefully towards the end of this year. Again, we're already beta-ing with a bunch of customers.
Again, we wanna make sure that the models are completely trained, we can demonstrate a lot of value, which would then, you know, justify the price, and then really can go in to our customers, number one, show them that, "Okay, we can make your agents much more efficient," but two, provide a great experience for your end customers. In doing so, right, the expectation is that they actually would need fewer agents, but we, we came up with $29 by looking, "Okay, what do we, what do we know about the customer support world?" Which we know a lot. How do we actually demonstrate that. I'm sorry, my video froze, so I'm gonna redo it. How can we demonstrate that through fewer agents, you can save money?
We might have a lower agent cost, but through the add-on pack, we can actually make more. The goal here is to be able to demonstrate that our customers can save money, but we can actually have more revenue. It's not gonna be perfect. We're gonna have to learn some things through that, but we actually, that's how we came up with that first price. The third is Freddy Insights. Freddy Insights is, you know, we've, we've talked more about, okay, what we're building, but there's no date or pricing yet. We're figuring it out. This one is gonna be one that's really about, okay, how the management of the entire, say, support function or ITSM function through insights into your entire customer base, but also your, how your agents are doing and everything else.
That, that one, I'm pretty excited about, but that's, that's the third, and it's coming, you know, behind the other two.
Sorry, I was muted. First of all, Tyler, we hear you fine, just to let you know.
Okay, great.
Uh-
Yeah, I don't know what's going on with the video.
Yeah, yeah, we hear, hear you fine. I, I think you answered the question, 'cause I was gonna ask you when you thought that Freddy and the AI strategy can move the financial needle, but I, I think you said, even though maybe you do have internal plans, but I think you, you did say that you haven't built anything in yet, so this is all potential gravy, I guess, in the current plan. Are you back?
exactly. yeah-
Okay
... I just, I took the background away. Exactly. We haven't built in the revenue or potential upside. We, we- there's gonna be a lot of learnings here, but I think that we're excited. we're- I've seen the products, right? They're all on beta, and I think it's gonna be pretty exciting.
Yeah. Terrific. One follow-up question just on the NRR, or the install base, spending opportunity. You know, you mentioned that, you know, in the past, the company has been at 115%. Actually, still we're kind of there on constant currency, too. In terms of the hiring market, in terms of IT spending trends, obviously, you can't control that. But you can control pricing, and you can control your cross-selling initiatives and, and strategies. I guess the question is: is it possible for, for the business to get back to, to near those type of rates without having the improvement in the stuff that you can't control, the macro or the hiring? Obviously, that would help, Tyler, but.
Yeah
... is it possible to-
Yeah.
on your own?
Yeah, so I, I look at this as I look, okay, there's 2 sides to the same coin, right? One is churn, and one is expansion. On the churn side, when we went public, we said, "Hey, we're, we're kind of low 20s % dollar churn as a company." I think we've done a really good job of kind of moving. That is not one that you can move quickly, but what we've done is we've been able to bring that down to kind of high teens to mid-teens on churn. We've already got, you know, basis point improvement in net dollar retention just purely on churn reduction. I still think we have some, some improvements to go there. Again, it's gonna be very slow. We've said that, you know, churn slightly ticked up this past quarter.
We had expected it to tick up in Q1, but it didn't, but it didn't tick up as much as we thought. It had been stable the quarter before that, then we had been making good progress on churn before that. We're trying to keep it stable and make improvements. That's gonna be driven by, again, moving to larger deals with larger customers. They tend to pay annually in advance. They tend to be stickier, also the Freshservice, which is the fastest-growing ARR product, has great churn characteristics and just great characteristics to it in general. That one we're gonna continue to do. That's one side of the coin. The other side of the coin is the expansion, which we're being very open about.
Okay, our expansion motion, which was largely dominated by agent addition, and still is, you know, really, you know, got hit with macro and companies stopping hire. We are very focused on how do we grow with our customer base outside of agent addition. Yes, I do think there's opportunity, once we stabilize, let's say, this 105, 106, to actually start growing with our customers outside of agent addition while making slight improvements to churn to slowly get us back up. We want. You know, the investor base, we think we should be 110. We think we should be able to get back there, and then after that, it's gonna be a combination of, okay, what's really hitting on cross-sell motion and on new products? Then if agent addition comes back at all, it's all gonna be gravy on top of it.
Sounds good. Tyler, last question that I wanted to ask you here today. maybe it's a little bit more... Ultimately gets to, to the operating leverage, and maybe it's a little bit more of a medium-term question. It's on the potential for, you know, the company to get back to being a Rule of 40 business profile. The reason I ask it is the company's been there before. When it was private, and it was-
Mm-hmm
... growing like a rocket ship, you know, it, it was at the Rule of 40 on, on a very, very high growth rate. Now, you know, as it's scaled a lot, the question I wanted to ask you is, you know, at some point in the future when the company, you know, becomes a billion-dollar revenue run rates, on what's likely a more balanced growth and profits margin profile, you know, can you still get back to the Rule of 40? The question is kind of where, where do you see the most leverage in the model moving forward?
Yeah. Thanks for asking that, Brian. We have an investor day on September 7th. We are gonna update, kind of, how, how do we want the investor to think about us mid- and long-term, and kind of update that, you know, that model we kind of had at the IPO in terms of what growth and operating margins should look like. If I look at for this year, we are very focused on Rule of 40, and how do we get there, but also, you know, how does that break down? If you think about this year, we just guided to $60 million of free cash flow on just under $600 million of revenues. You got 10 points of your Rule of 40 there. We've guided to 19% growth, right?
That's, you know, that's 29, you know, that we're there. We're not happy with 19% growth. Let's be really clear. Nobody gets super excited about that. We're obviously focused on how do we, you know, accelerate growth. On the free cash flow margin, yes, we're gonna have some leverage there, but when we think about Rule of 40, the goal is that, you know, we want the majority of that 40 to be coming from growth, right? Not necessarily from free cash flow. We do think it's important to have it from both. There has to be a big component. We're gonna outline how we're gonna get there. We feel we have line of sight to do that.
You know, in the midterm, we're, we're getting more leverage from free cash flow than we are from growth right now, but we do want to see, you know, how do we transition to actually, you know, re-accelerate our, our growth engines. You know, that's obviously what the company is very, very focused on.
Okay, we'll stay, we'll stay tuned. We don't want to steal the thunder from June-
Mm-hmm
... out there.
Okay.
Tyler, remind our audience again, when are you having this?
Yeah, September 7th in San Francisco. It'll be webcast, but also live. We, you know, we, we'd love investors to show up. It'll be at the Nasdaq site in San Francisco on September 7th.
Yeah. Well, I appreciate it. Well, we're out of time, Tyler. I want to thank you very much. You know, congratulations on all the business, momentum and the good stuff happening this year at Freshworks. We'll look forward to seeing you next year.
Awesome, Brian. Thanks again for having us. We appreciate it.