Freshworks, Inc. Earnings Call Reveals Strong Growth

Freshworks, Inc. Class A ((FRSH)) has held its Q4 earnings call. Read on for the main highlights of the call.

The earnings call for Freshworks, Inc. Class A was marked by an overall positive sentiment, underscoring significant achievements in revenue growth and expansion of its customer base. Notably, there was a strong focus on AI product adoption, which, along with robust operating margins and free cash flow, presented a promising outlook. Despite challenges like FX impacts and pressures on net dollar retention, the overwhelming positives suggested a strong performance with ample room for future growth.

Strong Revenue Growth

Freshworks reported a remarkable 22% increase in revenue year-over-year for Q4, amounting to $194.6 million, which exceeded expectations. This growth was consistent throughout the full year 2024, driven by substantial advancements across key segments of the company.

Customer Base Expansion

The company ended the year with an impressive tally of over 72,200 customers, adding more than 2,600 net new customers in Q4 alone. This represents the largest quarterly increase in four years, highlighting Freshworks’ success in expanding its market reach.

Employee Experience (EX) Business Growth

Freshworks’ EX business saw significant success, surpassing $400 million in annual recurring revenue (ARR). This represents a 35% year-over-year growth on a constant currency basis, with a strong focus on mid-market and enterprise customers.

AI Product Adoption

The company’s AI product, Freddy Copilot, ended the year with over 2,200 customers, reflecting a 30% growth quarter-over-quarter. Notably, there was over a 50% attach rate for new deals of $30,000 or more, underscoring the growing importance of AI in Freshworks’ strategic initiatives.

Strategic Partnerships and New Customers

Freshworks announced a new strategic agreement with Unisys and successfully onboarded several prominent customers, including Airbus, AMC Networks, and New Balance. These partnerships are expected to further bolster the company’s growth trajectory.

Record Operating Margin and Free Cash Flow

The company achieved a record non-GAAP operating margin of 21% in Q4 and an adjusted free cash flow of $41.7 million, marking a 46% increase year-over-year. These metrics highlight Freshworks’ operational efficiency and financial strength.

FX Impact on Results

FX rates negatively impacted ARR growth by 3 percentage points, translating to a $17.5 million reduction. This was a significant challenge noted during the earnings call, affecting overall financial performance.

Pressure on Net Dollar Retention

There was a slight decrease in the net dollar retention rate, with expectations of continued pressure due to constraints in expanding customer accounts. This is an area the company is likely to focus on improving in the future.

Challenges in Larger Customer Cohort Growth

Growth among customers contributing more than $50,000 in ARR was slower, partly due to FX impacts and fewer but larger deals. This remains a challenge for Freshworks as it seeks to optimize its growth strategy.

Forward-Looking Guidance

Looking ahead, Freshworks provided optimistic revenue guidance for Q1 2025 in the range of $190 million to $193 million, expecting a 15% to 17% year-over-year increase. For the entire year 2025, the company anticipates revenue between $809 million and $821 million, reflecting a 12% to 14% growth. Additionally, Freshworks aims to generate approximately $210 million in free cash flow.

In conclusion, Freshworks, Inc. Class A delivered a robust earnings report, underlined by strong revenue growth and customer expansion. While challenges such as FX impacts and retention pressures were noted, the company’s strategic focus on AI and strategic partnerships positioned it well for continued success. Investors and market enthusiasts should keep an eye on Freshworks as it continues to navigate its growth trajectory with a promising outlook.